(ICON)
Prudential
Small-Cap
Quantum
Fund, Inc.
ANNUAL
REPORT
March 31, 1998
(LOGO)
<PAGE>
John Leib, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Prudential Small-Cap Quantum Fund seeks long-
term capital appreciation by
using quantitative investment techniques to buy
primarily the stocks of U.S.
companies with market capitalizations (what it
would cost to buy all of a
company's stock) of less than $1.5 billion. The
Fund invests in a diversified
portfolio based on the rankings of the small-cap
quantitative valuation (QV)
model developed at Prudential Securities.
Computer-aided portfolio
construction helps improve the risk/reward profile
of our holdings, but there
can be no assurance that the Fund will achieve its
investment objective.
Well-Diversified.
We buy up to 200 different stocks to diversify our
risk. What's more, we don't
just buy the top 200 or so stocks from Prudential
Securities' valuation ranking
because that could lead to a portfolio
concentrated in a few industries, with
excessive exposure to unexpected events. Instead,
we try to stay relatively
close to the sector composition of Standard &
Poor's SmallCap 600 Index (S&P
600), but with stocks we find more attractive. We
believe that's a good way to
balance risk and reward potential.
Strategy Session.
- --------------------------------------------------
- -----------------------------
We invest with a consistent bottom-up quantitative
strategy. Prudential
Securities' small-cap QV model ranks about 1,400
stocks, using both value and
growth considerations. Then we create a
diversified portfolio, adding new
stocks ranked in the top 40% and selling any that
have fallen to the bottom
40%. We sell others, as well, for risk or sector
considerations. We use a
computer program to sift through the large number
of stocks in order to
maintain diversity, while including more
attractive stocks, where possible, to
maximize our expected return.
Our benchmark is the S&P 600 Index, but we may
invest more in any sector than
its weight in the index if doing so will improve
the portfolio's
characteristics. At our February rebalancing, the
last before the end of our
reporting period, our computer program emphasized
utilities and de-emphasized
health care and business services. We also held
about 2% of our assets in
REITs (real estate investment trusts), which are
not in the S&P 600. However,
in the four largest market sectors, we were within
one percentage point of the
benchmark. The energy sector, primarily oil
service companies, and consumer
cyclicals (companies that do better when an
economy is growing) were more
heavily represented than they had been, while
basic industries, consumer
staples, and financial firms (not including real
estate investment trusts)
were represented less.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 3/31/98.
Consumer Services 17%
Finance 15%
Technology 15%
Basic Industry 14%
Energy 7%
Utilities 7%
Consumer Cyclicals 6%
Health Care 6%
Capital Spending 3%
Consumer Staples 3%
Business Services 2%
REITs 2%
Cash & Equivalents 3%
Source: Prudential
<PAGE>
What Went Well.
- -------------------------------------------------
We held about 200 different stocks, so our
performance was not greatly affected
by any single holding. However, our investment in
Pacific Scientific, a
manufacturer of process controls and safety
equipment, more than doubled. The
company was sold to Danaher Corporation at a
substantial premium to its prior
share price.
Financial service companies were our second-
largest sector, and they were among
the best-performing small-caps. Insurance
companies and regional banks made
substantial contributions to our return. We did
particularly well on First
American Financial, the second-largest home title
insurance company in the
U.S., which gained 57% for us on the strength of
the housing market. Other
housing-related companies, such as Kaufman & Broad
(a multinational home
builder, up 50%), Medusa (a cement producer being
acquired by Southdown, up
49%), and Mohawk (the second-largest carpet
manufacturer in the U.S., up 54%),
also made relatively large contributions.
Our computer software and service investments (4%
of our holdings) averaged a
41% rise over the period, with strong
contributions from CIBER (technical
outsourcing and staffing, up 60%) and Documentum
(a Xerox spinoff that manages
information across large enterprises, up 83%).
Five Largest
Holdings
1.4% Orion Capital Corp.
Finance
1.0% Webster Financial Corp.
Finance
1.0% Raymond James
Financial, Inc.
Finance
1.0% ALLIED Group, Inc.
Finance
0.9% First American
Financial Corp.
Finance
Expressed as a percentage of net assets as of
3/31/98.
And Not So Well.
- -------------------------------------------------
Our oil service stocks, which were about 4% of our
portfolio at quarter-end,
lost 25%, on average, as investors reacted to a
drop in oil prices. Although
the stocks fell, their QV ranking remained
attractive.
Our communications equipment manufacturers also
lost ground substantially,
largely as a result of the slowdown in Asia.
We owned a small position in two tobacco-related
stocks which declined 30% in
value during the reporting period primarily
because of antitobacco sentiment.
Semiconductor and semiconductor equipment
companies were among the
worst-performing small-cap issuers for the first
quarter; they helped bring
our diverse electronics holdings down 18%, on
average. The industry is
suffering from overcapacity, and investors
anticipated a large impact from the
Asian economic crisis.
Looking Ahead.
- -------------------------------------------------
We measure the attractiveness of small-cap stocks
or securities by comparing
how much we have to pay for a share to various
indicators of the share's true
value: recent earnings, estimated future earnings,
book value, and others. We
now pay less for a dollar of small-caps' estimated
future earnings than for a
dollar of larger firms', although small-caps have
averaged a 5% premium over
the long term. Smaller firms appear more
attractive than larger ones.
Nonetheless, most stocks are expensive today by
historical standards, and we
caution against expecting returns like those of
the past three years to
continue.
