PRUDENTIAL SMALL COMPANIES FUND INC, N-30D, 1997-06-17

PRUDENTIAL SMALL COMPANIES FUND INC
N-30D, 1997-06-17

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(ICON)

Prudential
Small
Companies
Fund, Inc.

SEMI
ANNUAL
REPORT

March 31, 1997
(LOGO)

<PAGE>
Prudential Small Companies Fund, Inc.

Performance At A Glance.

We are pleased to report that the Prudential Small Companies Fund experienced
a significant gain over the last six months. This is particularly noteworthy
since small company stocks in general, as well as the average small company
growth fund measured by Lipper Analytical Services, suffered losses during
that time. Your Fund's value investment style, which emphasizes purchasing
stocks of quality companies at attractive prices, helped it perform
significantly better than the average small company fund.

<TABLE>
<CAPTION>
Cumulative
Total
Returns1
As of 3/31/97
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 9.8% 20.5% 101.6% N/A 182.9%
Class B 9.4 19.7 94.1 182.6% 575.2
Class C 9.4 19.7 N/A N/A 55.5
Class Z 9.9 20.8 N/A N/A 23.1
Lipper Small
Co. Growth Fds3 -4.7 4.7 87.0 195.1 ***
</TABLE>

<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 3/31/97
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 14.5% 13.9% N/A 14.8%
Class B 14.7 14.1 10.9% 12.4
Class C 18.7 N/A N/A 18.0
Class Z 20.7 N/A N/A 21.1
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.

1Source: Prudential Investments Fund Management 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: 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 425 funds for six months, 386 funds for one
year, 105 funds for five years, and 49 funds for 10 years.

***The Lipper Since Inception category cumulative total return for Class A
shares is 181.8% which includes 75 funds; for Class B is 541.9% for 15 funds;
for Class C is 44.8% for 257 funds; and Class Z is 4.7% for 392 funds.

How Investments Compared.
(As of 3/31/97)
(GRAPH)

U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds

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 invest-ments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.

General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.

General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.

Taxable 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
Portfolio
Managers'
Report
(PHOTOS)

The Prudential Small Companies Fund invests in stocks of small companies
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 have fluctuated a great deal. There can be no assurance that
the Fund will achieve its investment objective.

Value Investors.
We are value investors. We prefer to pay low prices for stocks that have yet
to be discovered by many other investors. To find these special companies, we
may visit as many as 400 senior executives a year to talk to them about their
their strategies, their financial objectives, and their prospects.

Strategy Session.
We believe our long-term strategy of buying good small companies at attractive
prices is paying off. As such, we made no significant strategy shifts over the
past six months. We continue to look stock-by-stock for good, smaller
companies that we believe are temporarily undervalued by other investors. We
focus less on trying to identify broader market sectors or industries that may
perform well.

During the period, we found attractively priced stocks in the industrial and
financial industries, where we continue to find attractive opportunities.
These turned out to be two of the better performing areas of the stock market
in the last six months, as measured by the Russell 2000 Index and the broader
market, as measured by the Standard & Poor's 500 Index.

Many small company stock mutual funds employ a strategy called momentum
investing -- buying stocks with increasing earnings despite their sometimes
lofty prices. This strategy generally works in steadily rising stock markets,
but it began to lose favor last year as investors became increasingly
concerned about rising interest rates and slowing corporate earnings.

Our approach of buying stocks we believe to be temporarily undervalued rather
than chasing the soaring valuations of an ongoing bull market has permitted us
to perform better than many other growth-oriented small company funds.

Portfolio Breakdown.
Expressed as a percentage of
total investments as of 3/31/97.
(PIE CHART)

<PAGE>
What Went Well.

Value With a Capital "V."
Our value management style means we look for attractively priced, well-managed
companies that are positioned well within their industry, with a unique product
or service and few competitors.

One example is Regal Beloit, a maker of gearboxes. This company's stock fell
last year after investors became impatient with earnings. So far this year,
however, earnings improved and the company completed an acquisition that will
increase its earnings. As a result, the company's stock has risen 40% in the
six months ended March 31.

