-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BSnStI9Obt1WDxuiOsCXx6BveT7VgMGDWaJs5WiTi7glNjkp1efl6221LPsLxe2g E8giGlwOj3+EaIVhLfzevw== 0000790202-97-000006.txt : 19971210 0000790202-97-000006.hdr.sgml : 19971210 ACCESSION NUMBER: 0000790202-97-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971209 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL SMALL CO VALUE FUND INC CENTRAL INDEX KEY: 0000318531 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133040042 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03084 FILM NUMBER: 97735013 BUSINESS ADDRESS: STREET 1: 100 MULBERRY ST CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2122141250 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL SMALL COMPANIES FUND INC DATE OF NAME CHANGE: 19961216 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL GROWTH OPPORTUNITY FUND INC DATE OF NAME CHANGE: 19950523 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE GROWTH OPPORTUNITY FUND INC DATE OF NAME CHANGE: 19920601 N-30D 1 PRUDENTIAL SMALL COMPANIES (ICON) Prudential Small Company Value Fund, Inc. - --------------------------- (formerly Prudential Small Companies Fund, Inc.) ANNUAL REPORT Sept. 30, 1997 (LOGO) Prudential Small Company Value Fund, Inc. Performance At A Glance. The Prudential Small Company Value Fund performed exceptionally well over the 12 months that ended September 30, beating the average small company fund by 15 percentage points, as measured by Lipper Analytical Services. The Fund also topped the Russell 2000 Index, a broad-based measure of small companies we favor. Our performance was primarily the result of three factors: our stock selection, merger and acquisition activity involving stocks we owned, and investors generally favoring small company value stocks. Cumulative Total Returns1 As of 9/30/97
One Five Ten Since Year Years Years Inception2 Class A 45.92% 169.04% N/A 275.91% Class B 44.91 159.15 266.66% 794.24 Class C 44.91 N/A N/A 105.97 Class Z 46.38 N/A N/A 63.81 Lipper Small Co. Growth Fds3 29.79 162.84 290.33 ***
Average Annual Total Returns1 As of 9/30/97
One Five Ten Since Year Years Years Inception2 Class A 38.63% 20.65% N/A 18.01% Class B 39.91 20.89 13.88% 13.86 Class C 43.91 N/A N/A 25.65 Class Z 46.38 N/A N/A 36.60
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. 1Source: 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. 2Inception dates: Class A, 1/22/90; Class B, 11/13/80; Class C, 8/1/94; Class Z, 3/1/96. 3These are average returns for the 433 funds for one year, 125 for five years and 52 for 10 years. *** Lipper Since Inceptions returns are: Class A, 271.47%; Class B, 697.05%; Class C, 108.85%; and Class Z, 45.25% for all funds in each share class. How Investments Compared. (As of 9/30/97) (CHART) Source: Lipper Analytical Services. Financial markets change, so a mutual fund's past performance should never be used to predict future results. The risks to each of the investments listed above are different -- we provide 12-month total returns for several Lipper mutual fund categories to show you that reaching for higher 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 historically have been lower than those of stock funds. General Municipal Debt Funds invest in bonds issued by state governments, state agencies and/or municipalities. This investment provides income that is usually exempt from federal and state income taxes. Money Market Funds attempt to preserve a constant share value; they don't fluctuate much in price but historically their returns have been generally among the lowest of the major investment categories. Roger Ford and Jay S. Kaplan, Fund Managers (PHOTOS) Portfolio Managers' Report The Prudential Small Company Value Fund invests in stocks of small companies (those with a total market capitalization of $1.5 billion or less), mostly located in the U.S. We follow a traditional value investment style: we look for good businesses with sound management that are selling for what we believe to be substantially less than a fair price. Historically, stocks of small companies have fluctuated a great deal, so we try to buy when they are bargains and sell when they are expensive. We are seeking consistent, above average, risk-adjusted returns. There can be no assurance that the Fund will achieve its investment objective of capital growth. We Changed Our Name. We changed our Fund's name because we wanted to emphasize the distinctive feature of our investment approach: our strict value style. Our strategy has not changed -- we're not just buying stocks: we buy into good businesses that are selling for less than we think they're worth. We look for companies where good news can take the average investor by surprise. Strategy Session. - -------------------------------------------------- - ----------------------------- We purchase stocks that are inexpensive on the basis of price/cash flow, price/earnings, price/book value, asset values, break-up values and private market values. We tend to focus on cash flow, because free cash enables good managers to invest in new opportunities, pay back debt, and otherwise add value for investors. Our stocks are typically among the 15% to 20% lowest priced small companies. We also look for companies that are not followed by many analysts, where good news can push prices up sharply, and we look for a catalyst that is likely to produce a major shift in share price, such as a restructuring, merger, asset sale, acquisition, spin-off or management change. Following this discipline, more than 38% of the portfolio was in industrials as of September 30. The economy is good, interest rates are low, and economic growth is fast enough to keep profits rising, but slow enough to avoid inflation. Suppliers to basic American industry are prospering. When we shop for bargains, we hope that either the market or an acquirer will eventually pay us what we think these companies are worth. Fifteen of our companies have been the targets of merger or acquisition activity this year, typically by competitors that wanted to increase their market share. With a lot of money chasing a few companies, buyers are typically paying premium prices. Portfolio Composition Sectors expressed as a percentage of net assets as of 9/30/97. (CHART) What Went Well. - ------------------------------------------------- Urge To Merge. . . Buying inexpensive companies allowed us to benefit from mergers and acquisitions. Over the past year, this was a major contributor to our strong performance. For example, we held a substantial number of financial companies, four of which -- three insurance companies and a savings and loan institution -- were involved in takeover activity. Two of the insurance companies were small annuity businesses. Annuities have economies of scale that make it difficult for small firms to offer competitive products, but they are a growth business and annuity customers are valuable. They make good acquisitions. . . . Break Up . . . We did particularly well on Kansas City Southern. Investors had priced the company as a railroad, but it also owns Janus Capital and Berger Associates -- two very successful mutual fund companies -- and DST Systems, a data processor for mutual funds. We bought this financial services firm disguised as a railroad. The company is planning to separate its businesses, and we are benefitting from investors' focus on the higher valuations accorded to asset-management firms. . . . Or Consolidate. Applied Industrial Technologiesis our third largest portfolio holding and returned 87% over the past 12 months. Applied is in industrial distribution: shipping spare parts to factories. It is growing because the industry is consolidating from a large number of small local distributors to nationwide suppliers. Companies are reducing the number of suppliers they use to improve productivity. We have one of the winners -- a company that recently grew significantly by acquisition. What Could Have Gone Better. - ------------------------------------------------- Too Much Cash. Over the course of the year we generally held between 10% and 15% of assets in cash, which came in quickly from new investors, profit taking, and merger proceeds. Our investment discipline kept us from investing it as quickly as we would have liked, restraining performance. Too Little Oil Service. We missed opportunities in the oil service sector. The energy stocks we owned were entirely in exploration and production. However, oil service companies were the best performing energy stocks. Demand for oil extraction equipment was very strong. Five Largest Holdings. 