(ICON)
Prudential
Small-Cap
Quantum
Fund, Inc.
ANNUAL
REPORT
March 31, 1999
(LOGO)
<PAGE>
Prudential Small-Cap Quantum Fund, Inc.
Performance At A Glance
The 12 months ended March 31, 1999, was a poor year for
small-cap stocks, with a very unusual investor focus on
a small number of growth stocks. Both trends hurt the
Prudential Small-Cap Quantum Fund: our return was far
from satisfactory. Investors fearing a global recession
particularly avoided small-cap stocks. In the subsequent
stock-market recovery, they generally favored larger
companies with established histories of earnings
growth--whatever price their stocks commanded. This
unusual insensitivity to price created a very difficult
environment for our investment discipline, so we even
trailed the small-cap average.
<TABLE>
Cumulative Total Returns1 As of 3/31/99
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A -31.00% -24.37%
Class B -31.61 -25.24
Class C -31.61 -25.24
Class Z -30.88 -24.15
Lipper Small-Cap Fund Avg.3 -15.48 -6.28
</TABLE>
<TABLE>
Average AnnualTotal Returns1 As of 3/31/99
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A -34.45% -21.23%
Class B -36.61 -22.09
Class C -33.29 -20.31
Class Z -30.88 -18.09
</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.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.. The cumulative total returns do not take into account
sales charges. 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 are subject to a front-end sales charge of 1%,
and a CDSC of 1% for 18 months. Class C shares bought
before November 2, 1998, have a 1% CDSC if sold within
one year. Class Z shares are not subject to a sales
charge or distribution fee.
2 Inception dates: Class A, B, C, and Z, 11/10/97.
3 Lipper returns are for all funds in each share class
for the one-year and since inception period in the Lipper
Small-Cap Fund category.
How Investments Compared
(As of 3/31/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual
fund's past performance should never be used to predict
future results. The risks to each of the investments
listed above are different--we provide 12-month total
returns for several Lipper mutual fund categories to
show you that reaching for higher returns means
tolerating more risk. The greater the risk, the
larger the potential reward or loss. In addition,
we've included historical 20-year average annual
returns. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher historical total returns from stocks
than from most other investments. Smaller capitalization
stocks offer greater potential for long-term growth,
but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds,
which can help smooth out their total returns year by year.
But their prices still fluctuate (sometimes significantly),
and their returns 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>
Portfolio Manager's Report
(PHOTO)
John Leib
Fund Manager
Investment Goals and Style
The Prudential Small-Cap Quantum Fund seeks long-term
capital growth 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) like those of the S&P SmallCap 600. The Fund invests
in a broadly diversified portfolio based on the rankings of
the Small-Cap Quantitative Valuation (QV) model developed at
Prudential Securities, among others. 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. Smaller-company stocks
historically have often performed very differently from
stocks of large companies, and so can help diversify a
stock portfolio.
Performance Review
Our investment strategy
The QV, or quantitative valuation, model is a method for
ranking stocks. Prudential Securities 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
for analysts. 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.
Prudential Securities' Small-Cap QV model ranks about 1,500
stocks. Although it uses both value and growth
considerations,
value factors have a somewhat greater weight. We then create
a
broadly diversified portfolio.
Liquidity refers to the ease with which an investor can
sell a stock or bond. It requires ready buyers and efficient
markets. Often less-liquid securities command lower prices
than similar but more liquid stocks and bonds; in times of
uncertainty, this price difference can be magnified
immensely.
A very unusual period
Early in the 12 months ended March 31, 1999, many investors
were
acting as if an economic catastrophe were imminent.
Financial
crises in Asia, Russia, and Brazil all presented threats to
economic growth and financial stability. Investors feared
the worst possible outcomes. Had the Federal Reserve Board
not acted in September and October, the financial markets
might well have been frozen for some time. Investors favored
Treasury bonds over other bonds, bonds over stocks, more
liquid securities over any with tighter markets, and the
very largest growth stocks over all others. The 38
percentage
points performance gap between the large-cap S&P 500 Index
and the small-cap S&P 600 over our reporting period is the
largest in the history of the small-cap index by a very wide
margin. Smaller companies are more vulnerable than large
ones
to economic slowdowns, and their stocks are less liquid, so
investors avoided them. With few buyers, anyone who wanted
to sell small-cap stocks had to unload them at a much lower
price than they previously commanded. Average prices dropped
precipitously. Moreover, inexpensive stocks suffered
particularly--S&P Small-Cap 600 value stocks fell eight
percentage points more than the growth stocks in the
Index over our reporting period--because they tend
<PAGE>
to have some additional risk element, and investors were
trying to avoid any risk at all.
Both short-term and strategic factors hurt performance
In terms of economic sectors, we did worst in finance,
technology services, and health services stocks. We owned
some specialized lenders who typically convert their loans
into securities they can sell; they had difficulty selling
them in the summer's tight credit markets. In technology,
many investors overreacted to the threat that the technical
staffing companies we owned would suffer from a reduction in
demand as Y2K approached. Also, some technology companies
had earnings disappointments. Companies that provide
healthcare services were hurt, in part, by concerns
about changes in medicare payments. We believe these
negative factors are short term.
We also had a poor selection of high-growth companies.
Although
our stock ranking model has a strong historical record, it
was
less effective in this year's unusual market environment.
Because most of our investment process is captured in
quantitative models and computer programs, we were able
to examine its strengths and weaknesses. We believe we
would have done better had we been willing to pay more
for high-growth companies. By and large, the stocks of
any high-growth company that had problems dropped sharply,
and our attempt to be wise shoppers among growth stocks
backfired.
