<PAGE>
SEMIANNUAL REPORT SEPTEMBER 30, 2000
Prudential
Tax-Managed Small-Cap Fund, Inc.
Fund Type Stock
Objective Long-term capital appreciation
(GRAPHIC)
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Tax-Managed Small-Cap Fund, formerly
known as the Prudential Small-Cap Quantum Fund,
seeks long-term capital appreciation. It uses
quantitative investment techniques to buy primarily
the stocks of U.S. companies with market
capitalizations like those of the S&P SmallCap 600
Index (S&P 600 Index). Since May 31, 2000, the Fund
also attempts to minimize taxable distributions.
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. They may have limited
marketability, and may be subject to more abrupt or
erratic movements than stocks of larger companies.
Please note: The Fund's fiscal year-end, currently
September 30, will change to October 31.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 9/30/00
19.2% Technology
16.2 Healthcare
15.5 Consumer Services
12.6 Basic Industry
11.9 Finance
6.8 Business Services
6.1 Energy
3.8 Consumer Staples
3.6 Consumer Cyclicals
2.8 Capital Spending
1.7 Utilities
-0.2 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 9/30/00
1.16% Americredit Corp.
Finance
1.10 Plexus Corp.
Technology
1.02 Universal Health Services, Inc.
Healthcare
0.97 Silicon Valley Bancshares
Finance
0.94 Arthur J. Gallagher & Co.
Finance
0.94 Protein Design Labs, Inc.
Healthcare
0.93 Radian Group, Inc.
Finance
0.85 Energen Corp.
Utilities
0.85 Kemet Corp.
Technology
0.84 Vertex Pharmaceuticals, Inc.
Healthcare
Holdings are subject to change.
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 9/30/00
<TABLE>
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 7.44% 21.29% 1.34%
Class B 7.02 20.35 -0.86
Class C 7.02 20.35 -0.86
Class Z 7.61 21.55 2.08
Lipper Small-Cap Value Fund Avg.3 7.95 20.66 10.60
</TABLE>
Average Annual Total Returns1 As of 9/30/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 15.23% -1.30%
Class B 15.35 -1.35
Class C 18.14 -0.65
Class Z 21.55 0.72
</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
LLC and Lipper Inc. The cumulative total returns do
not take into account sales charges. The average
annual total returns do take into account
applicable sales charges. 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 Z shares are not subject to a sales charge or
distribution and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 11/10/97.
3 Lipper average returns are for all funds in each
share class for the six-month, one-year, and since
inception periods in the Small-Cap Value Fund
category. Small-Cap Value funds, by portfolio
practice, invest at least 75% of their equity
assets in companies with market capitalizations (on
a three-year weighted basis) of less than 250% of
the dollar-weighted median market capitalization of
the S&P SmallCap 600 IndexR. Small-Cap Value funds
seek long-term growth of capital by investing in
companies that are considered undervalued relative
to a major unmanaged stock index based on price-to-
current earnings, book value, asset value, or other
factors. These funds will normally have a below-
average price/earnings ratio, price-to-book ratio,
and three-year earnings growth figure, compared to
the U.S. diversified small-cap funds universe
average. The Lipper average is unmanaged.
S&PR is a registered trademark of the Standard &
Poor's Corporation.
1
<PAGE>
(LOGO) November 15, 2000
Dear Shareholder,
Over the six months ended September 30, 2000, the
Prudential Tax-Managed Small-Cap Fund, formerly
known as the Prudential Small-Cap Quantum Fund,
changed its investment approach to a strategy
intended to outperform the S&P SmallCap 600 Index
in a tax-efficient manner. The strategy is designed
to enhance the performance of the Fund primarily
through stock selection, while maintaining a
portfolio with risk characteristics and industry
exposures that are similar to the Index. In
addition, the Fund employs tax strategies designed
to reduce taxable distributions and increase
investors' after-tax returns. Not only was the
transition very effective, but the Fund also
benefited from a shift in market favor toward
small-cap stocks. The result was a 7.44% return
for the half-year on the Fund's Class A shares--2.06%
to those paying the one-time maximum Class A share sales
charge--a return that performed in line with the 7.95%
return of the Lipper Small-Cap Value Fund Average on a
gross basis, and outperformed the 4.35% return of
the Standard & Poor's 600 Index (S&P 600 Index).
The Fund remains in the Lipper Value category
because of a lag in the Fund reclassification
process. However, its holdings over this period
reflected its "core," or style-neutral strategy.
Nonetheless, the Fund achieved comparable
performance against a value benchmark in a market
that strongly favored the value style. As the
investment adviser intended, individual stock
selection, and not sector focuses, accounted for
most of the Fund's gains.
Although market sentiment may swing between value
and growth investing styles, our intention is to
reduce the impact of such shifts on the return of
the Prudential Tax-Managed Small-Cap Fund. Given
that small-cap stocks have substantially trailed
large caps over the last five years, there appears
to be a lot of catch-up room for small caps.
Sincerely,
David R. Odenath, Jr., President
Prudential Tax-Managed Small-Cap Fund, Inc.
2
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Semiannual Report September 30, 2000
INVESTMENT ASVISER'S REPORT
Our basic strategy: Bit by bit
The basic quantitative strategy of the Prudential
Tax-Managed Small-Cap Fund is designed to enhance
the performance of the Fund primarily through stock
selection, while maintaining a risk profile similar
to the Index. By keeping style exposures and
sector/industry weights relatively close to the
Index, we can provide a well-diversified small-cap
portfolio. At period-end, the portfolio held more
than 340 positions; its largest holding was only
1.2% of total net assets, and only three holdings
were 1.0% or greater. To add value over the Index,
our active stock positions (deviations from the
benchmark) are spread over a large number of
companies--not focused in certain stocks or specific
industries. Because of its diversified active
positions, the Fund is capable of providing
outperformance, but is less vulnerable to any
single influence than more focused mutual funds.
The paradox of comparative return
Our view of success is to outperform the S&P 600
Index in a tax-efficient manner. So we are quite
happy with the performance of our electronic
technology stocks, which lost about 9% (on average)
over the reporting period. Why do we count this as
a success? Because the same classification of
stocks in our benchmark lost 12%. When you are
taking many small exposures, that three-percentage-
point difference in return over a large market
sector is a substantial advantage. Most of the
comparative gains in this sector came from
underweighting the telecommunications equipment
companies that did even worse than most in this
declining area.
