MERRILL
LYNCH
CORPORATE
BOND
FUND, INC.
FUND LOGO
Annual Report September 30, 1994
This report is not authorized for use as an offer of sale
or a solicitation of an offer to buy shares of the Fund
unless accompanied or preceded by the Fund's current
prospectus. Past performance results shown in this report
should not be considered a 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.
Merrill Lynch
Corporate Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH CORPORATE BOND FUND, INC.
TO OUR SHAREHOLDERS
Concerns of increasing inflationary pressures con-
tinued to prompt volatility in the US stock and bond
markets during the September quarter. In addition,
the weakness of the US dollar in foreign exchange
markets prolonged stock and bond market declines
during July. While the immediate concerns regarding
the US dollar had diminished by late July, the possibil-
ity of continued tightening by the Federal Reserve
Board persisted for most of the period. However, a
lower-than-expected rate of growth reported for the
US economy during the second calendar quarter allayed
inflationary concerns to some degree, despite the fifth
increase this year in short-term interest rates made by
the central bank in mid-August. Inflationary expecta-
tions surfaced again with the announcement of signif-
icant upward revisions in industrial production and
capacity utilization for the May--July period. When
the central bank did not raise short-term interest
rates at the late September Federal Open Market
Committee meeting, financial markets rallied on the
expectation that the US economy was not overheating
and therefore significant further monetary policy
tightening would not be necessary.
Despite the stronger-than-expected industrial produc-
tion results, other economic data suggest that while
the economic recovery is continuing, it is losing some
momentum. Consumer spending is increasing, but at
a relatively slow pace, and existing home sales may
have peaked. Inflation remains subdued at the retail
level. In the industrial sector, the sharp increase in
manufacturing production in August was largely the
result of a strong increase in motor vehicle assem-
blies, which may level off in the weeks ahead. On
balance, it appears that the growth in US industry is
progressing at a steady, modest rate.
Despite evidence of a moderating trend in the US
economy, Chairman Greenspan indicated in his July
Humphrey-Hawkins testimony that the central bank
would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead,
investors will continue to assess economic data and
inflationary trends in order to gauge whether further
increases in short-term interest rates are imminent.
Continued indications of moderate and sustainable
levels of economic growth would be positive for the
US capital markets.
<PAGE>
Fiscal Year in Review
High Income Portfolio
The high-yield market struggled in an environment of
generally weaker prices in the Government and high-
grade bond markets and rising short-term interest
rates. While the high-yield market fared better, the
total return of the unmanaged Merrill Lynch High
Yield Master Index was a modest +1.36% for the
September quarter. The table below reflects quarterly
yields, yield spreads over US Treasury securities and
yield premiums of the Merrill Lynch High Yield Master
Index during the Portfolio's fiscal year.
Treasury Index Yield Yield
Yield* Yield Spread Premium
Jan. 1, 1994 5.80% 9.82% 402 basis points 69%
Mar. 31, 1994 6.77 9.95 318 47
June 30, 1994 7.33 10.68 335 46
Sept. 30, 1994 7.63 10.88 325 43
[FN]
*10-year Treasury.
In each of the above quarters, both the Treasury and
high-yield bond prices have dropped and yields have
risen. In all but the June quarter, yield spreads between
high-yield bonds and Treasuries have narrowed and
the yield premium has dropped. This outperformance
largely reflects the much stronger technical condition
of the high-yield market. For the year ended Septem-
ber 30, 1994, net sales and net exchanges into high-
yield mutual funds totaled $1.7 billion compared to
enormous outflows from high-grade bond funds.
New-issue supply dropped 63% in the September 1994
quarter compared to the September 1993 quarter
as high-yield financings were postponed or done
with banks. We believe that the narrowing in yield
spreads can be justified by the positive fundamentals.
Defaults have been historically low and reequitization
continues to generate net improvement in overall
credit quality. Nevertheless, we would not expect
further narrowing in yield spreads. The high-yield
market therefore seems likely to be more sensitive
to movements in the Government bond market than it
has been in recent years. For this reason, we shortened
the Portfolio's average maturity to 8.25 years at
September 30, 1994 from 9 years at June 30, 1994.
This strategy helped to enhance the Portfolio's total
return as the fiscal year drew to a close.
<PAGE>
For the first seven months of the fiscal year ended
September 30, 1994, the High Income Portfolio's strat-
egy was relatively aggressive. The market appeared
attractive, and we focused primarily on identifying
new issues in which to invest the large cash flows
coming into the Portfolio. By June 1994, it became
clear that the rise in short-term and long-term inter-
est rates which was having an adverse impact on
performance would continue to be a negative
factor. In addition, the flow of new money into the
Portfolio slowed significantly. Consequently, we
assumed a more defensive posture, shortening port-
folio maturity and committing new money more
opportunistically. This mitigated the declines that
have been experienced by the Portfolio over the past
six months.
While maintaining approximately a market weighting
in terms of credit quality sector representation, our
objective has been to sell what we believe are
overvalued companies and industry sectors and to buy
the attractive values that periodically emerge. Fully
valued positions sold during the September quarter
included Ferrell Gas Companies, Inc., American
Annuity Group Inc., Southern Pacific Rail Co. and
Acme Steel. Areas in which exposure increased
included emerging markets where we purchased bonds
of two Indonesian paper companies, PT Indah Kiat
Pulp & Paper Corporation and Tjiwi Kimia; a Mexican
shipping company, Transportacion Maritima Mexicana,
S.A. de C.V.; two Argentine telephone companies and
the recently privatized Argentine oil company,
Yacimientos Petroliferos Fiscales, S.A. (YPF). All of
these BB-rated issues were temporarily depressed at
the time of purchase but have subsequently recovered.
A major area of asset growth in 1994 has been com-
munications, where we have purchased Videotron
Groupe L'TEE, American Telecasting, Inc., Echostar
Communication Corp. and Nextel Communications, Inc.
Videotron is a cable/telephone company operating in
London, England with excellent growth prospects
and strong ownership. American Telecasting and
Echostar are new competitors to existing cable TV
operators which provide wireless service at lower cost
and reach rural areas where it is uneconomic to
operate cable. Other areas of undervaluation where
positions were increased include Atlantic City casinos
where the market is, in our view, unduly concerned
about the competitive threat of prospective Philadel-
phia riverboats. We added to the first mortgage bonds
of Trump Plaza Funding, Inc. and Bally's Park Place Inc.
<PAGE>
At September 30, 1994, cash equivalents totaled 6.8%
of net assets. The average maturity of the invested
portion of the Portfolio was 8.25 years. Major indus-
tries represented in the Portfolio included: energy,
8.3% of net assets; hotels and casinos, 7.2%; food and
beverage, 6.5%; communications, 6.4%; paper, 6.4%;
and conglomerates, 5.0%.
Investment Grade Portfolio
Interest rates have risen relentlessly during the
year, fueled by concerns about rapid economic growth
and a resultant increase in the rate of inflation.
The Federal Reserve Board commenced a series of
tightening actions in February which were designed
to slow growth in order to contain inflationary pres-
sures. Evidence has been ambiguous as to whether
the Federal Reserve Board's action has been entirely
effective. Some data have suggested that higher inter-
est rates have had an impact, particularly in the
housing market and in consumer spending patterns.
Other data indicate that the economy is still expanding
at a worrisome rate, especially in industrial produc-
tion and in the capacity utilization rate. The result
of the inconclusive nature of the economic indicators
has been volatility in interest rates but with a con-
tinuing upward bias.
The decline in the market value of fixed-income secu-
rities could be measured in the performance of the
unmanaged Merrill Lynch Corporate Bond Master
Index, which had a total return of -4.05% for the
12-month period ended September 30, 1994. For the
same period, total returns of the Fund's Class A Shares
and Class B Shares were -6.03% and -6.73%, respec-
tively. (Results do not reflect applicable sales charges;
returns would be lower if sales charges were
deducted. Complete performance data, including
average annual total returns, can be found on pages
5, 7 and 8 of this report to shareholders.)
During the year ended September 30, 1994, we pur-
sued a defensive strategy consistent with the need to
generate current income. We shortened the average
maturity of the Portfolio from 10.6 years to 9.7 years.
We sold some of our longer-term electric utility issues
which we believe would be vulnerable to changes in
the competitive nature of the industry. We purchased
short-term Government agency and corporate floating
rate notes whose coupons reset with increases in
short-term yields. We also increased our holdings in
financial services and supranational issues. We have
continued to increase cash and liquid holdings because
of our concern that interest rates will continue to be
sensitive to inflationary fears. These strategies helped
to preserve capital to some degree and enhance total
return in a volatile bond market environment.
<PAGE>
Intermediate Term Portfolio
Performance of the Intermediate Term Portfolio is
measured against the unmanaged Merrill Lynch Cor-
porate Intermediate Term Index, which had a total
return of -3.85% for the 12-month period ended
September 30, 1994. The total returns of the Fund's
Class A Shares and Class B Shares were -4.25% and
- -4.72%, respectively. (Results do not reflect applicable
sales charges; returns would be lower if sales charges
were deducted. Complete performance data, including
average annual total returns, can be found on pages
6, 7 and 8 of this report to shareholders.)
During the year ended September 30, 1994, we pur-
sued a defensive strategy consistent with the need to
generate current income. We shortened the average
maturity of the Portfolio from 7.3 years to 5.8 years.
We reduced our position in electric utility issues
which we believed would be vulnerable to changes in
the competitive nature of the industry. We also sold
issues of foreign sovereign credits. We purchased short-
term Government agency and corporate floating rate
notes whose coupons reset with increases in short-
term yields. We also increased our holdings in financial
services, communications and supranational issues.
We have continued to increase cash and liquid hold-
ings because of our concern that interest rates will
continue to be sensitive to inflationary fears. These
strategies helped to preserve capital to some degree
and enhance total returns in a volatile bond market
environment.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch
Corporate Bond Fund, Inc., and we look forward to
assisting you with your financial needs and objectives
in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury)
Vincent T. Lathbury III
Vice President and Portfolio Manager
<PAGE>
(Jay C. Harbeck)
Jay C. Harbeck
Vice President and Portfolio Manager
November 3, 1994
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Jay C. Harbeck, Vice President
Vincent T. Lathbury III, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PERFORMANCE DATA
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.
Total Return Based on a $10,000 Investment
GRAPHIC MATERIAL APPPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIALS ITEM 1.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
High Income Portfolio Class A Shares*
Year Ended 9/30/94 + 3.42% - 0.71%
Five Years Ended 9/30/94 +12.92 +12.01
Ten Years Ended 9/30/94 +12.64 +12.18
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
High Income Portfolio Class B Shares*
Year Ended 9/30/94 + 2.66% - 1.10%
Five Years Ended 9/30/94 +12.08 +12.08
Inception (10/21/88) through 9/30/94 +11.16 +11.16
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
GRAPHIC MATERIAL APPPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIALS ITEM 2.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Investment Grade Portfolio Class A Shares*
Year Ended 9/30/94 - 6.03% -9.79%
Five Years Ended 9/30/94 + 8.17 +7.29
Ten Years Ended 9/30/94 +10.30 +9.85
<PAGE>
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Investment Grade Portfolio Class B Shares*
Year Ended 9/30/94 - 6.73% -10.07%
Five Years Ended 9/30/94 + 7.35 + 7.35
Inception (10/21/88) through 9/30/94 + 7.77 + 7.77
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
GRAPHIC MATERIAL APPPEARS HERE.
SEE APPENDIX GRAPHIC AND IMAGE MATERIALS ITEM 3.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Intermediate Term Portfolio Class A Shares*
Year Ended 9/30/94 -4.25% -6.16%
Five Years Ended 9/30/94 +8.26 +7.82
Ten Years Ended 9/30/94 +9.99 +9.77
[FN]
*Maximum sales charge is 2%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Intermediate Term Portfolio Class B Shares*
Year Ended 9/30/94 -4.72% -6.46%
Inception (11/13/92) through 9/30/94 +4.16 +3.69
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 2% and is reduced
to 0% after 2 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
1/1-12/31 Beginning/Ending Net Asset Value Dividends Paid* % Change**
Period High Investment Intermediate High Investment Intermediate High Investment Intermediate
Covered Income Grade Term Income Grade Term Income Grade Term
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/10/78-12/31/78 $9.60/9.54 -- -- $ 0.13 -- -- + 0.73% -- -
1979 9.54/8.73 -- -- 1.03(a) -- -- + 2.36 -- -
1980(b) 8.73/7.91 $10.00/9.88 $10.00/9.93*** 1.07 $ 0.25 $ 0.25*** + 3.08 + 1.28% + 1.86%
1981 7.91/7.26 9.88/9.38 9.93/9.57 1.13 1.46 1.37 + 6.48 + 10.52 + 11.11
1982 7.26/7.74 9.38/10.51 9.57/10.59 1.04 1.36 1.36 + 23.09 + 28.74 + 26.74
1983 7.74/8.10 10.51/10.24 10.59/10.37 1.01 1.22 1.20 + 18.32 + 9.42 + 9.63
1984 8.10/7.72 10.24/10.44 10.37/10.52 1.02 1.21 1.18 + 8.66 + 15.10 + 14.00
1985 7.72/8.29 10.44/11.45 10.52/11.33 1.01 1.18 1.16 + 21.61 + 22.23 + 19.86
1986 8.29/8.34 11.45/11.95 11.33/11.87 0.98 1.07 1.03 + 12.91 + 14.26 + 14.34
1987 8.34/7.80 11.95/11.00 11.87/10.99 0.95 0.99 0.94 + 4.94 + 0.45 + 0.65
1988 7.80/7.80 11.00/10.90 10.99/10.83 0.95 0.99 0.97 + 12.71 + 8.30 + 7.51
1989 7.80/7.17 10.90/11.33 10.83/11.13 0.97 1.00 0.98 + 4.33 + 13.61 + 12.33
1990 7.17/5.88 11.33/11.13 11.13/11.05 1.00 0.94 0.97 - 4.61 + 6.97 + 8.43
1991 5.88/7.21 11.13/12.03 11.05/11.77 0.90 0.91 0.92 + 39.75 + 17.08 + 15.53
1992 7.21/7.78 12.03/11.86 11.77/11.60 0.86 1.03(c) 0.99(d) + 20.64 + 7.53 + 7.29
1993 7.78/8.32 11.86/11.97 11.60/11.92 0.76 1.35(e) 1.03(f) + 17.39 + 12.49 + 11.82
1/1/94-9/30/94 8.32/7.66 11.97/10.77 11.92/10.90 0.54 0.55 0.54 - 1.27 - 5.37 - 3.90
------ ------ ------
Total $15.35 $15.51 $14.89
Cumulative total return as of 9/30/94: +465.71%** +349.12%** +331.29%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the
payable date, and do not include sales charge; results would be lower if sales charge was included.
***Adjusted for a 10-for-1 split effected in the form of a dividend through January 1981.
(a)Distribution for High Income Portfolio includes $0.024 per share capital gains distributions.
