<PAGE>
PRESIDENT'S LETTER JUNE 9, 1997
- --------------------------------------------------------------------------------
STAYING THE COURSE.
[PHOTO]
DEAR SHAREHOLDER:
With the midpoint of 1997 upon us, I'm pleased to report that the recent news
from the financial markets has been decidedly upbeat. The Dow Jones Industrial
Average has gained nearly 17% through mid-June, while lower long-term interest
rates have made bonds an attractive investment.
This stands in contrast to April when the Dow fell 10% from a record high on
fears of higher interest rates and surging inflation. Interest rates have since
fallen as the economy slowed and the Dow has reached several new highs.
The market swings we've seen this year illustrate the importance of "staying the
course" to your financial goal. We realize that maintaining investment
discipline when faced with market uncertainty isn't easy. Here are some
thoughts that may help:
- - KEEP YOUR EXPECTATIONS REALISTIC. The best investors know that financial
markets rise and fall--and so too, will the value of their investments.
Over time, however, stocks have been shown to produce very attractive
returns that were well ahead of inflation.
- - REMEMBER YOUR TIME HORIZON. If your investment goals are long term
(several years or more), so should your time horizon. During this period,
it's not unusual for stocks and bonds to experience several periods of
market uncertainty.
- - WE'RE ON YOUR SIDE. Your Prudential Securities Financial Advisor or
Prudential Registered Representative can help you understand what's
happening in the financial markets. They can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and
long-term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.
Sincerely,
/s/ Brian M. Storms
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- --------------------------------------------------------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1997
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS-95.1%
COMMON STOCK-95.1%
- --------------------------------------------------------------------------------
BELGIUM--2.7%
11,950 Barco Industries NV (Electrical &
electronics) $ 2,039,821
8,500 Kredietbank NV (Banking) 3,317,578
---------------
5,357,399
- --------------------------------------------------------------------------------
FEDERAL REPUBLIC OF GERMANY--6.8%
49,700 Hoechst AG* (Chemicals) 1,954,543
6,020 Linde AG (Machinery & engineering) 4,404,199
25,800 SAP AG (Data processing &
reproduction) 4,704,609
3,700 Volkswagen AG (Automobiles & auto parts) 2,355,965
---------------
13,419,316
- --------------------------------------------------------------------------------
FINLAND--2.0%
64,900 Nokia Corp. ( Telecommunications equipment) 4,017,035
- --------------------------------------------------------------------------------
FRANCE--20.3%
40,000 Bertrand Faure SA (Automobiles & auto parts) 1,918,490
9,800 Carrefour SA(Retail) 6,128,048
9,300 Hermes International (Textiles & apparel
manufacturing) 2,505,534
20,421 Imetal SA (Miscellaneous materials &
commodities) 2,806,902
24,500 Legrand SA (Electrical & electronics) 4,141,141
16,800 Rexel SA (Electrical & electronics) 4,482,883
31,418 Salomon SA (Recreation & other
consumer growth) 2,219,073
19,800 Seb SA (Appliances & household
durables) 3,496,216
39,580 Sidel SA (Machinery & engineering) 2,847,179
22,738 Unibail (Financial services) 2,204,543
72,100 Valeo SA (Automobiles & auto parts) 4,454,054
35,400 Total SA (Oil services) 2,940,129
---------------
40,144,192
PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE(NOTE 1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITALY--4.6%
133,100 Bulgari SpA* (Retail) $ 2,409,163
1,547,900 Telecom Italia Mobile SpA*
(Telecommunications) 4,874,792
1,300,000 Credito Italiano SpA (Banking) 1,824,661
---------------
9,108,616
- --------------------------------------------------------------------------------
NETHERLANDS--7.6%
51,200 Hagemeyer (Wholesale & international
trading) 4,461,258
11,750 Heineken NV (Beverages) 1,972,145
56,500 IHC Caland NV (Oil services) 2,794,095
17,700 Nutricia Verenigde Bedrijven NV
(Food & household products) 2,689,648
17,500 Royal Dutch Petroleum Co. (Energy sources) 3,132,453
---------------
15,049,599
- --------------------------------------------------------------------------------
NORWAY--1.6%
169,300 Tomra Systems ASA (Waste management) 3,285,565
- --------------------------------------------------------------------------------
SPAIN--7.0%
19,554 Azkoyen SA (Manufacturing) 2,936,647
91,643 Banco Central Hispanoamericano (Banking) 2,796,606
107,300 Centros Commerciales Pryca SA (Retail) 1,868,984
123,000 Telefonica de Espana (Telecommunications) 3,158,850
