(ICON)
Prudential
Small-Cap
Quantum
Fund, Inc.
SEMI
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Small-Cap Quantum Fund, Inc.
Performance At A Glance.
The six months ended September 30, 1998 included a steep bear market for
small-cap stocks: the S&P SmallCap 6004 dropped 31% from its historical peak
before rebounding. Investors already frightened by the recession in Asia then
were jolted by a default on Russian bonds. Stock investors fled to the largest
companies with the most secure earnings growth. Your Small-Cap Quantum Fund
trailed the Lipper Small-Cap Fund Average primarily because our investment
style tends to underrepresent the very largest small-caps, which performed
best, and because our consumer growth stocks performed poorly.
Cumulative Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
Six Since
Months Inception2
<S> <C> <C>
Class A -27.67% -20.73%
Class B -28.00 -21.29
Class C -28.00 -21.29
Class Z -27.65 -20.60
Lipper Small-Cap Fund Avg.3 -24.85 -17.07
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Investments Fund Management and Lipper Analytical Services.
The cumulative total returns do not take into account sales charges. Since the
Fund has been in existence less than one year, no average annual total returns
are presented. The Fund charges a maximum front-end sales charge of 5% for
Class A shares. Class B shares are subject to a declining contingent deferred
sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class B shares
will automatically convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares have a 1% sales load
and a 1% CDSC for 18 months. Class Z shares are not subject to a sales charge
or distribution fee.
2Inception dates: Class A, B, C, and Z, 11/10/97.
3Lipper returns are for all funds in each share class for the since inception
period in the Lipper Small-Cap Fund category.
4The Standard & Poor's SmallCap 600 Stock Price Index (S&P SmallCap 600 Index)
is an unmanaged, market-capitalization weighted index comprised of 600 domestic
stocks chosen for market size, liquidity, and industry group representation.
Investors cannot invest directly in an index. Small-cap stocks may have limited
marketability and may be subject to more abrupt or erratic movements than
large-cap stocks.
How Investments Compared.
(As of 9/30/98)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher returns means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds can fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other invest-ments.
Smaller capitalization stocks offer greater potential for long-term growth but
may be more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
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 broadly
diversified portfolio based on the rankings of the Small-Cap Quantitative
Valuation (QV) model developed by Prudential Securities Incorporated's
Quantitative Analysis Group. We believe that 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.
An Unusual Market.
Although many factors are incorporated in our stock evaluation model, an
important part of our strategy is buying stocks when they are undervalued by
the market. We expect to benefit when most investors seek out and bid for the
better investment values. It is unusual for already wide value differences to
grow wider, but that is what happened this summer. Equity investors generally
focused on stocks of a very small number of very large companies.
Performance In Context.
- -------------------------------------------------------------------------------
The Small-Cap QV Strategy. Prudential Securities pulled together in a single
formula eight indicators that their research showed should be effective in
predicting future stock performance. These include measures of how expensive a
stock is, how its profitability is changing, and whether its earnings reports
contain either positive or negative surprises for analysts.
Prudential Securities' Small-Cap QV model ranks about 1,500 stocks. The model
creates a broadly diversified portfolio, adding new stocks from the top 40% of
the ranking and selling any that have fallen to the bottom 40%. We sell others
as well, for risk or sector considerations. Our benchmark is the Standard &
Poor's Small-Cap 600 Index (S&P 600), but we may invest more in any sector than
its weight in the Index if doing so will improve the portfolio's risk and
return characteristics.
Current Execution. Over the past six months, our basic industry holdings
declined to about 10% of our assets, compared with 13% for the S&P 600. Our
consumer stocks increased to 20% from 17%, compared with 16% for the S&P 600.
Our utilities rose slightly to eight percent, but they remain significantly
higher than the four percent in the S&P 600. Among finance, we sold our real
estate trusts and increased our other financial holdings to 18% from 15%, in
line with their representation in the overall market.
We made a more general change to our strategy: we raised from $1.5 billion to
$2.5 billion our small-cap sell limit, the upper bound at which we require
ourselves to sell stocks. This allows us to wait longer when a stock rises
rapidly, benefiting more before we take our profits. It also should help in
our effort to reduce the turnover in our portfolio. Also to that end, and to
increase our diversification, we increased to 250 the number of different
stocks we may hold. We are paying greater attention now to the cost compared
to the amount of benefit we expect when we plan changes in the portfolio.
