(ICON)
Prudential
Pacific
Growth
Fund, Inc.
ANNUAL
REPORT
Oct. 31, 1998
(LOGO)
<PAGE>
Prudential Pacific Growth Fund, Inc.
Performance At A Glance.
Over the 12 months ended October 31, 1998, Asian economies went into recession
and Pacific stock prices plummeted as investors avoided whatever uncertainty
they could. Although we couldn't prevent a substantial decline in our holdings,
the Prudential Pacific Growth Fund beat the average Pacific Region Fund by six
percentage points, as measured by Lipper, Inc. We accomplished that by taking a
defensive position early, holding high cash balances, hedging our currency and
some stock market exposures, and focusing on countries and industries that were
relatively buffered from the regional economy.
Cumulative Total Returns1 As of 10/31/98
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -15.53% -32.21% 9.29%
Class B -16.32 -34.65 4.32
Class C -16.32 N/A -38.45
Class Z -15.36 N/A -35.89
Lipper Pacific Region Fund Avg.3 -21.64 -26.69 ***
</TABLE>
Average Annual Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -34.35% -8.38% -0.03%
Class B -36.44 -8.36 0.08
Class C -32.44 N/A -11.79
Class Z -30.67 N/A -17.08
</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 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 load 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 bought before November 2, 1998, have a 1% CDSC if sold within
one year. Class C shares are subject to a front-end sales charge of 1% and a
CDSC of 1% for 18 months. Class Z shares are not subject to a sales charge or
distribution fee.
2 Inception dates: Class A and Class B, 7/24/92; Class C, 8/1/94; Class Z,
3/1/96.
3 Lipper average returns are for all funds in each share class for the one- and
five-year periods in the Pacific Region Fund category.
***Lipper Since Inception returns are 13.53% for Class A and Class B, -38.35%
for Class C, and -37.30% for Class Z based on all funds in each share class.
How Investments Compared.
(As of 10/31/98)
(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>
Steve Auth, Toru Komatsu, and Dave Descalzi, Fund Managers
(PHOTO)
Portfolio
Managers' Report
The Prudential Pacific Growth Fund invests primarily in stocks of companies in
the Pacific Basin, selecting a diversified portfolio aimed at long-term growth
of capital. Steve Auth, head of Prudential's global equity group, and Dave
Descalzi design overall strategy and set country allocations. Dave also manages
our Hong Kong-based team. Toru Komatsu heads our Japan-based team. The Fund is
subject to all of the risks associated with foreign investing, including
currency, political and social risks and potential illiquidity. There can be
no assurance that the Fund will achieve its investment objective.
Necessary Reforms.
We believe the Pacific region has extraordinary potential because of its large,
ambitious, hardworking, and growing population. These strengths had been
hampered by an inefficient system of capital allocation that had been protected
by the inflow of global funds. The past year has seen a widespread recognition
of the structural problems and some steps to correct them. It was a painful but
necessary process. We believe the Pacific countries will emerge even stronger
over the next year or so.
Strategy Session.
- -------------------------------------------------------------------------------
We are keeping a relatively defensive stance, maintaining a significant
position in Australia, avoiding the bank and real estate stocks in Hong Kong
and Southeast Asia, and focusing our Japanese holdings on the few companies
with growing earnings.
Although we had a high cash level at the end of October, we recently put some
of this money to work in Japan because we saw signs that its markets may be
bottoming. The Japanese government is continuing to move slowly in its attempts
to reform the country's financial system, but we expect the private sector to
take the lead in restructuring corporations. Our holdings in Japan,
representing 24% of our assets at period end, still are well below the
Japanese economy's representation in the regional markets. In the near term,
we are focusing on companies that can increase their earnings. These are
primarily in health care, specialty retail, electronics, and outsourcing. For
example, we own Terumo, which makes drugs, blood-handling equipment, artificial
organs and other medical supplies. Its earnings are 22% above last year's.
We also own niche growth companies such as Ryohin Keikaku, one of our largest
holdings. It is a retailer and wholesaler of consumer items. Nintendo, more
familiar to Americans, is another large holding; it has increased its earnings
83% over the last year.
Portfolio Composition.
Sectors expressed as a percentage of
net assets as of 10/31/98.
(GRAPH)
<PAGE>
What Went Well.
- -------------------------------------------------
Our general strategy worked well. We increased our cash, helping our
performance substantially in a generally declining market. We also made good
use of futures contracts to reduce our exposure to currency changes and to some
local stock markets. Our strategy was defensive: we avoided the most volatile
stocks because we thought their tendency to large movements would most likely
be shown in a downward direction.
We greatly increased our holdings in Australia. Australia's economy grew at a
healthy rate, despite depressed commodity prices and its chief customers'
economic recession. It accomplished this primarily by replacing lost Asian
business with greater exports to Europe and the United States. Its stocks
suffered, nonetheless, from the regional bear market. We had strong positive
returns on Publishing & Broadcasting, Brambles Industries (a waste management
company), and Woolworth's. We have owned Publishing & Broadcasting for some
time and benefited from its strong performance. We sold a large part of our
holding early in 1998, before a steep drop in prices.
In Japan, we avoided banks and sold our export-oriented stocks because of their
exposure to the rising yen. We owned companies such as Terumo and Olympus
Optical, both of which have niche businesses (both sell medical equipment),
relatively low stock price volatility, and rapidly growing earnings. Both made
strong positive contributions to our return.
And Not So Well.
- -------------------------------------------------
The primary factor in our negative performance was the economic recession in
the Pacific region, exacerbated by investors' unwillingness to take even
moderate risks during this period. Stock markets in the region performed
abysmally.
Although our defensive stance helped us over the year as a whole, there were
periods when it hurt our performance. We missed rallies in January-February and
again in September-October of 1998. Our decision to sit out the earlier rally
was ratified by the subsequent decline. We used the market rise to sell stocks
in sectors we wanted to leave. We also missed much of the gains in a sharp
October upswing. We held too much cash to receive the market's full benefits,
and our currency exposure was hedged to the U.S. dollar, which declined against
Asian currencies.
Five Largest
Holdings.
3.6% Woolworth's, Ltd.
Retail
2.7% Goodman Fielder, Ltd.
