Prudential Adjustable Rate
Securities Fund, Inc.
Semi Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Adjustable Rate Securities Fund, Inc.
Performance At A Glance.
In the past six months, adjustable rate mortgage securities have enjoyed modest
returns as bond yields fell. Short-term bonds are less sensitive to interest
rate changes than long-term bonds, so adjustable rate securities (which
generally are short-term securities) didn't appreciate as much as
longer-maturities when interest rates fell. For the six-month period, the
Prudential Adjustable Rate Securities Fund produced returns higher than
similar adjustable rate mortgage funds, as measured by Lipper Analytical
Services.
Cumulative Total Returns1 As of 8/31/95
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 5.1% 9.9%
Class B 5.0 9.7
Lipper Adj. Rate Avg3 1.3 5.9
</TABLE>
Average Annual Total Returns1 As of 9/30/95
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 4.7% 2.8%
Class B 4.8 3.0
</TABLE>
<TABLE>
<CAPTION>
Six-Month 30-Day
Dividend/Share SEC-Yield
<S> <C> <C> <C>
Your
Dividend Class A $0.18 5.83%
As of 8/31/95 Class B $0.18 5.37
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account applicable sales charges. The
average annual total returns do take into account applicable sales charges. The
Fund charges a maximum front-end sales load of 1% for Class A shares.
2Inception date: 6/10/92.
3The Lipper Adjustable Rate fund average measures 72 funds for one year and 46
funds since inception.
Note: Without expense subsidies and the Fund's portfolio management fee
waivers, the Fund's 1 year average annual total returns would have been lower.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've added
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization stocks
offer greater potential for long-term growth but may be more volatile than
larger capitalization stocks. Investors receive higher historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes a good deal) and their returns are historically lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes. (20-year returns are not
available.)
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but their returns are generally among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Barbara Kenworthy, Fund Manager
Portfolio Manager's Report
(PHOTO)
The Prudential Adjustable Rate Securities Fund seeks high current income
consistent with low volatility of principal. Of course, there is no assurance
the Fund will meet that objective. Under normal market conditions, at least 65%
of the portfolio is in adjustable rate securities, including adjustable rate
mortgages (ARMs). The Fund also invests in fixed-rate bonds, such as corporate
and other debt securities. Currently, the Fund maintains a short-term
effective maturity, similar to that of the one-year Treasury note.
New Manager.
Your Fund has a new portfolio manager: Barbara Kenworthy, who oversees
Prudential's taxable fixed-income mutual funds and manages the $1.5 billion
Prudential Government Income Fund and the new Prudential Diversified Bond Fund.
Strategy Session.
As interest rates fell earlier this year, the Fund decreased its holdings in
higher-coupon adjustable rate mortgages. We were concerned because their
prices can fall sharply as interest rates decline as homeowners prepay
mortgages early. Instead, we lengthened maturities by purchasing variable
rate notes (maturing in less than five years with interest rates fluctuating
with LIBOR, the London Interbank Offered Rate) and longer maturity (5-10 years)
U.S. Treasury and agency securities.
Since June, we have shifted course and have held a fairly high proportion of
assets in cash. As we wrote during the summer, shareholders approved an
exchange of the Fund's assets for shares of the Prudential Government
Securities Trust: Short-Intermediate Term Series. At or about the time of
mailing of the proxy materials, a large shareholder redeemed his shares in the
Fund. Due to this circumstance, it is not clear whether the reorganization may
be completed as a non-taxable event. Consequently, the closing of the
transaction has been delayed. We are working with the Fund's counsel to resolve
this issue and will keep you informed of our progress. In the meantime, we have
elected to maintain a larger-than-usual cash holding, 25% on August 31, 1995.
Although the size of this cash position has reduced the Fund's yield, it has
helped protect the Fund's net asset value and allowed us to meet redemptions
without having to make any asset sales.
Looking Ahead.
The economy seems to to have made a soft landing: it's growing but moderately
enough to contain the threat of rising inflation. If economic growth should
show signs of weakening before the year is out, the Federal Reserve may reduce
short-term interest rates again. Meanwhile, we're expecting to collect just
coupon income -- and perhaps a bit of price appreciation -- from bonds for
most of the rest of 1995.
<PAGE>
President's Letter October 11, 1995
Dear Shareholder:
We hope you like the fresh look and information we've given your shareholder
letter. We've also introduced another feature, called Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to time at the back of
your report. Look for topics like "Understanding Risk & Reward" as well as
easy-to-understand explanations of financial terms. Why are we providing such
information? Because at Prudential Mutual Funds, we believe an informed
investor makes smart investment decisions.
