ANNUAL REPORT February 28, 1994
Prudential Growth
Fund, Inc.
- ---------------------------------------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE
(LOGO)
ON OUR STRENGTH
<PAGE>
<PAGE>
LETTER TO
SHAREHOLDERS
April 7, 1994
Dear Shareholder:
The past 12 months were a time of transition for the U.S. stock market, as
the focus moved from growth stocks to more economically sensitive issues.
During the fiscal year, the Fund benefitted from its technology holdings, as
well as its exposure to the bank and insurance sectors. In contrast, our
weighing in telecommunications turned in fairly flat or negative returns for
the fiscal year. We generally avoided drug, food and soft drink stocks, which
were among 1993's worst performers.
In February, and again in March, inflationary fears caused the Federal
Reserve to raise short-term interest rates. Despite the strengthening
economy, this news caused a sell-off in the stock and bond markets near the
end of the month. In general, bonds declined more than equities. For the
first quarter of 1994, the S&P Composite Index had a return of -2.8%, while
the Shearson Bond Index returned -5.9%. In addition, the high-quality 30-year
municipal bond had a -11.6% return. In this environment, all stock market
sectors and most equity funds were affected. As a result, the Prudential
Growth Fund's one year average annual total returns as of March 31, 1994
(see page 2) were negative.
<TABLE>
<CAPTION>
HISTORICAL TOTAL RETURNS1
As of February 28, 1994
<S> <C> <C> <C> <C>
One-Year Five-Year Ten-Year Since Inception
Class A 8.8% N/A N/A 37.1%
Class B 8.0% 47.4% 195.1% 151.6%
Lipper Growth
Fund Avg.* 9.5% 92.6% 271.7% 439.8%
</TABLE>
1Source: Lipper Analytical Services. Past performance is no guarantee of
future results and an investor's shares, when redeemed, may be worth more or
less than their original value. These figures do not take into account sales
charges. The Fund charges a maximum sales load of 5.25% for Class A shares.
Class B shares are subject to a declining contingent deferred sales charge of
5%, 4%, 3%, 2%, 1% and 1%, respectively, for the first six years.
*These are the average returns of 420 growth funds for one year, 223 for five
years, 121 for ten years, and 166 since inception according to Lipper
Analytical Services, Inc.
-1-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS2
As of March 31, 1994
<S> <C> <C> <C> <C>
One Year Five Year Ten-Year Since Incep.*
Class A -8.0% N/A N/A 4.7%
Class B -8.4% 6.1% 10.7% 8.2%
</TABLE>
2Source: Prudential Mutual Fund Management, Inc. These averages take into
account applicable sales charges.
*Inception on: 1/22/90 for Class A; 6/13/83 for Class B.
Five Largest Holdings*
As of February 28, 1994
1. First Financial 4.8%
Management Corp.
2. Varity Corp. 4.6%
3. Computer Associates 4.0%
International, Inc.
4. Stewart & Stevenson 3.0%
Services, Inc.
5. Telefonica de Espana S.A. 2.8%
(Spain)
* Percent of portfolio assets
As of February 28, 1994, the Fund's net asset value was $15.11 for Class A
and $14.99 for Class B shares. During the 12-month period ended February 28,
1994, the Fund paid dividends and distributions totaling $1.95 per Class A and
Class B share.
Portfolio Summary and Activity
During the 12 months ended February 28, 1994, we continued to favor
economically sensitive sectors like technology and lodging. For example,
portfolio holding Computer Associates International (4.0% of the portfolio on
February 28), which develops and markets software for integrated systems and
exports over half of its products, should benefit from the growing U.S.
economy as well as Europe's recovery.
In the second half of the Fund's fiscal year, we added exposure to the
lodging industry. We believe this sector may profit from the U.S. economic
upswing as well as the airline industry's trend toward lower fares. One
example is Hospitality Franchise (2.2% of the portfolio at the end of
February) which owns Days Inn, Ramada Inn in the U.S. and Howard Johnsons.
As we mentioned in our last report, we expect credit card usage to increase
as their applications increase. For example, credit cards can now be used for
paying college tuition as well as buying groceries and fast food. In the last
year, we have focused on companies that are poised to profit from this trend
like First Financial Management (our largest portfolio holding and 4.8% of
portfolio at the end of February), which provides credit card authorization and
check verification services.
