-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhkZN7xc1yCos9PnAspc9aPQr82VwgGhjVNZATCedIdNCxsAN7LuLjUvz4d0Fg/R iaZMVAdmckZcLcDkQadWZA== 0000898733-03-000284.txt : 20030528 0000898733-03-000284.hdr.sgml : 20030528 20030528161051 ACCESSION NUMBER: 0000898733-03-000284 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030528 EFFECTIVENESS DATE: 20030528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL SMALL CO FUND INC CENTRAL INDEX KEY: 0000318531 IRS NUMBER: 133040042 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03084 FILM NUMBER: 03721792 BUSINESS ADDRESS: STREET 1: 100 MULBERRY ST CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2122141250 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL SMALL CO VALUE FUND INC DATE OF NAME CHANGE: 19971202 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL SMALL COMPANIES FUND INC DATE OF NAME CHANGE: 19961216 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL GROWTH OPPORTUNITY FUND INC DATE OF NAME CHANGE: 19950523 N-30D 1 mf16010.txt PRUDENTIAL SMALL COMPANY FUND -- 5/28/03 SEMIANNUAL REPORT MARCH 31, 2003 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) Prudential Small Company Fund, Inc. Performance at a Glance FUND OBJECTIVE The investment objective of the Prudential Small Company Fund, Inc. (the Fund) is capital growth. There can be no assurance that the Fund will achieve its investment objective. Cumulative Total Returns1 As of 3/31/03
Six Months One Year Five Years Ten Years Since Inception2 Class A 1.49% -29.00% -30.51% 73.86% 185.44% Class B 1.20 -29.51 -33.03 61.35 551.82 Class C 1.20 -29.51 -33.03 N/A 50.13 Class Z 1.63 -28.78 -29.61 N/A 26.24 Russell 2000 Index3 1.39 -26.96 -18.96 82.80 *** S&P SmallCap 600 Index4 -1.17 -24.81 -4.32 129.81 **** Lipper Small-Cap Core Funds Avg.5 -0.13 -25.83 -1.49 109.64 *****
Average Annual Total Returns1 As of 3/31/03
One Year Five Years Ten Years Since Inception2 Class A -32.55% -7.97% 5.15% 7.86% Class B -33.04 -7.87 4.90 8.74 Class C -30.92 -7.89 N/A 4.68 Class Z -28.78 -6.78 N/A 3.35 Russell 2000 Index3 -26.96 -4.12 6.22 *** S&P SmallCap 600 Index4 -24.81 -0.88 8.68 **** Lipper Small-Cap Core Funds Avg.5 -25.83 -1.42 7.26 *****
Past performance is not indicative of future results. Principal value 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 applicable sales charges. The average annual total returns do take into account applicable sales charges. Without the distribution and service (12b-1) fee waiver of 0.05% for Class A shares annually, the returns would have been lower. The Fund charges a maximum front-end sales charge of 5% for Class A shares in most circumstances, and a 12b-1 fee of up to 0.30% annually. In some circumstances, Class A shares may not be subject to a front-end sales charge, but may be subject to a 1% contingent deferred sales charge (CDSC) for the first year. Class B shares are subject to a declining CDSC of 5%, 4%, 3%, 2%, 1%, and 1% for the first six years respectively after purchase, and a 12b-1 fee of 1.00% annually. 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%, a CDSC of 1% for shares redeemed within 18 months of purchase, and a 12b-1 fee of 1.00% annually. Class Z shares are not subject to a sales charge or 12b-1 fee. The returns in the tables 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 equity-capitalized 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 the common stocks of 600 smaller U. S. companies that cover all industry sectors. It gives a broad look at how small-cap stock prices have performed. 5The Lipper Small-Cap Core Funds Average (Lipper Average) represents returns based on an average www.prudential.com (800) 225-1852 Semiannual Report March 31, 2003 return of all funds in the Lipper Small-Cap Core Funds category for the periods noted. Funds in the Lipper Average typically have an above-average price/earnings ratio, price-to-book ratio, and three- year sales-per-share growth value compared to the S&P SmallCap 600 Index. Investors cannot invest directly in an index. The returns for the Russell 2000 Index, the S&P SmallCap 600 Index, and Lipper Average would be lower if they included the effects of sales charges, operating expenses of a mutual fund, or taxes. Returns for the Lipper Average reflect the deduction of operating expenses of a mutual fund, but not sales charges or taxes. ***The Russell 2000 Index Since Inception cumulative total returns are 190.84% for Class A, 670.36% for Class B, 68.67% for Class C, and 23.44% for Class Z. The Russell 2000 Index Since Inception average annual total returns are 8.45% for Class A, 9.54% for Class B, 6.22% for Class C, and 3.02% for Class Z. ****The S&P SmallCap 600 Index Since Inception cumulative total returns are 259.61% for Class A, 421.17% for Class B, 118.09% for Class C, and 56.44% for Class Z. The S&P SmallCap 600 Index Since Inception average annual total returns are 10.21% for Class A, 9.04% for Class B, 9.41% for Class C, and 6.52% for Class Z. The S&P SmallCap 600 Index began 2/29/84, therefore the returns for Class B shares represent an inception from that time until present (3/31/03). *****Lipper Average Since Inception cumulative total returns are 234.32% for Class A, 666.06% for Class B, 100.28% for Class C, and 55.47% for Class Z. Lipper Average Since Inception average annual total returns are 9.12% for Class A, 8.50% for Class B, 7.93% for Class C, and 5.76% for Class Z. Portfolio Composition Expressed as a percentage of net assets as of 3/31/03. 21.1% Industrials 19.0 Consumer Discretionary 15.2 Financials 12.4 Healthcare 9.9 Information Technology 7.7 Energy 3.6 Consumer Staples 2.6 Materials 2.6 Telecommunication Services 0.5 Utilities 5.4 Cash & Equivalents Portfolio composition is subject to change. Five Largest Holdings Expressed as a percentage of net assets as of 3/31/03. 2.1% Fisher Scientific International, Inc. Electronic Equipment & Instruments 2.1 Advance Auto Parts, Inc. Specialty Retail 1.8 Speedway Motorsports, Inc. Hotels, Restaurants, & Leisure 1.8 Priority Healthcare Corp. Healthcare Providers & Services 1.7 Pride International, Inc. Energy Equipment & Services Holdings are subject to change. 