(ICON)
Prudential
Europe Growth
Fund, Inc.
SEMI
ANNUAL
REPORT
Oct. 31, 1997
(LOGO)
<PAGE>
Prudential Europe Growth Fund, Inc.
Performance At A Glance.
This was a good six months for European
stocks, as the European economic
recovery accelerated and the trend to cost-
cutting and increased productivity
continued. The Prudential Europe Growth
Fund's return slightly trailed the
Europe fund average, as measured by Lipper
Analytical Services, primarily
because our French growth stocks performed
poorly. However, we had strong
performances in Italy and the United Kingdom.
Cumulative Total Returns1
As of 10/31/97
<TABLE>
<CAPTION>
Six
One Since
Months
Year Inception2
<S> <C>
<C> <C>
Class A 9.31%
16.62% 53.85%
Class B 8.53
15.39 49.50
Class C 8.66
15.53 49.68
Class Z 9.09
17.45 31.04
Lipper European Fund Avg3 9.94
20.38 ***
</TABLE>
Average Annual Total Returns1
As of 9/30/97
<TABLE>
<CAPTION>
One Since
Year Inception2
<S>
<C> <C>
Class A
21.42% 14.81%
Class B
21.53 15.19
Class C
25.59 15.68
Class Z
28.74 25.80
</TABLE>
Past performance is not indicative of future
results. Principal and investment
return will fluctuate so that an investor's
share, when redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments 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 and a
declining contingent deferred sales charge
(CDSC) of 5%, 4%, 3%, 2%, 1% and 1%
for six years, for Class B shares. Class C
shares have a 1% CDSC for one year.
Class B shares will automatically convert to
Class A shares on a quarterly
basis, approximately seven years after
purchase. Class Z shares are not
subject to a sales charge or a distribution
fee.
2 Inception dates: Class A, Class B and Class
C, 7/13/94; Class Z, 4/15/96.
3 These are average returns for the 72 funds
in Lipper Analytical Services
European Fund category for the past six
months and 68 for the past year.
*** Lipper Since inception returns are 63.02%
for Classes A, B, and C and
33.56% for Class Z, for all funds in each
share class.
How Investments Compared.
(As of 10/31/97)
(GRAPH)
U.S. General General Money
Growth Bond Muni Debt Market
Funds Funds Funds Funds
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 returns means tolerating
more risk. The greater the risk,
the larger the potential reward or loss. In
addition, we've included historical
20-year average annual returns. These returns
assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great
deal. Investors have received higher
historical total returns from stocks than
from most other investments. Smaller
capitalization stocks offer greater potential
for long-term growth but may be
more volatile than larger capitalization
stocks.
General Bond Funds provide more income than
stock funds, which can help smooth
out their total returns year by year. But
their prices still fluctuate
(sometimes significantly) and their returns
have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds
issued by state governments,
state agencies and/or municipalities. This
investment provides income that is
usually exempt from federal and state income
taxes.
Money Market Funds attempt to preserve a
constant share value; they don't
fluctuate much in price but, historically,
their returns have been generally
among the lowest of the major investment
categories.
<PAGE>
Steve Auth, Bill Higgins, and Jean-Yves
Chereau,
Fund Managers
Portfolio
Managers' Report
The Prudential Europe Growth Fund invests
primarily in stocks of companies in
Europe, selecting a diversified portfolio for
long-term growth of capital. The
Fund is subject to all of the risks
associated with foreign investing,
including currency, political and social
risks, and potential illiquidity.
There can be no assurance that the Fund will
achieve its investment objective.
Our New Team.
In October, a team consisting of Steve Auth,
Bill Higgins, and Jean-Yves
Chereau assumed management of the Prudential
Europe Growth Fund. Steve, head
of Prudential's global equity group, designs
overall strategy and country
allocation. Bill, who has been deeply
involved in managing the Europe Growth
Fund for some time, will focus on its core
long-term holdings. Jean-Yves, head
of Prudential's Europe-based team, will
concentrate particularly on small and
mid-cap stocks.
Strategy Session.
We are maintaining both a core portfolio for
stability and also a tactical
portfolio that will be traded more actively
to enhance our returns. Both
portfolios consist of growth stocks, but the
tactical trading portfolio
contains the more volatile issues.
Restructuring companies. One focus of our
portfolio is firms that are
improving their earnings by consolidating or
restructuring. The emphasis on
productivity that brought dramatic earnings
improvements to U.S. companies is
in its early to mid stages in Europe. We
have benefited, for example, as our
financial services holdings respond to
industry consolidation across Europe
and to pressure on overcapitalized and poorly
managed banks from impatient
shareholders. Credito Italiano is a small
Italian bank that is being
restructured into a diversified financial
service company, with a focus on
asset management. Its shares almost doubled
in the half year. We also own
Barclays Bank, which rose 34%, and Banco
Central Hispano, up 23%.
