(ICON)
Prudential
Small
Company
Value
Fund, Inc.
- ---------------------------
(formerly Prudential
Small Companies
Fund, Inc.)
ANNUAL
REPORT
Sept. 30, 1997
(LOGO)
<PAGE>
Prudential Small Company
Value Fund, Inc.
Performance At A Glance.
The Prudential Small Company Value Fund performed
exceptionally well over the
12 months that ended September 30, beating the
average small company fund by 15
percentage points, as measured by Lipper
Analytical Services. The Fund also
topped the Russell 2000 Index, a broad-based
measure of small companies we
favor. Our performance was primarily the result of
three factors: our stock
selection, merger and acquisition activity
involving stocks we owned, and
investors generally favoring small company value
stocks.
Cumulative Total Returns1 As
of 9/30/97
<TABLE>
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 45.92% 169.04%
N/A 275.91%
Class B 44.91 159.15
266.66% 794.24
Class C 44.91 N/A
N/A 105.97
Class Z 46.38 N/A
N/A 63.81
Lipper Small
Co. Growth Fds3 29.79 162.84
290.33 ***
</TABLE>
Average Annual Total Returns1
As of 9/30/97
<TABLE>
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 38.63% 20.65%
N/A 18.01%
Class B 39.91 20.89
13.88% 13.86
Class C 43.91 N/A
N/A 25.65
Class Z 46.38 N/A
N/A 36.60
</TABLE>
Past performance is not indicative of future
results. Principal and investment
return will fluctuate so that an investor's share,
when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Investments Fund Management
and Lipper Analytical Services.
The cumulative total returns do not take into
account sales charges. 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.
2Inception dates: Class A, 1/22/90; Class B,
11/13/80; Class C, 8/1/94; Class
Z, 3/1/96.
3These are average returns for the 433 funds for
one year, 125 for five years
and 52 for 10 years.
*** Lipper Since Inceptions returns are: Class A,
271.47%; Class B, 697.05%;
Class C, 108.85%; and Class Z, 45.25% for all
funds in each share class.
How Investments Compared.
(As of 9/30/97)
(CHART)
Source: Lipper Analytical Services. Financial
markets change, so a mutual
fund's past performance should never be used to
predict future results. The
risks to each of the investments listed above are
different -- we provide
12-month total returns for several Lipper mutual
fund categories to show you
that reaching for higher returns means tolerating
more risk. The greater the
risk, the larger the potential reward or loss. In
addition, we've included
historical 20-year average annual returns. These
returns assume the
reinvestment of dividends.
U.S. Growth Funds 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
(PHOTOS)
Portfolio
Managers' Report
The Prudential Small Company Value Fund invests in
stocks of small companies
(those with a total market capitalization of $1.5
billion or less), mostly
located in the U.S. We follow a traditional value
investment style: we look
for good businesses with sound management that are
selling for what we believe
to be substantially less than a fair price.
Historically, stocks of small
companies have fluctuated a great deal, so we try
to buy when they are bargains
and sell when they are expensive. We are seeking
consistent, above average,
risk-adjusted returns. There can be no assurance
that the Fund will achieve
its investment objective of capital growth.
We Changed Our Name.
We changed our Fund's name because we wanted to
emphasize the distinctive
feature of our investment approach: our strict
value style. Our strategy has
not changed -- we're not just buying stocks: we
buy into good businesses that
are selling for less than we think they're worth.
We look for companies where
good news can take the average investor by
surprise.
Strategy Session.
- --------------------------------------------------
- -----------------------------
We purchase stocks that are inexpensive on the
basis of price/cash flow,
price/earnings, price/book value, asset values,
break-up values and private
market values. We tend to focus on cash flow,
because free cash enables good
managers to invest in new opportunities, pay back
debt, and otherwise add value
for investors. Our stocks are typically among the
15% to 20% lowest priced
small companies.
We also look for companies that are not followed
by many analysts, where good
news can push prices up sharply, and we look for a
catalyst that is likely to
produce a major shift in share price, such as a
restructuring, merger, asset
sale, acquisition, spin-off or management change.
Following this discipline, more than 38% of the
portfolio was in industrials as
of September 30. The economy is good, interest
rates are low, and economic
growth is fast enough to keep profits rising, but
slow enough to avoid
inflation. Suppliers to basic American industry
are prospering.
When we shop for bargains, we hope that either the
market or an acquirer will
eventually pay us what we think these companies
are worth. Fifteen of our
companies have been the targets of merger or
acquisition activity this year,
typically by competitors that wanted to increase
their market share. With a
lot of money chasing a few companies, buyers are
typically paying premium
prices.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 9/30/97.
(CHART)
<PAGE>
What Went Well.
- -------------------------------------------------
Urge To Merge. . .
Buying inexpensive companies allowed us to benefit
from mergers and
acquisitions. Over the past year, this was a major
contributor to our strong
performance. For example, we held a substantial
number of financial companies,
four of which -- three insurance companies and a
savings and loan
institution -- were involved in takeover activity.
Two of the insurance
companies were small annuity businesses. Annuities
have economies of scale that
make it difficult for small firms to offer
competitive products, but they are a
growth business and annuity customers are
valuable. They make good
acquisitions.
. . . Break Up . . .
We did particularly well on Kansas City Southern.
Investors had priced the
company as a railroad, but it also owns Janus
Capital and Berger Associates --
two very successful mutual fund companies -- and
DST Systems, a data processor
for mutual funds. We bought this financial
services firm disguised as a
railroad. The company is planning to separate its
businesses, and we are
benefitting from investors' focus on the higher
valuations accorded to
asset-management firms.
. . . Or Consolidate.
Applied Industrial Technologiesis our third
largest portfolio holding and
returned 87% over the past 12 months. Applied is
in industrial distribution:
shipping spare parts to factories. It is growing
because the industry is
consolidating from a large number of small local
distributors to nationwide
suppliers. Companies are reducing the number of
suppliers they use to improve
productivity. We have one of the winners -- a
company that recently grew
significantly by acquisition.