2.3% Universal Health Hospital Management 2.1% Financial Security Assurance Insurance 2.0% Applied Industrial Technologies Misc. Industrial 2.0% Blount International Industrial 1.8% Vintage Petroleum Oil Exploration & Production Expressed as a percentage of net assetsas of 9/30/97. Looking Ahead. Stock prices are high and subject to rapid swings as recent events have demonstrated. We are focusing more than usual on assessing the potential risk should either a specific company or stock prices in general drift lower. We are buying more stock of companies that we know well and that have established track records. On the other hand, the U.S. economy is expanding at a moderate growth rate -- about 2.5% to 3.0% a year. There is little threat of higher interest rates or inflation. The companies we buy are focused on local markets and are generally unaffected by overseas turmoil. The management of our companies feel good about their business prospects. So we believe that we've assembled a strong portfolio for these uncertain times. 1 Jay Kaplan -- It's Great To Have A Nice Year, But... - -------------------------------------------------- - ----------------------------- Jay Kaplan, co-portfolio manager of the Prudential Small Company Value Fund, says consistency of return is the true measure of success. Q. You've had a very successful year. How did you do it? A. Many things went our way this year. Clearly, we picked the right stocks. Small company stocks rallied. And mergers and acquisitions helped. It's nice to have a great year, but we're really shooting for consistently above-average returns, year after year. Instead of swinging for home runs, we're trying to hit a lot of singles and doubles. We'll get an occasional grand slam -- as we did this year -- but we try really hard not to strike out. We hold positions in well over 100 stocks. Generally, if about 2% of the Fund is in one stock it's because it appreciated to that level. Prices of small company stocks are volatile, so we focus on putting a rational value on the underlying businesses. When the stock market wants to give us one for much less than we think it's worth, we take the business. Then we hold it until someone wants to pay us what we think the business is worth. Or more. Because we try to stay with managements that are building value, our turnover is low -- 58% in 1997, compared with the 93% small company average (according to Morningstar). Q. That is classic value investing, as taught by Ben Graham, isn't it? A. It's a strategy that has worked. We take other lessons from classic value investing: we pay attention to the people, not just the financial statements. This is particularly important with small businesses. We talk to a lot of people, not only on Wall Street, but all around the country. When we talk to the managers of a business we are interested in, we also ask them about their suppliers, their competitors and other businesses with which they are familiar. We get to know what they are like and they alert us to new opportunities. Q. You make it sound personal. Isn't investing about financial data -- numbers? A. Of course the numbers are important. We scrutinize the financial statements and we project earnings, but after the numbers are in, you still have to make a judgment about whether the management can make the business grow -- what is the probability of realizing those estimates? Investment decisions are the free enterprise system's way of allocating capital to entrepreneurial firms. It's about more than quarterly returns. (PHOTO) 2 President's Letter November 12, 1997 - -------------------------------------------------- - ----------------------------- Keep Events In Perspective. Dear Shareholder: For investors, the late October decline experienced by the financial markets was unsettling -- but let's put events in perspective. October's downturn was the third significant one this year. Stock prices fell sharply in early spring and dropped again in late summer. Yet following each episode the financial markets recovered most of the lost ground. That's 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. Despite the recent volatility, it has been a very good year for investors. Plus, the U.S. economy is strong, inflation remains low, and unemployment is down. At the end of the sell-off on October 27, the Standard & Poor's 500 Index had still gained more than 18% for the year. The Dow Jones Industrial Average was also up 11% and the Nasdaq Composite nearly 19%. Here are a few more thoughts that may help you during times of market uncertainty: - - Keep your 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. As a matter of fact, the S&P 500 rose more than 280% from the time of the last major market downturn (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. While past performance is not indicative of future results, historically, investors have profited by taking advantage of the long-term growth potential of U.S. stocks. - - We're on your side. Your Prudential Securities Financial Advisor or Pruco Securities Registered Representative can help you understand what's happening in the financial markets. Why not call him or her today? Thank you for your continued confidence in Prudential Mutual Funds and Annuities. We'll do everything we can to keep you informed and to earn your trust. Sincerely, Brian M. Storms President, Prudential Mutual Funds & Annuities 3 Portfolio of Investments as of PRUDENTIAL SMALL COMPANY September 30, 1997 VALUE FUND, INC. - -------------------------------------------------- - ---------- - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- LONG-TERM INVESTMENTS--89.9% COMMON STOCKS--89.1% - -------------------------------------------------- - ---------- Aerospace/Defense--1.3% 139,600 Doncasters PLC (ADR) (United Kingdom) (a) $ 4,188,000 184,200 Precision Castparts Corp. 11,973,000 - - ------------- 16,161,000 - -------------------------------------------------- - ------------- Automotive--0.9% 43,200 Dura Automotive Systems, Inc. (a) 1,360,800 345,500 Strattec Security Corp. (a) 9,609,219 - - ------------- 10,970,019 - -------------------------------------------------- - ------------- Building & Construction--0.9% 365,800 Crossmann Communities, Inc. (a) 8,276,225 93,100 NVR, Inc. (a) 2,420,600 - - ------------- 10,696,825 - -------------------------------------------------- - ------------- Building & Products--0.8% 561,700 Cameron Ashley Building Products (a) 10,251,025 - -------------------------------------------------- - ------------- Business Services--0.5% 254,100 World Fuel Services Corp. 6,320,738 - -------------------------------------------------- - ------------- Cellular Communications--1.7% 784,600 Centennial Cellular Corp. (a) 13,436,275 437,500 Vanguard Cellular System, Inc. Class A (a) 6,890,625 - - ------------- 20,326,900 - -------------------------------------------------- - ------------- Chemicals--1.0% 983,300 Agrium, Inc. (Canada) 