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<DESCRIPTION>PRUDENTIAL SMALL COMPANY FUND -- 9/30/2002
<TEXT>
<Page>
ANNUAL REPORT
SEPTEMBER 30, 2002
PRUDENTIAL
SMALL COMPANY FUND, INC.
FUND TYPE
Small-capitalization stock
OBJECTIVE
Capital growth
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
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.
Prudential Financial is a service mark of
The Prudential Insurance Company of America,
Newark, NJ, and its affiliates. PRUDENTIAL FINANCIAL (LOGO)
<Page>
Prudential Small Company Fund, Inc.
Performance at a Glance
INVESTMENT GOALS AND STYLE
The Prudential Small Company Fund, Inc.'s (the Fund)
investment objective is capital growth. The Fund
invests primarily in stocks of small companies
located mostly in the United States. We consider
companies small if their total market value is less
than the largest total market value of any company in
the Standard & Poor's SmallCap 600 Index (S&P
SmallCap 600 Index)--$2.6 billion as of September 30,
2002. The gap between the return on small companies
and that on large companies can be substantial in
either direction any year. That is why investors are
often advised to own both for diversification. We
focus on stocks that we believe have above-average
prospects for earnings growth, but that also can be
purchased at below-average multiples of their
earnings or at discounts to their intrinsic values.
This approach is often referred to as GARP, or
"growth at a reasonable price." There can be no
assurance that the Fund will achieve its investment
objective.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 9/30/02
23.0% Industrials
18.6 Consumer Discretionary
15.7 Financials
12.1 Healthcare
10.9 Information Technology
7.6 Energy
3.3 Consumer Staples
2.9 Materials
1.5 Telecommunication Services
1.2 Utilities
3.2 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 9/30/02
2.2% Fisher Scientific International, Inc.
Electronic Equipment & Instruments
2.1 Big Lots, Inc.
Multiline Retail
2.0 Advance Auto Parts, Inc.
Specialty Retail
1.8 Apogent Technologies, Inc.
Healthcare Equipment & Supplies
1.8 Omnicare, Inc.
Healthcare Providers and Services
1.8 Speedway Motorsports, Inc.
Hotels Restaurants & Leisure
1.7 Pentair, Inc.
Machinery
1.7 Pride International, Inc.
Energy Equipment and Services
1.7 Endocare, Inc.
Healthcare Equipment & Supplies
1.5 Corporate Executive Board Co.
Commercial Services and Supplies
Holdings are subject to change.
<Page>
www.prudential.com (800) 225-1852
Annual Report September 30, 2002
Cumulative Total Returns1 As of 9/30/02
<Table>
<Caption>
One Year Five Years Ten Years Since Inception2
<S> <C> <C> <C> <C>
Class A -11.14% -25.18% 101.29% 181.25%
Class B -11.86 -27.97 86.67 544.11
Class C -11.86 -27.97 N/A 48.36
Class Z -10.94 -24.17 N/A 24.22
Russell 2000 Index3 -9.30 -14.97 116.09 ***
S&P SmallCap 600 Index4 -1.79 4.20 182.12 ****
Lipper Small-Cap Core Funds Avg.5 -6.62 1.35 155.06 *****
</Table>
Average Annual Total Returns1 As of 9/30/02
One Year Five Years Ten Years Since Inception2
Class A -15.58% -6.60% 6.70% 8.05%
Class B -16.27 -6.50 6.44 8.89
Class C -13.62 -6.54 N/A 4.82
Class Z -10.94 -5.38 N/A 3.35
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. 1Source:
Prudential Investments 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. Without
the distribution and service (12b-1) fee waiver for
Class A shares, the returns would have been lower.
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 the first six years
respectively. Approximately seven years after
purchase, Class B shares will automatically convert
to Class A shares on a quarterly basis. Class C
shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for shares redeemed within 18 months
of purchase. Class Z shares are not subject to a
sales charge or distribution and service (12b-1)
fees. The cumulative and average annual total returns
in the tables above do not reflect the deduction of
taxes that a shareholder would pay on fund
distributions or following the redemption of fund
shares. 2Inception dates: Class A, 1/22/90; Class B,
11/13/80; Class C, 8/1/94; and Class Z, 3/1/96. 3The
Russell 2000 Index is an unmanaged capital-weighted
index of the smallest 2,000 stocks among the largest
3,000 U.S. corporations and represents approximately
8% of their aggregate market value. 4The S&P SmallCap
600 Index is an unmanaged capital-weighted index of
600 small company U.S. common stocks that cover all
industry sectors. It gives a broad look at how small-
cap stock prices have performed. 5The Lipper Average
is unmanaged, and is based on the average return for
all funds in each share class for the one-year, five-
year, ten-year, and since inception periods in the
Lipper Small-Cap Core Funds category. Funds in the
Lipper Small-Cap Core Funds Average invest at least
75% of their assets in companies with market
capitalizations of less than 250% of the dollar-
weighted median of the smallest 500 of the middle
1,000 securities of the S&P SuperComposite 1500
Index. Small-cap core funds have a wide latitude in
the companies in which they invest, and have an
above-average price/earnings ratio, price-to-book
ratio, and three-year sales-per-share growth value.
Investors cannot invest directly in an index. The
returns for the Russell 2000 Index, S&P SmallCap 600
Index, and Lipper Average would be lower if they
included the effect of sales charges, operating
expenses or taxes.***The Russell 2000 Index Since
Inception returns are 186.85% for Class A, 659.80%
for Class B, 66.35% for Class C, and 21.74% for Class
Z. ****The S&P SmallCap 600 Index Since Inception
returns are 263.85% for Class A, 427.31% for Class B,
120.66% for Class C, and 58.28% for Class Z. The S&P
SmallCap 600 Index began 2/29/84. Therefore, the
return for Class B shares represents an inception
from that time until present (9/30/02). *****Lipper
Since Inception returns are 252.87% for Class A,
685.90% for Class B, 102.38% for Class C, and 55.04%
for Class Z, based on all funds in each share class.
1
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PRUDENTIAL FINANCIAL (LOGO) November 15, 2002
DEAR SHAREHOLDER,
The 12-month period ending September 30, 2002, was
disappointing for stock investors. At the beginning
of the period, in the wake of the terrorist attacks,
interest-rate reductions in the United States and
Europe spurred hopes that the global economy would
recover quickly. Signs of greater economic activity
encouraged that optimism. Soon, however, a series of
bankruptcies, indictments, earnings disappointments,
conflicting economic signs, and the possibility
of war with Iraq threw the stock market into a steep and
broadening decline.
Small-cap stocks, which historically are more
sensitive to economic expectations, were particularly
volatile in response to the rising uncertainty. They
had substantial gains, far outperforming large-cap
stocks during the early part of the period, and the
Prudential Small Company Fund outperformed its
benchmark. For the second half of the Fund's fiscal
year, however, small caps trailed large caps
slightly, and the Fund performed poorly in comparison
with its peers.
Over the full 12-month reporting period, the Fund's
loss was somewhat greater than the decline of the
Russell 2000 Index and substantially worse than the
Lipper Small-Cap Core Funds Average. In the following
pages, the Fund's adviser describes its performance
in this unsettled environment.
We encourage you to talk with your financial
professional about the impact of recent events on
your investment plan. We appreciate your continued
confidence in Prudential mutual funds through these
trying times.
Sincerely,
David R. Odenath, Jr., President
Prudential Small Company Fund, Inc.
2
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Prudential Small Company Fund, Inc.
Annual Report September 30, 2002
INVESTMENT ADVISER'S REPORT
OVERVIEW OF THE ENVIRONMENT AND PERFORMANCE
Investor enthusiasm produced a very strong market
return for stocks in general over the first half of
the Fund's fiscal year--the last calendar quarter of
2001 and the first quarter of 2002. Small-company
stocks were particularly good performers. In part,
this was because they still were significantly
cheaper than large caps in comparison to the firms'
revenues, earnings, and book values. This
relationship of share price to measures of intrinsic
value is known as the share's valuation. Small caps,
which historically have tended to outperform large
caps in the early stages of an economic recovery,
were expected to benefit from the strong economic
medicine being applied to the U.S. economy. During
this period, the Fund had a strong gain.
However, in March, investors began to see a string of
poor earnings reports and financial scandals. There
was increasing evidence that the spurt of rapid
economic growth in the first quarter of 2002 was due
largely to a one-time boost after excess inventories
had been liquidated, and that a recovery in profits
may come more slowly. Amid poor economic news and
increasing uncertainty in the Middle East, investors
pulled back from the equity markets generally. Stocks
in every economic sector shared in a very steep
decline. The two and a half-year run in which small-
cap stocks outperformed large-cap stocks came to an
end, in part because the huge gap in valuations that
had been caused by several years of small-cap
underperformance was largely closed by early 2002.
In addition, the profitability of small companies is
more sensitive to the overall economy. Just as
investors strongly favored small-company stocks in
the fourth quarter of 2001 when they expected quick
economic recovery, they avoided small-company stocks
when they became more pessimistic about the economic
outlook. The largest underperformance came during the
months when companies gave advance notice of
disappointing quarter-end financial reports. This
pessimism affected these stocks as a group. During
this falling market, the Fund had a substantially
negative return.
3
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Prudential Small Company Fund, Inc.
