Prudential
Multi-Sector
Fund, Inc.
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Prudential Mutual Funds
BUILDING YOUR FUTURE
(LOGO)
ON OUR STRENGTH
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Over the past six months the Prudential Multi-Sector Fund has
concentrated its investments in stocks that should benefit
from an improving global economy. We are pleased to report
that this strategy produced attractive returns for shareholders
of the Fund.
During the six-month period ended October 31, 1993, Class A shares
returned 13.19% and Class B shares returned 12.67%. In addition,
shareholders received dividends and distributions totaling $0.65
per Class A share and $0.61 per Class B shares.
Global Recovery Beckons
Based on his expectations for a global economic rebound,
Greg Smith has a positive outlook for the world's stock
markets in 1994. The U.S., the U.K. and Australia are recovering,
although slowly. Continental Europe and Japan remain mired in
recession but the worst of their troubles appear to be over.
Given that scenario, Greg believes low interest rates, low
inflation and a global move toward corporate efficiency should
lead to a rapid rise in earnings in the months ahead, which
should support higher stock prices.
In light of this outlook, the portfolio is heavily weighted
in "cyclical" stocks (i.e., sectors that should benefit from
economic recovery). These include automotive manufacturers,
transportation companies (airlines and railroads), and basic
industry (chemical companies, paper producers). We also favor
some technology companies, especially those involved in the
telecommunications revolution.
An International Flavor
In anticipation of economic recoveries, we have begun to shift
assets into foreign stocks; roughly one-third of holdings are
in companies headquartered abroad. The holdings tend to be
multinational corporations doing business around the world,
though most are concentrated in Europe:
. Akzo, a Dutch chemical company, is one of the world's
largest producers of paint and has a leading pharmaceutical
operation. The European economic slowdown has prompted management
to restructure operations, which we believe positions it to excel
during the recovery.
. British Airways, the largest and most competitive of the
European airlines, should come out ahead in an industry that
continues to consolidate. The company's strong balance sheet
distinguishes it from U.S. airlines.
. Volkswagen, the world's fourth-largest automobile maker,
recognizes that it needs to cut costs dramatically and has
embarked on changes in labor agreements.
3
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Northern Energy Exposure
Energy demand should pick up along with the economy, so the
Fund has a substantial weighting in this sector. We have
placed the bulk of the Fund's energy investments in Canadian
"junior" exploration and production companies. These companies
have been growing their reserve base and their annual production
extremely rapidly. The secret to their success: they use the most
modern seismic technology and drilling techniques to find oil and
gas on properties that larger companies have found unattractive.
We favor companies that have greater exposure to natural gas and
less dependence on oil production. We expect that natural gas
pricing in North America will remain firm, even if there is some
weakness in the worldwide oil price. Demand for natural gas
continues to increase; its clean burning characteristics make
it attractive from an environmental standpoint, but it will be
some time before enough supply is generated to offset this greater demand.
The Fund's largest holding in this area is Talisman Energy
(formerly BP-Canada). Talisman should benefit from growing
natural gas production, primarily from the Sukunka and Monkman
fields in western Canada. In addition, the company's favorable
acquisition of Encor, another energy company, may soon improve
their bottom line.
Regional Bank Focus
Financial stocks, primarily U.S. regional banks, make up the
second major sector in the Fund. We expect consolidation in the
banking industry to lead to economies of scale and higher profits
in the long run. We have tried to identify candidates for acquisition
and have concentrated in a few states where we expect activity to heat
up. These include Louisiana (Whitney Holdings and Hibernia), Missouri
(Mercantile), New Jersey (MidLantic) and Tennessee (Union Planters).
We will likely begin to reduce these holdings if rising interest rates
appear to threaten profits.
In Sum...
The U.S. economy appears to be settling into an extended period of
steady-if somewhat slow-growth. Although there are signs inflation
may be creeping back in the picture, new U.S. taxes in 1993 and 1994
may dampen the expansion. The U.S. stock
market, which reached record levels in 1993, could weaken as a result.
