(ICON)
Prudential
Small
Company
Value
Fund, Inc.
ANNUAL
REPORT
Sept. 30, 1998
<PAGE>
Prudential Small Company Value Fund, Inc.
Performance At A Glance.
The 12 months ended September 30, 1998 were very difficult for
small company stocks, including a 31% fall of the small-cap
indexes from peak to trough. As concerns about the impact of
Asia's economic slowdown increased, investors strongly preferred
the stocks of larger companies, of companies with stable earnings,
and, consequently, of stocks that already were expensive. Our
small company value stocks declined steeply, although not quite so
far as the average small-cap fund, as measured by Lipper
Analytical Services.
Cumulative Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2 <S> <C> <C> <C>
<C>
Class A -18.90% 67.29% N/A
204.85%
Class B -19.52 61.19 230.70%
619.70
Class C -19.52 N/A N/A
65.77
Class Z -18.58 N/A N/A
33.37
Lipper Small-Cap
Fund Average3 -20.60 58.37 246.11
***
</TABLE>
Average Annual Total Returns1
As of 9/30/98 <TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2 <S> <C> <C> <C>
<C>
Class A -22.96% 9.71% N/A
13.02%
Class B -24.52 9.88
12.71% 11.67
Class C -20.52 N/A N/A
12.90
Class Z -18.58 N/A N/A
11.80
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical Services. The cumulative total returns do not take into
account sales charges. The average annual total returns do take
into account applicable sales charges. The Fund charges a maximum
front-end sales 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 B shares will
automatically convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares have a 1%
CDSC for one year and, beginning November 2, 1998, are sold with a
front-end sales charge of 1%, and a CDSC for 18 months. Class Z
shares are not subject to a sales charge or distribution fee.
2 Inception dates: Class A, 1/22/90; Class B, 11/13/80; Class C,
8/1/94; Class Z, 3/1/96.
3 Lipper average returns are for all funds in each share class for
the one-, five-, and ten-year periods in the Small-Cap Fund
category.
***Lipper Since Inception returns are 204.02% for Class A, 618.36%
for Class B, 64.34% for Class C, and 16.09% for Class Z based on
all funds in each share class.
How Investments Compared.
(As of 9/30/98)
(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.
U.S. Taxable Money 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 value of $1.5 billion or less)
mostly located in the United States. We follow a traditional value
investment style: we look for good businesses with sound management
that are selling for 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 aiming at good risk-adjusted returns
consistently, year after year. There can be no assurance that the
Fund will achieve its investment objective.
Bargains Are Back.
We buy stocks that are inexpensive in terms of price to cash flow,
earnings, book value, and other value measures. This year, we found
that almost all stocks had become expensive compared to historical
benchmarks. Near the market's April 21 peak, we closed our Fund to
new shareholders because we were dissatisfied with our investment
opportunities. Then, in the intense market
reaction to economic uncertainty, strong companies were punished
with the weak. Near the market's trough, when there were value
opportunities once again, we reopened the Fund.
Performance In Context. -------------------------------------------
- -----------------------------------A negative 19% return in asset
value is very unsettling, to say the least. This past 12-month
period was very unusual in several ways. Since 1995, the broader
stock market had been rising quite rapidly. However, investors
became concerned that economic difficulties in Asia would slow the
U.S. and European economies. Over the course of the year, moreover,
Russia defaulted on debt and devalued the ruble. Many financial
institutions faced losses related to these diverse problems on
securities they owned or on loans and there was fear that the
extent of these losses was not known. As anxiety about the
uncertainties spread, sources of financing for many small
businesses dried up, increasing the stress on their businesses.
Small company stocks are more volatile than large -- they have
exaggerated reactions to changes in investor sentiment. Sentiment
in this case was worry about the overseas slowdown; concerned
investors avoided small company stocks, causing them to lag the
stocks of large companies by a considerable margin. Except for an
optimistic climb in the spring of 1998, small company stocks
declined throughout our reporting period. (There was a strong
rebound in October 1998 after our reporting period ended.)
Investors, who have been described by Federal Reserve Chairman Alan
Greenspan as having a "markedly decreased willingness to deal with
uncertainty," expressed their fears by focusing tightly on the
stocks of large companies.
Portfolio Composition
Sectors expressed as a percentage of
net assets as
of
9/3
0/9
8.
(CH
ART
)
<PAGE>
Why We Are Having
A
Capital Gains Distribution.
Although small company stocks had been lagging, the overall market
upswing had produced large gains and the Russell 2000 Index of
small company stocks rose yet another 10% in the first calendar
quarter of 1998. Some of our holdings had appreciated beyond what
we thought was their fair value. As our value investment discipline
dictates, we took our profits to reinvest in undervalued companies.
According to the Internal Revenue Code, the capital gains we
realized must be passed on to shareholders ina taxable
distribution.
At the time, we warned that we thought stocks had become expensive,
but we did not anticipate the size or swiftness of the drop that
eventually followed. One might think that in such a decline we
would realize capital losses to offset the gains. However, when the
markets did fall, there were very few buyers for small company
stocks at any reasonable price. We were unwilling to give up good
companies at fire sale prices. The result was the unfortunate
situation of us having a large negative return and a taxable
distribution in the same fiscal year.
Investment Value.
The result of small-caps' lagging performance was that they now
look exceptionally inexpensive when they are compared with large
company stocks on our value measures. Normally, small company
stocks sell at a premium to those of large companies because of
their greater growth potential. We are now in the very rare
situation that the average stock in the Russell 2000 Index is
selling at a discount to larger firms, 21 times 1998 earnings
compared with 25 times for the S&P 500. These ratios are sometimes
easier to understand when converted to an earnings yield -- the
amount of 1998 earnings an investor's dollar will buy. Small-caps
yield 4.8%, while the S&P 500 yields only 4.0%. Moreover, our
portfolio is even less expensive, only 15 times earnings, an
earnings yield of 6.7%.