In the 12-months ended February 28, 1994, the Fund maintained its positions
in multinationals, like Caterpillar, the largest manufacturer of construction
equipment in the world (.76% of the portfolio on February 28, 1994) which may
increase earnings as Europe recovers. In addition, our foreign holdings like
Telefonica de Espana should also benefit from an improving worldwide economy.
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<PAGE>
Investment Outlook
Many forecasters expect the Federal Reserve to continue to raise short-term
rates, which will likely keep the credit markets on the defensive.
Unfortunately, the specter of a rate increase is even overshadowing positive
earnings reports.
For the near term, we remain focused on stocks that can benefit from a
recovery in the U.S. and worldwide. We have also increased our cash position
until market confidence improves. Hopefully the Federal Reserve's battle to
slow the economy will not be a protracted one, or one that requires a sharp
rate increase.
As always, it is a pleasure to have you as a shareholder of the Prudential
Growth Fund and to take this opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Greg A. Smith
Portfolio Manager
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<PAGE>
PRUDENTIAL GROWTH FUND, INC. Portfolio of Investments
February 28, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS
Common Stock--85.7%
Aerospace/Defense--2.0%
45,000 Allied-Signal, Inc........... $ 3,436,875
15,000 Boeing Co.................... 701,250
------------
4,138,125
------------
Airlines--3.9%
100,000 AMR Corp..................... 5,025,000
90,000 Southwest Airlines Co........ 3,071,250
------------
8,096,250
------------
Asset Management--1.1%
45,000 John Nuveen Co............... 1,051,875
25,000 U.S. Trust Corp.............. 1,268,750
------------
2,320,625
------------
Banking--3.1%
45,000 C S Holding (ADR)
(Switzerland).............. 998,437
55,000 First Security Corp.......... 1,595,000
45,000 Leader Financial Corp.*...... 905,625
45,000 Southern National Corp....... 900,000
80,000 West One Bancorp............. 2,130,000
------------
6,529,062
------------
Business Services--5.3%
157,000 First Financial Mgmt.
Corp....................... 9,243,375
34,800 SPS Transaction Services..... 1,861,800
------------
11,105,175
------------
Chemicals--0.7%
12,800 Air Products & Chemicals,
Inc........................ 609,600
40,000 Praxair, Inc................. 750,000
------------
1,359,600
------------
Chemical-Specialty--1.8%
58,000 Ferro Corp................... 2,022,750
37,200 IMC Fertilizer Group, Inc.... 1,701,900
------------
3,724,650
------------
Computer & Related Equipment--3.6%
15,000 Compaq Computer Corp.*....... 1,481,250
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
185,000 EMC Corp................ $ 3,584,375
General Instrument
32,500 Corp.*................ 1,539,688
International Business
5,000 Machines Corp......... 264,375
7,000 Motorola, Inc........... 732,795
------------
7,602,483
------------
Computer Software & Services--8.1%
50,000 AutoDesk, Inc........... 2,887,500
80,000 BISYS Group, Inc.*...... 1,500,000
Computer Associates
210,000 International, Inc.... 7,717,500
25,000 Informix Corporation.... 587,500
125,000 Oracle Systems Corp.*... 4,125,000
------------
16,817,500
------------
Consumer Products--2.6%
65,000 Colgate-Palmolive Co.... 4,233,125
Paragon Trade Brands,
35,000 Inc.*................. 1,168,125
------------
5,401,250
------------
Electronics--1.3%
70,000 Paging Network, Inc.*... 1,960,000
Reliance Electric
45,000 Co.*.................. 781,875
------------
2,741,875
------------
Exploration & Production--1.1%
20,000 Cabot Corp.............. 1,040,000
Potash Corp.
