UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR | ||||
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT | ||||
COMPANIES | ||||
Investment Company Act file number: | 811-03084 | |||
Exact name of registrant as specified in charter: | Prudential Jennison Small Company Fund, Inc. | |||
Address of principal executive offices: | 655 Broad Street, 17th Floor | |||
Newark, New Jersey 07102 | ||||
Name and address of agent for service: | Deborah A. Docs | |||
655 Broad Street, 17th Floor | ||||
Newark, New Jersey 07102 | ||||
Registrant’s telephone number, including area code: | 800-225-1852 | |||
Date of fiscal year end: | 9/30/2016 | |||
Date of reporting period: | 9/30/2016 |
Item 1 – Reports to Stockholders
PRUDENTIAL INVESTMENTS, A PGIM BUSINESS | MUTUAL FUNDS
Prudential Jennison Small Company Fund, Inc.
ANNUAL REPORT | SEPTEMBER 30, 2016 |
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Objective: Capital growth |
Highlights
PRUDENTIAL JENNISON SMALL COMPANY FUND, INC.
• | Risk aversion in this volatile global market environment affected how investors valued different securities. Low-volatility/high-dividend-paying stocks were significant drivers of market returns with dividend-paying and other “safety” stocks outperforming, and stocks of higher-growth and lower valuation companies generally underperforming. |
• | Positions in the consumer discretionary sector produced mixed results in the period, with several positions generating very strong gains while others lagged. Vail Resorts, Ulta Salon, Cosmetics & Fragrance, and Burlington Stores were key contributors, while Restoration Hardware and G-III Apparel were detractors. (For a complete list of holdings, refer to the Portfolio of Investments section of this report.) |
• | Other strong contributors to the Fund’s return were information technology positions SolarWinds and Vantiv. Additional notable detractors across sectors included Qlik Technologies, Envision Healthcare, and Korn/Ferry. |
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
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.
Mutual funds are distributed by Prudential Investment Management Services LLC, member SIPC. Jennison Associates is a registered investment adviser. Both are Prudential Financial companies. ® 2016 Prudential Financial, Inc. and its related entities. Jennison Associates, Jennison, the Prudential logo and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
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Letter from the President
Dear Shareholder:
We hope you find the annual report for the Prudential Jennison Small Company Fund, Inc. informative and useful. The report covers performance for the 12-month period that ended September 30, 2016.
During the reporting period, the US economy experienced modest growth. Labor markets were healthy, and consumer confidence rose. The housing market brightened somewhat, as momentum continued for the new home market. The Federal Reserve kept interest rates unchanged at its September meeting, but pointed to the strong possibility of a rate hike in December. Internationally, concerns over Brexit—the term used to represent Britain’s decision to leave the European Union—remained in the spotlight.
Equity markets in the US were firmly in positive territory at the end of the reporting period, as US stocks posted strong gains. European stocks struggled earlier, but found some traction in the third quarter. Asian markets also advanced, and emerging markets rose sharply.
US fixed income markets experienced overall gains. High yield bonds posted very strong results. Corporate bonds and Treasuries also performed well. Accommodative monetary policy by central banks helped lift global bond markets.
Given the uncertainty in today’s investment environment, we believe that active professional portfolio management offers a potential advantage. Active managers often have the knowledge and flexibility to find the best investment opportunities in the most challenging markets.
Even so, it’s best if investment decisions are based on your long-term goals rather than on short-term market and economic developments. We also encourage you to work with an experienced financial advisor who can help you set goals, determine your tolerance for risk, build a diversified plan that’s right for you, and make adjustments when necessary.
By having Prudential Investments help you address your goals, you gain the advantage of asset managers that also manage money for many major corporations and pension funds around the world. That means you benefit from the same expertise, innovation, and attention to risk demanded by today’s most sophisticated investors.
Thank you for choosing our family of funds.
Sincerely,
Stuart S. Parker, President
Prudential Jennison Small Company Fund, Inc.
November 15, 2016
Prudential Jennison Small Company Fund, Inc. | 3 |
Your Fund’s Performance (unaudited)
Performance data quoted represent past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the past performance data quoted. An investor may obtain performance data as of the most recent month-end by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852.
Cumulative Total Returns (without Sales Charges) as of 9/30/16 | ||||||||||||||||
One Year (%) | Five Years (%) | Ten Years (%) | Since Inception (%) | |||||||||||||
Class A | 9.82 | 93.89 | 106.78 | — | ||||||||||||
Class B | 8.98 | 86.83 | 90.74 | — | ||||||||||||
Class C | 8.94 | 86.88 | 92.06 | — | ||||||||||||
Class Q | 10.36 | 98.72 | N/A | 78.55 (11/29/10) | ||||||||||||
Class R | 9.57 | 91.83 | 101.93 | — | ||||||||||||
Class Z | 10.14 | 96.28 | 111.61 | — | ||||||||||||
Russell 2500™ Index | 14.44 | 112.72 | 114.80 | — | ||||||||||||
S&P SmallCap 600 Index | 18.12 | 127.39 | 130.43 | — | ||||||||||||
Lipper Small-Cap Core Funds Average | 13.04 | 98.93 | 94.82 | — | ||||||||||||
Average Annual Total Returns (with Sales Charges) as of 9/30/16 | ||||||||||||||||
One Year (%) | Five Years (%) | Ten Years (%) | Since Inception (%) | |||||||||||||
Class A | 3.78 | 12.87 | 6.93 | — | ||||||||||||
Class B | 4.62 | 13.19 | 6.67 | — | ||||||||||||
Class C | 8.07 | 13.32 | 6.74 | — | ||||||||||||
Class Q | 10.36 | 14.72 | N/A | 10.44 (11/29/10) | ||||||||||||
Class R | 9.57 | 13.92 | 7.28 | — | ||||||||||||
Class Z | 10.14 | 14.44 | 7.78 | — | ||||||||||||
Russell 2500 Index | 14.44 | 16.30 | 7.95 | — | ||||||||||||
S&P SmallCap 600 Index | 18.12 | 17.86 | 8.71 | — | ||||||||||||
Lipper Small-Cap Core Funds Average | 13.04 | 14.64 | 6.80 | — |
Average Annual Total Returns (Without Sales Charges) as of 9/30/16 | ||||||||
One Year (%) | Five Years (%) | Ten Years (%) | Since Inception (%) | |||||
Class A | 9.82 | 14.16 | 7.54 | — | ||||
Class B | 8.98 | 13.32 | 6.67 | — | ||||
Class C | 8.94 | 13.32 | 6.74 | — | ||||
Class Q | 10.36 | 14.72 | N/A | 10.44 (11/29/10) | ||||
Class R | 9.57 | 13.92 | 7.28 | — | ||||
Class Z | 10.14 | 14.44 | 7.78 | — |
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Growth of a $10,000 Investment
The graph compares a $10,000 investment in the Fund’s Class A shares with a similar investment in the Russell 2500 Index and the Standard & Poor’s SmallCap 600 Index (S&P SmallCap 600 Index) by portraying the initial account values at the beginning of the 10-year period for Class A shares (September 30, 2006) and the account values at the end of the current fiscal year (September 30, 2016) as measured on a quarterly basis. For purposes of the graph, 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 shares; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. The line graph provides information for Class A shares only. As indicated in the tables provided earlier, performance for Class B, Class C, Class Q, Class R, and Class Z shares will vary due to the differing charges and expenses applicable to each share class (as indicated in the following paragraphs). Without waiver of fees and/or expense reimbursement, if any, the returns would have been lower.
Past performance does not predict future performance. Total returns and the ending account values in the graphs include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. The Fund’s total returns do not reflect the deduction of income taxes on an individual’s investment. Taxes may reduce your actual investment returns on income or gains paid by the Fund or any gains you may realize if you sell your shares.
Source: Prudential Investments LLC and Lipper Inc.
Inception returns are provided for any share class with less than 10 calendar years of returns.
Prudential Jennison Small Company Fund, Inc. | 5 |
Your Fund’s Performance (continued)
The returns in the tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or following the redemption of Fund shares. The average annual total returns take into account applicable sales charges, which are described for each share class in the table below.
Class A | Class B* | Class C | Class Q | Class R | Class Z | |||||||
Maximum initial sales charge | 5.50% of the public offering price | None | None | None | None | None | ||||||
Contingent Deferred Sales Charge (CDSC) (as a percentage of the lower of original purchase price or net asset value at redemption) | 1% on sales of $1 million or more made within 12 months of purchase | 5% (Yr.1) 4% (Yr.2) 3% (Yr.3) 2% (Yr.4) 1% (Yr.5) 1% (Yr.6) 0% (Yr.7) | 1% on sales made within 12 months of purchase | None | None | None | ||||||
Annual distribution and service (12b-1) fees (shown as a percentage of average daily net assets) | .30% | 1% | 1% | None | .75% (.50% currently) | None |
*Class B shares are closed to all purchase activity and no additional Class B shares may be purchased or acquired except by exchange from Class B shares of another Fund or through dividend or capital gains reinvestment.
Benchmark Definitions
Russell 2500 Index—The Russell 2500 Index is an unmanaged index that measures the performance of the 2,500 smallest companies in the Russell 3000 Index, which represents approximately 20% of the total market capitalization of the Russell 3000 Index. The cumulative total return for the Index measured from the month-end closest to inception date through 9/30/16 is 94.83% for Class Q shares. The average annual total return for the Index measured from the month-end closest to the inception date through 9/30/16 is 12.11% for Class Q shares.
S&P SmallCap 600 Index—The Standard & Poor’s SmallCap 600 Index (S&P SmallCap 600 Index) is an unmanaged, capital-weighted index of 600 smaller-company US common stocks that cover all industry sectors. The cumulative total return for the Index measured from the month-end closest to inception date through 9/30/16 is 111.05% for Class Q shares. The average annual total return for the Index measured from the month-end closest to the inception date through 9/30/16 is 13.66% for Class Q shares.
Lipper Small-Cap Core Funds Average—The Lipper Small-Cap Core Funds Average (Lipper Average) is based on the average return of all funds in the Lipper Small-Cap Core Funds category for the periods noted. Funds in the Lipper Small-Cap Core Funds category invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) less than 250% of the dollar-weighted median of the smallest 500 of the middle 1,000 securities of the S&P SuperComposite 1500 Index. Small-cap core funds
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typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value compared with the S&P SmallCap 600 Index. The cumulative total return for the Average measured from the month-end closest to inception date through 9/30/16 is 79.16% for Class Q shares. The average annual total return for the Average measured from the month-end closest to the inception date through 9/30/16 is 10.42% for Class Q shares.
Investors cannot invest directly in an index or average. The returns for the Indexes would be lower if they included the effects of sales charges, operating expenses of a mutual fund, or taxes. Returns for the Lipper Averages reflect the deduction of operating expenses, but not sales charges or taxes. The Since Inception returns for the Indexes and Lipper Averages are measured from the closest month-end to the inception date for Class Q shares, and not from the Class’s actual inception date.
Five Largest Holdings expressed as a percentage of net assets as of 9/30/16 (%) | ||||
Vantiv, Inc. (Class A Stock), IT Services | 2.5 | |||
Vail Resorts, Inc., Hotels, Restaurants & Leisure | 2.5 | |||
Ulta Salon, Cosmetics & Fragrance, Inc., Specialty Retail | 1.8 | |||
Burlington Stores, Inc., Specialty Retail | 1.8 | |||
Sprouts Farmers Market, Inc., Food & Staples Retailing | 1.6 |
Holdings reflect only long-term investments and are subject to change.
Five Largest Industries expressed as a percentage of net assets as of 9/30/16 (%) | ||||
Banks | 11.0 | |||
Equity Real Estate Investment Trusts (REITs) | 7.0 | |||
Health Care Providers & Services | 5.5 | |||
Hotels, Restaurants & Leisure | 4.8 | |||
Specialty Retail | 4.7 |
Industry weightings reflect only long-term investments and are subject to change.
Prudential Jennison Small Company Fund, Inc. | 7 |
Strategy and Performance Overview
How did the Fund perform?
The Prudential Jennison Small Company Fund Inc.’s Class A shares rose 9.82% in the 12 months ended September 30, 2016. In the same period, the Russell 2500 Index (the Index) advanced 14.44%, and the Lipper Small-Cap Core Funds Average climbed 13.04%.
What was the market environment?
• | Numerous factors contributed to market volatility, including decelerating economic growth in China; concerns that emerging economies might face balance sheet risks; the negative effect of lower energy prices on the industrial sectors; fears of slowing economic growth in the US; uncertainty about the course of future Federal Reserve monetary tightening; and Brexit, the United Kingdom’s vote to leave the European Union. |
• | Risk aversion in this volatile global market environment affected how investors valued different securities. Low-volatility/high-dividend-paying stocks were significant drivers of market returns with dividend-paying and other “safety” stocks outperforming, and stocks of higher-growth companies generally underperforming. |
What worked?
In consumer discretionary:
• | Vail Resorts reported steady earnings growth in the period and its shares were also up on the announcement that it would buy Canadian resort owner Whistler Blackcomb. Jennison believes this acquisition will be accretive, thus adding to earnings, and this remains one of the Fund’s largest positions. Jennison likes Vail Resorts’ ability to drive growth through its season pass program and new marketing initiatives, both of which benefit from the company’s acquisition of additional properties for its system. This should generate strong free cash flow, which Vail can use for further acquisitions, reinvestment into existing properties, and potentially pay a reasonable and growing dividend. |
• | Ulta Salon, Cosmetics & Fragrance is proving to be a category killer and continues to post impressive results. Jennison believes that the company is at a marketing and brand awareness inflection point. The company should continue to capitalize on its differentiated business model, which is stable and growing, while providing a unique in-store experience offered nowhere else by providing prestige, product selection, hair, and salon services all in one space. |
• | Shares of Burlington Stores rose, as investors seemed to increasingly appreciate what Jennison views as a positive growth story. In Jennison’s view, the company will benefit from upgrading its product assortment, improving store experience, and working to bridge the productivity and profit margin gap relative to its larger peers. |
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In information technology:
• | Shares of SolarWinds surged on a takeover by two private equity firms. The Fund eliminated the position, as Jennison believes the price offered did not offer additional upside. |
• | Vantiv, a credit card processing company, benefitted from better than expected results in most metrics. Jennison continues to believe that both the e-commerce and merchant bank channels have long runways for growth and that Vantiv’s scale and efficient technology platform should support superior profitability. |
What didn’t work?
In consumer discretionary:
• | Jennison believed that Restoration Hardware would gain market share via new store openings; it would be productive, and demand would be strong for the chain’s new Modern collections. The position was eliminated when this did not play out as expected. Sales suffered from ineffective promotions and from issues with its supply chain, along with lower than expected tourist spending from international customers. |
• | Shares of clothing retailer G-III were down on the announcement that it was acquiring Donna Karan. While Jennison thinks this is a good opportunity long term, it is evaluating the near-term effect this could have on earnings. |
Other notable detractors were diversified across sectors:
• | Concerns that 2016 would be a transitional year away from its subscription-based pricing option, which is a good source of recurring revenue, weighed on shares of Qlik Technologies. Jennison’s view was that its broad product strategy would benefit from a strong BI (business intelligence) trend and that its newer product, Qlik Sense, will continue to gain traction. The company was acquired by a private equity firm and the deal closed in August 2016. |
• | Envision Healthcare provides outsourced physician services. Its earnings were slightly above consensus, but free cash flow and same-contract performance were key negatives. More recently, it announced that it was merging with ambulatory surgical provider AmSurg. Jennison believes there is the potential for consolidation for the combined entity and finds the shares attractively valued at current levels. |
• | Korn/Ferry, a talent solutions provider, was hurt by concerns that the labor market and economy are slowing. Jennison believes the valuation reflects a soft economic scenario and that the potential for profit margin improvement exists, especially as it integrates Hay Group, the human-resources consultant acquired in September 2015. |
Prudential Jennison Small Company Fund, Inc. | 9 |
Strategy and Performance Overview (continued)
The percentage figures shown in the tables identify each security’s positive or negative contribution to the Fund’s return, which is the sum of all contributions by individual holdings.