Looking Ahead.
We are upgrading the quality of our portfolio, selling the less
stable of our holdings where we can find buyers at acceptable
prices and adding to our holdings of companies we like. At today's
prices, we are averaging down our acquisition costs for companies
with strong prospects for earnings growth.
We are increasing the diversification of our holdings by focusing
our new purchases outside the industrial group, such as apparel
(Reebok International, Phillips Van Heusen) and food (Richfood
Holdings, Suiza Foods) companies. We believe these firms are less
likely to be affected by an economic slowdown.
The current prices of small company stocks would be reasonable if
we were entering a very severe recession. Neither economists nor
securities analysts expect that to happen. The Federal Reserve and
foreign central banks have reduced interest rates, indicating they
are concerned, but acting to forestall trouble. We believe our
portfolio represents excellent value.
Five Largest
Holdings.
2.7% Financial Security
Insurance
2.3% Blount
International
Inc.
Miscellaneous
Industrial
2.0% Universal
Health
Hospital Management
1.9% Big Flower
Holdings
Printing &
Publishing
1.8% BJ's
Wholesale
Club Retail
Expressed as a percentage of net assets as of 9/30/98.
1
<PAGE>
Why Prudential Small Company Value? -------------------------------
- -----------------------------------------------Portfolio co-manager
Jay Kaplan talks about the investment environment.
Q. In our Semi-Annual Report you said that stocks were expensive.
Were you expecting a downturn?
A. No one is very good at predicting market turns, but we knew that
it was getting hard to find stocks that we were happy about buying
at the going prices. That's why we closed the Fund to new
investors. But I feel like someone who saw a bicycle coming at him
in the street and then got flattened
by an 18-wheeler. This bear market was disproportionate to the
legitimate reasons for concern.
Q. Historically, value styles have fallen less in falling markets.
How did we do this year?
A. I don't feel comfortable saying anything good in a year when our
shares fell by 19%. However, we did keep up with the market climb
early in 1998 and held up better in the falling markets. We didn't
recover as quickly in September. Overall, we outperformed the
average small company fund, as measured by Lipper Analytical
Services, but not by enough to make anybody feel better in such a
poor year.
Q. Was this an unusual market?
A. Of course, every historical period is unique, but generally we
expect investors to discover differences in value and eventually
buy the better values. That's why we say that markets are self-
correcting. This year, the most expensive stocks became even more
expensive and no one wanted to buy the cheaper stocks. That was
unusual. Small company stocks started the period as
good value relative to large and yet fell far behind large
companies' returns.
Q. Why do you suppose this happened?
A. The global economic and financial systems are going through some
historic upheavals. Asian economies, which had been growing
rapidly, actually shrank. Many financial institutions and hedge
funds faced large losses on their market exposures. Then Russia
defaulted on debt and devalued the ruble. My guess is that many
investors had made sizable profits early in the year and just
wanted to take their winnings and leave. They were troubled by
world events, had done well in recent years, and any risk was more
than they felt they needed to take. So, despite basically sound --
although slowing -- U.S. and European economies, they bailed out of
any stock that didn't seem invulnerable.
Q. Is there any reason to think this will change?
A. There are reasons, although no one can predict with confidence
what other investors will do. There are signs that the situation in
Asia is stabilizing. We have a better idea of what the impact of
the slowdown in emerging markets will be on individual companies
than we did a year ago. With time to think, investors should bring
the prices of stocks in line with their realistic earnings
prospects. (Between its October 8 low and the end of October, the
Russell 2000 rose 22%.) On estimated 1998 earnings, the stocks we
own are bargains.
2
<PAGE>
President's Letter
November 9, 1998
- -------------------------------------------------------------------
- -----------(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets is decidedly mixed. After setting record highs
earlier, stocks, as measured by the Dow Jones Industrial Average,
experienced a series of steep sell-offs in late summer. The market
rebounded in early fall, helped by two interest rate cuts by the
Federal Reserve.
During this uncertainty there was also good news to report. Bonds
appreciated as investors fled troubled Asian and other emerging
markets for the safe haven of U.S. debt securities -- especially
Treasuries. The U.S. economy remains strong, with steady growth and
low inflation.
Guarding against uncertainty in the current market environment can
be challenging. That's why it is important to manage your
expectations and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial markets
will always rise and fall -- that's what markets do. Although past
performance may not be indicative of future results, stocks and
bonds have, over time, consistently produced attractive returns
that have kept ahead of inflation. In fact, investors who remained
focused on the long term and did not sell during the recent market
volatility were rewarded. Stock prices, as measured by the S&P 500,
have rebounded more than 20% since their August lows, thereby
almost erasing all their losses.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix of
stock, bond, and money market mutual funds can help lessen the
effects of a market downturn over time. In fact, a well-diversified
portfolio may retain or perhaps even gain in value during times of
uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential professional
will be glad to review your current allocations. He or she will
recommend adjustments based upon your goals, market conditions,
risk tolerance, and potential investment
opportunities.
Thank you for your confidence in Prudential mutual funds. We'll
continue to do our part in keeping you informed.
