<PAGE>
(ICON)
Prudential
Europe
Growth
Fund, Inc.
ANNUAL
REPORT
April 30, 1999
(LOGO)
<PAGE>
Prudential Europe Growth Fund, Inc.
Performance At A Glance
Over the 12 months ended April 30, 1999, Prudential Europe Growth Fund marked
a 2% gain, in contrast to the slightly negative net return for the Lipper
Average over this very turbulent period. Although the markets were strong
initially, they took a 31% dive in August when Russian debt defaults raised
concerns about a global financial crisis. Share prices rebounded by the end
of 1998, but a rising U.S. dollar offset gains on European stocks to U.S.-
based investors for the duration of our reporting period. We had a strong
relative performance primarily because we had avoided exposure to the banks
most troubled in the financial crisis and because our U.K. holdings provided
an excellent return.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 4/30/99
One Three Since
Year Years Inception2
<S> <C> <C> <C>
Class A 2.03% 73.31% 108.13%
Class B 1.39 69.19 100.21
Class C 1.18 69.07 100.06
Class Z 2.35 74.55 78.20
Lipper European Region Fund Avg.3 -0.20 65.62 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/99
One Three Since
Year Years Inception2
<S> <C> <C> <C>
Class A -2.03% 18.32% 15.07%
Class B -2.36 18.74 15.31
Class C 0.45 19.03 15.18
Class Z 3.62 N/A 20.79
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management LLC and Lipper, Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z shares are not subject to a
sales charge or distribution fee.
2 Inception dates: Class A, B, and C, 7/13/94; Class Z, 4/15/96.
3 Lipper average returns are for all funds in each share class for the one-
and three-year periods in the European Region Fund category.
***Lipper Since Inception returns are 116.12% for Class A, B, and C, and
65.62% for Class Z, based on all funds in each share class.
How Investments Compared.
(As of 4/30/99)
(GRAPH)
Source: Lipper, Inc. 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.
U.S. Taxable Money 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>
Portfolio Managers' Report
(PHOTOS)
Steve Auth, Bill Higgins, and
Jean-Yves Chereau--Fund Managers
Investment Goals and Style
Prudential Europe Growth Fund invests primarily in stocks of companies in
Europe, selecting a diversified portfolio for long-term growth of capital.
Steve Auth, head of Prudential's global equity group, designs overall
strategy. Bill Higgins focuses on the Fund's core holdings, while Jean-Yves
Chereau, head of Prudential's Europe-based team, focuses on tactical
positions that we trade more actively. 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.
Performance Review
We generally avoided the worst turmoil
We liked banks, such as Bank of Ireland and Unicredito Italiano, but we
avoided most of the large French, German, and Swiss banks that had the
greatest exposure to Russia or to hedge funds (relatively unregulated
investment managers, some of which took large losses in the financial
crisis). Our preference for risk-averse banks stood us in good stead when
the stock markets severely punished financial institutions considered
vulnerable.
We didn't escape completely unscathed. In fact, one of our largest holdings
had been Banco Central Hispanoamericano (BCH), which took a beating because
of its exposure to Latin America. In 1999, it merged with Banco Santander to
form Banco Santander Central Hispano, the largest banking group in Spain. It
has a strong presence in Chile, Argentina and Peru, and is reducing costs by
consolidating its operations. Our BCH shares bounced back in the fall and rose
again sharply in April in anticipation of the merger.
We also had negative returns on some Swiss banks. We sold our holdings in
Credit Suisse.
The United Kingdom performed well
Many investors had reduced their representation in the United Kingdom in favor
of countries that were joining the common European currency (the euro) in
anticipation of a euro-triggered surge of economic activity. We had a more
positive view of the United Kingdom, and actually increased our holdings
there to 32% over the period. Five of the 10 largest contributions to our
performance during the period were U.K. companies (with returns ranging from
80% to 21%): Vodafone, Dixons, Hays, Compass, and GKN.
Dixons, an electronics retailer, introduced a free Internet access service--
Freeserve--which has become the United Kingdom's largest provider with 1.1
million active users. Consequently, Dixons has come to be seen as an Internet
stock and has moved up rapidly. It is planning to float a minority interest
in Freeserve.
Our growth orientation hurt in 1999
Because of our growth style, we did not hold many commodities-oriented stocks.
These rose sharply in 1999 as investors came to believe the Asian crisis had
bottomed. We believe their movement toward these economically sensitive
(cyclical) stocks is overdone, just as the
<PAGE>
Class C
Average Annual Total Returns
With Sales Load
Since Inception 15.31%
Three Years 18.73%
One Year -0.83%
Without Sales Load
Since Inception 15.55%
Three Years 19.13%
One Year 1.18%
Class Z
Average Annual Total Returns
Since Inception 20.94%
Three Years 20.40%
One Year 2.35%
(d) all dividends and distributions were reinvested. Class B shares will
automatically convert to Class A shares, on a quarterly basis, approximately
seven years after purchase. This conversion feature is not reflected in the
graphs. Class Z shares are not subject to a sales charge or distribution fee.
