MERRILL LYNCH
ADJUSTABLE
RATE SECURITIES
FUND, INC.
FUND LOGO
Semi-Annual Report
November 30, 1994
This report is not authorized for use as an offer of
sale or a solicitation of an offer to buy shares of the
Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown
in this report should not be considered a represen-
tation of future performance. Investment return and
principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less
than their original cost.
Merrill Lynch
Adjustable Rate
Securities Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
*16141-11/94
<PAGE>
MERRILL LYNCH ADJUSTABLE RATE SECURITIES FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Jeffrey B. Hewson, Vice President
Theodore J. Magnani, Vice President
Gregory Mark Maunz, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
Economic Environment
The US economy is gaining momentum,
prompting concerns of increasing
inflationary pressures. Despite a 250
basis point (2.50%) tightening by the
Federal Reserve Board so far this year
(as of November 30), economic
growth continues to expand at higher-
than-expected rates. Third-quarter
real gross domestic product (GDP)
was 4.0%, and for the fifth consecutive
quarter, GDP exceeded the Federal
Reserve Board's non-inflationary
target of 2.5%. Moreover, with October
and November economic data
strengthening, GDP growth is likely
to be higher in the fourth quarter.
<PAGE>
Much of the recent rise in GDP was
consumer-driven. Consumer spend-
ing, which accounts for over 69% of
GDP, has risen at a healthy 6% rate
over the past year, largely in response
to major jumps in consumer purchases
of durable goods and automobiles. In
addition, despite a rise of over 250
basis points in mortgage rates, hous-
ing activity remains robust. Home
sales were up 0.5% in November, while
new housing starts increased in the
second half of the year, advancing
3.4% over the first half of the year.
Nonetheless, manufacturing still
remains the fastest-growing sector of
the economy as excess capacity is
trimmed. Factory orders are up over
12% from a year ago, while capacity
utilization levels have reached their
highest rate since 1989. In addition,
in November the National Purchasing
Managers survey reached its highest
level since February 1984.
The US labor market also continues
to grow, nearing full employment.
Since the beginning of the year,
payrolls increased by an average of
281,000 per month as the unemploy-
ment rate fell from 6.7% to 5.6%.
Nevertheless, inflation currently
remains under control with no sign
of a pickup in the broad inflation
indexes. The Core Consumer Price
Index (CPI) rose at a 2.9% rate over
the past year, the lowest rate of core
inflation since 1965. Furthermore,
the core CPI has shown no recent sign
of an acceleration, rising only 2.6%
over the last three months. More
important, escalating wage pressures
have yet to develop despite a shrink-
ing and competitive labor force.
Hourly wages rose just 2.7% over
the past year and have risen at the
slowest rate on record during the
past two years.
<PAGE>
As we enter the traditionally strong
holiday season, we expect the current
expansion to remain above a non-infla-
tionary pace into 1995. Sustained growth
at current levels may eventually cause
inflationary pressures to develop.
As long as the threat of higher infla-
tion remains amid strong economic
growth, we expect the Federal
Reserve Board to continue to tighten
monetary policy.
Investment Strategy
US interest rates continue to rise
in dramatic fashion amid strong
economic reports and increasing
inflationary concerns. During the
three-month period ended November
30, 1994, the one-year US Treasury
bill rose 135 basis points to 6.88%,
while the 30-year Treasury bond rose
just 55 basis points to 8.00%, causing
the Treasury yield curve to flatten
further. At the close of the quarter,
the spread between the one-year
Treasury bill and the 30-year Treasury
bond narrowed to 112 basis points
from a spread of 439 basis points just
two years ago.