We're reexamining our methods
We believe--and historical evidence suggests--that
strategies that
are successful over the long term may have bursts of very
poor
performance, and that the past year was particularly
unfavorable
to us. Nonetheless, a loss of this magnitude certainly
warrants
reexamination of our methods to see if we can improve them.
We
have been engaged in an extensive study of the strengths and
weaknesses of our strategy; we will keep our shareholders
informed of our findings.
Looking Ahead
Better results on the horizon
The very small number of stocks that performed well in this
year of global anxiety was unusual, and penalized an
investment
style that emphasizes diversification and value. As
investors
have become more confident that the U.S. economy is growing
soundly, the stock market has been broadening, and value
stocks have performed better. With positive changes in the
investment context, we hope to see better results.
Five Largest Holdings
Expressed as a percentage of net assets
as of 3/31/99
Foodmaker, Inc. 1.8%
Consumer Services
United Illuminating Co. 1.8
Utilities
Platinum Technology, Inc. 1.6
Technology
Canandaigua Brands, Inc. 1.6
Consumer Staples
Cullen/Frost Bankers, Inc. 1.4
Finance
Portfolio Composition
Expressed as a percentage of net assets
as of 3/31/99
Consumer Services 19%
Finance 17
Technology 17
Basic Industry 11
Consumer Cyclical 10
Healthcare 5
Utilities 5
Capital Spending 4
Consumer Staples 3
Business Services 2
Energy 2
Cash & Equivalents 5
Source: Prudential
1
<PAGE>
A Message to Our Shareholders May 28, 1999
Dear Shareholder:
As 1999 began, major index advances have been driven by the
stocks of a handful of very large companies. These stocks
were
getting more and more expensive--out of proportion to their
earnings expectations. As a result, there was a substantial
disparity in value between large and small companies, and
between growth and value stocks. In recent months, however,
that gap has started to narrow amid news of strong economic
growth.
Our current economic environment has prompted many investors
to
turn to value stocks that typically fare better in a growing
economy, and have been selling at a significant discount to
the market.
Many sectors of the bond market have also begun to rebound
from last year's global financial crisis. Furthermore, while
bonds have not generated higher returns than stocks in
recent
years, they have demonstrated that they hold up better
during
market downturns. That's a thought to keep in mind going
forward.
Diversification is critical
History shows that the markets generally bring prices in
line
with earnings performance, sooner or later. It also shows
that
two investment styles--value and growth--typically alternate
in
periods of superior performance.
What does this suggest? Instead of chasing popular market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
equity funds, bond funds, and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds to help our shareholders diversify. We have also
designed
several balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as of
March 31, 1999 PRUDENTIAL SMALL-CAP
QUANTUM FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--94.5%
COMMON STOCKS
- ------------------------------------------------------------
Basic Industry--11.0%
21,600 Alaska Air Group, Inc. $
1,026,000
10,800 Alliant Techsystems, Inc.(a)
839,025
103,100 AMCOL International Corp.
1,031,000
74,900 BE Aerospace, Inc.(a)
1,104,775
76,000 Building Materials Holdings Corp.
769,500
7,700 Castle (A.M.) & Co.
92,881
21,500 Cleveland-Cliffs, Inc.
732,344
30,700 Coach USA, Inc.
844,250
29,100 Commercial Intertech Corp.
323,738
14,000 Commercial Metals Co
280,000
86,300 JLG Industries, Inc.
1,175,837
21,800 Landstar Systems, Inc.(a)
722,125
18,200 Lone Star Industries, Inc.
564,200
9,500 Olympic Steel, Inc.(a)
66,500
62,300 Oregon Steel Mills, Inc.
650,256
21,100 Pentair, Inc.
712,125
18,600 Precision Castparts Corp.
748,650
49,700 Republic Group, Inc.
748,606
4,900 Roanoke Electric Steel Corp.
54,513
6,100 Rock-Tenn Co.
93,788
36,700 Schulman (A.), Inc.
500,037
34,200 Skywest, Inc.
987,525
35,500 Texas Industries, Inc.
880,844
7,900 Tredegar Industries, Inc.
244,406
3,100 Universal Forest Products, Inc.
63,550
67,800 USFreightways Corp.
2,228,925
7,700 Werner Enterprises, Inc.
121,275
42,300 Wolverine Tube, Inc.(a)
893,587
---------
- ---
18,500,262
- ------------------------------------------------------------
Business Services--1.6%
4,900 CSS Industries, Inc.(a)
109,025
13,000 Henry Jack & Associates, Inc.(a)
477,750
15,400 Interim Services, Inc.(a)
231,000
48,600 Merrill Corp.
650,025
60,400 Norrell Corp.
788,975
27,600 Romac International, Inc.(a)
234,600
29,000 Staffmark, Inc.(a)
228,375
---------
- ---
2,719,750
Capital Spending--3.4%
42,100 Juno Lighting, Inc. $
944,619
52,800 Manitowoc Co., Inc.
2,211,000
29,700 SPS Technologies, Inc.(a)
1,165,725
15,000 Superior Telecom, Inc.
283,125
52,500 Varlen Corp.
1,155,000
---------
- ---
5,759,469
- ------------------------------------------------------------
Consumer Cyclical--10.4%
39,400 Arvin Industries, Inc.
1,327,287
66,300 Champion Enterprises, Inc.
1,284,562
88,300 D.R. Horton, Inc.
1,479,025
67,400 Intermet Corp.
901,475
88,000 Kaufman & Broad Home Corp.