Foods
1.9% Brambles Industries, Ltd.
Business & Public Services
1.8% Publishing & Broadcasting
Broadcasting & Publishing
1.8% Smith (Howard), Ltd.
Diversified Operations
Expressed as a percentage of net assetsas of 10/31/98.
Looking Ahead.
- -------------------------------------------------
Although we are not optimistic about the rapidity of reform in Japan, we
believe that much of the bad news about the Pacific region may already be
reflected in stock prices.
The pace of economic and stock market recovery may be dependent, in part, on
factors external to Asia. Nonetheless, the Pacific region appears to be getting
positioned for extraordinary growth. Structural reforms, together with
traditional strengths of inexpensive and hard-working labor, excellent work
ethic, and immense regional economic demand, could set the stage for another
period of outstanding performance. Stock prices tend to rise quickly once a
positive sentiment sets in, so we are monitoring the area closely. We've
already invested a significant portion of the cash we held at the end of our
reporting period.
1
<PAGE>
Up From The Bottom.
- -------------------------------------------------------------------------------
Portfolio Managers Steve Auth, Toru Komatsu, and Dave Descalzi discuss the
Pacific outlook.
Q. How do prospects for economic recovery in the Pacific look?
A. Steve Auth: Right now, the region looks a bit like Berlin in 1945 -- the
good news is that the bombing has stopped, but it needs something equivalent
to the Marshall Plan to get back on its feet. Many companies and banks have
been incapacitated by the financial disaster of the past year. To a certain
extent, the recent spate of central bank interest-rate reductions may mark
the start of the region's recovery program, which should return it to its
status as an economic powerhouse.
Q. Where is structural reform proceeding fastest?
A. Dave Descalzi: We've seen a reasonable attempt in Korea, where we believe
there is a widespread recognition that their chaebol, or large
conglomerates, dissipate shareholder value. Companies are making good
efforts to rid themselves of assets that aren't part of their core
strengths. There is greater transparency in financial data and more foreign
ownership, which brings with it expertise in capital allocation. The
government has nationalized banks and plans to clean them up and reprivatize
them. These trends require a greater flow of foreign investment to Korea.
We are modestly increasing our holdings. Thailand and the Philippines also
deserve good marks. Thailand, like Korea, has encouraged foreign ownership
and tightened up its banking regulations. We are actively looking for
investment opportunities there.
The most problematic cases are Malaysia, which has instituted controls on
the flow of capital and currency out of the country, and China, which has
gone into a defensive mode. China is so unstable that trying to change
dramatically may create disorder. In the poor economic climate, they are
reluctant to do anything that will increase unemployment in the short run.
If the present crisis lasts long enough, the Chinese may dig a much deeper
hole to climb out of.
Q. What are the prospects for change in Japan?
A. Toru Komatsu: Japan needs to change itself. Private companies have started
to become reform-minded, but the government is holding back. The government
holds the key to reform of the critical financial sector. Politicians are
afraid of revealing the full extent of the financial institutions' problems,
so they are putting off the restructuring, allowing the situation to become
worse. We expect a lot of behind-the-scenes bargaining and deal making
before a rapid and dramatic transformation, but it may take a great deal of
pain before the government is forced to act. Meanwhile, we expect the
private sector in Japan to begin to take the lead in the restructuring
process.
Q. What are we doing in this environment?
A. Steve Auth: We are focusing our portfolios on companies that have the
potential to increase their earnings in the current environment: exporters,
health care companies, outsourcers, specialty retailers, and
telecommunications. We are avoiding the region's banks, many of which
remain insolvent, and companies engaged in the real estate sector, which is
vastly overbuilt. We also are keeping our portfolio very liquid so we can
react quickly to changing events. We are staying with larger companies and,
in some cases, are also using very liquid financial contracts to add to or
reduce exposure to key markets.
2
<PAGE>
President's Letter December 18, 1998
- -------------------------------------------------------------------------------
(PHOTO)
Dear Shareholder:
As 1998 draws to a close, the news from the financial markets is decidedly
mixed. After a series of sharp sell-offs in late summer, some stock prices
began to rebound in early fall, helped by three interest rate cuts by the
Federal Reserve.
There was other good news. U.S. Treasuries and Western European bonds
appreciated during the year as investors fled troubled Asian markets and other
emerging markets. The U.S. economy remained strong with steady growth and low
inflation.
The periods of uncertainty we experienced in 1998 illustrate why it is
important to manage your expectations and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial markets will always
rise and fall -- that's what markets do. Although past performance may not be
indicative of future results, stocks and bonds have, over time, consistently
produced attractive returns that have kept ahead of inflation. In fact,
investors who remained focused on the long term and did not sell during
summer's volatility were rewarded. Stock prices, as measured by the Standard &
Poor's 500 Index, recovered strongly in November regaining lost ground and
even setting a new record high.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix of stock, bond, and
money market mutual funds can help lessen the effects of a market downturn over
time. In fact, a well-diversified portfolio may retain or perhaps even gain
value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential professional will be glad to
review your current allocations. He or she will recommend adjustments based
upon your goals, market conditions, risk tolerance, and potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds. We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
<PAGE>
Portfolio of Investments as of October 31, 1998
PRUDENTIAL PACIFIC GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
EQUITIES & EQUIVALENTS--67.0%
COMMON STOCKS--67.0%
- ------------------------------------------------------------
Australia--16.5%
68,150 Australia & New Zealand Banking
Group, Ltd. (Commercial Banking) $ 389,421
94,491 Brambles Industries, Ltd.
(Business & Public Services) 2,070,648
1,716,600 FXF Trust(a) (Financial Services) 203,683
2,274,359 Goodman Fielder, Ltd. (Foods) 3,001,173
264,310 Leighton Holdings, Ltd.
(Building & Construction) 980,466
506,285 Publishing & Broadcasting, Ltd.
(Broadcasting & Publishing) 2,007,711
288,413 Sea World Property Trust, Ltd.
(Leisure & Tourism) 149,495
334,642 Smith (Howard), Ltd.
(Diversified Operations) 2,006,246
447,700 Southcorp, Ltd.
(Diversfied Consumer Products) 1,424,504
53,500 St. George Bank, Ltd.
