SEMI-ANNUAL REPORT OCTOBER 31, 1994
Letter to Shareholders
December 19, 1994
Dear Shareholder:
In the past year, the stock market has provided both good and bad times for
mutual fund investors. Stock market returns slowed at the end of 1993, and
despite a short summer rally, they have been modest all during 1994. We are
pleased to announce that despite the ups and downs of this difficult stock
market, the Prudential Multi-Sector Fund earned above-average returns.
Prudential Multi-Sector Fund At A Glance
CUMULATIVE TOTAL RETURNS1
As of October 31, 1994
<TABLE>
<CAPTION>
Six months Since Inception2
<S> <C> <C>
Class A 11.4% 67.9%
Class B 10.6 62.2
Class C N/A 5.4
Lipper Capital 00.0 54.1(D)
Appreciation Fund Avg.*
S&P 500** 3.9 53.1(D)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS3
Period Ended September 30, 1994
<TABLE>
<CAPTION>
One Year Since Inception2
<S> <C> <C>
Class A 4.7% 11.2%
Class B 4.3 11.5
Class C N/A N/A
</TABLE>
1Source: Lipper Analytical Services, Inc. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctutate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. These figures do not take into account sales
charges. The fund charges a maximum front end sales load of 5.0% for Class A
shares. Class B shares are subject to a declining contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% during these six years. Beginning in
February 1995, the Fund's Class B shares will convert to Class A shares
approximately seven years after purchase.
2 Inception dates: 6/29/90 Class A and Class B, 8/1/94 Class C.
3 Source: Prudential Mutual Fund Management Inc. These averages take into
account applicable sales charges. Class C average annual total returns are not
reported since the share class has only been in existence since August.
*These are the average returns of 13 funds for the capital appreciation fund
category for one year and 87 since inception of the Class A and B shares, as
determined by Lipper Analytical Services, Inc.
**The S&P 500 Index is a capital-weighted index of 500 stocks primarily
traded on the New York Stock Exchange, which represents a broad indication of
stock price movements. The securities that comprise the S&P may differ
substantially from the securities in the Fund.
(D)Since 6/29/90.
-1-
<PAGE>
The Goal
The Fund seeks long-term capital growth by investing primarily in domestic
and foreign stocks of companies in specific economic sectors, and makes
significant shifts among these sectors based on world economic changes and
other investment trends. The Fund may use derivatives like foreign currency
futures, forward contracts and stock options to hedge risk.
Benefitting from the "New World Economic Order"
Greg Smith, chief investment strategist for Prudential Securities
Incorporated and a consultant to the Fund's subadvisor, recommends stock market
sector allocations. He anticipates that the economic recovery underway in the
U.S., Canada, Western Europe and Australia will continue to gather steam. He
also believes developing countries in Latin America, Central Europe and Asia
may be gearing up for economic growth, as well.
Consistent with this forecast, sector allocation recommendations continue to
be translated to stocks expected to benefit from the improving global economy.
We are currently heavily weighted in "cyclical" stocks (i.e., sectors expected
to benefit from economic recovery). These include technology, basic industry
and energy. As of October 31, 1994, these three sectors comprised approximately
62% of the Fund's net assets. The strong performance of these sectors so far
this year has contributed to the Fund's above-average returns relative to its
peers and the broader market.
"Portfolio manager
Greg Goldberg selects the
individual securities for
the Fund."
Crossing the Border for Opportunities
As Europe, Asia and Latin America join the global recovery, we have sought
comparable cyclical opportunities outside the U.S for the stock portion of the
portfolio. Currently, approximately one-third of the portfolio is invested in
foreign companies. These holdings tend to be multinational corporations doing
business around the world, and while most are concentrated in Europe, the Fund
also buys stocks of companies in Asia and Latin America. In investigating
opportunities abroad, we have focused on manufacturers and producers expected
to benefit early in the recovery cycle.
Technological Advances
We expect the strong growth potential in many emerging markets to make the
technology sector a major benefactor of the global recovery. As many
lesser-developed countries invest in the newest and best technology products
available, more-established nations will be forced to follow suit to maintain
comparable levels of technology. This signals growth opportunities for
well-positioned technology firms. Some of the Fund's largest holdings can be
found in this sector, including software firm Silicon Graphics, PC-networking
firm Cisco Systems and computer hardware manufacturers Seagate Technology.