1,985,500
100,000 Lennar Corp.
2,237,500
74,200 Lo Jack Corp.(a)
570,413
45,500 MascoTech, Inc.
705,250
70,400 Meritor Automotive, Inc.
1,091,200
8,400 Miller (Herman), Inc.
153,300
50,400 OshKosh B'Gosh, Inc.
891,450
29,100 Pier 1 Imports, Inc
236,438
34,100 Pulaski Furniture Corp.
699,050
72,850 Smith AO Corp.
1,384,150
39,900 Standard Products Co.
648,375
97,200 Tower Automotive, Inc.(a)
1,810,350
---------
- ---
17,405,325
- ------------------------------------------------------------
Consumer Services--18.5%
107,400 ADVO, Inc.
2,074,162
15,300 Anchor Gaming
669,375
9,200 Ann Taylor Stores Corp.(a)
406,525
142,900 Arctic Cat, Inc.
1,420,069
121,400 Brightpoint, Inc.
717,019
75,800 Cato Corp.
705,888
33,860 CKE Restaurants, Inc.
668,735
26,300 Claire's Stores, Inc.
792,287
44,000 CPI Corp.
984,500
51,900 Dress Barn, Inc.(a)
720,113
119,300 Foodmaker, Inc.
3,042,150
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of
March 31, 1999 PRUDENTIAL SMALL-CAP
QUANTUM FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consumer Services (cont'd.)
37,800 Galey & Lord, Inc. $
167,738
32,600 Genesco, Inc.(a)
301,550
65,300 Group 1 Automotive, Inc.
1,603,931
74,200 Guilford Mills, Inc.
649,250
3,900 Insight Enterprises, Inc.(a)
96,525
2,300 Interface, Inc. (Class 'A' Stock)
22,138
6,200 Justin Industries, Inc.
68,200
70,900 Kellwood Co.
1,564,231
104,100 Luby's Cafeterias, Inc.
1,756,687
4,100 Mohawk Industries, Inc.(a)
123,000
72,600 Musicland Stores Corp.(a)
639,788
84,200 Nash Finch Co.
705,175
76,800 Nautica Enterprises, Inc.
868,800
37,700 North Face, Inc.
471,250
32,400 Pillowtex Corp.
459,675
20,200 Polaris Industries, Inc.
641,350
53,900 Pomeroy Computer Resources, Inc.
700,700
37,200 Pre-Paid Legal Services, Inc.(a)
911,400
34,500 Russ Berrie & Co., Inc.
901,312
102,000 Ryan's Family Steak Houses, Inc.(a)
1,230,375
8,900 Shuffle Master, Inc.
58,406
53,100 Sonic Automatic, Inc.(a)
823,050
35,400 Tech Data Corp.(a)
811,987
26,200 Timberland Co. (Class 'A' Stock)
1,652,237
1,600 Trans World Entertainment Corp.(a)
17,600
11,100 Travel Services International,
Inc.(a)
116,550
42,500 Zale Corp.
1,452,969
---------
- ---
31,016,697
- ------------------------------------------------------------
Consumer Staples--3.3%
53,400 Canandaigua Brands, Inc. (Class 'A'
Stock)
2,690,025
49,100 Herbalife International, Inc. (Class
'A' Stock)
604,544
65,500 Schweitzer-Mauduit International,
Inc.
753,250
51,900 Smithfield Foods Inc.
1,177,481
44,500 Windmere Durable Holdings, Inc.
311,500
---------
- ---
5,536,800
- ------------------------------------------------------------
Energy--2.5%
29,200 Barrett Resources Corp.(a)
731,825
36,100 New Jersey Resources Corp.
1,283,806
37,500 Newfield Exploration Co.(a)
848,437
17,700 Seitel, Inc.(a) $
246,694
68,500 UGI Corp.
1,143,094
---------
- ---
4,253,856
- ------------------------------------------------------------
Finance--17.3%
70,200 Allied Capital Corp.
1,289,925
90,200 Americredit Corp.
1,183,875
78,700 Amerus Life Holdings, Inc. ( Class
'A' Stock)
1,888,800
39,700 Arthur J. Gallagher & Co.
1,826,200
34,400 Astoria Financial Corp.
1,720,000
1,160 Bank United Corp. (Class 'A' Stock)
47,415
34,000 Banknorth Group, Inc.
960,500
38,600 CMAC Investment Corp.
1,505,400
50,700 Cullen/Frost Bankers, Inc.
2,430,431
36,100 Delta Financial Corp.(a)
203,063
2,200 Doral Financial Corp.
40,425
36,500 Downey Financial Corp.
668,406
91,200 Enhance Financial Services Group,
Inc.
2,074,800
88,583 Fidelity National Financial, Inc.
1,328,745
142,150 First American Financial Corp.
2,247,747
74,000 Fremont General Corp.(b)
1,410,625
70,864 HUBCO, Inc.
2,378,373
35,300 IPC Holdings Ltd., ADR (Bermuda)
701,587
27,800 Morgan Keegan, Inc.
460,438
33,900 People's Bank
1,008,525
4,200 Protective Life Corp.
159,075
67,300 Rollins Truck Leasing Corp.
635,144
100,700 Selective Insurance Group, Inc.
1,774,837
197,200 World Acceptance Corp.
1,059,950
---------
- ---
29,004,286
- ------------------------------------------------------------
Health Care--5.8%
69,100 Ameripath, Inc.
621,900
51,000 Cooper Cos., Inc.
784,125
40,500 Empi, Inc.
