(ICON)
Prudential
Multi-Sector
Fund, Inc.
ANNUAL
REPORT
April 30, 1996
(LOGO)
<PAGE>
Prudential Multi-Sector Fund, Inc.
Performance At A Glance.
Higher corporate earnings and lower interest rates drove U.S. stocks on to
record highs over the last year. But the climb was not without setbacks, and
many stocks, particularly technology stocks, fluctuated sharply late last fall
and again this spring. The Prudential Multi-Sector Fund delivered a solid total
return over the year, but still ranked significantly below the average capital
appreciation fund measured by Lipper Analytical Services and behind the
S&P 500. We believe the Fund's performance was below average because its
technology holdings were hurt by market volatility and it held fewer small
company stocks than the Lipper average. The Fund's performance improved this
year; it was ahead of the S&P 500 from December 31, 1995, to April 30, 1996,
but remained behind the Lipper average.
Cumulative Total Returns1 As of 4/30/96
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 20.7% 88.6% 105.7%
Class B 19.8 81.5 96.6
Class C 19.8 N/A 27.8
Class Z N/A N/A 3.6
Lipper Capital 32.7 109.9 116.9
Appreciation Fund Avg.3
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 13.5% 11.7% 11.6%
Class B 13.5 11.8 11.7
Class C 17.5 N/A 13.4
Class Z N/A N/A N/A
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 5% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares will automatically convert to Class A shares on a quarterly basis,
approximately seven years after purchase. Class Z shares are not subject to a
sales charge or a distribution fee. Class Z shares have been in existence for
less than one year and average annual total returns are not available.
2Inception dates: 6/29/90 Class A and B; 8/1/94 Class C; 3/1/96 Class Z.
3Lipper average returns are for 162 funds for one year, 82 funds for five years
and 72 funds since inception of the Class A and B shares on 6/29/90.
How Investments Compared.
(As of 4/30/96)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
Global Stock Funds will also fluctuate a great deal. However, investments
overseas are subject to political, social and currency risks that may affect
performance.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Greg Goldberg, Fund Manager (PICTURE)
Portfolio
Manager's Report
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 conditions and other
investment trends. The Fund may use derivatives like foreign currency futures,
forward contracts and stock options to hedge risk. The Fund may be affected to
a greater extent by any single economic, political or regulatory development
than a mutual fund that does not focus its investments on specific economic
sectors. There can be no assurance that the Fund will achieve its investment
objective.
Strategy Session.
Since our last report to you six months ago, we've seen signs of stronger
economic activity -- retail sales picked up from extremely depressed levels,
energy prices rose, and California emerged from one of its longest running
recessions in history.
(CHART)
We started to anticipate this economic growth spurt at year-end 1995. Interest
rates had fallen significantly, stimulating the economy. We believed the next
major move in interest rates would be upward. So we sold some of our holdings
in our largest sector -- financial services -- because it is typically hurt by
high interest rates, which raises the cost of its raw material, money. We've
reduced our financial industry holdings to 19% by April 30, 1996, down from a
peak of about 35% of net assets in December. We took profits by selling some of
our shares in Federal National Mortgage Association (FannieMae), which buys and
sells mortgages; SunAmerica, a leading provider of annuities; and Travelers, a
financial services conglomerate.
We invested the proceeds in companies that we expect will benefit from rising
economic activity. Some of the stocks we purchased include USAir, which has
new, highly-regarded management; Inco, the largest publicly owned nickel
company in the world; Alcoa, the aluminum company; Dow Chemical and
Georgia-Pacific. In addition, we added to our holdings in Ucar, which makes
graphite rods used in steelmaking.
Overview.
Greg Smith, chief investment strategist for Prudential Securities, and a
consultant to the Fund's subadviser, recommends asset and stock market sector
allocations, which Portfolio Manager Greg Goldberg is free to use. Goldberg
follows a growth investment style. He looks for stocks with above-average
revenue and earnings growth forecasts and price/earnings ratios below growth
rates.
<PAGE>
What Went Well.
Right Place. Right Time.
We're flexible. The objective of this Fund is to invest in companies in sectors
of the economy that should benefit from significant changes. By definition,
these sectors will not remain the same over time. So we try to hold substantial
assets in the top performing sectors. When we think these sectors are changing,
we change. This flexibility is important to us, because during the past 12
months, stock market leadership shifted frequently.
For example we increased our holdings in financial services to as much as 35%
in December, 1995, up from 25% on May 1, 1995.
As 1995 ended, we began thinking that financial services stocks would not do as
well in 1996, so we were quick to cut back our exposure and moved into stocks
that should benefit from a more rapidly growing economy -- economically
sensitive industrial stocks.
Some Good Picks.
We think we did a good job at selecting stocks. We found some appealing
specialty consumer finance stocks, like The Money Store. Its stock price has
nearly doubled since we started buying it in January, 1996. One of our best
performing financial services stocks in the past 12 months, though, was our old
standby and fourth-largest holding, Federal National Mortgage Association
(Fannie Mae).
And Not So Well.
Right Place. Wrong Time.