1
<PAGE>
Managing With Quantitative Techniques.
- --------------------------------------------------
- -----------------------------
Portfolio Manager John Leib explains how
quantitative valuation drives the
stock selection process for the Prudential Small-
Cap Quantum Fund.
Q. What is Prudential Securities' QV model?
A. The QV, or quantitative valuation, model is a
method for ranking stocks:
Prudential Securities has pulled together in a
single formula eight
indicators that their research showed to be
effective in predicting future
stock performance. These include measures of
how expensive the stock is,
how its profitability is changing, and whether
its earnings reports contain
either positive or negative surprises. The
various indicators are weighted
to compute a single score or rank, ranging from
1 (strong buy) to 5 (strong
sell). We use these rankings to determine the
relative attractiveness of
small-cap stocks in our universe.
Q. Do you invest in all the top-ranked stocks?
A. That might produce too much exposure to a few
industries or sectors -- all
our eggs in two or three baskets. Since
unexpected adverse events can
happen to any industry, we reduce our risk by
diversifying. In order to do
this, we often must buy some stocks that are
ranked in the second 20%,
although we prefer those in the top 20%. At
quarter-end, 86% of our
invested assets were in stocks that the QV
model ranked in the top 40%,
with 56% of our holdings ranked among the top
20%.
Q. What is the computer's role in portfolio
selection?
A. One of our great advantages is the number of
small firms we can evaluate.
We can buy stocks ranked among the top 40% of
our universe. Currently, that
means considering up to 600 companies for
purchase. When we are buying
stocks, we have to search among all these for
the best combination of
purchases and retentions to maximize our
expected return while controlling
the risk of our portfolio as a whole. Without
automation, we might overlook
some excellent combinations. The computer
program -- called an optimizer --
finds the best set of stocks to meet our
specifications.
(PHOTO)
2
<PAGE>
President's Letter
May 15, 1998
- --------------------------------------------------
- -----------------------------
(PHOTO)
See You On the Net!
Dear Shareholder:
We are proud to be part of the worldwide web and
we invite you to visit our two
web sites, if you have not already done so. Yes,
we currently offer two
sites -- each with its own distinctive identity.
http://www.prudential.com
The Prudential web site features information on
personal investing, retirement
planning, commercial and residential real estate
opportunities, as well as
insurance products for life, health, home and
property.
You can look up performance data on your
Prudential mutual funds, learn about
proven investment strategies, or take one of our
many interactive quizzes that
will help guide you in determining long-term goals
- -- like how much to save for
your child's college education or for your
retirement.
http://www.prusec.com
The Prudential Securities Virtual Branch Office is
a full-service brokerage web
site specifically designed to provide investors
with the information they need
to make informed financial decisions. It was rated
the No. 1 full-service
brokerage web site of its type by Financial Net
News (February 1998), a
subsidiary of Institutional Investor magazine, and
was also rated among the
top corporate web sites by Fortune magazine
(Winter 1998).
What investors can find here are -- daily market
commentaries, stock quotes,
economic forecasts, product news, and current
market research, in addition to
interactive investing programs. Investors, through
their Prudential Securities
Financial Advisors, may also enroll in Prudential
Online" and have access to
their personal account information which includes
balances, security values,
transactions and account activities. They can also
easily E-mail their
Financial Advisor.
Both sites also contain professional opportunities
for people who are searching
for employment or considering a change of career
paths.
We plan to make further enhancements to our web
pages as the year progresses.
So please, the next time you are "web browsing" or
"surfing the net," pay us a
visit. Let us know what you think and what you'd
like to see added in the
future.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments as of
PRUDENTIAL SMALL-CAP QUANTUM
March 31, 1998 FUND,
INC.
- --------------------------------------------------
- -------------------
- --------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS
- --------------------------------------------------
- ----------
Basic Industry--13.7%
20,100 Alaska Air Group, Inc.(a)
$ 1,089,169
121,100 AMCOL International Corp.
1,831,637
58,100 Applied Industrial Technologies,
Inc.
1,565,069
60,800 Barnes Group, Inc.
2,025,400
74,900 BE Aerospace, Inc.(a)
2,106,562
97,100 Blount International, Inc.
2,888,725
38,300 Carbide/Graphite Group, Inc.(a)
1,149,000
58,100 Chemed Corp.
2,382,100
38,200 Circle International Group, Inc.
1,012,300
21,400 Cleveland-Cliffs, Inc.
1,150,250
44,100 Commercial Intertech Corp.
1,052,888
19,800 Hadco Corp.(a)
784,575
112,400 IMCO Recycling, Inc.
1,952,950
51,400 Innovex, Inc.
1,252,875
53,900 Kaydon Corp.
2,203,162
35,800 Lone Star Industries, Inc.
2,485,862
40,100 M.S. Carriers, Inc.(a)
1,358,388
52,300 Maverick Tube Corp.(a)
925,056
50,100 Medusa Corp.
3,062,362
11,600 NACCO Industries, Inc.
1,554,400
52,200 Republic Group, Inc.
1,063,575
35,500 Texas Industries, Inc.
2,052,344
32,200 Tredegar Industries, Inc.
2,332,487
67,600 USFreightways Corp.
2,433,600
83,700 WD-40 Co.
2,547,619
63,900 Wellman, Inc.
1,381,837
46,900 Wolverine Tube, Inc.(a)
1,881,862
57,600 Zeigler Coal Holding Co.