(b)For Investment Grade and Intermediate Term Portfolios, period covered is 10/31/80--12/31/80.
(c)Distribution for Investment Grade Portfolio includes $0.036 per share capital gains distributions.
(d)Distribution for Intermediate Term Portfolio includes $0.012 per share capital gains distributions.
(e)Distribution for Investment Grade Portfolio includes $0.261 per share capital gains distributions.
(f)Distribution for Intermediate Term Portfolio includes $0.093 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
1/1-12/31 Beginning/Ending Net Asset Value Dividends Paid* % Change**
Period High Investment Intermediate High Investment Intermediate High Investment Intermediate
Covered Income Grade Term Income Grade Term Income Grade Term
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/21/88-12/31/88 $7.92/7.80 $11.08/10.90 -- $0.18 $0.18 -- + 0.74% + 0.05% --
1989 7.80/7.17 10.90/11.33 -- 0.91 0.91 -- + 3.54 + 12.77 --
1990 7.17/5.89 11.33/11.13 -- 0.95 0.86 -- - 5.18 + 6.16 --
1991 5.89/7.22 11.13/12.03 -- 0.84 0.83 -- + 38.67 + 16.19 --
1992 7.22/7.78 12.03/11.86 $11.68/11.60 0.80 0.94(a) $0.24(b) + 19.57 + 6.71 + 1.34%
1993 7.78/8.33 11.86/11.97 11.60/11.92 0.70 1.25(c) 0.97(d) + 16.65 + 11.65 + 11.26
1/1/94-9/30/94 8.33/7.66 11.97/10.77 11.92/10.90 0.49 0.49 0.50 - 1.93 - 5.89 - 4.25
----- ----- -----
Total $4.87 $5.46 $1.71
Cumulative total return as of 9/30/94: + 87.61%** + 56.04%** + 7.97%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value on
the payable date, and do not reflect deduction of any sales charge; results would be lower if sales
charge was deducted.
***Figures for Intermediate Term Portfolio Class B Shares are since inception on November 13, 1992.
(a)Distribution for Investment Grade Portfolio includes $0.036 per share capital gains distributions.
(b)Distribution for Intermediate Term Portfolio includes $0.012 per share capital gains distributions.
(c)Distribution for Investment Grade Portfolio includes $0.261 per share capital gains distributions.
(d)Distribution for Intermediate Term Portfolio includes $0.093 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
9/30/94 6/30/94 9/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
High Income Portfolio Class A Shares* $ 7.66 $ 7.80 $ 8.13 - 5.78% -1.79%
High Income Portfolio Class B Shares* 7.66 7.80 8.13 - 5.78% -1.79
Investment Grade Portfolio Class A Shares* 10.77 10.96 12.81 -14.09(1) -1.73
Investment Grade Portfolio Class B Shares* 10.77 10.96 12.81 -14.09(1) -1.73
Intermediate Term Portfolio Class A Shares* 10.90 11.03 12.44 -11.70(2) -1.18
Intermediate Term Portfolio Class B Shares* 10.90 11.03 12.44 -11.70(2) -1.18
High Income Portfolio Class A Shares--Total Return* +3.42(3) +0.69(4)
High Income Portfolio Class B Shares--Total Return* +2.66(5) +0.49(6)
Investment Grade Portfolio Class A Shares--Total Return* -6.03(7) +0.04(8)
Investment Grade Portfolio Class B Shares--Total Return* -6.73(9) -0.08(10)
Intermediate Term Portfolio Class A Shares--Total Return* -4.25(11) +0.57(12)
Intermediate Term Portfolio Class B Shares--Total Return* -4.72(13) +0.44(14)
High Income Portfolio Class A Shares--Standardized 30-day Yield 9.86%
High Income Portfolio Class B Shares--Standardized 30-day Yield 9.49%
Investment Grade Portfolio Class A Shares--Standardized 30-day Yield 6.89%
Investment Grade Portfolio Class B Shares--Standardized 30-day Yield 6.39%
Intermediate Term Portfolio Class A Shares--Standardized 30-day Yield 6.90%
Intermediate Term Portfolio Class B Shares--Standardized 30-day Yield 6.51%
<FN>
*Investment results shown do not reflect sales charges; results shown would be lower
if a sales charge was included.
(1)Percent change includes reinvestment of $0.261 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.093 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.731 per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.203 per share ordinary income dividends.
(5)Percent change includes reinvestment of $0.671 per share ordinary income dividends.
(6)Percent change includes reinvestment of $0.187 per share ordinary income dividends.
(7)Percent change includes reinvestment of $1.036 per share ordinary income dividends
and $0.261 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.205 per share ordinary income dividends.
(9)Percent change includes reinvestment of $0.949 per share ordinary income dividends
and $0.261 per share capital gains distributions.
(10)Percent change includes reinvestment of $0.183 per share ordinary income dividends.
(11)Percent change includes reinvestment of $0.924 per share ordinary income dividends
and $0.093 per share capital gains distributions.
(12)Percent change includes reinvestment of $0.204 per share ordinary income dividends.
(13)Percent change includes reinvestment of $0.866 per share ordinary income dividends
and $0.093 per share capital gains distributions.
(14)Percent change includes reinvestment of $0.189 per share ordinary income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Airlines--3.1% Delta Air Lines Inc.:
BB+ Baa3 $ 1,952,998 9.875% due 4/30/2008++++ $ 1,970,087 $ 1,885,405
BB+ Baa3 3,000,000 9.30% due 1/02/2010 2,963,100 2,709,522
BB+ Baa3 5,000,000 9.20% due 9/23/2014 4,839,050 4,358,675
BB+ Baa3 28,000,000 10.50% due 4/30/2016 28,481,900 27,363,000
Piedmont Aviation, Inc.:
BB- B1 200,000 Series C, 9.70% due 1/15/1999 201,676 186,303
BB- B1 100,000 Series C, 10.25% due 1/15/2007 103,706 88,336
BB- B1 1,985,000 Series E, 10.30% due 3/28/2007 1,855,291 1,793,577
BB- B1 1,950,000 Series F, 10.35% due 3/28/2011 1,999,719 1,796,057
BB- B1 50,000 Series G, 10.35% due 3/28/2011 51,425 46,053
BB- B1 450,000 Series H, 9.85% due 5/08/2005 454,617 397,159
BB- B1 1,500,000 Series H, 10% due 11/08/2012 1,493,250 1,312,320
BB- B1 536,000 Series I, 10% due 11/08/2012 545,048 468,936
United Air Lines Inc.:
BB+ Baa2 7,100,000 9.35% due 4/07/2016 7,215,446 6,272,850
BB Baa1 10,500,000 9.21% due 1/21/2017 10,480,125 8,922,689
USAir Inc.:
B- B2 28,000,000 9.625% due 2/01/2001 22,360,000 17,640,000
BB- B1 1,107,000 10.70% due 1/15/2007 1,159,472 1,008,997
BB- B1 1,432,000 Series A, 10.70% due 1/15/2007 1,525,137 1,305,225
BB- B1 1,815,000 Series C, 10.70% due 1/15/2007 1,933,048 1,654,318
BB- B1 5,476,405 Series 93A3, 10.375% due 3/01/2013 14,530,000 12,615,000
--------------- --------------
114,180,114 100,642,397
Automobile B B3 10,150,000 SPX Inc., 11.75% due 6/01/2002 10,175,000 10,543,313
Parts--0.3%
Broadcasting & B+ B2 10,550,000 Century Communications Corp., 11.875%
& Publishing--3.9% due 10/15/2003 10,550,000 11,130,250
BB Ba2 15,000,000 Continental Cablevision Inc., 9.50%
due 8/01/2013 15,000,000 13,500,000
BB- Ba3 13,150,000 Heritage Media Services Corporation, 11%
due 6/15/2002 13,158,750 13,741,750
BB- Ba3 9,200,000 K-III Communications Corp., 10.625%
due 5/01/2002 9,192,500 9,246,000
<PAGE> B B3 12,500,000 The Katz Corp., 12.75% due 11/15/2002 12,740,625 13,062,500
B Caa 22,000,000 NWCG Holding Corp., 13.82%
due 6/15/1999*** (a) 11,811,127 11,770,000
BB- B3 10,000,000 SCI Television Inc., 11% due 6/30/2005 10,350,000 10,175,000
B+ B3 12,500,000 Sinclair Broadcasting Group Inc.,
10% due 12/15/2003 12,530,000 12,156,250
BB+ Ba3 10,000,000 Videotron Groupe L'TEE, 10.25%
due 10/15/2002 10,097,500 10,125,000
BB- B1 22,750,000 World Color Press, Inc., 9.125%
due 3/15/2003 22,769,375 21,385,000
--------------- --------------
128,199,877 126,291,750
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Building CCC B3 $ 20,000,000 Nortek Inc., 9.875% due 3/01/2004 $ 19,834,240 $ 18,600,000
Materials--2.2% B+ B3 21,705,000 Pacific Lumber Co., 10.50% due 3/01/2003 21,745,538 20,294,175
US Gypsum Corp.:
BB- B1 7,000,000 10.25% due 12/15/2002 6,993,750 7,148,750
B B2 29,084,000 8.75% due 3/01/2017 25,890,006 25,157,660
--------------- --------------
74,463,534 71,200,585
Building American Standard Inc.:
Products--1.3% B B1 6,750,000 9.875% due 6/01/2001 6,750,000 6,631,875
B+ Ba3 10,150,000 9.25% due 12/01/2016 10,203,625 9,566,375
CCC- Caa 9,300,000 Amstar Corp., 11.375% due 2/15/1997 6,566,250 9,300,000
B Ba3 16,000,000 Inter-City Products Corp., 9.75%
due 3/01/2000 15,888,750 14,800,000
--------------- --------------
39,408,625 40,298,250
Capital Goods-- B+ B1 21,450,000 Essex Group Inc., 10% due 5/01/2003 21,546,500 20,978,158
1.3% B+ B3 22,935,000 Sequa Corp., 9.375% due 12/15/2003 22,556,800 21,329,550
44,103,300 42,307,708
Chemicals--2.5% B B2 17,000,000 Agriculture Minerals & Chemicals
Company, L.P., 10.75% due 9/30/2003 17,060,000 17,425,000
B+ Ba3 42,540,000 G-I Holdings, Inc., 13.40% due 10/01/1998 (a) 27,336,476 26,587,500
B+ B2 18,750,000 Harris Chemical North America Inc.,
10.25% due 7/15/2001 (a) 15,433,583 15,140,625
B- B3 20,000,000 UCC Investors Holding, Inc., 11%
due 5/01/2003 20,550,000 20,700,000
<PAGE> --------------- --------------
80,380,059 79,853,125
Communications-- CCC+ Caa 25,000,000 American Telecasting, Inc., 13.10%
6.3% due 6/15/2004 (a) 13,279,206 12,250,000
CCC Caa 13,000,000 Dial Page Inc., 12.25% due 2/15/2000 13,080,500 13,097,500
B- Caa 46,688,000 Echostar Communication Corp.,
13.01% due 6/01/2004 (a) 25,564,708 21,943,360
CCC+ Caa 20,235,000 Horizon Cellular Telephone Co.,
11.375% due 10/01/2000 (a) 13,849,890 14,872,725
CCC+ B3 17,000,000 Mobilemedia Communication, Inc.,
10.50% due 12/01/2003 (a) 10,636,607 9,945,000
CCC+ B3 40,000,000 Nextel Communications Inc., 9.75% due
8/15/2004 (a) 25,574,440 19,400,000
NR NR 12,400,000 Page Mart Inc., 12.50% due 11/01/2003 (a) (b) 7,079,703 7,750,000
B B2 20,000,000 Paging Network, Inc., 11.75% due 5/15/2002 20,387,500 21,100,000
Panamsat L.P.:
B+ Ba3 4,750,000 9.75% due 8/01/2000 4,750,000 4,785,625
B- B3 28,710,000 11.375% due 8/01/2003 (a) 17,922,168 19,522,800
BB- B2 20,925,000 Rogers Communication Inc., 10.875%
due 4/15/2004 21,384,219 21,448,125
NR NR 7,000,000 Telecom Argentina, S.A.; 8.375% due
10/18/2000*** 6,327,810 6,348,125
CCC+ B3 12,730,000 USA Mobile Communications Holdings, Inc.,
9.50% due 2/01/2004 12,547,875 11,202,400
B+ B3 33,850,000 Videotron Holdings PLC, 12.18% due
7/01/2004 (a) 18,347,840 18,744,438
--------------- --------------
210,732,466 202,410,098
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Conglomerates-- NR B3 $ 9,083,000 Astrum International Corp., 11.50% due
4.9% 6/08/2003 $ 9,137,780 $ 9,331,874
Colt Industries, Inc.:
B+ B1 20,000,000 10.25% due 4/01/2002 20,350,000 20,350,000
BB Ba2 2,531,000 11.25% due 12/01/2015 2,694,343 2,657,550
B+ B1 18,500,000 Foamex Capital Corp., 11.25% due 10/01/2002 18,495,000 18,685,000
NR NR 13,000,000 Gillette Holdings, Inc., 12.25% due 6/30/2002 13,346,250 13,812,500
CCC+ B3 23,250,000 The Interlake Corp., 12.125% due 3/01/2002 23,483,750 21,157,500
B B2 10,000,000 JB Poindexter & Co., Inc., 12.50% due
<PAGE> 5/15/2004 10,000,000 9,650,000
B+ B3 20,000,000 Jordan Industries Inc., 10.375% due
8/01/2003 19,961,000 18,350,000
NR NR 8,500,000 MacAndrews & Forbes Group, Inc., 12.25%
due 7/01/1996 8,276,775 8,500,000
NR NR 9,100,000 MacAndrews & Forbes Holdings, Inc.,
13% due 3/01/1999 8,568,400 9,054,500
BB- Ba3 25,000,000 Sherritt Gordon Ltd., 9.75% due 4/01/2003 24,979,063 24,625,000
--------------- --------------
159,292,361 156,173,924
Consumer B NR 28,550,000 Coleman Holdings, Inc., 11.27% due
Products--3.8% 5/27/1998 (a) 19,021,035 19,235,563
Formica Corporation:
NR NR 23,500,00 14.14% due 10/01/2001 (a) 21,294,159 23,078,025
NR Caa 9,000,000 14.83% due 9/15/2005 9,000,000 10,237,500
Liggett Group Inc.:
NR NR 13,000,000 11.50% due 2/01/1999 12,261,016 8,677,500
NR NR 4,299,000 16.50% due 2/01/1999*** 3,909,000 3,277,988
B- Caa 13,000,000 Polymer Group, Inc., 12.25%
due 7/15/2002*** 13,000,000 13,000,000
B- B3 5,500,000 Revlon Consumer Products Corp., 10.50%
due 2/15/2003 5,624,375 4,743,750
B- B3 40,350,000 Revlon Worldwide Corp., 12% due
