ANNUAL REPORT April 30,1994
Prudential
Multi-Sector
Fund, Inc.
(LOGO)
<PAGE>
Letter to Shareholders
May 24, 1994
Dear Shareholder:
Over the past year ended April 30, 1994, the Prudential Multi-Sector Fund
shifted its concentration to stocks that should benefit from an improving
global economy. While the Fund felt rising interest rate pressure, this
global strategy produced returns that outperformed the Standard & Poor's
500 and the Lipper capital appreciation fund average.
As of April 30, 1994, the Fund had a net asset value of $13.21 per
Class A share and $13.16 per Class B share. Shareholders also received
dividends and distributions totaling $1.80 per Class A and $1.69 per
Class B share.
Global Recovery Begins
Greg Smith, Chief Investment Strategist for Prudential Securities is
a consultant to the Fund and recommends sector allocations. Despite
market volatility in the first four months of 1994, Greg maintained a
positive outlook for the world's stock markets throughout the past year.
Last year, Continental Europe started to follow the economic turnaround
in the U.S., U.K. and Australia. Cautiously optimistic in light of
recent U.S. interest rate hikes, Greg believes the global recovery
along with the growing trend toward corporate efficiency should
support higher stock prices worldwide.
Accordingly, the portfolio was heavily weighted in "cyclical" stocks
(i.e., sectors expected to grow as the economy recovers). These
include basic industry (chemical companies, paper producers), energy,
transportation (airlines and railroads) and automotive manufacturers.
At the end of April, approximately one-third of the portfolio was
invested in foreign companies that should benefit from economic
growth in Europe. These holdings tend to be multinational corporations,
though most of their business is concentrated in Europe. During the
Fund's fiscal year, we favored companies that underwent substantial
restructuring during the recent European downturn and are now positioned
to take advantage of increased consumer demand.
Chemical Reactions
We expect well-positioned chemical companies to profit from the global
economic turnaround. In this area we own the Dutch company Akzo, one
of our largest holdings at the end of April (1.8% of the portfolio),
the British firm Imperial Chemical (1.5% of the portfolio) and the
German company BASF (1.1%
-3-
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of the portfolio). All three companies significantly redesigned their
operations and restructured labor relations in an effort to cut costs
and increase productivity.
MANAGEMENT UPDATE
We are pleased to announce that in February 1994, Gregory Goldberg a
Vice President of Prudential Investment Advisors, took over as
portfolio manager of the Prudential Multi Sector Fund. Greg was
previously a portfolio manager of institutional balanced portfolios
at Daiwa International Capital Management. Before that, he was employed
by Industrial Bank of Japan.
Energy Surge
During the fiscal year, we favored energy companies that have greater
exposure to natural gas and less dependence on oil production. We
believe natural gas prices should continue to remain firm as demand
outstrips supply, despite weakness in worldwide oil prices. For example,
we expect Talisman Energy (1.5% of the portfolio) to benefit from its
natural gas fields in Western Canada.
Driving to Europe
Rising U.S. interest rates may have put a cap on stock prices of
U.S. auto makers. In reaction, we have reduced our holdings in U.S.
car companies such as Ford Motor and General Motors, while shifting
to positions in foreign automotive firms such as Fiat (1.1% of the
portfolio). Fiat is also restructuring to cut costs and redesigned
its labor agreements to become more competitive.
Outlook
Despite recent setbacks to the U.S. stock market brought on by rising
interest rates, we believe the U.S. economy should continue its slow
yet steady growth. However, the markets may remain uncertain as investors
wait to see what the longer term impact of higher rates will be.
In the interim, European economic recovery presents some attractive
opportunities, especially in the cyclical sector.
As always, it is a pleasure to have you as a Prudential Multi-Sector
Fund shareholder and to take the opportunity to report our
activities to you.
