MERRILL LYNCH
CORPORATE BOND
FUND, INC.
FUND LOGO
Semi-Annual Report
March 31, 1996
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 con-
sidered a representation of future performance.
Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost.
Statements and other information herein are as
dated and are subject to change.
<PAGE>
Merrill Lynch
Corporate Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH CORPORATE BOND FUND, INC.
TO OUR SHAREHOLDERS
As 1995 ended and into the first two months of 1996,
it appeared that the US economy was losing momen-
tum. Lackluster retail sales, increases in initial unem-
ployment claims (along with weak job and income
growth), and evidence of slowing in the manufac-
turing sector all suggested that the rate of economic
growth was slowing, with some forecasters even
suggesting the possibility of an imminent recession.
With inflationary pressures well subdued, these
signs of economic weakness led the Federal Reserve
Board to lower short-term interest rates at its January
Federal Open Market Committee meeting.
However, investor perceptions regarding the rate of
future economic growth changed dramatically with
the report of stronger-than-expected employment data
for February and March. As a result, the consensus
outlook regarding the direction of business activity
shifted from expectations of weakness to anticipation
of a revival in growth of the economy. Long-term
interest rates rose, and the Federal Reserve Board left
monetary policy on hold.
<PAGE>
Investors are likely to continue to focus on the prob-
able direction of economic activity and Federal Reserve
Board monetary policy in the weeks ahead. At this
time, inflationary pressures do not seem to be build-
ing and the manufacturing sector is still relatively
weak, which suggest that the economy is not on the
verge of overheating. Nevertheless, it is likely that any
further indication of stronger economic activity in
the weeks ahead may add to investor concerns that
accelerating economic activity could lead to higher
interest rates.
Portfolio Strategy
High Income Portfolio
The high-yield bond market gave ground grudgingly
in the face of a major drop in Government and high-
grade prices. Ten-year Treasury bonds rose in yield
over 0.75%, while high-yield bond yields rose only
0.125%--0.25%. Thus, yield spreads between the two
markets tightened significantly. The yield spread
between ten-year Treasury securities and the unmanaged
Merrill Lynch High Yield Master Index II at December 31,
1995 was 420 basis points (4.20%) as compared to
only 361 basis points at March 31, 1996. The unsyn-
chronous performance of the two markets is not
surprising. While high-yield bonds have a coupon and
maturity date like Government bonds, the supply and
demand characteristics of the two markets are differ-
ent. In addition, high-yield bonds possess credit risk
and investors' perceptions toward credit risk change
over time. The table below reflects the correlation
of investment returns of US Treasury notes with other
financial asset categories over the 1980--1995 period.
A perfect correlation would be 1.0, and no correlation
would be 0.
Correlation with
US Treasury Notes
Equity Indexes
S&P 500 0.29
Wiltshire 5000 0.29
High Yield Index 0.60
Bond Indexes
High-Quality Corporate 0.93
Mortgage Index 0.91
<PAGE>
The internal dynamics of the high-yield market
included a tightening in spreads between quality
groups as the total return on securities rated BB was
- --0.28% compared to +2.67% for B-rated issues. We
believe that BB-rated issuers were somewhat over-
valued in 1995 because of their close link with high
grades and that the first quarter correction brings
them into a more appropriate valuation relationship.
During the March quarter, the Portfolio's total return
benefited from higher exposure to better performing
B-rated quality bonds (56.5% of net assets) as com-
pared to the unmanaged Merrill Lynch Master II Index
(47.3% of net assets).
The fundamentals of the high-yield market remain
sound. Valuation is somewhat extended, however.
Assets have continued to flow into mutual funds, and
liquidity remains ample. However, the market may well
underperform Treasury securities modestly in the
June quarter. Accordingly, we have committed assets
unaggressively and on market weakness, allowing cash
to increase over the March quarter.
Significant events included our agreement to tender
one of our largest individual holdings, Trump Plaza
Funding, Inc., 10.875% first mortgage bonds, due June
15, 2001 at a dollar price of 112.25. Trump Taj Mahal
Funding, Inc., 11.35% first mortgage bonds, due
November 15, 1999 were called at par. We received a
one-time consent fee of 3.25% on our Trump Holdings,
Inc., 15.50% bond due June 15, 2005. These trans-
actions were all part of a reorganization of the two
Trump Atlantic City casinos into a public company.
Subsequent to the March quarter-end, we replaced
the two issues with a new 11.25% first mortgage
bond. We also agreed to tender our Thrifty Payless
Holdings, Inc., 11.75% bonds at 114.50%, which
the company will repay from the proceeds of an
equity offering.
At March 31, 1996, cash totaled 8.9% of net assets. The
average portfolio maturity of non-cash holdings was
7.2 years. The Portfolio remained broadly diversified
with 195 issuers involved in 36 different categories
of business. Major industry sectors included: energy,
8.5% of net assets; communications, 8.0%; broad-
casting/cable, 7.1%; paper, 6.3%; gaming, 6.2%; and
utilities, 6.2%.
<PAGE>
Investment Grade Portfolio and
Intermediate Term Portfolio
Investor psychology has taken an abrupt turn since
the beginning of 1996. Although economic data overall
have been inconclusive, investors focused on those
reported which show an increase in business activity.
Chain store sales bounced, industrial prices rallied
and the Labor Department reported the largest jump
in employment in 12 years. Investors who had been
speculating that the economy might be sliding back
into recession are now concerned about the possibility
of stronger inflation figures forcing interest rates up.
The intensity of this reversal of opinion caught
investors by surprise. The anxiety was aggravated by
both the Congressional loss of focus on budget balanc-
ing and the volatile climate of the Republican primary
process. What had been at year-end an almost euphoric
contemplation of a series of Federal Reserve Board
easings has turned into a concern that the tightening
moves of 1994 may have to be repeated. Bond investors
did not wait to see whether these fears were justified.
They fled down the yield curve by initiating selling
programs and adopting defensive strategies. This
resulted in pushing the yield on the bellwether
Treasury long-term bond from under 6.00% up to
almost 7.00% in the first quarter of 1996.
The total asset value of Investment Grade Portfolio
increased from $1.29 billion to $1.35 billion during
the March quarter. To protect the Portfolio from the
drop in bond prices during the three-month period
ended March 31, 1996, we shortened the duration
from 5.81 years to 5.71 years and subsequently to
4.86 years in the middle of April. We accomplished
this by trading down the yield curve and by building
the cash position from 7.5% of net assets to 14.9%.
There were no significant changes in the sector or
quality classifications. We remain underweighted in
utilities and financial institutions and slightly over-
weighted in Yankee bonds.
The total asset value of Intermediate Term Portfolio
dropped from $492.4 million to $483.3 million during
the March quarter. To protect the Portfolio from fur-
ther erosion in bond prices during the three-month
period ended March 31, 1996, we shortened the dura-
tion from 4.47 years to 4.28 years and subsequently
to 3.95 years in the middle of April. We accomplished
this by trading down the yield curve and by building
the cash position from 5.5% of net assets to 7.8%.
There were no significant changes in the sector or
quality classifications. We remain underweighted in
utilities and financial institutions and slightly over-
weighted in Yankee bonds.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Jay C. Harbeck)
Jay C. Harbeck
Vice President and Portfolio Manager
May 10, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund
through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
*Class A Shares incur a maximum initial sales charge
(front-end load) of 4% and bear no ongoing distribu-
tion or account maintenance fees for High Income
and Investment Grade Portfolio. Intermediate Term
Portfolio incurs a maximum initial sales charge
(front-end load) of 1% and bears no ongoing distri-
bution or account maintenance fees. Class A Shares
are available only to eligible investors.
*Class B Shares are subject to a maximum contingent
deferred sales charge of 4% if redeemed during the
first year, decreasing 1% each year thereafter to 0%
after the fourth year for High Income and Investment
Grade Portfolio. Intermediate Term Portfolio is
subject to a maximum contingent deferred sales
charge of 1% if redeemed within one year of purchase.
In addition, High Income and Investment Grade
Portfolio are subject to a distribution fee of 0.50% and
an account maintenance fee of 0.25%. Intermediate
Term Portfolio is subject to a 0.25% distribution fee
and a 0.25% account maintenance fee. All three
classes of shares automatically convert to Class D
Shares after approximately 10 years.
<PAGE>
*Class C Shares are subject to a distribution fee of
0.55% and an account maintenance fee of 0.25% for
High Income and Investment Grade Portfolio. Inter-
mediate Term Portfolio is subject to a distribution
fee of 0.25% and an account maintenance fee of
0.25%. In addition, Class C Shares are subject to a
1% contingent deferred sales charge if redeemed
within one year of purchase.
*Class D Shares incur a maximum initial sales charge
of 4% and an account maintenance fee of 0.25% (but
no distribution fee) for High Income and Investment
Grade Portfolio. Intermediate Term Portfolio incurs a
maximum initial sales charge of 1% and an account
maintenance fee of 0.10% (but no distribution fee).