-2-
<PAGE>
Industrial Strength
In the industrial sector, the Fund's holdings are concentrated in the
chemical, fertilizer and forest products industries. We expect companies in
these industries to benefit early in the recovery cycle as economic activity
increases worldwide.
Chemical holdings include Dutch firm Akzo, which has undergone a
restructuring that we believe makes it well-positioned for global recovery.
Canadian fertilizer firm Potash Corp. of Saskatchewan, positioned for
increasing prices and demand in the industry, was the Fund's largest holding
as of October 31, 1994. In forest products, we maintain positions in
International Paper and Finnish low-cost paper producer Kymmene Oy.
Energy Surge
In the energy sector, we are concentrated in oil exploration and production
and oil services firms that should benefit from price increases as demand
outstrips supply. Exxon and recently-privatized French oil firm Elf Aquitaine
are oil exploration and production holdings we expect to benefit from
production increases. Well-positioned oil services holdings include U.S.
driller Sonat Offshore.
Outlook
Despite the uneven performance of the U.S. stock market this year, we believe
the continuing improvement of the U.S. economy - when combined with a similar
recovery overseas - may help U.S. stocks achieve returns in line with
historical averages. At the same time, the uncertainty of inflationary
pressures and their effect on U.S. interest rates and of shifting economic
conditions in global markets makes individual stock selection more important
than ever. Consequently, we will continue to explore opportunities across a
wide range of sectors and geographic regions.
As always, we are pleased you have selected the Prudential Multi-Sector Fund
for the portion of your portfolio devoted to long-term growth.
Sincerely,
Lawrence C. McQuade
President
Gregory Goldberg
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. Portfolio of Investments
October 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--87.4%
Common Stocks--80.5%
Auto Sector--1.3%
485,000 Fiat Spa (Italy)............. $ 1,976,008
29,200 Ford Motor Co................ 861,400
------------
2,837,408
------------
Basic Industry Sector--19.6%
55,800 Akzo N V (ADR)
(Netherlands).............. 3,494,475
10,700 BASF AG (Germany)............ 2,258,869
40,000 Burlington Northern, Inc..... 1,995,000
116,300 Carolina Freight Corp........ 1,177,538
35,000 Cementos Paz Delaware Rio Sa*
(ADR) (Luxembourg)......... 866,250
40,000 General Electric Co.......... 1,955,000
145,000 Hanson PLC (ADR) (United
Kingdom)................... 2,700,625
Hylsamex (ADR) (Mexico)...... 3,318,750
150,000
8,000 I O Data Device, Inc.
(Japan).................... 338,637
3,026,400
58,200 Imperial Chemical Ind. (ADR)
(United Kingdom)...........
29,100 International Paper Co....... 2,167,950
131,100 Kymmene Oy (Finland)......... 3,575,067
200,000 Nextel Communications,
Inc........................ 4,187,500
85,000 Om Group, Inc................ 1,700,000
190,000 Potash Corp. (Canada)........ 6,721,250
77,600 Praxair, Inc................. 1,794,500
80,000 TJ International, Inc........ 1,440,000
------------
42,717,811
------------
Consumer Goods & Services Sector--4.2%
100,000 Au Bon Pain Co., Inc.*....... 1,950,000
34,000 Aviall, Inc.................. 340,000
50,000 Federal Express Corp.*....... 3,037,500
47,000 Nissen Co., Ltd. (Japan)..... 1,916,886
40,000 Temple Inland, Inc........... 1,890,000
------------
9,134,386
------------
Energy Sector--21.7%
43,700 Aquila Gas Pipeline Corp..... 333,213
205,000 Baker Hughes, Inc............ $ 4,202,500
97,000 Cabre Exploration, Ltd.*
(Canada)................... 824,799
100,000 Crestar Energy, Inc.*........ 1,229,251
43,700 Cross Timbers Oil Co......... 699,200
258,500 Discovery West Corp.*
(Canada)................... 1,051,240
184,300 Ensign Resource Service
Group, Inc.*............... 640,475
58,200 Enterprise Oil PLC. (ADR)
(United Kingdom)........... 1,091,250
79,000 Exxon Corp................... 4,967,125
250,000 Global Marine, Inc.*......... 1,187,500
500,000 Mesa, Inc.*.................. 2,562,500
97,000 Morrison Petroleum, Ltd.*
(Canada)................... 645,495
83,400 Oryx Energy Co............... 1,209,300
55,000 Phillips Petroleum Co........ 2,028,125
145,600 Rigel Energy Corp.*.......... 2,013,149
225,000 Rollins Environmental
Services, Inc.............. 1,321,875
301,000 Rowan Cos., Inc.*............ 2,295,125
150,000 Santa Fe Pacific Gold
Corp.*..................... 2,156,250
3,296,250
90,000 Societe Nationale Elf
Aquitaine (ADR) (France)...