66,700 Tele Pizza SA (Restaurants) 3,064,592
---------------
13,825,679
- --------------------------------------------------------------------------------
SWEDEN--9.2%
109,700 Allgon AB (Telecommunications) 3,008,123
84,600 Astra AB (Health & personal care) 3,361,080
41,400 Hennes & Mauritz AB (Retail) 5,993,033
96,100 Mo och Domsjo AB (Forest
products & paper) 2,874,198
290,900 Skandinaviska Enskilda Banken (Banking) 2,968,139
---------------
18,204,573
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF APRIL 30, 1997
- --------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE(NOTE 1)
- --------------------------------------------------------------------------------
UNITED KINGDOM--27.1%
472,200 Bank of Ireland (Banking) $ 4,922,488
159,500 Barclays PLC (Banking) 2,975,259
347,100 British Sky Broadcasting Group PLC
(Broadcasting & publishing) 3,217,586
289,100 Carpetright PLC (Retail) 2,223,873
531,700 Compass Group PLC (Leisure & tourism) 5,845,397
345,100 Dixons Group PLC (Retail) 2,839,855
422,600 Electrocomponents PLC
(Electronic components &
instruments) 2,714,734
263,700 EMAP PLC (Broadcasting &
publishing) 3,267,877
179,148 GKN PLC (Automobiles & auto parts) 2,773,637
327,700 Hays PLC (Business & public services) 2,904,515
224,800 Reed International PLC (Broadcasting &
publishing) 4,156,784
186,500 Siebe PLC (Machinery & engineering) 2,769,174
300,700 Standard Chartered PLC (Banking) 4,565,080
997,200 Vodafone Group PLC
(Telecommunications) 4,476,020
326,900 Whitebread PLC (Beverages) 4,093,608
---------------
53,745,887
- --------------------------------------------------------------------------------
UNITED STATES--6.2%
76,500 Baan Company NV* (Data processing &
reproduction) 4,111,875
40,900 Gucci Group NV (Retail) 2,837,437
67,500 SGS-Thompson Microelectronics NV*
(Electronic components &
instruments) 5,290,313
---------------
12,239,625
---------------
Total common stocks
(cost US$142,090,652) 188,397,486
PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT DESCRIPTION VALUE(NOTE 1)
(000)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--6.2%
REPURCHASE AGREEMENT--6.2%
$ 12,358 Bear Stearns & Co. Inc.,
5.375%, dated 4/30/97, due
5/1/97 in the amount of
$12,359,845(cost US$12,358,000;
the value of the collateral including
accrued interest is US$12,634,169) $ 12,358,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--101.3%
(cost US$154,448,652; Note 4) 200,755,486
Liabilities in excess of other assets-(1.3%) (2,712,536)
---------------
Net Assets-100.0% $ 198,042,950
---------------
---------------
- --------------------
* Non-income producing security
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILIITIES PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets April 30, 1997
Investments, at value (cost US$154,448,652). . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,755,486
Foreign currency, at value (cost US$6,801,509) . . . . . . . . . . . . . . . . . . . . . . . . 6,685,742
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716,069
Receivable for Fund shares sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,262
Deferred expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,442
--------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,238,001
--------------
LIABILITIES
Payable for Fund shares reacquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,779,914
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,681
Distribution fee payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,641
Management fee payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,815
--------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,195,051
--------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,042,950
--------------
--------------
Net assets were comprised of:
Common stock, at par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,023
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,667,281
--------------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,680,304
Undistributed net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,778
Accumulated net realized gain on investments and foreign currency transactions . . . . . . . 7,075,981
Net unrealized appreciation on investments and foreign currencies. . . . . . . . . . . . . . 46,157,887
--------------
Net Assets, April 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,042,950
--------------
--------------
Class A :
Net asset value and redemption price per share
( $38,806,588 / 2,510,118 shares of common stock issued and outstanding) . . . . . . . . . . $15.46
Maximum sales charge ( 5% of offering price ). . . . . . . . . . . . . . . . . . . . . . . . .81
------
Maximum offering price to public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16.27
