<PAGE>
(ICON)
Prudential
Small
Company
Value
Fund, Inc.
ANNUAL
REPORT
Sept. 30, 1999
(LOGO)
<PAGE>
A Message from the Fund's President November 18, 1999
(PHOTO)
Dear Shareholder,
For most of the fiscal year ended September 30, 1999, Prudential Small Company
Value Fund struggled against a hostile market. It was the worst value
environment for small-cap stocks in 20 years. (See chart on page 2.) In April
1999, we had a hint of what a favorable investment environment would do for
the Fund's strict value style, but its very strong 10% one-month gain barely
offset the difficult conditions through the rest of its reporting period.
Coming out of the small-cap bear market in 1998, investors remained uncertain
about the economic future--a sentiment not good for either small-company or
value stocks: Prudential Small Company Value Fund Class A shares gained only
1.48% over our reporting period.
New benchmark
Our benchmark in this report reflects the new categories for mutual funds
introduced by Lipper, Inc. in September 1999. Funds now are classified by
their actual holdings instead of by their objectives; small-cap funds are
in either a value, growth, or core peer group. Prudential Small Company
Value Fund trailed its Lipper benchmark primarily because it was "more value"
than the average value fund: its price-to-earnings ratio (P/E)--a measure of
how much an investor pays for each dollar of company earnings--was well below
the average for Morningstar's small-cap value group1. The Fund was
particularly hurt by its underrepresentation of technology stocks, which
averaged more than twice the return of any other sector in the Russell
2000 Index of small-company stocks.
Where strict value is now
Many of the Fund's largest gains came from the 14 acquisitions of its
companies in this reporting period. But we expect the real payoff for
sticking to a value discipline to come, as it did in April 1999, when a
substantial number of investors recognize that there is no reason to pay
high multiples of earnings for growth stocks when there are well-run and
profitable companies selling at bargain prices. Investment styles tend to
alternate in periods of superior performance, so Prudential generally
recommends holding both value and growth portfolios. Prudential Small
Company Value Fund's style consistency through a hostile market is an
important virtue that allows its shareholders to benefit fully from their
asset allocation plans.
The following Fund Manager's report discusses in greater detail how today's
unusual investment environment affected the Fund's performance.
Sincerely,
John R. Strangfeld
President
Prudential Small Company Value Fund, Inc.
1Prudential Investments' calculations for the holdings reported by Morningstar
for September 30, 1999. Although the most recent and objective available data,
reporting lags mean that these listings do not necessarily represent most
funds' holdings on that date. Prudential priced all the reported holdings
at 9/30/99.
<PAGE>
Performance Review
(PHOTO)
Jay S. Kaplan
Fund Manager
Investment Goals and Style
The Prudential Small Company Value Fund invests primarily in stocks of small
companies (those with a total market value of $1.5 billion or less) mostly
located in the United States. The gap between the return on small companies
and that on large companies can be substantial in either direction in any
year. That is why investors are often advised to own both for diversification.
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.
Still tacking against the wind
The value investing style is inherently contrarian--we can buy stocks
inexpensively because most other investors have undervalued them. Our
assumption is that eventually more investors will recognize the qualities
we have seen. Sometimes this requires patience, but when it begins, the
upward movement is often swift (as in the 10% climb in April 1999). Over
the 12 months ended September 30, 1999, investors by and large continued
to prefer large-company stocks, growth stocks, and technology stocks. About
a fifth of the companies in the Russell 2000 Index had negative stock
returns; about half of these declined 19% or more.
What supported the Russell 2000 Index return? Growth stocks, which
outperformed value stocks by 27 percentage points. More specifically,
technology stocks averaged a 68% gain. The top seven stocks in the Russell
2000 Index--each gaining more than 900% in our reporting period--were all
Internet-related companies. Why didn't we own them? Two reported losses,
and four were selling for 200 or more times their earnings per share.
Investors were buying concepts--not businesses.
In this environment, our strict value discipline was a liability. According
to Morningstar's portfolio listings for September 30, 1999, we had 14
percentage points less invested in technology than the average small-cap
value fund. Inexpensive technology stocks mostly had business problems that
made them unattractive. One exception was semiconductor equipment companies,
which were at a low point in the chip development cycle. We were hurt by our
underrepresentation in that industry, but the stocks we did own, such as the
parts distributor Pioneer-Standard Electronics, contributed significantly to
our return.
What we do own
We have expanded our discussion of largest holdings. It lists strong
companies, each selling for 11 or 12 times earnings (our portfolio's
price/earnings average at period end was 11.3), compared with an average
of about 17 for the Russell 2000 Index. Similarly, our holdings cost 1.4
times book value on September 30, 1999, compared with the Russell 2000 Index
average of 2.2.
We had about two percentage points more in financial stocks than the average
small-cap value fund. Although earnings have been good, uncertain stock
markets and the threat of higher interest rates hurt the financial sector.
Russell 2000 Index financials lost ground over our
<PAGE>
reporting period. In addition, one of our stocks--Capital Re--was a financial
guarantee company that was weakened by unexpected losses at a company it had
insured. Its stock dropped substantially, but after the end of our reporting
period, two companies were bidding to acquire it.
When the stock market undervalues companies, private buyers often appear
When the stock market doesn't recognize the value that we saw, private
investors (such as company management or competitors) often will see the
opportunity. Many of our Fund's largest gains came through the 14
acquisitions of our companies that took place in our reporting period,
including Omniquip International's acquisition by Textron and Premark's
sale to Illinois Tool Works. This vindicates our own estimate of their
worth and helps support our return.