Information Technology. European information
technology and software companies
are benefiting from the need to modify
corporate software quickly to
accommodate the new unified European currency
(the EMU) and calendar dates in
the year 2000. These pressures are
accelerating the software replacement and
consulting cycle, which also is necessary for
global information management.
Our second-largest holding is the world
leader in enterprise resource planning
software, the German firm, SAP. It dominates
the market for global management
systems: its shares rose 58% in our six-month
reporting period. Another of our
10 largest holdings is their smaller and more
nimble competitor, the Dutch
company, Baan.
Portfolio Composition.
Sectors expressed as a percentage of
net assets as of 10/31/97.
(PIE CHART)
<PAGE>
What Went Well.
Our five largest holdings all contributed
excellent returns -- ranging from
19% to 58% -- for our six-month reporting
period: The Bank of Ireland
benefited from Ireland's booming economy, in
part the result of expansionary
European monetary policies designed to
accelerate the growth of the larger
countries. Telecom Italia Mobile is a partly
state-owned mobile telephone
company in Italy. It is very well managed and
benefits from very strong demand.
Hennes & Mauritz is a multinational specialty
retailer, Sweden's largest. It is
expanding rapidly in Germany, where it
competes with large, sluggish department
stores. Hennes & Mauritz builds small stores
with stylish merchandise and a
quick stock turnover. Nokia is a Finnish
company with a global market for
mobile telephony.
Our shares in Telepizza contributed a 49%
semi-annual return. Telepizza
dominates the market for home delivery of
pizza in Spain. Although we took
some profits in December, we believe the
company has further potential.
And Not So Well.
In France, investors punished growth stocks
that had disappointing short-term
growth rates, particularly those whose stock
prices had risen sharply in
expectation of very strong earnings
performance. Moreover, during this period
several of our French growth holdings had
temporary reverses related to the
turmoil in Asia and other emerging markets.
Carrefour and Seb, for example,
both had investments in Brazil that were
affected by emerging market anxiety
there.
The Asian situation also affected Standard
Chartered, a U.K.-based bank that
does most of its business in Asia, and the
luxury companies we owned: Hermes
and Gucci. Both were severely affected when
Japanese tourists stopped spending
freely. We sold all of our Gucci stock.
Five Largest Holdings.
3.0% Bank of Ireland
Banking
3.0% SAP AG
Data Processing
& Reproduction
2.9 Telecom Italia Mobile
SpA
Telecommunications
2.9 Hennes & Mauritz AB
Retail
2.9 Nokia
Telecommunications
Equipment
Expressed as a percentage of net assetsas of
10/31/97.
Looking Ahead.
Europe has less exposure to the Asian turmoil
than Japan or the U.S. It also
has much more room for cost-cutting and
balance sheet restructuring, which
adds considerable impetus to earnings growth,
than the U.S. Unlike Asian
firms, European companies are now firmly
convinced of the need to improve
productivity. The process is proceeding
apace. Low or declining interest
rates are likely to nourish the current
economic recovery. We see a buoyant
environment for investing in growth stocks.
- ---------------------------------------------
- ----------------------------------
1
<PAGE>
An interview with Portfolio Manager Steve
Auth.
Q. How and why is our portfolio management
changing?
A. My team has been managing global
investments in growth-oriented companies
for Prudential, its institutional clients,
and the Global Genesis Fund. We
have investment professionals based in
Europe. Now the Prudential Europe
Growth Fund will take better advantage of
these on-site resources. We are
maintaining core holdings of well-established
firms with long-term growth
potential, whose progress we expect to be
relatively smooth. This type of
stock has kept the Prudential Europe Growth
Fund near the median of its Lipper
peer group. We are using the advantage of our
Europe-based team to also
identify companies with the possibility of
more explosive growth. Since the
earnings and the stock prices of these
companies tend to be more volatile, we
will be watching them carefully. We hope the
addition of this tactical
strategy to contribute to even better
performance.
Q. What is driving the overall stock
investment environment in Europe?
The impact of European economic unification
is finally hitting. European
companies are facing larger markets as the
barriers to internal trade in
Europe are torn down. Industries are
consolidating. The introduction of a
common currency will further ease trade by
removing currency exchange risk
from trade as well as a layer of paperwork.
Moreover, companies throughout Europe are
realizing that they will face
foreign competitors -- from elsewhere in
Europe if not global competition --
and that they have to be focused and well
managed to survive. Many government-
owned businesses have been privatized or are
struggling to restructure anyway.
We believe that the trend to restructure for
better efficiency underlies the
boom in earnings of U.S. companies over the
past few years and similar
benefits may be in store for European
companies. But, whereas the U.S. is well
along in this process and its stock prices
already are based on rather high
earnings assumptions, Europe still has room
to improve. We expect at least
another two to three years of strong growth.
Q. What is the impact of the Asian turmoil on
European stocks?
A. The impact of imploding Asian markets is
going to be wider than many people
originally thought, but most European
companies are less exposed to it than
companies in Japan or the U.S. There are
pockets, such as the luxury goods
companies, that are being hit very hard, but
most will continue to sell into
the dynamic U.S. and European economies.