What Could Have Gone Better.
- -------------------------------------------------
Too Much Cash.
Over the course of the year we generally held
between 10% and 15% of assets in
cash, which came in quickly from new investors,
profit taking, and merger
proceeds. Our investment discipline kept us from
investing it as quickly as we
would have liked, restraining performance.
Too Little Oil Service.
We missed opportunities in the oil service sector.
The energy stocks we owned
were entirely in exploration and production.
However, oil service companies
were the best performing energy stocks. Demand for
oil extraction equipment was
very strong.
Five Largest Holdings.
2.3% Universal Health
Hospital Management
2.1% Financial Security
Assurance
Insurance
2.0% Applied Industrial
Technologies
Misc. Industrial
2.0% Blount International
Industrial
1.8% Vintage Petroleum
Oil Exploration &
Production
Expressed as a percentage of net assetsas of
9/30/97.
Looking Ahead.
Stock prices are high and subject to rapid swings
as recent events have
demonstrated. We are focusing more than usual on
assessing the potential risk
should either a specific company or stock prices
in general drift lower. We
are buying more stock of companies that we know
well and that have established
track records.
On the other hand, the U.S. economy is expanding
at a moderate growth rate --
about 2.5% to 3.0% a year. There is little threat
of higher interest rates or
inflation. The companies we buy are focused on
local markets and are generally
unaffected by overseas turmoil. The management of
our companies feel good
about their business prospects. So we believe
that we've assembled a strong
portfolio for these uncertain times.
1
<PAGE>
Jay Kaplan -- It's Great To Have A Nice Year,
But...
- --------------------------------------------------
- -----------------------------
Jay Kaplan, co-portfolio manager of the Prudential
Small Company Value Fund,
says consistency of return is the true measure of
success.
Q. You've had a very successful year.
How did you do it?
A. Many things went our way this year. Clearly, we
picked the right stocks.
Small company stocks rallied. And mergers and
acquisitions helped. It's nice to
have a great year, but we're really shooting for
consistently above-average
returns, year after year. Instead of swinging for
home runs, we're trying to
hit a lot of singles and doubles. We'll get an
occasional grand slam -- as we
did this year -- but we try really hard not to
strike out. We hold positions in
well over 100 stocks. Generally, if about 2% of
the Fund is in one stock it's
because it appreciated to that level.
Prices of small company stocks are volatile, so we
focus on putting a rational
value on the underlying businesses. When the stock
market wants to give us one
for much less than we think it's worth, we take
the business. Then we hold it
until someone wants to pay us what we think the
business is worth. Or more.
Because we try to stay with managements that are
building value, our turnover
is low -- 58% in 1997, compared with the 93% small
company average (according
to Morningstar).
Q. That is classic value investing, as taught by
Ben Graham, isn't it?
A. It's a strategy that has worked. We take other
lessons from classic value
investing: we pay attention to the people, not
just the financial statements.
This is particularly important with small
businesses. We talk to a lot of
people, not only on Wall Street, but all around
the country. When we talk to
the managers of a business we are interested in,
we also ask them about their
suppliers, their competitors and other businesses
with which they are familiar.
We get to know what they are like and they alert
us to new opportunities.
Q. You make it sound personal. Isn't investing
about financial data -- numbers?
A. Of course the numbers are important. We
scrutinize the financial statements
and we project earnings, but after the numbers are
in, you still have to make a
judgment about whether the management can make the
business grow -- what is the
probability of realizing those estimates?
Investment decisions are the free
enterprise system's way of allocating capital to
entrepreneurial firms. It's
about more than quarterly returns.
(PHOTO)
2
<PAGE>
President's Letter
November 12, 1997
- --------------------------------------------------
- -----------------------------
Keep Events In
Perspective.
Dear Shareholder:
For investors, the late October decline
experienced by the financial markets
was unsettling -- but let's put events in
perspective.
October's downturn was the third significant one
this year. Stock prices fell
sharply in early spring and dropped again in late
summer. Yet following each
episode the financial markets recovered most of
the lost ground. That's very
important because it shows that investors today
are not easily swayed by
temporary setbacks -- they choose to stay the
course and are investing for the
long term.
Despite the recent volatility, it has been a very
good year for investors.
Plus, the U.S. economy is strong, inflation
remains low, and unemployment is
down. At the end of the sell-off on October 27,
the Standard & Poor's 500 Index
had still gained more than 18% for the year. The
Dow Jones Industrial Average
was also up 11% and the Nasdaq Composite nearly
19%.
Here are a few more thoughts that may help you
during times of market
uncertainty:
- - Keep your expectations realistic. Seasoned
investors know that financial
markets rise and fall -- as will the value of
their holdings. Over time,
however, stocks have been shown to produce very
attractive returns. As a matter
of fact, the S&P 500 rose more than 280% from the
time of the last major market
downturn (October 31, 1987) through December 31,
1996, according to Lipper
Analytical Services.
- - Don't make rash decisions. If you have an
investment plan, stick to it.
While past performance is not indicative of future
results, historically,
investors have profited by taking advantage of the
long-term growth potential
of U.S. stocks.
- - We're on your side. Your Prudential Securities
Financial Advisor or Pruco
Securities Registered Representative can help you
understand what's happening
in the financial markets. Why not call him or her
today?
Thank you for your continued confidence in
Prudential Mutual Funds and
Annuities. We'll do everything we can to keep you
informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
SMALL COMPANY
September 30, 1997 VALUE
FUND, INC.
- --------------------------------------------------
- ----------
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--89.9%
COMMON STOCKS--89.1%
- --------------------------------------------------
- ----------
Aerospace/Defense--1.3%
139,600 Doncasters PLC (ADR) (United
Kingdom) (a) $
4,188,000
184,200 Precision Castparts Corp.