The stock price of Burr-Brown, a specialized semiconductor maker, rose 54%
during the six months. This company is a cyclical one -- its fortunes rise and
fall with business levels in its industry. We've owned this stock for some
time, and when its price declined somewhat last fall, we saw an opportunity,
so we bought more. We were pleased when it recovered strongly because the
semiconductor cycle is now on the upswing.

Another strong performer, Blount International, is among our largest holdings.
Blount is a conglomerate involved in a variety of unglamorous businesses,
including manufacturing chain saw chains, hunting equipment and forest
harvesting products. The company's outstanding management has helped it use
its significant and increasing cash wisely to make strategic acquisitions and
buy back company stock; improving its valuation significantly.

Five Largest
Holdings.
2.1% Marshall Industries
Electronics
2.0% Applied Industrial
Misc. Industrial
1.8% Universal Health
Hospital Management
1.7% Blount International
Misc. Industrial
1.7% Kansas City Southern
Railroads

Expressed as a percentage of total investments as of 3/31/97.

And Not So Well.

Utilities Disappoint.
While we're generally pleased with the Fund's performance during the past six
months, there is always room for improvement. Some of our utility stocks did
not perform as well as we hoped. Utilities were one of the poorest performing
areas of the market overall. Fortunately, however, utilities were only a small
portion of our Fund.

Also, one of our top holdings did not perform up to expectations during the
period. The stock price of Methode Electronics, an electronic components
maker, fell swiftly after a disappointing earnings announcement soured
investors' perceptions of the firm's prospects. We still like the company's
outlook, so we continue to hold this stock.

Looking Ahead.
We remain cautious. After six years of nearly nonstop increases, the broad
stock market has fluctuated significantly in recent months. The March increase
in interest rates, and the prospect of another rise, may have more negative
implications for stocks. A slowing of corporate earnings growth could also
make stocks vulnerable.

We believe, however, that the U.S. economy remains solid. That's one reason
why we have placed such a significant emphasis on industrial stocks. We will
continue our long-term strategy of searching for unloved and undervalued
stocks, seeking buying opportunities when prices drop to attractive levels for
what we view as irrational reasons.
- -------------------------------------------------------------------------------
1

<PAGE>
President's Letter May 14, 1997
(PHOTO)
We're On Your Side
Dear Shareholder:
The past few months were mixed for most U.S. stock and bond investors. The
recent news was good: The Dow Jones Industrial Average set several record
highs in May and long-term interest rates were easing. The average stock and
bond mutual fund finished the four-month period ending in April in positive
territory. It was a different story only a few weeks earlier when the Dow
declined significantly from another record high set in mid-March, and long-term
interest rates were at the highest levels in six months.

The reasons behind these recent market swings have been widely publicized --
higher interest rates and inflationary pressures. And while we are watching
market developments closely, we are also very concerned about you and how
you're dealing with events. We realize that staying the course during times of
market uncertainty isn't easy. Here are some thoughts that may help:

- - Keep Your Expectations Realistic. The best investors know that financial
markets rise and fall -- and so too, will the value of their investments.
Over time, however, stocks have been shown to produce very attractive
returns that were well ahead of inflation.

- - Remember Your Time Horizon. If your investment goals are long term (several
years or more), your time horizon should also be long term. During this
period, it's not unusual for stocks and bonds to experience several periods
of market uncertainty.

- - We're On Your Side. Your Prudential Securities Financial Advisor or
Prudential Registered Representative can help you understand what's
happening in the financial markets. They can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and long-
term goals. Call him or her today.

Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.

Sincerely,

Brian M. Storms
President, Prudential Mutual Funds & Annuities
- -------------------------------------------------------------------------------
2

