(ICON)
Prudential
Europe
Growth
Fund, Inc.
ANNUAL
REPORT
April 30, 1996
(LOGO)
<PAGE>
Prudential Europe Growth Fund, Inc.
Performance At A Glance.
During the late spring of 1995, investors were poised to celebrate the rapid
growth of Europe's economies. But, it was short-lived. To us, it appeared that
economic expansion stalled in late 1995, and most of Europe continues to show
extremely sluggish growth, restraining its stock markets. Though the Prudential
Europe Growth Fund was well ahead of the average European stock fund when we
last reported to you, performance for the 12 months ended April 30, 1996
dropped below average, according to Lipper Analytical Services.
Cumulative Total Returns1 As of 4/30/96
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 16.3% 20.1%
Class B 15.4 18.3
Class C 15.4 18.3
Class Z N/A 2.1
Lipper European Fund Avg3 17.9 25.4
</TABLE>
Average Annual Total Returns1 As of 3/31/96
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 13.7% 6.4%
Class B 13.7 6.5
Class C 17.8 8.8
Class Z N/A N/A
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. 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, after approximately seven years. Class Z shares are not subject to a
sales charge or a distribution fee. Since Class Z shares have been in existence
less than a year, no average annual returns are shown.
2Inception dates: 7/13/94 Class A, Class B and Class C; 4/15/96 Class Z.
3The Lipper European Fund average includes 44 funds in the European Region
category for one year; and 35 since inception, as determined by Lipper
Analytical Services.
How Investments Compared.
(As of 4/30/96)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns historically have been lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Daniel J. Duane, Fund Manager
Portfolio
Manager's Report
The Prudential Europe Growth Fund, which seeks long-term growth of capital,
invests in stocks of companies based in Europe. The Fund is subject to all the
risks associated with foreign investing, including currency, political and
social risks. There can be no assurance that the Fund will achieve its
investment objective.
A Growth
Stock Investor.
Dan Duane works with an experienced team of regional investment professionals
to identify long-term economic, social and demographic themes that he believes
will lead to high earnings growth levels. He is a "growth" stock
investor -- and places his primary emphasis on evaluating individual companies.
Strategy Session.
Europe's economies expanded briskly in the early spring of 1995 and, through
much of that year, continued European economic growth seemed likely. Europe was
in the midst of restructuring (much like the U.S. rustbelt region in the
mid-1980s): rebuilding factories, improving operations and identifying new
markets.
(GRAPH)
More recently, however, European economic advances stalled, as high labor
costs, bureaucracy and national pride stood in growth's way. While Europe's
stock markets responded well as the economic recovery began, they sputtered in
late 1995 and then declined further early this year.
Our overall strategy was (and remains) to invest in the stocks of individual
European-based companies which showed the potential for long-term growth of
sales and earnings. These "growth" stocks -- generally those of up-and-coming
companies -- tend to perform well in periods of rapid economic growth.
During the past year, however, Europe's economies grew, then slowed in
November. When economic growth slows, investors traditionally jump into stocks
of steady, established companies that are thought to be better able to weather
slower growth. The stocks of these larger companies performed better than the
growth-oriented companies that your Fund generally favors.
<PAGE>
What Went Well.
Consumers Want
Luxury.
We added high-priced retailers, such as the Gucci Group, Hermes and Bulgari.
Despite sluggish economic growth, consumer demand for luxury goods expanded.
Shoppers spent heavily on more sophisticated goods for home and personal use.
Business was good for Gucci and Hermes, which sell upscale clothing, as well as
Bulgari, a noted jeweler. This translated into higher stock prices for each
company and that helped Fund performance.
Five Largest
Issuers.
4.0% Rexel S.A.
Electronics
3.8% Telecom Italia Mobile
Telecommunications
3.5% Carrefour Supermarche
Retail
3.5% Barco Industries N.V.
Electronics
3.4% Astra B Free
Health/Personal Care
Expressed as a percentage of total net assets as of 4/30/96.
And Not So Well.
We Didn't Follow
The Crowd.
The main reason for your Fund's below average performance during the past year
was that we owned too few of the steady, more-established companies. As we
stated earlier, such companies tend to do better in times of economic
uncertainty than stocks of more aggressive, growth-oriented companies, which
we owned. We didn't follow the crowd and shift enough assets into better-known
stocks when European economies slowed late last year. If we had, the Fund's
total return may have been better.