- - -------------------------------------------------------------------------------
On the Hill
As an informed investor, you should know about the "American Dream Savings
Account" that is part of the federal budget package now under debate in the
Senate. It is a type of Individual Retirement Account that offers a
common-sense approach to long-term saving. Investors should like it because--
- You can withdraw funds -- without penalty -- to pay for certain expenses
like buying a first home, medical care or educational needs;
- All account earnings would accumulate tax-free, not merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and while we hope this
measure is adopted, there's no way of knowing if it will be. So why not let
your Senator and/or Representative know your opinion today? Simply call
202-224-3121.
Thank you for choosing Prudential Mutual Funds for your mutual fund investment.
Sincerely,
Richard A. Redeker
President
1
<PAGE>
Portfolio of Investments as of PRUDENTIAL ADJUSTABLE RATE
August 31, 1995 (Unaudited) SECURITIES FUND, INC.
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- - ------------------------------------------------------------
LONG-TERM INVESTMENTS--76.3%
- - ------------------------------------------------------------
Adjustable Rate Mortgage Pass-Throughs--76.3%
Federal Home Loan Mortgage
Corporation,
$7,855 6.813%, 8/01/24 $ 7,891,614
5,016 7.125%, 5/01/24 5,078,987
Government National Mortgage
Association,
3,057 6.00%, 7/20/25 3,050,242
Resolution Trust Corporation,
7,278 7.155%, 12/25/20 7,337,482
------------
Total Adjustable Rate Mortgage
Pass-Throughs
(cost $23,293,403) 23,358,325
------------
Total long-term investments
(cost US$23,293,403) 23,358,325
------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- - ------------------------------------------------------------
SHORT-TERM INVESTSMENTS--25.0%
- - ------------------------------------------------------------
Repurchase Agreement--25.0%
$7,672 Joint Repurchase Agreement Account,
5.52%, 9/1/95
(cost US$7,672,000; Note 5) $ 7,672,000
- - ------------------------------------------------------------
Total Investments--101.3%
(cost US$30,965,403; Note 4) 31,030,325
Liabilities in excess of other
assets--(1.3%) (391,696)
------------
Net Assets--100% $ 30,638,629
------------
------------
</TABLE>
- - -------------------------------------------------------------------------------
2 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Statement of Assets and Liabilities (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C>
Assets
August 31, 1995
---------------
Investments, at value (cost
$30,965,403)..................................................................
$31,030,325
Interest
receivable...................................................................
.................... 140,669
Deferred expenses and other
assets........................................................................
66,847
---------------
Total
assets.......................................................................
.................... 31,237,841
---------------
Liabilities
Payable for Fund shares
reacquired...................................................................
..... 401,755
Accrued
expenses.....................................................................
..................... 152,425
Dividends
payable......................................................................
................... 31,716
Due to
Manager......................................................................
...................... 13,316
---------------
Total
liabilities..................................................................
.................... 599,212
---------------
Net
Assets.......................................................................
......................... $30,638,629
---------------
---------------
Net assets were comprised of:
Common stock, at
par..........................................................................
......... $ 3,191
Paid-in capital in excess of
par.......................................................................
39,034,194
---------------
39,037,385
Undistributed net investment
income....................................................................
170,790
Accumulated net realized loss on
investments...........................................................
(8,634,468)
Net unrealized appreciation on
investments.............................................................
64,922
---------------
Net assets, August 31,
1995.........................................................................
...... $30,638,629
---------------
---------------
Class A:
Net asset value and redemption price per share
($30,511,667 / 3,178,077 shares of common stock issued and
outstanding)............................. $9.60
Maximum sales charge (1.0% of offering
price)..........................................................
.10
Maximum offering price to
public.......................................................................
$9.70
Class B:
Net asset value, offering price and redemption price per share
($126,962 / 13,180 shares of common stock issued and
outstanding)................................... $9.63
</TABLE>
- - --------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE PRUDENTIAL ADJUSTABLE RATE
SECURITIES FUND, INC. SECURITIES FUND, INC.