Firms that compete with Asian
companies -- semiconductor chip companies,
for example -- are affected, but
the impact will be less in Europe than
anywhere else.
In addition, Europe has been growing more
slowly than its long-term rate of
economic growth and recently has been
accelerating toward a more normal pace,
especially in countries other than Germany
and France. In contrast, the U.S.
economy has been expanding faster than usual
over the last two to three years.
So, although weakness in Asia may slow
Europe's economic acceleration next
year, we're still likely to see the pace
quicken, whereas the US economy is
more likely to slow in 1998.
(PHOTO)
- ---------------------------------------------
- ----------------------------------
2
<PAGE>
President's Letter
December 18, 1997
(PHOTO)
It Was Another Good
Year.
Dear Shareholder:
By many measures 1997 was another good year
for investors. The economy
continued its sixth straight year of moderate
growth. Inflation remained
subdued and unemployment fell to record lows.
Thanks to this favorable
environment, the stock market posted its
third year of double-digit returns
while bond values rose as yields declined to
five-year lows.
There were periods of uncertainty, of course.
The financial markets declined
significantly three times during the year.
Yet following each episode the
markets rebounded as investors took advantage
of buying opportunities. That
is very important because it shows that
investors today are not easily swayed
by temporary setbacks -- they choose to stay
the course and are investing for
the long term.
As we begin a new year, here are a few
thoughts to help guide your investment
decisions:
- - Keep your investment expectations
realistic. Seasoned investors know
that financial markets rise and fall -- as
will the value of their
holdings. Over time, however, stocks have
been shown to produce very
attractive returns. In fact, the S&P 500 rose
more than 280% from the
time of the last major market decline
(October 31, 1987) through December
31, 1996, according to Lipper Analytical
Services.
- - Don't make rash decisions. If you have an
investment plan, stick to it.
(If you don't have one, see your Prudential
Financial Professional.) While
past performance is not indicative of future
results, many investors have
profited by the long-term growth prospects of
stocks and income producing
potential of bonds.
- - Review your portfolio. Sit down with your
Prudential Securities Financial
Advisor or Pruco Securities Registered
Representative today. Your Prudential
professional can advise you on financial
strategies and explain important new
developments, such as the federal Taxpayer
Relief Act of 1997, which may
change the way you save for college, a
retirement nest egg or other long-term
financial goal.
Thank you for your continued confidence in
Prudential Mutual Funds &
Annuities. In 1998, we'll do everything we
can to keep you informed and earn
your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds &
Annuities
- ---------------------------------------------
- ----------------------------------
3
<PAGE>
Portfolio of Investments as of October 31,
1997
(Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ---------------------------------------------
- ---------------
LONG-TERM INVESTMENTS--90.1%
COMMON STOCKS--87.7%
- ---------------------------------------------
- ---------------
Belgium--3.0%
11,950 Barco Industries NV (Electrical
&
electronics)
$ 2,296,087
8,500 Kredietbank NV (Banking)
3,552,508
- ------------
5,848,595
- ---------------------------------------------
- ---------------
Federal Republic Of Germany--6.9%
49,700 Hoechst AG* (Chemicals)
1,905,289
6,020 Linde AG (Machinery &
engineering) 3,657,669
20,700 SAP AG (Data processing &
reproduction)
5,899,227
3,700 Volkswagen AG (Automobiles &
auto
parts)
2,190,261
- ------------
13,652,446
- ---------------------------------------------
- ---------------
Finland--2.9%
64,900 Nokia Corp. (Telecommunciations
equipment)
5,651,258
- ---------------------------------------------
- ---------------
France--15.0%
40,000 Bertrand Faure SA (Automobiles &
auto parts)
2,406,847
3,500 Carrefour SA (Retail)
1,821,561
27,900 Hermes International (Textiles &
apparel manufacturing)
1,876,563
20,421 Imetal SA (Miscellaneous
materials
& commodities)
2,189,162
18,600 Legrand SA (Electrical &
electronics)
3,454,033
10,800 Rexel SA (Electrical &
electronics) 2,857,094
19,800 Seb SA (Appliances & household
durables)
2,256,108
39,580 Sidel SA (Machinery &
engineering) 2,217,329
21,494 Unibail (Financial services)
2,029,173
72,100 Valeo SA (Automobiles & auto
parts) 4,795,862
35,400 Total SA (Oil services)
3,917,351
- ------------
29,821,083
Italy--4.8%
71,500 Bulgari SpA* (Retail)
$ 387,658
1,300,000 Credito Italiano SpA (Banking)
3,459,050
1,547,900 Telecom Italia Mobile SpA*
(Telecommunications)
5,728,729
- ------------
9,575,437
- ---------------------------------------------
- ---------------
Netherlands--7.9%
60,400 Hagemeyer NV (Wholesale &
international trading)
2,650,273
11,750 Heineken NV (Beverages)
1,904,310
56,500 IHC Caland NV (Oil services)
3,462,106
88,500 Nutricia Verenigde Bedrijven NV
(Food & household products)
2,520,715
97,000 Royal Dutch Petroleum Co.