Industrial Stocks
Disappoint.
Our investment in stocks of machinery, chemical and paper companies also held
back performance. Industrial stocks were 12% of total net assets on 4/30/96. As
Europe's economies soured, demand for expensive machinery and other industrial
products dried up, hurting the sales and earnings of the companies that produce
these goods. This caused investors to shy away and industrial stock prices
fell.
Looking Ahead.
Don't expect a significant acceleration in European economic activity any time
soon. But there's opportunity to be found in such an environment -- if you know
where to look. In continental Europe, for example, we see great potential for
larger companies that have taken steps to reduce costs. Like their U.S.
counterparts, these firms are becoming more competitive and profitable as they
restructure production and distribution procedures. In the United Kingdom, we
are searching for "niche" companies that serve growing segments of consumer and
industrial markets. Throughout Europe, companies that can stimulate additional
earnings growth and/or increase shareholder value could again become stock
market favorites.
1
<PAGE>
President's Letter June 3, 1996
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures
released by the Investment Company Institute, a mutual fund industry trade
group, new investments in mutual funds reached an all-time monthly high of $33
billion in January of 1996. An additional $66 billion was invested in the
following three months.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just as
they go up). There's no better time than now to be talking with your Financial
Advisor or Registered Representative. She or he can help you determine
reasonable expectations about both the potential performance and risks
associated with your investments.
- ------------------------------------------------------------------------
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board of
Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency. The materials you'll receive this summer will contain more complete
information about this proposal.
- ------------------------------------------------------------------------
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
<PAGE>
Portfolio of Investments as of April 30, 1996PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
------------------------------------------------------------
LONG-TERM INVESTMENTS--91.7%
COMMON STOCKS--91.7%
--------------------------------------------------------------------
BELGIUM--5.4%
37,500 Barco Industries N.V. (Electrical &
electronics) $ 5,969,978
4,975 Bekaert S.A., N.V. (Building materials
& components) 3,845,472
--------------
9,815,450
------------------------------------------------------------
FEDERAL REPUBLIC OF GERMANY--8.6%
9,100 Hoechst AG* (Chemicals) 3,064,537
7,520 Linde AG (Machinery & engineering) 4,597,316
23,600 SAP AG (Data processing & reproduction) 3,059,730
9,000 Siemens AG (Electrical & electronics) 4,927,795
--------------
15,649,378
------------------------------------------------------------
FINLAND--1.2%
62,500 Nokia Corp. (Telecommunications
equipment) 2,233,211
------------------------------------------------------------
FRANCE--21.5%
7,800 Carrefour (Retail) 6,090,380
16,600 Hermes International (Textiles &
apparel manufacturing) 4,394,354
18,721 Imetal S.A. (Miscellaneous materials &
commodities) 2,928,607
75,650 La Farge Coppee (Building materials &
components) 4,841,951
23,600 Legrand S.A. (Electrical & electronics) 4,586,290
28,800 Rexel S.A. (Electrical & electronics) 6,899,971
18,100 Seb SA (Appliances & household
durables) 3,044,958
9,570 Sidel S.A. (Machinery & engineering) 2,276,148
69,500 Valeo S.A. (Automobiles & auto parts) 3,854,317
--------------
38,916,976
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
------------------------------------------------------------
ITALY--5.7%
304,300 Bulgari* (Retail) $ 3,801,916
2,965,400 Telecom Italia Mobile*
(Telecommunications) 6,554,935
--------------
10,356,851
------------------------------------------------------------
NETHERLANDS--6.3%
49,400 Hagemeyer (Wholesale & international
trading) 3,382,475
16,950 Heineken NV (Beverages & tobacco) 3,548,049
54,400 IHC Caland NV (Oil services) 2,137,094
16,800 Royal Dutch Petroleum ORD (Energy
sources) 2,393,794
--------------
11,461,412
------------------------------------------------------------
SPAIN--6.7%
18,100 Acerinox S.A. (Regd) (Metals - steel) 2,045,232
25,800 Banco Popular Esp. (Regd) (Banking) 4,273,615
249,300 Centros Commerciales (Pryca) (Retail) 5,749,571
--------------
12,068,418
------------------------------------------------------------
SWEDEN--8.2%
133,600 Astra B Free (Health & personal care) 5,908,101
43,600 Hennes & Mauritz B Free (Retail) 3,012,846
73,600 Missouri Och Domsjo AB (Forest products
& paper) 3,923,102
280,300 Skand Enskilda (Banking) 2,110,755
--------------
14,954,804
------------------------------------------------------------
UNITED KINGDOM--23.3%
455,100 Bank of Ireland (Banking) 3,295,288
334,500 British Sky Broadcasting Group, PLC
(Broadcasting & publishing) 2,411,956
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 ----
<PAGE>
Portfolio of Investments as of April 30, 1996PRUDENTIAL EUROPE GROWTH FUND, INC.