Portfolio Composition
Expressed as a percentage of net assetsas of 9/30/99
Consumer Growth 24.8%
Industrial 20.2
Finance 18.5
Consumer Cyclicals 16.4
Energy 7.0
Utility 3.7
Technology 2.0
Cash & Equivalents 7.4
Performance at a Glance
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 9/30/99
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 1.48% 67.87% N/A 209.35%
Class B 0.74 61.84 170.39% 625.03
Class C 0.74 61.84 N/A 66.99
Class Z 1.70 N/A N/A 35.64
Lipper Small-Cap Value
Fund Avg3 12.33 75.64 172.39 ***
Russell 2000 Value Index4 5.83 77.14 199.21 ****
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 9/30/99
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A -3.60% 9.78% N/A 11.77%
Class B -4.26 9.97 10.46% 11.06
Class C -1.27 9.89 N/A 10.23
Class Z 1.70 N/A N/A 8.88
</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 LLC and Lipper, Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC)
of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. 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;
and 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 Value Fund category. The Lipper
average is unmanaged. Small-Cap Value funds that, by portfolio practice,
invest at least 75% of their equity assets in companies with market
capitalizations (on a three-year weighted basis) of less than 250% of the
dollar-weighted median market capitalization of the S&P Small-Cap 600 IndexR.
Small-Cap Value funds seek long-term growth of capital by investing in
companies that are considered to be undervalued relative to a major unmanaged
stock index based on price-to-current earnings, book value, asset value, or
other factors. These funds will normally have a below-average price-to-
earnings ratio, price-to-book ratio, and three-year earnings growth figure,
compared to the U.S. diversified small-cap funds universe average.
R S&P is a registered trademark of the Standard & Poor's Corporation.
4 The Russell 2000 Value Index is an unmanaged weighted index that comprises
securities in the Russell 2000 Index with a less-than-average growth
orientation. Investors cannot invest directly in an index.
****Lipper Since Inception returns are 210.76% for Class A, 675.39% for Class
B, 81.87% for Class C, and 40.87% for Class Z, based on all funds in each
share class.
****The Russell 2000 Value Index Since Inception returns are 243.90% for Class
A, 1,179.27% for Class B, 82.15% for Class C, and 41.99% for Class Z.
- -------------------------------------------------------------------------------
1
<PAGE>
Review Cont'd.
Looking Ahead
Value investing often requires patience. We can quantify ourvaluation of a
company and the gap between what we think it is worth and the market price,
but we can't tell when these misvaluations will be corrected. We buy stocks
in a traditional way: we try to buy businesses at a good price. The stock
markets may be slow to recognize their value, but we are nonetheless paying
a substantially below-average price for each dollar of a company's earnings
and attracting private buyers. We think the share prices of our companies
should perform better than the overall market when investors focus on the
acceleration of global growth, as they did for a while in the second quarter
of 1999.
We have been in unusual times
(GRAPH)
The Russell 2000 Growth Index comprises securities in the Russell 2000
Index with a greater-than-average growth orientation. Companies in this
Index tend to exhibit higher price-to-book and price/earnings ratios.
The Russell 2000 Value Index comprises securities in the Russell 2000
Index with a less-than-average growth orientation. Companies in this
Index generally have low price-to-book and price/earnings ratios.
The performance cited does not represent the performance of the
Prudential Small Company Value Fund. The total return values include
reinvestment of all dividends. Past performance is not indicative of
future results. Investors cannot invest directly in an index.
Source: Prudential Investments and Frank Russell Company.
Five Largest Holdings Expressed as a percentage of net assets as of 9/30/99
Security/Industry % of Net Assets Comments
Financial Security
Assurance 2.9% Insures the payments on municipal bonds
Holdings, Ltd. and asset-backed securities. A well-
Insurance managed company in a stable business,
FSA's net income grew 16% in 1998. Book
value (a good valuation measure for
insurance companies) rose every year
since 1994, aggregating 72% growth.
P/E: 12X estimated earnings.
Suiza Foods Corp. 2.1% Nationwide producer of milk and dairy
Foods products. Growing rapidly--about 30
acquisitions since 1993. Its strong
management now can focus on advancing
its brand names and improving
productivity. 85% sales growth in 1998.
P/E: 11X estimated earnings.
Astoria Financial Corp. 2.0% Stock hurt by interest-rate concerns
Savings & Loan and the acquisition of Long Island
Savings Bank in September 1998. Now has
No. 2 share of Long Island market.
Expected to be a valuable franchise.
Has been repurchasing stock. P/E: 9X
estimated earnings.
Universal Health 1.7% The No. 3 for-profit hospital operator
Services, Inc. in the United States. The sector is
Hospital Management priced as it was in the '94 government-
control scare: UHS is at 9X estimated
earnings. It is a focused company with
18% earnings growth in 1998. Potential
for large gains.
Supervalu, Inc. 1.7% Food retailer and distributor. We took
Food Distribution shares in Supervalu for our Richfood
Holdings stock upon its acquisition
last August. The purchase is expected
to accelerate Supervalu's earnings
growth, now averaging 24% a year over
5 years. Recent contract to provide
food distribution for Kmart stores
estimated to add $2.3 billion in sales.
P/E: 12X estimated earnings.
