<PAGE>
ANNUAL REPORT October 31, 2000
Prudential
Tax-Managed Small-Cap Fund, Inc.
Fund Type Stock
Objective Long-term capital appreciation
(GRAPHIC)
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
The views expressed in this report and information
about the Fund's portfolio holdings are for the
period covered by this report and are subject to
change thereafter.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Tax-Managed Small-Cap Fund, formerly
known as Prudential Small-Cap Quantum Fund, Inc.,
seeks long-term capital growth by using
quantitative investment techniques to buy primarily
the stocks of U.S. companies with market
capitalizations like those of companies in the S&P
SmallCap 600 Stock Price 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.
Portfolio Breakdown/
Sector Composition
% of the % of the
Fund's S&P
Equity SmallCap
Assets 600 Index
15.6% 16.0% Electronic Technology
12.1 13.4 Finance
9.2 11.0 Health Technology
6.9 6.5 Producer Manufacturing
6.8 5.3 Retail Trade
6.3 4.4 Commercial Services
5.4 3.7 Distribution Services
5.2 6.2 Technology Services
4.7 3.1 Transportation
4.7 3.2 Energy Minerals
4.4 4.6 Consumer Durables
4.3 3.6 Consumer Non-Durables
3.6 3.9 Health Services
3.4 3.2 Consumer Services
3.1 3.7 Process Industries
2.0 2.9 Industrial Services
1.8 3.5 Utilities
0.4 1.5 Non-Energy Minerals
0.1 0.3 Communications
Ten Largest Holdings
Expressed as a percentage of
equity assets as of 10/31/00
1.1% Americredit Corp.
Finance
1.1 Protein Design Labs, Inc.
Health Technology
1.0 Arthur J. Gallagher & Co.
Finance
1.0 Universal Health Services, Inc.
Health Services
1.0 Radian Group, Inc.
Finance
0.9 Vertex Pharmaceuticals, Inc.
Health Technology
0.9 Dallas Semiconductor Corp.
Electronic Technology
0.8 Park Electrochemical Corp.
Electronic Technology
0.8 Plexus Corp.
Electronic Technology
0.8 Plantronics, Inc.
Electronic Technology
Holdings are subject to change.
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 10/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 20.97% 1.45%
Class B 20.17 -0.76
Class C 20.17 -0.76
Class Z 21.23 2.19
Lipper Small-Cap Value Fund Avg.3 21.15 8.88
</TABLE>
Average Annual Total Returns1 As of 10/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 14.92% -1.23%
Class B 15.17 -1.28
Class C 17.97 -0.59
Class Z 21.23 0.73
</TABLE>
Past performance is not indicative of future
results. Principal and investment return will
fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their
original cost.
1Source: Prudential Investments Fund Management
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.
2Inception date: Class A, B, C, and Z, 11/10/97.
3Lipper average returns are for all funds in each
share class for the one-year and since-inception
period 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.
Please Note: The Fund's fiscal year end,
previously March 31, is now October 31.
1
<PAGE>
(LOGO) December 15, 2000
Dear Shareholder,
During the one year ended October 31, 2000, the
Prudential Tax-Managed Small-Cap Fund, formerly
known as 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, the Fund also benefited
from a shift in market favor toward small-cap
stocks. The result was a 20.97% return for the year
on the Fund's Class A shares--14.92% to those paying
the one-time maximum Class A share sales charge.
This was in line with the Lipper SmallCap Value
Fund Average of 21.15%.
The Fund remains in the Lipper Value category
because of a lag in the Fund's reclassification
process. However, its holdings over this period
underwent a change toward a "core," or style-
neutral, strategy. Nonetheless, during the pro-
value market of the last three months of the period
covered by this report, which was after its new
investment strategy had been thoroughly
established, the Fund still significantly
outperformed its value benchmark.
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 opportunity for small caps to narrow
the valuation gap.
Sincerely,
David R. Odenath, Jr., President
Prudential Tax-Managed Small-Cap Fund, Inc.
2
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Annual Report October 31, 2000
INVESTMENT ADVISER'S REPORT
OUR QUANTITATIVE TAX-MANAGED INVESTMENT DISCIPLINE
Limiting risk exposures. Our definition of success
is a return that is better than the overall market,
as measured by the S&P 600 Index, over the long
term. So we try to be somewhat like the Index, only
slightly better. The Prudential Tax-Managed Small-
Cap Fund is managed to reduce the risk of a large
deviation in return from the Fund's S&P 600 Index
benchmark while also increasing the likelihood that
its performance will be better than the Index.
We classify the market into 19 economic sectors. We
allow only small deviations from the benchmark S&P
600 Index in risk factors such as sector, industry,
and market capitalization. Such deviations do not
come about because we make judgements about which
industries or market capitalization group will
outpace others. Rather, we attempt to overweight
(or underweight) individual stocks on the basis of
our assessment of their investment prospects. This
sometimes results in an overweight or underweight
in particular economic sectors or other
categorizations. Over time, we expect our
variations from the Index on various risk factors
to have only a minor impact on our return.
In this period they accounted for the bulk of our
4.3 percentage point underperformance of the S&P
600 Index. We attribute this impact
primarily to variations resulting from the Fund's
previous investment strategy. Nevertheless,
absolute returns on this small-capitalization
portfolio were quite good relative to large-
capitalization stocks.
How we select stocks. Our primary objective is to
add value through judiciously chosen individual
securities. Usually stocks of both fast-growing and
slow-growing companies (the latter are often called
"value" stocks) are represented in our portfolio.
We have found that no single discipline identifies
winners and losers equally well within each style.
Consequently, we apply different selection criteria
to growth and value stocks.
3
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Annual Report October 31, 2000
Comments on Largest Holdings As of 10/31/00
-------------------------------------------------------
% of the % of the
Fund's S&P
Equity SmallCap
Assets 600 Index
1.1% 0.5% Americredit Corp./Finance
Americredit, a consumer finance company, is
overweighted in the portfolio relative to the S&P
600 Index. It already has a high long-term earnings
growth rate; analysts project this growth will be
maintained. It also has an attractive valuation
(the relationship of its share price to its
earnings growth and book value), so it is highly
rated by our quantitative valuation model.
1.1% 1.5% Protein Design Labs, Inc./Health Technology
This biotechnology company is unattractive because
it is not producing a profit. We had underweighted it,
but owned it because of its weight in the S&P 600 Index.
After the end of our reporting period, the company was
removed from the Index. We subsequently sold our holdings
at a substantial gain.