(Energy
sources)
5,112,458
- ------------
15,649,862
- ---------------------------------------------
- ---------------
Norway--2.2%
169,300 Tomra Systems ASA (Waste
management)
4,340,649
- ---------------------------------------------
- ---------------
Spain--7.9%
24,442 Azkoyen SA (Manufacturing)
2,680,040
183,286 Banco Central Hispanoamericano
(Banking)
3,414,377
107,300 Centros Commerciales Pryca SA
(Retail)
1,697,559
123,000 Telefonica de Espana
(Telecommunications)
3,344,328
66,700 Tele Pizza SA (Restaurants)
4,563,569
- ------------
15,699,873
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of October 31,
1997
(Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ---------------------------------------------
- ---------------
Sweden--8.0%
219,400 Allgon AB (Telecommunications)
$ 3,496,222
112,800 Astra AB (Health & personal
care) 1,737,594
139,200 Hennes & Mauritz AB (Retail)
5,665,664
66,100 Mo och Domsjo AB (Forest
products &
paper)
1,781,881
290,900 Skandinaviska Enskilda Banken
(Banking)
3,129,031
- ------------
15,810,392
- ---------------------------------------------
- ---------------
United Kingdom--26.4%
472,200 Bank of Ireland (Banking)
5,971,203
159,500 Barclays PLC (Banking)
3,988,498
347,100 British Sky Broadcasting Group
PLC
(Broadcasting & publishing)
2,459,144
583,400 Capita Group PLC (Computer
services)
3,009,581
289,100 Carpetright PLC (Retail)
2,585,701
531,700 Compass Group PLC (Leisure &
tourism)
5,597,071
345,100 Dixons Group PLC (Retail)
4,028,716
422,600 Electrocomponents PLC
(Electronic
components & instruments)
3,291,329
179,148 GKN PLC (Automobiles & auto
parts) 4,011,735
327,700 Hays PLC (Business & public
services)
3,842,053
186,500 Siebe PLC (Machinery &
engineering) 3,576,623
145,500 Standard Chartered PLC (Banking)
1,576,726
997,200 Vodafone Group PLC
(Telecommunications)
5,428,183
227,900 Whitbread PLC (Beverages)
3,042,226
- ------------
52,408,789
- ---------------------------------------------
- ---------------
United States--2.7%
76,500 Baan Company NV* (Data
processing &
reproduction)
5,364,562
- ------------
Total common stocks
(cost US$121,479,490)
173,822,946
- ------------
PREFERRED STOCKS--2.4%
- ---------------------------------------------
- ---------------
Federal Republic Of Germany--2.4%
1,185 Porsche AG (Automobiles & auto
parts)
$ 1,745,118
4,367 Wella AG (Cosmetics &
toiletries) 3,032,376
- ------------
Total preferred stocks
(cost US$4,973,061)
4,777,494
- ------------
Total long-term investments
(cost US$126,452,551)
178,600,440
- ------------
<CAPTION>
Principal Description
Value (Note 1)
Amount
(000)
- ---------------------------------------------
- ---------------
SHORT-TERM INVESTMENTS--2.5%
Repurchase Agreement--2.5%
$4,926 Bear Stearns & Co. Inc.,
5.68%, dated 10/31/97, due
11/3/97 in the amount of
$4,928,300 (cost
US$4,926,000;
the value of the collateral
including accrued interest is
US$5,030,764)
4,926,000
- ---------------------------------------------
- ---------------
Total Investments--92.6%
(cost US$131,378,551; Note 4)
183,526,440
Other assets in excess of
liabilities--7.4%
14,773,763
- ------------
Net Assets--100.0%
$198,300,203
- ------------
- ------------
</TABLE>
- ---------------
* Non-income producing security.
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities
(Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
Assets
October 31, 1997
<S>
<C>
Investments, at value (cost
US$131,378,551)..............................
.................................
$183,526,440
Foreign currency, at value (cost
US$6,543,991)................................
............................
6,623,210
Cash.........................................
.............................................
................ 1,561,326
Receivable for foreign currency
sold.........................................
.............................
4,387,082
Receivable for investments
sold.........................................
..................................
2,642,621
Dividends and interest
receivable...................................
......................................
302,103
Receivable for Fund shares
sold.........................................
..................................
30,327
Deferred expenses and other
assets.......................................
.................................
8,506
- ----------------
Total
assets.......................................
.............................................
....... 199,081,615
- ----------------
Liabilities
Payable for Fund shares
reacquired...................................
.....................................
463,568
Distribution fee
payable......................................
............................................
141,004
Management fee
payable......................................
.............................................
. 134,151
Accrued
expenses.....................................
.............................................
........ 42,689
- ----------------
Total
liabilities..................................
.............................................
....... 781,412
- ----------------
Net
Assets.......................................
