ANNUAL February 28, 1994
Prudential
Adjustable
Rate Securities
Fund, Inc.
- ---------------------------------------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE
(LOGO)
ON OUR STRENGTH
<PAGE>
<PAGE>
LETTER TO
SHAREHOLDERS
February 28, 1994
Dear Shareholder:
In the last year, adjustable rate security investors saw uneven returns in a
market characterized by falling and then rising rates. The Prudential
Adjustable Rate Securities Fund provided modest returns in this environment.
The Prudential Adjustable Rate Securities Fund seeks high current income
consistent with low volatility of principal. At least 65% of the portfolio is
in adjustable rate securities, mainly adjustable rate mortgages (ARMs), with
the rest in fixed-rate bonds. Under normal market conditions, 75% of the
Fund's assets are in issues rated double-A or better. Currently, the Fund
maintains a short-term, 1.0 year effective maturity.
Performance
<TABLE>
<CAPTION>
Historical Returns1 Avg. Annual Returns2
30-Day (as of 2/28/94) (as of 3/31/94)
SEC Yield 1-Yr. Since Incep.* 1-Year Since Incep.*
<S> <C> <C> <C> <C> <C>
Class A 3.5% 1.3% 4.0% 0.4% 1.7%
Class B 3.6% 1.6% 4.0% 0.4% 1.6%
</TABLE>
1Source: Lipper Analytical Services, Inc. Past performance is not indicative
of future results, and an investor's shares, when redeemed, may be worth more
or less than their original cost. These figures do not include sales charges.
The Fund charges a maximum front-end sales load of 1% for Class A shares and a
contingent deferred sales charge of 1% (for redemptions in the first year only)
for Class B shares. Class B shares will automatically convert to Class A shares
after the 1-year CDSC has expired.
2Source: Prudential Mutual Fund Management, Inc. These averages take into
account applicable sales charges.
*Class A and B inception on 6/10/92.
Note : Without expense subsidies and management fee waivers, the Fund's 1-year
average annual total returns would have been -0.39% for Class A and -0.46% for
Class B. Since inception returns would have been 1.3% and 1.4% for Class A and
B, respectively. Subsidies and management fee waivers may be reduced or
terminated in the future.
As of February 28, 1994, the Fund's net asset value was $9.63 for Class A
and $9.67 for Class B shares. The Fund also paid dividends and distributions
totaling $0.43 per Class A and $0.42 per Class B share during the 12-month
period.
-1-
<PAGE>
Interest Rate Roller Coaster
After drastically declining in the beginning of 1993, interest rates
stabilized near the end of the summer and began to rise in late fall. The
strengthening U.S. economy precipitated the change in rates. Growth, which
had been sputtering along at about 2.0% all year, rocketed to nearly 7.5% in
the final months of 1993. In the wake of those numbers, bond investors began
to anticipate higher inflation (inflation erodes the value of fixed-income
securities) and demand higher yields for interest-bearing securities.
When the Federal Reserve raised short-term interest rates in early February,
yields rose. The Fed's move was only designed to prompt a small, 25 basis
point increase in short-term rates; the market interpreted it differently,
however, and rates rose across the board about 50 basis points. In fact,
short-term interest rates, as measured by the two-year Treasury note, rose to
4.7% at the end of February, up from 3.9% a year earlier.
Short-Term Haven For Bond Investors
As rates climbed, more and more bond fund investors sought the relative
haven of a short-term portfolio. Short-term bond prices are generally less
sensitive to interest rate changes than long-term securities would be. While
this results in less capital gains in a falling rate environment, it becomes
attractive when rates are rising because prices should not fall as much.
The Prudential Adjustable Rate Securities Fund took advantage of the
changing marketplace to restructure the portfolio in anticipation of continued
flat or modestly rising rates. We sold our planned amortization class,
interest-only security holdings and purchased very liquid, high-quality GNMA
adjustable rate mortgages. The latter provided strong returns when the ARM
market rallied early in 1994.