(Commercial Banking) 356,559
1,247,498 Star City Holdings, Ltd.(a) (Gaming) 849,178
154,600 Westpac Banking Corp.
(Commercial Banking) 939,409
1,136,265 Woolworths, Ltd. (Retail) 3,995,034
-------------
18,373,527
- ------------------------------------------------------------
Hong Kong--11.4%
80,000 ASM Pacific Technology, Ltd.
(Electronic Components) 21,176
203,000 Cheung Kong Holdings, Ltd.
(Real Estate) 1,389,244
110,000 CLP Holdings, Ltd. (Utilities -
Electric) 617,858
423,000 Hong Kong and China Gas (Utilities) 600,813
10,000 Hong Kong Electric Holdings, Ltd.(a)
(Utilities - Electric) 36,671
291,400 Hong Kong Telecommunications, Ltd.
(Telecommunications) 583,214
48,804 HSBC Holdings, Plc. (Banking) 1,118,563
2,600,700 Hung Hing Printing Group, Ltd.
(Forest Products & Paper) 1,007,437
260,600 Hutchison Whampoa, Ltd.
(Multi-Industry) $ 1,867,558
1,696,000 Innovative International Holdings,
Ltd. (Automotive Parts) 236,514
1,257,000 Kingboard Chemical Holdings, Ltd.
(Electronic Components) 141,209
52,000 Lung Kee (Bermuda) Holdings, Ltd.
(Miscellaneous) 5,707
1,366,000 QPL International Holdings, Ltd.
(Electronic Components) 135,815
199,000 Sun Hung Kai Properties, Ltd.
(Real Estate) 1,387,565
249,400 Swire-Pacific, Ltd. 'A'
(Diversified Consumer Products) 1,323,564
396,300 Television Broadcasts, Ltd.
(Broadcasting & Publishing) 1,054,139
582,000 Varitronix International, Ltd.
(Miscellaneous) 1,104,707
363,000 Wong's International Holdings, Ltd.
(Electronic Components) 38,904
-------------
12,670,658
- ------------------------------------------------------------
India--2.6%
22,000 Bajaj Auto Ltd. (GDR)
(Automobiles & Auto Parts) 366,850
29,000 Industrial Credit & Investment Corp.
of India, Ltd. (Financial
Services) 159,500
24,500 ITC Ltd. (GDR) (Multi-Industry) 484,487
143,000 Mahanagar Telephone Nigam, Ltd.(a)
(Telecommunications) 1,537,250
44,450 State Bank of India (GDR)
(Commercial Banking) 355,600
-------------
2,903,687
- ------------------------------------------------------------
Japan--24.2%
8,100 Bellsystem 24, Inc. (Commercial
Services) 1,560,372
32,300 Benesse Corp. (Commercial Services) 1,486,111
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of October 31, 1998
PRUDENTIAL PACIFIC GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Japan (cont'd.)
247,000 Daibiru Corp. (Property Investment) $ 1,731,209
29,700 FP Corp. (Containers) 812,229
42,800 Matsumotokiyoshi (Retail) 1,619,539
74,300 Meitec Corp.
(Computer Software & Services) 1,437,694
43,400 Nichii Gakkan Co.
(Health Care Services) 1,604,919
16,000 Nintendo Co., Ltd.
(Electronic Components &
Instruments) 1,356,725
25 NTT Mobile Communications
(Telecommunications) 905,143
58,100 Oiles Corp. (Miscellaneous) 1,261,631
133,000 Olympus Optical Co., Ltd
(Business & Public Services) 1,372,549
25,600 Riso Kagaku Corp.
(Office Equipment & Supplies) 1,442,036
15,900 Ryohin Keikaku Co., Ltd. (Retail) 1,722,910
32,900 Shimamura Co. (Retail) 1,307,172
45,900 Square Co., Ltd.
(EDP Software & Services) 868,421
68,000 Terumo Corp. (Medical Products) 1,432,749
116,000 Tokio Marine & Fire Insurance Co.,
Ltd. (Insurance) 1,321,809
100,000 Tostem Corp. (Building &
Construction) 1,557,448
38,300 Union Tool Co.
(Machinery & Equipment) 1,413,029
34,200 Zenrin Co., Ltd. (Electrical Goods) 664,706
-------------
26,878,401
- ------------------------------------------------------------
Korea--1.6%
5,010 Dae Duck Electronics Co.
(Electrical Equipment) 355,769
8,420 Dong Yang Power Systems Co.
(Electrical Equipment) 239,295
22,219 Medison Co., Ltd. (Medical Products) 245,849
11,070 Pusan City Gas Co., Ltd.
(Gas Distribution) 209,739
23,170 Sindo Ricoh
(Office Equipment & Supplies) 700,631
-------------
1,751,283
Malaysia--0.7%
194,000 Berjaya Sports Toto Berhad (Gaming) $ 109,326
92,000 Magnum Corp. Berhad (Gaming) 18,129
441,000 Malayan Banking Berhad
(Commercial Banking) 373,591
170,000 Malaysian Pacific Industries Berhad
(Electronic Components) 123,978
137,000 Telekom Malaysia Berhad
(Telecommunications) 170,304
-------------
795,328
- ------------------------------------------------------------
The Philippines--1.4%
158,000 Manila Electric Co. 'B' (Utilities) 465,973
45,600 Philippine Long Distance Telephone
Co. (ADR) (Telephones) 1,111,500
-------------
1,577,473
- ------------------------------------------------------------
Singapore--4.1%
196,000 City Developments, Ltd.
(Property Development) 712,288
34,000 Cycle & Carriage, Ltd.
(Automobiles & Auto Parts) 85,864
105,000 DBS Land, Ltd. (Real Estate) 119,002
210,800 Elec & Eltek International Co., Ltd.
(Electronics) 1,054,000
158,000 Natsteel Electronics, Ltd.
(Electronic Components &
Instruments) 325,051
58,000 Oversea-Chinese Banking Corp., Ltd.
(Banking) 253,649
27,000 Overseas Union Bank (Banking) 73,508
15,000 Singapore Airlines, Ltd. (Airlines) 92,393
45,900 Singapore Press Co.