Technology stocks shot up like a rocket early in 1995, so we increased our
holdings to as much as 37% by October, 1995. As these shooting stars started to
burn out, we started to sell them in December, reducing our holdings to 32% on
April 30, 1996. We wished we had increased our holdings much faster and sold
down our holdings earlier. During 1995's fourth quarter, some of our
semiconductor stocks lost all of their 1995 gains as concerns of a supply glut
and falling prices rattled investors. We decided to hold on to certain
networking and computer software stocks though, which have since rebounded
nicely.
When investors became skittish about the future earnings growth of technology
companies last fall, many sold them and bought consumer cyclical and industrial
stocks that benefit from a growing economy. While we bought these stocks, too,
we could not buy them fast enough to offset our difficulties in technology.
Five Largest
Issuers.
4.8% Cisco Systems
Technology
2.8% Microsoft
Technology
2.3% RJR Nabisco
Consumer Goods
2.3% FNMA (Fannie Mae)
Financial Services
2.3% FHLMC (Freddie Mac)
Financial Services
Expressed as a percentage of total net assets as of 4/30/96.
Looking Ahead.
As economic growth accelerated in early 1996, it lifted our cyclical stocks and
helped performance. But this growth has created uncertainty because it has
driven interest rates higher. Today's higher interest rates could drive
tomorrow's corporate costs higher, and that could be cause for concern. But we
believe that corporate profits will exceed expectations and overcome these
fears, ultimately driving stock prices higher.
We expect the economy to grow faster, and we're positioned to take advantage of
it. Our cyclical stocks should perform well in an improving economy, and our
financial services stocks should do well in a time of slow growth and stable
interest rates.
1
<PAGE>
A Talk With Greg Goldberg.
Investors Have Many Misconceptions About Technology Stocks.
Technology stocks were the big news the last year. We talked with Prudential
Multi-Sector Fund Portfolio Manager Greg Goldberg about some of the common
misconceptions about technology stocks.
Q. Greg, is this just another boom to bust cycle for technology stocks?
A. No, this is not 1991 or 1985. During those cycles, technology stocks took
off like rockets and then flamed out like meteors. Oversupply was the
problem both times -- manufacturers had made too many semiconductors. Each
setback lasted about 18 months. It's different this time. Technology
companies are financially in much better shape. In 1995, a number of these
companies sold stock, so they have significant cash on hand to get them
through difficulties that might come up.
Q. Is demand for the product different this time?
A. Very much so. Technology now has a broad penetration of the marketplace,
much more so than even a decade earlier. You'll find advanced electronics
today in a wide variety of products -- not just in personal computers and
games. They are in telecommunications, cellular phones, industrial
processes, and autos, among others. Plus, demand is global -- every country
in the world wants to catch up to the U.S. in the use of technology. In
fact, about 40% of the sales of these U.S.-based technology companies are
overseas.
Q. But aren't these stocks highly volatile?
A. Sure, but volatility can bring opportunity. Sometimes, if a technology
company's earnings are growing at 70%, and that growth rate falls to, say,
50%, many investors will sell the stock. These investors see earnings growth
decelerating. But if the stock price drops, I think it's cheap. If I can buy
a fast-growing stock at a significant discount, then I'm happy. Because I
know the stock is fundamentally worth more.
Q. So you see continued opportunity in technology stocks?
A. I believe so -- in the longer term. Some technology company prices are down
50 to 80% from their highs. Most of these companies are in excellent
financial condition -- companies like Intel, Microsoft and IBM. Remember
that an investment in technology stocks, or any other sector, can be very
volatile. It requires patience.
Greg Goldberg
(PICTURE)
2
<PAGE>
President's Letter June 3, 1996
(PHOTO)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures
released by the Investment Company Institute, a mutual fund industry trade
group, new investments in mutual funds reached an all-time monthly high of $33
billion in January of 1996. An additional $66 billion was invested in the
following three months.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and
risks associated with your investments.
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board of
Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency. The materials you'll receive this summer will contain more complete
information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
3
<PAGE>
<PAGE>
Portfolio of Investments as of
April 30, 1996 PRUDENTIAL MULTI-SECTOR FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------------
LONG-TERM INVESTMENTS--94.7%
COMMON STOCKS--94.7%
- ------------------------------------------------------------------
Auto Sector--2.0%
420,000 Honda Motor Co., Ltd. $ 9,582,359
- ---------------------------------------------------------------
Basic Industry Sector--15.1%
163,900 Advanta Corp. 8,215,488
420,000 Agrium Inc. (Canada) 5,507,640
79,000 Alaska Steel Holding Corp. 3,021,750
80,600 Alumax, Inc. 2,700,100
130,000 Aluminum Co. of America 8,108,750
94,000 Dow Chemical Co. 8,354,250
100,000 Georgia-Pacific Corp. 7,775,000
260,000 INCO Ltd. (Canada) 8,742,500
51,800 National Steel Corp.(a) 705,775
65,500 The PMI Group, Inc. 2,783,750
74,400 TJ International, Inc. 1,283,400
175,000 Union Carbide Corp. 7,962,500
132,500 Uniphase Corp. 6,989,375
------------
72,150,278
- ---------------------------------------------------------------
Consumer Goods & Services Sector--3.8%
365,000 RJR Nabisco Holdings Corp. 10,904,375
422,000 Stone Container Corp.(a) 7,174,000
------------
18,078,375
- ---------------------------------------------------------------
Financial Services Sector--18.8%
75,000 Aetna Life & Casualty Co. 5,343,750
55,000 Amerin Corp.(a) 1,244,375
112,500 Citicorp 8,859,375
85,000 Dean Witter, Discover & Co. 4,632,500
43,900 Equitable of Iowa Cos. 1,547,475
130,000 Federal Home Loan Mortgage Corp. 10,838,750
355,000 Federal National Mortgage
Association $ 10,871,875
31,700 Nichiei Construction Co., Ltd.