Sincerely,
Lawrence C. McQuade
President
Gregory Goldberg
Portfolio Manager
-4-
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
April 30, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--89.6%
COMMON STOCKS--81.7%
Auto Sector--4.6%
43,700 APS Holding Corp.*......... $ 876,731
3,400 Bayerisch Motoren Werks
(Germany)................ 1,857,732
485,000 Fiat Spa* (Italy).......... 2,114,311
14,600 Ford Motor Co.............. 852,275
45,600 General Motors Corp........ 2,587,800
------------
8,288,849
------------
Basic Industry Sector--19.6%
55,800 Akzo N V (ADR)
(Netherlands)............ 3,379,387
72,800 Alaska Steel Holding
Corporation.............. 1,665,300
29,100 Aluminum Co. of America.... 1,978,800
10,700 BASF AG.................... 2,136,756
65,000 Champion Int'l. Corp....... 1,982,500
34,000 Enplas Corp. (Japan)....... 1,216,560
485,000 Fletcher Forestry, Ltd..... 698,400
93,000 Hanson PLC (ADR) (United
Kingdom)................. 1,918,125
4,000 I O Data Device, Inc.
(Japan)*................. 713,652
48,500 IMC Fertilizer Group,
Inc.*.................... 1,794,500
58,200 Imperial Chemical Ind.
(ADR)
(United Kingdom)......... 2,895,450
29,100 International Paper Co..... 1,898,775
131,100 Kymmene Corp. (Finland).... 2,700,001
19,400 Monsanto Co................ 1,595,650
85,000 Om Group, Inc.............. 1,700,000
106,000 Potash Corp................ 2,703,000
77,600 Praxair, Inc............... 1,484,100
8,450 Rayonier, Inc.............. 238,712
23,000 Unidanmark (ADR)
(Denmark)*............... 810,750
53,400 USX Corp................... 1,815,600
19,400 Westinghouse Electric
Corp..................... 225,525
------------
35,551,543
------------
Consumer Goods & Services Sector--4.0%
58,200 Archer-Daniels-Midland
Co....................... 1,338,600
50,000 Au Bon Pain Co., Inc....... 962,500
34,000 Aviall, Inc................ $ 510,000
97,000 Interco, Inc.*............. 1,297,375
14,600 ITT Corp................... 1,310,350
47,000 Nissen Co., Ltd. (Japan)... 1,853,130
------------
7,271,955
------------
Energy Sector--18.1%
43,700 Aquila Gas Pipeline
Corp.*................... 393,300
143,000 Baker Hughes, Inc.......... 2,627,625
97,000 Cabre Exploration, Ltd.*
(Canada)................. 963,971
77,600 Canadian Occidental
Petroleum, Ltd........... 1,570,396
100,000 Crestar Energy Inc.*....... 1,174,472
43,700 Cross Timbers Oil Co....... 633,650
128,500 Discovery West Corp.*
(Canada)................. 455,081
184,300 Ensign Resource Service
Group, Inc.*............. 915,772
58,200 Enterprise Oil PLC., (ADR)
(United Kingdom)......... 1,091,250
55,000 Exxon Corp................. 3,458,125
250,000 Global Marine, Inc.*....... 1,000,000
400,000 Mesa, Inc.*................ 2,450,000
97,000 Morrison Petroleum, Ltd.
(Canada)................. 797,466
83,400 Oryx Energy Co............. 1,407,375
77,600 Rigel Energy Corp.*........ 1,134,900
180,100 Rowan Cos., Inc.*.......... 1,305,725
54,000 Societe Nationale Elf
Aquitaine, (ADR)
(France)................. 1,964,250
105,200 Sonat Offshore Drilling,
Inc...................... 1,867,300
121,300 Talisman Energy, Inc.*
(Canada)................. 2,794,476
53,400 Trident Holding, Inc....... 480,600
116,500 USX - Delhi Group.......... 1,660,125
155,000 USX - Marathon Group....... 2,615,625
------------
32,761,484
------------
Financial Services Sector--6.5%
28,700 CCP Insurance, Inc......... 591,938
11,600 Credit Lyonnais Group
(France)................. 1,135,363
40,000 First Eastern Corp.*....... 1,055,000
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Financial Services Sector (cont'd.)