(Broadcasting & Publishing) 398,639
466,000 Singapore Technologies Engineering,
Ltd.(a) (Engineering & Equipment) 459,255
437,000 Singapore Telecommunications, Ltd.
(Telecommunications) 756,372
38,000 United Overseas Bank, Ltd.
(Commercial Banking) 179,058
-------------
4,509,079
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of October 31, 1998
PRUDENTIAL PACIFIC GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Taiwan--4.3%
136,000 Asustek Computer, Inc.(a)
(Computers) $ 1,006,631
112,800 Cathay Life Insurance Co., Ltd.
(Insurance) 398,322
390,400 Compal Electronics, Inc.(a)
(Computers) 1,216,049
67,200 Compeq Manufacturing Co., Ltd.(a)
(Electrical Equipment) 426,930
162,000 D-Link (Network Systems) 357,224
450,600 Phoenixtec Power Co., Ltd.(a)
(Electronic Components) 951,923
229,100 Taiwan Semiconductor Manufacturing
Co.(a) (Electronic Components) 462,793
-------------
4,819,872
- ------------------------------------------------------------
Thailand--0.2%
10,000 Banpu Public Co., Ltd. (Mining) 29,867
15,000 PTT Exploration & Production Public
Co., Ltd.
(Oil & Gas
Exploration/Production) 144,176
2,900 Siam Cement Co., Ltd.(a)
(Building Materials & Components) 36,220
-------------
210,263
-------------
Total common stocks
(cost $79,816,596) 74,489,571
-------------
WARRANTS(a)--0.0%
- ------------------------------------------------------------
Hong Kong--0.0%
533,666 Hong Kong & Shanghai Hotels, Ltd.
expiring Dec. '98 @ HKD13.79
(Leisure & Tourism) $ 689
16,830 Wharf Holdings, Ltd.
expiring Dec. '99 @ HKD17.50
(Multi-Industry) 1,978
-------------
Total warrants
(cost $0) 2,667
-------------
Total long-term investments
(cost $79,816,596) 74,492,238
-------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--9.1%
Principal
Amount
(000)
- ------------------------------------------------------------
Repurchase Agreements--9.1%
$10,074 Joint Repurchase Agreement Account,
5.40%,11/2/98
(cost $10,074,000; Note 5) 10,074,000
-------------
- ------------------------------------------------------------
Total Investments--76.1%
(cost $89,890,596; Note 4) 84,566,238
Other assets in excess of
liabilities--23.9% 26,598,052
-------------
Net Assets--100% $ 111,164,290
-------------
-------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of October 31, 1998
PRUDENTIAL PACIFIC GROWTH FUND, INC.
- ------------------------------------------------------------
The industry classification of portfolio holdings and other
net assets in excess of liabilities shown as a percentage of
net assets as of October 31, 1998 was as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------
Retail................................................ 7.8%
Telecommunications.................................... 3.6
Computers............................................. 3.3
Broadcasting & Publishing............................. 3.1
Business & Public Services............................ 3.1
Commercial Services................................... 2.7
Foods................................................. 2.7
Real Estate........................................... 2.6
Diversified Consumer Products......................... 2.5
Commercial Banking.................................... 2.3
Building & Construction............................... 2.3
Property Development.................................. 2.2
Miscellaneous......................................... 2.1
Multi-Industry........................................ 2.1
Office Equipment & Supplies........................... 1.9
Diversified Operations................................ 1.8
Utilities-Electric and Gas............................ 1.7
Electronic Components................................. 1.6
Electronic Components & Instruments................... 1.6
Insurance............................................. 1.5
Electrical Goods & Equipment.......................... 1.5
Medical Products...................................... 1.5%
Health Care Services.................................. 1.4
Banking............................................... 1.3
Machinery & Equipment................................. 1.3
Telephones............................................ 1.0
Electronics........................................... 1.0
Forest Products & Paper............................... 0.9
Gaming................................................ 0.9
EDP Software & Services............................... 0.8
Containers............................................ 0.7
Engineering & Equipment............................... 0.4
Automobile Parts...................................... 0.4
Financial Services.................................... 0.3
Network............................................... 0.3
Automotive Parts...................................... 0.2
Leisure & Tourism..................................... 0.2
Oil & Gas Exploration................................. 0.1
Airlines.............................................. 0.1
Building Materials & Components....................... 0.1
Mining................................................ 0.1
Other assets in excess of liabilities (including Joint
Repurchase Agreement)............................... 33.0
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
Assets October 31, 1998
<S> <C>
Investments, at value (cost $89,890,596).................................................................. $ 84,566,238
Foreign currency, at value (cost $27,787,591)............................................................. 31,313,070
Cash...................................................................................................... 182,789
Forward currency contracts - amount receivable from counterparties........................................ 2,408,993
Receivable for investments sold........................................................................... 355,314
Receivable for Fund shares sold........................................................................... 297,690
Dividends and interest receivable......................................................................... 255,329
Other assets.............................................................................................. 7,832
----------------
Total assets........................................................................................... 119,387,255
----------------
Liabilities
Forward currency contracts - amount payable to counterparties............................................. 7,417,143
Payable for Fund shares reacquired........................................................................ 441,427
Accrued expenses and other liabilities.................................................................... 149,889
Management fee payable.................................................................................... 69,016
Distribution fee payable.................................................................................. 67,739
Due to broker - variation margin.......................................................................... 52,739
Withholding taxes payable................................................................................. 25,012
----------------
Total liabilities...................................................................................... 8,222,965
----------------
Net Assets................................................................................................ $111,164,290
----------------
----------------
Net assets were comprised of:
Common stock, at par................................................................................... $ 12,494
Paid-in capital in excess of par....................................................................... 161,618,732
----------------
161,631,226
Undistributed net investment income.................................................................... 5,082,914
Accumulated net realized loss on investments, foreign currency transactions and futures................ (48,642,369)
Net unrealized depreciation on investments, foreign currencies and futures............................. (6,907,481)
----------------
Net assets, October 31, 1998.............................................................................. $111,164,290
----------------
----------------
Class A:
Net asset value and redemption price per share
($22,624,012 / 2,476,170 shares of common stock issued and outstanding)............................. $9.14
Maximum sales charge (5.00% of offering price)......................................................... .48
----------------
Maximum offering price to public....................................................................... $9.62
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($74,456,920 / 8,474,376 shares of common stock issued and outstanding)............................. $8.79
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($1,654,014 / 188,277 shares of common stock issued and outstanding)................................ $8.79
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($12,429,344 / 1,355,422 shares of common stock issued and outstanding)............................. $9.17
