ANNUAL REPORT April 30, 1995
Prudential
Europe
Growth
Fund, Inc.
- - ------------------------
(ICON)
(LOGO)
<PAGE>
Letter to Shareholders
June 12, 1995
Dear Shareholder:
European stocks performed surprisingly well during the last six months,
despite a series of negative factors that impacted global stock market
performance. European investors shrugged off currency problems and
derivatives disasters, and instead concentrated on strong economic growth.
The Prudential Europe Growth Fund posted a loss for the nine-month period
ended April 30, 1995. We are confident, however, that Fund performance will
begin to improve as the European economic outlook brightens.
(CHART)
Source: Prudential Mutual Fund Management
Inc. U.S. Stocks: S&P 500; Global
Stocks: Morgan Stanley World Index; European
Stocks: Morgan Stanley World Index: European
Funds; and Money Markets: IBC/Donoghue
taxable funds average. Note: Total return
figures are for the 12-month period ended
4/30/95 and assume reinvestment of dividends
and distributions. This chart is for
comparison purposes only. There are different
risks associated with each investment sector
which should be considered carefully before
investing. Past performance is not indicative
of future results.
The Fund's Objective.
The Prudential Europe Growth Fund seeks long-term growth of capital
primarily through investment in a diversified portfolio of European
stocks. The Fund may also invest in bonds. Since it invests outside
the U.S., it is subject to all the risks associated with foreign
investing, including currency, political and social risks. While
the Fund has not done so during this reporting period, it may invest
in options and futures to hedge currency risk and to seek to
enhance income.
<TABLE>
FUND PERFORMANCE
<CAPTION>
Cumulative Total Return1 Average Annual Total Return1
As of 4/30/95 As of 3/31/95
Since Inception2 Since Inception2
<S> <C> <C>
Class A 3.3% -9.8%
Class B 2.5% -10.8%
Class C 2.5% -5.3%
Lipper Europe 5.4% N/A
Fund Avg.3
</TABLE>
Past performance is not a guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1. Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Fund charges a maximum front-end sales load of 5% for
Class A shares. Class B shares are subject to a declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years.
Class C shares have a 1% CDSC for one year. Class B shares will automatically
convert to Class A shares on a quarterly basis, approximately seven years
after purchase.
2. Inception date 7/13/94 for Class A, Class B and Class C shares.
3. Lipper average returns measure results for 41 funds since inception of
the Fund on 7/13/94.
-1-
<PAGE>
Senate Considers "Dream Account"
The U.S. Senate will soon be considering a
tax-deferred savings vehicle called the
"American Dream Savings Account," which
was approved by the House of Representatives
earlier in the year as part of the "Contract
with America" legislative agenda.
While similar to a traditional individual
retirement account or IRA, the American
Dream Savings Account goes further by
raising the contribution ceiling for
non-working spouses and permitting
tax-free and penalty-free withdrawals
prior to age 59 1/2 for certain major
expenses. Prudential Mutual Funds supports
the American Dream Savings Account and we
urge you to share your opinion with your
legislators.
Strategy Session.
We are emphasizing economically sensitive sectors in Europe, in the belief
that the economy will continue to expand. Still, European stock performance
has been volatile throughout the year although it did begin to turn around
as the first quarter of 1995 ended. For the year, the Morgan Stanley Capital
International Europe Index returned 9.8%. Much of that gain came during
the first four months of 1995, when the Index returned 9.7% in U.S. dollar
terms.
European stocks have largely followed the U.S. economy, retreating when
worries about the U.S. economy's strength were rampant. Strong demand
from across the Atlantic is perceived as a key element in the European
recovery. Once the U.S. economy made its so-called "soft landing" the
financial markets had hoped for, European stocks recovered and began a
steady ascent in 1995. Cyclical stocks, the leaders of Europe's economic
recovery, once again began to perform well late in March and throughout
April. In this type of environment, we'll be emphasizing technology and
machinery companies. We're avoiding utilities, banks and other
defensive sectors.
What Went Well...
Three of our holdings performed exceptionally well.
Included among them were two French firms -- machinery and engineering company
Sidel, and auto parts distributor, Valeo. Sidel is in the early stages of
marketing and manufacturing environmentally safe plastic food packaging.
Another top performer was British telecommunications company Vodafone,
which has benefitted from the continued strength of the cellular market.