1.0% 0.6% Arthur J. Gallagher & Co./Finance
This insurance brokerage company had a slightly
above-average rate of earnings growth offset by a
higher-than-average valuation. We are neutral on
the stock, but are holding onto it because it
contributes to maintaining a risk profile like that of
our benchmark Index.
1.0% 0.7% Universal Health Services, Inc./Health Services
We are neutral on this hospital management company,
and are holding it at close to the Index weighting to
maintain our risk profile.
1.0% 0.7% Radian Group, Inc./Finance
This mortgage insurance company has a moderate
growth rate and an attractive valuation level,
making it moderately attractive. We have been
realizing substantial gains on this stock as we
reduce its portfolio weighting to bring it more in
line with the Index weighting.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
Research suggests that investors tend to
overemphasize recent news while neglecting longer-
term trends. So, among slowly growing stocks, we
tend to buy and hold shares in companies that
become underpriced relative to their earnings or
book value. We do this in the belief that the
market has over-reacted to past disappointments
from these firms. We buy slow-growth stocks with
the intention of holding them until they have
reached their fair value. Even though earnings may
grow slowly for these firms, we believe that the
shares have good prospects for capital appreciation
should their prices move toward what we believe is
their intrinsic value.
Among stocks of rapidly growing companies, however,
theory and practice suggest that investors'
overconfidence slows their response to news about
future growth. We emphasize stocks of companies
that have had positive news about their future
prospects in the belief that the market will
eventually follow. We hold these stocks until bad
news casts doubts on the firm's ability to sustain
profitable future growth. In contrast to value
stocks, we de-emphasize price because low prices do
not necessarily make attractive growth stocks.
Overall, stock selection within each industry
accounted for a little more than a quarter of our
underperformance during this 12-month period.
Tax management. Changes in a stock's market value
in our portfolio affect our net asset value and
return, but have no tax consequences until the gain
or loss is locked in by the shares' sale. This is
called "realizing" the gain or loss.
We review our portfolio frequently for stocks that
have fallen in value. When appropriate, we may sell
some of these shares to realize capital losses.
When doing so, we search for stocks with a similar
risk profile to purchase as a substitute. We try to
keep a tax-loss carryforward--a net realized loss
that can be subtracted from future gains--amounting
to 3% to 5% of our portfolio.
At period end, we had a considerably above-target
tax-loss carryforward because of losses created by
the previous model.
5
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Annual Report October 31, 2000
ANALYSIS OF THE PERIOD'S RETURN
Overall, small-cap mutual funds did not keep up
with the S&P 600 Index. Our performance was in line
with the Lipper SmallCap Value Average, but both
fell short of the return of our benchmark Index.
Over the 12-month period, on average, we held too
much in consumer nondurables such as beverage makers,
and in retailers such as apparel and footwear stores and
discount stores. We held too little in the high-
performing health technology sector, which includes
biotechnology firms, and in industrial services
such as engineering companies and oil field service
firms. In the health sector we had poor selection
and an underweighting of medical specialties, but we
benefited from our overweighting of companies that
make generic drugs. We should have held more of patent
drug manufacturers as well. All drug sectors performed
well over this period.
We were also hurt by our overweighting and
selection of electronic production equipment
makers. Almost all of the underperformance in this
industry came in the first half of the 12-month
period.
We benefited from our underweighting of technical
services. We particularly benefited from our
selection of Network Solutions in that industry.
Network Solutions is not in the S&P 600 Index, but
its shares rose sharply during this period.
Eventually it was bought by Verisign. On the other
hand, we had underweighted Mercury Interactive in
this industry, and watched it move up from
expensive to extraordinarily expensive. (After the
end of the 12-month period, trouble in the Middle
East, where it has its research facilities, brought
the stock down.) These individual stock decisions
are usually too small to have a material impact on
our overall return. It is only in the aggregate
that they look significant.
Our overweight of airlines--particularly Skywest,
which doubled over the year--also contributed to our
return.
Prudential Tax-Managed Small-Cap Fund Management Team
6
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Annual Report October 31, 2000
Financial
Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 100.2%
Common Stocks 100.2%
-------------------------------------------------------------------------------------
Commercial Services 6.3%
25,200 4Kids Entertainment, Inc.(a) $ 363,825
6,200 ABM Industries, Inc. 173,213
20,800 Administaff, Inc.(a) 738,400
8,800 ADVO, Inc. 323,950
9,600 BARRA, Inc.(a) 586,800
100 Bowne & Co., Inc. 838