Sincerely,
Brian M. Storms
President
3
<PAGE>
PRUDENTIAL
SMALL COMPANY Portfolio of Investments as of September 30, 1998
VALUE FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ----------------------<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -----------------------------------------------------
- ------LONG-TERM INVESTMENTS--94.1%
COMMON STOCKS--93.7% --------------------------------
- ---------------------------- Aerospace/Defense--1.5%
443,600 Doncasters PLC (ADR)
(United Kingdom)(a) $ 4,935,050
444,100 DRS Technologies, Inc. 4,302,219
153,800 Precision Castparts Corp. 6,344,250
-----
--
--
--
--
1
5
,
5
8
1
,
5
1
9
- -----------------------------------------------------
- ------Apparel--0.5%
507,600 Phillips-Van Heusen Corp. 4,822,200
- -----------------------------------------------------
- ------Automotive--3.0%
514,600 Excel Industries, Inc. 6,432,500
198,800 Midas, Inc. 4,820,900
401,600 Simpson Industries, Inc. 4,041,100
348,000 Standard Products Co. 6,090,000
363,400 Strattec Security Corp.(a) 9,630,100
-----
--
--
--
--
3
1
,
0
1
4
,
6
0
0
- -----------------------------------------------------
- ------Banks--0.3%
118,700 Commercial Federal Corp. 2,796,869
- -----------------------------------------------------
- ------Building & Construction--2.8%
365,300 Crossmann Communities, Inc.(a) 7,351,662
235,400 Nortek Incorporated 6,414,650
449,900 NVR, Inc.(a)
14,846,700
-----
--
--
--
--
2
8
,
6
1
3
,
0
1
2
- -----------------------------------------------------
- ------Building & Products--0.7%
661,700 Cameron Ashley Building
Products(a) 7,402,769
- -----------------------------------------------------
- ------Business Services--0.7%
589,600 World Fuel Services Corp. 7,333,150
- -----------------------------------------------------
- ------Cellular Communications--1.2%
391,700 Centennial Cellular Corp.(a)
12,534,400
Chemicals--1.1%
1,297,300 Agrium, Inc. (Canada) $
11,027,050
- -----------------------------------------------------
- -------
Coal--0.5%
329,300 Arch Coal Inc. 4,898,338
- -----------------------------------------------------------
Computer Software & Services--1.4%
1,004,300 Banctec, Inc.(a) 14,311,275
- -----------------------------------------------------------
Containers & Packaging--1.6%
366,500 ACX Technologies, Inc.(a) 4,718,687
338,400 Shorewood Packaging Corp.(a) 4,568,400
463,400 U.S. Can Corp.(a) 6,777,225
-------------
16,064,312
- -----------------------------------------------------------
Electrical Equipment--0.6%
495,200 Belden, Inc. 6,654,250
- -----------------------------------------------------------
Electrical Utilities--0.8%
247,200 TNP Enterprises, Inc. 8,636,550
- -----------------------------------------------------------
Electronics--1.6%
463,200 Marshall Industries(a) 10,219,350
1,050,400 Pioneer-Standard Electronics,
Inc. 6,630,650
-------------
16,850,000
- -----------------------------------------------------------
Environmental Services--0.2%
141,197 BHA Group, Inc. 1,659,065
- -----------------------------------------------------------Food
Distribution--1.5%
248,500 Dominicks Supermarkets, Inc.(a) 10,623,375
346,600 Richfood Holdings, Inc. 5,328,975
-------------
15,952,350
</TABLE>
- ------------------------------------------------------------------
- -------------See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL
SMALL COMPANY Portfolio of Investments as of September 30, 1998
VALUE FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ----------------------<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -----------------------------------------------------
- ------Food/Drug Retail--0.5%
165,300 Suiza Foods Corp.(a) $ 5,165,625
- -----------------------------------------------------
- ------Furniture--0.7%
284,000 Furniture Brands International,
Inc.(a) 5,538,000
108,500 Stanley Furniture Company,
Inc.(a) 1,885,188
------
--
--
--
-
7
,
4
2
3
,
1
8
8
- -----------------------------------------------------
- -------
Gas Distribution--2.3%
251,900 Eastern Enterprises, Inc.
10,611,287
570,400 UGI Corp.
13,190,500
-----
--
--
--
--
2
3
,
8
0
1
,
7
8
7
- -----------------------------------------------------
- ------Health Services--2.8%
781,832 Mariner Post-Acute Network, Inc. 4,006,889
646,800 Raytel Medical Corp.(a) 2,951,025
867,350 Sierra Health Services, Inc.(a)
17,075,953
757,700 Sun Healthcare Group, Inc. 4,925,050
-----
--
--
--
--
2
8
,
9
5
8
,
9
1
7
- -----------------------------------------------------
- ------Hospital Management--2.0%
499,700 Universal Health Services, Inc.,
Class B(a)
20,862,475
- -----------------------------------------------------
- ------Household Products--1.8%
666,000 Premark International, Inc.
18,689,625
- -----------------------------------------------------
- ------Insurance--10.4%
475,027 Amerus Life Holdings, Inc.
10,420,905
257,700 ARM Financial, Inc. 4,574,175
580,000 Capital Re Corp.
15,877,500
378,100 CNA Surety Corp. 5,482,450
606,200 Enhance Financial Services Group,
Inc.
17,920,787
565,700 Financial Security Assurance
Holdings, Ltd.
27,577,875
473,900 Harleysville Group, Inc. 9,774,188
77,611 Liberty Corp. $ 3,225,707
681,600 MMI Cos., Inc.
12,226,200
----
--
--
--
--
-
1
0
7
,
0
7
9
,
7
8
7
- -----------------------------------------------------
- ------Lodging/Gaming--1.4%
852,100 Red Roof Inns, Inc.(a)
14,325,931
- -----------------------------------------------------
- ------Machinery--2.0%
594,780 Allied Products Corp. 3,717,375
829,800 CTB International Corp.(a) 5,704,875
193,000 Gleason Corp. 3,100,063
864,500 Omniquip International, Inc.(a)
8,104,687
-------------
20,627,000
- -----------------------------------------------------------Media--
3.0%
647,500 Century Communications Corp.,
Class A(a) 15,459,062
749,290 Granite Broadcasting Corp.(a) 4,776,724
309,300 Young Broadcasting, Inc., Class
A(a) 10,516,200
-------------
30,751,986
- -----------------------------------------------------------Metals
Processing--3.2%
441,450 Chase Industries, Inc.(a) 6,263,072
557,900 Hawk Corporation 5,369,787
685,900 Ladish Co., Inc. 6,044,494
454,900 Ryerson Tull, Inc., Class A(a) 5,998,994
447,500 Wolverine Tube, Inc.(a) 9,425,469
-------------
33,101,816
- -----------------------------------------------------------
Miscellaneous Industrial--14.9%
62,414 American Woodmark Corp. 1,583,755
567,787 Applied Industrial Technologies,
Inc. 9,262,026
986,000 Blount International, Inc., Class
A 23,417,500
134,200 Carlisle Companies, Inc. 5,225,413
348,950 Clarcor, Inc. 5,365,106
590,000 Coinmach Laundry Corp.(a) 5,826,250
621,200 DT Industries, Inc. 10,560,400
</TABLE>
- ------------------------------------------------------------------
- -------------See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
SMALL COMPANY Portfolio of Investments as of September 30, 1998
VALUE FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ----------------------<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -----------------------------------------------------
- ------Miscellaneous Industrial (cont'd.)