.............................................
............ $198,300,203
- ----------------
- ----------------
Net assets were comprised of:
Common stock, at
par..........................................
.........................................
$ 11,994
Paid-in capital in excess of
par..........................................
.............................
125,707,704
- ----------------
125,719,698
Undistributed net investment
income.......................................
.............................
106,506
Accumulated net realized gain on
investments and foreign currency
transactions.........................
20,231,536
Net unrealized appreciation on investments
and foreign
currencies...................................
... 52,242,463
- ----------------
Net Assets, October 31,
1997.........................................
.....................................
$198,300,203
- ----------------
- ----------------
Class A:
Net asset value and redemption price per
share
($38,766,861 / 2,294,134 shares of
common stock issued and
outstanding).............................
$16.90
Maximum sales charge (5% of offering
price).......................................
..................... .89
- ----------------
Maximum offering price to
public.......................................
................................
$17.79
- ----------------
- ----------------
Class B:
Net asset value, offering price and
redemption price per share
($138,962,692 / 8,470,326 shares of
common stock issued and
outstanding)............................
$16.41
- ----------------
- ----------------
Class C:
Net asset value, offering price and
redemption price per share
($7,897,118 / 480,714 shares of common
stock issued and
outstanding)................................
$16.43
- ----------------
- ----------------
Class Z:
Net asset value, offering price and
redemption price per share
($12,673,532 / 748,835 shares of common
stock issued and
outstanding)...............................
$16.92
- ----------------
- ----------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Operations (Unaudited)
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Six Months
Ended
October 31,
Net Investment Loss
1997
<S>
<C>
Income
Dividends (net of foreign withholding
taxes
of
$184,841)............................. $
1,834,515
Interest....................................
143,276
- -----------
Total
income.............................
1,977,791
- -----------
Expenses
Management
fee..............................
800,648
Distribution fee--Class
A................... 54,259
Distribution fee--Class
B................... 743,385
Distribution fee--Class
C................... 42,961
Transfer agent's fees and
expenses.......... 140,000
Custodian's fees and
expenses............... 121,000
Reports to
shareholders.....................
51,000
Amortization of organization
expenses....... 25,000
Registration
fees........................... 19,000
Audit fees and
expenses..................... 15,000
Directors' fees and
expenses................ 12,000
Legal fees and
expenses..................... 6,000
Miscellaneous...............................
5,921
- -----------
Total operating
expenses................. 2,036,174
- -----------
Net investment
loss............................
(58,383)
- -----------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Transactions
Net realized gain (loss) on:
Investment
transactions.....................
13,155,555
Foreign currency
transactions............... 36,111
- -----------
13,191,666
- -----------
Net change in unrealized appreciation
(depreciation) on:
Investment
transactions.....................
5,841,054
Foreign currency
transactions............... 243,522
- -----------
6,084,576
- -----------
Net gain on investments and foreign
currencies..................................
19,276,242
- -----------
Net Increase in Net Assets
Resulting from
Operations......................
$19,217,859
- -----------
- -----------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) October
31, April 30,
in Net Assets 1997
1997
<S> <C>
<C>
Operations
Net investment loss.......... $
(58,383) $ (149,582)
Net realized gain on
investment and foreign
currency transactions.....
13,191,666 15,600,006
Net change in unrealized
appreciation
(depreciation) of
investments and foreign
currencies................
6,084,576 14,880,202
-----------
- -- -------------
Net increase in net assets
resulting from
operations................
19,217,859 30,330,626
-----------
- -- -------------
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......................
354,362,541 563,381,129
Net asset value of shares
issued in reinvestment of
distributions.............
- -- 6,574,997
Cost of shares reacquired....
(373,323,147) (576,650,878)
-----------
- -- -------------
Net decrease in net assets
from Fund share
transactions..............
(18,960,606) (6,694,752)
-----------
- -- -------------
Total increase..................
257,253 16,644,807
Net Assets
Beginning of period.............
198,042,950 181,398,143
-----------
- -- -------------
End of period................... $
198,300,203 $ 198,042,950
-----------
- -- -------------
-----------
- -- -------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements (Unaudited)
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 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 gain on foreign currency
transactions of $36,111 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. 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.
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 increase
accumulated net investment income and
decrease accumulated net realized loss on
investments and foreign currency
transactions by $36,111 for the six months
ended October 31,1997, due to
realized and recognized currency gains during
the period. Net realized gains and
net assets were not affected by this change.
- ---------------------------------------------
- -----------------------------------
8
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
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.
- ---------------------------------------------
- ---------------
Note 2. Agreements
The Fund has a management agreement with
Prudential Mutual Fund Management LLC
('PIFM'). Pursuant to this agreement, PIFM
has responsibility for all investment
advisory services and supervises the
subadviser'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 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 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 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 six months ended October 31,
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 $25,500 in front-end
sales charges resulting from sales of Class A
shares during the six months ended
October 31, 1997. From these fees PSI paid
such sales charges to affiliated
broker-dealers, which in turn paid
commissions to sales persons and incurred
other distribution costs.