1 PRUDENTIAL FINANCIAL (LOGO) May 15, 2003 DEAR SHAREHOLDER, During the Prudential Small Company Fund's semiannual reporting period--the six months between October 2002 and March 2003--some stocks recovered from their earlier steep decline, but sector performance varied widely. The Fund's return was in line with the Russell 2000 Index and ahead of the Lipper Small-Cap Core Funds Average. The Fund held a balance of value and growth stocks that may have helped its relative performance. In the following report, the Fund's adviser describes how its individual holdings fared. In March 2003 I was named president of the Prudential Small Company Fund. I am pleased to be associated with a high-quality product that is based on consistent investment discipline--a point of stability in today's turbulent markets. The large swings of stock prices during the Fund's reporting period suggest that some people abandoned their investment plans because of market turbulence or economic and geopolitical uncertainty. At Prudential Financial, we recommend that you make any change to your investment strategy in consultation with a financial professional, and that you base it on sound principles. We appreciate your continued confidence in Prudential mutual funds. Sincerely, Judy A. Rice, President Prudential Small Company Fund, Inc. 2 Prudential Small Company Fund, Inc. Semiannual Report March 31, 2003 INVESTMENT ADVISER'S REPORT IT WAS AN UP-AND-DOWN INVESTING ENVIRONMENT After the long summer decline, stocks rebounded in October and November 2002. Some analysts attributed this to pent-up buying pressure that had been hidden by war-related uncertainty. Others noted that the larger percentage gains were made by "beaten-down" stocks, and so were measured against very low initial share prices. As uncertainty about war in Iraq and its consequences increased, the market gave up most of its gain. There was a brief upswing in March when war in Iraq became imminent and many investors expected the war to be brief. However, the markets declined again in the last weeks of the reporting period as it appeared that geopolitical uncertainty would extend for weeks or months, and that it was slowing economic recovery. Our focus on earnings growth contributed to the Fund's performance. It led us to emphasize commercial services firms, particularly companies that are well positioned to benefit from the trend toward outsourcing. The Fund also had positions in stocks that had dropped to very inexpensive levels because short-term difficulties overshadowed the companies' steady improvement in earnings. Several of these positions rose substantially from their lows. The Fund's gains were partially offset by losses, particularly on media companies and some specialized medical services firms. SOME COMMERCIAL SERVICES STOCKS HAD LARGE GAINS Service firms are often relatively insensitive to economic cycles because they provide services on continuing contracts. Moreover, many services don't require huge initial capital investments, so returns on capital can be substantial. Investors seemed to value these qualities more during this reporting period. The largest contributions to the Fund's return came from Iron Mountain (secure data storage), The Corporate Executive Board Company (best practices research and consulting), and NCO Group (debt collection). 3 Prudential Small Company Fund, Inc. Semiannual Report March 31, 2003 SOME REBOUNDS Several of the Fund's holdings more than doubled in value as their share prices rebounded from prior sell-offs. After huge declines in the steeply falling markets, stocks didn't have to recover much of their prior share prices to mark large percentage gains. Although the Fund's exposure to any one of these stocks was modest, positions in Western Wireless, Maverick Tube, and Exult were among the largest contributors to its return. Western Wireless provides cellular telephone service in rural areas and benefits from high roaming revenues. It reported higher-than-expected earnings, a stabilized competitive environment, and a large increase in cash flow from the Universal Service Fund (the subsidy to rural service providers). Maverick Tube makes specialized metal sheathing for oil and gas drilling rigs. Its earnings are sensitive to the amount of drilling, and its share price benefited from the recent spike in the price of energy commodities. Exult is a relatively young company that offers human resource outsourcing services. Its shares fell during a few unprofitable calendar quarters, but rose as its profitability improved. HEALTHCARE STOCKS WERE MIXED We continue to like health services and certain related service companies. The sector as a whole has excellent long-term prospects as the large baby boom generation ages. Many of these companies also benefit from the low capital investment and recurring revenues typical of service companies. The positive contributors during this period included Omnicare (pharmaceutical distribution and services to nursing homes), Align Technology (orthodontic technology), and Odyssey HealthCare (hospices). In contrast, health equipment companies were among the largest detractors from return. The greatest impact came from Endocare, which makes a drug used in tumor extraction, particularly for prostate cancer. Its shares fell, not because of a fundamental business issue, but because Endocare's auditor withdrew its endorsement of the firm's financial statements while investigating an employee's accusation. A forensic audit vindicated Endocare's 4 www.prudential.com (800) 225-1852 Semiannual Report March 31, 2003 accounting and it retained a new auditor. Its sales continue to improve. At a market value below the amount of cash on its balance sheet, its stock was a compelling value at period-end. Much smaller detractions came from other stocks that we believe were hurt by short-term issues. For example, MedSource Technologies (contract manufacturing of medical equipment) appears to have had difficulty holding its customers while reducing its costs. It reported a substantially reduced sales outlook for the second half of its fiscal year. We think it will be able to balance productivity and sales concerns profitably. Apogent Technologies (medical supplies and diagnostic equipment, including the e.p.t. pregnancy test) sold off on concerns that its growth was slowing, but its excellent long-term track record gives us confidence in the firm. MEDIA ALSO HURT Scholastic shares fell as the company reported poor results in its in-school book club and reduced its earnings guidance for the rest of its fiscal year. We still like the firm's book club and the rising sales estimates for its Harry Potter book due this fall. The profits of