None of the past results shown should be considered
a representation of future performance. Investment
return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each
class of shares will vary because of the different
levels of account maintenance, distribution and
transfer agency fees applicable to each class, which
are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (continued)
Average Annual Total Return--High Income Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +14.75% +10.16%
Five Years Ended 3/31/96 +15.04 +14.10
Ten Years Ended 3/31/96 +11.28 +10.82
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +13.89% + 9.89%
Five Years Ended 3/31/96 +14.18 +14.18
Inception (10/21/88)
through 3/31/96 +11.29 +11.29
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to
0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +13.82% +12.82%
Inception (10/21/94)
through 3/31/96 +12.61 +12.61
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to
0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/96 +14.46% + 9.88%
Inception (10/21/94)
through 3/31/96 +13.23 +10.07
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
Average Annual Total Return--Investment Grade Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +10.97% +6.53%
Five Years Ended 3/31/96 + 8.75 +7.87
Ten Years Ended 3/31/96 + 8.34 +7.90
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +10.13% +6.13%
Five Years Ended 3/31/96 + 7.94 +7.94
Inception (10/21/88)
through 3/31/96 + 8.23 +8.23
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to
0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +10.07% + 9.07%
Inception (10/21/94)
through 3/31/96 +10.83 +10.83
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to
0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/96 +10.80% +6.37%
Inception (10/21/94)
through 3/31/96 +11.52 +8.41
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Average Annual Total Return--Intermediate Term Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +11.12% +10.01%
Five Years Ended 3/31/96 + 8.53 + 8.31
Ten Years Ended 3/31/96 + 8.16 + 8.06
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +10.55% +9.55%
Inception (11/13/92)
through 3/31/96 + 6.68 +6.68
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to
0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +10.42% + 9.42%
Inception (10/21/94)
through 3/31/96 +10.67 +10.67
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to
0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/96 +11.01% + 9.90%
Inception (10/21/94)
through 3/31/96 +11.10 +10.33
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<PAGE>
<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 -- -- 1.05(a) -- -- + 2.36 -- --
1980(b) 8.73/7.91 $10.00/ 9.88 $10.00/ 9.93*** 1.07 $ 0.25 $ 0.26*** + 3.08 + 1.28% + 1.86%
1981 7.91/7.26 9.88/ 9.38 9.93/ 9.57 1.12 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 + 13.63 + 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 + 7.51 + 7.28
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
1994 8.32/7.31 11.97/10.60 11.92/10.70 0.80 0.77 0.77 - 2.69 - 5.06 - 3.85
1995 7.31/7.83 10.60/11.84 10.70/11.80 0.77 0.80 0.78 + 18.38 + 19.82 + 18.10
1/1/96--3/31/96 7.83/7.84 11.84/11.32 11.80/11.42 0.16 0.17 0.16 + 2.45 - 2.84 - 1.70
------ ------ ------
Total $16.55 $16.70 $16.07
Cumulative total return as of 3/31/96: +576.23%** +424.58%** +400.88%**
<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 + 6.69 + 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
1994 8.33/7.31 11.97/10.60 11.92/10.70 0.74 0.69 0.71 - 3.54 - 5.78 - 4.34
1995 7.31/7.83 10.60/11.84 10.70/11.80 0.72 0.71 0.72 + 17.49 +18.92 +17.50
1/1/96--3/31/96 7.83/7.84 11.84/11.32 11.80/11.42 0.15 0.15 0.15 + 2.28 - 3.00 - 1.82
----- ----- -----
Total $5.99 $6.52 $2.79
Cumulative total return as of 3/31/96: +121.76%** +80.16%** +24.42%**
<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 (continued)
<PAGE>
<TABLE>
Performance Summary--Class C 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>
10/21/94--12/31/94 $7.59/7.32 $10.67/10.61 $10.81/10.70 $0.18 $0.14 $0.15 - 1.15% + 0.74% + 0.38%
1995 7.32/7.83 10.61/11.84 10.70/11.80 0.71 0.70 0.72 +17.27 +18.74 +17.48
1/1/96--3/31/96 7.83/7.85 11.84/11.32 11.80/11.42 0.15 0.15 0.15 + 2.40 - 3.01 - 1.82
----- ----- -----
Total $1.04 $0.99 $1.02
Cumulative total return as of 3/31/96: +18.71%** +16.01%** +15.77%**
<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.
</TABLE>
<TABLE>
Performance Summary--Class D 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>
10/21/94--12/31/94 $7.59/7.31 $10.67/10.60 $10.81/10.70 $0.19 $0.15 $0.15 - 1.17% + 0.76% + 0.41%
1995 7.31/7.83 10.60/11.84 10.70/11.80 0.75 0.77 0.77 +18.09 +19.53 +17.98
1/1/96--3/31/96 7.83/7.85 11.84/11.33 11.80/11.42 0.16 0.16 0.16 + 2.53 - 2.81 - 1.70
----- ----- -----
Total $1.10 $1.08 $1.08
Cumulative total return as of 3/31/96: +19.65%** +17.05%** +16.45%**
<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.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month 30-day Yield
3/31/96 12/31/95 3/31/95 % Change % Change As of 3/31/96
<S> <C> <C> <C> <C> <C> <C>
High Income Portfolio Class A Shares $ 7.84 $ 7.83 $ 7.53 + 4.12% +0.13% 8.84%
High Income Portfolio Class B Shares 7.84 7.83 7.53 + 4.12 +0.13 8.44
High Income Portfolio Class C Shares 7.85 7.83 7.54 + 4.11 +0.26 8.38
High Income Portfolio Class D Shares 7.85 7.83 7.54 + 4.11 +0.26 8.59
Investment Grade Portfolio Class A Shares 11.32 11.84 10.92 + 3.66 -4.39 5.98
Investment Grade Portfolio Class B Shares 11.32 11.84 10.92 + 3.66 -4.39 5.46
Investment Grade Portfolio Class C Shares 11.32 11.84 10.92 + 3.66 -4.39 5.41
Investment Grade Portfolio Class D Shares 11.33 11.84 10.92 + 3.75 -4.31 5.74
Intermediate Term Portfolio Class A Shares 11.42 11.80 10.98 + 4.01 -3.22 5.94
Intermediate Term Portfolio Class B Shares 11.42 11.80 10.98 + 4.01 -3.22 5.47
Intermediate Term Portfolio Class C Shares 11.42 11.80 10.99 + 3.91 -3.22 5.44
Intermediate Term Portfolio Class D Shares 11.42 11.80 10.98 + 4.01 -3.22 5.84
High Income Portfolio Class A Shares--Total Return +14.75(1) +2.45(2)
High Income Portfolio Class B Shares--Total Return +13.89(3) +2.28(4)
High Income Portfolio Class C Shares--Total Return +13.82(5) +2.40(6)
High Income Portfolio Class D Shares--Total Return +14.46(7) +2.53(8)
Investment Grade Portfolio Class A Shares--Total Return +10.97(9) -2.84(10)
Investment Grade Portfolio Class B Shares--Total Return +10.13(11) -3.00(12)
Investment Grade Portfolio Class C Shares--Total Return +10.07(13) -3.01(14)
Investment Grade Portfolio Class D Shares--Total Return +10.80(15) -2.81(16)
Intermediate Term Portfolio Class A Shares--Total Return +11.12(17) -1.70(18)
Intermediate Term Portfolio Class B Shares--Total Return +10.55(19) -1.82(20)
Intermediate Term Portfolio Class C Shares--Total Return +10.42(21) -1.82(22)
Intermediate Term Portfolio Class D Shares--Total Return +11.03(23) -1.70(24)
<PAGE>
<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 $0.763
per share ordinary income dividends.
(2)Percent change includes reinvestment of $0.162
per share ordinary income dividends.
(3)Percent change includes reinvestment of $0.704
per share ordinary income dividends.
(4)Percent change includes reinvestment of $0.149
per share ordinary income dividends.
(5)Percent change includes reinvestment of $0.700
per share ordinary income dividends.
(6)Percent change includes reinvestment of $0.148
per share ordinary income dividends.
(7)Percent change includes reinvestment of $0.744
per share ordinary income dividends.
(8)Percent change includes reinvestment of $0.158
per share ordinary income dividends.
(9)Percent change includes reinvestment of $0.787
per share ordinary income dividends.
(10)Percent change includes reinvestment of $0.167
per share ordinary income dividends.
(11)Percent change includes reinvestment of $0.699
per share ordinary income dividends.
(12)Percent change includes reinvestment of $0.147
per share ordinary income dividends.
(13)Percent change includes reinvestment of $0.693
per share ordinary income dividends.
(14)Percent change includes reinvestment of $0.146
per share ordinary income dividends.
(15)Percent change includes reinvestment of $0.758
per share ordinary income dividends.
(16)Percent change includes reinvestment of $0.160
per share ordinary income dividends.
(17)Percent change includes reinvestment of $0.765
per share ordinary income dividends.
(18)Percent change includes reinvestment of $0.161
per share ordinary income dividends.
(19)Percent change includes reinvestment of $0.705
per share ordinary income dividends.
(20)Percent change includes reinvestment of $0.148
per share ordinary income dividends.
(21)Percent change includes reinvestment of $0.703
per share ordinary income dividends.
(22)Percent change includes reinvestment of $0.147
per share ordinary income dividends.
(23)Percent change includes reinvestment of $0.753
per share ordinary income dividends.