Annual Report September 30, 2002
We compare the Fund's performance to two index
benchmarks. The Russell 2000 Index is more
representative of the universe from which we select
stocks. It includes most of the companies of non-
negligible size in the United States that are smaller
than the largest 1000. Over the Fund's fiscal year,
the Russell 2000 Index return was -9.3%. The S&P
SmallCap 600 Index, which includes a smaller group of
larger and more stable companies, returned -1.79%
over the period. The -6.62% return of the Lipper
Small-Cap Core Funds Average, representing the Fund's
peers, fell between these two benchmarks. The Fund's
net return over the full 12-month reporting period
trailed both our peers and our benchmark indexes.
THE WIRELESS RECOVERY WAS FURTHER DELAYED
At the beginning of the Fund's fiscal year, 6.5% of
its net assets were invested in wireless
telecommunications stocks, and Western Wireless was
its largest single position. Together, wireless
stocks accounted for more than half of the Fund's
negative return, victims, in our view, of the
economic slowdown. Some companies reported slower
subscriber growth, with new subscribers spending less
than the old customers. Our rural cellular service
holdings (Western Wireless and Rural Cellular) had
been benefiting from high roaming revenues, but rates
continued to decline. Wireless stocks across the
entire industry dropped sharply. Western Wireless and
AirGate PCS (a Sprint PCS affiliate) were the two
worst detractors from the Fund's return.
We continue to like the long-term prospects of the
wireless telecommunications industry. Although we are
concerned about the poor results announced by many
wireless companies, we think that the share prices dropped
to levels that represent compelling values. We expect
wireless usage in the United States will eventually
approach the much higher rates achieved in both
Europe and Asia. The industry is suffering, however,
because there are currently too many companies
competing in the limited capacity of the
portion of the broadcast band allotted to wireless.
We expect consolidation in the industry to lift the
values of all the remaining firms. We consolidated
our exposure, selling our position in Rural Cellular
and adding at lower
4
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www.prudential.com (800) 225-1852
prices to our positions in Western Wireless (the
stronger of the companies serving the less
competitive rural market) and AirGate PCS . Our total
exposure to the industry at period-end was reduced to
less than 1% of net assets.
TWO COMPANIES WITH SHORT-TERM PROBLEMS
We had significant losses on two companies with sound
businesses that experienced problems that we believe
are limited in scope. Stillwater Mining Co., a
platinum and palladium mining company, had higher
mining and development costs than expected, a
weakened balance sheet, and soft prices for
palladium, their principal product. In addition, the
Securities and Exchange Commission tried to force the
company to reclassify its reserves. Stillwater
eventually prevailed on the reserves issue, and while
we are concerned about the future profitability of some
Stillwater operations, we expect the company's earnings
to return to acceptable levels. We think that its
financial condition is satisfactory, and the stock
appears undervalued to us.
Flowserve makes industrial pumps, valves, and seals
for a variety of end-market applications, primarily
in the chemical, energy, and power industries. We
expected its margins to grow as it assimilated
several companies it had recently acquired. We
thought that its revenue would be relatively steady
because its products eventually wear out and must be
replaced. The margins on these "aftermarket" sales
are higher than those on primary sales. After a
strong stock performance in the first half of the
Fund's reporting period, Flowserve reported
disappointing earnings as the economic slowdown led
its customers to stretch out these replacement
cycles. The share price fell substantially as a
result. The company's long-term prospects haven't
changed and we think its shares are an even better
value at the lower price. We continue to hold our
position.
WE UNDERWEIGHTED TECHNOLOGY
The good news about the Fund's technology exposure is
that it was a smaller part of the portfolio than the
sector's representation in either the Russell 2000
Index or the S&P SmallCap 600 Index. This helped the
Fund's return
5
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Prudential Small Company Fund, Inc.
Annual Report September 30, 2002
relative to those indexes. Its technology holdings
nonetheless caused a substantial detraction from the
Fund's return. The lack of enterprise investment in
technology or of upgrades in telecommunications
equipment, together with rising price competition
from Asian manufacturers, hurt a broad range of
technology companies.
Of this group, the largest detraction from the Fund's
return came from Pemstar, Inc., a contract
manufacturer of electronic components such as
handsets and defense electronics. Six of its
customers filed for bankruptcy during this period,
leaving Pemstar with inventory for which it had not
been paid. Its shares plummeted. We still hold a
small position. We believe the company is strengthening
its weakened balance sheet, will be profitable
during the next two quarters (the period for which we
have forecasts), and can survive in the long term.
CONSUMER SPENDING SUPPORTED RETAIL STOCKS
Some of the Fund's positions in retailers and their
suppliers had positive impacts on its return. We took
our profits on some of these because we suspected
that consumer-oriented stocks may lag as other
sectors recover. The largest contribution to the
Fund's return came from Pier 1 Imports. The upward
move of its shares regained strength after Pier 1
reported a quarter of above-expectation sales growth.
We sold our position before the subsequent fall in
its share price.
Big Lots, Advance Auto Parts (see Comments on Largest
Holdings for both), and Whole Foods Market also were
large positions in retail businesses that had
substantial share-price gains. We took our profits on
Whole Foods, an organic food chain. We continue to be
exposed to that growing industry with our position in
United Natural Foods, which also gained during the
Fund's reporting period.
We continued the Fund's exposure to IMAX through a
downturn when competition among theater chains drove
several into bankruptcy. The recovery
6
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www.prudential.com (800) 225-1852
that we expected in this industry has begun. We had a
substantial gain because the theater chains have
emerged from bankruptcy and are again in a position
to upgrade, and the IMAX release of Apollo 13 was a
critical and financial success. IMAX is hoping to
simultaneously release its versions when first-run
films are released. Its shares more than quadrupled
in price over the Fund's reporting period, and we
took some profits.
HEALTH SERVICE STOCKS CONTINUED TO RISE
We continue to like health service and certain
related service companies. The sector as a whole has
excellent long-term prospects because the large baby
boom generation is reaching old age. During this
reporting period, the Fund's holdings of HMOs,
hospital managers, and specialty companies such as a
drug distributor and a dialysis firm made a small net
positive contribution to its return. Two of the
Fund's largest positions at period-end, Fisher
Scientific International, Inc. and Omnicare, Inc.
(see Comments on Largest Holdings for both), were
healthcare-related. The former had a moderate gain
and the latter a small loss during this period.
OTHER CONSUMER-ORIENTED SERVICES DID WELL
The Fund had somewhat smaller gains on regional bank
and radio stocks. Regional banks, unlike the very
largest banks, had relatively little exposure to
credit or capital market-related problems. They
benefited from very low interest rates, which reduced
their costs and encouraged borrowing. In addition,
short-term interest rates were significantly lower
than long-term rates throughout the period. This
improved banks' profits, since they tend to pay
short-term rates to savers and lend at long-term
rates.
Radio advertising was more stable than expected. In
addition, the Fund's holdings gained market share
over this period. The largest contribution came from
Entravision Communications, which is a Spanish-
language operation. This is a rapidly expanding
market segment.
7
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Prudential Small Company Fund, Inc.
Annual Report September 30, 2002
LOOKING AHEAD
Profits at small companies are projected to grow
faster than those at large companies through 2002,
with an even larger advantage in 2003. This is not
surprising. Profits at small companies are more
sensitive to the health of the overall economy. When
economic growth picks up, small-company profits and
share prices historically have benefited
disproportionately. This sensitivity was evident in
both directions during this reporting period.
Shares of small companies are still less expensive
(have lower valuations) than those of larger firms.
We also believe that the current cleansing of
financial reporting will favor small-cap stocks. We
have seen the shares of some of the largest and most
respected companies in the world hurt because of
their complexity. It is harder for investors to
understand what has generated reported earnings in
complicated financial statements. With their simpler
accounting, small companies have less "accounting
risk"--risk due to unpredictable accounting issues.
Another purely financial factor is that the falling
equity market has reduced the value of pension
portfolios just when there is pressure for more
realistic accounting of pension liabilities. We think
many large companies are going to take substantial
charges to their earnings in order to fund their
pension obligations. Small companies tend to be less
exposed to this because they are less likely to have
defined benefit pension plans (plans that guarantee a
certain level of payments to retirees). Even if they
do, small companies are likely to be younger, with
less time to have built up unfunded obligations. It
can happen, however, so we consider pension
liabilities when we evaluate candidates for purchase.
We think this will become an increasingly salient
issue over the next year or so.
Prudential Small Company Fund Management Team
8
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www.prudential.com (800) 225-1852
Holdings expressed as a percentage of the Fund's net assets
Comments on Largest Holdings As of 9/30/02
------------------------------------------------------
2.2% Fisher Scientific International, Inc./
Electronic Equipment & Instruments
Fisher distributes scientific and healthcare
equipment and supplies. A large part of its business
is in consumables such as chemicals, drug packaging,
and testing kits. This business is largely
independent of the economic cycle. Fisher has used
its large cash flow to broaden its product line with
a series of acquisitions.
2.1% Big Lots, Inc./Multiline Retail
Big Lots is the largest closeout retailer in the
United States, with a dominating market share and
industry-leading gross margins (sales minus cost of
goods). However, it had very poor operating margins
(after other expenses are subtracted) because it had
grown through acquisitions and was inefficient. It
responded by rebranding its stores to the Big Lots
name and achieving economies of scale from its more
than 1,350 stores. Its shares rose erratically, but
gained more than 90% over this reporting period. We
added to our position on dips. We think that its
operating margins can improve further and that the
share price has room to grow.