30,100 Integra Financial Corp..... $ 1,410,937
43,650 Mercantile Bancorp, Inc.... 1,571,400
29,100 Midlantic Corp.*........... 854,812
43,700 SunAmerica, Inc............ 1,600,512
72,800 Toronto-Dominion Bank
(Canada)................. 1,111,521
29,100 Union Planters Corp........ 771,150
72,800 Whitney Holdings Corp...... 1,656,200
------------
11,758,833
------------
Health Care Sector--2.0%
61,100 FHP International Corp.*... 1,496,950
19,400 Intergroup Healthcare
Corp.*................... 875,425
49,300 Physicians Corp. of
America, Inc.*........... 1,189,363
------------
3,561,738
------------
Housing Sector--2.1%
45,200 Ethan Allen Interiors,
Inc.*.................... 1,107,400
14,600 Lapeyre (France)........... 863,080
38,800 Owens Corning
Fiberglass*.............. 1,348,300
29,100 Ryland Group, Inc.......... 582,000
------------
3,900,780
------------
Public Utilities Sector--3.4%
38,800 Allgon AB (Sweden)*........ 1,159,110
48,500 Entergy Corp............... 1,485,313
43,700 Telefonica de Espana, S.A.
(ADR) (Spain)............ 1,780,775
30,000 Telefonos de Mexico (ADR)
(Mexico)................. 1,766,250
------------
6,191,448
------------
Retailing Sector--1.2%
14,000 Aoyama Trading Co.
(Japan).................. 648,595
19,400 Lowes Companies, Inc....... 683,850
30,000 Men's Wearhouse, Inc.*..... 851,250
------------
2,183,695
------------
Technology Sector--8.7%
118,000 Adaptec, Inc.*............. 1,873,250
55,000 Cisco Systems, Inc.*....... 1,670,625
75,000 Cyrix Corp................. $ 1,884,375
75,000 Electronic Arts, Inc....... 1,612,500
65,000 Electronics for Imaging,
Inc...................... 991,250
100,000 Informix Corp.............. 1,637,500
38,800 Motorola, Inc.............. 1,731,450
58,000 Murata Manufacturing Co.,
Ltd. (Japan)............. 2,515,525
110,000 Verifone, Inc.*............ 1,925,000
------------
15,841,475
------------
Transportation Sector--11.5%
19,400 British Airways (ADR)
(United
Kingdom)................. 1,263,425
230,000 Canadian Pacific, Ltd...... 3,737,500
48,500 Continental Airlines,
Inc.*.................... 830,563
63,100 Illinois Central Corp...... 2,169,062
48,500 Kansas City Southern
Industries, Inc.......... 1,891,500
72,800 KLM Royal Dutch Airlines
Corp.*................... 2,074,800
150,000 Methanex Corp.* (Canada)... 1,612,641
97,000 Northwest Airlines
Corp.*................... 1,491,375
67,900 Ryder System, Inc.......... 1,697,500
146,000 Singapore Airlines, Ltd.
(Singapore).............. 1,145,687
135,800 Southern Pacific Rail
Corp.*................... 2,987,600
------------
20,901,653
------------
Total common stocks
(cost $140,599,670)........ 148,213,453
------------
Convertible Preferred Stocks--5.8%
Auto Sector--1.2%
16,200 Chrysler Corp.............. 2,176,875
------------
Basic Industry Sector--3.0%
24,833 Alumax, Inc................ 2,685,068
25,000 Bethleham Steel Corp....... 1,409,375
19,067 Cyprus Amax Minerals Co.... 1,248,889
------------
5,343,332
------------
Technology Sector--1.6%
34,000 Nokia Corp................. 2,902,767
------------
Total preferred stocks
(cost $7,595,016).......... 10,422,974
------------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Warrants Description (Note 1)
<C> <S> <C>
Warrants*--0.5%
Retailing Sector
Autobacs Seven Co. (Japan)
expiring Mar. '96 @
(YEN)8,231
200 (cost $739,375)............ $ 920,000
------------
<CAPTION>
Principal
Amount Corporate Bonds--1.6%
(000) Basic Industry Sector
- --------
Treuhandanstalt (Germany)
7.75%, 10/1/02
$ 2,888 (cost $2,956,461).......... 2,957,780
------------
Total long-term investments
(cost $151,890,522)........ 162,514,207
------------
SHORT-TERM INVESTMENT--14.0%
GOVERNMENT ISSUES--0.5%
U.S.Treasury Bills,
3.52%, 6/16/94
1,000# (cost $995,509)............ 995,509
------------
REPURCHASE AGREEMENT--13.5%
Joint Repurchase Agreement
Account,
3.54%, 5/2/94, (Note 5)
$ 24,413 (cost $24,413,000)......... $ 24,413,000
------------
Total short-term investment
(cost $25,408,509)......... 25,408,509
------------
Total Investments--103.6%
(cost $177,299,031; Note
4)....................... 187,922,716
<CAPTION>
COMMON STOCK SOLD
Shares SHORT--(0.1)%
<C> <S> <C>
Retailing Sector
25,000 Jan Bell Marketing, Inc.*
(proceeds $341,976)...... (137,500)
------------
Total investments, net of
short sales--103.5%...... 187,785,216
Liabilities in excess of
other
assets--(3.5%)............. (6,449,569)