986,400
- ------------
48,512,454
- --------------------------------------------------
- ----------
Business Services--2.2%
42,200 Abacus Direct Corp.(a)
2,204,950
96,300 Dames & Moore Group
1,281,994
56,100 Hooper Holmes, Inc.
1,199,138
44,600 Merrill Corporation
$ 981,200
67,200 TMP Worldwide, Inc.(a)
2,142,000
- ------------
7,809,282
- --------------------------------------------------
- ----------
Capital Spending--3.0%
59,100 Anixter International, Inc.(a)
1,089,656
33,800 DT Industries, Inc.
1,297,075
60,100 Flowserve Corp.
1,960,762
72,300 Graco, Inc.
2,191,594
49,000 Halter Marine Group, Inc.(a)
777,875
55,700 Manitowoc Co., Inc.
2,151,412
48,450 World Fuel Services Corp.
1,065,900
- ------------
10,534,274
- --------------------------------------------------
- ----------
Consumer Cyclical--6.2%
29,600 Arvin Industries, Inc.
1,211,750
61,400 Carlisle Companies, Inc.
3,016,275
85,700 Champion Enterprises, Inc.(a)
2,287,119
53,500 D. R. Horton, Inc.
1,136,875
64,900 Intermet Corp.
1,460,250
77,600 Kaufman & Broad Home Corp.
2,526,850
60,200 La-Z-Boy, Inc.
3,006,237
45,500 MascoTech, Inc.
1,049,344
64,500 Myers Industries, Inc.
1,346,438
36,400 Standard Products Co.
1,198,925
51,300 Superior Industries International,
Inc.
1,702,519
90,700 Wynn's International, Inc.
2,063,425
- ------------
22,006,007
- --------------------------------------------------
- ----------
Consumer Services--16.6%
113,300 ADVO, Inc.(a)
3,129,912
14,600 Anchor Gaming(a)
1,084,050
51,200 Applebee's International, Inc.
1,184,000
184,700 Arctic Cat, Inc.
1,720,019
158,000 Books-A-Million, Inc.(a)
918,375
131,000 Buffets, Inc.(a)
1,801,250
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of
PRUDENTIAL SMALL-CAP QUANTUM
March 31, 1998 FUND,
INC.
- --------------------------------------------------
- -------------------
- --------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS
- --------------------------------------------------
- ----------
Consumer Services (cont'd.)
58,100 Cannondale Corp.(a)
$ 962,281
31,100 CapStar Hotel Co.(a)
1,078,781
70,600 Claire's Stores, Inc.
1,619,387
54,400 Dress Barn, Inc.(a)
1,564,000
69,400 Eagle Hardware & Garden, Inc.(a)
1,223,175
84,000 EZCORP, Inc.(a)
997,500
150,700 Foodmaker, Inc.(a)
2,919,812
45,500 Franklin Covey Co.(a)
1,106,219
130,400 Genesco, Inc.(a)
2,363,500
36,500 Goody's Family Clothing, Inc.(a)
1,615,125
116,000 Grand Casinos, Inc.(a)
1,979,250
81,800 Guilford Mills, Inc.
2,413,100
110,200 Guitar Center, Inc.(a)
2,603,475
88,400 Justin Industries
1,243,125
75,100 Kellwood Co.
2,318,712
53,700 Linens 'N Things, Inc.(a)
2,950,144
110,600 Luby's Cafeterias, Inc.
2,101,400
120,600 Macrovision Corp.(a)
2,216,025
93,600 Mohawk Industries, Inc.(a)
2,948,400
91,200 Nash-Finch Co.
1,812,600
76,500 Nautica Enterprises, Inc.(a)
2,352,375
45,800 North Face, Inc.(a)
1,110,650
45,600 Pomeroy Computer Resources, Inc.(a)
1,074,450
95,900 Rawlings Sporting Goods Co., Inc.(a)
1,306,638
71,300 Russ Berrie & Co., Inc.
2,161,281
65,500 Syms Corp.(a)
925,188
27,200 Timberland Co.(a)
1,944,800
- ------------
58,748,999
- --------------------------------------------------
- ----------
Consumer Staples--3.3%
51,300 Canandaigua Brands, Inc.(a)
2,930,512
146,600 DIMON, Inc.
2,446,388
64,300 Nutramax Products, Inc.(a)
807,769
94,600 Smithfield Foods, Inc.(a)
3,263,700
58,500 Swisher International Group, Inc.(a)
760,500
50,100 Windmere-Durable Holdings, Inc.(a)
1,302,600
- ------------
11,511,469
Energy--6.6%
73,900 Atmos Energy Corp.
$ 2,189,287
38,100 Atwood Oceanics, Inc.(a)
2,059,781
33,500 Cliffs Drilling Co.(a)
1,383,969
50,200 Eastern Enterprises, Inc.
2,158,600
109,400 Key Energy Group, Inc.(a)
1,784,588
56,900 New Jersey Resources Corp.
2,229,769
88,100 Patterson Energy, Inc.(a)
1,013,150
83,600 Piedmont Natural Gas Co., Inc.
2,905,100
62,500 Pool Energy Services Co.(a)
1,460,938
96,700 Pride International, Inc.(a)
2,308,712
40,500 Trico Marine Services, Inc.(a)
853,031
27,700 Veritas DGC, Inc.(a)
1,400,581
74,000 Vintage Petroleum, Inc.
1,554,000
- ------------
23,301,506
- --------------------------------------------------
- ----------
Finance--15.0%
104,400 ALLIED Group, Inc.