1,000 CDI Corp.(a) 15,875
25,500 Dendrite International, Inc.(a) 554,625
3,100 Diamond Technology Partner, Inc. (Class 'A'
Stock)(a) 138,338
18,000 F.Y.I. Inc.(a) 722,250
1,400 Factset Research Systems Inc. 53,018
12,100 G & K Services, Inc. (Class 'A' Stock) 334,262
15,400 Hall, Kinion & Associates, Inc.(a) 407,137
15,800 On Assignment, Inc.(a) 397,962
7,100 SEI Investments Co. 644,325
17,900 True North Communications, Inc. 674,606
--------------
6,129,424
-------------------------------------------------------------------------------------
Communications 0.1%
10,900 Lightbridge, Inc.(a) 116,494
-------------------------------------------------------------------------------------
Consumer Durables 4.4%
27,400 Arctic Cat, Inc. 351,062
6,000 Carlisle Companies, Inc. 249,750
5,900 Clarcor, Inc. 112,838
7,694 D.R. Horton, Inc. 142,339
11,300 Department 56, Inc.(a) 160,319
15,600 Ethan Allen Interiors, Inc. 456,300
26,100 Fleetwood Enterprises, Inc. 344,194
100 Fossil, Inc.(a) 1,306
1,800 Harman International Industries, Inc. 86,400
4,300 La-Z-Boy, Inc. 67,725
4,100 Libbey, Inc. 111,725
600 NVR, Inc.(a) 62,040
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
8,400 Polaris Industries, Inc. $ 291,900
15,000 Polaroid Corp. 150,937
9,000 Ryland Group, Inc. 290,250
23,000 Standard Pacific Corp. 431,250
5,100 Tenneco Automotive, Inc. 21,994
16,400 THQ, Inc.(a) 336,200
100 Toll Brothers, Inc.(a) 3,250
5,600 Toro Co. 196,000
8,500 Whirlpool Corp. 369,750
--------------
4,237,529
-------------------------------------------------------------------------------------
Consumer Non-Durables 4.3%
200 Alberto-Culver Co. (Class 'B' Stock) 6,713
9,000 American Italian Pasta Co. (Class 'A' Stock)(a) 180,563
15,700 Brown Shoe Co., Inc. 154,056
12,800 Constellation Brands, Inc. (Class 'A' Stock)(a) 624,000
5,800 Earthgrains Co. 117,450
4,900 Herbalife International, Inc. (Class 'A' Stock) 41,344
16,200 IBP, Inc. 333,112
3,200 J & J Snack Foods Corp. 43,000
3,000 K-Swiss, Inc. (Class 'A' Stock) 82,500
21,700 Kellwood Co. 421,794
11,000 Michael Foods, Inc. 296,312
22,400 Nautica Enterprises, Inc.(a) 282,800
9,200 OshKosh B'Gosh, Inc. (Class 'A' Stock) 147,200
5,500 Ralcorp Holdings, Inc.(a) 77,344
2,200 R. J. Reynolds Tobacco Holdings, Inc. 78,650
7,400 Smithfields Foods, Inc. 212,287
600 Sola International, Inc.(a) 2,588
13,800 Timberland Co. (Class 'A' Stock) 712,425
10,400 V.F. Corp. 284,050
10,100 Wolverine World Wide, Inc. 109,206
--------------
4,207,394
-------------------------------------------------------------------------------------
Consumer Services 3.4%
6,000 Anchor Gaming 509,625
8,600 Applebee's International, Inc. 259,747
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
11,400 Aztar Corp. $ 172,425
12,200 Cec Entertainment, Inc.(a) 388,875
11,600 Cheesecake Factory Inc.(a) 514,025
14,200 Jack In The Box, Inc.(a) 347,900
25,700 Prime Hospitality Corp.(a) 244,150
20,000 Ruby Tuesday, Inc. 271,250
19,000 Ryan's Family Steak Houses, Inc.(a) 159,125
11,500 Sonic Corp. 419,750
2,200 John Wiley & Sons, Inc. (Class 'A' Stock) 44,962
--------------
3,331,834
-------------------------------------------------------------------------------------
Distribution Services 5.4%
12,600 Anixter International, Inc.(a) 305,550
600 Applied Industrial Technologies, Inc. 10,163
11,300 Bindley Western Industries, Inc. 406,094
4,800 Black Box Corp.(a) 316,200
16,800 Fleming Co., Inc. 238,350
12,600 Kent Electronics Corp.(a) 234,675
9,200 Nash Finch Co. 113,850
12,100 Owens & Minor, Inc. 183,012
11,200 Performance Food Group Co.(a) 453,600
25,700 Pioneer-Standard Electronics, Inc. 356,587
11,000 Polymedica Corp.(a) 632,500
6,500 Priority Healthcare Corp.(a) (Class 'B' Stock) 349,375
13,700 School Specialty, Inc.(a) 210,637
17,400 SCP Pool Corp.(a) 450,225
13,700 Syncor International Corp.(a) 351,919
2,500 Tech Data Corp.(a) 104,063
16,000 United Stationers, Inc.(a) 481,000
--------------
5,197,800
-------------------------------------------------------------------------------------
Electronic Technology 15.6%
4,400 AAR Corp. 52,525
1,600 Actel Corp.(a) 58,600
7,125 Aeroflex, Inc.(a) 423,937
3,900 Alliant Techsystems, Inc.(a) 350,756
15,300 Alpha Industries, Inc.(a) 610,087
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
11,600 Artesyn Technologies, Inc.(a) $ 471,250
5,000 Audiovox Corp. (Class 'A' Stock)(a) 68,438
16,500 Avid Technology, Inc.(a) 228,938
16,400 Aware, Inc.(a) 507,375
16,500 BE Aerospace, Inc.(a) 272,250
16,500 Brooktrout Inc.(a) 238,219
28,400 C-Cube Microsystems Inc.(a) 553,800
16,600 Cognex Corp.(a) 556,100
15,300 Cohu, Inc. 241,931
400 CTS Corp. 17,175
22,000 Dallas Semiconductor Corp. 871,750
10,600 Electro Scientific Industries, Inc.(a) 370,338
9,200 Electroglas, Inc.(a) 129,375
28,100 ESS Technology, Inc.(a) 435,550
15,000 Esterline Technologies Corp.(a) 334,688
25,100 General Semiconductor, Inc.(a) 287,081
1,400 Helix Technology Corp. 39,025
5,200 Innovex, Inc. 72,800
3,300 Integrated Device Technology, Inc.(a) 185,831
5,300 Kaman Corp. (Class 'A' Stock) 76,850
25,800 Kemet Corp.(a) 719,175
10,400 Kronos, Inc.(a) 378,950
9,700 Mercury Computer Systems, Inc.(a) 300,700
900 Methode Eletronics, Inc. (Class 'A' Stock) 33,863
11,800 Park Electrochemical Corp. 779,537
15,800 Paxar Corp. 129,363
19,600 Pericom Semiconductor Corp.(a) 519,400
21,000 Photronics, Inc.(a) 473,812
16,900 Plantronics, Inc.(a) 771,062
12,300 Plexus Corp.(a) 775,669
8,900 Powerwave Technologies, Inc.(a) 428,312