875,812
5,500 ESC Medical Systems Ltd., ADR
(Israel)(a)
37,813
97,500 Genesis Health Ventures, Inc.
475,313
100,100 Integrated Health Services, Inc.
550,550
24,000 Medimmune, Inc.(a)
1,420,500
75,700 Orthodontic Ctrs. of America,
Inc.(a)
1,192,275
51,100 PhyCor, Inc.(a)
242,725
2,600 Polymedica Corp.(a)
19,500
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of
March 31, 1999 PRUDENTIAL SMALL-CAP
QUANTUM FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Health Care (cont'd.)
124,300 Prime Medical Services, Inc.(a) $
916,712
33,400 Quadramed Corp.
254,675
39,000 RehabCare Corp.
587,438
18,400 Sierra Health Services, Inc.(a)
239,200
34,100 Universal Health Services, Inc.
(Class 'B' Stock)(a)
1,474,825
---------
- ---
9,693,363
- ------------------------------------------------------------
Technology--16.0%
33,200 Advanced Digital Information, Corp.
549,875
2,500 Alpha Industries, Inc.(a)
45,938
48,450 Apex Pc Solutions, Inc.(b)
675,272
11,200 Avant Corp.(a)
198,800
33,100 Avid Technology, Inc.(a)
577,181
159,900 Box Hill Systems Corp.
819,488
2,700 Brady (W.H.) Co.
56,531
6,400 Cerner Corp.(a)
102,800
61,300 CIBER, Inc.(a)
1,176,194
28,400 Complete Busines Solutions, Inc.(a)
557,350
28,800 Computer Horizons Corp.
315,000
10,800 Computer Task Group, Inc.
230,850
28,400 Concord Communications, Inc.(b)
1,618,800
7,600 Consolidated Graphics, Inc.(a)
438,900
6,000 DII Group, Inc.(a)
175,500
5,700 General Semiconductor Inc.
41,325
22,900 GenRad, Inc.(a)
329,188
19,600 Geotel Communications Corp.(a)
899,150
15,000 Hyperion Solutions Corp.(a)
217,500
42,500 Inacom Corp.(a)
329,375
70,600 Integrated Circuit Systems, Inc.
1,275,212
116,900 Invision Technologies, Inc.
611,898
30,900 Keane, Inc.(a)
658,556
36,400 Kellstrom Industries, Inc.(a)
577,850
13,600 Legato Systems, Inc.(a)
702,100
68,500 Mail-Well, Inc.(a)
916,187
42,200 Mapics, Inc.
324,413
93,700 Mastech Corp.(a)
1,218,100
7,100 Micros Systems, Inc.(a)
234,300
55,200 MicroTouch Systems, Inc.(a)
655,500
47,500 Park Electrochemical Corp.
1,116,250
106,500 Pioneer-Standard Electronics, Inc.
698,906
63,600 Platinum Software Corp.
469,050
107,700 Platinum Technology, Inc.(a)
2,746,350
19,900 Plexus Corp.(a)
554,713
4,600 Polycom, Inc.(a) $
86,250
10,000 Powerhouse Technologies, Inc.(a)
171,875
11,500 Shared Medical Systems Corp.
640,406
2,500 Sterling Software, Inc.(a)
59,375
4,000 Structural Dynamics Research
Corp.(a)
76,250
35,200 Symantec Corp.(a)
596,200
49,300 Systems & Computer Technology
Corp.(a)
493,000
58,900 Technitrol, Inc.
1,358,381
38,900 United Stationers, Inc.(a)
593,225
5,800 Vicor Corp.(a)
72,500
24,900 Xircom, Inc.(a)
625,613
---------
- ---
26,887,477
- ------------------------------------------------------------
Utilities--4.7%
31,700 Cleco Corp.
935,150
11,500 Connecticut Energy Corp.
278,875
52,500 Energen Corp.
784,219
28,300 Madison Gas & Electric Co.
551,850
26,900 Otter Tail Power Co.
1,072,637
35,700 Sierra Pacific Resources
1,256,194
72,100 United Illuminating Co.
3,023,694
---------
- ---
7,902,619
Total long-term investments
(cost $208,985,660)
158,679,904
---------
- ---
Principal
Amount
(000)
SHORT-TERM INVESTMENT--5.3%
Repurchase Agreement
$ 8,891 Joint Repurchase Agreement Account,
4.91%, 4/1/99
(cost $8,891,000; Note 5)
8,891,000
- ------------------------------------------------------------
Total Investments--99.8%
(cost $217,876,660; Note 4)
167,570,904
Other assets in excess of
liabilities--0.2%
331,501
---------
- ---
Net Assets--100%
$167,902,405
---------
- ---
---------
- ---
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Security segregated as collateral for futures contracts.
ADR--American Depository Receipt.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL SMALL-
CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
March 31, 1999
<S>
<C>
Investments, at value (cost
$217,876,660)...............................................
................... $167,570,904
Cash........................................................
...............................................
464,403
Receivable for investments
sold........................................................
.................... 2,179,110
Dividends and interest
receivable..................................................
........................ 153,242
Deferred organization expenses and other
assets......................................................
...... 113,917
Receivable for Fund shares
sold........................................................
.................... 59,055
- --------------
Total
assets......................................................
...................................... 170,540,631
- --------------
Liabilities
Payable for Fund shares
reacquired..................................................
....................... 2,191,742
Accrued
expenses....................................................
....................................... 180,293
Distribution fees
payable.....................................................
............................. 117,056
Management fee
payable.....................................................
................................ 91,935
Due to broker - variation
margin......................................................
..................... 57,200
- --------------
Total
liabilities.................................................
