(ICON)
Prudential
Small
Companies
Fund, Inc.
- ---------------------------
(formerly Prudential
Growth Opportunity Fund, Inc.)
ANNUAL
REPORT
Sept. 30, 1996
(LOGO)
<PAGE>
Prudential Small Companies Fund, Inc.
Performance At A Glance.
For the second year in a row, small company stocks delivered
double-digit
returns, powered by rising profits, moderate economic growth
and stable
inflation. The Prudential Small Companies Fund also posted a
substantial gain
over the past 12 months. Because the Fund focuses on
undervalued stocks -- at a
time when growth stocks appreciated more rapidly -- it
lagged the average small
company fund as measured by Lipper Analytical Services. The
good news is that
the Fund's performance improved steadily over the period,
and for the last six
months we were about even with the Lipper average.
Cumulative Total Returns1 As of
9/30/96
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 13.4% 112.5% N/A
157.6%
Class B 2.6 104.4 233.1%
517.1
Class C 12.6 N/A N/A
42.1
Class Z N/A N/A N/A
11.9
Lipper Small Co.
Growth Fund Avg3 18.4 120.0 293.0
456.8
</TABLE>
Average Annual Total Returns1 As of
9/30/96
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.7% 15.1% N/A
14.3%
Class B 7.6 15.3 12.8%
12.1
Class C 11.6 N/A N/A
17.6
</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 Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 5% for Class A shares and
a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%,
1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for
one year. Class B
shares will automatically convert to Class A shares on a
quarterly basis,
approximately seven years after purchase. Class Z shares are
not subject to a
sales charge or a distribution fee. Since Class Z shares
have been in existence
less than one year, no average annual returns are shown.
2Inception dates: 1/22/90 Class A; 11/13/80 Class B; 8/1/94
Class C; 3/1/96
Class Z.
3Lipper average returns are for 350 funds for one year, 94
funds for five
years, 45 funds for 10 years and 29 funds since inception of
the Class B shares
on 11/13/80.
How Investments Compared.
(As of 9/30/96)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns historically
have been lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but historically their returns have
been generally
among the lowest of the major investment categories.
<PAGE>
Roger Ford and Jay S. Kaplan, Fund Managers
(PICTURE)
Portfolio
Managers' Report
The Prudential Small Companies Fund invests in stocks of
small companies
(those with a total market value of $1 billion or less),
mostly located in the
U.S. We follow a strict value investment style, looking for
bargain stocks
whose prices we think will move higher. These stocks offer
higher return
potential when adjusted for risk although historically
stocks of small
companies (and growth funds) have fluctuated a great deal.
There can be no
assurance that the Fund will achieve its investment
objective.
Name Change.
In September we changed the Fund's name to better reflect
our long-standing
investment philosophy. We have not changed our strategy of
looking for
undiscovered companies with prospects of high stock market
returns and
increasing earnings.
Strategy Session.
Since January, we have changed the Fund's mix of stocks with
a view to
achieving more stable results during periods of market
uncertainty. We trimmed
our holdings in technology, a sector that typically has had
some of the biggest
price swings. This strategy paid off in July, when fears of
higher interest
rates and lower-than-expected second-quarter earnings caused
the market, and
especially technology shares, to slump. The Fund's decline
during this time was
less than that of the average small company fund.
We also made sure that the Fund would more closely adhere to
our disciplined
"value" style of investing, which aims for superior returns
with lower risk. We
sold stocks that we thought had become fully valued, took
the profits and
invested in other, more attractive companies.
Starting this year, we trimmed the size of our largest
holdings to diversify
our portfolio. Diversification, as many of you know, helps
to reduce risk
because stocks don't all rise and fall at the same time in
the same degree,
meaning that overall performance isn't so affected by any
one holding. You can
see how the composition of the Fund's five largest holdings
changed, accounting
for 9.2% of total net assets on September 30, down
substantially from 14.5% a
year ago.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 9/30/96.
(CHART)
<PAGE>
What Went Well.
In Search of Value. As "bottom-up" investors, we focus on
investing in specific
companies, not industries or sectors. We look for well-run
companies that
provide a unique product or service with relatively few
competitors.
One of our winners this year was Black Box, which sells
computer networking
equipment to businesses. We liked the company long before
Wall Street did.
Since then, other investors have discovered Black Box,
sending its share price
up sharply. Western Digital, a producer of computer disk
drives, let us profit
from the phenomenal popularity of home computers. The
company recognized early
on the growing demand for ever larger disk drives and sales
have climbed
steadily.
Another strong performer -- and one of our largest holdings
- -- continues to be
Finova Group, a financial services firm that lends mostly to
middle-market
businesses across the country. These companies are often too
big for local
banks to handle but not large enough to attract the huge
money center banks.
Mergers & Acquisitions. We're happy to say that our style of
investing is
shared by some corporate acquirors. Takeover targets whose
stocks the Fund held
in the period include drugstore chain Fay's, whose merger
with J.C. Penney was
announced in August, and Westcott Communications, which
makes educational and
training programs for businesses. Westcott merged with K-III
Communications
early in the second quarter. Another drugstore company we
hold, Big B, is the
object of a takeover bid by Revco D.S.
What Could Have Gone Better.
Buying More..
We wish we had added to our energy holdings, which were our
best performers
over the year.
Energy stocks have surged on rising international demand. We
also missed some
of the gains in regional banking stocks by holding less than
the market did.
While we were pleased with how fast our stocks rose, they
eventually became too
high for us to justify buying more.
...But Not Of Everything
Some of our positions were too big and simply didn't perform
well. Marshall
Industries, an electronics distributor, was hurt because of
a market glut of
computer chips, needed to make computers. We continue to own
the stock because
of its price and long-term growth trends.
Five Largest
Holdings.
2.2% Methode Electronics
Electronics
2.1 Marshall Industries
Electronics
2.0 Finova Group Inc.
Financial Services
1.5 Bearings Inc.
Miscellaneous Industrial
1.4 JP Foodservice Inc
Food Distribution
Expressed as a percentage of total net assets as of 9/30/96.