<PAGE>
A flattening yield curve has both
positive and negative implications for
the adjustable rate mortgage (ARM)
market. On the positive side, as the
yield curve flattens, ARM origination
historically has declined in response
to the narrowing in the rate differ-
ential between fixed-rate mortgages
and ARMs. As a result of lower origi-
nation, market demand generally
exceeds the availability of supply,
causing ARM spreads to tighten and
prices to increase, thereby increasing
the Fund's net asset values. On the
negative side, a flattening yield curve
increases the optionability of the
ARM holder to refinance. Because the
resetting ARM rate is approaching
fixed rates, the ARM holder can
refinance the ARM and lock in the
stability of a fixed-rate mortgage or
choose a lower cost mortgage alter-
native. This leads to an increase in
ARM prepayments. However, to limit
the effect of potentially higher pre-
payments on the Fund's yield, we are
limiting our purchases of ARMs to
securities priced at a discount or
close to par. Nonetheless, while ARM
coupon adjustments this year have
lagged behind the rise in interest
rates, because of the limiting effects
of periodic caps, the Fund's yield still
rose. More important, we expect the
yield on the Fund's ARM investments
to continue to increase as they
continue to reset higher and some
of the temporary setbacks in price
are recaptured.
<PAGE>
Since we expect the Federal Reserve
Board to continue interest rate tight-
ening into 1995, our overall invest-
ment strategy remains defensive. We
continue to target a portfolio duration
of 1.3 years to seek to limit net asset
value volatility. In addition, we are
improving the overall quality and
liquidity of the Fund's holdings. At
the end of the November period, our
holdings of agency securities climbed
to over 51% of the Fund's investments.
Within our investment strategy, we
are currently emphasizing ARMs with
higher coupons and quicker resets,
indexed off the interest rate-sensitive
one-year Constant Maturing Treasury
and the one-month and six-month
London Interbank Offered Rates.
Despite the sizable rise in interest
rates this year and the lagging reset
nature of ARMs, at November 30, 1994
the 30-day standardized yields for the
Fund's Class A, Class B, Class C and
Class D Shares were 4.83%, 4.27%,
4.22% and 4.60%, respectively. (For
complete performance information,
see pages 4 and 5 of this report
to shareholders.)
In Conclusion
We thank you for your continued
investment in Merrill Lynch Adjust-
able Rate Securities Fund, Inc., and
we look forward to reviewing our
outlook and strategy again with you
in our upcoming quarterly report
to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Gregory Mark Maunz)
Gregory Mark Maunz
Vice President and Portfolio Manager
January 5, 1995
<PAGE>
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase
shares of the Fund through the Merrill Lynch Select Pricing SM
System, which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge
(front-end load) of 4% and bear no ongoing distribution
or account maintenance fees. Class A Shares are available
only to eligible investors, as detailed in the Fund's
prospectus. If you were a Class A shareholder prior to
October 21, 1994, your Class A Shares were redesignated
to Class D Shares on October 21, 1994, which, in the case
of certain eligible investors, were simultaneously
exchanged for Class A Shares.
* Class B Shares are subject to a maximum contingent
deferred sales charge of 4% if redeemed during the first
year, decreasing 1% each year thereafter to 0% after
the fourth year. In addition, Class B Shares are subject to a
distribution fee of 0.50% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares
after 10 years.
* Class C Shares are subject to a distribution fee of 0.55%
and an account maintenance fee of 0.25%. In addition,
Class C Shares are subject to a 1% contingent deferred
sales charge if redeemed within one year of purchase.
* Class D Shares incur a maximum initial sales charge of
4% and an account maintenance fee of 0.25% (but no
distribution fee).
Performance data for the Fund's Class B Shares and Class D
Shares are presented in the "Performance Summary" and
"Average Annual Total Return" tables on pages 4 and 5. Data
for all of the Fund's shares, including Class A Shares and
Class C Shares, are presented in the "Recent Performance
Results" table.
The "Recent Performance Results" table on page 5 shows
investment results before the deduction of any sales charges
for Class B and Class D Shares for the 12-month and 3-month
periods ended November 30, 1994 and for Class A and Class C
Shares for the period since inception through November 30,
1994. All data in this table assume imposition of the actual
total expenses incurred by each class of shares during the
relevant period.