...................................... 2,638,226
- --------------
Net
Assets......................................................
...........................................
$167,902,405
- --------------
- --------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................... $ 22,718
Paid-in capital in excess of
par.........................................................
............... 244,360,919
- --------------
244,383,637
Accumulated net realized loss on
investments.................................................
........... (26,249,463)
Net unrealized depreciation on
investments.................................................
............. (50,231,769)
- --------------
Net assets, March 31,
1999........................................................
......................... $167,902,405
- --------------
- --------------
Class A:
Net asset value and redemption price per share
($46,735,854 / 6,281,463 shares of common stock issued
and outstanding)..............................
$7.44
Maximum sales charge (5% of offering
price)......................................................
....... .39
- --------------
Maximum offering price to
public......................................................
.................. $7.83
- --------------
- --------------
Class B:
Net asset value, offering price and redemption price per
share
($102,093,958 / 13,855,137 shares of common stock
issued and outstanding)............................
$7.37
- --------------
- --------------
Class C:
Net asset value and redemption price per share
($14,951,286 / 2,029,136 shares of common stock issued
and outstanding)..............................
$7.37
Sales charge (1% of offering
price)......................................................
............... .07
- --------------
Offering price to
public......................................................
.......................... $7.44
- --------------
- --------------
Class Z:
Net asset value, offering price and redemption price per
share
($4,121,307 / 552,115 shares of common stock issued
and outstanding).................................
$7.46
- --------------
- --------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income March 31,
1999
<S> <C>
Income
Dividends................................ $ 3,385,738
Interest................................. 493,705
-------------
- -
Total income.......................... 3,879,443
-------------
- -
Expenses
Distribution fee--Class A................ 205,830
Distribution fee--Class B................ 1,580,847
Distribution fee--Class C................ 271,815
Management fee........................... 1,637,480
Transfer agent's fees and expenses....... 380,000
Registration fees........................ 258,000
Reports to shareholders.................. 200,000
Custodian's fees and expenses............ 120,000
Legal fees and expenses.................. 60,000
Amortization of deferred organization
expenses.............................. 31,248
Audit fee and expenses................... 25,000
Directors' fees.......................... 16,000
Miscellaneous............................ 21,606
-------------
- -
Total expenses........................ 4,807,826
-------------
- -
Net investment loss.........................
(928,383)
-------------
- -
Realized and Unrealized
Loss on Investments
Net realized gain (loss) on:
Investment transactions..................
(26,325,270)
Financial futures transactions........... 75,807
-------------
- -
(26,249,463)
-------------
- -
Net change in unrealized appreciation
(depreciation) on:
Investments..............................
(77,224,428)
Financial futures transactions........... 73,987
-------------
- -
(77,150,441)
-------------
- -
Net loss on investments.....................
(103,399,904)
-------------
- -
Net Decrease in Net Assets
Resulting from Operations...................
$(104,328,287)
-------------
- -
-------------
- -
</TABLE>
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year November 10,
1997(a)
Ended
Through
Increase (Decrease) March 31, March
31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment loss....... $ (928,383) $
(31,882)
Net realized gain (loss)
on investments......... (26,249,463)
4,191,233
Net change in unrealized
appreciation
(depreciation)
on investments......... (77,150,441)
26,918,672
------------- ------------
- --------
Net increase (decrease) in
net assets resulting
from operations........ (104,328,287)
31,078,023
------------- ------------
- --------
Dividends and distributions
(Note 1)
Distributions in excess of
net investment income
Class A................... --
(97,677)
Class B................... --
(16,994)
Class C................... --
(3,484)
Class Z................... --
(3,733)
------------- ------------
- --------
--
(121,888)
------------- ------------
- --------
Distributions from net
realized gains
Class A................... (1,145,659)
- --
Class B................... (2,301,304)
- --
Class C................... (390,070)
- --
Class Z................... (87,222)
- --
------------- ------------
- --------
(3,924,255)
- --
------------- ------------
- --------
Fund share transactions (net
of share conversions)
(Note 6)
Net proceeds from shares
sold................... 70,366,132
349,199,926
Net asset value of shares
issued in reinvestment
of distributions....... 3,790,396
118,604
Cost of shares
reacquired............. (150,960,828)
(27,415,418)
------------- ------------
- --------
Net increase (decrease) in
net assets from Fund
share transactions..... (76,804,300)
321,903,112
------------- ------------
- --------
Total increase (decrease).... (185,056,842)
352,859,247
Net Assets
Beginning of period.......... 352,959,247
100,000
------------- ------------
- --------
End of period................ $ 167,902,405
$352,959,247
------------- ------------
- --------
------------- ------------
- --------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<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
which is sought 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 gains, if
any, annually.
Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
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 $928,383, increase accumulated net realized loss
investments by $197,412
and decrease paid in capital in excess of par by $730,971
for redemptions
utilized as distributions for federal income tax purposes
during the year and a
tax operating loss for the year ended March 31, 1999. Net
investment loss, net
realized gains and net assets were not affected by this
change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with (PIFM). Pursuant to
this agreement,
PIFM has responsibility for all investment advisory services
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL-
CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
- --------------------
and supervises the subadviser's performance of such
services. PIFM has entered
into a subadvisory agreement with The Prudential Investment
Corporation ('PIC').
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 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 arrangement 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
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 year ended March 31, 1999.
PSI and PIMS have advised the Fund that they received
approximately $320,200 and
$5,100 in front-end sales charges resulting from sales of
Class A shares and
Class C shares, respectively, during the year ended March
31, 1999. From these
fees, PSI and PIMS paid such sales charges to dealers, which
in turn paid
commissions to salespersons and incurred other distribution
costs.