- -----------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
--------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM--CONT'D
278,600 Carpetright PLC (Retail) $ 2,420,744
685,800 Compass Group (Leisure & tourism) 5,658,875
332,500 Dixons Group (Retail) 2,472,771
607,700 Electrocomponents PLC ORD (Electronic
components & instruments) 3,653,111
254,100 EMAP Publishing PLC (Broadcasting &
publishing) 2,598,841
172,648 Guest Keen & Nettlefolds ORD
(Automobiles & auto parts) 2,558,818
216,600 Reed International ORD (Broadcasting &
publishing) 3,734,651
255,000 Siebe PLC (Machinery & engineering) 3,304,294
289,800 Standard Chartered (Banking) 2,719,156
960,900 Vodafone Group PLC (Telecommunications) 3,848,469
315,100 Whitbread ORD (Beverages & tobacco) 3,569,716
--------------
42,246,690
------------------------------------------------------------
UNITED STATES--4.8%
100,700 Gucci Group NV* (Retail) 5,475,562
67,500 SGS Thompson Microelectronics NV*
(Electronic components & instruments) 3,172,500
--------------
8,648,062
--------------
Total common stocks
(cost US$134,973,049) 166,351,252
--------------
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
--------------------------------------------------------------------
------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.7%
--------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--3.7%
$ 6,660 Federal Home Loan Mortgage Corporation,
Zero Coupon, 5/1/96
(cost US$6,660,000) $ 6,660,000
---------------
------------------------------------------------------------
TOTAL INVESTMENTS--95.4%
(cost US$141,633,049; Note 4) 173,011,252
Other assets in excess of
liabilities--4.6% 8,386,891
---------------
Net Assets--100.0% $ 181,398,143
---------------
---------------
</TABLE>
- ---------------
*Non-income producing security
- --------------------------------------------------------------------------------
- ---- 4 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND,
STATEMENT OF ASSETS AND LIABILITIES INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30,
1996
---------------
<S>
<C>
ASSETS
Investments, at value (cost
$141,633,049)................................................................
....... $ 173,011,252
Foreign currency, at value (cost
$19,786,354)...................................................................
19,675,995
Cash.........................................................................
................................... 42,517
Dividends and interest
receivable...................................................................
............ 762,095
Receivable for investments
sold.........................................................................
........ 420,708
Receivable for Fund shares
sold.........................................................................
........ 157,355
Deferred expenses and other
assets.......................................................................
....... 150,001
---------------
Total
assets.......................................................................
......................... 194,219,923
---------------
LIABILITIES
Payable for investments
purchased....................................................................
........... 11,782,557
Payable for Fund shares
reacquired...................................................................
........... 449,571
Accrued
expenses.....................................................................
........................... 360,442
Distribution fee
payable......................................................................
.................. 118,140
Management fee
payable......................................................................
.................... 111,070
---------------
Total
liabilities..................................................................
......................... 12,821,780
---------------
NET
ASSETS.......................................................................
............................... $ 181,398,143
---------------
---------------
Net assets were comprised of:
Common stock, at
par..........................................................................
............... $ 13,396
Paid-in capital in excess of
par.............................................................................
151,361,660
---------------
151,375,056
Accumulated net realized loss on investments and foreign currency
transactions............................... (1,254,598)
Net unrealized appreciation on investments and foreign
currencies............................................ 31,277,685
---------------
Net Assets, April 30,
1996.........................................................................
............. $ 181,398,143
---------------
---------------
Class A:
Net asset value and redemption price per share
($47,788,846 DIVIDED BY 3,492,047 shares of common stock issued and
outstanding)......................... $13.69
Maximum sales charge (5% of offering
price)..................................................................
.72
-----
Maximum offering price to
public.......................................................................