------------
Net Assets--100%........... $181,335,647
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
# Pledged as collateral on short sale.
-7- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets
April 30, 1994
--------------
<S>
<C>
Investments, at value (cost
$177,299,031)................................................. $ 187,922,716
Foreign currency, at value (cost
$9,546,466).............................................. 9,770,822
Cash..........................................................................
............ 2,297
Deposits with broker for investment sold
short............................................ 341,976
Receivable for investments
sold........................................................... 2,640,088
Receivable for Fund shares
sold........................................................... 572,243
Interest and dividends
receivable.........................................................
459,727
Deferred expenses and other
assets........................................................ 57,880
--------------
Total
assets........................................................................
.... 201,767,749
--------------
Liabilities
Payable for investments
purchased.........................................................
19,084,668
Forward contracts-net amount payable to
counterparties.................................... 446,513
Payable for Fund shares
reacquired........................................................
390,062
Accrued expenses and other
liabilities.................................................... 161,597
Investments sold short, at value (proceeds
$341,976)...................................... 137,500
Distribution fee
payable..................................................................
115,286
Management fee
payable....................................................................
96,476
--------------
Total
liabilities...................................................................
.... 20,432,102
--------------
Net
Assets........................................................................
........ $ 181,335,647
--------------
--------------
Net assets were comprised of:
Common stock, at
par.................................................................... $
13,763
Paid-in capital in excess of
par........................................................ 160,556,164
--------------
160,569,927
Overdistributed net investment
income..................................................... (511,077)
Accumulated net realized capital and currency
gains....................................... 10,668,152
Net unrealized appreciation on investments and foreign
currencies......................... 10,608,645
--------------
Net assets, April 30,
1994................................................................ $
181,335,647
--------------
--------------
Class A:
Net asset value and redemption price per share
($53,237,492 / 4,030,623 shares of common stock issued and
outstanding)............... $13.21
Maximum sales charge (5.25% of offering
price).......................................... .73
--------------
Maximum offering price to
public........................................................ $13.94
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($128,098,155 / 9,732,466 shares of common stock issued and
outstanding).............. $13.16
--------------
--------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1994
--------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of
$108,903).......................... $ 3,353,985
Interest and discount earned......... 515,264
--------------
Total income....................... 3,869,249
--------------
Expenses
Management fee....................... 1,032,341
Distribution fee--Class A............ 108,720
Distribution fee--Class B............ 1,089,811
Transfer agent's fees and expenses... 225,000
Custodian's fees and expenses........ 214,000
Registration fees.................... 59,500
Amortization of organization
expense.............................. 45,000
Reports to shareholders.............. 45,000
Directors' fees...................... 37,500
Audit fee............................ 30,000
Legal fees and expenses.............. 16,000
Miscellaneous........................ 9,684
--------------
Total expenses..................... 2,912,556
--------------
Net investment income.................. 956,693
--------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 21,864,808
Short sale transactions.............. 692,140
Financial futures contracts.......... (30,960)
Foreign currency transactions........ (385,277)
--------------
22,140,711
--------------
Net change in unrealized appreciation
on:
Securities........................... (5,310,456)
Short sales.......................... (26,371)
Foreign currencies................... 11,417
--------------
(5,325,410)
--------------
Net gain on investments and foreign
currency transactions................ 16,815,301
--------------
Net Increase in Net Assets