(Japan) 2,118,276
115,300 Primark Corporation(a) 4,093,150
40,000 Republic New York Corp. 2,375,000
93,500 Student Loan Marketing Association 6,848,875
190,000 SunAmerica, Inc. 10,355,000
153,200 The Equitable Companies Inc. 3,619,350
332,800 The Money Store, Inc. 8,403,200
140,000 Travelers Group Inc. 8,610,000
------------
89,760,951
- ---------------------------------------------------------------
Health Care Sector--9.4%
150,000 AMGEN Inc.(a) 8,625,000
84,400 Bard (C.R.), Inc. 3,080,600
90,000 Ciba-Geigy Ltd. (ADR)
(Switzerland) 5,231,250
150,000 Columbia/HCA Healthcare Corp. 7,968,750
130,900 Forest Laboratories, Inc.(a) 6,037,762
101,300 Physician Corp. of America(a) 1,513,169
135,000 St. Jude Medical, Inc.(a) 4,927,500
205,700 United States Surgical Corp. 7,610,900
------------
44,994,931
- ---------------------------------------------------------------
Leisure Sector--0.7%
117,300 Carnival Cruise Lines, Inc. 3,401,700
- ---------------------------------------------------------------
Precious Metals Sector--1.9%
224,300 UCAR International Inc.(a) 9,196,300
- ---------------------------------------------------------------
Retailing Sector--1.8%
210,000 Dillard Department Stores, Inc. 8,426,250
</TABLE>
- -------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of
April 30, 1996 PRUDENTIAL MULTI-SECTOR FUND, INC.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------------
Technology Sector--31.8%
195,000 ADC Telecommunications, Inc.(a) $ 8,190,000
133,000 Applied Materials, Inc. 5,320,000
285,000 Bay Networks, Inc. 8,977,500
200,000 BDM International, Inc. 9,300,000
109,000 Burr-Brown Corp. 2,098,250
440,000 Cisco Systems, Inc. 22,825,000
100,600 Comverse Technology, Inc.(a) 2,351,525
73,900 Engineering Animation Inc. 1,718,175
110,000 Harman International Industries,
Inc. 5,197,500
145,000 Intel Corp. 9,823,750
80,000 International Business Machines
Corp. 8,600,000
208,800 LSI Logic Corp.(a) 7,516,800
102,200 Macromedia, Inc.(a) 3,851,662
116,000 Microsoft Corporation(a) 13,151,500
284,400 Network Express, Inc.(a) 2,346,300
230,000 NEXTEL Communications, Inc.(a) 4,168,750
215,000 Oracle Systems Corp. 7,256,250
31,700 PIXAR Inc.(a) 737,025
73,700 Ross Technology Inc. 930,463
271,300 SoftKey International Inc.(a) 7,596,400
122,000 Sun Microsystems Inc. 6,618,500
224,700 Ultratech Stepper Inc.(a) 5,870,287
311,900 Western Digital Corp. 7,329,650
------------
151,775,287
- ---------------------------------------------------------------
Transportation Sector--9.4%
100,000 AMR Corp.(a) 8,925,000
220,000 Consolidated Freightways, Inc. 5,747,500
124,000 Southwest Airlines Co. 3,689,000
86,000 The Boeing Co. 7,062,750
30,000 Union Pacific Corp. 2,043,750
600,000 USAir Group Inc.(a) 10,650,000
155,000 Varity Corp.(a) 6,606,875
------------
44,724,875
------------
Total long-term investments
(cost $384,320,799) 452,091,306
------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ---------------------------------------------------------------
SHORT-TERM INVESTMENTS--6.9%
- ---------------------------------------------------------------
U.S. Government Securities--2.4%
United States Treasury Bills,
$1,014(b) 4.85%, 5/30/96 $ 1,010,033
3,025(b) 4.89%, 6/6/96 3,010,365
4,200(b) 4.955%, 6/13/96 4,176,082
1,000(b) 5.005%, 6/13/96 994,305
500(b) 4.92%, 7/11/96 495,099
200(b) 5.00%, 7/11/96 198,040
900 4.99%, 7/25/96 889,417
500 4.995%, 7/25/96 494,121
------------
Total U.S. Government Securities
(cost $11,266,086) 11,267,462
------------
- ---------------------------------------------------------------
Repurchase Agreement--4.5%
21,765 Joint Repurchase Agreement
Account,
5.33%, 5/1/96, (Note 5)
(cost $21,765,000) 21,765,000
------------
Total short-term investments
(cost $33,031,086) 33,032,462
------------
Total investments before short
sale - 101.6%
(cost $417,351,885; Note 4) 485,123,768
------------
<CAPTION>
Shares
- --------
<C> <S> <C>
COMMON STOCK SOLD SHORT(a)--(0.3%)
- ---------------------------------------------------------------
Consumer Goods & Services Sector--(0.3%)
60,000 Reebok International, Ltd.