11,799,600 - -------------------------------------------------- - ------------- Computer Software & Services--1.1% 530,400 Banctec, Inc. (a) 14,121,900 Consumer Services--0.6% 86,100 Pittston Brinkclquos Group $ 3,449,381 398,210 Right Management Consultants, Inc. (a) 4,081,653 - - ------------- 7,531,034 - -------------------------------------------------- - ------------- Containers & Packaging--2.7% 353,000 ACX Technologies, Inc. (a) 9,398,625 203,400 Ball Corp. 7,080,862 79,800 Ivex Packaging Corp. (a) 1,276,800 208,300 Shorewood Packaging Corp. (a) 4,973,163 624,200 U.S. Can Corp. (a) 10,377,325 - - ------------- 33,106,775 - -------------------------------------------------- - ------------- Defense--0.0% 8,800 ESCO Electronics Corp. (a) 155,100 - -------------------------------------------------- - ------------- Electrical Utilities--0.6% 274,900 TNP Enterprises, Inc. 6,906,863 - -------------------------------------------------- - ------------- Electrical Equipment--2.4% 432,400 Belden, Inc. 16,296,075 5,500 Lincoln Electric Co. 231,688 182,900 Lincoln Electric Co., Class A 7,521,762 283,400 Woodhead Industries, Inc. 5,880,550 - - ------------- 29,930,075 - -------------------------------------------------- - ------------- Electronics--4.4% 34,500 Berg Electronics Corp. (a) 1,854,375 263,900 Continental Circuits Corp. (a) 4,981,112 453,400 Marshall Industries (a) 17,569,250 449,700 Methode Eletronics, Inc., Class A 11,579,775 1,050,400 Pioneer Standard Electronics, Inc. 18,053,750 - - ------------- 54,038,262 - -------------------------------------------------- - ------------- Environmental Services--0.3% 247,807 BHA Group, Inc. (a) 4,274,671
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 4 Portfolio of Investments as of PRUDENTIAL SMALL COMPANY September 30, 1997 VALUE FUND, INC. - -------------------------------------------------- - ---------- - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- Financial Services--0.7% 92,400 Finova Group, Inc. $ 8,743,350 - -------------------------------------------------- - ------------- Food Distribution--0.5% 195,400 JP Foodservice, Inc. (a) 6,155,100 - -------------------------------------------------- - ------------- Food Retail--0.9% 377,900 Dominicks Supermarkets, Inc. (a) 11,407,856 - -------------------------------------------------- - ------------- Foods--0.2% 140,600 Ingles Markets, Inc., Class A 1,845,375 - -------------------------------------------------- - ------------- Furniture--0.6% 414,600 Furniture Brands International, Inc. (a) 7,825,575 - -------------------------------------------------- - ------------- Health Services--2.1% 462,400 Maxicare Health Plans, Inc. (a) 8,612,200 463,900 Sierra Health Services, Inc. (a) 16,990,337 - - ------------- 25,602,537 - -------------------------------------------------- - ------------- Hospital Management--2.3% 650,600 Universal Health Services, Inc., Class B (a) 28,138,450 - -------------------------------------------------- - ------------- Household Products--1.8% 177,200 Libbey, Inc. 6,323,825 479,600 Premark International, Inc. 15,347,200 - - ------------- 21,671,025 - -------------------------------------------------- - ------------- Insurance--12.0% 331,550 Allied Group, Inc. 16,846,884 172,500 Allmerica Financial Corp. 7,579,219 510,600 AmVestors Financial Corp. 11,041,725 281,500 Capital Re Corp. 17,171,500 294,200 Enhance Financial Services Group, Inc. 16,107,450 204,900 Equitable of Iowa Companies 13,728,300 549,200 Financial Security Assurance Holdings, Ltd. 25,537,800 163,300 Harleysville Group, Inc. $ 6,858,600 178,100 Liberty Corp. 8,059,025 414,400 MMI Cos., Inc. 10,929,800 164,100 Philadelphia Consolidated Holding Corp. (a) 7,107,581 177,000 Poe & Brown, Inc. 7,301,250 - - ------------- 148,269,134 - -------------------------------------------------- - ------------- Lodging/Gaming--1.2% 801,400 Red Roof Inns, Inc. (a) 15,226,600 - -------------------------------------------------- - ------------- Machinery--2.0% 594,780 Allied Products Corp. 14,720,805 269,700 CTB International Corp. (a) 4,247,775 312,000 Omniquip International, Inc. (a) 5,733,000 - - ------------- 24,701,580 - -------------------------------------------------- - ------------- Media--3.8% 31,000 Central Newspapers, Inc., Class A 2,301,750 1,657,500 Century Communications Corp., Class A (a) 12,638,437 749,290 Granite Broadcasting Corp. (a) 8,897,819 309,700 TCA Cable TV, Inc. 12,078,300 319,500 Young Broadcasting, Inc., Class A (a) 10,942,875 - - ------------- 46,859,181 - -------------------------------------------------- - ------------- Metals Processing--2.3% 254,800 Chase Industries, Inc. (a) 7,325,500 434,400 Ryerson Tull, Inc., Class A (a) 7,031,850 434,400 Wolverine Tube, Inc. (a) 13,629,300 - - ------------- 27,986,650 - -------------------------------------------------- - ------------- Miscellaneous Industrial--16.9% 715,488 Applied Industrial Technologies, Inc. 24,639,601 478,600 Blount International, Inc., Class A 24,139,387 281,800 Carlisle Companies, Inc. 12,522,487 330,900 Cascade Corp. 6,535,275 347,400 Clarcor, Inc. 9,944,325 277,000 DT Industries, Inc. 9,141,000 307,600 Graco, Inc. 10,996,700
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 5 Portfolio of Investments as of PRUDENTIAL SMALL COMPANY September 30, 1997 VALUE FUND, INC. - -------------------------------------------------- - ---------- - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- Miscellaneous Industrial (contclquod.) 263,100 Greenfield Industries, Inc. $ 7,564,125 857,000 Jason, Inc. (a) 7,070,250 434,546 Mark IV Industries, Inc. 11,678,424 376,700 Pentair, Inc. 13,890,812 521,600 Regal Beloit Corp. 16,039,200 213,835 Robbins & Myers, Inc. 8,232,648 218,100 Roper Industries 7,360,875 299,900 Standex International Corp. 9,446,850 713,100 United Dominion Industries, Ltd. (Canada) 20,189,644 214,810 Varlen Corp. 8,484,995 - - ------------- 207,876,598 - -------------------------------------------------- - ------------- Nursing Homes--0.4% 456,300 GranCare, Inc. (a) 5,390,044 - -------------------------------------------------- - ------------- Oil & Gas Exploration/Production--5.6% 545,300 Comstock Resources, Inc. (a) 6,305,031 530,200 Louis Dreyfus Natural Gas Corp. (a) 11,796,950 126,500 Mitchell Energy & Development Corp., Class A 3,581,531 85,250 Mitchell Energy & Development Corp., Class B 2,376,344 304,900 Pioneer Natural Resources Co. 12,767,688 672,300 Santa Fe Energy Resources, Inc. (a) 8,403,750 35,900 Swift Energy Co. (a) 1,011,931 457,200 Vintage Petroleum, Inc. 22,517,100 - - ------------- 68,760,325 - -------------------------------------------------- - ------------- Paper & Packaging--0.6% 186,800 Schweitzer-Mauduit International, Inc. 7,939,000 - -------------------------------------------------- - ------------- Precious Metals--0.2% 84,300 Handy & Harman 1,928,363 - -------------------------------------------------- - ------------- Printing & Publishing--2.1% 628,800 Big Flower Press Holdings, Inc. (a) 14,580,300 364,800 World Color Press, Inc. (a) 11,012,400 - - ------------- 25,592,700 Railroads--0.7% 259,500 Kansas City Southern Industries, Inc. $ 8,936,531 - -------------------------------------------------- - ------------- Regional Banks--1.0% 170,100 Community First Bankshares, Inc. 8,249,850 101,400 Peoples Heritage Financial Group 4,290,488 - - ------------- 12,540,338 - -------------------------------------------------- - ------------- Restaurants--0.7% 33,300 Ruby Tuesday, Inc. (a) 849,150 657,300 Ryanclquos Family Steak Houses, Inc. (a) 6,038,944 125,260 VICORP Restaurants, Inc. (a) 2,004,160 - - ------------- 8,892,254 - -------------------------------------------------- - ------------- Retail--3.1% 526,800 BJclquos Wholesale Club, Inc. (a) 15,375,975 339,600 Dress Barn, Inc. (a) 8,150,400 440,800 Homebase, Inc. (a) 3,967,200 242,550 Regis Corp. 6,124,387 249,300 Tractor Supply Co. (a) 4,923,675 - - ------------- 38,541,637 - -------------------------------------------------- - ------------- Savings & Loan--1.7% 413,800 Astoria Financial Corp. 20,819,312 - -------------------------------------------------- - ------------- Specialty Chemicals--2.8% 235,000 Cambrex Corp. 10,956,875 468,600 Lilly Industries, Inc., Class A 9,840,600 121,300 Rogers Corp. (a) 5,246,225 535,300 Spartech Corp. 8,029,500 - - ------------- 34,073,200 - -------------------------------------------------- - ------------- Steel - Producers--0.8% 276,400 Quanex Corp. 9,691,275 - -------------------------------------------------- - ------------- Textiles--0.8% 369,300 Guilford Mills, Inc. 9,601,800