325,700 Graco, Inc. $ 7,572,525
605,800 Griffon Corp. 5,300,750
457,000 Kimball International, Inc.,
Class B 7,026,375
464,500 Lincoln Electric Holdings, Inc.
10,799,625
523,046 Mark IV Industries, Inc. 7,616,857
311,600 Pentair, Inc.
10,049,100
597,200 Regal Beloit Corp.
13,287,700
370,735 Robbins & Myers, Inc. 7,854,948
602,600 Servico, Inc. 4,519,500
737,400 United Dominion Industries, Ltd.
(Canada)
13,365,375
567,700 Vari-Lite International, Inc.(a) 1,561,175
120,915 Varlen Corp. 3,355,391
----
--
--
--
--
-
1
5
3
,
5
4
9
,
7
7
1
- -----------------------------------------------------
- -------
Oil & Gas Exploration/Production--6.1%
715,200 Bellwether Exploration Co. 4,335,900
1,213,900 Comstock Resources, Inc.(a) 7,131,662
620,900 Louis Dreyfus Natural Gas
Corp.(a) 9,003,050
358,200 Pioneer Natural Resources Co.
5,037,188
1,172,000 Santa Fe Energy Resources,
Inc.(a)
11,060,750
274,100 Snyder Oil Corp. 4,368,469
423,300 St. Mary Land & Exploration Co.
10,106,287
1,019,100 Vintage Petroleum, Inc.
11,719,650
-----
--
--
--
--
6
2
,
7
6
2
,
9
5
6
- -----------------------------------------------------
- ------Paper & Packaging--1.1%
544,300 Schweitzer-Mauduit International,
Inc.
11,838,525
- -----------------------------------------------------
- ------Printing & Publishing--3.4%
824,600 Big Flower Holdings, Inc.(a)
19,275,025
499,100 World Color Press, Inc.(a)
15,472,100
-----
--
--
--
--
3
4
,
7
4
7
,
1
2
5
- -----------------------------------------------------
- ------Regional Banks--1.1%
233,800 Community First Bankshares, Inc. 4,149,950
388,000 Peoples Heritage Financial Group 6,959,750
-----
--
--
--
--
1
1
,
1
0
9
,
7
0
0
Restaurants--3.6%
791,000 Host Marriott Services Corp. $ 7,217,875
565,600 Ruby Tuesday, Inc.(a) 8,554,700
1,215,300 Ryan's Family Steak Houses,
Inc.(a)
14,507,644
470,100 VICORP Restaurants, Inc.(a)
6,375,731
-----
--
--
--
--
3
6
,
6
5
5
,
9
5
0
- -----------------------------------------------------------Retail-
- -4.0%
512,300 BJ's Wholesale Club, Inc.(a) 18,827,025
520,100 Dress Barn, Inc.(a) 6,306,212
395,800 Reebok International, Ltd. 5,368,038
209,450 Regis Corp. 6,597,675
209,500 Tractor Supply Co.(a) 4,137,625
-------------
41,236,575
- -----------------------------------------------------------Savings
& Loan--1.7%
420,200 Astoria Financial Corp. 17,700,925
- -----------------------------------------------------------
Specialty Chemicals--2.3%
422,500 Cambrex Corp. 9,955,156
464,400 Lilly Industries, Inc., Class A 8,185,050
527,500 M.A. Hanna Co. 5,934,375
-------------
24,074,581
- -----------------------------------------------------------Steel -
Producers--0.8%
221,900 Northwest Pipe Co.(a) 4,105,150
223,600 Quanex Corp. 4,430,075
-------------
8,535,225
- -----------------------------------------------------------
Telecommunication Services--1.7%
919,400 Vanguard Cellular Systems, Inc. 17,468,600
- -----------------------------------------------------------
Textiles--1.9%
593,300 Dan River Inc., Class A(a) 6,526,300
268,700 Dixie Group, Inc. 1,746,550
754,800 Guilford Mills, Inc. 11,227,650
-------------
19,500,500
</TABLE>
- ------------------------------------------------------------------
- -------------See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL
SMALL COMPANY Portfolio of Investments as of September 30, 1998
VALUE FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ----------------------<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -----------------------------------------------------
- ------Tobacco--0.4%
429,500 Dimon, Inc. $ 4,536,594
- -----------------------------------------------------
- ------Trucking & Shipping--0.6%
517,800 Interpool, Inc.
