(ICON)
Prudential
Multi-Sector
Fund, Inc.
ANNUAL
REPORT
April 30, 1997
(LOGO)
<PAGE>
Prudential Multi-Sector Fund, Inc.
Performance At A Glance.
While small and medium-sized companies delivered positive returns over
the past 12 months, they trailed larger company stocks. So while we are
pleased to report that your Fund performed better than the average capital
appreciation mutual fund during the past year (as measured by Lipper
Analytical Services), we must note that neither did as well as the
broad stock market (as measured by the Standard & Poor's 500 Index).
That's because of the growth-style, sector-based strategy of your Fund,
which led us to invest in small and mid-sized companies.
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Class A 5.2% 87.1% 116.5%
Cumulative Class B 4.4 80.0 105.3
Total Class C 4.4 N/A 33.4
Returns1 Class Z 5.5 N/A 9.3
As of 4/30/97 Lipper Capital
Appreciation Fund Avg3 3.0 86.3 ***
</TABLE>
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Average Class A 0.8% 11.5% 10.8%
Annual Total Class B 0.3 11.7 10.8
Returns1 Class C 4.3 N/A 10.2
As of 3/31/97 Class Z 6.3 N/A 5.6
</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 Investments 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.
2Inception dates: 6/29/90 Class A and B; 8/1/94 Class C; 3/1/96 Class Z.
3Lipper average returns are for 204 funds for one year and 77
funds for five years.
*** Lipper Since Inception category cumulative return are:
Class A and B, 124.1% for 70 funds; Class C, 44.9% for 128
funds; and Class Z, 7.5% for 202 funds.
How Investments Compared.
(As of 4/30/97)
(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 returns 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.
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.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment provides income that is usually exempt from
federal and state income taxes.
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 and Jeffrey T. Rose, Fund Managers
Portfolio (PICTURE) (PICTURE)
Managers'
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 changes and other investment trends. We
select stocks following a growth investment style, looking for
stocks with above-average revenue and earnings growth forecast
and that are attractively priced. 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 the Fund will achieve its investment objective.
Sectors & Stocks.
Since its inception, the Prudential Multi-Sector Fund has followed
the sector selection of Greg Smith, Chief Investment Strategist
at Prudential Securities, and the securities selection of its
portfolio managers. We've decided to put sector and
security selection in one place. Effective June 2,
Portfolio Managers Greg Goldberg and Jeff Rose, who have
been selecting securities, will also select sectors.
Strategy Session.
We invest in sectors that we believe may perform better than the
market as a whole in the short term, and try to avoid those that
might do worse. As a result, we frequently adjust our holdings
to take advantage of changing market conditions.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
So over the past 12 months we added to our positions in energy
and healthcare stocks while we reduced our holdings in technology
and financial services.
- -- Energy: A year ago, we did not hold any investments here. Today,
it's our second largest sector. Energy companies have been benefitting
from global growth. Though we expect some volatility in the short term,
we believe the trend is up for energy prices over the long haul.
- -- Healthcare: Over the past 12 months we have increased our healthcare
holdings. An aging worldwide population is increasing demand for
drugs and healthcare, which should continue to benefit companies
in this industry.
Over the last 12 months, we've nearly halved our technology
holdings. While we believe in this sector for the long term,
we feel that the months ahead will be difficult.
We also sold a small portion of our financial services holdings
because we were concerned that interest rates could continue
to rise.
<PAGE>
What Went Well.
Riding the Tech Rally.
It's not always easy to get your timing right in the volatile
technology sector, but we were pleased with our decision to sell
most of our shares in Cisco Systems, the leader in computer
networking. We sold the stock at a profit after it had
appreciated significantly. We were glad we did, because by
the end of this reporting period it was well off its highs.
We've also had a great deal of success with Intel, which more
than doubled in price during the last 12 months. We believe
Intel will continue to perform well as it complements its PC
chip strengths with its move into networking.
Financials Pay Off.
The continuing strong performance of financial services stocks
also helped the Fund. Travelers, a conglomerate offering
insurance, brokerage and other financial services, rose 83%
over the last 12 months. Smith Barney, the firm's securities
brokerage subsidiary, posted substantial profits, buoyed by
the strong financial markets.
Bits and Pieces.
Within the energy sector, drill bit maker Smith International was up
63% over the 12 months. You can't drill for oil without bits, so
Smith, the leading drill bit manufacturer, benefited from
increased drilling activity worldwide. In healthcare,
Aetna/U.S. Healthcare's transformation into an HMO force
helped it rise 29%.
And Not So Well.
