MERRILL LYNCH
CAPITAL FUND, INC.
FUND LOGO
Quarterly Report
December 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Kurt Schansinger, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original
cost. Statements and other information herein are as dated and are
subject to change.
Merrill Lynch
Capital Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
<PAGE>
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification
As of December 31, 1996
A pie chart illustrating the following percentages:
US Bonds 40.7%
Non-US Bonds 3.1%
Cash & Cash Equivalents 3.4%
US Stocks 42.2%
Non-US Stocks 10.6%
Security Representation
As a Percentage of US Equities
As of December 31, 1996
A pie chart illustrating the following percentages:
Financial Services 25.0%
Consumer Services 5.2%
Utilities 3.9%
Transportation 1.3%
Capital Goods--Technology 10.5%
Consumer Cyclicals 9.2%
Energy 16.0%
Basic Industries 8.7%
Diversified 2.7%
Credit Cyclicals 1.7%
Consumer Staples 11.1%
Capital Goods 4.7%
Geographic Diversification Percent of
As of December 31, 1996 Net Assets*
<PAGE>
United States 85.8%
Argentina 4.6
United Kingdom 3.4
Switzerland 1.6
Brazil 0.7
France 0.6
Netherlands 0.5
Italy 0.5
Finland 0.5
Thailand 0.3
Japan 0.3
Singapore 0.3
Mexico 0.3
Canada 0.2
Hong Kong 0.2
Peru 0.1
Ireland 0.1
[FN]
*Includes investments in short-term securities.
US Common Stock Investments S&P
As of December 31, 1996 Fund 500*
Average Capitalization (in billions) $14.1 $11.2
Price/Book Value 2.4 4.3
Price/Earnings Ratio** 16.7 19.2
Yield Based on Current Dividend 2.3% 2.0%
[FN]
*An unmanaged broad-based index comprised of common stocks.
**Based on 1996 earnings estimates.
Fixed-Income Investments Merrill Lynch
As of December 31, 1996 Fund DOAO Index*
Duration 5.4 Years 5.1 Years
Average Maturity 8.5 Years 12.8 Years
Asset Breakdown:
Corporates 48.3% 16.9%
US Treasuries/Agencies 45.9% 54.4%
Mortgage-Backed 1.1% 28.7%
International Governments 4.7% --
[FN]
*An unmanaged market-weighted corporate, Government and mortgage
master bond index reflecting approximately 97% of total outstanding
bonds.
<PAGE>
DEAR SHAREHOLDER
The US financial markets provided significant positive returns to
investors during the quarter ended December 31, 1996. The
combination of moderating economic growth, continued benign
inflation pressures and favorable election results provided a very
hospitable environment for financial asset price appreciation,
propelling the stock market to near-record highs and precipitating a
broad decline in interest rates. The stock market, as measured by
the unmanaged Standard & Poor's 500 Index (S&P 500), generated a
+8.36% total return for the quarter; and November's total return of
+7.52% represented the largest monthly advance, in absolute dollar
terms, in history. The bond market, as measured by the unmanaged
Merrill Lynch Domestic Bond Master Index, generated a +3.05% total
return, while short-term investments provided a total return of
+1.30% for the December quarter. Total returns for Merrill Lynch
Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares in
the December quarter were +6.53%, +6.22%, +6.25% and +6.44%,
respectively. (Fund results do not reflect sales charges; results
would be lower if sales charges were included. Complete performance
information, including average annual total returns, can be found on
pages 5--6 of this report to shareholders.)
On the economic front, the revised 2.1% gross domestic product
growth rate during the third calendar quarter was less than half
that of the second quarter. Although the housing market rebounded in
November, following four months of decline, overall home sales
activity remained well below the May 1996 peak and home prices are
appreciating at only a nominal pace. Meanwhile, auto sales continue
to be weak despite aggressive sales incentives. New job creation
slowed markedly, with job gains during the September to November
period averaging less than one-half the rate that prevailed from
January 1996 through August 1996. The rate of growth in consumer
credit continued to slow, after rising steadily for over three
years, while retail sales showed an unexpected decline in November.
In addition, results for the Christmas selling season were below
expectations as well, with some merchants actually reporting sales
declines for the period. Industrial activity remained lackluster.
While industrial production rose in November, it remained 5% below
the July peak. Durable goods orders fell in November, and have
declined in three of the past six months. Finally, our major global
trading partners continued to endure weak economic conditions which,
when coupled with a strong US currency, will likely restrain the
contribution of the export sector to overall US economic growth in
1997. This accumulating body of evidence suggests the economy is
likely to remain sluggish in the period ahead.
<PAGE>
Inflation also continued to grow at only a modest pace. The core
rate of consumer price inflation remained below 3% for all of 1996,
while at the producer level, the core finished goods inflation rate
of 0.6% for 1996 was the second smallest rise on record. On the
political front, the re-election of President Clinton and the
maintenance of a Republican-controlled Congress are expected to
result in continued moderate Government policies. Investors
concluded that this combination of developments would sustain the
favorable backdrop for the financial markets, and responded by
bidding prices sharply higher.
Portfolio Matters
Our investment position at December 31, 1996 showed 52.8% of
portfolio net assets invested in equities, 43.8% in bonds, and 3.4%
in cash and cash equivalents. This compares to 49.2% in equities,
47.1% in bonds, and 3.7% in cash and cash equivalents at the end of
the September quarter. The extraordinary rise in stock prices since
September exacerbated the relative valuation disparity between
stocks and bonds. The broad stock market averages are selling at or
near record high valuation levels despite a demonstrable slowdown in
both the rate of economic growth and expectations for corporate
profits. Meanwhile, bond yields appeared very attractive compared to
both the current rate of inflation and the equity market. Indeed,
the current level of real, inflation-adjusted interest rates was
exceeded only once in the past 60 years. While the large fixed-
income component of Merrill Lynch Capital Fund, Inc. detracted from
overall returns this year, we continue to believe that bonds will
provide an attractive total return over the next 12 months. A
further significant upside advance in equities is likely to be
constrained by the aforementioned high valuations and slowing pace
of corporate earnings growth. Consequently, we continued to maintain
a large bond weighting in the portfolio.