2.0% Advance Auto Parts, Inc./Specialty Retail
Advance is the second largest auto parts retail chain
in the United States and continues to grow by
acquiring other firms. Like Big Lots, its margins
were depressed because of inefficiencies created by
its acquisitions. Its strong management team is
restructuring the chain to improve margins. In
addition, it is moving into the wholesale parts
business (supplying garages). We expect industry
consolidation and its own internal changes to improve
its profitability.
1.8% Apogent Technologies, Inc./Healthcare
Equipment & Supplies
Apogent makes laboratory consumables--such as
microscope slides, beakers, test kits, and diagnostic
reagents--and laboratory equipment. Its products are
used by hospitals, drug- stores, and research
laboratories. When capital spending fell, the
equipment portion of its business was weak and its
share price fell to attractive levels. Apogent has
strong cash flow and is growing through acquisitions.
Its basic business derives from research and
development spending, which tends to be sustained
throughout an economic cycle.
1.8% Omnicare,Inc./Healthcare Providers & Services
Omnicare has more than half of the U.S. market for
distributing drugs to nursing homes and assisted
living facilities. The stock became cheap when low
government reimbursement rates were threatening its
clients' profitability; reimbursement rates are now
higher. Omnicare benefits from the economies of scale
in the distribution business and from large barriers
to entry because a distributor needs an extensive
supply system. It is not dependent upon any single
drug manufacturer.
Holdings are subject to change.
9
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ANNUAL REPORT
SEPTEMBER 30, 2002
PRUDENTIAL
SMALL COMPANY FUND, INC.
FINANCIAL STATEMENTS
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM INVESTMENTS 96.8%
COMMON STOCKS
-------------------------------------------------------------------------------------
Aerospace & Defense 1.1%
214,800 Armor Holdings, Inc.(a) $ 3,219,852
217,500 BE Aerospace, Inc.(a) 1,035,300
--------------
4,255,152
-------------------------------------------------------------------------------------
Airlines 0.9%
270,200 SkyWest, Inc. 3,539,620
-------------------------------------------------------------------------------------
Auto Components 0.5%
328,000 Tower Automotive, Inc.(a) 2,197,600
-------------------------------------------------------------------------------------
Banks 2.7%
144,120 Brookline Bancorp, Inc. 1,693,554
174,100 Silicon Valley Bancshares(a) 2,947,513
96,000 Southwest Bancorporation of Texas, Inc.(a) 3,495,360
68,400 UCBH Holdings, Inc. 2,691,540
--------------
10,827,967
-------------------------------------------------------------------------------------
Beverages 1.3%
330,100 Cott Corp. (Canada)(a) 5,001,015
-------------------------------------------------------------------------------------
Chemicals 1.9%
66,900 Cambrex Corp. 2,461,920
197,900 Crompton Corp. 1,988,895
147,300 Spartech Corp. 3,116,868
--------------
7,567,683
-------------------------------------------------------------------------------------
Commercial Services & Supplies 13.7%
253,500 Alliance Data Systems Corp.(a) 3,840,525
178,300 Bright Horizons Family Solutions, Inc.(a) 4,974,570
206,700 Corporate Executive Board Co.(a) 5,901,285
118,200 Education Management Corp.(a) 5,232,714
586,100 Exult, Inc.(a) 1,728,995
265,300 Insight Enterprises, Inc.(a) 2,692,795
174,000 Iron Mountain, Inc.(a) 4,348,260
345,600 NCO Group, Inc.(a) 3,936,384
280,500 NDCHealth Corp. 4,361,775
</Table>
See Notes to Financial Statements 11
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
392,000 Pegasus Solutions, Inc.(a) $ 4,135,600
147,500 Waste Connections, Inc.(a) 5,131,525
292,100 Watson Wyatt & Co. Holdings(a) 5,842,000
200,400 West Corp.(a) 2,803,596
--------------
54,930,024
-------------------------------------------------------------------------------------
Communications Equipment 1.2%
111,000 Advanced Fibre Communications, Inc.(a) 1,472,970
176,200 CommScope, Inc.(a) 1,194,636
164,600 PC-Tel, Inc.(a) 857,566
315,950 REMEC, Inc.(a) 1,077,389
--------------
4,602,561
-------------------------------------------------------------------------------------
Diversified Financials 3.6%
145,200 Allied Capital Corp. 3,178,428
182,400 Eaton Vance Corp. 5,041,536
236,000 Gladstone Capital Corp. 3,983,680
127,400 W.P. Stewart & Co. Ltd. (Bermuda) 2,172,170
--------------
14,375,814
-------------------------------------------------------------------------------------
Diversified Telecommunication Services 0.8%
94,400 Commonwealth Telephone Enterprises, Inc.(a) 3,282,288
-------------------------------------------------------------------------------------
Electrical Equipment 0.8%
236,900 Belden, Inc. 3,179,198
-------------------------------------------------------------------------------------
Electronic Equipment & Instruments 2.8%
286,100 Fisher Scientific International, Inc.(a) 8,683,135
658,700 Pemstar, Inc.(a) 797,027
70,200 Tech Data Corp.(a) 1,853,280
--------------
11,333,442
-------------------------------------------------------------------------------------
Energy Equipment & Services 4.4%
622,000 Hanover Compressor Co.(a) 5,162,600
344,600 Maverick Tube Corp.(a) 3,056,602
</Table>
12 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
96,700 Patterson-UTI Energy, Inc.(a) $ 2,466,817
523,100 Pride International, Inc.(a) 6,800,300
--------------
17,486,319
-------------------------------------------------------------------------------------
Food & Drug Retailing 1.7%
88,033 SUPERVALU, Inc. 1,421,733
239,600 United Natural Foods, Inc.(a) 5,517,988
--------------
6,939,721
-------------------------------------------------------------------------------------
Food Products 0.3%
80,500 Chiquita Brands International, Inc.(a) 1,243,725
-------------------------------------------------------------------------------------
HealthCare Equipment & Supplies 6.3%
569,600 Align Technology, Inc.(a) 1,571,526
383,400 Apogent Technologies, Inc.(a) 7,154,244
464,100 Endocare, Inc.(a) 6,641,271
319,600 Intuitive Surgical, Inc.(a) 2,553,604
309,000 MedSource Technologies, Inc.(a) 2,323,680
203,100 Priority Healthcare Corp. Class B(a) 5,118,120
--------------
25,362,445
-------------------------------------------------------------------------------------
HealthCare Providers & Services 5.3%
162,900 Odyssey Healthcare, Inc.(a) 4,878,855
336,400 Omnicare, Inc. 7,104,768
134,000 Renal Care Group, Inc.(a) 4,407,260
122,708 Triad Hospitals, Inc.(a) 4,656,769
--------------
21,047,652
-------------------------------------------------------------------------------------
Hotels Restaurants & Leisure 2.9%
146,100 Jack in the Box, Inc.(a) 3,331,080
299,100 Speedway Motorsports, Inc.(a) 7,043,805
127,400 The Steak n Shake Co.(a) 1,401,400
--------------
11,776,285
-------------------------------------------------------------------------------------
Household Durables 1.6%
158,000 Applica, Inc.(a) 837,400
156,400 Furniture Brands International, Inc.(a) 3,589,380
55,800 The Ryland Group, Inc. 2,074,086
--------------
6,500,866
</Table>
See Notes to Financial Statements 13
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Insurance 5.7%
113,327 AmerUs Group Co. $ 3,213,954
27,100 Everest Re Group Ltd. (Barbados) 1,486,706
20,100 Markel Corp.(a) 4,003,518
294,400 Max Re Capital Ltd. (Bermuda) 2,996,992
169,400 Scottish Annuity & Life Holdings Ltd. (Bermuda)(a) 2,888,270
85,200 StanCorp Financial Group, Inc. 4,507,080
12,500 White Mountains Insurance Group Ltd. 3,681,250
--------------
22,777,770
-------------------------------------------------------------------------------------
IT Consulting & Services 0.5%
892,500 Answerthink, Inc.(a) 1,294,125
14,100 Cognizant Technology Solutions Corp.(a) 810,327
--------------
2,104,452
-------------------------------------------------------------------------------------
Leisure Equipment & Products 0.7%
624,200 Concord Camera Corp.(a) 2,908,772
-------------------------------------------------------------------------------------
Machinery 5.7%
144,150 CLARCOR, Inc. 4,425,405
417,200 Flowserve Corp.(a) 4,172,000
101,400 Graco, Inc. 2,514,720
186,100 Joy Global, Inc.(a) 1,544,630
183,200 Pentair, Inc. 6,809,544
173,935 Robbins & Myers, Inc. 3,243,888
--------------
22,710,187
-------------------------------------------------------------------------------------
Media 6.8%
416,900 Alliance Atlantis Communications, Inc. Class B
(Canada)(a) 4,135,231
92,900 Entercom Communications Corp.(a) 4,400,673
371,500 Entravision Communications Corp. Class A(a) 4,922,375
884,400 Imax Corp. (Canada)(a) 4,024,020
379,100 Insight Communications Co., Inc.(a) 3,499,093
470,700 Regent Communications, Inc.(a) 2,391,156
86,600 Scholastic Corp.(a) 3,869,288
--------------
27,241,836
</Table>
14 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Metals & Mining 1.0%
139,200 Liquidmetal Technologies(a) $ 1,112,208
461,400 Stillwater Mining Co.(a) 2,768,400
--------------
3,880,608
-------------------------------------------------------------------------------------
Multiline Retail 2.1%
534,200 Big Lots, Inc.(a) 8,456,386
-------------------------------------------------------------------------------------
Oil & Gas 3.2%
265,900 Encore Aquisition Co.(a) 4,374,055
107,200 Newfield Exploration Co.(a) 3,600,848
150,400 Remington Oil & Gas Corp.(a) 2,120,640
279,100 Swift Energy Co.(a) 2,902,640
--------------
12,998,183
