(ICON)
Prudential
Europe
Growth
Fund, Inc.
SEMI
ANNUAL
REPORT
Oct. 31, 1995
(LOGO)
<PAGE>
Prudential Europe Growth Fund, Inc.
Performance At A Glance.
The European stock markets rebounded last spring, posting a 7% return for the
six months ended October, as measured by the Morgan Stanley Europe Index. This
performance marks a sharp reversal from last winter, when a series of negative
surprises sent most foreign stock markets lower. We are pleased to report that
for the six- and 12-months ended October 1995, the Prudential Europe Growth
Fund performed better than the average European region fund, as measured by
Lipper Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 10/31/95
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 11.2% 12.6% 14.8%
Class B 10.8 11.6 13.6
Class C 10.8 11.6 13.6
Lipper Global Fund Avg3 7.2 9.3 13.0
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of9/30/95
One Since
Year Inception2
<S> <C> <C>
Class A 12.5% 8.9%
Class B 12.3 9.4
Class C 16.3 12.6
</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.
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.
2Inception dates: 7/13/94 Class A, Class B and Class C.
3The Lipper Fund average includes 45 funds in the European Region category for
six months; 44 funds in the European category for one year; and 38 since
inception, as determined by Lipper Analytical Services, Inc.
How Investments Compared.
(As of 10/31/95)
(CHART)
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 added
historical 20-year average annual returns to show that some of 1995's returns
(so far) are higher than normal. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization stocks
offer greater potential for long term growth but may be more volatile than
larger capitalization stocks. Investors receive higher historical total returns
from stocks than from most other investments.
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 are historically lower than those of stock
funds.
Global Stock Funds will also fluctuate a great deal. Historically, foreign
investments have offered greater returns than domestic investments. However,
investments overseas are subject to political, social, and currency risks that
may affect performance.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but their returns are generally among the lowest of
the major investment categories.
<PAGE>
Dan Duane, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Prudential Europe Growth Fund invests in stocks of companies in Europe. The
Fund is subject to all the risks associated with foreign investing, including
currency, political and social risks.
Growth Investor.
Daniel J. Duane, managing director and portfolio manager, works with a team of
regional investment professionals to identify long-term economic, social and
demographic themes that will lead to high earnings growth levels. He is a
"growth" stock investor
Strategy Session.
What We See Now.
The European stock markets look attractive to us -- stock prices are low
considering company valuations and the prospects for continued economic growth
are favorable. Last winter, in comparison, European stocks suffered through
currency fluctuations and a general crisis of confidence. By April, however,
the U.S. stock and bond markets were rising dramatically and investors thought
that European markets might follow. Economic growth in Europe was more robust
than that of the U.S. and corporate earnings exceeded expectations, but this
good news had not yet been reflected in stock prices.
In the retail sector, we own both discount and luxury retailers. The discount,
"value-for-money" concept is gaining acceptance from thrifty European
consumers. Recently, we purchased several luxury retailers, too. These
companies should prosper from the increased disposable income of an aging
European population, and the growing demand for the finer things in life. We
also like medium-sized engineering and machinery companies in growth
industries. Many of these are multinational companies that enjoy robust
consumer demand, a unique product line and greater productivity. In the
technology and telecommunications sector, we're buying a wide selection of
companies across the industry.
Sector Breakdown.
Prudential Europe Growth Fund, Inc.
As of 10/31/95
(CHART)
<PAGE>
What Went Well.
Consumers Take Lead.
We took advantage of a broadening economic recovery in Europe by shifting
assets from companies that benefit early in the business cycle to those that
benefit later. So we sold basic materials stocks in the chemical and steel
industries and bought European consumer-oriented stocks in the retail,
machinery, telecommunications and technology sectors.
We sold all of our holdings in BASF, a basic chemicals company, which had
risen in price. We also took profits in one of our largest holdings, Sidel, a
French engineering company that makes the machines that make recyclable PET
(polyethylene terephthalate) plastic bottles. Sidel owns 40% of the world
market share in this business. Though we have trimmed our exposure, Sidel
remains a top holding.
Technology Gained.
Our decision to add to our technology holdings -- to 17% of total net assets
from 7% -- proved wise. The use of technology by businesses and consumers has
been growing at a rapid pace around the world, including in Europe. We're
focusing on software companies, and have found particular success with
telecommunications firms. One of our favorite holdings is Nokia, the Finnish
cellular phone manufacturer, whose price has more than doubled in the past year.
Although we reduced our Nokia exposure during the period, it still remains one
of our largest holdings.