Overseas, we believe the European economies may have reached their
nadir. We are actively looking for opportunities there, especially
among cyclical companies that should profit
as a global recovery gains steam.
4
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As always, it is a pleasure to have you as a Prudential Multi-Sector
Fund shareholder and to take this opportunity to report our activities
to you.
Sincerely,
Lawrence C. McQuade
President
Theresa A. Hamacher
Portfolio Manager
Capital Growth from Selected Sectors
The Prudential Multi-Sector Fund seeks long-term capital growth
from a portfolio of domestic and foreign securities, primarily
common stocks. The Fund makes significant shifts toward sectors
that should benefit from major changes in the world
economy, demographics, technological developments and other
long-term trends. Greg Smith, Chief Investment Strategist for
Prudential Securities, is a consultant to Prudential Investment
Corporation and recommends sector allocations for the Fund.
Terry Hamacher, managing director of Prudential Investment
Corporation, selects the securities.
5
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<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--93.8%
COMMON STOCKS--83.7%
Auto Sector--7.2%
45,000 APS Holding Corp.*.......... $ 725,625
45,000 Ford Motor Co............... 2,784,375
60,000+ General Motors Corp......... 2,857,500
45,000 Johnson Controls, Inc....... 2,463,750
10,000 Volkswagen AG*.............. 2,351,537
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11,182,787
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Housing Sector--4.6%
2,000 CHA Holdings AG............. 543,121
46,600 Ethan Allen Interiors,
Inc.*..................... 1,147,525
70,000 Industrie Natuzzi Spa
(ADR)*.................... 1,697,500
15,000 Lapeyre..................... 707,776
53,900 Owens Corning Fiberglass*... 2,533,300
30,000 Ryland Group, Inc........... 581,250
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7,210,472
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Basic Industry Sector--11.7%
47,500 Akzo NV (ADR)............... 2,265,156
25,000 Aluminum Co. of America*.... 1,700,000
10,000 BASF AG..................... 1,656,222
67,000 Champion Int'l. Corp........ 1,968,125
45,000 duPont (E.I.) de Nemours &
Co........................ 2,148,750
60,000 Imperial Chemical Ind.
(ADR)..................... 2,580,000
30,000 International Paper Co...... 1,777,500
20,000 Monsanto Co................. 1,382,500
80,000 Praxair, Inc................ 1,290,000
35,000 Stora Kopparbergs........... 1,558,838
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18,327,091
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Business Services Sector--0.2%
20,100 Nu-Kote Holdings, Inc.*..... 386,925
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Consumer Goods & Services Sector--1.2%
20,000 ITT Corp.................... 1,862,500
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Energy Sector--17.6%
35,000 Anderson Exploration*....... $ 828,159
100,000 Atcor Resources, Ltd.*...... 425,911
37,800 British Gas PLC. (ADR)*..... 2,022,300
65,000 Cabre Exploration, Ltd.*.... 689,029
80,000 Canadian Occidental
Petroleum, Ltd.*.......... 2,021,655
80,000 Coastal Corp................ 2,190,000
175,000 Discovery West Corp.*....... 745,343
190,000 Ensign Resource Service
Group, Inc.*.............. 1,132,922
80,000 Enterprise Oil PLC. (ADR)... 1,760,000
150,000 Global Marine, Inc.*........ 750,000
135,000 Morrison Petroleum, Ltd.*... 1,073,294
86,000 Oryx Energy Co.............. 2,053,250
75,000 Pinnacle Resources, Ltd.*... 1,249,337
70,000 Rigel Energy Corp.*......... 1,111,250
110,000 Rowan Cos., Inc.*........... 1,045,000
115,200 Sonat Offshore Drilling,
Inc.*..................... 2,376,000
125,000 Talisman Energy, Inc.*...... 2,756,587
66,400 Tarragon Oil & Gas, Ltd.*... 892,406
120,100 USX - Delhi Group........... 2,341,950
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27,464,393
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Financial Services Sector--12.8%
70,000+ American Express Co......... 2,257,500
40,000 AmSouth Bancorp............. 1,170,000
39,600 CCP Insurance, Inc.......... 1,128,600
11,000 Credit Lyonnais Group....... 1,390,342
40,000 Equitable Companies, Inc.... 1,110,000
40,000 First Eastern Corp.*........ 992,500
30,000 First of America Bank
Corp...................... 1,155,000
150,000 Hibernia Corp.*............. 1,181,250
31,000 Integra Financial Corp...... 1,429,875
30,000 Mercantile Bancorp, Inc..... 1,477,500
45,000 Midlantic Corp.*............ 1,096,875
</TABLE>
-6- See Notes to Financial Statements.