Entravision Communications, a Hispanic broadcasting network, disappointed investors. Higher costs and acquisitions of small TV stations in new markets diluted its current earnings. Demographic trends create favorable growth prospects for Entravision, and its revenues continue to rise faster than the industry average, but we are watching how well its management exploits these opportunities. LOOKING AHEAD We are emphasizing consumer staples and healthcare services, companies with relatively stable recurring revenues, and commercial services--a sector that continues to benefit from corporate outsourcing. The revenues of companies in this sector are less dependent upon economic recovery than most. We also retain a focus on stocks that we believe can benefit from sustained high energy prices. Prudential Small Company Fund, Inc. Management Team - ------------------------------------------------------ The Portfolio of Investments following this report shows the size of the Fund's positions at period-end. 5 Prudential Small Company Fund, Inc. Holdings expressed as a percentage of the Fund's net assets Comments on Largest Holdings As of 3/31/03 - ---------------------------------------------------- 2.1% 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, which are largely independent of the economic cycle. Fisher has used its large cash flow to broaden its product line with a series of acquisitions. Its shares were inexpensively priced. 2.1% 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. It has above-average revenue and profit margin growth. Many of the products it sells are used in regular automobile maintenance. 1.8% Speedway Motorsports, Inc./Hotels, Restaurants, & Leisure Speedway owns six stock-car racetracks on which NASCAR and other racing league competitions are held. Stock-car racing is among the most popular spectator sports in the United States, and its audience is increasing. An alliance with the Fox Network enhanced its popularity and is escalating its prices. It has shown consistent earnings growth. Most of its expenses are fixed; incremental revenue is largely profit. 1.8% Priority Healthcare Corp./Healthcare Providers & Services Priority Healthcare is a specialty drug distributor that offers overnight service of unstockable supplies to more than 4,000 medical service providers. It also delivers primarily self-injectable biopharmaceuticals and disease-management supplies to patients. Its earnings have grown more than 30% a year. It benefits from the trend toward more complex drugs that often have short shelf lives or require specialized storage and transportation. 1.7% Pride International, Inc./Energy Equipment & Services Pride International is one of the world's largest oil and gas drilling contractors. It is diversified in deep water, shallow water, and land drilling services. Its share price tends to follow the prices of energy commodities. Holdings are subject to change. 6 Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited)
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 94.6% COMMON STOCKS - ------------------------------------------------------------------------------------- Aerospace & Defense 0.1% 40,200 Armor Holdings, Inc.(a) $ 402,000 - ------------------------------------------------------------------------------------- Airlines 0.8% 286,500 SkyWest, Inc. 2,953,815 - ------------------------------------------------------------------------------------- Auto Components 0.2% 342,400 Tower Automotive, Inc.(a) 811,488 - ------------------------------------------------------------------------------------- Banks 2.7% 147,320 Brookline Bancorp, Inc. 1,844,446 139,900 Silicon Valley Bancshares(a) 2,544,781 88,400 Southwest Bancorporation of Texas, Inc.(a) 2,654,652 74,500 UCBH Holdings, Inc. 3,276,510 -------------- 10,320,389 - ------------------------------------------------------------------------------------- Beverages 1.1% 233,800 Cott Corp. (Canada)(a) 4,103,190 - ------------------------------------------------------------------------------------- Chemicals 2.4% 130,400 Cabot Corp. 3,111,344 109,200 Cambrex Corp. 2,622,984 170,300 Spartech Corp. 3,293,602 -------------- 9,027,930 - ------------------------------------------------------------------------------------- Commercial Services & Supplies 13.1% 255,300 Alliance Data Systems Corp.(a) 4,340,100 138,200 Bright Horizons Family Solutions, Inc.(a) 3,872,364 143,900 Corporate Executive Board Co.(a) 5,125,718 99,100 Education Management Corp.(a) 3,941,207 248,100 Exult, Inc.(a) 1,818,573 99,200 Iron Mountain, Inc.(a) 3,794,400 411,100 NCO Group, Inc.(a) 5,960,950 302,100 NDCHealth Corp. 5,066,217 400,200 Pegasus Solutions, Inc.(a) 4,482,240
See Notes to Financial Statements 7 Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited) Cont'd.
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 53,100 Waste Connections, Inc.(a) $ 1,831,950 259,600 Watson Wyatt & Co. Holdings(a) 5,217,960 212,500 West Corp.(a) 3,759,125 -------------- 49,210,804 - ------------------------------------------------------------------------------------- Communications Equipment 0.9% 164,600 PC-Tel, Inc.(a) 1,483,046 364,150 REMEC, Inc.(a) 1,747,920 -------------- 3,230,966 - ------------------------------------------------------------------------------------- Diversified Financials 3.5% 123,750 Allied Capital Corp. 2,472,525 167,000 Eaton Vance Corp. 4,463,910 236,000 Gladstone Capital Corp. 3,794,880 138,600 W.P. Stewart & Co. Ltd. (Bermuda) 2,360,358 -------------- 13,091,673 - ------------------------------------------------------------------------------------- Diversified Telecommunication Services 1.0% 99,800 Commonwealth Telephone Enterprises, Inc.(a) 3,874,236 - ------------------------------------------------------------------------------------- Electrical Equipment 0.7% 236,900 Belden, Inc. 2,546,675 - ------------------------------------------------------------------------------------- Electronic Equipment & Instruments 1.3% 733,000 Pemstar, Inc.(a) 1,605,270 75,100 Tech Data Corp.(a) 1,797,894 86,300 Tektronix, Inc.(a) 1,480,045 -------------- 4,883,209 - ------------------------------------------------------------------------------------- Energy Equipment & Services 4.0% 622,000 Hanover Compressor Co.(a) 4,043,000 152,400 Maverick Tube Corp.(a) 2,834,640 53,000 Patterson-UTI Energy, Inc.(a) 1,715,080 472,700 Pride International, Inc.(a) 6,376,723 -------------- 14,969,443