45,000 Saskatchewan, Inc..... 1,164,375
------------
2,204,375
------------
Financial Services--1.2%
97,000 CTL Credit, Inc.*....... 1,333,750
75,667 Mercury Finance Corp.... 1,153,917
------------
2,487,667
------------
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Food & Beverage--2.1%
30,000 Brothers Gourmet Coffees,
Inc........................ $ 532,500
40,000 Celestial Seasonings,
Inc.*...................... 1,150,000
395,000 RJR Nabisco Hldgs. Corp.*.... 2,715,625
------------
4,398,125
------------
Health Care Services (HMO)--1.9%
15,000 Oxford Health Plans, Inc.*... 967,500
50,000 Ramsay-HMO, Inc.*............ 2,687,500
10,000 Sierra Health Services,
Inc.*...................... 282,500
------------
3,937,500
------------
Home Building & Real Estate--1.6%
40,000 McArthur Glen Reality
Corp....................... 1,110,000
60,000 Southern Energy Homes,
Inc.*...................... 1,035,000
40,000 TJ International, Inc........ 1,090,000
------------
3,235,000
------------
Hotel/Motel--4.2%
30,000 Hilton Hotels Corp........... 2,178,750
72,500 Hospitality Franchise
Systems, Inc.*............. 4,277,500
56,600 Louisiana Quinta Inns,
Inc........................ 2,200,325
------------
8,656,575
------------
Insurance/Annuity--4.5%
95,000 Amvestors Financial Corp.*... 1,021,250
120,000 Equitable of Iowa Companies,
Inc........................ 4,185,000
120,000 SunAmerica, Inc.............. 4,260,000
------------
9,466,250
------------
Leisure--0.5%
15,000 Disney (Walt) Co............. 721,875
10,000 Hollywood Park, Inc.......... 234,375
------------
956,250
------------
Machinery & Equipment--11.1%
13,500 Caterpillar, Inc............. 1,463,063
12,500 Cincinnati Milacron, Inc..... 292,000
24,000 Deere & Co................... 2,025,000
65,000 Flow International Corp.*.... 414,375
88,500 Illinois Tool Works, Inc..... 3,805,500
Stewart & Stevenson
115,000 Services, Inc......... $ 5,721,250
Trinity Industries,
15,000 Inc................... 665,625
195,000 Varity Corp.*........... 8,872,500
------------
23,259,313
------------
Medical Supplies--1.3%
70,000 Patterson Dental Co.*... 2,283,750
20,000 Resound Corp.*.......... 375,000
------------
2,658,750
------------
Mineral Resources--0.3%
30,000 Placer Dome, Inc........ 723,750
------------
Office Equipment & Supplies--1.0%
20,000 Singer Co............... 754,076
Viking Office Products,
30,000 Inc.*................. 1,402,500
------------
2,156,576
------------
Paper & Forest Products--0.8%
Louisiana Pacific
40,000 Corp.................. 1,720,000
------------
Pharmaceuticals--1.4%
50,000 Ivax Corp............... 1,756,250
Syncor International
54,000 Corp.*................ 1,174,500
------------
2,930,750
------------
Railroads--2.9%
Consolidated Rail
30,000 Corp.................. 1,863,750
30,000 CSX Corp................ 2,640,000
Illinois Central
42,700 Corp.................. 1,526,525
------------
6,030,275
------------
Retail-General Merchandise--0.5%
20,000 Kohls Corp.*............ 1,020,000
------------
Retail-Specialty--3.4%
55,000 Home Depot, Inc......... 2,289,375
35,000 Tandy Corp.............. 1,452,500
40,000 Lowes Companies, Inc.... 2,645,000
Ultimate Electronics,
55,000 Inc.*................. 605,000
------------
6,991,875
------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Steel--2.1%
205,000 Bethlehem Steel Corp.*....... $ 4,458,750
------------
Telecommunications--4.6%
35,000 British Telecommunications
PLC (ADR) (Great
Britain)................... 2,288,125
25,000 Cable & Wireless Public Ltd.