The MSCI Europe Index is a weighted index comprised of approximately 584
companies listed on the stock exchanges of 13 European countries. The MSCI
Europe Index is unmanaged, and the total return includes the reinvestment of
all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Fund. The securities in
the MSCI Europe Index may differ substantially from the securities in the
Fund. The MSCI Europe Index is not the only index that may be used to
characterize performance of European equity funds. Other indexes may portray
different comparative performance. Investors cannot invest directly in an
index.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
earlier panicky withdrawal from emerging markets was overdone, but we have
increased our cyclical holdings somewhat: we bought the Swiss global cement
company Holderbank and the Swedish forest products company Mo Och Domsjoe
(MoDo). Overall, however, we are still committed to growth stocks, such as
telecommunications, technology, and business services.
In fact, over our full reporting period, telecommunications companies were
the largest contributors to our return, with Telefonica Espana, Nokia, and
Vodafone turning in excellent performances. Our business outsourcers--
notably, Hays, Compass, and GKN (an engineering firm that makes auto parts
and rents out industrial shipping pallets)--also served us well.
Smaller companies were neglected
We were hurt by our holdings in smaller firms (about 15% to 20% of the
portfolio) when investors who were avoiding uncertainty strongly preferred
the very largest and best-known companies. We've scaled down our holdings
of smaller companies while maintaining exposure to the highest-quality
companies in the sector. As the global economic outlook begins to improve,
we expect them to perform better.
Looking Ahead
A promising investment picture
We believe European stocks were hurt because the strong U.S. economy and
investors' perception that emerging markets have resumed their growth have
jointly diverted interest from the benefits of a restructuring European
economy. The combination of low interest rates and benign inflation should
stimulate the laggard economies of Germany and Italy. We see signs of
consumer strength. In addition, the revival of the Pacific Rim economies
and Latin America should increase exports to those regions. Companies'
earnings comparisons will begin to be based on the weak latter half of
1998, so growth numbers will be higher going forward. The overall investment
picture appears promising.
Portfolio Composition
Countries expressed as a percentage of net assets as of 4/30/99
United Kingdom 32%
France 14
Other Continental Europe 12
Federal Republic of Germany 9
Italy 8
Spain 7
Switzerland 6
Netherlands 5
Sweden 5
Cash & Equivalents 2
Five Largest Holdings
Expressed as a percentage of net assets as of 4/30/99
Hennes & Mauritz AB 3.0%
Retail
Nokia Corp. 3.0
Telecommunications Equipment
Vodafone Group PLC 3.0
Telecommunications Equipment
Banco Santander Central 2.9
Hispano SA--Banking
Hays PLC 2.8
Business & Public Services
- -------------------------------------------------------------------------------
1
<PAGE>
A Message to Our Shareholders June 18, 1999
(PHOTO)
Dear Shareholder:
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they perceived to be safe. In
the equity market, they focused on the stocks of a handful of very large
companies that were perceived to be well-buffeted from an economic slowdown.
These stocks became very expensive--out of proportion to their earnings
expectations. As a result, there was a substantial disparity in value
between large and small companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid
news of strong U.S. economic growth and faster-than-expected global stability.
While the long-term prospects of U.S. growth stocks are still very good, many
of the smaller and economically sensitive companies favored by our value
managers now are posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds
were the major beneficiaries of the flight to quality that occurred in
recent years. When this trend reversed itself toward the end of 1998, other
sectors of the bond market rebounded. However, with a strong U.S. economy
comes the threat of higher inflation, which erodes the value of bonds'
fixed interest payments. The recent inflation concerns jolted the bond
market and helped send long-term interest rates to a 19-month high.
The winds of change in the equity market and the recent turbulence in the
bond market not only highlight the value of professional portfolio
management, but they illustrate why investors should have a well-diversified
asset allocation strategy. It is also a good practice to rebalance your
holdings, when necessary, to keep your asset allocation consistent with
your long-term objectives and risk tolerance. A properly diversified
portfolio of value- and growth-oriented equity funds, international bond
funds, and money market funds could help you weather inevitable market
turbulence and achieve more consistent returns over time. Prudential
offers a wide range of mutual funds to help our shareholders diversify,
as well as several balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Europe Growth Fund, Inc.
- -------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments as of April 30, 1999
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.6%
COMMON STOCKS--95.2%
- ------------------------------------------------------------
Belgium--1.9%
92,462 Kredietbank NV (Banking) $ 5,740,416
- ------------------------------------------------------------
Federal Republic of Germany--6.9%
18,589 DePfa Deutsche Pfandbriefbank AG
(Banking) 1,553,192
29,610 Douglas Holding AG (Retail) 1,362,290
4,770 Kamps AG(a)
(Food products & services) 163,962
4,747 Karstadt AG (Retail) 2,136,293
23,400 Mannesmann AG
(Machinery & engineering) 3,083,727
4,421 MobilCom AG
(Telecommunication services) 1,131,561
12,212 SAP AG
(Computer products & services) 3,913,554
48,400 SGL Carbon AG (Chemicals) 2,664,453
47,950 Volkswagen AG
(Automobiles & auto parts) 3,402,931
49,447 Winkler & Duennebier AG(a)
(Machinery & engineering) 1,334,112
------------
20,746,075
- ------------------------------------------------------------
Finland--3.0%
117,250 Nokia Corp.