In addition, all of the Fund's adjustable rate mortgage holdings were
shifted to securities with coupons that are calculated based on the Constant
Maturity Treasury Index (rates on the one year Treasury published weekly by
the Federal Reserve). The coupons on these securities reset each year,
providing another layer of defense against rising rates. Finally, we added
high-coupon, low duration fixed-rate mortgages (17% of assets on February 28,
1994) because these issues tend to have higher yields than adjustable rate
mortgages and moderate price risk.
(CHART)
-2-
<PAGE>
Looking Forward
Looking to the rest of 1994, we expect considerable volatility to continue
in the marketplace through spring, or until the Federal Reserve acts
decisively to quell inflationary expectations. However, we do not anticipate
a sharp increase in long-term rates through the end of the year. For instance,
the productivity increases that are driving this recovery seem to be gained
through capital expenditures, often at the expense of jobs. In addition, wages
have remained fairly steady throughout this period of expansion, so prices
should follow suit. Nonetheless, short-term rates are likely to reflect
growing concern over inflation pressures in the economy, and bond prices may
remain soft until investors have greater confidence that inflation is under
control.
We appreciate having you as a Prudential Adjustable Rate Securities Fund
shareholder and remain committed to managing the portfolio for your benefit.
Sincerely,
Lawrence C. McQuade
President
David Graham
Portfolio Manager
Asset Allocation Pie Chart
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The chart shows asset allocation by country as a percentage of the
Fund's net assets as of February 28, 1994. As of that date, 74.2% of
the Fund's net assets were invested in the Adjustable Rate Mortgages,
21.2% in Fixed Rate Mortgages and 4.6% was held in cash.
-3-<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC. Portfolio of Investments
February 28, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (a) (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--95.4%
Adjustable Rate Mortgage Pass-
Throughs--74.2%
Federal Home Loan Mortgage
Corporation,
$ 4,755 4.22%, 6/01/23................ $ 4,921,720
7,290 4.50%, 5/01/23................ 7,622,296
3,911 5.38%, 7/01/22................ 4,033,534
7,873 5.64%, 11/01/22............... 8,153,357
12,322 5.77%, 1/01/23................ 12,891,997
Federal National Mortgage
Association,
3,759 4.79%, 12/01/17............... 3,778,100
10,112 5.21%, 4/01/18................ 10,440,557
4,471 5.46%, 10/01/20............... 4,655,081
5,279 5.53%, 6/01/18................ 5,496,925
8,884 5.54%, 7/01/20................ 9,255,736
4,684 5.56%, 2/01/18................ 4,888,410
5,643 5.66%, 12/01/22............... 5,886,837
12,504 5.67%, 4/01/20................ 13,082,821
------------
Total Adjustable Rate Mortgage
Pass-Throughs
(cost $95,404,690).......... 95,107,371
------------
U. S. Government Agency Mortgage
Pass-Throughs--21.2%
Federal Home Loan Mortgage
Corporation,
4,180 8.50%, 5/01/98 - 8/01/98...... 4,367,828
4,685 9.00%, 12/01/97 - 11/01/98.... 4,913,666
Federal National Mortgage
Association,
$ 6,000 8.00%, 2/01/09................ $ 6,268,125
6,143 11.00%, 11/01/20.............. 6,895,704
Government National Mortgage
Association,
4,140 11.50%, 2/15/13 - 12/15/15.... 4,770,896
------------
Total U. S. Government Agency
Mortgage Pass-Throughs
(cost $27,245,121).......... 27,216,219
------------
Total long-term investments
(cost $122,649,811)......... 122,323,590
------------
SHORT-TERM INVESTMENTS--9.7%
Repurchase Agreement
Joint Repurchase Agreement
Account,
12,374 3.42%, 3/01/94
(cost $12,374,000; Note
5).......................... 12,374,000
------------
Total Investments--105.1%
(cost $135,023,811; Note
4).......................... 134,697,590
Liabilities in excess of other
assets--(5.1%).............. (6,525,214)
------------
Net Assets--100%.............. $128,172,376
------------
------------
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets February 28, 1994
-----------------
<S> <C>
Investments, at value (cost $135,023,811)................................................ $ 134,697,590
Cash..................................................................................... 167,082
Receivable for investments sold.......................................................... 10,393,930
Interest receivable...................................................................... 748,431
Receivable for Fund shares sold.......................................................... 663,071
Due from Distributor..................................................................... 4,654
Deferred expenses and other assets....................................................... 239,375
-----------------
Total assets........................................................................... 146,914,133
-----------------
Liabilities
Payable for investments purchased........................................................ 16,333,750
Payable for Fund shares reacquired....................................................... 1,895,148
Dividends payable........................................................................ 100,896