8 See Notes to Financial Statements Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited) Cont'd.
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Food & Drug Retailing 1.4% 132,133 SUPERVALU, Inc. $ 2,048,062 124,600 United Natural Foods, Inc.(a) 3,177,300 -------------- 5,225,362 - ------------------------------------------------------------------------------------- Food Products 1.1% 390,000 Chiquita Brands International, Inc.(a) 4,278,300 - ------------------------------------------------------------------------------------- Health Care Equipment & Supplies 5.3% 355,100 Align Technology, Inc.(a) 2,148,355 401,600 Apogent Technologies, Inc.(a) 5,855,328 483,000 Endocare, Inc.(a) 1,183,350 280,800 Fisher Scientific International, Inc.(a) 7,851,168 326,900 Intuitive Surgical, Inc.(a) 2,111,774 373,300 MedSource Technologies, Inc.(a) 675,673 -------------- 19,825,648 - ------------------------------------------------------------------------------------- Health Care Providers & Services 7.1% 101,000 AMERIGROUP Corp.(a) 2,955,260 110,700 LifePoint Hospitals, Inc.(a) 2,779,677 167,700 Odyssey Healthcare, Inc.(a) 3,986,229 232,100 Omnicare, Inc. 6,315,441 248,300 Priority Healthcare Corp. Class B(a) 6,617,195 144,908 Triad Hospitals, Inc.(a) 3,898,025 -------------- 26,551,827 - ------------------------------------------------------------------------------------- Hotels Restaurants & Leisure 2.8% 182,500 Ruby Tuesday, Inc. 3,723,000 290,000 Speedway Motorsports, Inc. 6,841,100 -------------- 10,564,100 - ------------------------------------------------------------------------------------- Household Durables 2.0% 79,100 Applica, Inc. 386,799 159,100 Furniture Brands International, Inc.(a) 3,111,996 90,000 The Ryland Group, Inc. 3,887,100 -------------- 7,385,895 - ------------------------------------------------------------------------------------- Insurance 5.5% 54,427 AmerUs Group Co. 1,335,639
See Notes to Financial Statements 9 Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited) Cont'd.
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 8,700 Markel Corp.(a) $ 1,946,190 281,700 Max Re Capital Ltd. (Bermuda) 3,549,420 28,100 RLI Corp. 755,047 199,900 Scottish Annuity & Life Holdings Ltd. (Bermuda) 3,482,258 101,000 StanCorp Financial Group, Inc. 5,206,550 13,400 White Mountains Insurance Group Ltd. 4,556,000 -------------- 20,831,104 - ------------------------------------------------------------------------------------- Internet & Catalog Retail 1.0% 534,000 Insight Enterprises, Inc.(a) 3,764,700 - ------------------------------------------------------------------------------------- Internet Software & Services 0.5% 384,400 S1 Corp.(a) 1,968,128 - ------------------------------------------------------------------------------------- IT Consulting & Services 2.0% 892,500 Answerthink, Inc.(a) 1,963,500 59,800 Anteon International Corp.(a) 1,342,510 348,400 BearingPoint, Inc.(a) 2,219,308 122,400 Manhattan Associates, Inc.(a) 2,145,672 -------------- 7,670,990 - ------------------------------------------------------------------------------------- Leisure Equipment & Products 0.7% 494,000 Concord Camera Corp.(a) 2,474,940 - ------------------------------------------------------------------------------------- Machinery 5.3% 102,350 CLARCOR, Inc. 3,705,070 285,200 Flowserve Corp.(a) 3,322,580 70,500 Graco, Inc. 1,981,050 290,100 Joy Global, Inc.(a) 3,141,783 156,500 Pentair, Inc. 5,532,275 178,135 Robbins & Myers, Inc. 2,397,697 -------------- 20,080,455 - ------------------------------------------------------------------------------------- Media 6.5% 416,900 Alliance Atlantis Communications, Inc. Class B (Canada)(a) 3,439,425 50,800 Entercom Communications Corp.(a) 2,230,628 274,600 Entravision Communications Corp. Class A(a) 1,482,840 231,700 Gray Television, Inc. 2,085,300
10 See Notes to Financial Statements Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited) Cont'd.
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 884,400 Imax Corp. (Canada)(a) $ 4,324,716 379,100 Insight Communications Co., Inc.(a) 4,530,245 470,700 Regent Communications, Inc.(a) 2,235,825 157,000 Scholastic Corp.(a) 4,223,300 -------------- 24,552,279 - ------------------------------------------------------------------------------------- Metals & Mining 0.2% 139,200 Liquidmetal Technologies(a) 754,464 - ------------------------------------------------------------------------------------- Multiline Retail 1.6% 523,700 Big Lots, Inc.(a) 5,891,625 - ------------------------------------------------------------------------------------- Multi-Utilities 0.5% 816,700 Aquila, Inc. 1,698,736 - ------------------------------------------------------------------------------------- Oil & Gas 3.7% 222,300 Encore Aquisition Co.(a) 4,101,435 81,800 Newfield Exploration Co.(a) 2,772,202 186,100 Remington Oil & Gas Corp.(a) 3,169,283 116,500 Spinnaker Exploration Co.(a) 2,262,430 175,200 Swift Energy Co.(a) 1,490,952 -------------- 13,796,302 - ------------------------------------------------------------------------------------- Pharmaceuticals 0.4% 297,800 Impax Laboratories, Inc.(a) 1,337,122 - ------------------------------------------------------------------------------------- Real Estate 3.4% 78,500 Alexandria Real Estate Equities, Inc. 3,300,925 125,100 Cousins Properties, Inc. 3,233,835 94,000 Kilroy Realty Corp. 2,077,400 136,500 Liberty Property Trust 4,272,450 -------------- 12,884,610 - ------------------------------------------------------------------------------------- Road & Rail 1.1% 221,300 Heartland Express, Inc.(a) 4,244,534 - ------------------------------------------------------------------------------------- Semiconductor Equipment & Products 2.0% 193,700 Brooks Automation, Inc.(a) 1,873,079 55,300 Cabot Microelectronics Corp.(a) 2,315,411
See Notes to Financial Statements 11 Prudential Small Company Fund, Inc. Portfolio of Investments as of March 31, 2003 (Unaudited) Cont'd.