(proceeds $2,101,070) (1,740,000)
------------
- ---------------------------------------------------------------
Total Investments, net of short sales--101.3% 483,383,768
Liabilities in excess of
other assets--(1.3%) (5,984,560)
------------
Net Assets--100% $477,399,208
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as collateral on short sale.
ADR--American Depository Receipt.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
Assets
April 30, 1996
Investments, at value (cost
$417,351,885)...................................................................
$485,123,768
Receivable for investments
sold.........................................................................
.... 7,140,396
Deposits with broker for securities sold
short..............................................................
2,793,655
Interest and dividends
receivable...................................................................
........ 456,620
Receivable for Fund shares
sold.........................................................................
.... 441,166
Forward currency contracts--net amount receivable from
counterparties....................................... 48,979
Deferred
expenses.....................................................................
...................... 2,685
--------------
Total
assets.......................................................................
...................... 496,007,269
--------------
Liabilities
Bank
overdraft....................................................................
.......................... 466,957
Payable for investments
purchased....................................................................
....... 14,311,969
Investments sold short, at value (proceeds
$2,101,070)......................................................
1,740,000
Payable for Fund shares
reacquired...................................................................
....... 1,207,671
Accrued
expenses.....................................................................
....................... 317,422
Management fee
payable......................................................................
................ 240,850
Distribution fee
payable......................................................................
.............. 240,391
Forward currency contracts--net amount payable to
counterparties............................................ 82,801
--------------
Total
liabilities..................................................................
...................... 18,608,061
--------------
Net
Assets.......................................................................
........................... $477,399,208
--------------
--------------
Net assets were comprised of:
Common stock, at
par..........................................................................
........... $ 33,473
Paid-in capital in excess of
par.........................................................................
380,856,757
--------------
380,890,230
Undistributed net investment
income......................................................................
1,845,925
Accumulated net realized capital and currency
gains...................................................... 26,572,124
Net unrealized appreciation on investments and foreign
currencies........................................ 68,090,929
--------------
Net assets, April 30,
1996.........................................................................
......... $477,399,208
--------------
--------------
Class A:
Net asset value and redemption price per share
($211,919,946 / 14,714,470 shares of common stock issued and
outstanding)............................. $14.40
Maximum sales charge (5.0% of offering
price)............................................................
.76
--------------
Maximum offering price to
public.........................................................................
$15.16
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($239,738,839 / 16,965,870 shares of common stock issued and
outstanding)............................. $14.13
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($5,124,724 / 362,660 shares of common stock issued and
outstanding).................................. $14.13
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($20,615,699 / 1,430,389 shares of common stock issued and
outstanding)............................... $14.41
--------------
--------------
</TABLE>
- -------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC. PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1996
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $97,612)............................. $ 4,984,093
Interest................................... 2,738,582
--------------
Total income............................ 7,722,675
--------------
Expenses
Distribution fee--Class A.................. 503,288
Distribution fee--Class B.................. 2,365,805
Distribution fee--Class C.................. 50,559
Management fee............................. 2,800,143
Transfer agent's fees and expenses......... 875,000
Reports to shareholders.................... 266,000
Custodian's fees and expenses.............. 235,000
Legal fees and expenses.................... 75,000
Directors' fees and expenses............... 38,500
Audit fee and expenses..................... 35,000
Registration fees.......................... 28,000
Amortization of organization expense....... 7,000
Miscellaneous.............................. 9,644
--------------
Total expenses.......................... 7,288,939
--------------
Net investment income......................... 433,736
--------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain on:
Security transactions...................... 66,185,047
Foreign currency transactions.............. 1,213,312
Short sale transactions.................... (5,648,284)
Written option transactions................ (169,051)
--------------
61,581,024
--------------
Net change in unrealized
appreciation/depreciation on:
Securities................................. 54,048,365
Foreign currencies......................... 464,073
Short sales................................ (400,645)
--------------
54,111,793
--------------
Net gain on investments and foreign currency
transactions............................... 115,692,817
--------------
Net Increase in Net Assets
Resulting from Operations..................... $ 116,126,553
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income.......... $ 433,736 $ 282,795
Net realized gain on
investments and foreign
currencies.................. 61,581,024 20,151,682
Net change in unrealized
appreciation/depreciation of
investments................. 54,111,793 3,370,491
-------------- ------------
Net increase in net assets
resulting from operations... 116,126,553 23,804,968
-------------- ------------
Net equalization credits.......... 443,875 72,776
-------------- ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (219,972) --
Class B..................... (209,135) --
Class C..................... (4,629) --
-------------- ------------
(433,736) --
-------------- ------------
Distributions in excess of net
investment income
Class A..................... (1,134) --
Class B..................... (1,078) --
Class C..................... (24) --
-------------- ------------
(2,236) --
-------------- ------------
Distributions from net capital
and currency gains
Class A..................... (18,374,785) (5,260,734)
Class B..................... (26,052,498) (13,945,867)
Class C..................... (586,778) (48,280)
-------------- ------------
(45,014,061) (19,254,881)
-------------- ------------
Fund share transactions (net of
share conversion) (Note 6)
Net proceeds from Fund shares
subscribed (Note 7)......... 299,516,817 131,985,932
Net asset value of Fund shares
issued in reinvestment of
dividends and
distributions............... 42,592,536 17,954,751
Cost of shares reacquired...... (200,926,665) (70,803,068)
-------------- ------------
Net increase in net assets from
Fund share transactions..... 141,182,688 79,137,615
-------------- ------------
Total increase.................... 212,303,083 83,760,478
-------------- ------------
Net Assets
Beginning of year................. 265,096,125 181,335,647
-------------- ------------
End of year....................... $ 477,399,208 $265,096,125
-------------- ------------
-------------- ------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
Prudential Multi-Sector Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a 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 Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities exchange and NASDAQ national market equity securities are valued at
the last reported sales price on the primary exchange on which they are traded.