3/15/1998 (a) 26,446,187 18,762,750
B+ B1 19,620,000 Sealy Corp., 9.50% due 5/01/2003 19,721,800 18,737,100
--------------- --------------
130,277,572 119,750,176
Containers--3.3% B B2 20,000,000 Anchor Glass Container Corp., 9.875%
due 12/15/2008 20,000,000 18,300,000
B- Caa 21,500,000 Ivex Packaging Corp., 13.25%
due 3/15/2005 (a) 9,850,038 10,642,500
BB Ba3 20,000,000 Owens-Illinois, Inc., 11% due 12/01/2003 20,446,250 21,250,000
B+ Ba3 10,000,000 Plastic Container Corp., 10.75% due
4/01/2001 10,022,500 10,100,000
B- B3 32,628,000 Silgan Holdings Inc., 12.24% due
12/15/2002 (a) 26,559,854 26,754,960
B+ Ba3 20,000,000 Sweetheart Cup Co., 9.625% due 9/01/2000 20,000,000 19,150,000
--------------- --------------
106,878,642 106,197,460
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Convertible B B2 $ 8,352,000 Builders Transport, Inc., 8% due
Bonds*--1.1% 8/15/2005 (4) $ 4,886,880 $ 7,821,068
B- B2 10,362,000 Lomas Financial Corp., 9% due
10/31/2003 (2) 9,653,775 8,704,080
B- B3 6,941,000 MEDIQ, Inc., 7.25% due 6/01/2006 (3) 4,539,685 4,702,528
B B2 6,000,000 Ohm Corp., 8% due 10/01/2006 (5) 4,160,000 5,265,000
B+ B2 5,909,000 UNC, Inc., 7.50% due 3/31/2006 (1) 3,442,530 4,926,629
--------------- --------------
26,682,870 31,419,305
Drug Stores--0.7% B B2 24,000,000 Thrifty Payless Holdings, Inc., 11.75% due
4/15/2003 24,000,000 23,880,000
Energy--7.8% B+ B1 49,500,000 Clark R&M Holdings, Inc., 11.02% due
2/15/2000 (a) 27,860,140 29,230,280
Consolidated Hydro, Inc., due
7/15/2003 (a) 10,965,286 10,822,500
B- B2 16,000,000 Falcon Drilling Company, Inc., 9.75% due
1/15/2001 16,000,000 15,600,000
B+ B1 20,000,000 Global Marine Inc., 12.75% due 12/15/1999 20,047,500 21,800,000
Gulf Canada Resources Ltd.:
BB B1 12,750,000 9% due 8/15/1999 11,735,938 12,558,750
B+ B2 8,700,000 9.25% due 1/15/2004 8,488,355 8,112,750
Maxus Energy Corp.:
BB- B1 9,750,000 9.875% due 10/15/2002 9,067,500 9,360,000
BB- B1 2,550,000 11.50% due 11/15/2015 2,534,500 2,562,750
Mesa Capital Corp. (a):
CCC B3 666,000 12.75% due 6/30/1996 494,490 609,390
CCC+ B3 4,341,000 12.75% due 6/30/1998 3,365,903 3,863,490
B Caa 7,610,000 National Propane Corp., 13.125% due
3/01/1999 5,405,665 7,667,075
BB- Ba3 8,750,000 Noble Drilling Corp., 9.25% due 10/01/2003 8,925,000 8,465,625
BB Ba3 18,000,000 Oryx Energy Co., 10.375% due 9/15/2018 17,823,010 18,108,810
B+ Ba3 15,000,000 Rowan Companies, Inc., 11.875%
due 12/01/2001 15,085,000 16,275,000
BB- Ba3 25,000,000 Seagull Energy Corp., 8.625%
due 8/01/2005 24,990,000 23,125,000
CCC+ Caa 8,650,000 Tesoro Petroleum Corp., 12.75%
due 3/15/2001 7,483,899 8,697,575
BB- B1 23,000,000 Trans Texas Gas Corp., 10.50%
due 9/01/2000 23,000,000 22,655,000
B+ B1 31,525,000 Triton Energy Corp., 12.816%
due 11/01/1997 (a) 22,839,361 23,092,063
BB- B1 10,000,000 Yacimientos Petroliferos Fiscales
S.A. (YPF) (Sponsored),
8% due 2/15/2004 (f) 8,650,000 8,625,000
--------------- --------------
<PAGE> 244,761,547 251,231,058
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Entertainment-- B B2 $ 11,750,000 AMC Entertainment, Inc., 12.625%
3.2% due 8/01/2002 $ 11,696,095 $ 13,101,250
B+ B1 9,000,000 Cinemark USA Inc., 12% due 6/01/2002 9,058,750 9,675,000
Marvel Holdings Inc:
B Caa 12,000,000 9.125% due 2/15/1998 10,620,000 10,620,000
B B3 38,000,000 10.97% due 4/15/1998 (a) 25,640,195 24,035,000
B B3 10,000,000 Plitt Theatres, Inc., 10.875% due 6/15/2004 10,000,000 10,000,000
Spectravision Inc.:
B+ B2 39,250,000 11.50% due 10/01/2001 (a) 29,069,667 24,335,000
B- Caa 21,265,000 11.65% due 12/01/2002++ 20,964,181 10,218,472
--------------- --------------
117,048,888 101,984,722
Financial B- B2 7,400,000 American Annuity Group Inc,
Services--1.6% 11.125% due 2/01/2003 7,400,000 7,511,000
B+ B1 21,000,000 Lomas Mortgage USA, Inc., 10.25% due
10/01/2002 21,140,625 19,110,000
BB+ NR 3,000,000 Reliance Financial Services Corp., 10.36%
due 12/01/2000 2,380,000 3,022,500
Reliance Group Holdings, Inc.:
BB+ Ba3 17,425,000 9% due 11/15/2000 16,008,125 16,205,250
BB- B1 7,575,000 9.75% due 11/15/2003 7,537,500 6,893,250
--------------- --------------
54,466,250 52,742,000
Food & Beverage-- Chiquita Brands International Inc.:
6.5% B+ B3 5,745,000 11.50% due 6/01/2001 6,139,969 5,974,800
BB- B1 13,000,000 9.125% due 3/01/2004 12,990,000 12,155,000
NR NR 15,000,000 Cumberland Farms, 10.50% due 10/01/2003*** 14,681,250 13,162,500
B- B2 26,463,000 Envirodyne Industries, Inc., 10.25% due
12/01/2001 25,608,891 21,699,660
B- B3 10,520,000 Farm Fresh, Inc., 7.50% due 3/01/2010 5,488,575 6,562,418
BB- B1 25,000,000 Fresh Del Monte Corp., 10% due 5/01/2003 25,012,500 21,375,000
CCC+ Caa 29,500,000 Grand Union Corp., 12.25% due 7/15/2002 29,475,625 22,051,250
BB- Ba3 7,000,000 P&C Food Markets, Inc., 11.50% due 10/15/2001 7,100,000 7,350,000
B B2 25,000,000 Penn Traffic Co., 9.625% due 4/15/2005 24,781,750 22,875,000
B- B2 20,325,000 Pueblo Xtra International Inc., 9.50% due
8/01/2003 18,787,125 17,377,875
B- Caa 21,800,000 Seven-Up/RC Bottling Co. of Southern
<PAGE> California, Inc., 11.50% due 8/01/1999 21,967,500 21,146,000
Specialty Foods Corp.:
B B2 20,000,000 10.25% due 8/15/2001 19,618,750 17,900,000
B- B3 2,250,000 11.25% due 8/15/2003 2,261,250 1,912,500
B B3 20,000,000 Texas Bottling Group, Inc., 9% due
11/15/2003 20,002,500 18,300,000
--------------- --------------
233,915,685 209,842,003
Health Services-- B B2 11,500,000 Continental Medical Systems, Inc.,
1.5% 10.875% due 8/15/2002 11,523,750 10,982,500
B B2 10,000,000 Continental Medsystems, Inc., 10.375%
due 4/01/2003 9,991,250 9,250,000
HealthTrust Co. (The Hospital):
B+ B1 12,500,000 10.25% due 4/15/2004 12,500,000 12,937,500
B B1 5,000,000 8.75% due 3/15/2005 4,925,000 4,718,750
B+ B1 11,500,000 MEDIQ/PRN Life Support Services, Inc.,
11.125% due 7/01/1999 11,455,000 11,442,500
--------------- --------------
50,395,000 49,331,250
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
High Technology-- ComputerVision Corp.:
0.5% CCC+ B3 $ 10,000,000 11.375% due 8/15/1999 $ 9,706,250 $ 8,350,000
CCC NR 12,500,000 8% due 12/01/2009 (a) 6,802,473 7,468,750
-------------- --------------
16,508,723 15,818,750
Home Builders-- B- B2 20,000,000 Baldwin Homes Company, 10.375%
2.7% due 8/01/2003 19,879,500 16,300,000
Del E. Webb Corporation:
B+ Ba3 7,000,000 10.875% due 3/31/2000 7,002,795 7,105,000
B- B2 7,500,000 9.75% due 3/01/2003 7,440,975 6,862,500
B- B2 5,000,000 9% due 2/15/2006 4,993,750 4,150,000
B B3 14,000,000 Greystone Homes Inc., 10.750%
due 3/01/2004 14,000,000 13,230,000
B B1 10,250,000 K Hovnanian Enterprises Inc., 11.25%
due 4/15/2002 10,204,063 9,993,750
BB Ba2 12,000,000 Standard Pacific Corp., 10.50%
due 3/01/2000 11,995,000 11,820,000
<PAGE> B+ Ba3 20,000,000 U.S. Home Corp., 9.75% due 6/15/2003 20,000,000 18,000,000
-------------- --------------
95,516,083 87,461,250
Hotels & B B2 22,325,000 Aztar Corp., 11% due 10/01/2002 22,557,250 19,534,375
Casinos--7.2% BB B1 29,000,000 Bally's Park Place, Inc., 9.25% due 3/15/2004 27,651,450 24,360,000
NR Caa 12,000,000 Capital Gaming International, Inc.,
11.50% due 2/01/2001 (c)*** 9,426,041 8,280,000
B+ B2 28,000,000 GB Property Funding Corp., 10.875%
due 1/15/2004 27,235,000 21,280,000
BB- B2 24,750,000 GNS Finance Corp., 9.25% due 3/15/2003 24,610,371 23,388,750
NR NR 7,682,000 Gold River Hotel & Casino Corporation,
13.375% due 8/31/1999 (a) 8,609,882 7,105,850
BB- B1 20,158,000 Host Marriott Corp., 10.375% due 6/15/2011 20,527,995 20,246,191
BB- B1 11,000,000 JQ Hammons Hotel, Inc., 8.875%
due 2/15/2004 9,737,500 10,147,500
BB- B1 15,000,000 MGM Grand Hotel Finance Corp., 12%
due 5/01/2002 15,230,500 16,462,500
B- B3 10,000,000 Pioneer Finance Corp., 13.50% due 12/01/1998 10,542,500 9,250,000
Showboat, Inc.:
BB- Ba3 20,000,000 9.25% due 5/01/2008 19,920,000 16,600,000
B B2 15,000,000 13% due 8/01/2009 14,864,500 14,325,000
NR Caa 10,406,612 Trump Castle Funding, Inc., 11.75%
due 11/15/2003 9,278,493 5,931,769
B B3 35,000,000 Trump Plaza Funding, Inc., 10.875%
due 6/15/2001 33,810,770 25,112,500
NR Caa 16,239,043 Trump Taj Mahal Funding, Inc., 11.35%
due 11/15/1999++ 12,146,376 10,072,465
-------------- --------------
266,148,628 232,096,900
Industrial BB- B2 25,000,000 ADT Operations Inc., 9.25% due 8/01/2003 25,094,187 23,875,000
Services--2.3% B- B3 10,000,000 Bell & Howell Co., 10.75% due 10/01/2002 10,040,000 10,153,786
B+ B1 22,000,000 Repap Wisconsin Inc., 9.25% due 2/01/2002 20,882,500 19,470,000
B- Caa 7,720,000 Southeastern Public Service Co., 11.875%
due 2/01/1998 5,699,947 7,893,700
Thermadyne Industries, Inc.:
CCC NR 5,706,000 10.25% due 5/01/2002 5,711,822 5,492,025
CCC NR 7,912,000 10.75% due 11/01/2003 7,914,802 7,595,520
-------------- --------------
75,343,258 74,480,031
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Metals & B- B2 $ 26,750,000 Kaiser Aluminum & Chemical Corp.,
Mining--1.7% 12.75% due 2/01/2003 $ 26,660,625 $ 26,148,125
Maxxam Group, Inc.:
B- B3 5,000,000 11.25% due 8/01/2003 4,918,750 4,775,000
B- B3 41,155,000 12.10% due 8/01/2003 (a) 24,272,992 24,281,450
-------------- --------------
55,852,367 55,204,575
Paper--6.3% B+ B2 15,420,000 Container Corporation of America:
9.75% due 4/01/2003 15,433,400 14,938,125
B+ B2 13,000,000 11.25% due 5/01/2004 13,000,000 13,585,000
BB- Ba3 15,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 15,000,000 13,462,500
Fort Howard Corp.:
B+ B1 11,000,000 9.25% due 3/15/2001 11,000,000 10,615,000
B B2 31,000,000 9% due 2/01/2006 28,380,625 26,582,500
B B3 25,000,000 Gaylord Container Corp., 11.50%
due 5/15/2001 25,001,250 25,656,250
BB Ba3 10,000,000 PT Indah Kiat Pulp & Paper Corporation,
11.875% due 6/15/2002 10,000,000 10,150,000
BB- Ba3 8,000,000 Rainy River Forest Products, 10.75%
due 10/15/2001 7,980,560 7,980,560
B B1 25,000,000 Riverwood International Corp., 11.25%
due 6/15/2002 25,767,500 26,250,000
B+ B1 11,500,000 Stone-Consolidated Corp., 10.25%
due 12/15/2000 11,520,000 11,385,000
Stone Container Corp.:
B- B2 6,500,000 11.50% due 9/01/1999 6,264,562 6,516,250
B B1 30,000,000 9.875% due 2/01/2001 28,071,172 28,237,500
BB B1 8,500,000 Tjiwa Kimia, Tjiwi Kimia International
Fin., 13.25% due 8/01/2001 8,500,000 8,967,500
-------------- --------------
205,919,069 204,326,185
Pollution Control-- B B3 22,950,000 Mid-American Waste Systems, Inc.,
0.7% 12.25% due 2/15/2003 22,891,000 22,318,875
Railroads--0.2% B+ Ba3 8,000,000 Southern Pacific Rail Co., 9.375%
due 8/15/2005 8,000,000 7,800,000
Restaurants/ Family Restaurants Inc.:
Food Services-- B B1 13,000,000 9.75% due 2/01/2002 13,000,000 11,505,000
2.4% B- B3 13,500,000 10.875% due 2/01/2004 (a) 10,029,584 8,066,250
CCC+ B2 30,000,000 Flagstar Corp., 11.375% due 9/15/2003 30,092,500 25,875,000
Foodmaker, Inc:
B- B2 16,000,000 9.75% due 6/01/2002 15,455,000 13,460,000
<PAGE> B+ Ba3 23,000,000 Series 1993A, 9.75% due 11/01/2003 22,641,200 19,435,000
-------------- --------------
91,218,284 78,341,250
Retail B- B3 10,000,000 Pamida Holdings, Inc., 11.75%
Speciality--1.1% due 3/15/2003 9,997,500 10,050,000
Specialty Retailers Group, Inc.:
B+ B1 21,000,000 10% due 8/15/2000 21,000,000 20,160,000
B- B3 3,670,000 11% due 8/15/2003 3,673,350 3,523,200
-------------- --------------
34,670,850 33,733,200
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Steel--2.1% B B2 $ 21,000,000 A.K. Steel Holding Corp., 10.75%
due 4/01/2004 $ 21,000,000 $ 21,236,250
B B2 15,000,000 Republic Engineered Steel Inc., 9.875%
due 12/15/2001 15,000,000 13,950,000
B+ B1 17,500,000 WCI Steel, Inc., 10.50% due 3/01/2002 17,500,000 17,325,000
BB B1 15,000,000 Wheeling-Pittsburg Steel Corp.,
9.375% due 11/15/2003 14,390,000 13,612,500
-------------- --------------
67,890,000 66,123,750
Textiles--0.9% B+ B3 30,000,000 Westpoint Stevens Inc., 9.375% due 12/15/2005 30,100,000 27,225,000
Transport BB- Ba2 10,000,000 Transportacion Maritima Mexicana, S.A.
