SEMI ANNUAL REPORT August 31, 1994
Prudential
Adjustable Rate
Securities
Fund, Inc.
(ICON)
(LOGO)
<PAGE>
Letter to Shareholders
October 18, 1994
Dear Shareholder:
In the past six months, adjustable rate security investors have seen
moderately rising yields in a market dominated by Federal Reserve interest
rates hikes. With the economy shifting into high gear, the central bank
moved decisively to forestall inflation; in the process short-term
securities have seen some price volatility. We're pleased to report
the Prudential Adjustable Rate Securities Fund has provided average
total returns for the year.
The Objective
The Prudential Adjustable Rate Securities Fund seeks high current
income consistent with low volatility of principal. Under normal
market conditions, 75% of the net assets are in issues rated double-A
or better. Currently, the Fund maintains a short-term effective maturity,
similar to that of the one-year Treasury.
<TABLE>
FUND PERFORMANCE
HISTORICAL TOTAL RETURNS1
As of August 31, 1994
<CAPTION>
30-Day Since
SEC Yield 6-Months One Year Inception*
<S> <C> <C> <C> <C>
Class A 3.92% +0.3% +0.6% +4.5%
Class B 3.96 +0.3 +0.7 +4.5
</TABLE>
<TABLE>
AVERAGE ANNUAL RETURNS2
As of September 30, 1994
<CAPTION>
Since
6 Months One Year Inception*
<S> <C> <C> <C>
Class A -0.7% -0.4% +1.6%
Class B -0.7 -0.3 +2.0
</TABLE>
Past performance is no guarantee of future results. Investment return
and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Lipper Analytical Services, Inc. These figures do not take into account
sales charges.
2 Source: Prudential Mutual Fund Management Inc. These averages take
into account applicable 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. After the one-year CDSC has expired, Class B shares will
automatically convert to Class A shares.
*Inception date: 6/10/92.
-1-
<PAGE>
Note: Without expense subsidies and management fee waivers, the Fund's
average total returns for one year would have been 0.8% for Class A
shares and 0.8% for Class B shares, and since inception returns would
have been 0.7% and 0.6%, respectively. Subsidies and management fee
waivers may be reduced or terminated in the future.
Interest Rate Rollercoaster
Since the Federal Reserve began boosting short-term interest rates in
early February, bond investors have had a rough ride. The central bank
increased the federal funds rate (the overnight interbank lending rate)
175 basis points; the theory is that as borrowing rates rise, consumers
and businesses become more reluctant to use credit to finance purchases.
This puts a damper on growth and helps reduce inflationary pressures in
the economy. Bond prices have generally declined in reaction to higher
yields available now in the market, as well as to the risk interest rates
will move even higher if the Fed acts again this year.
Adjustable rate mortgage prices have also fallen this year, though not as
much as other longer-term government bonds. Their coupons adjust upwards
as rates rise, so their prices can be more resilient than those of fixed
rate securities. The good news, of course, is that Treasury yields have
soared this year, reaching levels not seen for two and a half years or so.
For instance, the two-year Treasury's yield is up to 6.3% from 4.7% six
months ago and 3.9% on February 28, 1993.
Short-term Haven For Bond Investors
As rates have dropped, we have repositioned the portfolio in an attempt
to limit price volatility. In sum, we have raised cash, shifted to
highly-liquid bonds and concentrated on ARMs that have high coupons.
These ARMs saw less of a price decline since their high coupons became
more desirable in a rising rate environment.
- -- Cash. We have increased cash to as much as 20% of net assets from
its normal level of around 4% to 5%. Cash reduces the Fund's effective
average maturity and may help prevent wide price swings. As a result of
the cash position, our 30-day SEC yield has not risen as much as the yield
on the fed funds rate (40 basis points for the Fund, compared to 175 basis
points for the fed funds rate).
- -- Liquidity. When the markets are turbulent, we try to focus largely
on GNMA and FNMA issues, which are of the highest quality, and are more
likely to retain value than private mortgages.
- -- Constant Maturity Treasury Index (CMT). The portfolio is predominately
in CMT-based mortgages because these securities have been priced to produce
attractive yields. The CMT is an index based on the average yield of a
range of Treasury securities adjusted to a constant maturity.
-2-
<PAGE>
On The Horizon
Looking into the rest of 1994, we don't expect any further Fed action
until after the November elections, or possibly early 1995. We plan to
begin re-investing our cash, mostly in agency-issued adjustable rate
mortgage securities. If the Fed signals that it will begin another
round of rate hikes in 1995, we will revert to our defensive position
in an attempt to protect the Fund's net asset value.