------
------
Class B :
Net asset value and redemption price per share
( $139,277,519 / 9,212,798 shares of common stock issued and outstanding). . $15.12
------
------
Class C :
Net asset value and redemption price per share
( $8,010,295 / 529,672 shares of common stock issued and outstanding). . . . . . . . . . . . $15.12
------
------
Class Z :
Net asset value and redemption price per share
( $11,948,548 / 770,153 shares of common stock issued and outstanding) . . . . . . . . . . . $15.51
------
------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended
April 30,
NET INVESTMENT INCOME 1997
------------
Income
Dividends (net of foreign withholding taxes of
$379,838) . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,132,002
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 301,153
------------
Total income. . . . . . . . . . . . . . . . . . . . . 3,433,155
------------
Expenses
Management fee. . . . . . . . . . . . . . . . . . . . . . . 1,401,970
Distribution fee--Class A . . . . . . . . . . . . . . . . . 94,585
Distribution fee--Class B . . . . . . . . . . . . . . . . . 1,331,350
Distribution fee--Class C . . . . . . . . . . . . . . . . . 80,025
Transfer agent's fees and expenses. . . . . . . . . . . . . 268,000
Custodian's fees and expenses . . . . . . . . . . . . . . . 120,000
Reports to shareholders . . . . . . . . . . . . . . . . . . 100,000
Amortization of organization expenses . . . . . . . . . . . 50,000
Registration fees . . . . . . . . . . . . . . . . . . . . . 45,000
Audit fee and expenses. . . . . . . . . . . . . . . . . . . 35,000
Directors' fees and expenses. . . . . . . . . . . . . . . . 28,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . 12,500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 16,307
------------
Total operating expenses . . . . . . . . . . . . . . . 3,582,737
------------
Net investment loss. . . . . . . . . . . . . . . . . . . . . . . (149,582)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT AND FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss) on:
Investment transactions . . . . . . . . . . . . . . . . . . 15,321,646
Foreign currency transactions . . . . . . . . . . . . . . . 278,360
------------
15,600,006
------------
Net change in unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 14,928,631
Foreign currencies. . . . . . . . . . . . . . . . . . . . . (48,429)
------------
14,880,202
------------
Net gain on investments and foreign currencies . . . . . . . . . 30,480,208
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . $30,330,626
------------
------------
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended April 30,
--------------------
1997 1996
------- -------
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment loss . . . . . . . . . . . . . $ (149,582) $ (217,884)
Net realized gain on investment and
foreign currency transactions. . . . . . 15,600,006 3,252,406
Net change in unrealized
appreciation (depreciation) of
investments and foreign
currencies . . . . . . . . . . . . . . . 14,880,202 21,905,018
---------- ----------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . 30,330,626 24,939,540
---------- ----------
Dividends and distributions (Note 1)
Distributions from net realized gains
Class A. . . . . . . . . . . . . . . . . (1,314,232) --
Class B. . . . . . . . . . . . . . . . . (4,996,228) --
Class C. . . . . . . . . . . . . . . . . (297,634) --
Class Z. . . . . . . . . . . . . . . . . (382,973) --
---------- ----------
(6,991,067) --
---------- ----------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares sold . . . . . . . . 563,381,129 213,839,301
Net asset value of shares issued in
reinvestment of distributions. . . . . . 6,574,997 --
Cost of shares reacquired . . . . . . . . . . (576,650,878)(212,685,204)
------------- ------------
Net increase (decrease) in net
assets from Fund share
transactions. . . . . . . . . . . . . . . . . (6,694,752) 1,154,097
---------- ----------
Total increase . . . . . . . . . . . . . . . . . . 16,644,807 26,093,637
NET ASSETS
Beginning of year. . . . . . . . . . . . . . . . . 181,398,143 155,304,506
---------- ----------
End of year. . . . . . . . . . . . . . . . . . . . $198,042,950 $181,398,143
---------- ----------
---------- ----------
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Prudential Europe Growth Fund, Inc. (the "Fund"), is registered under the
Investment Company Act as a diversified, open-end management investment company.
The investment objective of the Fund is to seek long-term capital growth by
investing primarily in equity securities of companies domiciled in Europe. The
Fund was incorporated in Maryland on March 18, 1994 and commenced investment
operations on July 13, 1994.