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 6 Portfolio of Investments as of PRUDENTIAL SMALL COMPANY September 30, 1997 VALUE FUND, INC. - -------------------------------------------------- - ---------- - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- Tobacco--0.1% 41,300 Dimon, Inc. $ 1,032,500 - -------------------------------------------------- - ------------- Trucking & Shipping--2.0% 517,800 Interpool, Inc. 9,126,225 562,650 Pittston Burlington Group (a) 15,965,194 - - ------------- 25,091,419 Total common stocks (cost $793,247,679) 1,097,730,496 - - ------------- - -------------------------------------------------- - ------------- PREFERRED STOCK--0.4% Industrial 197,500 DECS Trust, Convertible 8.50% (cost $4,665,937) 4,851,094 - - ------------- CORPORATE BOND--0.4% $ 2,679 Robbins & Myers, Inc., Convertible 6.50%, 9/1/03 (Misc. Industrial) (cost $2,679,000) $ 4,073,205 - - ------------- Total long-term investments (cost $800,592,616) 1,106,654,795 - - ------------- SHORT-TERM INVESTMENT--9.7% - -------------------------------------------------- - ------------- Repurchase Agreement 119,958 Joint Repurchase Agreement Account 6.13%, 10/1/97 (cost $119,958,000; Note 5) 119,958,000 - - ------------- - -------------------------------------------------- - ------------- Total Investments--99.6% (cost $920,550,616; Note 4) 1,226,612,795 Other assets in excess of liabilities--0.4% 5,209,732 - - ------------- Net Assets--100% $1,231,822,527 - - ------------- - - -------------
- --------------- ADR--American Depository Receipt. (a) Non-income producing security. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 7 PRUDENTIAL SMALL COMPANY Statement of Assets and Liabilities VALUE FUND, INC. - -------------------------------------------------- - ------------------------------
Assets September 30, 1997 - ------------------ Investments, at value (cost $920,550,616)..................................... ......................... $1,226,612,795 Cash.............................................. .................................................. ... 1,333,423 Receivable for Fund shares sold.............................................. .......................... 16,060,922 Receivable for investments sold.............................................. .......................... 7,551,773 Dividends and interest receivable........................................ .............................. 552,466 Deferred expenses and other assets............................................ ......................... 18,492 - -------------- Total assets............................................ ............................................ 1,252,129,871 - -------------- Liabilities Payable for Fund shares reacquired........................................ ............................. 10,060,672 Payable for investments purchased......................................... ............................. 8,712,236 Management fee payable........................................... ...................................... 667,734 Distribution fee payable........................................... .................................... 593,738 Accrued expenses.......................................... ............................................. 272,964 - -------------- Total liabilities....................................... ............................................ 20,307,344 - -------------- Net Assets............................................ ................................................. $1,231,822,527 - -------------- - -------------- Net assets were comprised of: Common stock, at par............................................... ................................. $ 675,894 Paid-in capital in excess of par............................................... ..................... 805,291,351 - -------------- 805,967,245 Accumulated net realized gain on investments....................................... ................. 119,793,103 Net unrealized appreciation on investments....................................... ................... 306,062,179 - -------------- Net assets, September 30, 1997.............................................. ........................... $1,231,822,527 - -------------- - -------------- Class A: Net asset value and redemption price per share ($412,979,533 / 21,795,052 shares of common stock issued and outstanding)........................ $18.95 Maximum sales charge (5% of offering price)............................................ ............. 1.00 - -------------- Maximum offering price to public............................................ ........................ $19.95 - ------------------ - ------------------ Class B: Net asset value, offering price and redemption price per share ($645,579,275 / 36,602,678 shares of common stock issued and outstanding)........................ $17.64 - ------------------ - ------------------ Class C: Net asset value, offering price and redemption price per share ($22,049,204 / 1,250,164 shares of common stock issued and outstanding).......................... $17.64 - ------------------ - ------------------ Class Z: Net asset value, offering price and redemption price per share ($151,214,515 / 7,941,500 shares of common stock issued and outstanding)......................... $19.04 - ------------------ - ------------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 8 PRUDENTIAL SMALL COMPANY VALUE FUND, INC. Statement of Operations - -------------------------------------------------- - ----------
Year Ended Net Investment Income (Loss) September 30, 1997 Income Dividends (net of foreign withholding taxes of $29,384)..................... $ 6,294,365 Interest................................. 5,058,311 - ------------ Total income.......................... 11,352,676 - ------------ Expenses Management fee........................... 5,864,087 Distribution fee--Class A................ 719,734 Distribution fee--Class B................ 4,437,608 Distribution fee--Class C................ 87,617 Transfer agentclquos fees and expenses... 1,358,000 Reports to shareholders.................. 360,000 Registration fees........................ 190,000 Custodianclquos fees and expenses........ 177,000 Audit fee................................ 25,000 Legal fees and expenses.................. 22,500 Directorsclquo fees and expenses......... 23,000 Miscellaneous............................ 2,857 - ------------ Total expenses........................ 13,267,403 - ------------ Net investment income (loss)................ (1,914,727) - ------------ Realized and Unrealized Gain on Investments Net realized gain on investment transactions............................. 138,255,423 Net change in unrealized appreciation on investments.............................. 201,444,620 - ------------ Net gain on investments..................... 339,700,043 - ------------ Net Increase in Net Assets Resulting from Operations................... $337,785,316 - ------------ - ------------