PSI and PIMS have advised the Fund that for the year ended
March 31, 1999, they
received approximately $974,500 and $40,400 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PIFM, PIC, PSI and PIMS are wholly owned subsidiaries of The
Prudential
Insurance Company of America.
As of March 11, 1999, the Fund along with other affiliated
registered investment
companies (the 'Funds'), entered into a syndicated credit
agreement ('SCA') with
an unaffiliated lender. The maximum commitment under the SCA
is $1 billion. The
Funds pay a commitment fee at an annual rate of .065 of 1%
on the unused portion
of the credit facility, which is accrued and paid quarterly
on a pro rata basis
by the Funds. The SCA expires on March 9, 2000. Prior to
March 11, 1999, the
Funds had a credit agreement with a maximum commitment of
$200,000,000. The
commitment fee was .055 of 1% on the unused portion of the
credit facility. The
Fund did not borrow any amounts pursuant to either agreement
during the six
months ended March 31, 1999. The purpose of the agreements
are to serve as an
alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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 year ended
March 31, 1999, the
Fund incurred fees of approximately $339,200 for the
services of PMFS. As of
March 31, 1999, approximately $26,700 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.
For the year ended March 31, 1999, PSI earned approximately
$4,800 in brokerage
commissions from portfolio transactions executed on behalf
of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended March 31, 1999 were $277,679,925 and
$357,389,073,
respectively.
The federal income tax basis of the Fund's investments at
March 31, 1999 was
$217,882,523 and, accordingly, net unrealized depreciation
for federal income
tax purposes was $50,311,619 (gross unrealized appreciation-
- -$6,011,226; gross
unrealized depreciation--$56,322,845).
For federal income tax purposes, the Fund had a capital loss
carryforward as of
March 31, 1999, of $3,890,973 which expires in 2007.
Accordingly, no capital
gains distributions are expected to be paid to shareholders
until future net
gains have been realized in excess of such carryforward.
The Fund will elect, for United States Federal income tax
purposes, to treat
short-term capital losses of $14,333,055 and long-term
capital losses of
$7,945,585 incurred in the five months ended March 31, 1999
as having been
incurred in the following fiscal year.
During the year ended March 31, 1999, the Series entered
into financial futures
contracts. Details of open contracts at March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration March 31,
Trade Appreciation/
Contracts Type Date 1999
Date (Depreciation)
- -------------- ------------- ----------- ----------
- ---------- --------------
<S> <C> <C> <C>
<C> <C>
Long Positions:
10 Russell 2000 June 1999 $1,992,500
$1,911,351 $ 81,149
4 Russell 2000 June 1999 797,000
788,040 8,960
4 Russell 2000 June 1999 797,000
791,841 5,159
8 Russell 2000 June 1999 1,594,000
1,615,281 (21,281)
- -------
$ 73,987
- -------
- -------
</TABLE>
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL-
CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
- --------------------
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, 1999, the Fund
has a 1.6% undivided interest in the repurchase agreements
in the joint account.
The undivided interest for the Fund represents $8,891,000
principal amount. As
of such date, the repurchase agreements in the joint account
and the value of
the collateral therefore were as follows:
Bear Stearns & Co. Inc., 4.92%, in the principal amount of
$170,000,000,
repurchase price $170,023,233, due 4/1/99. The value of the
collateral including
accrued interest was $174,282,442.
Salomon Smith Barney Inc., 4.90%, in the principal amount of
$170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the
collateral including
accrued interest was $174,947,170.
Morgan Stanley Dean Witter, 4.90%, in the principal amount
of $170,000,000,
repurchase price $170,023,139, due 4/1/99. The value of the
collateral including
accrued interest was $173,474,773.
Warburg Dillon Read LLC, 4.97%, in the principal amount of
$44,773,000,
repurchase price $44,779,181, due 4/1/99. The value of the
collateral including
accrued interest was $45,668,747.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z
shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B
shares are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------- ---------- --------
- ----
<S> <C> <C>
Year ended March 31, 1999:
Shares sold.......................... 2,696,758 $
25,459,881
Shares issued in reinvestment of
distributions...................... 133,662
1,122,758
Shares reacquired.................... (7,130,641)
(63,483,930)
---------- --------
- ----
Net decrease in shares outstanding
before conversion.................. (4,300,221)
(36,901,291)
Shares issued upon conversion from
Class B............................ 25,488
213,899
---------- --------
- ----
Net decrease in shares outstanding... (4,274,733)
$(36,687,392)
---------- --------
- ----
---------- --------
- ----
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
- -------------------------------------
<S> <C> <C>
Year ended March 31, 1999:
Shares sold.......................... 3,544,591 $
33,771,230
Shares issued in reinvestment of
distributions...................... 264,099
2,202,587
Shares reacquired.................... (7,920,628)
(67,279,455)
---------- --------
- ----
Net decrease in shares outstanding
before conversion.................. (4,111,938)
(31,305,638)
Shares reacquired upon conversion
into Class A....................... (25,646)
(213,899)
---------- --------
- ----
Net decrease in shares outstanding... (4,137,584)
$(31,519,537)
---------- --------
- ----
---------- --------
- ----
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>
Year ended March 31, 1999:
Shares sold.......................... 477,990 $
4,468,986
Shares issued in reinvestment of
distributions...................... 45,585