Nice as it is to avoid the disasters, it feels even
better to have a substantially positive return.
When aggregating the returns of all of its
holdings, the Fund provided a strong positive
performance. However, because our return is
aggregated from many small pieces, no one or two
stocks had a material impact. A few of the larger
contributors were International Rectifier (up 32%,
3
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Semiannual Report September 30, 2000
a 1% position for the Fund that has since been
sold), RehabCare Group (up 244%), and Barr
Laboratories (up 137%). We had overweighted
International Rectifier and Barr compared to the
Index. RehabCare and Integrated Device Technologies
(up 128%) were examples of companies that are not
in the Index, but that are in our portfolio. We
make such selections when we judge the S&P 600
members to be weak. We try to keep the industry
group weighting close to the Index, but look for an
advantage in our selections of individual stocks.
The small-cap advantage
Large-cap stocks substantially outperformed small
caps every year between 1994 and 1998. Last year
was essentially a tie, so small caps as an asset
class still represent exceptional value. Only some
of the gap in relative prices that built up in the
late 1990s has been made up in 2000 so far. This
leaves exceptional values spread through many
economic sectors. That's a good climate for our
selection methods.
Carrying tax losses
As our long-term shareholders know, the Prudential
Small-Cap Quantum Fund employed a value style
during a dreadful market for value investing.
However, the result today is that the Prudential
Tax-Managed Small-Cap Fund benefits because we have
a significant tax loss carry-forward that we can
use to offset future realized gains. Consequently,
despite our strong performance over this reporting
period, we do not anticipate a taxable distribution
this year. Moreover, our sizable tax loss carry-
forward represents a cushion that can augment your
after-tax return until it is exhausted. Since our
normal target is a carry-forward of 5% to 10% of
net assets, this allows us to be more aggressive in
realizing near-term gains and maintaining a
portfolio closer to our model's optimum. Over the
longer term, we employ a sell discipline designed
to manage our tax position: we try to defer
realization of gains while maintaining the growth
potential of the portfolio, and try to lock in
losses if we can do so while keeping our overall
risk profile similar to that of the S&P 600.
Prudential Tax-Managed Small-Cap Fund Management Team
4
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 100.2%
Common Stocks
-------------------------------------------------------------------------------------
Basic Industries 12.6%
4,400 AAR Corp. $ 50,325
10,400 Administaff, Inc.(a) 787,280
3,900 Alliant Techsystems, Inc.(a) 320,287
15,200 AMR Corp.(a) 496,850
600 Applied Industrial Technologies, Inc. 10,388
6,700 AptarGroup, Inc. 160,381
25,500 Arkansas Best Corp. 392,062
9,400 Armstrong Holdings, Inc. 112,213
16,500 BE Aerospace, Inc.(a) 266,062
200 Brush Engineered Materials, Inc. 4,325
19,900 Buckeye Technologies Inc.(a) 412,925
14,600 Building Materials Holdings Corp. 129,575
5,200 Butler Manufacturing Co. 119,275
8,600 Cambrex Corp. 318,200
15,700 Circle International Group, Inc. 474,925
5,900 Clarcor, Inc. 115,050
8,800 Commercial Metals Co. 224,400
1,100 CUNO Inc.(a) 24,475
13,900 Dycom Industries, Inc.(a) 578,587
16,600 EGL, Inc.(a) 502,150
10,200 Expeditors International of Washington, Inc. 459,637
2,400 Forward Air Corp.(a) 84,450
4,000 Fritz Companies, Inc.(a) 48,000
5,200 Innovex, Inc. 70,850
4,600 JLG Industries, Inc. 56,063
5,300 Kaman Corp. 66,913
5,600 Landstar Systems, Inc.(a) 249,900
4,100 Libbey, Inc. 127,613
9,200 Mesa Air Group, Inc. 50,313
7,400 Midwest Express Holdings, Inc.(a) 148,925
21,000 Milacron Inc. 279,562
10,200 Mueller Industries, Inc.(a) 228,862
15,500 National Service Industries, Inc. 303,219
9,600 OM Group, Inc. 418,800
</TABLE>
See Notes to Financial Statements 5
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
15,800 Paxar Corp. $ 141,212
23,100 Pegasus Solutions, Inc.(a) 451,894
2,300 PolyOne Corp. 16,819
6,700 Pope & Talbot, Inc. 95,894
200 Regal-Beloit Corp. 3,392
7,150 Reliance Steel & Aluminum Co. 150,597
3,400 Republic Group, Inc. 62,475
12,800 Roadway Express, Inc. 229,600
9,000 Ryland Group, Inc. 279,000
6,100 Scott Technologies, Inc. 108,084
18,900 SCP Pool Corp.(a) 559,912
5,700 Seacor Smit, Inc.(a) 265,762
9,000 Skywest, Inc. 461,250
100 Stillwater Mining Co.(a) 2,707
10,200 Tecumseh Products Co. 427,125
5,100 Tenneco Automotive, Inc. 26,456
5,300 Tuscarora, Inc. 72,875
2,600 Universal Forest Products, Inc. 29,697
12,500 USFreightways Corp. 283,594
9,200 Werner Enterprises, Inc. 108,100
30,200 Yellow Corp.(a) 456,775
--------------
12,326,062
-------------------------------------------------------------------------------------
Business Services 6.8%
6,200 ABM Industries, Inc. 168,562
10,700 BARRA, Inc.(a) 664,069
6,600 BISYS Group, Inc.(a) 510,262
100 Bowne & Co., Inc. 975
2,400 CACI International Inc. (Class 'A' stock)(a) 51,450
1,000 CDI Corp.(a) 16,000
17,300 Copart, Inc.(a) 240,037
25,500 Dendrite International, Inc.(a) 683,719
3,100 Diamond Technology Partner, Inc.(a) 230,175
1,400 Factset Research Systems Inc. 52,640
18,800 F.Y.I. Inc.(a) 702,650