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PACIFIC GROWTH FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes
of $127,986)......................... $ 2,502,541
Interest................................ 667,412
----------------
Total income......................... 3,169,953
----------------
Expenses
Management fee.......................... 1,021,518
Distribution fee--Class A............... 67,112
Distribution fee--Class B............... 919,826
Distribution fee--Class C............... 22,757
Transfer agent's fees and expenses...... 530,000
Custodian's fees and expenses........... 247,000
Reports to shareholders................. 45,000
Registration fees....................... 40,000
Audit fees and expenses................. 38,000
Directors' fees......................... 27,000
Legal fees and expenses................. 13,000
Miscellaneous........................... 14,829
----------------
Total expenses....................... 2,986,042
----------------
Net investment income...................... 183,911
----------------
Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and
Futures Transactions
Net realized gain (loss) on:
Investment transactions................. (49,026,779)
Foreign currency transactions........... 4,906,494
Futures transactions.................... 384,410
----------------
(43,735,875)
----------------
Net change in unrealized appreciation/(depreciation) on:
Investments............................. 19,055,644
Foreign currencies...................... (1,196,320)
Futures................................. (110,653)
----------------
17,748,671
----------------
Net loss on investments, foreign currencies
and futures............................. (25,987,204)
----------------
Net Decrease in Net Assets
Resulting from Operations.................. $(25,803,293)
----------------
----------------
</TABLE>
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PACIFIC GROWTH FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended October 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income
(loss)................... $ 183,911 $ (1,316,909)
Net realized gains (loss) on
investments and foreign
currency transactions.... (43,735,875) 19,797,626
Net change in unrealized
appreciation
(depreciation) on
investments, futures and
foreign currencies....... 17,748,671 (56,009,460)
------------- ---------------
Net decrease in net assets
resulting from
operations............... (25,803,293) (37,528,743)
------------- ---------------
Distributions in excess of
net investment income
Class A.................. (1,079,173) --
Class B.................. (2,945,918) --
Class C.................. (50,643) --
Class Z.................. (685,936) --
------------- ---------------
(4,761,670) --
------------- ---------------
Distributions from net
realized gains
Class A.................. (2,309,696) (2,078,862)
Class B.................. (8,685,264) (7,004,628)
Class C.................. (149,828) (268,013)
Class Z.................. (1,332,334) (775,335)
------------- ---------------
(12,477,122) (10,126,838)
------------- ---------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold..................... 141,655,986 2,461,825,495
Net asset value of shares
issued in reinvestment of
distributions............ 16,174,424 9,110,015
Cost of shares reacquired... (190,629,423) (2,726,822,208)
------------- ---------------
Net decrease in net assets
from Fund share
transactions............. (32,799,013) (255,886,698)
------------- ---------------
Total decrease................. (75,841,098) (303,542,279)
Net Assets
Beginning of year.............. 187,005,388 490,547,667
------------- ---------------
End of year(a)................. $ 111,164,290 $ 187,005,388
------------- ---------------
------------- ---------------
(a) Includes undistributed net
investment income of....... $ 5,082,914 $ 4,756,316
------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Prudential Pacific Growth Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund was incorporated in Maryland on August 14, 1991 and had no
operations other than the issuance of 5,000 shares each of Class A and Class B
common stock for $100,000 on May 6, 1992 to Prudential Investments Fund
Management LLC ('PIFM'). The Fund commenced investment operations on July 24,
1992. The investment objective of the Fund is to seek long-term capital growth
by investing primarily in common stocks, common stock equivalents and other
securities of companies doing business in or domiciled in the Pacific Basin
region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange (whether domestic or
foreign) 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.
Any securities or other assets for which current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Fund's Board of Directors.
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.
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
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 at 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 end of the fiscal year. 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 debt
securities sold during the fiscal year. Accordingly, realized foreign currency
gains (losses) are included in the reported net realized gains on investment
transactions.
Net realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from forward currency contracts, 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 interest, dividends and foreign taxes recorded on the Fund's books
and the U.S. dollar equivalent amounts actually received or paid. Net currency
gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal year end exchange rates are reflected as a component of
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 regulation of foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign currency transactions. Risks may
arise upon entering into these contracts
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
from the potential inability of the counterparties to meet the terms of their
contracts.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the 'initial margin.' Subsequent payments, known as 'variation margin,'
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.
The Fund invests in financial futures contracts in order to hedge existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value. Under a variety of circumstances, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts and the underlying
assets.
Securities Transactions and Net 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.
Net investment income or loss, 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.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
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 due to timing differences concerning recognition of income.
Taxes: It is the Fund's policy 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 dividends, interest and capital gains have been
provided for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
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 increase undistributed net investment income by
$4,904,357, decrease paid-in capital in excess of par by $4,593 and decrease
accumulated net realized gains by $4,899,764 for differences in the treatment
for book and tax purposes of certain transactions involving foreign securities,
currencies and withholding taxes. 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 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 cost of the subadviser's services, 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 average daily net assets of the Fund.
The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ('PIMS') became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution, (the 'Class A, Class B and Class C Plans'),
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
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 compensated PSI and PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Class A, Class B and Class C Plans were .25%, 1% and 1%,
respectively, of the average daily net assets of the Class A, Class B and Class
C shares for the year ended October 31, 1998.
PSI and PIMS have advised the Fund that they received approximately $48,700 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1998. From these fees, PSI and PIMS paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI and PIMS has advised the Fund that for the year ended October 31, 1998, they
received approximately $413,700 and $10,200 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PSI, PIMS, PIFM and PIC are (indirect) wholly owned subsidiaries of The
Prudential Insurance Company of America ('Prudential').
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended October 31, 1998, the
Fund incurred fees of approximately $466,000 for the services of PMFS. As of
October 31, 1998, approximately $33,200 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 October 31, 1998 were $100,112,663 and $146,344,992,
respectively.