We're also glad we've bought a lot of technology firms. There aren't too
many technology companies in Europe, but Nokia, the Finnish telecommunications
company, is one example of a stock that performed well.
...And Not So Well.
The Fund's emphasis on cyclical issues (companies, like automakers or home
builders, whose fortunes are tied closely to the direction of the economy),
hampered its performance compared to other funds and the MSCI Europe Index.
This was particularly true in the more cyclically dominated
markets of Sweden, Finland and Germany.
Cyclical companies have been leading the rebound in Europe for more than
a year now, but they were also the first to suffer when the stability and
strength of Europe's economic recovery temporarily came into question.
European investors fled those stocks where they had made money -- cyclical
issues and small company stocks -- seeking safety in cash investments and
large, recognizable consumer names. This trend began to reverse in April.
-2-
<PAGE>
- - -- During the first quarter of 1995, we received a negative earnings surprise
on one of our construction stocks -- Boskalis of the Netherlands. We have
since eliminated our position in this stock because we believe its long-term
earnings potential has diminished.
Fund Update
Starting in February 1995, Class B
shareholders may have begun to notice
a change in their Fund holdings. That's
when Class B shares began to automatically
convert to Class A shares, on a quarterly
basis, approximately seven years after
purchase. As you may know, Class A shares
generally carry lower annual distribution
expenses than Class B shares. Accordingly,
after conversion as a Class A shareholder,
you will earn higher total returns on your
investment than you would have as a Class B
shareholder.
Conversions of eligible Class B shares and special exchanges of Class
B and C shares will take place each calendar quarter (March, June,
September and December) starting in September 1995.
Looking Ahead...
Our outlook for the remainder of 1995 is positive. We are already seeing
signs of improving market sentiment, as illustrated by the 10.7% performance
of the Morgan Stanley Europe Index during the first four months of 1995.
Overall, we expect smoother investment waters through summer. We may even
see European stocks producing total returns that are slightly higher than
their U.S. counterparts. The biggest threats to this outlook would be
continued currency turmoil or the resurfacing of inflationary fears in
the U.S.
As always, we appreciate the confidence you have shown in us by choosing
the Prudential Europe Growth Fund for your European investment
Sincerely,
Dan Duane
Portfolio Manager
Richard A. Redeker
President
-3-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dan Duane
Q. Do you think it is unusual to have so much bad news at once for
global investors?
A. Global investors must keep in mind that foreign investing involves
risks above and beyond those of U.S. investments, including social,
political, currency, and economic risks. That said, since the stock
market crash of 1987, global investors have not been confronted with
such a succession of horrible events. The stock market crash happened
all at once, while recent events have been drawn out over several months.
Now, within a six-month period we saw the unexpected drastic decline in
the Mexican stock market, the Kobe earthquake, the bankruptcy of Baring
Securities and successive all-time lows for the dollar against the Japanese
yen and German mark. Take your pick, each of these events worried global
investors and had them seeking the perceived security of cash and more
established markets like the United States.
Q. How are you managing the dollar's fall compared to the Japanese yen
and the German mark?
A. The U.S. dollar is extremely oversold -- a low that is probably
unsustainable -- compared to the German mark and the Japanese yen.
I think it would be a mistake to assume these levels will continue.
However, there are real issues about the yen and the dollar. First,
I believe this is a question of poor fiscal policy in Japan, where the
government has made no move to deregulate the economy, as well as concern
about the staggering U.S. federal budget deficit. I don't see either
situation improving soon, so I'm taking several steps. I've reduced the
portion of the portfolio devoted to Japan and I've sold some yen in what
remains. Finally, I always emphasize the U.S. dollar-based economies of
Asia. They're benefiting from the fact they won't fluctuate against the
dollar. In the rest of world, I'm looking for manufacturers with proprietary
products and strong global businesses -- especially those with
dollar-denominated revenues.
Media Mentions
Dan Duane discussed investing in China in the New York Times (4/23/95).