<PAGE>
Portfolio of Investments
as of March 31, 1997
(Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--90.6%
COMMON STOCKS--90.2%
- ------------------------------------------------------------
Aerospace/Defense--1.3%
35,500 Doncasters PLC (ADR) (United
Kingdom) (a) $ 687,813
169,300 Precision Castparts Corp. 8,634,300
------------
9,322,113
- ------------------------------------------------------------
Automotive--1.5%
59,300 Dura Automotive Systems, Inc. (a) 1,393,550
338,300 Stant Corp. 4,947,637
266,300 Strattec Security Corp. (a) 4,660,250
------------
11,001,437
- ------------------------------------------------------------
Building & Products--0.4%
205,500 Cameron Ashley Building Product (a) 2,799,938
- ------------------------------------------------------------
Cellular Communications--0.7%
529,800 Centennial Cellular Corp. 5,496,675
- ------------------------------------------------------------
Chemicals--0.9%
549,700 Agrium, Inc. (Canada) 7,008,675
- ------------------------------------------------------------
Computer Software & Services--1.1%
277,600 Banctec, Inc. (a) 7,078,800
52,800 Sterling Software, Inc. (a) 1,458,600
------------
8,537,400
- ------------------------------------------------------------
Consumer Services--0.9%
134,200 Pittston Brink's Group 3,388,550
345,900 Right Management Consultants, Inc.
(a) 3,329,288
------------
6,717,838
- ------------------------------------------------------------
Containers & Packaging--2.5%
255,900 ACX Technologies, Inc. (a) 4,926,075
98,900 Applied Extrusion Technologies (a) 1,075,537
185,400 Ball Corp. $ 4,913,100
487,300 U.S. Can Corp. (a) 7,431,325
------------
18,346,037
- ------------------------------------------------------------
Electrical Utilities--0.5%
190,100 TNP Enterprises, Inc. 4,063,388
- ------------------------------------------------------------
Electrical Equipment--2.0%
276,700 Belden, Inc. 9,857,437
21,300 Lincoln Electric Co. 686,925
279,400 Woodhead Industries, Inc. 4,400,550
------------
14,944,912
- ------------------------------------------------------------
Electronics--9.5%
250,900 Berg Electronics Corp. (a) 7,150,650
201,200 Burr-Brown Corp. (a) 6,564,150
308,700 Continental Circuits Corp. (a) 3,627,225
17,700 Fluke Corp. 785,437
494,200 Marshall Industries (a) 15,567,300
739,800 Methode Eletronics, Inc., Class A 10,357,200
256,100 Pfeiffer Vacuum Technology AG (ADR)
(Germany) (a) 5,698,225
717,700 Pioneer Standard Electronics, Inc. 9,150,675
335,200 Wyle Electronics 11,271,100
------------
70,171,962
- ------------------------------------------------------------
Environmental Services--0.6%
248,270 BHA Group, Inc. 4,530,928
- ------------------------------------------------------------
Financial Services--1.3%
144,100 Finova Group, Inc. 9,744,763
- ------------------------------------------------------------
Food Distribution--0.9%
234,900 JP Foodservice, Inc. (a) 6,489,113
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 3

<PAGE>
Portfolio of Investments
as of March 31, 1997
(Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Food/Drug Retail--2.1%
255,900 Dominicks Supermarkets, Inc. (a) $ 5,885,700
148,500 Riser Foods, Inc. 4,919,062
166,400 Suiza Foods Corp. (a) 4,451,200
------------
15,255,962
- ------------------------------------------------------------
Furniture--0.8%
410,400 Furniture Brands International,
Inc. (a) 6,156,000
- ------------------------------------------------------------
Gas Pipelines--0.3%
128,000 Western Gas Resources, Inc. 2,304,000
- ------------------------------------------------------------
Health Care Services--0.7%
217,700 Maxicare Health Plans, Inc. (a) 5,469,713
- ------------------------------------------------------------
Hospital Supplies & Services--1.1%
310,300 Sierra Health Services, Inc. (a) 7,873,863
- ------------------------------------------------------------
Hospital Management--1.8%
416,500 Universal Health Services, Inc.,
Class B (a) 13,692,437
- ------------------------------------------------------------
Household Products--2.7%
264,600 Libbey, Inc. 8,268,750
328,500 Premark International, Inc. 6,528,937
254,500 The Rival Co. 5,471,750
------------
20,269,437
- ------------------------------------------------------------
Insurance--10.3%
243,850 Allied Group, Inc. 8,412,825
110,400 Allmerica Financial Corp. 3,877,800
382,600 AmVestors Financial Corp. 5,739,000
180,600 Capital Re Corp. 7,698,075
198,300 Enhance Financial Services Group,
Inc. 7,832,850
158,500 Equitable of Iowa Companies (a) 7,925,000
56,400 Everen Capital Corp. 1,142,100
339,500 Financial Security Assurance
Holdings, Ltd. $ 11,245,937
114,000 Liberty Corp. 4,788,000
110,000 Mmi Cos, Inc. 2,805,000
192,500 Philadelphia Consolidated Holding
Corp. (a) 5,540,391
235,300 Poe & Brown, Inc. 6,147,213
72,200 Security-Connecticut Life Insurance
Co. 3,258,025
------------
76,412,216
- ------------------------------------------------------------
Leisure--0.5%
183,500 WMS Industries, Inc. 3,440,625
- ------------------------------------------------------------
Lodging/Gaming--1.1%
512,900 Red Roof Inns, Inc. (a) 8,078,175
- ------------------------------------------------------------
Machinery--1.7%
323,700 Allied Products Corp. 9,104,062
223,900 Omniquip International, Inc. (a) 3,246,550
------------
12,350,612
- ------------------------------------------------------------
Media--4.4%
87,800 Central Newspapers, Inc. 4,400,975
930,100 Century Communications Corp.,
Class A (a) 4,301,713
533,600 Granite Broadcasting Corp. (a) 5,135,900
482,900 Heritage Media Corp. (a) 8,873,287
198,400 TCA Cable TV, Inc. 6,001,600
158,000 Young Broadcasting, Inc. (a) 3,811,750
------------
32,525,225
- ------------------------------------------------------------
Medical Products--0.5%
177,242 Vitalink Pharmacy Services, Inc.
(a) 3,566,995
- ------------------------------------------------------------
Metals Processing--0.8%
171,900 Ryerson Tull, Inc., Class A (a) 2,385,113
141,200 Wolverine Tube, Inc. (a) 3,671,200
------------
6,056,313
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 4