183,000 Sonat Offshore Drilling,
Inc........................ 3,637,125
121,300 Talisman Energy, Inc.*
(Canada)................... 2,578,561
53,400 Trident Holding, Inc......... 567,375
116,500 USX--Delhi Group............. 1,412,563
155,000 USX--Marathon Group.......... 2,906,250
2,412,500
100,000 YPF Sociedad Anonima* (ADR)
(Argentina)................
------------
47,268,996
------------
Financial Services Sector--2.7%
Banco Wiese* (ADR) (Peru).... 1,275,000
60,000
28,700 CCP Insurance, Inc........... 444,850
50,000 Continental Corp............. 756,250
75,000 MBNA Corp.................... 2,006,250
43,650 Mercantile Bancorp, Inc...... 1,516,838
------------
5,999,188
------------
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Health Care Sector--0.5%
49,300 Physicians Corp. of America,
Inc.*...................... $ 1,189,363
------------
Public Utilities Sector--2.0%
68,500 Entergy Corp................. 1,601,187
50,000 Telefonos de Mexico (ADR)
(Mexico)................... 2,756,250
------------
4,357,437
------------
Retailing Sector--2.1%
45,000 Burlington Coat Factory
Warehouse*................. 585,000
225,000 Consolidated Stores Corp.*... 4,078,125
------------
4,663,125
------------
Technology Sector--20.2%
118,000 Adaptec, Inc.*............... 2,743,500
46,000 Aspen Technology, Inc.*...... 782,000
60,000 Cheyenne Software, Inc.*..... 667,500
100,000 Cirrus Logic Corp.*.......... 2,875,000
200,000 Cisco Systems, Inc.*......... 6,025,000
85,000 Compaq Computer Corp.*....... 3,410,625
90,000 Cyrix Corp.*................. 3,735,000
125,000 Electronic Arts, Inc.*....... 2,812,500
50,000 Informix Corp.*.............. 1,375,000
20,000 Motorola, Inc................ 1,177,500
2,602,070
63,800 Murata Manufacturing Co.,
Ltd.
(Japan)....................
127,500 National Semiconductors
Corp.*..................... 2,247,187
140,000 Seagate Technology Inc.*..... 3,552,500
155,000 Silicon Graphics, Inc.*...... 4,708,125
110,000 Verifone, Inc.*.............. 2,475,000
60,000 Vishay Intertechnology,
Inc........................ 2,947,500
------------
44,136,007
------------
Transportation Sector--6.2%
1,134,900
19,400 British Airways PLC (ADR)
(United Kingdom)...........
230,000 Canadian Pacific, Ltd.
(Canada)................... $ 3,680,000
50,000 Kansas City Southern Inds.,
Inc........................ 1,687,500
72,800 KLM Royal Dutch Airlines
Corp.*..................... 2,020,200
238,000 Methanex Corp.* (Canada)..... 3,563,533
146,000 Singapore Airlines, Ltd.