The Crushing
Technology Wave.
Technology stocks are volatile -- almost by definition -- and many
of these stocks fell in price late in our reporting period. While
we did hold some winners in technology, our relatively large
position as much as 32% of total investments during the
last year prevented us from performing as well as the broader
stock market. We may now look to this sector for buying opportunities.
One victim of the crushing technology wave was Westell, on the
cutting edge of ADSL technology which is bringing internet
services to the home. The firm's stock lost half its value
as anticipated contracts with telecom-munications providers were
delayed by mergers and regulatory concerns in the telecommunications
industry. Still, we expect its price to rebound as conditions in
the telecommuni-cations industry improve.
Five Largest Holdings.
3.9% Novartis A.G. (A.D.R.)
Healthcare
3.5% Exxon Corp.
Energy
2.9% Uniphase Corp.
Technology
2.8% Aetna, Inc.
Healthcare
2.5% UCAR International Inc.
Precious metals
Expressed as a percentage of total
investments as of 4/30/97.
Looking Ahead.
The U.S. stock market is now in its sixth year of a bull
market. We're still cautious in the short term for two
reasons: 1) valuations are historically high, especially
in the so-called "Nifty Fifty" large company stocks and 2)
interest rates may very well rise further. Nevertheless,
we will continue to look for individual sectors and industries
that may perform better than the market as a whole.
We will be watching financial services closely. While prices in
this sector are currently attractive, stocks could be hurt if
interest rates rise significantly. We will await the Federal
Reserve's decision.
1
<PAGE>
President's Letter June 9, 1997
(PICTURE)
Staying The Course.
Dear Shareholder:
With the midpoint of 1997 upon us, I'm pleased to report that the
recent news from the financial markets has been decidedly upbeat.
The Dow Jones Industrial Average has gained nearly 17% through
mid-June, while lower long-term interest rates have
made bonds an attractive investment.
This stands in contrast to April when the Dow fell 10% from a
record high on fears of higher interest rates and surging
inflation. Interest rates have since fallen as the economy
slowed and the Dow has reached several new highs.
The market swings we've seen this year illustrate the importance
of "staying the course" to your financial goal. We realize that
maintaining investment discipline when faced with market
uncertainty isn't easy. Here are some thoughts that may help:
- -- Keep Your Expectations Realistic. The best investors know
that financial markets rise and fall -- and so too, will the
value of their investments. Over time, however, stocks have
been shown to produce very attractive returns that were well ahead
of inflation.
- -- Remember Your Time Horizon. If your investment goals are
long term (several years or more), so should your time horizon.
During this period, it's not unusual for stocks and bonds to
experience several periods of market uncertainty.
- -- We're On Your Side. Your Prudential Securities Financial
Advisor or Pruco Securities Registered Representative can help
you understand what's happening in the financial markets. They
can assist you in making informed decisions based upon a
thorough knowledge of your financial needs and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do everything we can to keep you informed and
to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as
of April 30, 1997 PRUDENTIAL MULTI-SECTOR FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--97.1%
COMMON STOCKS--96.8%
------------------------------------------------------------
Auto Sector--0.8%
68,632 LucasVarity PLC (ADR) (United
Kingdom) (a) $ 2,058,960
113,850 Miller Industries, Inc. (a) 1,351,969
------------
3,410,929
- ------------------------------------------------------------
Basic Industry Sector-->1.8%
406,700 Agrium, Inc. (Canada) 5,219,322
177,200 Polymer Group, Inc. (a) 2,259,300
------------
7,478,622
- ------------------------------------------------------------
Consumer Goods & Services Sector--4.0%
45,000 Mattel, Inc. 1,254,375
268,400 RJR Nabisco Holdings Corp. 7,984,900
99,400 Stone Container Corp. (a) 1,006,425
32,700 The Unilever Group (a) 6,417,375
------------
16,663,075
- ------------------------------------------------------------
Energy Sector--23.9%
176,900 Alberta Energy Co., Ltd. (a) 3,781,237
96,000 Anadarko Petroleum Corp. 5,268,000
153,400(b) BJ Services Co. (a) 7,228,975
299,700 Bouygues Offshore S.A. (ADR) (a) 3,746,250
34,500 Diamond Offshore Drilling, Inc.