Resulting from Operations.............. $ 17,771,994
--------------
--------------
</TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30,
Increase (Decrease) ----------------------------
in Net Assets 1994 1993
------------ ------------
<S> <C> <C>
Operations
Net investment
income................. $ 956,693 $ 2,779,322
Net realized gain on
investments and
foreign currency
transactions......... 22,140,711 11,595,984
Net change in
unrealized
appreciation of
investments.......... (5,325,410) 4,606,869
------------ ------------
Net increase in net
assets resulting from
operations........... 17,771,994 18,982,175
------------ ------------
Net equalization credits
(debits)............... 152,418 (245,681)
------------ ------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A.............. (724,102) (1,037,706)
Class B.............. (736,046) (1,396,681)
------------ ------------
(1,460,148) (2,434,387)
------------ ------------
Distributions from net
capital and currency
gains
Class A.............. (5,543,404) (2,957,844)
Class B.............. (12,086,917) (6,314,531)
------------ ------------
(17,630,321) (9,272,375)
------------ ------------
Fund share transactions
(Note 6)
Net proceeds from Fund
shares subscribed.... 81,243,634 21,369,671
Net asset value of Fund
shares issued in
reinvestment of
dividends and
distributions........ 17,794,396 10,984,287
Cost of shares
reacquired............. (52,846,996) (63,974,340)
------------ ------------
Net increase (decrease)
in net assets from
Fund share
transactions......... 46,191,034 (31,620,382)
------------ ------------
Total increase
(decrease)............. 45,024,977 (24,590,650)
Net Assets
Beginning of year........ 136,310,670 160,901,320
------------ ------------
End of year.............. $181,335,647 $136,310,670
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Notes to Financial Statements
Prudential Multi-Sector Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund was incorporated in Maryland on February 21, 1990
and had no operations until May 11, 1990 when 4,398 shares each of Class A and
Class B common stock were sold for $100,000 to Prudential Mutual Fund
Management, Inc. (``PMF''). Investment operations commenced June 29, 1990. The
Fund's investment objective is long-term growth of capital by primarily
investing in equity securities of companies in various economic sectors.
Note 1. Accounting The following is a summary
Policies of significant accounting policies followed
by the Fund in the preparation of its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities exchange and NASDAQ national market equity securities are valued at
the last reported sales price on the primary exchange on which they are traded.
Securities traded in the over-the-counter market (including securities listed on
exchanges whose primary market is believed to be over-the-counter) and listed
securities for which no sales were reported on that date are valued at the mean
between the last reported bid and asked prices. Stock options traded on national
securities exchanges are valued at the closing prices on such exchanges.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by, or under the direction of, the Fund's
Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
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 closing rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate 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 fiscal year, the Fund does not
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 securities held at the end of the fiscal year. 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 fiscal year. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized losses on
security transactions.
Net realized losses on foreign currency transactions of $385,277 represents
net foreign exchange losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates of security transactions, and the difference between
the amounts of dividends and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets and liabilities at year
end exchange rates are reflected as a component of net unrealized appreciation
on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Forward Currency Contracts: The Fund enters into forward currency contracts in
order to hedge its exposure to changes in currency exchange rates on its
portfolio holdings. A forward contract is a commitment to purchase or sell a
foreign currency at a future date (usually the security transaction settlement
date) at a negotiated forward rate. In the
-10-
<PAGE>
<PAGE>
event that a security fails to settle within the normal settlement period, the
forward currency contract is renegotiated at a new rate. The gain or loss
arising from the difference between the settlement value of the original and
renegotiated forward contracts is isolated and is included in net realized
losses from foreign currency transactions. Risks may arise upon entering into
these contracts from the potential inability of the counterparties to meet the
terms of their contracts.