At October 31, 1998, the Fund had outstanding forward currency contracts, both
to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current Appreciation
Purchase Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- -------------------- --------------- ----------- --------------
Australian Dollars,
expiring
12/15/98.......... $ 2,140,653 $ 2,124,788 $ (15,865)
Japanese Yen,
expiring 12/21/98-
3/15/99........... 14,298,659 16,707,652 2,408,993
--------------- ----------- --------------
$16,439,312 $18,832,440 $ 2,393,128
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- -------------------- --------------- ----------- --------------
Australian Dollars,
expiring 12/15/98-
12/21/98.......... $ 4,950,000 $ 5,163,060 $ (213,060)
Hong Kong Dollars,
expiring
4/27/99........... 11,900,000 12,025,725 (125,725)
Japanese Yen,
expiring 11/2/98-
5/3/99............ 51,574,754 58,698,655 (7,123,901)
--------------- ----------- --------------
$68,424,754 $75,887,440 $ (7,462,686)
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
At October 31, 1998, the Fund held with its custodian and their global custody
network approximately 28% of its net assets in foreign cash as follows:
<TABLE>
<S> <C>
Australian Dollar................................ $ 507,462
Hong Kong Dollar................................. 2,572,235
Japanese Yen..................................... 25,407,580
Malaysian Ringgit................................ 560,595
New Zealand Dollar............................... 399
Philippine Peso.................................. 18,084
Singapore Dollar................................. 109,766
Thai Baht........................................ 162,291
New Taiwan Dollar................................ 1,974,658
-----------
Total.......................................... $31,313,070
-----------
-----------
</TABLE>
The United States federal income tax basis of the Fund's investments is
substantially the same as for financial reporting purposes and accordingly, as
of October 31, 1998, net unrealized depreciation for federal income tax purposes
was $5,662,163 (gross unrealized appreciation--$5,109,696; gross unrealized
depreciation--$10,771,859).
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
During the year ended October 31, 1998, the Fund entered into financial futures
contracts. Details of open contracts at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
Value at Value at
Number of Expiration October 31, Trade Unrealized
Contracts Type Date 1998 Date Depreciation
- ----------- ---------------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Short Position:
3 Hang Seng Nov. 98 $ 197,947 $191,594 $ 6,353
3 Hang Seng Nov. 98 197,947 187,972 9,975
4 Hang Seng Nov. 98 263,929 255,665 8,264
5 Hang Seng Nov. 98 329,912 313,449 16,463
9 Hang Seng Nov. 98 593,841 557,815 36,026
10 Hang Seng Nov. 98 659,823 626,251 33,572
------------
$110,653
------------
------------
</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. As of October 31, 1998, the Fund
had a 1.0% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $10,074,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the value of
the collateral therefore was as follows:
Bear, Stearns & Co., Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest is $265,935,719.
Salomon Smith Barney Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest is $265,365,298.
Deutsche Morgan Grenfell Inc., 5.41%, in the principal amount of $260,000,000,
repurchase price $260,117,217, due 11/2/98. The value of the collateral
including accrued interest is $265,200,735.
SBC Warburg Dillon Read, Inc., 5.38%, in the principal amount of $160,825,000,
repurchase price $160,897,103, due 11/2/98. The value of the collateral
including accrued interest is $164,045,205.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with an initial sales charge of up to 5.00%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending upon
the period of time the shares are held. Prior to November 2, 1998 Class C shares
were sold with a contingent deferred sales charge of 1% during the first year.
Effective November 2, 1998, Class C shares are sold with a front-end sales
charge of 1% and a contigent deferred sales charge of 1% during the first 18
months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
The Fund has authorized 2 billion shares of common stock at $.001 par value per
share divided into four classes, designated Class A, Class B, Class C and Class
Z common stock each consisting of 500 million authorized shares.
Transactions in shares of common stock for the year ended October 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- ---------------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold...................... 4,437,257 $ 42,845,381
Shares issued in reinvestment of
distributions.................. 329,658 3,143,003
Shares reacquired................ (5,369,479) (52,502,540)
----------- ---------------
Net increase in shares
outstanding before
conversion..................... (602,564) (6,514,156)
Shares issued upon conversion
from Class B................... 143,203 1,354,722
----------- ---------------
Net decrease in shares
outstanding.................... (459,361) $ (5,159,434)
----------- ---------------
----------- ---------------
Year ended October 31, 1997:
Shares sold...................... 81,011,975 $ 1,296,933,660
Shares issued in reinvestment of
distributions.................. 110,855 1,771,786
Shares reacquired................ (85,608,895) (1,376,512,897)
----------- ---------------
Net decrease in shares
outstanding before
conversion..................... (4,486,065) (77,807,451)
Shares issued upon conversion
from Class B................... 261,162 4,152,328
----------- ---------------
Net decrease in shares
outstanding.................... (4,224,903) $ (73,655,123)
----------- ---------------
----------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Financial Statements PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- --------------------------------- ----------- ---------------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold...................... 3,108,133 $ 29,692,991
Shares issued in reinvestment of
distributions.................. 1,170,551 10,820,405
Shares reacquired................ (6,591,555) (63,034,383)
----------- ---------------
Net decrease in shares
outstanding before
conversion..................... (2,312,871) (22,520,987)
Shares reacquired upon conversion
into Class A................... (148,409) (1,354,722)
----------- ---------------
Net decrease in shares
outstanding.................... (2,461,280) $ (23,875,709)
----------- ---------------
----------- ---------------
Year ended October 31, 1997:
Shares sold...................... 40,987,211 $ 633,115,767
Shares issued in reinvestment of
distributions.................. 415,124 6,363,693
Shares reacquired................ (51,456,334) (794,472,870)
----------- ---------------
Net decrease in shares
outstanding before
conversion..................... (10,053,999) (154,993,410)
Shares reacquired upon conversion
into Class A................... (270,285) (4,152,328)
----------- ---------------
Net decrease in shares
outstanding.................... (10,324,284) $ (159,145,738)
----------- ---------------
----------- ---------------
<CAPTION>
Class C
- ---------------------------------
Year ended October 31, 1998:
Shares sold...................... 1,915,959 $ 17,541,510
Shares issued in reinvestment of
distributions.................. 21,081 194,900
Shares reacquired................ (1,997,866) (18,435,258)
----------- ---------------
Net decrease in shares
outstanding.................... (60,826) $ (698,848)
----------- ---------------
----------- ---------------
Year ended October 31, 1997:
Shares sold...................... 26,331,596 $ 408,638,884
Shares issued in reinvestment of
distributions.................. 12,995 199,203
Shares reacquired................ (26,898,046) (419,221,061)
----------- ---------------
Net decrease in shares
outstanding.................... (553,455) $ (10,382,974)
----------- ---------------
----------- ---------------
<CAPTION>
Class Z Shares Amount
- --------------------------------- ----------- ---------------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold...................... 5,371,303 $ 51,576,104
Shares issued in reinvestment of
distributions.................. 211,034 2,016,116
Shares reacquired................ (5,816,918) (56,657,242)
----------- ---------------
Net decrease in shares
outstanding.................... (234,581) $ (3,065,022)
----------- ---------------
----------- ---------------
Year ended October 31, 1997:
Shares sold...................... 7,750,167 $ 123,137,184
Shares issued in reinvestment of
distributions.................. 48,879 775,333
Shares reacquired................ (8,555,074) (136,615,380)
----------- ---------------
Net decrease in shares
outstanding.................... (756,028) $ (12,702,863)
----------- ---------------
----------- ---------------
</TABLE>
- ------------------------------------------------------------
Note 7. Distributions
On December 11, 1998 the Board of Directors of the Fund declared a dividend from
ordinary income of $.08 from Class A, $.01 from Class B and C and $.105 from
Class Z payable on December 15, 1998 to shareholders of record on December 14,
1998.