Statement of Operations Statement of Changes in Net Assets
(Unaudited) (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
August 31,
Net Investment Income 1995
----------
<S> <C>
Income
Interest..................................... $1,452,725
----------
Expenses
Management fee............................... 123,117
Distribution fee--Class A, net of waiver of
$122,484.................................. --
Distribution fee--Class B, net of waiver of
$1,267.................................... --
Custodian's fees and expenses................ 86,000
Registration fees............................ 42,000
Directors' fees.............................. 24,000
Amortization of deferred organization
expenses.................................. 18,000
Audit fee.................................... 18,000
Transfer agent's fees and expenses........... 17,000
Reports to shareholders...................... 10,000
Legal fees................................... 5,000
Insurance expense............................ 1,000
Miscellaneous................................ 2,212
----------
Total expenses............................ 346,329
----------
Net investment income........................... 1,106,396
----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on:
Investment transactions...................... 357,093
Short sales.................................. 15,213
----------
372,306
----------
Net change in unrealized
appreciation/depreciation on:
Investments.................................. (249,888)
Short sales.................................. 89,405
----------
(160,483)
----------
Net gain on investments......................... 211,823
----------
Net Increase in Net Assets
Resulting from Operations....................... $1,318,219
----------
----------
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) August 31, February 28,
in Net Assets 1995 1995
----------- -----------
<S> <C> <C>
Operations
Net investment income............ $ 1,106,396 $ 3,325,604
Net realized gain (loss) on
investment transactions....... 372,306 (1,986,044)
Net change in unrealized
appreciation/(depreciation) on
investments................... (160,483) 551,626
----------- -----------
Net increase in net assets
resulting from operations..... 1,318,219 1,891,186
----------- -----------
Net equalization (debits)........ (9,162) --
----------- -----------
Dividends and distributions (Note 1)
Dividends to shareholders from
net investment income
Class A....................... (921,730) (3,246,500)
Class B....................... (4,714) (79,104)
----------- -----------
(926,444) (3,325,604)
----------- -----------
Distributions to shareholders in
excess of net investment
income
Class A....................... -- (100,808)
Class B....................... -- (6,354)
----------- -----------
-- (107,162)
----------- -----------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares sold.... 721,933 2,804,234
Net asset value of shares issued
to shareholders in
reinvestment of dividends and
distributions................. 764,091 2,778,067
Cost of shares reacquired........ (30,686,417) (72,756,688)
----------- -----------
Decrease in net assets from Fund
share transactions............ (29,200,393) (67,174,387)
----------- -----------
Total decrease...................... (28,817,780) (68,715,967)
Net Assets
Beginning of period................. 59,456,409 128,172,376
----------- -----------
End of period....................... $30,638,629 $59,456,409
----------- -----------
----------- -----------
</TABLE>
- - --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Notes to Financial Statements (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
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 Policies
The following is a summary of significant accounting policies 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.
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: The Fund accounts and reports 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. For the year ended February 28, 1995, the Fund reclassed $208,058 of
dividends in excess of net 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.
- - --------------------------------------------------------------------------------
5
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Notes to Financial Statements (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
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, 1995, amounted to $122,484 ($0.3 per Class A share; 0.005%
(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.
The amount of fees waived for the six months ended August 31, 1995 amounted to
$1,267.
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 $82,600 in
front-end sales charges resulting from sales of Class A shares during the six
months ended August 31, 1995. 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,
1995, it received approximately $800 in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at August 31, 1995, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $11,300. 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended August 31,
1995, the Fund incurred fees of approximately $12,300 for the services of PMFS.
As of August 31, 1995, approximately $1,700 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.
- - --------------------------------------------------------------------------------
6
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Notes to Financial Statements (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended August 31, 1995 were $58,763,381 and $76,325,223,
respectively.
The federal income tax basis of the Fund's investments at August 31, 1995 was
substantially the same as the basis for financial reporting and, accordingly,
net unrealized depreciation for federal income tax purposes was $64,922 (gross
unrealized appreciation--$125,431; gross unrealized depreciation--$60,509).
For federal income tax purposes, the Fund has a capital loss carryforward as of
February 28, 1995 of approximately $8,597,700 of which $3,282,600 expires in
2002 and $5,315,100 expires in 2003. 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 $409,000
incurred in the four month period ended February 28, 1995 as having been
incurred in the following fiscal year.
- - ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of August 31, 1995, the Fund
has a 0.95% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $7,672,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Barclays de Zoete, 5.85%, in the principal amount of $100,000,000 repurchase
price $100,016,250, due 9/1/95. The Value of the collateral including accrued
interest is $102,000,840.
Bear, Stearns & Co., 5.82%, in the principal amount of $240,000,000 repurchase
price $240,038,800, due 9/1/95. The Value of the collateral including accrued
interest is $245,325,326.
BT Securities Corp., 5.80%, in the principal amount of $40,000,000, repurchase
price $40,006,444, due 9/1/95. The Value of the collateral including accrued
interest is $40,859,047.