Co. (ADR) (Great
Britain)................... 531,250
30,000 MCI Communications Corp...... 822,500
15,000 Nextel Communications Inc.... 639,990
135,900 Telefonica de Espana (ADR)
(Spain).................... 5,385,037
------------
9,666,902
------------
Textiles--0.9%
50,000 Phillips Van Heusen Corp..... 1,781,250
------------
Transportation--2.4%
20,000 Kansas City Southern
Industries, Inc............ 902,500
95,000 XTRA Corp.................... 4,203,750
------------
5,106,250
------------
Trucking & Shipping--1.8%
70,000 Airborne Freight Corp........ 2,607,500
70,000 Anangel-Amer. Shipholdings,
(ADR) (Cayman Islands)..... 1,251,250
------------
3,858,750
------------
Waste Management--0.6%
15,000 Mid-American Waste Systems,
Inc........................ 142,500
45,000 WMX Technologies, Inc........ 1,108,125
------------
1,250,625
------------
Total long-term investments
(cost $154,924,206)........ 178,792,153
------------
</TABLE>
<TABLE>
<CAPTION>
Par Value Value
(000) Description (Note 1)
<C> <S> <C>
SHORT-TERM INVESTMENTS
Commercial Paper--6.1%
Koch Industries
$ 6,800 3.47%, 3/1/94................ $ 6,800,000
Receivables Capital
Corporation
6,000 3.25%, 3/1/94................ 6,000,000
------------
Total short-term investments
(cost $12,800,000)......... 12,800,000
------------
Total investments before
short sales--91.8%
(cost $167,724,206; Note
4)......................... 191,592,153
------------
<CAPTION>
Shares COMMON STOCKS SOLD SHORT--(.3%)
- -------
<C> <S> <C>
Commercial Bank
10,000 State Street Bank & Trust
Company.................... (372,500)
International Telecommunications
5,000 HK Telecom*.................. (284,375)
------------
Total investments sold short
(proceeds $656,178)........ (656,875)
------------
Total investments, net of
short sales--91.5%......... 190,935,278
Other assets in excess of
liabilities--8.5%............ 17,649,282
------------
Net Assets--100%............. $208,584,560
------------
------------
</TABLE>
- ------------------
* Non-income producing security.
ADR--American Depository Receipt.
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets February 28, 1994
-----------------
<S> <C>
Investments, at value (cost $167,724,206).............................................. $ 191,592,153
Cash................................................................................... 53,769
Receivable for investments sold........................................................ 23,610,910
Receivable for Fund shares sold........................................................ 1,873,430
Dividends receivable................................................................... 301,352
Other assets........................................................................... 17,389
---------------
Total assets....................................................................... 217,449,003
---------------
Liabilities
Payable for investments purchased...................................................... 6,959,959
Investments sold short, at value (proceeds $656,178)................................... 656,875
Payable for Fund shares reacquired..................................................... 565,770
Accrued expenses....................................................................... 422,159
Distribution fee payable............................................................... 158,828
Management fee payable................................................................. 100,852
---------------
Total liabilities.................................................................. 8,864,443
---------------
Net Assets............................................................................. $ 208,584,560
---------------
---------------
Net assets were comprised of:
Common stock, at par................................................................. $ 139,105
Paid-in capital in excess of par..................................................... 176,251,278
---------------
176,390,383
Accumulated net investment loss...................................................... (745,215)
Accumulated net realized gain on investments......................................... 9,072,142
Net unrealized appreciation on investments........................................... 23,867,250
---------------
Net assets, February 28, 1994.......................................................... $ 208,584,560
---------------
---------------
Class A:
Net asset value and redemption price per share
($5,469,467 (div) 361,879 shares of common stock issued and outstanding)........... $15.11
Maximum sales charge (5.25% of offering price)....................................... .84
---------------
Maximum offering price to public..................................................... $15.95
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share
($203,115,093 (div) 13,548,588 shares of common stock issued and outstanding)...... $14.99
---------------
---------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
February
28,
Net Investment Loss 1994
-----------
<S> <C>
Income
Dividends (net of foreign
withholding taxes of $61,241)..... $ 3,073,793
Interest............................ 355,411
-----------
Total income...................... 3,429,204
-----------
Expenses
Distribution fee--Class A........... 8,690
Distribution fee--Class B........... 2,180,398
Management fee...................... 1,388,821
Transfer agent's fees and
expenses............................ 550,000
Custodian's fees and expenses....... 189,000
Reports to shareholders............. 100,000
Registration fees................... 88,000
Audit fee........................... 55,000
Directors' fees..................... 48,750
Legal fees.......................... 40,000