-4-
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC. Portfolio of Investments
April 30, 1995
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--95.6%
Common Stocks--87.6%
Belgium--3.7%
30,000 Barco Industries N.V. .... $ 2,674,977
(Financial services)
3,975 Bekaert S.A., N.V. ....... 3,096,089
(Industrial components) ------------
5,771,066
------------
Denmark--1.7%
35,800 Danske Traelastkomp ...... 2,705,106
(Merchandising) ------------
Federal Republic Of Germany--8.5%
2,300 SAP AG ................... 2,367,294
(Electronics)
5,750 Bilfinger & Berger AG .... 2,673,552
(Construction & housing)
3,100 Hornbach AG .............. 1,954,583
(Merchandising)
5,100 Linde AG ................. 2,931,119
(Machinery & engineering)
920 Linde AG New E95 ......... 516,501
(Machinery & engineering)
9,600 Preussag AG .............. 2,770,792
(Multi-industry) ------------
13,213,841
------------
Finland--2.5%
127,000 Kymmene Corp. ............ 3,802,546
(Forest products & paper) ------------
France--19.5%
4,900 Carrefour ................ 2,452,736
(Merchandising)
28,300 Imetal S.A. .............. 2,999,817
(Miscellaneous materials
& commodities)
50,500 La Farge Coppee .......... 3,927,607
(Building materials &
components)
48,700 Lapeyre S.A. ............. $ 3,190,298
(Building materials &
commodities)
1,900 Legrand S.A. ............. 2,747,081
(Electronics)
24,100 Rexel S.A. ............... 3,964,057
(Electronics)
25,700 Sidel S.A. ............... 7,499,421
(Machinery & engineering)
60,500 Valeo S.A. ............... 3,439,943
(Automotive) ------------
30,220,960
------------
Italy--1.4%
3,049,300 Montedison SPA ........... 2,231,506
(Chemicals) ------------
Netherlands--3.9%
19,000 Hagemeyer ................ 1,636,244
(Merchandising)
14,250 Heineken NV .............. 2,028,515
(Food & beverages)
41,000 Randstad Holdings ........ 2,450,509
(Holding & finance ------------
companies)
6,115,268
------------
Spain--9.6%
45,160 Acerinox S.A. (Regd) ..... 5,156,818
(Metals-steel)
18,900 Banco Popular Esp. (Regd) 2,574,521
........................
(Financial services)
251,300 Centros Commerciales 4,436,676
(Pryca) ................
(Merchandising)
183,100 Dragados y Construcciones 2,765,514
........................ ------------
(Construction & housing)
14,933,529
------------
Sweden--11.0%
152,500 Allgon AB Free ........... 2,983,559
(Telecommunications)
149,000 Astra B Free ............. 4,234,543
(Health & personal care)
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Sweden--cont'd
43,600 Hennes & Mauritz B Free $ 2,939,124
........................
(Merchandising)
67,600 Missouri Och Domsjo AB* 3,758,821
........................
(Forest products & paper)
170,800 Volvo AB Free ............ 3,200,887
(Automotive) ------------
17,116,934
------------
United Kingdom--25.8%
235,400 Barclays Bank ORD ........ 2,420,719
(Banking)
28,000 Britannic Assurance ...... 229,808
(Insurance)
178,100 British Land Co. ORD ..... 1,054,748
(Real estate)
31,800 British Land PLC, Res. ... 188,327
(Real estate)
163,900 British Petroleum ORD .... 1,180,346
(Energy sources)
429,000 BTR ORD .................. 2,264,479
(Multi-industry)
162,000 Commercial Union PLC ..... 1,449,529
(Insurance)
577,500 Compass Group ............ 3,104,099
(Leisure & tourism)
234,000 Electrocomponents PLC ORD 2,018,449
........................
(Electronics)
195,600 EMAP Publishing PLC ...... 1,353,551
(Graphics & publishing)
396,000 Filtronic Comtek PLC* .... 1,561,343
(Electronics)
248,600 Guest Keen & Nettlefolds 2,584,466
ORD ....................
(Automotive)
594,000 Hanson ORD ............... 2,260,761
(Holding & finance
companies)
762,400 House of Fraser PLC ...... 1,864,935
(Merchandising)
180,000 Legal & General Group ORD $ 1,364,365
........................
(Insurance)
220,000 Pearson ORD .............. 2,026,914
(Broadcasting &
publishing)
327,400 Siebe PLC ................ 2,966,362
(Machinery & engineering)
134,200 Smith Holdings ........... 1,198,623
(Forest products & paper)
165,600 SmithKline Beecham ....... 1,308,516
(Pharmaceuticals &
cosmetics)
781,000 Telewest Communications* 1,948,139
........................