11,973,000
-
- -------------
16,161,000
- --------------------------------------------------
- -------------
Automotive--0.9%
43,200 Dura Automotive Systems, Inc. (a)
1,360,800
345,500 Strattec Security Corp. (a)
9,609,219
-
- -------------
10,970,019
- --------------------------------------------------
- -------------
Building & Construction--0.9%
365,800 Crossmann Communities, Inc. (a)
8,276,225
93,100 NVR, Inc. (a)
2,420,600
-
- -------------
10,696,825
- --------------------------------------------------
- -------------
Building & Products--0.8%
561,700 Cameron Ashley Building Products
(a)
10,251,025
- --------------------------------------------------
- -------------
Business Services--0.5%
254,100 World Fuel Services Corp.
6,320,738
- --------------------------------------------------
- -------------
Cellular Communications--1.7%
784,600 Centennial Cellular Corp. (a)
13,436,275
437,500 Vanguard Cellular System, Inc.
Class A (a)
6,890,625
-
- -------------
20,326,900
- --------------------------------------------------
- -------------
Chemicals--1.0%
983,300 Agrium, Inc. (Canada)
11,799,600
- --------------------------------------------------
- -------------
Computer Software & Services--1.1%
530,400 Banctec, Inc. (a)
14,121,900
Consumer Services--0.6%
86,100 Pittston Brinkclquos Group $
3,449,381
398,210 Right Management Consultants,
Inc. (a)
4,081,653
-
- -------------
7,531,034
- --------------------------------------------------
- -------------
Containers & Packaging--2.7%
353,000 ACX Technologies, Inc. (a)
9,398,625
203,400 Ball Corp.
7,080,862
79,800 Ivex Packaging Corp. (a)
1,276,800
208,300 Shorewood Packaging Corp. (a)
4,973,163
624,200 U.S. Can Corp. (a)
10,377,325
-
- -------------
33,106,775
- --------------------------------------------------
- -------------
Defense--0.0%
8,800 ESCO Electronics Corp. (a)
155,100
- --------------------------------------------------
- -------------
Electrical Utilities--0.6%
274,900 TNP Enterprises, Inc.
6,906,863
- --------------------------------------------------
- -------------
Electrical Equipment--2.4%
432,400 Belden, Inc.
16,296,075
5,500 Lincoln Electric Co.
231,688
182,900 Lincoln Electric Co., Class A
7,521,762
283,400 Woodhead Industries, Inc.
5,880,550
-
- -------------
29,930,075
- --------------------------------------------------
- -------------
Electronics--4.4%
34,500 Berg Electronics Corp. (a)
1,854,375
263,900 Continental Circuits Corp. (a)
4,981,112
453,400 Marshall Industries (a)
17,569,250
449,700 Methode Eletronics, Inc., Class A
11,579,775
1,050,400 Pioneer Standard Electronics,
Inc.
18,053,750
-
- -------------
54,038,262
- --------------------------------------------------
- -------------
Environmental Services--0.3%
247,807 BHA Group, Inc. (a)
4,274,671
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL
SMALL COMPANY
September 30, 1997 VALUE
FUND, INC.
- --------------------------------------------------
- ----------
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Financial Services--0.7%
92,400 Finova Group, Inc. $
8,743,350
- --------------------------------------------------
- -------------
Food Distribution--0.5%
195,400 JP Foodservice, Inc. (a)
6,155,100
- --------------------------------------------------
- -------------
Food Retail--0.9%
377,900 Dominicks Supermarkets, Inc. (a)
11,407,856
- --------------------------------------------------
- -------------
Foods--0.2%
140,600 Ingles Markets, Inc., Class A
1,845,375
- --------------------------------------------------
- -------------
Furniture--0.6%
414,600 Furniture Brands International,
Inc. (a)
7,825,575
- --------------------------------------------------
- -------------
Health Services--2.1%
462,400 Maxicare Health Plans, Inc. (a)
8,612,200
463,900 Sierra Health Services, Inc. (a)
16,990,337
-
- -------------
25,602,537
- --------------------------------------------------
- -------------
Hospital Management--2.3%
650,600 Universal Health Services, Inc.,
Class B (a)
28,138,450
- --------------------------------------------------
- -------------
Household Products--1.8%
177,200 Libbey, Inc.
6,323,825
479,600 Premark International, Inc.
15,347,200
-
- -------------
21,671,025
- --------------------------------------------------
- -------------
Insurance--12.0%
331,550 Allied Group, Inc.
16,846,884
172,500 Allmerica Financial Corp.
7,579,219
510,600 AmVestors Financial Corp.
11,041,725
281,500 Capital Re Corp.
17,171,500
294,200 Enhance Financial Services Group,
Inc.
16,107,450
204,900 Equitable of Iowa Companies
13,728,300
549,200 Financial Security Assurance
Holdings, Ltd.
25,537,800
163,300 Harleysville Group, Inc. $
6,858,600
178,100 Liberty Corp.
8,059,025
414,400 MMI Cos., Inc.
10,929,800
164,100 Philadelphia Consolidated Holding
Corp. (a)
7,107,581
177,000 Poe & Brown, Inc.
7,301,250
-
- -------------
148,269,134
- --------------------------------------------------
- -------------
Lodging/Gaming--1.2%
801,400 Red Roof Inns, Inc. (a)
15,226,600
- --------------------------------------------------
- -------------
Machinery--2.0%
594,780 Allied Products Corp.
14,720,805
269,700 CTB International Corp. (a)
4,247,775
312,000 Omniquip International, Inc. (a)
5,733,000
-
- -------------
24,701,580
- --------------------------------------------------
- -------------
Media--3.8%
31,000 Central Newspapers, Inc., Class A
2,301,750
1,657,500 Century Communications Corp.,
Class A (a)
12,638,437
749,290 Granite Broadcasting Corp. (a)
8,897,819
309,700 TCA Cable TV, Inc.
12,078,300
319,500 Young Broadcasting, Inc., Class A
(a)
10,942,875
-
- -------------
46,859,181
- --------------------------------------------------
- -------------
Metals Processing--2.3%
254,800 Chase Industries, Inc. (a)
7,325,500
434,400 Ryerson Tull, Inc., Class A (a)
7,031,850
434,400 Wolverine Tube, Inc. (a)
13,629,300
-
- -------------
27,986,650
- --------------------------------------------------
- -------------
Miscellaneous Industrial--16.9%
715,488 Applied Industrial Technologies,
Inc.