(24)Percent change includes reinvestment of $0.158
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> <C> <C>
Aerospace--0.3% BB Ba2 $ 12,500,000 Airplanes Pass Through Trust, 10.875%
due 3/15/2019 $ 12,500,000 $ 12,875,000
Airlines--2.5% Delta Air Lines Inc.:
BB+ Baa3 3,000,000 9.30% due 1/02/2010 2,963,100 3,349,563
BB+ Baa3 5,000,000 9.20% due 9/23/2014 4,839,050 5,421,700
BB+ Baa2 20,000,000 10.50% due 4/30/2016 20,481,900 24,294,300
Piedmont Aviation, Inc.:
BB- B1 200,000 Series C, 9.70% due 1/15/1999 201,676 192,665
BB- B1 100,000 Series C, 10.25% due 1/15/2007 103,706 93,593
BB- B1 1,985,000 Series E, 10.30% due 3/28/2007 1,855,291 1,863,379
BB- B1 1,950,000 Series F, 10.35% due 3/28/2011 1,999,719 1,948,352
BB- B1 50,000 Series G, 10.35% due 3/28/2011 51,425 49,958
BB- B1 450,000 Series H, 9.85% due 5/08/2005 454,617 413,131
BB- B1 1,500,000 Series H, 10% due 11/08/2012 1,493,250 1,393,380
BB- B1 536,000 Series I, 10% due 11/08/2012 545,048 497,901
United Air Lines Inc.:
BB+ Baa2 4,000,000 10.02% due 3/22/2014 4,050,000 4,606,960
BB+ Baa1 2,000,000 9.08% due 10/26/2015 1,847,200 2,137,930
BB+ Baa1 7,100,000 9.35% due 4/07/2016 7,215,446 7,769,530
BB+ Baa1 10,500,000 9.21% due 1/21/2017 10,480,125 11,376,750
USAir Inc.:
B- B2 30,000,000 9.625% due 2/01/2001 24,109,906 27,450,000
BB- B1 21,000,000 10.375% due 3/01/2013 20,768,125 21,315,000
BB- B1 5,174,907 Series 89A1, 9.33% due 1/01/2006++++ 4,895,310 5,097,284
BB- B1 1,432,000 Series A, 10.70% due 1/15/2007 1,525,137 1,379,854
BB- B1 1,815,000 Series C, 10.70% due 1/15/2007 1,933,048 1,748,907
B+ B2 421,000 Series E, 10.70% due 1/01/2002 382,895 410,182
BB- B1 1,107,000 Series E, 10.70% due 1/15/2007 1,159,472 1,066,689
B+ B2 1,092,000 Series F, 10.70% due 1/01/2003 984,165 1,060,670
B+ B2 1,092,000 Series G, 10.70% due 1/01/2003 984,165 1,060,670
B+ B2 1,092,000 Series H, 10.70% due 1/01/2003 984,165 1,060,670
B+ B2 1,092,000 Series I, 10.70% due 1/01/2003 984,165 1,060,670
-------------- --------------
117,292,106 128,119,688
<PAGE>
Automotive--0.2% B B3 10,150,000 SPX Inc., 11.75% due 6/01/2002 10,175,000 10,759,000
Broadcasting/ CCC+ Caa 38,190,545 American Telecasting, Inc., 14.86%
Cable--7.1% due 6/15/2004 (a) 23,501,322 27,974,574
B- B2 19,240,000 Argyle Television Inc., 9.75%
due 11/01/2005 19,003,950 18,566,600
CCC B3 39,117,000 Australis Media Ltd., 13.26% due
5/15/2003 (a) (f) 23,557,106 27,186,315
BB- B2 50,000,000 Bell Cablemedia PLC, 11.82%
due 9/15/2005 (a) 30,035,800 31,687,500
BB- B3 13,500,000 CAI Wireless Systems, Inc., 12.25%
due 9/15/2002 13,500,000 14,377,500
BB- Ba3 22,500,000 Century Communications Corporation,
9.75% due 2/15/2002 22,112,500 23,175,000
B B1 10,000,000 Comcast Corporation, 9.50% due 1/15/2008 9,350,000 10,162,500
B B2 50,000,000 Comcast UK Cable Partners Ltd, 11.21%
due 11/15/2007 (a) 30,189,829 29,000,000
B- Caa 30,000,000 Echostar Satellite Broadcasting, 13.125%
due 3/15/2004 (a) 18,143,461 18,450,000
</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> <C> <C>
Broadcasting/ B B3 $ 50,000,000 International Cabletel Inc., 11.50%
Cable due 2/01/2006 (a)+++ $ 29,117,575 $ 28,375,000
(concluded) BB+ Ba3 20,000,000 Lenfest Communications, Inc., 8.375%
due 11/01/2005 19,941,200 19,150,000
CCC+ Caa 20,000,000 Peoples Choice T.V. Corporation, 13.48%
due 6/01/2004 (a) (g) 11,497,571 12,950,000
United International Holdings, Inc. (a):
B- B3 5,000,000 12.18% due 11/15/1999 3,188,434 3,250,000
B- B3 50,000,000 13.99% due 11/15/1999 (h) 30,631,826 33,687,500
B- B3 18,750,000 14% due 11/15/1999 11,483,105 12,187,500
Videotron Groupe L'TEE:
BB+ Ba3 11,250,000 10.25% due 10/15/2002 11,322,500 11,812,500
BB+ Ba3 3,300,000 10.625% due 2/15/2005 3,279,375 3,481,500
B+ B3 50,000,000 Videotron Holdings PLC, 12.08% due
7/01/2004 (a) 33,050,526 35,937,500
-------------- --------------
342,906,080 361,411,489
<PAGE>
Broadcasting & B- B2 17,500,000 EZ Communications, Inc., 9.75%
Publishing--3.1% due 12/01/2005 17,361,575 17,368,750
BB- B1 16,000,000 Hollinger, Inc., 9.25% due 2/01/2006 15,676,250 15,560,000
B B3 14,000,000 The Katz Corp., 12.75% due 11/15/2002 14,313,750 15,680,000
B Caa 25,000,000 NWCG Holding Corp., 13.79% due 6/15/1999 (a) 16,285,318 18,312,500
BB- B3 10,000,000 SCI Television Inc., 11% due 6/30/2005 10,350,000 10,512,500
Sinclair Broadcasting Group Inc.:
B+ B3 15,000,000 10% due 12/15/2003 15,036,250 14,793,750
B+ B1 33,815,000 10% due 9/30/2005 33,962,225 33,645,925
BB- B1 20,000,000 World Color Press, Inc., 9.125%
due 3/15/2003 20,019,375 20,275,000
B B2 10,500,000 Young Broadcasting Inc., 10.125%
due 2/15/2005 10,500,000 10,657,500
-------------- --------------
153,504,743 156,805,925
Building B Caa 20,000,000 Inter-City Products Corp., 9.75%
Materials--1.8% due 3/01/2000 19,508,750 17,800,000
CCC B3 20,550,000 Nortek Inc., 9.875% due 3/01/2004 20,362,365 19,419,750
B+ B3 26,720,000 Pacific Lumber Co., 10.50% due 3/01/2003 26,420,738 26,052,000
B+ B2 29,084,000 US Gypsum Corp., 8.75% due 3/01/2017 25,890,006 29,520,260
-------------- --------------
92,181,859 92,792,010
Capital Goods-- B+ B1 21,450,000 Essex Group Inc., 10% due 5/01/2003 21,546,500 21,773,627
0.9% B- B3 25,000,000 International Wire Group, 11.75%
due 6/01/2005 24,986,250 24,625,000
-------------- --------------
46,532,750 46,398,627
Chemicals--1.5% B+ Ba3 15,000,000 Agriculture Minerals & Chemicals
Company, L.P., 10.75% due 9/30/2003 15,060,000 16,312,500
G-I Holdings, Inc.:
B+ Ba3 20,469,000 11.51% due 10/01/1998 (a) 15,459,772 16,349,614
B+ Ba3 19,502,000 10% due 2/15/2006 20,184,570 19,599,510
B+ B2 25,000,000 Harris Chemical North America Inc.,
10.25% due 7/15/2001 (a) 25,000,000 24,750,000
-------------- --------------
75,704,342 77,011,624
</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> <C> <C>
Communications-- NR* NR* $ 20,000,000 Brooks Fiber Properties, 10.91%
8.0% due 3/01/2006 (a) $ 11,847,602 $ 11,650,000
CCC+ B3 23,000,000 Cellular Communications International,
Inc., 13.25% due 8/15/2000 (a) (c) 12,615,599 13,915,000
B+ B3 41,472,000 Comunicacion Celular, 13.13%
due 11/15/2003 (a) (j)+++ 23,041,222 24,261,120
B- B2 50,000,000 Echostar Communications Corp., 13.48%
due 6/01/2004 (a) (i) 32,328,168 36,408,175
CCC+ Caa 19,547,000 Horizon Cellular Telephone Co., 11.53%
due 10/01/2000 (a) 16,459,065 17,250,228
CCC+ B3 25,000,000 Mobilemedia Communication, Inc., 11.32%
due 12/01/2003 (a) 18,070,264 19,375,000
CCC+ B3 60,000,000 Nextel Communications Inc., 11.32% due
8/15/2004 (a) 41,451,255 35,250,000
NR* NR* 21,000,000 Page Mart Inc., 12.74% due 11/01/2003 (a) 14,974,334 15,645,000
Paging Network, Inc.:
B B2 20,000,000 11.75% due 5/15/2002 20,387,500 21,900,000
B B2 5,000,000 10.125% due 8/01/2007 5,000,000 5,275,000
B- B3 38,710,000 PanAmSat L.P., 11.28% due 8/01/2003 (a) 29,974,920 32,709,950
BB- B2 35,925,000 Rogers Communications Inc., 10.875%
due 4/15/2004 36,431,094 37,182,375
BB- B1 31,000,000 Telecom Argentina S.A., 8.375% due
10/18/2000 25,952,625 29,372,500
Telefonica de Argentina S.A.:
NR* B1 7,000,000 8.375% due 10/01/2000 5,385,000 6,650,000
NR* B1 2,690,000 8.375% due 10/01/2000+++ 2,051,125 2,562,225
BB- B1 40,000,000 11.875% due 11/01/2004 38,763,075 41,500,000
BB B1 70,000,000 Telewest Communications PLC, 11%
due 10/01/2007 (a) 43,249,574 41,825,000
CCC+ B3 14,730,000 USA Mobile Communications Holdings,
Inc., 9.50% due 2/01/2004 14,135,375 14,361,750
-------------- --------------
392,117,797 407,093,323
Computer ComputerVision Corp.:
Services--1.2% CCC+ B3 15,000,000 11.375% due 8/15/1999 14,473,750 15,825,000
CCC+ NR* 12,500,000 8% due 12/01/2009 6,802,473 10,500,000
B- B3 35,500,000 Dictaphone Corp., 11.75% due 8/01/2005 35,458,750 35,677,500
-------------- --------------
56,734,973 62,002,500
<PAGE>
Conglomerates-- BB+ Ba3 8,500,000 ADT Operations Inc., 9.25% due 8/01/2003 8,522,187 8,850,625