Top Contributors (%) | Top Detractors (%) | |||||
Vail Resorts, Inc. | 1.17 | Restoration Hardware, Inc. | –0.65 | |||
SolarWinds, Inc. | 0.96 | G-III Apparel Group Ltd. | –0.52 | |||
Ulta Salon, Cosmetics & Fragrance, Inc. | 0.80 | Qlik Technologies, Inc. | –0.49 | |||
Vantiv, Inc. | 0.77 | Envision Healthcare Holdings, Inc. | –0.47 | |||
Burlington Stores, Inc. | 0.76 | Korn/Ferry International | –0.42 |
Current Outlook
• | Overall global uncertainty and unclear implications of the Brexit referendum should keep market volatility high for the remainder of 2016. |
• | Short-term market volatility in response to macroeconomic news is becoming common and is amplified as currency-exchange and interest rates become part of the mix. |
• | Understanding and assessing the longer-term implications of these events, and investing rationally for the long term in light of their full effect, is challenging, especially when many investors are focused on generating returns over very short timeframes. Jennison believes that its research-intensive approach, focused on growth and valuation, will best serve investors over the long term. |
• | Valuations are still in a range consistent with long-term averages and despite this uncertain economic environment, Jennison estimates earnings growth for the companies in this portfolio to be well above estimates for the Index’s holdings. |
• | Jennison’s investment philosophy continues to center around identifying strong business franchises that possess favorable long-term growth prospects and trade at reasonable valuations. Jennison sees numerous trends driving above-average growth across a broad range of companies in virtually every major industry. |
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Fees and Expenses (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemptions, as applicable, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses, as applicable. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested on April 1, 2016, at the beginning of the period, and held through the six-month period ended September 30, 2016. The example is for illustrative purposes only; you should consult the Prospectus for information on initial and subsequent minimum investment requirements.
Actual Expenses
The first line for each share class in the table on the following page provides information about actual account values and actual expenses. You may use the information on this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
The Fund’s transfer agent may charge additional fees to holders of certain accounts that are not included in the expenses shown in the table on the following page. These fees apply to individual retirement accounts (IRAs) and Section 403(b) accounts. As of the close of the six-month period covered by the table, IRA fees included an annual maintenance fee of $15 per account (subject to a maximum annual maintenance fee of $25 for all accounts held by the same shareholder). Section 403(b) accounts are charged an annual $25 fiduciary maintenance fee. Some of the fees may vary in amount, or may be waived, based on your total account balance or the number of Prudential Investments funds, including the Fund, that you own. You should consider the additional fees that were charged to your
Prudential Jennison Small Company Fund, Inc. | 11 |
Fees and Expenses (continued)
Fund account over the six-month period when you estimate the total ongoing expenses paid over the period and the impact of these fees on your ending account value, as these additional expenses are not reflected in the information provided in the expense table. Additional fees have the effect of reducing investment returns.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Prudential Jennison Small Company Fund, Inc. | Beginning Account Value | Ending Account Value September 30, 2016 | Annualized Expense Ratio | Expenses Paid During the Six-Month Period* | ||||||||||||||
Class A | Actual | $ | 1,000.00 | $ | 1,068.90 | 1.12 | % | $ | 5.79 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,019.40 | 1.12 | % | $ | 5.65 | ||||||||||
Class B | Actual | $ | 1,000.00 | $ | 1,064.60 | 1.82 | % | $ | 9.39 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,015.90 | 1.82 | % | $ | 9.17 | ||||||||||
Class C | Actual | $ | 1,000.00 | $ | 1,064.60 | 1.82 | % | $ | 9.39 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,015.90 | 1.82 | % | $ | 9.17 | ||||||||||
Class Q | Actual | $ | 1,000.00 | $ | 1,070.40 | 0.69 | % | $ | 3.57 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,021.55 | 0.69 | % | $ | 3.49 | ||||||||||
Class R | Actual | $ | 1,000.00 | $ | 1,067.50 | 1.32 | % | $ | 6.82 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,018.40 | 1.32 | % | $ | 6.66 | ||||||||||
Class Z | Actual | $ | 1,000.00 | $ | 1,070.80 | 0.82 | % | $ | 4.25 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,020.90 | 0.82 | % | $ | 4.14 |
*Fund expenses (net of fee waivers or subsidies, if any) for each share class are equal to the annualized expense ratio for each share class (provided in the table), multiplied by the average account value over the period, multiplied by the 183 days in the six-month period ended September 30, 2016, and divided by 366 days in the Fund’s fiscal year ended September 30, 2016 (to reflect the six-month period). Expenses presented in the table include the expenses of any underlying portfolios in which the Fund may invest.
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The Fund’s annual expense ratios for the 12-month period ended September 30, 2016, are as follows:
Class | Gross Operating Expenses (%) | Net Operating Expenses (%) | ||
A | 1.14 | 1.14 | ||
B | 1.84 | 1.84 | ||
C | 1.84 | 1.84 | ||
Q | 0.69 | 0.69 | ||
R | 1.59 | 1.34 | ||
Z | 0.84 | 0.84 |
Net operating expenses shown above reflect any fee waivers and/or expense reimbursements. Additional information on Fund expenses and any fee waivers and/or expense reimbursements can be found in the “Financial Highlights” tables in this report and in the Notes to the Financial Statements in this report.
Prudential Jennison Small Company Fund, Inc. | 13 |
Portfolio of Investments
as of September 30, 2016
Description | Shares | Value (Note 1) | ||||||
LONG-TERM INVESTMENTS 96.1% | ||||||||
COMMON STOCKS | ||||||||
Aerospace & Defense 1.2% | ||||||||
B/E Aerospace, Inc. | 111,393 | $ | 5,754,563 | |||||
Curtiss-Wright Corp. | 355,067 | 32,350,154 | ||||||
|
| |||||||
38,104,717 | ||||||||
Airlines 0.7% | ||||||||
Spirit Airlines, Inc.* | 565,168 | 24,036,595 | ||||||
Auto Components 0.4% | ||||||||
Dorman Products, Inc.*(a) | 199,314 | 12,736,165 | ||||||
Banks 11.0% | ||||||||
Bank of the Ozarks, Inc.(a) | 1,154,690 | 44,340,096 | ||||||
BankUnited, Inc. | 1,198,974 | 36,209,015 | ||||||
Columbia Banking System, Inc. | 1,312,197 | 42,935,086 | ||||||
East West Bancorp, Inc. | 1,333,899 | 48,967,432 | ||||||
First Republic Bank(a) | 434,233 | 33,483,707 | ||||||
Investors Bancorp, Inc.(a) | 1,638,210 | 19,674,902 | ||||||
Pinnacle Financial Partners, Inc. | 817,261 | 44,197,475 | ||||||
Signature Bank* | 418,934 | 49,622,732 | ||||||
Wintrust Financial Corp. | 811,044 | 45,069,715 | ||||||
|
| |||||||
364,500,160 | ||||||||
Biotechnology 1.6% | ||||||||
Amicus Therapeutics, Inc.*(a) | 1,664,689 | 12,318,699 | ||||||
Otonomy, Inc.*(a) | 1,236,094 | 22,484,550 | ||||||
Radius Health, Inc.*(a) | 346,740 | 18,755,166 | ||||||
|
| |||||||
53,558,415 | ||||||||
Building Products 2.0% | ||||||||
Owens Corning | 915,272 | 48,866,372 | ||||||
PGT, Inc.* | 1,534,423 | 16,372,293 | ||||||
|
| |||||||
65,238,665 | ||||||||
Capital Markets 0.7% | ||||||||
MarketAxess Holdings, Inc. | 66,912 | 11,079,958 | ||||||
Moelis & Co. (Class A Stock)(a) | 381,771 | 10,265,822 | ||||||
|
| |||||||
21,345,780 | ||||||||
Chemicals 2.3% | ||||||||
Axalta Coating Systems Ltd.* | 413,773 | 11,697,362 |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 15 |
Portfolio of Investments (continued)
as of September 30, 2016
Description | Shares | Value (Note 1) | ||||||
COMMON STOCKS (Continued) | ||||||||
Chemicals (cont’d.) | ||||||||
Ferro Corp.* | 2,065,775 | $ | 28,528,353 | |||||
PolyOne Corp. | 1,104,917 | 37,357,244 | ||||||
|
| |||||||
77,582,959 | ||||||||
Commercial Services & Supplies 2.2% | ||||||||
Mobile Mini, Inc.(a) | 1,278,744 | 38,618,069 | ||||||
West Corp. | 1,571,154 | 34,691,080 | ||||||
|
| |||||||
73,309,149 | ||||||||
Communications Equipment 0.8% | ||||||||
CommScope Holding Co., Inc.* | 856,826 | 25,799,031 | ||||||
Construction & Engineering 0.3% | ||||||||
Great Lakes Dredge & Dock Corp.* | 3,097,313 | 10,840,596 | ||||||
Construction Materials 1.2% | ||||||||
Summit Materials, Inc. (Class A Stock)* | 2,155,411 | 39,982,874 | ||||||
Containers & Packaging 1.1% | ||||||||
Bemis Co., Inc. | 407,730 | 20,798,308 | ||||||
Multi Packaging Solutions International Ltd.* | 1,127,525 | 16,247,635 | ||||||
|
| |||||||
37,045,943 | ||||||||
Distributors 0.1% | ||||||||
Core-Mark Holding Co., Inc.(a) | 113,080 | 4,048,264 | ||||||
Diversified Telecommunication Services 2.2% | ||||||||
Cogent Communications Holdings, Inc. | 1,003,232 | 36,928,970 | ||||||
Frontier Communications Corp.(a) | 8,475,043 | 35,256,179 | ||||||
|
| |||||||
72,185,149 | ||||||||
Electric Utilities 1.8% | ||||||||
Alliant Energy Corp. | 164,420 | 6,298,930 | ||||||
El Paso Electric Co. | 490,415 | 22,936,710 | ||||||
Portland General Electric Co. | 683,422 | 29,106,943 | ||||||
|
| |||||||
58,342,583 | ||||||||
Electronic Equipment, Instruments & Components 2.1% | ||||||||
Anixter International, Inc.* | 293,848 | 18,953,196 | ||||||
CDW Corp. | 992,780 | 45,399,829 | ||||||
Littelfuse, Inc. | 45,395 | 5,847,330 | ||||||
|
| |||||||
70,200,355 |
See Notes to Financial Statements.
16 |
Description | Shares | Value (Note 1) | ||||||
COMMON STOCKS (Continued) | ||||||||
Equity Real Estate Investment Trusts (REITs) 7.0% | ||||||||
Chatham Lodging Trust | 1,502,173 | $ | 28,916,830 | |||||
Forest City Realty Trust, Inc. (Class A Stock) | 2,134,732 | 49,376,351 | ||||||
Gaming and Leisure Properties, Inc. | 711,639 | 23,804,325 | ||||||
Hersha Hospitality Trust(a) | 2,064,355 | 37,199,677 | ||||||
National Storage Affiliates Trust | 1,512,195 | 31,665,363 | ||||||
Pebblebrook Hotel Trust(a) | 660,189 | 17,561,027 | ||||||
QTS Realty Trust, Inc. (Class A Stock) | 365,817 | 19,333,429 | ||||||
Summit Hotel Properties, Inc. | 1,910,182 | 25,137,995 | ||||||
|
| |||||||
232,994,997 | ||||||||
Food & Staples Retailing 2.9% | ||||||||
Performance Food Group Co.* | 1,720,385 | 42,665,548 | ||||||
Sprouts Farmers Market, Inc.*(a) | 2,590,999 | 53,504,129 | ||||||
|
| |||||||
96,169,677 | ||||||||
Food Products 2.3% | ||||||||
Adecoagro SA (Argentina)* | 3,375,537 | 38,514,877 | ||||||
Darling Ingredients, Inc.* | 1,537,243 | 20,768,153 | ||||||
Hain Celestial Group, Inc. (The)* | 256,630 | 9,130,895 | ||||||
SunOpta, Inc. (Canada)*(a) | 832,150 | 5,874,979 | ||||||
|
| |||||||
74,288,904 | ||||||||
Health Care Equipment & Supplies 1.1% | ||||||||
Nevro Corp.*(a) | 288,995 | 30,168,188 | ||||||
Zeltiq Aesthetics, Inc.* | 166,487 | 6,529,620 | ||||||
|
| |||||||
36,697,808 | ||||||||
Health Care Providers & Services 5.5% | ||||||||
Acadia Healthcare Co., Inc.*(a) | 329,849 | 16,344,018 | ||||||
Air Methods Corp.*(a) | 937,158 | 29,511,105 | ||||||
Amsurg Corp.*(a) | 425,320 | 28,517,706 | ||||||
Envision Healthcare Holdings, Inc.* | 1,351,851 | 30,105,722 | ||||||
LifePoint Health, Inc.* | 579,371 | 34,316,144 | ||||||
Molina Healthcare, Inc.*(a) | 412,687 | 24,067,906 | ||||||
Surgery Partners, Inc.*(a) | 539,345 | 10,916,343 | ||||||
Team Health Holdings, Inc.* | 207,710 | 6,763,038 | ||||||
|
| |||||||
180,541,982 | ||||||||
Hotels, Restaurants & Leisure 4.8% | ||||||||
Bloomin’ Brands, Inc.(a) | 956,272 | 16,486,129 | ||||||
ClubCorp Holdings, Inc. | 750,676 | 10,862,282 | ||||||
Pinnacle Entertainment, Inc.* | 1,283,556 | 15,839,081 |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 17 |
Portfolio of Investments (continued)
as of September 30, 2016
Description | Shares | Value (Note 1) | ||||||
COMMON STOCKS (Continued) | ||||||||
Hotels, Restaurants & Leisure (cont’d.) | ||||||||
Texas Roadhouse, Inc. | 364,263 | $ | 14,217,185 | |||||
Vail Resorts, Inc. | 525,172 | 82,388,984 | ||||||
Zoe’s Kitchen, Inc.*(a) | 900,238 | 19,976,281 | ||||||
|
| |||||||
159,769,942 | ||||||||
Household Durables 0.5% | ||||||||
Toll Brothers, Inc.* | 518,816 | 15,491,846 | ||||||
Independent Power & Renewable Electricity Producers 0.5% | ||||||||
NRG Yield, Inc. (Class A Stock) | 506,335 | 8,263,387 | ||||||
NRG Yield, Inc. (Class C Stock)(a) | 553,774 | 9,392,007 | ||||||
|
| |||||||
17,655,394 | ||||||||
Insurance 3.7% | ||||||||
Validus Holdings Ltd. | 695,867 | 34,668,094 | ||||||
W.R. Berkley Corp. | 687,372 | 39,702,607 | ||||||
White Mountains Insurance Group Ltd. | 59,337 | 49,249,710 | ||||||
|
| |||||||
123,620,411 | ||||||||
Internet & Direct Marketing Retail 0.8% | ||||||||
Wayfair, Inc. (Class A Stock)*(a) | 706,673 | 27,821,716 | ||||||
Internet Software & Services 2.0% | ||||||||
Cornerstone OnDemand, Inc.* | 639,882 | 29,402,578 | ||||||
Criteo SA (France), ADR*(a) | 484,246 | 17,001,877 | ||||||
Q2 Holdings, Inc.* | 731,272 | 20,958,255 | ||||||
|
| |||||||
67,362,710 | ||||||||
IT Services 4.1% | ||||||||
Global Payments, Inc. | 658,098 | 50,515,603 | ||||||
Vantiv, Inc. (Class A Stock)* | 1,492,808 | 84,000,306 | ||||||
|
| |||||||
134,515,909 | ||||||||
Life Sciences Tools & Services 1.5% | ||||||||
INC Research Holdings, Inc. (Class A Stock)* | 589,920 | 26,298,634 | ||||||
VWR Corp.* | 812,234 | 23,034,956 | ||||||
|
| |||||||
49,333,590 | ||||||||
Machinery 2.2% | ||||||||
NN, Inc.(a) | 1,534,672 | 28,007,764 | ||||||
Rexnord Corp.*(a) | 2,118,523 | 45,357,577 | ||||||
|
| |||||||
73,365,341 |
See Notes to Financial Statements.