3,366,900
63,800 American Heritage Life Investment
Corp.
1,315,875
68,700 AMRESCO, Inc.(a)
2,249,925
43,600 Arthur J. Gallagher & Co.
1,888,425
23,800 Community First Bankshares, Inc.
1,213,800
68,500 Delta Financial Corp.(a)
1,185,906
39,600 E*TRADE Group, Inc.(a)
987,525
43,230 Fidelity National Financial, Inc.
1,588,703
52,050 First American Financial Corp.
3,331,200
50,100 FirstBank Puerto Rico
2,307,731
96,100 Foremost Corp. of America
2,354,450
37,100 HUBCO, Inc.
1,421,394
35,300 IPC Holdings Ltd., ADR (Bermuda)
1,138,425
38,000 Jefferies Group, Inc.
2,147,000
67,600 John Alden Financial Corp.
1,457,625
30,100 Legg Mason, Inc.
1,785,306
91,800 Orion Capital Corp.
5,020,312
79,200 Raymond James Financial, Inc.
3,450,150
155,400 Rollins Truck Leasing Corp.
2,146,462
70,000 Selective Insurance Group, Inc.
1,881,250
79,600 TR Financial Corp.
2,766,100
52,300 Webster Financial Corp.
3,634,850
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of
PRUDENTIAL SMALL-CAP QUANTUM
March 31, 1998 FUND,
INC.
- --------------------------------------------------
- -------------------
- --------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS
- --------------------------------------------------
- ----------
Finance (cont'd.)
69,400 Westcorp
$ 1,162,450
50,800 XTRA Corp.
3,276,600
- ------------
53,078,364
- --------------------------------------------------
- ----------
Healthcare--6.3%
46,500 ADAC Laboratories(a)
1,075,313
69,100 Atria Communities, Inc.(a)
1,330,175
184,100 BioSource International, Inc.(a)
1,185,144
42,300 Cooper Cos., Inc.(a)
1,795,106
25,000 ESC Medical Systems Ltd., ADR
(Israel)(a)
878,125
60,500 FPA Medical Management, Inc.(a)
933,969
64,200 Integrated Health Services, Inc.
2,523,863
55,000 Mariner Health Group, Inc.(a)
941,875
91,700 Maxxim Medical, Inc.(a)
2,630,644
85,100 PMR Corp.(a)
1,340,325
214,700 Roberts Pharmaceutical Corp.(a)
3,059,475
46,000 Sabratek Corp.(a)
1,610,000
21,600 Theragenics Corp.(a)
1,375,650
55,300 VISX, Inc.(a)
1,382,500
- ------------
22,062,164
- --------------------------------------------------
- ----------
Real Estate Investment Trusts--1.8%
71,100 Capstead Mortgage Corp.
1,404,225
88,800 JP Realty, Inc.
2,253,300
89,800 Macerich Co.
2,671,550
- ------------
6,329,075
- --------------------------------------------------
- ----------
Technology--15.2%
71,100 Advanced Digital Information
Corp.(a)
1,119,825
70,100 Aliant Communications, Inc.
2,383,400
83,600 Alpha Industries, Inc.(a)
1,290,575
24,600 Aspect Development, Inc.(a)
1,349,925
31,900 Avid Technology, Inc.(a)
1,311,888
68,200 Benchmark Electronics, Inc.(a)
1,624,012
78,500 C-Cube Microsystems, Inc.(a)
1,462,062
25,200 CIBER, Inc.(a)
1,762,425
44,400 Coherent, Inc.(a)
1,073,925
70,700 Dallas Semiconductor Corp.
$ 2,377,287
87,600 Digital Microwave Corp.(a)
1,292,100
46,900 DII Group, Inc.(a)
1,008,350
46,900 Documentum, Inc.(a)
2,538,462
75,500 Emulex Corp.(a)
688,938
32,700 General Binding Corp.
1,064,794
36,300 GenRad, Inc.(a)
1,127,569
31,800 Harbinger Corp.(a)
1,200,450
48,300 Harmon Industries, Inc.
984,113
48,100 Inacom Corp.(a)
1,328,762
66,200 Input/Output, Inc.(a)
1,547,425
32,900 Integrated Circuit Systems, Inc.(a)
688,844
42,200 Kemet Corp.(a)
783,338
99,700 Larscom, Inc.(a)
825,641
30,700 Mastech Corp.(a)
1,564,741
75,900 Optical Coating Laboratory, Inc.
977,213
60,100 Park Electrochemical Corp.
1,551,331
100,700 Pioneer-Standard Electronics, Inc.
1,233,575
61,400 Rainbow Technologies, Inc.(a)
1,581,050
27,000 Sanmina Corp.(a)
1,888,312
38,700 Structural Dynamics Research
Corp.(a)
962,663
50,000 Symantec Corp.(a)
1,346,875
100,200 SymmetriCom, Inc.(a)
713,925
28,000 Technitrol, Inc.
1,097,250
19,400 United Stationers, Inc.(a)
1,199,163
72,500 Unitrode Corp.(a)
1,350,312
87,300 Vanstar Corp.(a)
1,091,250
38,000 Vantive Corp.(a)
1,389,375
87,600 VLSI Technology, Inc.(a)
1,642,500
26,900 Whittman-Hart, Inc.(a)
1,217,225
47,000 XcelleNet, Inc.(a)
890,063
40,000 Xylan Corp.(a)
975,000
- ------------
53,505,933
- --------------------------------------------------
- ----------
Utilities--7.0%
31,300 Aquarion Co.