9,400 Proxim, Inc.(a) 569,875
2,400 Radisys Corp.(a) 63,600
6,200 Silicon Valley Group, Inc.(a) 204,213
6,000 Technitrol, Inc. 665,250
13,950 Three-Five Systems, Inc.(a) 481,275
8,600 Trimble Navigation Ltd.(a) 204,250
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
100 Vicor Corp.(a) $ 5,400
11,400 X-Rite, Inc. 76,950
2,000 Zebra Technologies Corp. (Class 'A' Stock)(a) 87,625
--------------
15,122,950
-------------------------------------------------------------------------------------
Energy Minerals 4.7%
7,700 Barrett Resources Corp.(a) 280,088
31,800 Cross Timbers Oil Co. 598,237
10,600 Howell Corp. 123,888
17,100 HS Resources, Inc.(a) 532,238
11,000 Louis Dreyfus Natural Gas Corp.(a) 352,688
17,200 Newfield Exploration Co.(a) 649,300
20,800 Nuevo Energy Co.(a) 377,000
7,700 Patina Oil & Gas Corp. 135,231
12,400 Pogo Producing Co. 310,000
7,100 Remington Oil & Gas Corp. (Class 'B' Stock)(a) 65,231
6,000 St. Mary Land & Exploration Co. 140,625
5,700 Stone Energy Corp.(a) 291,840
3,700 Swift Energy Co.(a) 120,250
28,300 Vintage Petroleum, Inc. 597,837
--------------
4,574,453
-------------------------------------------------------------------------------------
Finance 12.1%
3,100 Affiliated Managers Group, Inc.(a) 186,388
39,200 Americredit Corp. 1,053,500
15,500 Arthur J. Gallagher & Co. 978,437
6,100 Blanch (E.W.) Holdings, Inc. 115,138
1,500 Centura Banks, Inc. 57,656
6,700 Commerce Bancorp, Inc. 405,769
17,300 Copart, Inc.(a) 260,581
22,900 Cullen/Frost Bankers, Inc. 762,856
6,100 Dain Rauscher Corp. 572,256
306 Delphi Financial Group, Inc. (Class 'A' Stock)(a) 11,322
11,000 Downey Financial Corp. 525,250
11,400 Eaton Vance Corp. 567,862
8,000 Fidelity National Financial, Inc. 196,500
21,300 First American Financial Corp. 445,969
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
17,800 First Midwest Bancorp, Inc. $ 446,112
3,800 GBC Bancorp 121,125
900 Hudson United Bancorp 20,138
2,700 Imperial Bancorp(a) 65,644
7,000 MAF Bancorp, Inc. 168,000
4,850 Metris Companies, Inc. 157,019
1,800 Mutual Risk Management Ltd. 32,625
11,100 Pre-Paid Legal Services, Inc.(a) 487,012
5,600 Provident Bankshares Corp. 106,050
16,500 Queens County Bancorp Inc. 462,000
13,400 Radian Group, Inc. 949,725
10,000 Raymond James Financial, Inc. 338,125
22,100 Rollins Truck Leasing Corp. 116,025
8,200 Selective Insurance Group, Inc. 141,450
9,800 Silicon Valley Bancshares 453,250
3,400 South Financial Group, Inc. 34,638
14,900 Southwest Bancorporation of Texas, Inc.(a) 543,850
11,830 Southwest Securities Group, Inc. 334,197
7,700 Tucker Anthony Sutro Corp. 178,063
7,900 United Bankshares, Inc.(a) 154,050
6,900 Washington Federal, Inc. 153,956
1,000 Whitney Holding Corp. 36,938
27,900 World Acceptance Corp. 139,500
--------------
11,778,976
-------------------------------------------------------------------------------------
Health Services 3.7%
11,200 Cerner Corp.(a) 693,700
29,100 Coventry Health Care, Inc.(a) 531,075
7,100 Mid Atlantic Medical Services, Inc.(a) 120,700
19,000 Orthodontic Centers of America, Inc.(a) 634,125
9,400 Pharmaceutical Product Development, Inc.(a) 294,337
6,900 RehabCare Group, Inc.(a) 297,994
11,600 Universal Health Services, Inc. (Class 'B' Stock)(a) 972,950
--------------
3,544,881
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Health Technology 9.2%
19,800 ADAC Laboratories(a) $ 257,400
12,600 Alpharma, Inc. (Class 'A' Stock) 489,037
5,200 Barr Laboratories, Inc.(a) 328,250
2,500 Cephalon, Inc.(a) 134,062
2,500 Coherent, Inc.(a) 87,031
12,200 Cooper Cos., Inc.(a) 436,150
11,200 COR Therapeutics, Inc.(a) 632,800
2,200 Datascope Corp. 76,175
4,200 Diagnostic Products Corp. 191,625
14,400 Duramed Pharmaceuticals, Inc.(a) 495,900
3,400 Enzo Biochem, Inc.(a) 130,900
4,900 Genzyme Corp.(a) 347,900
1,000 IDEC Pharmaceuticals Corp.(a) 196,125
13,500 IDEXX Laboratories, Inc.(a) 324,000
17,200 Invacare Corp. 490,200
9,000 Medicis Pharmaceutical Corp. (Class 'A' Stock)(a) 662,625
14,400 Noven Pharmaceuticals, Inc.(a) 641,700
5,900 Organogenesis Inc.(a) 73,986
7,600 Protein Design Labs, Inc.(a) 1,026,594
4,800 Regeneron Pharmaceuticals, Inc.(a) 128,400
11,000 ResMed, Inc.(a) 280,500
4,300 Respironics, Inc.(a) 84,388
6,100 Scott Technologies, Inc. 140,300
2,000 Techne Corp.(a) 225,500
9,700 Vertex Pharmaceuticals, Inc.(a) 903,161
4,200 Vital Signs, Inc. 130,725
--------------
8,915,434
-------------------------------------------------------------------------------------
Industrial Services 2.0%
10,500 Atwood Oceanics, Inc.(a) 352,406
5,200 Butler Manufacturing Co. 128,050
13,900 Dycom Industries, Inc.(a) 522,988
3,100 Helmerich & Payne, Inc. 97,456
6,700 Insituform Technologies, Inc. (Class 'A' Stock)(a) 239,106
13,900 Oceaneering International, Inc.(a) 195,469
12,500 Offshore Logistics, Inc.(a) 215,625
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10,300 Seitel, Inc.(a) $ 154,500
--------------
1,905,600
-------------------------------------------------------------------------------------
Non-Energy Minerals 0.4%
200 Brush Engineered Materials Inc. 4,088
6,700 Pope & Talbot, Inc. 104,269
7,150 Reliance Steel & Aluminum Co. 169,812
3,400 Republic Group, Inc. 63,962
2,600 Universal Forest Products, Inc. 35,100
--------------
377,231
-------------------------------------------------------------------------------------
Process Industries 3.1%
2,700 Agribrands International, Inc. 117,450
6,500 Airgas, Inc.(a) 43,875