-------------------------------------------------------------------------------------
Pharmaceuticals 0.5%
425,300 Impax Laboratories, Inc.(a) 2,066,958
-------------------------------------------------------------------------------------
Real Estate Investment Trust 3.7%
78,500 Alexandria Real Estate Equities, Inc. 3,334,680
165,500 Cousins Properties, Inc. 3,806,500
111,700 Kilroy Realty Corp. 2,648,407
156,100 Liberty Property Trust 4,839,100
--------------
14,628,687
-------------------------------------------------------------------------------------
Road & Rail 0.8%
170,400 Heartland Express, Inc.(a) 3,193,296
-------------------------------------------------------------------------------------
Semiconductor Equipment & Products 2.4%
206,800 Brooks-PRI Automation, Inc.(a) 2,361,656
47,400 Cabot Microelectronics Corp.(a) 1,765,176
474,700 GlobespanVirata, Inc.(a) 1,120,292
126,600 Monolithic System Technology, Inc.(a) 1,266,000
505,300 Oak Technology, Inc.(a) 1,606,854
127,600 Power Integrations, Inc.(a) 1,555,444
--------------
9,675,422
</Table>
See Notes to Financial Statements 15
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Software 4.0%
195,700 Documentum, Inc.(a) $ 2,260,335
624,100 J.D. Edwards & Co.(a) 5,772,925
183,300 Macrovision Corp.(a) 2,241,759
76,900 Manhattan Associates, Inc.(a) 1,039,688
186,500 MRO Software, Inc.(a) 1,622,550
210,900 Networks Associates, Inc.(a) 2,241,867
158,900 S1 Corp.(a) 851,704
--------------
16,030,828
-------------------------------------------------------------------------------------
Specialty Retail 4.0%
203,600 Abercrombie & Fitch Co. Class A(a) 4,004,812
152,500 Advanced Auto Parts, Inc.(a) 8,042,850
113,700 Ross Stores, Inc. 4,052,268
--------------
16,099,930
-------------------------------------------------------------------------------------
Utilities 1.2%
660,600 Aquila, Inc. 2,708,460
181,000 El Paso Electric Co.(a) 2,150,280
--------------
4,858,740
-------------------------------------------------------------------------------------
Wireless Telecommunication Services 0.7%
707,600 AirGate PCS, Inc.(a) 311,344
600,300 US Unwired, Inc. Class A(a) 420,210
852,700 Western Wireless Corp. Class A(a) 2,242,601
--------------
2,974,155
--------------
Total common stocks (cost $486,160,498) 388,055,587
--------------
WARRANT
87,500 Student Advantage, Inc.
Expires May 1, 2005(a)(b) (cost $0) 455
--------------
Total long-term investments (cost $486,160,498) 388,056,042
--------------
</Table>
16 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Portfolio of Investments as of September 30, 2002 Cont'd.
<Table>
<Caption>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 3.9%
-------------------------------------------------------------------------------------
<C> <S> <C> <C>
Mutual Fund
15,415,293 Prudential Core Investment Fund -
Taxable Money Market Series
(cost $15,415,293; Note 3) $ 15,415,293
--------------
Total Investments 100.7%
(cost $501,575,791; Note 5) 403,471,335
Liabilities in excess of other assets (0.7%) (2,774,037)
--------------
Net Assets 100% $ 400,697,298
--------------
--------------
</Table>
------------------------------
(a) Non-income producing security.
(b) Fair-valued security--value is determined by the Valuation Committee or
Board of Directors in consultation with the investment advisor.
See Notes to Financial Statements 17
<Page>
Prudential Small Company Fund, Inc.
Statement of Assets and Liabilities
<Table>
<Caption>
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (cost $501,575,791) $ 403,471,335
Cash 177,168
Receivable for investments sold 4,366,345
Receivable for Fund shares sold 267,697
Dividends receivable 244,513
Prepaid expenses 13,899
-------------------
Total assets 408,540,957
-------------------
LIABILITIES
Payable for Fund shares reacquired 4,847,255
Payable for investments purchased 2,047,249
Accrued expenses 551,169
Management fee payable 247,198
Distribution fee payable 150,788
-------------------
Total liabilities 7,843,659
-------------------
NET ASSETS $ 400,697,298
-------------------
-------------------
Net assets were comprised of:
Common stock, at par $ 363,957
Paid-in capital in excess of par 512,143,268
-------------------
512,507,225
Accumulated net realized loss on investments (13,705,471)
Net unrealized depreciation on investments (98,104,456)
-------------------
Net assets, September 30, 2002 $ 400,697,298
-------------------
-------------------
</Table>
18 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Statement of Assets and Liabilities Cont'd.
<Table>
<Caption>
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($216,955,499 / 19,016,434 shares of common stock
issued and outstanding) $11.41
Maximum sales charge (5% of offering price) .60
-------------------
Maximum offering price to public $12.01
-------------------
-------------------
Class B:
Net asset value, offering price and redemption price
per share
($100,894,177 / 10,054,828 shares of common stock
issued and outstanding) $10.03
-------------------
-------------------
Class C:
Net asset value and redemption price per share
($14,989,465 / 1,493,771 shares of common stock
issued and outstanding) $10.03
Sales charge (1% of offering price) .11
-------------------
Offering price to public $10.14
-------------------
-------------------
Class Z:
Net asset value, offering price and redemption price
per share
($67,858,157 / 5,830,705 shares of common stock
issued and outstanding) $11.64
-------------------
-------------------
</Table>
See Notes to Financial Statements 19
<Page>
Prudential Small Company Fund, Inc.
Statement of Operations
<Table>
<Caption>
Year
Ended
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT LOSS
Income
Dividends $ 3,587,619
Interest 144,173
-------------------
Total income 3,731,792
-------------------
Expenses
Management fee 3,795,767
Distribution fee--Class A 715,299
Distribution fee--Class B 1,437,480
Distribution fee--Class C 208,119
Transfer agent's fees and expenses 1,104,000
Reports to shareholders 105,000
Custodian's fees and expenses 101,000
Registration fees 60,000
Audit fee 27,000
Legal fees and expenses 25,000
Directors' fees 15,000
Miscellaneous 16,988
-------------------
Total expenses 7,610,653
-------------------
Net investment loss (3,878,861)
-------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (379,498)
Net change in unrealized depreciation on investments (47,025,373)
-------------------
Net loss on investments (47,404,871)
-------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (51,283,732)
-------------------
-------------------
</Table>
20 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Statement of Changes in Net Assets
<Table>
<Caption>
Year Ended September 30,
----------------------------------------
2002 2001
------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (3,878,861) $ (3,762,790)
Net realized gain (loss) on investment
transactions (379,498) 27,179,082
Net change in unrealized depreciation
on investments (47,025,373) (91,988,237)
------------------ ------------------
Net decrease in net assets resulting
from operations (51,283,732) (68,571,945)
------------------ ------------------
Fund share transactions (Note 6)
(net of share conversions)
Net proceeds from shares sold 141,807,870 224,948,862
Cost of shares reacquired (183,336,579) (278,777,868)
------------------ ------------------
Net decrease in net assets from Fund
share transactions (41,528,709) (53,829,006)
------------------ ------------------
Total decrease (92,812,441) (122,400,951)
NET ASSETS
Beginning of year 493,509,739 615,910,690
------------------ ------------------
End of year $ 400,697,298 $ 493,509,739
------------------ ------------------
------------------ ------------------
</Table>
See Notes to Financial Statements 21
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements
Prudential Small Company 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 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 Valuation: 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 Fund's Board
of Directors. Investments in mutual funds are valued at their net asset value as
of the close of the New York Stock Exchange on the date of valuation.
Short-term securities which mature in more than 60 days are valued based
upon current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, which approximates market value.
Repurchase Agreements: In connection with transactions in repurchase
agreements with United States financial institutions, it is the Fund's policy
that its custodian or designated subcustodians under triparty repurchase
agreements, as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. 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.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains (losses) on sales of
investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. The Fund amortizes premiums and discounts on purchases of debt securities
as adjustments to interest
22
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements
income. 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 (losses) are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day.
Taxes: It is the Fund's policy to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable net income and capital gains, if any, to shareholders. Therefore,
no federal income tax provision is required.
Dividends and Distributions: The Fund expects to pay dividends of any
net investment income semi-annually 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.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments LLC ('PI').