We also like Telecom Italia Mobile, 2.4% of total net assets, the cellular
phone business spun off by the Italian phone company in July. We believe it to
be among the most profitable cellular phone companies in the world in a rapidly
growing market. Another substantial holding is Vodafone, the British cellular
telecommunications firm.
And Not So Well.
We Wished We Had Sold Earlier.
In hindsight, we should have sold Krones, a German beverage and canning
machinery firm, much sooner than we did. We were too optimistic that Krones
had resolved its operating difficulties, and finally sold the stock after it
declined.
Looking Ahead.
We look for Europe to deliver higher returns than many other world stock
markets, including the U.S., in the coming year. We believe the current lull
in the European markets is temporary, and that stock prices will resume their
upward march by year end. Even with the solid performance we've seen to date,
stock values in Europe are still very inexpensive considering the surge in
corporate profits, positive growth prospects, and additional productivity
gains that can be gained from restructuring. In this climate, we believe
individual stock selection, rather than country selection, will play an
increasing important role.
Five Largest
Holdings.*
<TABLE>
<C> <S>
5.2% Sidel S.A. (France)
Machinery & engineering
3.2% Astra B Free (Sweden)
Health & personal care
3.1% Centros Commer.(Spain)
Pryca Merchandising
3.1% Nokia Corp. (Finland)
Television & electronics
2.3% Siebe PLC (U.K.)
Machinery & engineering
</TABLE>
*Expressed as a percentage of total net assets as of 10/31/95. Portfolio
holdings are subject to change.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
December 11, 1995
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At
times like these, remember the importance of working with your Financial
Advisor or Registered Representative to help you find investments that are
consistent with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic expectations about
both the potential performance and risks associated with your investments.
American Dream Savings Account.
The U.S. Congress is now considering one of the most significant and positive
pieces of legislation to affect individual investors -- the American Dream
Savings Account. This legislation may improve the traditional Individual
Retirement Account (IRA) by allowing higher non- working spouse contributions
as well as tax-free and penalty-free withdrawals from the account before age
59 1/2, for certain expenses. We will keep our Financial Advisors and
Registered Representatives updated on the progress of this legislation, so
call him or her to learn how you may benefit.
Shareholder Legislative Action Program.
From time to time we've be informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, your shareholder
reports will contain postage-paid message cards that you simply drop in the
mail if you want to let your senator or representative know how you feel about
pending legislation.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be turning our
attention to "fund profiles." Some mutual fund companies now offer one to
shareholders along with a full prospectus. The purpose of a fund profile is to
provide a very brief, reader-friendly summary of a fund's objective,
investments, risks and expenses. Would you like to see fund profiles from us?
Please call your Financial Advisor or Registered Representative to share your
views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of
October 31, 1995 (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--91.0%
COMMON STOCKS--88.7%
- ------------------------------------------------------------
Belgium--3.7%
32,800 Barco Industries N.V. (Electronics) $ 3,691,409
4,375 Bekaert S.A., N.V. (Industrial
components) 3,217,054
-------------
6,908,463
- ------------------------------------------------------------
Denmark--1.3%
35,800 Danske Traelastkomp (Retailing) 2,554,688
- ------------------------------------------------------------
Federal Republic Of Germany--5.2%
25,100 SAP AG (Electronics) 3,976,802
34,000 Hornbach AG (Retailing) 1,713,576
6,620 Linde AG (Machinery & engineering) 4,064,809
-------------
9,755,187
- ------------------------------------------------------------
Finland--3.1%
100,400 Nokia Corp.* (Television &
electronics) 5,744,057
- ------------------------------------------------------------
France--16.6%
5,400 Carrefour* (Retailing) 3,177,056
30,900 Imetal S.A. (Miscellaneous materials
& commodities) 3,646,092
60,750 La Farge Coppee (Building materials
& components) 4,033,407
19,000 Legrand S.A. (Electronics) 3,183,857
26,400 Rexel S.A. (Electronics) 4,272,457
27,851 Sidel S.A. (Machinery & engineering) 9,687,801
66,200 Valeo S.A. (Automotive) 2,995,715
-------------
30,996,385
Italy--3.3%
244,000 Bulgari* (Retailing) $ 2,123,828
2,378,300 Telecom Italia Mobile*
(Telecommunications) 3,998,253
-------------
6,122,081
- ------------------------------------------------------------
Netherlands--4.6%
41,600 Hagemeyer (Wholesaling) 2,070,320
15,550 Heineken NV (Food & beverages) 2,756,830
82,000 Randstad Holdings (Business
Services) 3,696,711
-------------
8,523,861