3.1% BB- B3 39,700,000 Coltec Industries, Inc., 10.25% due
4/01/2002 40,735,075 40,692,500
CCC+ B3 20,000,000 The Interlake Corp., 12.125% due 3/01/2002 20,147,500 18,725,000
B+ B2 10,000,000 JB Poindexter & Co., Inc., 12.50% due
5/15/2004 10,000,000 8,150,000
B+ B3 11,950,000 Jordan Industries Inc., 10.375% due
8/01/2003 11,911,000 11,113,500
NR* NR* 8,500,000 MacAndrews & Forbes Group, Inc., 12.25%
due 7/01/1996 8,276,775 8,415,000
NR* NR* 9,100,000 MacAndrews & Forbes Holdings, Inc., 13%
due 3/01/1999 8,568,400 9,179,625
B+ B3 26,000,000 Sequa Corp., 9.375% due 12/15/2003 25,146,562 24,830,000
BB- B1 30,000,000 Sherritt Gordon, Ltd., 9.75% due 4/01/2003 29,829,687 31,200,000
-------------- --------------
163,137,186 161,156,250
</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> <C> <C>
Consumer B+ B3 $ 10,000,000 Cabot Corporation, 12.50% due 7/15/2005 $ 10,000,000 $ 11,100,000
Products--4.2% B NR* 39,760,000 Coleman Holdings, Inc., 11.57% due
5/27/1998 (a) 31,046,720 33,100,200
B+ Ba3 15,000,000 Coty Inc., 10.25% due 5/01/2005 15,000,000 15,825,000
B+ B3 7,500,000 Doane Products Company, 10.625%
due 3/01/2006 7,500,000 7,650,000
B+ Ba2 38,880,000 International Semi-Tech Microelectronics,
13.62% due 8/15/2003 (a) 22,213,731 23,716,800
B- Caa 18,750,000 Polymer Group Inc., 12.25% due 7/15/2002 18,750,000 19,617,188
Revlon Consumer Products Corp.:
B B2 3,500,000 9.50% due 6/01/1999 3,193,506 3,552,500
B B2 22,000,000 9.375% due 4/01/2001 19,986,110 22,110,000
B- B3 9,500,000 10.50% due 2/15/2003 8,795,000 9,630,625
B- B3 36,650,000 Samsonite Corporation, 11.125%
due 7/15/2005 36,088,625 35,917,000
B+ B1 32,550,000 Sealy Corp., 9.50% due 5/01/2003 32,274,650 32,061,750
-------------- --------------
204,848,342 214,281,063
<PAGE>
Convertible B B2 8,352,000 Builders Transport, Inc., 8%
Bonds**--0.3% due 8/15/2005 (3) 4,886,880 7,690,916
B- B3 2,084,000 MEDIQ, Inc., 7.25% due 6/01/2006 (2) 1,207,575 1,797,450
B B2 2,000,000 OHM Corp., 8% due 10/01/2006 (4) 1,400,000 1,777,500
B B2 3,659,000 UNC, Inc., 7.50% due 3/31/2006 (1) 2,151,592 3,347,985
-------------- --------------
9,646,047 14,613,851
Diversified-- B B1 25,000,000 Foamex Capital Corp., 11.25%
0.7% due 10/01/2002 24,964,375 24,500,000
B- B3 10,000,000 RBX Corporation, 11.25% due 10/15/2005+++ 10,006,250 9,725,000
-------------- --------------
34,970,625 34,225,000
Drug Stores--0.5% B B2 20,000,000 Thrifty Payless Holdings, Inc., 11.75%
due 4/15/2003 20,000,000 23,050,000
Energy--8.5% BB Ba2 30,000,000 CE Casecnan Water & Energy, 11.45%
due 11/15/2005+++ 30,000,000 29,812,500
BB- Ba3 24,000,000 California Energy Company, Inc., 9.875%
due 6/30/2003 24,122,500 24,960,000
B+ B1 49,500,000 Clark R&M Holdings, Inc., 11% due
2/15/2000 (a) 32,688,419 33,536,250
B+ B2 9,000,000 Clark USA Inc., 10.875% due 12/01/2005+++ 9,000,000 9,427,500
NR* NR* 6,500,000 Compania Naviera Perez Compac
S.A.C.F.I.M.F.A. 10.50% due 9/28/1999 6,673,750 6,711,250
NR* NR* 18,500,000 Consolidated Hydro, Inc., 12.22% due
7/15/2003 (a) 13,976,331 6,012,500
Falcon Drilling Company, Inc.:
B+ B1 5,000,000 8.875% due 3/15/2003+++ 5,000,000 5,006,250
B- B3 8,500,000 12.50% due 3/15/2005 8,500,000 9,647,500
B+ B1 20,000,000 Global Marine Inc., 12.75% due 12/15/1999 20,047,500 22,050,000
Gulf Canada Resources Ltd.:
BB B1 12,750,000 9% due 8/15/1999 11,735,937 13,036,875
B+ Ba3 10,000,000 9.25% due 1/15/2004 9,726,605 10,212,500
B- B1 10,000,000 KCS Energy, Inc., 11% due 1/15/2003+++ 10,000,000 10,175,000
Maxus Energy Corp.:
BB- B1 17,750,000 9.875% due 10/15/2002 16,726,250 17,838,750
BB- B1 7,550,000 11.50% due 11/15/2015 7,363,000 7,908,625
BB- Ba3 8,750,000 Noble Drilling Corp., 9.25% due 10/01/2003 8,925,000 8,881,250
BBB- Baa3 28,000,000 Oleoducto Central S.A., 9.35% due
9/01/2005+++ 27,967,500 27,860,000
</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> <C> <C>
Energy B+ Ba3 $ 15,000,000 Rowan Companies, Inc., 11.875% due
(concluded) 12/01/2001 $ 15,085,000 $ 16,350,000
BB- B1 25,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 24,990,000 24,125,000
NR* B3 4,016,000 Tesoro Petroleum Corp., 12.75% due
3/15/2001 3,448,125 4,036,080
B- Caa 55,000,000 Transamerican Refining Corp., 19.12%
due 2/15/2002 (a) 38,221,611 33,550,000
BB+ B2 50,000,000 TransTexas Gas Corp., 11.50% due 6/15/2002 50,018,750 49,375,000
B+ B1 31,525,000 Triton Energy Corp., 10.61% due
11/01/1997 (a) 26,640,389 27,505,563
BB- B1 43,000,000 Yacimientos Petroliferos Fiscales S.A.
(YPF) (Sponsored), 8% due 2/15/2004 34,704,250 38,162,500
-------------- --------------
435,560,917 436,180,893
Entertainment-- AMF Group Inc.:
2.3% B- B2 8,000,000 10.875% due 3/15/2006+++ 8,000,000 7,960,000
B- B2 28,000,000 12.25% due 3/15/2006 (a)+++ 15,532,419 15,365,000
B+ B1 5,000,000 Cinemark USA, Inc., 12% due 6/01/2002 5,058,750 5,500,000
Marvel Holdings Inc.:
B- Caa 28,000,000 9.125% due 2/15/1998 24,810,750 25,060,000
B B3 14,500,000 11.69% due 4/15/1998 (a) 11,456,105 11,020,000
B B3 5,500,000 15.97% due 4/15/1998 (a) 3,925,395 4,125,000
B B2 40,000,000 Six Flags Theme Parks, 12.18% due
6/15/2005 (a) 30,871,407 33,600,000
Spectravision Inc.:
D Ca 39,250,000 11.74% due 10/01/2001 (a) 33,732,587 11,186,250
D Ca 24,040,000 11.65% due 12/01/2002 21,422,831 1,682,800
-------------- --------------
154,810,244 115,499,050
Financial NR* B3 15,000,000 Olympic Financial Ltd., 13% due 5/01/2000 15,000,000 16,425,000
Services--1.1% BB- B1 9,000,000 Penncorp Financial Group Inc., 9.25%
due 12/15/2003 9,090,000 9,045,000
BBB NR* 1,500,000 Reliance Financial Services Corp., 10.36%
due 12/01/2000 1,200,000 1,519,680
Reliance Group Holdings, Inc.:
BB+ Ba3 7,425,000 9% due 11/15/2000 6,798,125 7,536,375
BB- B1 22,575,000 9.75% due 11/15/2003 21,362,500 23,054,719
-------------- --------------
53,450,625 57,580,774
<PAGE>
Food & Chiquita Brands International Inc.:
Beverage--3.6% B B3 9,655,000 11.50% due 6/01/2001 9,966,881 10,222,231
B+ B1 25,000,000 9.125% due 3/01/2004 24,810,625 24,750,000
NR* NR* 22,623,000 Cumberland Farms Inc., DE, 10.50%
due 10/01/2003+++ 21,602,261 21,604,965
B B3 23,450,000 Curtice Burns Food, Inc., 12.25% due
2/01/2005 23,562,125 23,098,250
B- B2 26,463,000 Envirodyne Industries, Inc., 10.25% due
12/01/2001 25,608,891 19,979,565
CCC+ Caa 25,000,000 Fresh Del Monte Corp., 10% due 5/01/2003 25,012,500 23,375,000
D Ca 21,800,000 Seven-Up/RC Bottling Co. of Southern
California, Inc., 11.50% due 8/01/1999 (k) 21,967,500 13,298,000
Specialty Foods Corp.:
B B3 19,250,000 10.25% due 8/15/2001 18,784,375 17,517,500
B- B3 12,000,000 11.125% due 10/01/2002 11,970,000 11,280,000
B B3 20,000,000 Texas Bottling Group, Inc., 9% due
11/15/2003 20,002,500 20,350,000
-------------- --------------
203,287,658 185,475,511
</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> <C> <C>
Foreign BB Ba2 $ 15,000,000 Banco Nationale de Commerce, 7.25%
Government due 2/02/2004 $ 12,812,500 $ 12,369,420
Obligations--0.6% BB- B1 25,000,000 Republic of Argentina, 8.375% due
12/20/2003 20,075,000 21,175,723
-------------- --------------
32,887,500 33,545,143
<PAGE>
Gaming--6.2% B B2 11,325,000 Aztar Corp., 11% due 10/01/2002 11,541,000 11,494,875
BB B1 30,000,000 Bally's Park Place, Inc., 9.25%
due 3/15/2004 28,485,200 30,337,500
B+ B2 37,000,000 GB Property Funding Corp., 10.875%
due 1/15/2004 35,072,500 33,115,000
BB B2 15,000,000 GNF Corp., 10.625% due 4/01/2003 14,975,000 15,000,000
D NR* 7,682,000 Goldriver Hotel & Casino Corp., 13.375%
due 8/31/1999 8,609,882 4,340,330
BB Ba3 25,000,000 Grand Casinos Inc., 10.125% due 12/01/2003 25,000,000 26,562,500
D Caa 60,115,000 Harrah's Jazz Company, 14.25%
due 11/15/2001 49,536,050 30,733,794
B+ B2 20,000,000 Hollywood Casino Corp., 12.75%
due 11/01/2003 19,118,780 18,900,000
BB- B1 15,000,000 MGM Grand Hotel Finance Corp., 12%
due 5/01/2002 15,230,500 16,387,500