<PAGE>
None of the past results shown should be considered a rep-
resentation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
8/2/91-12/31/91 $10.00 $9.99 -- $0.268 + 2.60%
1992 9.99 9.77 -- 0.497 + 2.84
1993 9.77 9.73 -- 0.313 + 2.83
1/1/94-11/30/94 9.73 9.38 -- 0.323 - 0.08
------
Total $1.401
Cumulative total return as of 11/30/94: + 8.42%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares***
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
8\2\91-12/31/91 $10.00 $9.99 -- $0.289 + 2.82%
1992 9.99 9.77 -- 0.547 + 3.36
1993 9.77 9.73 -- 0.362 +3.35
1/1/94-11/30/94 9.73 9.37 -- 0.365 +0.26
------
Total $1.563
Cumulative total return as of 11/30/94: +10.12%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
***As a result of the implementation of the Merrill Lynch Select Pricing SM
System, Class A Shares of the Fund outstanding prior to October 21, 1994
have been redesignated to Class D Shares.
</TABLE>
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
11/30/94 8/31/94++ 11/30/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.37 $9.46 -- -- -0.95%
Class B Shares* 9.38 9.51 $9.71 -3.40% -1.37
Class C Shares* 9.37 9.46 -- -- -0.95
Class D Shares* 9.37 9.50 9.71 -3.50 -1.37
Class A Shares--Total Return* -- -0.35(1)
Class B Shares--Total Return* +0.40(2) -0.15(3)
Class C Shares--Total Return* -- -0.40(4)
Class D Shares--Total Return* +0.80(5) -0.13(6)
Class A Shares--Standardized 30-day Yield 4.83%
Class B Shares--Standardized 30-day Yield 4.27%
Class C Shares--Standardized 30-day Yield 4.22%
Class D Shares--Standardized 30-day Yield 4.60%
<FN>
*Investment results shown do not reflect any sales charges; results shown would be lower if a sales charge was included.
++Investment results shown for Class A and Class C Shares are since inception (10/21/94).
(1) Percent change includes reinvestment of $0.037 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.359 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.106 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.032 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.408 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.118 per share ordinary income dividends.
</TABLE>
Average Annual
Total Return
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/94 +0.45% -3.43%
Inception (8/2/91) through 9/30/94 +2.60 +2.32
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/94 +1.07% -2.98%
Inception (8/2/91) through 9/30/94 +3.12 +1.79
[FN]
*Maximum sales charge is 4%. On 10/21/94, Class A Shares were redesignated
to Class D Shares.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Value Percent of
Index Amount Issue Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Adjustable Constant Maturity $ 4,455,539 Bear Stearns Secured Investors, Inc. II,
Rate* Treasury Indexed Pass-Through 91-1-A, 8.23% due 11/25/2021 $ 4,539,392 $ 4,334,398 1.58%
Mortgage- Obligations Federal Home Loan Mortgage Corporation:
Backed 2,965,357 7.738% due 5/01/2015 3,015,398 2,904,197 1.06
Obligations** 5,019,828 6.386% due 9/01/2019 5,123,950 5,074,735 1.85
100,600 7.265% due 8/01/2020 102,926 100,420 0.04
7,578,044 5.752% due 3/01/2022 7,696,037 7,592,291 2.76
9,699,262 6.602% due 10/01/2023 9,890,003 9,765,944 3.55
15,023,957 5.463% due 9/01/2024 15,159,508 14,817,377 5.39
11,492,035 6.523% due 8/01/2031 11,879,891 11,612,357 4.23
Federal National Mortgage Association:
695,826 7.61% due 10/01/2013 715,831 702,888 0.26
2,317,567 7.25% due 11/01/2013 2,384,197 2,359,932 0.86
1,743,195 7.62% due 9/01/2015 1,793,312 1,765,525 0.64
6,593,723 6.817% due 12/01/2021 6,729,719 6,665,858 2.43
14,130,154 5.748% due 8/01/2024 14,314,825 14,072,758 5.12
21,928,760 Prudential Home Mortgage Securities
Company, Inc., REMIC (a) 92-35-A1, 7.75%
due 10/01/2022 22,476,979 21,825,969 7.95
Resolution Trust Corporation, REMIC (a)
5,579,340 92-6-B4, 7.351% due 11/25/2025 5,716,816 5,507,858 2.00
Cost of Funds 6,815,463 DLJ Mortgage Acceptance Corp., REMIC (a)