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2
<PAGE>
PRUDENTIAL SMALL COMPANY
Portfolio of Investments as
of September 30, 1999 VALUE FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
LONG-TERM INVESTMENTS--92.6%
COMMON STOCKS--92.3%
Aerospace/Defense--0.7%
443,600 Doncasters PLC (ADR)
(United Kingdom)(a) $ 5,323,200
- ------------------------------------------------------------
Apparel--3.6%
294,500 Cole National Corp., Class A(a) 2,263,969
278,700 Kellwood Co. 6,131,400
390,500 Nautica Enterprises, Inc.(a) 6,296,813
1,050,700 Phillips-Van Heusen Corp. 9,324,962
423,600 Reebok International, Ltd.(a) 4,527,225
------------
28,544,369
- ------------------------------------------------------------
Automotive--2.7%
98,800 Borg-Warner Automotive, Inc. 4,248,400
199,200 Dura Automotive Systems, Inc.(a) 4,793,250
116,600 Midas, Inc. 2,404,875
234,000 Simpson Industries, Inc. 2,588,625
203,800 Strattec Security Corp.(a) 7,133,000
------------
21,168,150
- ------------------------------------------------------------
Banks--0.8%
306,200 Commercial Federal Corp. 6,009,175
- ------------------------------------------------------------
Building & Construction--3.3%
361,300 Crossmann Communities, Inc.(a) 5,893,706
161,300 Giant Cement Holding Inc.(a) 3,699,819
235,400 Nortek Inc.(a) 8,033,025
158,400 NVR, Inc.(a) 7,999,200
------------
25,625,750
- ------------------------------------------------------------
Building & Products--0.8%
661,700 Cameron Ashley Building
Products, Inc.(a) 5,955,300
Business Services--0.5%
422,900 World Fuel Services Corp. $ 4,123,275
- ------------------------------------------------------------
Chemicals--2.1%
949,200 Agrium, Inc. (Canada) 9,432,675
441,500 Arch Chemicals Inc. 7,146,781
------------
16,579,456
- ------------------------------------------------------------
Containers & Packaging--1.1%
261,100 ACX Technologies, Inc.(a) 2,480,450
390,500 Shorewood Packaging Corp.(a) 5,296,156
36,200 U.S. Can Corp.(a) 739,838
------------
8,516,444
- ------------------------------------------------------------
Diversified Resources--0.2%
112,000 Amcol International Corp. 1,652,000
- ------------------------------------------------------------
Electrical Utilities--2.3%
552,500 El Paso Electric Co.(a) 4,972,500
185,904 Sierra Pacific Resources 4,136,364
234,800 TNP Enterprises, Inc. 9,142,525
------------
18,251,389
- ------------------------------------------------------------
Electrical Equipment--1.0%
371,300 Belden, Inc. 7,611,650
- ------------------------------------------------------------
Electronics--1.1%
593,000 Pioneer-Standard Electronics, Inc. 8,561,437
- ------------------------------------------------------------
Financial Services--1.7%
286,000 Federated Investors, Inc., Class B 4,933,500
235,400 Heller Financial, Inc., Class A 5,296,500
157,000 Waddell & Reed Financial, Inc.,
Class B 3,355,875
------------
13,585,875
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL SMALL COMPANY
Portfolio of Investments as
of September 30, 1999 VALUE FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- --------------------------------------------------------------
Food Distribution--2.2%
411,600 Fleming Cos., Inc. $ 4,038,825
611,333 SUPERVALU, Inc. 13,334,701
------------
17,373,526
- ------------------------------------------------------------
Foods--3.1%
25,700 Grand Union Co.(a) 350,966
446,000 International Home Foods Inc.(a) 7,805,000
440,800 Suiza Foods Corp.(a) 16,530,000
------------
24,685,966
- ------------------------------------------------------------
Furniture--1.4%
354,800 Furniture Brands International,
Inc.(a) 6,985,125
206,400 Stanley Furniture Company, Inc.(a) 4,360,200
------------
11,345,325
- ------------------------------------------------------------
Gas Distribution--1.4%
234,000 Eastern Enterprises, Inc. 10,866,375
- ------------------------------------------------------------
Health Services--2.9%
852,300 Beverly Enterprises, Inc.(a) 3,622,275
835,500 Foundation Health Systems, Inc.(a) 7,885,031
1,124,250 Sierra Health Services, Inc.(a) 11,383,031
------------
22,890,337
- ------------------------------------------------------------
Hospital Management--3.7%
624,600 Health Management Assoc., Inc.,
Class A(a) 4,606,425
837,200 Quorum Health Group, Inc.(a) 5,886,563
453,800 Triad Hospitals, Inc.(a) 4,594,725
528,700 Universal Health Services, Inc.