Pursuant to this agreement, PI has responsibility for all investment advisory
services and supervises the subadvisor's performance of such services. PI has
entered into a subadvisory agreement with Jennison Associates LLC ('Jennison').
The subadvisory agreement provides that Jennison furnish investment advisory
services in connection with the management of the Fund. PI pays for the services
of Jennison, the cost of compensation of officers and employees 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 to PI is computed daily and payable monthly, at an
annual rate of .70 of 1% of the Fund's average daily net assets.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. The Fund compensates 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 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
23
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements Cont'd.
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, 2002.
PIMS has advised the Fund that it received approximately $116,600 and
$8,900 in front-end sales charges resulting from sales of Class A and Class C
shares during the year ended September 30, 2002. From these fees, PIMS paid such
sales charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended September 30, 2002, it
received approximately $246,000 and $3,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PI, PIMS and Jennison are indirect, wholly-owned subsidiaries of
Prudential Financial, Inc. ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), is a party to a syndicated credit agreement ('SCA') with a group of
banks. For the year ended September 30, 2002, the amounts of the commitment were
as follows: $930 million from October 1, 2001 through December 31, 2001 and $500
million from January 1, 2002 through May 3, 2002. On May 3, 2002, the Funds
renewed and amended the SCA, which effectively increased the banks' commitment
to $800 million and allows the Funds to increase the commitment to $1 billion,
if necessary. Interest on any borrowings under the SCA will be incurred at
market rates. The Funds pay a commitment fee of .08 of 1% of the unused portion
of the SCA. The commitment fee is accrued and paid quarterly on a pro rata basis
by the Funds. The purpose of the SCA is to serve as an alternative source of
funding for capital share redemptions. The expiration date of the SCA is May 2,
2003. The Fund did not borrow any amounts pursuant to the SCA during the year
ended September 30, 2002.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), an affiliate of PI and an
indirect, wholly-owned subsidiary of Prudential, serves as the Fund's transfer
agent. During the year ended September 30, 2002 the Fund incurred fees of
approximately $986,000 for the services of PMFS. As of September 30, 2002
approximately $78,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to nonaffliates.
The Fund pays networking fees to Prudential Securities, Inc. ('PSI'), an
affiliate of PI and an indirect, wholly-owned subsidiary of Prudential. These
networking fees are payments made to broker/dealers that clear mutual fund
transactions through a national mutual fund clearing system. The total amount of
PSI networking fees incurred by the Fund during the year ended September 30,
2002 was approximately
24
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements
$83,500 and is included in transfer agent's fees and expenses in the Statement
of Operations. As of September 30, 2002, approximately $7,400 of such fees were
due to PSI.
The Fund invests in the Taxable Money Market Series (the 'Series'), a
portfolio of Prudential Core Investment Fund, pursuant to an exemptive order
received from the Securities and Exchange Commission. The Series is a money
market mutual fund registered under the Investment Company Act of 1940, as
amended, and managed by PI. During the year ended September 30, 2002, the Fund
earned income of $369,572 from the Series by investing its excess cash, of which
approximately $5,133 is receivable at September 30, 2002.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended September 30, 2002 were $370,664,221 and $411,483,389,
respectively.
Note 5. Distributions and Tax Information
Distributions to shareholders, which are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principals, are recorded on the ex-dividend date. In order to present
undistributed net investment income and accumulated net losses on the Statement
of Assets and Liabilities that more closely represent their tax character,
certain adjustments have been made to paid-in capital, undistributed net
investment income and accumulated net realized loss on investments. For the year
ended September 30, 2002, the adjustments were to increase undistributed net
investment income and decrease paid-in capital by $3,878,861 due to a net
operating loss. Net investment income, net realized losses and net assets were
not affected by this change.
As of September 30, 2002, the Fund had a capital loss carryforward for tax
purposes of approximately $11,493,000 which expires in 2008. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
The United States federal income tax basis of the Fund's investments and
the net unrealized depreciation as of September 30, 2002 were as follows:
<Table>
<Caption>
Tax Basis Net Unrealized
of Investments Appreciation Depreciation Depreciation
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$503,788,344 $41,154,984 $(141,471,993) $(100,317,009)
</Table>
The difference between book basis and tax basis was primarily attributable
to deferred losses on wash sales.
25
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements Cont'd.
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 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 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 a limited group of
investors.
There are 1 billion 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, Class C and Class Z shares each consist of 250
million authorized shares. As of September 30, 2002, Prudential owned 272,571
Class Z shares.
Transactions in shares of common stock were as follows:
<Table>
<Caption>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 2002:
Shares sold 5,222,799 $ 76,158,483
Shares reacquired (7,365,833) (105,711,204)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (2,143,034) (29,552,721)
Shares issued upon conversion from Class B 934,949 13,525,113
----------- -------------
Net increase (decrease) in shares outstanding (1,208,085) $ (16,027,608)
----------- -------------
----------- -------------
Year ended September 30, 2001:
Shares sold 10,031,929 $ 142,230,061
Shares reacquired (11,891,484) (168,388,091)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (1,859,555) (26,158,030)
Shares issued upon conversion from Class B 1,987,502 27,749,512
----------- -------------
Net increase (decrease) in shares outstanding 127,947 $ 1,591,482
----------- -------------
----------- -------------
<Caption>
Class B
<S> <C> <C>
Year ended September 30, 2002:
Shares sold 1,937,754 $ 25,598,424
Shares reacquired (2,508,741) (30,897,871)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (570,987) (5,299,447)
Shares reacquired upon conversion into Class A (1,059,436) (13,525,113)
----------- -------------
Net increase (decrease) in shares outstanding (1,630,423) $ (18,824,560)
----------- -------------
----------- -------------
</Table>
26
<Page>
Prudential Small Company Fund, Inc.
Notes to Financial Statements
<Table>
<Caption>
Class B Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 2001:
Shares sold 1,991,217 $ 25,046,850
Shares reacquired (3,426,408) (43,007,435)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (1,435,191) (17,960,585)
Shares reacquired upon conversion into Class A (2,234,084) (27,749,512)
----------- -------------
Net increase (decrease) in shares outstanding (3,669,275) $ (45,710,097)
----------- -------------
----------- -------------
<Caption>
Class C
----------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2002:
Shares sold 522,850 $ 6,761,168
Shares reacquired (684,914) (8,471,326)
----------- -------------
Net increase (decrease) in shares outstanding (162,064) $ (1,710,158)
----------- -------------
----------- -------------
Year ended September 30, 2001:
Shares sold 940,758 $ 11,816,134
Shares reacquired (768,066) (9,591,596)
----------- -------------
Net increase (decrease) in shares outstanding 172,692 $ 2,224,538
----------- -------------
----------- -------------
<Caption>
Class Z
----------------------------------------------------------
<S> <C> <C>
Year ended September 30, 2002:
Shares sold 2,192,489 $ 33,289,795
Shares reacquired (2,629,405) (38,256,178)
----------- -------------
Net increase (decrease) in shares outstanding (436,916) $ (4,966,383)
----------- -------------
----------- -------------
Year ended September 30, 2001:
Shares sold 3,167,531 $ 45,855,817
Shares reacquired (4,065,704) (57,790,746)
----------- -------------
Net increase (decrease) in shares outstanding (898,173) $ (11,934,929)
----------- -------------
----------- -------------
</Table>
27
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights
<Table>
<Caption>
Class A
-------------------
Year Ended
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.84
----------
Income from investment operations
Net investment income (loss) (.08)
Net realized and unrealized gain (loss) on investment
transactions (1.35)
----------
Total from investment operations (1.43)
----------
Less distributions
Distributions from net realized gains --
----------
Net asset value, end of year $ 11.41
----------
----------
TOTAL RETURN(b): (11.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 216,956
Average net assets (000) $ 286,120
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 1.22%
Expenses, excluding distribution fees and service
(12b-1) fees .97%
Net investment income (loss) (.53)%
For Class A, B, C and Z shares:
Portfolio turnover rate 72%
</Table>
------------------------------
(a) Calculated based upon average shares outstanding during the year.
(b) Total return of shares does not consider 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.
28 See Notes to Financial Statements
<PAGE>
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class A
-------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 14.52 $ 12.54 $ 13.79 $ 18.95
---------------- ---------------- ---------------- ----------------
(.06) .01 (.01) --
(1.62) 1.97 .29 (3.31)
---------------- ---------------- ---------------- ----------------
(1.68) 1.98 .28 (3.31)
---------------- ---------------- ---------------- ----------------
-- -- (1.53) (1.85)
---------------- ---------------- ---------------- ----------------
$ 12.84 $ 14.52 $ 12.54 $ 13.79
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
(11.57)% 15.70% 1.48% (18.90)%
$259,762 $291,869 $319,779 $365,431
$286,251 $284,681 $360,707 $443,189
1.31% 1.37% 1.27% 1.17%
1.06% 1.12% 1.02% .92%
(.45)% .04% (.09)% --
83% 92% 39% 36%
</Table>
See Notes to Financial Statements 29
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
-------------------
Year Ended
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.38
----------
Income from investment operations
Net investment loss (.18)
Net realized and unrealized gain (loss) on investment
transactions (1.17)
----------
Total from investment operations (1.35)
----------
Less distributions
Distributions from net realized gains --
----------
Net asset value, end of year $ 10.03
----------
----------
TOTAL RETURN(b): (11.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 100,894
Average net assets (000) $ 143,748
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 1.97%
Expenses, excluding distribution fees and service
(12b-1) fees .97%
Net investment income (loss) (1.28)%
</Table>
------------------------------
(a) Calculated based upon average shares outstanding during the year.