(Telecommunication equipment) 9,046,490
- ------------------------------------------------------------
France--13.6%
53,594 Carbone-Lorraine
(Electrical & electronics) 2,930,547
4,541 Carrefour SA (Retail) 3,602,092
11,259 Compagnie Generale de Geophysique
SA (Oil production & services) 603,740
15,570 Dassault Systemes SA
(Computer software) 573,567
16,759 Havas Advertising SA (Media) 3,403,230
88,306 Lagardere S.C.A. (Diversified
operations) 3,500,514
21,983 Legrand SA (Electrical &
electronics) 5,254,572
37,963 Pechiney SA (Manufacturing) 1,606,063
39,664 Rexel SA (Electrical & electronics) $ 3,293,124
50,586 Sidel SA (Machinery & engineering) 6,099,260
110,602 Societe Generale d'Entreprises SA
(Construction) 4,679,128
62,340 Valeo SA (Automobiles & auto parts) 5,274,712
------------
40,820,549
- ------------------------------------------------------------
Greece--0.1%
16,297 Panafon Hellenic Telecom SA(a)
(Telecommunication services) 434,558
- ------------------------------------------------------------
Ireland--4.2%
389,454 Allied Irish Banks PLC (Banking) 6,283,028
322,418 Bank of Ireland (Banking) 6,445,312
------------
12,728,340
- ------------------------------------------------------------
Italy--7.8%
416,254 Autogrill SpA (Restaurants) 3,821,379
270,000 Class Editori (Publishing) 2,627,203
3,000,000 Seat Pagine Gialle SpA (Publishing) 3,744,081
1,260,052 Telecom Italia Mobile SpA
(Telecommunication services) 7,516,394
1,126,961 Unicredito Italiano SpA (Banking) 5,721,265
------------
23,430,322
- ------------------------------------------------------------
Netherlands--5.1%
46,121 Getronics NV
(Computer products & services) 1,895,098
58,558 Hagemeyer NV
(Wholesale & international
trading) 1,981,884
90,670 Heineken NV (Beverages) 4,555,114
46,629 Nutreco Holdings NV
(Food products & services) 1,891,313
44,800 Royal Dutch Petroleum Co.
(Oil production & services) 2,610,788
45,103 United Pan-Europe Communications
NV(a) (Telecommunication
services) 2,335,071
------------
15,269,268
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of April 30, 1999
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Norway--2.0%
183,248 Agresso Group ASA(a)
(Computer products & services) $ 551,747
139,235 Tomra System ASA
(Waste management) 5,530,224
------------
6,081,971
- ------------------------------------------------------------
Spain--7.3%
403,296 Banco Santander Central Hispano SA
(Banking) 8,769,786
113,986 Indra Sistemas SA
(Telecommunication services) 1,097,071
25,132 NH Hoteles SA (Hotel) 295,845
148,678 Telefonica SA
(Telecommunication services) 6,974,006
729,909 TelePizza SA(a) (Restaurants) 4,631,930
------------
21,768,638
- ------------------------------------------------------------
Sweden--4.9%
44,784 Enator AB
(Computer products & services) 1,243,587
105,090 Hennes & Mauritz AB (Retail) 9,066,363
122,400 Mo och Domsjoe AB
(Paper related products) 3,151,944
33,684 NetCom AB(a)
(Telecommunication services) 1,083,254
------------
14,545,148
- ------------------------------------------------------------
Switzerland--6.3%
1,727 Ares-Serono Group (Medical
products) 2,565,861
2,900 Holderbank Financiere Glarus AG
(Building products) 3,498,262
1,545 Julius Baer Holding AG (Banking) 5,031,765
4,170 Mikron Holding AG
(Machinery & engineering) 997,025
624 Stratec Holding AG (Medical
products) $ 1,166,546
7,000 Swisscom AG(a)
(Telecommunication services) 2,571,335
4,743 Zurich Allied AG (Insurance) 3,058,294
------------
18,889,088
- ------------------------------------------------------------
United Kingdom--32.1%
220,230 Barclays PLC (Banking) 6,991,610
221,969 Bodycote International PLC
(Manufacturing) 3,444,873
34,060 Britannic PLC (Insurance) 546,127
467,088 British Sky Broadcasting Group PLC
(Media) 4,131,569
239,186 Capita Group PLC (Human Resources) 2,523,441
142,000 COLT Telecom Group PLC(a)
(Telecommunication services) 2,658,244
737,490 Compass Group PLC
(Food products & services) 7,507,812
348,424 Dixons Group PLC (Retail) 7,418,680
664,145 Electrocomponents PLC
(Electrical & electronics) 5,669,513
129,654 EMAP PLC (Publishing) 2,725,305
421,420 GKN PLC (Automobiles & auto parts) 7,194,303
766,046 Hays PLC(a)
(Business & public services) 8,513,075
759,262 Invensys PLC (Diversified
operations) 3,873,886
432,135 Misys PLC
(Computer products & services) 4,030,890
410,545 Securicor PLC (Commercial services) 3,858,818
237,290 SEMA Group PLC
(Computer products & services) 2,310,719
255,408 SmithKline Beecham PLC
(Medical products) 3,376,446
291,100 Standard Chartered PLC (Banking) 5,262,136
485,276 Vodafone Group PLC
(Telecommunication services) 8,936,097
320,439 Whitbread PLC (Beverages) 5,411,133
------------
96,384,677
------------
Total common stocks
(cost $196,508,830) 285,885,540
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of April 30, 1999
PRUDENTIAL EUROPE GROWTH FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
PREFERRED STOCKS--2.4%
- ------------------------------------------------------------
Federal Republic of Germany
15,201 Fielmann AG (Retail) $ 594,861
1,156 Porsche AG (Automobile & auto
parts) 2,812,080
1,883 SAP AG
(Computer products & services) 707,002
3,927 Wella AG (Cosmetrics & toiletries) 3,094,277
------------
Total preferred stocks
(cost $6,243,472) 7,208,220
------------
Total long-term investments
(cost $202,752,302) 293,093,760
------------
SHORT-TERM INVESTMENTS--1.1%
------------------------------------------------------------
Units
Rights(a)
Spain
148,678 Telefonica SA
(Telecommunication services)
Expiring May 1999
(cost $70,490) 139,952
------------
------------------------------------------------------------
Principal
Amount
(000)
United States
Repurchase Agreement--1.1%
$ 3,326 Bear Stearns & Co. Inc., 4.88%,
dated 4/30/99, due 5/3/99 in the
amount of $3,327,334 (cost
$3,326,000; the value of the
collateral including accrued
interest $3,395,139) 3,326,000
------------
Total short-term investments
(cost $3,396,490) 3,465,952
------------
- ------------------------------------------------------------
Total Investments--98.7%
(cost $206,148,792; Note 4) 296,559,712
Other assets in excess of
liabilities--1.3% 3,805,798
------------
Net Assets--100% $300,365,510
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of April 30, 1999 was as
