-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tW+fhNaPvZbg6xqrdgy+Y5mCZ9cYA7kdC4h6FwgrgZMj+FUN59Hkli2dfuuRKQT0 TkSKjRCaOR32EdCM7OSCiA== 0000318531-94-000006.txt : 19941214 0000318531-94-000006.hdr.sgml : 19941214 ACCESSION NUMBER: 0000318531-94-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL GROWTH OPPORTUNITY FUND CENTRAL INDEX KEY: 0000318531 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133040042 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03084 FILM NUMBER: 94564342 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122141250 MAIL ADDRESS: STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE GROWTH OPPORTUNITY FUND INC DATE OF NAME CHANGE: 19920601 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE NEW DECADE GROWTH FUND INC DATE OF NAME CHANGE: 19850714 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR NEW DECADE GROWTH FUND INC DATE OF NAME CHANGE: 19840205 N-30D 1 GROWTH OPPORTUNITY FUND N30D FILING (9/94) ANNUAL REPORT September 30, 1994 Prudential Growth Opportunity Fund (ICON) (LOGO) Letter to Shareholders November 11, 1994 Dear Shareholder: Over the last 12 months, continuing economic recovery, favorable earnings reports and merger activity produced positive results for the Prudential Growth Opportunity Fund. However, rising interest rates during the early part of 1994, and the resulting market downturn, helped keep the Fund's returns modest. Fund Performance During the period, your Fund was invested in a combination of small- and mid-sized companies, which generally did not perform as well as stocks of the smallest companies. For the fiscal year ended September 30, 1994, your Fund's total returns were 1.1% for Class A, 0.3% for Class B and 3.2% for Class C shares. This compares with a return of 2.7% for the Russell 2000, an index of the smallest 2,000 stocks out of the largest 3,000 equity-capitalized corporations in terms of market value in the United States, and 2.1% for the Lipper Small Company Growth Fund Average, an average of small company stock mutual funds. Small Stocks Generally Outpace Large Stocks Small company stocks tend to rise earlier in an economic recovery than their large company counterparts and fall later during economic downturns. Consequently, over the last 12 months, as the U.S. economy began to rebound, small company stocks generally showed slightly greater returns than larger company stocks. For the year ended September 30, 1994, the Russell 2000 gained 2.7% while the S&P 500, the large stock benchmark, rose 3.7%. Small stocks outpaced mid-sized stocks by a much wider margin, as evidenced by the S&P Mid-Cap Index's gain of 1.6% for the last 12 months. Seeking Value Investment Opportunities We employ a "value" oriented, bottom-up approach to portfolio management, which is unusual among small stock investors. As a result, we tend to hold a fairly eclectic group of stocks across many industries. -1- The Fund focuses on lower-priced issues that have the potential to rise in price as investors realize the discrepancy between the stocks' intrinsic value and their current price. This strategy generally leads us to favor market sectors where stocks are attractively priced and to avoid high-priced stocks. Worldwide Recovery Favors Industriales The current worldwide economic recovery favors stocks of companies with increasing pricing power and earnings growth potential, rather than interest-sensitive stocks whose performance may suffer in an uncertain interest rate environment, and consumer stocks, which face sluggish demand and contracting profit margins. Consequently, the Fund emphasizes stocks in the industrial and technology sectors, concentrating on industries such as railcar construction, air freight forwarding, aerospace and manufacturing. In railcar construction, an industry showing recent revival after more than a decade of decline caused primarily by inventory oversupply, we have increased our positions in Trinity Industries, the Fund's largest holding as of September 30, 1994, and Johnstown America. In air freight forwarding, an industry we believe will benefit from increased import/export volumes, we made additions to Expediters International, Air Express and American Presidents. We expect aerospace companies, which generally prosper later in the upturn of economic cycles, to begin to benefit soon, as well; Precision Castparts, a manufacturer of castings for aircraft engines, is one of our largest holdings. We also sought manufacturing companies with the market position and operating leverage to benefit from an economic upswing. In this industry, we favor Regal Beloit, a power transmission and tools manufacturer, and Measurex. Reduced Finance Emphasis While the Fund reduced its emphasis on bank stocks over the last year, this sector still accounts for 8.3% of portfolio assets. Within the group, the Fund continues to concentrate on regional banks, which show attractive earnings growth potential and are well-positioned to benefit from further consolidation in the industry. Holdings include Community First Bankshares, Riggs National and Bank South. The Fund has also added to its holdings in Real Estate Investment Trusts, or REITs. We believe these present conservative opportunities for compound returns of dividends and annual growth relative to a stock market whose total returns may be lower than those seen in recent years. Largest holdings in this area include Equity Residential, Kimco Realty, Weingarten Realty and Vornado. -2- Merger & Acquisitions Activity Benefits Fund In the last year, our "bottom-up" selection process helped the Fund benefit from increased merger activity across many industries as companies seek takeover candidates with similar fundamentals. Holdings (some of which we no longer own) which benefitted from merger activity