24,639,601
478,600 Blount International, Inc., Class
A
24,139,387
281,800 Carlisle Companies, Inc.
12,522,487
330,900 Cascade Corp.
6,535,275
347,400 Clarcor, Inc.
9,944,325
277,000 DT Industries, Inc.
9,141,000
307,600 Graco, Inc.
10,996,700
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL
SMALL COMPANY
September 30, 1997 VALUE
FUND, INC.
- --------------------------------------------------
- ----------
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Miscellaneous Industrial (contclquod.)
263,100 Greenfield Industries, Inc. $
7,564,125
857,000 Jason, Inc. (a)
7,070,250
434,546 Mark IV Industries, Inc.
11,678,424
376,700 Pentair, Inc.
13,890,812
521,600 Regal Beloit Corp.
16,039,200
213,835 Robbins & Myers, Inc.
8,232,648
218,100 Roper Industries
7,360,875
299,900 Standex International Corp.
9,446,850
713,100 United Dominion Industries, Ltd.
(Canada)
20,189,644
214,810 Varlen Corp.
8,484,995
-
- -------------
207,876,598
- --------------------------------------------------
- -------------
Nursing Homes--0.4%
456,300 GranCare, Inc. (a)
5,390,044
- --------------------------------------------------
- -------------
Oil & Gas Exploration/Production--5.6%
545,300 Comstock Resources, Inc. (a)
6,305,031
530,200 Louis Dreyfus Natural Gas Corp.
(a)
11,796,950
126,500 Mitchell Energy & Development
Corp., Class A
3,581,531
85,250 Mitchell Energy & Development
Corp., Class B
2,376,344
304,900 Pioneer Natural Resources Co.
12,767,688
672,300 Santa Fe Energy Resources, Inc.
(a)
8,403,750
35,900 Swift Energy Co. (a)
1,011,931
457,200 Vintage Petroleum, Inc.
22,517,100
-
- -------------
68,760,325
- --------------------------------------------------
- -------------
Paper & Packaging--0.6%
186,800 Schweitzer-Mauduit International,
Inc.
7,939,000
- --------------------------------------------------
- -------------
Precious Metals--0.2%
84,300 Handy & Harman
1,928,363
- --------------------------------------------------
- -------------
Printing & Publishing--2.1%
628,800 Big Flower Press Holdings, Inc.
(a)
14,580,300
364,800 World Color Press, Inc. (a)
11,012,400
-
- -------------
25,592,700
Railroads--0.7%
259,500 Kansas City Southern Industries,
Inc. $
8,936,531
- --------------------------------------------------
- -------------
Regional Banks--1.0%
170,100 Community First Bankshares, Inc.
8,249,850
101,400 Peoples Heritage Financial Group
4,290,488
-
- -------------
12,540,338
- --------------------------------------------------
- -------------
Restaurants--0.7%
33,300 Ruby Tuesday, Inc. (a)
849,150
657,300 Ryanclquos Family Steak Houses,
Inc. (a)
6,038,944
125,260 VICORP Restaurants, Inc. (a)
2,004,160
-
- -------------
8,892,254
- --------------------------------------------------
- -------------
Retail--3.1%
526,800 BJclquos Wholesale Club, Inc. (a)
15,375,975
339,600 Dress Barn, Inc. (a)
8,150,400
440,800 Homebase, Inc. (a)
3,967,200
242,550 Regis Corp.
6,124,387
249,300 Tractor Supply Co. (a)
4,923,675
-
- -------------
38,541,637
- --------------------------------------------------
- -------------
Savings & Loan--1.7%
413,800 Astoria Financial Corp.
20,819,312
- --------------------------------------------------
- -------------
Specialty Chemicals--2.8%
235,000 Cambrex Corp.
10,956,875
468,600 Lilly Industries, Inc., Class A
9,840,600
121,300 Rogers Corp. (a)
5,246,225
535,300 Spartech Corp.
8,029,500
-
- -------------
34,073,200
- --------------------------------------------------
- -------------
Steel - Producers--0.8%
276,400 Quanex Corp.
9,691,275
- --------------------------------------------------
- -------------
Textiles--0.8%
369,300 Guilford Mills, Inc.
9,601,800
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL
SMALL COMPANY
September 30, 1997 VALUE
FUND, INC.
- --------------------------------------------------
- ----------
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Tobacco--0.1%
41,300 Dimon, Inc. $
1,032,500
- --------------------------------------------------
- -------------
Trucking & Shipping--2.0%
517,800 Interpool, Inc.
9,126,225
562,650 Pittston Burlington Group (a)
15,965,194
-
- -------------
25,091,419
Total common stocks
(cost $793,247,679)
1,097,730,496
-
- -------------
- --------------------------------------------------
- -------------
PREFERRED STOCK--0.4%
Industrial
197,500 DECS Trust, Convertible 8.50%
(cost $4,665,937)
4,851,094
-
- -------------
CORPORATE BOND--0.4%
$ 2,679 Robbins & Myers, Inc.,
Convertible
6.50%, 9/1/03
(Misc. Industrial) (cost
$2,679,000) $
4,073,205
-
- -------------
Total long-term investments
(cost $800,592,616)
1,106,654,795
-
- -------------
SHORT-TERM INVESTMENT--9.7%
- --------------------------------------------------
- -------------
Repurchase Agreement
119,958 Joint Repurchase Agreement
Account
6.13%, 10/1/97
(cost $119,958,000; Note 5)
119,958,000
-
- -------------
- --------------------------------------------------
- -------------
Total Investments--99.6%
(cost $920,550,616; Note 4)
1,226,612,795
Other assets in excess of
liabilities--0.4%
5,209,732
-
- -------------
Net Assets--100%
$1,231,822,527
-
- -------------
-
- -------------
</TABLE>
- ---------------
ADR--American Depository Receipt.