follows:
<TABLE>
<S> <C>
Banking............................................... 17.2%
Telecommunication Services............................ 11.6
Retail................................................ 8.1
Automobiles & Auto Parts.............................. 6.2
Electrical & Electronics.............................. 5.7
Computer Products & Services.......................... 4.9
Machinery & Engineering............................... 3.8
Beverages............................................. 3.3
Food Products & Services.............................. 3.2
Publishing............................................ 3.0
Telecommunication Equipment........................... 3.0
Business & Public Services............................ 2.8
Restaurants........................................... 2.8
Media................................................. 2.5
Diversified Operation................................. 2.5
Medical Products...................................... 2.4
Waste Management...................................... 1.8
Manufacturing......................................... 1.7
Construction.......................................... 1.6
Commercial Services................................... 1.3
Insurance............................................. 1.2
Building Products..................................... 1.2
Oil Production & Services............................. 1.1
Paper Related Products................................ 1.0
Cosmetics & Toiletries................................ 1.0
Chemicals............................................. 0.9
Human Resources....................................... 0.8
Wholesale & International Trading..................... 0.7
Computer Software..................................... 0.2
Hotel................................................. 0.1
Other assets in excess of liabilities
(including Repurchase Agreement).................... 2.4
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
Assets April 30, 1999
<S> <C>
Investments, at value (cost $206,148,792)................................................................... $ 296,559,712
Cash........................................................................................................ 2,626,614
Receivable for investments sold............................................................................. 1,944,651
Receivable for Fund shares sold............................................................................. 986,728
Dividends and interest receivable........................................................................... 400,723
--------------
Total assets............................................................................................. 302,518,428
--------------
Liabilities
Payable for investments purchased........................................................................... 949,689
Payable for Fund shares reacquired.......................................................................... 489,069
Accrued expenses............................................................................................ 212,659
Distribution fee payable.................................................................................... 190,290
Management fee payable...................................................................................... 184,949
Payable to foreign custodian................................................................................ 126,262
--------------
Total liabilities........................................................................................ 2,152,918
--------------
Net Assets.................................................................................................. $ 300,365,510
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 16,308
Paid-in capital in excess of par......................................................................... 214,160,224
--------------
214,176,532
Distributions in excess of net investment income......................................................... (2,902,033 )
Accumulated net realized loss on investments and foreign currency transactions........................... (1,297,667 )
Net unrealized appreciation on investments and foreign currencies........................................ 90,388,678
--------------
Net Assets, April 30, 1999.................................................................................. $ 300,365,510
--------------
--------------
Class A:
Net asset value and redemption price per share
($78,074,176 / 4,153,213 shares of common stock issued and outstanding)............................... $18.80
Maximum sales charge (5% of offering price).............................................................. .99
--------------
Maximum offering price to public......................................................................... $19.79
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($196,246,759 / 10,746,519 shares of common stock issued and outstanding)............................. $18.26
--------------
--------------
Class C:
Net asset value and redemption price per share
($15,073,138 / 825,815 shares of common stock issued and outstanding)................................. $18.25
Sales charge (1% of offering price)...................................................................... .18
--------------
Offering price to public................................................................................. $18.43
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($10,971,437 / 582,719 shares of common stock issued and outstanding)................................. $18.83
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Loss April 30, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $396,377)..................... $ 3,671,047
Interest.................................. 819,683
--------------
Total income........................... 4,490,730
--------------
Expenses
Management fee............................ 2,104,075
Distribution fee--Class A................. 168,215
Distribution fee--Class B................. 1,912,205
Distribution fee--Class C................. 134,649
Custodian's fees and expenses............. 497,000
Transfer agent's fees and expenses........ 411,000
Reports to shareholders................... 142,000