(a) 2,220,938
175,600 Elf Aquitaine S.A. (ADR) (France)
(a) 8,538,550
254,400(b) Exxon Corp. 14,405,400
231,900 Input/Output, Inc. (a) 3,246,600
173,000 J. Ray McDermott, S.A. (a) 2,962,625
200,000 McDermott International, Inc. 3,700,000
153,600 Noble Affiliates, Inc. 5,491,200
87,500 Parker & Parsley Petroleum Co. 2,887,500
55,000 Schlumberger, Ltd. 6,091,250
187,200 Smith International, Inc. (a) 8,868,600
48,400 Texaco, Inc. 5,106,200
122,400 The Williams Companies, Inc. 5,370,300
134,700 Weatherford Enterra, Inc. (a) 4,276,725
235,400 YPF Sociedad Anonima (ADR)
(Argentina) $ 6,502,925
------------
99,693,275
- ------------------------------------------------------------
Financial Services Sector--15.6%
89,900 Advanta Corp. 2,000,275
26,000 American International Group, Inc. 3,341,000
62,500 Chase Manhattan Corp. 5,789,063
70,000(b) Citicorp 7,883,750
151,000 Crescent Real Estate Equities,
Inc. 3,963,750
123,000 Developers Diversified Reality
Corp. 4,535,625
213,500(b) Federal National Mortgage
Association 8,780,187
130,800 Manufactured Home Communities,
Inc. 2,746,800
37,700 Meditrust Corp. 1,376,050
80,100 ReliaStar Financial Corp. 4,846,050
49,200 Student Loan Marketing Association 5,817,900
319,000 The Money Store, Inc. 6,898,375
126,066 Travelers Group, Inc. 6,980,905
------------
64,959,730
- ------------------------------------------------------------
Health Care Sector--13.4%
128,200(b) Aetna, Inc. 11,682,225
226,050 Columbia/HCA Healthcare Corp. 7,911,750
33,600 Johnson & Johnson Co. 2,058,000
247,000 Novartis AG (ADR) (Switzerland) 16,302,000
75,000 Pfizer, Inc. 7,200,000
226,900 Pharmacia & Upjohn, Inc. 6,721,912
177,600 Premier Research Worldwide, LTD.
(a) 1,709,400
78,000 Sierra Health Services, Inc. (a) 2,008,500
------------
55,593,787
- ------------------------------------------------------------
Leisure Sector--5.8%
191,200 Carnival Corp. - Class A 7,050,500
214,700 Hilton Hotels Corp. 5,796,900
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of April 30, 1997 PRUDENTIAL MULTI-SECTOR FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Leisure Sector (cont'd.)
267,800 La Quinta Inns, Inc. $ 5,858,125
220,600 Patriot American Hospitality, Inc. 4,742,900
52,900 Prime Hospitality Corp. (a) 879,462
------------
24,327,887
- ------------------------------------------------------------
Precious Metals Sector--2.5%
244,700 UCAR International, Inc. (a) 10,277,400
- ------------------------------------------------------------
Retailing Sector--9.8%
124,900 American Stores Co. 5,682,950
88,000 CVS Corp. 4,367,000
287,000(b) Gap, Inc. 9,148,125
738,000 Kmart Corp. (a) 10,055,250
92,100 Quality Food Centers, Inc. (a) 3,695,512
68,300 Sears Roebuck & Co. 3,278,400
157,000 Toys 'R' Us, Inc. (a) 4,474,500
------------
40,701,737
- ------------------------------------------------------------
Technology Sector--19.2%
261,075 ADC Telecommunications, Inc. (a) 6,820,584
322,200 BDM International, Inc. (a) 7,491,150
3,000 C-NET Inc. (a) 60,750
83,500 Cisco Systems, Inc. (a) 4,321,125
200,000 Cognizant Corp. 6,525,000
101,500(b) Computer Associates International,
Inc. 5,278,000
121,600 Comverse Technology, Inc. (a) 4,772,800
113,300 Edify Corp. (a) 1,232,138
141,600 Harman International Industries,
Inc. 5,416,200
59,600 Intel Corp. 9,126,250
245,500 Larscom, Inc. (a) 1,526,703
74,000 Microsoft Corp. (a) 8,991,000
32,700 SGS-Thomson Microelectronics N.V.
(a) 2,562,863
301,400 Uniphase Corp. (a) 11,980,650
231,550 Westell Technologies, Inc. (a) 3,994,237
------------
80,099,450
------------
Total common stocks
(cost $355,594,570) 403,205,892
------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
CONVERTIBLE BONDS--0.3%
- ------------------------------------------------------------
Technology Sector--0.3%
$1,579 The Learning Co., Inc.