BB- Ba3 35,000,000 Showboat Inc., 9.25% due 5/01/2008 35,059,725 35,787,500
B B2 7,000,000 Showboat Marina Casino, 13.50% due
3/15/2003 7,000,000 7,148,750
B- B3 19,030,000 Trump Holdings, Inc., 15.50% due 6/15/2005 18,921,250 21,884,500
B+ B3 42,000,000 Trump Plaza Funding, Inc., 10.875%
due 6/15/2001 39,780,770 46,725,000
NR* Caa 20,434,814 Trump Taj Mahal Funding, Inc., 11.35%
due 11/15/1999++ 15,814,488 20,413,762
-------------- --------------
324,145,145 318,831,011
Health Services-- B+ B1 37,950,000 Beverly Enterprises, Inc., 9% due
1.8% 2/15/2006 37,381,675 36,242,250
B+ B1 14,190,000 MEDIQ, Inc., 12.125% due 7/01/1999 14,252,600 14,864,025
B+ Ba3 20,000,000 Tenet Healthcare Corp., 10.125%
due 3/01/2005 20,062,500 21,500,000
B+ B1 19,000,000 Unilab Corp., 11% due 4/01/2006 18,855,980 18,857,500
-------------- --------------
90,552,755 91,463,775
Home Builders-- Del E. Webb Corporation:
1.7% B+ Ba3 3,500,000 10.875% due 3/31/2000 3,524,375 3,535,000
B- B2 7,000,000 9.75% due 3/01/2003 6,944,910 7,105,000
B- B2 4,000,000 9% due 2/15/2006 3,140,000 3,860,000
B B3 20,000,000 Greystone Homes Inc., 10.75%
due 3/01/2004 19,115,000 20,300,000
B B1 10,250,000 K. Hovnanian Enterprises Inc., 11.25%
due 4/15/2002 10,204,062 9,583,750
BB Ba2 12,000,000 Standard Pacific Corp., 10.50%
due 3/01/2000 11,995,000 12,270,000
U.S. Home Corp.:
BB- Ba2 12,050,000 7.95% due 3/01/2001 11,903,110 11,507,750
B+ Ba3 17,000,000 9.75% due 6/15/2003 17,085,000 17,425,000
-------------- --------------
83,911,457 85,586,500
<PAGE>
Hotels--1.9% BB- Ba3 65,000,000 HMC Acquisition Properties, 9%
due 12/15/2007+++ 65,200,000 61,750,000
BB- B1 25,000,000 HMH Properties Inc., 9.50% due 5/15/2005 24,381,453 24,375,000
BB- B1 13,250,000 John Q. Hammons Hotel, Inc., 8.875%
due 2/15/2004 11,835,625 12,786,250
-------------- --------------
101,417,078 98,911,250
</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> <C> <C>
Industrial Thermadyne Industries, Inc.:
Services--0.3% CCC B3 $ 5,706,000 10.25% due 5/01/2002 $ 5,711,822 $ 5,763,060
CCC B3 7,912,000 10.75% due 11/01/2003 7,914,802 7,912,000
-------------- --------------
13,626,624 13,675,060
Industrials--0.1% CCC+ Caa 8,000,000 CS Wireless Systems Inc., 11.375% due
3/01/2006 (a) (b)++ 4,641,157 4,340,000
Metals & B- B2 30,000,000 Kaiser Aluminum & Chemical Corp.,
Mining--1.2% 12.75% due 2/01/2003 30,203,125 31,875,000
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 12.37% due 8/01/2003 (a) 30,996,082 27,779,625
-------------- --------------
66,117,957 64,429,625
Packaging--2.0% CCC+ Ca 35,775,000 Anchor Glass Container Corp., 9.875%
due 12/15/2008 32,401,062 25,221,375
B- Caa 21,500,000 Ivex Packaging Corp., 13.22% due
3/15/2005 (a) 12,955,192 13,276,250
Owens-Illinois, Inc.:
BB Ba3 20,000,000 11% due 12/01/2003 20,810,000 21,950,000
B+ B2 6,000,000 9.95% due 10/15/2004 5,931,250 6,202,500
B+ Ba3 6,000,000 Plastic Container Corp., 10.75% due
4/01/2001 6,022,500 6,135,000
B- B3 32,628,000 Silgan Holdings Inc., 12.91%
due 12/15/2002 (a) 31,814,866 32,057,010
-------------- --------------
109,934,870 104,842,135
<PAGE>
Paper--6.3% BB Ba3 25,500,000 APP International Finance, 11.75% due
10/01/2005 25,566,250 24,926,250
Container Corporation of America:
B+ B2 15,420,000 9.75% due 4/01/2003 15,433,400 15,304,350
B+ B2 13,000,000 11.25% due 5/01/2004 13,000,000 13,471,250
B B3 25,000,000 Crown Paper Co., 11% due 9/01/2005 23,108,781 23,187,500
BB- Ba3 30,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 29,400,000 27,750,000
Fort Howard Corp.:
B+ B1 10,000,000 9.25% due 3/15/2001 10,000,000 10,112,500
B B2 35,250,000 9% due 2/01/2006 32,561,250 34,368,750
B B3 35,000,000 Gaylord Container Corp., 11.50%
due 5/15/2001 35,401,250 35,525,000
P.T. Indah Kiat International Finance:
BB Ba2 3,000,000 11.875% due 6/15/2002 3,000,000 3,048,750
BB Ba2 24,500,000 12.50% due 6/15/2006 24,547,500 24,622,500
B+ B2 17,000,000 Repap New Brunswick, 10.625%
due 4/15/2005 17,140,000 16,447,500
BB- B1 25,000,000 Repap Wisconsin Inc., 9.25% due 2/01/2002 23,537,500 24,000,000
B B3 24,000,000 Riverwood International Corp., 10.875%
due 4/01/2008 24,150,000 24,120,000
B+ B1 16,000,000 S.D. Warren Co., 12% due 12/15/2004 16,000,000 16,960,000
Stone Container Corp.:
B- B1 15,000,000 9.875% due 2/01/2001 13,948,672 14,175,000
B- B2 15,000,000 10.75% due 10/01/2002 14,825,000 14,906,250
-------------- --------------
321,619,603 322,925,600
Restaurants-- CCC+ Caa 25,000,000 Flagstar Corp., 11.375% due 9/15/2003 25,092,500 18,625,000
0.8% B+ Ba3 25,000,000 Foodmaker, Inc., 9.75% due 11/01/2003 24,296,200 22,500,000
-------------- --------------
49,388,700 41,125,000
</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> <C> <C>
Retail B+ B1 $ 20,000,000 Specialty Retailers Group, Inc., 10% due
Specialty--0.4% 8/15/2000 $ 20,000,000 $ 19,600,000
<PAGE>
Steel--2.5% BB- Ba3 20,000,000 A.K. Steel Holding Corp., 10.75%
due 4/01/2004 20,000,000 22,050,000
B B1 25,000,000 Gulf States Steel Acquisition Corp.,
13.50% due 4/15/2003 24,760,851 22,625,000
B+ B2 20,000,000 Republic Engineered Steel Inc., 9.875%
due 12/15/2001 19,455,000 18,400,000
B+ B1 24,050,000 WCI Steel, Inc., 10.50% due 3/01/2002 23,824,875 24,230,375
B B2 23,000,000 Weirton Steel Corporation, 10.75%
due 6/01/2005 22,413,750 21,907,500
BB B1 20,000,000 Wheeling-Pittsburg Steel Corp., 9.375%
due 11/15/2003 18,670,000 18,900,000
-------------- --------------
129,124,476 128,112,875
Supermarkets-- B- B2 20,325,000 Pueblo Xtra International Inc., 9.50%
0.3% due 8/01/2003 18,787,125 17,784,375
Textiles--0.5% B+ B3 25,000,000 Westpoint Stevens Inc., 9.375%
due 12/15/2005 25,100,000 24,781,250
Transportation-- BB- Ba2 25,000,000 Eletson Holdings, Inc., 9.25% due
2.4% 11/15/2003 24,472,500 24,632,071
BB Ba2 20,000,000 Gearbulk Holdings, Ltd., 11.25% due
12/01/2004 20,518,750 21,300,000
BB Ba2 10,000,000 Teekay Shipping Corporation, 8.32% due
2/01/2008 10,000,000 9,737,500
Transportacion Maritima Mexicana,
S.A. de C.V.:
BB- Ba2 5,475,000 8.50% due 10/15/2000 3,175,500 4,982,250
BB- Ba2 16,950,000 9.25% due 5/15/2003 14,263,875 15,721,125
B- B3 38,106,000 Transtar Holdings, L.P., 12.42% due
12/15/2003 (a) 24,471,550 26,483,670
B+ Ba3 20,000,000 Viking Star Shipping Co., Inc., 9.625%
due 7/15/2003 20,045,000 20,600,000
-------------- --------------
116,947,175 123,456,616
<PAGE>
Utilities--6.2% Beaver Valley Funding Corp.:
B+ B1 9,357,000 8.625% due 6/01/2007 8,325,042 8,886,156
B+ B1 34,469,000 9% due 6/01/2017 31,081,506 29,166,289
CTC Mansfield Funding Corp.:
B+ Ba3 15,950,000 10.25% due 3/30/2003 15,903,640 16,308,875
B+ Ba3 25,000,000 11.125% due 9/30/2016 26,416,875 26,103,249
BB Ba2 15,000,000 Cleveland Electric Illuminating Co., 9.50%
due 5/15/2005 14,971,200 15,144,075
El Paso Electric Company:
BB- Ba3 5,000,000 8.90% due 2/01/2006 5,000,000 5,087,500
BB- Ba3 8,000,000 9.40% due 5/01/2011 8,000,000 8,140,000
BB- B1 40,000,000 Metrogas S.A., 12% due 8/15/2000 40,031,875 42,500,000
Midland Cogeneration Venture
Limited Partnership:
BB Ba3 5,686,466 10.33% due 7/23/2002++++ 5,782,084 5,993,307
BB- Ba3 4,401,461 10.33% due 7/23/2002++++ 4,711,405 4,665,549
B- B2 11,250,000 11.75% due 7/23/2005 11,310,000 11,889,225
B- B2 5,500,000 13.25% due 7/23/2006 6,002,565 6,040,292
NR* NR* 16,046,004 Sunflower Electric Power Corp., 8%
due 12/31/2016+++++++ 10,525,725 13,037,379
B+ B1 20,000,000 Texas-New Mexico Power Corp., 10.75%
due 9/15/2003 20,065,000 21,500,000
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (concluded) High Income Portfolio
<S> <S> <S> <C> <C> <C>
Utilities BBB- NR* $ 42,000,000 Trans Gas de Occidente, 9.79%
(concluded) due 11/01/2010+++ $ 42,075,000 $ 41,055,000
NR* B1 20,950,000 Transportadora de Gas del Sur S.A., 7.75%
due 12/23/1998 18,253,500 20,216,750
Tucson Electric & Power Co.+++:
NR* NR* 25,348,081 10.21% due 1/01/2009 23,781,900 24,250,003