18 |
Description | Shares | Value (Note 1) | ||||||
COMMON STOCKS (Continued) | ||||||||
Media 1.5% | ||||||||
Cinemark Holdings, Inc. | 892,669 | $ | 34,171,369 | |||||
IMAX Corp.*(a) | 495,080 | 14,342,468 | ||||||
|
| |||||||
48,513,837 | ||||||||
Metals & Mining 0.6% | ||||||||
Tahoe Resources, Inc. | 1,413,919 | 18,140,581 | ||||||
Mortgage Real Estate Investment Trusts (REITs) 3.6% | ||||||||
Chimera Investment Corp. | 1,062,046 | 16,939,634 | ||||||
Colony Capital, Inc. (Class A Stock)(a) | 2,110,409 | 38,472,756 | ||||||
MFA Financial, Inc. | 3,949,484 | 29,542,140 | ||||||
Starwood Property Trust, Inc.(a) | 1,513,835 | 34,091,564 | ||||||
|
| |||||||
119,046,094 | ||||||||
Oil, Gas & Consumable Fuels 4.1% | ||||||||
Cheniere Energy Partners LP Holdings LLC | 1,495,101 | 33,998,597 | ||||||
PDC Energy, Inc.*(a) | 299,629 | 20,093,121 | ||||||
SemGroup Corp. (Class A Stock) | 921,303 | 32,577,274 | ||||||
Tallgrass Energy GP LP(a) | 1,508,902 | 36,289,093 | ||||||
WPX Energy, Inc.*(a) | 999,765 | 13,186,900 | ||||||
|
| |||||||
136,144,985 | ||||||||
Pharmaceuticals 2.6% | ||||||||
Aerie Pharmaceuticals, Inc.*(a) | 853,962 | 32,228,526 | ||||||
Aratana Therapeutics, Inc.*(a) | 1,178,964 | 11,035,103 | ||||||
Dermira, Inc.* | 673,118 | 22,764,850 | ||||||
Intersect ENT, Inc.*(a) | 1,219,414 | 19,315,518 | ||||||
|
| |||||||
85,343,997 | ||||||||
Professional Services 0.7% | ||||||||
Korn/Ferry International | 1,094,291 | 22,980,111 | ||||||
Road & Rail 0.3% | ||||||||
Genesee & Wyoming, Inc. (Class A Stock)* | 146,591 | 10,107,449 | ||||||
Semiconductors & Semiconductor Equipment 2.3% | ||||||||
Cavium, Inc.*(a) | 402,410 | 23,420,262 | ||||||
M/A-COM Technology Solutions Holdings, Inc.*(a) | 1,180,551 | 49,984,530 | ||||||
MaxLinear, Inc. (Class A Stock)* | 57,990 | 1,175,457 | ||||||
|
| |||||||
74,580,249 |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 19 |
Portfolio of Investments (continued)
as of September 30, 2016
Description | Shares | Value (Note 1) | ||||||
COMMON STOCKS (Continued) | ||||||||
Software 3.0% | ||||||||
CyberArk Software Ltd. (Israel)*(a) | 187,581 | $ | 9,298,390 | |||||
Fortinet, Inc.* | 333,649 | 12,321,658 | ||||||
Paycom Software, Inc.*(a) | 832,364 | 41,726,407 | ||||||
PTC, Inc.* | 250,649 | 11,106,257 | ||||||
Varonis Systems, Inc.*(a) | 840,112 | 25,287,371 | ||||||
|
| |||||||
99,740,083 | ||||||||
Specialty Retail 4.7% | ||||||||
Burlington Stores, Inc.* | 725,386 | 58,770,774 | ||||||
DavidsTea, Inc. (Canada)*(a) | 722,780 | 8,904,650 | ||||||
Five Below, Inc.*(a) | 371,752 | 14,977,888 | ||||||
Foot Locker, Inc. | 114,239 | 7,736,265 | ||||||
Party City Holdco, Inc.*(a) | 232,768 | 3,984,988 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.* | 254,593 | 60,588,042 | ||||||
|
| |||||||
154,962,607 | ||||||||
Textiles, Apparel & Luxury Goods 0.8% | ||||||||
G-III Apparel Group Ltd.*(a) | 438,949 | 12,795,363 | ||||||
Kate Spade & Co.* | 857,598 | 14,690,654 | ||||||
|
| |||||||
27,486,017 | ||||||||
Trading Companies & Distributors 1.3% | ||||||||
Univar, Inc.* | 1,972,195 | 43,092,461 | ||||||
TOTAL LONG-TERM INVESTMENTS | 3,178,626,098 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS 22.8% | ||||||||
AFFILIATED MUTUAL FUNDS | ||||||||
Prudential Investment Portfolios 2 - Prudential Core Ultra Short Bond Fund (cost $151,451,880)(Note 3)(b) | 151,451,880 | 151,451,880 | ||||||
Prudential Investment Portfolios 2 - Prudential Institutional Money Market Fund (cost $603,410,204)(Note 3)(b)(c) | 603,410,204 | 603,410,204 | ||||||
|
| |||||||
TOTAL SHORT-TERM INVESTMENTS | 754,862,084 | |||||||
|
| |||||||
TOTAL INVESTMENTS 118.9% | 3,933,488,182 | |||||||
Liabilities in excess of other assets (18.9)% | (625,076,369 | ) | ||||||
|
| |||||||
NET ASSETS 100.0% | $ | 3,308,411,813 | ||||||
|
|
See Notes to Financial Statements.
20 |
The following abbreviations are used in the annual report:
ADR—American Depositary Receipt
REIT—Real Estate Investment Trust
* | Non-income producing security. |
(a) | All or a portion of security is on loan. The aggregate market value of such securities, including those sold and pending settlement, is $582,458,833; cash collateral of $603,152,909 (included in liabilities) was received with which the Fund purchased highly liquid short-term investments. Securities on loan are subject to contractual netting arrangements. |
(b) | Prudential Investments LLC, the manager of the Fund, also serves as manager of the Prudential Investment Portfolios 2 - Prudential Core Ultra Short Bond Fund and the Prudential Investment Portfolios 2 - Prudential Institutional Money Market Fund. |
(c) | Represents security purchased with cash collateral received for securities on loan and includes dividend reinvestment. |
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices generally in active markets for identical securities.
Level 2—quoted prices for similar securities, interest rates and yield curves, prepayment speeds, foreign currency exchange rates and other observable inputs.
Level 3—unobservable inputs for securities valued in accordance with Board approved fair valuation procedures.
The following is a summary of the inputs used as of September 30, 2016 in valuing such portfolio securities:
Level 1 | Level 2 | Level 3 | ||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Aerospace & Defense | $ | 38,104,717 | $ | — | $ | — | ||||||
Airlines | 24,036,595 | — | — | |||||||||
Auto Components | 12,736,165 | — | — | |||||||||
Banks | 364,500,160 | — | — | |||||||||
Biotechnology | 53,558,415 | — | — | |||||||||
Building Products | 65,238,665 | — | — | |||||||||
Capital Markets | 21,345,780 | — | — | |||||||||
Chemicals | 77,582,959 | — | — | |||||||||
Commercial Services & Supplies | 73,309,149 | — | — | |||||||||
Communications Equipment | 25,799,031 | — | — | |||||||||
Construction & Engineering | 10,840,596 | — | — | |||||||||
Construction Materials | 39,982,874 | — | — | |||||||||
Containers & Packaging | 37,045,943 | — | — | |||||||||
Distributors | 4,048,264 | — | — | |||||||||
Diversified Telecommunication Services | 72,185,149 | — | — | |||||||||
Electric Utilities | 58,342,583 | — | — |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 21 |
Portfolio of Investments (continued)
as of September 30, 2016
Level 1 | Level 2 | Level 3 | ||||||||||
Common Stocks (continued) | ||||||||||||
Electronic Equipment, Instruments & Components | $ | 70,200,355 | $ | — | $ | — | ||||||
Equity Real Estate Investment Trusts (REITs) | 232,994,997 | — | — | |||||||||
Food & Staples Retailing | 96,169,677 | — | — | |||||||||
Food Products | 74,288,904 | — | — | |||||||||
Health Care Equipment & Supplies | 36,697,808 | — | — | |||||||||
Health Care Providers & Services | 180,541,982 | — | — | |||||||||
Hotels, Restaurants & Leisure | 159,769,942 | — | — | |||||||||
Household Durables | 15,491,846 | — | — | |||||||||
Independent Power & Renewable Electricity Producers | 17,655,394 | — | — | |||||||||
Insurance | 123,620,411 | — | — | |||||||||
Internet & Direct Marketing Retail | 27,821,716 | — | — | |||||||||
Internet Software & Services | 67,362,710 | — | — | |||||||||
IT Services | 134,515,909 | — | — | |||||||||
Life Sciences Tools & Services | 49,333,590 | — | — | |||||||||
Machinery | 73,365,341 | — | — | |||||||||
Media | 48,513,837 | — | — | |||||||||
Metals & Mining | 18,140,581 | — | — | |||||||||
Mortgage Real Estate Investment Trusts (REITs) | 119,046,094 | — | — | |||||||||
Oil, Gas & Consumable Fuels | 136,144,985 | — | — | |||||||||
Pharmaceuticals | 85,343,997 | — | — | |||||||||
Professional Services | 22,980,111 | — | — | |||||||||
Road & Rail | 10,107,449 | — | — | |||||||||
Semiconductors & Semiconductor Equipment | 74,580,249 | — | — | |||||||||
Software | 99,740,083 | — | — | |||||||||
Specialty Retail | 154,962,607 | — | — | |||||||||
Textiles, Apparel & Luxury Goods | 27,486,017 | — | — | |||||||||
Trading Companies & Distributors | 43,092,461 | — | — | |||||||||
Affiliated Mutual Funds | 754,862,084 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 3,933,488,182 | $ | — | $ | — | ||||||
|
|
|
|
|
|
The industry classification of investments and liabilities in excess of other assets shown as a percentage of net assets as of September 30, 2016 were as follows (unaudited):
Affiliated Mutual Funds (including 18.2% of collateral for securities on loan) | 22.8 | % | ||
Banks | 11.0 | |||
Equity Real Estate Investment Trusts (REITs) | 7.0 | |||
Health Care Providers & Services | 5.5 | |||
Hotels, Restaurants & Leisure | 4.8 | |||
Specialty Retail | 4.7 | |||
Oil, Gas & Consumable Fuels | 4.1 | |||
IT Services | 4.1 | |||
Insurance | 3.7 | |||
Mortgage Real Estate Investment Trusts (REITs) | 3.6 | |||
Software | 3.0 | % | ||
Food & Staples Retailing | 2.9 | |||
Pharmaceuticals | 2.6 | |||
Chemicals | 2.3 | |||
Semiconductors & Semiconductor Equipment | 2.3 | |||
Food Products | 2.3 | |||
Machinery | 2.2 | |||
Commercial Services & Supplies | 2.2 | |||
Diversified Telecommunication Services | 2.2 | |||
Electronic Equipment, Instruments & Components | 2.1 | |||
Internet Software & Services | 2.0 |
See Notes to Financial Statements.
22 |
Industry (cont’d.) | ||||
Building Products | 2.0 | % | ||
Electric Utilities | 1.8 | |||
Biotechnology | 1.6 | |||
Life Sciences Tools & Services | 1.5 | |||
Media | 1.5 | |||
Trading Companies & Distributors | 1.3 | |||
Construction Materials | 1.2 | |||
Aerospace & Defense | 1.2 | |||
Containers & Packaging | 1.1 | |||
Health Care Equipment & Supplies | 1.1 | |||
Internet & Direct Marketing Retail | 0.8 | |||
Textiles, Apparel & Luxury Goods | 0.8 | |||
Communications Equipment | 0.8 | |||
Airlines | 0.7 | |||
Professional Services | 0.7 | % | ||
Capital Markets | 0.7 | |||
Metals & Mining | 0.6 | |||
Independent Power & Renewable Electricity Producers | 0.5 | |||
Household Durables | 0.5 | |||
Auto Components | 0.4 | |||
Construction & Engineering | 0.3 | |||
Road & Rail | 0.3 | |||
Distributors | 0.1 | |||
|
| |||
118.9 | ||||
Liabilities in excess of other assets | (18.9 | ) | ||
|
| |||
100.0 | % | |||
|
|
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 23 |
Statement of Assets & Liabilities
as of September 30, 2016
Assets | ||||
Investments at value, including securities on loan of $582,458,833: | ||||
Unaffiliated investments (cost $2,727,115,314) | $ | 3,178,626,098 | ||
Affiliated investments (cost $754,862,084) | 754,862,084 | |||
Receivable for investments sold | 12,739,998 | |||
Dividends receivable | 5,151,115 | |||
Receivable for Fund shares sold | 3,796,940 | |||
Tax reclaim receivable | 2,828 | |||
Prepaid expenses | 36,504 | |||
|
| |||
Total Assets | 3,955,215,567 | |||
|
| |||
Liabilities | ||||
Payable to broker for collateral for securities on loan | 603,152,909 | |||
Payable for investments purchased | 21,690,804 | |||
Payable for Fund shares reacquired | 18,740,255 | |||
Management fee payable | 1,809,093 | |||
Accrued expenses and other liabilities | 925,374 | |||
Distribution fee payable | 360,492 | |||
Affiliated transfer agent fee payable | 122,968 | |||
Deferred directors’ fees | 1,859 | |||
|
| |||
Total Liabilities | 646,803,754 | |||
|
| |||
Net Assets | $ | 3,308,411,813 | ||
|
| |||
Net assets were comprised of: | ||||
Common stock, at par | $ | 1,436,146 | ||
Paid-in capital in excess of par | 2,694,126,947 | |||
|
| |||
2,695,563,093 | ||||
Undistributed net investment income | 21,047,059 | |||
Accumulated net realized gain on investment transactions | 140,290,877 | |||
Net unrealized appreciation on investments | 451,510,784 | |||
|
| |||
Net assets, September 30, 2016 | $ | 3,308,411,813 | ||
|
|
See Notes to Financial Statements.