5.50%, 11/1/00
(cost $1,351,464) $ 1,132,933
------------
Total long-term investments
(cost $356,946,034) 404,338,825
------------
SHORT-TERM INVESTMENTS--4.8%
REPURCHASE AGREEMENT
- ------------------------------------------------------------
19,879 Joint Repurchase Agreement Account
5.42%, 5/1/97, (Note 5)
(cost $19,879,000) 19,879,000
------------
Total investments before
short sales--101.9%
(cost $376,825,034; Note 4) 424,217,825
------------
Shares
- --------
COMMON STOCK SOLD SHORT(a)--(2.0%)
- ------------------------------------------------------------
Restaurants Sector--(1.6%)
175,000 Cracker Barrel Old Country Store,
Inc. (4,681,250)
109,300 Planet Hollywood International,
Inc. (2,008,388)
------------
(6,689,638)
- ------------------------------------------------------------
Education Sector--(0.4%)
50,000 Apollo Group, Inc. (1,343,750)
------------
Total common stocks sold short
(proceeds $7,871,565) (8,033,388)
------------
Total investments, net of short sales--99.9% 416,184,437
Other assets in excess of
liabilities--0.1% 307,284
------------
Net Assets--100% $416,491,721
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Pledged as collateral on short sale.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1997
<S> <C>
Investments, at value (cost $376,825,034)................................................................... $424,217,825
Cash........................................................................................................ 14,204
Receivable for investments sold............................................................................. 6,609,903
Deposits with broker for securities sold short.............................................................. 2,825,213
Dividends and interest receivable........................................................................... 705,084
Receivable for Fund shares sold............................................................................. 312,684
Forward currency contracts--net amount receivable from counterparties....................................... 247,041
Other assets................................................................................................ 8,187
--------------
Total assets............................................................................................. 434,940,141
--------------
Liabilities
Payable for investments purchased........................................................................... 8,403,228
Investments sold short, at value (proceeds $7,871,565)...................................................... 8,033,388
Payable for Fund shares reacquired.......................................................................... 966,600
Accrued expenses............................................................................................ 469,427
Management fee payable...................................................................................... 210,069
Distribution fee payable.................................................................................... 199,241
Forward currency contracts--net amount payable to counterparties............................................ 166,467
--------------
Total liabilities........................................................................................ 18,448,420
--------------
Net Assets.................................................................................................. $416,491,721
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 31,305
Paid-in capital in excess of par......................................................................... 352,165,003
--------------
352,196,308
Undistributed net investment income...................................................................... 773,019
Accumulated net realized capital and currency gains...................................................... 16,210,852
Net unrealized appreciation on investments and foreign currencies........................................ 47,311,542
--------------
Net assets, April 30, 1997.................................................................................. $416,491,721
--------------
--------------
Class A:
Net asset value and redemption price per share
($203,196,502 / 15,079,268 shares of common stock issued and outstanding)............................. $13.48
Maximum sales charge (5% of offering price).............................................................. 0.71
--------------
Maximum offering price to public......................................................................... $14.19
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($191,598,878 / 14,609,250 shares of common stock issued and outstanding)............................. $13.11
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($4,298,251 / 327,760 shares of common stock issued and outstanding).................................. $13.11
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($17,398,090 / 1,288,814 shares of common stock issued and outstanding)............................... $13.50
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1997
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $37,478)............................. $ 5,346,239
Interest................................... 2,316,393
--------------
Total income............................ 7,662,632
--------------
Expenses
Management fee............................. 2,841,669
Distribution fee--Class A.................. 528,760
Distribution fee--Class B.................. 2,192,493
Distribution fee--Class C.................. 47,081
Transfer agent's fees and expenses......... 855,000
Reports to shareholders.................... 299,000
Custodian's fees and expenses.............. 220,000
Registration fees.......................... 90,000
Legal fees and expenses.................... 40,000
Audit fee and expenses..................... 38,000
Directors' fees and expenses............... 31,250
Miscellaneous.............................. 24,028
--------------
Total expenses.......................... 7,207,281
--------------
Net investment income......................... 455,351
--------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions.................... 46,396,562
Foreign currency transactions.............. 870,241
Short sale transactions.................... (4,748,882)
--------------
42,517,921
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................ (20,382,004)
Foreign currencies......................... 125,510
Short sales................................ (522,893)
--------------
(20,779,387)
--------------
Net gain on investments and foreign currency
transactions............................... 21,738,534
--------------
Net Increase in Net Assets
Resulting from Operations..................... $ 22,193,885
--------------