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<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Financial Services Sector (cont'd.)
40,000 Royal Bank of Canada........ $ 825,320
20,000 SunAmerica, Inc............. 837,500
75,000 Toronto-Dominion Bank....... 1,192,549
30,000 Union Planters Corp......... 776,250
55,000 Whitney Holdings Corp....... 1,945,625
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19,966,686
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Health Care Sector--3.9%
45,000 FHP International Corp.*.... 877,500
50,800 Physicians Corp. of America,
Inc.*..................... 1,060,450
45,000 Ramsay-HMO, Inc.*........... 1,361,250
20,000 United Healthcare Corp...... 1,397,500
42,500 Zeneca Group PLC (ADR)...... 1,450,313
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6,147,013
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Public Utilities Sector--1.0%
40,000 Telefonica de Espana, S.A.
(ADR)*.................... 1,555,000
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Retailing Sector--3.7%
5,000 Aoyama Trading Co........... 374,366
53,600 Bed, Bath & Beyond, Inc.*... 1,762,100
30,000 Bombay Co., Inc.*........... 1,335,000
45,000 Men's Wearhouse, Inc.*...... 1,350,000
28,300 Nautica Enterprises,
Inc.*..................... 948,050
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5,769,516
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Technology Sector--7.3%
45,000 Adaptec, Inc.*.............. 1,622,813
26,100 Anthem Electronics, Inc.*... 838,463
4,000 Capcom Co., Ltd............. 340,433
30,000 Digital Equipment Corp.*.... 1,068,750
28,000 Motorola, Inc............... 2,933,000
60,000 Murata Manufacturing Co.,
Ltd....................... 2,107,884
10,000 Sega Enterprises, Ltd....... 835,408
24,000 Sybase, Inc.*............... 1,707,000
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11,453,751
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Transportation Sector--12.5%
45,000 British Airways (ADR)....... 2,503,125
170,000 Canadian Pacific, Ltd....... $ 2,868,750
65,000 Illinois Central Corp....... 2,169,375
63,000 Kansas City Southern
Industries, Inc........... 2,842,875
70,000 Ryder System, Inc........... 1,986,250
120,000 Santa Fe Pacific Corp....... 2,265,000
150,000 Singapore Airlines, Ltd..... 1,171,654
154,400 Southern Pacific Rail
Corp.*.................... 2,759,900
30,000 Southwest Airlines Co....... 930,000
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19,496,929
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Total common stocks
(cost $112,992,068)......... 130,823,063
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Convertible Preferred Stocks--7.1%
Auto Sector--2.0%
20,000 Chrysler Corp............... 3,160,000
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Natural Resource Sector--1.7%
40,000 Amax, Inc................... 2,660,000
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Technology Sector--1.1%
30,000 Nokia Corp.................. 1,668,500
------------
Transportation Sector--2.3%
44,000 AMR Corp.................... 2,403,500
10,000 UAL Corp.................... 1,205,000
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3,608,500
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Total preferred stocks
(cost $9,088,354)........... 11,097,000
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<CAPTION>
Warrants Warrants*--0.4%
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<C> <S> <C>
Retailing Sector--0.4%
Autobacs Seven Co., Ltd.
150 expiring Mar. '96 @ 8,231
(cost $548,750)............. 553,125
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<CAPTION>
Principal
Amount Convertible Bonds--2.6%
(000) Business Services Sector--1.1%
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<C> <S> <C>
Office Depot, Inc.,
$ 2,500 Zero Coupon, 12/11/07....... 1,750,000
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</TABLE>
-7- See Notes to Financial Statements.