Historically, performance in the year subsequent to two consecutive
years of double-digit equity market returns has been lackluster.
1995 and 1996 mark the tenth instance of such returns to investors
since 1950. For the nine previous occurrences, the price performance
of the S&P 500 Index in the year following two successive years of
double-digit returns averaged -4.1%. While third-year results were
positive in four of the nine periods, they averaged a very modest
+3.1% in a range of +1.4% in 1984 to +9.1% in 1965. Third-year
returns were negative in five of the nine periods, with an average
decline of -10.3% in a range of -6.6% in both 1953 and 1990 to
- -17.4% in 1973. While these statistics have no predictive power in
and of themselves, in our opinion 56 years of market history suggest
that equity returns in 1997 are likely to be at best moderate.
<PAGE>
Within the equity component of the portfolio, we added seven new
investments during the quarter and eliminated 27 holdings. We
increased our holdings in 39 stocks, while reducing our ownership
position in 33. The rapid increase in equity prices during the
December quarter provided an attractive opportunity to reduce or
eliminate several lower conviction holdings, resulting in what we
believe to be a portfolio of high-quality companies selling at
reasonable prices. Notable among the new investments is W.R. Berkley
Corporation, a specialty insurance company. Berkley appears poised
to emerge from an extended period of earnings volatility and
declining returns. A combination of accelerating core earnings
growth and increasingly positive contributions from previously money-
losing, start-up and joint-venture operations, coupled with ongoing
share repurchases, are expected to produce 15%--20% average annual
earnings growth and 100 basis point--150 basis point annual
improvements in return on shareholders' equity over the next three--
five years. Senior management is heavily incentivized to create
shareholder value, as founder and CEO Bill Berkley owns almost 13%
of the company. In addition, the senior management compensation
program is tied exclusively to the achievement of the company's 15%
return on equity objective. Downside in the stock should be limited
by the company's improving fundamentals, low current valuation,
active share repurchase program and the underperformance of the
stock, which is selling at the same price as in early 1993.
We eliminated our position in PHH Corp., the business services
company, which is being acquired by HFS Incorporated in an exchange
of stock which valued PHH at a 50% premium to the prevailing market
price before the announcement of the transaction. PHH appreciated
80% in 1996 on top of a 35% advance in 1995, and provided a
significant gain for Merrill Lynch Capital Fund, Inc. We also sold
our position in Repsol, S.A., the Spanish energy company. We were
concerned that the deregulation of the Spanish energy market would
result in a deterioration of the strong industrial position and high
returns on capital that Repsol currently enjoys as competition
begins to make inroads into their markets. In addition, the company
has significantly increased its capital expenditures program to
develop exploration and production properties in new geographic
regions, a business in which the company has limited expertise.
Finally, we were disconcerted by the forced departure of the
company's chief executive officer, in whom we had high confidence.
We also continued to reduce our exposure to the banking sector,
selling our interests in both NationsBank Corp. and Bancorp Hawaii,
Inc. The banking industry prospered over the last five years,
benefiting from strong loan demand, solid credit quality and
improving balance sheets, rapid earnings growth, and rising returns
on capital. Shareholders in these companies prospered as well, as
many bank stocks performed handsomely and reached record high
valuation levels. We believe bank stock prices have generally
reached levels that now adequately and accurately reflect their
solid prospects and intrinsic values.
<PAGE>
Examining the industry concentration of the Fund's equity holdings,
we continue to maintain low weightings relative to the S&P 500 Index
in the broad technology and consumer sectors, while energy and
financial services remain relatively heavily weighted in the Fund's
mix. We strive to identify attractive investment opportunities in
technology in order to participate in its strong secular growth
outlook and have almost doubled our weighting in this area over the
past year. However, it remains extremely challenging to uncover many
specific technology companies which meet our investment criteria.
The consumer segment of the equity market is represented by many
high-quality companies, but the stocks tend to sell at high
valuation levels, limiting their current investment appeal. While
most of our energy stocks benefited from the strong commodity price
environment of 1996, our large investment position in this sector is
not based upon a top-down, commodity price forecast. We believe many
companies in the energy business offer attractive unit volume growth
and substantial restructuring opportunities, while selling at
reasonable prices with high current dividend yields. The favorable
oil and natural gas price environment was a bonus. Selected
financial companies, including banks, insurance and other
diversified providers, offer an attractive combination of high
returns on capital, excess capital generation, consolidation
opportunities and incentivized managements, while selling at
reasonable prices.
Within the fixed-income component of the portfolio, the average
duration of our holdings remained stable at 5.4 years and average
quality was maintained at A1/A+. The average yield to maturity on
our bonds declined, coincident with the overall reduction of market
yields, ending the period at 6.82% compared to 6.99% at the end of
the prior quarter. We continued to increase our position in US
Treasury securities, bringing them to 45.9% of bond assets from
44.8% at the end of September. We increased our holdings of high-
yield corporate bonds to 4.3% of bond assets from 2.2%, while
reducing the weighting in investment grade corporate bonds to 44.0%
from 46.7%. This reflects our continuing view that the currently
narrow yield spread between high-grade domestic corporate bonds and
US Treasuries does not fully compensate for the higher risks
associated with the corporate sector, increasing the relative
attraction of intermediate-term Treasury securities in the mix.
Bonds issued by foreign governments and mortgage-backed securities
represent the remaining 5.8% of fixed-income investments as of
December 31, 1996, compared to 6.4% at the end of September.