Services--0.3% de C.V., 9.25% due 5/15/2003 8,841,375 8,812,500
Transportation B+ B2 4,371,000 ACF Industries, Inc., 11.60% due 5/15/2000 4,174,305 4,388,763
Services--1.8% BB Ba2 9,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 9,000,000 8,640,000
BB- B1 6,000,000 International Shipholding Corp., 9%
due 7/01/2003 5,998,750 5,617,500
NR NR 36,106,000 Transtar Holdings, L.P., 12.67%
due 12/15/2003 (a) 18,806,881 19,768,035
B+ Ba3 20,000,000 Viking Star Shipping Co., Inc., 9.625%
due 7/15/2003 20,045,000 19,300,000
-------------- --------------
58,024,936 57,714,298
Utilities--4.6% Beaver Valley Funding Corp.:
B+ B1 5,299,000 8.625% due 6/01/2007 5,047,297 4,888,327
B+ B1 35,000,000 9% due 6/01/2017 31,579,000 27,106,273
<PAGE> CTC Mansfield Funding Corp.:
B+ Ba3 6,000,000 10.25% due 3/30/2003 5,850,000 5,640,000
B+ Ba3 20,000,000 11.125% due 9/30/2016 21,488,750 19,175,300
Midland Cogeneration Venture
Limited Partnership:
BB Ba3 4,733,392 10.33% due 7/23/2002++++*** 4,638,724 4,757,059
B- B2 11,250,000 11.75% due 7/23/2005 11,310,000 10,628,606
B- B2 5,500,000 13.25% due 7/23/2006 6,002,565 5,579,530
NR NR 16,028,687 Sunflower Electric Power Corp., 8%
due 12/31/2016++++*** (a) 10,484,876 13,183,595
B+ B1 20,000,000 Texas-New Mexico Power Corp., 10.75%
due 9/15/2003 20,065,000 20,100,000
B+ Ba3 5,000,000 Transco Energy Co., 9.875% due 6/15/2020 4,687,500 4,975,000
Tucson Electric & Power Co.:
NR NR 17,323,082 10.21% due 1/01/2009*** 16,029,025 15,171,555
NR NR 17,426,207 10.732% due 1/01/2013*** 16,252,461 15,622,246
-------------- --------------
153,435,198 146,827,491
Total Investments in Bonds--90.1% 3,039,721,561 2,894,383,179
<CAPTION>
Shares Held
Preferred Stocks
<S> <C> <S> <C> <C>
Broadcasting & 114,793 K-III Communications Corp.++ 11,676,526 11,221,007
Publishing--0.7% 421,000 K-III Communications Corp. 10,562,750 10,840,750
-------------- --------------
22,239,276 22,061,757
Energy--0.5% 29,517 Consolidated Hydro, Inc. 14,891,917 15,230,772
Steel--0.4% 600,000 USX Capital LLC 15,000,000 13,875,000
Total Investments in Preferred Stocks--1.6% 52,131,193 51,167,529
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
Common Stocks High Income Portfolio
<S> <C> <S> <C> <C>
Conglomerates--0.1% 200,369 Astrum International Corp. $ 4,085,240 $ 4,771,287
Energy--0.1% 57,237 Mesa Inc. 325,690 314,803
122,500 Petrolane Inc. 1,424,062 1,692,031
-------------- --------------
1,749,752 2,006,834
Financial Services--0.0% 132,527 Lomas Financial Corporation 1,689,719 646,069
Food & 120,194 Abco Markets Inc. (g)*** 4,054,875 1,584,759
Beverage--0.1% 142,807 Doskocil Companies, Inc. 5,716,757 1,267,412
-------------- --------------
9,771,632 2,852,171
Hospital Supplies--0.0% 51,400 Ply-Gem Industries, Inc. 977,018 1,188,625
Hotels & 74,302 Buckhead Corporation of America (g)*** 185,755 185,755
Casinos--0.1% 320,040 Capital Gaming International Inc.*** 2,882,508 2,100,262
75,500 Goldriver Hotel & Casino Corporation
(Class B) (d) (g) 540,045 224,141
23,000 Trump Taj Mahal Holding Corp. (Class A) 11,500 230,000
-------------- --------------
3,619,808 2,740,158
Industrial Services--0.0% 11,400 Thermadyne Industries 165,300 133,950
Total Investments in Common
Stocks--0.4% 22,058,469 14,339,094
<PAGE>
<CAPTION>
Trusts, Rights & Warrants
<S> <C> <S> <C> <C>
Cellular Telephones--0.0% 57,040 Page Mart Inc. (Warrants) (e) 340,242 128,340
Energy--0.0% 18,000 Consolidated Hydro Inc. (Warrants) (e) 390,123 432,000
20,833 UGI Corp. (Warrants) (e) 91,057 29,947
-------------- --------------
481,180 461,947
Financial Services--0.0% 7,194 Reliance Group Holdings, Inc. (Warrants) (e) 0 0
Food & Beverage--0.0% 97,108 Doskocil Companies, Inc. (Rights) (f) 0 18,208
High Technology--0.0% 394,563 Anacomp, Inc. (Warrants) (e)*** 495,400 690,485
Hotels & 273,000 Capital Gaming International Inc.
Casinos--0.0% (Warrants) (e)*** 1,344,151 887,250
7,550 Goldriver Hotel & Casino Corp.
Liquidating Trust*** (g) 192,320 137,028
-------------- --------------
1,536,471 1,024,278
Paper--0.1% 613,584 Gaylord Container Corp. (Warrants) (e) $ 1,291,315 $ 4,295,088
Telecommunications--0.0% 302,500 ALC Communications Corp. (Warrants) (e) 831,875 0
Total Investments in Trusts, Rights &
Warrants--0.1% 4,976,483 6,618,346
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value
Amount Issue Cost (Note 1a)
Short-Term Securities High Income Portfolio
<S> <C> <S> <C> <C>
Commercial $134,419,000 General Electric Capital Corp., 4.95%
Paper**--6.8% due 10/03/1994 $ 134,419,000 $ 134,419,000
ONYX Inc.:
20,000,000 5.20% due 10/11/1994 19,976,888 19,976,888
30,000,000 5.20% due 10/20/1994 29,926,333 29,926,333
Vons Supermarket:
20,000,000 5.05% due 10/11/1994 19,977,555 19,977,555
20,000,000 5.15% due 10/28/1994 19,928,472 19,928,472
-------------- --------------
224,228,248 224,228,248
Promissory Notes--0.0% 120,000 Capital Gaming International, Inc.,
5% due 8/01/1995 120,000 120,000
Total Investments in Short-Term
Securities--6.8% 224,348,248 224,348,248
Total Investments--99.0% $3,343,235,954 3,190,856,396
==============
Other Assets Less Liabilities--1.0% 32,938,775
--------------
Net Assets--100.0% $3,223,795,171
==============
<FN>
++Represents a pay-in-kind security which may pay interest/dividend in additional face/shares.
++++Subject to principal paydowns.
(a)Represents a zero coupon or step bond, the interest rate shown is the effective yield at the
time of purchase.
(b)Represents units. Each unit consists of 10,000 Par Notes and 46 Warrants.
(c)Represents units. Each unit consists of one 11.50% Note due 2001, 20.25 Warrants and 26.67
shares of Common Stock.
(d)Each share of Series B Stock contains a right which entitles the Portfolio to purchase a
predetermined number of shares of preferred stock. The purchase price and number of shares
are subject to adjustment.
(e)Warrants entitle the portfolio to purchase a predetermined number of shares of common
stock/face amount of bonds. The purchase price and number of shares/face amount are
subject to adjustment under certain conditions until the expiration date.
(f)The rights may be exercised until October 19, 1994.
(g)Non-income producing securities.
<PAGE>
*Industry classifications for convertible bonds are:
(1)Conglomerates; (2)Financial Services;
(3)Health Services; (4)Transportation Services;
(5)Waste Management.
**Commercial Paper is traded on a discount basis; the interest rates shown are the discount
rates paid at the time of purchase by the Portfolio.
See Notes to Financial Statements.
***Restricted securities. The value of the Fund's investments in restricted securities was
approximately $107,171,095, representing 3.3% net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Abco Markets Inc. 11/19/1992 $ 4,054,875 $ 1,584,759
Anacomp, Inc. (Warrants) 10/23/1990-3/14/1991 495,400 690,485
Buckhead Corporation of America 12/29/1992-3/21/1994 185,755 185,755
Capital Gaming International, Inc.,
11.50% due 2/01/2001 1/10/1994 9,426,041 8,280,000
Cumberland Farms, 10.50% due
10/01/2003 2/18/1994 14,681,250 13,162,500
Goldriver Hotel & Casino Corp.