PRUDENTIAL SMALL COMPANY VALUE FUND, INC. Statement of Changes in Net Assets - -------------------------------------------------- - ----------
Increase (Decrease) Year Ended September 30, in Net Assets 1997 1996 Operations Net investment income (loss)................... $ (1,914,727) $ (579,529) Net realized gain on investments.............. 138,255,423 96,387,630 Net change in unrealized appreciation on investments.............. 201,444,620 (17,952,802) -------------- - ------------- Net increase in net assets resulting from operations............... 337,785,316 77,855,299 -------------- - ------------- Distributions from net realized capital gains (Note 1) Class A..................... (35,968,641) (11,343,132) Class B..................... (62,311,718) (17,645,142) Class C..................... (737,555) (93,369) Class Z..................... (10,814,701) - -- -------------- - ------------- (109,832,615) (29,081,643) -------------- - ------------- Fund share transactions (net of conversions) (Note 6) Proceeds from shares sold... 1,508,723,401 594,169,971 Net asset value of shares issued in reinvestment of distributions............ 105,395,777 27,854,955 Cost of shares reacquired... (1,299,254,732) (587,442,637) -------------- - ------------- Net increase in net assets from Fund share transactions............. 314,864,446 34,582,289 -------------- - ------------- Total increase................. 542,817,147 83,355,945 Net Assets Beginning of year.............. 689,005,380 605,649,435 -------------- - ------------- End of year.................... $1,231,822,527 $ 689,005,380 -------------- - ------------- -------------- - -------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 9 PRUDENTIAL SMALL COMPANY Notes to Financial Statements VALUE FUND, INC. - -------------------------------------------------- - ------------------------------ Prudential Small Company Value Fund, Inc., formerly Prudential Small Companies Fund, Inc. (the openqopenqFundclquoclquo), 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 achieve capital growth, by investing in a carefully selected portfolio of common stocks. Investment income is of incidental importance, and the Fund may invest in securities which do not produce any income. - -------------------------------------------------- - ---------- 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 Valuations: Investments traded on a national securities exchange 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 whose primary market is believed to be over-the-counter) and listed securities for which no sale was reported on that date are valued at the mean between the last reported bid and asked prices. Any security for which a reliable market quotation is unavailable is valued at fair value as determined in good faith by or under the direction of the Fundclquos Board of Directors. 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 Fundclquos 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. All securities are valued as of 4:15 p.m., New York time. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses on sales of investments are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date; interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Net investment income (loss), 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. Taxes: It is the Fundclquos policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income to its shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends have been provided for in accordance with the Fundclquos understanding of the applicable countryclquos tax rules and rates. Dividends and Distributions: The Fund expects to pay dividends of net investment income, if any, semi-annually and make distributions at least annually of any net capital gains. 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. Reclassification of Capital Accounts: The Fund accounts and reports for distributions to shareholders in accordance with the American Institute of Certified Public Accountantsclquo 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 undistributed net investment income and decrease accumulated net realized gain on investment by $1,914,727 for net operating losses during the fiscal year ended September 30, 1997. 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 (openqopenqPIFMclquoclquo). Pursuant to this agreement, PIFM has responsibility for all investment advisory services and supervises the subadviserclquos performance of such services. Pursuant to a subadvisory agreement between PIFM and The Prudential Investment Corporation (openqopenqPICclquoclquo), PIC furnishes investment advisory services in connection with the management of the Fund. PIFM pays for the cost of the subadviserclquos 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. - -------------------------------------------------- - ------------------------------ 10 PRUDENTIAL SMALL COMPANY Notes to Financial Statements VALUE FUND, INC. - -------------------------------------------------- - ------------------------------ The management fee paid PIFM is computed daily and payable monthly, at an annual rate of .70 of 1% of the Fundclquos average daily net assets. The Fund has a distribution agreement with Prudential Securities Incorporated (openqopenqPSIclquoclquo), which acts as the distributor of the Class A, Class B, Class C and Class Z shares of the Fund. The Fund compensates PSI for distributing and servicing the Fundclquos Class A, Class B and Class C shares, pursuant to plans of distribution, (the openqopenqClass A, B and C Plansclquoclquo), regardless of expenses actually incurred by PSI. The distribution fees for Class A, B and C shares are accrued daily and payable monthly. PSI also incurs the expenses of distributing the Fundclquos Class Z shares under the distribution agreement, none of which is reimbursed or paid by the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates PSI 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 were .25 of 1%, 1% and 1% of the average daily net assets of the Class A, Class B and Class C shares, respectively, for the year ended September 30, 1997. PSI has advised the Fund that it has received approximately $1,019,000 in front-end sales charges resulting from sales of Class A shares during the year ended September 30, 1997. From these fees, PSI paid such sales charges to Pruco Securities Corporation, an affiliated broker- dealer, which in turn paid commissions to salespersons and incurred other distribution costs. PSI has advised the Fund that for the year ended September 30, 1997, it received approximately $697,300 and $3,300 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential Insurance Company of America. The Fund, along with other affiliated registered investment companies (the openqopenqFundsclquoclquo), entered into a credit agreement (the openqopenqAgreementclquoclquo) 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 purposes 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 September 30, 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 (openqopenqPMFSclquoclquo), a wholly-owned subsidiary of PIFM, serves as the Fundclquos transfer agent. During the year ended September 30, 1997, the Fund incurred fees of approximately $1,160,000 for the services of PMFS. As of September 30, 1997, approximately $116,000 of such fees were due to PMFS. Transfer agent fees and expenses in Statement of Operations include certain out-of-pocket expenses paid to non-affliates. For the year ended September 30, 1997, PSI earned approximately $1,400 in brokerage commissions from portfolio transactions executed on behalf of the Fund. - -------------------------------------------------- - ---------- Note 4. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the year ended September 30, 1997 were $600,770,033 and $436,067,635, respectively. The federal income tax basis of the Fundclquos investments at September 30, 1997 was $920,731,478 and, accordingly, net unrealized appreciation for federal income tax purposes was $305,881,317 (gross unrealized appreciation--$308,757,380 gross unrealized depreciation--$2,876,063). - -------------------------------------------------- - ---------- Note 5. Joint Repurchase Agreement Account The Fund, along with other affiliated registered investment companies, transfers uninvested cash balances into a single joint account, the daily aggregate balance of which is invested in one or more repurchase agreements collateralized by U.S. Treasury or federal agency obligations. As of September 30, 1997, the Fund had a 8.90% undivided interest in the joint account. The undivided interest for the Fund represents $119,958,000 in the principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefor were as follows: Credit Suisse First Boston Corp., 6.15%, in the principal amount of $341,000,000, repurchase price $341,058,254, due 10/1/97. The value of the collateral including accrued interest was $352,935,110. Goldman, Sachs & Co. Inc., 6.15%, in the principal amount of $341,000,000, repurchase price $341,058,254, due 10/1/97. The value of the collateral including accrued interest was $347,820,010. - -------------------------------------------------- - ------------------------------ 11 PRUDENTIAL SMALL COMPANY Notes to Financial Statements VALUE FUND, INC. - -------------------------------------------------- - ------------------------------ Morgan Stanley, Dean Witter, Discover & Co., 6.15%, in the principal amount of $325,256,000, repurchase price $325,311,565, due 10/1/97. The value of the collateral including accrued interest was $331,761,960. UBS Securities, LLC, 6.06%, in the principal amount of $341,000,000, repurchase price $341,057,402, due 10/1/97. The value of the collateral including accrued interest was $347,821,030. - -------------------------------------------------- - ---------- Note 6. 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 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. 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 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 a limited group of investors. There are 750 million shares of common stock authorized $.01 par value per share, divided into four classes, designated Class A, Class B, Class C and Class Z common stock. Class A, Class B and Class Z shares each consist of 200 million authorized shares. Class C shares consist of 150 million authorized shares. Transactions in shares of common stock for the years ended September 30, 1997 and 1996 were as follows:
Class A Shares Amount - ----------------------------------- ----------- - ------------- Year ended September 30, 1997: Shares sold........................ 58,541,824 $ 901,368,248 Shares issued in reinvestment of distributions.................... 2,537,905 34,540,892 Shares reacquired.................. (56,528,491) (869,785,004) ----------- - ------------- Net increase in shares outstanding before conversion................ 4,551,238 66,124,136 Shares issued upon conversion from Class B.......................... 1,732,321 27,796,514 ----------- - ------------- Net increase in shares outstanding...................... 6,283,559 $ 93,920,650 ----------- - ------------- ----------- - ------------- Class A Shares Amount - ----------------------------------- ----------- - ------------- Year ended September 30, 1996: Shares sold........................ 30,393,176 $ 429,242,812 Shares issued in reinvestment of distributions.................... 835,885 10,983,529 Shares reacquired.................. (29,632,995) (419,271,484) ----------- - ------------- Net increase in shares outstanding before conversion................ 1,596,066 20,954,857 Shares issued upon conversion from Class B.......................... 1,312,309 18,909,540 Shares reacquired upon conversion into Class Z..................... (4,480,718) (61,296,301) ----------- - ------------- Net decrease in shares outstanding...................... (1,572,343) $ (21,431,904) ----------- - ------------- ----------- - ------------- Class B - ----------------------------------- Year ended September 30, 1997: Shares sold........................ 20,787,255 $ 309,922,681 Shares issued in reinvestment of distributions.................... 4,656,202 59,320,016 Shares reacquired.................. (13,133,974) (187,564,507) ----------- - ------------- Net increase in shares outstanding before conversion................ 12,309,483 181,678,190 Shares reacquired upon conversion into Class A..................... (1,856,230) (27,796,514) ----------- - ------------- Net increase in shares outstanding...................... 10,453,253 $ 153,881,676 ----------- - ------------- ----------- - ------------- Year ended September 30, 1996: Shares sold........................ 10,646,908 $ 141,359,376 Shares issued in reinvestment of distributions.................... 1,340,218 16,779,529 Shares reacquired.................. (11,138,852) (146,886,969) ----------- - ------------- Net increase in shares outstanding before conversion................ 848,274 11,251,936 Shares reacquired upon conversion into Class A..................... (1,382,405) (18,909,540) ----------- - ------------- Net decrease in shares outstanding...................... (534,131) $ (7,657,604) ----------- - ------------- ----------- - ------------- Class C - ----------------------------------- Year ended September 30, 1997: Shares sold........................ 1,398,968 $ 20,854,398 Shares issued in reinvestment of distributions.................... 56,529 720,186 Shares reacquired.................. (503,684) (7,062,824) ----------- - ------------- Net increase in shares outstanding...................... 951,813 $ 14,511,760 ----------- - ------------- ----------- - ------------- Year ended September 30, 1996: Shares sold........................ 403,369 $ 5,378,137 Shares issued in reinvestment of distributions.................... 7,340 91,897 Shares reacquired.................. (226,306) (3,018,680) ----------- - ------------- Net increase in shares outstanding...................... 184,403 $ 2,451,354 ----------- - ------------- ----------- - -------------
- -------------------------------------------------- - ------------------------------ 12 PRUDENTIAL SMALL COMPANY Notes to Financial Statements VALUE FUND, INC. - -------------------------------------------------- - ------------------------------
Class Z Shares Amount - ----------------------------------- ----------- - ------------- Year ended September 30, 1997: Shares sold........................ 17,575,451 $ 276,578,074 Shares issued in reinvestment of distributions.................... 792,865 10,814,683 Shares reacquired.................. (14,899,669) (234,842,397) ----------- - ------------- Net increase in shares outstanding...................... 3,468,647 $ 52,550,360 ----------- - ------------- ----------- - ------------- March 1, 1996(a) through September 30, 1996: Shares sold........................ 1,257,435 $ 18,189,646 Shares reacquired.................. (1,265,300) (18,265,504) ----------- - ------------- Net decrease in shares outstanding before conversion................ (7,865) (75,858) Shares issued upon conversion from Class A.......................... 4,480,718 61,296,301 ----------- - ------------- Net increase in shares outstanding...................... 4,472,853 $ 61,220,443 ----------- - ------------- ----------- - ------------- - -------------------------------------------------- - -------------- (a) Commencement of offering of Class Z shares.