<PAGE>
Despite the high overall level of the stock market, we continue to
identify and invest in above-average companies whose stocks sell at
below-average valuation levels. We define an above-average company
as one which maintains a strong competitive position, earns
consistently high returns on capital, is financially sound,
generates cash in excess of its internal needs and is managed by
individuals motivated to create value for shareholders. We define a
below-average price as one which does not adequately or accurately
reflect what we believe to be the company's underlying intrinsic
value. On average, the stocks held in Merrill Lynch Capital Fund,
Inc. generated comparable returns on shareholders' equity and have
stronger balance sheets, while offering faster earnings growth than
the average company as measured by the S&P 500. However, these same
stocks sell at an average price-to-earnings ratio of 13.5 times
estimated 1997 earnings per share versus 17.9 times for the S&P 500,
at 2.4 times current book value per share versus 4.3 times for the
S&P 500 and provide a 2.3% dividend yield versus 2.0% for the S&P
500. We believe this formula will provide superior risk-adjusted
equity returns over time.
In Conclusion
We appreciate your ongoing interest and participation in the Merrill
Lynch Capital Fund, Inc., and we look forward to assisting you with
your financial needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Kurt Schansinger)
Kurt Schansinger
Vice President and Portfolio Manager
January 31, 1997
PERFORMANCE DATA
<PAGE>
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Capital Fund, Inc. Class A Shares* $31.05 $30.51 $30.55 + 6.62%(1) + 4.38%(2)
ML Capital Fund, Inc. Class B Shares* 30.46 29.89 30.04 + 6.46(1) + 4.57(2)
ML Capital Fund, Inc. Class C Shares* 30.19 29.63 29.81 + 6.38(1) + 4.58(2)
ML Capital Fund, Inc. Class D Shares* 31.02 30.47 30.53 + 6.59(1) + 4.42(2)
Dow Jones Industrial Average 6,448.27 5,882.17 5,117.12 +26.01 + 9.62
Standard & Poor's 500 Index** 740.74 687.31 615.93 +20.26 + 7.77
ML Capital Fund, Inc. Class A Shares--Total Return* +12.67(3) + 6.53(4)
ML Capital Fund, Inc. Class B Shares--Total Return* +11.50(5) + 6.22(6)
ML Capital Fund, Inc. Class C Shares--Total Return* +11.54(7) + 6.25(8)
ML Capital Fund, Inc. Class D Shares--Total Return* +12.39(9) + 6.44(10)
Dow Jones Industrial Average--Total Return +29.49 +10.72
Standard & Poor's 500 Index--Total Return** +22.98 + 8.36
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $1.464 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.789 per share capital
gains distributions.
(3)Percent change includes reinvestment of $1.725 per share ordinary
income dividends and $1.464 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.648 per share ordinary
income dividends and $0.789 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.412 per share ordinary
income dividends and $1.464 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.487 per share ordinary
income dividends and $0.789 per share capital gains distributions.
(7)Percent change includes reinvestment of $1.437 per share ordinary
income dividends and $1.464 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.491 per share ordinary
income dividends and $0.789 per share capital gains distributions.
(9)Percent change includes reinvestment of $1.652 per share ordinary
income dividends and $1.464 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.608 per share
ordinary income dividends and $0.789 per share capital gains
distributions.
</TABLE>
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the Fund's
Class A Shares from $947.50 on November 8, 1973 to $16,473.71 on
December 31, 1996.
Average Annual Total Return
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +12.67% + 6.76%
Five Years Ended 12/31/96 +12.53 +11.32
Ten Years Ended 12/31/96 +13.10 +12.49
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +11.50% + 7.50%
Five Years Ended 12/31/96 +11.38 +11.38
Inception (10/21/88)
through 12/31/96 +12.28 +12.28
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +11.54% +10.54%
Inception (10/21/94)
through 12/31/96 +18.26 +18.26
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
<PAGE>
Year Ended 12/31/96 +12.39% + 6.49%
Inception (10/21/94)
through 12/31/96 +19.18 +16.29
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 1,100,000 Lockheed Martin Corp. $ 80,991,980 $ 100,650,000 1.1%
850,000 Rockwell International Corporation 28,742,166 51,743,750 0.5
-------------- -------------- ------
109,734,146 152,393,750 1.6
Automobile Equipment 1,903,000 Echlin Inc. 60,797,432 60,182,375 0.6
Automotive 1,100,000 General Motors Corp. 52,297,358 61,325,000 0.6
Banking 700,000 Bangkok Bank Public Company Ltd. 7,163,083 6,768,823 0.1
1,200,000 The Chase Manhattan Corp. (a) 83,067,256 107,100,000 1.1
810,000 SouthTrust Corp. 15,269,839 28,147,500 0.3
1,750,000 Thai Military Bank Public Company, Ltd. 7,010,952 3,445,822 0.0
800,000 Union Planters Corp. 14,078,719 31,200,000 0.3
-------------- -------------- ------
126,589,849 176,662,145 1.8
Building Materials 2,300,000 Masco Corporation 71,758,199 82,800,000 0.9
148,300 Medusa Corp. 4,049,772 5,097,813 0.1
-------------- -------------- ------
75,807,971 87,897,813 1.0