(Singapore)................ 1,400,075
------------
13,486,208
------------
Total common stocks
(cost $160,145,709).......... 175,789,929
------------
Convertible Preferred Stocks--5.0%
Basic Industry Sector--2.7%
24,833 Alumax, Inc.................. 3,187,936
25,000 Bethleham Steel Corp.*....... 1,343,750
19,067 Cyprus Amax Minerals Co.*.... 1,194,071
------------
5,725,757
------------
Technology Sector--2.3%
34,000 Nokia Corp. (Finland)........ 5,114,165
------------
Total preferred stocks
(cost $5,732,340).......... 10,839,922
------------
<CAPTION>
Warrants Warrants*--0.4%
- ---------
<C> <S> <C>
Retailing Sector
Autobacs Seven Co. (Japan)
expiring Mar. '96 @
(YEN)8,231
200 (cost $739,375).............. 807,500
------------
<CAPTION>
Principal
Amount Foreign Government
(000) Bonds--1.5%
- ---------
<C> <S> <C>
Federal Republic of Germany
Bonds,
8.00%, 3/20/97
$ 4,724 (cost $3,262,585)............ 3,229,936
------------
Total long-term investments
(cost $169,880,009)........ 190,667,287
------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
SHORT-TERM INVESTMENTS--8.2%
U.S. Government Securities--1.8%
U.S. Treasury Bills,
$ 1,000 # 4.54%, 11/25/94.............. $ 996,973
2,000 # 4.525%, 12/8/94.............. 1,990,699
1,000 # 4.56%, 12/15/94.............. 994,427
------------
Total U.S. Government
securities
(cost $3,982,099).......... 3,982,099
------------
Repurchase Agreement--6.4%
Joint Repurchase Agreement
Account,
13,892 4.77%, 11/1/94, (Note 5)
(cost $13,892,000)......... 13,892,000
------------
Total short-term investments
(cost $17,874,099)......... 17,874,099
------------
Total Investments--95.6%
(cost $187,754,108; Note
4)......................... 208,541,386
------------
<CAPTION>
COMMON STOCKS SOLD
Shares SHORT*--(3.2)%
- ---------
<C> <S> <C>
Retailing Sector--(2.3)%
25,000 Ann Taylor Stores, Inc....... $ (1,037,500)
50,000 Cracker Barrel Old Country,
Inc........................ (1,100,000)
50,000 Sports and Recreation,
Inc........................ (1,836,250)
38,000 Starbucks Corp............... (1,030,750)
------------
(5,004,500)
------------
Technology Sector--(0.9)%
40,000 Biogen, Inc.................. (1,960,000)
------------
Total common stocks sold
short
(proceeds $6,595,189)...... (6,964,500)
------------
Total investments, net of
short sales--92.4%......... 201,576,886
Other assets in excess of
other
liabilities--7.6%.......... 16,502,566
------------
Net Assets--100%............. $218,079,452
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
# Pledged as collateral on short sale.
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets October 31, 1994
----------------
<S> <C>
Investments, at value (cost $187,754,108)............................................... $208,541,386
Foreign currency, at value (cost $17,189,280)........................................... 17,995,719
Cash.................................................................................... 2,696
Deposits with broker for investments sold short......................................... 6,595,189
Receivable for Fund shares sold......................................................... 2,270,386
Dividends and interest receivable....................................................... 299,871
Receivable for investments sold......................................................... 98,750
Deferred expenses and other assets...................................................... 31,916
----------------
Total assets.......................................................................... 235,835,913
----------------
Liabilities
Investments sold short, at value (proceeds $6,595,189).................................. 6,964,500
Payable for investments purchased....................................................... 6,055,835
Payable for Fund shares reacquired...................................................... 3,532,307
Forward contracts--amount payable to counterparties..................................... 803,161
Accrued expenses........................................................................ 149,242
Distribution fee payable................................................................ 138,280
Management fee payable.................................................................. 113,136
----------------
Total liabilities..................................................................... 17,756,461
----------------
Net Assets.............................................................................. $218,079,452
----------------
----------------
Net assets were comprised of:
Common stock, at par.................................................................... $ 15,893
Paid-in capital in excess of par........................................................ 189,051,584
----------------
189,067,477
Overdistributed net investment income................................................... (494,830)
Accumulated net realized capital and currency gains..................................... 9,082,702
Net unrealized appreciation on investments and foreign currencies....................... 20,424,103
----------------
Net assets, October 31, 1994............................................................ $218,079,452
----------------
----------------
Class A:
Net asset value and redemption price per share
($59,096,976 / 4,283,235 shares of common stock issued and outstanding)............. $13.80
Maximum sales charge (5.00% of offering price)........................................ .73
----------------
Maximum offering price to public...................................................... $14.53
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($158,316,885 / 11,561,317 shares of common stock issued and outstanding)........... $13.69