Class B(a) 13,680,112
------------
28,767,825
- ------------------------------------------------------------
Hotel/Motel--1.3%
1,174,700 Lodgian, Inc.(a) 4,405,125
726,500 Prime Hospitality Corp.(a) 5,812,000
------------
10,217,125
Insurance--12.1%
559,827 Amerus Life Holdings, Inc. $ 11,861,335
578,700 Capital Re Corp. 5,787,000
626,600 CNA Surety Corp. 8,224,125
551,400 Enhance Financial Services Group,
Inc. 9,752,887
261,800 Everest Reinsurance Holdings, Inc. 6,234,113
440,600 Financial Security Assurance
Holdings, Ltd. 22,773,512
538,600 Harleysville Group, Inc. 7,574,062
207,800 Horace Mann Educators Corp. 5,363,838
229,600 Liberty Financial Co., Inc. 5,036,850
605,100 MMI Cos., Inc. 6,618,281
216,352 Reinsurance Group of America, Inc. 5,557,542
------------
94,783,545
- ------------------------------------------------------------
Machinery--1.6%
180,300 Applied Power Inc., Class A 5,476,613
829,800 CTB International Corp.(a) 5,653,012
104,200 Denison International PLC (ADR)
(United Kingdom)(a) 1,224,350
------------
12,353,975
- ------------------------------------------------------------
Media--3.0%
236,700 A. H. Belo Corp., Class A 4,526,888
749,290 Granite Broadcasting Corp.(a) 8,335,851
205,300 Young Broadcasting, Inc., Class
A(a) 10,752,587
------------
23,615,326
- ------------------------------------------------------------
Medical Products & Services--0.8%
271,000 Varian Medical Systems, Inc. 5,928,125
- ------------------------------------------------------------
Metals Processing--1.2%
259,950 Chase Industries, Inc.(a) 2,225,822
380,400 Hawk Corporation, Class A(a) 1,997,100
340,500 Wolverine Tube, Inc.(a) 5,277,750
------------
9,500,672
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL SMALL COMPANY
Portfolio of Investments as
of September 30, 1999 VALUE FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- --------------------------------------------------------------
Miscellaneous Industrial--9.1%
1,025,200 Aztar Corp.(a) $ 10,508,300
20,148 Blout International, Inc. 271,998
245,850 Clarcor, Inc. 4,133,353
790,900 Coinmach Laundry Corp.(a) 7,711,275
515,200 DT Industries, Inc.(a) 3,316,600
274,000 Graco, Inc. 9,013,594
486,500 Griffon Corp.(a) 3,892,000
182,200 Lincoln Electric Holdings, Inc. 3,803,425
180,300 Pentair, Inc. 7,234,537
346,900 Regal Beloit Corp. 7,198,175
341,035 Robbins & Myers, Inc. 5,286,043
381,900 United Dominion Industries,
Ltd. (Canada) 9,070,125
100,400 Vari-Lite International, Inc.(a) 100,400
------------
71,539,825
- ------------------------------------------------------------
Office Equipment & Supplies--0.5%
402,000 Ennis Business Forms, Inc. 3,567,750
- ------------------------------------------------------------
Oil & Gas Exploration/Production--7.0%
844,000 Bellwether Exploration Co.(a) 5,275,000
202,700 Cabot Oil & Gas Corp., Class A 3,496,575
1,107,300 Comstock Resources, Inc.(a) 4,567,613
155,600 Devon Energy Corp. 6,447,675
382,700 Louis Dreyfus Natural Gas Corp.(a) 8,204,131
1,049,085 Santa Fe Snyder Corp.(a) 9,441,765
362,200 St. Mary Land & Exploration Co. 9,462,475
570,700 Vintage Petroleum, Inc.(a) 7,704,450
------------
54,599,684
- ------------------------------------------------------------
Paper & Packaging--0.9%
544,300 Schweitzer-Mauduit International,
Inc. 7,041,881
- ------------------------------------------------------------
Printing & Publishing--2.2%
430,100 Big Flower Holdings, Inc.(a) 12,177,206
107,600 Pulitzer Inc. 4,889,075
------------
17,066,281
Regional Banks--1.6%
225,600 Community First Bankshares, Inc. $ 3,807,000
522,200 Peoples Heritage Financial Group 8,681,575
------------
12,488,575
- ------------------------------------------------------------
Restaurants--2.8%
426,400 Buffets, Inc.(a) 4,956,900
376,000 CKE Restaurants, Inc. 2,726,000
754,100 Ryan's Family Steak Houses, Inc.(a) 6,786,900
480,600 VICORP Restaurants, Inc.(a) 7,929,900
------------
22,399,700
- ------------------------------------------------------------
Retail--4.4%
659,800 Bon-Ton Stores, Inc.(a) 2,618,581
497,100 Dress Barn, Inc.(a) 9,118,678
98,300 Payless ShoeSource, Inc.(a) 4,964,150
724,800 Pier 1 Imports, Inc. 4,892,400
892,500 Stage Stores, Inc.(a) 5,522,344
1,047,900 Stein Mart, Inc.(a) 7,466,288
------------
34,582,441
- ------------------------------------------------------------
Savings & Loan--2.3%
507,600 Astoria Financial Corp. 15,608,700
305,600 Sovereign Bancorp, Inc. 2,779,050
------------
18,387,750
- ------------------------------------------------------------
Security/Investigation Services--0.4%
209,100 Burns International Services
Corp.(a) 3,371,738
- ------------------------------------------------------------
Specialty Chemicals--3.1%
195,100 Cambrex Corp. 5,157,956
278,200 CK Witco Corp. 4,051,288
771,300 Ethyl Corp. 2,988,788
464,400 Lilly Industries, Inc., Class A 6,327,450
527,500 M.A. Hanna Co. 6,000,312
------------
24,525,794
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Portfolio of Investments as of September 30, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
Steel - Producers--0.1%
58,500 Northwest Pipe Co.(a) $ 914,063
- ------------------------------------------------------------
Technology--0.2%
230,500 X-Rite, Inc. 1,498,250
- ------------------------------------------------------------
Textiles--0.6%
685,100 Dan River Inc., Class A(a) 4,453,150
51,300 Guilford Mills, Inc. 442,462
------------
4,895,612
- ------------------------------------------------------------
Waste Management--0.5%
394,600 Republic Services, Inc., Class A(a) 4,291,275
------------
Total common stocks
(cost $797,686,684) 725,006,211
- ------------------------------------------------------------
CONVERTIBLE BOND--0.3%
Principal
Amount
(000)
$ 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) 2,250,360
------------
Total long-term investments
(cost $800,365,684) 727,256,571
SHORT-TERM INVESTMENT--8.1%
- ------------------------------------------------------------
63,721 Joint Repurchase Agreement Account,
5.22%, 10/1/99
(cost $63,721,000; Note 5) 63,721,000
- ------------------------------------------------------------
Total Investments--100.7%
(cost $864,086,684; Note 4) 790,977,571
Liabilities in excess of
other assets--(0.7%) (5,622,581)
------------
Net Assets--100% $785,354,990
------------
------------
</TABLE>
- ---------------
ADR--American Depository Receipt.