Looking Ahead.
Our cautiously optimistic outlook remains unchanged from
earlier this year. As
long as interest rates don't rise and inflation remains
subdued, the economy's
slow to moderate growth is expected to continue, which is
generally good for
stocks. But if interest rates start moving up, investors
could begin to avoid
small company stocks. The Dow Jones Industrial Average, a
closely watched
market index, repeatedly set all-time highs in the most
recent quarter, leading
some market watchers to question how much longer the current
market rally can
continue.
1
<PAGE>
President's Letter November
1, 1996
(PICTURE)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted
extraordinary returns.
Investors celebrated this performance by putting record
amounts of new money
into mutual funds in the first few months of 1996. According
to figures
released by the Investment Company Institute, a mutual fund
industry trade
group, new investments in mutual funds reached an all-time
monthly high of $33
billion in January of 1996. An additional $66 billion was
invested in the
following three months, although this rapid inflow subsided
somewhat in late
spring.
While we are pleased that mutual funds are attracting new
investors, we're
concerned that some of them may be "buying last year's
returns." Few expect
1995's virtual non-stop returns from the stock and bond
markets. In fact,
1996's markets have been volatile so far (stock and bond
prices go down just as
they go up). There's no better time than now to be talking
with your Financial
Advisor or Registered Representative. She or he can help
you determine
reasonable expectations about both the potential performance
and risks
associated with your investments.
Changes at Prudential.
There have been some important changes recently at
Prudential that were made
with you in mind. Prudential Mutual Funds has moved under
the umbrella of
Prudential's newly created "Prudential Investments." This
group manages and
administers nearly $190 billion in client assets and
provides mutual funds,
annuities, defined benefit and defined contribution plans to
our individual and
institutional investors. We plan to improve the range and
quality of investment
products and services that we can provide you by better
leveraging Prudential's
strengths. There will, however, be no change in the service
you receive from
your Financial Advisor, Registered Representative or our
Customer Service unit.
We're excited about our future and hope that you are, too.
Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of
September 30, 1996 PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
-----------------------------------------------------------
- -
<C> <S> <C>
LONG-TERM INVESTMENTS--87.4%
COMMON STOCKS--87.0%
-----------------------------------------------------------
- -
Aerospace/Defense--1.0%
147,800 Precision Castparts Corp. $
7,168,300
- ------------------------------------------------------------
Automotive--1.1%
49,800 Dura Automotive Systems, Inc. (a)
927,525
238,200 Strattec Security Corp. (a)
3,453,900
169,800 Walbro Corp.
3,226,200
---------
- ---
7,607,625
- ------------------------------------------------------------
Chemicals--1.0%
331,900 Agrium, Inc. (Canada)
4,506,580
225,400 Spartech Corp.
2,169,475
---------
- ---
6,676,055
- ------------------------------------------------------------
Communications Equipment--0.7%
146,100 Black Box Corp. (a)
4,821,300
- ------------------------------------------------------------
Computer Hardware--0.5%
83,700 Western Digital Corp. (a)
3,358,463
- ------------------------------------------------------------
Computer Software & Services--0.6%
10,900 Software Spectrum, Inc. (a)
327,000
49,800 Sterling Software, Inc. (a)
3,803,475
---------
- ---
4,130,475
- ------------------------------------------------------------
Consumer Services--0.9%
117,700 Pittston Brink's Group
3,692,837
84,750 Regis Corp.
2,203,500
4,100 Right Management Consultants, Inc.
(a)
99,425
---------
- ---
5,995,762
- ------------------------------------------------------------
Containers & Packaging--2.5%
208,400 ACX Technologies, Inc. (a)
3,620,950
360,200 Applied Extrusion Technologies (a)
3,286,825
143,900 Ball Corp. $
3,525,550
429,800 U.S. Can Corp. (a)
6,930,525
---------
- ---
17,363,850
- ------------------------------------------------------------
Cosmetics & Soaps--0.5%
71,500 Block Drug Co., Inc. Cl. A
3,208,563
- ------------------------------------------------------------
Drugs & Medical Supplies--0.5%
442,681 Healthdyne, Inc. (a)
3,707,453
- ------------------------------------------------------------
Electrical Utilities--0.4%
113,000 TNP Enterprises, Inc.
2,796,750
- ------------------------------------------------------------
Electrical Equipment--1.4%
230,900 Belden, Inc.
6,696,100
263,200 Woodhead Industries, Inc.
3,322,900
---------
- ---
10,019,000
- ------------------------------------------------------------
Electronics--10.5%
234,100 Augat, Inc.
4,974,625
209,500 Berg Electronics Corp. (a)
5,708,875
216,600 Burr-Brown Corp. (a)
4,332,000
281,100 Continental Circuits Corp. (a)
3,302,925
233,900 ITI Technologies, Inc. (a)
8,244,975
63,300 Kemet Corp. (a)
1,273,913
472,700 Marshall Industries (a)
14,240,087
817,800 Methode Eletronics, Inc. Cl. A
15,231,525
570,900 Pioneer Standard Electronics, Inc.
6,422,625
266,000 Wyle Electronics
8,545,250
---------
- ---
72,276,800
- ------------------------------------------------------------
Engineering & Construction--0.6%
144,900 Baker (Michael) Corp. (a)
724,500
92,000 Valmont Industries, Inc.
3,139,500
---------
- ---
3,864,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments as of
September 30, 1996 PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
-----------------------------------------------------------
- -
<C> <S> <C>
Environmental Services--0.5%
248,270 BHA Group, Inc. Cl. A $
3,599,915
- ------------------------------------------------------------
Financial Services--5.0%
71,000 Banctec, Inc. (a)
1,482,125
146,500 Capital Re Corp.
5,567,000
157,100 Enhance Financial Services Group,
Inc.
5,184,300
237,900 Financial Security Assurance
Holdings, Ltd.
7,018,050
233,900 Finova Group, Inc.
14,034,000
64,100 McDonald & Co. Investments, Inc.
1,554,425
---------
- ---
34,839,900
- ------------------------------------------------------------
Food & Beverage--0.7%
495,600 Michaels Foods, Inc.