Short Sales: The Fund may sell a security it does not own in anticipation of a
decline in the market value of that security (short sale). When the Fund makes
a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow the particular security and may be obligated to pay
over any payments received on such borrowed securities. A gain, limited to the
price at which the Fund sold the security short, or a loss, unlimited in
magnitude, will be recognized upon the termination of a short sale if the market
price at termination is less than or greater than, respectively, the proceeds
originally received.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This is known as
the ``initial margin''. Subsequent payments, known as ``variation margin'', are
made or received by the Fund each day, depending on the daily fluctuations in
the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss until
the contracts expire or are closed, at which time the gain or loss is
reclassified to realized gain or loss. The Fund invests in financial futures
contracts solely for the purpose of hedging its existing portfolio securities or
securities the Fund intends to purchase against fluctuations in value caused by
changes in prevailing market conditions. Should market conditions move
unexpectedly, the Fund may not achieve the anticipated benefits of the financial
futures contracts and may realize a loss. The use of futures transactions
involves the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets. There were no
financial futures contracts outstanding at April 30, 1994.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis. Net
investment income, other than distribution fees, and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Dividends and Distributions: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute net capital gains, if any, at
least annually. Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Reclassification of Capital Accounts: Effective May 1, 1993 the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2; Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease undistributed net investment income by $86,242, and
increase accumulated net realized gains by $86,242 compared to amounts
previously reported through April 30, 1993. During the year ended April 30,
1994, the Fund reclassified $652,086 of foreign currency losses to undistributed
net investment income from accumulated net realized gains on investment
transactions. Net investment income, net realized gains, and net assets were not
affected by this change.
Taxes: It is the Fund's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable net income to its shareholders. Therefore, no federal income tax
provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.
Deferred Organizational Expenses: Approximately $225,000 of expenses were
incurred in connection with the
-11-
<PAGE>
<PAGE>
organization and initial registration of the Fund. This amount is being
amortized over a period of 60 months from the date investment operations
commenced.
Note 2. Agreements The Fund has a management
agreement with PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''). PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the services of PIC, the cost of compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .65 of 1% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), who acts as the distributor of the Class A shares
of the Fund, and Prudential Securities Incorporated (``PSI''), who acts as
distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and Class B shares, the Fund, pursuant to plans
of distribution, pays the Distributors a reimbursement, accrued daily and
payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to the Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
Such expenses under the Class A Plan were .20 of 1% of the average daily net
assets of the Class A shares for the eight months ended December 31, 1993.
Effective January 1, 1994, the Class A Plan distribution expenses were increased
to .25 of 1% of the average daily net assets. PMFD pays various broker-dealers
including PSI & Pruco Securities Corporation (``Prusec''), affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $229,600 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended April 30, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. For the fiscal year ended April 30, 1994, PSI
advised the Fund that it received approximately $283,400 in contingent deferred
sales charges imposed upon redemptions by certain shareholders. PSI, as
distributor, has also advised the Fund that at April 30, 1994, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $2,093,300.
This amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the fiscal year ended April 30, 1994, the Fund incurred fees of approximately
$206,000 for the services of PMFS. As of April 30, 1994, approximately $22,000
of such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations include certain out-of-pocket expenses paid to non-affiliates.
-12-
<PAGE>
<PAGE>
For the fiscal year ended April 30, 1994, PSI earned approximately $62,400 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of
Securities investment securities, other than
short-term investments, for the fiscal year ended
April 30, 1994 aggregated $177,353,193 and $165,135,386, respectively.
The federal income tax basis of the Fund's investment at April 30, 1994 was
$177,349,184 and, accordingly, net unrealized appreciation for federal income
tax purposes was $10,573,532 (gross unrealized appreciation--$17,666,497, gross
unrealized depreciation--$7,092,965).