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<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Energy Sector--1.5%
Baker Hughes, Inc.,
$ 3,750 Zero Coupon, 5/5/08......... $ 2,268,750
------------
Total convertible bonds
(cost $3,640,997)........... 4,018,750
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Total long-term investments
(cost $126,270,169)......... 146,491,938
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SHORT-TERM INVESTMENTS--2.2%
GOVERNMENT ISSUES--0.6%
U.S. Treasury Bills,
1,000# 2.92%, 12/16/93
(cost $996,356)........... 996,356
------------
REPURCHASE AGREEMENT--1.6%
Joint Repurchase Agreement
Account,
2,436 2.93%, 11/1/93, (Note 5)
(cost $2,436,000)......... 2,436,000
------------
Total short-term investments
(cost $3,432,356)......... 3,432,356
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Total Investments--96.0%
(cost $129,702,525; Note
4)........................ $149,924,294
------------
COMMON STOCKS SOLD SHORT*--(0.5%)
Health Care Sector--(0.1%)
45,000 Health Images, Inc.......... (230,625)
------------
Retailing Sector--(0.4%)
25,000 Jan Bell Marketing, Inc.*... (296,875)
30,000 Natural Wonders*............ (322,500)
------------
(619,375)
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Total common stocks sold
short
(proceeds $1,076,148)>.... (850,000)
------------
Total investments, net of
short
sales-95.5%............... 149,074,294
Other assets in excess of
liabilities--4.5%......... 7,066,560
------------
Net Assets--100%............ $156,140,854
------------
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</TABLE>
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* Non-income producing security.
# Pledged as collateral on short sale.
+ Represents approximately $5,115,000 aggregate
market value of securities pledged as
collateral on outstanding
forward currency contracts.
ADR--American Depository Receipt.
-8- See Notes to Financial Statements.
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PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets October 31, 1993
----------------
<S> <C>
Investments, at value (cost $129,702,525)............................................... $149,924,294
Foreign currency, at value (cost $1,595,060)............................................ 1,607,768
Cash.................................................................................... 18,461
Receivable for investments sold......................................................... 14,210,216
Deposits with brokers for investments sold short........................................ 1,076,148
Receivable for Fund shares sold......................................................... 1,039,153
Dividends and interest receivable....................................................... 127,169
Forward contracts--net amount receivable from counterparties............................ 69,462
Deferred expenses and other assets...................................................... 77,739
----------------
Total assets.......................................................................... 168,150,410
----------------
Liabilities
Payable for investments purchased....................................................... 10,551,124
Investments sold short, at value (proceeds $1,076,148).................................. 850,000
Payable for Fund shares reacquired...................................................... 273,228
Accrued expenses and other liabilities.................................................. 152,075
Due to Distributors..................................................................... 97,842
Due to Manager.......................................................................... 85,287
----------------
Total liabilities..................................................................... 12,009,556
----------------
Net Assets.............................................................................. $156,140,854
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 10,979
Paid-in capital in excess of par...................................................... 123,199,661
----------------
123,210,640
Undistributed net investment income..................................................... 847,367
Accumulated net realized capital and currency gains..................................... 11,623,534
Net unrealized appreciation on investments and foreign currencies....................... 20,459,313
----------------
Net assets, October 31 ,1993............................................................ $156,140,854
----------------
----------------
Class A:
Net asset value and redemption price per share
($49,656,868 / 3,480,363 shares of common stock issued and outstanding)............. $14.27
Maximum sales charge (5.25% of offering price)........................................ 0.79
----------------
Maximum offering price to public...................................................... $15.06
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($106,483,986 / 7,498,297 shares of common stock issued and outstanding)............ $14.20
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-9-
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PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income October 31, 1993
----------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of
$32,842)........................... $ 2,189,086
Interest............................. 138,045
----------------
Total income....................... 2,327,131
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Expenses