Registration fees......................... 81,000
Audit fees and expenses................... 35,000
Directors' fees and expenses.............. 27,000
Legal fees and expenses................... 21,000
Miscellaneous............................. 5,662
--------------
Total operating expenses............... 5,538,806
--------------
Net investment loss.......................... (1,048,076)
--------------
Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions................... 4,316,595
Foreign currency transactions............. (1,224,193)
--------------
3,092,402
--------------
Net change in unrealized appreciation (depreciation) of:
Investment transactions................... 589,590
Foreign currency transactions............. (22,874)
--------------
566,716
--------------
Net gain on investments and foreign
currencies................................ 3,659,118
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 2,611,042
--------------
--------------
</TABLE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment loss.......... $ (1,048,076) $ (1,014,148)
Net realized gain on
investment and foreign
currency transactions..... 3,092,402 35,982,401
Net change in unrealized
appreciation of
investments and foreign
currencies................ 566,716 43,664,075
------------- -------------
Net increase in net assets
resulting from
operations................ 2,611,042 78,632,328
------------- -------------
Dividends and distributions (Note 1):
Dividends in excess of net
investment income
Class A................... (830,201) (321,821)
Class B................... (1,011,041) (81,896)
Class C................... (71,585) (4,853)
Class Z................... (135,753) (139,871)
------------- -------------
(2,048,580) (548,441)
------------- -------------
Distributions from net
realized gains
Class A................... (4,081,825) (4,137,694)
Class B................... (11,930,280) (14,741,276)
Class C................... (844,703) (873,579)
Class Z................... (572,100) (1,346,354)
------------- -------------
(17,428,908) (21,098,903)
------------- -------------
Fund share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold...................... 334,649,118 432,031,984
Net asset value of shares
issued in reinvestment of
distributions............. 18,358,228 20,131,598
Cost of shares reacquired.... (281,351,717) (461,615,189)
------------- -------------
Net increase (decrease) in
net assets
from Fund share
transactions.............. 71,655,629 (9,451,607)
------------- -------------
Total increase.................. 54,789,183 47,533,377
Net Assets
Beginning of year............... 245,576,327 198,042,950
------------- -------------
End of year..................... $ 300,365,510 $ 245,576,327
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
Prudential Europe Growth Fund, Inc. (the 'Fund') is registered under the
Investment Company Act of 1940 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 period, 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 period 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 portfolio securities sold during the
period. Accordingly, such realized foreign currency gains (losses) related to
portfolio securities are included in the net realized gains on investment
transactions.
Net realized loss on foreign currency transactions of $1,224,193 represents net
foreign exchange gains or losses from the sale 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 period
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.
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.
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
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.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants, 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 of applying
this statement was to increase distributions in excess of net investment income
by $2,331,507, decrease accumulated net realized gain on investments and foreign
currency transactions by $9,623,713, and increase paid-in capital by $7,292,206
due to the Fund experiencing a net investment loss, realized foreign currency
losses and for redemptions utilized as distributions for federal income tax
purposes during the year ended April 30, 1999. Net investment income, net
realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
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 subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC, through an agreement with PRICOA Asset
Management Ltd. ('PRICOA'), 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 had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, B, C and Class Z shares
of the Fund through May 31, 1998. Prudential Investment Management Services LLC
('PIMS') became the distributor of the Fund effective June 1, 1998 and is
serving the Fund under the same terms and conditions as under the arrangement
with PSI. The Fund compensated PSI and PIMS 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 or PIMS as distributor of the Class
Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS 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 Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the year ended April
30, 1999.
PSI and PIMS have advised the Fund that they received approximately $355,400 and
$25,400 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended April 30, 1999. From these
fees, PSI and PIMS paid such sales charges to affiliated broker-dealers, which
in turn paid commissions to salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended April 30, 1999, they
received approximately $332,300 and $12,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC, PIMS, PSI and PRICOA are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement for the year ended April 30, 1999. The purpose of the agreements is to
serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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, 1999, the
Fund incurred fees of approximately $356,200 for the services of PMFS. As of
April 30, 1999, approximately $35,800 of such fees were due to
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
PMFS. Transfer agent's fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended April 30, 1999 were $214,246,239 and $161,997,017,
respectively.