Accrued expenses and other liabilities................................................... 363,694
Management fee payable................................................................... 48,269
-----------------
Total liabilities...................................................................... 18,741,757
-----------------
Net Assets............................................................................... $ 128,172,376
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................... $ 13,302
Paid-in capital in excess of par....................................................... 135,606,921
-----------------
135,620,223
Accumulated distributions in excess of net investment income........................... (100,896)
Accumulated net realized loss on investments........................................... (7,020,730)
Net unrealized depreciation of investments............................................. (326,221)
-----------------
Net assets, February 28, 1994........................................................ $ 128,172,376
-----------------
-----------------
Class A:
Net asset value and redemption price per share ($122,860,137 (DIV) 12,752,237 shares of
common stock issued and outstanding)................................................. $9.63
Maximum sales charge (1.0% of offering price).......................................... .10
-----------------
Maximum offering price to public....................................................... $9.73
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share ($5,312,239 <DIV> 549,636
shares of common stock issued and outstanding)....................................... $9.67
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
February 28,
Net Investment Income 1994
------------
<S> <C>
Income
Interest.............................. $ 9,801,079
------------
Expenses
Management fee, net of waiver of
$150,690.............................. 832,334
Distribution fee--Class A, net of
waiver of
$755,963............................ 128,351
Distribution fee--Class B, net of
waiver of
$152,742............................ 44,677
Custodian's fees and expenses......... 124,000
Transfer agent's fees and expenses.... 69,000
Registration fees..................... 55,000
Directors' fees....................... 48,000
Audit fee............................. 40,000
Amortization of deferred organization
expenses.............................. 21,600
Reports to shareholders............... 21,500
Legal fees............................ 13,000
Insurance expense..................... 7,600
Miscellaneous......................... 3,554
------------
Total expenses...................... 1,408,616
------------
Net investment income................... 8,392,463
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions.......................... (7,020,730)
Net change in unrealized appreciation of
investments........................... 1,125,105
------------
Net loss on investments................. (5,895,625)
------------
Net Increase in Net Assets
Resulting from Operations............... $ 2,496,838
------------
------------
</TABLE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 10,
1992*
Year Ended through
Increase (Decrease) in February 28, February 28,
Net Assets 1994 1993
------------- -------------
<S> <C> <C>
Operations
Net investment income... $ 8,392,463 $ 8,612,412
Net realized gain (loss)
on
investment
transactions.......... (7,020,730) 3,829
Net change in unrealized
appreciation/depreciation
of investments........ 1,125,105 (1,451,326)
------------- -------------
Net increase in net
assets
resulting from
operations............ 2,496,838 7,164,915
------------- -------------
Contingent deferred
sales
charges collected
(Note 2).............. 87,220 --
------------- -------------
Dividends and
distributions (Note 1)
Dividends to
shareholders
from net investment
income
Class A............... (7,557,640) (7,557,591)
Class B............... (834,823) (1,054,821)
------------- -------------
(8,392,463) (8,612,412)
------------- -------------
Dividends to shareholders in
excess of net investment income
Class A............... (262,362) (214,613)
Class B............... (28,982) (29,954)
------------- -------------
(291,344) (244,567)
------------- -------------
Distributions to
shareholders
of net realized gain
on
investment
transactions
Class A............... -- (3,360)
Class B............... -- (469)
------------- -------------
-- (3,829)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from shares
subscribed............ 75,303,969 412,182,506
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions......... 6,959,698 6,776,072
Cost of shares
reacquired.............. (206,110,076) (159,244,151)
------------- -------------
Increase (decrease) in
net assets from Fund
share transactions.... (123,846,409) 259,714,427
------------- -------------
Total increase
(decrease).............. (129,946,158) 258,018,534
Net Assets
Beginning of period....... 258,118,534 100,000
------------- -------------
End of period............. $ 128,172,376 $ 258,118,534
------------- -------------
------------- -------------
- ---------------
*Commencement of investment operations.