(a) Non-income producing security.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL SMALL COMPANY
Statement of Assets and Liabilities VALUE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets September 30, 1999
------------------
<S> <C>
Investments, at value (cost $864,086,684).............................................................. $ 790,977,571
Cash................................................................................................... 358,553
Receivable for investments sold........................................................................ 12,006,796
Receivable for Fund shares sold........................................................................ 3,572,455
Dividends and interest receivable...................................................................... 538,525
Prepaid expenses....................................................................................... 16,512
------------------
Total assets........................................................................................ 807,470,412
------------------
Liabilities
Payable for Fund shares reacquired..................................................................... 19,218,966
Payable for investments purchased...................................................................... 1,607,337
Management fee payable................................................................................. 489,012
Distribution fee payable............................................................................... 386,804
Accrued expenses....................................................................................... 413,303
------------------
Total liabilities................................................................................... 22,115,422
------------------
Net Assets............................................................................................. $ 785,354,990
------------------
------------------
Net assets were comprised of:
Common stock, at par................................................................................ $ 657,101
Paid-in capital in excess of par.................................................................... 867,907,066
------------------
868,564,167
Accumulated net realized loss on investments........................................................ (10,100,064)
Net unrealized depreciation on investments.......................................................... (73,109,113)
------------------
Net assets, September 30, 1999......................................................................... $ 785,354,990
------------------
------------------
Class A:
Net asset value and redemption price per share
($319,779,225 / 25,493,677 shares of common stock issued and outstanding)........................ $12.54
Maximum sales charge (5% of offering price)......................................................... .66
------------------
Maximum offering price to public.................................................................... $13.20
------------------
------------------
Class B:
Net asset value, offering price and redemption price per share
($335,013,021 / 29,688,163 shares of common stock issued and outstanding)........................ $11.28
------------------
------------------
Class C:
Net asset value and redemption price per share
($25,207,272 / 2,233,796 shares of common stock issued and outstanding).......................... $11.28
Sales charge (1% of offering price)................................................................. .11
------------------
Offering price to public............................................................................ $11.39
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per share
($105,355,472 / 8,294,458 shares of common stock issued and outstanding)......................... $12.70
------------------
------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss) September 30, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $51,333)..................... $ 8,490,990
Interest................................. 3,022,931
------------------
Total income.......................... 11,513,921
------------------
Expenses
Management fee........................... 6,749,959
Distribution fee--Class A................ 901,768
Distribution fee--Class B................ 4,447,467
Distribution fee--Class C................ 278,132
Transfer agent's fees and expenses....... 2,554,000
Reports to shareholders.................. 275,000
Custodian's fees and expenses............ 130,000
Registration fees........................ 85,000
Directors' fees and expenses............. 27,000
Audit fees and expenses.................. 25,000
Legal fees and expenses.................. 22,000
Miscellaneous............................ 3,034
------------------
Total expenses........................ 15,498,360
------------------
Net investment loss......................... (3,984,439)
------------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions............................. 6,018,074
Net change in unrealized appreciation on
investments.............................. 13,126,457
------------------
Net gain on investments..................... 19,144,531
------------------
Net Increase in Net Assets
Resulting from Operations................... $ 15,160,092
------------------
------------------
</TABLE>
PRUDENTIAL SMALL COMPANY
VALUE FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment loss........ $ (3,984,439) $ (4,946,053)
Net realized gain on
investment
transactions............ 6,018,074 150,641,304
Net change in unrealized
appreciation
(depreciation) on
investments............. 13,126,457 (392,297,749)
------------------ --------------
Net increase (decrease) in
net assets resulting
from operations......... 15,160,092 (246,602,498)
------------------ --------------
Distributions from net
realized gains on
investments transactions
(Note 1)
Class A.................... (41,109,661) (40,869,566)
Class B.................... (62,450,536) (70,405,034)
Class C.................... (3,389,932) (2,549,512)
Class Z.................... (14,727,094) (14,791,748)
------------------ --------------
(121,677,223) (128,615,860)
------------------ --------------
Fund share transactions (Note
6) (net of share
conversions)
Net proceeds from shares
sold.................... 556,701,257 864,798,421
Net asset value of shares
issued to shareholders
in reinvestment of
distributions........... 117,928,503 124,093,166
Cost of shares
reacquired.............. (814,921,695) (813,331,700)
------------------ --------------
Net increase (decrease) in
net assets from Fund
share transactions...... (140,291,935) 175,559,887
------------------ --------------
Total decrease................ (246,809,066) (199,658,471)
Net Assets
Beginning of year............. 1,032,164,056 1,231,822,527
------------------ --------------
End of year................... $ 785,354,990 $1,032,164,056
------------------ --------------
------------------ --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<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 capital growth. The Fund invests in
common stocks of small, less well-known companies that the investment adviser
believes are undervalued. 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 or, if there was no sale, at the mean between the last bid and asked
prices or at the bid price in the absence of an asked price. Securities traded
in the over-the-counter market (including securities listed on exchanges whose
primary market is believed to be over-the-counter) are valued by an independent
pricing agent or principal market maker and listed securities for which the
primary market is believed to be over-the-counter 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 under triparty repurchase agreements, as the case may be, 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 by
$3,984,439, decrease accumulated net realized gain on investments by $31,313,409
and increase paid-in capital by $27,328,970 due to the Fund experiencing net
operating losses and redemptions utilized as distributions for federal income
tax purposes during the fiscal year ended September 30, 1999. 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.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares. The Fund compensates
- --------------------------------------------------------------------------------
9
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements VALUE FUND, INC.