12,100 G & K Services, Inc. (Class 'A' Stock) 339,556
3,200 Heidrick & Struggles International, Inc.(a) 164,400
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
6,700 Insituform Technologies, Inc. $ 225,287
2,200 John Wiley & Sons, Inc. (Class 'A' stock) 50,463
10,900 Lightbridge, Inc.(a) 126,713
3,800 National Data Corp. 124,688
12,500 Offshore Logistics, Inc.(a) 223,437
15,800 On Assignment, Inc.(a) 495,725
3,300 PeopleSoft, Inc.(a) 92,194
10,300 School Specialty, Inc.(a) 219,519
7,100 SEI Investments Co. 502,325
17,900 True North Communications, Inc. 639,925
2,000 Zebra Technologies Corp.(a) 96,125
--------------
6,620,896
-------------------------------------------------------------------------------------
Capital Spending 2.8%
16,600 Belden, Inc. 392,175
9,200 C&D Technologies, Inc. 522,100
19,200 Cable Design Technologies Corp. 466,800
5,600 Graco, Inc. 180,600
16,400 Manitowoc Co., Inc. 315,700
100 New Horizons Worldwide, Inc.(a) 1,200
8,500 Shaw Group, Inc. 599,250
4,000 SPS Technologies, Inc.(a) 194,000
5,100 Watsco, Inc. 52,479
--------------
2,724,304
-------------------------------------------------------------------------------------
Conglomerates
5,900 Griffon Corp. 44,619
-------------------------------------------------------------------------------------
Consumer Cyclical 3.6%
6,000 Carlisle Companies, Inc. 249,000
7,694 D.R. Horton, Inc. 132,241
26,100 Fleetwood Enterprises, Inc. 353,981
34,600 Intermet Corp. 250,850
4,300 La-Z-Boy, Inc. 62,619
29,900 Lennox International, Inc. 280,312
17,200 MascoTech, Inc. 284,875
600 NVR, Inc.(a) 48,600
5,000 Oshkosh Truck Corp. 193,750
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,400 Simpson Manufacturing, Inc. $ 62,562
21,550 Smith AO Corp. 270,722
4,600 Springs Industries, Inc. 129,662
23,000 Standard Pacific Corp. 414,000
5,600 Toro Co. 176,400
6,800 Tower Automotive, Inc.(a) 63,750
12,900 Visteon Corp. 195,112
8,500 Whirlpool Corp. 330,437
--------------
3,498,873
-------------------------------------------------------------------------------------
Consumer Services 15.5%
20,200 4Kids Entertainment, Inc.(a) 340,875
6,500 99 Cents Only Stores(a) 326,219
8,800 ADVO, Inc. 290,400
61,200 Ames Department Stores, Inc.(a) 353,812
6,000 Anchor Gaming 477,375
15,400 AnnTaylor Stores Corp.(a) 591,937
9,900 Applebee's International, Inc. 227,700
27,400 Arctic Cat, Inc. 345,925
11,400 Aztar Corp. 175,275
15,700 Brown Shoe Co. Inc. 144,244
3,700 Burlington Coat Factory Warehouse Corp. 52,956
300 Casey's General Stores, Inc. 3,900
28,000 Cato Corp. 350,000
12,200 Cec Entertainment, Inc.(a) 390,400
11,600 Cheesecake Factory Inc.(a) 501,700
11,300 Chicos Fas, Inc.(a) 384,200
9,700 Cost Plus, Inc.(a) 292,212
11,300 Department 56, Inc.(a) 149,019
3,900 Dress Barn, Inc.(a) 81,900
15,600 Ethan Allen Interiors, Inc. 441,675
14,600 Factory 2-U Inc.(a) 446,212
16,800 Fleming Co., Inc. 219,450
7,400 Footstar, Inc.(a) 239,113
100 Fossil Inc.(a) 1,331
4,700 Great Atlantic & Pacific Tea Co., Inc. 51,994
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
20,100 Group 1 Automotive, Inc. $ 218,588
900 Hot Topic, Inc.(a) 27,000
20,550 Insight Enterprises, Inc.(a) 559,987
11,000 Ionics, Inc.(a) 234,438
14,200 Jack In The Box, Inc.(a) 304,412
3,000 K-Swiss Inc. (Class 'A' Stock) 67,500
21,700 Kellwood Co. 396,025
13,400 Linens 'N Things, Inc. 341,700
5,900 Men's Wearhouse, Inc.(a) 167,044
14,600 Michaels Stores, Inc.(a) 584,000
9,200 Nash Finch Co. 96,025
22,400 Nautica Enterprises, Inc.(a) 289,800
9,200 OshKosh B'Gosh, Inc. 140,013
31,600 Pep Boys - Manny, Moe & Jack 158,000
33,900 Pier 1 Imports, Inc. 459,769
8,400 Polaris Industries, Inc. 296,100
11,100 Pre-Paid Legal Services, Inc.(a) 358,669
28,700 Prime Hospitality Corp.(a) 290,587
9,500 Regis Corp. 142,500
3,800 Rex Stores Corp.(a) 74,575
20,000 Ruby Tuesday, Inc. 225,000
19,000 Ryan's Family Steak Houses, Inc.(a) 146,063
27,600 ShopKo Stores, Inc. 286,350
12,600 Sonic Corp. 396,900
17,400 Stein Mart, Inc.(a) 188,138
2,500 Tech Data Corp.(a) 106,875
16,200 Timberland Co. (Class 'A' Stock) 664,200
10,400 V.F. Corp. 256,750
10,100 Wolverine World Wide, Inc. 94,056
15,000 Zale Corp. 486,562
4,800 ZixIt Corp. 146,400
--------------
15,083,850
-------------------------------------------------------------------------------------
Consumer Staples 3.8%
2,700 Agribrands International, Inc. 117,788
200 Alberto-Culver Co. (Class 'B' Stock) 5,763
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
9,000 American Italian Pasta Co. (Class 'A' Stock)(a) $ 172,688
4,800 Beringer Wine Estates Holdings, Inc. (Class 'B'
Stock)(a) 266,700
12,800 Constellation Brands, Inc. (Class 'A' Stock)(a) 695,200
18,100 Corn Products International, Inc. 411,775
16,900 Delta & Pine Land Co. 434,119
5,800 Earthgrains Co. 106,938
2,500 Hain Celestial Group, Inc.(a) 87,813
6,600 Herbalife International, Inc. (Class 'A' Stock) 61,050
16,200 IBP, Inc. 296,662
3,200 J & J Snack Foods Corp. 41,400
11,000 Michael Foods, Inc. 257,125
11,200 Performance Food Group Co.(a) 421,400
5,500 Ralcorp Holdings, Inc.(a) 77,688
2,300 R.J. Reynolds Tobacco Holdings, Inc. 74,175
7,400 Smithfields Foods, Inc. 194,250
--------------
3,722,534
-------------------------------------------------------------------------------------
Energy 6.1%
10,500 Atwood Oceanics, Inc.(a) 437,719
4,500 Barrett Resources Corp.(a) 170,156
33,000 Cross Timbers Oil Co. 633,187