- ----------------------------
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.
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 gain on foreign currency transactions of $278,360 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
on the ex-dividend date, and interest income is recorded on an accrual basis.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.
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: Effective May 1, 1996 the Fund discontinued the accounting
practice known as equalization. Equalization is a practice whereby 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.
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 undistributed net investment loss and
decrease accumulated net realized gain on investments and foreign currency
transactions by $278,360 for the year ended April 30, 1997, due to realized
and recognized currency gains during the period.
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 $177,000 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.
The Fund, along with other affiliated registered investment companies (the
"Funds"), entered into a credit agreement (the "Agreement") on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of April 30,
1997. The Funds pay a commitment fee at an annual rate of .005 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- --------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential Investments Fund Management
LLC ("PIFM"). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadvisor's performance of such
services. PIFM 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. PIFM pays for the cost of the
subadvisor'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 PIFM 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 a distribution agreement with Prudential
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
Securities Incorporated ("PSI") which acts as the distributor of the Class A, B,
C, and Z shares of the Fund. The Fund compensates 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.
No distribution or service fees are paid to PSI as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI with respect to
Class A, B and C 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 year ended April 30, 1997. No
distribution or service fees are paid to PSI as distributor for the Class Z
shares of the Fund.
PSI has advised the Fund that it has received approximately $77,600 in front-end
sales charges resulting from sales of Class A shares during the year ended April
30, 1997. From these fees 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 year ended April, 1997 it received
approximately $115,000 and $100 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- --------------------------------------------------------------------------------
NOTE 3. OTHER TRANSACTIONS WITH AFFILIATES
Prudential Mutual Fund Services LLC ("PMFS"), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended April 30, 1997, the
Fund incurred fees of approximately $243,800 for the services of PMFS. As of
April 30, 1997, approximately $21,200 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 year ended April 30, 1997 were $53,929,005 and $62,878,872
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, 1997 net unrealized appreciation for federal income tax purposes
was $46,306,834 (gross unrealized appreciation--$47,548,217; gross unrealized
depreciation-- $1,241,383). For federal income tax purposes, the Fund utilized
its capital loss carryforward of approximately $1,254,600 to partially offset
the Fund's net taxable gains realized and recognized in the year ended April 30,
1997.
- --------------------------------------------------------------------------------
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 privilege 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 $.001 par value common stock authorized and divided into four classes,
designated Class A, Class B, Class C and Class Z Shares, each consisting of 500
million authorized shares.
<PAGE>
NOTES TO FINANCIAL STATEMENTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Transactions in shares of common stock were as follows:
Shares Amount
-------- ---------
Class A
- -------
Year ended April 30, 1997:
Shares sold. . . . . . . . . . . . . . . . . . . . 23,351,661$ 344,533,412
Shares issued in reinvestment
of distributions. . . . . . . . . . . . . . . 80,872 1,196,902
Shares reacquired. . . . . . . . . . . . . . . . . (24,625,496)(363,626,484)
---------- ----------
Net decrease in shares outstanding
before conversion. . . . . . . . . . . . . . . . . (1,192,963) (17,896,170)
Shares issued upon conversion