(a) Non-income producing security.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL SMALL COMPANY
Statement of Assets and Liabilities
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
September 30, 1997
- ------------------
<S>
<C>
Investments, at value (cost
$920,550,616).....................................
......................... $1,226,612,795
Cash..............................................
..................................................
... 1,333,423
Receivable for Fund shares
sold..............................................
.......................... 16,060,922
Receivable for investments
sold..............................................
.......................... 7,551,773
Dividends and interest
receivable........................................
..............................
552,466
Deferred expenses and other
assets............................................
......................... 18,492
- --------------
Total
assets............................................
............................................
1,252,129,871
- --------------
Liabilities
Payable for Fund shares
reacquired........................................
.............................
10,060,672
Payable for investments
purchased.........................................
.............................
8,712,236
Management fee
payable...........................................
......................................
667,734
Distribution fee
payable...........................................
....................................
593,738
Accrued
expenses..........................................
.............................................
272,964
- --------------
Total
liabilities.......................................
............................................
20,307,344
- --------------
Net
Assets............................................
.................................................
$1,231,822,527
- --------------
- --------------
Net assets were comprised of:
Common stock, at
par...............................................
................................. $
675,894
Paid-in capital in excess of
par...............................................
..................... 805,291,351
- --------------
805,967,245
Accumulated net realized gain on
investments.......................................
................. 119,793,103
Net unrealized appreciation on
investments.......................................
................... 306,062,179
- --------------
Net assets, September 30,
1997..............................................
........................... $1,231,822,527
- --------------
- --------------
Class A:
Net asset value and redemption price per share
($412,979,533 / 21,795,052 shares of common
stock issued and
outstanding)........................
$18.95
Maximum sales charge (5% of offering
price)............................................
............. 1.00
- --------------
Maximum offering price to
public............................................
........................ $19.95
- ------------------
- ------------------
Class B:
Net asset value, offering price and redemption
price per share
($645,579,275 / 36,602,678 shares of common
stock issued and
outstanding)........................
$17.64
- ------------------
- ------------------
Class C:
Net asset value, offering price and redemption
price per share
($22,049,204 / 1,250,164 shares of common
stock issued and
outstanding)..........................
$17.64
- ------------------
- ------------------
Class Z:
Net asset value, offering price and redemption
price per share
($151,214,515 / 7,941,500 shares of common
stock issued and
outstanding).........................
$19.04
- ------------------
- ------------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss)
September 30, 1997
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $29,384).....................
$ 6,294,365
Interest.................................
5,058,311
- ------------
Total income..........................
11,352,676
- ------------
Expenses
Management fee...........................
5,864,087
Distribution fee--Class A................
719,734
Distribution fee--Class B................
4,437,608
Distribution fee--Class C................
87,617
Transfer agentclquos fees and expenses...
1,358,000
Reports to shareholders..................
360,000
Registration fees........................
190,000
Custodianclquos fees and expenses........
177,000
Audit fee................................
25,000
Legal fees and expenses..................
22,500
Directorsclquo fees and expenses.........
23,000
Miscellaneous............................
2,857
- ------------
Total expenses........................
13,267,403
- ------------
Net investment income (loss)................
(1,914,727)
- ------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions.............................
138,255,423
Net change in unrealized appreciation on
investments..............................
201,444,620
- ------------
Net gain on investments.....................
339,700,043
- ------------
Net Increase in Net Assets
Resulting from Operations...................
$337,785,316
- ------------
- ------------
</TABLE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Statement of Changes in Net Assets
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
September 30,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income
(loss)................... $ (1,914,727)
$ (579,529)
Net realized gain on
investments.............. 138,255,423
96,387,630
Net change in unrealized
appreciation on
investments.............. 201,444,620
(17,952,802)
--------------
- -------------
Net increase in net assets
resulting from
operations............... 337,785,316
77,855,299
--------------
- -------------
Distributions from net realized
capital gains (Note 1)
Class A..................... (35,968,641)
(11,343,132)
Class B..................... (62,311,718)
(17,645,142)
Class C..................... (737,555)
(93,369)
Class Z..................... (10,814,701)
- --
--------------
- -------------
(109,832,615)
(29,081,643)
--------------
- -------------
Fund share transactions (net of
conversions) (Note 6)
Proceeds from shares sold... 1,508,723,401
594,169,971
Net asset value of shares
issued in reinvestment of
distributions............ 105,395,777
27,854,955
Cost of shares reacquired... (1,299,254,732)
(587,442,637)
--------------
- -------------
Net increase in net assets
from Fund share
transactions............. 314,864,446
34,582,289
--------------
- -------------
Total increase................. 542,817,147
83,355,945
Net Assets
Beginning of year.............. 689,005,380
605,649,435
--------------
- -------------
End of year.................... $1,231,822,527
$ 689,005,380
--------------
- -------------
--------------
- -------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
Prudential Small Company Value Fund, Inc.,
formerly Prudential Small Companies
Fund, Inc. (the openqopenqFundclquoclquo), 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, by investing
in a carefully selected portfolio of common
stocks. Investment income is of
incidental importance, and the Fund may invest in
securities which do not
produce any income.
- --------------------------------------------------
- ----------
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 Fundclquos
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 Fundclquos 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 Fundclquos 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 Fundclquos understanding of the applicable
countryclquos 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.
Reclassification of Capital Accounts: The Fund
accounts and reports for
distributions to shareholders in accordance with
the American Institute of
Certified Public Accountantsclquo 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 investment by
$1,914,727 for net operating
losses during the fiscal year ended September 30,
1997. Net investment income,
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 (openqopenqPIFMclquoclquo). Pursuant to this
agreement, PIFM has
responsibility for all investment advisory
services and supervises the
subadviserclquos performance of such services.
Pursuant to a subadvisory
agreement between PIFM and The Prudential
Investment Corporation
(openqopenqPICclquoclquo), PIC furnishes
investment advisory services in
connection with the management of the Fund. PIFM
pays for the cost of the
subadviserclquos 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.