5,141,850
- ------------------------------------------------------------
Food Distribution--2.5%
400,700 JP Foodservice, Inc. (a)
9,516,625
136,400 Riser Foods, Inc.
3,546,400
295,300 Rykoff-Sexton, Inc.
4,244,937
---------
- ---
17,307,962
- ------------------------------------------------------------
Food/Drug Retail--2.3%
325,400 Eckerd Corp. (a)
9,111,200
353,400 Thrifty Payless Holdings, Inc. Cl.
B
6,582,075
---------
- ---
15,693,275
- ------------------------------------------------------------
Forest Products--0.3%
91,950 Wausau Paper Mills Co.
1,770,038
- ------------------------------------------------------------
Furniture--0.8%
367,900 Furniture Brands International,
Inc. (a)
5,380,538
- ------------------------------------------------------------
Gas Distribution--0.8%
152,614 KN Energy, Inc.
5,379,644
Hospital Management--2.8%
197,600 Physician Corp. of America (a) $
2,395,900
235,200 Sierra Health Services, Inc. (a)
8,085,000
335,200 Universal Health Services, Inc. Cl.
B (a)
9,134,200
---------
- ---
19,615,100
- ------------------------------------------------------------
Household Products--2.3%
328,900 Libbey, Inc.
8,674,737
311,900 Premark International, Inc.
5,887,113
48,000 The Rival Co.
1,056,000
---------
- ---
15,617,850
- ------------------------------------------------------------
Housing Related--0.4%
560,050 Fedders Corp. Cl. A
2,870,256
- ------------------------------------------------------------
Insurance--4.5%
135,700 Allied Group, Inc.
5,224,450
130,800 Allmerica Financial Corp.
4,251,000
299,000 AmVestors Financial Corp.
4,260,750
115,900 Equitable of Iowa Companies (a)
4,809,850
253,400 Philadelphia Consolidated Holding
Corp. (a)
5,384,750
266,500 Poe & Brown, Inc.
6,396,000
17,400 Security-Connecticut Life Insurance
Co.
545,925
---------
- ---
30,872,725
- ------------------------------------------------------------
Leisure--0.7%
177,600 WMS Industries Inc.
4,795,200
- ------------------------------------------------------------
Lodging/Gaming--0.8%
388,500 Red Roof Inns, Inc. (a)
5,293,313
- ------------------------------------------------------------
Machinery--4.1%
181,700 Allied Products Corp.
4,542,500
231,200 Blount International, Inc. Cl. A
7,774,100
226,700 Measurex Corp.
5,979,212
285,200 Pfeiffer Vacuum Technology AG (a)
4,384,950
116,100 Roper Industries
5,485,725
---------
- ---
28,166,487
</TABLE>
- ------------------------------------------------------------
- --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of
September 30, 1996 PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Media--1.9%
4,000 Central Newspapers, Inc. Cl. A $
152,500
516,400 Century Communications Corp. Cl. A
(a)
3,873,000
330,000 Granite Broadcasting Corp. (a)
4,702,500
166,300 TCA Cable TV, Inc.
4,282,225
---------
- ---
13,010,225
- ------------------------------------------------------------
Metals-Non Ferrous--1.3%
392,900 Brush Wellman, Inc.
7,563,325
89,500 Chase Brass Industries, Inc. (a)
1,555,062
---------
- ---
9,118,387
- ------------------------------------------------------------
Miscellaneous Industrial--9.9%
77,000 Apogee Enterprises Inc.
2,695,000
362,725 Bearings, Inc.
10,246,981
107,400 Carlisle Companies, Inc.
5,960,700
244,100 Figgie International, Inc. Cl. A
(a)
3,280,094
185,800 Graco, Inc.
3,483,750
142,000 Greenfield Industries, Inc.
3,408,000
250,000 Jason, Inc. (a)(b) (cost
$2,200,000; purchase
date-1/21/94)
1,870,313
212,182 Mark IV Industries, Inc.
4,614,958
215,100 Penn Engineering & Manufacturing
Corp.
3,764,250
230,100 Pentair, Inc.
6,097,650
422,100 Regal Beloit Corp.
7,017,412
89,000 Robbins & Myers, Inc.
2,013,625
242,600 Rofin Sinar Technologies, Inc. (a)
2,638,275
116,800 Standex International Corp.
3,504,000
381,400 United Dominion Industries, Ltd.
(Canada)
7,628,000
---------
- ---
68,223,008
- ------------------------------------------------------------
Nursing Homes--0.9%
314,900 GranCare, Inc. (a)
6,061,825
- ------------------------------------------------------------
Oil & Gas Exploration/Production--3.9%
168,800 Mitchell Energy & Development Corp.
Class A
3,186,100
306,850 Mitchell Energy & Development Corp.
Class B $
6,021,931
122,100 Newpark Resources, Inc. (a)
4,441,388
179,800 Parker & Parsley Petroleum Co.
4,697,275
181,900 Santa Fe Energy Resources, Inc.(a)
2,592,075
196,700 Vintage Petroleum, Inc.
5,778,062
---------
- ---
26,716,831
- ------------------------------------------------------------
Printing--0.5%
279,700 Big Flower Press Holdings, Inc. (a)
3,531,213
- ------------------------------------------------------------
Railroads--2.0%
219,400 Kansas City Southern Industries,
Inc.
9,379,350
48,800 Tranz Rail Holdings Ltd. (a)
707,600
173,800 Varlen Corp.
3,877,912
---------
- ---
13,964,862
- ------------------------------------------------------------
Regional Banks--0.8%
199,000 Community First Bankshares, Inc.
4,676,500
18,200 Interwest Bancorp, Inc.
536,900
---------
- ---
5,213,400
- ------------------------------------------------------------
Retail--0.8%
250,900 Waban, Inc. (a)
5,739,338
- ------------------------------------------------------------
Savings & Loans--1.9%
195,600 Astoria Financial Corp.
5,672,400
106,400 Downey Financial Corp.
2,686,600
184,000 RCSB Financial, Inc.