PSI has advised the Fund that for the six
months ended October, 1997 it received
approximately $185,000 and $6,300 in
contingent deferred sales charges imposed
upon certain redemptions by Class B and Class
C shareholders, respectively.
PIFM, PIC and PSI are indirect, wholly-owned
subsidiaries of The Prudential
Insurance Company of America.
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 October 31,
1997. The Funds pay a commitment fee at an
annual rate of .055 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 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 six months ended October 31,
1997, the Fund incurred fees of approximately
$122,500 for the services of PMFS.
As of October 31, 1997, approximately $20,000
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 six months ended October 31, 1997
were $9,007,530 and $38,411,592,
respectively.
- ---------------------------------------------
- -----------------------------------
9
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
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, 1997 net unrealized
appreciation for federal income tax purposes
was $52,147,888 (gross unrealized
appreciation--$54,349,647; gross unrealized
depreciation--$2,201,759).
- ---------------------------------------------
- ---------------
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.
Transactions in shares of common shares were
as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- --------
- --- -------------
<S> <C>
<C>
Six months ended October 31, 1997:
Shares sold........................
12,520,019 $ 208,892,260
Shares issued in reinvestment of
distributions....................
- -- --
Shares reacquired..................
(12,842,940) (215,533,141)
--------
- --- -------------
Net decrease in shares outstanding
before conversion................
(322,921) (6,640,881)
Shares issued upon conversion from
Class B..........................
106,937 1,784,484
--------
- --- -------------
Net decrease in shares
outstanding......................
(215,984) $ (4,856,397)
--------
- --- -------------
--------
- --- -------------
<CAPTION>
Class A Shares
Amount
- ----------------------------------- --------
- --- -------------
<S> <C>
<C>
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)
--------
- --- -------------
--------
- --- -------------
<CAPTION>
Class B
- -----------------------------------
Six months ended October 31, 1997:
Shares sold........................
5,500,109 $ 89,608,283
Shares issued in reinvestment of
distributions....................
- -- --
Shares reacquired..................
(6,132,873) (100,554,389)
--------
- --- -------------
Net decrease in shares outstanding
before conversion................
(632,764) (10,946,106)
Shares issued upon conversion from
Class A..........................
(109,708) (1,784,484)
--------
- --- -------------
Net decrease in shares
outstanding......................
(742,472) $ (12,730,590)
--------
- --- -------------
--------
- --- -------------
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 increase 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)
--------
- --- -------------
--------
- --- -------------
<CAPTION>
Class C
- -----------------------------------
Six months ended October 31, 1997:
Shares sold........................
3,385,172 $ 55,208,926
Shares issued in reinvestment of
distributions....................
- -- --
Shares reacquired..................
(3,434,130) (56,239,469)
--------
- --- -------------
Net decrease in shares
outstanding......................
(48,958) $ (1,030,543)
--------
- --- -------------
--------
- --- -------------
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)
--------
- --- -------------
--------
- --- -------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
10
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class Z Shares
Amount
- ----------------------------------- --------
- --- -------------
<S> <C>
<C>
Six months ended October 31, 1997:
Shares sold........................
39,097 $ 653,072
Shares issued in reinvestment of
distributions....................
- -- --
Shares reacquired..................
(60,415) (996,148)
--------
- --- -------------
Net decrease in shares
outstanding......................
(21,318) $ (343,076)
--------
- --- -------------
--------
- --- -------------
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
--------
- --- -------------
--------
- --- -------------
</TABLE>
- ---------------------------------------------
- ---------------
Note 6. Distributions
On December 10, 1997 the Board of Directors
of the Fund declared the following
dividends per share, payable on December 18,
1997 to shareholders of record on
December 16, 1997.
<TABLE>
<CAPTION>
Class Class B Class
A
and C Z
----
- - ------- -----
<S> <C>
<C> <C>
Ordinary Income........................ $.14
$ .01 $.187
Long-Term Capital Gains................
$1.80 $1.80 $1.80
</TABLE>
- ---------------------------------------------
- -----------------------------------
11
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class A
Class B
--
- ---------------------------------------------
- ------------- -----------
Six Months Year Year
July 13, 1994(b) Six Months
Ended Ended Ended
Through Ended
October 31, April 30, April 30,
April 30, October 31,
1997 1997 1996(c)
1995(c) 1997
--
- --------- --------- --------- ---
- ------------- -----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....
$ 15.46 $ 13.69 $ 11.77
$ 11.40 $ 15.12
--
- --------- --------- ---------
- ------ -----------
Income from investment operations
Net investment income (loss)............
.07 .09 .06
.01 (.03)
Net realized and unrealized gain on
investment and foreign currency
transactions.........................
1.37 2.24 1.86
.36 1.32
--
- --------- --------- ---------
- ------ -----------
Total from investment operations.....