3,100 Helmerich & Payne, Inc. 111,988
10,600 Howell Corp. 128,525
17,100 HS Resources, Inc.(a) 574,987
11,100 Louis Dreyfus Natural Gas Corp.(a) 439,837
17,200 Newfield Exploration Co.(a) 803,025
20,800 Nuevo Energy Co.(a) 382,200
13,900 Oceaneering International, Inc.(a) 231,088
7,200 Patina Oil & Gas Corp. 144,000
12,500 Pogo Producing Co. 317,187
7,100 Remington Oil & Gas Corp.(a) 74,106
10,300 Seitel, Inc.(a) 148,063
6,000 St. Mary Land & Exploration Co. 138,375
8,800 Stone Energy Corp.(a) 484,000
2,600 Swift Energy Co.(a) 108,063
28,300 Vintage Petroleum, Inc. 643,825
--------------
5,970,331
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Finance 11.9%
3,100 Affiliated Managers Group, Inc.(a) $ 176,506
39,200 Americredit Corp. 1,129,450
15,500 Arthur J. Gallagher & Co. 916,437
6,100 Blanch (E.W.) Holdings, Inc. 126,575
1,500 Centura Banks, Inc. 57,469
6,700 Commerce Bancorp, Inc. 389,856
22,900 Cullen/Frost Bankers, Inc. 744,250
6,100 Dain Rauscher Corp. 567,300
306 Delphi Financial Group, Inc.(a) 12,393
12,900 Downey Financial Corp. 509,550
11,400 Eaton Vance Corp. 581,400
8,000 Fidelity National Financial, Inc. 198,000
21,300 First American Financial Corp. 444,637
17,800 First Midwest Bancorp, Inc. 473,925
3,800 GBC Bancorp 129,438
2,800 Hudson United Bancorp 77,350
2,700 Imperial Bancorp(a) 51,638
7,000 MAF Bancorp, Inc. 174,125
4,850 Metris Companies, Inc. 191,575
1,800 Mutual Risk Management Ltd. 39,488
5,600 Provident Bankshares Corp. 93,800
16,500 Queens County Bancorp Inc. 476,437
13,400 Radian Group, Inc. 904,500
10,000 Raymond James Financial, Inc. 329,375
22,100 Rollins Truck Leasing Corp. 139,506
8,200 Selective Insurance Group, Inc. 146,575
16,200 Silicon Valley Bancshares 943,397
4,200 South Financial Group, Inc. 53,025
100 SouthTrust Corp. 3,144
14,900 Southwest Bancorporation of Texas, Inc.(a) 487,044
11,830 Southwest Securities Group, Inc. 346,027
7,700 Tucker Anthony Sutro Corp. 195,387
7,900 United Bankshares, Inc.(a) 155,038
6,900 Washington Federal, Inc. 156,975
1,000 Whitney Holding Corp. 36,313
27,900 World Acceptance Corp. 142,116
--------------
11,600,021
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Health Care 16.2%
19,800 ADAC Laboratories(a) $ 412,088
15,900 Advance Paradigm, Inc.(a) 670,781
12,600 Alpharma, Inc.(Class 'A' Stock) 770,175
5,200 Barr Laboratories, Inc.(a) 344,825
11,300 Bindley Western Industries, Inc. 361,600
2,500 Cephalon, Inc.(a) 121,250
10,300 Cerner Corp.(a) 478,306
12,200 Cooper Cos., Inc.(a) 431,575
11,200 COR Therapeutics, Inc.(a) 697,900
29,100 Coventry Health Care, Inc.(a) 440,137
2,200 Datascope Corp. 73,700
4,200 Diagnostic Products Corp. 225,225
14,400 Duramed Pharmaceuticals, Inc.(a) 509,400
3,400 Enzo Biochem, Inc.(a) 164,900
4,000 Genzyme Corp.(a) 272,750
2,200 ICU Medical, Inc.(a) 56,925
1,000 IDEC Pharmaceuticals Corp.(a) 175,359
13,500 IDEXX Laboratories, Inc.(a) 361,125
17,200 Invacare Corp. 552,550
9,700 Medicis Pharmaceutical Corp. (Class 'A' Stock)(a) 596,550
7,100 Mid Atlantic Medical Services, Inc.(a) 107,388
14,400 Noven Pharmaceuticals, Inc.(a) 615,600
5,900 Organogenesis Inc.(a) 86,730
19,000 Orthodontic Centers of America, Inc.(a) 632,937
12,100 Owens & Minor, Inc. 190,575
9,400 Pharmaceutical Product Development, Inc.(a) 249,688
11,000 Polymedica Corp.(a) 471,625
8,100 Priority Healthcare Corp.(a) 617,625
7,600 Protein Design Labs, Inc.(a) 915,800
4,800 Regeneron Pharmaceuticals, Inc.(a) 156,600
14,300 RehabCare Group, Inc. 607,750
13,500 ResMed, Inc.(a) 421,875
4,300 Respironics, Inc.(a) 71,756
600 Sola International, Inc.(a) 3,863
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
13,700 Syncor International Corp.(a) $ 504,331
2,000 Techne Corp.(a) 224,000
11,600 Universal Health Services, Inc. (Class 'B' Stock)(a) 993,250
9,700 Vertex Pharmaceuticals, Inc.(a) 819,650
4,200 Vital Signs, Inc. 111,300
6,100 Wesley Jessen VisionCare, Inc.(a) 234,469
11,400 X-Rite, Inc. 99,750
--------------
15,853,683
-------------------------------------------------------------------------------------
Technology 19.2%
16,000 Actel Corp.(a) 575,000
7,125 Aeroflex, Inc.(a) 346,453
1,100 Alliance Semiconductor Corp.(a) 21,863
14,100 Alpha Industries, Inc.(a) 480,281
12,600 Anixter International, Inc.(a) 366,975
9,600 ANSYS, Inc.(a) 115,200
11,600 Artesyn Technologies, Inc.(a) 337,850
9,700 Aspen Technology, Inc.(a) 437,713
5,000 Audiovox Corp. (Class 'A' Stock)(a) 75,313
5,000 Avant! Corp.(a) 91,250
8,900 Avid Technology, Inc.(a) 124,600
12,700 Aware, Inc.(a) 488,950
7,300 Brady (W.H.) Co. 220,825
2,700 Brooktrout Inc.(a) 88,931
28,400 C-Cube Microsystems Inc.(a) 582,200
16,600 Cognex Corp.(a) 654,662
2,500 Coherent, Inc.(a) 170,000
15,300 Cohu, Inc. 234,281
4,000 Credence Systems Corp.(a) 120,000
400 CTS Corp. 20,250
22,000 Dallas Semiconductor Corp. 723,250
10,600 Electro Scientific Industries, Inc.(a) 372,325
9,200 Electroglas, Inc.(a) 156,975
28,100 ESS Technology, Inc.(a) 402,181
15,000 Esterline Technologies Corp.(a) 295,313
11,900 FileNET Corp.(a) 216,431
24,500 General Semiconductor, Inc.(a) 298,594
1,800 Harman International Industries, Inc. 70,380
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,400 Helix Technology Corp. $ 41,825
8,400 Herman Miller, Inc. 269,325
13,100 Jack Henry & Associates, Inc. 568,212
3,300 Integrated Device Technology, Inc.(a) 298,650
29,900 Kemet Corp.(a) 825,987
18,600 Kent Electronics Corp.(a) 444,075