--------------
</TABLE>
<TABLE>
PRUDENTIAL MULTI-SECTOR FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income.......... $ 455,351 $ 433,736
Net realized gain on
investments and foreign
currencies.................. 42,517,921 61,581,024
Net change in unrealized
appreciation (depreciation)
of investments.............. (20,779,387) 54,111,793
-------------- ------------
Net increase in net assets
resulting from operations... 22,193,885 116,126,553
-------------- ------------
Net equalization credits.......... -- 443,875
-------------- ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (400,225) (219,972)
Class B..................... -- (209,135)
Class C..................... -- (4,629)
Class Z..................... (55,126) --
-------------- ------------
(455,351) (433,736)
-------------- ------------
Distributions in excess of net
investment income
Class A..................... (566,340) (1,134)
Class B..................... (620,254) (1,078)
Class C..................... (12,405) (24)
Class Z..................... (50,726) --
-------------- ------------
(1,249,725) (2,236)
-------------- ------------
Distributions from net capital
gains
Class A..................... (23,717,108) (18,374,785)
Class B..................... (25,810,921) (26,052,498)
Class C..................... (537,914) (586,778)
Class Z..................... (2,170,377) --
-------------- ------------
(52,236,320) (45,014,061)
-------------- ------------
Fund share transactions (net of
share conversion) (Note 6)
Net proceeds from Fund shares
subscribed.................. 116,532,381 299,516,817
Net asset value of Fund shares
issued in reinvestment of
dividends and
distributions............... 50,651,007 42,592,536
Cost of shares reacquired...... (196,343,364) (200,926,665)
-------------- ------------
Net increase (decrease) in net
assets from Fund share
transactions................ (29,159,976) 141,182,688
-------------- ------------
Total increase (decrease)......... (60,907,487) 212,303,083
Net Assets
Beginning of year................. 477,399,208 265,096,125
-------------- ------------
End of year....................... $ 416,491,721 $477,399,208
-------------- ------------
-------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 6
<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 Investments Fund Management
LLC ('PIFM'). 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 and securities sold short,
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 $870,241 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.
- --------------------------------------------------------------------------------
-----
7
<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. The proceeds received from
the short sale are maintained 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: Effective May 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital 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. The balance of $466,054 of undistributed net investment income at
October 31, 1996, resulting from equalization was transferred to paid-in capital
in excess of par. Such reclassification has no effect on net assets, results of
operations, or net asset value per share.
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, 1997, the Fund reclassified
$642,873 of foreign currency gains which were recognized for tax purposes in the
current and prior fiscal years 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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PIFM 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. PIFM
pays for the cost of the subadviser's services, the compensation of officers of
the Fund, occupancy
- --------------------------------------------------------------------------------
-----
8
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
and certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .65 of 1% of the Fund's average daily net assets. For the fiscal year
ended April 30, 1997, the manager 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 of average daily net assets and .50 of
1% of the Fund's average daily net assets in excess of $1 billion.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates 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.
No distribution or service fees are paid to PSI as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI 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, 1997.
PSI has advised the Fund that they have received approximately $80,500 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended April 30 1997. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Fund that for the fiscal year ended April 30, 1997, it
received approximately $470,300 and $3,400 in contingent deferred sales charges
imposed upon redemptions by certain Class B and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve an an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of April 30,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the fiscal year ended April 30,
1997, the Fund incurred fees of approximately $832,900 for the services of PMFS.
As of April 30, 1997, approximately $71,900 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 fiscal year ended April 30, 1997, PSI earned approximately $87,900 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 fiscal year ended April 30, 1997 were $413,306,164 and $486,324,247,
respectively.
The cost basis of investments for federal income tax purposes at April 30, 1997
was $376,836,551 and, accordingly, net unrealized appreciation of investments
for federal income tax purposes was $47,381,274 (gross unrealized
appreciation--$68,478,387, gross unrealized depreciation--$21,097,113).
At April 30, 1997, 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 Depreciation
<S> <C> <C> <C>
- ---------------------- ---------------- ---------- ------------
Japanese Yen,
expiring 5/6/97 $4,100,377 $3,933,910 $ (166,467)
---------------- ---------- ------------
---------------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Sale Contracts Receivable Value Appreciation
<S> <C> <C> <C>
- --------------------- ---------------- ---------- -------------
Japanese Yen,
expiring 5/6/97 $4,180,951 $3,933,910 $ 247,041
---------------- ---------- -------------
---------------- ---------- -------------
</TABLE>
- --------------------------------------------------------------------------------
-----
9
<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, 1997, the Fund
had a 2.45% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $19,879,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefore were as follows:
CS Boston Corp., 5.50% dated 4/30/97, in the principal amount of $208,000,000,
repurchase price $208,031,778, due 5/1/97. The value of the collateral including
accrued interest is $214,501,123.