The cost basis of investments for federal income tax purposes at April 30, 1999
was $209,072,030 and, accordingly, net unrealized appreciation for federal
income tax purposes was $87,487,682 (gross unrealized appreciation--$92,427,545;
gross unrealized depreciation--$4,939,863).
The Fund will elect, for United States Federal income tax purposes, to treat net
currency losses of approximately $1,276,462 incurred in the six month period
ended April 30, 1999 as having been incurred in the following fiscal year.
- ------------------------------------------------------------
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%. 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. Prior to November 2, 1998, Class C shares
were sold with a contingent deferred sales charge of 1% during the first year.
Effective November 2, 1998, Class C shares are sold with a front-end sales
charge of 1% and a contingent deferred sales charge of 1% during the first 18
months. 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 qualify to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to the participants of
employee benefit plans qualified under Section 401, 457 and 403(b)(7) of the
Internal Revenue Code, and nonqualified plans for which the Fund is an available
option. 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>
Year ended April 30, 1999:
Shares sold........................ 8,345,087 $ 157,661,177
Shares issued in reinvestment of
dividends and distributions...... 262,851 4,634,072
Shares reacquired.................. (7,460,560) (140,333,930)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,147,378 21,961,319
Shares issued upon conversion from
Class B.......................... 217,986 4,151,642
----------- -------------
Net increase in shares
outstanding...................... 1,365,364 $ 26,112,961
----------- -------------
----------- -------------
Year ended April 30, 1998:
Shares sold........................ 14,645,188 $ 246,604,700
Shares issued in reinvestment of
dividends and distributions...... 265,957 4,114,350
Shares reacquired.................. (14,809,778) (249,777,100)
----------- -------------
Net increase in shares outstanding
before conversion................ 101,367 941,950
Shares issued upon conversion from
Class B.......................... 176,364 3,035,236
----------- -------------
Net increase in shares
outstanding...................... 277,731 $ 3,977,186
----------- -------------
----------- -------------
<CAPTION>
Class B
- -----------------------------------
Year ended April 30, 1999:
Shares sold........................ 5,915,979 $ 110,988,705
Shares issued in reinvestment of
dividends and distributions...... 706,372 12,142,534
Shares reacquired.................. (4,740,107) (86,581,806)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,882,244 36,549,433
Shares issued upon conversion from
Class A.......................... (224,271) (4,151,642)
----------- -------------
Net increase in shares
outstanding...................... 1,657,973 $ 32,397,791
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Year ended April 30, 1998:
Shares sold........................ 6,961,562 $ 115,370,566
Shares issued in reinvestment of
dividends and distributions...... 909,680 13,708,874
Shares reacquired.................. (7,814,335) (128,395,833)
----------- -------------
Net increase in shares outstanding
before conversion................ 56,907 683,607
Shares issued upon conversion from
Class A.......................... (181,159) (3,035,236)
----------- -------------
Net decrease in shares
outstanding...................... (124,252) $ (2,351,629)
----------- -------------
----------- -------------
<CAPTION>
Class C
- -----------------------------------
Year ended April 30, 1999:
Shares sold........................ 1,963,862 $ 36,030,413
Shares issued in reinvestment of
dividends and distributions...... 51,609 887,682
Shares reacquired.................. (1,763,515) (32,324,685)
----------- -------------
Net increase in shares
outstanding...................... 251,956 $ 4,593,410
----------- -------------
----------- -------------
Year ended April 30, 1998:
Shares sold........................ 3,938,227 $ 64,864,170
Shares issued in reinvestment of
dividends and distributions...... 54,970 829,494
Shares reacquired.................. (3,949,010) (64,988,945)
----------- -------------
Net increase in shares
outstanding...................... 44,187 $ 704,719
----------- -------------
----------- -------------
<CAPTION>
Class Z
- -----------------------------------
Year ended April 30, 1999:
Shares sold........................ 1,543,484 $ 29,968,823
Shares issued in reinvestment of
dividends and distributions...... 39,317 693,940
Shares reacquired.................. (1,155,152) (22,111,296)
----------- -------------
Net increase in shares
outstanding...................... 427,649 $ 8,551,467
----------- -------------
----------- -------------
Year ended April 30, 1998:
Shares sold........................ 282,034 $ 5,192,548
Shares issued in reinvestment of
dividends and distributions...... 95,720 1,478,880
Shares reacquired.................. (992,837) (18,453,311)
----------- -------------
Net decrease in shares
outstanding...................... (615,083) $ (11,781,883)
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
July 13, 1994(b)
Years Ended April 30, Through
------------------------------------------- April 30,
1999(c) 1998(c) 1997 1996(c) 1995(c)
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.91 $ 15.46 $ 13.69 $ 11.77 $ 11.40
------- ------- ------- ------- ------
Income from investment operations
Net investment income........................................ .03 .01 .09 .06 .01
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .28 6.38 2.24 1.86 .36
------- ------- ------- ------- ------
Total from investment operations.......................... .31 6.39 2.33 1.92 .37
------- ------- ------- ------- ------
Less Distributions
Distributions in excess of net investment income............. (.24) (.14) -- -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) -- --
------- ------- ------- ------- ------