- -------------------------------------------------- - ------------------------------ 13 PRUDENTIAL SMALL COMPANY Financial Highlights VALUE FUND, INC. - -------------------------------------------------- - ------------------------------
Class A - -------------------------------------------------- - --------- Year Ended September 30, - -------------------------------------------------- - --------- 1997 1996 1995 1994 1993 - -------- -------- -------- -------- - ------- PER SHARE OPERATING PERFORMANCE(a): Net asset value, beginning of year.................. $ 15.30 $ 14.18 $ 12.40 $ 13.06 $ 11.25 - -------- -------- -------- -------- - ------- Income from investment operations Net investment income (loss)........................ .02 .04 .05 -- .03 Net realized and unrealized gain on investment transactions..................................... 6.06 1.75 2.57 .13 3.14 - -------- -------- -------- -------- - ------- Total from investment operations................. 6.08 1.79 2.62 .13 3.17 - -------- -------- -------- -------- - ------- Less distributions Distributions from net realized capital gains....... (2.43) (.67) (.84) (.79) (1.36) - -------- -------- -------- -------- - ------- Net asset value, end of year........................ $ 18.95 $ 15.30 $ 14.18 $ 12.40 $ 13.06 - -------- -------- -------- -------- - ------- - -------- -------- -------- -------- - ------- TOTAL RETURN(b):.................................... 45.92% 13.38% 23.29% 1.13% 30.42% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)....................... $412,980 $237,306 $242,231 $103,078 $94,842 Average net assets (000)............................ $287,894 $223,091 $174,449 $ 97,877 $69,801 Ratios to average net assets: Expenses, including distribution fees............ 1.21% 1.24% 1.33% 1.33% 1.17% Expenses, excluding distribution fees............ .96% .99% 1.08% 1.09% .97% Net investment income (loss)..................... .15% .33% .30% .00% .26% For Class A, B, C and Z shares: Portfolio turnover............................... 58% 53% 64% 82% 68% Average commission rate paid per share........... $ .0470 $ .0515 N/A N/A N/A
- --------------- (a) Calculated based upon weighted average shares outstanding during the year. (b) 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 year reported and includes reinvestment of dividends and distributions. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 14 PRUDENTIAL SMALL COMPANY Financial Highlights VALUE FUND, INC. - -------------------------------------------------- - ------------------------------
Class B - -------------------------------------------------- - ---------- Year Ended September 30, - -------------------------------------------------- - ---------- 1997 1996 1995 1994 1993 - -------- -------- -------- -------- - -------- PER SHARE OPERATING PERFORMANCE(a): Net asset value, beginning of period................ $ 14.49 $ 13.56 $ 11.99 $ 12.74 $ 11.08 - -------- -------- -------- -------- - -------- Income from investment operations Net investment income (loss)........................ (.09) (.06) (.06) (.09) (.06) Net realized and unrealized gain on investment transactions..................................... 5.67 1.66 2.47 .13 3.08 - -------- -------- -------- -------- - -------- Total from investment operations................. 5.58 1.60 2.41 .04 3.02 - -------- -------- -------- -------- - -------- Less distributions Distributions from net realized capital gains....... (2.43) (.67) (.84) (.79) (1.36) - -------- -------- -------- -------- - -------- Net asset value, end of period...................... $ 17.64 $ 14.49 $ 13.56 $ 11.99 $ 12.74 - -------- -------- -------- -------- - -------- - -------- -------- -------- -------- - -------- TOTAL RETURN(b):.................................... 44.91% 12.56% 22.37% .34% 29.40% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)..................... $645,579 $378,861 $361,873 $425,502 $376,068 Average net assets (000)............................ $443,761 $355,636 $349,929 $399,920 $278,659 Ratios to average net assets: Expenses, including distribution fees............ 1.96% 1.99% 2.08% 2.09% 1.97% Expenses, excluding distribution fees............ .96% .99% 1.08% 1.09% .97% Net investment income (loss)..................... (.60)% (.42)% (.51)% (.76)% (.54)%
- --------------- (a) Calculated based upon weighted average shares outstanding during the year. (b) 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 year reported and includes reinvestment of dividends and distributions. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 15 PRUDENTIAL SMALL COMPANY Financial Highlights VALUE FUND, INC. - -------------------------------------------------- - ------------------------------
Class C - -------------------------------------------------- - ----------- August 1, 1994(d) Year Ended September 30, Through - ------------------------------------------- September 30, 1997 1996 1995 1994 - ------- ------------- ------------- -- - ----------- PER SHARE OPERATING PERFORMANCE(a): Net asset value, beginning of period................ $ 14.49 $ 13.56 $ 11.99 $ 11.61 - ------- ------- ------- - ------- Income from investment operations Net investment income (loss)........................ (.09) (.06) (.06) (.01) Net realized and unrealized gain on investment transactions..................................... 5.67 1.66 2.47 .39 - ------- ------- ------- - ------- Total from investment operations................. 5.58 1.60 2.41 .38 - ------- ------- ------- - ------- Less distributions Distributions from net realized capital gains....... (2.43) (.67) (.84) -- - ------- ------- ------- - ------- Net asset value, end of period...................... $ 17.64 $ 14.49 $ 13.56 $ 11.99 - ------- ------- ------- - ------- - ------- ------- ------- - ------- TOTAL RETURN(b):.................................... 44.91% 12.56% 22.37% 3.19% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)..................... $22,049 $ 4,323 $ 1,545 $ 269 Average net assets (000)............................ $ 8,762 $ 2,786 $ 784 $ 179 Ratios to average net assets: Expenses, including distribution fees............ 1.96% 1.99% 2.08% 2.22%(c) Expenses, excluding distribution fees............ .96% .99% 1.08% 1.22%(c) Net investment income (loss)..................... (.60)% (.42)% (.46)% (.31)%(c) Class Z - ------------------------------- March 1, 1996(e) Year Ended Through September 30, September 30, 1997 1996 - ------------- ------------- PER SHARE OPERATING PERFORMANCE(a): Net asset value, beginning of period................ $ 15.32 $ 13.69 - --------- ------- Income from investment operations Net investment income (loss)........................ .06 .05 Net realized and unrealized gain on investment transactions..................................... 6.09 1.58 - --------- ------- Total from investment operations................. 6.15 1.63 - --------- ------- Less distributions Distributions from net realized capital gains....... (2.43) -- - --------- ------- Net asset value, end of period...................... $ 19.04 $ 15.32 - --------- ------- - --------- ------- TOTAL RETURN(b):.................................... 46.38% 11.91% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)..................... $ 151,215 $68,516 Average net assets (000)............................ $ 97,310 $66,228 Ratios to average net assets: Expenses, including distribution fees............ .96% .99%(c) Expenses, excluding distribution fees............ .96% .99%(c) Net investment income (loss)..................... .40% .58%(c)