Capital Goods 442,000 GATX Corp. 17,933,469 21,437,000 0.2
500,000 Kennametal, Inc. 16,344,834 19,437,500 0.2
1,310,000 United Dominion Industries, Ltd. 29,541,336 30,785,000 0.3
-------------- -------------- ------
63,819,639 71,659,500 0.7
<PAGE>
Chemicals 350,000 Dexter Corporation 9,042,303 11,156,250 0.1
800,000 du Pont (E.I.) de Nemours & Co. 58,036,997 75,500,000 0.8
1,150,000 Engelhard Corp. 20,377,189 21,993,750 0.2
2,000,000 Imperial Chemical Industries PLC (ADR)* 98,975,520 104,000,000 1.1
499,997 Millennium Chemicals Inc. 13,552,363 8,874,947 0.1
-------------- -------------- ------
199,984,372 221,524,947 2.3
Computer Software 1,025,000 Creative Technology, Ltd. 12,833,743 11,915,625 0.1
Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 28,497,409 0.3
Diversified 1,650,000 Tenneco, Inc. 65,489,909 74,456,250 0.8
Companies 6,000,000 Tomkins PLC 24,678,005 27,714,960 0.3
2,000,000 United Technologies Corp. 59,058,703 132,000,000 1.4
200,000 Varian Associates, Inc. 9,906,240 10,175,000 0.1
-------------- -------------- ------
159,132,857 244,346,210 2.6
Drug Stores 1,100,000 CVS Corp. (b) 39,041,965 45,512,500 0.5
2,100,000 Rite Aid Corp. 66,079,936 83,475,000 0.9
-------------- -------------- ------
105,121,901 128,987,500 1.4
Electrical Equipment 650,000 Belden Inc. 18,307,478 24,050,000 0.3
900,000 Cooper Industries, Inc. 35,594,061 37,912,500 0.4
800,000 General Electric Co. 40,557,953 79,100,000 0.8
600,000 Philips Electronics N.V. (NY
Registered Shares) (c) 18,270,764 24,000,000 0.2
-------------- -------------- ------
112,730,256 165,062,500 1.7
Electronic 972,400 Avnet, Inc. 51,861,721 56,642,300 0.6
Components
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services 2,000,000 Federal National Mortgage Association $ 52,392,099 $ 74,500,000 0.8%
17,200,000 Ruam Pattana II Fund (Foreign) 11,054,096 7,041,759 0.1
300,000 Ruam Pattana II Fund (Local) 157,970 122,821 0.0
1,000,000 Transamerica Corporation 72,588,153 79,000,000 0.8
-------------- -------------- ------
136,192,318 160,664,580 1.7
<PAGE>
Food Distribution 15,000,000 Dairy Farm International Holdings
Ltd. (Ordinary) 16,436,481 12,083,632 0.1
Foods/Food 2,000,000 Archer-Daniels-Midland Co. 34,105,377 44,000,000 0.5
Processing 10,000,000 Hillsdown Holding PLC 23,692,604 34,216,000 0.4
99,000 Nestle S.A. 103,564,527 106,261,578 1.1
145,000 Thai Theparos Food Product Public
Company Limited (Foreign) 661,718 520,139 0.0
-------------- -------------- ------
162,024,226 184,997,717 2.0
Footware 1,037,999 Footstar, Inc. 21,025,031 25,820,225 0.3
40,000,000 Yue Yuen Industrial (Holdings Limited) 10,727,086 15,257,306 0.2
-------------- -------------- ------
31,752,117 41,077,531 0.5
Forest Products 1,500,000 Weyerhaeuser Co. 68,440,172 71,062,500 0.7
Hospital Management 3,150,000 Columbia/HCA Healthcare Corp. 100,922,252 128,362,500 1.4
3,600,000 Tenet Healthcare Corp. 52,634,362 78,750,000 0.8
-------------- -------------- ------
153,556,614 207,112,500 2.2
Insurance 2,300,000 Allstate Corporation 69,292,895 133,112,500 1.4
800,000 American International Group, Inc. 54,533,179 86,600,000 0.9
1,000,000 Ayudhya Insurance Company, Ltd. (Foreign) 7,458,665 7,720,201 0.1
1,147,500 Berkley (W.R.) Corporation 59,493,954 58,235,625 0.6
1,900,000 EXEL Ltd. 41,181,437 71,962,500 0.8
2,300,000 Fremont General Corp. 36,637,575 71,300,000 0.7
900,000 Horace Mann Educators Corp. 26,396,317 36,337,500 0.4
2,154,000 Lowndes Lambert Group Holdings PLC 5,366,108 3,915,380 0.0
2,000,000 Penncorp Financial Group, Inc. 62,850,797 72,000,000 0.8
1,800,000 Provident Companies, Inc. 70,077,847 87,075,000 0.9
1,400,000 Sphere Drake Holdings Ltd. 18,102,202 12,425,000 0.1
275,000 St. Paul Companies, Inc. 14,277,667 16,121,875 0.2
1,100,000 TIG Holdings, Inc. 31,247,983 37,262,500 0.4
3,098,800 Travelers Group, Inc. 40,483,298 140,608,050 1.5
-------------- -------------- ------
537,399,924 834,676,131 8.8
Iron & Steel 1,600,000 Birmingham Steel Corp. 28,005,214 30,400,000 0.3
800,000 Cleveland-Cliffs, Inc. 26,879,911 36,300,000 0.4
-------------- -------------- ------
54,885,125 66,700,000 0.7
<PAGE>
Leisure/Hotels 2,200,000 Carnival Corp. (Class A) 57,830,550 72,600,000 0.8
2,579,200 Harrah's Entertainment, Inc. 47,720,751 51,261,600 0.5
3,800,000 Mandarin Oriental International Ltd. 3,828,224 5,358,000 0.1
-------------- -------------- ------
109,379,525 129,219,600 1.4
Machinery & 1,000,000 Cincinnati Milacron, Inc. 24,399,349 21,875,000 0.2
Machine Tools
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Medical Services 296,650 Bumrungrad Hospital Public Company,
Ltd. (Foreign) $ 234,339 $ 202,417 0.0%
Metals & Basic 21,700 Cameco Corp. 651,441 869,584 0.0
Materials 1,200,000 Industrias Penoles S.A. 5,465,971 4,253,589 0.0
1,721,235 Minsura Sociedad Limitada S.A. (T Shares) 5,179,884 5,986,618 0.1
-------------- -------------- ------
11,297,296 11,109,791 0.1
Natural Gas 850,000 Coastal Corp. 24,580,560 41,543,750 0.5
Suppliers 1,000,000 El Paso Natural Gas Co. 39,357,038 50,500,000 0.5
1,000,000 TransCanada Pipelines Ltd. 13,695,107 17,500,000 0.2
5,406,500 Williams Companies, Inc. 96,475,716 202,743,750 2.1
-------------- -------------- -----
174,108,421 312,287,500 3.3
Oil--Integrated 850,000 Ente Nazionale Idrocarburi S.p.A.