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC.
Notes to Financial Statements
The Prudential Adjustable Rate Securities 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 December
23, 1991 and had no operations until the issuance of 5,000 shares of Class A
common stock and 5,000 shares of Class B common stock for $100,000 on May 1,
1992 to Prudential Mutual Fund Management, Inc. (``PMF''). Investment operations
commenced on June 10, 1992. The Fund's investment objective is high current
income consistent with low volatility of principal by investing in adjustable
rate securities, including mortgage-backed securities issued or guaranteed by
private institutions or the U.S. Government, its agencies or instrumentalities,
asset-backed securities and corporate and other debt obligations, most of which
have interest rates which reset at periodic intervals.
Note 1. Accounting The following is a summary
Policies of significant accounting poli
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuation: The Fund values portfolio securities on the basis of
current market quotations provided by dealers or by a pricing service approved
by the Board of Directors, which uses information such as quotations from
dealers, market transactions in comparable securities, various relationships
between securities and calculations on yield to maturity in determining values.
If market quotations are not readily available, a security is valued at fair
value as determined under procedures established by the 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 takes 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.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes premiums and discounts paid on purchases of
portfolio securities as adjustments to interest income.
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.
Dollar Rolls: The Fund enters into mortgage dollar rolls in which the Fund
sells mortgage securities for delivery in the current month, realizing a gain
or loss and simultaneously contracts to repurchase somewhat similar (same
type, coupon and maturity) securities on a specified future date. During the
roll period the Fund forgoes principal and interest paid on the securities.
The Fund is compensated by the interest earned on the cash proceeds of the
initial sale and by the lower repurchase price at the future date. The
difference between the sale proceeds and the lower repurchase price is taken
into income. The Fund maintains a segregated account, the dollar value of
which is equal to its obligations, in respect of dollar rolls.
Federal Income 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.
Dividends and Distributions: The Fund declares daily and pays dividends monthly
from net investment income. Net capital gains, if any, will be distributed at
least annually. Dividends and distributions are recorded on the ex-dividend
date. Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to dividends in
excess of net investment income.
Reclassification of Capital Accounts: Effective March 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
A.I.C.P.A. Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result of this statement, the Fund
changed the classification of distributions to shareholders to better disclose
the differences between financial statement amounts and distributions determined
in accordance with income tax regulations. During the year ended February 28,
1994, the Fund reclassed $435,015 of dividends in excess of net
-7-
<PAGE>
<PAGE>
investment income to paid-in capital from accumulated distributions in excess
of net investment income. Net investment income, net realized gains and net
assets were not affected by this change.
Deferred Organization Expenses: Approximately $162,000 of expenses were
incurred in connection with the organization of the Fund. These costs have
been deferred and are being amortized ratably over a period of sixty months
from the date the Fund commenced investment operations.
Note 2. Agreements The Fund has a management
agreement with PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''). PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the services of PIC, the cost of compensation of officers of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund
bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Fund. PMF
voluntarily waived its management fee until April 14, 1993. The amount of fees
waived for the year ended February 28, 1994, amounted to $150,690 ($0.011 per
share; .08% of average net assets).
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI'') which
acts as distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing and servicing the Fund's Class A and B shares, the Fund, pursuant
to plans of distribution, pays the Distributors a reimbursement, accrued daily
and payable monthly.