6,700 AptarGroup, Inc. 138,606
7,300 Brady (W.H.) Co. 226,300
19,900 Buckeye Technologies, Inc.(a) 340,787
600 Cabot Microelectronics Corp.(a) 26,513
8,600 Cambrex Corp. 343,462
18,100 Corn Products International, Inc. 454,762
1,100 CUNO Inc.(a) 27,913
16,900 Delta & Pine Land Co. 412,994
11,000 Ionics, Inc.(a) 230,312
9,600 OM Group, Inc. 444,000
2,300 PolyOne Corp. 18,113
4,600 Springs Industries, Inc. (Class 'A' Stock) 108,388
5,300 Tuscarora, Inc. 68,900
--------------
3,002,375
-------------------------------------------------------------------------------------
Producer Manufacturing 6.9%
16,600 Belden, Inc. 430,562
9,200 C&D Technologies, Inc. 543,950
19,200 Cable Design Technologies Corp. (Class 'A' Stock) 442,800
8,800 Commercial Metals Co. 239,800
5,600 Graco, Inc. 201,250
5,900 Griffon Corp.(a) 44,988
8,400 Herman Miller, Inc. 219,450
15,000 Interface, Inc. (Class 'A' Stock) 136,875
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
34,600 Intermet Corp. $ 259,500
4,600 JLG Industries, Inc. 64,113
29,900 Lennox International, Inc. 237,331
16,400 Manitowoc Co., Inc. 445,875
17,200 MascoTech, Inc. 287,025
21,000 Milacron Inc. 334,687
10,200 Mueller Industries, Inc.(a) 237,788
15,500 National Service Industries, Inc. 316,781
5,000 Oshkosh Truck Corp. 205,625
200 Regal-Beloit Corp. 3,350
8,500 Shaw Group, Inc. 692,750
1,400 Simpson Manufacturing, Inc. 59,675
21,550 Smith AO Corp. 304,394
4,000 SPS Technologies, Inc.(a) 206,500
10,200 Tecumseh Products Co. (Class 'A' Stock) 406,725
6,800 Tower Automotive, Inc.(a) 74,800
14,400 Visteon Corp. 254,700
5,100 Watsco, Inc. 48,042
--------------
6,699,336
-------------------------------------------------------------------------------------
Retail Trade 6.9%
2,100 99 Cents Only Stores(a) 47,119
61,200 Ames Department Stores, Inc.(a) 240,975
15,400 AnnTaylor Stores Corp.(a) 462,000
14,600 Building Materials Holdings Corp. 127,750
3,700 Burlington Coat Factory Warehouse Corp. 58,275
300 Casey's General Stores, Inc. 3,750
28,000 Cato Corp. (Class 'A' Stock) 336,000
14,800 Chicos Fas, Inc.(a) 479,150
5,600 Cost Plus, Inc.(a) 156,800
3,900 Dress Barn, Inc.(a) 97,744
13,800 Factory 2-U, Inc.(a) 440,737
7,400 Footstar, Inc.(a) 265,475
4,700 Great Atlantic & Pacific Tea Co., Inc. 47,000
20,100 Group 1 Automotive, Inc. 199,744
5,300 Hot Topic, Inc.(a) 181,525
20,550 Insight Enterprises Inc.(a) 667,875
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
17,700 Linens N Things, Inc. $ 544,275
5,900 Men's Wearhouse, Inc.(a) 172,575
14,600 Michaels Stores, Inc.(a) 354,962
31,600 Pep Boys - Manny, Moe & Jack 142,200
33,900 Pier 1 Imports, Inc. 449,175
9,500 Regis Corp. 143,688
3,800 Rex Stores Corp.(a) 69,825
27,600 ShopKo Stores, Inc. 175,950
17,400 Stein Mart, Inc.(a) 269,700
15,000 Zale Corp. 508,125
--------------
6,642,394
-------------------------------------------------------------------------------------
Technology Services 5.2%
9,600 ANSYS, Inc.(a) 111,600
10,600 Aspen Technology, Inc.(a) 437,912
3,900 Avant! Corp.(a) 65,569
13,200 BISYS Group, Inc.(a) 622,050
2,400 CACI International, Inc. (Class 'A' Stock)(a) 49,500
11,900 FileNET Corp.(a) 315,350
9,900 Great Plains Software, Inc.(a) 385,481
13,100 Jack Henry & Associates, Inc. 720,500
9,400 Mynd Corp. 119,850
3,800 National Data Corp. 144,875
2,500 National Instruments Corp.(a) 116,719
23,100 Pegasus Solutions, Inc.(a) 394,144
8,100 Phoenix Technologies Ltd.(a) 130,106
12,900 RSA Security, Inc.(a) 748,200
10,100 Systems & Computer Technology Corp.(a) 145,819
2,000 Transaction Systems Architects, Inc. (Class 'A'
Stock)(a) 27,000
21,400 Verity, Inc.(a) 502,900
2,200 ZixIt Corp. 53,762
--------------
5,091,337
-------------------------------------------------------------------------------------
Transportation 4.7%
15,200 AMR Corp.(a) 497,800
25,500 Arkansas Best Corp. 408,000
17,300 EGL, Inc.(a) 493,050
13,500 Expeditors International of Washington, Inc. 700,312
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
2,400 Forward Air Corp.(a) $ 98,700
4,000 Fritz Companies, Inc.(a) 32,500
5,600 Landstar Systems, Inc.(a) 264,600
9,200 Mesa Air Group, Inc. 54,050
7,400 Midwest Express Holdings, Inc.(a) 140,600
12,800 Roadway Express, Inc. 263,200
5,700 Seacor Smit, Inc.(a) 238,688
9,000 Skywest, Inc. 454,500
12,500 USFreightways Corp. 321,875
9,200 Werner Enterprises, Inc. 128,800
26,900 Yellow Corp.(a) 484,200
--------------
4,580,875
-------------------------------------------------------------------------------------
Utilities 1.8%
7,500 ALLETE 161,719
1,600 American States Water Co. 49,900
24,700 Energen Corp. 707,037
700 Entergy Corp. 26,819
400 FirstEnergy Corp. 10,350
3,600 Hawaiian Electric Industries, Inc. 118,575
1,200 PPL Corp. 49,425
4,800 Public Service Co. of New Mexico 132,300
6,500 RGS Energy Group, Inc. 191,750
1,900 Southwest Gas Corp. 39,663
10,900 UGI Corp. 252,744
100 UIL Holdings Corp. 4,681
--------------
1,744,963
--------------
Total long-term investments (cost $82,036,757) 97,201,280
--------------
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 0.3%
Repurchase Agreement 0.3%
$ 328 Joint Repurchase Agreement Account,
6.55%, 11/1/00
(cost $328,000; Note 5) $ 328,000
--------------
Total Investments 100.5%
(cost $82,364,757; Note 4) 97,529,280
Liabilities in excess of other assets (0.5%) (491,874)
--------------
Net Assets 100% $ 97,037,406
--------------
--------------
</TABLE>
------------------------------
(a) Non-income producing security.