Management fee....................... 472,189
Distribution fee--Class A............ 46,618
Distribution fee--Class B............ 493,356
Transfer agent's fees and expenses... 118,000
Custodian's fees and expenses........ 90,000
Reports to shareholders.............. 27,000
Registration fees.................... 26,000
Directors' fees...................... 22,500
Amortization of organization
expense.............................. 22,500
Audit fee............................ 15,000
Legal fees........................... 13,000
Miscellaneous........................ 5,678
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Total expenses..................... 1,351,841
----------------
Net investment income.................. 975,290
----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 11,579,748
Short sale transactions.............. 370,432
Financial futures contracts.......... (32,785)
Foreign currency transactions........ (256,570)
----------------
11,660,825
----------------
Net change in unrealized appreciation
on:
Securities........................... 4,287,628
Short sale transactions.............. (4,700)
Financial futures contracts.......... (69,025)
Foreign currency transactions........ 311,355
----------------
4,525,258
----------------
Net gain on investments and foreign
currency transactions................ 16,186,083
----------------
Net Increase in Net Assets
Resulting from Operations.............. $ 17,161,373
----------------
----------------
</TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
Increase (Decrease) October 31, April 30,
in Net Assets 1993 1993
------------ ------------
<S> <C> <C>
Operations
Net investment income... $ 975,290 $ 2,779,322
Net realized gain on
investment and foreign
currency
transactions.......... 11,660,825 11,595,984
Net change in unrealized
appreciation of
investments........... 4,525,258 4,606,869
------------ ------------
Net increase in net
assets resulting from
operations............ 17,161,373 18,982,175
------------ ------------
Net equalization credits
(debits)................ 64,369 (245,681)
------------ ------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A............... (308,850) (1,037,706)
Class B............... (375,489) (1,396,681)
------------ ------------
(684,339) (2,434,387)
------------ ------------
Distributions from net
capital and currency
gains
Class A............... (1,788,078) (2,957,844)
Class B............... (3,754,888) (6,314,531)
------------ ------------
(5,542,966) (9,272,375)
------------ ------------
Fund share transactions
(Note 6)
Net proceeds from Fund
shares subscribed..... 19,567,097 21,369,671
Net asset value of Fund
shares issued in
reinvestment of
dividends and
distributions......... 5,780,742 10,984,287
Cost of shares
reacquired.............. (16,516,092) (63,974,340)
------------ ------------
Net increase (decrease)
in net assets from
Fund share
transactions.......... 8,831,747 (31,620,382)
------------ ------------
Total increase
(decrease).............. 19,830,184 (24,590,650)
Net Assets
Beginning of period....... 136,310,670 160,901,320
------------ ------------
End of period............. $156,140,854 $136,310,670
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
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PRUDENTIAL MULTI-SECTOR FUND, INC.
Notes to Financial Statements
(Unaudited)
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 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 period, 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 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, these realized foreign currency gains (losses)
are included in the reported net realized gains on security transactions.
Net realized losses on foreign currency transactions of $256,570 represents
net foreign exchange losses from 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 period 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
-11-
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<PAGE>
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 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.
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 $86,241, and
increase accumulated net realized gains by $86,241 compared to amounts
previously reported through April 30, 1993. 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
-12-
<PAGE>
<PAGE>
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 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 fiscal period ended October 31, 1993. 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 $72,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended October 31, 1993. 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 six months ended October 31, 1993, PSI
advised the Fund that it received approximately $146,800 in contingent deferred
sales charges imposed upon redemptions by certain shareholders. PSI, as
distributor, has also advised the Fund that at October 31, 1993, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $1,718,000.
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
-13-
<PAGE>
<PAGE>
transfer agent. During the six months ended October 31, 1993, the Fund incurred
fees of approximately $93,000 for the services of PMFS. As of October 31, 1993,
approximately $16,000 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.
For the six months ended October 31, 1993, PSI earned approximately $41,000
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 six months
ended October 31, 1993 aggregated $82,342,871 and $86,254,765, respectively.