24 |
Class A | ||||
Net asset value and redemption price per share ($791,197,178 ÷ 34,930,861 shares of common stock issued and outstanding) | $ | 22.65 | ||
Maximum sales charge (5.50% of offering price) | 1.32 | |||
|
| |||
Maximum offering price to public | $ | 23.97 | ||
|
| |||
Class B | ||||
Net asset value, offering price and redemption price per share ($9,142,569 ÷ 668,881 shares of common stock issued and outstanding) | $ | 13.67 | ||
|
| |||
Class C | ||||
Net asset value, offering price and redemption price per share ($108,219,210 ÷ 7,812,185 shares of common stock issued and outstanding) | $ | 13.85 | ||
|
| |||
Class Q | ||||
Net asset value, offering price and redemption price per share ($748,479,770 ÷ 31,352,974 shares of common stock issued and outstanding) | $ | 23.87 | ||
|
| |||
Class R | ||||
Net asset value, offering price and redemption price per share ($166,550,204 ÷ 7,521,073 shares of common stock issued and outstanding) | $ | 22.14 | ||
|
| |||
Class Z | ||||
Net asset value, offering price and redemption price per share ($1,484,822,882 ÷ 61,328,672 shares of common stock issued and outstanding) | $ | 24.21 | ||
|
|
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 25 |
Statement of Operations
Year Ended September 30, 2016
Net Investment Income (Loss) | ||||
Income | ||||
Unaffiliated dividend income (net of foreign withholding taxes of $4,242) | $ | 45,011,984 | ||
Income from securities lending, net (including affiliated of $4,154,063) | 5,059,182 | |||
Affiliated dividend income | 664,211 | |||
|
| |||
Total income | 50,735,377 | |||
|
| |||
Expenses | ||||
Management fee | 21,609,224 | |||
Distribution fee—Class A | 2,390,290 | |||
Distribution fee—Class B | 104,336 | |||
Distribution fee—Class C | 1,144,109 | |||
Distribution fee—Class R | 1,197,225 | |||
Transfer agent’s fees and expenses (including affiliated expense of $686,800) | 3,719,000 | |||
Custodian and accounting fees (net of $23,100 fee credit) | 308,000 | |||
Shareholders’ reports | 232,000 | |||
Registration fees | 141,000 | |||
Directors’ fees | 61,000 | |||
Legal fees and expenses | 50,000 | |||
Insurance expenses | 41,000 | |||
Audit fee | 33,000 | |||
Commitment fee on syndicated credit agreement | 5,000 | |||
Miscellaneous | 44,211 | |||
|
| |||
Total expenses | 31,079,395 | |||
Less: Distribution fee waiver—Class R | (399,078 | ) | ||
|
| |||
Net expenses | 30,680,317 | |||
|
| |||
Net investment income (loss) | 20,055,060 | |||
|
| |||
Realized And Unrealized Gain (Loss) On Investments | ||||
Net realized gain (loss) on investment transactions | 184,593,045 | |||
Net change in unrealized appreciation (depreciation) on investments | 108,119,237 | |||
|
| |||
Net gain (loss) on investment transactions | 292,712,282 | |||
|
| |||
Net Increase (Decrease) In Net Assets Resulting From Operations | $ | 312,767,342 | ||
|
|
See Notes to Financial Statements.
26 |
Statement of Changes in Net Assets
Year Ended September 30, | ||||||||
2016 | 2015 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net investment income (loss) | $ | 20,055,060 | $ | 15,606,489 | ||||
Net realized gain (loss) on investment transactions | 184,593,045 | 396,419,467 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 108,119,237 | (462,185,753 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets resulting from operations | 312,767,342 | (50,159,797 | ) | |||||
|
|
|
| |||||
Dividends and Distributions (Note 1) | ||||||||
Dividends from net investment income | ||||||||
Class A | (1,165,088 | ) | (2,045,046 | ) | ||||
Class Q | (3,694,094 | ) | (2,962,121 | ) | ||||
Class R | — | (16,046 | ) | |||||
Class Z | (6,454,482 | ) | (7,954,712 | ) | ||||
|
|
|
| |||||
(11,313,664 | ) | (12,977,925 | ) | |||||
|
|
|
| |||||
Distributions from net realized gains | ||||||||
Class A | (106,883,970 | ) | (135,076,974 | ) | ||||
Class B | (2,224,731 | ) | (2,939,694 | ) | ||||
Class C | (23,858,454 | ) | (26,129,337 | ) | ||||
Class Q | (78,082,655 | ) | (65,034,369 | ) | ||||
Class R | (20,732,398 | ) | (7,008,711 | ) | ||||
Class Z | (185,243,621 | ) | (227,587,816 | ) | ||||
|
|
|
| |||||
(417,025,829 | ) | (463,776,901 | ) | |||||
|
|
|
| |||||
Fund share transactions (Net of share conversions) (Note 6) | ||||||||
Net proceeds from shares sold | 779,470,707 | 1,085,493,731 | ||||||
Net asset value of shares issued in merger (Note 8) | — | 160,830,928 | ||||||
Net asset value of shares issued in reinvestment of dividends and distributions | 395,495,409 | 439,350,224 | ||||||
Cost of shares reacquired | (1,023,499,794 | ) | (986,946,254 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in net assets from Fund share transactions | 151,466,322 | 698,728,629 | ||||||
|
|
|
| |||||
Total increase (decrease) | 35,894,171 | 171,814,006 | ||||||
Net Assets: | ||||||||
Beginning of year | 3,272,517,642 | 3,100,703,636 | ||||||
|
|
|
| |||||
End of year(a) | $ | 3,308,411,813 | $ | 3,272,517,642 | ||||
|
|
|
| |||||
(a) Includes undistributed net investment income of: | $ | 21,047,059 | $ | 12,162,675 | ||||
|
|
|
|
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 27 |
Notes to Financial Statements
Prudential Jennison Small Company Fund, Inc. (the “Fund”) is a diversified open-end management investment company, registered under the Investment Company Act of 1940, as amended (“1940 Act”). The investment objective of the Fund is to achieve capital growth.
Effective June 5, 2015, the Target Small Capitalization Growth Portfolio of The Target Portfolio Trust, merged into the Fund.
Note 1. Accounting Policies
The Fund follows investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. The following accounting policies conform to U.S. generally accepted accounting principles. The Fund consistently follows such policies in the preparation of its financial statements.
Securities Valuation: The Fund holds securities and other assets that are fair valued at the close of each day (generally, 4:00 PM Eastern time) the New York Stock Exchange (“NYSE”) is open for trading. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Directors (the “Board”) has adopted Valuation Procedures for security valuation under which fair valuation responsibilities have been delegated to Prudential Investments LLC (“PI” or “Manager”). Under the current Valuation Procedures, the established Valuation Committee is responsible for supervising the valuation of portfolio securities and other assets. The Valuation Procedures permit the Fund to utilize independent pricing vendor services, quotations from market makers, and alternative valuation methods when market quotations are either not readily available or not deemed representative of fair value. A record of the Valuation Committee’s actions is subject to the Board’s review, approval, and ratification at its next regularly-scheduled quarterly meeting.
Various inputs determine how the Fund’s investments are valued, all of which are categorized according to the three broad levels (Level 1, 2, or 3) detailed in the table following the Portfolio of Investments.
Common and preferred stocks, exchange-traded funds, and derivative instruments such as futures or options that are traded on a national securities exchange are valued at the last sale price as of the close of trading on the applicable exchange where the security principally trades. Securities traded via NASDAQ are valued at the NASDAQ official closing price. To the extent these securities are valued at the last sale price or NASDAQ official closing price, they are classified as Level 1 in the fair value hierarchy.
28 |
In the event that no sale or official closing price on valuation date exists, these securities are generally valued at the mean between the last reported bid and ask prices, or at the last bid price in the absence of an ask price. These securities are classified as Level 2 in the fair value hierarchy.
Common and preferred stocks traded on foreign securities exchanges are valued using pricing vendor services that provide model prices derived using adjustment factors based on information such as local closing price, relevant general and sector indices, currency fluctuations, depositary receipts, and futures, as applicable. Securities valued using such model prices are classified as Level 2 in the fair value hierarchy. The models generate an evaluated adjustment factor for each security, which is applied to the local closing price to adjust it for post closing market movements. Utilizing that evaluated adjustment factor, the vendor provides an evaluated price for each security. If the vendor does not provide an evaluated price, securities are valued in accordance with exchange-traded common and preferred stocks discussed above.
Investments in open-end, non-exchange-traded mutual funds are valued at their net asset values as of the close of the NYSE on the date of valuation. These securities are classified as Level 1 in the fair value hierarchy since they may be purchased or sold at their net asset values on the date of valuation.
Participatory notes (P-notes) are generally valued based upon the value of a related underlying security that trades actively in the market and are classified as Level 2 in the fair value hierarchy.
Securities and other assets that cannot be priced according to the methods described above are valued based on pricing methodologies approved by the Board. In the event that unobservable inputs are used when determining such valuations, the securities will be classified as Level 3 in the fair value hierarchy.
When determining the fair value of securities, some of the factors influencing the valuation include: the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuer’s financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of the issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a security’s most recent closing price and from the price used by other mutual funds to calculate their net asset values.
Restricted and Illiquid Securities: Subject to guidelines adopted by the Board, the Fund may invest up to 15% of its net assets in illiquid securities, including those which are restricted as to disposition under securities law (“restricted securities”). Restricted securities are valued pursuant to the valuation procedures noted above. Illiquid securities
Prudential Jennison Small Company Fund, Inc. | 29 |
Notes to Financial Statements (continued)
are those that, because of the absence of a readily available market or due to legal or contractual restrictions on resale, cannot be sold within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the investment. Therefore, the Fund may find it difficult to sell illiquid securities at the time considered most advantageous by its Subadviser and may incur expenses that would not be incurred in the sale of securities that were freely marketable. Certain securities that would otherwise be considered illiquid because of legal restrictions on resale to the general public may be traded among qualified institutional buyers under Rule 144A of the Securities Act of 1933. These Rule 144A securities, as well as commercial paper that is sold in private placements under Section 4(2) of the Securities Act, may be deemed liquid by the Fund’s Subadviser under the guidelines adopted by the Trustees of the Fund. However, the liquidity of the Fund’s investments in Rule 144A securities could be impaired if trading does not develop or declines.
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities—at the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not generally isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities held at the end of the period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of long-term portfolio securities sold during the period. Accordingly, holding period realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. Notwithstanding the above, the Fund does isolate the effect of fluctuations in foreign currency exchange rates when determining the gain (loss) upon the sale or maturity of foreign currency denominated debt obligations; such amounts are included in net realized gains (losses) on foreign currency transactions.
Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains (losses) from holdings of foreign currencies, forward currency contracts, disposition of foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions, and the difference between the amounts of interest, dividends and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains (losses) from
30 |
valuing foreign currency denominated assets and liabilities (other than investments) at period end exchange rates are reflected as a component of net unrealized appreciation (depreciation) on foreign currencies.
Master Netting Arrangements: The Fund is subject to various Master Agreements, or netting arrangements, with select counterparties. These are agreements which a subadviser may have negotiated and entered into on behalf of the Fund. A master netting arrangement between the Fund and the counterparty permits the Fund to offset amounts payable by the Fund to the same counterparty against amounts to be received; and by the receipt of collateral from the counterparty by the Fund to cover the Fund’s exposure to the counterparty. However, there is no assurance that such mitigating factors are easily enforceable. In addition to master netting arrangements, the right to set-off exists when all the conditions are met such that each of the parties owes the other determinable amounts, the reporting party has the right to set-off the amount owed with the amount owed by the other party, the reporting party intends to set-off, and the right of set-off is enforceable by law. During the reporting period, there was no intention to settle on a net basis and all amounts are presented on a gross basis on the Statement of Assets and Liabilities.
Securities Lending: The Fund may lend its portfolio securities to banks and broker-dealers. The loans are secured by collateral at least equal to the market value of the securities loaned. Collateral pledged by each borrower is invested in a highly liquid short-term money market fund and is marked to market daily, based on the previous day’s market value, such that the value of the collateral exceeds the value of the loaned securities. Loans are subject to termination at the option of the borrower or the Fund. Upon termination of the loan, the borrower will return to the Fund securities identical to the loaned securities. Should the borrower of the securities fail financially, the Fund has the right to repurchase the securities in the open market using the collateral. The Fund recognizes income, net of any rebate and securities lending agent fees, for lending its securities, in the form of fees or interest on the investment of any cash received as collateral. The borrower receives all interest and dividends from the securities loaned and such payments are passed back to the lender in amounts equivalent thereto. The Fund also continues to recognize any unrealized gain (loss) in the market price of the securities loaned that may occur during the term of the loan.
REITs: The Fund invests in REITs, which report information on the source of their distributions annually. Based on current and historical information, a portion of distributions received from REITs during the period is estimated to be dividend income, capital gain or return of capital and recorded accordingly. These estimates are adjusted periodically when the actual source of distributions is disclosed by the REITs.
Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains (losses) from investment and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-date. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis. Expenses are recorded on the accrual basis, which may require the use of certain estimates by management that may differ from actual.
Prudential Jennison Small Company Fund, Inc. | 31 |
Notes to Financial Statements (continued)
Net investment income or loss (other than distribution fees, which are charged directly to the respective class and transfer agency fees specific to Class Q shares which are charged to that share class) and unrealized and realized gains (losses) are allocated daily to each class of shares based upon the relative proportion of adjusted net assets of each class at the beginning of the day.
Dividends and Distributions: The Fund expects to pay dividends from net investment income and distributions from net realized capital gains, if any, annually. Dividends and distributions to shareholders, which are determined in accordance with federal income tax regulations and which may differ from generally accepted accounting principles, are recorded on the ex-date. Permanent book/tax differences relating to income and gain (loss) are reclassified amongst undistributed net investment income, accumulated net realized gain (loss) and paid-in capital in excess of par, as appropriate.
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 investment income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends are recorded net of reclaimable amounts, at the time the related income is earned.
Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Note 2. Agreements
The Fund has a management agreement with PI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadviser’s performance of such services. PI has entered into a subadvisory agreement with Jennison Associates LLC (“Jennison”). The subadvisory agreement provides that Jennison furnishes investment advisory services in connection with the management of the Fund. In connection therewith, Jennison is obligated to keep certain books and records of the Fund. PI pays for the services of Jennison, the cost of compensation of officers, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid to PI is accrued daily and payable monthly, at an annual rate of .70% of the average daily net assets of the Fund up to $1 billion and .65% of the average daily net assets of the Fund in excess of $1 billion. The effective management fee rate was .67% of the average daily net assets of the Fund for the year ended September 30, 2016.
32 |
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, Class Q, Class R and Class Z shares of the Fund. The Fund compensates PIMS for distributing and servicing the Fund’s Class A, Class B, Class C and Class R shares, pursuant to plans of distribution (the “Distribution Plans”), regardless of expenses actually incurred by PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor of the Class Q and Class Z shares of the Fund.