(Communications)
120,700 Unilever ORD ............. 2,379,471
(Food & household
products)
1,078,900 Vodafone Group PLC ....... 3,368,372
(Telecommunications) ------------
40,096,322
------------
Total common stocks
(cost US$106,763,771).... 136,207,078
------------
Preferred Stock--8.0%
Federal Republic Of Germany--4.3%
1,500 Hornbach AG .............. 1,793,285
(Merchandising)
13,300 Jungheinrich AG .......... 2,919,711
(Machinery & engineering)
4,050 Krones AG ................ 1,923,921
(Machinery & engineering) ------------
6,636,917
------------
Finland--3.7%
140,400 Nokia Corp. .............. 5,714,486
(Television & ------------
electronics)
Total preferred stocks
(cost US$32,447,605)..... 12,351,403
------------
Total long-term investments
(cost US$139,211,376).... 148,558,481
------------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
SHORT-TERM INVESTMENTS--0.8%
U.S. Government Securities--0.8%
Federal Farm Credit Bank,
$1,000 Zero Coupon, 5/02/95....... $ 999,833
Federal National Mortgage
Association,
210 Zero Coupon, 5/09/95....... 209,725
------------
Total short-term
investments
(cost $1,209,558)........ 1,209,558
------------
Total Investments--96.4%
(cost US$140,420,934; Note
4)....................... 149,768,039
Other assets in excess of
liabilities--3.6%........ 5,536,467
------------
Net Assets--100%........... $155,304,506
------------
------------
</TABLE>
- - ---------------
*Non-income producing security.
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets
April 30, 1995
--------------
<S>
<C>
Investments, at value (cost
$140,420,934)................................................. $ 149,768,039
Foreign currency, at value (cost
$4,949,203).............................................. 4,969,945
Receivable for investments
sold........................................................... 520,372
Dividends
receivable......................................................................
506,273
Receivable for Fund shares
sold........................................................... 278,997
Deferred
expenses.....................................................................
.... 210,000
--------------
Total
assets........................................................................
156,253,626
--------------
Liabilities
Payable for Fund shares
reacquired........................................................
371,746
Payable for investments
purchased.........................................................
156,418
Bank
overdraft....................................................................
........ 144,923
Accrued
expenses.....................................................................
..... 119,799
Due to
Distributors.................................................................
...... 81,466
Due to
Manager......................................................................
...... 74,768
--------------
Total
liabilities...................................................................
949,120
--------------
Net
Assets.......................................................................
......... $ 155,304,506
--------------
--------------
Net assets were comprised of:
Common stock, at
par.................................................................... $
13,263
Paid-in capital in excess of
par........................................................ 150,433,694
--------------
150,446,957
Accumulated net realized loss on investment and foreign currency
transactions........... (4,515,118)
Net unrealized appreciation on investments and foreign
currencies....................... 9,372,667
--------------
Net assets, April 30,
1995.............................................................. $
155,304,506
--------------
--------------
Class A:
Net asset value and redemption price per share
($41,963,063 / 3,565,417 shares of common stock issued and
outstanding)............... $11.77
Maximum sales charge (5.00% of offering
price).......................................... .62
--------------
Maximum offering price to
public........................................................ $12.39
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($106,081,146 / 9,076,839 shares of common stock issued and
outstanding).............. $11.69
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($7,260,297 / 621,234 shares of common stock issued and
outstanding).................. $11.69
--------------
--------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
July 13,
1994D
Through
April 30,
Net Investment Income 1995
-----------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $178,693)................. $ 1,109,339
Interest............................. 709,258
-----------
Total income....................... 1,818,597
-----------
Expenses
Distribution fee--Class A............ 58,993
Distribution fee--Class B............ 682,640
Distribution fee--Class C............ 48,586
Management fee....................... 725,254
Custodian's fees and expenses........ 226,000
Transfer agent's fees and expenses... 226,000
Registration fees.................... 130,000
Reports to shareholders.............. 93,000
Amortization of organization
expense.............................. 40,000
Audit fee............................ 25,000
Directors' fees...................... 22,500
Legal fees........................... 20,000
Miscellaneous........................ 27,822
-----------
Total operating expenses........... 2,325,795
-----------
Net investment loss.................... (507,198)
-----------
Realized and Unrealized Loss
on Investments and Foreign Currency
Transactions
Net realized loss on:
Investment transactions.............. (4,515,118)
Foreign currency transactions........ (159,285)
-----------
(4,674,403)
-----------
Net change in unrealized appreciation
on:
Investments.......................... 9,347,105
Foreign currencies................... 25,562
-----------
9,372,667
-----------
Net gain on investments and foreign
currencies........................... 4,698,264
-----------
Net Increase in Net Assets
Resulting from Operations.............. $ 4,191,066
-----------
-----------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
July 13,
1994D
Through
Increase (Decrease) in April 30,
Net Assets 1995
------------
<S> <C>
Operations
Net investment loss................ $ (507,198)
Net realized loss on investment and
foreign currency transactions.... (4,674,403)
Net change in unrealized
appreciation of investments and
foreign currencies............... 9,372,667
------------
Net increase in net assets
resulting from operations........ 4,191,066
------------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares sold...... 189,831,561
Cost of shares reacquired.......... (38,818,121)
------------
Net increase in net assets from
Fund share transactions.......... 151,013,440
------------
Total increase....................... 155,204,506
Net Assets
Beginning of period.................. 100,000
------------
End of period........................ $155,304,506
------------
------------
</TABLE>
- - ---------------
DCommencement of investment operations.
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Notes to Financial Statements
Prudential Europe Growth Fund, Inc. (the ``Fund''), which was incorporated
in
Maryland on March 18, 1994, is an open-end, diversified management investment
company. The Fund had no operations other than the issuance of 2,924 shares each
of Class A, Class B and Class C common stock for $100,000 on June 15, 1994 to
Prudential Mutual Fund Management, Inc. (``PMF''). The Fund commenced investment
operations on July 13, 1994. The investment objective of the Fund is to seek
long-term capital growth by investing primarily in equity securities of
companies domiciled in Europe.
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 Valuation: Securities traded on an exchange (whether domestic or
foreign) are valued at the last reported sales price on the primary exchange on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
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 Board
of
Directors of the Fund.
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 which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate of exchange as reported by a major bank;
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the fiscal year, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of securities held at fiscal year end. Similarly, the Fund does
not isolate the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term portfolio
securities sold during the fiscal period. Accordingly, realized foreign currency
gains (losses) are included in the reported net realized gains on investment
transactions.
Net realized loss on foreign currency transactions of $159,285 represents net
foreign exchange gains or losses from sales and maturities of short-term
securities, holding of foreign currencies, currency gains or losses realized
between the trade and settlement dates on security transactions, and the
difference between the amounts of dividends and foreign taxes recorded on the
Fund's books and the U.S. dollar equivalent amounts actually received or paid.
Net currency gains and losses from valuing foreign currency denominated assets
and liabilities (other than investments) at year end exchange rates are
reflected as a component of net unrealized appreciation on investments and
foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date, and interest income is recorded on
an accrual basis.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund
based upon the relative proportion of net assets of each class at the beginning
of the day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds
-10-
<PAGE>
<PAGE>
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.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the A.I.C.P.A.'s Statement of
Position 93-2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. The effect caused by applying this statement was to decrease paid-in
capital in excess of par by $666,483, decrease accumulated net investment loss
by $507,198, and decrease accumulated net realized loss on investments by
$159,285 for the period ended April 30, 1995. Net realized losses and net assets
were not affected by this change.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
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 income to 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 rules and rates.
Deferred Organization Expenses: Approximately $250,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably over a period of sixty months from the date the
Fund commenced investment operations.
Note 2. Agreements The Fund has a management
agreement with 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 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 .75 of 1% of the average daily net assets of the Fund.
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'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and Class 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 Class A, B and C shares,
respectively. Such expenses under the Plans were .25 of 1%, 1% and 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
period ended April 30, 1995.
PMFD has advised the Fund that it has received approximately $871,100 in
front-end sales charges resulting from sales of Class A shares during the period
ended April 30, 1995. 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 period ended April 30, 1995, it
received approximately $141,500 and $3,600 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America
(``Prudential'').