NR* NR* 17,426,207 10.732% due 1/01/2013 16,252,461 16,434,830
-------------- --------------
308,489,778 316,418,479
Waste Manage- D Caa 23,700,000 Mid-American Waste Systems, Inc.,
ment--0.3% 12.25% due 2/15/2003 23,667,250 17,538,000
Total Investments in Bonds--86.4% 4,419,719,944 4,424,698,272
<PAGE>
<CAPTION>
Shares
Held
Preferred Stocks
<S> <C> <S> <C> <C>
Broadcasting & 421,000 K--III Communications Corp. 10,562,750 11,314,375
Publishing--0.7% 136,320 K--III Communications Corp., Series B++ 13,737,144 14,143,189
125,000 K--III Communications Corp., Series C+++ 12,500,000 12,125,000
-------------- --------------
36,799,894 37,582,564
Capital Goods--0.3% 548,623 BCP/Essex Holdings, Inc., Series B 14,421,061 14,332,776
Energy--0.3% 29,517 Consolidated Hydro, Inc. 14,891,917 15,009,394
250 Transamerican Energy 25,000 25,625
-------------- --------------
14,916,917 15,035,019
Paper--0.5% 535,000 S.D. Warren Co. 15,072,190 16,317,500
295,000 S.D. Warren Co.+++ 8,333,750 8,628,750
-------------- --------------
23,405,940 24,946,250
Steel--0.3% 550,000 USX Capital LLC 13,750,000 13,750,000
Utilities--0.2% 100,000 El Paso Electric Company 10,000,000 10,325,000
Total Investments in Preferred
Stocks--2.3% 113,293,812 115,971,609
Common Stocks
Communications--0.1% 210,096 Echostar Communications Corp. 1,492,461 7,169,526
Consumer 200,369 Culligan Water Technologies Inc. 1,686,248 6,511,992
Products--0.2% 200,369 Samsonite Corp. 2,398,992 2,942,920
-------------- --------------
4,085,240 9,454,912
<PAGE>
Energy--0.0% 57,237 Mesa Inc. 325,690 150,247
Financial Services--0.0% 132,585 Lomas Financial Corporation 1,689,807 0
Food & 147,263 Foodbrands America 5,771,245 2,356,208
Beverage--0.1%
Gaming--0.0% 75,500 Goldriver Hotel & Casino Corporation
(Class B) (d) 540,045 0
23,000 Trump Taj Mahal Holding Corp. (Class A) 11,500 632,500
-------------- --------------
551,545 632,500
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
Common Stocks (concluded) High Income Portfolio
<S> <C> <S> <C> <C>
Hotels--0.0% 6,539 Buckhead America Corp. $ 36,373 $ 36,373
Industrial Services--0.0% 11,400 Thermadyne Industries, Inc. 165,300 215,175
Supermarkets--0.1% 120,194 ABCO Markets Inc.+++ 4,054,875 0
521,389 Grand Union Co. 29,475,625 3,128,334
-------------- --------------
33,530,500 3,128,334
Total Investments in
Common Stocks--0.5% 47,648,161 23,143,275
Trusts & Warrants
Broadcasting/Cable--0.0% 177,500 American Telecasting Inc. (Warrants) (e) 413,723 1,175,937
<PAGE>
Communications--0.0% 23,000 Cellular Communications International Inc.
(Warrants) (e) 505,080 350,750
57,040 Page Mart Inc. (Warrants) (e) 236,127 313,720
-------------- --------------
741,207 664,470
Computer Services--0.0% 394,563 Anacomp, Inc. (Warrants) (e) 495,400 39
Energy--0.0% 18,000 Consolidated Hydro Inc. (Warrants) (e) 390,123 258,750
407,677 Transamerican Refining Corp.
(Warrants) (e) 950,408 1,019,192
20,833 UGI Corp. (Warrants) (e) 91,057 3,437
-------------- --------------
1,431,588 1,281,379
Financial Services--0.0% 7,194 Reliance Group Holdings, Inc.
(Warrants) (e) 0 0
Gaming--0.0% 7,550 Goldriver Hotel & Casino Corp.
Liquidating Trust+++ 192,320 68,514
113,386 Trump Castle Funding, Inc. (Warrants) (e) 0 0
-------------- --------------
192,320 68,514
Paper--0.0% 60,000 S.D. Warren Co. (Warrants) (e) 165,310 195,000
Steel--0.0% 25,000 Gulf States Steel (Warrants) (e)+++ 275,399 6,875
Total Investments in Trusts &
Warrants--0.0% 3,714,947 3,392,214
Face Amount
Short-Term Securities
Commercial AT&T Lucent Technologies:
Paper***--8.9% 40,000,000 5.35% due 4/23/1996 39,869,222 39,869,222
40,000,000 5.34% due 4/24/1996 39,863,533 39,863,533
29,000,000 du Pont (E. I.) de Nemours & Co., 5.30%
due 4/19/1996 28,923,150 28,923,150
53,095,000 General Electric Capital Corp.,
5.50% due 4/01/1996 53,095,000 53,095,000
Matterhorn Capital Corp.:
10,000,000 5.25% due 4/17/1996 9,976,667 9,976,667
37,000,000 5.29% due 4/17/1996 36,913,009 36,913,009
20,000,000 Motorola Inc., 5.25% due 4/22/1996 19,938,750 19,938,750
Navistar Financial Corporation:
20,000,000 5.61% due 4/03/1996 19,993,767 19,993,767
25,000,000 5.70% due 4/26/1996 24,901,042 24,901,042
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
Short-Term Securities (concluded) High Income Portfolio
<S> <C> <S> <C> <C>
Commercial Paper*** $ 50,000,000 Onyx Corp., 5.71% due 4/03/1996 $ 49,984,139 $ 49,984,139
(concluded) 50,000,000 Southwestern Bell Capital Corp., 5.20%
due 4/16/1996 49,891,667 49,891,667
The Vons Companies Inc.:
20,000,000 5.49% due 4/03/1996 19,993,900 19,993,900
20,000,000 5.58% due 4/26/1996 19,922,500 19,922,500
21,000,000 Walt Disney Company, 5.30% due 4/19/1996 20,944,350 20,944,350
20,000,000 Xerox Corp., 5.27% due 4/18/1996 19,950,228 19,950,228
-------------- --------------
454,160,924 454,160,924
Total Investments in Short-Term
Securities--8.9% 454,160,924 454,160,924
Total Investments--98.1% $5,038,537,788 5,021,366,294
==============
Other Assets Less Liabilities--1.9% 96,897,559
--------------
Net Assets--100.0% $5,118,263,853
==============
<FN>
++Represents a pay-in-kind security which may pay interest/dividend
in additional face/shares.
++++Subject to principal paydowns.
*Not Rated.
**Industry classifications for convertible bonds are:
(1)Conglomerates; (2) Health Services;
(3) Transportation Services; (4) 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.
(a)Represents a zero coupon or step bond; the interest rate shown
is the effective yield at the time of purchase by the Portfolio.
(b)Each $1,000 face amount contains one common share of
CS Wireless Systems Inc.
(c)Each $1,000 face amount contains one warrant of Cellular
Communications Corp.
<PAGE>
(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)Each $1,000 face amount contains one warrant of Australis Media Ltd.
(g)Each $1,000 face amount contains one warrant of Peoples Choice T.V.
Corporation.
(h)Each $1,000 face amount contains one warrant of United International
Holdings, Inc.
(i)Each $1,000 face amount contains six warrants of Echostar
Communications Corp.
(j)Each $1,000 face amount contains one warrant of Comunicacion Celular.
(k)Non-income producing security.
+++Restricted securities. The value of the Portfolio's investments in
restricted securities was approximately $373,831,000, representing
7.3% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
ABCO Markets Inc. 11/19/1992 $ 4,054,875 $ 0
AMF Group Inc., 10.875% due
3/15/2006 3/07/1996 8,000,000 7,960,000
AMF Group Inc., 12.25% due
3/15/2006 3/07/1996 15,532,419 15,365,000
CE Casecnan Water & Energy, 11.45%
due 11/15/2005 11/21/1995 30,000,000 29,812,500
CS Wireless Systems Inc., 11.375%
due 3/01/2006 2/16/1996 4,641,157 4,340,000
Clark USA Inc., 10.875% due
12/01/2005 11/21/1995 9,000,000 9,427,500
Comunicacion Celular, 13.13%
due 11/15/2003 11/17/1995 23,041,222 24,261,120
Cumberland Farms,
10.50% due 10/01/2003 2/18/1994-4/09/1996 21,602,261 21,604,965
Falcon Drilling Company, Inc.,
8.875% due 3/15/2003 3/04/1996 5,000,000 5,006,250
Goldriver Hotel & Casino Corp.,
Liquidating Trust 8/31/1992-11/17/1992 192,320 68,514
Gulf States Steel (Warrants) 4/12/1995-6/08/1996 275,399 6,875
HMC Acquisition Properties, 9%
due 12/15/2007 12/15/1995-4/18/1996 65,200,000 61,750,000
International Cabletel Inc., 11.50%
due 2/01/2006 1/25/1996 29,117,575 28,375,000
<PAGE>
K-III Communications Corp.,
Series C 1/19/1996 12,500,000 12,125,000
KCS Energy Inc., 11% due 1/15/2003 1/19/1996 10,000,000 10,175,000
Oleoducto Central S.A.,
9.35% due 9/01/2005 6/21/1995-10/19/1995 27,967,500 27,860,000
RBX Corporation, 11.25% due
10/15/2005 10/06/1995-10/19/1995 10,006,250 9,725,000
S.D. Warren Co. 9/20/1995 8,333,750 8,628,750
Sunflower Electric Power Corp.,
8% due 12/31/2016 11/29/1991-8/23/1995 10,525,725 13,037,379
Telefonica de Argentina S.A.