included regional bank Citizens First, insurance firm Statesmen Group, Reliance Electic, Mr. Coffee and software retailers Babbages and Software, Etc. The Fund profited from consolidation in the oil industry after separate deals involving Wheatley TXT, Western Company of North America and American Oil & Gas. We expect consolidation activity to continue and believe the Fund is well-positioned to take advantage of such opportunities. Investment Activity During the period, we sold several issues which we felt reached full valuation. We eliminated our position in former top holding Kansas City Southern, the railroad and financial services conglomerate, after its price appreciated. Similarly, we sold our position in Foundation Health and reduced our exposure to financial security firm Diebold after good performance. We also held some underperformers during the past 12 months. These included security and protection systems firms Pinkerton's and Borg Warner, which suffered from competitive pricing pressures in the industry. We decided to exit these positions and use the assets to investigate other opportunities. Other disappointing performers included Piper Jaffray, hurt by a weak securities brokerage industry and regulatory problems, and pharmaceutical firm Carter Wallace, which was forced to withdraw one of its drugs from the market. Outlook We remain optimistic about the outlook for small company stocks, believing that the conservative gains of the last three years represent an interruption in a longer cycle in which small company stocks outperform large company stocks. We believe that, relative to larger company stocks, small company stocks contain the above-average earnings growth potential and favorable market valuations which will help them benefit from sustained strength in economic activity. -3- As always, it is a pleasure to have you as a shareholder of the Prudential Growth Opportunity Fund and to take the opportunity to report our activities to you. Sincerely, Lawrence C. McQuade President Robert P. Fetch Portfolio Manager Investment Update On November 14, 1994, your Board of Directors approved a change in the Fund's investment policies which would permit the Fund to invest up to 15% of total assets in foreign securities. Foreign securities are subject to special risks, including currency fluctuations and political, social and economic instability. This policy change is not expected to be implemented until February 1995; prior thereto an updated prospectus will include more details on the new policy and its associated risks. -4- PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Portfolio of Investments September 30, 1994
Value Shares Description (Note 1) LONG-TERM INVESTMENTS Common Stocks--95.1% Aerospace/Defense--2.7% 553,600 Precision Castparts Corp.................... $ 14,186,000 ------------ Automobiles--1.1% 250,000(D) Jason, Inc.* (cost $2,200,000; purchase date--1/21/94).......... 1,912,500 31,700 Mascotech, Inc............ 376,437 115,100 Standard Products Co...... 2,877,500 46,000 Tower Automotive, Inc.*... 534,750 ------------ 5,701,187 ------------ Banking--8.0% 153,000 Bank South Corp........... 2,830,500 50,000 Charter One Financial, Inc..................... 1,025,000 8,700 Citfed Bancorp, Inc....... 282,750 155,000 Commercial Federal Corp.*.................. 3,836,250 270,000 Community First Bankshares, Inc......... 4,252,500 135,000 Dauphin Deposit Corp...... 3,375,000 100,000 First Commerce Corp....... 2,675,000 95,000 First Security Corp....... 2,755,000 36,400 First Virginia Banks, Inc..................... 1,396,850 120,000 Hawkeye Bancorporation.... 2,535,000 360,000 Riggs National Corp.*..... 3,667,500 200,000 Rochester Community Savings Bank*........... 3,875,000 86,050 SouthTrust Corp........... 1,721,000 30,000 TCF Financial Corp........ 1,181,250 225,000 Washington Mutual Savings Bank.................... 4,584,375 80,000 West One Bancorp.......... 2,240,000 ------------ 42,232,975 ------------ Cable & Pay Television Systems--1.3% 91,700 Comcast Corp. (voting).... 1,398,425 45,800 Comcast Corp. (non-voting)............ 701,312 192,300 TCA Cable TV, Inc......... 4,687,313 ------------ 6,787,050 ------------ Commercial Services--1.8% 124,100 AAR Corp.................. 1,613,300 40,000 Banner Aerospace, Inc.*... $ 225,000 66,800 Flightsafety International, Inc...... 2,588,500 190,000 SafeCard Services, Inc.*................... 2,992,500 62,300 Sterling Software, Inc.*................... 1,931,300 ------------ 9,350,600 ------------ Computer Hardware--2.7% 190,000 Electronics for Imaging, Inc.*................... 4,987,500 70,600 Quixote Corp.............. 1,235,500 380,000 Telxon Corp............... 5,225,000 130,000 VeriFone, Inc.*........... 3,038,750 ------------ 14,486,750 ------------ Computer Software & Services--3.4% 277,300 American Management Systems, Inc.*.......... 6,516,550 235,000 Continuum, Inc.*.......... 5,316,875 148,000 INTERLINQ Software Corp.*.................. 740,000 12,000 Learning Co.*............. 237,000 275,000 Primark Corp.*............ 3,506,250 18,300 SunGard Data Systems*..... 649,650 89,200 Westcott Communications, Inc.*................... 1,220,925 ------------ 18,187,250 ------------ Construction--0.4% 55,000 Centex Corp............... 1,271,875 123,500 Willcox & Gibbs, Inc.*.... 895,375 ------------ 2,167,250 ------------ Consumer Products--1.8% 275,000 Fedders Corp.*............ 1,306,250 550,000 Fedders USA, Inc.*........ 2,887,500 100,000 Helene Curtis Industries, Inc..................... 3,437,500 84,500 Russ Berrie & Co., Inc.... 1,204,125 19,600 Sealright Co., Inc........ 303,800 44,600 Windmere Corp............. 485,024 ------------ 9,624,199 ------------
-5- See Notes to Financial Statements. PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.