Indexed 91-6-A1, 7.832% due 9/01/2021 6,973,071 6,651,466 2.42
Obligations 1,792,066 Kidder Peabody Acceptance Corporation I,
REMIC (a) 88-04-A, 6.575% due 1/01/2019 1,857,029 1,728,788 0.63
1,462,846 Resolution Trust Corporation, REMIC (a)
92-M3-A, 7.636% due 2/25/2020 1,411,647 1,385,133 0.50
2,218,966 Ryland--First Nationwide Trust, REMIC (a)
88-1-A, 5.572% due 10/15/2018 2,291,082 2,144,076 0.78
<PAGE>
London Interbank 5,542,238 Federal Home Loan Mortgage Corporation, 4.76%
Offered Rate due 2/01/2024 5,685,144 5,377,689 1.96
Indexed Obligations 118,755 Federal Home Loan Mortgage Corporation,
REMIC (a) 92-1363-C, 47.00% (c) due 2/25/2022 1,409,803 385,954 0.14
4,800,666 Federal National Mortgage Association,
5.745% due 8/01/2024 4,894,830 4,829,170 1.76
1,957,893 Fund America Investors Corporation II,
Pass-Through 93-K-F, 7.38% due 1/25/2023 1,957,893 1,957,893 0.71
Resolution Trust Corporation, REMIC (a):
6,510,700 91-M7-B, 7.13% due 1/25/2021 6,510,700 6,455,769 2.35
15,004,048 92-C1-B, 7.13% due 8/25/2023 14,450,970 15,200,976 5.53
27,000,000 Saxon Mortgage Securities Corporation,
REMIC (a) 92-3-B, 6.43% due 10/01/2022 27,620,000 26,966,250 9.82
Total Investments in Adjustable Rate
Mortgage-Backed Obligations 186,600,953 182,185,671 66.32
Fixed Rate 31,082,985 Capstead Mortgage Securities Corporation
Mortgage- II, REMIC (a) 93-I-A3, 12.01% (c) due
Backed 9/25/2023(d) 432,694 271,976 0.10
Obligations** 175,988 Citicorp Mortgage Securities Inc., REMIC
(a) 92-12-A3, 8.00% due 3/25/2021 179,062 175,548 0.06
29,137 Collateralized Mortgage Securities Corp.,
REMIC (a) 90-5-L, 11.981% (b) due 9/20/2020 678,739 465,828 0.17
94,136,048 DLJ Mortgage Acceptance Corp., REMIC (a)
92-6-A1, 14.753% (c) due 7/25/2022 (d) 1,490,435 1,346,145 0.49
27,500,000 Federal Home Loan Bank, 10.30% due
7/25/1995 28,279,303 28,101,425 10.23
Federal National Mortgage Association,
REMIC (a):
40,451 91-G-46-K, 9.00% (b) due 12/25/2009 1,499,704 1,054,259 0.38
2,331 90-142-K, 10.99% (b) due 7/25/2014 86,548 15,662 0.01
3,671,918 Federal National Mortgage Association,
Trust 32-2, 8.46% (c) due 4/01/2018 (d) 3,292,166 1,274,816 0.46
8,469,102 Kidder Peabody Acceptance Corporation,
REMIC (a) 93-M1-A2, 7.15% due 4/25/2025 8,432,465 7,765,108 2.83
Prudential Home Mortgage Securities
Company, Inc., REMIC (a):
338 92-1-A9, 13.00% (b) due 2/25/2022 65,688 86,814 0.03
22,080,468 93-44-A2, 6.75% due 8/25/2023 22,489,128 21,252,451 7.74
27,528,135 Residential Funding Mortgage Securities I,
Inc., REMIC (a) 92-S3-A9, 14.00% (c)
due 1/01/2007 (d) 2,126,959 137,641 0.05
7,893,981 Resolution Trust Corporation, REMIC (a)
92-CHF-B, 7.15% due 12/25/2020 7,990,831 7,664,563 2.79
Sears Mortgage Securities Corp., REMIC (a):
4,686 91-K-A4, 18.00% (b) due 9/25/2021 701,434 712,214 0.26
60,351,996 92-12-A3, 18.00% (c) due 7/25/2023 (d) 753,669 792,120 0.29
<PAGE>
Total Investments in Fixed Rate
Mortgage-Backed Obligations 78,498,825 71,116,570 25.89
Total Investments in Mortgage-Backed
Obligations 265,099,778 253,302,241 92.21
Short-Term Repurchase 22,000,000 Nikko Securities International, Inc.,
Securities Agreements*** purchased on 11/30/1994 to yield
5.75% to 12/01/1994 22,000,000 22,000,000 8.00
Total Short-Term Securities 22,000,000 22,000,000 8.00
Total Investments $287,099,778 275,302,241 100.21
============
Liabilities in Excess of Other Assets (589,175) (0.21)
------------ -------
Net Assets $274,713,066 100.00%
============ =======
<FN>
*Adjustable Rate Obligations have coupon rates which reset
periodically.
**Mortgage-Backed Obligations are subject to principal paydowns as
a result of prepayments or refinancings of the underlying mortgage
instruments. As a result, the average life may be substantially less
than the original maturity.
***Repurchase Agreements are fully collateralized by US Government
& Agency Obligations.
(a)Real Estate Mortgage Investment Conduits (REMIC).
(b)Represents the approximate yield to maturity. These securities have