1,015,294
60,900 Central Hudson Gas & Electric
2,656,762
90,300 Central Louisiana Electric Company,
Inc.
3,092,775
77,800 Commonwealth Energy System
3,102,275
31,900 Connecticut Energy Corp.
980,925
128,000 Energen Corp.
2,816,000
</TABLE>
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- ------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of
PRUDENTIAL SMALL-CAP QUANTUM
March 31, 1998 FUND,
INC.
- --------------------------------------------------
- -------------------
- --------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--96.9%
COMMON STOCKS
- --------------------------------------------------
- ----------
Utilities (cont'd.)
56,100 Indiana Energy, Inc.
$ 1,707,544
64,300 Madison Gas & Electric Co.
1,398,525
30,900 Otter Tail Power Co.
1,162,613
19,800 Pacific Gateway Exchange, Inc.(a)
1,133,550
40,000 Premiere Technologies, Inc.(a)
1,385,000
55,800 Sierra Pacific Resources
2,095,987
32,500 Southern California Water Co.
845,000
24,300 WICOR, Inc.
1,175,513
- ------------
24,567,763
Total long-term investments
(cost $315,048,618)
341,967,290
- ------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--3.0%
Repurchase Agreement
- --------------------------------------------------
- ----------
$ 10,590 Joint Repurchase Agreement Account,
5.95%, 4/1/98
(cost $10,590,000; Note 5)
10,590,000
- ------------
- --------------------------------------------------
- ----------
Total Investments--99.9%
(cost $325,638,618; Note 4)
352,557,290
Other assets in excess of
liabilities--0.1%
401,957
- ------------
Net Assets--100%
$352,959,247
- ------------
- ------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 7
<PAGE>
Statement of Assets and Liabilities
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
March 31, 1998
<S>
<C>
Investments, at value (cost
$325,638,618).....................................
............................. $ 352,557,290
Cash..............................................
..................................................
....... 3,608
Receivable for Fund shares
sold..............................................
.............................. 1,178,355
Dividends and interest
receivable........................................
..................................
190,334
Prepaid registration
fees..............................................
....................................
177,859
Deferred organizational
costs.............................................
.................................
144,257
- --------------
Total
assets............................................
................................................
354,251,703
- --------------
Liabilities
Payable for Fund shares
reacquired........................................
.................................
778,514
Distribution fee
payable...........................................
........................................
215,316
Management fee
payable...........................................
..........................................
174,175
Accrued
expenses..........................................
.................................................
124,451
- --------------
Total
liabilities.......................................
................................................
1,292,456
- --------------
Net
Assets............................................
..................................................
... $ 352,959,247
- --------------
- --------------
Net assets were comprised of:
Common stock, at
par...............................................
..................................... $
32,268
Paid-in capital in excess of
par...............................................
......................... 321,886,640
- --------------
321,918,908
Accumulated net realized gain on
investments.......................................
..................... 4,121,667
Net unrealized appreciation on
investments.......................................
....................... 26,918,672
- --------------
Net assets, March 31,
1998..............................................
................................... $
352,959,247
- --------------
- --------------
Class A:
Net asset value and redemption price per share
($115,620,841 / 10,556,196 shares of common
stock issued and
outstanding)............................
$10.95
Maximum sales charge (5% of offering
price)............................................
................. .58
- --------------
Maximum offering price to
public............................................
............................ $11.53
- --------------
- --------------
Class B:
Net asset value, offering price and redemption
price per share
($196,670,835 / 17,992,721 shares of common
stock issued and
outstanding)............................
$10.93
- --------------
- --------------
Class C:
Net asset value, offering price and redemption
price per share
($36,628,050 / 3,350,920 shares of common
stock issued and
outstanding)..............................
$10.93
- --------------
- --------------
Class Z:
Net asset value, offering price and redemption
price per share
($4,039,521 / 368,612 shares of common stock
issued and
outstanding).................................
$10.96
- --------------
- --------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
November
10, 1997(a)
Through
Net Investment Income March
31, 1998
<S> <C>
Income
Dividends (net of foreign witholding
taxes of $752)................... $
1,520,000
Interest............................
521,019
--------
- ------------
Total income.....................
2,041,019
--------
- ------------
Expenses
Management fee......................
726,972
Distribution fee--Class A...........
102,807
Distribution fee--Class B...........
658,582
Distribution fee--Class C...........
131,344
Registration fees...................
188,000
Transfer agent's fees and
expenses.........................
115,000
Reports to shareholders.............
45,000
Custodian's fees and expenses.......
45,000
Audit fees and expenses.............
25,000
Legal fees and expenses.............
15,000
Amortization of deferred
organizational expenses..........
9,928
Directors' fees and expenses........
9,000
Miscellaneous.......................
1,268
--------
- ------------
Total expenses...................
2,072,901
--------
- ------------
Net investment loss....................
(31,882)
--------
- ------------
Realized and Unrealized
Gain on Investments
Net realized gain on:
Investment transactions.............
4,186,668
Financial futures contracts.........
4,565
--------
- ------------
4,191,233
--------
- ------------
Net change in unrealized appreciation
on investments......................
26,918,672
--------
- ------------
Net gain on investments................
31,109,905
--------
- ------------
Net Increase in Net Assets
Resulting from Operations.............. $
31,078,023
--------
- ------------
--------
- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Changes in Net Assets
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
November
10, 1997(a)
Increase (Decrease) in
Through
Net Assets March
31, 1998
<S> <C>
Operations
Net investment loss.................. $
(31,882)
Net realized gain on investments.....