Value Shares Description (Note 1) Consumer Services--0.8% 205,300 Aviall, Inc............... $ 2,104,325 161,300 Regis Corp.*.............. 2,379,175 ------------ 4,483,500 ------------ Drugs & Medical Supplies--1.2% 113,800 Endosonics Corp.*......... 796,600 30,500 Medex, Inc................ 423,187 150,000 Sybron Corp.*............. 5,175,000 ------------ 6,394,787 ------------ Electrical Equipment--0.5% 120,000 Belden, Inc............... 2,490,000 ------------ Electronics--7.3% 49,500 Anthem Electronics, Inc.*................... 1,596,375 100,000 Augat, Inc................ 2,200,000 196,100 Cirrus Logic, Inc.*....... 5,490,800 365,000 Kemet Corp.*.............. 7,665,000 280,200 Laser Precision Corp.*.... 1,646,175 410,000 Marshall Industries, Inc.*................... 10,301,250 400,000 Methode Eletronics, Inc..................... 7,900,000 125,000 Woodhead Industries, Inc..................... 1,875,000 ------------ 38,674,600 ------------ Environmental Services--0.9% 61,800 Applied Bioscience International, Inc.*.... 324,450 216,000 BHA Group, Inc............ 2,808,000 100,000 USA Waste Services, Inc.*................... 1,500,000 ------------ 4,632,450 ------------ Financial Services--0.9% 40,000 GFC Financial Corp........ 1,425,000 165,000 McDonald & Co. Investments, Inc........ 2,124,375 120,000 Piper Jaffray, Inc........ 1,185,000 ------------ 4,734,375 ------------ Food & Beverages--2.5% 257,500 Michaels Foods, Inc....... $ 2,832,500 392,000 Rykoff - Sexton, Inc.*.... 7,546,000 136,200 Sanderson Farms, Inc...... 2,621,850 ------------ 13,000,350 ------------ Forest Products--2.3% 275,000 Mercer International, Inc.*................... 3,334,375 150,000 Mosinee Paper Corp........ 4,593,750 107,500 Pentair, Inc.............. 4,246,250 ------------ 12,174,375 ------------ Health Care Services--2.3% 90,000 Living Centers of America, Inc.*................... 2,846,250 107,500 National Health Labs Holdings, Inc........... 1,384,062 14,700 Safeguard Health Enterprises*............ 147,919 175,700 Salick Health Care, Inc.*................... 3,777,550 36,800 Sofamor/Danek Group, Inc.*................... 713,000 215,600 Unilab Corp.*............. 1,158,850 68,500 Universal Health Services, Inc.*................... 1,935,125 ------------ 11,962,756 ------------ Hotels & Leisure--0.5% 54,700 Caesars World, Inc.*...... 2,372,613 ------------ Household Products--0.9% 265,400 Libbey, Inc............... 4,578,150 ------------ Industriales--7.4% 145,000 Amcast Industrial Corp.... 3,353,125 181,600 Carlisle Companies, Inc..................... 5,902,000 50,000 Diebold, Inc.............. 2,056,250 40,100 ESSEF Corp.*.............. 591,475 18,000 Harmon Industries, Inc.... 373,500 135,000 Johnstown America Industries, Inc.*....... 3,611,250 250,000 Mark IV Industries, Inc..................... 5,687,500 14,300 Matrix Service Co.*....... 91,163 205,000 Medalist Industries, Inc.*................... 1,435,000
-6- See Notes to Financial Statements. PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.