<PAGE>
Portfolio of Investments
as of March 31, 1997
(Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Metals-Non Ferrous--0.4%
137,800 Chase Brass Industries, Inc. (a) $ 2,790,450
- ------------------------------------------------------------
Miscellaneous Industrial--16.7%
425,325 Applied Industrial Technologies,
Inc. 14,886,375
72,545 Block Drug Co., Inc., Class A 3,191,980
304,900 Blount International, Inc., Class A 12,577,125
225,100 Carlisle Companies, Inc. 6,584,175
249,000 Cascade Corp. 3,828,375
173,900 Clarcor, Inc. 4,021,438
210,500 Figgie International, Inc., Class A
(a) 2,552,313
217,400 Graco, Inc. 6,250,250
225,500 Greenfield Industries, Inc. 4,932,813
571,700 Jason, Inc. (a) 3,751,781
35,000 Kaydon Corp. 1,465,625
253,982 Mark IV Industries, Inc. 5,968,577
214,000 Penn Engineering & Manufacturing
Corp. 4,146,250
275,500 Pentair, Inc. 7,955,062
482,100 Regal Beloit Corp. 11,811,450
145,200 Robbins & Myers, Inc. 3,847,800
130,300 Roper Industries 5,488,887
197,600 Standex International Corp. 5,162,300
456,700 United Dominion Industries, Ltd.
(Canada) 11,132,062
226,200 Varlen Corp. 4,410,900
------------
123,965,538
- ------------------------------------------------------------
Nursing Homes--0.4%
377,200 GranCare, Inc. (a) 3,206,200
- ------------------------------------------------------------
Oil & Gas Exploration/Production--4.1%
247,100 Louis Dreyfus Natural Gas Corp. 3,768,275
118,800 Mitchell Energy & Development
Corp., Class A 2,405,700
80,050 Mitchell Energy & Development
Corp., Class B $ 1,641,025
75,500 Monterey Resources, Inc. 1,217,438
269,700 Parker & Parsley Petroleum Co. 7,956,150
366,300 Santa Fe Energy Resources, Inc.(a) 5,082,412
14,500 St. Mary Land & Exploration Co. 373,375
276,500 Vintage Petroleum, Inc. 8,295,000
------------
30,739,375
- ------------------------------------------------------------
Printing & Publishing--1.5%
335,200 Big Flower Press Holdings, Inc. (a) 6,117,400
233,500 World Color Press Inc. (a) 4,757,562
------------
10,874,962
- ------------------------------------------------------------
Railroads--1.7%
245,500 Kansas City Southern Industries,
Inc. 12,275,000
- ------------------------------------------------------------
Regional Banks--1.1%
189,700 Community First Bankshares, Inc. 5,880,700
72,400 Peoples Heritage Financial Group 2,226,300
------------
8,107,000
- ------------------------------------------------------------
Retail--1.5%
143,750 Regis Corp. 2,515,625
307,900 Waban, Inc. (a) 8,582,712
------------
11,098,337
- ------------------------------------------------------------
Savings & Loan--2.3%
264,200 Astoria Financial Corp. 9,511,200
141,650 Downey Financial Corp. 2,868,412
159,900 RCSB Financial, Inc. 4,797,000
------------
17,176,612
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 5