4,191,233
Net change in unrealized appreciation
on investments....................
26,918,672
--------
- ------------
Net increase in net assets resulting
from operations...................
31,078,023
--------
- ------------
Distributions in excess of net
investment income (Note 1)
Class A..............................
(97,677)
Class B..............................
(16,994)
Class C..............................
(3,484)
Class Z..............................
(3,733)
--------
- ------------
(121,888)
--------
- ------------
Fund share transactions (Note 6)
Net proceeds from shares sold........
349,199,926
Net asset value of shares issued in
reinvestment of distributions.....
118,604
Cost of shares reacquired............
(27,415,418)
--------
- ------------
Net increase in net assets from Fund
share transactions................
321,903,112
--------
- ------------
Total increase..........................
352,859,247
Net Assets
Beginning of period.....................
100,000
--------
- ------------
End of period...........................
$352,959,247
--------
- ------------
--------
- ------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
Prudential Small-Cap Quantum Fund, Inc. (the
'Fund') is registered under the
Investment Company Act of 1940 as a diversified,
open-end management investment
company. The Fund was incorporated in Maryland on
February 4, 1997. The Fund
issued 2,500 shares each of Class A, Class B,
Class C and Class Z common stock
for $100,000 on August 1, 1997 to Prudential
Investments Fund Management LLC
('PIFM'). Investment operations commenced on
November 10, 1997. The investment
objective of the Fund is long-term capital
appreciation by investing primarily
in equity securities of small-cap U.S. companies.
- --------------------------------------------------
- ----------
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 listed on a
securities exchange and Nasdaq
National Market System securities are valued at
the last sales price on the day
of valuation, or, if there was no sale on such
day, the mean between the last
bid and asked prices on such day, as provided by a
pricing service. Corporate
bonds and U.S. Government securities are valued on
the basis of valuations
provided by a pricing service or principle market
makers. Options traded on an
exchange are valued at the mean between the most
recently quoted bid and asked
prices on the respective exchange, and futures
contracts and options thereon are
valued at their last sales prices as of the close
of trading on the applicable
commodities exchange. 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.
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.
In connection with transactions in repurchase
agreements with U.S. financial
institutions, it is the Fund's policy that its
custodian or designated
subcustodians, as the case may be under triparty
repurchase agreements, take
possession of the underlying collateral
securities, the value of which exceeds
the principal amount of the repurchase transaction
including accrued interest.
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.
All securities are valued as of 4:15 p.m., New
York time.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and
losses on sales of investments
are calculated on the identified cost basis.
Dividend income is recorded on the
ex-dividend date and interest income is recorded
on the accrual basis. Expenses
are recorded on the accrual basis which may
require the use of certain estimates
by management.
Net investment income (other than distribution
fees) and unrealized and realized
gains or 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.
Financial Futures Contracts: A financial futures
contract is an agreement to
purchase (long) or sell (short) an agreed amount
of securities at a set price
for delivery on a future date. Upon entering into
a financial futures contract,
the Fund is required to pledge to the broker an
amount of cash and/or other
assets equal to a certain percentage of the
contract amount. This amount is
known as the 'initial margin.' Subsequent
payments, known as 'variation margin,'
are made or received by the Fund each day,
depending on the daily fluctuations
in the value of the underlying security. Such
variation margin is recorded for
financial statement purposes on a daily basis as
unrealized gain or loss. When
the contract expires or is closed, the gain or
loss is realized and is presented
in the statement of operations as net realized
gain (loss) on financial futures
contracts.
The Fund invests in financial futures contracts in
order to hedge their existing
portfolio securities, or securities the Fund
intends to purchase, against
fluctuations in value. Under a variety of
circumstances, the Fund may not
achieve the anticipated benefits of the financial
futures contracts and may
realize a loss. The use of futures transactions
involves the risk of imperfect
correlation in movements in the price of futures
contracts and the underlying
assets.
Dividends and Distributions: The Fund expects to
pay dividends of net investment
income and distributions of net realized capital,
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.
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 net capital gains, if any,
to its shareholders.
Therefore, no federal income tax provision is
required.
- --------------------------------------------------
- ------------------------------
10
<PAGE>
Notes to Financial Statements
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
Withholding taxes on foreign dividends have been
provided for in accordance with
the Fund's understanding of the applicable
country's tax rules and rates.
Deferred Organization Expenses: Approximately
$154,000 of expenses were incurred
in connection with the organization of the Fund.
These costs have been deferred
and are being amortized ratably over a period of
60 months from the date the
Fund commenced investment operations.
Reclassification of Capital Accounts: The Fund
accounts and reports for
distributions to shareholders in accordance with
'Statement of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions
by Investment Companies.' The
effect of applying this statement was to decrease
accumulated net investment
loss by $153,770, decrease accumulated net
realized gain on investments by
$69,566 and decrease paid in capital in excess of
par by $84,204 due to
distributions paid from net investment income to
satisfy excise tax requirements
which was subsequently offset by net investment
losses and certain expenses not
deductible for tax purposes. Net investment loss,
net realized gains and net
assets were not affected by this investment.
- --------------------------------------------------
- ----------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the
subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'), doing business as
Prudential Investments ('PI,'
the Subadviser or the investment adviser); PIC
furnishes investment advisory
services in connection with the management of the
Fund. PIFM pays for the cost
of the subadviser's services, the compensation of
officers of the Fund,
occupancy and certain clerical and bookkeeping
costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PIFM is computed daily and
payable monthly at an annual
rate of .60 of 1% of the average daily net assets
of the Fund.