Pursuant to the Distribution Plans, the Fund compensates PIMS for distribution-related activities at an annual rate of up to .30%, 1%, 1% and .75% of the average daily net assets of the Class A, B, C and R shares, respectively. PIMS has contractually agreed through January 31, 2018 to limit such fees to .50% of the average daily net assets of Class R shares.
PIMS has advised the Fund that it received $428,689 in front-end sales charges resulting from sales of Class A shares, during the year ended September 30, 2016. 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, 2016, it received $2,060, $7,007 and $8,497 in contingent deferred sales charges imposed upon redemptions by certain Class A, Class B and Class C shareholders, respectively.
PI, PIMS and Jennison are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (“Prudential”).
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC (“PMFS”), an affiliate of PI and an indirect, wholly-owned subsidiary of Prudential, serves as the Fund’s transfer agent. Transfer agent’s fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates, where applicable.
Effective July 7, 2016, the Board replaced PGIM, Inc., an indirect, wholly-owned subsidiary of Prudential, as securities lending agent with a third party agent. Prior to July 7, 2016, PGIM, Inc. was the Fund’s securities lending agent. Net earnings from securities lending are disclosed on the Statement of Operations as “Income from securities lending, net”. For the period October 1, 2015 through February 4, 2016, PGIM, Inc. had been compensated $339,306 for these services. At the June 2016 meeting of the Board, the Board approved compensation to PGIM, Inc. related to securities lending activities. The payment was for services provided from February 5, 2016 through July 5, 2016 and totaled $316,089. Additionally, PGIM, Inc., reimbursed the Fund $55,653 related to securities lending income adjustments. Prior to January 4, 2016, PGIM, Inc. was known as Prudential Investment Management, Inc. (“PIM”).
Prudential Jennison Small Company Fund, Inc. | 33 |
Notes to Financial Statements (continued)
The Fund may enter into certain securities purchase or sale transactions under Board approved Rule 17a-7 procedures. Rule 17a-7 is an exemptive rule under the 1940 Act, that permits purchase and sale transactions among affiliated investment companies, or between an investment company and a person that is affiliated solely by reason of having a common (or affiliated) investment adviser, common directors, and/or common officers. Such transactions are subject to ratification by the Board.
The Fund invests its overnight sweep cash in the Prudential Core Ultra Short Bond Fund, (formerly known as Prudential Core Taxable Money Market Fund), (the “Core Fund”), and its securities lending cash collateral in the Prudential Institutional Money Market Fund, (the “Money Market Fund”), each a portfolio of Prudential Investment Portfolios 2, registered under the 1940 Act and managed by PI. Earnings from the Core Fund and the Money Market Fund are disclosed on the Statement of Operations as “Affiliated dividend income” and “Income from securities lending, net”, respectively.
Note 4. Portfolio Securities
The cost of purchases and proceeds from sales of portfolio securities, other than short-term investments, for the year ended September 30, 2016, were $1,168,114,445 and $1,397,655,863, respectively.
Note 5. Distributions and Tax Information
Distributions to shareholders, which are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles, are recorded on the ex-dividend date. In order to present undistributed net investment income, accumulated net realized gain on investment transactions and paid-in capital in excess of par on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to undistributed net investment income and accumulated net realized gain on investment transactions. For the year ended September 30, 2016, the adjustments were to increase undistributed net investment income and decrease accumulated net realized gain on investment transactions by $142,988 primarily due to differences between financial and tax reporting purposes of a distribution reclass, non taxable distributions received and other book to tax differences. Net investment income, net realized gain on investment transactions and net assets were not affected by this change.
For the year ended September 30, 2016, the tax character of dividends paid by the Fund were $49,479,599 of ordinary income and $378,859,894 of long-term capital gains. For the year ended September 30, 2015, the tax character of dividends paid were $21,425,152 of ordinary income and $455,329,674 of long-term capital gains.
34 |
As of September 30, 2016, the accumulated undistributed earnings on a tax basis were $22,211,913 of ordinary income and $145,815,953 of long-term capital gain. This differs from the amount shown on the Statement of Assets and Liabilities primarily due to cumulative timing differences.
The United States federal income tax basis of the Fund’s investments and the net unrealized appreciation as of September 30, 2016 were as follows:
Tax Cost | Appreciation | Depreciation | Net Unrealized Appreciation | |||
$3,488,665,473 | $681,369,746 | $(236,547,037) | $444,822,709 |
The difference between book basis and tax basis was primarily due to deferred losses on wash sales and other book to tax differences.
Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years and has concluded that no provision for income tax is required in the Fund’s financial statements for the current reporting period. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Note 6. Capital
The Fund offers Class A, Class B, Class C, Class Q, Class R and Class Z shares. Class A shares are sold with a front-end sales charge of up to 5.50%. All investors who purchase Class A shares in an amount of $1 million or more and sell these shares within 12 months of purchase are subject to a contingent deferred sales charge (“CDSC”) of 1%. The Class A CDSC is waived for purchases by certain retirement or benefit plans. Class B shares are sold with a CDSC which declines from 5% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis, approximately seven years after purchase. Class B shares are closed to new purchases. A special exchange privilege is also available for shareholders who qualified to purchase Class A shares at net asset value. Class C shares are sold with a CDSC of 1% on shares redeemed within the first 12 months of purchase. Class Q, Class R and Class Z shares are not subject to any sales or redemption charge and are offered exclusively for sale to a limited group of investors.
Under certain limited circumstances, an exchange may be made from specified share classes of the Fund to one or more other share classes of the Fund as presented in the table of transactions in shares of common stock.
There are 1.25 billion shares of common stock authorized, $.01 par value per share, divided into eight classes, designated Class A, Class B, Class C, Class M, Class Q, Class R, Class X
Prudential Jennison Small Company Fund, Inc. | 35 |
Notes to Financial Statements (continued)
and Class Z shares, each of which consists of 300 million, 75 million, 100 million, 25 million, 225 million, 225 million, 25 million and 275 million authorized shares, respectively.
As of September 30, 2016, 4 shareholders of record held 32% of the Fund’s outstanding shares on behalf of multiple beneficial owners.
Transactions in shares of common stock were as follows:
Class A | Shares | Amount | ||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 6,405,718 | $ | 138,558,040 | |||||
Shares issued in reinvestment of dividends and distributions | 4,830,202 | 100,468,195 | ||||||
Shares reacquired | (10,863,814 | ) | (235,889,632 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 372,106 | 3,136,603 | ||||||
Shares issued upon conversion from other share class(es) | 138,893 | 3,057,961 | ||||||
Shares reacquired upon conversion into other share class(es) | (521,988 | ) | (11,548,355 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (10,989 | ) | $ | (5,353,791 | ) | |||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 7,633,497 | $ | 201,228,622 | |||||
Shares issued in reinvestment of dividends and distributions | 5,058,188 | 126,606,445 | ||||||
Shares reacquired | (10,958,629 | ) | (291,151,560 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 1,733,056 | 36,683,507 | ||||||
Shares issued upon conversion from other share class(es) | 122,379 | 3,256,721 | ||||||
Shares reacquired upon conversion into other share class(es) | (1,493,982 | ) | (41,358,645 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 361,453 | $ | (1,418,417 | ) | ||||
|
|
|
| |||||
Class B | ||||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 29,165 | $ | 382,077 | |||||
Shares issued in reinvestment of dividends and distributions | 163,759 | 2,068,270 | ||||||
Shares reacquired | (130,060 | ) | (1,717,813 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 62,864 | 732,534 | ||||||
Shares reacquired upon conversion into other share class(es) | (132,844 | ) | (1,773,934 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (69,980 | ) | $ | (1,041,400 | ) | |||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 41,623 | $ | 737,200 | |||||
Shares issued in reinvestment of dividends and distributions | 165,609 | 2,745,803 | ||||||
Shares reacquired | (97,573 | ) | (1,708,205 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 109,659 | 1,774,798 | ||||||
Shares reacquired upon conversion into other share class(es) | (100,484 | ) | (1,776,948 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 9,175 | $ | (2,150 | ) | ||||
|
|
|
|
36 |
Class C | Shares | Amount | ||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 1,172,041 | $ | 15,813,296 | |||||
Shares issued in reinvestment of dividends and distributions | 1,587,429 | 20,319,092 | ||||||
Shares reacquired | (2,497,366 | ) | (33,417,442 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 262,104 | 2,714,946 | ||||||
Shares reacquired upon conversion into other share class(es) | (544,672 | ) | (8,019,480 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (282,568 | ) | $ | (5,304,534 | ) | |||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 1,812,980 | $ | 32,320,991 | |||||
Shares issued in reinvestment of dividends and distributions | 1,287,629 | 21,580,662 | ||||||
Shares reacquired | (940,557 | ) | (16,758,456 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 2,160,052 | 37,143,197 | ||||||
Shares issued upon conversion from other share class(es) | 2,521 | 45,403 | ||||||
Shares reacquired upon conversion into other share class(es) | (222,855 | ) | (3,995,821 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 1,939,718 | $ | 33,192,779 | |||||
|
|
|
| |||||
Class Q | ||||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 11,424,844 | $ | 268,370,827 | |||||
Shares issued in reinvestment of dividends and distributions | 3,362,801 | 73,510,822 | ||||||
Shares reacquired | (5,517,046 | ) | (126,259,743 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 9,270,599 | 215,621,906 | ||||||
Shares issued upon conversion from other share class(es) | 93,278 | 1,975,633 | ||||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 9,363,877 | $ | 217,597,539 | |||||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 10,080,033 | $ | 278,443,976 | |||||
Shares issued in reinvestment of dividends and distributions | 2,548,426 | 66,539,389 | ||||||
Shares reacquired | (5,324,266 | ) | (146,886,541 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 7,304,193 | $ | 198,096,824 | |||||
|
|
|
| |||||
Class R | ||||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 1,778,511 | $ | 37,896,560 | |||||
Shares issued in reinvestment of dividends and distributions | 988,923 | 20,144,361 | ||||||
Shares reacquired | (1,837,547 | ) | (39,088,431 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 929,887 | 18,952,490 | ||||||
Shares issued upon conversion from other share class(es) | 2,013 | 43,699 | ||||||
Shares reacquired upon conversion into other share class(es) | (1,458 | ) | (31,498 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 930,442 | $ | 18,964,691 | |||||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 1,184,769 | $ | 30,225,084 | |||||
Shares issued in merger | 4,583,025 | 118,654,509 | ||||||
Shares issued in reinvestment of dividends and distributions | 256,492 | 6,304,577 | ||||||
Shares reacquired | (1,154,453 | ) | (29,910,313 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 4,869,833 | $ | 125,273,857 | |||||
|
|
|
|
Prudential Jennison Small Company Fund, Inc. | 37 |
Notes to Financial Statements (continued)
Class Z | Shares | Amount | ||||||
Year ended September 30, 2016: | ||||||||
Shares sold | 13,787,100 | $ | 318,449,907 | |||||
Shares issued in reinvestment of dividends and distributions | 8,073,282 | 178,984,669 | ||||||
Shares reacquired | (24,826,602 | ) | (587,126,733 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (2,966,220 | ) | (89,692,157 | ) | ||||
Shares issued upon conversion from other share class(es) | 804,011 | 19,251,306 | ||||||
Shares reacquired upon conversion into other share class(es) | (133,822 | ) | (2,955,332 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (2,296,031 | ) | $ | (73,396,183 | ) | |||
|
|
|
| |||||
Year ended September 30, 2015: | ||||||||
Shares sold | 19,166,448 | $ | 542,537,858 | |||||
Shares issued in merger | 1,508,998 | 42,176,419 | ||||||
Shares issued in reinvestment of dividends and distributions | 8,140,987 | 215,573,348 | ||||||
Shares reacquired | (17,925,440 | ) | (500,531,179 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 10,890,993 | 299,756,446 | ||||||
Shares issued upon conversion from other shares class(es) | 1,521,476 | 44,334,474 | ||||||
Shares reacquired upon conversion into other share class(es) | (18,117 | ) | (505,184 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 12,394,352 | $ | 343,585,736 | |||||
|
|
|
|
Note 7. Borrowings
The Fund, along with other affiliated registered investment companies (the “Funds”), is a party to a Syndicated Credit Agreement (“SCA”) with a group of banks. The purpose of the SCA is to provide an alternative source of temporary funding for capital share redemptions. The SCA provides for a commitment of $900 million for the period October 8, 2015 through October 6, 2016. The Funds pay an annualized commitment fee of .11% of the unused portion of the SCA. Prior to October 8, 2015, the Funds had another SCA that provided a commitment of $900 million and the Funds paid an annualized commitment fee of .075% of the unused portion of the SCA. Interest on any borrowings under the SCA is paid at contracted market rates. The Fund’s portion of the commitment fee for the unused amount is accrued daily and paid quarterly.
Subsequent to the fiscal year end, the SCA has been renewed effective October 6, 2016 and will continue to provide a commitment of $900 million through October 5, 2017. Effective October 6, 2016, the Funds pay an annualized commitment fee of .15% of the unused portion of the SCA.
The Fund did not utilize the SCA during the year ended September 30, 2016.
38 |
Note 8. Reorganization
On May 15, 2015, shareholders of the Target Small Capitalization Growth Portfolio (“the merged portfolio”) approved the reorganization of the merged portfolio into the Prudential Jennison Small Company Fund, Inc. (“the Fund”). As a result of the reorganization, the assets and liabilities of the merged portfolio were exchanged for shares of the Fund and the shareholders of the merged portfolio are now shareholders of the Fund. The reorganization took place on June 5, 2015. On such date, the merged portfolio had total investments cost and value of $114,620,555 and $161,018,960, respectively, representing the principle assets acquired by the acquiring fund.
The purpose of the transaction was to combine two Funds with substantially similar investment objectives and policies.
The acquisition was accomplished by a tax-free exchange of the following shares on June 5, 2015:
Merged Portfolio | Acquiring Fund | |||||||||||||||
Target Small Capitalization Growth Portfolio | Prudential Jennison Small Company Fund, Inc. | |||||||||||||||
Class | Shares | Class | Shares | Value | ||||||||||||
R | 6,721,112 | R | 4,583,025 | $ | 118,654,509 | |||||||||||
T | 2,287,603 | Z | 1,508,998 | 42,176,419 |
For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Portfolio was carried forward to reflect the tax-free status of the acquisition.
The net assets and net unrealized appreciation immediately before the acquisition were as follows:
Merged Portfolio | Acquiring Fund | |||||||||||||||
Target Small Capitalization Growth Portfolio | Prudential Jennison Small Company Fund, Inc. | |||||||||||||||
Class | Net Assets | Unrealized Appreciation | Class | Net Assets | ||||||||||||
R | $ | 118,654,509 | $ | 25,360,050 | R | $ | 53,243,130 | |||||||||
T | 42,176,419 | 21,038,355 | Z | 1,778,075,378 |
Prudential Jennison Small Company Fund, Inc. | 39 |
Notes to Financial Statements (continued)
Assuming the acquisition had been completed on October 1, 2014, the Fund’s results of operations for the year ended September 30, 2015 were as follows:
Net investment income | $ | 14,752,733 | (a) | |
Net realized and unrealized loss on investments | (36,961,028 | )(b) | ||
|
| |||
$ | (22,208,295 | ) | ||
|
|
(a) | $15,606,489, as reported in the Statement of Operations, plus $(853,756) Net Investment Loss from the merged portfolio pre-merger. |
(b) | $(65,766,286), as reported in the Statement of Operations, plus $28,805,258 Net Realized and Unrealized Gain (Loss) on Investments from the merged portfolio pre-merger. |
Because both the merged portfolio and the Fund sold and redeemed shares throughout the period, it is not practicable to provide pro-forma information on a per-share basis.