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($665,591 / 48,603 shares of common stock issued and outstanding)................... $13.69
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income October 31, 1994
----------------
<S> <C>
Income
Dividends (net of foreign withholding
taxes of
$59,383)........................... $ 1,059,467
Interest............................. 399,215
----------------
Total income....................... 1,458,682
----------------
Expenses
Management fee....................... 617,489
Distribution fee--Class A............ 67,498
Distribution fee--Class B............ 679,410
Distribution fee--Class C............ 581
Custodian's fees and expenses........ 120,000
Transfer agent's fees and expenses... 115,000
Reports to shareholders.............. 59,000
Amortization of organization
expense.............................. 22,000
Registration fees.................... 20,000
Directors' fees...................... 19,000
Audit fee............................ 15,000
Legal fees........................... 14,000
Miscellaneous........................ 3,177
----------------
Total expenses..................... 1,752,155
----------------
Net investment loss.................... (293,473)
----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Security transactions................ 9,516,514
Foreign currency transactions........ 401,503
Short sale transactions.............. 193,601
Financial futures contracts.......... (1,040,626)
----------------
9,070,992
----------------
Net change in unrealized appreciation
on:
Securities........................... 10,163,593
Short sales.......................... (164,835)
Foreign currencies................... (183,300)
----------------
9,815,458
----------------
Net gain on investments and foreign
currency transactions................ 18,886,450
----------------
Net Increase in Net Assets
Resulting from Operations.............. $ 18,592,977
----------------
----------------
</TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) October 31, April 30,
in Net Assets 1994 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income
(loss)................. $ (293,473) $ 956,693
Net realized gain on
investments and
foreign currency
transactions......... 9,070,992 22,140,711
Net change in
unrealized
appreciation of
investments.......... 9,815,458 (5,325,410)
------------ ------------
Net increase in net
assets resulting from
operations........... 18,592,977 17,771,994
------------ ------------
Net equalization
credits................ 16,247 152,418
------------ ------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A.............. -- (724,102)
Class B.............. -- (736,046)
------------ ------------
-- (1,460,148)
------------ ------------
Distributions from net
capital and currency
gains
Class A.............. (2,921,317) (5,543,404)
Class B.............. (7,437,397) (12,086,917)
Class C.............. (4,255) --
------------ ------------
(10,362,969) (17,630,321)
------------ ------------
Fund share transactions
(Note 6)
Proceeds from Fund
shares subscribed.... 55,922,413 81,243,634
Net asset value of
shares issued in
reinvestment of
dividends and
distributions........ 9,613,750 17,794,396
Cost of shares
reacquired............. (37,038,613) (52,846,996)
------------ ------------
Net increase in net
assets from Fund
share transactions... 28,497,550 46,191,034
------------ ------------
Total increase........... 36,743,805 45,024,977
Net Assets
Beginning of period...... 181,335,647 136,310,670
------------ ------------
End of period............ $218,079,452 $181,335,647
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
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 poli-
cies 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 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 fiscal 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 fiscal period. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains on
security transactions.
Net realized gain on foreign currency transactions of $401,503 represents net
foreign exchange gains 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, interest 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 to changes in currency exchange rates on its
portfolio holdings.
-9-
<PAGE>
<PAGE>
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. There were no
financial futures contracts outstanding at October 31, 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: The Fund accounts for and reports
distributions to shareholders in accordance with the A.I.C.P.A.'s 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. During the six months ended October 31, 1994, the Fund
reclassified $293,473 net operating losses to accumulated net realized gains on
investment transactions from overdistributed net investment income. 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
-10-
<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''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B Plans under which the distribution plans became compensation plans,
effective August 1, 1994. Prior thereto, the distribution plans were
reimbursement plans under which PMFD and PSI were reimbursed for expenses
actually incurred by them up to the amount permitted under the Class A and Class
B Plans, respectively. The Fund is not obligated to pay any prior or future
excess distribution costs (costs incurred by the Distributors in excess of
distribution fees paid by the Fund and contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .25 of 1% of the average daily
net assets of Class A shares and 1% of the average daily net assets of both the
Class B and C shares for the period ended October 31, 1994.