Total distributions....................................... (1.42) (1.94) (.56) -- --
------- ------- ------- ------- ------
Net asset value, end of period............................... $ 18.80 $ 19.91 $ 15.46 $ 13.69 $ 11.77
------- ------- ------- ------- ------
------- ------- ------- ------- ------
TOTAL RETURN(d):............................................. 2.03% 44.93% 17.20% 16.31% 3.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $78,074 $55,507 $38,807 $47,789 $ 41,963
Average net assets (000)..................................... $67,286 $42,885 $37,834 $47,183 $ 29,598
Ratios to average net assets:
Expenses, including distribution fees..................... 1.43% 1.39% 1.36% 1.53% 1.84%(a)
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28% 1.59%(a)
Net investment income..................................... .15% .08% .57% .44% .06%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate...................................... 62% 50% 31% 65% 25%
</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 PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------
Years Ended April 30,
-----------------------------------------------
1999(c) 1998(c) 1997 1996(c)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.35 $ 15.12 $ 13.49 $ 11.69
-------- -------- -------- --------
Income from investment operations
Net investment loss.......................................... (.11) (.11) (.04) (.04)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .30 6.15 2.23 1.84
-------- -------- -------- --------
Total from investment operations.......................... .19 6.04 2.19 1.80
-------- -------- -------- --------
Less Distributions
Distributions in excess of net investment income............. (.10) (.01) -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) --
-------- -------- -------- --------
Total distributions....................................... (1.28) (1.81) (.56) --
-------- -------- -------- --------
Net asset value, end of period............................... $ 18.26 $ 19.35 $ 15.12 $ 13.49
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN(d):............................................. 1.39% 43.35% 16.41% 15.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $196,247 $175,857 $139,277 $125,868
Average net assets (000)..................................... $191,220 $147,492 $133,135 $122,255
Ratios to average net assets:
Expenses, including distribution fees..................... 2.18% 2.14% 2.11% 2.28%
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28%
Net investment loss....................................... (.57)% (.69)% (.27)% (.33)%
<CAPTION>
July 13, 1994(b)
Through
April 30,
1995(c)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 11.40
-------
Income from investment operations
Net investment loss.......................................... (.06)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .35
-------
Total from investment operations.......................... .29
-------
Less Distributions
Distributions in excess of net investment income............. --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. --
-------
Total distributions....................................... --
-------
Net asset value, end of period............................... $ 11.69
-------
-------
TOTAL RETURN(d):............................................. 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $106,081
Average net assets (000)..................................... $ 85,623
Ratios to average net assets:
Expenses, including distribution fees..................... 2.59%(a)
Expenses, excluding distribution fees..................... 1.59%(a)
Net investment loss....................................... (.71)%(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. 13
<PAGE>
Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
July 13, 1994(b)
Years Ended April 30, Through
------------------------------------------ April 30,
1999(c) 1998(c) 1997 1996(c) 1995(c)
------- ------- ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.38 $ 15.12 $13.49 $11.69 $11.40
------- ------- ------ ------- -----
Income from investment operations
Net investment loss.......................................... (.11) (.11) (.04) (.04 ) (.06)
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .26 6.18 2.23 1.84 .35>
------- ------- ------ ------- -----
Total from investment operations.......................... .15 6.07 2.19 1.80 .29
------- ------- ------ ------- -----
Less Distributions
Distributions in excess of net investment income............. (.10) (.01) -- -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) -- --
------- ------- ------ ------- -----
Total distributions....................................... (1.28) (1.81) (.56) -- --
------- ------- ------ ------- -----
Net asset value, end of period............................... $ 18.25 $ 19.38 $15.12 $13.49 $11.69
------- ------- ------ ------- -----
------- ------- ------ ------- -----
TOTAL RETURN(d):............................................. 1.18% 43.55% 16.41% 15.40 % 2.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $15,073 $11,122 $8,010 $7,741 $7,260
Average net assets (000)..................................... $13,465 $ 8,526 $8,002 $7,768 $6,094
Ratios to average net assets:
Expenses, including distribution fees..................... 2.18% 2.14% 2.11% 2.28 % 2.59%(a)
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28 % 1.59%(a)
Net investment loss....................................... (.61)% (.66)% (.25)% (.30 )% (.71)%(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. 14
<PAGE>
Financial Highlights PRUDENTIAL EUROPE GROWTH FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
-----------------------------------------------------
April 15, 1996(b)
Years Ended April 30, Through
------------------------------- April 30,
1999(c) 1998(c) 1997 1996(c)
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 19.93 $ 15.51 $ 13.68 $ 13.40
------- ------- ------- -----
Income from investment operations
Net investment income........................................ .05 .04 .02 .28
Net realized and unrealized gain on investment and foreign