The cost basis of investments for federal income tax purposes was
substantially the same as for financial reporting purposes and, accordingly, as
of October 31, 1993, net unrealized appreciation of investments, including
short-term investments, for federal income tax purposes was $20,221,769 (gross
unrealized appreciation-- $22,849,519, gross unrealized
depreciation--$2,627,750).
At October 31, 1993, the Fund had outstanding forward currency contracts both
to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
<S> <C> <C> <C>
- ---------------------- ---------------- ---------- ---------------
German Deutschemarks
expiring 11/19/93-
11/24/93 $2,767,066 $2,637,749 $(129,317)
Dutch Guilder
expiring 12/30/93 395,007 398,546 3,539
---------------- ---------- ---------------
$3,162,073 $3,036,295 $(125,778)
---------------- ---------- ---------------
---------------- ---------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- -------------------- ---------------- ----------- ---------------
British Pounds,
expiring 12/9/93-
1/27/94 $ 7,389,382 $ 7,289,849 $ 99,533
Swedish Krona,
expiring 1/14/94 2,687,106 2,637,639 49,467
German
Deutschemarks,
expiring 11/19/93-
11/24/93 2,675,369 2,637,749 37,620
Dutch Guilder,
expiring 12/30/93 407,166 398,546 8,620
---------------- ----------- ---------------
$ 13,159,023 $12,963,783 $ 195,240
---------------- ----------- ---------------
---------------- ----------- ---------------
</TABLE>
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or Federal agency
obligations. At October 31, 1993, the Fund has a 0.2% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $2,436,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the collateral therefor was as follows:
CS First Boston Corp., 2.93%, in the principal amount of $360,000,000,
repurchase price $360,087,900, due 11/1/93, collateralized by $47,400,000 U.S.
Treasury Notes, 6.75%, due 2/28/97; $40,000,000 U.S. Treasury Notes, 11.25%, due
2/15/95; $100,000,000 U.S. Treasury Bonds, 7.50%, due 11/15/16; $50,000,000 U.S.
Treasury Bonds, 10.375%, due 11/15/12 and $50,000,000 U.S. Treasury Bonds,
12.00%, due 5/15/05; aggregate value including accrued interest-- $368,368,052.
Goldman Sachs & Co., 2.93%, in the principal amount of $450,154,000,
repurchase price $450,263,913, due 11/1/93, collateralized by $104,915,000 U.S.
Treasury Bonds, 12.00%, due 8/15/13 and $200,000,000 U.S. Treasury Bonds,
10.75%, due 8/15/05; aggregate value including accrued interest--$462,739,932.
Kidder, Peabody & Co., Inc., 2.95%, in the principal amount of $305,000,000,
repurchase price $305,074,979, due 11/1/93, collateralized by $210,030,000 U.S.
Treasury Bonds, 9.875%, due 11/15/15; value including accrued
interest--$311,527,136.
Nomura Securities International, Inc., 2.90%, in the principal amount of
$60,889,000, repurchase price $60,903,715, due 11/1/93, collateralized by
$8,280,000 U.S. Treasury Notes, 7.75%, due 2/15/95; $25,000,000 U.S. Treasury
Notes, 7.375%, due 5/15/96 and $22,775,000 U.S. Treasury Notes, 8.875%, due
2/15/96; aggregate value including accrued interest--$62,140,276.
Smith Barney Shearson, Inc., 2.94%, in the principal amount of $175,000,000,
repurchase price $175,042,875 due 11/19/93, collateralized by $4,465,000 U.S.
Treasury Bonds, 12.00%, due 5/15/05; $11,435,000 U.S. Treasury Notes, 9.125%,
due 5/15/99; $75,000,000 U.S. Treasury Bonds, 8.125%, due 8/15/19 and
$50,000,000 U.S. Treasury Bonds, 8.00%, due 11/15/21; aggregate value including
accrued interest--$178,771,706.