The Fund has a distribution agreement with
Prudential Securities Incorporated
('PSI'), which acts as the distributor of the
Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates
PSI for distributing and
servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans of
distribution (the 'Class A, B and C Plans'),
regardless of expenses actually
incurred by them. The distribution fees for Class
A, B and C shares are accrued
daily and payable monthly. No distribution or
service fees are paid to PSI as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund
compensates PSI for
distribution-related activities at an annual rate
of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B
and C shares, respectively.
Such expenses under the Class A, Class B and Class
C Plans were .25%, 1% and 1%,
respectively, of the average daily net assets of
Class A, Class B and Class C
shares for the period ended March 31, 1998.
PSI has advised the Fund that it has received
approximately $4,295,000 in
front-end sales charges resulting from sales of
Class A shares during the period
ended March 31, 1998. From these fees, PSI paid
such sales charges, which in
turn paid commissions to salespersons and incurred
other distribution costs.
PSI advised the Fund that for the period ended
March 31, 1998, it received
approximately $160,800 and $23,500 in contingent
deferred sales charges imposed
upon certain redemptions by Class B and Class C
shareholders, respectively.
PSI, PIFM and PIC are wholly owned subsidiaries of
The Prudential Insurance
Company of America.
The Fund, along with other affiliated registered
investment companies (the
'Funds'), has a credit agreement (the 'Agreement')
with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. Interest on any such
borrowings outstanding will be at market rates.
The purpose of the Agreement is
to serve as an alternative source of funding for
capital share redemptions. The
Fund did not borrow any amounts pursuant to the
Agreement during the period
ended March 31, 1998. The Funds pay a commitment
fee at an annual rate of .055
of 1% on the unused portion of the credit
facility. The commitment fee is
accrued and paid quarterly on a pro rata basis by
the Funds. The Agreement
expired on December 30, 1997 and has been extended
through December 29, 1998
under the same terms.
- --------------------------------------------------
- ----------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a
wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the
period ended March 31, 1998, the
Fund incurred fees of approximately $108,000 for
the services of PMFS. As of
March 31, 1998, approximately $24,100 of such fees
were due to PMFS. Transfer
agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to nonaffiliates.
- --------------------------------------------------
- ------------------------------
11
<PAGE>
Notes to Financial Statements
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities,
other than short-term investments,
for the period ended March 31, 1998 were
$428,860,955 and $117,950,485,
respectively.
The federal income tax basis of the Fund's
investments at March 31, 1998 was
substantially the same as for financial reporting
purposes and, accordingly, net
unrealized appreciation for federal income tax
purposes was $26,918,672 (gross
unrealized appreciation--$38,500,013; gross
unrealized
depreciation--$11,581,341).
- --------------------------------------------------
- ----------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered
investment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate
balance of which is invested in one or more
repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As
of March 31, 1998, the Fund
has a .83% undivided interest in the repurchase
agreements in the joint account.
The undivided interest for the Fund represents
$10,590,000 principal amount. As
of such date, the repurchase agreements in the
joint account and the value of
the collateral therefore were as follows:
Credit Suisse First Boston Corp., 6.00%, in the
principal amount of
$388,000,000, repurchase price $388,064,667, due
4/1/98. The value of the
collateral including accrued interest is
$402,989,454.
Morgan Stanley, Dean Witter, Discover & Co.,
5.94%, in the principal amount of
$125,000,000, repurchase price $125,020,625, due
4/1/98. The value of the
collateral including accrued interest is
$127,500,925.
Salomon Smith Barney, 5.93%, in the principal
amount of $388,000,000, repurchase
price $388,063,912, due 4/1/98. The value of the
collateral including accrued
interest is $396,440,446.
SBC Warburg Dillon Read, Inc., 5.92%, in the
principal amount of $263,000,000,
repurchase price $263,043,249, due 4/1/98. The
value of the collateral including
accrued interest is $268,277,527.
UBS Securities, Inc., 5.95%, in the principal
amount of $106,691,000, repurchase
price $106,708,634, due 4/1/98. The value of the
collateral including accrued
interest is $108,827,671.
- --------------------------------------------------
- ----------
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 contingent
deferred sales charge of 1% during the first year.
Class B shares will
automatically convert to Class A shares on a
quarterly basis approximately seven
years after purchase. A special exchange privilege
is also available for
shareholders who qualified to purchase Class A
shares at net asset value. Class
Z shares are not subject to any sales charge and
are offered exclusively for
sale to a limited group of investors.
There are 2 billion shares of common stock, $.001
par value per share, divided
into four classes, designated Class A, Class B,
Class C and Class Z common
stock, each of which consists of 500 million
authorized shares.
As of March 31, 1998 Prudential owned 2,520 Class
A shares, 2,520 Class B
shares, 2,520 Class C shares and 2,510 Class Z
shares.