(b) Total return of shares does not consider 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.
30 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
-------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.97 $ 11.28 $ 12.63 $ 17.64
---------------- ---------------- ---------------- ----------------
(.15) (.08) (.10) (.12)
(1.44) 1.77 .28 (3.04)
---------------- ---------------- ---------------- ----------------
(1.59) 1.69 .18 (3.16)
---------------- ---------------- ---------------- ----------------
-- -- (1.53) (1.85)
---------------- ---------------- ---------------- ----------------
$ 11.38 $ 12.97 $ 11.28 $ 12.63
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
(12.26)% 14.88% .74% (19.52)%
$132,990 $199,149 $335,013 $514,159
$167,639 $250,061 $444,747 $678,462
2.06% 2.12% 2.02% 1.92%
1.06% 1.12% 1.02% .92%
(1.21)% (0.69)% (.82)% (.75)%
</Table>
See Notes to Financial Statements 31
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
-------------------
Year Ended
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.38
----------
Income from investment operations
Net investment loss (.18)
Net realized and unrealized gain (loss) on investment
transactions (1.17)
----------
Total from investment operations (1.35)
----------
Less distributions
Distributions from net realized gains --
----------
Net asset value, end of year $ 10.03
----------
----------
TOTAL RETURN(b): (11.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 14,989
Average net assets (000) $ 20,812
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees 1.97%
Expenses, excluding distribution fees and service
(12b-1) fees .97%
Net investment loss (1.28)%
</Table>
------------------------------
(a) Calculated based upon average shares outstanding during the year.
(b) Total return of shares does not consider 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.
32 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
-------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.97 $ 11.28 $ 12.63 $ 17.64
---------------- ---------------- ---------------- ----------------
(.15) (.08) (.10) (.12)
(1.44) 1.77 .28 (3.04)
---------------- ---------------- ---------------- ----------------
(1.59) 1.69 .18 (3.16)
---------------- ---------------- ---------------- ----------------
-- -- (1.53) (1.85)
---------------- ---------------- ---------------- ----------------
$ 11.38 $ 12.97 $ 11.28 $ 12.63
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
(12.26)% 14.88% .74% (19.52)%
$ 18,847 $ 19,236 $ 25,207 $ 26,804
$ 19,433 $ 20,159 $ 27,813 $ 29,259
2.06% 2.12% 2.02% 1.92%
1.06% 1.12% 1.02% .92%
(1.21)% (.70)% (.83)% (.75)%
</Table>
See Notes to Financial Statements 33
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
-------------------
Year Ended
September 30, 2002
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 13.07
----------
Income from investment operations
Net investment income (loss) (.04)
Net realized and unrealized gain (loss) on investment
transactions (1.39)
----------
Total from investment operations (1.43)
----------
Less distributions
Distributions from net realized gains --
----------
Net asset value, end of year $ 11.64
----------
----------
TOTAL RETURN(b): (10.94)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 67,858
Average net assets (000) $ 91,573
Ratios to average net assets:
Expenses, including distribution fees and service
(12b-1) fees .97%
Expenses, excluding distribution fees and service
(12b-1) fees .97%
Net investment income (loss) (.28)%
</Table>
------------------------------
(a) Calculated based upon average shares outstanding during the year.
(b) 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.
34 See Notes to Financial Statements
<Page>
Prudential Small Company Fund, Inc.
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
-------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 14.74 $ 12.70 $ 13.92 $ 19.04
---------------- ---------------- ---------------- ----------------
(.03) .04 .02 .04
(1.64) 2.00 .29 (3.31)
---------------- ---------------- ---------------- ----------------
(1.67) 2.04 .31 (3.27)
---------------- ---------------- ---------------- ----------------
-- -- (1.53) (1.85)
---------------- ---------------- ---------------- ----------------
$ 13.07 $ 14.74 $ 12.70 $ 13.92
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
(11.33)% 15.97% 1.70% (18.58)%
$ 81,911 $105,656 $105,355 $125,770
$ 99,657 $ 98,623 $131,013 $154,623
1.06% 1.12% 1.02% .92%
1.06% 1.12% 1.02% .92%
(.21)% .29% .16% .25%
</Table>
See Notes to Financial Statements 35
<Page>
Prudential Small Company Fund, Inc.
Report of Independent Accountants
To the Shareholders and Board of Directors of
Prudential Small Company 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 Fund, Inc.
(the 'Fund') at September 30, 2002, 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 five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 15, 2002
36
<Page>
ANNUAL REPORT
SEPTEMBER 30, 2002
PRUDENTIAL
SMALL COMPANY FUND, INC.
--------------------------------------------------------------------------------
MANAGEMENT OF
THE FUND
<Page>
Prudential Small Company Fund, Inc. www.prudential.com (800) 225-1852
Management of the Fund (Unaudited)
Information pertaining to the Directors of the Fund is set forth below.
Directors who are not deemed to be 'interested persons' of the Fund (as
defined in the 1940 Act), are referred to as 'Independent Directors.'
Directors who are deemed to be 'interested persons' of the Fund are
referred to as 'Interested Directors.' 'Fund Complex' consists of the Fund
and any other investment companies managed by Prudential Investments LLC
(PI).
Independent Directors
---------------------
<Table>
<Caption>
Number of
Term of Portfolios in
Position Office*** Fund Complex Other
with the and Length Principal Occupations Overseen by Directorships Held
Name, Address** and Age Fund of Time Served During Past 5 Years Director by the Director****
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Saul K. Fenster, Ph.D. (69) Director Since 2000 Currently President Emeritus 79 Member (since 2000),
of New Jersey Institute of Board of Directors of
Technology; formerly President IDT Corporation.
(1978-2002) of New Jersey
Institute of Technology;
Commissioner (1998-2002) of
the Middle States Association,
Commission on Higher
Education; Commissioner
(1985-2002) of the New Jersey
Commission on Science and
Technology; Trustee (since
1998) of Society of
Manufacturing Engineering
Education Foundation, formerly
a director or trustee of
Liberty Science Center, the
Research and Development
Council of New Jersey, New
Jersey State Chamber of
Commerce, and National Action
Council for Minorities in
Engineering.
Delayne Dedrick Gold (64) Director Since 1982 Marketing Consultant. 89
Douglas H. McCorkindale (63) Director Since 1996 Formerly Vice Chairman (March 75 Chairman (since
1984-May 2000) of Gannett Co. February 2001), Chief
Inc. Executive Officer
(since June 2000) and
President (since
September 1997) of
Gannett Co. Inc.
(publishing and media);
Director of Continental
Airlines, Inc.;
Director (since May
2001) of Lockheed
Martin Corp. (aerospace
and defense); Director
of The High Yield Plus
Fund, Inc. (since
1996).
</Table>
38 39
<Page>
Prudential Small Company Fund, Inc. www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Number of
Term of Portfolios in
Position Office*** Fund Complex Other
with the and Length Principal Occupations Overseen by Directorships Held
Name, Address** and Age Fund of Time Served During Past 5 Years Director by the Director****
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W. Scott McDonald, Jr. (65) Director Since 2000 Vice President (since 1997) of 79
Kaludis Consulting Group,
Inc., (company serving higher
education); formerly principal
(1995-1997) of Scott McDonald
& Associates; Chief Operating
Officer (1991-1995) of
Fairleigh Dickinson
University, Executive Vice
President and Chief Operating
Officer (1975-1991) of Drew
University; Interim President
(1988-1990), Drew University;
and a former director of
School, College and University
Underwriters Ltd.
Thomas T. Mooney (61) Director Since 1996 President of Greater Rochester 95 Director, President and
Metro Chamber of Commerce; Treasurer (since 1986)
formerly Rochester City of First Financial
Manager; formerly Deputy Fund, Inc. and Director
Monroe County Executive; (since 1988) of The
Trustee of Center for High Yield Plus Fund,
Governmental Research, Inc.; Inc.
Director of Blue Cross of
Rochester; Monroe County Water
Authority and Executive
Service Corps of Rochester.
Stephen P. Munn (60) Director Since 1991 Formerly Chief Executive 73 Chairman of the Board
Officer (1988-2001) and (since January 1994)
President of Carlisle and Director (since
Companies Incorporated. 1988) of Carlisle
Companies Incorporated
(manufacturer of
industrial products);
Director of Gannett Co.
Inc. (publishing and
media).
Richard A. Redeker (59) Director Since 1995 Formerly management consultant 73
of Invesmart, Inc. (August
2001-October 2001); formerly
employee of Prudential
Investments (October
1996-December 1998).
Robin B. Smith (63) Director Since 1996 Chairman and Chief Executive 69 Director of BellSouth
Officer (since August 1996) of Corporation (since
Publishers Clearing House 1992) and Kmart
(publishing); formerly Corporation (retail)
President and Chief Executive (since 1996).
Officer (January 1988-August
1996) of Publishers Clearing
House.