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 190,500 Monolithic System Technology, Inc.(a) $ 1,341,120 103,300 Power Integrations, Inc.(a) 2,141,409 -------------- 7,671,019 - ------------------------------------------------------------------------------------- Software 2.9% 122,400 Documentum, Inc.(a) 1,605,888 306,700 J.D. Edwards & Co.(a) 3,379,834 212,500 MRO Software, Inc.(a) 1,457,750 179,100 Networks Associates, Inc.(a) 2,473,371 45,000 Synopsys, Inc.(a) 1,915,200 -------------- 10,832,043 - ------------------------------------------------------------------------------------- Specialty Retail 3.9% 137,900 Abercrombie & Fitch Co. Class A(a) 4,141,137 169,700 Advanced Auto Parts, Inc.(a) 7,848,625 94,700 Cost Plus, Inc.(a) 2,492,504 -------------- 14,482,266 - ------------------------------------------------------------------------------------- Textiles & Apparel 0.4% 62,700 Polo Ralph Lauren Corp.(a) 1,435,830 - ------------------------------------------------------------------------------------- Wireless Telecommunication Services 1.5% 1,016,000 Western Wireless Corp. Class A(a) 5,709,920 -------------- Total long-term investments (cost $407,432,751) 355,338,017 -------------- SHORT-TERM INVESTMENT 4.8% - ------------------------------------------------------------------------------------- Mutual Fund 17,854,437 Prudential Core Investment Fund - Taxable Money Market Series (cost $17,854,437; Note 3) 17,854,437 -------------- Total Investments 99.4% (cost $425,287,188; Note 5) 373,192,454 Other assets in excess of liabilities 0.6% 2,374,939 -------------- Net Assets 100% $ 375,567,393 -------------- --------------
- ------------------------------ (a) Non-income producing security. 12 See Notes to Financial Statements This page intentionally left blank Prudential Small Company Fund, Inc. Statement of Assets and Liabilities (Unaudited)
March 31, 2003 - --------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $425,287,188) $ 373,192,454 Cash 81,283 Receivable for investments sold 4,046,533 Dividends and interest receivable 275,002 Receivable for Fund shares sold 267,302 Prepaid expenses 11,397 --------------- Total assets 377,873,971 --------------- LIABILITIES Payable for Fund shares reacquired 825,899 Accrued expenses 639,367 Payable for investments purchased 492,086 Management fee payable 221,441 Distribution fee payable 127,785 --------------- Total liabilities 2,306,578 --------------- NET ASSETS $ 375,567,393 --------------- --------------- Net assets were comprised of: Common stock, at par $ 335,036 Paid-in capital in excess of par 481,183,697 --------------- 481,518,733 Net investment loss (1,450,816) Accumulated net realized loss on investments (52,405,790) Net unrealized depreciation on investments (52,094,734) --------------- Net assets, March 31, 2003 $ 375,567,393 --------------- ---------------
14 See Notes to Financial Statements Prudential Small Company Fund, Inc. Statement of Assets and Liabilities (Unaudited) Cont'd.
March 31, 2003 - --------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($212,526,391 / 18,355,411 shares of common stock issued and outstanding) $11.58 Maximum sales charge (5% of offering price) .61 --------------- Maximum offering price to public $12.19 --------------- --------------- Class B: Net asset value, offering price and redemption price per share ($83,884,985 / 8,268,109 shares of common stock issued and outstanding) $10.15 --------------- --------------- Class C: Net asset value and redemption price per share ($13,322,429 / 1,313,128 shares of common stock issued and outstanding) $10.15 Sales charge (1% of offering price) .10 --------------- Offering price to public $10.25 --------------- --------------- Class Z: Net asset value, offering price and redemption price per share ($65,833,588 / 5,566,969 shares of common stock issued and outstanding) $11.83 --------------- ---------------
See Notes to Financial Statements 15 Prudential Small Company Fund, Inc. Statement of Operations (Unaudited)
Six Months Ended March 31, 2003 - --------------------------------------------------------------------------------------- NET INVESTMENT LOSS Income Dividends $ 1,483,446 -------------- Expenses Management fee 1,382,367 Distribution fee--Class A 273,809 Distribution fee--Class B 468,101 Distribution fee--Class C 72,627 Transfer agent's fees and expenses 503,000 Reports to shareholders 94,000 Custodian's fees and expenses 55,000 Registration fees 32,000 Legal fees and expenses 20,000 Audit fee 13,000 Directors' fees 8,000 Miscellaneous 12,358 -------------- Total expenses 2,934,262 -------------- Net investment loss (1,450,816) -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investment transactions (38,700,319) Net change in unrealized depreciation on investments 46,009,722 -------------- Net gain on investments 7,309,403 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,858,587 -------------- --------------
16 See Notes to Financial Statements Prudential Small Company Fund, Inc. Statement of Changes in Net Assets (Unaudited)
Six Months Year Ended Ended March 31, 2003 September 30, 2002 - ------------------------------------------------------------------------------------ DECREASE IN NET ASSETS Operations Net investment loss $ (1,450,816) $ (3,878,861) Net realized loss on investment transactions (38,700,319) (379,498) Net change in unrealized depreciation on investments 46,009,722 (47,025,373) ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 5,858,587 (51,283,732) ------------------ ------------------ Fund share transactions (Note 6) (net of share conversions) Net proceeds from shares sold 32,550,455 141,807,870 Cost of shares reacquired (63,538,947) (183,336,579) ------------------ ------------------ Net decrease in net assets from Fund share transactions (30,988,492) (41,528,709) ------------------ ------------------ Total decrease (25,129,905) (92,812,441) NET ASSETS Beginning of period 400,697,298 493,509,739 ------------------ ------------------ End of period $ 375,567,393 $ 400,697,298 ------------------ ------------------ ------------------ ------------------
See Notes to Financial Statements 17 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited) 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: Securities traded on an exchange and NASDAQ National Market securities are valued at the last sale price on such exchange on the day of valuation or, if there was no sale on such day, at the mean between the last reported bid and asked prices or at the last bid price on such day in the absence of an asked price. Securities traded in the over-the-counter market, including securities listed on exchanges whose primary market is believed to be over-the-counter, are valued at market value using prices provided by an independent pricing agent or principal market maker. Securities for which market quotations are not readily available or for which the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the Manager or subadviser, does not represent fair value, are valued at fair value by a Valuation Committee appointed by the Board of Directors, in consultation with the Manager or applicable subadviser. Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost which approximates market value. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized and unrealized 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 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 continue 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. 