<PAGE>
What Affected Our Performance.
Our reporting period included a very sharp bear market for small-cap stocks.
The global economic and financial systems went through some historic upheavals.
Asian economies, which had been growing rapidly, actually shrank. There were
widespread fears that many financial institutions and hedge funds faced large
losses on their market exposures. Then Russia defaulted on some of its debt and
devalued the ruble. Many investors were troubled by world events. Consequently,
despite basically sound -- although slowing -- U.S. and European economies,
investors bailed out of any stock that had any perceived vulnerability at all.
The large-cap S&P 500 Index* fell seven percent over our reporting period, but
small-cap stocks -- which historically are more volatile -- plummeted 24%, as
measured by the S&P SmallCap 600 Index.
We trailed both the S&P SmallCap Index and the Lipper average of other
small-cap funds because we owned less of the largest small-cap companies,
which held up better than the average small-cap stock. Our consumer growth
stocks, particularly hospital management firms such as Genesis Health Ventures
and Integrated Health Services, performed poorly. Our oil service stocks,
notably Pride International and Input/Output, also had significant declines.
Our Strategy in Context.
Investors behaved in an unusual way in this period. When there was a positive
earnings surprise, which normally would raise a stock's price, owners often
were quick to sell, even at low prices, as soon as buyers appeared in an
otherwise stagnant market. As Federal Reserve Chairman Alan Greenspan described
them, investors had a "markedly decreased willingness to deal with
uncertainty." Stock performance appears to have been driven not by business
fundamentals, but by the flow of funds out of small-cap mutual funds, by
perceptions of safety, and by perceptions of liquidity (how easy it would be
to sell a stock if one needed to). We believe that the investing environment
was atypical.
Any stock investment strategy will work better in some environments than in
others. The past six months represented an unusual investment climate, but not
one that was out of the range of our long-term expectations. We will stick to
our investment discipline.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 9/30/98.
Consumer Services 20%
Finance 18%
Technology 13%
Basic Industry 10%
Utilities 8%
Health Care 7%
Consumer Cyclicals 6%
Energy 5%
Capital Spending 5%
Consumer Staples 4%
Business Services 2%
Cash & Equivalents 2%
Source: Prudential
Five Largest Holdings.
2.1% First American
Financial Corp.
Finance
1.6% United Illuminating Co.
Utilities
1.3% Arthur J. Gallagher & Co.
Finance
1.3% Cleco Corp.
Utilities
1.3% Piedmont Natural Gas
Co. Inc.
Energy
Expressed as a percentage of net assetsas of 9/30/98.
Looking Ahead.
At their low this year, the prices of small company stocks would have been
reasonable if we were about to enter a very severe recession. Neither
economists nor securities analysts expect that to happen. The Federal Reserve
and foreign central banks have reduced interest rates, indicating they are
concerned, but acting to forestall trouble. Those actions appear to have
restored a sense of perspective to the markets. Small-caps have risen rapidly
since a low on October 8.
As investors examine the growth prospects and prices of various stocks more
critically, we expect the prices of our stocks to better reflect their
excellent value. At our period end, our stocks sold for only 13 times their
estimated 1998 earnings, compared with 21 times for small-caps generally and
25 times for the S&P 500.
* The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) is an
unmanaged, market capitalization-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily traded on the New
York Stock Exchange. Investors cannot invest directly in an index.
1
<PAGE>
Staying On Course.
- -------------------------------------------------------------------------------
John Leib Discusses Investing In A Difficult Half Year.
Q. Do stocks the QV model rates as more attractive always perform better than
less attractive stocks?
A. No indicator can identify the stocks that are going to have superior
performance. Investing through the QV model is a matter of likelihoods and
probabilities. By investing in a large enough and sufficiently diversified
portfolio, we hope the average return for our stocks will beat the average
for the market. Historically, the QV rankings seem to work that way over the
long term. Even so, however, there have been periods when the lower-ranked
20% or 40% of stocks averaged a better return as a group than the top 20% or
40%. This happened about a quarter of the time in the past decade. So our
current investment environment, although very disappointing, is within the
range of performances that we have expected to occur occasionally for short
periods. Over longer periods of time, however, the QV rankings have
historically been good predictors of stock return.