4,922,000
---------
- ---
13,281,000
- ------------------------------------------------------------
Specialty Chemicals--3.4%
224,000 Cabot Corp.
6,244,000
149,600 Cambrex Corp.
5,067,700
379,000 Lilly Industries, Inc. Cl. A
6,300,875
247,500 Rogers Corp. (a)
6,094,687
---------
- ---
23,707,262
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Portfolio of Investments as of
September 30, 1996 PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <S> <C>
Shares Description Value (Note 1)
-----------------------------------------------------------
- -
Steel - Producers--1.8%
182,800 Huntco, Inc. Cl. A $
3,244,700
349,000 Quanex Corp.
9,379,375
---------
- ---
12,624,075
- ------------------------------------------------------------
Transportation--0.8%
162,700 Trinity Industries, Inc.
5,430,113
- ------------------------------------------------------------
Transportation-Road & Rail--1.1%
404,750 Pittston Burlington Group. (a)
7,336,094
- ------------------------------------------------------------
Trucking & Shipping--5.3%
239,950 Air Express International Corp.
6,778,587
228,000 Expeditors International of
Washington, Inc.
8,037,000
130,200 GATX Capital Corp. (a)
6,086,850
381,200 Harper Group, Inc.
7,814,600
361,700 Interpool, Inc.
7,595,700
---------
- ---
36,312,737
---------
- ---
Total common stocks
(cost $495,041,491)
599,608,819
---------
- ---
<CAPTION>
Principal
Amount
(000)
CORPORATE BOND--0.4%
$ 2,679 Robbins & Myers, Inc.,
Convertible,
6.50%, 9/1/03
(Misc. Industrial) (cost
$2,679,000) $
2,729,231
---------
- ---
Total long-term investments
(cost $497,720,491)
602,338,050
---------
- ---
SHORT-TERM INVESTMENT--13.5%
- ------------------------------------------------------------
Repurchase Agreement
92,840 Joint Repurchase Agreement Account,
5.72%, 10/1/96
(cost $92,840,000; Note 5)
92,840,000
---------
- ---
- ------------------------------------------------------------
Total Investments--100.9%
(cost $590,560,491; Note 4)
695,178,050
Liabilities in excess of other
assets--(0.9%)
(6,172,670)
---------
- ---
Net Assets--100%
$689,005,380
---------
- ---
---------
- ---
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Private placement restricted as to resale; includes
registration rights
under which the Fund may demand registration by the
issuer.
- ------------------------------------------------------------
- --------------------
6 See Notes to
Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1996
<S> <C>
- ------------------
Investments, at value (cost
$590,560,491)...............................................
............... $695,178,050
Cash........................................................
...........................................
52,276
Receivable for investments
sold........................................................
................ 4,562,867
Receivable for Fund shares
sold........................................................
................ 1,045,876
Dividends and interest
receivable..................................................
.................... 464,706
Deferred expenses and other
assets......................................................
............... 17,675
- ------------------
Total
assets......................................................
.................................. 701,321,450
- ------------------
Liabilities
Payable for Fund shares
reacquired..................................................
................... 7,605,082
Payable for investments
purchased...................................................
................... 3,618,734
Management fee
payable.....................................................
............................ 384,683
Distribution fee
payable.....................................................
.......................... 354,612
Accrued
expenses....................................................
................................... 352,959
- ------------------
Total
liabilities.................................................
.................................. 12,316,070
- ------------------
Net
Assets......................................................
....................................... $689,005,380
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
....................... $ 464,321
Paid-in capital in excess of
par.........................................................
........... 490,638,478
- ------------------
491,102,799
Accumulated net realized gain on
investments.................................................
....... 93,285,022
Net unrealized appreciation on
investments.................................................
......... 104,617,559
- ------------------
Net assets, September 30,
1996........................................................
................. $689,005,380
- ------------------
- ------------------
Class A:
Net asset value and redemption price per share
($237,305,703 / 15,511,493 shares of common stock
issued and outstanding)........................
$15.30
Maximum sales charge (5.0% of offering
price)......................................................
. .81
- ------------------
Maximum offering price to
public......................................................
.............. $16.11
- ------------------
- ------------------
Class B:
Net asset value, offering price and redemption price per
share
($378,861,340 / 26,149,425 shares of common stock
issued and outstanding)........................
$14.49
- ------------------
- ------------------
Class C:
Net asset value, offering price and redemption price per
share
($4,322,587 / 298,351 shares of common stock issued
and outstanding).............................
$14.49
- ------------------
- ------------------
Class Z:
Net asset value, offering price and redemption price per
share
($68,515,750 / 4,472,853 shares of common stock issued
and outstanding)..........................
$15.32
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL SMALL COMPANIES FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income September 30,
1996
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $20,133)..................... $
5,778,821
Interest.................................
3,902,287
-------------
- -----
Total income..........................
9,681,108
-------------
- -----
Expenses
Management fee...........................
4,336,587
Distribution fee--Class A................
557,727
Distribution fee--Class B................
3,556,358
Distribution fee--Class C................
27,862
Transfer agent's fees and expenses.......
1,188,000
Reports to shareholders..................
250,000
Custodian's fees and expenses............
140,000
Registration fees........................
101,000
Audit fee................................
46,000
Legal fees...............................
30,000
Directors' fees..........................
24,200
Miscellaneous............................
2,903
-------------
- -----
Total expenses........................
10,260,637
-------------
- -----
Net investment loss.........................
(579,529)
-------------
- -----
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions.............................
96,387,630
Net change in unrealized appreciation of
investments..............................
(17,952,802)
-------------
- -----
Net gain on investments.....................