J.P. Morgan Securities, 5.42% dated 4/30/97 in the principal amount of
$208,000,000, repurchase price $208,031,316, due 5/1/97. The value of the
collateral including accrued interest is $212,160,231.
SBC Warburg, 5.30% dated 4/30/97 in the principal amount of $144,000,000,
repurchase price $144,021,200, due 5/1/97. The value of the collateral including
accrued interest is $146,969,072.
Smith Barney, Inc., 5.25% and 5.44%, both dated 4/30/97 in the principal amount
of $43,121,000 and $208,000,000 respectively, repurchase price $43,127,288 and
$208,031,431 respectively, both due 5/1/97. The value of the combined collateral
including accrued interest is $256,144,337.
- ------------------------------------------------------------
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 qualify to purchase Class A shares at net asset value. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
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, 1997:
Shares sold................... 6,197,250 $ 86,386,710
Shares issued in reinvestment
of
dividends and
distributions............... 1,685,407 23,239,649
Shares reacquired............. (8,634,608) (120,199,576)
---------------- -------------
Net decrease in shares
outstanding before
conversion.................. (751,951) (10,573,217)
Shares issued upon conversion
from Class B................ 1,116,749 15,549,557
---------------- -------------
Net increase in shares
outstanding................. 364,798 $ 4,976,340
---------------- -------------
---------------- -------------
Year ended April 30, 1996:
Shares sold................... 6,462,195 $ 62,191,760
Shares issued in connection
with
acquisition of Prudential
Strategist Fund............. 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
---------------- -------------
---------------- -------------
<CAPTION>
Class B
- ------------------------------
<S> <C> <C>
Year ended April 30, 1997:
Shares sold................... 1,236,387 $ 16,762,196
Shares issued in reinvestment
of
dividends and
distributions............... 1,823,196 24,608,185
Shares reacquired............. (4,273,687) (57,627,667)
---------------- -------------
Net decrease in shares
outstanding before
conversion.................. (1,214,104) (16,257,286)
Shares reacquired upon
conversion
from Class A................ (1,142,516) (15,549,557)
---------------- -------------
Net decrease in shares
outstanding................. (2,356,620) $ (31,806,843)
---------------- -------------
---------------- -------------
Year ended April 30, 1996:
Shares sold................... 3,389,483 $ 30,825,970
Shares issued in connection
with
acquisition of Prudential
Strategist Fund............. 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>
- --------------------------------------------------------------------------------
-----
10
<PAGE>
Notes to Financial Statements PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------ ---------------- -------------
<S> <C> <C>
Year ended April 30, 1997:
Shares sold................... 63,373 $ 852,741
Shares issued in reinvestment
of
dividends and
distributions............... 39,044 526,955
Shares reacquired............. (137,317) (1,878,420)
---------------- -------------
Net decrease in shares
outstanding................. (34,900) $ (498,724)
---------------- -------------
---------------- -------------
Year ended April 30, 1996:
Shares sold................... 196,902 $ 2,694,195
Shares issued in connection
with
acquisition of Prudential
Strategist Fund............. 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>
Class Z
- ------------------------------
<S> <C> <C>
Year ended April 30, 1997:
Shares sold................... 897,823 $ 12,530,734
Shares issued in reinvestment
of
distributions............... 165,237 2,276,218
Shares reacquired............. (1,204,635) (16,637,701)
---------------- -------------
Net decrease in shares
outstanding................. (141,575) $ (1,830,749)
---------------- -------------
---------------- -------------
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
---------------- -------------
---------------- -------------
- ---------------
* Commencement of offering of Class Z shares.
</TABLE>
- ------------------------------------------------------------
Note 7. Distributions
On June 24, 1997 the Board of Directors of the Fund declared a distribution from
net capital and currency gains to Class A, B, C and Z shareholders of $0.565 per
share, payable on June 27, 1997 to shareholders of record on June 24, 1997.