9,000 Kronos, Inc.(a) 270,000
900 Methode Eletronics, Inc. (Class 'A' Stock) 39,881
9,400 Mynd Corp. 126,900
2,700 National Instruments Corp.(a) 119,138
13,200 Park Electrochemical Corp. 734,250
18,000 Phoenix Technologies Ltd.(a) 286,875
21,000 Photronics, Inc.(a) 458,062
25,700 Pioneer-Standard Electronics, Inc. 348,556
16,900 Plantronics, Inc.(a) 642,200
15,200 Plexus Corp.(a) 1,071,600
8,900 Powerwave Technologies, Inc.(a) 337,922
9,700 Proxim, Inc.(a) 431,650
2,400 Radisys Corp.(a) 121,350
12,200 RSA Security Inc.(a) 526,125
6,200 Silicon Valley Group, Inc.(a) 163,138
16,700 Systems & Computer Technology Corp.(a) 293,294
16,400 THQ Inc.(a) 381,300
6,000 Technitrol, Inc. 606,000
5,050 Three-Five Systems, Inc.(a) 147,713
2,000 Transaction Systems Architects, Inc.(Class 'A'
Stock)(a) 32,500
8,600 Trimble Navigation Ltd.(a) 192,425
16,000 United Stationers, Inc.(a) 430,000
13,500 Verity, Inc.(a) 481,781
100 Vicor Corp.(a) 5,425
--------------
18,784,205
-------------------------------------------------------------------------------------
Utilities 1.7%
1,300 American States Water Co. 39,325
7,500 ALLETE 165,938
27,900 Energen Corp. 830,025
700 Entergy Corp. 26,075
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,600 Hawaiian Electric Industries, Inc. $ 125,550
4,800 Public Service Co. of New Mexico 124,200
1,900 Southwest Gas Corp. 39,781
10,900 UGI Corp. 264,325
100 UIL Holdings Corp. 5,144
--------------
1,620,363
--------------
Total long-term investments (cost $81,890,423) 97,849,741
--------------
</TABLE>
SHORT-TERM INVESTMENTS 0.2%
<TABLE>
<CAPTION>
Principal
Amount
(000)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
$ 190 Joint Repurchase Agreement Account,
6.50%, 10/2/00
(cost $190,000; Note 5) 190,000
--------------
Total Investments 100.4%
(cost $82,080,423; Note 4) 98,039,741
Liabilities in excess of other assets (0.4%) (365,323)
--------------
Net Assets 100% $ 97,674,418
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
See Notes to Financial Statements 15
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $82,080,423) $ 98,039,741
Receivable for investments sold 1,245,374
Receivable for Fund shares sold 110,684
Deferred organization expenses and other assets 67,803
Dividends and interest receivable 33,970
------------------
Total assets 99,497,572
------------------
LIABILITIES
Bank overdraft 4,051
Payable for investments purchased 914,298
Accrued expenses 543,533
Payable for Fund shares reacquired 246,605
Distribution fees payable 65,500
Management fee payable 49,167
------------------
Total liabilities 1,823,154
------------------
NET ASSETS $ 97,674,418
------------------
------------------
Net assets were comprised of:
Common stock, at par $ 9,949
Paid-in capital in excess of par 135,537,119
------------------
135,547,068
Accumulated net investment loss (802,760)
Accumulated net realized loss on investments (53,029,208)
Net unrealized appreciation on investments 15,959,318
------------------
Net assets, September 30, 2000 $ 97,674,418
------------------
------------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($25,089,626 / 2,516,403 shares of common stock issued
and outstanding) $9.97
Maximum sales charge (5% of offering price) .52
------------------
Maximum offering price to public $10.49
------------------
------------------
Class B:
Net asset value, offering price and redemption price per
share ($63,942,749 / 6,549,740 shares of common stock
issued and outstanding) $9.76
------------------
------------------
Class C:
Net asset value and redemption price per share
($7,768,031 / 795,700 shares of common stock issued and
outstanding) $9.76
Sales charge (1% of offering price) .10
------------------
Offering price to public $9.86
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per
share ($874,012 / 87,055 shares of common stock issued
and outstanding) $10.04
------------------
------------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends $ 285,338
Interest 32,261
------------------
Total income 317,599
------------------
Expenses
Management fee 299,925
Distribution fee--Class A 31,856
Distribution fee--Class B 329,353
Distribution fee--Class C 38,818
Reports to shareholders 125,000
Transfer agent's fees and expenses 100,000
Custodian's fees and expenses 70,000
Legal fees and expenses 38,000
Registration fees 35,000
Audit fee and expenses 25,000
Amortization of deferred organization expenses 15,667
Directors' fees 5,000
Miscellaneous 6,740
------------------
Total expenses 1,120,359
------------------
Net investment loss (802,760)
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Investment transactions (7,590,788)
Financial futures transactions (707,638)
------------------
(8,298,426)
------------------
Net change in unrealized appreciation on:
Investments 15,624,473
Financial futures transactions 289,751
------------------
15,914,224
------------------
Net gain on investments 7,615,798
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,813,038
------------------
------------------
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
September 30, 2000 March 31, 2000
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (802,760) $ (856,572)
Net realized loss on investments (8,298,426) (18,481,318)
Net change in unrealized appreciation on
investments 15,914,224 50,276,862
------------------ --------------