78,434,828
-------------
- -----
Net Increase in Net Assets
Resulting from Operations................... $
77,855,299
-------------
- -----
-------------
- -----
</TABLE>
PRUDENTIAL SMALL COMPANIES FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September
30,
in Net Assets 1996
1995
<S> <C> <C>
Operations
Net investment loss............ $ (579,529) $
(1,279,828)
Net realized gain on
investments................. 96,387,630
29,417,664
Net change in unrealized
appreciation of
investments................. (17,952,802)
83,509,332
------------- -------
- -----
Net increase in net assets
resulting from operations... 77,855,299
111,647,168
------------- -------
- -----
Net equalization credits.......... --
1,510,164
------------- -------
- -----
Distributions from net realized
capital gains (Note 1)
Class A........................ (11,343,132)
(6,672,537)
Class B........................ (17,645,142)
(28,252,159)
Class C........................ (93,369)
(23,735)
------------- -------
- -----
(29,081,643)
(34,948,431)
------------- -------
- -----
Fund share transactions (net of
conversion) (Note 6)
Net proceeds from shares
sold........................ 594,169,971
369,521,600
Net asset value of shares
issued in reinvestment of
distributions............... 27,854,955
33,299,692
Cost of shares reacquired...... (587,442,637)
(404,229,931)
------------- -------
- -----
Net increase (decrease) in net
assets from Fund share
transactions................ 34,582,289
(1,408,639)
------------- -------
- -----
Total increase.................... 83,355,945
76,800,262
Net Assets
Beginning of year................. 605,649,435
528,849,173
------------- -------
- -----
End of year....................... $ 689,005,380
$605,649,435
------------- -------
- -----
------------- -------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
8 See Notes to
Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
Prudential Small Companies Fund, Inc., formerly Prudential
Growth Opportunity
Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of
1940 as a diversified, open-end management investment
company. The investment
objective of the Fund is to achieve capital growth,
consistent with reasonable
risk, by investing in a carefully selected portfolio of
common stocks having
prospects of a high return on equity, increasing earnings,
increasing dividends
and price-earnings ratios which are not excessive.
- ------------------------------------------------------------
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 Valuations : Investments traded on a national
securities exchange are
valued at the last reported sales price on the primary
exchange on which they
are traded. Securities traded in the over-the-counter market
(including
securities listed on exchanges whose primary market is
believed to be
over-the-counter) and listed securities for which no sale
was reported on that
date are valued at the mean between the last reported bid
and asked prices. 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 based upon
current market quotations. Short-term securities which
mature in 60 days or less
are valued at amortized cost.
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.
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; 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 (loss), other than distribution fees,
and unrealized and
realized gains or losses are allocated daily to each class
of shares of the Fund
based upon the relative proportion of net assets of each
class at the beginning
of the day.
Taxes: It is the Fund's policy to continue to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable net income 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.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income, if any, semi-annually and make distributions at
least annually of any
net capital gains. 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.
Equalization: Effective October 1, 1995, the Fund
discontinued the accounting
practice of equalization. Equalization is a practice whereby
a portion of the
proceeds from sales and costs of repurchases of capital
shares, equivalent on a
per share basis to the amount of distributable net
investment income on the date
of the transaction, is credited or charged to undistributed
net investment
income. The balance of $1,954,545 of undistributed net
investment income at
September 30, 1995, resulting from equalization, was
transferred to paid-in
capital in excess of par. Such reclassification has no
effect on net assets,
results of operations, or net asset value per share.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' 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 increase undistributed net investment
income and decrease
accumulated net realized gain on investments by $579,529 for
net operating
losses during the fiscal year ended September 30, 1996. Net
investment income,
net realized gains and net assets were not affected by this
change.
- ------------------------------------------------------------
- --------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
(``PMF''). Pursuant to this agreement, PMF has
responsibility for all investment
advisory services and supervises the subadviser's
performance of such services.
PMF has entered into a subadvisory agreement with The
Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory
services in connection
with the management of the Fund. PMF pays for the cost of
the subadviser's
services, the compensation of officers of the Fund,
occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and
expenses.
The management fee paid PMF is computed daily and payable
monthly, at an annual
rate of .70 of 1% of the Fund's average daily net assets.
The Fund had a distribution agreement with Prudential Mutual
Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class
A shares of the
Fund through January 1, 1996. Effective January 2, 1996
Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A
shares of the Fund
and is serving the Fund under the same terms and conditions
as under the
arrangement with PMFD. PSI is also the distributor of the
Class B, Class C and
Class Z shares of the Fund. The Fund compensated PMFD and
PSI for distributing
and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless
of expenses
actually incurred by them. The distribution fees are accrued
daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with
respect to Class A
shares, 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 Plan were .25
of 1% of the average
daily net assets of Class A shares and 1% of the average
daily net assets under
the Class B and C Plans of both the Class B and Class C
shares, respectively,
for the year ended September 30, 1996.
PMFD and PSI have advised the Fund that they have received
approximately
$287,200 in front-end sales charges resulting from sales of
Class A shares
during the year ended September 30, 1996. From these fees,
PMFD and PSI paid
such sales charges to Pruco Securities Corporation, an
affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred
other distribution
costs.
PSI has advised the Fund that for the year ended September
30, 1996, it received
approximately $775,100 and $1,300, respectively, in
contingent deferred sales
charges imposed upon certain redemptions by Class B and C
shareholders.
PMFD is a wholly-owned sudsidiary of PMF; PSI, PMF and PIC
are indirect
wholly-owned subsidiaries of The Prudential Insurance
Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended September 30,
1996, the Fund incurred fees of approximately $978,000 for
the services of PMFS.
As of September 30, 1996, approximately $87,000 of such fees
were due to PMFS.
Transfer agent fees and expenses in Statement of Operations
include certain
out-of-pocket expenses paid to non-affliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended September 30, 1996 were $290,760,085 and
$312,681,087,
respectively.
The federal income tax basis of the Fund's investments at
September 30, 1996 was
$590,614,165 and, accordingly, net unrealized appreciation
for federal income
tax purposes was $104,563,885 (gross unrealized appreciation-
- -$116,642,822 gross
unrealized depreciation--$12,078,937).
- ------------------------------------------------------------
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
Sepember 30, 1996, the
Fund had a 9.29% undivided interest in the joint account.
The undivided interest
for the Fund represents $92,840,000 in the principal amount.