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is also not practicable to separate the amounts of revenue and earnings of the merged portfolio that have been included in the Fund’s Statement of Operations since June 5, 2015.
Note 9. New Accounting Pronouncement
In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01 regarding “Recognition and Measurement of Financial Assets and Financial Liabilities”. The new guidance is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information and addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The new standard affects all entities that hold financial assets or owe financial liabilities. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. At this time, management is evaluating the implications of ASU No. 2016-01 and its impact on the financial statements and disclosures has not yet been determined.
40 |
Financial Highlights
Class A Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $23.76 | $28.09 | $27.95 | $21.81 | $17.39 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | .09 | .07 | .07 | .12 | .06 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | 1.96 | (.19 | ) | 2.72 | 6.12 | 4.36 | ||||||||||||||
Total from investment operations | 2.05 | (.12 | ) | 2.79 | 6.24 | 4.42 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | (.03 | ) | (.06 | ) | (.09 | ) | (.10 | ) | - | |||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.16 | ) | (4.21 | ) | (2.65 | ) | (.10 | ) | - | |||||||||||
Net asset value, end of year | $22.65 | $23.76 | $28.09 | $27.95 | $21.81 | |||||||||||||||
Total Return(b): | 9.82% | (1.16)% | 10.55% | 28.76% | 25.42% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $791,197 | $830,116 | $971,441 | $1,109,515 | $989,346 | |||||||||||||||
Average net assets (000) | $796,776 | $944,315 | $1,059,916 | $1,034,609 | $1,014,383 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | 1.14% | 1.13% | 1.14% | 1.15% | 1.17% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | 1.14% | 1.13% | 1.14% | 1.15% | 1.17% | |||||||||||||||
Net investment income (loss) | .42% | .27% | .25% | .48% | .29% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on 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 a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 41 |
Financial Highlights (continued)
Class B Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $15.65 | $19.95 | $20.60 | $16.13 | $12.98 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (.04 | ) | (.08 | ) | (.09 | ) | (.03 | ) | (.07 | ) | ||||||||||
Net realized and unrealized gain (loss) on investment transactions | 1.19 | (.07 | ) | 2.00 | 4.52 | 3.22 | ||||||||||||||
Total from investment operations | 1.15 | (.15 | ) | 1.91 | 4.49 | 3.15 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | - | - | - | (.02 | ) | - | ||||||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.13 | ) | (4.15 | ) | (2.56 | ) | (.02 | ) | - | |||||||||||
Net asset value, end of year | $13.67 | $15.65 | $19.95 | $20.60 | $16.13 | |||||||||||||||
Total Return(b): | 8.98% | (1.90)% | 9.97% | 27.88% | 24.27% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $9,143 | $11,566 | $14,556 | $18,250 | $18,965 | |||||||||||||||
Average net assets (000) | $10,434 | $14,015 | $17,001 | $18,899 | $20,997 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | 1.84% | 1.83% | 1.84% | 1.85% | 1.87% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | 1.84% | 1.83% | 1.84% | 1.85% | 1.87% | |||||||||||||||
Net investment income (loss) | (.30)% | (.43)% | (.44)% | (.19)% | (.42)% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on 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 a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
42 |
Class C Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $15.82 | $20.12 | $20.79 | $16.29 | $13.08 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (.04 | ) | (.08 | ) | (.09 | ) | (.04 | ) | (.06 | ) | ||||||||||
Net realized and unrealized gain (loss) on investment transactions | 1.20 | (.07 | ) | 1.98 | 4.56 | 3.27 | ||||||||||||||
Total from investment operations | 1.16 | (.15 | ) | 1.89 | 4.52 | 3.21 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | - | - | - | (.02 | ) | - | ||||||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.13 | ) | (4.15 | ) | (2.56 | ) | (.02 | ) | - | |||||||||||
Net asset value, end of year | $13.85 | $15.82 | $20.12 | $20.79 | $16.29 | |||||||||||||||
Total Return(b): | 8.94% | (1.88)% | 9.77% | 27.79% | 24.54% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $108,219 | $128,022 | $123,856 | $119,436 | $92,886 | |||||||||||||||
Average net assets (000) | $114,415 | $135,406 | $124,252 | $105,977 | $94,960 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | 1.84% | 1.83% | 1.84% | 1.85% | 1.87% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | 1.84% | 1.83% | 1.84% | 1.85% | 1.87% | |||||||||||||||
Net investment income (loss) | (.30)% | (.43)% | (.45)% | (.24)% | (.41)% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on 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 a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 43 |
Financial Highlights (continued)
Class Q Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $24.87 | $29.22 | $28.95 | $22.60 | $17.97 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | .20 | .20 | .20 | .24 | .17 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | 2.08 | (.21 | ) | 2.83 | 6.31 | 4.54 | ||||||||||||||
Total from investment operations | 2.28 | (.01 | ) | 3.03 | 6.55 | 4.71 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | (.15 | ) | (.19 | ) | (.20 | ) | (.20 | ) | (.08 | ) | ||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.28 | ) | (4.34 | ) | (2.76 | ) | (.20 | ) | (.08 | ) | ||||||||||
Net asset value, end of year | $23.87 | $24.87 | $29.22 | $28.95 | $22.60 | |||||||||||||||
Total Return(b): | 10.36% | (.73)% | 11.10% | 29.27% | 26.29% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $748,480 | $546,771 | $429,165 | $293,225 | $240,377 | |||||||||||||||
Average net assets (000) | $667,511 | $531,193 | $427,179 | $259,446 | $189,399 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | .69% | .69% | .69% | .70% | .70% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | .69% | .69% | .69% | .70% | .70% | |||||||||||||||
Net investment income (loss) | .88% | .71% | .70% | .94% | .78% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on average shares outstanding during the year. |
(b) | Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
44 |
Class R Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $23.31 | $27.63 | $27.53 | $21.50 | $17.17 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | .05 | .04 | .02 | .07 | .02 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | 1.91 | (.20 | ) | 2.68 | 6.02 | 4.31 | ||||||||||||||
Total from investment operations | 1.96 | (.16 | ) | 2.70 | 6.09 | 4.33 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | - | (.01 | ) | (.04 | ) | (.06 | ) | - | ||||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.13 | ) | (4.16 | ) | (2.60 | ) | (.06 | ) | - | |||||||||||
Net asset value, end of year | $22.14 | $23.31 | $27.63 | $27.53 | $21.50 | |||||||||||||||
Total Return(b): | 9.57% | (1.35)% | 10.36% | 28.42% | 25.22% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $166,550 | $153,606 | $47,538 | $59,157 | $50,449 | |||||||||||||||
Average net assets (000) | $159,631 | $86,446 | $56,323 | $54,213 | $48,728 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | 1.34% | 1.33% | 1.34% | 1.35% | 1.37% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | 1.59% | 1.58% | 1.59% | 1.60% | 1.62% | |||||||||||||||
Net investment income (loss) | .23% | .14% | .06% | .28% | .10% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on average shares outstanding during the year. |
(b) | Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
Prudential Jennison Small Company Fund, Inc. | 45 |
Financial Highlights (continued)
Class Z Shares | ||||||||||||||||||||
Year Ended September 30, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Per Share Operating Performance(a): | ||||||||||||||||||||
Net Asset Value, Beginning Of Year | $25.19 | $29.56 | $29.27 | $22.85 | $18.22 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | .17 | .16 | .16 | .20 | .13 | |||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | 2.09 | (.23 | ) | 2.85 | 6.38 | 4.55 | ||||||||||||||
Total from investment operations | 2.26 | (.07 | ) | 3.01 | 6.58 | 4.68 | ||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.15 | ) | (.16 | ) | (.16 | ) | (.05 | ) | ||||||||||
Distributions from net realized gains | (3.13 | ) | (4.15 | ) | (2.56 | ) | - | - | ||||||||||||
Total dividends and distributions | (3.24 | ) | (4.30 | ) | (2.72 | ) | (.16 | ) | (.05 | ) | ||||||||||
Net asset value, end of year | $24.21 | $25.19 | $29.56 | $29.27 | $22.85 | |||||||||||||||
Total Return(b): | 10.14% | (.95)% | 10.89% | 29.04% | 25.73% | |||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||
Net assets, end of year (000) | $1,484,823 | $1,602,437 | $1,514,147 | $1,603,451 | $1,359,627 | |||||||||||||||
Average net assets (000) | $1,498,820 | $1,715,343 | $1,545,618 | $1,428,455 | $1,332,921 | |||||||||||||||
Ratios to average net assets(c): | ||||||||||||||||||||
Expenses after waivers and/or expense reimbursement | .84% | .83% | .84% | .85% | .87% | |||||||||||||||
Expenses before waivers and/or expense reimbursement | .84% | .83% | .84% | .85% | .87% | |||||||||||||||
Net investment income | .72% | .57% | .55% | .77% | .60% | |||||||||||||||
Portfolio turnover rate | 37% | 52% | 41% | 50% | 47% |
(a) | Calculated based on average shares outstanding during the year. |
(b) | Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions, if any. Total returns may reflect adjustments to conform to generally accepted accounting principles. |
(c) | Does not include expenses of the underlying portfolio in which the Fund invests. |
See Notes to Financial Statements.
46 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Prudential Jennison Small Company Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Prudential Jennison Small Company Fund, Inc., (hereafter referred to as the “Fund”), including the portfolio of investments, as of September 30, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2016, by correspondence with the custodian, transfer agent and brokers or by other appropriate auditing procedures when replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of September 30, 2016, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
November 22, 2016
Prudential Jennison Small Company Fund, Inc. | 47 |
Tax Information (unaudited)
We are advising you that during the fiscal year ended September 30, 2016, the Fund reported the maximum amount allowed per share, but not less than $2.84 for Class A, B, C, Q, R and Z shares as a capital gain distribution in accordance with Section 852(b)(3)(C) of the Internal Revenue Code.
For the year ended September 30, 2016, the Fund reports the maximum amount allowable under Section 854 of the Internal Revenue Code, but not less than, the following percentages of the ordinary income distributions paid as 1) qualified dividend income (QDI); and 2) eligible for corporate dividends received deduction (DRD):
QDI | DRD | |||||||
Prudential Jennison Small Company Fund, Inc. | 71.70 | % | 71.70 | % |
In January 2017, you will be advised on IRS Form 1099-DIV or substitute 1099-DIV, as to the federal tax status of distributions received by you in calendar year 2016.
48 |
INFORMATION ABOUT BOARD MEMBERS AND OFFICERS
(Unaudited)
Information about Board Members and Officers of the Fund is set forth below. Board Members who are not deemed to be “interested persons” of the Fund, as defined in the 1940 Act, are referred to as “Independent Board Members.” Board Members who are deemed to be “interested persons” of the Fund are referred to as “Interested Board Members.” The Board Members are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Board in turn elects the Officers, who are responsible for administering the day-to-day operations of the Fund.
Independent Board Members(1) | ||||
Name, Address, Age Position(s) Portfolios Overseen | Principal Occupation(s) During Past Five Years | Other Directorships Held During Past Five Years | ||
Ellen S. Alberding (58) Board Member Portfolios Overseen: 67 | President and Board Member, The Joyce Foundation (charitable foundation) (since 2002); Vice Chair, City Colleges of Chicago (community college system) (since 2011); Trustee, Skills for America’s Future (national initiative to connect employers to community colleges) (since 2011); Trustee, National Park Foundation (charitable foundation for national park system) (since 2009); Trustee, Economic Club of Chicago (since 2009). | None. | ||
Kevin J. Bannon (64) Board Member Portfolios Overseen: 67 | Managing Director (April 2008-May 2015) and Chief Investment Officer (October 2008-November 2013) of Highmount Capital LLC (registered investment adviser); formerly Executive Vice President and Chief Investment Officer (April 1993-August 2007) of Bank of New York Company; President (May 2003-May 2007) of BNY Hamilton Family of Mutual Funds. | Director of Urstadt Biddle Properties (equity real estate investment trust) (since September 2008). | ||
Linda W. Bynoe (64) Board Member Portfolios Overseen: 67 | President and Chief Executive Officer (since March 1995) and formerly Chief Operating Officer (December 1989-February 1995) of Telemat Ltd. (management consulting); formerly Vice President (January 1985-June 1989) at Morgan Stanley & Co. (broker-dealer). | Director of Simon Property Group, Inc. (retail real estate) (May 2003-May 2012); Director of Anixter International, Inc. (communication products distributor) (since January 2006); Director of Northern Trust Corporation (financial services) (since April 2006); Trustee of Equity Residential (residential real estate) (since December 2009). |
Prudential Jennison Small Company Fund, Inc.
Independent Board Members(1) | ||||
Name, Address, Age Position(s) Portfolios Overseen | Principal Occupation(s) During Past Five Years | Other Directorships Held During Past Five Years | ||
Keith F. Hartstein (60) Board Member Portfolios Overseen: 67 | Retired; Member (since November 2014) of the Governing Council of the Independent Directors Council (organization of independent mutual fund directors); formerly President and Chief Executive Officer (2005-2012), Senior Vice President (2004-2005), Senior Vice President of Sales and Marketing (1997-2004), and various executive management positions (1990-1997), John Hancock Funds, LLC (asset management); Chairman, Investment Company Institute’s Sales Force Marketing Committee (2003-2008). | None. | ||
Michael S. Hyland, CFA (71) Board Member Portfolios Overseen: 67 | Retired (since February 2005); formerly Senior Managing Director (July 2001-February 2005) of Bear Stearns & Co, Inc.; Global Partner, INVESCO (1999-2001); Managing Director and President of Salomon Brothers Asset Management (1989-1999). | None. | ||
Richard A. Redeker (73) Board Member & Independent Chair Portfolios Overseen: 67 | Retired Mutual Fund Senior Executive (47 years); Management Consultant; Director, Mutual Fund Directors Forum (since 2014); Independent Directors Council (organization of independent mutual fund directors)-Executive Committee, Chair of Policy Steering Committee, Governing Council. | None. | ||
Stephen G. Stoneburn (73) Board Member Portfolios Overseen: 67 | Chairman (since July 2011), President and Chief Executive Officer (since June 1996) of Quadrant Media Corp. (publishing company); formerly President (June 1995-June 1996) of Argus Integrated Media, Inc.; Senior Vice President and Managing Director (January 1993-1995) of Cowles Business Media; Senior Vice President of Fairchild Publications, Inc. (1975-1989). | None. |
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Interested Board Members(1) | ||||
Name, Address, Age Position(s) Portfolios Overseen | Principal Occupation(s) During Past Five Years | Other Directorships Held During Past Five Years | ||
Stuart S. Parker (54) Board Member & President Portfolios Overseen: 67 | President of Prudential Investments LLC (since January 2012); Executive Vice President of Prudential Investment Management Services LLC (since December 2012); Executive Vice President of Jennison Associates LLC and Head of Retail Distribution of Prudential Investments LLC (June 2005-December 2011). | None. | ||
Scott E. Benjamin (43) Board Member & Vice President Portfolios Overseen: 67 | Executive Vice President (since June 2009) of Prudential Investments LLC; Executive Vice President (June 2009-June 2012) and Vice President (since June 2012) of Prudential Investment Management Services LLC; Executive Vice President (since September 2009) of AST Investment Services, Inc.; Senior Vice President of Product Development and Marketing, Prudential Investments (since February 2006); Vice President of Product Development and Product Management, Prudential Investments (2003-2006). | None. | ||
Grace C. Torres* (57) Board Member Portfolios Overseen: 65 | Retired; formerly Treasurer and Principal Financial and Accounting Officer of the Prudential Investments Funds, Target Funds, Advanced Series Trust, Prudential Variable Contract Accounts and The Prudential Series Fund (1998-June 2014); Assistant Treasurer (March 1999-June 2014) and Senior Vice President (September 1999-June 2014) of Prudential Investments LLC; Assistant Treasurer (May 2003-June 2014) and Vice President (June 2005-June 2014) of AST Investment Services, Inc.; Senior Vice President and Assistant Treasurer (May 2003-June 2014) of Prudential Annuities Advisory Services, Inc. | Director (since July 2015) of Sun Bancorp, Inc. N.A. |
* | Note: Prior to her retirement in 2014, Ms. Torres was employed by Prudential Investments LLC. Due to her prior employment, she is considered to be an “interested person” under the 1940 Act. Ms. Torres is a Non-Management Interested Board Member. |
(1) | The year that each Board Member joined the Board is as follows: |
Ellen S. Alberding, 2013; Kevin J. Bannon, 2008; Linda W. Bynoe, 2005; Keith F. Hartstein, 2013; Michael S. Hyland, 2008; Richard A. Redeker, 1995; Stephen G. Stoneburn, 2003; Grace C. Torres, 2014; Stuart S. Parker, Board Member and President since 2012; Scott E. Benjamin, Board Member since 2010 and Vice President since 2009.