- --------------------------------------------------
- ------------------------------
10
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
The management fee paid PIFM is computed daily and
payable monthly, at an annual
rate of .70 of 1% of the Fundclquos average daily
net assets.
The Fund has a distribution agreement with
Prudential Securities Incorporated
(openqopenqPSIclquoclquo), which acts as the
distributor of the Class A, Class
B, Class C and Class Z shares of the Fund. The
Fund compensates PSI for
distributing and servicing the Fundclquos Class A,
Class B and Class C shares,
pursuant to plans of distribution, (the
openqopenqClass A, B and C
Plansclquoclquo), regardless of expenses actually
incurred by PSI. The
distribution fees for Class A, B and C shares are
accrued daily and payable
monthly. PSI also incurs the expenses of
distributing the Fundclquos Class Z
shares under the distribution agreement, none of
which is reimbursed or paid by
the Fund.
Pursuant to the Class A, B and C Plans, the Fund
compensates PSI 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 were .25 of 1%, 1% and 1% of the
average daily net assets of the
Class A, Class B and Class C shares, respectively,
for the year ended September
30, 1997.
PSI has advised the Fund that it has received
approximately $1,019,000 in
front-end sales charges resulting from sales of
Class A shares during the year
ended September 30, 1997. From these fees, PSI
paid such sales charges to Pruco
Securities Corporation, an affiliated broker-
dealer, which in turn paid
commissions to salespersons and incurred other
distribution costs.
PSI has advised the Fund that for the year ended
September 30, 1997, it received
approximately $697,300 and $3,300 in contingent
deferred sales charges imposed
upon certain redemptions by Class B and Class C
shareholders, respectively.
PSI, PIFM and PIC are indirect, wholly-owned
subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered
investment companies (the
openqopenqFundsclquoclquo), entered into a credit
agreement (the
openqopenqAgreementclquoclquo) on December 31,
1996 with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. The Agreement
expires on December 30, 1997. Interest on any such
borrowings outstanding will
be at market rates. The purposes of the Agreement
is to serve as an alternative
source of funding for capital share redemptions.
The Fund has not borrowed any
amounts pursuant to the Agreement as of September
30, 1997. The Funds pay a
commitment fee at an annual rate of .055 of 1% on
the unused portion of the
credit facility. The commitment fee is accrued and
paid quarterly on a pro-rata
basis by the Funds.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC
(openqopenqPMFSclquoclquo), a wholly-owned
subsidiary of PIFM, serves as the Fundclquos
transfer agent. During the year
ended September 30, 1997, the Fund incurred fees
of approximately $1,160,000 for
the services of PMFS. As of September 30, 1997,
approximately $116,000 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.
For the year ended September 30, 1997, PSI earned
approximately $1,400 in
brokerage commissions from portfolio transactions
executed on behalf of the
Fund.
- --------------------------------------------------
- ----------
Note 4. Portfolio Securities
Purchases and sales of investment securities,
other than short-term investments,
for the year ended September 30, 1997 were
$600,770,033 and $436,067,635,
respectively.
The federal income tax basis of the Fundclquos
investments at September 30, 1997
was $920,731,478 and, accordingly, net unrealized
appreciation for federal
income tax purposes was $305,881,317 (gross
unrealized
appreciation--$308,757,380 gross unrealized
depreciation--$2,876,063).
- --------------------------------------------------
- ----------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered
investment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate
balance of which is invested in one or more
repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As
of September 30, 1997, the
Fund had a 8.90% undivided interest in the joint
account. The undivided interest
for the Fund represents $119,958,000 in the
principal amount. As of such date,
each repurchase agreement in the joint account and
the collateral therefor were
as follows:
Credit Suisse First Boston Corp., 6.15%, in the
principal amount of
$341,000,000, repurchase price $341,058,254, due
10/1/97. The value of the
collateral including accrued interest was
$352,935,110.
Goldman, Sachs & Co. Inc., 6.15%, in the principal
amount of $341,000,000,
repurchase price $341,058,254, due 10/1/97. The
value of the collateral
including accrued interest was $347,820,010.
- --------------------------------------------------
- ------------------------------
11
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
Morgan Stanley, Dean Witter, Discover & Co.,
6.15%, in the principal amount of
$325,256,000, repurchase price $325,311,565, due
10/1/97. The value of the
collateral including accrued interest was
$331,761,960.
UBS Securities, LLC, 6.06%, in the principal
amount of $341,000,000, repurchase
price $341,057,402, due 10/1/97. The value of the
collateral including accrued
interest was $347,821,030.
- --------------------------------------------------
- ----------
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 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 qualify to purchase Class A
shares at net asset value. 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 750 million shares of common stock
authorized $.01 par value per
share, divided into four classes, designated Class
A, Class B, Class C and Class
Z common stock. Class A, Class B and Class Z
shares each consist of 200 million
authorized shares. Class C shares consist of 150
million authorized shares.