- --------------------------------------------------------------------------------
PIMS for distributing and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans of distribution (the 'Class A, B and C Plans'),
regardless of expenses actually incurred. The distribution fees are accrued
daily and payable monthly. No distribution or service fees are paid to PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated 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 under the Plans 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, 1999.
PIMS has advised the Fund that it received approximately $343,400 and $46,700 in
front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the year ended September 30, 1999. From these fees, PIMS
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended September 30, 1999, it
received approximately $1,370,500 and $21,600 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIC, PIFM and PIMS are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').
As of March 11, 1999, the Fund along with other affiliated registered investment
companies (the 'Funds'), entered into a syndicated credit agreement ('SCA') with
an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any borrowings will be at market rates. The Funds pay a commitment
fee at an annual rate of .065 of 1% on the unused portion of the credit
facility, which is accrued and paid quarterly on a pro rata basis by the Funds.
The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had a
credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund did not
borrow any amounts pursuant to either agreement during the year ended September
30, 1999. The purpose of the agreements is to serve as an alternative source of
funding for capital share redemptions.
- ------------------------------------------------------------
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, 1999,
the Fund incurred fees of approximately $2,324,100 for the services of PMFS. As
of September 30, 1999, approximately $180,400 of such fees were due to PMFS.
Transfer agent fees and expenses in Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended September 30, 1999, PSI earned approximately $5,118 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities of the Fund, other than short-term
investments, for the fiscal year ended September 30, 1999 were $352,194,619 and
$615,421,254, respectively.
The cost basis of investments for federal income tax purposes as of September
30, 1999 was $864,583,302 and, accordingly, net unrealized depreciation of
investments for federal income tax purposes was $73,605,731 (gross unrealized
appreciation--$83,412,212; gross unrealized depreciation--$157,017,943).
The Fund will elect, for United States federal income tax purposes, to treat net
short-term capital losses of $9,603,446 incurred in the eleven months ended
September 30, 1999 as having been incurred in the following fiscal year.
- ------------------------------------------------------------
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. Government or federal agency obligations. As of September 30, 1999, the
Fund had a 9.7% undivided interest in the joint account. The undivided interest
of the Fund represented $63,721,000 in principal amount. As of such date, each
repurchase agreement in the joint account and value of the collateral therefor
was as follows:
Warburg Dillon Read LLC, 5.32%, in the principal amount of $190,000,000,
repurchase price $190,028,077, due 10/1/99. The value of the collateral
including accrued interest was $193,802,299.
Bear, Stearns & Co. Inc., 5.32%, in the principal amount of $190,000,000,
repurchase price $190,028,077, due 10/1/99. The value of the collateral
including accrued interest was $194,200,266.
Morgan (J.P.) Securities, Inc., 5.25%, in the principal amount of $190,000,000,
repurchase price $190,027,708, due 10/1/99. The value of the collateral
including accrued interest was $193,800,121.
Goldman, Sachs & Co., 4.75%, in the principal amount of $88,875,000, repurchase
price $88,886,726, due 10/1/99. The value of the collateral including accrued
interest was $90,653,200.
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL SMALL COMPANY
Notes to Financial Statements VALUE 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 upon
the period of time the shares are held. Prior to November 2, 1998, Class C
shares were 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 1 billion shares of common stock authorized at $.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, Class C and Class Z shares each consist of 250
million authorized shares.