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
-3-
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC. Portfolio of Investments
August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--84.1%
Adjustable Rate Mortgage
Pass-Throughs--79.8%
Federal Home Loan Mortgage
Corporation,
$18,295## 5.00%, 7/01/24 - 8/01/24..... $ 18,220,198
5,685# 5.125%, 5/01/24.............. 5,685,212
3,360# 5.375%, 7/01/22.............. 3,448,380
Federal National Mortgage
Association,
9,126# 5.47%, 4/01/18............... 9,312,321
7,989# 6.08%, 7/01/20............... 8,213,789
Government National Mortgage
Association II,
10,000 6.00%, 1/20/99............... 9,837,500
16,000 6.00%, 12/20/99.............. 15,740,000
------------
Total Adjustable Rate
Mortgage Pass-Throughs
(cost $70,744,067)........... 70,457,400
------------
U.S. Government Agency Mort-
gage Pass-Throughs--4.3%
Government National Mortgage
Association,
3,378 11.50%, 2/15/13 - 12/15/15
(cost $3,901,562).......... 3,817,112
------------
Total long-term investments
(cost $74,645,629)........... 74,274,512
------------
SHORT-TERM INVESTMENTS--11.1%
Adjustable Rate Mortgage
Pass-Throughs--10.2%
Federal National Mortgage
Association,
$ 9,000 4.71%, 9/06/94
(cost $8,997,084)............ $ 8,997,084
------------
Repurchase Agreement--0.9%
Joint Repurchase Agreement
Account,
779 4.78%, 9/01/94
(cost $779,000; Note 5)...... 779,000
------------
Total short-term investments
(cost $9,776,084)............ 9,776,084
------------
Total Investments--95.2%
(cost $84,421,713; Note 4)... 84,050,596
U.S. Government Obligation
Sold Short--(23.8)%
21,000 U.S. Treasury Note,
6.50%, 8/15/97
(proceeds $21,020,508)....... (21,036,120)
------------
Total investments, net of
short sales--71.4%......... 63,014,476
Other assets in excess of
liabilities--28.6%......... 25,250,998
------------
Net Assets--100%............. $ 88,265,474
------------
------------
</TABLE>
- ---------------
# Pledged as collateral on short sale.
## $10,193,868 par amount pledged as collateral on short sale.
-4- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets August 31, 1994
---------------
<S> <C>
Investments, at value (cost $84,421,713)................................................... $ 84,050,596
Receivable for investments sold............................................................ 43,456,192
Receivable for investments sold short...................................................... 21,020,508
Interest receivable........................................................................ 606,249
Receivable for Fund shares sold............................................................ 5,084
Due from Distributor....................................................................... 4,654
Deferred expenses and other assets......................................................... 104,152
---------------
Total assets............................................................................. 149,247,435
---------------
Liabilities
Payable for investments purchased.......................................................... 38,554,688
Investments sold short, at value (proceeds $21,020,508).................................... 21,036,120
Payable for Fund shares reacquired......................................................... 1,143,625
Dividends payable.......................................................................... 91,255
Due to Manager............................................................................. 39,669
Accrued expenses........................................................................... 116,604
---------------
Total liabilities........................................................................ 60,981,961
---------------
Net Assets................................................................................. $ 88,265,474
---------------
---------------
Net assets were comprised of:
Common stock, at par..................................................................... $ 9,332
Paid-in capital in excess of par......................................................... 97,753,781
---------------
97,763,113
Over distributed net investment income................................................... (477,375)
Accumulated net realized loss on investments............................................. (8,633,535)
Net unrealized depreciation on investments............................................... (386,729)
---------------
Net assets, August 31, 1994............................................................ $ 88,265,474
---------------
---------------
Class A:
Net asset value and redemption price per share ($86,107,475 / 9,104,190 shares
of common stock issued and outstanding)................................................ $9.46
Maximum sales charge (1.0% of offering price)............................................ .10
---------------
Maximum offering price to public......................................................... $9.56
---------------
---------------
Class B:
Net asset value, offering price and redemption price per share ($2,157,999 / 227,383
shares of
common stock issued and outstanding)................................................... $9.49
---------------
---------------
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
August 31,
Net Investment Income 1994
-----------
<S> <C>
Income
Interest.............................. $ 2,266,736
-----------
Expenses
Management fee........................ 277,318
Distribution fee--Class A, net of
waiver of $269,008.................. --
Distribution fee--Class B, net of
waiver of $16,619................... --
Custodian's fees and expenses......... 76,000
Registration fees..................... 44,000
Transfer agent's fees and expenses.... 38,000
Amortization of deferred organization
expenses.............................. 37,000
Audit fee............................. 24,000
Reports to shareholders............... 22,000
Directors' fees....................... 18,000
Legal fees............................ 7,000
Miscellaneous......................... 4,088