- --------------------------------------------------------------------------------
14
<PAGE>
Financial Highlights PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(a)
---------------------------------------------------------
Year Ended October 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 12.22 $ 15.86 $ 15.75 $ 16.90 $ 16.10
------- ------- -------- -------- -------
Income from investment operations
Net investment income (loss).................. .06 .02 .07 .04 (.08)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (1.88) (3.31) .23 (1.09) 1.15
------- ------- -------- -------- -------
Total from investment operations........... (1.82) (3.29) .30 (1.05) 1.07
------- ------- -------- -------- -------
Less distributions
Distributions in excess of net investment
income..................................... (.40) -- (.19) -- (.06)
Distributions from net realized gains......... (.86) (.35) -- (.10) (.21)
------- ------- -------- -------- -------
Total distributions........................ (1.26) (.35) (.19) (.10) (.27)
------- ------- -------- -------- -------
Net asset value, end of year.................. $ 9.14 $ 12.22 $ 15.86 $ 15.75 $ 16.90
------- ------- -------- -------- -------
------- ------- -------- -------- -------
TOTAL RETURN(b)............................... (15.53)% (21.32)% 1.97% (6.23)% 6.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $22,624 $35,860 $113,585 $ 98,998 $98,921
Average net assets (000)...................... $26,845 $73,942 $106,148 $101,920 $92,233
Ratios to average net assets:
Total expenses............................. 1.70% 1.48% 1.37% 1.46% 1.57%
Operating expenses, including distribution
fees.................................... 1.70% 1.42% 1.37% 1.46% 1.57%
Operating expenses, excluding distribution
fees.................................... 1.45% 1.17% 1.12% 1.21% 1.33%
Net investment income (loss)............... .63% .14% .44% .26% (.50)%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 94% 81% 91% 54% 56%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the year.
(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. 15
<PAGE>
Financial Highlights PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B(a)
------------------------------------------------------------
Year Ended October 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.77 $ 15.40 $ 15.38 $ 16.62 $ 15.94
-------- -------- -------- -------- --------
Income from investment operations
Net investment loss........................... (.01) (.09) (.04) (.08) (.21)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (1.82) (3.19) .25 (1.06) 1.13
-------- -------- -------- -------- --------
Total from investment operations........... (1.83) (3.28) .21 (1.14) .92
-------- -------- -------- -------- --------
Less distributions
Distributions in excess of net investment
income..................................... (.29) -- (.19) -- (.03)
Distributions from net realized gains......... (.86) (.35) -- (.10) (.21)
-------- -------- -------- -------- --------
Total distributions........................ (1.15) (.35) (.19) (.10) (.24)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 8.79 $ 11.77 $ 15.40 $ 15.38 $ 16.62
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b)............................... (16.32)% (21.84)% 1.36% (6.82)% 5.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 74,457 $128,694 $327,315 $344,313 $459,949
Average net assets (000)...................... $ 91,983 $244,462 $357,548 $368,771 $404,506
Ratios to average net assets:
Total expenses............................. 2.45% 2.23% 2.12% 2.21% 2.33%
Operating expenses, including distribution
fees.................................... 2.45% 2.17% 2.12% 2.21% 2.33%
Operating expenses, excluding distribution
fees.................................... 1.45% 1.17% 1.12% 1.21% 1.33%
Net investment loss........................ (.12)% (.61)% (.25)% (.55)% (1.27)%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the year.