Q. Since you know that investors are unusually skittish in these times, should
you change your investment strategy?
A. No. When we test our strategies against historical trends, we test them
against good times and bad. No one is very good at predicting the turning
points when different strategies will perform better. Market sentiment can
swing from optimism to pessimism and back very quickly. Investors have
generally been more successful by sticking to one investment course
consistently than by chasing shifts in the market winds. We know that this
has been a trying period for our shareholders, and it is unfortunate that it
came so soon after we introduced the Fund, but we believe the best course
is to follow our discipline.
John Leib (PHOTO)
2
<PAGE>
President's Letter November 9, 1998
- -------------------------------------------------------------------------------
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the financial markets
is decidedly mixed. After setting record highs earlier, stocks, as measured by
the Dow Jones Industrial Average, experienced a series of steep sell-offs in
late summer. The market rebounded in early fall, helped by two interest rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report. Bonds appreciated
as investors fled troubled Asian and other emerging markets for the safe haven
of U.S. debt securities -- especially Treasuries. The U.S. economy remains
strong, with steady growth and low inflation.
Guarding against uncertainty in the current market environment can be
challenging. That's why it is important to manage your expectations and
diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial markets will always
rise and fall -- that's what markets do. Although past performance may not be
indicative of future results, stocks and bonds have, over time, consistently
produced attractive returns that have kept ahead of inflation. In fact,
investors who remained focused on the long term and did not sell during the
recent market volatility were rewarded. Stock prices, as measured by the
Standard & Poor's 500 Index, have rebounded nearly 25% since their August
Lows -- setting a new record high on November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix of stock, bond,
and money market mutual funds can help lessen the effects of a market downturn
over time. In fact, a well-diversified portfolio may retain or perhaps even
gain in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential professional will be glad to
review your current allocations. He or she will recommend adjustments based
upon your goals, market conditions, risk tolerance, and potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds. We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
3
<PAGE>
Portfolio of Investments as of
September 30, 1998 (Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--97.5%
COMMON STOCKS
- ------------------------------------------------------------
Basic Industries--9.8%
45,300 AAR Corp. $ 889,012
21,600 Alaska Air Group, Inc. 735,750
105,500 AMCOL International Corp. 1,200,062
44,900 Applied Industrial Technologies,
Inc. 732,431
63,800 Barnes Group, Inc. 1,834,250
74,900 BE Aerospace, Inc.(a) 1,647,800
80,400 Building Materials Holdings Corp. 1,055,250
38,300 Carbide/Graphite Group, Inc. 426,088
21,400 Cleveland-Cliffs, Inc. 834,600
30,700 Coach USA, Inc. 757,906
44,100 Commercial Intertech Corp. 813,094
79,900 CTS Corp. 2,357,050
62,400 Innovex, Inc. 756,600
88,700 JLG Industries, Inc. 1,413,656
9,300 Lone Star Industries, Inc. 555,675
40,100 M.S. Carriers, Inc. 796,988
12,500 NACCO Industries, Inc. 1,250,000
64,000 Oregon Steel Mills, Inc. 752,000
52,200 Republic Group, Inc. 694,913
34,800 Skywest, Inc. 665,550
35,500 Texas Industries, Inc. 891,937
67,600 US Freightways Corp. 1,343,550
56,800 Wolverine Tube, Inc.(a) 1,196,350
------------
23,600,512
- ------------------------------------------------------------
Business Services--2.2%
116,000 Bowne & Co., Inc. 1,964,750
50,900 Merrill Corporation 798,493
88,700 Norrell Corp. 1,330,500
29,000 Staffmark, Inc.(a) 529,250
19,100 TMP Worldwide, Inc.(a) 626,719