As of such date,
each repurchase agreement in the joint account and the
collateral therefor were
as follows:
Bear, Stearns & Co., Inc., 5.72%, in the principal amount of
$333,000,000,
repurchase price $333,052,910, due 10/1/96. The value of the
collateral
including accrued interest was $339,757,925.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
J.P. Morgan Securities, Inc., 5.70%, in the principal amount
of $109,000,000,
repurchase price $109,017,258, due 10/1/96. The value of the
collateral
including accrued interest was $111,181,257.
Goldman Sachs & Co.,Inc. 5.70%, in the principal amount of
$333,000,000,
repurchase price $333,052,725, due 10/1/96. The value of the
collateral
including accrued interest was $339,860,615.
Smith Barney, Inc., 5.75%, in the principal amount of
$224,000,000, repurchase
price $224,035,778, due 10/1/96. The value of the collateral
including accrued
interest was $228,481,010.
- ------------------------------------------------------------
Note 6. Capital
The Fund currently 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 to
5%. Class B shares are
sold with a contingent deferred sales charge which declines
from 5% to zero
depending on the period of time the shares are held. Class C
shares are sold
with a contingent deferred sales charge of 1% during the
first year. Class B
shares will automatically convert to Class A shares on a
quarterly basis
approximately seven years after purchase. A special exchange
privilege is also
available for shareholders who qualified to purchase Class A
shares at net asset
value. Effective March 1, 1996, the Fund commenced offering
Class Z shares.
Class Z shares are not subject to any sales or redemption
charge and are offered
exclusively for sale to a limited group of investors.
There are 1 billion shares of common stock, $.01 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 250 million authorized
shares.
Transactions in shares of common stock for the years ended
September 30, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1996:
Shares sold........................ 30,393,176 $
429,242,812
Shares issued in reinvestment of
distributions.................... 835,885
10,983,529
Shares reacquired.................. (29,632,995)
(419,271,484)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 1,596,066
20,954,857
Shares issued upon conversion from
Class B.......................... 1,312,309
18,909,540
Shares reacquired upon conversion
into Class Z..................... (4,480,718)
(61,296,301)
----------- ---------
- ----
Net decrease in shares
outstanding...................... (1,572,343) $
(21,431,904)
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1995:
Shares sold........................ 16,264,230 $
199,059,220
Shares issued in reinvestment of
distributions.................... 614,029
6,502,568
Shares reacquired.................. (16,750,855)
(207,402,318)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 127,404
(1,840,530)
Shares issued upon conversion from
Class B.......................... 8,645,131
97,904,973
----------- ---------
- ----
Net increase in shares
outstanding...................... 8,772,535 $
96,064,443
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
<TABLE>
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1996:
Shares sold........................ 10,646,908 $
141,359,376
Shares issued in reinvestment of
distributions.................... 1,340,218
16,779,529
Shares reacquired.................. (11,138,852)
(146,886,969)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 848,274
11,251,936
Shares reacquired upon conversion
into Class A..................... (1,382,405)
(18,909,540)
----------- ---------
- ----
Net decrease in shares
outstanding...................... (534,131) $
(7,657,604)
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1995:
Shares sold........................ 14,302,262 $
168,922,003
Shares issued in reinvestment of
distributions.................... 2,601,937
26,773,935
Shares reacquired.................. (16,720,969)
(196,352,189)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 183,230
(656,251)
Shares reacquired upon conversion
into Class A..................... (8,999,868)
(97,904,973)
----------- ---------
- ----
Net decrease in shares
outstanding...................... (8,816,638) $
(98,561,224)
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
11 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1996:
Shares sold........................ 403,369 $
5,378,137
Shares issued in reinvestment of
distributions.................... 7,340
91,897
Shares reacquired.................. (226,306)
(3,018,680)
----------- ---------
- ----
Net increase in shares
outstanding...................... 184,403 $
2,451,354
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1995:
Shares sold........................ 129,738 $
1,540,377
Shares issued in reinvestment of
distributions.................... 2,254
23,189
Shares reacquired.................. (40,456)
(475,424)
----------- ---------
- ----
Net increase in shares
outstanding...................... 91,536 $
1,088,142
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
<TABLE>
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
March 1, 1996(a) through September
30, 1996:
Shares sold........................ 1,257,435 $
18,189,646
Shares reacquired.................. (1,265,300)
(18,265,504)
----------- ---------
- ----
Net decrease in shares outstanding
before conversion................ (7,865)
(75,858)
Shares issued upon conversion from
Class A.......................... 4,480,718
61,296,301
----------- ---------
- ----
Net increase in shares
outstanding...................... 4,472,853 $
61,220,443
----------- ---------
- ----
----------- ---------
- ----
- ---------------
(a) Commencement of offering of Class Z shares.
</TABLE>
- ------------------------------------------------------------
- --------------------
12
<PAGE>
Financial Highlights PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
--------------
- --------------------------------------------
Year Ended September 30,
--------------
- --------------------------------------------
1996
1995 1994 1993 1992
-------- -
- ------- -------- ------- -------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year........ $ 14.18 $
12.40 $ 13.06 $ 11.25 $ 10.16
-------- -
- ------- -------- ------- -------
Income from investment operations
Net investment income..................... .04
.05 -- .03 .02
Net realized and unrealized gain on
investment transactions................ 1.75
2.57 .13 3.14 1.47
-------- -
- ------- -------- ------- -------
Total from investment operations....... 1.79
2.62 .13 3.17 1.49
-------- -
- ------- -------- ------- -------
Less distributions
Distributions from net realized capital
gains.................................. (.67)
(.84) (.79) (1.36) (.40)
-------- -
- ------- -------- ------- -------
Net asset value, end of year.............. $ 15.30 $
14.18 $ 12.40 $ 13.06 $ 11.25
-------- -
- ------- -------- ------- -------
-------- -
- ------- -------- ------- -------
TOTAL RETURN(b):.......................... 13.38%
23.29% 1.13% 30.42% 15.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............. $237,306
$242,231 $103,078 $94,842 $44,845
Average net assets (000).................. $223,091
$174,449 $ 97,877 $69,801 $36,011
Ratios to average net assets:
Expenses, including distribution
fees................................ 1.24%
1.33% 1.33% 1.17% 1.33%
Expenses, excluding distribution
fees................................ .99%
1.08% 1.09% .97% 1.13%
Net investment income.................. .33%
.30% .00% .26% .19%
For Class A, B, C and Z shares:
Portfolio turnover..................... 53%
64% 82% 68% 99%
Average commission rate paid per
share............................... $ .0515
N/A N/A N/A N/A
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares
outstanding during the year.