</Table>
40 41
<Page>
Prudential Small Company Fund, Inc. www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Number of
Term of Portfolios in
Position Office*** Fund Complex Other
with the and Length Principal Occupations Overseen by Directorships Held
Name, Address** and Age Fund of Time Served During Past 5 Years Director by the Director****
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Louis A. Weil, III (61) Director Since 1991 Formerly Chairman (January 73
1999-July 2000), President and
Chief Executive Officer
(January 1996-July 2000) and
Director (since September
1991) of Central Newspapers,
Inc.; formerly Chairman of the
Board (January 1996-July
2000), Publisher and Chief
Executive Officer (August
1991-December 1995) of Phoenix
Newspapers, Inc.
Clay T. Whitehead (64) Director Since 1996 President (since 1983) of 91 Director (since 2000)
P.O. Box 8090 National Exchange Inc. (new of First Financial
McLean, VA 22106-8090 business development firm). Fund, Inc. and Director
(since 2000) of The
High Yield Plus Fund,
Inc.
</Table>
Interested Directors
--------------------
<Table>
<Caption>
Number of
Term of Portfolios in
Position Office*** Fund Complex Other
with the and Length Principal Occupations Overseen by Directorships Held
Name, Address** and Age Fund of Time Served During Past 5 Years Director by the Director****
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*Robert F. Gunia (55) Vice Since 1996 Executive Vice President and 112 Vice President and
President Chief Administrative Officer Director (since May
and Director (since June 1999) of 1989) of The Asia
Prudential Investments LLC; Pacific Fund, Inc.
Executive Vice President and
Treasurer (since January 1996)
of PI, President (since April
1999) of Prudential Investment
Management Services LLC
(PIMS); Corporate Vice
President (since September
1997) of The Prudential
Insurance Company of America
(Prudential); formerly Senior
Vice President (March 1987-May
1999) of Prudential Securities
Incorporated (Prudential
Securities); formerly Chief
Administrative Officer (July
1989-September 1996), Director
(January 1989-September 1996),
and Executive Vice President,
Treasurer and Chief Financial
Officer (June 1987-September
1996) of Prudential Mutual
Fund Management, Inc. (PMF);
Vice President and Director
(since May 1992) of
Nicholas-Applegate Fund, Inc.
</Table>
42 43
<Page>
Prudential Small Company Fund, Inc. www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Number of
Term of Portfolios in
Position Office*** Fund Complex Other
with the and Length Principal Occupations Overseen by Directorships Held
Name, Address** and Age Fund of Time Served During Past 5 Years Director by the Director****
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*David R. Odenath, Jr. (45) President Since 1999 President, Chief Executive 115
and Director Officer and Chief Operating
Officer (since June 1999) of
PI; Senior Vice President
(since June 1999) of
Prudential; formerly Senior
Vice President (August
1993-May 1999) of PaineWebber
Group, Inc.
*Judy A. Rice (54) Vice Since 2000 Executive Vice President 111
President (since 1999) of PI; formerly
and Director various positions to Senior
Vice President (1992-1999),
Prudential Securities; and
various positions to Managing
Director (1975-1992) of
Salomon Smith Barney; Member
of Board of Governors of the
Money Management Institute;
Member of the Prudential
Securities Operating Council
and a Member of the Board of
Directors for the National
Association for Variable
Annuities.
</Table>
Information pertaining to the Officers of the Fund who are not also
Directors is set forth below.
Officers
--------
<Table>
<Caption>
Term of
Position Office***
with the and Length Principal Occupations
Name, Address** and Age Fund of Time Served During Past 5 Years
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grace C. Torres (43) Treasurer Since 1998 Senior Vice President (since
and January 2000) of PI; formerly
Principal First Vice President (December
Financial 1996-January 2000) of PI and
and First Vice President (March
Accounting 1993-1999) of Prudential
Officer Securities.
Maria G. Master (32) Secretary Since 2002 Vice President and Corporate
Counsel (since August 2001) of
Prudential; formerly
Financial/Economic Analyst
with the Federal Reserve Bank
of New York (April 1999-July
2001), Associate Attorney of
Swidler Berlin Shereff
Friedman LLP (March 1997-April
1999) and Associate Attorney
of Riker, Danzig, Scherer,
Hyland & Perretti LLP (August
1995-March 1997).
</Table>
44 45
<Page>
Prudential Small Company Fund, Inc. www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Term of
Position Office***
with the and Length Principal Occupations
Name, Address** and Age Fund of Time Served During Past 5 Years
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marguerite E.H. Morrison (46) Assistant Since 2002 Vice President and Chief Legal
Secretary Officer-Mutual Funds and Unit
Investment Trusts (since
August 2000) of Prudential;
Senior Vice President and
Assistant Secretary (since
February 2001) of PI; Vice
President and Assistant
Secretary of PIMS (since
October 2001), previously Vice
President and Associate
General Counsel (December
1996-February 2001) of PI and
Vice President and Associate
General Counsel (September
1987-September 1996) of
Prudential Securities.
Maryanne Ryan (38) Compliance Since 2002 Vice President, Prudential
Officer (since November 1998; First
Vice President of Prudential
Securities (March 1997-May
1998)
</Table>
------------------
<Table>
<C> <S>
* 'Interested' Director, as defined in the 1940 Act, by reason of affiliation with
the Manager (Prudential Investments LLC), the Adviser (Jennison Associates LLC)
or the Distributor (Prudential Investment Management Services LLC).
** Unless otherwise noted, the address of the Directors and officers is c/o
Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077.
*** There is no set term of office for Directors and Officers. The Independent
Directors have adopted a retirement policy, which calls for the retirement of
Directors on December 31 of the year in which they reach the age of 75. The table
shows the number of years for which they have served as a Director and/or
Officer.
**** This column includes only directorships of companies required to register or file
reports with the Commission under the Securities Exchange Act of 1934 (that is,
'public companies') or other investment companies registered under the 1940 Act.
</Table>
Additional information about the Fund's Trustees is included in the Fund's
Statement of Additional Information which is available without charge, upon
request, by calling (800) 225-1852 or (732) 482-7555 (Calling from outside the
U.S.)
46 47
<PAGE>
<Page>
www.prudential.com (800) 225-1852
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you
receive financial advice from a Prudential Securities
Financial Advisor or Pruco Securities registered
representative. Your financial professional can
provide you with the following services:
THERE'S NO REWARD WITHOUT RISK; BUT IS THIS RISK
WORTH IT?
Your financial professional can help you match the
reward you seek with the risk you can tolerate. Risk
can be difficult to gauge--sometimes even the
simplest investments bear surprising risks. The
educated investor knows that markets seldom move
in just one direction. There are times when a
market sector or asset class will lose value or
provide little in the way of total return. Managing
your own expectations is easier with help from
someone who understands the markets, and who knows
you!
KEEPING UP WITH THE JONESES
A financial professional can help you wade through
the numerous available mutual funds to find the ones
that fit your individual investment profile and
risk tolerance. While the newspapers and popular
magazines are full of advice about investing,
they are aimed at generic groups of people
or representative individuals--not at you
personally. Your financial professional will review
your investment objectives with you. This means you
can make financial decisions based on the assets and
liabilities in your current portfolio and your risk
tolerance--not just based on the current investment fad.
BUY LOW, SELL HIGH
Buying at the top of a market cycle and selling at
the bottom are among the most common investor
mistakes. But sometimes it's difficult to hold on to
an investment when it's losing value every month.
Your financial professional can answer questions when
you're confused or worried about your investment, and
should remind you that you're investing for the long
haul.
<Page>
Prudential Small Company Fund, Inc.
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For information
about these funds, contact your financial professional
or call us at (800) 225-1852. Read the prospectus
carefully before you invest or send money.
PRUDENTIAL MUTUAL FUNDS
-------------------------------------------
Stock Funds
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Index Series Fund
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Balanced/Allocation Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
Bond Funds
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Municipal Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
<Page>
www.prudential.com (800) 225-1852
Prudential Municipal Series Fund
Florida Series
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Fund
Prudential Global Total Return Fund, Inc.
Money Market Funds
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Municipal Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
New Jersey Money Market Series
New York Money Market Series
Tax-Free Money Market Funds
Command Tax-Free Fund
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Special Money Market Fund, Inc.*
Money Market Series
STRATEGIC PARTNERS
MUTUAL FUNDS**
--------------------------------------------------
Strategic Partners Asset Allocation Funds
Strategic Partners Conservative Growth Fund
Strategic Partners Moderate Growth Fund
Strategic Partners High Growth Fund
Strategic Partners Style Specific Funds
Strategic Partners
Large Capitalization Growth Fund
Strategic Partners
Large Capitalization Value Fund
Strategic Partners
Small Capitalization Growth Fund
Strategic Partners
Small Capitalization Value Fund
Strategic Partners
International Equity Fund
Strategic Partners
Total Return Bond Fund
Strategic Partners Opportunity Funds
Strategic Partners Focused Growth Fund
Strategic Partners New Era Growth Fund
Strategic Partners Focused Value Fund
Strategic Partners Mid-Cap Value Fund
Special Money Market Fund, Inc.*
Money Market Series
* This Fund is not a direct purchase money fund and
is only an exchangeable money fund.
**Not exchangeable with Prudential mutual funds.
<Page>
Prudential Small Company Fund, Inc.