from Class B. . . . . . . . . . . . . . . . . 211,034 3,125,390
---------- ----------
Net decrease in shares outstanding . . . . . . . . (981,929)$ (14,770,780)
---------- ----------
---------- ----------
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)
---------- ----------
---------- ----------
Class B
- -------
Year ended April 30, 1997:
Shares sold. . . . . . . . . . . . . . . . . . . 9,531,575 $140,295,556
Shares issued in reinvestment
of distributions . . . . . . . . . . . . . . . . . 324,391 4,710,146
Shares reacquired. . . . . . . . . . . . . . . . . (9,758,102)(143,749,550)
---------- ----------
Net decrease in shares
outstanding before conversion . . . . . . . . (97,864) 1,256,152
Shares issued upon conversion
from Class A. . . . . . . . . . . . . . . . . (214,885) (3,125,390)
---------- ----------
Net decrease in shares outstanding . . . . . . . . (117,021)$ (1,869,238)
---------- ----------
---------- ----------
Class B . . . . . . . . . . . . . . . . . . . . Shares Amount
---------- ----------
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 issued upon conversion
from Class A. . . . . . . . . . . . . . . . . (151,150) (1,908,762)
---------- ----------
Net increase in shares outstanding . . . . . . . . 252,980 $ 3,233,963
---------- ----------
---------- ----------
Class C
- -------
Year ended April 30, 1997:
Shares sold. . . . . . . . . . . . . . . . . . . . 4,507,770$ 66,198,312
Shares issued in reinvestment
of distributions. . . . . . . . . . . . . . . 19,502 283,176
Shares reacquired. . . . . . . . . . . . . . . . . (4,571,336) (67,391,048)
---------- ----------
Net decrease in shares outstanding . . . . . . . . (44,064) $ (909,560)
---------- ----------
---------- ----------
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)
---------- ----------
---------- ----------
Class Z
- -------
Year ended April 30, 1997:
Shares sold. . . . . . . . . . . . . . . . . . . . 862,103 $ 12,353,849
Shares issued in reinvestment
of distributions. . . . . . . . . . . . . . . 25,963 384,773
Shares reacquired. . . . . . . . . . . . . . . . . (117,928) (1,883,796)
---------- ----------
Net increase in shares outstanding . . . . . . . . 770,138 $ 10,854,826
---------- ----------
---------- ----------
April 15, 1996(a)
through April 30, 1996:
Shares sold. . . . . . . . . . . . . . . . . . . . 15 $ 200
Shares reacquired. . . . . . . . . . . . . . . . . -- --
---------- ----------
Net increase on shares outstanding . . . . . . . . 15 $ 200
---------- ----------
---------- ----------
- ----------------------------------
(a) Commencement of offering of Class Z shares.
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- -----------------------------------------
Year Year July 13,1994(b) Year Year July 13,1994(b)
Ended Ended through Ended Ended through
April 30, April 30, April 30, April 30, April 30, April 30,
1997 1996 (c) 1995 (c) 1997 1996 (c) 1995 (c)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period . . . $ 13.69 $ 11.77 $ 11.40 $ 13.49 $ 11.69 $ 11.40
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss) . . . . . . . .09 .06 .01 (.04) (.04) (.06)
Net realized and unrealized
gain on investment and
foreign currency transactions. . . . . . 2.24 1.86 .36 2.23 1.84 .35
-------- -------- -------- -------- -------- --------
Total from investment operations . . . . 2.33 1.92 .37 2.19 1.80 .29
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Distributions paid to shareholders
from net realized gains on investment
and foreign currency transactions. . . . (.56) -- -- (.56) -- --
-------- -------- -------- -------- -------- --------
Total distributions. . . . . . . . . . . (.56) -- -- (.56) -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period . . . . . . $ 15.46 $ 13.69 $ 11.77 $ 15.12 $ 13.49 $ 11.69
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
TOTAL RETURN(d): . . . . . . . . . . . . . 17.20% 16.31% 3.25% 16.41% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000). . . . . . $ 38,807 $ 47,789 $ 41,963 $139,277 $125,868 $106,081
Average net assets (000) . . . . . . . . . $ 37,834 $ 47,183 $ 29,598 $133,135 $122,255 $ 85,623
Ratios to average net assets:
Expenses, including distribution fees. . 1.36% 1.53% 1.84%(a) 2.11% 2.28% 2.59%(a)
Expenses, excluding distribution fees. . 1.11% 1.28% 1.59%(a) 1.11% 1.28% 1.59%(a)
Net investment income (loss) . . . . . . .57% .44% .06%(a) (.27)% (.33)% (.71)%(a)
FOR CLASS A, B, C AND Z SHARES:
Portfolio turnover rate . . . . . . . . . 31% 65% 25%
Average commission rate per share. . . . . $ 0.0463 $ 0.0233 N/A
</TABLE>
- ------------------------------
(a) Annualized.