Franchise taxes..................... 29,000
Miscellaneous....................... 24,558
-----------
Total expenses.................... 4,702,217
-----------
Net investment loss................... (1,273,013)
-----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized gain (loss) on:
Investment transactions............. 31,254,806
Written options..................... 19,731
Futures transactions................ 25,428
Investments sold short.............. (412,051)
-----------
30,887,914
-----------
Net change in unrealized appreciation
on:
Investments......................... (12,403,556)
Investments sold short.............. (697)
-----------
(12,404,253)
-----------
Net gain on investments............... 18,483,661
-----------
Net Increase in Net Assets
Resulting from Operations............. $17,210,648
-----------
-----------
</TABLE>
PRUDENTIAL GROWTH FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) in Year Ended February 28,
Net Assets 1994 1993
<S> <C> <C>
------------ ------------
Operations
Net investment income
(loss)................. $ (1,273,013) $ 946,136
Net realized gain on
investments.......... 30,887,914 8,855,184
Net change in
unrealized
appreciation of
investments.......... (12,404,253) (4,195,990)
------------ ------------
Net increase in net
assets resulting from
operations........... 17,210,648 5,605,330
------------ ------------
Net equalization
debits................. (76,178) (162,716)
------------ ------------
Dividends and distributions (Note 1)
Dividends to
shareholders from net
investment income
Class A.............. -- (44,533)
Class B.............. -- (1,113,083)
------------ ------------
-- (1,157,616)
------------ ------------
Distributions to
shareholders from net
realized capital
gains
Class A.............. (488,857) (148,147)
Class B.............. (25,505,673) (7,810,315)
------------ ------------
(25,994,530) (7,958,462)
------------ ------------
Fund share transactions
(Note 5)
Proceeds from shares
sold................... 33,043,389 140,851,772
Net asset value of
shares issued in
reinvestment of
dividends and
distributions........ 24,494,400 8,521,054
Cost of shares
reacquired............. (80,947,271) (185,872,452)
------------ ------------
Net decrease in net
assets from
Fund share
transactions......... (23,409,482) (36,499,626)
------------ ------------
Total decrease........... (32,269,542) (40,173,090)
------------ ------------
Net Assets
Beginning of year........ 240,854,102 281,027,192
------------ ------------
End of year.............. $208,584,560 $240,854,102
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
Notes to Financial Statements
Prudential Growth 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 to seek a high total return
consistent with reasonable risk through allocating assets among equity
securities, fixed-income securities and cash based on an evaluation of current
market and economic conditions.
Note 1. Accounting The following is a summary of
Policies significant accounting policies
followed by the Fund in the preparation of its
financial statements.
Security Valuation: Investments traded on an exchange and NASDAQ National
Market Equity Securities 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 whose
primary market is believed to be over-the-counter) and listed securities for
which no sales were reported on that date are valued at the mean between the
last reported bid and asked prices. Stock options traded on national
securities exchanges are valued at the closing prices on such exchanges.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by, or under the direction of, the
Fund's Board of Directors.
Short-term securities 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.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Net
investment income/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.
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 gains
or losses until the contracts expire or are closed, at which time the gains or
losses is reclassified to realized gain or loss. The Fund invests in financial
futures contracts solely for the purpose of hedging its existing portfolio
securities or securities the Fund intends to purchase against fluctuations in
value caused by changes in prevailing market interest rates. Should interest
rates move unexpectedly, 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, interest rates and the underlying hedged assets.
There were no financial futures contracts outstanding at February 28, 1994.
Option Writing: When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options which expire unexercised are treated by the Fund on the expiration date
as realized gains from the sale of options. The difference between the premium
and the amount paid on effecting a closing purchase transaction, including
brokerage commissions, is also treated as a realized gain, or if the premium is
less than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium is added to the proceeds from
the sale of the underlying security in determining whether the Fund has
realized a gain or loss. If a put option is exercised, the premium reduces the
cost basis of the securities purchased by the Fund. The Fund, as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
There were no written options outstanding at February 28, 1994.
Short Sales: The Fund may sell a security it does not own in anticipation of a
decline in the market value of that security (short sale). When the Fund makes
a short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of
-9-
<PAGE>
<PAGE>
the sale. The Fund may have to pay a fee to borrow the particular security and
may be obligated to pay over any payments received on such borrowed securities.