...... $14.41
-----
-----
Class B:
Net asset value and redemption price per share
($125,868,441 DIVIDED BY 9,329,819 shares of common stock issued and
outstanding)........................ $13.49
-----
-----
Class C:
Net asset value and redemption price per share
($7,740,652 DIVIDED BY 573,736 shares of common stock issued and
outstanding)............................ $13.49
-----
-----
Class Z:
Net asset value and redemption price per share
($204.18 DIVIDED BY 14.93 shares of common stock issued and
outstanding)................................. $13.68
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF OPERATIONS
- -------------------------------------------
<TABLE>
<CAPTION>
Year Ended
April 30,
1996
------------
<S> <C>
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes
of $423,316)............................. $ 3,140,868
Interest.................................... 327,515
------------
Total income............................... 3,468,383
------------
Expenses
Management fee.............................. 1,329,043
Distribution fee--Class A................... 117,958
Distribution fee--Class B................... 1,222,547
Distribution fee--Class C................... 77,679
Transfer agent's fees and expenses.......... 284,000
Custodian's fees and expenses............... 240,000
Registration fees........................... 143,000
Reports to shareholders..................... 115,000
Amortization of organzation expense......... 50,000
Directors' fees and expenses................ 35,000
Audit fee and expenses...................... 25,000
Legal fees and expenses..................... 20,000
Miscellaneous............................... 27,040
------------
Total operating expenses................... 3,686,267
------------
Net investment loss............................ (217,884)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions..................... 3,260,520
Foreign currency transactions............... (8,114)
------------
3,252,406
------------
Net change in unrealized
appreciation/depreciation on:
Investments................................. 22,031,098
Foreign currencies.......................... (126,080)
------------
21,905,018
------------
Net gain on investments and foreign
currencies..................................... 25,157,424
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................... $24,939,540
------------
------------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------
<TABLE>
<CAPTION>
July 13,
1994+
Year Ended through
April 30, April 30,
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment loss.......... $ (217,884) $ (507,198)
Net realized gain (loss) on
investment and foreign
currency transactions..... 3,252,406 (4,674,403)
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies................ 21,905,018 9,372,667
------------- -------------
Net increase in net assets
resulting from operations.... 24,939,540 4,191,066
------------- -------------
Fund share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold...................... 213,839,301 189,831,561
Cost of shares reacquired.... (212,685,204) (38,818,121)
------------- -------------
Net increase in net assets
from Fund share
transactions.............. 1,154,097 151,013,440
------------- -------------
Total increase.................. 26,093,637 155,204,506
NET ASSETS
Beginning of year............... 155,304,506 100,000
------------- -------------
End of year..................... $ 181,398,143 $ 155,304,506
------------- -------------
------------- -------------
</TABLE>
- ---------------
+Commencement of investment operations.
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
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 POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITIES VALUATION: Securities traded on an exchange (whether domestic
or
foreign) are valued at the last reported sales price on the primary exchange
on
which they are traded. Securities traded in the over-the-counter market
(including securities listed on exchanges for which a last sales price is not
available) are valued at the average of the last reported bid and asked prices.
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 losses on foreign currency transactions of $8,114 represents net
foreign exchange gains or losses from 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 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
- --------------------------------------------------------------------------------
7 ----
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
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 American Institute
of
Certified Public Accountant'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
$225,998, decrease accumulated net investment loss by $217,884, and decrease
accumulated net realized loss on investments and foreign currency transactions
by $8,114 for the fiscal year ended April 30, 1996. 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 acted as the distributor of the Class A shares of the Fund
through January 1, 1996. Effective January 2, 1996 Prudential Securities
Incorporated ("PSI") became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also distributor of the Class B, Class C and Class
Z shares of the Fund. The Fund compensated PMFD and PSI 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 C Plans, the Fund compensates PSI and PMFD for
the period May 1, 1995 through January 1, 1996 with respect to Class A shares,
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Class A, Class B and Class C Plans were
.25 of 1%, 1% and 1%, respectively of the average daily net assets of the Class
A, Class B and Class C shares for the fiscal year ended April 30, 1996.
PMFD and PSI have advised the Fund that they have received approximately
$112,100 in front-end sales charges resulting from sales of Class A shares
during the fiscal year ended April 30, 1996. From these fees, PMFD and PSI paid
such sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.
PSI has advised the Fund that for the fiscal year ended April 30, 1996,
it
received approximately $485,700 and $4,700 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.