<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C> <S>
Assets March 31, 1997
--------------
Investments, at value (cost $$633,584,292)................................................................. $748,040,242
Receivable for investments sold............................................................................ 3,556,274
Receivable for Fund shares sold............................................................................ 2,460,283
Dividends and interest receivable.......................................................................... 460,346
Deferred expenses and other assets......................................................................... 13,097
--------------
Total assets............................................................................................ 754,530,242
--------------
Liabilities
Payable for Fund shares reacquired......................................................................... 4,773,184
Bank overdraft............................................................................................. 3,758,501
Payable for investments purchased.......................................................................... 2,577,993
Management fee payable..................................................................................... 458,253
Distribution fee payable................................................................................... 409,792
Accrued expenses........................................................................................... 200,347
--------------
Total liabilities....................................................................................... 12,178,070
--------------
Net Assets................................................................................................. $742,352,172
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 540,182
Paid-in capital in excess of par........................................................................ 587,917,015
--------------
588,457,197
Accumulated net investment loss......................................................................... (557,672)
Accumulated net realized gain on investments............................................................ 39,996,697
Net unrealized appreciation on investments.............................................................. 114,455,950
--------------
Net assets, March 31, 1997................................................................................. $742,352,172
--------------
--------------
Class A:
Net asset value and redemption price per share
($258,684,791 / 18,140,817 shares of common stock issued and outstanding)............................ $14.26
Maximum sales charge (5% of offering price)............................................................. .75
--------------
Maximum offering price to public........................................................................ $15.01
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($393,804,047 / 29,564,183 shares of common stock issued and outstanding)............................ $13.32
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($6,051,279 / 454,258 shares of common stock issued and outstanding)................................. $13.32
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($83,812,055 / 5,858,964 shares of common stock issued and outstanding).............................. $14.30
--------------
--------------
</TABLE>

- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 7

<PAGE>
PRUDENTIAL SMALL COMPANIES FUND, INC.
SMALL COMPANIES FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1997
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $11,381).............................. $ 2,935,503
Interest.................................... 2,302,082
--------------
Total income............................. 5,237,585
--------------
Expenses
Management fee.............................. 2,553,507
Distribution fee--Class A................... 314,058
Distribution fee--Class B................... 1,971,665
Distribution fee--Class C................... 26,778
Transfer agent's fees and expenses.......... 598,000
Reports to shareholders..................... 140,000
Custodian's fees and expenses............... 80,000
Registration fees........................... 63,000
Legal fees and expenses..................... 15,000
Audit fees and expenses..................... 13,000
Directors' fees............................. 11,000
Miscellaneous............................... 9,249
--------------
Total expenses........................... 5,795,257
--------------
Net investment loss............................ (557,672)
--------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment transactions... 56,544,205
Net change in unrealized appreciation of
investments................................. 9,838,391
--------------
Net gain on investments........................ 66,382,596
--------------
Net Increase in Net Assets
Resulting from Operations...................... $ 65,824,924
--------------
--------------
</TABLE>