Class A Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns as of 9/30/02
One Year Five Years Ten Years Since Inception
With Sales Charge -15.58% -6.60% 6.70% 8.05%
Without Sales Charge -11.14% -5.64% 7.25% 8.49%
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. The
best- and worst-year information within the graph is
designed to give you an idea of how much the Fund
returns can fluctuate from year to year by measuring
the best and worst calendar years in terms of annual
total returns for the past 10 years. The graph
compares a $10,000 investment in the Prudential Small
Company Fund, Inc. (Class A shares) with a similar
investment in the Russell 2000 Index and the Standard
& Poor's SmallCap 600 Index (S&P SmallCap 600 Index)
by portraying the initial account values at the
beginning of the 10-year period of Class A shares
(September 30, 1992) and the account values at the
end of the current fiscal year (September 30, 2002),
as measured on a quarterly basis. For purposes of the
graph, and unless otherwise indicated, it has been
assumed that (a) the maximum applicable front-end
sales charge was deducted from the initial $10,000
investment in Class A shares; (b) all recurring fees
(including management fees) were deducted; and (c)
all dividends and distributions were reinvested.
Without the distribution and service (12b-1) fee
waiver for Class A shares, the returns would have
been lower. The average annual total returns in the
table and the returns on investment in the graph do
not reflect the deduction of taxes that a shareholder
would pay on the Fund's distributions or following
the redemption of the Fund's shares.
The Russell 2000 Index is an unmanaged capital-
weighted index of the smallest 2,000 stocks among the
largest 3,000 equity-capitalized U.S. corporations
and represents approximately 8% of their aggregate
market value. The S&P SmallCap 600 Index is an
unmanaged capital-weighted index of 600 small company
U.S. common stocks that cover all industry sectors.
It gives a broad look at how small-cap stock prices
have performed. The total returns of both indexes
include the reinvestment of all dividends, but do not
include the effect of sales charges, operating
expenses, or taxes of a mutual fund. These returns
would be lower if they included the effect of sales
charges, operating expenses, or taxes. The securities
that comprise these indexes may differ substantially
from the securities in the Fund. They are not the
only indexes that may be used to characterize
performance of stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with Securities and Exchange
Commission (SEC) regulations.
<Page>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns as of 9/30/02
One Year Five Years Ten Years Since Inception
With Sales Charge -16.27% -6.50% 6.44% 8.89%
Without Sales Charge -11.86% -6.35% 6.44% 8.89%
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. The
best- and worst-year information within the graph is
designed to give you an idea of how much the Fund
returns can fluctuate from year to year by measuring
the best and worst calendar years in terms of annual
total returns for the past 10 years. The graph
compares a $10,000 investment in the Prudential Small
Company Fund, Inc. (Class B shares) with a similar
investment in the Russell 2000 Index and the S&P
SmallCap 600 Index by portraying the initial account
values at the beginning of the 10-year period of
Class B shares (September 30, 1992) and the account
values at the end of the current fiscal year
(September 30, 2002), as measured on a quarterly
basis. For purposes of the graph, and unless
otherwise indicated, it has been assumed that (a) the
maximum applicable contingent deferred sales charge
(CDSC) was deducted from the value of the investment
in Class B shares, assuming full redemption on
September 30, 2002; (b) all recurring fees (including
management fees) were deducted; and (c) all dividends
and distributions were reinvested. Approximately
seven years after purchase, Class B shares will
automatically convert to Class A shares, on a
quarterly basis. The average annual total returns in
the table and the returns on investment in the graph
do not reflect the deduction of taxes that a
shareholder would pay on the Fund's distributions or
following the redemption of the Fund's shares.
The Russell 2000 Index is an unmanaged capital-
weighted index of the smallest 2,000 stocks among the
largest 3,000 equity-capitalized U.S. corporations
and represents approximately 8% of their aggregate
market value. The S&P SmallCap 600 Index is an
unmanaged capital-weighted index of 600 small company
U.S. common stocks that cover all industry sectors.
It gives a broad look at how small-cap stock prices
have performed. The total returns of both indexes
include the reinvestment of all dividends, but do not
include the effect of sales charges, operating
expenses, or taxes of a mutual fund. These returns
would be lower if they included the effect of sales
charges, operating expenses, or taxes. The securities
that comprise these indexes may differ substantially
from the securities in the Fund. They are not the
only indexes that may be used to characterize
performance of stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with SEC regulations.
<Page>
Prudential Small Company Fund, Inc.
Class C Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns as of 9/30/02
One Year Five Years Ten Years Since Inception
With Sales Charge -13.62% -6.54% N/A 4.82%
Without Sales Charge -11.86% -6.35% N/A 4.95%
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. The
best- and worst-year information within the graph is
designed to give you an idea of how much the Fund
returns can fluctuate from year to year by measuring
the best and worst calendar years in terms of annual
total returns since inception of the share class. The
graph compares a $10,000 investment in the Prudential
Small Company Fund, Inc. (Class C shares) with a
similar investment in the Russell 2000 Index and the
S&P SmallCap 600 Index by portraying the initial
account values at the commencement of operations of
Class C shares (August 1, 1994) and the account
values at the end of the current fiscal year
(September 30, 2002), as measured on a quarterly
basis. For purposes of the graph, and unless
otherwise indicated, it has been assumed that (a) the
applicable front-end sales charge was deducted from
the initial $10,000 investment in Class C shares; (b)
the maximum applicable CDSC was deducted from the
value of the investment in Class C shares, assuming
full redemption on September 30, 2002; (c) all
recurring fees (including management fees) were
deducted; and (d) all dividends and distributions
were reinvested. The average annual total returns in
the table and the returns on investment in the graph
do not reflect the deduction of taxes that a
shareholder would pay on the Fund's distributions or
following the redemption of the Fund's shares.
The Russell 2000 Index is an unmanaged capital-
weighted index of the smallest 2,000 stocks among the
largest 3,000 equity-capitalized U.S. corporations
and represents approximately 8% of their aggregate
market value. The S&P SmallCap 600 Index is an
unmanaged capital-weighted index of 600 small company
U.S. common stocks that cover all industry sectors.
It gives a broad look at how small-cap stock prices
have performed. The total returns of both indexes
include the reinvestment of all dividends, but do not
include the effect of sales charges, operating
expenses, or taxes of a mutual fund. These returns
would be lower if they included the effect of sales
charges, operating expenses, or taxes. The securities
that comprise these indexes may differ substantially
from the securities in the Fund. They are not the
only indexes that may be used to characterize
performance of stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with SEC regulations.
<Page>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns as of 9/30/02
One Year Five Years Ten Years Since Inception
-10.94% -5.38% N/A 3.35%
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. The
best- and worst-year information within the graph is
designed to give you an idea of how much the Fund
returns can fluctuate from year to year by measuring
the best and worst calendar years in terms of annual
total returns since inception of the share class. The
graph compares a $10,000 investment in the Prudential
Small Company Fund, Inc. (Class Z shares) with a
similar investment in the Russell 2000 Index and the
S&P SmallCap 600 Index by portraying the initial
account values at the commencement of operations of
Class Z shares (March 1, 1996) and the account values
at the end of the current fiscal year (September 30,
2002), as measured on a quarterly basis. For purposes
of the graph, and unless otherwise indicated, it has
been assumed that (a) all recurring fees (including
management fees) were deducted; and (b) all dividends
and distributions were reinvested. Class Z shares are
not subject to a sales charge or distribution and
service (12b-1) fees. The average annual total
returns in the table and the returns on investment in
the graph do not reflect the deduction of taxes that
a shareholder would pay on the Fund's distributions
or following the redemption of the Fund's shares.
The Russell 2000 Index is an unmanaged capital-
weighted index of the smallest 2,000 stocks among the
largest 3,000 equity-capitalized U.S. corporations
and represents approximately 8% of their aggregate
market value. The S&P SmallCap 600 Index is an
unmanaged capital-weighted index of 600 small company
U.S. common stocks that cover all industry sectors.
It gives a broad look at how small-cap stock prices
have performed. The total returns of both indexes
include the reinvestment of all dividends, but do not
include the effect of sales charges, operating
expenses, or taxes of a mutual fund. These returns
would be lower if they included the effect of sales
charges, operating expenses, or taxes. The securities
that comprise these indexes may differ substantially
from the securities in the Fund. They are not the
only indexes that may be used to characterize
performance of stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with SEC regulations.
<Page>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's website at:
www.prudential.com
DIRECTORS
Saul K. Fenster
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
OFFICERS
David R. Odenath, Jr., President
Robert F. Gunia, Vice President
Judy A. Rice, Vice President
Grace C. Torres, Treasurer
Maria G. Master, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Maryanne Ryan, Anti-Money Laundering
Compliance Officer
MANAGER
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
INVESTMENT ADVISER
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
DISTRIBUTOR
Prudential Investment
Management Services LLC
Gateway Center Three, 14th Floor
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
PO Box 8098
Philadelphia, PA 19101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Sullivan & Cromwell
125 Broad Street
New York, NY 10004-2498
Mutual funds are not bank guaranteed or FDIC insured,
and may lose value.
Fund Symbols Nasdaq CUSIP
------------ ------- -----
Class A PGOAX 743968109
Class B CHNDX 743968208
Class C PSCCX 743968307
Class Z PSCZX 743968406
MF109E IFS-A075692
</TEXT>
</DOCUMENT>