------------
5,249,712
- ------------------------------------------------------------
Capital Spending--4.5%
36,500 Anixter International, Inc. 568,031
33,800 DT Industries, Inc. 574,600
38,200 Flowserve Corp. 773,550
49,000 Halter Marine Group, Inc. 557,375
51,300 Juno Lighting, Inc. 1,147,838
55,700 Manitowoc Co., Inc. $ 1,677,963
76,650 Smith AO Corp. 1,504,256
31,200 SPS Technologies, Inc.(a) 1,452,750
69,500 Thomas Industries, Inc. 1,489,906
43,200 Varlen Corp. 1,198,800
------------
10,945,069
- ------------------------------------------------------------
Consumer Cyclical--6.3%
39,200 Arvin Industries, Inc. 1,460,200
66,300 Champion Enterprises, Inc. 1,541,475
88,300 D.R. Horton, Inc. 1,412,800
228,500 Fedders Corp. 1,171,062
67,400 Intermet Corp. 855,138
77,600 Kaufman & Broad Home Corp. 1,818,750
60,900 Lennar Corp. 1,358,831
77,800 Lo Jack Corp.(a) 836,350
45,500 MascoTech, Inc. 819,000
69,000 Myers Industries, Inc. 1,587,000
35,200 Pulaski Furniture Corp. 792,000
58,900 Standard Pacific Corp. 831,963
41,200 Standard Products Co. 721,000
------------
15,205,569
- ------------------------------------------------------------
Consumer Services--19.8%
113,300 ADVO, Inc. 2,768,769
19,100 Anchor Gaming 1,093,475
87,800 Applebee's International, Inc. 1,832,825
184,700 Arctic Cat, Inc. 1,650,756
121,400 Brightpoint, Inc. 933,263
94,600 Buffets, Inc. 1,022,863
78,900 Cato Corp. 917,213
67,300 Chicos Fas, Inc. 1,085,213
54,100 Claire Stores, Inc. 973,800
63,900 CPI Corp. 1,513,631
69,700 Discount Auto Parts, Inc. 1,677,156
54,400 Dress Barn, Inc.(a) 659,600
32,900 Ethan Allen Interiors, Inc. 1,192,625
138,700 Foodmaker, Inc. 2,175,856
56,800 Footstar, Inc. 1,288,650
39,000 Galey & Lord, Inc. 465,563
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
<PAGE>
Portfolio of Investments as of
September 30, 1998 (Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consumer Services (cont'd.)
130,400 Genesco, Inc.(a) $ 709,050
116,000 Grand Casinos, Inc. 920,750
99,900 Group 1 Automotive, Inc. 1,498,500
77,400 Guilford Mills, Inc. 1,151,325
64,800 Justin Industries, Inc. 996,300
75,100 Kellwood Co. 2,018,312
57,600 Landry's Seafood Restaurant, Inc.(a) 388,800
110,600 Luby's Cafeterias, Inc. 1,783,425
83,600 Musicland Stores Corp.(a) 1,034,550
103,800 Nash Finch Co. 1,524,562
76,500 Nautica Enterprises, Inc. 1,429,594
45,800 North Face, Inc. 595,400
55,800 OshKosh B'Gosh, Inc. 1,157,850
42,100 Pillowtex Corp. 1,236,687
65,800 Pomeroy Computer Resources 1,093,925
69,200 Russ Berrie & Co., Inc. 1,319,125
102,000 Ryan's Family Steak Houses, Inc.(a) 1,217,625
110,500 Shuffle Master, Inc. 939,250
66,000 Sonic Automatic, Inc.(a) 1,307,625
25,900 Timberland Co. 945,350
29,200 Travel Services International,
Inc.(a) 396,025
78,300 Winnebago Ind, Inc. 880,875
80,600 Wolverine World Wide, Inc. 876,525
43,100 Zale Corp. 1,104,437
------------
47,777,125
- ------------------------------------------------------------
Consumer Staples--4.2%
51,600 Canandaigua Brands, Inc. 2,038,200
149,800 Chiquita Brands International, Inc. 1,582,262
146,600 DIMON, Inc. 1,548,463
35,600 Earthgrains Co. 1,101,375
51,900 Herbalife International, Inc.
(Class 'A' Stock) 480,075
68,400 Schweitzer-Mauduit International,
Inc. 1,487,700
97,500 Smithfields Foods, Inc. 1,724,531
45,100 Windmere Durable Holdings, Inc. 253,688
------------
10,216,294
- ------------------------------------------------------------
Energy--5.0%
22,800 Atwood Oceanics, Inc. 474,525
33,500 Cliffs Drilling Company 661,625
86,500 Key Energy Group, Inc. 805,531
56,900 New Jersey Resources Corp. 2,027,063
89,500 Piedmont Natural Gas Co., Inc. $ 3,031,812
62,500 Pool Energy Services Co.(a) 570,313
96,700 Pride International, Inc.(a) 773,600
37,600 Trico Marine Services, Inc. 260,850
99,300 UGI Corp. 2,296,312
74,600 Varco International, Inc. 624,775
27,700 Veritas DGC, Inc. 462,244
------------
11,988,650
- ------------------------------------------------------------
Finance--18.0%
70,000 Allied Capital Corporation 1,242,500
45,100 Americredit Corp. 1,099,313
83,500 Amerus Life Holdings, Inc.