-14-
<PAGE>
<PAGE>
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>
Six months ended October 31,
1993:
Shares sold.................. 457,348 $ 6,364,326
Shares issued in reinvestment
of
dividends and
distributions.............. 142,666 1,975,926
Shares reacquired............ (408,393) (5,640,201)
---------------- ------------
Net increase in shares
outstanding................ 191,621 $ 2,700,051
---------------- ------------
---------------- ------------
<CAPTION>
Year ended April 30, 1993:
<S> <C> <C>
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)
---------------- ------------
---------------- ------------
<CAPTION>
Class B Shares Amount
---------------- ------------
<S> <C> <C>
Six months ended October 31,
1993:
Shares sold.................. 947,049 $ 13,202,771
Shares issued in reinvestment
of
dividends and
distributions.............. 274,914 3,804,816
Shares reacquired............ (790,201) (10,875,891)
---------------- ------------
Net increase in shares
outstanding................ 431,762 $ 6,131,696
---------------- ------------
---------------- ------------
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>
Note 7. Dividends On December 7, 1993 the
and Distributions Board of Directors of the
Fund declared dividends from undistributed net
investment income to Class A shareholders of $.115 per share and to Class B
shareholders of $.045 per share and capital gains to both Class A and B
shareholders of $1.04 per share, payable on December 21, 1993 to shareholders of
record on December 14, 1993.
-15-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------------- ------------------------------------------------
June 29, June 29,
Six Months Years Ended April 1990* Six Months Years Ended April 1990*
Ended 30, Through Ended 30, Through
PER SHARE OPERATING October 31, ----------------- April 30, October 31, ------------------ April 30,
PERFORMANCE: 1993 1993 1992 1991 1993 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........ .15 .30 .23 .40 .08 .19 .13 .32
Net realized and unrealized
gain on investment and
foreign currency
transactions............... 1.58 1.47 .50 .59 1.58 1.47 .51 .59
------------ ------- ------- ------------ ------------ ------- -------- ------------
Total from investment
operations............... 1.73 1.77 .73 .99 1.66 1.66 .64 .91
------------ ------- ------- ------------ ------------ ------- -------- ------------
Less distributions:
Dividends from net investment
income..................... (.10) (.30) (.30) (.26) (.06) (.19) (.21) (.22)
Distributions from net
realized capital and
currency gains............. (.55) (.79) (.02) -- (.55) (.79) (.02) --
------------ ------- ------- ------------ ------------ ------- -------- ------------
Total distributions........ (.65) (1.09) (.32) (.26) (.61) (.98) (.23) (.22)
------------ ------- ------- ------------ ------------ ------- -------- ------------
Net asset value, end of
period..................... $ 14.27 $ 13.19 $ 12.51 $ 12.10 $ 14.20 $ 13.15 $ 12.47 $ 12.06
------------ ------- ------- ------------ ------------ ------- -------- ------------
------------ ------- ------- ------------ ------------ ------- -------- ------------
TOTAL RETURN@................ 13.19% 15.06% 6.16% 8.99% 12.67% 14.13% 5.39% 8.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $ 49,657 $43,390 $56,625 $ 59,085 $106,484 $92,921 $108,276 $ 99,537
Average net assets (000)..... $ 46,237 $46,890 $57,403 $ 55,545 $ 97,867 $99,072 $108.510 $ 82,890
Ratios to average net assets:
Expenses, including
distribution fees........ 1.36%+ 1.28% 1.29% 1.35%+ 2.16%+ 2.08% 2.09% 2.15%+
Expenses, excluding
distribution fees........ 1.16%+ 1.08% 1.09% 1.15%+ 1.16%+ 1.08% 1.09% 1.15%+
Net investment income...... 1.88%+ 2.44% 1.83% 4.28%+ 1.08%+ 1.64% 1.03% 3.39%+
Portfolio turnover........... 58% 209% 147% 253% 58% 209% 147% 253%
</TABLE>
- ---------------
* Commencement of investment operations.
+ Annualized.
@ Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-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
Call 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 October 31, 1993 were not
audited and, accordingly, no opinion is expressed on them.
74435J108 MF142E2
74435J207 Cat. #4441347
<PAGE>
<PAGE>
I. Prudential Multi-Sector Fund, Inc.
Chart entitled Prudential Mutual Funds: Risk/Reward Spectrum.