- ------------------------------------------------------------
Spain--7.6%
24,676 Acerinox S.A. (Regd) (Metals-steel) 2,598,668
20,700 Banco Popular Esp. (Regd) (Banking) 3,289,434
274,800 Centros Commerciales (Pryca)
(Retailing) 5,855,487
183,100 Dragados y Construcciones
(Construction & housing) 2,400,940
-------------
14,144,529
- ------------------------------------------------------------
Sweden--8.9%
152,500 Allgon AB Free (Telecommunications) 2,311,062
162,900 Astra B Free (Health & personal
care) 5,895,329
36,100 Autoliv AB Free (Automotive) 2,073,996
43,600 Hennes & Mauritz B Free (Retailing) 2,853,330
67,600 Missouri Och Domsjo AB* (Forest
products & paper) 3,445,396
-------------
16,579,113
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of
October 31, 1995 (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United Kingdom--30.9%
257,400 Barclays Bank (Banking) $ 3,022,555
72,400 Britannic Assurance (Insurance) 808,375
197,700 British Land Co. (Real estate) 1,134,965
31,800 British Land PLC, Res.* (Real
estate) 182,559
192,200 British Petroleum (Energy sources) 1,413,434
469,100 BTR (Multi-industry) 2,492,723
817,700 Bunzl (Paper, Packaging & Printing) 2,612,249
177,100 Commercial Union PLC (Insurance) 1,716,913
577,500 Compass Group (Leisure & tourism) 3,927,261
511,700 Electrocomponents PLC (Electronics) 2,621,982
213,900 EMAP Publishing PLC (Graphics &
publishing) 1,762,454
490,400 Filtronic Comtek PLC* (Electronics) 3,683,947
437,400 Grand Metropolitan (Food &
beverages) 3,029,857
271,800 Guest Keen & Nettlefolds
(Automotive) 3,468,904
246,000 Legal & General Group (Insurance) 2,659,150
489,500 London Clubs International (Leisure
& tourism) 3,181,733
201,700 Matthew Clark PLC (Food & beverages) 2,031,957
240,600 Pearson* (Broadcasting & publishing) 2,391,499
358,000 Siebe PLC (Machinery & engineering) 4,260,483
146,700 Smith Holdings (Forest products &
paper) 1,336,355
268,600 SmithKline Beecham (Pharmaceuticals
& cosmetics) 2,805,744
132,000 Unilever (Food & household products) 2,565,636
1,078,900 Vodafone Group PLC
(Telecommunications) 4,461,924
-------------
57,572,659
United States--3.5%
127,300 Gucci Group* NV (Retailing) $ 3,819,000
59,000 SGS Thompson Microelectronics NV*
(Television & electronics) 2,669,750
-------------
6,488,750
-------------
Total common stocks
(cost US$136,540,012) 165,389,773
-------------
PREFERRED STOCKS--2.3%
- ------------------------------------------------------------
Federal Republic Of Germany--2.3%
1,600 Hornbach AG (Retailing) 1,607,098
14,500 Jungheinrich AG (Machinery &
engineering) 2,665,839
-------------
Total preferred stocks
(cost US$5,077,240) 4,272,937
-------------
Total long-term investments
(cost US$141,617,252) 169,662,710
-------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--2.6%
- ------------------------------------------------------------
U.S. Government Securities--2.6%
$4,835 Federal Home Loan Mortgage
Corporation,
Zero Coupon, 11/1/95
(cost US$4,834,214) 4,834,214
-------------
- ------------------------------------------------------------
Total Investments--93.6%
(cost US$146,451,466; Note 4) 174,496,924
Other assets in excess of
liabilities--6.4% 11,862,446
-------------
Net Assets--100% $ 186,359,370
-------------
-------------
</TABLE>
- ---------------
*Non-income producing security.
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
October 31, 1995
Investments, at value (cost
$146,451,466)................................................................
.... $174,496,924
Foreign currency, at value (cost
$11,377,530)................................................................
11,713,654
Receivable for investments
sold.........................................................................
..... 7,380,000
Receivable for foreign
currency.....................................................................
......... 2,048,595
Dividends and interest
receivable...................................................................
......... 462,605
Receivable for Fund shares
sold.........................................................................
..... 147,632
Deferred
expenses.....................................................................
....................... 174,864
------------
Total
assets.......................................................................
....................... 196,424,274
------------
Liabilities
Payable for investments
purchased....................................................................
........ 5,977,276
Bank
overdraft....................................................................
........................... 2,543,478
Payable for foreign
currency.....................................................................
............ 999,725
Payable for Fund shares
reacquired...................................................................
........ 202,882
Due to
Distributors.................................................................
......................... 126,218
Due to
Manager......................................................................
......................... 118,389
Accrued
expenses.....................................................................