18 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited) 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 Company 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 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 six months ended March 31, 2003. PIMS has advised the Fund that it received approximately $19,100 and $1,800 in front-end sales charges resulting from sales of Class A and Class C shares during the six months ended March 31, 2003. From these fees, PIMS paid such sales charges to affiliated broker-dealers, which in turn paid commissions to salespersons and incurred other distribution costs. 19 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. PIMS has advised the Fund that for the six months ended March 31, 2003, it received approximately $87,300 and $1,300 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 six months ended March 31, 2003, the SCA provides for a commitment of $800 million and allows the Funds to increase the commitment to $1 billion, if necessary. Interest on any borrowings will be 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 expiration date of the SCA is May 2, 2003. The Fund did not borrow any amounts pursuant to the SCA during the six months ended March 31, 2003. On May 2, 2003, the SCA was renewed under the same terms and conditions ('May 2003 renewal'). The expiration date of the May 2003 renewal is April 30, 2004. 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 six months ended March 31, 2003 the Fund incurred fees of approximately $443,500 for the services of PMFS. As of March 31, 2003 approximately $69,600 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 affiliated and unaffiliated broker/dealers. These networking fees are payments made to broker/dealers that clear mutual fund transactions through a national clearing system. The Fund incurred approximately $54,500 in total networking fees of which the amount relating to the services of Prudential Securities, Inc. ('PSI'), an affiliate of PI and an indirect, wholly owned subsidiary of Prudential was approximately $52,400 for the period ended March 31, 2003. As of March 31, 2003, approximately $9,900 of such fees were due to PSI. These amounts are included in transfer agent's fees and expenses in the Statement of Operations. 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 six months ended March 31, 2003, the Fund earned income of 20 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited) $94,031 from the Series by investing its excess cash, of which approximately $5,107 is receivable at March 31, 2003. Note 4. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the six months ended March 31, 2003 were $81,601,155 and $121,546,902, respectively. Note 5. Tax Information For federal income tax purposes, the Fund had a capital loss carryforward at September 30, 2002 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 March 31, 2003 were as follows:
Tax Basis Net Unrealized of Investments Appreciation Depreciation Depreciation - ---------------- ---------------- ---------------- ---------------- $429,913,156 $32,072,176 $(88,792,878) $(56,720,702)
The difference between book basis and tax basis was primarily attributable to deferred losses on wash sales. 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 March 31, 2003, Prudential owned 281,675 Class Z shares. 21 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Transactions in shares of common stock were as follows:
Class A Shares Amount - ---------------------------------------------------------- ----------- ------------- Six months ended March 31, 2003: Shares sold 1,489,522 $ 17,571,205 Shares reacquired (2,556,107) (29,917,881) ----------- ------------- Net increase (decrease) in shares outstanding before conversion (1,066,585) (12,346,676) Shares issued upon conversion from Class B 405,562 4,715,566 ----------- ------------- Net increase (decrease) in shares outstanding (661,023) $ (7,631,110) ----------- ------------- ----------- ------------- 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) ----------- ------------- ----------- ------------- Class B - ---------------------------------------------------------- Six months ended March 31, 2003: Shares sold 295,256 $ 3,062,935 Shares reacquired (1,619,769) (16,642,901) ----------- ------------- Net increase (decrease) in shares outstanding before conversion (1,324,513) (13,579,966) Shares reacquired upon conversion into Class A (462,206) (4,715,566) ----------- ------------- Net increase (decrease) in shares outstanding (1,786,719) $ (18,295,532) ----------- ------------- ----------- ------------- 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) ----------- ------------- ----------- ------------- Class C - ---------------------------------------------------------- Six months ended March 31, 2003: Shares sold 309,252 $ 3,170,392 Shares reacquired (489,895) (5,030,922) ----------- ------------- Net increase (decrease) in shares outstanding (180,643) $ (1,860,530) ----------- ------------- ----------- ------------- 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) ----------- ------------- ----------- -------------
22 Prudential Small Company Fund, Inc. Notes to Financial Statements (Unaudited)
Class Z Shares Amount - ---------------------------------------------------------- ----------- ------------- Six months ended March 31, 2003: Shares sold 734,155 $ 8,745,923 Shares reacquired (997,891) (11,947,243) ----------- ------------- Net increase (decrease) in shares outstanding (263,736) $ (3,201,320) ----------- ------------- ----------- ------------- 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) ----------- ------------- ----------- -------------
23 Prudential Small Company Fund, Inc. Financial Highlights (Unaudited)
Class A ---------------- Six Months Ended March 31, 2003 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 11.41 ---------------- Income from investment operations Net investment income (loss) (.03) Net realized and unrealized gain (loss) on investment transactions .20 ---------------- Total from investment operations .17 ---------------- Less distributions Distributions from net realized gains -- ---------------- Net asset value, end of period $ 11.58 ---------------- ---------------- TOTAL RETURN(b): 1.49% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $212,526 Average net assets (000) $219,649 Ratios to average net assets: Expenses, including distribution fees and service (12b-1) fees(d) 1.32%(c) Expenses, excluding distribution fees and service (12b-1) fees 1.07%(c) Net investment income (loss) (.57)%(c) For Class A, B, C and Z shares: Portfolio turnover rate 21%
- ------------------------------ (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 period reported and includes reinvestment of dividends and distributions. Total returns for periods less than one full year are not annualized. (c) Annualized. (d) The distributor of the Fund has contractually agreed to limit its distribution and service (12b-1) fees to .25 of1% of the average daily net assets of the Class A shares. 24 See Notes to Financial Statements Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class A - ---------------------------------------------------------------------------------------------------------- Year Ended September 30, - ---------------------------------------------------------------------------------------------------------- 2002 2001(a) 2000(a) 1999(a) 1998(a) - ---------------------------------------------------------------------------------------------------------- $ 12.84 $ 14.52 $ 12.54 $ 13.79 $ 18.95 - ---------------- ---------------- ---------------- ---------------- ---------------- (.08) (.06) .01 (.01) -- (1.35) (1.62) 1.97 .29 (3.31) - ---------------- ---------------- ---------------- ---------------- ---------------- (1.43) (1.68) 1.98 .28 (3.31) - ---------------- ---------------- ---------------- ---------------- ---------------- -- -- -- (1.53) (1.85) - ---------------- ---------------- ---------------- ---------------- ---------------- $ 11.41 $ 12.84 $ 14.52 $ 12.54 $ 13.79 - ---------------- ---------------- ---------------- ---------------- ---------------- - ---------------- ---------------- ---------------- ---------------- ---------------- (11.14)% (11.57)% 15.70% 1.48% (18.90)% $216,956 $259,762 $291,869 $319,779 $365,431 $286,120 $286,251 $284,681 $360,707 $443,189 1.22% 1.31% 1.37% 1.27% 1.17% .97% 1.06% 1.12% 1.02% .92% (.53)% (.45)% .04% (.09)% -- 72% 83% 92% 39% 36%