a high coupon interest rate and were purchased at a substantial
premium to their original face amounts. Monthly premium amortiza-
tion, due to prepayments, reduces considerably the net interest income
earned on these securities.
(c)Represents the approximate yield to maturity.
(d)Represents the interest only portion of a mortgage-backed obligation.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of November 30, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost-$411,686,107) (Notes 1a & 1b) $275,302,241
Receivables:
Interest $ 2,311,508
Capital shares sold 573,552
Principal paydowns 502,383 3,387,443
------------
Deferred organization expenses (Note 1g) 51,197
Prepaid registration fees and other assets (Note 1g) 74,675
------------
Total assets 278,815,556
------------
Liabilities: Payables:
Capital shares redeemed 2,856,880
Dividends to shareholders (Note 1h) 497,495
Distributor (Note 2) 169,210
Investment adviser (Note 2) 117,969 3,641,554
------------
Accrued expenses and other liabilities 460,936
------------
Total liabilities 4,102,490
------------
Net Assets: Net assets $274,713,066
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 3,783
Consist of: Class B Common Stock, $0.10 par value, 200,000,000 shares authorized 2,734,485
Class C Common Stock, $0.10 par value, 100,000,000 shares authorized 978
Class D Common Stock, $0.10 par value, 200,000,000 shares authorized 190,876
Paid-in capital in excess of par 311,473,608
Undistributed investment income--net 812,206
Accumulated realized capital losses--net (Note 5) (28,705,333)
Unrealized depreciation on investments--net (11,797,537)
------------
Net assets $274,713,066
============
Net Asset Class A--Based on net assets of $354,572 and 37,834 shares outstanding $ 9.37
Value: ============
Class B--Based on net assets of $256,378,726 and 27,344,849 shares outstanding $ 9.38
============
Class C--Based on net assets of $91,635 and 9,776 shares outstanding $ 9.37
============
Class D--Based on net assets of $17,888,133 and 1,908,765 shares outstanding $ 9.37
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1994
<S> <S> <C>
Investment Interest and discount earned, net of premium amortization $ 10,101,673
Income Other 313,535
(Note 1f): ------------
Total income 10,415,208
------------
Expenses: Distribution fees--Class B (Note 2) 1,204,157
Investment advisory fees (Note 2) 854,840
Transfer agent fees--Class B (Note 2) 190,509
Accounting services (Note 2) 89,507
Printing and shareholder reports 77,594
Professional fees 47,497
Registration fees (Note 1g) 35,988
Account maintenance fees--Class D (Note 2) 25,911
Directors' fees and expenses 24,610
Custodian fees 22,733
Amortization of organization expenses (Note 1g) 11,756
Transfer agent fees--Class D (Note 2) 11,082
Pricing fees 999
Other 9,851
------------
Total expenses 2,607,034
------------
Investment income--net 7,808,174
------------
Realized & Realized loss on investments--net (4,848,780)
Unrealized Change in unrealized depreciation on investments--net (800,978)
Loss on ------------
Investments-- Net Increase in Net Assets Resulting from Operations $ 2,158,416
Net (Notes ============
1f & 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Year
Months Ended Ended
November 30, May 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 7,808,174 $ 17,527,708
Realized loss on investments--net (4,848,780) (19,663,874)
Change in unrealized depreciation on investments--net (800,978) 8,608,834
------------ ------------
Net increase in net assets resulting from operations 2,158,416 6,472,668
------------ ------------
Dividends Investment income--net:
to Class A (2,408) (1,245,307)
Shareholders Class B (6,859,722) (15,919,448)
(Note 1h): Class C (353) --
Class D (496,438) --
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (7,358,921) (17,164,755)
------------ ------------
Capital Net decrease in net assets derived from capital share transactions (117,505,724) (332,880,261)