6,116,513
----
---------Total common stocks
(cost $1,050,561,367)
966,773,386
----
- -----------------------------------------------------
- ---------------PREFERRED STOCK--0.2%
197,500 DECS Trust, Convertible, 8.50%
(Industrial)
(cost $4,665,937) 2,357,656
--
- -----------CONVERTIBLE BOND--0.2%
$ 2,679 Robbins & Myers, Inc.,
Convertible to 36.7 shares per
1,000 Par until 9/1/03
6.50%, 9/1/03
(Misc. Industrial)
(cost $2,679,000) $ 2,539,692
--
-----------Total long-term investments
(cost $1,057,906,304)
971,670,734
--
------------------------------------------------
-----------------------
SHORT-TERM INVESTMENT--5.9%
60,297 Joint Repurchase Agreement
Account,
5.52%, 10/1/98
(cost $60,297,000; Note 5)
60,297,000
--
- ---------------------------------------------------
- -------------------Total Investments--100.0%
(cost $1,118,203,304; Note 4)
1,031,967,734
Other assets in excess of
liabilities 196,322
--
-----------Net Assets--100%
$1,032,164,056
--
--
--
--
--
--
--
--
--
--
--
--
--
-
</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, 1998
------
- -----------<S>
<C>
Investments, at value (cost $1,118,203,304)............................................................
$1,031,967,734
Receivable for investments sold........................................................................
4,766,114
Receivable for Fund shares sold........................................................................
2,542,588
Dividends and interest receivable......................................................................
964,119
Deferred expense and other assets......................................................................
23,826
------
-----------Total assets........................................................................................
1,040,264,381
------
- -----------Liabilities
Bank overdraft.........................................................................................
100,625
Payable for Fund shares reacquired.....................................................................
4,250,456
Payable for investments purchased......................................................................
2,124,120
Management fee payable.................................................................................
609,885
Distribution fee payable...............................................................................
536,557
Accrued expenses.......................................................................................
478,682
------
-----------Total liabilities...................................................................................
8,100,325
------
- -----------Net Assets.............................................................................................
$1,032,164,056
------
------
------
------
------
-----
Net assets were comprised of:
Common stock, at par................................................................................ $
783,552
Paid-in capital in excess of par....................................................................
980,743,580
------
--
--
--
--
--
-
9
8
1
,
5
2
7
,
1
3
2
Accumulated net realized gain on investments........................................................
136,872,494
Net unrealized depreciation on investments..........................................................
(86,235,570)
------
- -----------Net assets, September 30, 1998.........................................................................
$1,032,164,056
------
------
------
------
------
-----
Class A:
Net asset value and redemption price per share
($365,431,000 / 26,498,663 shares of common stock issued and
outstanding)........................ $13.79
Maximum sales charge (5% of offering price).........................................................
.73
------
-----------Maximum offering price to public....................................................................
$14.52
------
------
------
------
------
-----
Class B:
Net asset value, offering price and redemption price per share
($514,158,573 / 40,696,869 shares of common stock issued and outstanding)........................
$12.63
------
------
------
------
------
-----
Class C:
Net asset value, offering price and redemption price per share
($26,804,222 / 2,121,574 shares of common stock issued and outstanding)..........................
$12.63
------
------
------
------
------
-----
Class Z:
Net asset value, offering price and redemption price per share
($125,770,261 / 9,038,120 shares of common stock issued and outstanding).........................
$13.92
------
------
------
------
------
-----
</TABLE> --------------------------------------------
- -----------------------------------See Notes to
Financial Statements. 8
<PAGE>
PRUDENTIAL SMALL COMPANY VALUE FUND, INC. Statement
of Operations
- -----------------------------------------------------
- ------<TABLE>
<CAPTION>
Year Ended
Net Investment Income
September 30, 1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $48,147)..................... $ 9,857,636
Interest................................. 5,397,823
------
-----------Total
income..........................
15,255,459
------
- -----------Expenses
Management fee........................... 9,138,728
Distribution fee--Class A................ 1,107,973
Distribution fee--Class B................ 6,784,624
Distribution fee--Class C................ 292,592
Transfer agent's fees and expenses....... 2,042,000
Reports to shareholders.................. 275,000
Registration fees........................ 256,000
Custodian's fees and expenses............ 230,000
Legal fees and expenses.................. 22,000
Audit fee and expenses................... 25,000
Directors' fees.......................... 24,000
Miscellaneous............................ 3,595
------
-----------Total
expenses........................
20,201,512
------
- -----------Net investment income
(loss)................
(4,946,053)
------
- -----------Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions.............................
150,641,304
Net change in unrealized appreciation
(depreciation) on investments............
(392,297,749)
------
- -----------Net loss on
investments.....................
(241,656,445)
------
- -----------Net Decrease in Net Assets
Resulting from Operations................... $
(246,602,498)
------
------
------
------
------
-----
</TABLE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Statement of Changes in Net Assets ----------------
- -------------------------------------------<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
September 30, in Net Assets
1998
1997
<S> <C> <C>
Operations
Net investment income
(loss).................. $ (4,946,053) $
(1,914,727)
Net realized gain on
investments............. 150,641,304
138,255,423
Net change in unrealized
appreciation
(depreciation) on
investments............. (392,297,749) 201,444,620
------------------ --
- ------------
Net increase (decrease) in
net assets resulting
from operations......... (246,602,498) 337,785,316
------------------ --
- ------------
Distributions from net
realized gains (Note 1)
Class A.................... (40,869,566)
(35,968,641)
Class B.................... (70,405,034)
(62,311,718)
Class C.................... (2,549,512)
(737,555)
Class Z.................... (14,791,748)
(10,814,701)
------------------ ---
- -----------
(128,615,860)
(109,832,615)
------------------ ---
- -----------
Fund share transactions (net
of conversions) (Note 6)
Proceeds from shares
sold.................... 864,798,421
1,508,723,401
Net asset value of shares
issued in reinvestment
of distributions........ 124,093,166 105,395,777
Cost of shares
reacquired.............. (813,331,700)
(1,299,254,732)
------------------ --------------
Net increase in net assets
from Fund share
transactions............ 175,559,887 314,864,446
------------------ --------------
Total increase (decrease)..... (199,658,471) 542,817,147
Net Assets
Beginning of year............. 1,231,822,527 689,005,380
------------------ --------------
End of year................... $1,032,164,056 $1,231,822,527
------------------ --------------
------------------ --------------
</TABLE> -----------------------------------------------------------
- --------------------See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL SMALL
COMPANY
Notes to Financial Statements VALUE FUND, INC.