Pursuant to the Class A Plan, the Fund may reimburse PMFD for its expenses
with respect to Class A shares, at an annual rate of up to .50 of 1% of the
average daily net asset value of the Class A shares. PMFD pays various
broker-dealers, including PSI and Pruco Securities Corporation (``Prusec''),
affiliated broker-dealers, for account servicing fees and other expenses
incurred by such broker-dealers. Commencing April 15, 1993 PMFD agreed to
waive, temporarily and voluntarily, all payments to it under the Class A Plan.
The amount of fees waived for the year ended February 28, 1994, amounted to
$755,963 ($.06 per share; .38% of average net assets).
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
Effective April 14, 1993, PSI had no distribution costs reimbursable to it
under the Class B Plan and therefore, as of such date, the Fund discontinued
assessing distribution fees on the Class B shares and has discontinued the
payment to PSI of any contingent deferred sales charges collected on the
redemption of Class B shares. All such contingent deferred sales charges
collected on the redemption of Class B shares are being paid to the Fund.
During the year ended February 28, 1994 such payments totalled $87,220 ($.03
per Class B share; .44% of Class B average net assets). PSI has advised the
Fund that, for the fiscal year ended February 28, 1994, it received
approximately $33,100 in contingent deferred sales charges imposed upon
certain redemptions by investors. The Class B distribution expenses include
commission credits for payments of commissions and account servicing fees to
financial advisers and an allocation for overhead and other
distribution-related expenses, interest and/or carrying charges, the cost of
printing and mailing prospectuses to potential investors and of advertising
incurred in connection with the distribution of shares.
PMFD has advised the Fund that it has received approximately $7,900 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended February 28, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the fiscal year ended February 28, 1994, the Fund incurred fees of
approximately $60,400 for
-8-
<PAGE>
<PAGE>
the services of PMFS. As of February 28, 1994, approximately $5,200 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.
Note 4. Portfolio Purchases and sales of
Securities investment securities, other than
short-term investments, for the fiscal year ended
February 28, 1994 were $226,359,045 and $294,856,885, respectively.
The federal income tax basis of the Fund's investments at February 28, 1994
was substantially the same as the basis for financial reporting and,
accordingly, net unrealized depreciation for federal income tax purposes was
$326,221 (gross unrealized appreciation--$50,699; gross unrealized
depreciation--$376,920).
For federal income tax purposes, the Fund has a capital loss carryforward as
of February 28, 1994 of approximately $3,282,600 which expires in 2002.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such carryforward.
The Fund will elect to treat net capital losses of approximately $3,738,100
incurred in the four month period ended February 28, 1994 as having been
incurred in the following fiscal year.
Note 5. Joint The Fund along with other
Repurchase affiliated registered invest
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or Federal agency
obligations. As of February 28, 1994, the Fund has a 1.02% undivided interest
in the repurchase agreements in the joint account. The undivided interest for
the Fund represents $12,374,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor
were as follows:
B.T. Securities Corp., 3.45%, dated 2/28/94, in the principal amount of
$175,000,000, repurchase price $175,016,771, due 3/1/94; collateralized by
$31,050,000 U.S. Treasury Notes, 7.875%, due 8/15/01; $45,555,000 U.S. Treasury
Notes, 7.50%, due 11/15/01; $48,000,000 U.S. Treasury Notes, 6.375%, due
8/15/02 and $44,640,000 U.S. Treasury Notes, 6.25%, due 2/15/03; approximate
aggregate value including accrued interest--$178,693,925.
Goldman, Sachs & Co., 3.43%, dated 2/28/94, in the principal amount of
$309,929,000, repurchase price $309,958,529, due 3/1/94; collateralized by
$281,745,000 U.S. Treasury Bonds, 7.875%, due 2/15/21; approximate value
including accrued interest-- $316,791,407.
Merrill Lynch, Pierce, Fenner & Smith Inc., 3.375%, dated 2/28/94, in the
principal amount of $325,000,000, repurchase price $325,030,469, due 3/1/94;
collateralized by $31,600,000 U.S. Treasury Bonds, 12.00%, due 8/15/13;
$48,515,000 U.S. Treasury Notes, 8.625%, due 1/15/95; $100,000,000 U.S.