380,178
Shares reacquired.................... (1,845,359)
(15,689,617)
---------- --------
- ----
Net decrease in shares outstanding... (1,321,784)
$(10,840,453)
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL-
CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- ------------------------------------- ---------- --------
- ----
<S> <C> <C>
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>
Year ended March 31, 1999:
Shares sold.......................... 703,945 $
6,666,035
Shares issued in reinvestment of
distributions...................... 10,080
84,873
Shares reacquired.................... (530,522)
(4,507,826)
---------- --------
- ----
Net increase in shares outstanding... 183,503 $
2,243,082
---------- --------
- ----
---------- --------
- ----
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.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Financial Highlights PRUDENTIAL SMALL-
CAP QUANTUM FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
Class B Class C
-------------------
- ----------- ------------------------------ ---------
- ----
November 10, November 10,
Year
1997(a) Year 1997(a) Year
Ended
Through Ended Through Ended
March 31,
March 31, March 31, March 31, March
31,
1999
1998 1999 1998 1999
------------- -
- ----------- ------------- ------------ ---------
- ----
<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)......... .03
.02 (.06) (.01) (.08)
Net realized and unrealized gain
(loss) on investment
transactions...................... (3.41)
.94 (3.37) .94 (3.35)
------ -
- ----------- ------------- ------------ -----
- -
Total from investment
operations..................... (3.38)
.96 (3.43) .93 (3.43)
------ -
- ----------- ------------- ------------ -----
- -
Less distributions
Distributions in excess of net
investment income................. --
(.01) -- -- --
Distributions from net realized
gains............................. (.13)
- -- (.13) -- (.13)
------ -
- ----------- ------------- ------------ -----
- -
Net asset value, end of period....... $ 7.44
$ 10.95 $ 7.37 $ 10.93 $ 7.37
------ -
- ----------- ------------- ------------ -----
- -
------ -
- ----------- ------------- ------------ -----
- -
TOTAL RETURN(c):..................... (31.00)%
9.60% (31.61)% 9.31% (31.61)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $46,736
$115,621 $ 102,094 $196,671 $14,951
Average net assets (000)............. $82,332
$106,453 $ 158,085 $170,484 $27,182
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.26%
1.22%(b) 2.01% 1.97%(b) 2.01%
Expenses, excluding distribution
fees........................... 1.01%
0.97%(b) 1.01% 0.97%(b) 1.01%
Net investment income (loss)...... .16%
.47%(b) (.58)% (.29)%(b) (.59)%
Portfolio turnover rate.............. 106%
39% 106% 39% 106%
<CAPTION>
Class Z
----
- --------------------------
<S> <C> <C>
<C>
November 10,
November 10,
1997(a)
Year 1997(a)
Through
Ended Through
March 31,
March 31, March 31,
1998
1999 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)
.05 .02
Net realized and unrealized gain
(loss) on investment
transactions...................... .94
(3.42) .95
------ ----
- --------- -----
Total from investment
operations..................... .93
(3.37) .97
------ ----
- --------- -----
Less distributions
Distributions in excess of net
investment income................. --
- -- (.01)
Distributions from net realized
gains............................. --
(.13) --
------ ----
- --------- -----
Net asset value, end of period....... $ 10.93 $
7.46 $10.96
------ ----
- --------- -----
------ ----
- --------- -----
TOTAL RETURN(c):..................... 9.31%
(30.88)% 9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 36,628 $
4,121 $4,039
Average net assets (000)............. $ 34,000 $
5,315 $2,709
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.97%(b)
1.01% 0.97%(b)
Expenses, excluding distribution
fees........................... 0.97%(b)
1.01% 0.97%(b)
Net investment income (loss)...... (.29)%(b)
.43% .51%(b)
Portfolio turnover rate.............. 39%
106% 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>
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, 1999, the results of its
operations for the year
then ended, and the changes in its net assets and the
financial highlights for
the year then ended and 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 audits. We conducted our
audits of these
financial statements in accordance with generally accepted
auditing standards
which require that we plan and perform the audit to obtain
reasonable assurance
about whether the financial statements are free of material
misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles
used and significant estimates made by management, and
evaluating the overall
financial statement presentation. We believe that our
audits, which included
confirmation of securities at March 31, 1999 by
correspondence with the
custodian and brokers, provide a reasonable basis for the
opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 20, 1999
Tax Information (Unaudited) 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 year end (March 31, 1999) as to the federal
tax status of
dividends paid by the Fund during its fiscal period ended
March 31, 1999.
During the year, the Fund paid dividends of $0.1306 per
Class A, Class B, Class
C, and Class Z share. Of this amount, $0.1303 per Class A,
B, C and Z shares
represent dividends from ordinary income (short-term capital
gains). The
remaining $0.0003 per Class A, B, C and Z shares represent
long-term capital
gain distributions. The Fund utilized redemptions as
distributions in the amount
of $0.0069 and $0.00001 per Class A, Class B, Class C and
Class Z share of
short-term capital gains and long-term capital gains
respectively.
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.
- ------------------------------------------------------------
- --------------------
13
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they
don't
read annual and semi-annual reports. It's quite
understandable.