- --------------------------------------------------------------------
- -----------Prudential Small Company Value Fund, Inc. 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.
Reclassification of Capital Accounts: The Fund accounts and reports
for distributions to shareholders in accordance with the American
Institute of Certified Public Accountants Statement of Position 93-
2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. The effect of applying this statement was to
increase undistributed net investment income and decrease
accumulated net realized gain on investments by $4,946,053 for net
operating losses during the fiscal year ended September 30, 1998.
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 ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all investment advisory services and supervises
the subadviser's performance of such services. Pursuant to a
subadvisory agreement between PIFM and 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. ------------------------------------------------------------
- -------------------
10
<PAGE>
PRUDENTIAL SMALL
COMPANY Notes to Financial Statements VALUE FUND, INC.
- --------------------------------------------------------------------
- -----------The Fund had a distribution agreement with Prudential
Securities Incorporated ('PSI'), which acted as the distributor of
the Class A, Class B, Class C and Class Z shares of the Fund through
May 31, 1998. Prudential Investment Management Services LLC ('PIMS')
became the distributor of the Fund effective June 1, 1998 and is
serving the Fund under the same terms and conditions as under the
arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans of distribution, (the 'Class A, B and C
Plans'), regardless of expenses actually incurred by them. The
distribution fees are accrued daily and payable monthly. No
distribution or service fees are paid to PIMS as distributor of the
Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI and
PIMS for distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%, of the average daily net assets of the Class
A, B and C shares, respectively. Such expenses 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, 1998.
PSI and PIMS have advised the Fund that they received approximately
$1,354,000 in front-end sales charges resulting from sales of Class
A shares during the year ended September 30, 1998. From these fees,
PSI and PIMS paid such sales charges to affiliated broker-dealers,
which in turn paid commissions to salespersons and incurred other
distribution costs.
PSI and PIMS have advised the Fund that for the year ended September
30, 1998, they received approximately $901,000 and $26,000 in
contingent deferred sales charges imposed upon certain redemptions
by Class B and Class C shareholders, respectively.
PSI, PIFM, PIMS 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'), has a credit agreement (the 'Agreement')
with an unaffiliated lender. The maximum commitment under the
Agreement is $200,000,000. 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 did not borrow any amounts pursuant to the
Agreement during the year ended September 30, 1998. 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. The Agreement expired on
December 30, 1997 and has been extended through December 29, 1998
under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM, serves as the Fund's transfer agent. During the
year ended September 30, 1998, the Fund incurred fees of
approximately $1,770,000 for the services of PMFS. As of September
30, 1998, approximately $155,000 of such fees were due to PMFS.
Transfer agent fees and expenses in Statement of Operations include
certain out-of-pocket expenses paid to nonaffliates.
For the year ended September 30, 1998, PSI earned approximately
$2,000 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, 1998 were $533,194,027
and $426,319,234, respectively.
The federal income tax basis of the Fund's investments at September
30, 1998 was $1,118,616,469 and, accordingly, net unrealized
appreciation for federal income tax purposes was $86,648,735 (gross
unrealized appreciation--$126,808,356 gross unrealized depreciation-
- -$213,457,091). ----------------------------------------------------
- --------
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, 1998, the Fund had
an 8.17% undivided interest in the joint account. The undivided
interest for the Fund represents $60,297,000 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., 5.58%, in the principal amount of $210,000,000,
repurchase price $210,032,550, due 10/1/98. The value of the
collateral including accrued interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98. The value
of the collateral including accrued interest was $111,084,883. -----
- --------------------------------------------------------------------
- ------
11
<PAGE>
PRUDENTIAL SMALL
COMPANY
Notes to Financial Statements VALUE FUND, INC.
- --------------------------------------------------------------------
- -----------Goldman Sachs & Co., 5.45%, in the principal amount of
$210,000,000, repurchase price $210,031,792, due 10/1/98. The value
of the collateral including accrued interest was $214,200,293.
Warburg Dillon Read LLC, 5.52%, in the principal amount of
$210,000,000, repurchase price $210,032,200, due 10/1/98. The value
of the collateral including accrued interest was $214,255,819. -----
- -------------------------------------------------------
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. Prior to November 2, 1998,
Class C shares are sold with a contingent deferred sales charge of
1% during the first year. Effective November 2, 1998, Class C shares
are sold with a Front-end sales charge of 1% and a contingent
deferred sales charge of 1% during the first 18 months. Class B
shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who 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, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 16,276,703 $ 281,232,761
Shares issued in reinvestment of distributions....................
2,427,115 39,246,447
Shares reacquired.................. (15,693,393) (272,105,329) --
--------- -------------
Net increase in shares outstanding
before conversion................ 3,010,425 48,373,879
Shares issued upon conversion from
Class B.......................... 1,693,186 28,221,380
----------- -------------
Net increase in shares
outstanding...................... 4,703,611 $ 76,595,259
----------- -------------
----------- -------------
<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 B
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 20,431,318 $ 330,294,528
Shares issued in reinvestment of distributions....................
4,531,677 67,567,307
Shares reacquired.................. (19,026,353) (301,792,212) --
--------- -------------
Net increase in shares outstanding
before conversion................ 5,936,642 96,069,623
Shares reacquired upon conversion
into Class A..................... (1,842,451) (28,221,380)
----------- -------------
Net increase in shares
outstanding...................... 4,094,191 $ 67,848,243
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 1,868,621 $ 30,323,339
Shares issued in reinvestment of distributions....................
167,005 2,490,049
Shares reacquired.................. (1,164,216) (18,657,047)
----------- -------------
Net increase in shares
outstanding...................... 871,410 $ 14,156,341
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
</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, 1998:
Shares sold........................ 12,690,019 $ 222,947,793
Shares issued in reinvestment of distributions....................