Liquidating Trust 8/31/1992 192,320 137,028
Liggett Group Inc., 16.50%
due 2/01/1999 1/26/1994-1/31/1994 3,909,000 3,277,988
Midland Cogeneration Venture Limited
Partnership, 10.33% due 7/23/2002 7/13/1994 4,638,724 4,757,059
NWCG Holdings Corp., 13.82%
due 6/15/1999 6/28/1994 11,811,127 11,770,000
Polymer Group, Inc., 12.25%
due 7/15/2002 6/17/1994 13,000,000 13,000,000
Sunflower Electric Power Corp.,
8% due 12/31/2016 11/29/1991-7/15/1994 10,484,876 13,183,595
Telecom Argentina, S.A., 8.375%
due 10/18/2000 7/18/1994-7/26/1994 6,327,810 6,348,125
Tucson Electric & Power Co.:
10.21% due 1/01/2009 6/04/1993-7/19/1994 16,029,025 15,171,555
10.732% due 1/01/2013 3/01/1993-7/16/1993 16,252,461 15,622,246
------------ ------------
$111,488,664 $107,171,095
============ ============
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
<PAGE>
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury Notes & Bonds:
Obligations--5.9% AAA Aaa $ 4,500,000 8.25% due 7/15/1998 $ 4,928,906 $ 4,665,251
AAA Aaa 6,000,000 6.875% due 7/31/1999 6,029,063 5,903,437
AAA Aaa 14,000,000 7.50% due 5/15/2002 14,213,281 14,013,055
AAA Aaa 8,000,000 6.375% due 8/15/2002 8,515,469 7,457,460
AAA Aaa 5,000,000 7.50% due 11/15/2016 5,538,531 4,737,512
AAA Aaa 4,000,000 8.875% due 8/15/2017 4,363,750 4,353,730
AAA Aaa 8,000,000 7.50% due 11/15/2024 8,098,240 7,707,490
------------- -------------
51,687,240 48,837,935
Banking--8.2% A- A2 12,000,000 Comerica Inc., 8.375% due 7/15/2024 11,412,360 11,299,800
First Interstate Bancorp. (a):
A- A3 3,000,000 11% due 3/05/1998 3,603,060 3,286,485
BBB+ Baa1 3,000,000 9.90% due 11/15/2001 3,642,840 3,263,004
First Union Corp.:
A- A3 1,000,000 8.125% due 6/24/2002 1,109,750 996,010
A- A3 8,300,000 8% due 11/15/2002 8,810,850 8,222,312
Golden West Financial Corp.:
A- A3 5,000,000 9.15% due 5/23/1998 5,678,700 5,257,000
A- A3 5,000,000 8.375% due 4/15/2002 5,035,950 5,036,475
A- A3 8,000,000 Huntington Bancshares, Inc., 7.625%
due 1/15/2003 8,405,600 7,716,400
A+ A1 3,500,000 Norwest Corp., 6.625% due 3/15/2003 3,553,235 3,190,092
AA- A1 5,000,000 Republic Bank of NY Corp.,
9.125% due 5/15/2021 5,676,450 5,293,525
AA+ Aa2 9,000,000 Wachovia Bank of North Carolina,
6.55% due 6/09/1997 (a) 8,993,430 8,886,730
A A2 7,000,000 World Savings and Loan Association,
9.90% due 7/01/2000 7,430,130 7,541,240
------------- -------------
73,352,355 69,989,073
Federal Federal National Mortgage Association:
Agencies--4.4% AAA Aaa 18,000,000 8.05% due 7/14/2004 17,985,938 17,617,410
NR NR 15,000,000 7.85% due 9/10/2004 14,978,906 14,662,425
AAA Aaa 5,000,000 Private Export Funding Corp.,
8.35% due 1/31/2001 5,786,950 5,200,050
------------- -------------
<PAGE> 38,751,794 37,479,885
Financial Services-- Chrysler Financial Corp.:
Captive--2.4% BBB+ A3 2,000,000 9.50% due 12/15/1999 2,263,120 2,135,180
BBB+ A3 8,000,000 10.95% due 8/01/2017 9,701,900 9,025,760
A A2 1,000,000 Ford Motor Credit Corp., 7.75%
due 11/15/2002 1,040,130 979,490
BBB+ Baa1 7,575,000 General Motors Acceptance Corp.,
8% due 10/01/1996 7,761,648 7,688,965
------------- -------------
20,766,798 19,829,395
Financial Services-- American General Finance Corp.:
Consumer--5.1% A+ A1 2,500,000 8.50% due 8/15/1998 2,848,650 2,575,050
A+ A1 9,000,000 7.45% due 7/01/2002 9,131,640 8,675,010
Associates Corp. of North America:
AA- A1 2,000,000 8.80% due 8/01/1998 2,253,820 2,077,020
AA- A1 1,550,000 6.75% due 10/15/1999 1,612,945 1,483,978
AA- A1 6,000,000 5.75% due 10/15/2003 5,223,540 5,097,180
A+ A1 8,000,000 CIT Group Holdings, Inc.,
5.64% due 5/02/1997 8,000,000 8,062,871
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (concluded) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Financial Services-- Commercial Credit Co.:
Consumer A+ A2 $ 6,000,000 6.70% due 8/01/1999 $ 6,001,800 $ 5,758,530
(concluded) A+ A2 3,000,000 7.875% due 7/15/2004 2,990,730 2,939,430
A+ A2 7,000,000 Transamerica Finance Corp., 7.50%
due 3/15/2004 7,000,000 6,648,635
------------- -------------
45,063,125 43,317,704
Financial Services-- Dean Witter & Discover Co.:
Other--9.4% A A2 5,000,000 6.50% due 11/01/2005 4,942,250 4,360,750
A A2 6,000,000 6.75% due 10/15/2013 5,880,540 4,898,970
General Electric Capital Corp.:
AAA Aaa 6,000,000 14% due 7/01/1996 (a) 6,811,140 6,715,140
AAA Aaa 19,000,000 5.56% due 7/21/1997 19,000,000 19,081,506
AAA Aaa 6,200,000 8.125% due 5/15/2012 6,301,726 6,090,260
A A3 10,000,000 Lehman Brothers Inc., 7.375% due 8/15/1997 9,987,000 9,908,149
A+ A1 6,000,000 Morgan Stanley Group Inc., 8.875%
<PAGE> due 10/15/2001 6,900,840 6,220,950
PaineWebber Group Inc.:
BBB+ A3 3,000,000 6.25% due 6/15/1998 3,078,060 2,815,125
BBB+ A3 7,000,000 9.25% due 12/15/2001 8,185,100 7,231,525
A+ A3 8,000,000 Torchmark Corp., 9.625% due 5/01/1998 7,941,440 8,432,960
A+ A2 4,000,000 The Travelers Corp., 9.50% due 3/01/2002 4,336,800 4,285,420
------------- -------------
83,364,896 80,040,755
Foreign*--9.7% AA- A1 10,000,000 Aegon N.V., 8% due 8/15/2006 (2) 9,908,700 9,713,600
CRA Finance Ltd. (2):
A+ A2 4,000,000 6.50% due 12/01/2003 4,005,890 3,542,760
A+ A2 3,500,000 7.125% due 12/01/2013 3,479,700 2,982,227
AAA Aaa 4,000,000 Export-Import Bank of Japan, 8.35%
due 12/01/1999 (2) 4,226,640 4,127,580
AAA Aaa 4,500,000 Japan Finance Corp. for Municipal
Enterprises, 9.125% due 3/13/2000 (2) 4,963,995 4,809,240
Metropolis of Tokyo (Japan) (3):
AAA Aaa 3,550,000 9.25% due 10/11/1998 4,134,756 3,772,851
AAA Aaa 3,000,000 8.70% due 10/05/1999 3,469,410 3,136,845
AAA Aaa 4,000,000 9.25% due 11/08/2000 4,219,660 4,284,540
Petro-Canada (4):
BBB Baa1 3,000,000 8.60% due 10/15/2001 3,292,470 3,075,075
BBB Baa1 5,000,000 9.25% due 10/15/2021 5,300,650 5,219,025
Province of Ontario (Canada) (5):
AA- Aa3 7,000,000 8% due 10/17/2001 7,564,970 6,999,230
AA- Aa3 14,000,000 7.75% due 6/04/2002 14,274,490 13,801,129
Province of Quebec (Canada) (5):
A+ A1 3,000,000 13% due 10/01/2013 3,918,120 3,629,505
A+ A1 5,000,000 7.125% due 2/09/2024 4,203,800 4,069,275
AA A1 6,000,000 Republic of Italy, 6.875% due 9/27/2023 (6) 5,774,220 4,750,920
A A2 5,000,000 Western Mining Corporation Holdings, Ltd.,
7.25% due 11/15/2013 (1) 5,036,900 4,318,775
------------- -------------
87,774,371 82,232,577
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- AA- A1 $ 3,000,000 Anheuser-Busch Cos., Inc., 8.75% due
Consumer 12/01/1999 $ 3,367,590 $ 3,140,655
Goods--12.6% A+ A1 10,000,000 Bass America, Inc., 8.125% due 3/31/2002 10,250,610 10,045,499
Dillard Department Stores, Inc.:
<PAGE> A+ A2 4,000,000 7.375% due 6/15/1999 4,254,860 3,950,740
A+ A2 5,000,000 9.125% due 8/01/2011 6,054,000 5,265,900
Grand Metropolitan Investment Corp.:
A+ A2 4,000,000 6.50% due 9/15/1999 4,000,000 3,799,240
A+ A2 9,000,000 8.625% due 8/15/2001 9,412,690 9,272,295
AAA Aaa 4,000,000 Johnson & Johnson Co., 6.73% due 11/15/2023 3,352,760 3,283,540
AA Aa2 7,000,000 McDonald's Corp., 7.80% due 10/01/2004 7,000,000 6,931,190
Penney (J.C.) Co., Inc.:
A+ A2 3,000,000 6.875% due 6/15/1999 2,989,380 2,910,465
A+ A2 7,000,000 7.375% due 6/15/2004 6,963,600 6,690,390
BBB- Baa3 8,000,000 RJR Nabisco, Inc., 10.50% due 4/15/1998 8,513,840 8,488,800
Sears Roebuck & Co.:
BBB+ Baa1 5,000,000 9.25% due 4/15/1998 5,712,125 5,261,350
BBB+ Baa1 8,785,000 8.45% due 11/01/1998 9,709,797 9,012,004
BBB+ Baa1 9,000,000 10% due 2/03/2012 10,470,870 9,996,760
AA Aa1 16,810,000 Wal-Mart Stores, Inc., 8.625% due 4/01/2001 18,401,637 17,519,130
------------- -------------
110,453,759 105,567,958
Industrial-- A+ A1 5,000,000 Atlantic Richfield Company, 10.375%
Energy--4.8% due 7/15/1995 5,266,660 5,153,625
AA- A1 3,250,000 BP America Inc., 9.375% due 11/01/2000 3,544,190 3,500,201
AA- A1 9,000,000 BP America Inc., 7.875% due 5/15/2002 9,519,510 8,982,225
Burlington Resources, Inc.:
A- A3 8,500,000 9.625% due 6/15/2000 9,720,390 9,106,135
A- A3 1,000,000 8.50% due 10/01/2001 1,165,780 1,025,015
Texaco Capital Inc.:
A+ A1 5,500,000 9% due 12/15/1999 6,215,190 5,805,332
A+ A1 2,000,000 8.875% due 9/01/2021 2,440,280 2,076,030
A+ A1 5,000,000 8.625% due 11/15/2031 5,226,950 4,990,075
------------- -------------
43,098,950 40,638,638
Industrial-- BBB- Baa3 12,000,000 Applied Materials Inc., 8% due 9/01/2004 11,912,280 11,677,200
Other--12.5% AA- Aa2 10,100,000 Archer-Daniels-Midland Co., 8.875%
due 4/15/2011 10,888,935 10,550,207
AA- A1 4,000,000 Capital Cities/ABC, Inc., 8.875%
due 12/15/2000 4,305,360 4,204,980
Carnival Corp.:
A- A3 1,000,000 6.15% due 10/01/2003 891,530 872,063
A- A3 8,000,000 7.70% due 7/15/2004 7,872,580 7,740,320
A A2 6,000,000 Comsat Corp., 8.125% due 4/01/2004 6,376,270 5,949,750
Ford Capital B.V.:
A A2 2,500,000 9.375% due 5/15/2001 2,762,725 2,653,212
A A2 13,000,000 9.875% due 5/15/2002 13,570,410 14,213,939
A A2 3,995,000 9.50% due 6/01/2010 4,430,215 4,304,412
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- International Paper Co.:
Other A- A3 $ 7,710,000 9.70% due 3/15/2000 $ 9,293,944 $ 8,347,270
(concluded) A- A3 5,000,000 9.40% due 6/01/2002 5,503,450 5,395,325
AA Aa2 8,500,000 Kaiser Foundation Hospital, 9.55%
due 7/15/2005 9,561,225 9,312,175
Telecommunications, Inc.:
BBB- Baa3 10,000,000 8.25% due 1/15/2003 9,713,200 9,627,700
BBB- Baa3 2,500,000 9.80% due 2/01/2012 2,631,150 2,565,300
Time Warner Entertainment Co.:
BBB- Baa3 5,000,000 10.15% due 5/01/2012 5,308,050 5,198,775
BBB- Baa3 5,000,000 8.375% due 3/15/2023 5,281,450 4,353,400
------------- -------------
110,302,774 106,966,028
Supranational-- Asian Development Bank:
7.5% AAA Aaa 3,000,000 10.75% due 6/01/1997 3,302,730 3,258,885
AAA Aaa 9,000,000 9.125% due 6/01/2000 9,455,080 9,634,725
AAA Aaa 4,000,000 8.50% due 5/02/2001 4,299,200 4,155,200
European Investment Bank:
AAA Aaa 2,000,000 8.875% due 3/01/2001 2,380,320 2,112,520
AAA Aaa 4,000,000 9.125% due 6/01/2002 4,890,870 4,284,360
Inter-American Development Bank Co.:
AAA Aaa 8,000,000 8.875% due 6/01/2009 10,115,250 8,687,560
AAA Aaa 5,000,000 8.50% due 3/15/2011 5,955,170 5,100,250
AAA Aaa 5,000,000 7.125% due 3/15/2023 4,546,550 4,290,475
AAA Aaa 17,500,000 International Bank for Reconstruction &
Development, 12.375% due 10/15/2002 22,022,410 22,131,900
------------- -------------
66,967,580 63,655,875
Transportation-- Southwest Airlines, Inc.:
1.8% A- Baa1 10,000,000 9.40% due 7/01/2001 11,326,040 10,641,549
A- Baa1 2,000,000 8.75% due 10/15/2003 2,138,860 2,062,520
A- Baa1 3,000,000 7.875% due 9/01/2007 2,983,950 2,864,850
------------- -------------
16,448,850 15,568,919
Utilities-- BBB+ Baa1 4,000,000 GTE Corp., 9.10% due 6/01/2003 4,242,720 4,207,380
Communications-- A+ A1 5,000,000 General Telephone of California, Inc., 6.75%
4.8% due 3/15/2004 4,864,250 4,592,250
AA- Aa2 2,000,000 New England Telephone & Telegraph Co.,
8.625% due 8/01/2001 2,233,620 2,081,420
<PAGE> Pacific Bell, Inc.:
AA- Aa3 6,500,000 8.70% due 6/15/2001 6,582,540 6,781,352
AA- Aa3 3,000,000 7.25% due 7/01/2002 2,985,420 2,882,580
AA- Aa3 4,500,000 7.375% due 6/15/2025 4,602,510 3,893,490
A+ A1 2,000,000 Southwestern Bell Telecommunications
Corp., 6.125% due 3/01/2000 2,011,250 1,858,280
Sprint Corp.:
BBB Baa3 6,000,000 8.125% due 7/15/2002 6,104,220 5,978,760
BBB Baa3 8,736,000 9.25% due 4/15/2022 9,575,704 9,309,999
------------- -------------
43,202,234 41,585,511
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (concluded) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Utilities-- Central Power & Light Co.:
Electric--4.2% A A2 $ 5,000,000 6% due 10/01/1997 $ 4,973,400 $ 4,815,450
A A2 5,000,000 7.50% due 4/01/2023 5,118,750 4,346,775
A A2 2,000,000 Georgia Power Co., 6.125% due 9/01/1999 1,961,420 1,880,980
BBB+ Baa1 3,425,000 PECO Energy Co., 8% due 4/01/2002 3,459,387 3,366,175
A- A2 8,000,000 Pennsylvania Power & Light Co.,
7.75% due 5/01/2002 8,388,270 7,890,840
AA- Aa3 5,000,000 TECO Energy, Inc., 9.27% due 6/12/2000 (a) 5,000,000 5,352,512
BBB Baa2 5,000,000 Texas Utilities Electric Co., 8.75%
due 11/01/2023 4,856,200 4,867,175
A A2 4,000,000 Virginia Electric & Power Co.,
6.75% due 10/01/2023 3,409,200 3,239,340
------------- -------------
37,166,627 35,759,247
Utilities-- Consolidated Natural Gas Co.:
Gas--1.0% AA- A1 1,000,000 9.375% due 2/01/1997 1,031,440 1,046,685
AA- A1 7,500,000 8.75% due 6/01/1999 7,450,660 7,792,500
------------- -------------
8,482,100 8,839,185
Total Investments in Bonds
& Notes--94.3% 836,883,453 800,308,685
<PAGE>
<CAPTION
Short-Term Securities
<S> <C> <S> <C> <C>
Repurchase 39,035,000 Bankers Trust Securities Co., purchased on
Agreements** 9/30/1994 to yield 4.80% to 10/03/1994 39,035,000 39,035,000
Total Investments in Short-Term
Securities--4.5% 39,035,000 39,035,000
Total Investments--98.8% $875,918,453 839,343,685
============
Other Assets Less Liabilities--1.2% 10,501,572
------------
Net Assets--100.0% $849,845,257
============
<FN>
*Corresponding industry groups for foreign securities, which are denominated in US dollars:
(1)Industrial Mining.
(2)Financial Institution; Government-Owned & Guaranteed.
(3)Government Entity; Guaranteed by Japan.
(4)Energy Company; not Guaranteed by Canada.
(5)Government Entity; Guaranteed by the Province.
(6)Government Entity; Guaranteed by Italy.