Treasury Notes, 5.625%, due 1/31/98 and $132,800,000 U.S. Treasury Notes,
5.125%, due 6/30/98; approximate aggregate value including accrued
interest--$331,623,743.
Morgan (J.P.) Securities Inc., 3.45%, dated 2/28/94, in the principal amount
of $325,000,000, repurchase price $325,031,146, due 3/1/94; collateralized by
$50,000,000 U.S. Treasury Bonds, 12.00%, due 5/15/05; $50,000,000 U.S. Treasury
Bonds, 8.00%, due 11/15/21; $41,910,000 U.S. Treasury Notes, 4.25%, due 1/31/95
and $50,000,000 U.S. Treasury Notes, 4.25%, due 7/31/95 and $100,000,000 U.S.
Treasury Notes, 8.50%, due 5/15/95; approximate aggregate value including
accrued interest--$331,969,234.
Smith Barney Shearson Inc., 3.45%, dated 2/28/94, in the principal amount of
$75,000,000, repurchase price $75,007,188, due 3/1/94; collateralized by
$27,000,000 U.S. Treasury Bills, 3.45%, due 6/2/94 and $50,565,000 U.S.
Treasury Bills, 3.45%, due 8/4/94; approximate aggregate value including
accrued interest--$76,575,533.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with
a front-end sales charge of up to 1.0%. Class B shares are sold with a
contingent deferred sales charge of 1.0% if they are redeemed within one year
of purchase. Class B shares will be automatically converted into Class A
shares after the one-year contingent deferred sales charge period has expired.
Both classes of shares have equal rights as to earnings, assets and voting
privileges except that each class bears different distribution expenses and
has exclusive voting rights with respect to its distribution plan.
There are 2 billion authorized shares of $.001 par value common stock
divided into two classes, designated Class A and Class B common stock, each of
which consists of 1 billion authorized shares. Of the 13,301,873 shares issued
and outstanding at February 28, 1994, PMF owned 10,015 Class A shares.
-9-
<PAGE>
<PAGE>
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------- -------------
<S> <C> <C>
Year ended February 28, 1994:
Shares sold.................... 3,885,604 $ 38,096,534
Shares sold--conversion from
Class B...................... 3,195,365 31,329,562
Shares issued in reinvestment
of dividends................. 643,966 6,301,453
Shares reacquired.............. (17,047,153) (166,644,600)
---------------- -------------
Net decrease in shares
outstanding.................. (9,322,218) $ (90,917,051)
---------------- -------------
---------------- -------------
Period ended February 28, 1993:
Shares sold.................... 33,536,475 $ 334,964,318
Shares sold--conversion from
Class B...................... 1,363,974 13,542,171(dag)
Shares issued in reinvestment
of dividends and
distributions................ 600,620 5,976,831
Shares reacquired.............. (13,431,615) (133,763,185)
---------------- -------------
Net increase in shares
outstanding.................. 22,069,454 $ 220,720,135
---------------- -------------
---------------- -------------
<CAPTION>
Class B Shares Amount
---------------- -------------
<S> <C> <C>
Year ended February 28, 1994:
Shares sold.................... 597,901 $ 5,877,873
Shares issued in reinvestment
of
dividends.................... 66,872 658,245
Shares reacquired.............. (827,247) (8,135,914)
Shares reacquired--conversion
into Class A................. (3,188,039) (31,329,562)
---------------- -------------
Net decrease in shares
outstanding.................. (3,350,513) $ (32,929,358)
---------------- -------------
---------------- -------------
Period ended February 28, 1993:
Shares sold.................... 6,378,464 $ 63,676,017
Shares issued in reinvestment
of dividends and
distributions................ 80,388 799,241
Shares reacquired.............. (1,199,774) (11,938,795)
Shares reacquired--conversion
into Class A................. (1,363,928) (13,542,171)(dag)
---------------- -------------
Net increase in shares
outstanding.................. 3,895,150 $ 38,994,292
---------------- -------------
---------------- -------------
- ---------------
(dag) Reclassified
</TABLE>
-10-
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
June 10, June 10,
Year 1992* Year 1992*
Ended through Ended through
February 28, February 28, February 28, February 28,
1994 1993 1994 1993
------------ ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.94 $ 10.00 $ 9.94 $ 10.00
------------ ------------ ------------ ------------
Income from investment operations
Net investment income(dag)............................................ 0.41 0.35 0.41 0.31
Net realized and unrealized loss on investment transactions........... (0.29) (0.05) (0.29) (0.05)
------------ ------------ ------------ ------------
Total from investment operations.................................... 0.12 0.30 0.12 0.26