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 period ended April 30, 1995, the Fund incurred fees of approximately
$155,000 for the services of PMFS. As of April 30, 1995, approximately $18,000
of such fees were due to PMFS. Transfer agent fees
-11-
<PAGE>
<PAGE>
and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the period ended April
30, 1995 were $170,170,654 and $26,444,255, respectively.
The United States federal income tax basis of the Fund's investments is
substantially the same as for financial reporting purposes and, accordingly, as
of April 30, 1995 net unrealized appreciation for federal income tax purposes
was $9,347,105 (gross unrealized appreciation--$13,833,069; gross unrealized
depreciation--$4,485,964). For federal income tax purposes, the Fund had a
capital loss carryforward as of April 30, 1995 of approximately $426,600 all of
which expires in 2003. Accordingly, no capital gains distribution is expected
to
be paid to shareholders until net gains have been realized in excess of such
carryforward.
The Fund will elect to treat net capital losses of approximately $4,088,500
incurred in the six month period ended April 30, 1995 as having been incurred
in
the following fiscal year.
Note 5. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 5.00%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange priviledge is also available for
shareholders who qualified to purchase Class A shares at net asset value. All
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 2 billion shares
of $.001 par value common stock authorized and divided into three classes,
designated Class A, Class B and Class C. Of the authorized shares, 1 billion
shares consist of Class A common stock and 500 million shares consist of, each,
Class B and Class C common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- - ------------------------------ ---------- ------------
<S> <C> <C>
Year ended July 13, 1994D
through April 30, 1995:
Shares sold................... 4,562,903 $ 51,186,584
Shares reacquired............. (1,479,247) (16,487,105)
---------- ------------
Net increase in shares
outstanding before
conversion.................. 3,083,656 34,699,479
Shares issued upon conversion
from Class B................ 481,761 5,270,536
---------- ------------
Net increase in shares
outstanding................. 3,565,417 $ 39,970,015
---------- ------------
---------- ------------
<CAPTION>
Class B
- - ------------------------------
<S> <C> <C>
Year ended July 13, 1994D
through April 30, 1995:
Shares sold................... 11,500,827 $130,710,033
Shares reacquired............. (1,939,571) (21,509,277)
---------- ------------
Net increase in shares
outstanding before
conversion.................. 9,561,256 109,200,756
Shares reacquired upon conver-
sion into Class A........... (484,417) (5,270,536)
---------- ------------
Net increase in shares
outstanding................. 9,076,839 $103,930,220
---------- ------------
---------- ------------
<CAPTION>
Class C
- - ------------------------------
<S> <C> <C>
Year ended July 13, 1994D
through April 30, 1995:
Shares sold................... 694,581 $ 7,934,944
Shares reacquired............. (73,347) (821,739)
---------- ------------
Net increase in shares
outstanding................. 621,234 $ 7,113,205
---------- ------------
---------- ------------
</TABLE>
- - ---------------
DCommencement of investment operations.
-12-
<PAGE>
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B Class C
----------- -------- -----------
July 13, July 13, July 13,
1994D 1994D 1994D
through through through
PER SHARE OPERATING
April 30, April April 30,
PERFORMANCE(1):
1995 30, 1995 1995
<S>
<C> <C> <C>
----------- -------- -----------
Net asset value, beginning of period.........................................
$ 11.40 $ 11.40 $ 11.40
----------- -------- -----------
Income from investment operations
Net investment gain (loss)...................................................
.01 (.06) (.06)
Net realized and unrealized gain on investment and foreign currency
transactions...............................................................
.36 .35 .35
----------- -------- -----------
Total from investment operations...........................................
.37 .29 .29
----------- -------- -----------
Net asset value, end of period...............................................
$ 11.77 $ 11.69 $ 11.69
----------- -------- -----------
----------- -------- -----------
TOTAL RETURN#:...............................................................
3.25% 2.54% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..............................................
$ 41,963 $106,081 $ 7,260
Average net assets (000).....................................................
$ 29,598 $ 85,623 $ 6,094
Ratios to average net assets:
Expenses, including distribution fees......................................
1.84%* 2.59%* 2.59%*
Expenses, excluding distribution fees......................................
1.59%* 1.59%* 1.59%*
Net investment income (loss)...............................................
.06%* (.71)%* (.71)%*
Portfolio turnover rate......................................................
25% 25% 25%
- - ---------------
</TABLE>
* Annualized
D Commencement of investment operations.
(1) Based on average shares outstanding, by class.