CS First Boston, 5.81%, in the principal amount of $240,000,000 repurchase price
$240,038,733, due 9/1/95. The Value of the collateral including accrued interest
is $244,888,109.
Goldman Sachs & Co., 5.80%, in the principal amount of $88,139,000, repurchase
price $88,153,200, due 9/1/95. The Value of the collateral including accrued
interest is $89,901,854.
Smith Barney Inc., 5.82%, in the principal amount of $100,000,000, repurchase
price $100,016,167, due 9/1/95. The Value of the collateral including accrued
interest is $102,000,070.
- - ------------------------------------------------------------
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 3,191,257 shares issued and
outstanding at August 31, 1995, 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, 1995:
Shares sold........................ 72,265 $ 698,728
Shares issued in reinvestment of
distributions.................... 79,199 760,948
Shares reacquired.................. (3,117,830) (30,037,931)
----------- ------------
Net decrease in shares
outstanding...................... (2,966,366) $(28,578,255)
----------- ------------
----------- ------------
</TABLE>
- - --------------------------------------------------------------------------------
7
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Notes to Financial Statements (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- - ----------------------------------- ----------- ------------
Year ended February 28, 1995:
<S> <C> <C>
Shares sold........................ 228,976 $ 2,205,352
Shares issued in reinvestment of
distributions.................... 285,589 2,710,958
Shares reacquired.................. (7,570,166) (71,826,463)
----------- ------------
Net decrease in shares outstanding
before conversion................ (7,055,601) (66,910,153)
Shares issued upon conversion from
Class B.......................... 447,807 4,242,531
----------- ------------
Net decrease in shares
outstanding...................... (6,607,794) $(62,667,622)
----------- ------------
----------- ------------
Class B
- - -------
Six months ended August 31, 1995:
Shares sold........................ 2,399 $ 23,205
Shares issued in reinvestment of
distributions.................... 326 3,143
Shares reacquired.................. (67,403) (648,486)
----------- ------------
Net decrease in shares
outstanding...................... (64,678) $ (622,138)
----------- ------------
----------- ------------
Year ended February 28, 1995:
Shares sold........................ 62,621 $ 598,882
Shares issued in reinvestment of
distributions.................... 7,031 67,109
Shares reacquired.................. (95,108) (930,225)
----------- ------------
Net decrease in shares outstanding
before conversion................ (25,456) (264,234)
Shares reacquired upon conversion
into Class A..................... (446,322) (4,242,531)
----------- ------------
Net decrease in shares
outstanding...................... (471,778) $ (4,506,765)
----------- ------------
----------- ------------
</TABLE>
- - --------------------------------------------------------------------------------
8
<PAGE>
<PAGE>
PRUDENTIAL ADJUSTABLE RATE
Financial Highlights (Unaudited) SECURITIES FUND, INC.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
- - ------------------------------------------------------------- ----------
<S> <C> <C>
<C> <C> <C>
June 10,
Six Months Year
Year 1992(a) Six Months
Ended Ended
Ended through Ended
August 31, February 28,
February 28, February 28, August 31,
1995 1995
1994 1993 1995
---------- ------------
------------ ------------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 9.55 $ 9.63
$ 9.94 $ 10.00 $ 9.59
---------- ------------
------------ ------------ ----------
Income from investment operations
Net investment income(c)...................... .18 .36
0.41 0.35 .18
Net realized and unrealized gain/loss on
investment transactions..................... .05 (.07)
(0.29) (0.05) .04
---------- ------------
------------ ------------ ----------
Total from investment operations........... .23 .29
0.12 0.30 .22
---------- ------------
------------ ------------ ----------
Less distributions
Dividends from net investment income.......... (.18) (.35)
(0.41) (0.35) (.18)
Distributions in excess of net investment
income...................................... -- (.01)
(0.02) (0.01) --
---------- ------------
------------ ------------ ----------
Total distributions........................ (.18) (.36)
(0.43) (0.36) (.18)
---------- ------------
------------ ------------ ----------
Contingent deferred sales charges rebated..... -- --
-- -- --
---------- ------------
------------ ------------ ----------
Net asset value, end of period................ $ 9.60 $ 9.55
$ 9.63 $ 9.94 $ 9.63
---------- ------------
------------ ------------ ----------
---------- ------------
------------ ------------ ----------
TOTAL RETURN(d):.............................. 5.13% 3.07%
1.24% 2.92% 5.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $30,512 $58,710
$122,860 $219,352 $127
Average net assets (000)...................... $48,727 $89,069
$176,863 $217,329 $252
Ratios to average net assets:(c)
Expenses, including distribution fees...... 1.40%(b) 1.07%
0.69% 0.77%(b) 1.35%(b)
Expenses, excluding distribution fees...... 1.40%(b) 1.07%
0.63% 0.27%(b) 1.35%(b)
Net investment income...................... 4.48%(b) 3.65%
4.29% 4.81%(b) 4.41%(b)
Portfolio turnover rate....................... 304% 268%
130% 45% 304%
- - ---------------
<CAPTION>
June 10,
Year Year
1992(a)
Ended Ended
through
February 28, February 28,
February 28,
1995 1994
1993
------------ ------------
------------
<S> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 9.67 $ 9.94
$ 10.00
----- ------
------
Income from investment operations
Net investment income(c)...................... .36 0.41
0.31
Net realized and unrealized gain/loss on
investment transactions..................... (.08) (0.29)