Value Shares Description (Note 1) Industriales (cont'd) 48,600 Park Ohio Industries, Inc.*................... $ 631,800 96,700 Rogers Corp.*............. 3,287,800 153,800 Schulman, Inc............. 4,152,600 260,000 Shorewood Packaging Corp.*.................. 5,590,000 15,700 SPS Technologies, Inc..... 412,125 109,250 Varlen Corp............... 2,540,063 ------------ 39,715,651 ------------ Information Services--0.3% 111,300 American Business Information, Inc........ 1,641,675 ------------ Insurance--2.6% 166,000 Amvestors Financial Corp.*.................. 1,660,000 84,000 CCP Insurance, Inc........ 1,921,500 104,600 Life Re Corp.............. 2,222,750 221,400 Philadelphia Consolidated Holding Corp.*.......... 3,099,600 200,000 SCOR U.S. Corp............ 2,250,000 450,000 Southwestern Life Corp.*.................. 2,587,500 ------------ 13,741,350 ------------ Leisure--0.9% 88,800 Johnson Worldwide Associates, Inc.*....... 2,353,200 380,000 Topps Co.................. 2,351,250 ------------ 4,704,450 ------------ Machinery & Equipment--6.7% 132,800 Bearings, Inc............. 4,100,200 335,700 Brenco, Inc............... 4,238,213 126,100 GATX Corp................. 5,107,050 309,300 Gerber Scientific, Inc.... 4,678,162 210,200 Lamson & Sessions Co.*.... 1,471,400 140,600 Lufkin Industries, Inc.... 2,636,250 111,600 Maverick Tube Corp*....... 1,129,950 280,000 Measurex Corp............. $ 5,950,000 400,000 Regal Beloit Corp......... 6,100,000 ------------ 35,411,225 ------------ Media--0.6% 115,000 Scripps (E.W.) Co......... 3,378,125 ------------ Natural Resources--0.1% 117,500 Nord Resources Corp.*..... 778,438 ------------ Office Equipment--0.5% 110,000 Miller Herman, Inc........ 2,729,374 ------------ Oil & Gas Exploration/Production--7.5% 128,500 Basin Exploration, Inc.*................... 1,445,625 55,000 Belden & Blake Corp.*..... 770,000 7,500 Cabot Oil & Gas Corp...... 137,813 120,000 Diamond Shamrock, Inc..... 3,090,000 243,000 Dreco Energy Services Ltd.*................... 2,247,750 170,000 Energy Service, Inc.*..... 2,528,750 30,000 Enterra Corp.*............ 667,500 54,000 Evergreen Resources, Inc.*................... 391,500 240,000 International Colin Energy Co...................... 1,890,000 346,014 KN Energy, Inc............ 9,039,616 320,000 Lomak Petroleum, Inc.*.... 2,600,000 525,000 Mesa, Inc.*............... 2,887,500 120,000 Mitchell Energy & Dev. Corp., Class A.......... 2,115,000 168,550 Mitchell Energy & Dev. Corp., Class B.......... 2,907,488 232,300 Weatherford International, Inc.*................... 2,874,712 175,000 Western Gas Resources, Inc..................... 3,806,250 ------------ 39,399,504 ------------ Oil Services--0.6% 300,000 Pride Petroleum Services, Inc.*................... 1,518,750 94,600 Western Co. of North America*................ 1,679,150 ------------ 3,197,900 ------------ Packaging--0.1% 24,200 AptarGroup, Inc........... 653,400 ------------
-7- See Notes to Financial Statements. PRUDENTIAL GROWTH OPPORTUNITY FUND, INC.
Value Shares Description (Note 1) Publishing--2.4% 125,000 Central Newspapers, Inc..................... $ 3,562,500 120,000 Lee Enterprises, Inc...... 4,140,000 170,000 McClatchy Newspapers, Inc.*................... 4,037,500 61,700 Pages, Inc.*.............. 431,900 30,900 Western Publishing Group, Inc.*................... 397,838 ------------ 12,569,738 ------------ Realty--3.2% 100,000 Duke Reality Investments, Inc..................... 2,500,000 170,000 Equity Residential Property Trust.......... 5,397,500 80,300 Kimco Realty Corp......... 2,910,875 79,200 Manufactured Home Community, Inc.......... 1,584,000 64,100 Vornado Realty Trust...... 2,195,425 70,000 Weingarten Realty Investors............... 2,502,500 ------------ 17,090,300 ------------ Restaurants--1.1% 40,200 Buffets, Inc.*............ 633,150 27,600 Rock Bottom Restaurants, Inc.*................... 358,800 180,000 Sbarro, Inc............... 4,590,000 ------------ 5,581,950 ------------ Retail--4.2% 262,000 Babbage's, Inc.*.......... 3,275,000 55,700 Michael Anthony Jewelers, Inc.*................... 320,275 389,000 Software Etc. Stores, Inc.*................... 3,598,250 350,700 Stride Rite Corp.......... 4,909,800 172,700 Tiffany & Co.............. 6,389,900 185,000 Younkers, Inc.*........... 3,515,000 ------------ 22,008,225 ------------ Specialty Chemicals--4.2% 130,200 Brush Wellman, Inc........ 2,083,200 340,000 Cabot Corp................ 9,265,000 25,200 Mississippi Chemical Corp.................... 478,800 80,000 Potash Corp............... 3,270,000 36,100 Raychem Corp.............. 1,480,100 166,000 Vigoro Corp............... 5,872,250 ------------ 22,449,350 ------------ Steel--4.2% 179,000 Quanex Corp............... $ 4,698,750 36,600 Reliance Steel & Aluminum Co.*.................... 576,450 532,600 Trinity Industries, Inc..................... 16,910,050 ------------ 22,185,250 ------------ Telecommunications--1.4% 114,200 Intermediate Telephone, Inc.*................... 1,084,900 230,000 Intertrans Corp........... 2,932,500 157,700 National Data Corp........ 3,390,550 ------------ 7,407,950 ------------ Transportation--3.8% 155,000 Air Express International Corp.................... 4,281,875 275,000 American President Cos., Ltd..................... 6,943,750 340,000 Expeditors International of Washington, Inc......... 6,800,000 119,000 Harper Group, Inc......... 1,785,000 66,700 WorldCorp, Inc.*.......... 450,225 ------------ 20,260,850 ------------ Total common stocks (cost $464,064,893)....... 503,125,922 ------------ Principal Amount SHORT-TERM INVESTMENT (000) Repurchase Agreement--1.5% --------- $ 7,677 Joint Repurchase Agreement Account, 4.83%, 10/3/94 (Note 5) (cost $7,677,000)....... 7,677,000 ------------ Total Investments--96.6% (cost $471,741,893; Note 4)...................... 510,802,922 Other assets in excess of liabilities--3.4%....... 18,046,251 ------------ Net Assets--100%.......... $528,849,173 ------------ ------------