PRUDENTIAL SMALL COMPANIES FUND, INC.
SMALL COMPANIES FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) March 31, September 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment loss............ $ (557,672) $ (579,529)
Net realized gain on
investments................. 56,544,205 96,387,630
Net change in unrealized
appreciation of
investments................. 9,838,391 (17,952,802)
------------ -------------
Net increase in net assets
resulting from operations... 65,824,924 77,855,299
------------ -------------
Distributions from net realized
capital gains (Note 1)
Class A........................ (35,968,641) (11,343,132)
Class B........................ (62,311,633) (17,645,142)
Class C........................ (737,555) (93,369)
Class Z........................ (10,814,701) --
------------ -------------
(109,832,530) (29,081,643)
------------ -------------
Fund share transactions (net of
conversions) (Note 6)
Proceeds from shares sold...... 579,038,572 655,466,271
Net asset value of shares
issued in reinvestment of
distributions............... 105,395,777 27,854,955
Cost of shares reacquired...... (587,079,951) (648,738,939)
------------ -------------
Net increase in net assets from
Fund share transactions..... 97,354,398 34,582,289
------------ -------------
Total increase.................... 53,346,792 83,355,945
Net Assets
Beginning of period............... 689,005,380 605,649,435
------------ -------------
End of period..................... $742,352,172 $ 689,005,380
------------ -------------
------------ -------------
</TABLE>

- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 8

<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
Prudential Small Companies 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, 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 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.
- ------------------------------------------------------------
Note 2. Agreements

The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .70 of 1% of the Fund's average daily net assets.

The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), 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 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 for Class A, B and C shares are accrued
daily and payable monthly. No distribution or service fees are paid to PSI as
distributor of the Class Z shares of the Fund.
- --------------------------------------------------------------------------------
-----
9

<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
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 six months ended
March 31, 1997.

PSI has advised the Fund that it has received approximately $47,000 in front-end
sales charges resulting from sales of Class A shares during the six months ended
March 31, 1997. From these fees, 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 six months ended March 31, 1997, it
received approximately $350,000 and $1,100 in contingent deferred sales charges
imposed upon certain redemptions by Class B and 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
'Funds'), entered into a credit agreement (the 'Agreement') 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 March 31,
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 ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended March 31, 1997,
the Fund incurred fees of approximately $536,000 for the services of PMFS.
During the six months ended March 31, 1997, approximately $93,000 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 six months ended March 31, 1997 were $25,104,008 and $29,307,130,
respectively.

The federal income tax basis of the Fund's investments at March 31, 1997 was
$633,593,388 and, accordingly, net unrealized appreciation for federal income
tax purposes was $114,446,854 (gross unrealized appreciation--$130,258,064 gross
unrealized depreciation--$15,811,210).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account

The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of March 31, 1997, the Fund
had a 7.84% undivided interest in the joint account. The undivided interest for
the Fund represents $75,508,000 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., 6.40%, in the principal amount of $315,000,000,
repurchase price $315,056,000, due 4/1/97. The value of the collateral including
accrued interest was $321,684,450.

CS First Boston Corp., 6.45%, in the principal amount of $250,000,000,
repurchase price $250,044,792, due 4/1/97. The value of the collateral including
accrued interest was $256,162,625.

Goldman, Sachs & Co. Inc., 6.50%, in the principal amount of $315,000,000,
repurchase price $315,056,875, due 4/1/97. The value of the collateral including
accrued interest was $321,300,771.

J.P. Morgan Securities, Inc., 6.00%, in the principal amount of $18,220,000,
repurchase price $18,223,037, due 4/1/97. The value of the collateral including
accrued interest was $18,584,479.

UBS Securities, Inc., 6.40% in the principal amount of $65,000,000, repurchase
price $65,011,556, due 4/1/97. The value of the collateral including accrued
interest was $66,300,284.
- --------------------------------------------------------------------------------
-----
10

<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
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 qualified 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 six months ended March 31, 1997
and fiscal year ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1997:
Shares sold........................ 28,107,228 $ 406,070,833
Shares issued in reinvestment of
distributions.................... 2,537,905 34,540,892
Shares reacquired.................. (29,146,270) (422,473,367)
----------- -------------
Net increase in shares outstanding
before conversion................ 1,498,863 18,138,358
Shares issued upon conversion from
Class B.......................... 1,130,461 15,893,453
----------- -------------
Net increase in shares
outstanding...................... 2,629,324 $ 34,031,811
----------- -------------
----------- -------------
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 increase in shares
outstanding...................... (1,572,343) $ (21,431,904)
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1997:
Shares sold........................ 6,430,865 $ 87,178,093
Shares issued in reinvestment of
distributions.................... 4,656,202 59,320,016
Shares reacquired.................. (6,463,618) (88,390,060)
----------- -------------
Net increase in shares outstanding
before conversion................ 4,623,449 58,108,049
Shares reacquired upon conversion
into Class A..................... (1,208,691) (15,893,453)
----------- -------------
Net increase in shares
outstanding...................... 3,414,758 $ 42,214,596
----------- -------------
----------- -------------
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
- -----------------------------------
Six months ended March 31, 1997:
Shares sold........................ 281,674 $ 3,805,126
Shares issued in reinvestment of
distributions.................... 56,529 720,186
Shares reacquired.................. (182,296) (2,493,610)
----------- -------------
Net increase in shares
outstanding...................... 155,907 $ 2,031,702
----------- -------------
----------- -------------
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>
- --------------------------------------------------------------------------------
-----
11