908,438 14,789,363
Shares reacquired.................. (12,501,837) (220,777,112) ------
----- -------------
Net increase in shares
outstanding...................... 1,096,620 $ 16,960,044
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
</TABLE>
---------------------------------
---------------------------------
-------------13
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights VALUE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A ---------------
--------------------------------------------
Year Ended September 30,
-------------------------------------------------
----------1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year...... $ 18.95 $ 15.30 $ 14.18 $ 12.40 $ 13.06
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss)............ -- .02 .04 .05 --
Net realized and unrealized gain (loss)
on investment transactions........... (3.31) 6.06 1.75 2.57 .13
-------- -------- -------- -------- --------
Total from investment operations..... (3.31) 6.08 1.79 2.62 .13
-------- -------- -------- -------- --------
Less distributions
Distributions from net realized gains... (1.85) (2.43) (.67) (.84) (.79)
-------- -------- -------- -------- --------
Net asset value, end of year............ $ 13.79 $ 18.95 $ 15.30 $ 14.18 $ 12.40
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):........................ (18.90)% 45.92% 13.38% 23.29% 1.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $365,431 $412,980 $237,306 $242,231 $103,078
Average net assets (000)................ $443,189 $287,894 $223,091 $174,449 $ 97,877
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.17% 1.21% 1.24% 1.33% 1.33%
Expenses, excluding distribution
fees.............................. .92% .96% .99% 1.08% 1.09%
Net investment income (loss)......... -- .15% .33% .30% .00%
For Class A, B, C and Z shares:
Portfolio turnover................... 36% 58% 53% 64% 82%
</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 ---------------
--------------------------------------------
Year Ended September 30,
-------------------------------------------------
----------1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year...... $ 17.64 $ 14.49 $ 13.56 $ 11.99 $ 12.74
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss)............ (.12) (.09) (.06) (.06) (.09)
Net realized and unrealized gain (loss)
on investment transactions........... (3.04) 5.67 1.66 2.47 .13
-------- -------- -------- -------- --------
Total from investment operations..... (3.16) 5.58 1.60 2.41 .04
-------- -------- -------- -------- --------
Less distributions
Distributions from net realized gains... (1.85) (2.43) (.67) (.84) (.79)
-------- -------- -------- -------- --------
Net asset value, end of year............ $ 12.63 $ 17.64 $ 14.49 $ 13.56 $ 11.99
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):........................ (19.52)% 44.91% 12.56% 22.37% .34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $514,159 $645,579 $378,861 $361,873 $425,502
Average net assets (000)................ $678,462 $443,761 $355,636 $349,929 $399,920
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.92% 1.96% 1.99% 2.08% 2.09%
Expenses, excluding distribution
fees.............................. .92% .96% .99% 1.08% 1.09%
Net investment income (loss)......... (.75)% (.60)% (.42)% (.51)% (.76)%
</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 Class
Z
------------------------------------------------------------ -------------
- --------
August 1,
1994(d) Year
Ended
Year Ended September 30, Through September
30,
------------------------------------------ September 30, -------------
- --------
1998 1997 1996 1995 1994 1998 1997
-------- ------- ------ ------ ------------- -------- ---
- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period.... $ 17.64 $ 14.49 $13.56 $11.99 $ 11.61 $ 19.04
$ 15.32
-------- ------- ------ ------ ----- -------- ---
- -----
Income from investment operations
Net investment income (loss)............ (.12) (.09) (.06) (.06) (.01) .04
.06
Net realized and unrealized gain (loss)
on investment transactions........... (3.04) 5.67 1.66 2.47 .39 (3.31)
6.09
-------- ------- ------ ------ ----- -------- ---
- -----
Total from investment operations..... (3.16) 5.58 1.60 2.41 .38 (3.27)
6.15
-------- ------- ------ ------ ----- -------- ---
- -----
Less distributions
Distributions from net realized gains... (1.85) (2.43) (.67) (.84) -- (1.85)
(2.43)
-------- ------- ------ ------ ----- -------- ---
- -----
Net asset value, end of period.......... $ 12.63 $ 17.64 $14.49 $13.56 $ 11.99 $ 13.92
$ 19.04
-------- ------- ------ ------ ----- -------- ---
- -----
-------- ------- ------ ------ ----- -------- ---
- -----
TOTAL RETURN(b):........................ (19.52)% 44.91% 12.56% 22.37% 3.19%
(18.58)% 46.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 26,804 $22,049 $4,323 $1,545 $ 269 $125,770
$151,215
Average net assets (000)................ $ 29,259 $ 8,762 $2,786 $ 784 $ 179 $154,623 $
97,310
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.92% 1.96% 1.99% 2.08% 2.22%(c)
.92% .96%
Expenses, excluding distribution
fees.............................. .92% .96% .99% 1.08% 1.22%(c)
.92% .96%
Net investment income (loss)......... (.75)% (.60)% (.42)% (.46)% (.31)%(c)
.25% .40%
<CAPTION>
March 1,
1996(e)
Through
September 30,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period.... $ 13.69
------
Income from investment operations
Net investment income (loss)............ .05
Net realized and unrealized gain (loss)
on investment transactions........... 1.58
------
Total from investment operations..... 1.63
------
Less distributions
Distributions from net realized gains... --
------
Net asset value, end of period.......... $ 15.32
------
-----TOTAL
RETURN(b):........................ 11.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$68,516 Average net assets
(000)................ $66,228 Ratios
to average net assets:
Expenses, including distribution
fees.............................. .99%(c)
Expenses, excluding distribution
fees.............................. .99%(c)
Net investment income (loss)......... .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., at
September 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence
with the custodian and brokers, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998 --------------------------------------------------
- -----------------------------
17
<PAGE>
PRUDENTIAL SMALL
COMPANY Federal Income Tax Information (Unaudited) VALUE FUND, INC.