See Notes to Financial Statements 19
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $82,364,757) $ 97,529,280
Receivable for Fund shares sold 298,330
Deferred organization expenses and other assets 65,015
Dividends and interest receivable 32,620
----------------
Total assets 97,925,245
----------------
LIABILITIES
Payable to bank 3,733
Payable for Fund shares reacquired 204,648
Distribution fees payable 62,894
Management fee payable 47,269
Accrued expenses 569,295
----------------
Total liabilities 887,839
----------------
NET ASSETS $ 97,037,406
----------------
----------------
Net assets were comprised of:
Common stock, at par $ 9,878
Paid-in capital in excess of par 133,936,830
----------------
133,946,708
Accumulated net realized gain/(loss) on investments (52,073,825)
Net unrealized appreciation/depreciation on investments 15,164,523
----------------
Net assets, October 31, 2000 $ 97,037,406
----------------
----------------
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($24,749,508 / 2,479,681 shares of common stock issued
and outstanding) $9.98
Maximum sales charge (5% of offering price) .53
----------------
Maximum offering price to public $10.51
----------------
----------------
Class B:
Net asset value, offering price and redemption price per
share ($63,340,088 / 6,485,325 shares of common stock
issued and outstanding) $9.77
----------------
----------------
Class C:
Net asset value and redemption price per share
($7,799,809 / 798,614 shares of common stock issued and
outstanding) $9.77
Sales charge (1% of offering price) .10
----------------
Offering price to public $9.87
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per
share ($1,148,001 / 114,201 shares of common stock
issued and outstanding) $10.05
----------------
----------------
</TABLE>
See Notes to Financial Statements 21
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
April 1, 2000 Year
Through Ended
October 31, 2000 March 31, 2000
<S> <C> <C> <C>
------------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends $ 329,558 $ 1,571,148
Interest 34,318 369,784
---------------- --------------
Total income 363,876 1,940,932
---------------- --------------
Expenses
Management fee 347,194 847,276
Distribution fee--Class A 36,907 95,117
Distribution fee--Class B 380,902 894,738
Distribution fee--Class C 45,112 118,446
Reports to shareholders 140,000 180,000
Transfer agent's fees and expenses 129,000 282,000
Custodian's fees and expenses 70,000 115,000
Registration fees 41,000 85,000
Legal fees and expenses 35,000 60,000
Audit fees 25,000 25,000
Amortization of deferred organizational
expenses 18,321 31,333
Directors' fees 6,000 16,000
Miscellaneous 27,331 47,594
---------------- --------------
Total expenses 1,301,767 2,797,504
---------------- --------------
Net investment loss (937,891) (856,572)
---------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investment transactions (6,635,406) (21,273,280)
Financial futures transactions (707,638) 2,791,962
---------------- --------------
(7,343,044) (18,481,318)
---------------- --------------
Net change in unrealized
appreciation/depreciation on:
Investments 14,829,679 50,640,600
Financial futures transactions 289,751 (363,738)
---------------- --------------
15,119,430 50,276,862
---------------- --------------
Net gain on investments 7,776,386 31,795,544
---------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 6,838,495 $ 30,938,972
---------------- --------------
---------------- --------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
April 1, 2000 Year Ended March 31,
Through --------------------------------
October 31, 2000 2000 1999
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS
Operations
Net investment loss $ (937,891) $ (856,572) $ (928,383)
Net realized gain/(loss) on
investments (7,343,044) (18,481,318) (26,249,463)
Net change in unrealized
appreciation/depreciation
on investments 15,119,430 50,276,862 (77,150,441)
---------------- -------------- --------------
Net increase/decrease in net
assets resulting from
operations 6,838,495 30,938,972 (104,328,287)
---------------- -------------- --------------
Distributions from net realized
gains (Note 1)
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 4,760,728 20,450,947 70,366,132
Net asset value of shares
issued in reinvestment of
distributions -- -- 3,790,396
Cost of shares reacquired (19,252,667) (114,601,474) (150,960,828)
---------------- -------------- --------------
Net increase (decrease) in
net assets from Fund
share transactions (14,491,939) (94,150,527) (76,804,300)
---------------- -------------- --------------
Total increase (decrease) (7,653,444) (63,211,555) (185,056,842)
NET ASSETS
Beginning of period 104,690,850 167,902,405 352,959,247
---------------- -------------- --------------
End of period $ 97,037,406 $ 104,690,850 $ 167,902,405
---------------- -------------- --------------
---------------- -------------- --------------
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements
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, at the mean between
the most recently quoted bid and asked prices on such day, as provided by a
pricing service or at the bid price on such day in the absence of an asked
price. Corporate bonds and U.S. Government securities are valued on the basis of
valuations provided by a pricing service or principal market makers. Options
traded on an exchange are valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, at the mean between the
most recently quoted bid and asked prices on the respective exchange or at the
last bid price in the absence of an asked price. Futures contracts and options
thereon are valued at their last sales prices as of the close of trading on the
applicable commodities exchange or, if there was no sale on such exchange on
that day, at the mean between the most recently quoted bid and asked prices on
such exchange or at the last bid price in the absence of an asked price. 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 by a pricing service or principal market makers.
Short-term securities which mature in 60 days or less are valued at amortized
cost which approximates market value.
Repurchase Agreements: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Fund's policy that its
custodian or
24
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
designated subcustodians, as the case may be under triparty repurchase
agreements, take possession of the underlying collateral securities, the value
of which exceeds the principal amount of the repurchase transaction including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of securities at a
set price for delivery on a future date. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the 'initial margin.' Subsequent payments, known as 'variation
margin,' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge 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.
25
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
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 $937,891 and decrease paid in capital in excess of par by $937,891 for
certain non-deductible expenses and net operating loss for the seven months
ended October 31, 2000. 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 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
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.
26
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
For the year ended March 31, 2000 and for the period April 1, 2000 through
October 31, 2000, 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 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.
For the year ended March 31, 2000 and for the period April 1, 2000 through
October 31, 2000 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.
PIMS has advised the Fund that it received approximately $10,600 and
$4,300 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the seven months ended October 31, 2000.
From these fees, PIMS paid such sales charges to dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the seven months ended October 31,
2000, it received approximately $236,900 and $2,600 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
27
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
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 seven months
ended October 31, 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 year ended March 31, 2000 and
for the period April 1, 2000 through October 31, 2000, the Fund incurred fees of
approximately $251,500 and $102,000, respectively, for the services of PMFS. As
of October 31, 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 seven months ended October 31, 2000 were $85,799,059 and $98,042,803,
respectively.
The federal income tax basis of the Fund's investments at October 31, 2000
was $82,682,864 and, accordingly, net unrealized appreciation of investments for
federal income tax purposes was $14,846,416 (gross unrealized
appreciation--$21,506,671; gross unrealized depreciation--$6,660,255).
For federal income tax purposes, the Fund has a capital loss carryforward
as of October 31, 2000, of approximately $51,756,000, of which $3,891,000
expires in 2006, $40,166,000 expires in 2007, and $7,699,000 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.
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 October 31, 2000, the Fund
had a .05% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $328,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor were as follows:
28
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
ABN AMRO, Inc., 6.56%, in the principal amount of $150,000,000, repurchase
price $150,027,333, due 11/1/00. The value of the collateral including accrued
interest was $153,000,176.