<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Six months ended March 31, 1997:
Shares sold........................ 5,665,811 $ 81,984,520
Shares issued in reinvestment of
distributions.................... 792,865 10,814,683
Shares reacquired.................. (5,072,565) (73,722,914)
----------- -------------
Net increase in shares
outstanding...................... 1,386,111 $ 19,076,289
----------- -------------
----------- -------------
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 (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
March 31, ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period............ $ 15.30 $ 14.18 $ 12.40 $ 13.06 $ 11.25 $ 10.16
---------- -------- -------- -------- ------- -------
Income from investment operations
Net investment income........................... .02 .04 .05 -- .03 .02
Net realized and unrealized gain on investment
transactions................................. 1.37 1.75 2.57 .13 3.14 1.47
---------- -------- -------- -------- ------- -------
Total from investment operations............. 1.39 1.79 2.62 .13 3.17 1.49
---------- -------- -------- -------- ------- -------
Less distributions
Distributions from net realized capital gains... (2.43) (.67) (.84) (.79) (1.36) (.40)
---------- -------- -------- -------- ------- -------
Net asset value, end of period.................. $ 14.26 $ 15.30 $ 14.18 $ 12.40 $ 13.06 $ 11.25
---------- -------- -------- -------- ------- -------
---------- -------- -------- -------- ------- -------
TOTAL RETURN(b):................................ 9.81% 13.38% 23.29% 1.13% 30.42% 15.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $258,685 $237,306 $242,231 $103,078 $94,842 $44,845
Average net assets (000)........................ $251,937 $223,091 $174,449 $ 97,877 $69,801 $36,011
Ratios to average net assets:
Expenses, including distribution fees........ 1.20%(c) 1.24% 1.33% 1.33% 1.17% 1.33%
Expenses, excluding distribution fees........ .95%(c) .99% 1.08% 1.09% .97% 1.13%
Net investment income........................ .23%(c) .33% .30% .00% .26% .19%
For Class A, B, C and Z shares:
Portfolio turnover........................... 4% 53% 64% 82% 68% 99%
Average commission rate paid per share....... $ .0453 $ .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. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 13

<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
March 31, ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period............ $ 14.49 $ 13.56 $ 11.99 $ 12.74 $ 11.08 $ 10.11
---------- -------- -------- -------- -------- --------
Income from investment operations
Net investment loss............................. (.04) (.06) (.06) (.09) (.06) (.07)
Net realized and unrealized gain on investment
transactions................................. 1.30 1.66 2.47 .13 3.08 1.44
---------- -------- -------- -------- -------- --------
Total from investment operations............. 1.26 1.60 2.41 .04 3.02 1.37
---------- -------- -------- -------- -------- --------
Less distributions
Distributions from net realized capital gains... (2.43) (.67) (.84) (.79) (1.36) (.40)
---------- -------- -------- -------- -------- --------
Net asset value, end of period.................. $ 13.32 $ 14.49 $ 13.56 $ 11.99 $ 12.74 $ 11.08
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
TOTAL RETURN(b):................................ 9.42% 12.56% 22.37% .34% 29.40% 14.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $393,804 $378,861 $361,873 $425,502 $376,068 $172,018
Average net assets (000)........................ $395,416 $355,636 $349,929 $399,920 $278,659 $154,601
Ratios to average net assets:
Expenses, including distribution fees........ 1.95%(c) 1.99% 2.08% 2.09% 1.97% 2.13%
Expenses, excluding distribution fees........ .95%(c) .99% 1.08% 1.09% .97% 1.13%
Net investment loss.......................... (.52)%(c) (.42)% (.51)% (.76)% (.54)% (.61)%
</TABLE>