........................ 96,936
------------
Total
liabilities..................................................................
....................... 10,064,904
------------
Net
Assets.......................................................................
............................ $186,359,370
------------
------------
Net assets were comprised of:
Common stock, at
par..........................................................................
............ $ 14,351
Paid-in capital in excess of
par..........................................................................
164,275,962
------------
164,290,313
Undistributed net investment
income.......................................................................
100,981
Accumulated net realized loss on investment and foreign currency
transactions............................. (6,413,614)
Net unrealized appreciation on investments and foreign
currencies......................................... 28,381,690
------------
Net assets, October 31,
1995.........................................................................
..... $186,359,370
------------
------------
Class A:
Net asset value and redemption price per share
($48,836,155 / 3,730,620 shares of common stock issued and
outstanding)................................ $13.09
Maximum sales charge (5.00% of offering
price)............................................................
.69
Maximum offering price to
public..........................................................................
$13.78
Class B:
Net asset value, offering price and redemption price per share
($129,429,897 / 9,995,668 shares of common stock issued and
outstanding)............................... $12.95
Class C:
Net asset value, offering price and redemption price per share
($8,093,318 / 624,902 shares of common stock issued and
outstanding)................................... $12.95
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
October 31,
Net Investment Income 1995
-----------
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $241,767)............................. $ 1,993,822
Interest.................................... 153,415
-----------
Total income............................. 2,147,237
-----------
Expenses
Distribution fee--Class A................... 58,141
Distribution fee--Class B................... 606,363
Distribution fee--Class C................... 39,597
Management fee.............................. 660,620
Transfer agent's fees and expenses.......... 237,000
Custodian's fees and expenses............... 180,000
Registration fees........................... 60,000
Reports to shareholders..................... 30,000
Amortization of organization expense........ 25,000
Directors' fees and expenses................ 21,600
Audit fee and expenses...................... 10,000
Legal fees and expenses..................... 7,500
Miscellaneous............................... 27,894
-----------
Total operating expenses................. 1,963,715
-----------
Net investment income.......................... 183,522
-----------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized loss on:
Investment transactions..................... (1,898,496)
Foreign currency transactions............... (82,541)
-----------
(1,981,037)
-----------
Net change in unrealized
appreciation/depreciation on:
Investments................................. 18,698,354
Foreign currencies.......................... 310,669
-----------
19,009,023
-----------
Net gain on investments and foreign
currencies.................................. 17,027,986
-----------
Net Increase in Net Assets
Resulting from Operations...................... $17,211,508
-----------
-----------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months July 13, 1994D
Ended Through
Increase (Decrease) October 31, April 30,
in Net Assets 1995 1995
------------ ------------------
<S> <C> <C>
Operations
Net investment gain (loss).... $ 183,522 $ (507,198)
Net realized loss on
investment and foreign
currency transactions...... (1,981,037) (4,674,403)
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies................. 19,009,023 9,372,667
------------ ------------------
Net increase in net assets
resulting from
operations................. 17,211,508 4,191,066
------------ ------------------
Fund share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold....................... 93,319,680 189,831,561
Cost of shares reacquired..... (79,476,324) (38,818,121)
------------ ------------------
Net increase in net assets
from Fund share
transactions............... 13,843,356 151,013,440
------------ ------------------
Total increase................... 31,054,864 155,204,506
Net Assets
Beginning of period.............. 155,304,506 100,000
------------ ------------------
End of period.................... $186,359,370 $155,304,506
------------ ------------------
------------ ------------------
</TABLE>
- ---------------
DCommencement of investment operations.
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements (Unaudited) 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 $82,541 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.
- --------------------------------------------------------------------------------
7
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
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
accumulated net investment income by $82,541, and decrease accumulated net
realized loss on investments and foreign currency transactions by $82,541 for
the six months ended October 31, 1995.
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 October 31, 1995.
PMFD has advised the Fund that it has received approximately $61,200 in
front-end sales charges resulting from sales of Class A shares during the six
months ended October 31, 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 six months ended October 31, 1995, it
received approximately $209,100 and $4,100 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'').
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements (Unaudited) 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 period ended October 31,
1995, the Fund incurred fees of approximately $117,400 for the services of PMFS.