These annual and semi-annual reports are prepared to comply
with
Federal regulations. They are often written in language that
is
difficult to understand. So, when most people run into those
particularly daunting sections of these reports, they don't
read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes
familiarizing yourself with your investment. Here's what
you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we present performance information in two
different formats. You'll find it first on the "At A Glance"
page where we compare the Fund and the comparable average
calculated by Lipper Analytical Services, a nationally
recognized mutual fund rating agency. We report both the
cumulative total returns and the average annual total
returns. The cumulative total return is the total amount
of income and appreciation the Fund has achieved in various
time periods. The average annual total return is an
annualized
representation of the Fund's performance--it generally
smoothes
out returns and gives you an idea how much the Fund has
earned
in an average year, for a given time period. Under the
performance box, you'll see legends that explain the
performance information, whether fees and sales charges
have been included in returns, and the inception dates
for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you
reports on successful--and not-so-successful--strategies
in this section of your report. Look for recent purchases
and sales here, as well as information about the sectors
the portfolio manager favors and any changes that are on
the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a listing of each security held at the end of
the
reporting period, along with valuations and other
information.
Please note that sometimes we discuss a security in the
Portfolio Manager's Report that doesn't appear in this
listing because it was sold before the close of the
reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your
dividend, capital gain, or other distribution, but remember
that the money or new shares are being paid or issued to
you.
The net asset value fluctuates daily along with the value of
every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest
and dividends earned) and expenses (including what you pay
us to
manage your money). You'll also see capital gains here --
both
realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it-- through dividends and
distributions--and how that affects the net assets. This
statement also shows how money from investors flowed into
and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives.
In addition, they also outline how Prudential Mutual Funds
prices
securities. The Notes also explain who manages and
distributes
the Fund's shares and, more importantly, how much they are
paid
for doing so. Finally, the Notes explain how many shares are
outstanding, and the number issued and redeemed over the
period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand how the Fund performed, and to compare this
year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the information is fairly presented and
complies with generally accepted accounting principles.
Tax Information
This is information which we report annually about how
much of your total return is taxable. Should you have
any questions, you may want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the Securities Exchange Commission. Performance
is presented here as a hypothetical $10,000 investment in
the Fund since its inception or for 10 years (whichever is
shorter). To help you put that return in context, we are
required to include the performance of an unmanaged,
broad-based securities index, as well. The index does
not reflect the cost of buying the securities it contains
or the cost of managing a mutual fund. Of course, the
index holdings do not mirror those of the fund --the
index is a broadly based reference point commonly used
by investors to measure how well they are doing. A
definition of the selected index is also provided.
Investors generally cannot invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following
services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you
match the reward you seek with the risk you can tolerate.
And
risk can be difficult to gauge--sometimes even the simplest
investments bear surprising risks. The educated investor
knows
that markets seldom move in just one direction--there are
times
when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands the markets
and
who knows you!
Keeping Up With The Joneses
A financial advisor or registered representative can help
you wade through the numerous mutual funds available to find
the ones that fit your own individual investment profile and
risk tolerance. While the newspapers and popular magazines
are
full of advice about investing, they are aimed at generic
groups
of people or representative individuals, not at you
personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance--not just based on
the
current investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But, sometimes
it's difficult to hold on to an investment when it's losing
value every month. Your financial advisor or registered
representative can answer questions when you're confused
or worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
--Prudential Small-Cap Quantum
Fund, Inc.
//S&P SmallCap 600 Index
Comparing A $10,000 Investment
- -----------------------------------------------
Prudential Small-Cap Quantum Fund, Inc. vs. the
S&P SmallCap 600 Index
Class A (GRAPH)
Average Annual Total
Returns - Class A
- --------------------
With Sales Load
-21.23% Since Inception
-34.45% for 1 Year
Without Sales Load
-18.26% Since Inception
-31.00% for 1 Year
Class B (GRAPH)
Average Annual Total
Returns - Class B
- ----------------------
With Sales Load
-22.09% Since Inception
-36.61% for 1 Year
Without Sales Load
-18.94% Since Inception
-31.61% for 1 Year
Class C (GRAPH)
Average Annual Total
Returns - Class C
- ---------------------------
With Sales Load
-20.31% Since Inception
-33.29% for 1 Year
Without Sales Load
-18.94% Since Inception
-31.61% for 1 Year
Class Z (GRAPH)
Average Annual Total
Returns - Class Z
- ----------------------------
-18.09% Since Inception
-30.88% for 1 Year
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.
These graphs compare a $10,000 investment in the Prudential
Small-Cap
Quantum Fund, Inc. (Class A, B, C, and Z shares) with a
similar
investment in the Standard & Poor's SmallCap 600 Stock Price
Index
(S&P SmallCap 600 Index) by portraying the account values at
the
commencement of operations of Class A, B, C, and Z shares,
and
at the end of the fiscal year (March 31), as measured on a
quarterly basis, beginning in November of 1997 for Class A,
B, C, and Z shares. For purposes of the graphs, and unless
otherwise indicated, it has been assumed that (a) the
maximum
applicable front-end sales load was deducted from the
initial
$10,000 investment in Class A and Class C shares; (b) the
maximum applicable contingent deferred sales charges were
deducted from the value of the investment in Class B and
Class C shares, assuming full redemption on March 31, 1999;
(c) all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions were
reinvested. Class B shares will automatically convert to
Class A shares, on a quarterly basis, approximately seven
years after purchase. This conversion feature is not
reflected in the graphs. Class Z shares are not subject
to a sales charge or distribution fee.
The S&P SmallCap 600 Index is a market capitalization-
weighted
index comprised of 600 domestic stocks chosen for market
size,
liquidity, and industry group representation. The Index is
unmanaged, and the total return includes the reinvestment
of all dividends, but does not reflect the payment of
transaction costs and advisory fees associated with an
investment in the Fund. The securities in the Index may
differ substantially from the securities in the Fund. The
Index is not the only index that may be used to characterize
performance of stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
These graphs are furnished to you in accordance with SEC
regulations.
<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
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, 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 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.
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