Securities traded in the over-the-counter market (including securities listed
on
exchanges whose primary market is believed to be over-the-counter) and listed
securities for which no sales were reported on that date are valued at the mean
between the last reported bid and asked prices. Stock options traded on national
securities exchanges are valued at the closing prices on such exchanges.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Fund's
Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians under triparty repurchase
agreements, as the case may be, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. If the seller defaults, and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
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 year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at year end. Similarly, the Fund does not isolate the
effect of changes in foreign exchange rates from the fluctuations arising from
changes in the market prices of long-term portfolio securities sold during the
fiscal year. Accordingly, such realized foreign currency gains (losses) are
included in the reported net realized gains (losses) on investment transactions.
Net realized gain on foreign currency transactions of $1,213,312 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 year end exchange rates are reflected as a component of net
unrealized appreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the level of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on 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.
- -------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
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.
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.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.
Option Writing: When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options which expire unexercised are treated by the Fund on the expiration date
as realized gains from options. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium received is
less than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium is added to the proceeds from
the sale of the underlying security or currency in determining whether the Fund
has realized a gain or loss. If a put option is exercised, the premium reduces
the cost basis of the securities or currencies purchased by the Fund. The Fund,
as writer of an option may have no control over whether the underlying
securities may be sold (call) or purchased (put) and, as a result, bears the
market risk of an unfavorable change in the price of the security or currency
underlying the written option.
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. During the fiscal year ended April 30, 1996, the Fund reclassified
$1,382,107 of foreign currency gains which were recognized for tax purposes in
the current fiscal year by increasing undistributed net investment income and
decreasing accumulated net realized capital and currency gains. 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 organization and initial registration of the
Fund. This amount has been 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.
- -------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
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 manager has agreed
to limit its management fee to no more than .625 of 1% of the first $500 million
of the average daily net assets of the Fund, .55 of 1% of the next $500 million
and .50 of 1% thereafter for the fiscal year ending April 30, 1997.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Prudential Securities Incorporated (``PSI'')
became the distributor of the Class A shares of the Fund effective January 2,
1996 and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD and continues as the distributor of the Class B, Class C
and Class Z shares of the Fund. The Fund compensates PMFD and PSI 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.
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 year ended April 30, 1996.
PMFD and PSI have advised the Fund that they have received approximately
$171,900 in front-end sales charges resulting from sales of Class A shares
during the year ended April 30 1996. From these fees, PMFD and PSI paid such
sales charges to dealers which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Fund that for the year ended April 30, 1996, it received
approximately $526,300 and $2,500 in contingent deferred sales charges imposed
upon redemptions by certain Class B and Class C shareholders, respectively.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended April 30, 1996,
the Fund incurred fees of approximately $784,000 for the services of PMFS. As
of
April 30, 1996, approximately $74,000 of such fees were due to PMFS. Transfer
agent's fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
For the year ended April 30, 1996, PSI earned approximately $75,700 in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended April 30, 1996 aggregated $632,320,206 and $532,120,115,
respectively.
The federal income tax basis of the Fund's investments at April 30, 1996 was
$417,514,054 and, accordingly, net unrealized appreciation for federal income
tax purposes was $67,609,714 (gross unrealized appreciation--$74,376,424, gross
unrealized depreciation--$6,766,710).
Transactions in options written during the fiscal year ended April 30, 1996 were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- ---------
<S> <C> <C>
Options outstanding at April 30,
1995................................ -- --
Options written....................... 300 $132,225
Options terminated in closing purchase
transactions........................ (300) (132,225)
---
---------
Options outstanding at April 30,
1996................................ -- --
--- ---------
--- ---------
</TABLE>
At April 30, 1996, the Fund had outstanding forward currency contracts to
purchase and sell foreign currency as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contracts Payable Value Appreciation
<S> <C> <C> <C>
- ---------------------- ---------------- ---------- ------------
Japanese Yen,
expiring 5/2/96 $4,725,451 $4,774,430 $ 48,979
---------------- ---------- ------------
---------------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Sale Contracts Receivable Value Depreciation
<S> <C> <C> <C>
- --------------------- ---------------- ---------- -------------
Japanese Yen,
expiring 5/2/96 $9,467,456 $9,548,861 $ (81,405)
---------------- ---------- -------------
---------------- ---------- -------------
</TABLE>
- -------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of April 30, 1996, the Fund
had a 1.34% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $21,765,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefor were as follows:
Bear, Stearns & Co., 5.32%, in the principal amount of $535,000,000, repurchase
price $535,079,055, due 5/1/96. The value of the collateral including accrued
interest is $547,286,203.