- --------------------------------------------------------------------------------
-----
11
<PAGE>
Financial Highlights PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
Years Ended April 30,
---------------------------------------------------------
1997 1996 1995(a) 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 14.40 $ 13.45 $ 13.21 $ 13.19 $ 12.51
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income......................... .06 .09 .09 .18 .30
Net realized and unrealized gain on
investments and foreign currency
transactions............................... .70 2.52 1.44 1.64 1.47
-------- -------- ------- ------- -------
Total from investment operations........... .76 2.61 1.53 1.82 1.77
-------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income.......... (.03) (.04) -- (.21) (.30)
Distributions in excess of net investment
income..................................... (.04) -- -- -- --
Distributions from net capital and currency
gains...................................... (1.61) (1.62) (1.29) (1.59) (.79)
-------- -------- ------- ------- -------
Total distributions........................ (1.68) (1.66) (1.29) (1.80) (1.09)
-------- -------- ------- ------- -------
Net asset value, end of year.................. $ 13.48 $ 14.40 $ 13.45 $ 13.21 $ 13.19
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
TOTAL RETURN(b):.............................. 5.24% 20.69% 12.15% 14.16% 15.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $203,197 $211,920 $76,035 $53,237 $43,390
Average net assets (000)...................... $211,504 $201,315 $59,316 $49,840 $46,890
Ratios to average net assets:
Expenses, including distribution fees...... 1.23% 1.23% 1.44% 1.30% 1.28%
Expenses, excluding distribution fees...... .98% .98% 1.19% 1.08% 1.08%
Net investment income...................... .48% .47% .68% 1.15% 2.44%
For Class A, B, C and Z shares:
Portfolio turnover............................ 99% 136% 122% 110% 209%
Average commission rate paid per share........ $ .0572 $ .0537 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. 12
<PAGE>
Financial Highlights PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Years Ended April 30,
-----------------------------------------------------------
1997 1996 1995(a) 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 14.13 $ 13.29 $ 13.16 $ 13.15 $ 12.47
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income (loss).................. (.05) .02 (.01) .07 .19
Net realized and unrealized gain on
investments and foreign currency
transactions............................... .68 2.45 1.43 1.63 1.47
-------- -------- -------- -------- -------
Total from investment operations........... .63 2.47 1.42 1.70 1.66
-------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income.......... -- (.01) -- (.10) (.19)
Distributions in excess of net investment
income..................................... (.04) -- -- -- --
Distributions from net capital and currency
gains...................................... (1.61) (1.62) (1.29) (1.59) (.79)
-------- -------- -------- -------- -------
Total distributions........................ (1.65) (1.63) (1.29) (1.69) (.98)
-------- -------- -------- -------- -------
Net asset value, end of year.................. $ 13.11 $ 14.13 $ 13.29 $ 13.16 $ 13.15
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN(b):.............................. 4.43% 19.84% 11.31% 13.22% 14.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $191,599 $239,739 $185,474 $128,098 $92,921
Average net assets (000)...................... $219,249 $236,580 $153,209 $108,981 $99,072
Ratios to average net assets:
Expenses, including distribution fees...... 1.98% 1.98% 2.19% 2.08% 2.08%
Expenses, excluding distribution fees...... .98% .98% 1.19% 1.08% 1.08%
Net investment income (loss)............... (.28)% (.22)% (.07)% .35% 1.64%
</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.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 13
<PAGE>
Financial Highlights PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
------------------------------- --------------------------
August 1, March 1,
Years Ended April 1994(d) 1996(e)
30, Through Year Ended Through
----------------- April 30, April 30, April 30,
1997 1996 1995(a) 1997 1996
------ ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $14.13 $13.29 $ 13.74 $ 14.41 $ 13.91
------ ------ --------- ----------- ----------
Income from investment operations:
Net investment income (loss).................. (.04) .03 -- .11 .01
Net realized and unrealized gain on
investments and foreign currency
transactions............................... .67 2.44 .84 .67 .49
------ ------ --------- ----------- ----------
Total from investment operations........... .63 2.47 .84 .78 .50
------ ------ --------- ----------- ----------
Less distributions:
Dividends from net investment income.......... -- (.01) -- (.04) --
Distributions in excess of net investment
income..................................... (.04) -- -- (.04) --
Distributions from net capital and currency
gains...................................... (1.61) (1.62) (1.29) (1.61) --
------ ------ --------- ----------- ----------
Total distributions........................ (1.65) (1.63) (1.29) (1.69) --
------ ------ --------- ----------- ----------
Net asset value, end of year.................. $13.11 $14.13 $ 13.29 $ 13.50 $ 14.41
------ ------ --------- ----------- ----------
------ ------ --------- ----------- ----------
TOTAL RETURN(b):.............................. 4.43% 19.84% 6.62% 5.48% 3.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $4,298 $5,125 $ 3,587 $17,398 $ 20,616
Average net assets (000)...................... $4,708 $5,056 $ 1,653 $19,206 $ 20,298
Ratios to average net assets:
Expenses, including distribution fees...... 1.98% 1.98% 2.37%(c) .98% .98%(c)
Expenses, excluding distribution fees...... .98% .98% 1.37%(c) .98% .98%(c)
Net investment income (loss)............... (.27)% (.21)% .03%(c) .74% .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.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 14
<PAGE>
Report of Independent Accountants PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
Prudential Multi-Sector Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Multi-Sector Fund, Inc.