Prudential Jennison Small Company Fund, Inc.
Fund Officers(a) | ||||
Name, Address and Age Position with Fund | Principal Occupation(s) During Past Five Years | Length of Service as Fund Officer | ||
Raymond A. O’Hara (61) Chief Legal Officer | Vice President and Corporate Counsel (since July 2010) of Prudential Insurance Company of America (Prudential); Vice President (March 2011-Present) of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey; Vice President and Corporate Counsel (March 2011-Present) of Prudential Annuities Life Assurance Corporation; Chief Legal Officer of Prudential Investments LLC (since June 2012); Chief Legal Officer of Prudential Mutual Fund Services LLC (since June 2012) and Corporate Counsel of AST Investment Services, Inc. (since June 2012); formerly Assistant Vice President and Corporate Counsel (September 2008-July 2010) of The Hartford Financial Services Group, Inc.; formerly Associate (September 1980-December 1987) and Partner (January 1988–August 2008) of Blazzard & Hasenauer, P.C. (formerly, Blazzard, Grodd & Hasenauer, P.C.). | Since 2012 | ||
Chad A. Earnst (41) Chief Compliance Officer | Chief Compliance Officer (September 2014-Present) of Prudential Investments LLC; Chief Compliance Officer (September 2014-Present) of the Prudential Investments Funds, Target Funds, Advanced Series Trust, The Prudential Series Fund, Prudential’s Gibraltar Fund, Inc., Prudential Global Short Duration High Yield Income Fund, Inc., Prudential Short Duration High Yield Fund, Inc. and Prudential Jennison MLP Income Fund, Inc.; formerly Assistant Director (March 2010-August 2014) of the Asset Management Unit, Division of Enforcement, US Securities & Exchange Commission; Assistant Regional Director (January 2010-August 2014), Branch Chief (June 2006–December 2009) and Senior Counsel (April 2003-May 2006) of the Miami Regional Office, Division of Enforcement, US Securities & Exchange Commission. | Since 2014 | ||
Deborah A. Docs (58) Secretary | Vice President and Corporate Counsel (since January 2001) of Prudential; Vice President (since December 1996) and Assistant Secretary (since March 1999) of Prudential Investments LLC; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | Since 2004 | ||
Jonathan D. Shain (58) Assistant Secretary | Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2001) of Prudential Investments LLC; Vice President and Assistant Secretary (since February 2001) of Prudential Mutual Fund Services LLC; formerly Vice President and Assistant Secretary (May 2003-June 2005) of AST Investment Services, Inc. | Since 2005 |
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Fund Officers(a) | ||||
Name, Address and Age Position with Fund | Principal Occupation(s) During Past Five Years | Length of Service as Fund Officer | ||
Claudia DiGiacomo (42) Assistant Secretary | Vice President and Corporate Counsel (since January 2005) of Prudential; Vice President and Assistant Secretary of Prudential Investments LLC (since December 2005); Associate at Sidley Austin Brown & Wood LLP (1999-2004). | Since 2005 | ||
Andrew R. French (53) Assistant Secretary | Vice President and Corporate Counsel (since February 2010) of Prudential; formerly Director and Corporate Counsel (2006-2010) of Prudential; Vice President and Assistant Secretary (since January 2007) of Prudential Investments LLC; Vice President and Assistant Secretary (since January 2007) of Prudential Mutual Fund Services LLC. | Since 2006 | ||
Theresa C. Thompson (54) Deputy Chief Compliance Officer | Vice President, Compliance, Prudential Investments LLC (since April 2004); and Director, Compliance, Prudential Investments LLC (2001-2004). | Since 2008 | ||
Richard W. Kinville (48) Anti-Money Laundering Compliance Officer | Vice President, Corporate Compliance, Anti-Money Laundering Unit (since January 2005) of Prudential; committee member of the American Council of Life Insurers Anti-Money Laundering and Critical Infrastructure Committee (since January 2007); formerly Investigator and Supervisor in the Special Investigations Unit for the New York Central Mutual Fire Insurance Company (August 1994-January 1999); Investigator in AXA Financial’s Internal Audit Department and Manager in AXA’s Anti-Money Laundering Office (January 1999-January 2005); first chair of the American Council of Life Insurers Anti-Money Laundering and Critical Infrastructure Committee (June 2007-December 2009). | Since 2011 | ||
M. Sadiq Peshimam (52) Treasurer and Principal Financial and Accounting Officer | Vice President (since 2005) of Prudential Investments LLC; formerly Assistant Treasurer of funds in the Prudential Mutual Fund Complex (2006-2014). | Since 2006 | ||
Peter Parrella (58) Assistant Treasurer | Vice President (since 2007) and Director (2004-2007) within Prudential Mutual Fund Administration; formerly Tax Manager at SSB Citi Fund Management LLC (1997-2004). | Since 2007 | ||
Lana Lomuti (49) Assistant Treasurer | Vice President (since 2007) and Director (2005-2007), within Prudential Mutual Fund Administration; formerly Assistant Treasurer (December 2007-February 2014) of The Greater China Fund, Inc. | Since 2014 | ||
Linda McMullin (55) Assistant Treasurer | Vice President (since 2011) and Director (2008-2011) within Prudential Mutual Fund Administration. | Since 2014 | ||
Kelly A. Coyne (48) Assistant Treasurer | Director, Investment Operations of Prudential Mutual Fund Services LLC (since 2010). | Since 2015 |
(a) | Excludes Mr. Parker and Mr. Benjamin, interested Board Members who also serve as President and Vice President, respectively. |
Prudential Jennison Small Company Fund, Inc.
Explanatory Notes to Tables:
• | Board Members are deemed to be “Interested,” as defined in the 1940 Act, by reason of their affiliation with Prudential Investments LLC and/or an affiliate of Prudential Investments LLC. |
• | Unless otherwise noted, the address of all Board Members and Officers is c/o Prudential Investments LLC, 655 Broad Street, Newark, New Jersey 07102-4410. |
• | There is no set term of office for Board Members or Officers. The Board Members have adopted a retirement policy, which calls for the retirement of Board Members on December 31 of the year in which they reach the age of 75. |
• | “Other Directorships Held” includes only directorships of companies required to register or file reports with the SEC under the 1934 Act (that is, “public companies”) or other investment companies registered under the 1940 Act. |
• | “Portfolios Overseen” includes all investment companies managed by Prudential Investments LLC. The investment companies for which Prudential Investments LLC serves as manager include the Prudential Investments Mutual Funds, The Prudential Variable Contract Accounts, Target Mutual Funds, Prudential Short Duration High Yield Fund, Inc., Prudential Global Short Duration High Yield Fund, Inc., The Prudential Series Fund, Prudential’s Gibraltar Fund, Inc. and the Advanced Series Trust. |
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Approval of Advisory Agreements (unaudited)
The Fund’s Board of Directors
The Board of Directors (the “Board”) of Prudential Jennison Small Company Fund, Inc. (the “Fund”) consists of ten individuals, seven of whom are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Directors”). The Board is responsible for the oversight of the Fund and its operations, and performs the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Directors have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Director. The Board has established three standing committees: the Audit Committee, the Nominating and Governance Committee, and the Investment Committee. Each committee is chaired by, and composed of, Independent Directors.
Annual Approval of the Fund’s Advisory Agreements
As required under the 1940 Act, the Board determines annually whether to renew the Fund’s management agreement with Prudential Investments LLC (“PI”) and the Fund’s subadvisory agreement with Jennison Associates LLC (“Jennison”). In considering the renewal of the agreements, the Board, including all of the Independent Directors, met on June 7-9, 2016 and approved the renewal of the agreements through July 31, 2017, after concluding that the renewal of the agreements was in the best interests of the Fund and its shareholders.
In advance of the meetings, the Board requested and received materials relating to the agreements, and had the opportunity to ask questions and request further information in connection with its consideration. Among other things, the Board considered comparative fee information from PI and Jennison. Also, the Board considered comparisons with other mutual funds in relevant Peer Universes and Peer Groups, as is further discussed below.
In approving the agreements, the Board, including the Independent Directors advised by independent legal counsel, considered the factors it deemed relevant, including the nature, quality and extent of services provided by PI and the subadviser, the performance of the Fund, the profitability of PI and its affiliates, expenses and fees, and the potential for economies of scale that may be shared with the Fund and its shareholders as the Fund’s assets grow. In their deliberations, the Directors did not identify any single factor which alone was responsible for the Board’s decision to approve the agreements with respect to the Fund. In connection with its deliberations, the Board considered information provided by PI throughout the year at regular Board meetings, presentations from portfolio managers and other information, as well as information furnished at or in advance of the meetings on June 7-9, 2016.
Prudential Jennison Small Company Fund, Inc. |
Approval of Advisory Agreements (continued)
The Directors determined that the overall arrangements between the Fund and PI, which serves as the Fund’s investment manager pursuant to a management agreement, and between PI and Jennison, which serves as the Fund’s subadviser pursuant to the terms of a subadvisory agreement with PI, are in the best interests of the Fund and its shareholders in light of the services performed, fees charged and such other matters as the Directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the Directors’ reaching their determinations to approve the continuance of the agreements are separately discussed below.
Nature, Quality and Extent of Services
The Board received and considered information regarding the nature, quality and extent of services provided to the Fund by PI and Jennison. The Board considered the services provided by PI, including but not limited to the oversight of the subadviser for the Fund, as well as the provision of fund recordkeeping, compliance, and other services to the Fund. With respect to PI’s oversight of the subadviser, the Board noted that PI’s Strategic Investment Research Group (“SIRG”), which is a business unit of PI, is responsible for monitoring and reporting to PI’s senior management on the performance and operations of the subadviser. The Board also considered that PI pays the salaries of all of the officers and interested Directors of the Fund who are part of Fund management. The Board also considered the investment subadvisory services provided by Jennison, as well as adherence to the Fund’s investment restrictions and compliance with applicable Fund policies and procedures. The Board considered PI’s evaluation of the subadviser, as well as PI’s recommendation, based on its review of the subadviser, to renew the subadvisory agreement.
The Board considered the qualifications, backgrounds and responsibilities of PI’s senior management responsible for the oversight of the Fund and Jennison, and also considered the qualifications, backgrounds and responsibilities of Jennison’s portfolio managers who are responsible for the day-to-day management of the Fund’s portfolio. The Board was provided with information pertaining to PI’s and Jennison’s organizational structure, senior management, investment operations, and other relevant information pertaining to both PI and Jennison. The Board also noted that it received favorable compliance reports from the Fund’s Chief Compliance Officer (“CCO”) as to both PI and Jennison. The Board noted that Jennison is affiliated with PI.
The Board concluded that it was satisfied with the nature, extent and quality of the investment management services provided by PI and the subadvisory services provided to the Fund by Jennison, and that there was a reasonable basis on which to conclude that the Fund benefits from the services provided by PI and Jennison under the management and subadvisory agreements.
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Costs of Services and Profits Realized by PI
The Board was provided with information on the profitability of PI and its affiliates in serving as the Fund’s investment manager. The Board discussed with PI the methodology utilized in assembling the information regarding profitability and considered its reasonableness. The Board recognized that it is difficult to make comparisons of profitability from fund management contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser’s capital structure and cost of capital. The Board further noted that the subadviser is affiliated with PI and that its profitability is reflected in PI’s profitability report. Taking these factors into account, the Board concluded that the profitability of PI and its affiliates in relation to the services rendered was not unreasonable.
Economies of Scale
PI and the Board previously retained an outside business consulting firm to review management fee breakpoint usage and trends in management fees across the mutual fund industry. The consulting firm presented its analysis and conclusions as to the Funds’ management fee structures to the Board and PI. The Board and PI have discussed these conclusions extensively since that presentation.
The Board received and discussed information concerning economies of scale that PI may realize as the Fund’s assets grow beyond current levels. The Board noted that the management fee schedule for the Fund includes breakpoints, which have the effect of decreasing the fee rate as assets increase, and that at its current level of assets the Fund’s effective fee rate reflected those rate reductions. The Board took note that the Fund’s fee structure currently results in benefits to Fund shareholders whether or not PI realizes any economies of scale. The Board noted that economies of scale can be shared with the Fund in other ways, including low management fees from inception, additional technological and personnel investments to enhance shareholder services, and maintaining existing expense structures in the face of a rising cost environment. The Board also considered PI’s assertion that it continually evaluates the management fee schedule of the Fund and the potential to share economies of scale through breakpoints or fee waivers as asset levels increase.
The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of PI’s costs are not specific to individual funds, but rather are incurred across a variety of products and services.
Prudential Jennison Small Company Fund, Inc. |
Approval of Advisory Agreements (continued)
Other Benefits to PI and Jennison
The Board considered potential ancillary benefits that might be received by PI and Jennison and their affiliates as a result of their relationship with the Fund. The Board concluded that potential benefits to be derived by PI included transfer agency fees received by the Fund’s transfer agent (which is affiliated with PI), and benefits to its reputation as well as other intangible benefits resulting from PI’s association with the Fund. The Board concluded that the potential benefits to be derived by Jennison included its ability to use soft dollar credits, as well as the potential benefits consistent with those generally resulting from an increase in assets under management, specifically, potential access to additional research resources and benefits to its reputation. The Board concluded that the benefits derived by PI and Jennison were consistent with the types of benefits generally derived by investment managers and subadvisers to mutual funds.
Performance of the Fund / Fees and Expenses
The Board considered certain additional specific factors and made related conclusions relating to the historical performance of the Fund for the one-, three-, five- and ten-year periods ended December 31, 2015.