- ------------ * Non-income producing security. (D) Private placement restricted as to resale; includes registration rights under which the Fund may demand registration by the issuer. -8- See Notes to Financial Statements. PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Statement of Assets and Liabilities
Assets September 30, 1994 ------------------ Investments, at value (cost $471,741,893)............................................. $510,802,922 Receivable for Fund shares sold....................................................... 20,893,712 Receivable for investments sold....................................................... 10,080,422 Dividends and interest receivable..................................................... 795,510 Other assets.......................................................................... 8,490 ------------------ Total assets........................................................................ 542,581,056 ------------------ Liabilities Payable for investments purchased..................................................... 11,334,171 Payable for Fund shares reacquired.................................................... 1,488,697 Distribution fee payable.............................................................. 359,030 Management fee payable................................................................ 294,748 Accrued expenses and other liabilities................................................ 255,237 ------------------ Total liabilities................................................................... 13,731,883 ------------------ Net Assets............................................................................ $528,849,173 ------------------ ------------------ Net assets were comprised of: Common stock, at par................................................................ $ 438,339 Paid-in capital in excess of par.................................................... 454,437,821 ------------------ 454,876,160 Accumulated net investment income................................................... 444,381 Accumulated net realized gain on investments........................................ 34,467,603 Net unrealized appreciation on investments.......................................... 39,061,029 ------------------ Net assets, September 30, 1994........................................................ $528,849,173 ------------------ ------------------ Class A: Net asset value and redemption price per share ($103,078,061 / 8,311,301 shares of common stock issued and outstanding).......... $12.40 Maximum sales charge (5.0% of offering price)....................................... .65 ------------------ Maximum offering price to public.................................................... $13.05 ------------------ ------------------ Class B: Net asset value, offering price and redemption price per share ($425,502,483 / 35,500,194 shares of common stock issued and outstanding)......... $11.99 ------------------ ------------------ Class C: Net asset value, offering price and redemption price per share ($268,629 / 22,412 shares of common stock issued and outstanding)................. $11.99 ------------------ ------------------
See Notes to Financial Statements. -9- PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Statement of Operations
Year Ended September 30, Net Investment Loss 1994 ------------- Income Dividends............................ $ 5,698,990 Interest............................. 934,384 ------------- Total income....................... 6,633,374 ------------- Expenses Distribution fee--Class A............ 229,425 Distribution fee--Class B............ 4,002,398 Distribution fee--Class C............ 292 Management fee....................... 3,484,730 Transfer agent's fees and expenses... 970,000 Reports to shareholders.............. 345,000 Custodian's fees and expenses........ 285,000 Registration fees.................... 175,000 Franchise taxes...................... 50,000 Audit fee............................ 46,000 Legal fees........................... 35,000 Directors' fees...................... 30,200 Miscellaneous........................ 22,058 ------------- Total expenses..................... 9,675,103 ------------- Net investment loss.................... (3,041,729) ------------- Realized and Unrealized Gain (Loss) on Investments Net realized gain (loss) on investment transactions.............. 44,673,230 Net change in unrealized appreciation of investments.......... (38,737,408) ------------- Net gain on investments................ 5,935,822 ------------- Net Increase in Net Assets Resulting from Operations.............. $ 2,894,093 ------------- -------------
PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Statement of Changes in Net Assets
Year Ended September 30, Increase (Decrease) ---------------------------- in Net Assets 1994 1993 ------------ ------------ Operations Net investment loss.... $ (3,041,729) $ (1,311,418) Net realized gain on investments.......... 44,673,230 23,835,926 Net change in unrealized appreciation of investments.......... (38,737,408) 64,901,994 ------------ ------------ Net increase in net assets resulting from operations........... 2,894,093 87,426,502 ------------ ------------ Net equalization credits................ 70,234 90,512 ------------ ------------ Distributions from net capital gain (Note 1) Class A................ (5,775,787) (5,979,973) Class B................ (24,227,795) (24,035,427) ------------ ------------ (30,003,582) (30,015,400) ------------ ------------ Fund share transactions (Note 6) Net proceeds from shares subscribed.... 433,710,426 453,141,309 Net asset value of shares issued in reinvestment of distributions........ 28,758,329 28,283,287 Cost of shares reacquired........... (377,490,019) (284,879,535) ------------ ------------ Net increase in net assets from Fund share transactions... 84,978,736 196,545,061 ------------ ------------ Total increase........... 57,939,481 254,046,675 Net Assets Beginning of year........ 470,909,692 216,863,017 ------------ ------------ End of year.............. $528,849,173 $470,909,692 ------------ ------------ ------------ ------------