Transactions in shares of common stock for the years ended September 30, 1999
and September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 1999:
Shares sold........................ 21,652,787 $ 283,748,336
Shares issued in reinvestment of
distributions.................... 2,977,458 39,600,186
Shares reacquired.................. (28,149,832) (366,651,014)
----------- -------------
Net decrease in shares outstanding
before conversion................ (3,519,587) (43,302,492)
Shares issued upon conversion from
Class B.......................... 2,514,601 32,509,648
----------- -------------
Net decrease in shares
outstanding...................... (1,004,986) $ (10,792,844)
----------- -------------
----------- -------------
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 B Shares Amount
- ----------------------------------- ----------- -------------
<S> <C> <C>
Year ended September 30, 1999:
Shares sold........................ 12,427,779 $ 148,785,336
Shares issued in reinvestment of
distributions.................... 5,000,512 60,256,172
Shares reacquired.................. (25,651,226) (300,425,348)
----------- -------------
Net decrease in shares outstanding
before conversion................ (8,222,935) (91,383,840)
Shares reacquired upon conversion
into Class A..................... (2,785,771) (32,509,648)
----------- -------------
Net decrease in shares
outstanding...................... (11,008,706) $(123,893,488)
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1999:
Shares sold........................ 1,537,225 $ 18,451,563
Shares issued in reinvestment of
distributions.................... 278,300 3,353,512
Shares reacquired.................. (1,703,303) (19,969,646)
----------- -------------
Net increase in shares
outstanding...................... 112,222 $ 1,835,429
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1999:
Shares sold........................ 7,908,673 $ 105,716,022
Shares issued in reinvestment of
distributions.................... 1,095,136 14,718,633
Shares reacquired.................. (9,747,471) (127,875,687)
----------- -------------
Net decrease in shares
outstanding...................... (743,662) $ (7,441,032)
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights VALUE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year........................... $ 13.79 $ 18.95 $ 15.30 $ 14.18 $ 12.40
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss)................................. (.01) -- .02 .04 .05
Net realized and unrealized gain (loss) on investment
transactions.............................................. .29 (3.31) 6.06 1.75 2.57
-------- -------- -------- -------- --------
Total from investment operations.......................... .28 (3.31) 6.08 1.79 2.62
-------- -------- -------- -------- --------
Less distributions
Distributions from net realized gains........................ (1.53) (1.85) (2.43) (.67) (.84)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 12.54 $ 13.79 $ 18.95 $ 15.30 $ 14.18
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):............................................. 1.48% (18.90)% 45.92% 13.38% 23.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $319,779 $365,431 $412,980 $237,306 $242,231
Average net assets (000)..................................... $360,707 $443,189 $287,894 $223,091 $174,449
Ratios to average net assets:
Expenses, including distribution fees..................... 1.27% 1.17% 1.21% 1.24% 1.33%
Expenses, excluding distribution fees..................... 1.02% .92% .96% .99% 1.08%
Net investment income (loss).............................. (.09)% -- .15% .33% .30%
For Class A, B, C and Z shares:
Portfolio turnover........................................ 39% 36% 58% 53% 64%
</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. 12
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights VALUE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year........................... $ 12.63 $ 17.64 $ 14.49 $ 13.56 $ 11.99
-------- -------- -------- -------- --------
Income from investment operations
Net investment loss.......................................... (.10) (.12) (.09) (.06) (.06)
Net realized and unrealized gain (loss) on investment
transactions.............................................. .28 (3.04) 5.67 1.66 2.47
-------- -------- -------- -------- --------
Total from investment operations.......................... .18 (3.16) 5.58 1.60 2.41
-------- -------- -------- -------- --------
Less distributions
Distributions from net realized gains........................ (1.53) (1.85) (2.43) (.67) (.84)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 11.28 $ 12.63 $ 17.64 $ 14.49 $ 13.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(b):............................................. .74% (19.52)% 44.91% 12.56% 22.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $335,013 $514,159 $645,579 $378,861 $361,873
Average net assets (000)..................................... $444,747 $678,462 $443,761 $355,636 $349,929
Ratios to average net assets:
Expenses, including distribution fees..................... 2.02% 1.92% 1.96% 1.99% 2.08%
Expenses, excluding distribution fees..................... 1.02% .92% .96% .99% 1.08%
Net investment loss....................................... (.82)% (.75)% (.60)% (.42)% (.51)%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL SMALL COMPANY
Financial Highlights VALUE FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------
Year Ended September 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of year........................... $ 12.63 $ 17.64 $ 14.49 $13.56 $11.99
------- ------- ------- ------ ------
Income from investment operations
Net investment loss.......................................... (.10) (.12) (.09) (.06) (.06)
Net realized and unrealized gain (loss) on investment
transactions.............................................. .28 (3.04) 5.67 1.66 2.47
------- ------- ------- ------ ------
Total from investment operations.......................... .18 (3.16) 5.58 1.60 2.41
------- ------- ------- ------ ------
Less distributions
Distributions from net realized gains........................ (1.53) (1.85) (2.43) (.67) (.84)
------- ------- ------- ------ ------
Net asset value, end of year................................. $ 11.28 $ 12.63 $ 17.64 $14.49 $13.56
------- ------- ------- ------ ------
------- ------- ------- ------ ------
TOTAL RETURN(b):............................................. 0.74% (19.52)% 44.91% 12.56% 22.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $25,207 $26,804 $22,049 $4,323 $1,545
Average net assets (000)..................................... $27,813 $29,259 $ 8,762 $2,786 $ 784
Ratios to average net assets:
Expenses, including distribution fees..................... 2.02% 1.92% 1.96% 1.99% 2.08%
Expenses, excluding distribution fees..................... 1.02% .92% .96% .99% 1.08%
Net investment loss....................................... (.83)% (.75)% (.60)% (.42)% (.46)%
</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 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 Z
----------------------------------------------------
March 1,
1996(d)
Year Ended September 30, Through
---------------------------------- September 30,
1999 1998 1997 1996
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a):
Net asset value, beginning of period......................... $ 13.92 $ 19.04 $ 15.32 $ 13.69
-------- -------- -------- ------
Income from investment operations
Net investment income........................................ .02 .04 .06 .05
Net realized and unrealized gain (loss) on investment
transactions.............................................. .29 (3.31) 6.09 1.58
-------- -------- -------- ------
Total from investment operations.......................... .31 (3.27) 6.15 1.63
-------- -------- -------- ------
Less distributions
Distributions from net realized gains........................ (1.53) (1.85) (2.43) --
-------- -------- -------- ------
Net asset value, end of period............................... $ 12.70 $ 13.92 $ 19.04 $ 15.32
-------- -------- -------- ------
-------- -------- -------- ------
TOTAL RETURN(b):............................................. 1.70% (18.58)% 46.38% 11.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $105,355 $125,770 $151,215 $68,516
Average net assets (000)..................................... $131,013 $154,623 $ 97,310 $66,228
Ratios to average net assets:
Expenses, including distribution fees..................... 1.02% .92% .96% .99%(c)
Expenses, excluding distribution fees..................... 1.02% .92% .96% .99%(c)
Net investment income..................................... .16% .25% .40% .58%(c)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the period.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<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. (the 'Fund') at September 30, 1999, 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 three years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1999 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 17, 1999
- --------------------------------------------------------------------------------
16
<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, 1999) as to the federal tax status of
distributions paid by the Fund during such fiscal year. Accordingly, during its
fiscal year ended September 30, 1999, the Fund paid distributions of $0.18 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 $1.35 per Class A,
Class B, Class C and Class Z shares from net realized long-term capital gains,
which are taxable as such. The Fund utilized redemptions as distributions in the
amount of $.02 and $.34 per Class A, Class B, Class C and Class Z shares of
short-term capital gains and long-term capital gains, respectively. We wish to
advise you that the corporate dividends received deduction for the Fund is zero.