**Repurchase Agreements are fully collateralized by US Government Obligations.
(a)Medium-Term Note.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury Notes:
Obligations--7.8% AAA Aaa $ 1,500,000 8.50% due 11/15/2000 $ 1,615,625 $ 1,582,729
AAA Aaa 11,000,000 7.50% due 5/15/2002 11,037,344 11,010,257
AAA Aaa 12,000,000 7.25% due 8/15/2004 11,970,325 11,711,235
------------- -------------
24,623,294 24,304,221
Banking--10.5% First Interstate Bancorp.:
A- A3 4,500,000 11% due 3/05/1998 5,404,590 4,929,727
BBB+ Baa1 7,000,000 9.90% due 11/15/2001 8,552,250 7,613,677
A- A3 5,000,000 First Union Corp., 8% due 11/15/2002 5,002,240 4,953,200
Golden West Financial Corp.:
A- A3 4,000,000 9.15% due 5/23/1998 4,542,960 4,205,600
A- A3 1,000,000 8.375% due 4/15/2002 987,040 1,007,295
A- A3 2,000,000 Huntington Bancshares, Inc., 7.625%
due 1/15/2003 1,974,640 1,929,100
A+ A1 1,000,000 Norwest Corp., 6.625% due 3/15/2003 1,003,060 911,455
AA+ Aa2 5,000,000 Wachovia Corporation, 6.55% due 6/09/1997 4,996,350 4,937,072
A A2 2,000,000 World Savings and Loan Association,
9.90% due 7/01/2000 2,072,740 2,154,640
------------- -------------
34,535,870 32,641,766
Federal Federal National Mortgage Association:
Agencies--2.1% AAA Aaa 4,000,000 8.05% due 7/14/2004 3,996,875 3,914,980
NR NR 2,500,000 7.85% due 9/10/2004 2,496,484 2,443,737
------------- -------------
6,493,359 6,358,717
Financial Services-- BBB+ A3 8,000,000 Chrysler Financial Corp., 9.50% due 12/15/1999 9,275,380 8,540,720
Captive--4.2% Ford Motor Credit Co.:
A A2 2,000,000 7.25% due 5/15/1999 1,964,280 1,962,590
A A2 3,000,000 7.75% due 11/15/2002 3,032,570 2,938,470
------------- -------------
14,272,230 13,441,780
Financial Services-- American General Finance Corp.:
Consumer--5.2% A+ A1 1,500,000 8.50% due 8/15/1998 1,680,255 1,545,030
A+ A1 1,000,000 7.45% due 7/01/2002 997,800 963,890
A+ A1 3,500,000 6.375% due 3/01/2003 3,457,190 3,128,142
Associates Corp. of North America:
AA- A1 3,000,000 8.80% due 8/01/1998 3,380,730 3,115,530
AA- A1 1,500,000 7.50% due 5/15/1999 1,645,950 1,486,222
A+ A1 3,000,000 CIT Group Holdings, Inc., 5.162%
due 2/28/1997 2,998,020 3,009,870
A+ A1 3,000,000 Commercial Credit Co., 7.875%
due 7/15/2004 2,990,730 2,939,430
------------- -------------
17,150,675 16,188,114
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Financial Services-- AAA Aaa $ 7,000,000 General Electric Capital Corp., 5.56%
Other--9.0% due 7/21/1997 $ 7,000,000 $ 7,030,028
A A3 3,000,000 Lehman Brothers, Inc., 7.375%
due 8/15/1997 2,996,100 2,972,445
Morgan Stanley Group Inc.:
A+ A1 2,500,000 9.375% due 6/15/2001 2,952,975 2,647,925
A+ A1 1,000,000 8.875% due 10/15/2001 1,159,640 1,036,825
PaineWebber Group Inc.:
BBB+ A3 2,000,000 6.25% due 6/15/1998 2,052,040 1,876,750
BBB+ A3 7,000,000 9.25% due 12/15/2001 8,174,550 7,231,525
2,000,000 Smith Barney Holdings, Inc., 7.875%
due 10/01/1999 1,993,080 1,991,240
A+ A3 1,000,000 Torchmark Corp., 9.625% due 5/01/1998 1,139,040 1,054,120
A+ A2 2,000,000 The Travelers Corp., 9.50% due 3/01/2002 2,168,400 2,142,710
------------- -------------
29,635,825 27,983,568
Foreign*--5.2% A+ A2 4,000,000 CRA Finance Ltd., 6.50% due 12/01/2003 (2) 4,006,020 3,542,760
AAA Aaa 1,500,000 Japan Finance Corp. for Municipal
Enterprises, 9.125% due 3/13/2000 (2) 1,654,665 1,603,080
AAA Aaa 2,000,000 Metropolis of Tokyo (Japan),
8.70% due 10/05/1999 (2) 2,312,940 2,091,230
BBB Baa1 5,000,000 Petro Canada, 8.60% due 10/15/2001 (4) 5,194,980 5,125,125
AA- Aa3 1,000,000 Province of Ontario (Canada) (5),
8% due 10/17/2001 1,080,710 999,890
A+ A1 3,000,000 Province of Quebec (Canada),
8.80% due 4/15/2003 (5) 3,114,060 3,063,420
------------- -------------
17,363,375 16,425,505
Industrial-- AA- A1 5,481,000 Anheuser-Busch Cos., Inc., 8.75%
Consumer due 12/01/1999 6,189,909 5,737,977
Goods--16.0% A+ A1 3,000,000 Bass America, Inc., 8.125% due 3/31/2002 3,095,170 3,013,650
Dillard Departent Stores, Inc.:
A+ A2 4,000,000 7.375% due 6/15/1999 4,191,980 3,950,740
A+ A2 1,000,000 7.15% due 9/01/2002 1,046,710 948,920
Grand Metropolitan Investment Corp.:
A+ A2 3,000,000 6.50% due 9/15/1999 3,040,120 2,849,430
A+ A2 3,000,000 8.625% due 8/15/2001 3,069,700 3,090,765
<PAGE> AA Aa2 3,000,000 McDonalds Corp., 7.80% due 10/01/2004 3,000,000 2,970,510
A+ A2 1,000,000 Penney (J.C.) Co., Inc., 6.875% due 6/15/1999 996,460 970,155
A A1 4,000,000 PepsiCo, Inc., 6.125% due 1/15/1998 3,972,240 3,859,520
BBB- Baa3 10,000,000 RJR Nabisco, Inc., 10.50% due 4/15/1998 10,656,900 10,611,000
Sears, Roebuck & Co.:
BBB+ Baa1 2,500,000 9.25% due 4/15/1998 2,837,275 2,630,675
BBB+ Baa1 7,000,000 8.45% due 11/01/1998 7,762,380 7,180,880
AA Aa1 2,000,000 Wal-Mart Stores, Inc., 8.625% due 4/01/2001 2,101,960 2,084,370
------------- -------------
51,960,804 49,898,592
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- A+ A1 $ 2,000,000 Atlantic Richfield Company, 10.375%
Energy--5.4% due 7/15/1995 $ 2,176,960 $ 2,061,450
AA- A1 1,000,000 BP America Inc., 7.875% due 5/15/2002 1,055,380 998,025
Burlington Resources, Inc.:
A- A3 5,000,000 7.15% due 5/01/1999 4,986,850 4,840,125
A- A3 3,500,000 9.625% due 6/15/2000 4,186,510 3,749,585
A- A3 1,000,000 8.50% due 10/01/2001 1,165,780 1,025,015
Texaco Capital Inc.:
A+ A1 2,000,000 6.875% due 7/15/1999 1,996,120 1,933,840
A+ A1 2,000,000 9% due 12/15/1999 2,342,460 2,111,030
------------ ------------
17,910,060 16,719,070
Industrial-- BBB- Baa3 4,000,000 Applied Materials Inc., 8% due 9/01/2004 3,970,760 3,892,400
Other--11.5% AA- A1 2,000,000 Capital Cities/ABC, Inc., 8.875%
due 12/15/2000 2,343,040 2,102,490
Carnival Cruise Lines, Inc.:
A- A3 1,000,000 6.15% due 10/01/2003 891,530 872,063
A- A3 1,000,000 7.70% due 7/15/2004 983,560 967,540
A- A3 2,000,000 International Paper Co., 9.40%
due 6/01/2002 2,201,380 2,158,130
AA Aa2 3,500,000 Kaiser Foundation Hospital, 9%
due 11/01/2001 3,881,070 3,681,072
BBB- Ba1 12,250,000 News America Holdings Inc., 7.50%
due 3/01/2000 12,173,963 11,740,032
BBB- Baa3 10,000,000 Telecommunications, Inc., 9.25%
due 4/15/2002 11,126,050 10,291,799
------------ ------------
<PAGE> 37,571,353 35,705,526
Supranational-- Asian Development Bank:
3.8% AAA Aaa 2,000,000 9.125% due 6/01/2000 2,234,280 2,141,050
AAA Aaa 2,500,000 8.50% due 5/02/2001 2,687,000 2,597,000
AAA Aaa 4,800,000 European Investment Bank, 9.125%
due 6/01/2002 5,819,666 5,141,232
AAA Aaa 1,500,000 International Bank for Reconstruction &
Development, 12.375% due 10/15/2002 1,954,980 1,897,020
------------ ------------
12,695,926 11,776,302
Transportation Southwest Airlines, Inc.:
Services-- A- Baa1 6,500,000 9.40% due 7/01/2001 7,564,180 6,917,007
2.5% A- Baa1 1,000,000 8.75% due 10/15/2003 1,069,430 1,031,260
------------ ------------
8,633,610 7,948,267
Utilities-- A+ A1 6,000,000 General Telephone of California, Inc.,
Communications-- 6.75% due 3/15/2004 5,837,100 5,510,700
4.8% AA- Aa3 2,000,000 Pacific Bell, Inc., 8.70% due 6/15/2001 2,163,420 2,086,570
BBB Baa3 7,100,000 Sprint Corp., 8.125% due 7/15/2002 7,222,335 7,074,866
------------ ------------
15,222,855 14,672,136
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (concluded) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Utilities-- BBB+ Baa1 $ 4,000,000 Peco Energy Co., 8% due 4/01/2002 $ 4,040,160 $ 3,931,300
Electric--2.8% Pennsylvania Power & Light Co.:
A- A2 4,000,000 5.50% due 4/01/1998 3,991,280 3,762,340
A- A2 1,000,000 7.75% due 5/01/2002 1,043,980 986,355
------------ ------------
9,075,420 8,679,995
Utilities-- Consolidated Natural Gas Co.:
Gas--2.0% AA- A1 4,000,000 9.375% due 2/01/1997 4,125,760 4,186,740
AA- A1 2,000,000 8.75% due 6/01/1999 2,125,440 2,078,000
------------ ------------
6,251,200 6,264,740
Total Investments in Bonds
<PAGE> & Notes--92.8% 303,395,856 289,008,299
Short-Term Securities
Commercial 5,000,000 Prudential Funding Corp., 4.80%
Paper**--1.6% due 10/04/1994 4,999,333 4,999,333
Repurchase 11,951,000 Bankers Trust Securities Co., purchased
Agreements***--3.8% on 9/30/1994 to yield 4.80%
to 10/03/1994 11,951,000 11,951,000
Total Investments in Short-Term
Securities--5.4% 16,950,333 16,950,333
Total Investments--98.2% $320,346,189 305,958,632
============
Other Assets Less Liabilities--1.8% 5,474,826
------------
Net Assets--100.0% $311,433,458
============
<FN>
*Corresponding industry groups for foreign securities, which are denominated in US dollars:
(1)Industrial Mining.
(2)Financial Institution; Government-Owned & Guaranteed.
(3)Government Entity; Guaranteed by Japan.
(4)Energy Company; not Guaranteed by Canada.
(5)Government Entity; Guaranteed by Province.
See Notes to Financial Statements.
**Commercial Paper is traded on a discount basis; the interest rates shown are the discount rate paid at the time of
purchase by the Portfolio.