See Notes to Financial Statements. See Notes to Financial Statements. -10- PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Notes to Financial Statements Prudential Growth Opportunity Fund, Inc. (the ``Fund'') is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The investment objective of the Fund is to achieve capital growth, consistent with reasonable risk, by investing in a carefully selected portfolio of common stocks having prospects of a high return on equity, increasing earnings, increasing dividends and price-earnings ratios which are not excessive. Note 1. Accounting The following is a summary Policies of significant accounting poli- cies followed by the Fund in the preparation of its financial statements. Securities Valuations: Investments traded on a national securities exchange are valued at the last reported sales price on the primary exchange on which they are traded. Securities traded in the over-the-counter market (including securities listed on exchanges whose primary market is believed to be over-the-counter) and listed securities for which no sale was reported on that date are valued at the mean between the last reported bid and asked prices. Any security for which a reliable market quotation is unavailable is 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 based upon 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. All securities are valued as of 4:15 P.M., New York time. Securities Transactions and Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses on sales of investments 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. 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. 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: The Fund accounts and reports 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. During the fiscal year ended September 30, 1994, the reclassification of $4,353,147 of current and prior fiscal year net operating losses increased paid-in capital by $1,311,418, increased undistributed net investment income by $3,041,729, and decreased net accumulated realized gains by $4,353,147. Net investment income, net realized gains, and net assets were not affected by this change. Note 2. Agreements The Fund has a management agreement with Prudential 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 entered into a subadvisory agreement -11- with The Prudential Investment Corporation (``PIC''); PIC furnishes investment advisory services in connection with the management of the Fund. PMF 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 PMF is computed daily and payable monthly, at an annual rate of .70 of 1% of the Fund's average daily net assets. The Fund has distribution agreements with Prudential Mutual Fund Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which acts as distributor of the Class B and Class C shares of the Fund (collectively the ``Distributors''). The Fund compensates the Distributors for distributing and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of distribution, (the ``Class A, B and C Plans''). The distribution fees are accrued daily and payable monthly. On July 19, 1994, shareholders of the Fund approved amendments to the Class A and Class B distribution plans under which the distribution plans became compensation plans, effective August 1, 1994. Prior thereto, the distribution plans were reimbursement plans under which PMFD and PSI were reimbursed for expenses actually incurred by them up to the amount permitted under the Class A and Class B Plans, respectively. The Fund is not obligated to pay any prior or future excess distribution costs (costs incurred by the Distributors in excess of distribution fees paid by the Fund and contingent deferred sales charges received by the Distributors). The rate of the distribution fees charged to Class A and Class B shares of the Fund did not change under the amended plans of distribution. The Fund began offering Class C shares on August 1, 1994. Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors 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 Plan were .20 of 1% of the average daily net assets of the Class A shares for the three 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. Such expenses under the Plans were 1% of the average daily net assets of both the Class B and C shares for the fiscal year ended September 30, 1994. PMFD has advised the Fund that it has received approximately $498,400 in front-end sales charges resulting from sales of Class A shares during the fiscal year ended September 30, 1994. From these fees, PMFD paid such sales charges to PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn paid commissions to salespersons and incurred other distribution costs. PSI has advised the Fund that for the fiscal year ended September 30, 1994, it received approximately $796,400 in contingent deferred sales charges imposed upon certain redemptions by Class B shareholders. PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect wholly-owned subsidiaries of The Prudential Insurance Company of America. Note 3. Other Prudential Mutual Fund Ser- Transactions vices, Inc. (``PMFS''), a with Affiliates wholly-owned subsidiary of PMF, serves as the Fund's transfer agent. During the year ended September 30, 1994, the Fund incurred fees of approximately $800,000 for the services of PMFS. As of September 30, 1994, approximately $62,000 of such fees were due to PMFS. For year ended September 30, 1994, PSI earned approximately $11,000 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 September 30, 1994 were $435,176,534 and $389,300,903, respectively. The federal income tax basis of the Fund's investments at September 30, 1994 was $472,413,928 and, accordingly, net unrealized appreciation for federal income tax purposes was $38,388,994 (gross unrealized appreciation--$58,715,195 gross unrealized depreciation--$20,326,201). Note 5. Joint The Fund, along with other Repurchase affiliated registered invest- Agreement ment companies, transfers Account 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 September 30, 1994, the Fund had a 1.1% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represented $7,677,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefor were as follows: -12- Goldman, Sachs & Co., 4.85%, in the principal amount of $237,000,000, repurchase price $237,095,787, due 10/3/94. The value of the collateral including accrued interest is $242,478,687. Nomura Securities International, 4.75%, in the principal amount of $237,000,000, repurchase price $237,093,812, due 10/3/94. The value of the collateral including accrued interest is $241,948,993. Smith Barney, Inc., 4.88%, in the principal amount of $237,000,000, repurchase price $237,096,380, due 10/3/94. The value of the collateral including accrued interest is $241,950,829. Note 6. Capital The Fund currently offers Class A, Class B and Class C shares. Class A shares are sold with a front-end sales charge of up to to 5%. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class C shares are sold with a contingent deferred sales charge of 1% during the first year. Class B shares will automatically convert to Class A shares on a quarterly basis approximately seven years after purchase commencing in or about February 1995. There are 750 million shares of common stock, $.01 par value per share, divided into three classes, designated Class A, Class B and Class C common stock, each of which consists of 250 million authorized shares. Transactions in shares of common stock for the fiscal years ended September 30, 1994 and 1993 were as follows:
Class A Shares Amount - ---------------------------- ----------- ------------- Year ended September 30, 1994: Shares sold................. 9,370,171 $ 115,130,689 Shares issued in reinvestment of distributions............. 467,222 5,644,046 Shares reacquired........... (8,789,620) (108,081,971) ----------- ------------- Net increase in shares outstanding............... 1,047,773 $ 12,692,764 ----------- ------------- ----------- ------------- Year ended September 30, 1993: Shares sold................. 7,753,935 $ 136,609,388 Shares issued in reinvestment of distributions............. 350,531 5,794,272 Shares issued as a result of 3 for 2 stock split....... 2,387,650 -- Shares reacquired........... (5,886,921) (104,383,394) ----------- ------------- Net increase in shares outstanding............... 4,605,195 $ 38,020,266 ----------- ------------- ----------- ------------- Class B Shares Amount - ---------------------------- ----------- ------------- Year ended September 30, 1994: Shares sold................. 26,537,335 $ 318,270,570 Shares issued in reinvestment of distributions............. 1,960,499 23,114,283 Shares reacquired........... (22,525,818) (269,363,510) ----------- ------------- Net increase in shares outstanding............... 5,972,016 $ 72,021,343 ----------- ------------- ----------- ------------- Year ended September 30, 1993: Shares sold................. 18,585,281 $ 316,531,921 Shares issued in reinvestment of distributions............. 1,382,238 22,489,015 Shares issued as a result of 3 for 2 stock split....... 9,826,606 -- Shares reacquired........... (10,612,911) (180,496,141) ----------- ------------- Net increase in shares outstanding............... 19,181,214 $ 158,524,795 ----------- ------------- ----------- ------------- Class C - ---------------------------- August 1, 1994* through Sep- tember 30, 1994: Shares sold................. 26,125 $ 309,167 Shares reacquired........... (3,713) (44,538) ----------- ------------- Net increase in shares outstanding............... 22,412 $ 264,629 ----------- ------------- ----------- ------------- - --------------- * Commencement of offering of Class C shares.
Note 7. Dividends On November 15, 1994 the and Distributions Board of Directors of the Fund declared dividends from net capital gains to Class A, B and C shareholders of $.835 per share, payable on November 29, 1994 to shareholders of record on November 22, 1994. -13- PRUDENTIAL GROWTH OPPORTUNITY FUND, INC. Financial Highlights
Class A Class B --------------------------------------------------------------------------- ---------------------- January 22, 1990(D) Year Ended September Year Ended September 30, Through 30, ----------------------------------------------------------- September 30, ---------------------- 1994** 1993**(D)(D) 1992**(D)(D) 1991(D)(D) 1990(D)(D) 1994** 1993**(D)(D) ----------- ------- ------- ------- ------------- ----------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............... $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 8.55 $ 12.74 $ 11.08 ----------- ------- ------- ------- ------------- ----------- -------- Income from investment operations Net investment income (loss)............... -- .03 .02 .05 .09 (.09) (.06) Net realized and unrealized gain (loss) on investment transactions......... .13 3.14 1.47 2.82 (1.20) .13 3.08 ----------- ------- ------- ------- ------------- ----------- -------- Total from investment operations......... .13 3.17 1.49 2.87 (1.11) .04 3.02 ----------- ------- ------- ------- ------------- ----------- -------- Less distributions Dividends from net investment income.... -- -- -- (.07) (.08) -- -- Distributions from net realized capital gain................. (.79) (1.36) (.40) -- -- (.79) (1.36) ----------- ------- ------- ------- ------------- ----------- -------- Total distributions.... (.79) (1.36) (.40) (.07) (.08) (.79) (1.36) ----------- ------- ------- ------- ------------- ----------- -------- Net asset value, end of period............... $ 12.40 $ 13.06 $ 11.25 $ 10.16 $ 7.36 $ 11.99 $ 12.74 ----------- ------- ------- ------- ------------- ----------- -------- ----------- ------- ------- ------- ------------- ----------- -------- TOTAL RETURN#:......... 1.13% 30.42% 15.39% 39.39% (13.19)% .34% 29.40% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)......... $ 103,078 $ 94,842 $ 44,845 $25,165 $ 17,222 $ 425,502 $376,068 Average net assets (000)................ $ 97,877 $ 69,801 $ 36,011 $20,650 $ 132,627 $ 399,920 $278,659 Ratios to average net assets:## Expenses, including distribution fees............... 1.33% 1.17% 1.33% 1.50% 1.61%* 2.09% 1.97% Expenses, excluding distribution fees............... 1.09% .97% 1.13% 1.30% 1.42%* 1.09% .97% Net investment income (loss)............... .00% .26% .19% .59% 1.54%* (.76)% (.54)% Portfolio turnover..... 