Bear Stearns & Co. Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $184,628,570.
Chase Securities, Inc., 6.56%, in the principal amount of $115,000,000,
repurchase price $115,020,956, due 11/1/00. The value of the collateral
including accrued interest was $117,304,831.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.375%, in the principal
amount of $43,782,000, repurchase price $43,789,753, due 11/1/00. The value of
the collateral including accrued interest was $44,659,885.
UBS Warburg, Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $178,501,724.
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>
April 1, 2000 through October 31, 2000:
Shares sold 207,176 $ 2,005,375
Shares reacquired (638,023) (6,099,364)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (430,847) (4,093,989)
Shares issued upon conversion from Class B 27,460 273,777
----------- -------------
Net increase (decrease) in shares outstanding (403,387) $ (3,820,212)
----------- -------------
----------- -------------
</TABLE>
29
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
Year ended March 31, 2000:
<S> <C> <C>
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)
----------- -------------
----------- -------------
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 increase (decrease) in shares outstanding before
conversion (4,300,221) (36,901,291)
Shares issued upon conversion from Class B 25,488 213,899
----------- -------------
Net increase (decrease) in shares outstanding (4,274,733) $ (36,687,392)
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
April 1, 2000 through October 31, 2000:
Shares sold 173,378 $ 1,641,812
Shares reacquired (1,231,551) (11,463,197)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (1,058,173) (9,821,385)
Shares issued upon conversion into Class A (28,014) (273,777)
----------- -------------
Net increase (decrease) in shares outstanding (1,086,187) $ (10,095,162)
----------- -------------
----------- -------------
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 reacquired upon conversion into Class A (30,287) (257,051)
----------- -------------
Net increase (decrease) in shares outstanding (6,283,625) $ (52,294,099)
----------- -------------
----------- -------------
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 increase (decrease) in shares outstanding before
conversion (4,111,938) (31,305,638)
Shares reacquired upon conversion into Class A (25,646) (213,899)
----------- -------------
Net increase (decrease) in shares outstanding (4,137,584) $ (31,519,537)
----------- -------------
----------- -------------
</TABLE>
30
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ----------- -------------
April 1, 2000 through October 31, 2000:
<S> <C> <C>
Shares sold 60,382 $ 577,052
Shares reacquired (145,438) (1,355,134)
----------- -------------
Net increase (decrease) in shares outstanding (85,056) $ (778,082)
----------- -------------
----------- -------------
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)
----------- -------------
----------- -------------
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 increase (decrease) in shares outstanding (1,321,784) $ (10,840,453)
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
April 1, 2000 through October 31, 2000:
Shares sold 55,306 $ 536,489
Shares reacquired (34,547) (334,972)
----------- -------------
Net increase (decrease) in shares outstanding 20,759 $ 201,517
----------- -------------
----------- -------------
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)
----------- -------------
----------- -------------
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 (decrease) in shares outstanding 183,503 $ 2,243,082
----------- -------------
----------- -------------
</TABLE>
31
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------
April 1, November 10,
2000 1997(a)
through Year Ended March 31, through
October 31, ------------------------ 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) (.06) (.01) .03 .02
Net realized and unrealized gain
(loss) on investment
transactions .76 1.85 (3.41) .94
----------- -------------- ------- ------------
Total from investment
operations .70 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 $ 9.98 $ 9.28 $ 7.44 $ 10.95
----------- -------------- ------- ------------
----------- -------------- ------- ------------
TOTAL RETURN(c): 7.54% 24.73% (31.00)% 9.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $24,749 $ 26,741 $46,736 $115,621
Average net assets (000) $25,180 $ 38,047 $82,332 $106,453
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees(e) 1.70%(b) 1.45% 1.26% 1.22%(b)
Expenses, excluding
distribution and service
(12b-1) fees 1.45%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (1.07)%(b) (.07)% .16% .47%(b)
For Class A, B, C and Z shares:
Portfolio turnover rate 87% 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 average shares outstanding during the period.
(e) The distributor of the Fund agreed to limit its distribution and service
(12b-1) fee to .25 of 1% of the average daily net assets.
32 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
------------------------------------------------------
April 1, November 10,
2000 1997(a)
through Year Ended March 31, through
October 31, ------------------------- 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 (.10) (.07) (.06) (.01)
Net realized and unrealized gain
(loss) on investment
transactions .75 1.82 (3.37) .94
----------- -------------- -------- ------------
Total from investment
operations .65 1.75 (3.43) .93
----------- -------------- -------- ------------
Less distributions
Distributions from net realized
gains -- -- (.13) --
----------- -------------- -------- ------------
Net asset value, end of period $ 9.77 $ 9.12 $ 7.37 $ 10.93
----------- -------------- -------- ------------
----------- -------------- -------- ------------
TOTAL RETURN(c): 7.13% 23.91% (31.61)% 9.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $63,340 $ 69,023 $102,094 $196,671
Average net assets (000) $64,967 $ 89,474 $158,085 $170,484
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 2.45%(b) 2.20% 2.01% 1.97%(b)
Expenses, excluding
distribution and service
(12b-1) fees 1.45%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (1.82)%(b) (.82)% (.58)% (.29)%(b)
</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 average shares outstanding during the period.
See Notes to Financial Statements 33
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------
April 1, November 10,
2000 1997(a)
through Year Ended March 31, through
October 31, ------------------------ 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 (.10) (.07) (.08) (.01)
Net realized and unrealized gain
(loss) on investment
transactions .75 1.82 (3.35) .94
----------- -------------- ------- ------------
Total from investment
operations .65 1.75 (3.43) .93
----------- -------------- ------- ------------
Less distributions
Distributions from net realized
gains -- -- (.13) --
----------- -------------- ------- ------------
Net asset value, end of period $ 9.77 $ 9.12 $ 7.37 $ 10.93
----------- -------------- ------- ------------
----------- -------------- ------- ------------
TOTAL RETURN(c): 7.13% 23.91% (31.61)% 9.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 7,800 $ 8,056 $14,951 $ 36,628
Average net assets (000) $ 7,694 $ 11,845 $27,182 $ 34,000
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 2.45%(b) 2.20% 2.01% 1.97%(b)
Expenses, excluding
distribution and service
(12b-1) fees 1.45%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (1.82)%(b) (.82)% (.59)% (.29)%(b)
</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 average shares outstanding during the period.