A gain, limited to the price at which the Fund sold the security short, or a
loss, unlimited in magnitude, will be recognized upon the termination of a
short sale if the market price at termination is less than or greater than,
respectively, the proceeds originally received.
Equalization: The Fund follows the accounting practice known as equalization,
by which a portion of the proceeds from sales and costs of reacquisitions of
Fund shares, equivalent on a per share basis to the amount of distributable
net investment income on the date of the transaction, is credited or charged
to undistributed net investment income. As a result, undistributed net
investment income per share is unaffected by sales or reacquisitions of the
Fund's shares.
Dividends and Distributions: The Fund expects to pay dividends of net
investment income, if any, semi-annually and make distributions at least
annually of any net capital gains. 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.
Reclassification of Capital Accounts: Effective March 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to increase paid-in capital by $1,672,698, decrease undistributed
net investment income by $1,652,300, and decrease accumulated net realized
gains by $20,398 compared to amounts previously reported through February 28,
1993. During the year ended February 28, 1994, the Fund reclassified
$1,273,013 of net operating losses to accumulated net realized gains; there
was no net effect on paid in capital. Net investment income, net realized
gains, and net assets were not effected by this change.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rates.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of
such services. PMF has a subadvisory agreement with Greg A. Smith Asset
Management Corporation (``GSAM''); GSAM furnishes investment advisory services
to PMF in connection with the management of the Fund. PMF pays for the
subadviser's services, 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 to PMF is computed daily and payable monthly, at an
annual rate of .625 of 1% of the Fund's average daily net assets up to $500
million, .55 of 1% of the next $500 million of average daily net assets and .50
of 1% of such assets in excess of $1 billion. Pursuant to the subadvisory
agreement, PMF compensates the subadviser for its services in connection with
the management of the Fund at an annual rate of .375 of 1% of the Fund's
average daily net assets up to $500 million, .35 of 1% of the next $500
million of average daily net assets and .30 of 1% of such average daily net
assets in excess of $1 billion. During the year ended February 28, 1994, PMF
earned $1,388,821 in management fees of which it paid $833,292 to GSAM under
the foregoing agreements.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), who acts as the distributor of the Class A
shares of the Fund, and Prudential Securities Incorporated (``PSI'') who acts
as distributor of the Class B shares of the Fund, (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing and servicing the Fund's Class A and B shares, the Fund, pursuant
to plans of distribution, pays the Distributors a reimbursement, accrued daily
and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .20 of 1% of the average daily net assets of the Class A shares for the
ten months ended December 31, 1993. Effective January 1, 1994, the Class A
plan distribution expenses were increased to .25 of 1% of the average daily
net assets. PMFD pays various broker-dealers, including PSI and Pruco
Securities Corporation (``Prusec''), affiliated broker-dealers,
-10-
<PAGE>
<PAGE>
for account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payment of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans,
and the receipt of initial sales charges (Class A only) and contingent
deferred sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $44,200 in
front-end sales charges resulting from sales of Class A shares during the year
ended February 28, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI & Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. PSI advised the Fund that for the year ended
February 28, 1994 it received approximately $249,900 in contingent deferred
sales charges imposed upon certain redemptions by investors. PSI, as
distributor, has also advised the Fund that at February 28, 1994, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $757,900. This
amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI and PMF are indirect
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. For the
year ended February 28, 1994, the Fund incurred fees of approximately $432,000
for the services of PMFS. As of February 28, 1994, approximately $33,000 of
such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations also include certain out-of-pocket expenses paid to
non-affiliates.
For the year ended February 28, 1994, PSI earned approximately $31,000 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of invest
Securities ment securities, other than
short-term investments, for the year ended
February 28, 1994 were $374,397,446 and $443,312,321, respectively.
The federal income tax basis of the Fund's investments at February 28, 1994
was $167,806,047, and accordingly, net unrealized appreciation for federal
income tax purposes was $23,786,106 (gross unrealized appreciation--
$27,201,876; gross unrealized depreciation--$3,415,770).