As of October 31, 1995, approximately $20,600 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the period ended October 31, 1995 were $34,517,227 and $30,213,006,
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 October 31, 1995 net unrealized appreciation for federal income tax purposes
was $28,381,690 (gross unrealized appreciation--$31,883,386; gross unrealized
depreciation--$3,501,696). 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 current 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>
Six months ended October 31, 1995:
Shares sold......................... 4,663,341 $ 59,529,487
Shares reacquired................... (4,563,772) (58,366,315)
---------- ------------
Net increase in shares outstanding
before conversion................. 99,569 1,163,172
Shares issued upon conversion from
Class B & C....................... 65,634 831,154
---------- ------------
Net increase in shares
outstanding....................... 165,203 $ 1,994,326
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
Class B
- ------------------------------------
Six months ended October 31, 1995:
Shares sold......................... 2,457,799 $ 31,352,562
Shares reacquired................... (1,475,650) (18,771,604)
---------- ------------
Net increase in shares outstanding
before conversion................. 982,149 12,580,958
Shares reaquired upon conversion
into Class A...................... (63,320) (793,833)
---------- ------------
Net increase in shares
outstanding....................... 918,829 $ 11,787,125
---------- ------------
---------- ------------
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 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 (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended October 31, 1995:
Shares sold......................... 186,910 $ 2,437,631
Shares reacquired................... (180,410) (2,338,405)
---------- ------------
Net increase in shares outstanding
before conversion................. 6,500 99,226
Shares reaquired upon conversion
into Class A...................... (2,832) (37,321)
---------- ------------
Net increase in shares
outstanding....................... 3,668 $ 61,905
---------- ------------
---------- ------------
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.
- --------------------------------------------------------------------------------
10
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
Class B Class C
---------------------------
------------------------ -----------
July 13,
July 13,
Six Months 1994(b)
Six Months 1994(b) Six Months
Ended through
Ended through Ended
October 31, April 30,
October 31, April October 31,
1995 1995
1995 30, 1995 1995
<S> <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
----------- -----------
----------- -------- -----------
Income from investment operations
Net investment gain (loss).................... .05 .01
-- (.06) .01
Net realized and unrealized gain on investment
and foreign currency transactions 1.27 .36
1.26 .35 1.25
----------- -----------
----------- -------- -----------
Total from investment operations........... 1.32 .37
1.26 .29 1.26
----------- -----------
----------- -------- -----------
Net asset value, end of period................ $ 13.09 $ 11.77
$ 12.95 $ 11.69 $ 12.95
----------- -----------
----------- -------- -----------
----------- -----------
----------- -------- -----------
TOTAL RETURN(d):.............................. 11.22% 3.25%
10.78% 2.54% 10.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 48,836 $ 41,963
$ 129,430 $106,081 $ 8,093
Average net assets (000)...................... $ 46,260 $ 29,598
$ 120,614 $ 85,623 $ 7,876
Ratios to average net assets(a):
Expenses, including distribution fees...... 1.67% 1.84%
2.44% 2.59% 2.41%
Expenses, excluding distribution fees...... 1.42% 1.59%
1.44% 1.59% 1.41%
Net investment income (loss)............... .81% .06%
(.01)% (.71)% (.07)%
Portfolio turnover rate....................... 19% 25%
19% 25% 19%
<CAPTION>
July 13,
1994(b)
through
April 30,
1995
<S> <C>
-----------
PER SHARE OPERATING PERFORMANCE(c):
Net asset value, beginning of period.......... $ 11.40
-----------
Income from investment operations
Net investment gain (loss).................... (.06)
Net realized and unrealized gain on investment
and foreign currency transactions .35
-----------
Total from investment operations........... .29
-----------
Net asset value, end of period................ $ 11.69
-----------
-----------
TOTAL RETURN(d):.............................. 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 7,260
Average net assets (000)...................... $ 6,094
Ratios to average net assets(a):
Expenses, including distribution fees...... 2.59%
Expenses, excluding distribution fees...... 1.59%
Net investment income (loss)............... (.71)%
Portfolio turnover rate....................... 25%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge --sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just based
on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
Change Your Mind. You can exchange your shares in most Prudential Mutual Funds
for shares in most other Prudential Mutual Funds, without charges. This may be
most helpful if your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you are
married, you and your spouse (if not working outside the home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary income and may be
subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your company-
sponsored retirement plan while retaining the special tax-deferred advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or other
needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from your
fund account? Just let us know. We'll take care of it. Of course, there are
minimum amounts. And shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges. We'll gladly answer
your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual fund
reports, as well as other important updates on events that affect your
investments, including tax information.
This material is only authorized for distribution when preceded or accompanied
by a current prospectus. Read the prospectus carefully before you invest or
send money.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
Directors
Thomas R. Anderson
Eugene C. Dorsey
Richard A. Redeker
Robin 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
Distributors
Prudential Mutual Fund Distributors, Inc.
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 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
The accompanying financial statements as of October 31, 1995 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.<PAGE>
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
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