PMFD has advised the Fund that it has received approximately $60,100 in
front-end sales charges resulting from sales of Class A shares during the six
months ended October 31, 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.
PSI has advised the Fund that for the six months ended October 31, 1994, it
received approximately $170,500 in contingent deferred sales charges imposed
upon redemptions by certain Class B shareholders.
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 Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended October 31, 1994, the Fund incurred fees of approximately
$110,000 for the services of PMFS. As of October 31, 1994, approximately $21,500
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, 1994, PSI earned approximately $1,700 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
October 31, 1994 aggregated $82,582,174 and $74,770,121, respectively.
The federal income tax basis of the Fund's investments at October 31, 1994
was $187,793,162 and, accordingly, net unrealized appreciation for federal
income tax purposes was $20,748,224 (gross unrealized appreciation--$27,611,429,
gross unrealized depreciation--$6,863,205).
-11-
<PAGE>
<PAGE>
At October 31, 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 Contract Payable Value (Depreciation)
<S> <C> <C> <C>
- -------------------------- ---------------- ---------- ---------------
Swedish Krona,
expiring 12/01/94 $ 1,042,741 $1,021,050 $ (21,691)
---------------- ---------- ---------------
---------------- ---------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value (Depreciation)
<S> <C> <C> <C>
- ----------------------- ---------------- ----------- ---------------
Finnish Markka,
expiring 12/01/94 $ 5,653,407 $ 6,239,727 $ (586,320)
Japanese Yen,
expiring 11/08/94 4,672,972 4,796,085 (123,113)
Swedish Krona,
expiring 12/01/94 949,013 1,021,050 (72,037)
---------------- ----------- ---------------
$ 11,275,392 $12,056,862 $ (781,470)
---------------- ----------- ---------------
---------------- ----------- ---------------
</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, 1994, the Fund had a 1.5% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $13,892,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the value of the collateral therefor were as
follows:
Smith Barney, Inc., 4.80%, in the principal amount of $260,000,000,
repurchase price $260,034,667, due 11/1/94. The value of the collateral
including accrued interest is $265,200,122.
Nomura Securities International, Inc., 4.77%, in the principal amount of
$100,000,000, repurchase price $100,013,250, due 11/1/94. The value of the
collateral including accrued interest is $102,000,391.
Goldman Sachs & Co., 4.75%, in the principal amount of $275,000,000,
repurchase price $275,036,285, due 11/1/94. The value of the collateral
including accrued interest is $280,500,611.
CS First Boston Corp., 4.75%, in the principal amount of $265,000,000,
repurchase price $265,034,965, due 11/1/94. The value of the collateral
including accrued interest is $271,053,272.
Note 6. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase commencing in or about February 1995.
The Fund has authorized 2 billion shares of common stock, $.001 par value per
share, equally divided into three classes, designated Class A, B and Class C
common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ---------------- ------------
<S> <C> <C>
Six months ended
October 31, 1994:
Shares sold...................... 1,790,510 $ 23,943,694
Shares issued in reinvestment of
distributions.................. 210,776 2,784,357
Shares reacquired................ (1,748,674) (23,335,654)
---------------- ------------
Net increase in shares
outstanding.................... 252,612 $ 3,392,397
---------------- ------------
---------------- ------------
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
---------------- ------------
---------------- ------------
<CAPTION>
Class B
<S> <C> <C>
Six months ended
October 31, 1994:
Shares sold...................... 2,339,002 $ 31,328,953
Shares issued in reinvestment of
distributions.................. 517,448 6,825,143
Shares reacquired................ (1,027,599) (13,702,930)
---------------- ------------
Net increase in shares
outstanding.................... 1,828,851 $ 24,451,166
---------------- ------------
---------------- ------------
</TABLE>
-12-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
- --------------------------------- ---------------- ------------
<S> <C> <C>
Year ended April 30, 1994:
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>
Class C
- ---------------------------------
August 1, 1994* through
October 31, 1994:
<S> <C> <C>
Shares sold...................... 48,283 $ 649,766
Shares issued in reinvestment of
distributions.................. 322 4,250
Shares reacquired................ (2) (29)
---------------- ------------
Net increase in shares
outstanding.................... 48,603 $ 653,987
---------------- ------------
---------------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
Note 7. Distributions On November 15, 1994 the
Board of Directors of the Fund announced a
distribution from net capital and currency gains to Class A, B and C
shareholders of $.525 per share, payable on November 29, 1994 to shareholders
of record on November 22, 1994.