(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. 16
<PAGE>
Financial Highlights PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C(a) Class Z(a)
-------------------------------------------------------- -----------
August 1,
1994(d) Year Ended
Year Ended October 31, Through October 31,
---------------------------------------- October 31, -----------
1998 1997 1996 1995 1994 1998
------ ------ ------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.77 $15.40 $ 15.38 $16.62 $ 16.68 $ 12.28
------ ------ ------- ------ ----- -----------
Income from investment operations
Net investment income (loss).................. (.01) (.09) (.04) (.08) (.06) .08
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (1.82) (3.19) .25 (1.06) -- (1.89)
------ ------ ------- ------ ----- -----------
Total from investment operations........... (1.83) (3.28) .21 (1.14) (.06) (1.81)
------ ------ ------- ------ ----- -----------
Less distributions
Distributions in excess of net investment
income..................................... (.29) -- (.19) -- -- (.44)
Distributions from net realized gains......... (.86) (.35) -- (.10) -- (.86)
------ ------ ------- ------ ----- -----------
Total distributions........................ (1.15) (.35) (.19) (.10) -- (1.30)
------ ------ ------- ------ ----- -----------
Net asset value, end of period................ $ 8.79 $11.77 $ 15.40 $15.38 $ 16.62 $ 9.17
------ ------ ------- ------ ----- -----------
------ ------ ------- ------ ----- -----------
TOTAL RETURN(b)............................... (16.32)% (21.84)% 1.36% (6.82)% (.36)% (15.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,654 $2,932 $12,360 $2,443 $ 718 $12,429
Average net assets (000)...................... $2,276 $6,557 $ 6,402 $1,624 $ 458 $15,099
Ratios to average net assets:
Total expenses............................. 2.45% 2.23% 2.12% 2.21% 3.00%(c) 1.45%
Operating expenses, including distribution
fees.................................... 2.45% 2.17% 2.12% 2.21% 3.00%(c) 1.45%
Operating expenses, excluding distribution
fees.................................... 1.45% 1.17% 1.12% 1.21% 2.00%(c) 1.45%
Net investment income (loss)............... (.12)% (.61)% (.25)% (.43)% (1.64)%(c) .82%
<CAPTION>
March 1,
1996(e)
Through
October 31,
1997 1996
------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 15.89 $ 16.57
------- -----------
Income from investment operations
Net investment income (loss).................. .06 .11
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (3.32) (.79)
------- -----------
Total from investment operations........... (3.26) (.68)
------- -----------
Less distributions
Distributions in excess of net investment
income..................................... -- --
Distributions from net realized gains......... (.35) --
------- -----------
Total distributions........................ (.35) --
------- -----------
Net asset value, end of period................ $ 12.28 $ 15.89
------- -----------
------- -----------
TOTAL RETURN(b)............................... (21.02)% (4.09)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $19,520 $37,288
Average net assets (000)...................... $31,945 $33,868
Ratios to average net assets:
Total expenses............................. 1.23% 1.12%(c)
Operating expenses, including distribution
fees.................................... 1.17% 1.12%(c)
Operating expenses, excluding distribution
fees.................................... 1.17% 1.12%(c)
Net investment income (loss)............... .39% .68%(c)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the period.
(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 of Class C shares.
(e) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
Report of Independent Accountants PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Pacific Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Pacific Growth Fund,
Inc. (the 'Fund') at October 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three periods in the period ended October 31, 1996 were audited by other
independent accountants, whose opinion dated December 12, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 18, 1998
- --------------------------------------------------------------------------------
18
<PAGE>
Federal Income Tax Information (Unaudited) PRUDENTIAL PACIFIC GROWTH FUND, INC.
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (October 31, 1998) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in the fiscal year ended October 31, 1998, the Fund paid long-term
capital gain distributions of $.857 per share which are taxable as such.
The Fund has elected to give the benefit of foreign tax credits to its
shareholders. Accordingly, shareholders who must report their gross income
dividends and distributions in a federal income tax return will be entitled to a
foreign tax credit, or an itemized deduction, in computing their U.S. income tax
liability. It is generally more advantageous to claim a credit rather than to
take a deduction. For the fiscal year ended October 31, 1998, the Fund intends
on passing through 30.23% of ordinary income distributions as a foreign tax
credit.
We wish to advise you that the corporate dividends received deduction for the
Fund is zero. Only funds that invest in U.S. equity securities are entitled to
pass-through a corporate dividends received deduction.
In January 1999, you will be advised on IRS Form 1099 DIV, or substitute Form
1099, as to the federal tax status of the distributions received by you in
calendar year 1998.
- --------------------------------------------------------------------------------
19
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis
points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined
expiration date. A buyer of a call option generally expects to benefit from a
rise in the price of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other securities. The
rate of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged on borrowed funds will be lower
than the return on the investment. While leverage can increase profits, it can
also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Option: An agreement to purchase or sell something, such as shares of stock,
by a certain time for a specified price. An option need not be exercised.
Spread: The difference between two values; often used to describe the
difference between "bid" and "asked for" prices of a security.
Yankee Bond: A bond sold by a foreign company or government in the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive financial advice
through 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. And risk can be difficult to
gauge --sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available 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 remind you that you're investing for the long haul.
<PAGE>
Comparing A $10,000 Investment.
- ---------------------------------------------------
Prudential Pacific Growth Fund, Inc. vs. the Morgan
Stanley Capital International AC Asia Pacific Index.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Class Z
(GRAPH)
Past performance is not indicative of future results. Principal and investment
return will fluctuate so an investor's shares, when redeemed, may be worth more
or less than their original cost. The boxes 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 Pacific Growth Fund, Inc.
(Class A, B, C, and Z shares) with a similar investment in the Morgan Stanley
Capital International All Country (AC) Asia Pacific Index (the Index) by
portraying the initial account values at the commencement of operations of each
class, and subsequent account values at the end of each fiscal year (October
31), as measured on a quarterly basis, beginning in 1992 for Class A and 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 charges were deducted from the
value of the investment in Class B and Class C shares, assuming full redemption
on October 31, 1998; (c) beginning November 2, 1998, Class C shares are subject
to a front-end sales charge of 1% and a CDSC of 1% for 18 months. This change
is not reflected in the charts to the right; (d) all recurring fees (including
management fees) were deducted; and (e) 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 graphs. Class Z shares are not subject to a
sales charge or distribution fee.
The Morgan Stanley Capital International AC Asia Pacific Index is a weighted
index comprised of approximately 950 securities listed on the stock exchanges
of Australasia, Hong Kong, Japan, Malaysia, Singapore, Indonesia, Sri Lanka,
China (free), Pakistan, Taiwan, India, Korea, the Philippines, and Thailand.
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 equity funds, and other indexes may portray
different comparative performance. The Fund previously compared its performance
to the Morgan Stanley Capital International Pacific Index, which is a weighted
index of approximately 416 companies listed in the stock markets of Japan, Hong
Kong, Singapore/Malaysia, Australia, and New Zealand. The Fund changed its
comparative index to reflect the broader geographic investment represented by
the MSCI AC Asia Pacific Index, more closely reflecting the Fund's investment
portfolio. Investors cannot invest 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
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer, CFA
Robin B. Smith
Stephen Stoneburn
Brian M. Storms
Nancy H. Teeters
Officers
Brian M. Storms, 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.
743941106 MF157E
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743941304
743941403