Goldman Sachs & Co., 5.33%, in the principal amount of $535,000,000, repurchase
price $535,079,209, due 5/1/96. The value of the collateral including accrued
interest is $545,700,215.
Morgan Stanley & Co., Inc., 5.30%, in the principal amount of $22,851,000,
repurchase price $22,854,364, due 5/1/96. The value of the collateral including
accrued interest is $23,347,897.
Smith Barney, Inc., 5.33%, in the principal amount of $535,000,000, repurchase
price $535,079,209, due 5/1/96. The value of the collateral including accrued
interest is $545,700,779.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 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. A special exchange privilege is also available for
shareholders who qualified to purchase Class A shares at net asset value.
Effective March 1, 1996, the Fund commenced offering Class Z shares. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to the Trustees of the PSI 401(k) Plan, a defined
contribution plan sponsored by PSI.
The Fund has authorized 2 billion shares of common stock, $.001 par value per
share, equally divided into four classes, designated Class A, B, C and Class Z
common stock.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------------- -------------
<S> <C> <C>
Year ended April 30, 1996:
Shares sold................... 6,462,195 $ 62,191,760
Shares issued in connection
with acquisition of
Prudential Strategist Fund
(Note 7).................... 10,275,056 140,334,823
Shares issued in reinvestment
of dividends and
distributions............... 1,318,660 17,532,326
Shares reacquired............. (9,677,912) (133,825,643)
---------------- -------------
Net increase in shares
outstanding before
conversion.................. 8,377,999 86,233,266
Shares issued upon conversion
from Class B................ 683,336 9,391,724
---------------- -------------
Net increase in shares
outstanding................. 9,061,335 $ 95,624,990
---------------- -------------
---------------- -------------
Year ended April 30, 1995:
Shares sold................... 3,485,186 $ 45,817,949
Shares issued in reinvestment
of distributions............ 389,581 5,024,771
Shares reacquired............. (2,985,480) (39,186,110)
---------------- -------------
Net increase in shares
outstanding before
conversion.................. 889,287 11,656,610
Shares issued upon conversion
from Class B................ 733,225 9,121,406
---------------- -------------
Net increase in shares
outstanding................. 1,622,512 $ 20,778,016
---------------- -------------
---------------- -------------
<CAPTION>
Class B
- --------
<S> <C> <C>
Year ended April 30, 1996:
Shares sold................... 3,389,483 $ 30,825,970
Shares issued in connection
with acquisition of
Prudential Strategist Fund
(Note 7).................... 3,011,418 40,656,859
Shares issued in reinvestment
of dividends and
distributions............... 1,853,593 24,491,053
Shares reacquired............. (4,546,535) (62,190,799)
---------------- -------------
Net increase in shares
outstanding before
conversion.................. 3,707,959 33,783,083
Shares reacquired upon
conversion from Class A..... (693,976) (9,391,724)
---------------- -------------
Net increase in shares
outstanding................. 3,013,983 $ 24,391,359
---------------- -------------
---------------- -------------
</TABLE>
- -------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------------- -------------
<S> <C> <C>
Year ended April 30, 1995:
Shares sold................... 6,351,539 $ 82,308,938
Shares issued in reinvestment
of distributions............ 1,004,374 12,882,502
Shares reacquired............. (2,410,850) (31,149,102)
---------------- -------------
Net increase in shares
outstanding before
conversion.................. 4,945,063 64,042,338
Shares reacquired upon
conversion from Class A..... (725,642) (9,121,406)
---------------- -------------
Net increase in shares
outstanding................. 4,219,421 $ 54,920,932
---------------- -------------
---------------- -------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Year ended April 30, 1996:
Shares sold................... 196,902 $ 2,694,195
Shares issued in connection
with acquisition of
Prudential Strategist Fund
(Note 7).................... 5,166 69,751
Shares issued in reinvestment
of dividends and
distributions............... 43,092 569,157
Shares reacquired............. (152,356) (2,060,271)
---------------- -------------
Net increase in shares
outstanding................. 92,804 $ 1,272,832
---------------- -------------
---------------- -------------
<CAPTION>
August 1, 1994* through
April 30, 1995:
<S> <C> <C>
Shares sold................... 303,058 $ 3,859,045
Shares issued in reinvestment
of distributions............ 3,797 47,478
Shares reacquired............. (36,999) (467,856)
---------------- -------------
Net increase in shares
outstanding................. 269,856 $ 3,438,667
---------------- -------------
---------------- -------------
- ---------------
* Commencement of offering of Class C shares.