(ENI) (ADR)* 39,739,120 43,881,250 0.5
315,000 Mobil Corporation 34,897,263 38,508,750 0.4
1,500,000 Phillips Petroleum Company 51,475,180 66,375,000 0.7
1,400,000 TOTAL S.A. (ADR)* 43,464,673 56,350,000 0.6
7,800,000 YPF S.A. (ADR)* 151,197,747 196,950,000 2.1
-------------- -------------- ------
320,773,983 402,065,000 4.3
Oil--Service 2,900,000 Dresser Industries, Inc. 77,166,439 89,900,000 0.9
<PAGE>
Paper 200,000 Jefferson Smurfit Group PLC (ADR)* 6,207,462 5,425,000 0.1
790,000 Temple-Inland, Inc. 36,163,014 42,758,750 0.4
-------------- -------------- ------
42,370,476 48,183,750 0.5
Pharmaceuticals 387,900 Block Drug, Inc. (Class A) 12,605,774 17,843,400 0.2
3,650,000 Glaxo Wellcome PLC (ADR)* (d) 94,777,915 115,887,500 1.2
400,000 Merck & Co., Inc. 19,645,017 31,700,000 0.4
35,000 Novartis AG (e) 40,936,042 40,076,935 0.4
700,000 Pfizer, Inc. 37,944,168 58,012,500 0.6
-------------- -------------- ------
205,908,916 263,520,335 2.8
Plastic Recycling 946,000 Wellman Inc. 20,386,872 16,200,250 0.2
Railroads 1,400,000 Kansas City Southern Industries, Inc. 60,738,001 63,000,000 0.7
Real Estate 600,000 CarrAmerica Realty Corp. 15,908,527 17,550,000 0.2
Investment Trusts 1,850,000 RFS Hotel Investors, Inc. 27,921,299 36,537,500 0.4
1,100,000 Walden Residential Properties, Inc. 20,339,176 27,362,500 0.3
-------------- -------------- ------
64,169,002 81,450,000 0.9
Retail Trade 2,831,400 Wal-Mart Stores, Inc. 69,442,573 64,768,275 0.7
Telecommunications 1,900,000 Frontier Corporation 54,362,106 42,987,500 0.4
2,000,000 GTE Corp. 65,447,448 91,000,000 1.0
800,000 Nokia Corp. (ADR)* 28,161,352 46,100,000 0.5
850,000 Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)* 46,585,931 65,025,000 0.7
-------------- -------------- ------
194,556,837 245,112,500 2.6
Tires & Rubber 3,000,000 The Goodyear Tire & Rubber Co. 119,321,790 154,125,000 1.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Utilities--Electric, 453,500 Illinova Corp. $ 10,299,601 $ 12,471,250 0.1%
Gas & Water 475,000 Pinnacle West Capital Corp. 10,036,715 15,081,250 0.2
97,000 Public Service Company of North Carolina 1,548,233 1,770,250 0.0
200,000 Texas Utilities Co. 8,053,148 8,150,000 0.1
800,000 Unicom Corp. 19,470,066 21,700,000 0.2
-------------- -------------- ------
49,407,763 59,172,750 0.6
<PAGE>
Total Common Stocks 3,863,534,089 5,007,663,833 52.8
Face Amount Corporate Bonds
Aerospace US$ 15,000,000 Lockheed Martin Corp., 6.85% due 5/15/2001 14,987,850 15,133,500 0.2
Automobile Parts 20,000,000 Eaton Corp., 6.50% due 6/01/2025 19,929,200 19,467,200 0.2
Automotive Hertz Corp.:
25,000,000 6.70% due 6/15/2002 24,815,300 24,863,000 0.3
13,000,000 6% due 1/15/2003 12,891,670 12,492,480 0.1
-------------- -------------- ------
37,706,970 37,355,480 0.4
Banking 20,000,000 Banco Rio de la Plata, 8.75% due
12/15/2003 20,060,800 19,850,000 0.2
25,000,000 Bank of Boston Corp., 6.625% due
12/01/2005 23,519,000 24,220,500 0.3
BankAmerica Corp.:
15,000,000 6.875% due 6/01/2003 14,149,050 14,994,750 0.2
30,000,000 6.75% due 9/15/2005 29,591,750 29,433,300 0.3
Bankers Trust Company:
10,000,000 7.50% due 1/15/2002 9,688,700 10,284,500 0.1
35,000,000 7.125% due 3/15/2006 34,548,800 34,862,100 0.4
The Chase Manhattan Corp.:
20,000,000 6.50% due 8/01/2005 19,403,800 19,235,400 0.2
10,000,000 6.25% due 1/15/2006 9,137,000 9,470,900 0.1
15,000,000 First Chicago Corp., 6.875% due 6/15/2003 13,963,300 15,013,050 0.2
6,000,000 First Hawaiian, Inc., 6.25% due 8/15/2000 5,841,600 5,908,980 0.1
First Security Corp.:
5,000,000 5.71% due 2/09/1999 5,000,000 4,942,800 0.0
20,000,000 7% due 7/15/2005 19,803,850 19,739,760 0.2
30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 29,194,200 0.3
20,000,000 Firstbank Puerto Rico, 7.625% due
2/15/2005 19,451,445 20,082,200 0.2
10,000,000 Great Western Financial Corp., 6.375%
due 7/01/2000 9,998,800 9,946,600 0.1
Household Bank:
10,000,000 6.87% due 5/15/2001 9,868,800 10,083,400 0.1
20,000,000 6.875% due 3/17/2003 19,886,200 20,024,200 0.2
10,300,000 6.50% due 7/15/2003 10,202,253 10,082,567 0.1
NationsBank Corp.:
10,500,000 5.70% due 9/11/2000 9,545,865 10,205,055 0.1
40,000,000 5.60% due 2/07/2001 40,000,000 38,551,200 0.4
<PAGE> 10,000,000 6.20% due 8/15/2003 9,670,360 9,673,700 0.1
25,000,000 6.50% due 8/15/2003 22,104,200 24,439,250 0.3
25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 24,513,405 0.3