Share ------------ ------------
Transactions
(Note 4):
Net Assets: Total decrease in net assets (122,706,229) (343,572,348)
Beginning of period 397,419,295 740,991,643
------------ ------------
End of period* $274,713,066 $397,419,295
============ ============
<FN>
*Undistributed investment income--net $ 812,206 $ 362,953
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share
data and ratios have been Class A Class B
derived from information For the For the
provided in the financial Period For the Six Period
statements. October 21, Months August 2,
1994++ to Ended 1991++ to
Increase (Decrease) in November 30, November 30, For the Year Ended May 31, May 31,
Net Asset Value: 1994 1994 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 9.46 $ 9.53 $ 9.76 $ 9.92 $ 10.00
Performance: --------- --------- --------- --------- ---------
Investment income--net .06 .22 .32 .40 .52
Realized and unrealized loss on
investments--net (.09) (.17) (.24) (.16) (.08)
--------- --------- --------- --------- ---------
Total from investment operations (.03) .05 .08 .24 .44
--------- --------- --------- --------- ---------
Less dividends:
Investment income--net (.06) (.20) (.31) (.40) (.52)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 9.37 $ 9.38 $ 9.53 $ 9.76 $ 9.92
========= ========= ========= ========= =========
Total Based on net asset value per share (.35%)++++ .64%++++ .77% 2.48% 4.33%++++
Investment ========= ========= ========= ========= =========
Return:**
Ratios to Expenses, net of reimbursement and
Average excluding account maintenance and
Net Assets: distribution fees .87%* .81%* .71% .65% .61%*
========= ========= ========= ========= =========
Expenses, net of reimbursement .87%* 1.56%* 1.46% 1.40% 1.36%*
========= ========= ========= ========= =========
Expenses--net .87%* 1.56%* 1.46% 1.40% 1.47%*
========= ========= ========= ========= =========
Investment income--net 5.82%* 4.53%* 3.20% 4.15% 6.07%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 354 $ 256,379 $ 374,376 $ 689,593 $ 887,110
========= ========= ========= ========= =========
Portfolio turnover 56.04% 56.04% 60.38% 104.71% 94.72%
========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share
data and ratios have been Class C Class D
derived from information For the For the
provided in the financial Period For the Six Period
statements. Oct. 21, Months August 2,
1994++ to Ended 1991++ to
Increase (Decrease) in Nov. 30, Nov. 30, For the Year Ended May 31, May 31,
Net Asset Value: 1994 1994 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 9.46 $ 9.53 $ 9.76 $ 9.92 $ 10.00
Performance: --------- --------- --------- --------- ---------
Investment income--net .05 .25 .37 .45 .56
Realized and unrealized loss on
investments-net (.09) (.18) (.24) (.16) (.08)
--------- --------- --------- --------- ---------
Total from investment operations (.04) .07 .13 .29 .48
--------- --------- --------- --------- ---------
Less dividends:
Investment income--net (.05) (.23) (.36) (.45) (.56)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 9.37 $ 9.37 $ 9.53 $ 9.76 $ 9.92
========= ========= ========= ========= =========
Total Based on net asset value per share (.40%)++++ .78%++++ 1.28% 2.99% 4.75%++++
Investment ========= ========= ========= ========= =========
Return:**
Ratios to Expenses, net of reimbursement and
Average excluding account maintenance and
Net Assets: distribution fees .89%* .80%* .71% .66% .62%*
========= ========= ========= ========= =========
Expenses, net of reimbursement 1.69%* 1.05%* .96% .91% .87%*
========= ========= ========= ========= =========
Expenses 1.69%* 1.05%* .96% .91% .96%*
========= ========= ========= ========= =========
Investment income--net 5.16%* 5.06%* 3.69% 4.79% 6.54%*
========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 92 $ 17,888 $ 23,043 $ 51,398 $ 80,411
========= ========= ========= ========= =========
Portfolio turnover 56.04% 56.04% 60.38% 104.71% 94.72%