<CAPTION>
Class Z
- ------------------------------
<S> <C> <C>
March 1, 1996* through
April 30, 1996:
Shares sold................... 1,634,755 $ 22,743,459
Shares reacquired............. (204,366) (2,849,952)
---------------- -------------
Net increase in shares
outstanding................. 1,430,389 $ 19,893,507
---------------- -------------
---------------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
Note 7. Acquisition of Prudential Strategist
Fund, Inc.
On June 23, 1995, the Fund acquired all the net assets of Prudential Strategist
Fund, Inc. (``Strategist'') pursuant to a plan of reorganization approved by
Strategist shareholders on June 9, 1995. The acquisition was accomplished by a
tax-free exchange of 10,275,056 Class A shares, 3,011,418 Class B shares, and
5,166 Class C shares of the Fund (valued at $181,061,433 in the aggregate) for
the Class A, B and C shares of Strategist outstanding on June 23, 1995.
Strategist's net assets at that date ($181,061,433), including $42,340,413 of
unrealized appreciation, were combined with those of the Fund. The aggregate net
assets of the Fund and Strategist immediately before the acquisition were
$283,310,931 and $181,061,433, respectively.
- ------------------------------------------------------------
Note 8. Distributions
On June 13, 1996 the Board of Directors of the Fund declared a dividend from net
investment income of $.028 and $.04 per Class A and Z shares, respectively, and
a distribution from net capital and currency gains to Class A, B, C and Z
shareholders of $.825 per share, payable on June 21, 1996 to shareholders of
record on June 18, 1996.
- -------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- --------------------------------------------------------
Years Ended
April 30,
- --------------------------------------------------------
1996 1995(a) 1994
1993 1992
-------- -------
- ------- ------- -------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 13.45 $ 13.21 $
13.19 $ 12.51 $ 12.10
-------- -------
- ------- ------- -------
Income from investment operations:
Net investment income......................... .09 .09
.18 .30 .23
Net realized and unrealized gain on
investments and foreign currency
transactions............................... 2.52 1.44
1.64 1.47 .50
-------- -------
- ------- ------- -------
Total from investment operations........... 2.61 1.53
1.82 1.77 .73
-------- -------
- ------- ------- -------
Less distributions:
Dividends from net investment income.......... (.04) --
(.21) (.30) (.30)
Distributions from net capital and currency
gains...................................... (1.62) (1.29)
(1.59) (.79) (.02)
-------- -------
- ------- ------- -------
Total distributions........................ (1.66) (1.29)
(1.80) (1.09) (.32)
-------- -------
- ------- ------- -------
Net asset value, end of year.................. $ 14.40 $ 13.45 $
13.21 $ 13.19 $ 12.51
-------- -------
- ------- ------- -------
-------- -------
- ------- ------- -------
TOTAL RETURN(b):.............................. 20.69% 12.15%
14.16% 15.14% 6.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $211,920 $76,035
$53,237 $43,390 $52,625
Average net assets (000)...................... $201,315 $59,316
$49,840 $46,890 $57,403
Ratios to average net assets:
Expenses, including distribution fees...... 1.23% 1.44%
1.30% 1.28% 1.29%
Expenses, excluding distribution fees...... .98% 1.19%
1.08% 1.08% 1.09%
Net investment income...................... .47% .68%
1.15% 2.44% 1.83%
For Class A, B, C and Z shares:
Portfolio turnover............................ 136% 122%
110% 209% 147%
Average commission rate paid per share........ $ .0537 N/A
N/A N/A N/A
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the year.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
- -------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
- ----------------------------------------------------------- -----------
Years Ended
April 30, Year Ended
- ----------------------------------------------------------- April 30,
1996 1995(a)
1994 1993 1992 1996
-------- --------
- -------- ------- -------- -----
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 13.29 $ 13.16 $
13.15 $ 12.47 $ 12.06 $ 13.29
-------- --------
- -------- ------- -------- -----
Income from investment operations:
Net investment income (loss).................. .02 (.01)
.07 .19 .13 .03
Net realized and unrealized gain on
investments and foreign currency
transactions............................... 2.45 1.43
1.63 1.47 .51 2.44
-------- --------
- -------- ------- -------- -----
Total from investment operations........... 2.47 1.42
1.70 1.66 .64 2.47
-------- --------
- -------- ------- -------- -----
Less distributions:
Dividends from net investment income.......... (.01) --
(.10) (.19) (.21) (.01)
Distributions from net capital and currency
gains...................................... (1.62) (1.29)
(1.59) (.79) (.02) (1.62)
-------- --------
- -------- ------- -------- -----
Total distributions........................ (1.63) (1.29)
(1.69) (.98) (.23) (1.63)
-------- --------
- -------- ------- -------- -----
Net asset value, end of period................ $ 14.13 $ 13.29 $
13.16 $ 13.15 $ 12.47 $ 14.13
-------- --------
- -------- ------- -------- -----
-------- --------
- -------- ------- -------- -----
TOTAL RETURN(b):.............................. 19.84% 11.31%
13.22% 14.13% 5.39% 19.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $239,739 $185,474
$128,098 $92,921 $108,276 $ 5,125
Average net assets (000)...................... $236,580 $153,209
$108,981 $99,072 $108,510 $ 5,056
Ratios to average net assets:(c)
Expenses, including distribution fees...... 1.98% 2.19%
2.08% 2.08% 2.09% 1.98%
Expenses, excluding distribution fees...... .98% 1.19%
1.08% 1.08% 1.09% .98%
Net investment income (loss)............... (.22)% (.07)%
.35% 1.64% 1.03% (.21)%
<CAPTION>
Class Z
----------
August 1, March 1,
1994(d) 1996(e)
Through Through
April 30, April 30,
1995(a) 1996
--------- ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 13.74 $ 13.91
--------- ----------
Income from investment operations:
Net investment income (loss).................. -- .01
Net realized and unrealized gain on
investments and foreign currency
transactions............................... .84 .49
--------- ----------
Total from investment operations........... .84 .50
--------- ----------
Less distributions:
Dividends from net investment income.......... -- --
Distributions from net capital and currency
gains...................................... (1.29) --
--------- ----------
Total distributions........................ (1.29) --
--------- ----------
Net asset value, end of period................ $ 13.29 $ 14.41
--------- ----------
--------- ----------
TOTAL RETURN(b):.............................. 6.62% 3.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 3,587 $ 20,616
Average net assets (000)...................... $ 1,653 $ 20,298
Ratios to average net assets:(c)
Expenses, including distribution fees...... 2.37%(c) .98%(c)
Expenses, excluding distribution fees...... 1.37%(c) .98%(c)
Net investment income (loss)............... .03%(c) .54%(c)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
period.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
- -------------------------------------------------------------------------------