The chart shows a graphic representation of the spectrum of risks
of various categories of Prudential Mutual Funds including stock
funds, tax-exempt bond funds, taxable bond funds and global taxable
bond funds. The chart rates the risk of individual Prudential
Mutual Funds relative to other Prudential Mutual Funds in each
category.
Under the category of stock funds, the chart lists from low risk to
high risk the following funds (beginning at the low end of the
spectrum):
FlexiFund (The Conservatively Managed Portfolio)
IncomeVertible Fund
FlexiFund (The Strategy Portfolio)
Equity Income Fund
Utility Fund
Global Utility Fund
Equity Fund
Growth Fund
Global Fund
Nicholas-Applegate Growth Equity Fund
Growth Opportunity Fund
Multi-Sector Fund
Global Natural Resources Fund
Global Genesis Fund
Pacific Growth Fund
Under the category of tax-exempt bond funds, the chart lists from
low risk to high risk the following funds (beginning at the low end
of the spectrum):
Municipal Bond Fund (Modified Term Series)
Municipal Bond Fund (Insured Series)
National Municipals Fund
Municipal Series Fund (State Series Fund)
California Municipal Fund (California Income Series)
Municipal Bond Fund (High Yield Series)
Under the category of taxable bond funds, the chart lists from low
risk to high risk the following funds (beginning at the low end of
the spectrum):
Adjustable Rate Securities Fund
The BlackRock Government Income Fund
Structured Maturity Fund (Income Portfolio)
Government Securities Trust (Intermediate Term Series)
GNMA Fund
Government Plus Fund
U.S. Government Fund
High Yield Fund
Under the category of global taxable bond funds, the chart lists
from low risk to high risk the following funds (beginning at the
low end of the spectrum):
Short-Term Global Income Fund (Global Assets Portfolio)
Short-Term Global Income Fund (Short-Term Global Income
Portfolio)
Intermediate Global Income Fund
<PAGE>
II. Prudential Multi-Sector Fund, Inc.
Performance Charts
A. Historical Investment Results
The chart shows comparative historical investment results for the
one-year, and since inception periods ended October 31,
1993 for the Class A shares of the Fund, the Class B shares of the
Fund, the Lipper Cap. Appreciation Fund Average and the
S&P 500 Index, without taking into account front-end or
contingent deferred sales charges.
B. Average Annual Total Returns
The chart also shows the average annual total returns for the one-
year, and since inception periods ended September 30,
1993 for Class A and Class B shares taking into account any
applicable sales charges.
<PAGE>
<PAGE>
III. Prudential Multi-Sector Fund, Inc.
Mountain Charts
Two mountain charts show the growth of an assumed investment
of $10,000 in Prudential Global Fund. The charts represent
historical performance and are not a guarantee of future
performance of Class A shares or Class B shares.
A. Class A shares
The chart shows the growth of a $10,000 investment in Class A
shares from inception on June 29, 1990 through September 30,
1993, and assumes a front-end sales charge of 5.25%. The chart
shows the value of the investment as of September 30, 1993 (i) with
the reinvestment of dividends and distributions in additional
shares of the Fund and (ii) with all dividends and distributions
taken in cash.
B. Class B shares
The chart shows the growth of a $10,000 investment in Class B
shares from inception on June 29, 1990 through September 30, 1993,
and does not assume the effect of a contingent deferred sales
charge on redemptions. The chart shows the value of the investment
as of September 30, 1993 (i) with the reinvestment of dividends and
distributions in additional shares of the Fund and (ii) with all
dividends and distributions taken in cash.
<PAGE>
<PAGE>
IV. Prudential Multi-Sector Fund, Inc.
Asset Allocation Pie Chart
The chart shows asset allocation by investment
type as a percentage of the Fund's net assets as of
October 31, 1993. As of that date, 83.6% of the Fund's
net assets were invested in Stocks, 9.7% in
Convertibles, 4.5% in other assets and 2.2% was held in
cash.