(the 'Fund') at April 30, 1997, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as 'financial
statements') are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at April 30, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above. The accompanying statement
of changes in net assets for the year ended April 30, 1996 and financial
highlights for each of the four years in the period ended April 30, 1996 were
audited by other independent accountants, whose opinion dated June 13, 1996 was
unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 24, 1997
Tax Information (Unaudited) PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (April 30, 1997) 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, 1997, the Fund paid
distributions for Class A shares totaling $1.673 per share, comprised of $0.463
per share ordinary income, short-term capital gains and currency gains which are
taxable as ordinary income and $1.210 per share long-term capital gains which is
taxable as such. The Fund paid distributions for Class B and C shares totaling
$1.645 per share, comprised of $0.435 per share short-term capital gains and
currency gains which are taxable as ordinary income and $1.21 per share
long-term capital gains which is taxable as such. The Fund paid distributions
for Class Z shares totaling $1.685 per share, comprised of $0.475 per share
ordinary income, short-term capital gains and currency gains which are taxable
as ordinary income and $1.21 per share long-term capital gains which is taxable
as such. Further, we wish to advise you that 17.67% of the ordinary income
dividends paid in the fiscal year ended April 30, 1997 qualified for the
corporate dividends received deduction available to corporate taxpayers.
In January 1998, 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 1997. The amounts that will be reported on such Form 1099 DIV will be
the amounts to use on your 1997 federal income tax return and will differ from
the amounts which we must report for the Fund's fiscal year ended April 30,
1997.
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 4.40% of the dividends paid by
the Fund qualify for each of these states' tax exclusion.
- --------------------------------------------------------------------------------
-----
15
<PAGE>
Change of Accountants PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
independent accountants. For the years ended April 30, 1991 through April 30,
1996, Deloitte & Touche LLP expressed an unqualified opinion on the Fund's
financial statements. There were no disagreements between Fund management and
Deloitte & Touche LLP prior to their termination. The Board of Directors
approved the termination of Deloitte & Touche LLP and the appointment of Price
Waterhouse LLP as the Fund's independent accountants.
- --------------------------------------------------------------------------------
-----
16
<PAGE>
Supplemental Proxy Information PRUDENTIAL MULTI-SECTOR FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Multi-Sector Fund, Inc.
was held on October 30, 1996 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purposes:
(1) To elect the following twelve Directors: Edward D. Beach,
Delayne Dedrick Gold, Robert F. Gunia, Donald D. Lennox,
Douglas H. McCorkindale, Mendel A. Melzer, Thomas T. Mooney,
Stephen P. Munn, Richard A. Redeker, Robin B. Smith, Louis A.
Weil, III, Clay T. Whitehead.
(2c) To amend the Fund's investment restrictions to allow loans of
portfolio securities up to 30% of the Fund's total assets.
(3) To ratify the selection of Deloitte & Touche LLP as independent
accountants for the fiscal year ending April 30, 1998.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Directors/Auditor Votes for Votes against Votes withheld/Abstentions
------------------------ ------------ -------------- ---------------------------
<S> <C> <C> <C>
(1) Edward D. Beach 16,461,433 -- 617,014
Delayne Dedrick Gold 16,494,098 -- 584,349
Robert F. Gunia 16,507,958 -- 570,489
Donald D. Lennox 16,474,830 -- 603,617
Douglas H. McCorkindale 16,484,838 -- 593,609
Mendel A. Melzer 16,479,820 -- 598,627
Thomas T. Mooney 16,498,123 -- 580,324
Stephen P. Munn 16,503,462 -- 574,985
Richard A. Redeker 16,503,345 -- 575,102
Robin B. Smith 16,493,592 -- 584,855
Louis A. Weil, III 16,501,037 -- 577,410
Clay T. Whitehead 16,489,715 -- 588,732
(2c) Investment restrictions 11,518,101 826,828 800,376
(3) Deloitte & Touche LLP 16,171,506 255,437 651,504
</TABLE>
- --------------------------------------------------------------------------------
-----
17
<PAGE>
Comparing A $10,000 Investment.
- -------------------------------
Prudential Multi-Sector Fund, Inc.
vs. the S&P 500 Index.
- -- Prudential Multi-Sector Fund, Inc. - S&P 500 Index.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Class Z
(GRAPH)
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The box on top of the graphs
(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, 1997; (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 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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