currency transactions..................................... .31 6.37 2.37 --
------- ------- ------- -----
Total from investment operations.......................... .36 6.41 2.39 .28
------- ------- ------- -----
Less Distributions
Distributions in excess of net investment income............. (.28) (.19) -- --
Distributions paid to shareholders from net realized gains on
investment and foreign currency transactions.............. (1.18) (1.80) (.56) --
------- ------- ------- -----
Total distributions....................................... (1.46) (1.99) (.56) --
------- ------- ------- -----
Net asset value, end of period............................... $ 18.83 $ 19.93 $ 15.51 $ 13.68
------- ------- ------- -----
------- ------- ------- -----
TOTAL RETURN(d):............................................. 2.35% 44.95% 17.66% 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $10,972 $ 3,090 $11,949 $ 204(e)
Average net assets (000)..................................... $ 8,572 $12,148 $ 7,958 $ 203(e)
Ratios to average net assets:
Expenses, including distribution fees..................... 1.18% 1.14% 1.11% 1.28%(a)
Expenses, excluding distribution fees..................... 1.18% 1.14% 1.11% 1.28%(a)
Net investment income..................................... .25% .26% .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. 15
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Report of Independent Accountants
- --------------------------------------------------------------------------------
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, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period 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 audits. We conducted our audits 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 audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying 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.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
June 18, 1999
- --------------------------------------------------------------------------------
16
<PAGE>
PRUDENTIAL EUROPE GROWTH FUND, INC.
Federal Income Tax Information (Unaudited)
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (April 30, 1999) as to the federal income tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that during its fiscal year ended April 30, 1999, the Fund paid an ordinary
distribution for Class A shares totaling $0.24 per share, which is taxable as
ordinary income. The Fund paid an ordinary distribution for Class B and Class C
shares totaling $0.10 per share, which is taxable as ordinary income. The Fund
paid an ordinary distribution for Class Z shares totaling $0.28 per share, which
is taxable as ordinary income. The Fund paid short-term capital gains
distributions for Class A, Class B, Class C and Class Z shares of $0.15 per
share, which are taxable as ordinary income and $1.03 per share for long-term
capital gains. The Fund utilized redemptions as distributions in the amount of
$.054, $.047 and $.564 of ordinary income, short-term capital gains and
long-term capital gains, respectively, for each class of shares. We wish to
advise you that the corporate dividends received deduction for the Fund is zero.
The Fund has elected to give the benefit of foreign tax credits to its
shareholders. Accordingly, shareholders who must report their gross income
dividends and distributions in a federal income tax return will be entitled to a
foreign tax credit, or an itemized deduction in computing their U.S. income tax
liability. It is generally more advantageous to claim rather than take a
deduction. For the fiscal year ended April 30, 1999 the Fund intends on passing
through $.0169 per share of ordinary income distributions as a foreign tax
credit.
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.
- --------------------------------------------------------------------------------
17
<PAGE>
Comparing A $10,000 Investment
Prudential Europe Growth Fund, Inc. vs. the Morgan Stanley
Capital International Europe Index.
Class A
Average Annual Total Returns
With Sales Load
Since Inception 15.27%
Three Years 18.08%
One Year -3.07%
Without Sales Load
Since Inception 16.51%
Three Years 20.12%
One Year 2.03%
Class B
Average Annual Total Returns
With Sales Load
Since Inception 15.45%
Three Years 18.45%
One Year -3.61%
Without Sales Load
Since Inception 15.57%
Three Years 19.16%
One Year 1.39%
Past performance is not indicative of future results. Principal and
investment returns will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The lines
beneath the graphs are designed to give you an idea of how much the Fund's
returns can fluctuate from year to year by measuring the best and worst
calendar years in terms of total annual return since the inception of
each share class.
These graphs compare a $10,000 investment in Prudential Europe Growth Fund,
Inc. (Class A, B, C, and Z shares) with a similar investment in the Morgan
Stanley Capital International Europe Index (the MSCI Europe Index) by
portraying the account values at the commencement of operations of Class A,
B, C, and Z shares, and at the end of the fiscal year (April 30), as measured
on a quarterly basis, beginning in 1994 for Class A, B, and C, and 1996 for
Class Z shares. For purposes of the graphs, and unless otherwise indicated,
it has been assumed that (a) the maximum applicable front-end sales load was
deducted from the initial $10,000 investment in Class A and Class C shares;
(b) the maximum applicable contingent deferred sales charges were deducted
from the value of the investment in Class B and Class C shares, assuming
full redemption on April 30, 1999; (c) all recurring fees (including
management fees) were deducted; and
<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 on successful--
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>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Robert C. Rosselot, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers 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.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74431N103 74431N301 MF160E
74431N202 74431N400
<PAGE>