Transactions in shares of common stock for the
years ended September 30, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- -----------
- -------------
<S> <C>
<C>
Year ended September 30, 1997:
Shares sold........................ 58,541,824
$ 901,368,248
Shares issued in reinvestment of
distributions.................... 2,537,905
34,540,892
Shares reacquired.................. (56,528,491)
(869,785,004)
-----------
- -------------
Net increase in shares outstanding
before conversion................ 4,551,238
66,124,136
Shares issued upon conversion from
Class B.......................... 1,732,321
27,796,514
-----------
- -------------
Net increase in shares
outstanding...................... 6,283,559
$ 93,920,650
-----------
- -------------
-----------
- -------------
<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)
-----------
- -------------
-----------
- -------------
<CAPTION>
Class B
- -----------------------------------
<S> <C>
<C>
Year ended September 30, 1997:
Shares sold........................ 20,787,255
$ 309,922,681
Shares issued in reinvestment of
distributions.................... 4,656,202
59,320,016
Shares reacquired.................. (13,133,974)
(187,564,507)
-----------
- -------------
Net increase in shares outstanding
before conversion................ 12,309,483
181,678,190
Shares reacquired upon conversion
into Class A..................... (1,856,230)
(27,796,514)
-----------
- -------------
Net increase in shares
outstanding...................... 10,453,253
$ 153,881,676
-----------
- -------------
-----------
- -------------
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)
-----------
- -------------
-----------
- -------------
<CAPTION>
Class C
- -----------------------------------
<S> <C>
<C>
Year ended September 30, 1997:
Shares sold........................ 1,398,968
$ 20,854,398
Shares issued in reinvestment of
distributions.................... 56,529
720,186
Shares reacquired.................. (503,684)
(7,062,824)
-----------
- -------------
Net increase in shares
outstanding...................... 951,813
$ 14,511,760
-----------
- -------------
-----------
- -------------
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
-----------
- -------------
-----------
- -------------
</TABLE>
- --------------------------------------------------
- ------------------------------
12
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class Z Shares
Amount
- ----------------------------------- -----------
- -------------
<S> <C>
<C>
Year ended September 30, 1997:
Shares sold........................ 17,575,451
$ 276,578,074
Shares issued in reinvestment of
distributions.................... 792,865
10,814,683
Shares reacquired.................. (14,899,669)
(234,842,397)
-----------
- -------------
Net increase in shares
outstanding...................... 3,468,647
$ 52,550,360
-----------
- -------------
-----------
- -------------
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>
- --------------------------------------------------
- ------------------------------
13
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights VALUE
FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------
- ---------
<S>
<C> <C> <C> <C>
<C>
Year Ended September 30,
- --------------------------------------------------
- ---------
1997 1996 1995 1994
1993
- -------- -------- -------- --------
- -------
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of
year.................. $ 15.30 $ 14.18
$ 12.40 $ 13.06 $ 11.25
- -------- -------- -------- --------
- -------
Income from investment operations
Net investment income
(loss)........................ .02
.04 .05 -- .03
Net realized and unrealized gain on investment
transactions.....................................
6.06 1.75 2.57 .13
3.14
- -------- -------- -------- --------
- -------
Total from investment
operations................. 6.08
1.79 2.62 .13 3.17
- -------- -------- -------- --------
- -------
Less distributions
Distributions from net realized capital
gains....... (2.43) (.67) (.84)
(.79) (1.36)
- -------- -------- -------- --------
- -------
Net asset value, end of
year........................ $ 18.95 $
15.30 $ 14.18 $ 12.40 $ 13.06
- -------- -------- -------- --------
- -------
- -------- -------- -------- --------
- -------
TOTAL
RETURN(b):....................................
45.92% 13.38% 23.29% 1.13%
30.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)....................... $412,980
$237,306 $242,231 $103,078 $94,842
Average net assets
(000)............................ $287,894
$223,091 $174,449 $ 97,877 $69,801
Ratios to average net assets:
Expenses, including distribution
fees............ 1.21% 1.24%
1.33% 1.33% 1.17%
Expenses, excluding distribution
fees............ .96% .99%
1.08% 1.09% .97%
Net investment income
(loss)..................... .15%
.33% .30% .00% .26%
For Class A, B, C and Z shares:
Portfolio
turnover...............................
58% 53% 64% 82%
68%
Average commission rate paid per
share........... $ .0470 $ .0515
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. 14
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class B
- --------------------------------------------------
- ----------
<S>
<C> <C> <C> <C>
<C>
Year Ended September 30,
- --------------------------------------------------
- ----------
1997 1996 1995 1994
1993
- -------- -------- -------- --------
- --------
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of
period................ $ 14.49 $ 13.56
$ 11.99 $ 12.74 $ 11.08
- -------- -------- -------- --------
- --------
Income from investment operations
Net investment income
(loss)........................ (.09)
(.06) (.06) (.09) (.06)
Net realized and unrealized gain on investment
transactions.....................................
5.67 1.66 2.47 .13
3.08
- -------- -------- -------- --------
- --------
Total from investment
operations................. 5.58
1.60 2.41 .04 3.02
- -------- -------- -------- --------
- --------
Less distributions
Distributions from net realized capital
gains....... (2.43) (.67) (.84)
(.79) (1.36)
- -------- -------- -------- --------
- --------
Net asset value, end of
period...................... $ 17.64 $
14.49 $ 13.56 $ 11.99 $ 12.74
- -------- -------- -------- --------
- --------
- -------- -------- -------- --------
- --------
TOTAL
RETURN(b):....................................
44.91% 12.56% 22.37% .34%
29.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $645,579 $378,861
$361,873 $425,502 $376,068
Average net assets
(000)............................ $443,761
$355,636 $349,929 $399,920 $278,659
Ratios to average net assets:
Expenses, including distribution
fees............ 1.96% 1.99%
2.08% 2.09% 1.97%
Expenses, excluding distribution
fees............ .96% .99%
1.08% 1.09% .97%
Net investment income
(loss)..................... (.60)%
(.42)% (.51)% (.76)% (.54)%
</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. 15
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class C
- --------------------------------------------------
- -----------
August 1,
1994(d)
Year Ended September 30, Through
- -------------------------------------------
September 30,
1997 1996 1995
1994
- ------- ------------- ------------- --
- -----------
<S>
<C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of
period................ $ 14.49 $ 13.56
$ 11.99 $ 11.61
- ------- ------- -------
- -------
Income from investment operations
Net investment income
(loss)........................ (.09)
(.06) (.06) (.01)
Net realized and unrealized gain on investment
transactions.....................................
5.67 1.66 2.47
.39
- ------- ------- -------
- -------
Total from investment
operations................. 5.58
1.60 2.41 .38
- ------- ------- -------
- -------
Less distributions
Distributions from net realized capital
gains....... (2.43) (.67)
(.84) --
- ------- ------- -------
- -------
Net asset value, end of
period...................... $ 17.64 $
14.49 $ 13.56 $ 11.99
- ------- ------- -------
- -------
- ------- ------- -------
- -------
TOTAL
RETURN(b):....................................