-13-
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
Class C
------------------------------------------------
- ---------------------------------------------------- --------
August
Six June 29, Six
June 29, 1,
Months 1990(D) Months
1990(D) 1994@
Ended Through Ended
Through Through
PER SHARE October Years Ended April 30, April October Years Ended April 30,
April October
OPERATING 31, --------------------------- 30, 31, ------------------------------
30, 31,
PERFORMANCE: 1994 1994 1993 1992 1991 1994 1994 1993 1992
1991 1994
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Net asset
value,
beginning
of
period..... $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 11.37 $ 13.16 $ 13.15 $ 12.47 $ 12.06
$ 11.37 $ 13.74
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
Income from
investment
operations:
Net
investment
income
(loss)..... .03 .18 .30 .23 .40 (.02) .07 .19
.13 .32 (.01)
Net realized
and
unrealized
gain on
investments
and
foreign
currency
transactions... 1.32 1.64 1.47 .50 .59 1.31 1.63 1.47
.51 .59 .72
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
Total from
investment
operations... 1.35 1.82 1.77 .73 .99 1.29 1.70 1.66
.64 .91 .71
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
Less
distributions:
Dividends
from net
investment
income..... -- (.21) (.30) (.30) (.26) -- (.10) (.19)
(.21) (.22) --
Distributions
from net
capital and
currency
gains...... (.76) (1.59) (.79) (.02) -- (.76) (1.59) (.79)
(.02) -- (.76)
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
Total
distributions.. (.76) (1.80) (1.09) (.32) (.26) (.76) (1.69) (.98) (.23)
(.22) (.76)
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
Net asset
value, end
of
period..... $ 13.80 $ 13.21 $ 13.19 $ 12.51 $ 12.10 $ 13.69 $ 13.16 $ 13.15 $ 12.47
$ 12.06 $ 13.69
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
------- ------- ------- ------- -------- -------- -------- -------- --------
-------- --------
TOTAL
RETURN#.... 11.41% 14.16% 15.14% 6.16% 17.64% 10.55% 13.22% 14.13%
5.39% 16.14% 5.38%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
(000)...... $59,097 $53,237 $43,390 $52,625 $ 59,085 $158,317 $128,098 $ 92,921 $108,276
$ 99,537 $ 666
Average net
assets
(000)...... $53,558 $49,840 $46,890 $57,403 $ 55,545 $134,774 $108,981 $ 99,072 $108,510
$ 82,890 $ 236
Ratios to
average net
assets:##
Expenses,
including
distribution
fees..... 1.37%* 1.30% 1.28% 1.29% 1.35%* 2.12%* 2.08% 2.08%
2.09% 2.15%* 2.04%*
Expenses,
excluding
distribution
fees..... 1.12%* 1.08% 1.08% 1.09% 1.15%* 1.12%* 1.08% 1.08%
1.09% 1.15%* 1.04%*
Net
investment
income
(loss)..... .45%* 1.15% 2.44% 1.83% 4.28%* (.36)%* .35% 1.64%
1.03% 3.39%* (.57)%*
Portfolio
turnover... 42% 110% 209% 147% 253% 42% 110% 209%
147% 253% 42%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of investment operations.
@ Commencement of offering of Class C shares.
# 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.
## Because of the event referred to in @ and the timing of such, the ratios
for Class C shares are not necessarily comparable to that of Class A or B
shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
-14-
<PAGE>