- --------------------------------------------------------------------
- -----------We are required by the Internal Revenue Code to advise
you within 60 days of the Fund's fiscal year end (September 30,
1998) as to the federal tax status of distributions paid by the Fund
during such fiscal year. Accordingly, during its fiscal year ended
September 30, 1998, the Fund paid distributions of $0.60 per Class
A, Class B, Class C and Class Z shares from net realized short-term
capital gains, which are taxable as ordinary income, and $1.25 per
Class A, Class B, Class C and Class Z shares from net realized long-
term capital gains, which are taxable as such. We wish to advise you
that the corporate dividends received deduction for the Fund is
zero.
In January 1999, 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 1998. The amounts
that will be reported on such Form 1099 DIV or substitute will be
the amounts to use on your 1998 federal income tax return and
probably will differ from the amounts which we must report for the
Fund's fiscal year ended September 30, 1998. -----------------------
- --------------------------------------------------------
18
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other financial
materials -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help.
So we'll use this space from time to time to explain some of the
words you might have read, but not understood. And if you have a
favorite word that no one can explain to your satisfaction, please
write to us.
Basis Point: 1/100th of 1%. For example, one-half of one percent is
50 basis points.
Call Option: A contract giving the holder a right to buy stocks or
bonds at a predetermined price (called the strike price) before a
predetermined
expiration date. A buyer of a call option generally expects to
benefit from a rise in the price of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-
backed securities sliced in maturity ranges that bear differing
interest rates. These instruments are sensitive to changes in
interest rates and homeowner refinancing activity. They are subject
to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial products rises
and falls -- sometimes very suddenly -- in response to changes in
some specific interest rate, currency, stock, or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on
loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a specific
amount of a commodity or financial instrument at a set price at a
specified date in the future.
Leverage: The use of borrowed assets to enhance return on equity.
The expectation is that the interest rate charged on borrowed funds
will be lower than the return on the investment. While leverage can
increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual
fund) can be bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided by the
earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as shares
of stock, by a certain time for a specified price. An option need
not be exercised.
Spread: The difference between two values; often used to describe
the difference between "bid" and "asked for prices of" a security.
Yankee Bond: A bond sold by a foreign company or government in the
U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial advisor
or Prudential/Pruco Securities registered representative. Your
advisor or representative can provide you with the following
services:
- -------------------------------------------------------------------
- -----------There's No Reward Without Risk; But Is This Risk Worth
It?
Your financial advisor or registered representative can help you
match the reward you seek with the risk you can tolerate. And risk
can be difficult to gauge -- sometimes even the simplest
investments bear surprising risks. The educated investor knows that
markets seldom move in just one direction -- there are times when a
market sector or asset class will lose value or provide little in
the way of total return. Managing your own expectations is easier
with help from someone who understands the markets and who knows
you!
- -------------------------------------------------------------------
- -----------Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade
through the numerous mutual funds available to find the ones that
fit your own individual investment profile and risk tolerance.
While the newspapers and popular magazines are full of advice about
investing, they are aimed at generic groups of people or
representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment
objectives with you. This means you can make financial decisions
based on the assets and liabilities in your current portfolio and
your risk tolerance -- not just based on the current investment
fad.
- -------------------------------------------------------------------
- -----------Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are
among the most common investor mistakes. But sometimes it's
difficult to hold on to an investment when it's losing value every
month. Your financial advisor or registered representative can
answer questions when you're confused or worried about your
investment, and remind you that you're investing for the long haul.
<PAGE
Comparing A $10,000 Investment.
- ---------------------------------
- ----------Prudential Small
Company Value Fund, Inc. vs. the
Russell 2000 Index.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Class Z
(CHART)
Past performance is not indicative of future results. Principal and
investment return will fluctuate so an investor's shares, when
redeemed, may be worth more or less than their original cost. The
boxes on top of the graphs are designed to give you an idea of 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 since inception of each share class.
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, B, C, and Z shares) with a
similar investment in the Russell 2000 Index (the Index) by
portraying the initial account values at the commencement of
operations of Class A, C, and Z shares, and for 10 years for Class
B shares, and subsequent account values at the end of each fiscal
year (September 30), as measured on a quarterly basis, beginning in
1990 for Class A shares, 1988 for Class B shares, 1994 for Class C
shares, and 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 charges were
deducted from the value of the investment in Class B and Class C
shares, assuming full redemption on September 30, 1998; (c) all
recurring fees (including management fees) were deducted; and (d)
all dividends and distributions were reinvested. Class B shares
will automatically convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. This conversion feature
is not reflected in the graphs. Class Z shares are not subject to a
sales charge or distribution fee.
The Russell 2000 Index 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 equity funds, and other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
<PAGE>
Prudential Mutual Funds
Gateway
Center Three
100 Mulberry
Street
Newark, NJ
07102-4077
(800) 225-
1852
http://www.pr
udential.com
Directors
Edward D.
Beach
Delayne
Dedrick
Gold Robert
F. Gunia
Douglas H.
McCorkindal
e Mendel A.
Melzer, CFA
Thomas T.
Mooney
Stephen P.
Munn
Richar
d A.
Redeke
r
Robin
B.
Smith
Brian
M.
Storms
Louis
A.
Weil,
III
Clay
T.
Whiteh
ead
Office
rs
Brian M. Storms, President
Robert F. Gunia, Vice
President Grace C. Torres,
Treasurer
Stephen M. Ungerman,
Assistant Treasurer
Marguerite E. H. Morrison,
Secretary Caren A.
Cunningham, Assistant
Secretary
Manager
Prudential Investments Fund
Management LLC Gateway Center
Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment
Corporation Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management
Services LLC Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and
Trust Company One
Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund
Services LLC P.O. Box
15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers
LLP
1177 Avenue of the
Americas
New York, NY 10036
Legal Counsel
Gardner, Carton &
Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
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.
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