14 See Notes to Financial Statements.
<PAGE>
<PAGE>
Independent Auditors' Report PRUDENTIAL MULTI-SECTOR FUND, INC.
- -------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Multi-Sector Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential Multi-Sector Fund, Inc. as of April
30, 1996, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
April 30, 1996, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Multi-Sector Fund, Inc. at April 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 13, 1996
Federal Income Tax Information
- -------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (April 30, 1996) as to the federal income tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that during its fiscal year ended April 30, 1996, the Fund paid
distributions for Class A shares totaling $1.657 per share, comprised of $1.084
per share ordinary income, short-term capital gains and currency gains which are
taxable as ordinary income and $0.573 per share long-term capital gains which
is
taxable as such. The Fund paid distributions for Class B and C shares totaling
$1.632 per share, comprised of $1.059 per share ordinary income, short-term
capital gains and currency gains which are taxable as ordinary income and $0.573
per share long-term capital gains which is taxable as such. Further, we wish to
advise you that 14.22% of the ordinary income dividends paid in the fiscal year
ended April 30, 1996 qualified for the corporate dividends received deduction
available to corporate taxpayers.
In January 1997, you will be advised on IRS Form 1099 DIV or substitute Form
1099, as to the federal tax status of the distributions received by you in
calendar 1996. The amounts that will be reported on such Form 1099 DIV will be
the amounts to use on your 1996 federal income tax return and will differ from
the amounts which we must report for the Fund's fiscal year ended April 30,
1996.
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 1.23% of the dividends paid by
the Fund qualify for each of these states' tax exclusion.
- -------------------------------------------------------------------------------
15
<PAGE>
Getting The Most
From Your
Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge -- sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
CLASS A
(CHART)
CLASS B
(CHART)
CLASS C
(CHART)
CLASS Z
(CHART)
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, will be
worth more or less than their original cost. The charts at the top of each
performance box (where applicable) are designed to give you an idea how much
the Fund's returns can fluctuate from year to year by measuring the best and
worst calendar years in terms of total annual return since inception of each
share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Multi-Sector Fund (Class A,
Class B, Class C and Class Z) with a similar investment in the S&P 500 Index by
portraying the initial account values at the commencement of operations of each
class, and subsequent account values at the end of this reporting period (April
30), as measured on a quarterly basis, beginning in 1990 for Class A and B
shares; in 1994 for Class C shares and in 1996 for Class Z shares. For purposes
of the graphs, and unless otherwise indicated, in the accompanying tables it
has been assumed (a) that the maximum applicable front-end sales charge was
deducted from the initial $10,000 investment in Class A shares; (b) the maximum
applicable contingent deferred sales charge was deducted from the value of the
investment in Class B and Class C shares, assuming full redemption on April 30,
1996; (c) all recurring fees (including management fees) were deducted; and (d)
all dividends and distributions were reinvested. Class Z shares do not have a
sales charge or a distribution fee. Class Z shares have been in existence for
less than one year and average annual total returns are not available. Class B
shares will automatically convert to Class A shares, on a quarterly basis,
beginning approximately seven years after purchase. This conversion feature is
not reflected in the graph.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The S&P 500 is an unmanaged index and includes the reinvestment of
all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Fund. The securities in the
S&P 500 may differ substantially from the securities in the Fund. The S&P 500
is not the only index that may be used to characterize performance of stock
funds and other indexes may portray different comparative performance.
Investors cannot directly invest in an index.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
Prudential Mutual Fund Management (LOGO)
Directors
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
Stephen M. Ungerman, Assistant 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
Distributor
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 AuditorsDeloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435J108 MF142E
74435J207 Cat. #444365Y
74435J306
74435J405