1.44 2.33 1.92
.37 1.29
--
- --------- --------- ---------
- ------ -----------
Less Distributions
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........
- -- (.56) --
- -- --
--
- --------- --------- ---------
- ------ -----------
Total distributions..................
- -- (.56) --
- -- --
--
- --------- --------- ---------
- ------ -----------
Net asset value, end of period..........
$ 16.90 $ 15.46 $ 13.69
$ 11.77 $ 16.41
--
- --------- --------- ---------
- ------ -----------
--
- --------- --------- ---------
- ------ -----------
TOTAL RETURN(d):........................
9.31% 17.20% 16.31%
3.25% 8.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$38,767 $38,807 $47,789
$ 41,963 $ 138,963
Average net assets (000)................
$43,054 $37,834 $47,183
$ 29,598 $ 147,465
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.54%(a) 1.36% 1.53%
1.84%(a) 2.29%(a)
Expenses, excluding distribution
fees..............................
1.29%(a) 1.11% 1.28%
1.59%(a) 1.29%(a)
Net investment income (loss).........
.50%(a) .57% .44%
.06%(a) (.27)%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate.................
5% 31% 65%
25%
Average commission rate per share.......
$0.0437 $0.0463 $0.0233
N/A
<CAPTION>
Year Year July 13, 1994(b)
Ended Ended Through
April 30, April 30, April 30,
1997 1996(c) 1995(c)
---
- ------ --------- ----------------
<S>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $
13.49 $ 11.69 $ 11.40
---
- ------ --------- -------
Income from investment operations
Net investment income (loss)............
(.04) (.04) (.06)
Net realized and unrealized gain on
investment and foreign currency
transactions.........................
2.23 1.84 .35
---
- ------ --------- -------
Total from investment operations.....
2.19 1.80 .29
---
- ------ --------- -------
Less Distributions
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........
(.56) -- --
---
- ------ --------- -------
Total distributions..................
(.56) -- --
---
- ------ --------- -------
Net asset value, end of period.......... $
15.12 $ 13.49 $ 11.69
---
- ------ --------- -------
---
- ------ --------- -------
TOTAL RETURN(d):........................
16.41% 15.40% 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $
139,277 $ 125,868 $106,081
Average net assets (000)................ $
133,135 $ 122,255 $ 85,623
Ratios to average net assets:
Expenses, including distribution
fees..............................
2.11% 2.28% 2.59%(a)
Expenses, excluding distribution
fees..............................
1.11% 1.28% 1.59%(a)
Net investment income (loss).........
(.27)% (.33)% (.71)%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate.................
Average commission rate per share.......
</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. 12
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class C
Class Z
--
- ---------------------------------------------
- ------------- -----------
Six Months Year Year
July 13, 1994(b) Six Months
Ended Ended Ended
Through Ended
October 31, April 30, April 30,
April 30, October 31,
1997 1997 1996(c)
1995(c) 1997
--
- --------- --------- --------- ---
- ------------- -----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....
$ 15.12 13.49 $ 11.69
$11.40 $ 15.51
- ----- --------- ---------
- ----- -----------
Income from investment operations
Net investment income (loss)............
(.03) (.04) (.04)
(.06) .06
Net realized and unrealized gain on
investment and foreign currency
transactions.........................
1.34 2.23 1.84
.35 1.35
- ----- --------- ---------
- ----- -----------
Total from investment operations.....
1.31 2.19 1.80
.29 1.41
- ----- --------- ---------
- ----- -----------
Less Distributions
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........
- -- (.56) --
- -- --
- ----- --------- ---------
- ----- -----------
Total distributions..................
- -- (.56) --
- -- --
- ----- --------- ---------
- ----- -----------
Net asset value, end of period..........
$ 16.43 $ 15.12 $ 13.49
$11.69 $ 16.92
- ----- --------- ---------
- ----- -----------
- ----- --------- ---------
- ----- -----------
TOTAL RETURN(d):........................
8.66% 16.41% 15.40%
2.54% 9.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$ 7,897 $ 8,010 $ 7,741
$7,260 $12,673
Average net assets (000)................
$ 8,522 $ 8,002 $ 7,768
$6,094 $12,725
Ratios to average net assets:
Expenses, including distribution
fees..............................
2.29%(a) 2.11% 2.28%
2.59%(a) 1.29%(a)
Expenses, excluding distribution
fees..............................
1.29%(a) 1.11% 1.28%
1.59%(a) 1.29%(a)
Net investment income (loss).........
(.22)%(a) (.25)% (.30)%
(.71)%(a) .70%(a)
<CAPTION>
Year April 15, 1996(b)
Ended Through
April 30, April 30,
1997 1996(c)
---
- ------ -----------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $
13.68 $ 13.40
---
- ------ -----
Income from investment operations
Net investment income (loss)............
.02 .28
Net realized and unrealized gain on
investment and foreign currency
transactions.........................
2.37 --
---
- ------ -----
Total from investment operations.....