15,000,000 People's Bank-Bridgeport, 7.20% due
12/01/2006 15,047,100 14,664,900 0.1
25,000,000 Provident Bank, 6.375% due 1/15/2004 24,296,430 24,047,500 0.2
Union Planters Corp.:
20,000,000 6.25% due 11/01/2003 18,756,100 19,208,600 0.2
7,500,000 6.75% due 11/01/2005 7,205,925 7,270,950 0.1
20,000,000 Wachovia Corp., 6.605% due 10/01/2025 20,012,500 19,844,400 0.2
-------------- -------------- ------
495,629,003 499,788,167 5.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Industries Face Amount Corporate Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Beverages US$ 19,000,000 Coca-Cola Femsa S.A., 8.95% due
11/01/2006 $ 18,969,595 $ 19,261,250 0.2%
Broadcasting 20,000,000 British Sky Broadcasting Group PLC,
7.30% due 10/15/2006 20,037,440 20,105,200 0.2
Capital Goods 5,000,000 Giddings & Lewis, Inc., 7.50% due
10/01/2005 5,000,000 4,945,050 0.1
Chemicals 21,250,000 Lyondell Petrochemical Company, 6.50%
due 2/15/2006 20,179,860 20,168,800 0.2
25,000,000 Union Carbide Corp., 6.79% due 6/01/2025 25,000,000 24,583,250 0.3
-------------- -------------- ------
45,179,860 44,752,050 0.5
Consumer Services Loewen Group, Inc.:
12,000,000 7.75% due 10/15/2001 11,994,600 12,090,000 0.1
20,000,000 8.25% due 10/15/2003 20,130,300 20,125,000 0.2
-------------- -------------- ------
32,124,900 32,215,000 0.3
Diversified 20,000,000 Grace (W.R.) & Co., 7.40% due 2/01/2000 19,663,100 20,464,400 0.2
Companies 10,000,000 Tenneco, Inc., 6.70% due 12/15/2005 9,808,500 9,657,040 0.1
-------------- -------------- ------
29,471,600 30,121,440 0.3
<PAGE>
Electronics 16,000,000 Litton Industries, Inc., 6.98% due
3/15/2006 16,000,000 15,954,912 0.2
Philips Electronics N.V.:
10,000,000 6.75% due 8/15/2003 9,866,300 9,805,500 0.1
15,000,000 7.125% due 5/15/2025 14,954,200 15,001,200 0.1
-------------- -------------- ------
40,820,500 40,761,612 0.4
Finance 30,000,000 Chrysler Finance Corp., 6.20% due
12/06/2000 30,000,000 29,659,860 0.3
Ford Motor Credit Co.:
35,000,000 5.75% due 1/25/2001 34,744,400 33,882,100 0.4
9,000,000 5.90% due 2/23/2001 8,704,260 8,778,060 0.1
General Motors Acceptance Corp.:
50,000,000 6.375% due 4/04/2000 49,887,500 49,920,350 0.5
50,000,000 5.625% due 2/15/2001 49,623,200 48,178,500 0.5
30,000,000 6.75% due 6/10/2002 29,520,300 29,940,000 0.3
10,000,000 Greyhound Financial Corp., 6.75% due
3/25/1999 9,694,200 10,094,100 0.1
15,000,000 Household Finance Corp., 7.05% due
6/06/2001 15,013,950 15,197,550 0.2
International Lease Finance Corp.:
22,500,000 6.05% due 4/30/1999 22,368,375 22,401,000 0.2
20,000,000 5.62% due 2/01/2000 19,876,200 19,551,600 0.2
10,000,000 Margaretten Financial Corp., 6.75%
due 6/15/2000 9,621,060 10,032,400 0.1
Sears, Roebuck Acceptance Corp.:
25,000,000 5.71% due 2/06/2001 25,000,000 24,231,000 0.2
50,000,000 5.63% due 2/07/2001 49,996,500 48,359,950 0.5
15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,563,050 0.2
-------------- -------------- ------
369,045,745 364,789,520 3.8
Financial Leasing GATX Corp.:
7,000,000 6.66% due 3/15/2001 6,997,900 6,990,620 0.1
12,000,000 6.27% due 12/05/2001 11,823,270 11,737,560 0.1
25,000,000 6.69% due 11/30/2005 24,984,750 24,365,000 0.3
XTRA Corp.:
20,000,000 6.79% due 8/01/2001 19,945,800 20,061,840 0.2
20,000,000 6.68% due 11/30/2001 20,000,000 19,941,900 0.2
-------------- -------------- ------
83,751,720 83,096,920 0.9
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Industries Face Amount Corporate Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Financial US$ 10,000,000 American Express Credit Corp., 6.125%
Services due 11/15/2001 $ 9,963,300 $ 9,804,500 0.1%
Finova Capital Corp.:
25,000,000 6.45% due 6/01/2000 24,766,550 24,912,750 0.3
15,000,000 5.98% due 2/27/2001 14,968,950 14,632,965 0.1
10,000,000 6.56% due 11/15/2002 10,000,000 9,866,000 0.1
McDonnell Douglas Finance Corp.:
5,000,000 5.48% due 2/08/1999 4,997,600 4,897,450 0.0
20,000,000 6.78% due 12/19/2003 19,993,400 19,593,600 0.2
20,000,000 6.965% due 9/12/2005 20,049,200 19,977,800 0.2
35,000,000 Morgan Stanley Group, Inc., 5.75%
due 2/15/2001 34,968,150 33,928,580 0.4
16,000,000 Salomon Inc., 7% due 5/15/1999 15,965,140 16,126,400 0.2
Smith Barney Shearson Holdings, Inc.:
40,000,000 5.875% due 2/01/2001 39,179,400 39,010,800 0.4
15,000,000 6.50% due 10/15/2002 14,690,800 14,751,300 0.2