- --------------------------------------------------------------------------------
- ---- 8
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a wholly owned subsidiary
of
PMF, serves as the Fund's transfer agent. During the fiscal year ended April 30,
1996, the Fund incurred fees of approximately $241,000 for the services of PMFS.
As of April 30, 1996, approximately $24,500 of such fees were due to PMFS.
Transfer agent's fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.
- -----------------------------------------------------
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the fiscal year ended April 30, 1996 were $104,574,666 and $112,068,666,
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, 1996 net unrealized appreciation for federal income tax purposes
was $31,378,203 (gross unrealized appreciation--$32,809,484; gross unrealized
depreciation-- $1,431,281). For federal income tax purposes, the Fund had
a
capital loss carryforward as of April 30, 1996 of approximately $1,254,600
of
which $426,600 expires in 2003 and $828,000 expires in 2004. Accordingly,
no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
- -----------------------------------------------------
NOTE 5. CAPITAL
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5.00%. 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.
Effective April 15, 1996 the Fund commenced offering Class Z shares. Class
Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to the participants of the Prudential Securities 401(k)
Plan, a defined contribution plan sponsored by Prudential Securities. 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 four classes,
designated Class A, Class B, Class C and Class Z Shares, each consisting of 500
million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Shares Amount
----------- --------------
<S> <C> <C>
Class A
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 11,353,245 $ 146,536,469
Shares reacquired............... (11,576,243) (149,929,575)
----------- --------------
Net decrease in shares
outstanding before
conversion.................... (222,998) (3,393,106)
Shares issued upon conversion
from Class B.................. 149,628 1,908,762
----------- --------------
Net decrease in shares
outstanding................... (73,370) $ (1,484,344)
----------- --------------
----------- --------------
July 13, 1994(a) 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
----------- --------------
----------- --------------
Class B
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 4,965,336 $ 63,469,612
Shares reacquired............... (4,561,206) (58,326,887)
----------- --------------
Net increase in shares
outstanding before
conversion.................... 404,130 5,142,725
Shares reacquired upon
conversion into Class A....... (151,150) (1,908,762)
----------- --------------
Net increase in shares
outstanding................... 252,980 $ 3,233,963
----------- --------------
----------- --------------
July 13, 1994(a) 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
conversion into Class A....... (484,417) (5,270,536)
----------- --------------
Net increase in shares
outstanding................... 9,076,839 $ 103,930,220
----------- --------------
----------- --------------
</TABLE>
- --------------------------------------------------------------------------------
9 ----
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Amount
----------- --------------
<S> <C> <C>
Class C
- --------------------------------
Year ended April 30, 1996:
Shares sold..................... 295,865 $ 3,833,020
Shares reacquired............... (343,363) (4,428,742)
----------- --------------
Net decrease in shares
outstanding................... (47,498) $ (595,722)
----------- --------------
----------- --------------
July 13, 1994(a) 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
----------- --------------
----------- --------------
Class Z
- --------------------------------
April 15, 1996(a) through April
30, 1996:
Shares sold..................... 15 $ 200
Shares reacquired............... 0 0
----------- --------------
Net increase in shares
outstanding................... 15 $ 200
----------- --------------
----------- --------------
</TABLE>
- -------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
- ---- 10 See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
CLASS B CLASS C
-------------------------------
- ------------------------------- -------------------------------
YEAR ENDED JULY 13, 1994(B) YEAR ENDED
JULY 13, 1994(B) YEAR ENDED JULY 13, 1994(B)
APRIL 30, THROUGH APRIL 30, APRIL 30,
THROUGH APRIL 30, APRIL 30, THROUGH APRIL 30,
1996 1995 1996
1995 1996 1995
----------- ----------------- -----------
----------------- ----------- -----------------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(c):
Net asset value, beginning of
period...................... $ 11.77 $ 11.40 $ 11.69
$ 11.40 $11.69 $11.40
----------- ------- -----------
-------- ----------- ------
Income from investment
operations
Net investment gain (loss).... .06 .01 (.04)
(.06) (.04) (.06)
Net realized and unrealized
gain on investment and
foreign currency
transactions................ 1.86 .36 1.84
.35 1.84 .35
----------- ------- -----------
-------- ----------- ------
Total from investment
operations.............. 1.92 .37 1.80
.29 1.80 .29
----------- ------- -----------
-------- ----------- ------
Net asset value, end of