At April 30, 1994, the Fund had outstanding forward currency contracts to
purchase and sell foreign currency as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Purchase Contracts Payable Value (Depreciation)
<S> <C> <C> <C>
- -------------------------- ---------------- ---------- ---------------
Finnish Markka,
expiring 6/7/94 $ 276,727 $ 280,557 $ 3,830
Swedish Krona,
expiring 6/1/94 1,760,121 1,836,766 76,645
---------------- ---------- ---------------
$ 2,036,848 $2,117,323 $80,475
---------------- ---------- ---------------
---------------- ---------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- ----------------------- ---------------- ----------- ---------------
British Pounds,
expiring 6/9/94 $ 5,932,000 $ 6,078,535 $ (146,535)
Finnish Markka,
expiring 6/7/94 5,479,718 5,672,674 (192,956)
German Deutschemarks,
expiring 5/24/94-
6/20/94 2,503,240 2,584,346 (81,106)
Swedish Krona,
expiring 6/1/94 2,698,612 2,805,003 (106,391)
---------------- ----------- ---------------
$ 16,613,570 $17,140,558 $ (526,988)
---------------- ----------- ---------------
---------------- ----------- ---------------
</TABLE>
Note 5. Joint The Fund, along with
Repurchase other affiliated registered
Agreement Account investment companies, trans-
fers uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. At April 30, 1994, the Fund had a 2.50% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $24,413,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the value of the collateral therefor was as
follows:
Barclays de Zoete Wedd, Inc., 3.55%, in the principal amount of $53,000,000,
repurchase price $53,015,679, due 5/2/94. The value of the collateral including
accrued interest is $54,060,428.
Goldman Sachs & Co., 3.50%, in the principal amount of $315,000,000,
repurchase price $315,091,875, due 5/2/94. The value of the collateral including
accrued interest is $321,300,231.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.55%,
in the principal amount of $315,000,000, repurchase price $315,093,188, due
5/2/94. The value of the collateral including accrued interest is $321,300,584.
Morgan (J.P.) Securities, Inc., 3.58%, in the principal amount of
$295,000,000, repurchase price $295,088,008, due 5/2/94. The value of the
collateral including accrued interest is $300,901,625.
Note 6. Capital The Fund offers both
Class A and Class B shares. Class A shares are
sold with a front-end sales charge of up to 5.25%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Both classes of shares have equal rights
as to earnings, assets and voting privileges except that each class bears
different distribution expenses and has exclusive voting rights with respect to
its distribution plan.
There are 2 billion shares of common stock, $.001 par value per share,
divided into two classes, designated Class A and B common stock, each of which
consists of 1 billion authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ---------------- ------------
<S> <C> <C>
Year ended April 30, 1994:
Shares sold...................... 2,294,758 $ 31,099,578
Shares issued in reinvestment of
dividends and distributions.... 451,690 5,953,064
Shares reacquired................ (2,004,567) (26,983,820)
---------------- ------------
Net increase in shares
outstanding.................... 741,881 $ 10,068,822
---------------- ------------
---------------- ------------
Year ended April 30, 1993:
Shares sold...................... 938,716 $ 11,757,387
Shares issued in reinvestment of
dividends and distributions.... 313,201 3,776,474
Shares reacquired................ (2,169,604) (26,909,889)
---------------- ------------
Net decrease in shares
outstanding.................... (917,687) $(11,376,028)
---------------- ------------
---------------- ------------
</TABLE>
-13-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
---------------- ------------
Year ended April 30, 1994:
<S> <C> <C>
Shares sold...................... 3,671,115 $ 50,144,056
Shares issued in reinvestment of
dividends and distributions.... 900,324 11,841,332
Shares reacquired................ (1,905,508) (25,863,176)
---------------- ------------
Net increase in shares
outstanding.................... 2,665,931 $ 36,122,212
---------------- ------------
---------------- ------------
<CAPTION>
Year ended April 30, 1993:
Shares sold...................... 775,060 $ 9,612,284
Shares issued in reinvestment of
dividends and distributions.... 597,615 7,207,813
Shares reacquired................ (2,992,163) (37,064,451)
---------------- ------------
Net decrease in shares
outstanding.................... (1,619,488) $(20,244,354)
---------------- ------------
---------------- ------------
</TABLE>
-14-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A
Class B
- --------------------------------------
- -----------------------------------------
June
29, June 29,
1990(D) 1990(D)
Through Through
Years Ended April 30,
April Years Ended April 30, April
PER SHARE OPERATING ---------------------------