========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Adjustable Rate Securities Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a diversi-
fied, open-end management investment company. These unaudited
interim financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a
normal recurring nature. The Fund offers four classes of shares under
the Merrill Lynch Select Pricing SM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account main-
tenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
in the market are valued at the last available bid price in the market
or on the basis of yield equivalents as obtained from one or more deal-
ers that make markets in such securities. Options on mortgage-
backed securities and other securities of the Fund which are traded
on exchanges are valued at their last bid price in the case of options
purchased by the Fund and their last asked price in the case of op-
tions written by the Fund. Options traded in the market are valued
at their last bid price or asked price as obtained from at least two
independent entities (one of which is not a party to the option). Inter-
est rate futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additions to such
securities daily to ensure that the contract is fully collateralized.
<PAGE>
(c) Options--The Fund may purchase call or put options. The Fund
is also authorized to write put options and covered call options.
When the Fund sells an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to
market to reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired, or deducted from (or added
to) the proceeds of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid
(or gain or loss to the extent that the cost of the closing transaction
is less than or greater than the premiums paid or received).
Written and purchased options are non-income producing investments.
(d) Futures contracts--The Fund may purchase or sell interest rate
futures contracts and related options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as col-
lateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margins and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(e) Income taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated invest-
ment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax
provision is required.
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Interest income (including amortization of dis-
count and premiums) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
<PAGE>
(g) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration fees
are charged to expense as the related shares are issued.
(h) Dividends and distributions--All or a portion of the Fund's net
investment income is declared daily and paid monthly. Distributions
paid by the Fund are recorded on the ex-dividend dates.
(i) Dollar rolls--The Fund may sell mortgage-backed securities
for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specific future date.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co.").
The limited partners are ML & Co. and Merrill Lynch Investment
Management, Inc. ("MLIM"), which is also an indirect wholly-owned
subsidiary of ML & Co. The Fund has entered into a Distribution
Agreement and a Distribution Plan with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned sub-
sidiary of MLIM.
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee of 0.50%, on an annual
basis, of the average daily value of the Fund's net assets. The
Investment Advisory Agreement obligates MLAM to reimburse the
Fund to the extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
No fee payment will be made to MLAM during any fiscal year which
will cause such expenses to exceed the most restrictive expense
limitation at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
<PAGE>
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing share-
holder and distribution-related services to Class B and Class C
shareholders.