Transactions in options written during the year ended February 28, 1994,
were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options written....................... 500 $185,494
Options terminated in closing purchase
transactions........................ (410) (152,105)
Options expired....................... (90) (33,389)
--------- --------
Options outstanding at February 28,
1994................................ -0- -0-
--------- --------
--------- --------
</TABLE>
Note 5. Capital Class A shares are sold with a
front-end sales charge of up to 5.25%. 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. Both classes of
shares have equal rights as to earnings, assets and voting privileges except
that each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan.
There are 500 million shares of common stock, $.01 par value per share,
divided into two classes, designated Class A and Class B common stock, each of
which consists of 250 million authorized shares.
-11-
<PAGE>
<PAGE>
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
<S> <C> <C>
----------- -------------
Year ended February 28,
1994:
Shares sold................. 574,337 $ 9,064,280
Shares issued in
reinvestment of
distributions............. 31,195 464,547
Shares reacquired........... (514,635) (8,182,012)
----------- -------------
Net increase in shares
outstanding............... 90,897 $ 1,346,815
----------- -------------
----------- -------------
<CAPTION>
Class A
<S> <C> <C>
Year ended February 28,
1993:
Shares sold................. 808,694 $ 12,148,432
Shares issued in
reinvestment of dividends
and distributions......... 12,430 186,216
Shares reacquired........... (878,566) (13,201,021)
----------- -------------
Net decrease in shares
outstanding............... (57,442) $ (866,373)
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
<S> <C> <C>
----------- -------------
Year ended February 28,
1994:
Shares sold................. 1,528,319 $ 23,979,109
Shares issued in
reinvestment of
distributions............. 1,620,447 24,029,853
Shares reacquired........... (4,630,005) (72,765,259)
----------- -------------
Net decrease in shares
outstanding............... (1,481,239) $ (24,756,297)
----------- -------------
----------- -------------
<CAPTION>
Class B
<S> <C> <C>
Year ended February 28,
1993:
Shares sold................. 8,684,206 $ 128,703,340
Shares issued in
reinvestment of dividends
and distributions......... 558,437 8,334,838
Shares reacquired........... (11,603,701) (172,671,431)
----------- -------------
Net decrease in shares
outstanding............... (2,361,058) $ (35,633,253)
----------- -------------
----------- -------------
</TABLE>
-12-
<PAGE>
<PAGE>
PRUDENTIAL GROWTH FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------------- ------------------------------------------------------
January 22,
1990(dag)
PER SHARE Year Ended February 28/29, through Year Ended February 28/29,
OPERATING ------------------------------------- February 28, ------------------------------------------------------
PERFORMANCE: 1994 1993 1992** 1991 1990 1994 1993 1992** 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------- ------ ------ ------ ------------- ---------- -------- -------- -------- --------
Net asset value,
beginning of
period......... $15.74 $15.84 $14.91 $14.47 $ 14.45 $ 15.74 $ 15.86 $ 14.92 $ 14.46 $ 13.40
---------- ------ ------ ------ ------ ---------- -------- -------- -------- --------
Income from investment
operations
- ----------------------
Net investment
income
(loss)......... .03 .19 .21 .27 .01 (.09) .06 .11 .17 .26
Net realized and
unrealized gain
on investment
transactions... 1.29 .37 1.75 .64 .01 1.29 .37 1.73 .65 1.21
---------- ------ ------ ------ ------ ------ -------- -------- -------- --------
Total from
investment
operations... 1.32 .56 1.96 .91 .02 1.20 .43 1.84 .82 1.47
---------- ------ ------ ------ ------ -------- -------- -------- -------- --------
Less distributions
- -----------------
Dividends from
net investment
income......... -- (.18) (.29) (.26) -- -- (.07) (.16) (.16) (.41)
Distributions
from net
realized
gains.......... (1.95) (.48) (.74) (.21) -- (1.95) (.48) (.74) (.20) --
---------- ------ ------ ------ ------ ---------- -------- -------- -------- --------
Total
distributions... (1.95) (.66) (1.03) (.47) -- (1.95) (.55) (.90) (.36) (.41)
---------- ------ ------ ------ ------ ---------- -------- -------- -------- --------
Net asset value,
end of
period......... $15.11 $15.74 $15.84 $14.91 $ 14.47 $ 14.99 $ 15.74 $ 15.86 $ 14.92 $ 14.46
---------- ------ ------ ------ ------ ---------- -------- -------- -------- --------