In January 2000, 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 1999. The amounts that will be reported on such Form 1099 DIV or
substitute will be the amounts to use on your 1999 federal income tax return and
probably will differ from the amounts which we must report for the Fund's fiscal
year ended September 30, 1999.
- --------------------------------------------------------------------------------
17
<PAGE>
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't read annual
and semiannual reports. It's quite understandable. These annual and semi-
annual reports are prepared to comply with federal regulations, and are often
written in language that is difficult to understand. So, when most people run
into those particularly daunting sections of these reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
Performance at a Glance
Since an investment's performance is often a shareholder's primary concern,
we present performance information in two different formats. You'll find it
first on the "Performance at a Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a nationally recognized mutual
fund rating agency. We report both the cumulative total returns and the
average annual total returns. The cumulative total return is the total
amount of income and appreciation the Fund has achieved in various time
periods. The average annual total return is an annualized representation of
the Fund's performance. It gives you an idea of how much the Fund has earned
in an average year for a given time period. Under the performance box, you'll
see legends that explain the performance information, whether fees and sales
charges have been included in returns, and the inception dates for the Fund's
share classes.
See the performance comparison charts at the back of the report for more
performance information. Please keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager, who invests your money for you, reports on successful--
and not-so-successful--strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio manager favors, and any changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this
listing because it was sold before the close of the reporting period.
<PAGE>
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's equity,
or holdings after the Fund pays its debts) as of the end of the reporting
period. It also shows how we calculate the net asset value per share for
each class of shares. The net asset value is reduced by payment of your
dividend, capital gain, or other distribution, but remember that the money
or new shares are being paid or issued to you. The net asset value fluctuates
daily, along with the value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here--both realized and unrealized.
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to
shareholders every year, and this statement shows you how we do it--through
dividends and distributions--and how that affects the net assets. This
statement also shows how money from investors flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can intimidate readers, but it
does contain useful information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition, they outline how
Prudential Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares and, more importantly, how much
they are paid for doing so. Finally, the Notes explain how many shares are
outstanding and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per-share
basis. It is designed to help you understand how the Fund performed, and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult
a tax adviser.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a
hypothetical $10,000 investment in the Fund since its inception or for
10 years (whichever is shorter). To help you put that return in context,
we are required to include the performance of an unmanaged, broad-based
securities index as well. The index does not reflect the cost of buying
the securities it contains or the cost of managing a mutual fund. Of course,
the index holdings do not mirror those of the Fund--the index is a broad-based
reference point commonly used by investors to measure how well they are doing.
A definition of the selected index is also provided. Investors cannot invest
directly in an index.
<PAGE>
Comparing a $10,000 Investment
Prudential Small Company Value Fund, Inc. vs. the Russell 2000 Index
Class A
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 11.77%
Five Years 9.78%
One Year -3.60%
Without Sales Load
Since Inception 12.37%
Five Years 10.92%
One Year 1.48%
Class B
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 11.06%
Ten Years 10.46%
Five Years 9.97%
One Year -4.26%
Without Sales Load
Since Inception 11.06%
Ten Years 10.46%
Five Years 10.11%
One Year 0.74%
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 information beneath the graphs
is 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 (or for the past ten
years for Class B shares). These graphs 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, at the beginning of the ten-year period for Class B shares, and at the
end of the fiscal year (September 30), as measured on a quarterly basis,
beginning in 1990 for Class A, 1988 for Class B, 1994 for Class C, and 1996
for Class Z shares. For purposes of the graphs, and unless otherwise
indicated, it has been assumed that (a) the maximum applicable front-end
sales charge was deducted from the initial $10,000 investment in Class A
and C shares; (b) the maximum applicable contingent deferred sales charges
were deduced from the value of the investment in Class B and Class C shares,
assuming full redemption on September 30, 1999; (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
<PAGE>
Class C
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 10.23%
Five Years 9.89%
One Year -1.27%
Without Sales Load
Since Inception 10.44%
Five Years 10.11%
One Year 0.74%
Class Z
(GRAPH)
Average Annual Total Returns
Since Inception 8.88%
One Year 1.70%
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 and service (12b-1) fees.
The 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.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Class NASDAQ Cusip
A PGOAX 743968109
B CHNDX 743968208
C PSCCX 743968307
Z PSCZX 743968406
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
Stephen M. Ungerman, Assistant Treasurer
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
Prudential Investments is a unit of The Prudential Insurance Company of
America, 751 Broad Street, Newark, NJ 07102.
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.
MF109E