See Notes to Financial Statements 25 Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B ---------------- Six Months Ended March 31, 2003 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.03 -------- Income from investment operations Net investment loss (.07) Net realized and unrealized gain (loss) on investment transactions .19 -------- Total from investment operations .12 -------- Less distributions Distributions from net realized gains -- -------- Net asset value, end of period $ 10.15 -------- -------- TOTAL RETURN(b): 1.20% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 83,885 Average net assets (000) $ 93,877 Ratios to average net assets: Expenses, including distribution fees and service (12b-1) fees 2.07%(c) Expenses, excluding distribution fees and service (12b-1) fees 1.07%(c) Net investment loss (1.32)%(c)
- ------------------------------ (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 period reported and includes reinvestment of dividends and distributions. Total returns for periods less than one full year are not annualized. (c) Annualized. 26 See Notes to Financial Statements Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B - ---------------------------------------------------------------------------------------------------------- Year Ended September 30, - ---------------------------------------------------------------------------------------------------------- 2002 2001(a) 2000(a) 1999(a) 1998(a) - ---------------------------------------------------------------------------------------------------------- $ 11.38 $ 12.97 $ 11.28 $ 12.63 $ 17.64 - ---------------- ---------------- ---------------- ---------------- ---------------- (.18) (.15) (.08) (.10) (.12) (1.17) (1.44) 1.77 .28 (3.04) - ---------------- ---------------- ---------------- ---------------- ---------------- (1.35) (1.59) 1.69 .18 (3.16) - ---------------- ---------------- ---------------- ---------------- ---------------- -- -- -- (1.53) (1.85) - ---------------- ---------------- ---------------- ---------------- ---------------- $ 10.03 $ 11.38 $ 12.97 $ 11.28 $ 12.63 - ---------------- ---------------- ---------------- ---------------- ---------------- - ---------------- ---------------- ---------------- ---------------- ---------------- (11.86)% (12.26)% 14.88% .74% (19.52)% $100,894 $132,990 $199,149 $335,013 $514,159 $143,748 $167,639 $250,061 $444,747 $678,462 1.97% 2.06% 2.12% 2.02% 1.92% .97% 1.06% 1.12% 1.02% .92% (1.28)% (1.21)% (.69)% (.82)% (.75)%
See Notes to Financial Statements 27 Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C ---------------- Six Months Ended March 31, 2003 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.03 -------- Income from investment operations Net investment loss (.07) Net realized and unrealized gain (loss) on investment transactions .19 -------- Total from investment operations .12 -------- Less distributions Distributions from net realized gains -- -------- Net asset value, end of period $ 10.15 -------- -------- TOTAL RETURN(b): 1.20% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 13,322 Average net assets (000) $ 14,565 Ratios to average net assets: Expenses, including distribution fees and service (12b-1) fees 2.07%(c) Expenses, excluding distribution fees and service (12b-1) fees 1.07%(c) Net investment loss (1.32)%(c)
- ------------------------------ (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 period reported and includes reinvestment of dividends and distributions. Total returns for periods less than one full year are not annualized. (c) Annualized. 28 See Notes to Financial Statements Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C - ---------------------------------------------------------------------------------------------------------- Year Ended September 30, - ---------------------------------------------------------------------------------------------------------- 2002 2001(a) 2000(a) 1999(a) 1998(a) - ---------------------------------------------------------------------------------------------------------- $ 11.38 $ 12.97 $ 11.28 $ 12.63 $ 17.64 -------- -------- -------- -------- -------- (.18) (.15) (.08) (.10) (.12) (1.17) (1.44) 1.77 .28 (3.04) -------- -------- -------- -------- -------- (1.35) (1.59) 1.69 .18 (3.16) -------- -------- -------- -------- -------- -- -- -- (1.53) (1.85) -------- -------- -------- -------- -------- $ 10.03 $ 11.38 $ 12.97 $ 11.28 $ 12.63 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (11.86)% (12.26)% 14.88% .74% (19.52)% $ 14,989 $ 18,847 $ 19,236 $ 25,207 $ 26,804 $ 20,812 $ 19,433 $ 20,159 $ 27,813 $ 29,259 1.97% 2.06% 2.12% 2.02% 1.92% .97% 1.06% 1.12% 1.02% .92% (1.28)% (1.21)% (.70)% (.83)% (.75)%
See Notes to Financial Statements 29 Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class Z ---------------- Six Months Ended March 31, 2003 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 11.64 -------- Income from investment operations Net investment income (loss) (.02) Net realized and unrealized gain (loss) on investment transactions .21 -------- Total from investment operations .19 -------- Less distributions Distributions from net realized gains -- -------- Net asset value, end of period $ 11.83 -------- -------- TOTAL RETURN(b): 1.63% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 65,834 Average net assets (000) $ 67,956 Ratios to average net assets: Expenses, including distribution fees and service (12b-1) fees 1.07%(c) Expenses, excluding distribution fees and service (12b-1) fees 1.07%(c) Net investment income (loss) (.32)%(c)
- ------------------------------ (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 period reported and includes reinvestment of dividends and distributions. Total returns for periods less than one full year are not annualized. (c) Annualized. 30 See Notes to Financial Statements Prudential Small Company Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class Z - ---------------------------------------------------------------------------------------------------------- Year Ended September 30, - ---------------------------------------------------------------------------------------------------------- 2002 2001(a) 2000(a) 1999(a) 1998(a) - ---------------------------------------------------------------------------------------------------------- $ 13.07 $ 14.74 $ 12.70 $ 13.92 $ 19.04 -------- -------- ---------------- ---------------- ---------------- (.04) (.03) .04 .02 .04 (1.39) (1.64) 2.00 .29 (3.31) -------- -------- ---------------- ---------------- ---------------- (1.43) (1.67) 2.04 .31 (3.27) -------- -------- ---------------- ---------------- ---------------- -- -- -- (1.53) (1.85) -------- -------- ---------------- ---------------- ---------------- $ 11.64 $ 13.07 $ 14.74 $ 12.70 $ 13.92 -------- -------- ---------------- ---------------- ---------------- -------- -------- ---------------- ---------------- ---------------- (10.94)% (11.33)% 15.97% 1.70% (18.58)% $ 67,858 $ 81,911 $105,656 $105,355 $125,770 $ 91,573 $ 99,657 $ 98,623 $131,013 $154,623 .97% 1.06% 1.12% 1.02% .92% .97% 1.06% 1.12% 1.02% .92% (.28)% (.21)% .29% .16% .25%