82% 68% 99% 111% 79% 82% 68% Class C -------------- August 1, 1994@ Through September 30, 1992**(D)(D) 1991(D)(D) 1990(D)(D) 1994** -------- -------- -------- ------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............... $ 10.11 $ 7.34 $ 9.11 $11.61 -------- -------- -------- ------ Income from investment operations Net investment income (loss)............... (.07) (.02) .07 (.01) Net realized and unrealized gain (loss) on investment transactions......... 1.44 2.82 (1.75) .39 -------- -------- -------- ------ Total from investment operations......... 1.37 2.80 (1.68) .38 -------- -------- -------- ------ Less distributions Dividends from net investment income.... -- (.03) (.09) -- Distributions from net realized capital gain................. (.40) -- -- -- -------- -------- -------- ------ Total distributions.... (.40) (.03) (.09) -- -------- -------- -------- ------ Net asset value, end of period............... $ 11.08 $ 10.11 $ 7.34 $11.99 -------- -------- -------- ------ -------- -------- -------- ------ TOTAL RETURN#:......... 14.27% 38.33% (18.63)% 3.19% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000)......... $172,018 $118,660 $ 86,440 $ 269 Average net assets (000)................ $154,601 $104,508 $132,622 $ 179 Ratios to average net assets:## Expenses, including distribution fees............... 2.13% 2.30% 2.18% 2.22%* Expenses, excluding distribution fees............... 1.13% 1.30% 1.28% 1.22%* Net investment income (loss)............... (.61)% (.21)% .91% (.31)%* Portfolio turnover..... 99% 111% 79% 82%
- --------------- * Annualized. ** Calculated based upon weighted average shares outstanding during the period. (D) Commencement of offering of Class A shares. @ Commencement of offering of Class C shares. (D)(D) Restated to reflect 3 for 2 stock split paid to shareholders of record on September 17, 1993. # 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. ## Because of the event referred to in @ and the timing of such, the ratios for Class C shares are not necessarily comparable to that of Class A or B shares and are not necessarily indicative of future ratios. See Notes to Financial Statements. -14- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Prudential Growth Opportunity 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 Opportunity Fund (the ``Fund'') at September 30, 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 September 30, 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 LLP New York, New York November 15, 1994 FEDERAL INCOME TAX INFORMATION (UNAUDITED) We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (September 30, 1994) as to the federal tax status of distributions paid by the Fund during such fiscal year. Accordingly, during its fiscal year ended September 30, 1994, the Fund paid distributions from net realized short-term capital gains of $.33 per Class A and Class B share, which are fully taxable as ordinary income, and $.46 per Class A and Class B share from net realized long-term capital gains, which are taxable as such. Further, we wish to advise you that 79% of the ordinary income dividends paid in the fiscal year ended September 30, 1994 qualified for the corporate dividends received deduction available to corporate taxpayers. In January 1995, you will be advised on Internal Revenue Service Form 1099 DIV or substitute 1099 as to the federal tax status of the dividends received by you in calendar year 1994. The amounts that will be reported on such Form 1099 DIV or substitute 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 September 30, 1994. -15- These graphs are furnished to you in accordance with SEC regulations. They compare a $10,000 investment in Prudential Growth Opportunity Fund, Inc. (Class A, Class B, and Class C) with a similar investment in the Russell 2000 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 (September 30) beginning in 1990 for Class A, in 1984 for Class B shares and 1994 for Class C shares. For purposes of the graphs and, unless otherwise indicated, the accompanying tables, it has been assumed that (a) the maximum current 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 and Class C shares, assuming full redemption on September 30, 1994; (c) all recurring fees (including management fees) were deducted; and (d) all dividends and distributions were reinvested. Class B shares will automatically convert to Class A shares on a quarterly basis approximately seven years after purchase. This conversion feature is expected to be implemented on or about February 1995 and is not reflected in the graph. The Russel 2000 is a stock market index comprising the smallest 2,000 stocks of the largest 3,000 equity-capitalized U.S. corporations and represents approximately 10% of their aggregate market value. The Russell 2000 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 Russell 2000 may differ substantially from the securities in the Fund's portfolio. The Russell 2000 is not the only index which may be used to characterize performance of growth funds and other indexes may portray different comparative performance. -16- Directors Delayne Dedrick Gold Arthur Hauspurg Harry A. Jacobs, Jr. Thomas J. McCormack Lawrence C. McQuade Stephen P. Munn Richard A. Redeker Louis A. Weil III Officers Lawrence C. McQuade, President David W. Drasnin, Vice President Robert F. Gunia, Vice President Susan C. Cote, Treasurer S. Jane Rose, Secretary Ronald Amblard, Assistant Secretary Manager Prudential Mutual Fund Management, Inc. One Seaport Plaza New York, NY 10292 Investment Adviser The Prudential Investment Corporation Prudential Plaza Newark, NJ 07101 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 08906-5000 Independent Accountants Price Waterhouse 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Sullivan & Cromwell 125 Broad Street New York, NY 10004 Prudential Mutual Funds 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. 74435E109 MF109E 74435E208 (LOGO) Cat.#6420001I -----END PRIVACY-ENHANCED MESSAGE-----