# 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.
See Notes to Financial Statements.
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Prudential Europe Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Prudential Europe Growth Fund, Inc., including the portfolio of investments, as
of April 30, 1995, the related statements of operations and of changes in net
assets, and the financial highlights for the period July 13, 1994 (commencement
of operations) to April 30, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at April 30, 1995 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Europe
Growth Fund, Inc. at April 30, 1995, the results of its operations, the changes
in its net assets and the financial highlights for the above stated period, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
June 13, 1995
-14-
<PAGE>
<PAGE>
(CHART)
Past performance is no guarantee of future performance and an investor's
shares when redeemed may be worth more or less than their original value.
These graphs are furnished in accordance with SEC regulations. They compare
a
$10,000 in the Prudential Europe Growth Fund, Class A, Class B and Class C
shares, with a similar investment in the Morgan Stanley Capital International
Europe Index (MSCI Index) by portraying the initial account values on July 13,
1994 for Class A, Class B shares and Class C shares and subsequent account
values at the end of each fiscal year (April 30) as measured on a quarterly
basis, beginning in 1994 for Class A, Class B and Class C shares. For purposes
of the graphs, and unless otherwise indicated, the accompanying tables, it has
been assumed that the maximum sales charge was deducted from the initial $10,000
investment in Class A shares; the maximum applicable contingent deferred sales
charges were deducted from the value of the investment in Class B and Class C
shares assuming full redemption on April 30, 1995; all recurring fees--including
management fees--were deducted; and 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 was implemented in February 1995 and is not reflected in the graph.
The MSCI Index is a weighted index comprised of approximately 619 companies
listed on the stock exchanges of 13 European countries. The MSCI Index 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 held by the MSCI Index may differ
substantially from the securities held in the Fund's portfolio. The MSCI Index
is not the only benchmark which may be used to characterize performance of
European equity funds and other indexes may portray different comparative
performance.
-15-
<PAGE>
<PAGE>
Prudential Europe Growth Fund
Comparison of Change in Value of $10,000 Investment in Prudential Europe
Growth Fund and the MSCI Europe Index
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A -1.92%
<CAPTION>
Without Sales Load
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A 3.25%
</TABLE>
Class A
(GRAPH)
<TABLE>
Average Annual Total Returns
With Sales Load
<CAPTION>
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A -2.46%
<CAPTION>
Without Sales Load
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A 2.54%
</TABLE>
Class B
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A 1.54%
<CAPTION>
Without Sales Load
1 Year Since Inception (7/13/94)
<S> <C> <C>
N/A 2.54%
</TABLE>
Class C
(GRAPH)
MSCI Europe Index Prudential Europe Growth Fund
Past performance is no guarantee of future performance and an investor's
shares when redeemed may be worth more or less than their original value.
These graphs are furnished in accordance with SEC regulations. They compare
a $10,000 in the Prudential Europe Growth Fund, Class A, Class B and Class
C shares, with a similar investment in the Morgan Stanley Capital
International Europe Index (MSCI Index) by portraying the initial
account values on July 13, 1994 for Class A, Class B shares and Class
C shares and subsequent account values at the end of each fiscal year
(April 30) as measured on a quarterly basis, beginning in 1994 for Class
A, Class B and Class C shares. For purposes of the graphs, and unless
otherwise indicated, the accompanying tables, it has been assumed that
the maximum sales charge was deducted from the initial $10,000
investment in Class A shares; the maximum applicable contingent deferred
sales charges were deducted from the value of the investment in Class B
and Class C shares assuming full redemption on April 30, 1995; all recurring
fees -- including management fees -- were deducted; and 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 was implemented in February 1995 and
is not reflected in the graph.
The MSCI Index is a weighted index comprised of approximately 619 companies
listed on the stock exchanges of 13 European countries. The MSCI Index 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 held by the MSCI Index may differ
substantially from the securities held in the Fund's portfolio. The MSCI
Index is not the only benchmark which may be used to characterize performance
of European equity funds and other indexes may portray different comparative
performance.
<PAGE>
Directors
Thomas R. Anderson
Eugene C. Dorsey
Richard A. Redeker
Robin B. Smith
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, Assistant Treasurer
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
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
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.
74431N103
74431N202 MF160E
74431N301 (LOGO) Cat. #42M081W