(Class 'A' Stock) 1,831,781
68,700 AMRESCO, Inc.(a) 515,250
78,700 Arthur J. Gallagher & Co. 3,246,375
35,000 Banknorth Group, Inc. 1,023,750
36,700 Budget Group Incorporated 837,219
38,600 CMAC Investment Corp. 1,679,100
36,500 Cullen/Frost Bankers, Inc. 1,761,125
22,600 Delphi Financial Group, Inc.(a) 889,875
68,500 Delta Financial Corp.(a) 466,656
101,400 Downey Financial Corp. 2,414,587
37,800 Enhance Financial Services Group,
Inc. 1,117,463
80,330 Fidelity National Financial, Inc. 2,716,158
156,150 First American Financial Corp. 4,996,800
13,900 First Sierra Financial, Inc. 125,969
68,700 Foremost Corp. of America 1,258,069
94,000 Frontier Insurance Group, Inc. 1,245,500
70,864 HUBCO, Inc. 1,798,174
58,650 INSpire Insurance Solutions, Inc. 1,385,606
35,300 IPC Holdings Ltd., ADR (Bermuda) 811,900
52,300 Jefferies Group, Inc. 1,385,950
36,100 Leasing Solutions, Inc. 988,238
118,000 Morgan Keegan, Inc. 2,087,125
62,900 Raymond James Financial, Inc. 1,320,900
105,800 Selective Insurance Group, Inc. 2,023,425
35,000 Stewart Information Services Corp. 2,016,875
205,100 World Acceptance Corp. 1,153,687
------------
43,439,370
- ------------------------------------------------------------
Health Care--6.8%
57,300 Alpharma, Inc. 1,504,125
83,300 Ameripath, Inc. 1,239,087
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
<PAGE>
Portfolio of Investments as of
September 30, 1998 (Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Health Care (cont'd.)
184,100 BioSource International, Inc. $ 575,313
51,000 Cooper Cos., Inc. 898,875
55,900 Empi, Inc. 894,400
56,600 ESC Medical Systems Ltd., ADR
(Israel)(a) 397,969
97,500 Genesis Health Ventures, Inc. 1,194,375
133,100 Integrated Health Services, Inc. 2,237,744
53,600 Mentor Corp. 609,700
84,200 PhyCor, Inc.(a) 421,000
127,600 Prime Medical Services, Inc.(a) 1,036,750
33,100 Quadramed Corp. 666,138
67,200 RehabCare Corp. 806,400
75,800 Sierra Health Services, Inc.(a) 1,492,312
55,400 Sola International, Inc.(a) 993,737
60,900 Wesley Jessen Visioncare, Inc. 1,294,125
------------
16,262,050
- ------------------------------------------------------------
Technology--13.2%
62,800 Advanced Digital Information Corp. 502,400
83,600 Alpha Industries, Inc.(a) 950,950
33,100 Apex Pc Solutions, Inc. 649,588
29,800 Avid Technology, Inc.(a) 709,613
168,800 Box Hill Systems Corp. 1,487,550
78,500 C-Cube Microsystems, Inc. 1,373,750
27,900 Computer Horizons Corp. 695,756
44,500 Concord Communications, Inc. 1,768,875
34,400 Flextronics International Ltd. 1,219,050
35,600 Gilat Satellite Networks Ltd. 1,602,000
48,300 Harmon Industries, Inc. 1,062,600
48,100 Inacom Corp.(a) 907,887
110,000 Input/Output, Inc. 873,125
72,000 Integrated Circuit Systems, Inc. 717,750
122,400 Invision Technologies, Inc. 726,750
73,800 Kellstrom Industries, Inc.(a) 1,023,975
68,500 Mail-Well, Inc. 586,531
41,900 Mapics, Inc. 924,419
48,700 Mastech Corp.(a) 1,171,844
68,100 MicroTouch Systems, Inc.(a) 851,250
59,900 MRV Communications Inc.(a) 370,631
56,600 Norstan, Inc.(a) 990,500
72,300 Optical Coating Lab, Inc. 1,296,881
65,800 Park Electrochemical Corp. 896,525
127,800 Pioneer-Standard Electronics, Inc. $ 806,738
63,400 Platinum Software Corp. 649,850
72,500 Plexus Corp.(a) 1,404,687
49,700 Systems & Computer Technology Corp. 639,888
40,100 Tech-Sym Corp.(a) 917,287
73,800 Technitrol, Inc. 1,476,000
38,800 United Stationers, Inc. 926,350
117,000 Vivid Technologies, Inc.(a) 829,969
51,000 Xylan Corp.(a) 675,750
------------
31,686,719
- ------------------------------------------------------------
Utilities--7.7%
90,300 Cleco Corp. 3,041,981
44,900 Conectiv, Inc. 1,024,281
34,300 Connecticut Energy Corp. 926,100
62,100 Eastern Utilities Associates 1,622,363
138,500 Energen Corp. 2,631,500
62,600 Madison Gas & Electric Co. 1,439,800
27,900 Otter Tail Power Co. 1,039,275
19,800 Pacific Gateway Exchange, Inc.(a) 732,600
55,800 Sierra Pacific Resources 2,165,737
75,700 United Illuminating Co. 3,955,325
------------
18,578,962
Total long-term investments
(cost $304,446,180) 234,950,032
------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--2.5%
Repurchase Agreement
$ 6,094 Joint Repurchase Agreement Account,
5.52%, 10/1/98 (Note 5)
(cost $6,094,000) 6,094,000
------------
- ------------------------------------------------------------
Total Investments--100.0%
(cost $310,540,180; Note 4) 241,044,032
Liabilities in excess of other
assets--0.0% (109,122)
------------
Net Assets--100% $240,934,910