(b) 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 year reported and includes reinvestment
of dividends and
distributions.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
13 -----
<PAGE>
Financial Highlights PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
--------------
- ----------------------------------------------
Year Ended September 30,
--------------
- ----------------------------------------------
1996
1995 1994 1993 1992
-------- -
- ------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year........ $ 13.56 $
11.99 $ 12.74 $ 11.08 $ 10.11
-------- -
- ------- -------- -------- --------
Income from investment operations
Net investment loss....................... (.06)
(.06) (.09) (.06) (.07)
Net realized and unrealized gain on
investment transactions................ 1.66
2.47 .13 3.08 1.44
-------- -
- ------- -------- -------- --------
Total from investment operations....... 1.60
2.41 .04 3.02 1.37
-------- -
- ------- -------- -------- --------
Less distributions
Distributions from net realized capital
gains.................................. (.67)
(.84) (.79) (1.36) (.40)
-------- -
- ------- -------- -------- --------
Net asset value, end of year.............. $ 14.49 $
13.56 $ 11.99 $ 12.74 $ 11.08
-------- -
- ------- -------- -------- --------
-------- -
- ------- -------- -------- --------
TOTAL RETURN(b):.......................... 12.56%
22.37% .34% 29.40% 14.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............. $378,861
$361,873 $425,502 $376,068 $172,018
Average net assets (000).................. $355,636
$349,929 $399,920 $278,659 $154,601
Ratios to average net assets:
Expenses, including distribution
fees................................ 1.99%
2.08% 2.09% 1.97% 2.13%
Expenses, excluding distribution
fees................................ .99%
1.08% 1.09% .97% 1.13%
Net investment loss.................... (.42)%
(.51)% (.76)% (.54)% (.61)%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares
outstanding during the year.
(b) 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 year reported and includes reinvestment
of dividends and
distributions.
- ------------------------------------------------------------
- --------------------
14 See Notes to
Financial Statements.
<PAGE>
Financial Highlights PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
--------------
- ------------------------------------------- ------------
- -----
August 1, March 1,
Year
Year 1994(d) 1996(e)
Ended
Ended Through Through
September
30, September 30, September 30, September
30,
1996
1995 1994 1996
--------------
- ------- ------------- ------------- ------------
- -----
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period...... $ 13.56
$ 11.99 $ 11.61 $ 13.69
-----
- ----- ----- ------
Income from investment operations
Net investment income (loss)..............
(.06) (.06) (.01)
.05
Net realized and unrealized gain on
investment transactions................ 1.66
2.47 .39 1.58
-----
- ----- ----- ------
Total from investment operations....... 1.60
2.41 .38 1.63
-----
- ----- ----- ------
Less distributions
Distributions from net realized capital
gains..................................
(.67) (.84) -- -
- -
-----
- ----- ----- ------
Net asset value, end of period............ $ 14.49
$ 13.56 $ 11.99 $ 15.32
-----
- ----- ----- ------
-----
- ----- ----- ------
TOTAL RETURN(b):..........................
12.56% 22.37% 3.19%
11.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $ 4,323
$ 1,545 $ 269 $68,516
Average net assets (000).................. $ 2,786
$ 784 $ 179 $66,228
Ratios to average net assets:
Expenses, including distribution
fees................................
1.99% 2.08% 2.22%(c)
.99%(c)
Expenses, excluding distribution
fees................................
.99% 1.08% 1.22%(c)
.99%(c)
Net investment income (loss)...........
(.42)% (.46)% (.31)%(c)
.58%(c)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares
outstanding during the period.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
15 -----
<PAGE>
Report of Independent Accountants PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
The Shareholders and Board of Directors of
Prudential Small Companies Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of Prudential
Small Companies Fund,
Inc., formerly Prudential Growth Opportunity Fund, Inc. (the
``Fund'') at
September 30, 1996, the results of its operations for the
year then ended, the
changes in its net assets for each of the two years in the
period then ended and
the financial highlights for each of the five years in the
period then ended, in
conformity with generally accepted accounting principles.
These financial
statements and financial highlights (hereafter referred to
as ``financial
statements'') are the responsibility of the Fund's
management; our
responsibility is to express an opinion on these financial
statements based on
our audits. We conducted our audits of these financial
statements in accordance
with generally accepted auditing standards which require
that we plan and
perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements, assessing the accounting principles used and
significant estimates
made by management, and evaluating the overall financial
statement presentation.
We believe that our audits, which included confirmation of
securities at
September 30, 1996 by correspondence with the custodian and
brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
November 25, 1996
Federal Income Tax Information PRUDENTIAL SMALL
COMPANIES FUND, INC.
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1996) as to the
federal tax status of
distributions paid by the Fund during such fiscal year.
Accordingly, during its
fiscal year ended September 30, 1996, the Fund paid
distributions from net
realized short-term capital gains of $.211 per Class A,
Class B and Class C
shares, which are fully taxable as ordinary income, and
$.457 per Class A, Class
B and Class C shares from net realized long-term capital
gains, which are
taxable as such. Further, we wish to advise you that 62% of
the ordinary income
dividends paid in the fiscal year ended September 30, 1996
qualified for the
corporate dividends received deduction available to
corporate taxpayers.
In January 1997, you will be advised on Internal Revenue
Service Form 1099 DIV
or substitute 1099 as to the federal tax status of the
dividends received by you
in calendar year 1996. The amounts that will be reported on
such Form 1099 DIV
or substitute will be the amounts to use on your 1996
federal income tax return
and probably will differ from the amounts which we must
report for the Fund's
fiscal year ended September 30, 1996.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, a nationally
recognized mutual fund
rating agency. We report both the cumulative total returns
and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's
performance -- it generally smoothes out returns and gives
you an idea how
much the Fund has earned in an average year, for a given
time period. Under
the performance box, you'll see legends that explain the
performance
information, whether fees and sales charges have been
included in returns,
and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past perfor-
mance is not
indicative of future results.