(0.05)
----- ------
------
Total from investment operations........... .28 0.12
0.26
----- ------
------
Less distributions
Dividends from net investment income.......... (.33) (0.41)
(0.31)
Distributions in excess of net investment
income...................................... (.03) (0.01)
(0.01)
----- ------
------
Total distributions........................ (.36) (0.42)
(0.32)
----- ------
------
Contingent deferred sales charges rebated..... -- .03
--
----- ------
------
Net asset value, end of period................ $ 9.59 $ 9.67
$ 9.94
----- ------
------
----- ------
------
TOTAL RETURN(d):.............................. 2.96% 1.58%
2.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $746 $5,312
$38,766
Average net assets (000)...................... $2,279 $19,742
$33,895
Ratios to average net assets:(c)
Expenses, including distribution fees...... 1.03% 0.75%
1.27%(b)
Expenses, excluding distribution fees...... 1.03% 0.63%
0.27%(b)
Net investment income...................... 3.47% 4.23%
4.31%(b)
Portfolio turnover rate....................... 268% 130%
45%
</TABLE>
- - ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of management fee and/or distribution fee waivers.
(d) 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.
- - --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this -- they don't read annual
and semi-annual reports. It's quite understandable These annual and semi-annual
reports are prepared to comply with Federal regulations. They are often written
in language that is difficult to understand. So when most people run into those
particularly daunting sections of these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's primary
concern, we present performance information in two different formats. You'll
find it first on the "At A Glance" page where we compare the Fund and the
comparable average calculated by Lipper Analytical Services, Inc., a nationally
recognized mutual fund rating agency. We report both the cumulative total
returns and the average annual total returns. The cumulative total return is
the total amount of income and appreciation the Fund has achieved in various
time periods. The average annual total return is an annualized representation
of the Fund's performance -- it generally smoothes out returns and gives you an
idea how much the Fund has earned in an average year, for a given time period.
Under the performance box, you'll see legends that explain the performance
information, whether fees and sales charges have been included in returns, and
the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. And keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports on successful --
and not-so-successful -- strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio managers favors and any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes) and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you and thus is not a realized loss. The net asset
value fluctuates daily along with the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into changes in net
assets, compared to last year's performance. The Fund is required to pay out
the bulk of its income to shareholders every year, and this statement shows
you how we do it -- through dividends and distributions -- and how that
affects the net assets. This statement also shows how money from investors
flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate readers, but it does
contain useful information. The Notes provide a brief history and explanation
of your Fund's objectives. In addition, they also outline how Prudential Mutual
Funds prices securities. The Notes also explain who manages and distributes the
Fund's shares, and more importantly, how much they are paid for doing so.
Finally, the Notes explain how many shares are outstanding and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per share
basis. It is designed to help you understand how the Fund performed and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information we've presented is fair and complies with generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever
is shorter). To help you put that return in context, we are required to
include the performance of an unmanaged, broad based securities index, as well.
The index does not reflect the cost of buying the securities it contains or the
cost of managing a mutual fund. Of course, the index holdings do not mirror
those of the fund -- the index is a broadly based reference point commonly
used by investors to measure how well they are doing. A definition of the
selected index is also provided. Investors generally cannot invest directly in
an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services.
- - -------------------------------------------------------------------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge -- sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
- - -------------------------------------------------------------------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just
based on the current investment fad.
- - -------------------------------------------------------------------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial adviser or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Directors
Edward D. Beach
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Thomas A. Owens, Jr.
Richard A. Redeker
Stanley E. Shirk
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, 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
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
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
Two World Financial Center
New York, NY 10281
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of August 31, 1995 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.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
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