For the six months ended November 30, 1994, MLFD earned under-
writing discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D shares as follows:
MLFD MLPF&S
Class A $594 $6,220
Class D $144 $1,836
MLPF&S received contingent deferred sales charges of $486,655
relating to transactions in Class B Shares, $338 relating to trans-
actions in Class C Shares for the Fund for the six months ended
November 30, 1994.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
During the period September 14, 1994 to November 30, 1994, the Fund
paid Merrill Lynch Security Pricing Services, an affiliate of MLPF&S,
$999 for security price quotations.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLIM, MLPF&S, PSI, FDS, MLFD, and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securi-
ties, for the six months ended November 30, 1994 were $175,086,548
and $289,467,238, respectively.
Net realized and unrealized losses as of November 30, 1994 were
as follows:
<PAGE>
Realized Unrealized
Losses Losses
Long-term investments $(4,848,780) $(11,797,537)
----------- ------------
Total $(4,848,780) $(11,797,537)
=========== ============
As of November 30, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $11,797,537, of which $799,238
related to appreciated securities and $12,596,775 related to depre-
ciated securities. The aggregate cost of investments at November 30,
1994 for Federal income tax purposes was $287,099,778.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $117,505,724 and $332,880,261, for the six months ended
November 30, 1994, and for the year ended May 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period
October 21, 1994++ to Dollar
November 30, 1994 Shares Amount
Shares sold 46,651 $ 441,141
Shares issued to shareholders in
reinvestment of dividends 1 9
----------- -------------
Total issued 46,652 441,150
Shares redeemed (8,818) (83,033)
----------- -------------
Net increase 37,834 $ 358,117
=========== =============
[FN]
++Commencement of Operations.
Class B Shares for the Six Months Dollar
Ended November 30, 1994 Shares Amount
Shares sold 1,666,635 $ 15,877,182
Shares issued to shareholders in
reinvestment of dividends 417,764 3,883,673
----------- -------------
Total issued 2,084,399 19,760,855
Shares redeemed (14,008,436) (132,885,978)
----------- -------------
Net decrease (11,924,037) $(113,125,123)
=========== =============
<PAGE>
Class B Shares for the Year Dollar
Ended May 31, 1994 Shares Amount
Shares sold 4,768,628 $ 46,269,096
Shares issued to shareholders in
reinvestment of dividends 966,330 9,395,018
----------- -------------
Total issued 5,734,958 55,664,114
Shares redeemed (37,100,715) (360,834,499)
----------- -------------
Net decrease (31,365,757) $(305,170,385)
=========== =============
Class C Shares for the
Period October 21, 1994++ Dollar
to November 30, 1994 Shares Amount
Shares sold 13,363 $ 126,048
Shares issued to shareholders in
reinvestment of dividends 23 219
----------- -------------
Total issued 13,386 126,267
Shares redeemed (3,610) (33,963)
----------- -------------
Net increase 9,776 $ 92,304
=========== =============
[FN]
++Commencement of Operations.
Class D Shares for the Six Months Dollar
Months Ended November 30, 1994 Shares Amount
Shares sold 133,334 $ 1,265,036
Shares issued to shareholders in
reinvestment of dividends 30,700 290,928
----------- -------------
Total issued 164,034 1,555,964
Shares redeemed (673,428) (6,386,986)
----------- -------------
Net decrease (509,394) $ (4,831,022)
=========== =============
<PAGE>
Class D Shares for the Year Dollar
Ended May 31, 1994 Shares Amount
Shares sold 1,365,792 $ 13,269,165
Shares issued to shareholders in
reinvestment of dividends 75,693 735,836
----------- -------------
Total issued 1,441,485 14,005,001
Shares redeemed (4,289,994) (41,714,877)
----------- -------------
Net decrease (2,848,509) $ (27,709,876)
=========== =============
As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior
to October 21, 1994, have been redesignated Class D Shares.
There were 2,010,429 shares redesignated, amounting to
$21,918,414.
5. Capital Loss Carryforward:
At May 31, 1994, the Fund had a net capital loss carryforward
of approximately $21,580,000, all of which expires in 2002.
This amount will be available to offset like amounts of any
future taxable gains.