Net increase in net assets resulting from
operations 6,813,038 30,938,972
------------------ --------------
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold 3,963,654 20,450,947
Cost of shares reacquired (17,793,124) (114,601,474)
------------------ --------------
Net decrease in net assets from Fund
share transactions (13,829,470) (94,150,527)
------------------ --------------
Total decrease (7,016,432) (63,211,555)
NET ASSETS
Beginning of period 104,690,850 167,902,405
------------------ --------------
End of period $ 97,674,418 $ 104,690,850
------------------ --------------
------------------ --------------
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited)
Prudential Tax-Managed Small-Cap Fund, Inc. (formerly known as 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. Subsequent to March 31,
2000 (the Fund's prior fiscal year-end), the Fund changed its fiscal year-end to
October 31.) 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.
20
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of securities at a
set price for delivery on a future date. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the 'initial margin.' Subsequent payments, known as 'variation
margin,' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its
existing portfolio securities, or securities the Fund intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
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.
21
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
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 Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'). The subadvisory agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PIFM continues to have responsibility for all investment
advisory services pursuant to the management agreement and supervises PIC's
performance of such services. PIFM pays for the services of PIC, 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.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .390 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Fund or its shareholders.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of
expenses actually incurred. The distribution fees were accrued daily and payable
monthly. No distribution or service fees were 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
22
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
the average daily net assets of Class A, Class B and Class C shares for the six
months ended September 30, 2000.
PIMS has advised the Fund that it has received approximately $8,500 and
$3,200 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the six months ended September 30, 2000.
From these fees, PIMS paid such sales charges to affiliated broker-dealers,
which in turn paid commissions to salespersons and incurred other distribution
costs.
PIMS has advised the Fund that for the six months ended September 30,
2000, it received approximately $218,500 and $2,500 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC, and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('Prudential').
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.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the six months ended September 30, 2000.
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,
2000, the Fund incurred fees of approximately $89,500 for the services of PMFS.
As of September 30, 2000, approximately $12,500 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, 2000 were $80,927,105 and $92,361,800,
respectively.
The federal income tax basis of the Fund's investments at September 30,
2000 was $82,349,681 and, accordingly, net unrealized appreciation of
investments for
23
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
federal income tax purposes was $15,690,060 (gross unrealized
appreciation--$21,321,586; gross unrealized depreciation--$5,631,526).
For federal income tax purposes, the Fund had a capital loss carryforward
as of March 31, 2000, of approximately, $44,056,981 of which $3,890,973 expires
in 2007 and $40,166,008 expires in 2008. 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 elected, for United States Federal income tax purposes, to treat
net long-term capital losses of $793,699 incurred in the five months ended March
31, 2000 as having incurred in the current fiscal year.
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, 2000, the
Fund had a .02% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $190,000 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., 6.51%, in the principal amount of $300,000,000,
repurchase price $300,162,750, due 10/2/00. The value of the collateral
including accrued interest was $307,686,775.
Chase Securities Inc., 6.45%, in the principal amount of $264,084,000,
repurchase price $264,225,945, due 10/2/00. The value of the collateral
including accrued interest was $269,373,200.
Credit Suisse First Boston Corp., 6.54%, in the principal amount of
$200,000,000, repurchase price $200,109,000, due 10/2/00. The value of the
collateral including accrued interest was $206,853,792.
Salomon Smith Barney, Inc., 6.45%, in the principal amount of $97,990,000,
repurchase price $98,042,670, due 10/2/00. The value of the collateral including
accrued interest was $102,042,316.
UBS Warburg, 6.52%, in the principal amount of $300,000,000, repurchase
price $300,163,000, due 10/2/00. The value of the collateral including accrued
interest was $306,002,065.