period...................... $ 13.69 $ 11.77 $ 13.49
$ 11.69 $13.49 $11.69
----------- ------- -----------
-------- ----------- ------
----------- ------- -----------
-------- ----------- ------
TOTAL RETURN(d):.............. 16.31% 3.25% 15.40%
2.54% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $47,789 $41,963 $125,868
$106,081 $7,741 $7,260
Average net assets (000)...... $47,183 $29,598 $122,255
$ 85,623 $7,768 $6,094
Ratios to average net assets:
Expenses, including
distribution fees......... 1.53% 1.84%(a) 2.28%
2.59%(a) 2.28% 2.59%(a)
Expenses, excluding
distribution fees......... 1.28% 1.59%(a) 1.28%
1.59%(a) 1.28% 1.59%(a)
Net investment income
(loss).................... .44% .06%(a) (.33)%
(.71)%(a) (.30)% (.71)%(a)
For Class A, B, C and Z
Shares:
Portfolio turnover rate....... 65% 25%
Average Comission Rate per
share....................... $0.0233 N/A
<CAPTION>
CLASS Z
-----------------
APRIL 15, 1996(B)
THROUGH APRIL 30,
1996
-----------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE(c):
Net asset value, beginning of
period...................... $13.40
------
Income from investment
operations
Net investment gain (loss).... .28
Net realized and unrealized
gain on investment and
foreign currency
transactions................ --
------
Total from investment
operations.............. .28
------
Net asset value, end of
period...................... $13.68
------
------
TOTAL RETURN(d):.............. 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 204(e)
Average net assets (000)...... $ 203(e)
Ratios to average net assets:
Expenses, including
distribution fees......... 1.28%(a)
Expenses, excluding
distribution fees......... 1.28%(a)
Net investment income
(loss).................... .54%(a)
For Class A, B, C and Z
Shares:
Portfolio turnover rate.......
Average Comission Rate per
share.......................
</TABLE>
- -------------
(a) Annualized.
(b) Commencement of investment operations.
(c) Based on average shares outstanding, by class.
(d) 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.
(e) Figures are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
11 ----
<PAGE>
INDEPENDENT AUDITORS' REPORT PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential Europe Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities including
the portfolio of investments of Prudential Europe Growth Fund, Inc., as of April
30, 1996, the related statements of operations for the year then ended and
of
changes in net assets for the year then ended and for the period July 13, 1994
(commencement of operations) to April 30, 1995 and the financial highlights for
the periods presented. 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
audits.
We conducted our audits 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, 1996 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 audits provide 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. as of April 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 13, 1996
- --------------------------------------------------------------------------------
12
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.comx
(LOGO)
Directors
Eugene C. Dorsey
Richard A. Redeker
Robin B. Smith
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, 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
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
Brown Brothers Harriman & Co.
40 Water St.
Boston, MA 02109
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
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
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74431N103 MF160E
74431N202 Cat. #42M081W
74431N301
74431N400
<PAGE>
Prudential Europe Growth Fund, Inc.
Morgan Stanley Capital International Europe Index
The Prudential Europe Growth Fund, Inc. and the
Morgan Stanley Capital International Europe Index:
Comparing a $10,000 Investment.
(GRAPH)
Past performance is not indicative 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 investment in the Prudential Europe Growth Fund (Class A, Class B,
Class C and Class Z) with a similar investment in the Morgan Stanley Capital
International Europe Index (MSCI Index) by portraying the initial account
values at the commencement of operations of each class, and subsequent account
values at the end of this reporting period (April 30), as measured on a
quarterly basis, beginning in 1994 for Class A, Class B, Class C and 1996 for
Class Z shares. For purposes of the graphs, and unless otherwise indicated, in
the accompanying tables it has been assumed a) that the maximum applicable
front-end sales charge was deducted from the initial $10,000 investment in
Class A shares; b) the maximum applicable contingent deferred sales charge was
deducted from the value of the investment in Class B and Class C shares,
assuming full redemption on April 30, 1996; c) all recurring fees (including
management fees) were deducted; and d) all dividends and distributions were
reinvested. Class Z shares do not have a sales charge. Class B shares will
automatically convert to Class A shares, on a quarterly basis, beginning
approximately seven years after purchase. This conversion feature is not
reflected in the graph. Since Class Z shares have been in existence less than
a year, no average annual returns are shown.
The Morgan Stanley Capital International Europe Index is a weighted index
comprised of approximately 584 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.