-----------
Total expenses...................... 547,406
-----------
Net investment income................... 1,719,330
-----------
Realized and Unrealized
Loss on Investments
Net realized loss on Investment
transactions.......................... (1,612,805)
Net change in unrealized depreciation
on:
Investments........................... (44,897)
Short sales........................... (15,612)
-----------
Net loss on investments................. (1,673,314)
-----------
Net Increase in Net Assets
Resulting from Operations............... $ 46,016
-----------
-----------
</TABLE>
PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) in August 31, February 28,
Net Assets 1994 1994
------------- -------------
<S> <C> <C>
Operations
Net investment income... $ 1,719,330 $ 8,392,463
Net realized loss on
investment
transactions.......... (1,612,805) (7,020,730)
Net change in unrealized
appreciation/depreciation
on investments........ (60,509) 1,125,105
------------- -------------
Net increase in net
assets resulting from
operations............ 46,016 2,496,838
------------- -------------
Contingent deferred sales
charges collected....... -- 87,220
------------- -------------
Dividends and
distributions (Note 1)
Dividends from net
investment income
Class A............... (1,667,498) (7,557,640)
Class B............... (51,832) (834,823)
------------- -------------
(1,719,330) (8,392,463)
------------- -------------
Distributions in excess
of net investment
income
Class A............... (365,720) (262,362)
Class B............... (10,759) (28,982)
------------- -------------
(376,479) (291,344)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from shares
sold.................. 9,481,491 75,303,969
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions......... 1,669,443 6,959,698
Cost of shares
reacquired.............. (49,008,034) (206,110,076)
------------- -------------
Decrease in net assets
from Fund share
transactions.......... (37,857,100) (123,846,409)
------------- -------------
Total decrease............ (39,906,893) (129,946,158)
Net Assets
Beginning of period....... 128,172,367 258,118,534
------------- -------------
End of period............. $ 88,265,474 $ 128,172,376
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC.
Notes to Financial Statements
(Unaudited)
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 primarily 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, 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, or designated subcustodians, as the case may be under
triparty repurchase agreements, 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.
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 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. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. 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 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.
-7-
<PAGE>
<PAGE>
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.
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.
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. PMFD has waived, temporarily and voluntarily,
all payments to it under the Class A Plan. The amount of fees waived for the six
months ended August 31, 1994, amounted to $269,008 ($.03 per Class A share; .50%
(annualized) of Class A 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. PSI has
waived, temporarily and voluntarily, all payments to it under the Class B Plan.
During the six months ended August 31, 1994 waivers totalled $16,619 ($.07 per
Class B share; 1.00% (annualized) of Class B average net assets).
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 $1,700 in
front-end sales charges resulting from sales of Class A shares during the six
months ended August 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payment made by the Fund pursuant to
the Class B Plan. PSI advised the Fund that for the six months ended August 31,
1994, it received approximately $3,900 in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at August 31, 1994, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $10,100. This amount may be
recovered through future payments under the Class B Plan or 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 Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended August 31, 1994, the Fund incurred fees of approximately
$23,000 for
-8-
<PAGE>
<PAGE>
the services of PMFS. As of August 31, 1994, approximately $2,800 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 invest-
Securities ment securities, other than
short-term investments, for the six months ended
August 31, 1994 were $472,227,526 and $518,198,463, respectively.
The federal income tax basis of the Fund's investments at August 31, 1994 was
substantially the same as the basis for financial reporting and, accordingly,
net unrealized depreciation for federal income tax purposes was $371,117 (gross
unrealized appreciation--$38,780; gross unrealized depreciation--$409,897).
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 August 31, 1994, the Fund has a 0.09% undivided interest in
the repurchase agreements in the joint account. The undivided interest for the
Fund represents $779,000 in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor were as
follows:
Bear, Stearns & Co., 4.79%, in the principal amount of $200,000,000,
repurchase price $200,026,611, due 9/1/94. The value of the collateral including
accrued interest is $204,531,683.
B.T. Securities Corp., 4.78%, in the principal amount of $225,000,000,
repurchase price $225,029,873, due 9/1/94. The value of the collateral including
accrued interest is $229,711,473.
J.P. Morgan Securities, Inc., 4.78%, in the principal amount of $200,000,000,
repurchase price $200,026,556, due 9/1/94. The value of the collateral including
accrued interest is $204,090,875.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.78%, in the principal amount
of $275,000,000, repurchase price $275,036,514, due 9/1/94. The value of the
collateral including accrued interest is $281,061,725.