Transactions in shares of common stock were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------- ----------
- ------------
<S> <C>
<C>
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 11,854,211
$118,541,655
Shares issued in reinvestment of
distributions...................... 9,833
95,083
Shares reacquired.................... (1,310,348)
(13,297,055)
----------
- ------------
Net increase in shares outstanding... 10,553,696
$105,339,683
----------
- ------------
----------
- ------------
Class B
- -------------------------------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 18,843,085
$188,337,566
Shares issued in reinvestment of
distributions...................... 1,695
16,395
Shares reacquired.................... (854,559)
(8,722,973)
----------
- ------------
Net increase in shares outstanding... 17,990,221
$179,630,988
----------
- ------------
----------
- ------------
Class C
- -------------------------------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 3,713,146
$ 37,077,480
Shares issued in reinvestment of
dividends.......................... 354
3,426
Shares reacquired.................... (365,080)
(3,723,232)
----------
- ------------
Net increase in shares outstanding... 3,348,420
$ 33,357,674
----------
- ------------
----------
- ------------
</TABLE>
- --------------------------------------------------
- ------------------------------
12
<PAGE>
Notes to Financial Statements
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class Z Shares
Amount
- ------------------------------------- ----------
- ------------
<S> <C>
<C>
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 528,277
$ 5,243,225
Shares issued in reinvestment of
distributions...................... 383
3,700
Shares reacquired.................... (162,548)
(1,672,158)
----------
- ------------
Net increase in shares outstanding... 366,112
$ 3,574,767
----------
- ------------
----------
- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------
- ------------------------------
13
<PAGE>
Financial Highlights
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
Class Z
- ------------ ------------ ------------
- ------------
November 10, November 10, November 10,
November 10,
1997(a) 1997(a) 1997(a)
1997(a)
Through Through Through
Through
March 31, March 31, March 31,
March 31,
1998 1998 1998
1998
- ------------ ------------ ------------
- ------------
<S>
<C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................... $ 10.00 $
10.00 $ 10.00 $10.00
- ------------ ------------ ------
- -----
Income from investment operations
Net investment income
(loss)........................... .02
(.01) (.01) .02
Net realized and unrealized gain on investment
transactions......................................
.. .94 .94 .94
.95
- ------------ ------------ ------
- -----
Total from investment
operations.................... .96
.93 .93 .97
- ------------ ------------ ------
- -----
Less distributions
Distributions in excess of net investment
income....... (.01) --
- -- (.01)
- ------------ ------------ ------
- -----
Net asset value, end of
period......................... $ 10.95
$ 10.93 $ 10.93 $10.96
- ------------ ------------ ------
- -----
- ------------ ------------ ------
- -----
TOTAL
RETURN(c):.......................................
9.60% 9.31% 9.31%
9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $115,621
$196,671 $ 36,628 $4,039
Average net assets
(000)............................... $106,453
$170,484 $ 34,000 $2,709
Ratios to average net assets(b):
Expenses, including distribution
fees............... 1.22%
1.97% 1.97% 0.97%
Expenses, excluding distribution
fees............... 0.97%
0.97% 0.97% 0.97%
Net investment income
(loss)........................ .47%
(.29)% (.29)% .51%
Portfolio turnover
rate................................
39% 39% 39%
39%
Average commission rate paid per
share................. $ .0445 $
.0445 $ .0445 $.0445
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of
sales loads. Total return is
calculated assuming a purchase of shares on
the first day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of
less than a full year are not
annualized.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 14
<PAGE>
Report of Independent Accountants
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
To the Shareholders and Board of Directors of
Prudential Small-Cap Quantum 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-Cap Quantum Fund,
Inc. (the 'Fund') at March 31, 1998, and the
results of its operations, the
changes in its net assets and the financial
highlights for the period November
10, 1997 (commencement of operations) through
March 31, 1998, in conformity with
generally accepted accounting principles. These
financial statements and
financial highlights (hereafter referred to as
'financial statements') are the
responsibility of the Fund's management; our
responsibility is to express an
opinion on these financial statements based on our
audit. We conducted our audit
of these financial statements in accordance with
generally accepted auditing
standards which require that we plan and perform
the audit to obtain reasonable
assurance about whether the financial statements
are free of material
misstatement. An audit includes examining, on a
test basis, evidence supporting
the amounts and disclosures in the financial
statements, assessing the
accounting principles used and significant
estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our
audit, which included confirmation of securities
at March 31, 1998 by
correspondence with the custodian and brokers,
provides a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 14, 1998
Tax Information
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------
- ------------------------------
We are required by the Internal Revenue Code to
advise you within 60 days of the
Fund's fiscal period end (March 31, 1998) as to
the federal tax status of
dividends paid by the Fund during its fiscal
period ended March 31, 1998.
During the period, the Fund paid dividends of
$0.009 per Class A share, $0.001
per Class B share, $0.001 per Class C share and
$0.012 per Class Z share of
which represent dividends from ordinary income
(net investment income and
short-term capital gains). Further, we wish to
advise you that 34% of the
ordinary income dividends paid during the period
qualified for the corporate
dividends received deduction available to
corporate taxpayers.
For the purpose of preparing your annual federal
income tax return, however, you
should report the amounts as reflected on the
appropriate Form 1099-DIV or
substitute 1099-DIV.
We are required by Massachusetts, Missouri and
Oregon to inform you that
dividends which have been derived from interest on
federal obligations are not
taxable to shareholders providing the mutual fund
meets certain requirements
mandated by the respective state's taxing
authorities. We are pleased to report
that 5% of the dividends paid by Prudential Small-
Cap Quantum Fund, Inc. qualify
for such deduction.
For more detailed information regarding your state
and local taxes, you should
contact your tax adviser or the state/local taxing
authorities.
- --------------------------------------------------
- ------------------------------
15
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information
about the Fund's portfolio
holdings are for the period covered by this report
and are subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74436N108 MF176E2
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