Less distributions
Dividends from net investment income.................................. (0.41) (0.35) (0.41) (0.31)
Distributions in excess of net investment income...................... (0.02) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------
Total distributions................................................. (0.43) (0.36) (0.42) (0.32)
------------ ------------ ------------ ------------
Contingent deferred sales charges collected........................... -- -- .03 --
------------ ------------ ------------ ------------
Net asset value, end of period........................................ $ 9.63 $ 9.94 $ 9.67 $ 9.94
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN#......................................................... 1.24% 2.92% 1.58% 2.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................................... $ 122,860 $ 219,352 $ 5,312 $ 38,766
Average net assets (000).............................................. $ 176,863 $ 217,329 $ 19,742 $ 33,895
Ratios to average net assets:(dag)
Expenses, including distribution fees............................... 0.69% 0.77%** 0.75% 1.27%**
Expenses, excluding distribution fees............................... 0.63% 0.27%** 0.63% 0.27%**
Net investment income............................................... 4.29% 4.81%** 4.23% 4.31%**
Portfolio turnover rate............................................... 130% 45% 130% 45%
</TABLE>
- ---------------
* Commencement of investment operations.
** Annualized.
(dag) Net of management fee and/or distribution fee waivers.
# Total return does not consider the effect 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 include of dividends and
distributions. Total returns for periods of less than a full year are
not annualized.
See Notes to Financial Statements.
-11-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Prudential Adjustable Rate Securities Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Prudential Adjustable Rate Securities Fund, Inc., including the portfolio of
investments, as of February 28, 1994, the related statements of operations for
the year then ended and of changes in net assets and financial highlights for
the year then ended and for the period June 10, 1992 (commencement of
operations) to February 28, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at February
28, 1994 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Adjustable Rate Securities Fund, Inc. at February 28, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
Deloitte & Touche
New York, New York
April 14, 1994
-12-
<PAGE>
<PAGE>
Past performance is not predictive of future performance and an investor's
shares may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in Prudential Adjustable Rate Securities Fund
(Class A and Class B) with a similar investment in the Lehman Bros. 1-3 Year
Government Index (Lehman Government Index) by portraying the initial account
values at the commencement of operations of each class and subsequent account
values at the end of each fiscal year (February 28), as measured on a quarterly
basis, beginning in 1992. For purposes of the graphs and, unless otherwise
indicated, the accompanying tables, it has been assumed that (a) the maximum
sales charge was deducted from the initial $10,000 investment in Class A shares;
(b) Class B shares converted into Class A shares on July 1, 1993 and the graph
demonstrates performance of Class A shares since that date; (c) all recurring
fees (including management fees) were deducted; and (d) all dividends and
distributions were reinvested.
The Lehman Government Index is a weighted index comprised of securities
issued or backed by the U.S. Government and its agencies with a remaining
maturity of one to three years. The Lehman Government Index 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 which comprise the Lehman Government Index may differ
substantially from the securities in the Fund's portfolio. The Lehman Government
Index is not the only index that may be used to characterize performance of
adjustable rate security funds and other indices may portray different
comparative performance.
-13-
<PAGE>
<PAGE>
Directors
Edward D. Beach
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Thomas A. Owens, Jr.
Richard A. Redeker
Stanley E. Shirk
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Domenick Pugliese, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche
1633 Broadway
New York, NY 10019
Legal Counsel
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, NY 10022
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (201) 417-7555
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
74429J106 MF156E
74429J205 Cat. #444591Z