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1998
<S> <C>
Investments, at value (cost $310,540,180).............................................................. $ 241,044,032
Receivable for Fund shares sold........................................................................ 350,574
Dividends and interest receivable...................................................................... 242,268
Prepaid expenses....................................................................................... 164,757
------------------
Total assets........................................................................................ 241,801,631
------------------
Liabilities
Payable for Fund shares reacquired..................................................................... 619,017
Distribution fee payable............................................................................... 151,411
Management fee payable................................................................................. 73,591
Accrued expenses and other liabilities................................................................. 22,702
------------------
Total liabilities................................................................................... 866,721
------------------
Net Assets............................................................................................. $ 240,934,910
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 30,549
Paid-in capital in excess of par.................................................................... 307,588,518
------------------
307,619,067
Accumulated net investment loss..................................................................... (490,006)
Accumulated net realized gain on investments........................................................ 3,301,997
Net unrealized depreciation on investments.......................................................... (69,496,148)
------------------
Net assets, September 30, 1998......................................................................... $ 240,934,910
------------------
------------------
Class A:
Net asset value and redemption price per share
($70,454,774 / 8,897,747 shares of common stock issued and outstanding).......................... $7.92
Maximum sales charge (5% of offering price)......................................................... .42
------------------
Maximum offering price to public.................................................................... $8.34
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share
($140,863,668 / 17,894,871 shares of common stock issued and outstanding)........................ $7.87
------------------
------------------
Class C:
Net asset value, offering price and redemption price per share
($23,986,617 / 3,046,917 shares of common stock issued and outstanding).......................... $7.87
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per share
($5,630,851 / 709,856 shares of common stock issued and outstanding)............................. $7.93
------------------
------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
<PAGE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income September 30, 1998
<S> <C>
Income
Dividends............................. $ 1,955,539
Interest.............................. 275,858
------------------
Total income....................... 2,231,397
------------------
Expenses
Distribution fee--Class A............. 124,084
Distribution fee--Class B............. 909,578
Distribution fee--Class C............. 162,843
Management fee........................ 957,425
Registration fees..................... 198,000
Transfer agent's fees and expenses.... 172,000
Reports to shareholders............... 80,000
Custodian's fees and expenses......... 55,000
Legal fees and expenses............... 23,000
Amortization of deferred
organizational cost................ 15,667
Audit fee............................. 11,000
Directors' fees....................... 8,000
Miscellaneous......................... 4,806
------------------
Total expenses..................... 2,721,403
------------------
Net investment loss...................... (490,006)
------------------
Realized and Unrealized
Loss on Investments
Net realized loss on investment
transactions.......................... (819,670)
Net change in unrealized depreciation on
investments........................... (96,414,820)
------------------
Net loss on investments.................. (97,234,490)
------------------
Net Decrease in Net Assets