34 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-----------------------------------------------------
April 1, November 10,
2000 1997(a)
through Year Ended March 31, through
October 31, ------------------------ 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) (.05) (.02) .05 .02
Net realized and unrealized gain
(loss) on investment
transactions .77 1.89 (3.42) .95
----------- -------------- ------- ------------
Total from investment
operations .72 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 $ 10.05 $ 9.33 $ 7.46 $ 10.96
----------- -------------- ------- ------------
----------- -------------- ------- ------------
TOTAL RETURN(c): 7.72% 25.07% (30.88)% 9.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 1,148 $ 872 $ 4,121 $ 4,039
Average net assets (000) $ 855 $ 1,847 $ 5,315 $ 2,709
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 1.45%(b) 1.20% 1.01% .97%(b)
Expenses, excluding
distribution and service
(12b-1) fees 1.45%(b) 1.20% 1.01% .97%(b)
Net investment income (loss) (.83)%(b) .22% .43% .51%(b)
</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 average shares outstanding during the period.
See Notes to Financial Statements 35
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Report of Independent Accountants
To the Board of Directors and Shareholders of
Prudential Tax-Managed Small-Cap 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 Tax-Managed Small-Cap
Fund, Inc. (the 'Fund', formerly Prudential Small-Cap Quantum Fund, Inc.) at
October 31, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. 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 auditing standards generally accepted in the United States of
America, 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 October 31, 2000 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 15, 2000
36
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds,
you receive financial advice from a Prudential
Securities Financial Advisor or Pruco Securities
registered representative. Your financial
professional can provide you with the following
services:
THERE'S NO REWARD WITHOUT RISK; BUT IS THIS RISK WORTH IT?
Your financial professional can help you match the
reward you seek with the risk you can tolerate.
Risk can be difficult to gauge--sometimes even the
simplest investments bear surprising risks. The
educated investor knows that markets seldom move in
just one direction. There are times when a
market sector or asset class will lose value or
provide little in the way of total return. Managing
your own expectations is easier with help from
someone who understands the markets, and who knows
you!
KEEPING UP WITH THR JONESES
A financial professional can help you wade through
the numerous available mutual funds to find the
ones that fit your individual investment profile
and risk tolerance. While the newspapers and
popular magazines are full of advice about
investing, they are aimed at generic groups of
people or representative individuals--not at you
personally. Your financial professional will review
your investment objectives with you. This means you
can make financial decisions based on the assets
and liabilities in your current portfolio and your
risk tolerance--not just based on the current
investment fad.
BUY LOW, SELL HIGH
Buying at the top of a market cycle and selling at
the bottom are among the most common investor
mistakes. But sometimes it's difficult to hold on
to an investment when it's losing value every
month. Your financial professional can answer
questions when you're confused or worried about
your investment, and should remind you that you're
investing for the long haul.
<PAGE>
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For information
about these funds, contact your financial professional or
call us at (800) 225-1852. Read the prospectus carefully
before you invest or send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
COMMAND Government Fund
COMMAND Money Fund
COMMAND Tax-Free Fund
Prudential Tax-Managed Small-Cap Fund, Inc.
Getting the Most from Your Prudential Mutual Fund
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>
www.prudential.com (800) 225-1852
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>
Prudential Tax-Managed Small-Cap Fund, Inc.
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 14.92% -1.23%
Without Sales Charge 20.97% 0.48%
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. The graph compares a $10,000
investment in Prudential Tax-Managed Small-Cap
Fund, Inc. (Class A shares) with a similar
investment in the Standard & Poor's SmallCap 600
Stock Price Index (S&P SmallCap 600 Index) by
portraying the initial account values at the
commencement of operations of Class A shares, and
at the end of the current fiscal year (October 31,
2000), as measured on a quarterly basis. For
purposes of the graph, 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 shares;
(b) all recurring fees (including management fees)
were deducted; and (c) all dividends and
distributions were reinvested.
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 include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ from the securities in the Fund's
portfolio. The Index is not the only one that may
be used to characterize performance of stock funds,
and 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>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 15.17% -1.28%
Without Sales Charge 20.17% -0.26%
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. The graph compares a $10,000
investment in Prudential Tax-Managed Small-Cap
Fund, Inc. (Class B shares) with a similar
investment in the S&P SmallCap 600 Index by
portraying the initial account values at the
commencement of operations of Class B shares, and
at the end of the current fiscal year (October 31,
2000), as measured on a quarterly basis. For
purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the
maximum applicable contingent deferred sales charge
was deducted from the value of the investment in Class
B shares, assuming full redemption on October 31,
2000; (b) all recurring fees (including management fees)
were deducted; and (c) all dividends and distributions
were reinvested. Class B shares will automatically
convert to Class A shares, on a quarterly basis,
beginning approximately seven years after purchase.
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 include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ from the securities in the Fund's
portfolio. The Index is not the only one that may
be used to characterize performance of stock funds,
and 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 Tax-Managed Small-Cap Fund, Inc.
Class C Growth of a $10,000 Investment
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 17.97% -0.59%
Without Sales Charge 20.17% -0.26%
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. The graph compares a $10,000
investment in Prudential Tax-Managed Small-Cap
Fund, Inc. (Class C shares) with a similar
investment in the S&P SmallCap 600 Index by
portraying the initial account values at the
commencement of operations of Class C shares, and
at the end of the current fiscal year (October 31,
2000), as measured on a quarterly basis. For
purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the
maximum applicable front-end sales charge was
deducted for the initial $10,000 investment in
Class C shares; (b) the maximum applicable
contingent deferred sales charge was deducted from
the value of the investment in Class C shares,
assuming full redemption on October 31, 2000; (c)
all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions
were reinvested.
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 include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ from the securities in the Fund's
portfolio. The Index is not the only one that may
be used to characterize performance of stock funds,
and 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>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 21.23% 0.73%
Without Sales Charge 21.23% 0.73%
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. The graph compares a $10,000
investment in Prudential Tax-Managed Small-Cap
Fund, Inc. (Class Z shares) with a similar
investment in the S&P SmallCap 600 Index by
portraying the initial account values at the
commencement of operations of Class Z shares, and
at the end of the current fiscal year (October 31,
2000), as measured on a quarterly basis. For
purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) all
recurring fees (including management fees) were
deducted; and (b) all dividends and distributions
were reinvested. Class Z shares are not subject to
a sales charge or distribution and service (12b-1)
fees.
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 include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ from the securities in the Fund's
portfolio. The Index is not the only one that may
be used to characterize performance of stock funds,
and 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>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's website at:
http://www.prudential.com
Directors
Saul K. Fenster
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
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
MF 176E
(LOGO) Printed on Recycled Paper