44.91% 12.56% 22.37%
3.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $22,049 $
4,323 $ 1,545 $ 269
Average net assets
(000)............................ $ 8,762
$ 2,786 $ 784 $ 179
Ratios to average net assets:
Expenses, including distribution
fees............ 1.96% 1.99%
2.08% 2.22%(c)
Expenses, excluding distribution
fees............ .96% .99%
1.08% 1.22%(c)
Net investment income
(loss)..................... (.60)%
(.42)% (.46)% (.31)%(c)
<CAPTION>
Class Z
- -------------------------------
March 1,
1996(e)
Year Ended Through
September 30, September 30,
1997 1996
- ------------- -------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of
period................ $ 15.32 $
13.69
- --------- -------
Income from investment operations
Net investment income
(loss)........................ .06
.05
Net realized and unrealized gain on investment
transactions.....................................
6.09 1.58
- --------- -------
Total from investment
operations................. 6.15
1.63
- --------- -------
Less distributions
Distributions from net realized capital
gains....... (2.43) --
- --------- -------
Net asset value, end of
period...................... $ 19.04
$ 15.32
- --------- -------
- --------- -------
TOTAL
RETURN(b):....................................
46.38% 11.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 151,215
$68,516
Average net assets
(000)............................ $ 97,310
$66,228
Ratios to average net assets:
Expenses, including distribution
fees............ .96% .99%(c)
Expenses, excluding distribution
fees............ .96% .99%(c)
Net investment income
(loss)..................... .40%
.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. 16
<PAGE>
PRUDENTIAL SMALL COMPANY
Report of Independent Accountants
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
The Shareholders and Board of Directors of
Prudential Small Company Value 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 Company Value
Fund, Inc., formerly Prudential Small Companies
Fund, Inc., at September 30,
1997, 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 periods presented, in
conformity with generally
accepted accounting principles. These financial
statements and financial
highlights (hereafter referred to as
openqopenqfinancial statementsclquoclquo)
are the responsibility of the Fundclquos
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, 1997 by
correspondence with the custodian and brokers and
the application of alternative
auditing procedures where securities purchased had
not been received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 19, 1997
PRUDENTIAL SMALL COMPANY
Federal Income Tax Information
VALUE FUND, INC.
- --------------------------------------------------
- ------------------------------
We are required by the Internal Revenue Code to
advise you within 60 days of the
Fundclquos fiscal year end (September 30, 1997) as
to the federal tax status of
distributions paid by the Fund during such fiscal
year. Accordingly, during its
fiscal year ended September 30, 1997, the Fund
paid distributions from net
realized short-term capital gains of $.354 per
Class A, Class B, Class C and
Class Z shares, which are taxable as ordinary
income, and $2.071 per Class A,
Class B, Class C and Class Z shares from net
realized long-term capital gains,
which are taxable as such. Further, we wish to
advise you that 37% of the
ordinary income dividends paid in the fiscal year
ended September 30, 1997
qualified for the corporate dividends received
deduction available to corporate
taxpayers.
In January 1998, you will be advised on IRS Form
1099 DIV or substitute 1099 as
to the federal tax status of the dividends and
distributions received by you in
calendar year 1997. The amounts that will be
reported on such Form 1099 DIV or
substitute will be the amounts to use on your 1997
federal income tax return and
probably will differ from the amounts which we
must report for the Fundclquos
fiscal year ended September 30, 1997.
- --------------------------------------------------
- ------------------------------
17
<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 performance 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.
- --------------------------------------------------
- -----------------------------
Change Your Mind.
You can exchange your shares in most Prudential
Mutual Funds for shares in
most other Prudential Mutual Funds, without
charges. This may be most helpful
if your investment needs change.
- --------------------------------------------------
- -----------------------------
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains
distributions automatically --
without charge.
- --------------------------------------------------
- -----------------------------
Invest For Retirement.
There is no minimum investment for an IRA. Plus,
you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a
year in an IRA. And if you
are married and not covered by a retirement plan
at work, you and your spouse
may each contribute $2,000 a year to an IRA for a
total of $4,000.
- --------------------------------------------------
- -----------------------------
Change Your Job.
You can take your pension with you. Use a rollover
IRA to manage your
company-sponsored retirement plan while retaining
the special tax-deferred
advantages.
- --------------------------------------------------
- -----------------------------
Invest In Your Children.
There's no fee to open a custodial account for a
child's education or other
needs.
- --------------------------------------------------
- -----------------------------
Take Income.
Would you like to receive monthly or quarterly
checks in any amount from your
fund account? Just let us know. We'll take care of
it. Of course, there are
minimum amounts. And shares redeemed may be
subject to tax, and Class B and C
shares may be subject to contingent deferred sales
charges. We'll gladly
answer your questions.
- --------------------------------------------------
- -----------------------------
Keep Informed.
We want to keep you up-to-date. Of course, you
receive account activity
statements every quarter. But you also receive
annual and semi-annual fund
reports, as well as other important updates on
events that affect your
investments, including tax information.
This material is only authorized for distribution
when preceded or accompanied
by a current prospectus. Read the prospectus
carefully before you invest or
send money.
<PAGE>
Comparing A $10,000 Investment.
- --------------------------------------------
Prudential Small Company Value Fund, Inc. vs.
the Russell 2000 Index.
Prudential Small Company
Value Fund, Inc.
Russell 2000 Index
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Class Z
(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 box on top of the
graphs 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 Company Value 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 1987 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, 1997; (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. Class Z
shares do not have a sales charge or a
distribution fee.
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
Directors
Edward D. Beach
Delayne Dedrick 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
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Caren A. Cunningham, Assistant Secretary
Marguerite E. H. Morrison, 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 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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information
about the Fund's portfolio
holdings are for the period covered by this report
and are subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
743968109 MF109E
743968208 Cat. #642001I
743968307
743968406