- --------------- (a) Calculated based upon weighted average shares outstanding during the period. (b) 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. (c) Annualized. (d) Commencement of offering of Class C shares. (e) Commencement of offering of Class Z shares. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 16 PRUDENTIAL SMALL COMPANY Report of Independent Accountants VALUE FUND, INC. - -------------------------------------------------- - ------------------------------ The Shareholders and Board of Directors of Prudential Small Company Value 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 Small Company Value Fund, Inc., formerly Prudential Small Companies Fund, Inc., at September 30, 1997, 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 periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as openqopenqfinancial statementsclquoclquo) are the responsibility of the Fundclquos 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 September 30, 1997 by correspondence with the custodian and brokers and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York November 19, 1997 PRUDENTIAL SMALL COMPANY Federal Income Tax Information VALUE FUND, INC. - -------------------------------------------------- - ------------------------------ We are required by the Internal Revenue Code to advise you within 60 days of the Fundclquos fiscal year end (September 30, 1997) as to the federal tax status of distributions paid by the Fund during such fiscal year. Accordingly, during its fiscal year ended September 30, 1997, the Fund paid distributions from net realized short-term capital gains of $.354 per Class A, Class B, Class C and Class Z shares, which are taxable as ordinary income, and $2.071 per Class A, Class B, Class C and Class Z shares from net realized long-term capital gains, which are taxable as such. Further, we wish to advise you that 37% of the ordinary income dividends paid in the fiscal year ended September 30, 1997 qualified for the corporate dividends received deduction available to corporate taxpayers. In January 1998, you will be advised on IRS Form 1099 DIV or substitute 1099 as to the federal tax status of the dividends and distributions received by you in calendar year 1997. The amounts that will be reported on such Form 1099 DIV or substitute will be the amounts to use on your 1997 federal income tax return and probably will differ from the amounts which we must report for the Fundclquos fiscal year ended September 30, 1997. - -------------------------------------------------- - ------------------------------ 17 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 performance 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. 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. 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. Comparing A $10,000 Investment. - -------------------------------------------- Prudential Small Company Value Fund, Inc. vs. the Russell 2000 Index. Prudential Small Company Value Fund, Inc. Russell 2000 Index Class A (CHART) Class B (CHART) Class C (CHART) Class Z (CHART) Past performance is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The box on top of the graphs are designed to give you an idea 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 exclusive of sales charges since the inception of Class A and B shares. These graphs are furnished to you in accordance with SEC regulations. They compare a $10,000 investment in the Prudential Small Company Value Fund, Inc., (Class A, Class B, Class C and Class Z) with a similar investment in the Russell 2000 Index by portraying the initial account values at the commencement of operations of Class A, Class C and Class Z shares and for 10 years for Class B shares, and subsequent account values at the end of this most recent reporting period (September 30), as measured on a quarterly basis, beginning in 1990 for Class A shares, in 1987 for Class B shares, in 1994 for Class C shares and in 1996 for Class Z shares. For purposes of the graphs, and unless otherwise indicated, in the accompanying tables it has been assumed (a) that the maximum applicable front-end sales charge was deducted from the initial $10,000 investment in Class A shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B and Class C shares, assuming full redemption on September 30, 1997; (c) all recurring fees (including management fees) were deducted; and (d) all dividends and distributions were reinvested. Class B shares automatically convert to Class A shares, on a quarterly basis, beginning approximately seven years after purchase. This conversion feature is not reflected in the graph. Class Z shares do not have a sales charge or a distribution fee. The Russell 2000 is a weighted index, representing the smallest 2,000 stocks among the largest 3,000 equity-capitalized U.S. corporations and represents approximately 10% of their aggregate market value. The Index is unmanaged and includes the reinvestment of all dividends, but does not reflect the payment of transaction costs and advisory fees associated with an investment in the Fund. The securities in the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of this fund and other indexes may portray different comparative performance. 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 Donald D. Lennox Douglas H. McCorkindale Mendel A. Melzer Thomas T. Mooney Stephen P. Munn Richard A. Redeker Robin B. Smith Louis A. Weil, III Clay T. Whitehead Officers Richard A. Redeker, President Thomas A. Early, Vice President Grace C. Torres, Treasurer Stephen M. Ungerman, Assistant Treasurer S. Jane Rose, Secretary Caren A. Cunningham, Assistant Secretary Marguerite E. H. Morrison, 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 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 Price Waterhouse LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Gardner, Carton & Douglas Quaker Tower 321 North Clark Street Chicago, IL 60610-4795 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. 743968109 MF109E 743968208 Cat. #642001I 743968307 743968406 -----END PRIVACY-ENHANCED MESSAGE-----