-------------- -------------- ------
209,542,490 207,502,145 2.2
Food & Tobacco Nabisco Inc.:
21,000,000 6.70% due 6/15/2002 20,830,000 20,791,260 0.2
20,000,000 6.85% due 6/15/2005 20,000,000 19,658,000 0.2
-------------- -------------- ------
40,830,000 40,449,260 0.4
Foreign Government 5,000,000 Province of Buenos Aires, 11.50%
Obligations due 10/19/1998 5,000,000 5,175,000 0.1
Republic of Argentina:
50,000,000 9.25% due 2/23/2001 49,238,640 50,812,500 0.5
82,000,000 8.375% due 12/20/2003 65,166,250 77,900,000 0.8
58,996,000 6.625% due 3/31/2005 39,445,368 51,255,725 0.6
-------------- -------------- ------
158,850,258 185,143,225 2.0
Forest Products 20,400,000 Champion International Corp., 6.40% due
2/15/2026 20,238,456 19,452,134 0.2
Hospital 17,500,000 Columbia/HCA Healthcare Corp., 6.63%
due 7/15/2045 17,149,625 17,596,075 0.2
15,000,000 Tenet Healthcare Corp., 8.625% due
12/01/2003 15,217,630 15,862,500 0.2
-------------- -------------- ------
32,367,255 33,458,575 0.4
<PAGE>
Industrial 12,750,000 Diamond Shamrock, Inc., 7.65% due
7/01/2026 12,741,188 13,217,160 0.1
7,800,000 Interface, Inc., 9.50% due 11/15/2005 7,552,000 7,975,500 0.1
50,000,000 Williams Holdings of Delaware, Inc.,
6.25% due 2/01/2006 49,739,500 47,024,500 0.5
-------------- -------------- ------
70,032,688 68,217,160 0.7
Insurance 15,125,000 Integon Corp., 8% due 8/15/1999 15,225,519 15,214,389 0.2
20,000,000 Travelers Inc., 6.875% due 6/01/2025 20,037,200 20,027,000 0.2
-------------- -------------- ------
35,262,719 35,241,389 0.4
Machinery 20,000,000 Black & Decker Corp., 6.625% due
11/15/2000 19,217,900 19,998,000 0.2
20,000,000 FMC Corp., 6.375% due 9/01/2003 18,940,800 19,334,600 0.2
22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 22,003,650 0.2
-------------- -------------- ------
60,620,550 61,336,250 0.6
Manufactured 3,000,000 Oakwood Homes Corp., 9.125% due
Housing 6/01/2007 3,000,000 2,996,250 0.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Percent of
Industries Face Amount Corporate Bonds Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Natural Gas US$ 15,000,000 ENSERCH Corporation, 7.125% due
Suppliers 6/15/2005 $ 15,095,150 $ 14,926,800 0.2%
Oil--Integrated 18,375,000 Occidental Petroleum Corp., 6.24%
due 11/24/2000 18,135,306 18,115,361 0.2
Oryx Energy Co.:
5,500,000 8% due 10/15/2003 5,380,610 5,564,625 0.1
15,000,000 8.375% due 7/15/2004 15,024,550 15,563,835 0.1
Union Texas Petroleum Holdings, Inc.:
10,000,000 6.70% due 11/18/2002 10,000,000 9,885,490 0.1
20,000,000 6.81% due 12/05/2007 20,000,000 19,454,600 0.2
10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 9,535,300 0.1
30,000,000 YPF S.A., 8% due 2/15/2004 26,252,500 28,950,000 0.3
-------------- -------------- ------
104,792,966 107,069,211 1.1
<PAGE>
Oil--Related Tosco Corporation:
20,000,000 7% due 7/15/2000 19,894,250 20,186,000 0.2
20,000,000 7.625% due 5/15/2006 19,978,400 20,648,400 0.2
-------------- -------------- ------
39,872,650 40,834,400 0.4
Services 20,000,000 ADT Operations, 8.25% due 8/01/2000 20,158,313 21,150,000 0.2
Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due
10/20/2005 10,000,000 9,719,730 0.1
Tires & Rubber 40,000,000 The Goodyear Tire & Rubber Co., 6.625%
due 12/01/2006 39,840,000 38,740,000 0.4
Transportation 10,000,000 General American Transportation Corp.,
6.44% due 11/13/2001 10,000,000 9,856,000 0.1
15,000,000 Transportacion Maritima Mexicana,
S.A. de C.V., 10% due 11/15/2006 15,130,250 15,056,250 0.2
-------------- -------------- ------
25,130,250 24,912,250 0.3
Travel & Lodging Royal Caribbean Cruises Ltd.:
10,000,000 7.125% due 9/18/2002 9,900,050 10,019,500 0.1
10,000,000 7.25% due 8/15/2006 9,854,415 9,848,500 0.1
-------------- -------------- ------
19,754,465 19,868,000 0.2
Utilities-- 30,000,000 Enron Corp., 6.75% due 7/01/2005 28,878,400 29,484,300 0.3
Electric, Gas & 5,000,000 Long Island Lighting Co., 7.625% due
Water 4/15/1998 4,986,210 5,023,050 0.1
20,000,000 PECO Energy Co., 5.625% due 11/01/2001 18,908,800 19,093,600 0.2
5,000,000 United Illuminating Co., 6.20%
due 1/15/1999 4,693,050 4,929,100 0.0
-------------- -------------- ------
57,466,460 58,530,050 0.6
Total Corporate Bonds 2,175,509,053 2,201,339,218 23.2
Collateralized Mortgage Obligations
<PAGE>
Federal Home Loan Mortgage Corp.:
5,000,000 7% due 8/15/2008 4,762,500 4,884,350 0.1