8.375% due 10/01/2000 1/25/1995-3/28/1995 2,051,125 2,562,225
Trans Gas de Occidente,
9.79% due 11/01/2010 11/02/1995-2/20/1996 42,075,000 41,055,000
Tucson Electric & Power Co.,
10.21% due 1/01/2009 7/27/1993-4/01/1996 23,781,900 24,250,003
Tucson Electric & Power Co.,
10.732% due 1/01/2013 3/01/1993-7/16/1993 16,252,461 16,434,830
$379,150,939 $373,830,911
============ ============
See Notes to Financial Statements.
</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--10.2% AAA Aaa $ 6,000,000 5.75% due 9/30/1997 $ 5,994,453 $ 6,006,540
AAA Aaa 11,000,000 8.875% due 11/15/1997 11,354,063 11,525,910
AAA Aaa 5,000,000 9.25% due 8/15/1998 5,289,844 5,367,200
AAA Aaa 20,000,000 7.125% due 10/15/1998 21,078,125 20,575,000
AAA Aaa 13,000,000 5% due 2/15/1999 13,030,235 12,695,280
AAA Aaa 7,000,000 6.875% due 8/31/1999 7,211,094 7,183,750
AAA Aaa 10,000,000 7.125% due 9/30/1999 10,479,688 10,346,900
AAA Aaa 7,000,000 5.875% due 6/30/2000 7,005,670 6,945,330
AAA Aaa 15,000,000 6.25% due 8/31/2000 15,103,125 15,075,000
AAA Aaa 3,000,000 7.50% due 11/15/2001 3,200,625 3,183,750
AAA Aaa 4,000,000 7.50% due 5/15/2002 4,285,625 4,260,640
AAA Aaa 10,000,000 6.25% due 2/15/2003 10,237,031 9,970,300
AAA Aaa 5,000,000 7.25% due 5/15/2004 5,510,938 5,272,650
AAA Aaa 4,000,000 7.875% due 11/15/2004 4,612,500 4,388,120
AAA Aaa 16,000,000 5.625% due 2/15/2006 15,627,188 15,175,040
-------------- --------------
140,020,204 137,971,410
<PAGE>
Banking--6.0% AA- Aa3 2,000,000 Banc One, Dayton, 6.625% due 4/15/2003 2,082,060 1,970,040
AA- Aa3 3,000,000 Banc One, Milwaukee, 6.625% due 4/15/2003 3,123,090 2,955,060
A+ A1 8,000,000 BankAmerica Corp., 7.125% due 5/12/2005 8,015,060 8,083,600
A+ A1 7,000,000 Citicorp, 8.80% due 2/01/2000 (a) 7,000,000 7,159,530
A+ A2 6,000,000 Fifth Third Bank, 6.75% due 7/15/2005 5,960,400 5,915,460
A- A3 8,500,000 First Bank System, Inc., 6.875% due
9/15/2007 8,421,290 8,427,155
A- A3 5,000,000 Golden West Financial Corp., 9.15%
due 5/23/1998 5,678,700 5,282,350
A- A2 6,250,000 Maybank New York, 7.125% due 9/15/2005 6,217,937 6,217,938
A A2 6,350,000 Mellon Bank Corp., 7% due 3/15/2006 6,372,796 6,342,380
NationsBank Corporation:
A A2 5,000,000 7.50% due 2/15/1997 4,995,700 5,072,500
A- A3 6,000,000 7.75% due 8/15/2015 6,000,000 6,140,460
A+ A1 3,500,000 Norwest Corp., 6.625% due 3/15/2003 3,553,235 3,449,950
A- A3 7,500,000 United States Bancorporation, 6.75%
due 10/15/2005 7,459,650 7,338,225
AA Aa3 6,000,000 Wachovia Bank of North Carolina,
6.55% due 6/09/1997 (a) 5,995,620 6,060,300
-------------- --------------
80,875,538 80,414,948
Federal AAA Aaa 15,000,000 Federal National Mortgage Association,
Agencies--1.1% 7.85% due 9/10/2004 14,817,437 15,428,850
Financial Chrysler Financial Corp., 10.95%
Services-- A- A3 14,000,000 due 8/01/2017 16,298,000 15,467,060
Captive--4.9% Ford Motor Credit Co.:
A+ A1 10,000,000 6.25% due 11/08/2000 9,957,700 9,855,700
A+ A1 1,000,000 7.75% due 3/15/2005 999,090 1,046,730
General Motors Acceptance Corp.:
A- A3 7,630,000 5% due 1/27/1997 (a) 7,501,587 7,586,356
A- A3 8,000,000 7.60% due 1/20/1998 (a) 7,829,600 8,207,680
A- A3 6,100,000 7.125% due 5/11/1998 (a) 6,168,808 6,213,765
A- A3 4,000,000 6.625% due 10/01/2002 3,992,800 3,961,080
A- A3 7,000,000 6.75% due 3/15/2003 6,993,630 6,958,910
A- A3 7,000,000 7.40% due 9/01/2025 6,943,580 6,823,740
-------------- --------------
66,684,795 66,121,021
</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>
Financial BBB- Baa2 $ 15,000,000 Advanta Corp., 6.26% due 9/01/1997 (b) $ 14,991,450 $ 15,042,000
Services-- American General Finance Corp.:
Consumer--3.9% A+ A1 2,500,000 8.50% due 8/15/1998 2,848,650 2,621,275
A+ A1 10,000,000 6.375% due 3/01/2003 9,926,100 9,700,200
Associates Corp. of North America:
AA- Aa3 6,000,000 8.375% due 1/15/1998 6,019,320 6,224,100
AA- Aa3 2,000,000 5.25% due 9/01/1998 1,939,180 1,956,320
AA- Aa3 1,500,000 7.25% due 9/01/1999 1,481,430 1,539,990
A+ Aa3 8,000,000 CIT Group Holdings, Inc., 5.37%
due 5/02/1997 (b) 8,000,000 7,982,880
BBB+ Baa2 7,000,000 Finova Capital Corp., 6.375%
due 10/15/2000 6,972,850 6,908,090
-------------- --------------
52,178,980 51,974,855
Financial Bear Stearns Companies, Inc.:
Services-- A A2 5,000,000 5.75% due 2/15/2001 4,986,800 4,819,050
Other--9.0% A A2 9,900,000 6.70% due 8/01/2003 8,945,640 9,705,861
A A2 3,000,000 8.75% due 3/15/2004 3,224,430 3,297,900
Dean Witter, Discover & Co.:
A A2 3,500,000 6.75% due 8/15/2000 3,486,805 3,520,615
A A2 3,000,000 6.30% due 1/15/2006 2,986,800 2,845,527
A A2 6,000,000 6.75% due 1/01/2016 6,000,000 5,530,740
A- Baa1 6,500,000 Donaldson, Lufkin & Jenrette Inc.,
5.625% due 2/15/2016 6,487,390 6,125,340
AA Aa1 13,000,000 GE Global Insurance Holding Corp.,
7% due 2/15/2026 12,876,500 12,399,400
General Electric Capital Corp.:
AAA Aaa 6,000,000 14% due 7/01/1996 (a) 6,811,140 6,122,760
AAA Aaa 6,200,000 8.125% due 5/15/2012 6,301,726 6,818,016
A Baa1 5,000,000 Lehman Brothers Inc., 7.375% due 8/15/1997 4,993,500 5,060,400
Morgan Stanley Group Inc.:
A+ A1 7,000,000 5.625% due 3/01/1999 6,985,580 6,871,480
A+ A1 5,000,000 8.875% due 10/15/2001 5,755,450 5,503,550
BBB+ Baa1 10,000,000 PaineWebber Group Inc., 8.875% due
3/15/2005 9,997,850 10,825,500
Smith Barney Holdings, Inc.:
A- A3 7,000,000 6.50% due 10/15/2002 6,961,080 6,835,570
A- A3 6,000,000 6.875% due 6/15/2005 5,957,580 5,925,252
The Travelers Corp.:
A+ A1 9,000,000 9.50% due 3/01/2002 9,610,100 10,138,590
A+ A1 9,000,000 7.875% due 5/15/2025 8,994,780 9,215,370
-------------- --------------
121,363,151 121,560,921
<PAGE>
Industrial-- AA- A1 3,000,000 Anheuser-Busch Cos., Inc., 8.75% due
Consumer 12/01/1999 3,367,590 3,227,970
Goods--8.3% Dillard Department Stores, Inc.:
A+ A2 4,000,000 7.375% due 6/15/1999 4,254,860 4,087,000
A+ A2 5,000,000 9.125% due 8/01/2011 6,054,000 5,794,600
A A2 10,000,000 Disney Enterprises Inc., 6.375% due
3/30/2001 (c) 10,000,000 9,975,200
JC Penney & Co.:
A+ A1 5,000,000 6.375% due 9/15/2000 4,991,900 4,964,550
A+ A1 6,000,000 6.875% due 10/15/2015 5,938,260 5,682,840
AAA Aaa 7,000,000 Johnson & Johnson Co., 8.72% due 11/01/2024 7,057,420 7,834,750
</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 Aa2 $ 5,000,000 Kimberly-Clark Corporation, 7.875%
Consumer due 2/01/2023 $ 5,084,900 $ 4,989,600
Goods BBB Baa2 9,000,000 Nabisco, Inc., 7.55% due 6/15/2015 8,981,960 8,683,560
(concluded) A A2 9,500,000 Philip Morris Cos., Inc., 9% due 1/01/2001 9,698,815 10,250,120
RJR Nabisco, Inc.:
BBB- Baa3 3,000,000 8.75% due 4/15/2004 2,912,220 2,934,810
BBB- Baa3 13,000,000 8.75% due 8/15/2005 12,720,550 12,608,440
Sears, Roebuck & Co.:
BBB A2 5,000,000 9.25% due 4/15/1998 5,712,125 5,284,900
BBB A2 8,785,000 8.45% due 11/01/1998 9,709,797 9,190,955
AA Aa2 7,000,000 Wal-Mart Stores, Inc., 8.50% due 9/15/2024 6,872,720 7,426,090
A A2 9,000,000 Weyerhaeuser Company, 7.95% due
3/15/2025 8,901,360 9,504,360
-------------- --------------
112,258,477 112,439,745
Industrial-- Texaco Capital Inc.:
Energy--1.0% A+ A1 5,500,000 9% due 12/15/1999 6,215,190 5,915,910
A+ A1 2,000,000 8.875% due 2/15/2021(a) 1,999,720 2,376,380
A+ A1 4,500,000 8.625% due 4/01/2032 4,792,770 5,166,720
-------------- --------------