---------- ------ ------ ------ ------ ---------- -------- -------- -------- --------
TOTAL RETURN#.... 8.81% 3.74% 13.76% 6.74% .14% 8.02% 2.91% 12.80% 6.03% 10.90%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
(000).......... $5,469 $4,264 $5,202 $1,105 $ 147 $ 203,115 $236,590 $275,826 $277,282 $327,406
Average net
assets (000)... $4,172 $4,177 $2,126 $ 705 $ 41 $ 218,040 $246,195 $270,211 $291,028 $359,942
Ratios to average
net assets:
Expenses,
including
distribution
fees......... 1.34% 1.29% 1.35% 1.46% 1.49%* 2.13% 2.09% 2.15% 2.26% 1.70%
Expenses,
excluding
distribution
fees......... 1.13% 1.09% 1.15% 1.26% 1.29%* 1.13% 1.09% 1.15% 1.26% 0.97%
Net investment
income
(loss)....... .20% 1.13% 1.37% 1.94% 3.39%* (.59)% 0.37% 0.74% 1.14% 1.71%
Portfolio
turnover....... 178% 99% 146% 77% 76% 178% 99% 146% 77% 76%
</TABLE>
- ---------------
* Annualized.
** Calculated based upon weighted average shares outstanding during the year.
(dag) Commencement of offering of Class A shares.
# 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 one full year are not
annualized.
See Notes to Financial Statements.
-13-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prudential 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 Growth Fund, Inc. (the
``Fund'') at February 28, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as ``financial statements'') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at February 28, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
April 7, 1994
TAX INFORMATION
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (February 28, 1994) as to certain tax benefits
inherent in the Fund's distributions. Accordingly, we wish to advise you that
during its fiscal year ended February 28, 1994, the Fund paid distributions to
both Class A and B shareholders from net realized short-term capital gains of
$.10 per share, which are fully taxable as ordinary income, and $1.85 per share
from net realized long-term capital gains, which are taxable as long-term
capital gains. Further, we wish to advise you that 81% of the ordinary
dividends paid in the fiscal year ended February 28, 1994 qualified for the
corporate dividends received deduction available to corporate taxpayers.
In January 1995, 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 1994. The amounts that will be reported on such Form 1099 DIV or
substitute Form 1099 will be the amounts to use on your 1994 federal income tax
return and probably will differ from the amounts which we must report for the
Fund's fiscal year ended February 28, 1994.
-14-
<PAGE>
<PAGE>
Past performance is not predictive of future performance and an investor's
shares, when redeemed, may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in Prudential Growth Fund (Class A and Class B)
with a similar investment in the Standard & Poor's 500 Index (S&P 500) by
portraying the initial account values on Janaury 22, 1990 for Class A shares
and March 1, 1984 for Class B shares and subsequent account values at the end
of each fiscal year (February 28), as measured on a quarterly basis, beginning
in 1990 for Class A shares and in 1984 for Class B shares. For purposes of
the graphs and, unless otherwise indicated, the accompanying tables, it has
been assumed that (a) the maximum sales charge was deducted from the initial
$10,000 investment in Class A shares; (b) The maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
shares assuming full redemption on February 28, 1994; (c) all recurring fees
(including management fees) were deducted; and (d) all dividends and
distributions were reinvested.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The S&P 500 is an unmanaged index 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 which
comprise the S&P 500 may differ substantially from the securities in the
Fund's portfolio. The S&P 500 is not the only index which may be used to
characterize performance of growth funds and other indexes may portray
different comparative performance.
-15-
<PAGE>
<PAGE>
Directors
John C. Davis
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Robert J. Schultz
Gerald A. Stahl
Stephen Stoneburn
Robert H. Wellington
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Deborah Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
Greg A. Smith Asset Management Corporation
One Seaport Plaza
New York, NY 10292
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
This report is not authorized for distribution to prospective investors unless
preceded or
accompanied by a current prospectus.
743943102 MF114E
743943201 Cat. #43301A2