24
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who 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>
Six months ended September 30, 2000:
Shares sold 194,937 $ 1,888,117
Shares reacquired (589,062) (5,630,172)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (394,125) (3,742,055)
Shares issued upon conversion from Class B 27,460 273,777
----------- -------------
Net increase (decrease) in shares outstanding (366,665) $ (3,468,278)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 1,766,896 $ 15,129,661
Shares reacquired (5,195,169) (43,996,626)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (3,428,273) (28,866,965)
Shares issued upon conversion from Class B 29,878 257,051
----------- -------------
Net increase (decrease) in shares outstanding (3,398,395) $ (28,609,914)
----------- -------------
----------- -------------
</TABLE>
25
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
---------------------------------------------------------- ----------- -------------
Six months ended September 30, 2000:
<S> <C> <C>
Shares sold 142,753 $ 1,354,775
Shares reacquired (1,136,511) (10,573,791)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (993,758) (9,219,016)
Shares issued upon conversion from Class A (28,014) (273,777)
----------- -------------
Net increase (decrease) in shares outstanding (1,021,772) $ (9,492,793)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 454,770 $ 3,782,849
Shares reacquired (6,708,108) (55,819,897)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (6,253,338) (52,037,048)
Shares issued upon conversion into Class A (30,287) (257,051)
----------- -------------
Net increase (decrease) in shares outstanding (6,283,625) $ (52,294,099)
----------- -------------
----------- -------------
<CAPTION>
Class C
----------------------------------------------------------
<S> <C> <C>
Six months ended September 30, 2000:
Shares sold 48,125 $ 462,130
Shares reacquired (136,095) (1,268,195)
----------- -------------
Net increase (decrease) in shares outstanding (87,970) $ (806,065)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 64,274 $ 542,300
Shares reacquired (1,209,740) (9,983,869)
----------- -------------
Net increase (decrease) in shares outstanding (1,145,466) $ (9,441,569)
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended September 30, 2000:
Shares sold 26,669 $ 258,632
Shares reacquired (33,056) (320,966)
----------- -------------
Net increase (decrease) in shares outstanding (6,387) $ (62,334)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 118,464 $ 996,137
Shares reacquired (577,137) (4,801,082)
----------- -------------
Net increase (decrease) in shares outstanding (458,673) $ (3,804,945)
----------- -------------
----------- -------------
</TABLE>
26
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
November 10,
Six Months 1997(a)
Ended Year ended March 31, through
September 30, ------------------------ March 31,
2000(d) 2000(d) 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 9.28 $ 7.44 $ 10.95 $ 10.00
------------- ---------- ---------- ------------
Income from investment
operations
Net investment income (loss) (.05) (.01) .03 .02
Net realized and unrealized
gain (loss) on investment
transactions .74 1.85 (3.41) .94
------------- ---------- ---------- ------------
Total from investment
operations .69 1.84 (3.38) .96
------------- ---------- ---------- ------------
Less distributions
Distributions in excess of net
investment income -- -- -- (.01)
Distributions from net realized
gains -- -- (.13) --
------------- ---------- ---------- ------------
Net asset value, end of period $ 9.97 $ 9.28 $ 7.44 $ 10.95
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
TOTAL RETURN(c): 7.44% 24.73% (31.00)% 9.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $25,089 $ 26,741 $ 46,736 $115,621
Average net assets (000) $25,415 $ 38,047 $ 82,332 $106,453
Ratios to average net assets:
Expenses, including
distribution fees and
service (12b-1) fees 1.69%(b) 1.45% 1.26% 1.22%(b)
Expenses, excluding
distribution fees and
service (12b-1) fees 1.44%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (1.05)%(b) (.07)% .16% .47%(b)
Portfolio turnover rate 81% 66% 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.
(d) Calculated based on weighted average shares outstanding during the year.
See Notes to Financial Statements 27
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------
November 10,
Six Months 1997(a)
Ended Year ended March 31, through
September 30, ------------------------ March 31,
2000(d) 2000(d) 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 9.12 $ 7.37 $ 10.93 $ 10.00
------------- ---------- ---------- ------------
Income from investment
operations
Net investment loss (.09) (.07) (.06) (.01)
Net realized and unrealized
gain (loss) on investment
transactions .73 1.82 (3.37) .94
------------- ---------- ---------- ------------
Total from investment
operations .64 1.75 (3.43) .93
------------- ---------- ---------- ------------
Less distributions
Distributions from net realized
gains -- -- (.13) --
------------- ---------- ---------- ------------
Net asset value, end of period $ 9.76 $ 9.12 $ 7.37 $ 10.93
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
TOTAL RETURN(c): 7.02% 23.91% (31.61)% 9.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $63,943 $ 69,023 $102,094 $196,671
Average net assets (000) $65,691 $ 89,474 $158,085 $170,484
Ratios to average net assets:
Expenses, including
distribution fees and
service (12b-1) fees 2.44%(b) 2.20% 2.01% 1.97%(b)
Expenses, excluding
distribution fees and
service (12b-1) fees 1.44%(b) 1.20% 1.01% .97%(b)
Net investment loss (1.81)%(b) (.82)% (.58)% (.29)%(b)
Portfolio turnover rate 81% 66% 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.
(d) Calculated based on weighted average shares outstanding during the year.
28 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------
November 10,
Six Months 1997(a)
Ended Year ended March 31, through
September 30, ------------------------ March 31,
2000(d) 2000(d) 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 9.12 $ 7.37 $ 10.93 $ 10.00
------------- ---------- ---------- ------------
Income from investment
operations
Net investment loss (.09) (.07) (.08) (.01)
Net realized and unrealized
gain (loss) on investment
transactions .73 1.82 (3.35) .94
------------- ---------- ---------- ------------
Total from investment
operations .64 1.75 (3.43) .93
------------- ---------- ---------- ------------
Less distributions
Distributions from net realized
gains -- -- (.13) --
------------- ---------- ---------- ------------
Net asset value, end of period $ 9.76 $ 9.12 $ 7.37 $ 10.93
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
TOTAL RETURN(c): 7.02% 23.91% (31.61)% 9.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 7,768 $ 8,056 $ 14,951 $ 36,628
Average net assets (000) $ 7,742 $ 11,845 $ 27,182 $ 34,000
Ratios to average net assets:
Expenses, including
distribution fees and
service (12b-1) fees 2.44%(b) 2.20% 2.01% 1.97%(b)
Expenses, excluding
distribution fees and
service (12b-1) fees 1.44%(b) 1.20% 1.01% .97%(b)
Net investment loss (1.81)%(b) (.82)% (.59)% (.29)%(b)
Portfolio turnover rate 81% 66% 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.
(d) Calculated based on weighted average shares outstanding during the year.