Resulting from Operations................ $(97,724,496)
------------------
------------------
</TABLE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months November 10, 1997(a)
Ended Through
Increase (Decrease) September 30, March 31,
in Net Assets 1998 1998
<S> <C> <C>
Operations
Net investment loss....... $ (490,006) $ (31,882)
Net realized gain (loss)
on investments......... (819,670) 4,191,233
Net change in unrealized
appreciation
(depreciation) on
investments............ (96,414,820) 26,918,672
------------- --------------------
Net increase (decrease) in
net assets resulting
from operations........ (97,724,496) 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 (net
of share conversions)
(Note 6)
Net proceeds from shares
sold................... 49,182,370 349,199,926
Net asset value of shares
issued in reinvestment
of distributions....... -- 118,604
Cost of shares
reacquired............. (63,482,211) (27,415,418)
------------- --------------------
Net increase (decrease) in
net assets from Fund
share transactions..... (14,299,841) 321,903,112
------------- --------------------
Total increase (decrease).... (112,024,337) 352,859,247
Net Assets
Beginning of period.......... 352,959,247 100,000
------------- --------------------
End of period(b)............. $ 240,934,910 $ 352,959,247
------------- --------------------
------------- --------------------
- ---------------
(a) Commencement of investment operations.
(b) Includes accumulated net
investment loss of:...... $ (490,006) $ --
------------- --------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) 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.
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.
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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with (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.
- --------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
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 had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ('PIMS') became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangment with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the 'Class A, B and C Plans') regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the 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 six months ended September 30, 1998.
PSI and PIMS have advised the Fund that they received approximately $233,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended September 30, 1998. From these fees, PSI and PIMS paid such sales
charges, which in turn paid commissions to salespersons and incurred other
distribution costs.
PSI and PIMS advised the Fund that for the six months ended September 30, 1998,
they received approximately $395,000 and $26,000 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PSI, PIFM, PIMS 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 six months
ended September 30, 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
expires on December 29, 1998.
- ------------------------------------------------------------
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 six months ended September 30,
1998, the Fund incurred fees of approximately $170,000 for the services of PMFS.
As of September 30, 1998, approximately $30,000 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.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended September 30, 1998 were $204,744,512 and $214,511,077,
respectively.
The federal income tax basis of the Fund's investments at September 30, 1998 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized depreciation for federal income tax purposes was $(69,496,148) (gross
unrealized appreciation--$9,124,028; gross unrealized
depreciation--$78,620,176).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of September 30, 1998, the
Fund has a .83% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $6,094,000 principal
amount. As of such date, the repurchase agreements in the joint account and the
value of the collateral therefore were as follows:
SBC Warburg Dillon Read LLC, 5.52%, in the principal amount of $210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the collateral
including accrued interest was $214,255,819.
Bear Stearns & Co., 5.58%, in the principal amount of $210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral including accrued
interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98. The value of the
collateral including accrued interest was $111,084,883.