***Repurchase Agreements are fully collateralized by US Government Obligations.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statements of Assets and Liabilities as of September 30, 1994
<CAPTION>
High Income Investment Intermediate
Portfolio Grade Portfolio Term Portfolio
<S> <S> <C> <C> <C>
Assets: Investments, at value* (Note 1a) $3,190,856,396 $839,343,685 $305,958,632
Cash -- 405,074 121,979
Receivables:
Interest 72,415,250 20,194,775 6,825,793
Securities sold 9,728,815 33,116,453 1,942,250
Capital shares sold 8,579,199 3,150,886 874,377
Loans -- 128,136 46,513
Paydowns 66,963 -- --
Prepaid registration fees and other assets (Note 1d) 1,089,245 58,450 70,435
-------------- ------------ ------------
Total assets 3,282,735,868 896,397,459 315,839,979
-------------- ------------ ------------
Liabilities: Payables:
Securities purchased 32,354,728 40,059,396 1,994,393
Capital shares redeemed 15,092,631 4,010,155 1,529,074
Dividends to shareholders (Note 1e) 7,919,680 1,628,140 607,468
Distributor (Note 2) 1,536,430 321,391 62,853
Investment adviser (Note 2) 1,177,054 277,136 101,803
Accrued expenses and other liabilities 860,174 255,984 110,930
-------------- ------------ ------------
Total liabilities 58,940,697 46,552,202 4,406,521
-------------- ------------ ------------
Net Assets: Net assets $3,223,795,171 $849,845,257 $311,433,458
============== ============ ============
Net Assets Class A Common Stock, $0.10 par value++ $11,450,163 $ 3,406,458 $ 1,562,326
Consist of: Class B Common Stock, $0.10 par value++++ 30,651,688 4,486,299 1,296,029
Paid-in capital in excess of par 3,346,281,234 911,532,433 332,363,694
Accumulated realized capital losses on investments--net (12,208,356) -- --
Accumulated distributions in excess of realized capital
losses on investment--net -- (33,005,165) (9,401,034)
Unrealized depreciation on investments--net (152,379,558) (36,574,768) (14,387,557)
-------------- ------------ ------------
Net assets $3,223,795,171 $849,845,257 $311,433,458
============== ============ ============
<PAGE>
Net Asset Class A:
Value: Net assets $ 876,572,591 $366,791,802 $170,221,867
============== ============ ============
Shares outstanding 114,501,635 34,064,580 15,623,264
============== ============ ============
Net asset value and redemption price per share $ 7.66 $ 10.77 $ 10.90
============== ============ ============
Class B:
Net assets $2,347,222,580 $483,053,455 $141,211,591
============== ============ ============
Shares outstanding 306,516,876 44,862,991 12,960,285
============== ============ ============
Net asset value and redemption price per share $ 7.66 $ 10.77 $ 10.90
============== ============ ============
<FN>
*Identified cost $3,343,235,954 $875,918,453 $320,346,189
============== ============ ============
++Authorized shares--Class A 200,000,000 100,000,000 50,000,000
============== ============ ============
++++Authorized shares--Class B 500,000,000 100,000,000 50,000,000
============== ============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Operations for the Year Ended September 30, 1994
<CAPTION>
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
<S> <S> <C> <C> <C>
Investment Interest and discount earned $ 298,872,333 $ 64,292,316 $ 23,191,997
Income Dividends 3,461,781 -- --
(Note 1c): Loaned securities -- 212,602 82,200
Other 2,324,904 105 24
-------------- ------------ ------------
Total income 304,659,018 64,505,023 23,274,221
-------------- ------------ ------------
<PAGE>
Expenses: Distribution fees--Class B (Note 2) 16,431,011 3,845,744 733,272
Investment advisory fees (Note 2) 12,959,206 3,316,386 1,218,082
Transfer agent fees--Class B (Note 2) 1,788,020 649,919 155,639
Transfer agent fees--Class A (Note 2) 648,149 443,994 176,770
Registration fees (Note 1d) 428,081 113,034 74,885
Accounting services (Note 2) 282,165 123,103 58,447
Printing and shareholder reports 291,533 90,968 31,526
Custodian fees 119,504 59,772 36,434
Professional fees 108,610 38,891 14,672
Pricing fees (Note 2) 25,428 16,808 10,084
Directors' fees and expenses 29,503 8,774 3,406
Amortization of organization expenses (Note 1d) 1,358 494 --
Other 28,395 7,938 2,414
-------------- ------------ ------------
Total expenses 33,140,963 8,715,825 2,515,631
-------------- ------------ ------------
Investment income--net 271,518,055 55,789,198 20,758,590
-------------- ------------ ------------
Realized & Realized gain (loss) on investments--net 13,337,857 (27,366,985) (8,401,311)
Unrealized Gain Change in unrealized appreciation/depreciation on
(Loss) on investments--net (218,088,489) (89,071,174) (27,976,092)
Investments--Net -------------- ------------ ------------
(Notes 1c & 3): Net Increase (Decrease) in Net Assets Resulting from
Operations $ 66,767,423 $(60,648,961) $(15,618,813)
============== ============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets High Income Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 271,518,055 $ 191,944,836
Realized gain on investments--net 13,337,857 39,490,168
Change in unrealized appreciation/depreciation on investments--net (218,088,489) 30,800,724
-------------- --------------
Net increase in net assets resulting from operations 66,767,423 262,235,728
-------------- --------------
<PAGE>
Dividends to Investment income--net:
Shareholders Class A (84,737,805) (77,067,944)
(Note 1e): Class B (186,780,250) (114,876,892)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (271,518,055) (191,944,836)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 718,487,003 1,108,612,505
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 513,736,371 1,178,903,397
Beginning of year 2,710,058,800 1,531,155,403
-------------- --------------
End of year $3,223,795,171 $2,710,058,800
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets Investment Grade Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 55,789,198 $ 49,188,032
Realized gain (loss) on investments--net (27,366,985) 35,442,646
Change in unrealized appreciation/depreciation on investments--net (89,071,174) 12,048,232
-------------- --------------
Net increase (decrease) in net assets resulting from operations (60,648,961) 96,678,910
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (25,781,848) (24,831,019)
Shareholders Class B (30,007,350) (24,357,013)
(Note 1e): Realized gain on investments--net:
Class A (3,174,664) (4,865,108)
Class B (4,207,122) (5,004,106)
In excess of realized gain on investments--net:
Class A (14,194,438) --
Class B (18,810,727) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (96,176,149) (59,057,246)
-------------- --------------
<PAGE>
Capital Share Net increase in net assets derived from capital share transactions 83,643,841 197,559,404
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (73,181,269) 235,181,068
Beginning of year 923,026,526 687,845,458
-------------- --------------
End of year $ 849,845,257 $ 923,026,526
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C>
Operations: Investment income--net $ 20,758,590 $ 14,760,592
Realized gain on investments--net (8,401,311) 7,219,619
Change in unrealized appreciation/depreciation on investments--net (27,976,092) 6,890,072
-------------- --------------
Net increase (decrease) in net assets resulting from operations (15,618,813) 28,870,283
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (11,981,544) (10,854,121)
Shareholders Class B (8,777,046) (3,906,471)
(Note 1e): Realized gain on investments--net:
Class A -- (1,857,266)
Class B -- (293,192)
In excess of realized gain on investments--net:
Class A (4,476,067) --
Class B (3,477,851) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (28,712,508) (16,911,050)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 28,138,074 161,334,292
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (16,193,247) 173,293,525
Beginning of year 327,626,705 154,333,180
-------------- --------------
<PAGE>
End of year $ 311,433,458 $ 327,626,705
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights High Income Portfolio
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 8.13 $ 7.84 $ 7.02 $ 6.39 $ 7.52
Operating ---------- ---------- -------- -------- --------
Performance: Investment income--net .75 .79 .87 .92 1.00
Realized and unrealized gain (loss) on
investments--net (.47) .29 .82 .63 (1.13)
---------- ---------- -------- -------- --------
Total from investment operations .28 1.08 1.69 1.55 (.13)
---------- ---------- -------- -------- --------
Less dividends:
Investment income--net (.75) (.79) (.87) (.92) (1.00)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 7.66 $ 8.13 $ 7.84 $ 7.02 $ 6.39
========== ========== ======== ======== ========
Total Based on net asset value per share 3.42% 14.35% 25.22% 26.46% (1.95%)
Investment ========== ========== ======== ======== ========
Return:*
Ratios to Expenses .53% .55% .59% .66% .68%
Average ========== ========== ======== ======== ========
Net Assets: Investment income--net 9.27% 9.78% 11.44% 14.13% 14.22%
========== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 876,573 $ 886,784 $683,801 $522,703 $486,426
Data: ========== ========== ======== ======== ========
Portfolio turnover 32.52% 34.85% 40.52% 39.95% 47.60%
========== ========== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 8.13 $ 7.85 $ 7.02 $ 6.40 $ 7.52
Operating ---------- ---------- -------- -------- --------
Performance: Investment income--net .69 .72 .81 .87 .95
Realized and unrealized gain (loss) on
investments--net (.47) .28 .83 .62 (1.12)
---------- ---------- -------- -------- --------
Total from investment operations .22 1.00 1.64 1.49 (.17)
---------- ---------- -------- -------- --------
Less dividends:
Investment income--net (.69) (.72) (.81) (.87) (.95)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 7.66 $ 8.13 $ 7.85 $ 7.02 $ 6.40
========== ========== ======== ======== ========
Total Based on net asset value per share 2.66% 13.35% 24.44% 25.32% (2.54%)
Investment ========== ========== ======== ======== ========
Return:*
Ratios to Expenses, excluding distribution fees .54% .56% .60% .67% .70%
Average ========== ========== ======== ======== ========
Net Assets: Expenses 1.29% 1.31% 1.35% 1.42% 1.45%
========== ========== ======== ======== ========
Investment income--net 8.53% 8.94% 10.42% 13.24% 13.69%
========== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $2,347,223 $1,823,275 $847,354 $264,486 $157,979
Data: ========== ========== ======== ======== ========
Portfolio turnover 32.52% 34.85% 40.52% 39.95% 47.60%
========== ========== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.81 $ 12.30 $ 11.59 $ 10.83 $ 11.21
Operating ---------- ---------- -------- -------- --------
Performance: Investment income--net .75 .81 .88 .92 .95
Realized and unrealized gain (loss) on
investments--net (1.49) .67 .71 .76 (.38)
---------- ---------- -------- -------- --------
Total from investment operations (.74) 1.48 1.59 1.68 .57
---------- ---------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.75) (.81) (.88) (.92) (.95)
Realized gain on investments--net (.10) (.16) -- -- --
In excess of realized gain on
investments--net (.45) - -- -- --
---------- ---------- -------- -------- --------
Total dividends and distributions (1.30) (.97) (.88) (.92) (.95)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 10.77 $ 12.81 $ 12.30 $ 11.59 $ 10.83
========== ========== ======== ======== ========
Total Investment Based on net asset value per share (6.03%) 12.78% 14.30% 16.18% 5.22%
Return:* ========== ========== ======== ======== ========
Ratios to Expenses .53% .56% .58% .61% .64%
Average ========== ========== ======== ======== ========
Net Assets: Investment income--net 6.61% 6.94% 7.43% 8.26% 8.54%
========== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 366,792 $ 407,625 $362,139 $324,818 $307,723
Data: ========== ========== ======== ======== ========
Portfolio turnover 159.05% 121.34% 65.43% 126.32% 126.39%
========== ========== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.81 $ 12.30 $ 11.59 $ 10.83 $ 11.21
Operating ---------- ---------- -------- -------- --------
Performance: Investment income--net .66 .72 .79 .84 .86
Realized and unrealized gain (loss) on
investments--net (1.49) .67 .71 .76 (.38)
---------- ---------- -------- -------- --------
Total from investment operations (.83) 1.39 1.50 1.60 .48
---------- ---------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.66) (.72) (.79) (.84) (.86)
Realized gain on investments--net (.10) (.16) -- -- --
In excess of realized gain on
investments--net (.45) -- -- -- --
---------- ---------- -------- -------- --------
Total dividends and distributions (1.21) (.88) (.79) (.84) (.86)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 10.77 $ 12.81 $ 12.30 $ 11.59 $ 10.83
========== ========== ======== ======== ========
Total Investment Based on net asset value per share (6.73%) 11.92% 13.44% 15.30% 4.42%
Return:* ========== ========== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees .54%* .54% .59% .62% .66%
Net Assets: ========== ========== ======== ======== ========
Expenses 1.29%* 1.29% 1.34% 1.37% 1.41%
========== ========== ======== ======== ========
Investment income--net 5.85%* 5.80% 6.65% 7.50% 7.77%
========== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 483,053 $ 515,402 $325,706 $198,504 $174,914
Data: ========== ========== ======== ======== ========
Portfolio turnover 159.05% 121.34% 65.43% 126.32% 126.39%
========== ========== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded) Intermediate Term Portfolio
The following per share data and ratios have been derived from
information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.44 $ 12.03 $ 11.41 $ 10.88 $ 11.05
Operating ---------- ---------- -------- -------- --------
Performance: Investment income--net .75 .76 .88 .93 .97
Realized and unrealized gain (loss) on
investments--net (1.26) .55 .62 .53 (.17)
---------- ---------- -------- -------- --------
Total from investment operations (.51) 1.31 1.50 1.46 .80
---------- ---------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.75) (.76) (.88) (.93) (.97)
Realized gain on investments--net -- (.14) -- -- --
In excess of realized gain on
investments--net (.28) -- -- -- --
---------- ---------- -------- -------- --------
Total dividends and distributions (1.03) (.90) (.88) (.93) (.97)
---------- ---------- -------- -------- --------
Net asset value, end of year $ 10.90 $ 12.44 $ 12.03 $ 11.41 $ 10.88
========== ========== ======== ======== ========
Total Based on net asset value per share (4.25%) 11.40% 13.71% 13.97% 7.55%
Investment ========== ========== ======== ======== ========
Return:**
Ratios to Expenses .53% .58% .62% .67% .71%
Average ========== ========== ======== ======== ========
Net Assets: Investment income--net 6.48% 6.42% 7.54% 8.35% 8.86%
========== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 170,222 $ 193,505 $154,333 $103,170 $ 88,248
Data: ========== ========== ======== ======== ========
Portfolio turnover 155.42% 180.52% 95.33% 132.56% 102.53%
========== ========== ======== ======== ========
<PAGE>
<CAPTION>
Class B
The following per share data and ratios have been derived from For the For the Period
information provided in the financial statements. Year Ended Nov. 13, 1992++
September 30, to Sept. 30,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 12.44 $ 11.68
Operating -------- --------
Performance: Investment income--net .69 .61
Realized and unrealized gain (loss) on investments--net (1.26) .90
-------- --------
Total from investment operations (.57) 1.51
-------- --------
Less dividends and distributions:
Investment income--net (.69) (.61)
Realized gain on investments--net -- (.14)
In excess of realized gain on investments--net (.28) --
-------- --------
Total dividends and distributions (.97) (.75)
-------- --------
Net asset value, end of year $ 10.90 $ 12.44
======== ========
Total Investment Based on net asset value per share (4.72%) 13.31%+++
Return:** ======== ========
Ratios to Average Expenses, excluding distribution fees .54% .57%*
Net Assets: ======== ========
Expenses 1.04% 1.07%*
======== ========
Investment income--net 5.98% 5.61%*
======== ========
Supplemental Net assets, end of period (in thousands) $141,212 $134,122
Data: ======== ========
Portfolio turnover 155.42% 180.52%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Corporate Bond Fund, Inc. (the "Fund")
is registered under the Investment Company Act of
1940 as a diversified, open-end investment manage-
ment company consisting of three separate portfolios:
the High Income Portfolio, the Investment Grade Port-
folio (formerly known as the High Quality Portfolio)
and the Intermediate Term Portfolio. The Fund's
Portfolios offer Class A and Class B Shares. Class A
Shares are sold with a front-end sales charge. Class B
Shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same
terms and conditions, except that Class B Shares bear
certain expenses related to the distribution of such
shares and have exclusive voting rights with respect
to matters relating to such distribution expenditures.
On September 27, 1994, shareholders approved
the implementation of the Merrill Lynch Select
Pricing SM System, which will offer two new classes of
shares, Class C and Class D. The following is a sum-
mary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the
securities are being valued, or lacking any sales, at the
mean between closing bid and asked prices. Securities
traded in the over-the-counter market are valued at the
mean between the bid and asked prices or yield equiva-
lent as obtained from one or more dealers that make
markets in the securities. Portfolio securities which
are traded both in the over-the-counter market and
on a stock exchange are valued according to the
broadest and most representative market, and it
is expected that for debt securities this ordinarily will
be the over-the-counter market. Short-term securities
are valued at amortized cost, which approximates
market value.
Options on debt securities, which are traded on
exchanges, are valued at the last asked price for options
written and last bid price for options purchased. Inter-
est rate futures contracts and options thereon, which
are traded on exchanges, are valued at their closing
price at the close of such exchanges. Securities and
assets for which market quotations are not readily
available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors
of the Fund, including valuations furnished by a pric-
ing service retained by the Fund which may use a
matrix system for valuations. Written and purchased
options are non-income producing investments.
<PAGE>
(b) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to
distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provi-
sion is required.
<PAGE>
(c) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates). Divi-
dend income is recorded on the ex-dividend dates.
Interest income (including amortization of discount) is
recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the
identified cost basis.
(d) Deferred organization expenses and prepaid regis-
tration fees--Costs related to the organization of
the second class of shares for the Intermediate Term
Portfolio are charged to expense over a period not
exceeding five years. Prepaid registration fees are
charged to expense as the related shares are issued.
(e) Dividends and distributions--Dividends from net
investment income are declared daily and paid monthly.
Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Fund Asset Management, L.P. ("FAM").
Effective January 1, 1994, the investment advisory busi-
ness of FAM was reorganized from a corporation to a
limited partnership. Both prior to and after the reor-
ganization, ultimate control of FAM was vested with
Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of ML & Co. The
limited partners are ML & Co. and Fund Asset Manage-
ment, Inc. ("FAMI"), which is also an indirect wholly-
owned subsidiary of ML & Co. The Fund has also
entered into a Distribution Agreement and a Distribu-
tion Plan with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary
of FAMI.