13,000,000 6% due 2/15/2011 12,020,938 12,008,750 0.1
Federal National Mortgage Association:
13,400,000 7% due 7/25/2006 13,236,688 13,358,058 0.1
12,000,000 6.50% due 1/25/2008 11,608,125 11,610,000 0.1
5,010,000 6.50% due 4/25/2008 4,653,037 4,771,242 0.1
Total Collateralized Mortgage Obligations 46,281,288 46,632,400 0.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Percent of
Face Amount US Government Obligations Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
US Treasury Notes:
US$ 605,000,000 5.75% due 8/15/2003 $ 587,315,938 $ 586,850,000 6.2%
670,000,000 5.875% due 2/15/2004 663,919,531 652,305,300 6.9
20,000,000 6.50% due 5/15/2005 19,840,625 20,134,400 0.2
30,000,000 6.50% due 8/15/2005 29,900,594 30,192,300 0.3
525,000,000 5.875% due 11/15/2005 520,758,669 506,215,500 5.3
125,000,000 6.25% due 8/15/2023 112,284,375 117,187,500 1.2
Total US Government Obligations 1,934,019,732 1,912,885,000 20.1
Short-Term Investments
Commercial 45,318,000 CXC Inc., 5.45% due 1/10/1997 45,256,254 45,256,254 0.5
Paper** 75,396,000 General Motors Acceptance Corp., 7.50%
due 1/02/1997 75,380,292 75,380,292 0.8
-------------- -------------- ------
120,636,546 120,636,546 1.3
Commercial Czk 300,000,000 International Bank for Reconstruction &
Paper-- Development, 11.50% due 10/09/1997 11,157,441 11,044,908 0.1
Foreign**
Total Short-Term Investments 131,793,987 131,681,454 1.4
Total Investments $8,151,138,149 9,300,201,905 98.0
==============
Other Assets Less Liabilities 190,304,415 2.0
-------------- ------
Net Assets $9,490,506,320 100.0%
============== ======
<PAGE>
Net Asset Class A--Based on net assets of $3,369,467,555 and
Value: 108,531,961 shares outstanding $ 31.05
==============
Class B--Based on net assets of $5,156,393,502 and
169,279,021 shares outstanding $ 30.46
==============
Class C--Based on net assets of $325,685,722 and
10,789,648 shares outstanding $ 30.19
==============
Class D--Based on net assets of $638,959,541 and
20,601,362 shares outstanding $ 31.02
==============
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper and Commercial Paper--Foreign are traded on a
discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
(a)Formerly Chemical Banking Corp.
(b)Formerly Melville Corporation.
(c)Shares of Philips Electronics N.V. (ADR) were converted into
shares of Philips Electronics N.V. (NY Registered Shares).
(d)Formerly Glaxo Holdings PLC (ADR).
(e)Formerly Sandoz AG.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Percent of
Common Stock Holdings Net Assets
Williams Companies, Inc. 2.1%
YPF S.A. (ADR) 2.1
The Goodyear Tire & Rubber Co. 1.6
Travelers Group, Inc. 1.5
Allstate Corporation 1.4
United Technologies Corp. 1.4
Columbia/HCA Healthcare Corp. 1.4
Glaxo Wellcome PLC (ADR) 1.2
The Chase Manhattan Corp. 1.1
Nestle S.A. 1.1
Percent of
Ten Largest Industries Net Assets*
<PAGE>
Insurance 9.2%
Banking 7.1
Oil--Integrated 5.4
Financial Services 3.9
Finance 3.8
Natural Gas Suppliers 3.5
Diversified Companies 2.9
Chemicals 2.8
Pharmaceuticals 2.8
Telecommunications 2.7
[FN]
*Based on total holdings in common stocks and bonds.
Common Stock Portfolio Changes for the Quarter
Ended December 31, 1996
Additions
Berkley (W.R.) Corporation
CarrAmerica Realty Corp.
Ente Nazoinale Indrocarburi
S.p.A. (ENI) (ADR)
Footstar, Inc.
Millenium Chemicals Inc.
Nintendo Corp. Ltd.
Varian Associates, Inc.
Deletions
American General
Corporation
Ayudhya Insurance Company,
Ltd. (Local)
Bancorp Hawaii, Inc.
*Boeing Company
Canadian National
Railway Co.
Dean Foods Co.
Eastman Kodak Co.
Energen Corp.
Giddings & Lewis, Inc.
Goodrich (B.F.) Co.
Hanson PLC (ADR)
**Imperial Tobacco
Group PLC (ADR)
<PAGE>
KLM Royal Dutch Airlines
N.V., Inc. (NY Registered
Shares)
MetroGas S.A. (ADR)
National Health Investors, Inc.
NationsBank Corp.
***Newport News Shipping, Inc.
Northwest Natural Gas Co.
PHH Corp.
Repsol, S.A. (ADR)
Repsol, S.A. (Ordinary)
South West Properties Trust
Telefonica del Peru S.A.
(ADR)
Texaco Inc.
+++Ultramar Diamond Shamrock
Corp.
Washington Water Power Co.
Worldtex Inc.
[FN]
*Received from the spin-off of Rockwell International Corporation
during the December quarter.
**Received from the spin-off of Hanson PLC (ADR) during the December
quarter.
***Received from the spin-off of Tenneco, Inc. during the December
quarter.
+++Ultramar Corp. merged with Diamond Shamrock during the December
quarter.