See Notes to Financial Statements 31 Prudential Small Company Fund, Inc. Getting the Most from Your Prudential Mutual Fund Some mutual fund shareholders won't ever read this-- they don't read annual and semiannual reports. It's quite understandable. These annual and semiannual reports are prepared to comply with federal regulations, and are often written in language that is difficult to understand. So when most people run into those particularly daunting sections of these reports, they don't read them. WE THINK THAT'S A MISTAKE At Prudential, we've made some changes to our mutual funds report to make it easier to understand and more pleasant to read. We hope you'll find it profitable to spend a few minutes familiarizing yourself with your investment. Here's what you'll find in the report: PERFORMANCE AT A GLANCE Since an investment's performance is often a shareholder's primary concern, we present performance information in two different formats. You'll find it first on the "Performance at a Glance" page where we compare the Fund and the comparable average calculated by Lipper, Inc., a nationally recognized mutual fund rating agency. We report both the cumulative total returns and the average annual total returns. The cumulative total return is the total amount of income and appreciation the Fund has achieved in various time periods. The average annual total return is an annualized representation of the Fund's performance. It gives you an idea of how much the Fund has earned in an average year for a given time period. Under the performance box, you'll see legends that explain the performance information, whether fees and sales charges have been included in the returns, and the inception dates for the Fund's share classes. See the performance comparison charts at the back of the report for more performance information. Please keep in mind that past performance is not indicative of future results. www.prudential.com (800) 225-1852 INVESTMENT ADVISER'S REPORT The portfolio manager, who invests your money for you, reports on successful--and not-so-successful-- strategies in this section of your report. Look for recent purchases and sales here, as well as information about the sectors the portfolio manager favors, and any changes that are on the drawing board. PORTFOLIO OF INVESTMENTS This is where the report begins to appear technical, but it's really just a listing of each security held at the end of the reporting period, along with valuations and other information. Please note that sometimes we discuss a security in the "Investment Adviser's Report" section that doesn't appear in this listing, because it was sold before the close of the reporting period. STATEMENT OF ASSETS AND LIABILITIES The balance sheet shows the assets (the value of the Fund's holdings), liabilities (how much the Fund owes), and net assets (the Fund's equity or holdings after the Fund pays its debts) as of the end of the reporting period. It also shows how we calculate the net asset value per share for each class of shares. The net asset value is reduced by payment of your dividend, capital gain, or other distribution--but remember that the money or new shares are being paid or issued to you. The net asset value fluctuates daily, along with the value of every security in the portfolio. STATEMENT OF OPERATIONS This is the income statement, which details income (mostly interest and dividends earned) and expenses (including what you pay us to manage your money). You'll also see capital gains here--both realized and unrealized. Prudential Small Company Fund, Inc. Getting the Most from Your Prudential Mutual Fund STATEMENT OF CHANGES IN NET ASSETS This schedule shows how income and expenses translate into changes in net assets. The Fund is required to pay out the bulk of its income to shareholders every year, and this statement shows you how we do it (through dividends and distributions) and how that affects the net assets. This statement also shows how money from investors flowed into and out of the Fund. NOTES TO FINANCIAL STATEMENTS This is the kind of technical material that can intimidate readers, but it does contain useful information. The notes provide a brief history and explanation of your Fund's objectives. In addition, they outline how Prudential mutual funds prices securities. The notes also explain who manages and distributes the Fund's shares and, more important, how much they are paid for doing so. Finally, the notes explain how many shares are outstanding and the number issued and redeemed over the period. FINANCIAL HIGHLIGHTS This information contains many elements from prior pages, but on a per-share basis. It is designed to help you understand how the Fund performed, and to compare this year's performance and expenses to those of prior years. INDEPENDENT ACCOUNTANT'S REPORT Once a year, an independent accountant looks over our books and certifies that the financial statements are fairly presented in accordance with generally accepted accounting principles. TAX INFORMATION This is information that we report annually about how much of your total return is taxable. Should you have any questions, you may want to consult a tax adviser. www.prudential.com (800) 225-1852 PERFORMANCE COMPARISON These charts are included in the annual report and are required by the Securities Exchange Commission. Performance is presented here as the return on a hypothetical $10,000 investment in the Fund since its inception or for 10 years (whichever is shorter). To help you put that return in context, we are required to include the performance of an unmanaged, broad- based securities index as well. The index does not reflect the cost of buying the securities it contains or the cost of managing a mutual fund. Of course, the index holdings do not mirror those of the Fund--the index is a broad-based reference point commonly used by investors to measure how well they are doing. A definition of the selected index is also provided. Investors cannot invest directly in an index. Prudential Small Company Fund, Inc. 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. www.prudential.com (800) 225-1852 FOR MORE INFORMATION Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 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 Judy A. Rice, President Robert F. Gunia, 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 LLP 125 Broad Street New York, NY 10004-2498 Fund Symbols Nasdaq CUSIP - ------------ ------ ----- Class A PGOAX 743968109 Class B CHNDX 743968208 Class C PSCCX 743968307 Class Z PSCZX 743968406 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of March 31, 2003, were not audited and, accordingly, no auditors' opinion is expressed on them. Mutual funds are not insured by the FDIC or any federal government agency, are not a deposit of or guaranteed by any bank or any bank affiliate, and may lose value. PRUDENTIAL FINANCIAL (LOGO) Fund Symbols Nasdaq CUSIP - ------------ ------ ----- Class A PGOAX 743968109 Class B CHNDX 743968208 Class C PSCCX 743968307 Class Z PSCZX 743968406 MF109E2 IFS-A080091 -----END PRIVACY-ENHANCED MESSAGE-----