30, ------------------------------ 30,
PERFORMANCE: 1994 1993 1992
1991 1994 1993 1992 1991
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
------- ------- -------
- -------- -------- -------- -------- --------
Net asset value, beginning of period......... $ 13.19 $ 12.51 $ 12.10 $
11.37 $ 13.15 $ 12.47 $ 12.06 $ 11.37
------- ------- -------
- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income........................ .18 .30 .23
.40 .07 .19 .13 .32
Net realized and unrealized gain on
investments and
foreign currency transactions.............. 1.64 1.47 .50
.59 1.63 1.47 .51 .59
------- ------- -------
- -------- -------- -------- -------- --------
Total from investment operations........... 1.82 1.77 .73
.99 1.70 1.66 .64 .91
------- ------- -------
- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income......... (.21) (.30) (.30)
(.26) (.10) (.19) (.21) (.22)
Distributions from net capital and currency
gains...................................... (1.59) (.79) (.02)
-- (1.59) (.79) (.02) --
------- ------- -------
- -------- -------- -------- -------- --------
Total distributions........................ (1.80) (1.09) (.32)
(.26) (1.69) (.98) (.23) (.22)
------- ------- -------
- -------- -------- -------- -------- --------
Net asset value, end of period............... $ 13.21 $ 13.19 $ 12.51 $
12.10 $ 13.16 $ 13.15 $ 12.47 $ 12.06
------- ------- -------
- -------- -------- -------- -------- --------
------- ------- -------
- -------- -------- -------- -------- --------
TOTAL RETURN#................................ 14.16% 15.14% 6.16%
17.64% 13.22% 14.13% 5.39% 16.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $53,237 $43,390 $52,625 $
59,085 $128,098 $ 92,921 $108,276 $ 99,537
Average net assets (000)..................... $49,840 $46,890 $57,403 $
55,545 $108,981 $ 99,072 $108,510 $ 82,890
Ratios to average net assets:
Expenses, including distribution fees...... 1.30% 1.28% 1.29%
1.35%* 2.08% 2.08% 2.09% 2.15%*
Expenses, excluding distribution fees...... 1.08% 1.08% 1.09%
1.15%* 1.08% 1.08% 1.09% 1.15%*
Net investment income...................... 1.15% 2.44% 1.83%
4.28%* .35% 1.64% 1.03% 3.39%*
Portfolio turnover........................... 110% 209% 147%
253% 110% 209% 147% 253%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of investment operations.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-15-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Multi-Sector Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Prudential Multi-Sector Fund, Inc., including the portfolio of investments, as
of April 30, 1994, the related statements of operations for the year then ended
and of changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the three years in the period then
ended and the period June 29, 1990 (commencement of investment operations) to
April 30, 1991. 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 generally accepted auditing
standards. 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 the securities owned at
April 30, 1994, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Multi-Sector Fund, Inc. at April 30, 1994, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
June 16, 1994
FEDERAL INCOME TAX INFORMATION
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (April 30, 1994) as to the federal income tax status
of dividends paid by the Fund during such fiscal year. Accordingly, we are
advising you that during its fiscal year ended April 30, 1994, the Fund paid
distributions for Class A shares totaling $1.80 per share, comprised of $0.775
per share ordinary income and short-term capital gains which are taxable as
ordinary income and $1.025 per share long-term capital gains which is taxable as
such. The Fund paid distributions for Class B shares totaling $1.69 per share,
comprised of $0.665 per share ordinary income and short-term capital gains which
are taxable as ordinary income and $1.025 per share long-term capital gains
which is taxable as such. Further, we wish to advise you that 15.61% of the
ordinary income dividends paid in the fiscal year ended April 30, 1994 qualified
for the corporate dividends received deduction available to corporate taxpayers.
In January 1995, you will be advised on IRS Form 1099, DIV or substitute Form
1099, as to the federal tax status of the distributions received by you in
calendar 1994. The amounts that will be reported on such Form 1099 DIV will be
the amounts to use on your 1994 federal income tax return and will differ from
the amounts which we must report for the Fund's fiscal year ended April 30,
1994.
-16-
<PAGE>
<PAGE>
Directors
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Lawrence C. McQuade
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche
1633 Broadway
New York, NY 10019
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
The accompanying financial statements as of April 30, 1994, were
not audited and, accordingly, no opinion is expressedon them.
74435J108 MF 142E2
74435J207 CAT. #4441347