Portfolio Manager's Report The portfolio manager who
invests your money for
you reports on successful -- and not-so-successful --
strategies in this
section of your report. Look for recent purchases and sales
here, as well as
information about the sectors the portfolio manager favors
and any changes that
are on the drawing board.
Portfolio Of Investments This is where the report begins to
look technical, but
it's really just a listing of each security held at the end
of the reporting
period, along with valuations and other information. Please
note that sometimes
we discuss a security in the Portfolio Manager's Report
that doesn't appear in
this listing because it was sold before the close of the
reporting period.
<PAGE>
Statement Of Assets And Liabilities The balance sheet shows
the assets (the
value of the Fund's holdings), liabilities (how much the
Fund owes) and net
assets (the Fund's equity, or holdings after the Fund pays
its debts) as of the
end of the reporting period. It also shows how we calculate
the net asset value
per share for each class of shares. The net asset value is
reduced by payment
of your dividend, capital gain, or other distribution, but
remember that the
money or new shares are being paid or issued to you. The net
asset value
fluctuates daily along with the value of every security in
the portfolio.
Statement Of Operations This is the income statement, which
details income
(mostly interest and dividends earned) and expenses
(including what you pay us
to manage your money). You'll also see capital gains here --
both realized and
unrealized.
Statement Of Changes In Net Assets This schedule shows how
income and expenses
translate into changes in net assets. The Fund is required
to pay out the bulk
of its income to shareholders every year, and this statement
shows you how we
do it -- through dividends and distributions -- and how
that affects the net
assets. This statement also shows how money from investors
flowed into and out
of the Fund.
Notes To Financial Statements This is the kind of technical
material that can
intimidate readers, but it does contain useful information.
The Notes provide a
brief history and explanation of your Fund's objectives. In
addition, they also
outline how Prudential Mutual Funds prices securities. The
Notes also explain
who manages and distributes the Fund's shares, and more
importantly, how much
they are paid for doing so. Finally, the Notes explain how
many shares are
outstanding and the number issued and redeemed over the
period.
Financial Highlights This information contains many elements
from prior pages,
but on a per share basis. It is designed to help you
understand how the Fund
performed and to compare this year's performance and
expenses to those of prior
years.
Independent Auditor's Report Once a year, an outside auditor
looks over our
books and certifies that the information is fairly presented
and complies with
generally accepted accounting principles.
Tax Information This is information which we report annually
about how much of
your total return is taxable. Should you have any questions,
you may want to
consult a tax advisor.
Performance Comparison These charts are included in the
annual report and are
required by the Securities Exchange Commission. Performance
is presented here
as a hypothetical $10,000 investment in the Fund since its
inception or for 10
years (whichever is shorter). To help you put that return in
context, we are
required to include the performance of an unmanaged, broad
based securities
index, as well. The index does not reflect the cost of
buying the securities it
contains or the cost of managing a mutual fund. Of course,
the index holdings
do not mirror those of the fund -- the index is a broadly
based reference point
commonly used by investors to measure how well they are
doing. A definition of
the selected index is also provided. Investors generally
cannot invest
directly in an index.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
- ------------------------------------------------------------
- ------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
- ------------------------------------------------------------
- ------------------
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just based
on the current investment fad.
- ------------------------------------------------------------
- ------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
Prudential Small Companies Fund, Inc. vs.
the Russell 2000 Index.
Prudential Small Companies Fund, Inc.
Russell 2000 Index
(CHART)
Past performance is not indicative of future results.
Investment return and
principal value will fluctuate so that an investor's shares,
when redeemed, may
be worth more or less than their original cost. The boxes on
the charts are
designed to give you an idea how much the Fund's returns can
fluctuate from
year to year by measuring the best and worst calendar years
in terms of total
annual return exclusive of sales charges since the inception
of Class A and B
shares.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Small
Companies Fund, Inc.,
(Class A, Class B, Class C and Class Z) with a similar
investment in the
Russell 2000 Index by portraying the initial account values
at the commencement
of operations of Class A, Class C and Class Z shares and
for 10 years for
Class B shares, and subsequent account values at the end of
this most recent
reporting period (September 30), as measured on a quarterly
basis, beginning in
1990 for Class A shares, in 1986 for Class B shares, in 1994
for Class C shares
and in 1996 for Class Z shares. For purposes of the graphs,
and unless
otherwise indicated, in the accompanying tables it has been
assumed (a) that
the maximum applicable front-end sales charge was deducted
from the initial
$10,000 investment in Class A shares; (b) the maximum
applicable contingent
deferred sales charge was deducted from the value of the
investment in Class B
and Class C shares, assuming full redemption on September
30, 1996; (c) all
recurring fees (including management fees) were deducted;
and (d) all dividends
and distributions were reinvested. Class B shares
automatically convert to
Class A shares, on a quarterly basis, beginning
approximately seven years after
purchase. This conversion feature is not reflected in the
graph. The graph and
accompanying tables reflect the past subsidy and/or waiver
of expenses or
management fees. Class Z shares do not have a sales charge
or a distribution
fee. Since Class Z shares have been in existence less than a
year, no average
annual total returns are shown.
The Russell 2000 is a weighted index, representing the
smallest 2,000 stocks
among the largest 3,000 equity-capitalized U.S. corporations
and represents
approximately 10% of their aggregate market value. The Index
is unmanaged and
includes the reinvestment of all dividends, but does not
reflect the payment of
transaction costs and advisory fees associated with an
investment in the Fund.
The securities in the Index may differ substantially from
the securities in the
Fund. The Index is not the only one that may be used to
characterize
performance of this fund and other indexes may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http:\\www.prudential.com
(LOGO)
Directors
Edward D. Beach
Delayne D. Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse, LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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.
743968109 MF109E
743968208 Cat. #642001I
743968307 743968406