(b) Commencement of class 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
<PAGE>
FINANCIAL HIGHLIGHTS PRUDENTIAL EUROPE GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
----------------------------------------- -------------------------------
Year Year July 13,1994(b) Year April 15, 1996(b)
Ended Ended through Ended through
April 30, April 30, April 30, April 30, April 30,
1997 1996 (c) 1995 (c) 1997 1996 (c)
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period . . . $ 13.49 $ 11.69 $ 11.40 $ 13.68 $ 13.40
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss) . . . . . . . (.04) (.04) (.06) .02 .28
Net realized and unrealized
gain on investment and
foreign currency transactions. . . . . . 2.23 1.84 .35 2.37 --
--------- --------- --------- --------- ---------
Total from investment operations . . . . 2.19 1.80 .29 2.39 .28
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Distributions paid to shareholders
from net realized gains on investment
and foreign currency transactions . . . (.56) -- -- (.56) --
--------- --------- --------- --------- ---------
Total distributions. . . . . . . . . . . (.56) -- -- (.56) --
--------- --------- --------- --------- ---------
Net asset value, end of period . . . . . . $ 15.12 $ 13.49 $ 11.69 $ 15.51 $ 13.68
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN(d): . . . . . . . . . . . . . 16.41% 15.40% 2.54% 17.66% 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000). . . . . . $ 8,010 $ 7,741 $ 7,260 $ 11,949 $ 204(e)
Average net assets (000) . . . . . . . . . $ 8,002 $ 7,768 $ 6,094 $ 7,958 $ 203(e)
Ratios to average net assets:
Expenses, including distribution fees. . 2.11% 2.28% 2.59%(a) 1.11% 1.28%(a)
Expenses, excluding distribution fees. . 1.11% 1.28% 1.59%(a) 1.11% 1.28%(a)
Net investment income (loss) . . . . . . (.25)% (.30)% (.71)%(a) .22% .54%(a)
</TABLE>
- ------------------------------
(a) Annualized.
(b) Commencement of class 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Europe Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Europe Growth Fund, Inc.
(the "Fund") at April 30, 1997, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at April 30, 1997 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above. The accompanying statement of changes in net
assets for the year ended April 30, 1996 and financial highlights for the year
ended April 30, 1996 and the period ended April 30, 1995 were audited by other
independent accountants, whose opinion dated June 13, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 24, 1997
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
As required by the Internal Revenue Code, we are to advise you within 60 days of
the Fund's fiscal year end (April 30, 1997) as to the federal tax status of
dividends and distributions paid by the Fund.
During the fiscal year ended April 30, 1997, distributions totaling $.56 per
share, were comprised of $.01 short-term capital gains, which are taxable as
ordinary income and $.55 long-term capital gains, which are taxable as such for
Class A, Class B, Class C and Class Z shares. We wish to advise you that the
corporation dividends received deduction for the Fund is Zero.
For the purpose of preparing your annual federal income tax return, however, you
should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute 1099-DIV.
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED) PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Europe Growth Fund, Inc.
(the "Fund) was held on Wednesday, October 30, 1996 at the offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New York. The meeting was
held for the following purpose:
(1) To elect Directors as follows: Edward D. Beach, Stephen C. Eyre, Delayne D.
Gold, Robert F. Gunia, Don G. Hoff, Robert E. LaBlanc, Mendel Melzer,
Richard A. Redeker, Robin B. Smith, Stephen Stoneburn, and Nancy H.
Teeters.
(2) To amend the Fund's fundamental investment restriction relating to
investment in securities of unseasoned issuers.
(3) To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending April 30, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
--------------- --------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 6,004,270 -- 240,113
Stephen C. Eyre 6,008,727 -- 235,656
Delayne D. Gold 6,013,323 -- 231,060
Robert E. Gunia 6,017,080 -- 227,303
Don G. Hoff 6,019,787 -- 224,596
Robert E. LaBlanc 6,017,985 -- 226,398
Mendel A. Melzer 6,015,420 -- 228,963
Richard A. Redeker 6,019,158 -- 225,225
Robin B. Smith 6,016,498 -- 227,885
Stephen Stoneburn 6,018,061 -- 226,322
Nancy H. Teeters 6,010,539 -- 233,844
(2) Investment Restrictions-unseasoned issuers 4,524,927 291,763 297,662
(3) Independent Auditors 5,948,236 62,924 233,223
</TABLE>
CHANGE IN AUDITORS
- --------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
independent accountants. For the period ended April 30, 1995 and the year ended
April 30, 1996, Deloitte & Touche LLP expressed an unqualified opinion on the
Fund's financial statements. There were no disagreements between Fund management
and Deloitte & Touch LLP prior to their termination. The Board of Directors
approved the termination of Deloitte & Touch LLP and the appointment of Price
Waterhouse LLP as the Fund's independent accountants.
- --------------------------------------------------------------------------------
See Notes to Financial Statements