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 9,331,573 shares issued and
outstanding at August 31, 1994, PMF owned 10,015 Class A shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------- -------------
<S> <C> <C>
Six months ended August 31,
1994:
Shares sold.................... 522,275 $ 4,990,209
Shares sold--conversion from
Class B...................... 419,485 4,012,763
Shares issued in reinvestment
of dividends and
distributions................ 169,877 1,619,937
Shares reacquired.............. (4,340,199) (41,376,781)
---------------- -------------
Net decrease in shares
outstanding.................. (3,228,562) $ (30,753,872)
---------------- -------------
---------------- -------------
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 and
distributions................ 643,966 6,301,453
Shares reacquired.............. (17,047,153) (166,644,600)
---------------- -------------
Net decrease in shares
outstanding.................. (9,322,218) $ (90,917,051)
---------------- -------------
---------------- -------------
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
---------------- -------------
Six months ended August 31,
1994:
<S> <C> <C>
Shares sold.................... 49,906 $ 478,519
Shares issued in reinvestment
of
dividends and
distributions................ 5,171 49,506
Shares reacquired.............. (377,330) (3,618,490)
Shares reacquired--conversion
into Class A................. (418,116) (4,012,763)
---------------- -------------
Net decrease in shares
outstanding.................. (740,369) $ (7,103,228)
---------------- -------------
---------------- -------------
Year ended February 28, 1994:
Shares sold.................... 597,901 $ 5,877,873
Shares issued in reinvestment
of dividends and
distributions................ 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)
---------------- -------------
---------------- -------------
</TABLE>
-10-
<PAGE>
PRUDENTIAL ADJUSTABLE RATE SECURITIES FUND, INC.
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
---------------------------------------- ----------------------------------------
June 10, June 10,
Six Months Year 1992* Six Months Year 1992*
Ended Ended through Ended Ended through
August 31, February 28, February 28, August 31, February 28, February 28,
1994 1994 1993 1994 1994 1993
---------- ------------ ------------ ---------- ------------ ------------
<CAPTION>
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 9.63 $ 9.94 $ 10.00 $ 9.67 $ 9.94 $ 10.00
---------- ------------ ------------ ---------- ------------ ------------
Income from investment operations
Net investment income(D).................... 0.16 0.41 0.35 0.16 0.41 0.31
Net realized and unrealized loss on
investment transactions................... (0.14) (0.29) (0.05) (0.15) (0.29) (0.05)
---------- ------------ ------------ ---------- ------------ ------------
Total from investment operations.......... 0.02 0.12 0.30 0.01 0.12 0.26
Less distributions
Dividends from net investment income........ (0.16) (0.41) (0.35) (0.16) (0.41) (0.31)
Distributions in excess of net investment
income.................................... (0.03) (0.02) (0.01) (0.03) (0.01) (0.01)
---------- ------------ ------------ ---------- ------------ ------------
Total distributions....................... (0.19) (0.43) (0.36) (0.19) (0.42) (0.32)
---------- ------------ ------------ ---------- ------------ ------------
Contingent deferred sales charges
collected................................. -- -- -- -- .03 --
---------- ------------ ------------ ---------- ------------ ------------
Net asset value, end of period.............. $ 9.46 $ 9.63 $ 9.94 $ 9.49 $ 9.67 $ 9.94
---------- ------------ ------------ ---------- ------------ ------------
---------- ------------ ------------ ---------- ------------ ------------
TOTAL RETURN#............................... 0.31% 1.24% 2.92% 0.31% 1.58% 2.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $ 86,107 $ 122,860 $ 219,352 $ 2,158 $ 5,312 $ 38,766
Average net assets (000).................... $ 106,726 $ 176,863 $ 217,329 $ 3,297 $ 19,742 $ 33,895
Ratios to average net assets:(D)
Expenses, including distribution fees..... 0.98%** 0.69% 0.77%** 0.98%** 0.75% 1.27%**
Expenses, excluding distribution fees..... 0.98%** 0.63% 0.27%** 0.98%** 0.63% 0.27%**
Net investment income..................... 3.10%** 4.29% 4.81%** 3.12%** 4.23% 4.31%**
Portfolio turnover rate..................... 484% 130% 45% 484% 130% 45%
- ---------------
* Commencement of investment operations.
** Annualized.
(D) 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 includes reinvestments
of dividends and distributions. Total returns for periods of less than a full year are not annualized.
</TABLE>
See Notes to Financial Statements.
-11-
<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
The 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 LLP
1633 Broadway
New York, NY 10019
Legal Counsel
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, NY 10022
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of August 31, 1994 were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74429J106 MF156E2
74429J205 (LOGO) Cat.#444529X