- --------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- --------------------------------------------------------------------------------
Goldman Sachs & Co., 5.45%, in the principal amount of $210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral including accrued
interest was $214,200,293.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares
were sold with a front-end sales charge of up to 5%. Class B shares are sold
with a contingent deferred sales charge which declines from 5% to zero depending
on the period of time the shares are held. Prior to November 2, 1998, Class C
shares are sold with a contingent deferred sales charge of 1% during the first
year. Effective November 2, 1998, Class C shares were 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 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 September 30, 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
- -------------------------------------
<S> <C> <C>
Six months ended September 30, 1998:
Shares sold.......................... 1,571,783 $ 16,130,455
Shares reacquired.................... (3,242,769) (31,876,077)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (1,670,986) $(15,745,622)
Shares issued upon conversion from
Class B............................ 12,537 109,517
---------- ------------
Net decrease in shares outstanding... (1,658,449) (15,636,105)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Six months ended September 30, 1998:
Shares sold.......................... 2,492,957 $ 25,227,857
Shares reacquired.................... (2,578,216) (24,592,666)
---------- ------------
Net increase (decrease) in shares
outstanding before conversion...... (85,259) $ 635,191
Shares reacquired upon conversion
into Class A....................... (12,591) (109,517)
---------- ------------
Net increase (decrease) in shares
outstanding........................ (97,850) $ 525,674
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
Six months ended September 30, 1998:
Shares sold.......................... 256,676 $ 2,640,510
Shares reacquired.................... (560,679) (5,343,069)
---------- ------------
Net decrease in shares outstanding... (304,003) $ (2,702,559)
---------- ------------
---------- ------------
November 10, 1997(a) through
March 31, 1998:
Shares sold.......................... 3,713,146 $ 37,077,480
Shares issued in reinvestment of
distributions...................... 354 3,426
Shares reacquired.................... (365,080) (3,723,232)
---------- ------------
Net increase in shares outstanding... 3,348,420 $ 33,357,674
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
Six months ended September 30, 1998:
Shares sold.......................... 520,342 $ 5,183,548
Shares reacquired.................... (179,098) (1,670,399)
---------- ------------
Net increase in shares outstanding... 341,244 $ 3,513,149
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------ ------------------------------ -------------
November 10, November 10,
Six Months 1997(a) Six Months 1997(a) Six Months
Ended Through Ended Through Ended
September 30, March 31, September 30, March 31, September 30,
1998 1998 1998 1998 1998
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.95 $ 10.00 $ 10.93 $ 10.00 $ 10.93
------ ------------ ------------- ------------ ------
Income from investment operations
Net investment income (loss)......... .02 .02 (.02) (.01) (.02)
Net realized and unrealized gain
(loss) on investment
transactions...................... (3.05) .94 (3.04) .94 (3.04)
------ ------------ ------------- ------------ ------
Total from investment
operations..................... (3.03) .96 (3.06) .93 (3.06)
------ ------------ ------------- ------------ ------
Less distributions
Distributions in excess of net
investment income................. -- (.01) -- -- --
------ ------------ ------------- ------------ ------
Net asset value, end of period....... $ 7.92 $ 10.95 $ 7.87 $ 10.93 $ 7.87
------ ------------ ------------- ------------ ------
------ ------------ ------------- ------------ ------
TOTAL RETURN(c):..................... (27.67)% 9.60% (28.00)% 9.31% (28.00)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $70,454 $115,621 $ 140,864 $196,671 $23,987
Average net assets (000)............. $98,996 106,453 $ 181,419 $170,484 $32,480
Ratios to average net assets(b):
Expenses, including distribution
fees........................... 1.21% 1.22% 1.96% 1.97% 1.96%
Expenses, excluding distribution
fees........................... .96% 0.97% .96% 0.97% .96%
Net investment income (loss)...... .19% .47% (.56)% (.29)% (.56)%
Portfolio turnover rate.............. 67% 39% 67% 39% 67%
<CAPTION>
Class Z
------------------------------
<S> <C> <C> <C>
November 10, November 10,
1997(a) Six Months 1997(a)
Through Ended Through
March 31, September 30, March 31,
1998 1998 1998
------------ ------------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.00 $ 10.96 $10.00
------ ------------- -----
Income from investment operations
Net investment income (loss)......... (.01) .02 .02
Net realized and unrealized gain
(loss) on investment
transactions...................... .94 (3.05) .95
------ ------------- -----
Total from investment
operations..................... .93 (3.03) .97
------ ------------- -----
Less distributions
Distributions in excess of net
investment income................. -- -- (.01)
------ ------------- -----
Net asset value, end of period....... $ 10.93 $ 7.93 $10.96
------ ------------- -----
------ ------------- -----
TOTAL RETURN(c):..................... 9.31% (27.65)% 9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 36,628 $ 5,631 $4,039
Average net assets (000)............. $ 34,000 $ 5,375 $2,709
Ratios to average net assets(b):
Expenses, including distribution
fees........................... 1.97% .96% 0.97%
Expenses, excluding distribution
fees........................... 0.97% .96% 0.97%
Net investment income (loss)...... (.29)% .47% .51%
Portfolio turnover rate.............. 39% 67% 39%
</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. 12
<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
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLC
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.
The accompanying financial statements as of September 30, 1998 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74436N108 MF176E3
74436N207
74436N306
74436N405