2.39 .28
---
- ------ -----
Less Distributions
Distributions paid to shareholders from
net realized gains on investment and
foreign currency transactions........
(.56) --
---
- ------ -----
Total distributions..................
(.56) --
---
- ------ -----
Net asset value, end of period.......... $
15.51 $ 13.68
---
- ------ -----
---
- ------ -----
TOTAL RETURN(d):........................
17.66% 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$11,949 $ 204(e)
Average net assets (000)................ $
7,958 $ 203(e)
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.11% 1.28%(a)
Expenses, excluding distribution
fees..............................
1.11% 1.28%(a)
Net investment income (loss).........
.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. 13
<PAGE>
Getting The Most From Your Prudential Mutual
Fund.
Some mutual fund shareholders won't ever read
this -- they don't read annual
and semi-annual reports. It's quite
understandable. These annual and semi-
annual reports are prepared to comply with
Federal regulations. They are often
written in language that is difficult to
understand. So when most people run
into those particularly daunting sections of
these reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some
changes to our report to make it
easier to understand and more pleasant to
read, in hopes you'll find it
profitable to spend a few minutes
familiarizing yourself with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a
shareholder's primary concern, we
present performance information in two
different formats. You'll find it first
on the "At A Glance" page where we compare
the Fund and the comparable average
calculated by Lipper Analytical Services, a
nationally recognized mutual fund
rating agency. We report both the cumulative
total returns and the average
annual total returns. The cumulative total
return is the total amount of
income and appreciation the Fund has achieved
in various time periods. The
average annual total return is an annualized
representation of the Fund's
performance -- it generally smoothes out
returns and gives you an idea how
much the Fund has earned in an average year,
for a given time period. Under
the performance box, you'll see legends that
explain the performance
information, whether fees and sales charges
have been included in returns, and
the inception dates for the Fund's share
classes.
See the performance comparison charts at the
back of the report for more
performance information. And keep in mind
that past perfor-mance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money
for you reports onsuccessful --
and not-so-successful -- strategies in this
section of your report. Look for
recent purchases and sales here, as well as
information about the sectors the
portfolio manager favors and any changes that
are on the drawing board.
Portfolio Of Investments
This is where the report begins to look
technical, but it's really just a
listing of each security held at the end of
the reporting period, along with
valuations and other information. Please note
that sometimes we discuss a
security in the Portfolio Manager's Report
that doesn't appear in this listing
because it was sold before the close of the
reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value
of the Fund's holdings),
liabilities (how much the Fund owes) and net
assets (the Fund's equity, or
holdings after the Fund pays its debts) as of
the end of the reporting period.
It also shows how we calculate the net asset
value per share for each class of
shares. The net asset value is reduced by
payment of your dividend, capital
gain, or other distribution, but remember
that the money or new shares are
being paid or issued to you. The net asset
value fluctuates daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details
income (mostly interest and
dividends earned) and expenses (including
what you pay us to manage your
money). You'll also see capital gains here --
both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses
translate into changes in net
assets. The Fund is required to pay out the
bulk of its income to shareholders
every year, and this statement shows you how
we do it -- through dividends
and distributions -- and how that affects the
net assets. This statement also
shows how money from investors flowed into
and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that
can intimidate readers, but it
does contain useful information. The Notes
provide a brief history and
explanation of your Fund's objectives. In
addition, they also outline how
Prudential Mutual Funds prices securities.
The Notes also explain who manages
and distributes the Fund's shares, and more
importantly, how much they are
paid for doing so. Finally, the Notes explain
how many shares are outstanding
and the number issued and redeemed over the
period.
Financial Highlights
This information contains many elements from
prior pages, but on a per share
basis. It is designed to help you understand
how the Fund performed and to
compare this year's performance and expenses
to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over
our books and certifies that the
information is fairly presented and complies
with generally accepted
accounting principles.
Tax Information
This is information which we report annually
about how much of your total
return is taxable. Should you have any
questions, you may want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual
report and are required by the
Securities Exchange Commission. Performance
is presented here as a
hypothetical $10,000 investment in the Fund
since its inception or for 10
years (whichever is shorter). To help you put
that return in context, we are
required to include the performance of an
unmanaged, broad based securities
index, as well. The index does not reflect
the cost of buying the securities
it contains or the cost of managing a mutual
fund. Of course, the index
holdings do not mirror those of the fund --
the index is a broadly based
reference point commonly used by investors to
measure how well they are doing.
A definition of the selected index is also
provided. Investors generally
cannot invest directly in an index.
<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. And if you
are married and not covered by a retirement
plan at work, you and your spouse
may each contribute $2,000 a year to an IRA
for a total of $4,000.
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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Stephen C. Eyre
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Robert C. Rosselot, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
The views expressed in this report and
information about the Fund's portfolio
holdings are for the period covered by this
report and are subject to change
thereafter.
The accompanying financial statements as of
October 31, 1997 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>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74431N103 MF160E2
74431N202 Cat#42M171V
74431N301
74431N400
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