See Notes to Financial Statements 29
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------
<CAPTION>
November 10,
Six Months 1997(a)
Ended Year ended March 31, through
September 30, ------------------------ March 31,
2000(d) 2000(d) 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 9.33 $ 7.46 $ 10.96 $ 10.00
------------- ---------- ---------- ------------
Income from investment
operations
Net investment income (loss) (.04) (.02) .05 .02
Net realized and unrealized
gain (loss) on investment
transactions .75 1.89 (3.42) .95
------------- ---------- ---------- ------------
Total from investment
operations .71 1.87 (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 $ 10.04 $ 9.33 $ 7.46 $ 10.96
------------- ---------- ---------- ------------
------------- ---------- ---------- ------------
TOTAL RETURN(c): 7.61% 25.07% (30.88)% 9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 874 $ 872 $ 4,121 $ 4,039
Average net assets (000) $ 854 $ 1,847 $ 5,315 $ 2,709
Ratios to average net assets:
Expenses, including
distribution fees and
service (12b-1) fees 1.44%(b) 1.20% 1.01% .97%(b)
Expenses, excluding
distribution fees and
service (12b-1) fees 1.44%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (.82)%(b) .22% .43% .51%(b)
Portfolio turnover rate 81% 66% 106% 39%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
(d) Calculated based on weighted average shares outstanding during the year.
30 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--
they don't read annual and semiannual reports. It's
quite understandable. These annual and semiannual
reports are prepared to comply with federal
regulations, and are often written in language that
is difficult to understand. So when most people run
into those particularly daunting sections of these
reports, they don't read them.
We think that's a mistake
At Prudential Mutual Funds, we've made some changes
to our report to make it easier to understand and
more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing
yourself with your investment. Here's what you'll
find in the report:
Performance at a Glance
Since an investment's performance is often a
shareholder's primary concern, we present
performance information in two different formats.
You'll find it first on the "Performance at a
Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a
nationally recognized mutual fund rating agency. We
report both the cumulative total returns and the
average annual total returns. The cumulative total
return is the total amount of income and
appreciation the Fund has achieved in various time
periods. The average annual total return is an
annualized representation of the Fund's
performance. It gives you an idea of how much the
Fund has earned in an average year for a given time
period. Under the performance box, you'll see
legends that explain the performance information,
whether fees and sales charges have been included
in returns, and the inception dates for the Fund's
share classes.
See the performance comparison charts at the back
of the report for more performance information.
Please keep in mind that past performance is not
indicative of future results.
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most From Your Prudential Mutual Fund
investment adviser's report
The portfolio manager, who invests your money for
you, reports on successful--and not-so-successful--
strategies in this section of your report. Look for
recent purchases and sales here, as well as information
about the sectors the portfolio manager favors, and any
changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear
technical, but it's really just a
listing of each security held at the end of the
reporting period, along with valuations and other
information. Please note that sometimes we discuss
a security in the "Investment Adviser's Report"
section that doesn't appear in this listing because
it was sold before the close of the reporting
period.
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of
the Fund's holdings), liabilities (how much the
Fund owes), and net assets (the Fund's
equity, or holdings after the Fund pays its debts)
as of the end of the reporting period. It also
shows how we calculate the net asset value per
share for each class of shares. The net asset value
is reduced by payment of your dividend, capital gain,
or other distribution, but remember that the money
or new shares are being paid or issued to you. The
net asset value fluctuates daily, along with the
value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income
(mostly interest and dividends earned) and expenses
(including what you pay us to manage your money). You'll
also see capital gains here--both realized and unrealized.
<PAGE>
www.prudential.com (800) 225-1852
Statement of Changes in Net Assets
This schedule shows how income and expenses
translate into changes in net assets. The Fund is
required to pay out the bulk of its income to
shareholders every year, and this statement shows
you how we do it (through dividends and distributions)
and how that affects the net assets. This statement
also shows how money from investors flowed into and
out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can
intimidate readers, but it does contain useful
information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition,
they outline how Prudential Mutual Funds prices
securities. The Notes also explain who manages and
distributes the Fund's shares and, more
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 accountant's Report
Once a year, an outside auditor looks over our
books and certifies that the financial statements
are fairly presented and comply with generally
accepted accounting principles.
Tax Information
This is information that we report annually about
how much of your total return is taxable. Should
you have any questions, you may want to consult a
tax adviser.
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most From Your Prudential Mutual Fund
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 broad-based reference point commonly used
by investors to measure how well they are doing. A
definition of the selected index is also provided.
Investors cannot invest directly in an index.
<PAGE>
www.prudential.com (800) 225-1852
How many times have you read these reports--or other
financial materials--and stumbled across a word that
you don't understand?
Many shareholders have run into the same problem.
We'd like to help. So we'll use this space from
time to time to explain some of the words you might
have read, but not understood. And if you have a
favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half
of one percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs):
Mortgage-backed bonds that separate mortgage pools
into different maturity classes called tranches.
These instruments are sensitive to changes in
interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity
extension risk.
Derivatives: Securities that derive their value
from other securities. The rate of return of these
financial instruments rises and falls--sometimes
very suddenly--in response to changes in some
specific interest rate, currency, stock, or other
variable.
Discount Rate: The interest rate charged by the
Federal Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by
one bank to another on overnight loans.
Futures Contract: An agreement to purchase or sell
a specific amount of a commodity or financial instrument at a set price
at a specified date in the future.
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most From Your Prudential Mutual Fund
Leverage: The use of borrowed assets to enhance
return. The expectation is that the interest rate
charged on borrowed funds will be lower than the
return on the investment. While leverage can
increase profits, it can also magnify losses.
Liquidity: The ease with which a financial
instrument (or product) can be bought or sold
(converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock
divided by the earnings per share for a 12-month
period.
Option: An agreement to purchase or sell something,
such as shares of stock, by a certain time for a
specified price. An option need not be exercised.
Spread: The difference between two values; often
used to describe the difference between "bid" and
"asked" prices of a security, or between the yields
of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or
government on the U.S. market and denominated in
U.S. dollars.
<PAGE>
www.prudential.com (800) 225-1852
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
--------------------------------------------
Directors
Saul K. Fenster
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W. Scott McDonald
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy Rice
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
David R. Odenath, Jr., President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
Jonathan D. Shain, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential 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 8098
Philadelphia, PA 19101
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
--------------------------------------------
Fund Symbols NASDAQ CUSIP
Class A PQVAX 74437J106
Class B PQVBX 74437J205
Class C PQVCX 74437J304
Class Z PSQZX 74437J403
--------------------------------------------
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, 2000, were not audited and,
accordingly, no opinion is expressed on them.
<PAGE>
<PAGE>
(LOGO) Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
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MF176E2 74437J106 74437J205 74437J304 74437J403
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