FAM is responsible for the management of the Fund's
Portfolios and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, FAM
receives at the end of each month a fee with respect to
each Portfolio at the annual rates set forth below which
are based upon the average daily value of the Fund's
net assets.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Rate of Advisory Fee
Aggregate of Average
Daily Net Assets of High Investment Intermediate
the Three Combined Income Grade Term
Portfolios Portfolio Portfolio Portfolio
Not exceeding $250 million 0.55% 0.50% 0.50%
In excess of $250 million but
not more than $500 million 0.50 0.45 0.45
In excess of $500 million but
not more than $750 million 0.45 0.40 0.40
In excess of $750 million 0.40 0.35 0.35
The Investment Advisory Agreement obligates FAM to
reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average
daily net assets, and 1.5% of the average daily net assets
in excess thereof. No fee payment will be made to the
Investment Adviser during any fiscal year which will
cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund in accordance with Rule 12b-1
under the Investment Company Act of 1940, the Fund
pays the Distributor an ongoing distribution fee,
accrued daily and paid monthly at the annual rate of
0.50% (in the case of the High Income Portfolio and the
Investment Grade Portfolio) or 0.25% (in the case of the
Intermediate Term Portfolio) and an account mainte-
nance fee at the annual rate of 0.25% (for each of the
Portfolios) of the average daily net assets of the Class B
Shares of such Portfolio. Pursuant to a sub-agreement
with the Distributor, Merrill Lynch, Pierce Fenner &
Smith Inc. ("MLPF&S") also provides account mainte-
nance and distribution services to the Fund. As author-
ized by the Plan, the Distributor has entered into an
agreement with MLPF&S, an affiliate of MLAM, which
provides for the compensation of MLPF&S for providing
distribution-related services to the Fund.
<PAGE>
For the year ended September 30, 1994, MLFD earned
underwriting discounts and MLPF&S earned dealer
concessions on sales of the Fund's Class A Shares
as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
MLFD $ 189,125 $ 40,161 $ 23,177
MLPF&S $2,223,578 $455,743 $237,698
MLPF&S received contingent deferred sales charges of
$5,211,746 relating to transactions in Class B Shares,
amounting to $3,919,228, $1,034,183 and $258,335 in the
High Income, Investment Grade and Intermediate Term
Portfolios, respectively, and $5,313 in commissions on
the execution of security transactions for the High
Income Portfolio during the year.
Financial Data Services, Inc. ("FDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer
agent.
During the period June 6, 1994 to September 30, 1994,
Merrill Lynch Security Pricing Service, an affiliate of
MLPF&S, provided security price quotations to the
Fund.
Accounting services are provided to the Fund by FAM
at cost.
Certain officers and/or directors of the Fund are
officers and/or directors of FAM, PSI, FAMI, MLFD,
FDS, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended September 30, 1994
were as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
Purchases $1,538,635,304 $1,377,689,160 $491,164,365
============== ============== ============
Sales $ 930,099,692 $1,326,195,157 $471,900,439
============== ============== ============
<PAGE>
Net realized and unrealized gains (losses) as of
September 30, 1994 were as follows:
Realized Unrealized
High Income Portfolio Gains Losses
Long-term investments $ 13,337,857 $ (152,379,558)
------------- --------------
Total $ 13,337,857 $ (152,379,558)
============= ==============
Realized Unrealized
Investment Grade Portfolio Losses Losses
Long-term investments $ (27,366,985) $ (36,574,768)
------------- --------------
Total $ (27,366,985) $ (36,574,768)
============= ==============
Realized Unrealized
Intermediate Term Portfolio Losses Losses
Long-term investments $ (8,401,005) $ (14,387,557)
Short-term investments (306) --
------------- --------------
Total $ (8,401,311) $ (14,387,557)
============= ==============
As of September 30, 1994, net unrealized appreciation
(depreciation) for Federal income tax purposes was
as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
Gross unrealized
appreciation $ 55,636,862 $ 2,660,665 $ 226,078
Gross unrealized
depreciation (208,294,118) (39,642,235) (14,745,966)
------------ ------------ ------------
Net unrealized
depreciation $152,657,256) $(36,981,570) $(14,519,888)
============ ============ ============
<PAGE>
The aggregate cost of investments at September 30,
1994 for Federal income tax purposes was $3,343,513,652
for the High Income Portfolio, $876,325,255 for the
Investment Grade Portfolio, and $320,478,520 for the
Intermediate Term Portfolio.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions for the year ended September 30, 1994,
was $718,487,003 for the High Income Portfolio,
$83,643,841 for the Investment Grade Portfolio and
$28,138,074 for the Intermediate Term Portfolio. Net
increase in net assets derived from capital share trans-
actions for the year ended September 30, 1993 was
$1,108,612,505 for the High Income Portfolio,
$197,559,404 for the Investment Grade Portfolio and
$161,334,292 for the Intermediate Term Portfolio.
Transactions in capital shares were as follows:
High Income Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 24,265,055 $ 196,408,023
Shares issued to shareholders in
reinvestment of dividends 5,410,880 43,484,905
------------ --------------
Total issued 29,675,935 239,892,928
Shares redeemed (24,265,005) (195,021,899)
------------ --------------
Net increase 5,410,930 $ 44,871,029
============ ==============
High Income Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 34,759,978 $ 277,722,778
Shares issued to shareholders in
reinvestment of dividends 4,969,045 39,803,859
------------ --------------
Total issued 39,729,023 317,526,637
Shares redeemed (17,827,332) (142,464,560)
------------ --------------
Net increase 21,901,691 $ 175,062,077
============ ==============
<PAGE>
High Income Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 139,760,948 $1,132,873,066
Shares issued to shareholders in
reinvestment of dividends 10,902,859 87,436,254
------------ --------------
Total issued 150,663,807 1,220,309,320
Shares redeemed (68,376,686) (546,693,346)
------------ --------------
Net increase 82,287,121 $ 673,615,974
============ ==============
High Income Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 142,333,233 $1,141,712,615
Shares issued to shareholders in
reinvestment of dividends 7,016,905 56,387,833
------------ --------------
Total issued 149,350,138 1,198,100,448
Shares redeemed (33,122,536) (264,550,020)
------------ --------------
Net increase 116,227,602 $ 933,550,428
============ ==============
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 8,030,423 $ 93,135,987
Shares issued to shareholders in
reinvestment of dividends
& distributions 2,562,146 29,991,889
------------ --------------
Total issued 10,592,569 123,127,876
Shares redeemed (8,336,799) (96,592,992)
------------ --------------
Net increase 2,255,770 $ 26,534,884
============ ==============
<PAGE>
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 7,448,640 $ 91,703,707
Shares issued to shareholders in
reinvestment of dividends
& distributions 1,704,681 20,844,343
------------ --------------
Total issued 9,153,321 112,548,050
Shares redeemed (6,795,967) (83,737,710)
------------ --------------
Net increase 2,357,354 $ 28,810,340
============ ==============
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 15,835,177 $ 185,447,332
Shares issued to shareholders in
reinvestment of dividends
& distributions 2,940,143 34,360,112
------------ --------------
Total issued 18,775,320 219,807,444
Shares redeemed (14,132,989) (162,698,487)
------------ --------------
Net increase 4,642,331 $ 57,108,957
============ ==============
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 20,946,711 $ 257,900,677
Shares issued to shareholders in
reinvestment of dividends
& distributions 1,496,071 18,304,113
------------ --------------
Total issued 22,442,782 276,204,790
Shares redeemed (8,711,514) (107,455,726)
------------ --------------
Net increase 13,731,268 $ 168,749,064
============ ==============
<PAGE>
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 3,674,523 43,208,064
Shares issued to shareholders in
reinvestment of dividends
& distributions 932,160 10,823,344
------------ --------------
Total issued 4,606,683 54,031,408
Shares redeemed (4,535,150) (52,574,546)
------------ --------------
Net increase 71,533 $ 1,456,862
============ ==============
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 5,149,248 $ 61,875,256
Shares issued to shareholders in
reinvestment of dividends
& distributions 707,534 8,452,204
------------ --------------
Total issued 5,856,782 70,327,460
Shares redeemed (3,139,330) (37,802,328)
------------ --------------
Net increase 2,717,452 $ 32,525,132
============ ==============
Intermediate Term Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 6,504,586 $ 75,947,813
Shares issued to shareholders in
reinvestment of dividends
& distributions 605,926 7,028,720
------------ --------------
Total issued 7,110,512 82,976,533
Shares redeemed (4,928,956) (56,295,321)
------------ --------------
Net increase 2,181,556 $ 26,681,212
============ ==============
<PAGE>
Intermediate Term Portfolio
Class B Shares for the Period
Novermber 13, 1992++ to Dollar
September 30, 1993 Shares Amount
Shares sold 11,673,732 $ 139,623,863
Shares issued to shareholders in
reinvestment of dividends
& distributions 175,119 2,128,550
------------ --------------
Total issued 11,848,851 141,752,413
Shares redeemed (1,070,122) (12,943,253)
------------ --------------
Net increase 10,778,729 $ 128,809,160
============ ==============
[FN]
++Commencement of Operations.
5. Loaned Securities:
At September 30, 1994, the Investment Grade Portfolio
held US Treasury Bonds/Notes having an aggregate
value of approximately $10,209,000 as collateral for
Portfolio securities loaned, having a market value of
approximately $9,817,000. The Intermediate Term
Portfolio held US Treasury Bonds/Notes having an aggre-
gate value of approximately $12,194,000 as collateral for
Portfolio securities loaned, having a market value of
approximately $11,711,000.
6. Capital Loss Carryforward:
At September 30, 1994, the Fund had a capital loss
carryforward of approximately $14,496,000 in the High
Income Portfolio, all of which expires in 1999. This
will be available to offset like amounts of any future
taxable gains.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Corporate Bond Fund, Inc.:
We have audited the accompanying statements of assets
and liabilities, including the schedule of investments, of
the High Income, Investment Grade and Intermediate
Term Portfolios of Merrill Lynch Corporate Bond Fund,
Inc. as of September 30, 1994, the related statements of
operations for the year then ended, and changes in net
assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years
in the five-year period then ended. These financial
statements and financial highlights are the responsibil-
ity of the Fund's management. Our responsibility is to
express an opinion of these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
the financial highlights are free of material misstate-
ment. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confir-
mation of securities owned at September 30, 1994 by
correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement pres-
entation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of the High Income, Investment Grade
and Intermediate Term Portfolios of Merrill Lynch
Corporate Bond Fund, Inc. as of September 30, 1994,
the results of their operations, the changes in their net
assets, and the financial highlights for the respective
stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 31, 1994
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
High Income Portfolio
Of the ordinary income distributions paid monthly by
the Portfolio during the fiscal year ended September 30,
1994, 1.31% qualifies for the dividends-received deduc-
tion for corporations. Additionally, there were no long-
term capital gain distributions paid during the year.
Investment Grade and Intermediate Term Portfolios
None of the ordinary income distributions paid monthly
by the Portfolios during the fiscal year ended Septem-
ber 30, 1994 qualify for the dividends-received deduction
for corporations. Additionally, the Portfolios paid long-
term capital gain distributions of $0.261442 and
$0.093087, respectively, to shareholders of record on
December 22, 1993.
The law varies in each state as to whether and what
percentage of dividend income attributable to Federal
obligations is exempt from state income tax. We recom-
mend that you consult your tax adviser to determine if
any portion of the dividends you received is exempt
from state income tax.
Listed below are the percentages of the Portfolios' total
assets invested in Federal obligations* as of the end of
each quarter of the fiscal year.
For the Quarter Investment Grade Intermediate Term
Ended Portfolio Portfolio
December 31, 1993 10.97% 7.39%
March 31, 1994 7.65% 3.34%
June 30, 1994 8.45% 7.53%
September 30, 1994 5.45% 7.40%
Of the Fund's ordinary income distributions paid
monthly to shareholders from the Intermediate Term
and Investment Grade Portfolios during the fiscal year
ended September 30, 1994, 7.08% and 8.85%, respectively,
were attributable to Federal obligations. In calculating
the foregoing percentages, expenses of the Portfolios
have been allocated on a pro rata basis.
Please retain this information for your records.
*For purposes of this calculation, Federal obligations include US
Treasury Notes, US Treasury Bills, and US Treasury Bonds. Also
included are obligations issued by the following agencies. Banks
for Cooperatives, Federal Intermediate Credit Banks, Federal Land
Banks, Federal Home Loan Banks, and the Student Loan Marketing
Association. Repurchase agreements are not included in this
calculation.
APPENDIX GRAPHIC AND IMAGE MATERIALS.
ITEM 1:
High Income Portfolio:
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the
Portfolio's Class A Shares compared to growth of an investment in
the CS First Boston High Yield Index. Beginning and ending values
are:
9/84 9/94
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class A Shares* $9,600 $31,556
CS First Boston High Yield
Index++++ $10,000 $33,657
A line graph depicting the growth of an investment in the
Portfolio's Class B Shares compared to growth of an investment in
the CS First Boston High Yield Index. Beginning and ending values
are:
10/21/88** 9/94
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class B Shares* $10,000 $18,761
CS First Boston High Yield
Index++++ $10,000 $18,729
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests principally in fixed-income securities
which are rated in the lower rating categories of the
established rating services, or in unrated securities of
comparable quality.
++++This unmanaged market-weighted Index, which mirrors the
high-yield debt market, is comprised of 423 securities
rated BBB or below.
<PAGE>
ITEM 2:
Investment Grade Portfolio
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the
Portfolio's Class A Shares compared to growth of an investment in
the ML COAO Bond Index. Beginning and ending values are:
9/84 9/94
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class A Shares* $9,600 $25,595
ML COAO Bond Index++++ $10,000 $30,059
A line graph depicting the growth of an investment in the
Portfolio's Class B Shares compared to growth of an investment in
the ML COAO Bond Index. Beginning and ending values are:
10/21/88** 9/94
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class B Shares* $10,000 $15,604
ML COAO Bond Index++++ $10,000 $17,117
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests primarily in long-term corporate
bonds rated A or better by Moody's Investors Service, Inc.
or Standard & Poor's Corp.
++++This unmanaged Index is comprised of all industrial bonds
rated BBB3 or higher, of all maturities.
Past Performance is not predictive of future performance.
<PAGE>
ITEM 3:
Intermediate Term Portfolio:
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the
Portfolio's Class A Shares compared to growth of an investment in
the ML C6AO Bond Index. Beginning and ending values are:
9/84 9/94
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class A Shares* $9,800 $25,402
ML C6AO Bond Index++++ $10,000 $28,214
A line graph depicting the growth of an investment in the
Portfolio's Class B Shares compared to growth of an investment in
the ML C6AO Bond Index. Beginning and ending values
are:
11/13/92** 9/94
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class B Shares* $10,000 $10,704
ML C6AO Bond Index++++ $10,000 $11,014
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests primarily in bonds rated in the four
highest categories or higher by Moody's Investors Service,
Inc. or BBB or higher by Standard & Poor's Corp., with a
maximum remaining maturity not to exceed ten years and,
depending on market conditions, an average remaining
maturity of five to seven years.
++++This unmanaged Index is comprised of all investment-grade
corporate bonds maturing in from five to ten years.
Past performance is not predictive of future performance.