The Board also considered the Fund’s actual management fee, as well as the Fund’s net total expense ratio, for the fiscal year ended September 30, 2015. The Board considered the management fee for the Fund as compared to the management fee charged by PI to other funds and the fee charged by other advisers to comparable mutual funds in a Peer Group. The actual management fee represents the fee rate actually paid by Fund shareholders and includes any fee waivers or reimbursements. The net total expense ratio for the Fund represents the actual expense ratio incurred by Fund shareholders.
The mutual funds included in the Peer Universe (the Lipper Small-Cap Core Funds Performance Universe1) and the Peer Group were objectively determined by Broadridge, an independent provider of mutual fund data. To the extent that PI deemed appropriate, and for reasons addressed in detail with the Board, PI may have provided supplemental data compiled by Broadridge for the Board’s consideration. The comparisons placed the Fund in various quartiles, with the first quartile being the best 25% of the mutual funds (for performance, the best performing mutual funds and, for expenses, the lowest cost mutual funds).
1 | The Fund was compared to the Lipper Small-Cap Core Funds Performance Universe, although the Fund is classified in the Lipper Small-Cap Growth Funds Performance Universe. The Lipper Small-Cap Core Funds Performance Universe was utilized because PI believes that the funds included in this Universe provide a more appropriate basis for Fund performance comparisons. |
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The section below summarizes key factors considered by the Board and the Board’s conclusions regarding the Fund’s performance, fees and overall expenses. The table sets forth gross performance comparisons (which do not reflect the impact on performance of fund expenses, or any subsidies, expense caps or waivers that may be applicable) with the Peer Universe, actual management fees with the Peer Group (which reflect the impact of any subsidies or fee waivers), and net total expenses with the Peer Group, each of which were key factors considered by the Board.
Performance | 1 Year | 3 Years | 5 Years | 10 Years | ||||
2nd Quartile | 2nd Quartile | 2nd Quartile | 1st Quartile | |||||
Actual Management Fees: 2nd Quartile | ||||||||
Net Total Expenses: 1st Quartile |
• | The Board noted that the Fund outperformed its benchmark index over all periods. |
• | The Board concluded that, in light of the above, it would be in the best interests of the Fund and its shareholders to renew the agreements. |
• | The Board concluded that the management fees (including subadvisory fees) and total expenses were reasonable in light of the services provided. |
* * *
After full consideration of these factors, the Board concluded that the approval of the agreements was in the best interests of the Fund and its shareholders.
Prudential Jennison Small Company Fund, Inc. |
n MAIL | n TELEPHONE | n WEBSITE | ||
655 Broad Street Newark, NJ 07102 | (800) 225-1852 | www.prudentialfunds.com |
PROXY VOTING |
The Board of Directors of the Fund has delegated to the Fund’s investment subadviser the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. A description of these proxy voting policies and procedures is available without charge, upon request, by calling (800) 225-1852 or by visiting the Securities and Exchange Commission’s website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website and on the Securities and Exchange Commission’s website. |
DIRECTORS |
Ellen S. Alberding • Kevin J. Bannon • Scott E. Benjamin • Linda W. Bynoe • Keith F. Hartstein • Michael S. Hyland • Stuart S. Parker • Richard A. Redeker • Stephen G. Stoneburn • Grace C. Torres |
OFFICERS |
Stuart S. Parker, President • Scott E. Benjamin, Vice President • M. Sadiq Peshimam, Treasurer and Principal Financial and Accounting Officer • Raymond A. O’Hara, Chief Legal Officer • Deborah A. Docs, Secretary • Chad A. Earnst, Chief Compliance Officer • Theresa C. Thompson, Deputy Chief Compliance Officer • Richard W. Kinville, Anti-Money Laundering Compliance Officer • Jonathan D. Shain, Assistant Secretary • Claudia DiGiacomo, Assistant Secretary • Andrew R. French, Assistant Secretary • Peter Parrella, Assistant Treasurer • Lana Lomuti, Assistant Treasurer • Linda McMullin, Assistant Treasurer • Kelly A. Coyne, Assistant Treasurer |
MANAGER | Prudential Investments LLC | 655 Broad Street Newark, NJ 07102 | ||
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INVESTMENT SUBADVISER | Jennison Associates LLC | 466 Lexington Avenue New York, NY 10017 | ||
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DISTRIBUTOR | Prudential Investment Management Services LLC | 655 Broad Street Newark, NJ 07102 | ||
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CUSTODIAN | The Bank of New York Mellon | One Wall Street New York, NY 10286 | ||
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TRANSFER AGENT | Prudential Mutual Fund Services LLC | PO Box 9658 Providence, RI 02940 | ||
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | KPMG LLP | 345 Park Avenue New York, NY 10154 | ||
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FUND COUNSEL | Willkie Farr & Gallagher LLP | 787 Seventh Avenue New York, NY 10019 | ||
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An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information about the Fund. An investor may obtain a prospectus and summary prospectus by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852. The prospectus and summary prospectus should be read carefully before investing. |
E-DELIVERY |
To receive your mutual fund documents online, go to www.prudentialfunds.com/edelivery and enroll. Instead of receiving printed documents by mail, you will receive notification via email when new materials are available. You can cancel your enrollment or change your email address at any time by visiting the website address above. |
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS |
Shareholders can communicate directly with the Board of Directors by writing to the Chair of the Board, Prudential Jennison Small Company Fund, Inc., Prudential Investments, Attn: Board of Directors, 655 Broad Street, Newark, NJ 07102. Shareholders can communicate directly with an individual Director by writing to the same address. Communications are not screened before being delivered to the addressee. |
AVAILABILITY OF PORTFOLIO SCHEDULE |
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation and location of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund’s schedule of portfolio holdings is also available on the Fund’s website as of the end of each month no sooner than 15 days after the end of the month. |
The Fund’s Statement of Additional Information contains additional information about the Fund’s Directors and is available without charge, upon request, by calling (800) 225-1852. |
Mutual Funds:
ARE NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY | MAY LOSE VALUE | ARE NOT A DEPOSIT OF OR GUARANTEED BY ANY BANK OR ANY BANK AFFILIATE |
PRUDENTIAL JENNISON SMALL COMPANY FUND, INC.
SHARE CLASS | A | B | C | Q | R | Z | ||||||
NASDAQ | PGOAX | CHNDX | PSCCX | PJSQX | JSCRX | PSCZX | ||||||
CUSIP | 74441N101 | 74441N200 | 74441N309 | 74441N887 | 74441N507 | 74441N408 |
MF109E 0298914-00001-00
Item 2 – Code of Ethics – – See Exhibit (a)
As of the end of the period covered by this report, the registrant has adopted a code of ethics (the “Section 406 Standards for Investment Companies – Ethical Standards for Principal Executive and Financial Officers”) that applies to the registrant’s Principal Executive Officer and Principal Financial Officer; the registrant’s Principal Financial Officer also serves as the Principal Accounting Officer. During the period covered by this report, there have been no amendments to any provision of the code of ethics nor have any waivers been granted from any provision of the code of ethics.
The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant 800-225-1852, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3 – Audit Committee Financial Expert –
The registrant’s Board has determined that Mr. Kevin J. Bannon, member of the Board’s Audit Committee is an “audit committee financial expert,” and that he is “independent,” for purposes of this Item.
Item 4 – Principal Accountant Fees and Services –
(a) Audit Fees
For the fiscal years ended September 30, 2016 and September 30, 2015, KPMG LLP (“KPMG”), the Registrant’s principal accountant, billed the Registrant $33,603 and $22,440, respectively, for professional services rendered for the audit of the Registrant’s annual financial statements or services that are normally provided in connection with statutory and regulatory filings.
(b) Audit-Related Fees
For the fiscal years ended September 30, 2016 and September 30, 2015: none.
(c) Tax Fees
For the fiscal years ended September 30, 2016 and September 30, 2015: none.
(d) All Other Fees
For the fiscal years ended September 30, 2016 and September 30, 2015: none.
(e) (1) Audit Committee Pre-Approval Policies and Procedures
THE PRUDENTIAL MUTUAL FUNDS
AUDIT COMMITTEE POLICY
on
Pre-Approval of Services Provided by the Independent Accountants
The Audit Committee of each Prudential Mutual Fund is charged with the responsibility to monitor the independence of the Fund’s independent accountants. As part of this responsibility, the Audit Committee must pre-approve the independent accounting firm’s engagement to render audit and/or permissible non-audit services, as required by law. In evaluating a proposed engagement of the independent accountants, the Audit Committee will assess the effect that the engagement might reasonably be expected to have on the accountant’s independence. The Committee’s evaluation will be based on:
• | a review of the nature of the professional services expected to be provided, |
• | a review of the safeguards put into place by the accounting firm to safeguard independence, and |
• | periodic meetings with the accounting firm. |
Policy for Audit and Non-Audit Services Provided to the Funds
On an annual basis, the scope of audits for each Fund, audit fees and expenses, and audit-related and non-audit services (and fees proposed in respect thereof) proposed to be performed by the Fund’s independent accountants will be presented by the Treasurer and the independent accountants to the Audit Committee for review and, as appropriate, approval prior to the initiation of such services. Such presentation shall be accompanied by confirmation by both the Treasurer and the independent accountants that the proposed non-audit services will not adversely affect the independence of the independent accountants. Such proposed non-audit services shall be described in sufficient detail to enable the Audit Committee to assess the appropriateness of such services and fees, and the compatibility of the provision of such services with the auditor’s independence. The Committee shall receive periodic reports on the progress of the audit and other services which are approved by the Committee or by the Committee Chair pursuant to authority delegated in this Policy.
The categories of services enumerated under “Audit Services”, “Audit-related Services”, and “Tax Services” are intended to provide guidance to the Treasurer and the independent accountants as to those categories of services which the Committee believes are generally consistent with the independence of the independent accountants and which the Committee (or the Committee Chair) would expect upon the presentation of specific proposals to pre-approve. The enumerated categories are not intended as an exclusive list of audit, audit-related or tax services, which the Committee (or the Committee Chair) would consider for pre-approval.
Audit Services
The following categories of audit services are considered to be consistent with the role of the Fund’s independent accountants:
Ø | Annual Fund financial statement audits |
Ø | Seed audits (related to new product filings, as required) |
Ø | SEC and regulatory filings and consents |
Audit-related Services
The following categories of audit-related services are considered to be consistent with the role of the Fund’s independent accountants:
Ø | Accounting consultations |
Ø | Fund merger support services |
Ø | Agreed Upon Procedure Reports |
Ø | Attestation Reports |
Ø | Other Internal Control Reports |
Individual audit-related services that fall within one of these categories (except for fund merger support services) and are not presented to the Audit Committee as part of the annual pre-approval process are subject to an authorized pre-approval by the Audit Committee so long as the estimated fee for those services does not exceed $30,000. Any services provided under such pre-approval will be reported to the Audit Committee at its next regular meeting. Should the amount of such services exceed $30,000, any additional fees will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated). Fees related to fund merger support services are subject to a separate authorized pre-approval by the Audit Committee with fees determined on a per occurrence and merger complexity basis.
Tax Services
The following categories of tax services are considered to be consistent with the role of the Fund’s independent accountants:
Ø | Tax compliance services related to the filing or amendment of the following: |
∎ | Federal, state and local income tax compliance; and, |
∎ | Sales and use tax compliance |
Ø | Timely RIC qualification reviews |
Ø | Tax distribution analysis and planning |
Ø | Tax authority examination services |
Ø | Tax appeals support services |
Ø | Accounting methods studies |
Ø | Fund merger support services |
Ø | Tax consulting services and related projects |
Individual tax services that fall within one of these categories and are not presented to the Audit Committee as part of the annual pre-approval process are subject to an authorized pre-approval by the Audit Committee so long as the estimated fee for those services does not exceed $30,000. Any services provided under such pre-approval will be reported to the Audit Committee at its next regular meeting. Should the amount of such services exceed $30,000, any additional fees will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated).
Other Non-audit Services
Certain non-audit services that the independent accountants are legally permitted to render will be subject to pre-approval by the Committee or by one or more Committee members to whom the Committee has delegated this authority and who will report to the full Committee any pre-approval decisions made pursuant to this Policy. Non-audit services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Proscribed Services
The Fund’s independent accountants will not render services in the following categories of non-audit services:
Ø | Bookkeeping or other services related to the accounting records or financial statements of the Fund |
Ø | Financial information systems design and implementation |
Ø | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports |
Ø | Actuarial services |
Ø | Internal audit outsourcing services |
Ø | Management functions or human resources |
Ø | Broker or dealer, investment adviser, or investment banking services |
Ø | Legal services and expert services unrelated to the audit |
Ø | Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. |
Pre-approval of Non-Audit Services Provided to Other Entities Within the Prudential Fund Complex
Certain non-audit services provided to Prudential Investments LLC or any of its affiliates that also provide ongoing services to the Prudential Mutual Funds will be subject to pre-approval by the Audit Committee. The only non-audit services provided to these entities that will require pre-approval are those related directly to the operations and financial reporting of the Funds. Individual projects that are not presented to the Audit Committee as part of the annual pre-approval process will be subject to pre-approval by the Committee Chair (or any other Committee member on whom this responsibility has been delegated) so long as the estimated fee for those services does not exceed $30,000. Services presented for pre-approval pursuant to this paragraph will be accompanied by a confirmation from both the Treasurer and the independent accountants that the proposed services will not adversely affect the independence of the independent accountants.
Although the Audit Committee will not pre-approve all services provided to Prudential Investments LLC and its affiliates, the Committee will receive an annual report from the Fund’s independent accounting firm showing the aggregate fees for all services provided to Prudential Investments and its affiliates.
(e) (2) Percentage of services referred to in 4(b) – 4(d) that were approved by the audit committee –
For the fiscal years ended September 30, 2016 and September 30, 2015: none.
(f) Percentage of hours expended attributable to work performed by other than full time employees of principal accountant if greater than 50%.
The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.
(g) Non-Audit Fees
The aggregate non-audit fees billed by KPMG for services rendered to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant for the fiscal years ended September 30, 2016 and September 30, 2015 was $0 and $0, respectively.
(h) Principal Accountant’s Independence
Not applicable as KPMG has not provided non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
Item 5 – | Audit Committee of Listed Registrants – Not applicable. | |
Item 6 – | Schedule of Investments – The schedule is included as part of the report to shareholders filed under Item 1 of this Form. | |
Item 7 – | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not applicable. | |
Item 8 – | Portfolio Managers of Closed-End Management Investment Companies – Not applicable. | |
Item 9 – | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not applicable. | |
Item 10 – | Submission of Matters to a Vote of Security Holders – Not applicable. | |
Item 11 – | Controls and Procedures |
(a) | It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has |
been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure. |
(b) | There has been no significant change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter of the period covered by this report that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12 – Exhibits
(a) | (1) Code of Ethics – Attached hereto as Exhibit EX-99.CODE-ETH |
(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.CERT. |
(3) | Any written solicitation to purchase securities under Rule 23c-1. – Not applicable. |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | Prudential Jennison Small Company Fund, Inc. | |
By: | /s/ Deborah A. Docs | |
Deborah A. Docs | ||
Secretary | ||
Date: | November 22, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Stuart S. Parker | |
Stuart S. Parker | ||
President and Principal Executive Officer | ||
Date: | November 22, 2016 | |
By: | /s/ M. Sadiq Peshimam | |
M. Sadiq Peshimam | ||
Treasurer and Principal Financial and Accounting Officer | ||
Date: | November 22, 2016 |