<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
August 1,
Six Months 1994(d)
Ended Year Ended September 30, Through
March 31, ------------------------------- 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).................... (.04) (.06) (.06) (.01)
Net realized and unrealized gain on investment
transactions................................. 1.30 1.66 2.47 .39
----- ----- ----- -----
Total from investment operations............. 1.26 1.60 2.41 .38
----- ----- ----- -----
Less distributions
Distributions from net realized capital gains... (2.43) (.67) (.84) --
----- ----- ----- -----
Net asset value, end of period.................. $13.32 $ 14.49 $ 13.56 $ 11.99
----- ----- ----- -----
----- ----- ----- -----
TOTAL RETURN(b):................................ 9.42% 12.56% 22.37% 3.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $6,051 $ 4,323 $ 1,545 $ 269
Average net assets (000)........................ $5,370 $ 2,786 $ 784 $ 179
Ratios to average net assets:
Expenses, including distribution fees........ 1.95%(c) 1.99% 2.08% 2.22%(c)
Expenses, excluding distribution fees........ .95%(c) .99% 1.08% 1.22%(c)
Net investment income (loss)................. (.52)%(c) (.42)% (.46)% (.31)%(c)
<CAPTION>
Class Z
-------------------------------
March 1,
Six Months 1996(e)
Ended Through
March 31, 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).................... .03 .05
Net realized and unrealized gain on investment
transactions................................. 1.38 1.58
------ ------
Total from investment operations............. 1.41 1.63
------ ------
Less distributions
Distributions from net realized capital gains... (2.43) --
------ ------
Net asset value, end of period.................. $ 14.30 $ 15.32
------ ------
------ ------
TOTAL RETURN(b):................................ 9.94% 11.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $83,812 $68,516
Average net assets (000)........................ $78,854 $66,228
Ratios to average net assets:
Expenses, including distribution fees........ .95%(c) .99%(c)
Expenses, excluding distribution fees........ .95%(c) .99%(c)
Net investment income (loss)................. .48%(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>
Supplemental Proxy Information PRUDENTIAL SMALL COMPANIES FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Small Companies Fund,
Inc. (the 'Fund') was held on Wednesday, October 30, 1996 at the offices of
Prudential Securities Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for the following purposes:

(1) To elect Directors as follows: 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 and Clay T. Whitehead.

(2) To approve the changes in the Fund's investment restrictions as follows:
(a) To amend the Fund's restriction regarding shares of other investment
companies.
(b) To amend the Fund's restriction regarding unseasoned issuers.
(c) To amend the Fund's restriction regarding purchases and sales of
options.
(d) To amend the Fund's restriction regarding foreign currency transactions.

(3) To ratify the selection of Price Waterhouse LLP as independent public
accountants for the fiscal year ending September 30, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
- --------------- ---------------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 22,313,214 -- 829,700
Delayne Dedrick Gold 22,372,323 -- 770,591
Robert F. Gunia 22,369,412 -- 773,502
Donald D. Lennox 22,305,834 -- 837,080
Douglas H. McCorkindale 22,371,316 -- 771,598
Mendel A. Melzer 22,345,182 -- 797,732
Thomas T. Mooney 22,373,484 -- 769,430
Stephen P. Munn 22,388,593 -- 754,321
Richard A. Redeker 22,348,663 -- 794,251
Robin B. Smith 22,375,803 -- 767,111
Louis A. Weil, III 22,373,254 -- 769,660
Clay T. Whitehead 22,379,592 -- 763,322

(2) Amendment to restriction:
(a) regarding shares of other investment companies 17,013,410 839,952 929,383
(b) regarding unseasoned issuers 16,580,128 1,196,722 1,005,895
(c) regarding options 16,785,651 1,038,587 958,507
(d) regarding foreign currency transactions 16,812,363 1,029,409 940,973

(3) Price Waterhouse LLP 22,131,260 205,292 806,362
</TABLE>
- --------------------------------------------------------------------------------
-----
16

<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
Susan C. Cote, Vice President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, 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 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 LLC
P.O. Box 15005
New Brunswick, NJ 08906

Independent Auditors
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.

The accompanying financial statements as of March 31, 1997 were not audited
and, accordingly, no opinion is expressed on them.

This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.

<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852

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