13,007,680 13,459,010
<PAGE>
Industrial-- BBB Baa2 12,000,000 Applied Materials Inc., 8% due 9/01/2004 11,912,280 12,641,160
Other--10.4% AA- Aa2 10,400,000 Archer-Daniels-Midland Co., 8.125%
due 6/01/2012 11,522,436 11,268,712
A- A3 11,000,000 Carnival Cruise Lines, Inc., 7.70%
due 7/15/2004 11,028,940 11,311,740
BBB+ Baa2 6,000,000 Circus Circus Enterprises, Inc., 6.45%
due 2/01/2006 5,986,860 5,680,320
Columbia/HCA Healthcare Corp.:
BBB+ A3 9,000,000 6.87% due 9/15/2003 9,101,160 8,927,370
BBB+ A3 6,000,000 9% due 12/15/2014 6,651,540 6,766,320
AA- Aa3 12,000,000 du Pont (E.I.) de Nemours & Co., 8.25%
due 1/15/2022 12,481,570 12,185,040
A A1 2,000,000 Electronic Data Systems Corp., 6.85% due
5/15/2000 (d) 1,998,420 2,030,000
BBB Baa2 9,000,000 Federal Express Corporation, 9.65% due
6/15/2012 10,137,590 10,655,370
BBB+ A3 10,000,000 Harris Corporation, 7% due 1/15/2026 9,950,300 9,216,200
BBB+ Baa2 11,000,000 Loral Corporation, 8.375% due 6/15/2024 11,056,040 11,866,360
A- Baa2 5,000,000 McDonnell Douglas Financial Corp.,
6.30% due 10/20/1999 5,029,550 4,873,050
Telecommunications, Inc.:
BBB- Baa3 7,059,000 9.25% due 4/15/2002 7,780,924 7,710,616
BBB- Baa3 10,000,000 8.25% due 1/15/2003 9,713,200 10,460,100
BBB- Baa3 2,500,000 9.80% due 2/01/2012 2,631,150 2,870,625
Time Warner Entertainment Co.:
BBB- Baa3 6,000,000 8.875% due 10/01/2012 6,624,540 6,501,600
BBB- Baa3 5,000,000 8.375% due 3/15/2023 5,281,450 5,079,200
-------------- --------------
138,887,950 140,043,783
</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>
Supranational-- Asian Development Bank:
2.3% AAA Aaa $ 3,000,000 10.75% due 6/01/1997 $ 3,302,730 $ 3,158,670
AAA Aaa 5,000,000 6.125% due 3/09/2004 4,952,900 4,874,800
AAA Aaa 8,000,000 Inter-American Development Bank Co.,
8.875% due 6/01/2009 10,115,250 9,411,280
AAA Aaa 10,000,000 International Bank for Reconstruction &
Development, 12.375% due 10/15/2002 13,082,110 13,035,200
-------------- --------------
31,452,990 30,479,950
<PAGE>
Transportation-- BBB+ Baa2 15,000,000 Kansas City Southern Industries, Inc.,
2.2% 7% due 12/15/2025 14,805,750 13,530,900
Southwest Airlines, Inc.:
A- Baa1 10,000,000 9.40% due 7/01/2001 11,326,040 11,005,900
A- Baa1 2,000,000 8% due 3/01/2005 1,989,220 2,114,940
A- Baa1 3,000,000 7.875% due 9/01/2007 2,983,950 3,123,120
-------------- --------------
31,104,960 29,774,860
Utilities-- GTE Corp.:
Communications-- BBB+ Baa1 4,000,000 9.10% due 6/01/2003 4,242,720 4,469,680
1.7% BBB+ Baa1 9,500,000 8.75% due 11/01/2021 9,904,225 10,785,635
AA A1 2,000,000 Southwestern Bell Telecommunications
Corp., 6.125% due 3/01/2000 2,011,250 1,983,080
AA- Aa3 6,000,000 US West Communications, Inc. 7.25%
due 9/15/2025 6,066,100 5,846,940
-------------- --------------
22,224,295 23,085,335
Utilities-- A A2 7,800,000 Central Power & Light Co., 6% due 10/01/1997 7,782,108 7,797,192
Electric--2.6% AA- Aa2 6,000,000 Duke Power Co., 8% due 11/01/1999 5,964,660 6,303,840
A+ A1 2,000,000 Georgia Power Co., 6.125% due 9/01/1999 1,961,420 1,979,300
AA- A1 5,000,000 Northern States Power Company, 7.125%
due 7/01/2025 5,305,900 4,852,085
AA- A1 5,000,000 TECO Energy, Inc., 9.27% due 6/12/2000 (a) 5,000,000 5,510,550
A A2 8,500,000 Virginia Electric & Power Co., 8.625%
due 10/01/2024 8,377,160 9,104,996
-------------- --------------
34,391,248 35,547,963
Utilities-- AA- A1 7,500,000 Consolidated Natural Gas Co., 8.75%
Gas--0.6% due 6/01/1999 7,450,660 7,982,925
Yankee
Corporates*-- AA- Aa2 14,000,000 ABN AMRO Bank, 7.25% due 5/31/2005 (2) 14,298,630 14,315,280
15.1% AA- A1 10,000,000 Aegon N.V., 8% due 8/15/2006 (2) 9,908,700 10,737,500
BP America Inc. (9):
AA- Aa3 4,075,000 9.375% due 11/01/2000 4,488,287 4,535,516
AA- Aa3 11,000,000 10% due 7/01/2018 11,869,080 12,218,800
BBB+ A3 8,885,000 Bangkok Bank Public Company Limited,
7.25% due 9/15/2005 (2) (d) 8,799,674 8,762,920
A+ A1 10,000,000 Bass America, Inc., 8.125% due 3/31/2002 (9) 10,250,610 10,689,500
AA- Aa3 9,500,000 CRA Finance Ltd., 6.50% due 12/01/2003 (1) 9,519,310 9,197,330
Ford Capital B.V. (2):
A+ A1 10,000,000 9.875% due 5/15/2002 10,531,200 11,510,500
A+ A1 3,995,000 9.50% due 6/01/2010 4,430,215 4,761,680
Grand Metropolitan Investment Corp. (9):
A+ A2 4,000,000 6.50% due 9/15/1999 4,000,000 4,002,960
A+ A2 9,000,000 8.625% due 8/15/2001 9,412,690 9,824,040
</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>
Yankee A A3 $ 11,500,000 Mass Transit Railway Corp., 7.25%
Corporates* due 10/01/2005 (8) $ 11,657,700 $ 11,411,335
(concluded) News American Holdings, Inc. (9):
BBB Baa3 4,000,000 9.125% due 10/15/1999 4,298,640 4,318,240
BBB Baa3 10,000,000 8.625% due 2/01/2003 10,965,400 10,808,500
BBB Baa3 10,000,000 7.60% due 10/11/2015 9,917,800 9,555,900
A- A2 10,000,000 Norsk Hydro AS, 7.15% due 11/15/2025 (9) 9,958,300 9,545,200
BBB Baa1 5,000,000 Petro-Canada, 9.25% due 10/15/2021 (4) 5,300,650 5,765,050
A+ A1 12,000,000 Petroliam Nasional BHD, 6.875%
due 7/01/2003 (9) (d) 11,929,530 11,917,560
BBB+ A3 5,000,000 Philips Electronics N.V., 8.375%
due 9/15/2006 (9) 5,726,050 5,450,400
A+ A1 12,000,000 Pohang Iron & Steel Industries Co., Ltd.,
7.375% due 5/15/2005 (7) 12,217,645 12,108,120
A+ A1 12,500,000 Telekom Malaysia BHD, 7.125%
due 8/01/2005 (6) (d) 12,644,470 12,624,000
A A2 9,000,000 WMC (Western Mining Corp.) Finance Ltd.,
7.25% due 11/15/2013 (1) 9,089,100 8,785,980
-------------- --------------
201,213,681 202,846,311
Yankee AAA Aaa 4,000,000 Export-Import Bank of Japan, 8.35%
Sovereign*-- due 12/01/1999 (3) 4,226,640 4,263,840
5.8% AA- A1 7,000,000 Export-Import Bank of Korea, 6.375%
due 2/15/2006 (6) 6,961,220 6,652,100
Metropolis of Tokyo (Japan) (3):
AAA Aaa 3,550,000 9.25% due 10/11/1998 4,134,756 3,795,092
AAA Aaa 3,000,000 8.70% due 10/05/1999 3,469,410 3,218,820
AAA Aaa 4,000,000 9.25% due 11/08/2000 4,219,660 4,444,040
AA- Aa3 11,000,000 Province of Ontario (Canada), 7.75%
due 6/04/2002 (5) 10,910,730 11,601,370
Province of Quebec (Canada) (5):
A+ A2 9,285,000 7.50% due 7/15/2002 9,804,171 9,562,436
A+ A2 6,000,000 8.80% due 4/15/2003 6,774,360 6,618,780
A+ A2 4,500,000 13% due 10/01/2013 5,706,285 5,331,015
A+ A2 6,000,000 7.125% due 2/09/2024 5,966,040 5,566,320
AA A1 13,803,000 Republic of Italy, 6.875% due 9/27/2023 (6) 11,896,625 12,385,570
A- A3 5,000,000 State of Israel, 6.375% due 12/15/2005 (6) 4,957,750 4,770,450
-------------- --------------
79,027,647 78,209,833
<PAGE>
Total Investments in Bonds &
Notes--85.1% 1,146,959,693 1,147,341,720
Short-Term Securities
Commercial American Express Credit Corp.:
Paper**--8.2% 25,000,000 5.37% due 4/01/1996 25,000,000 25,000,000
45,000,000 5.30% due 4/10/1996 44,940,375 44,940,375
40,000,000 General Electric Capital Corp., 5.40%
due 4/03/1996 39,988,000 39,988,000
-------------- --------------
109,928,375 109,928,375
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value
Amount Issue Cost (Note 1a)
Short-Term Securities (concluded) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Repurchase $ 69,753,000 UBS Securities Funding, Inc., purchased on
Agreements***--5.2% 3/29/1996 to yield 5.30% to 4/01/1996 $ 69,753,000 $ 69,753,000
Total Investments in Short-Term
Securities--13.4% 179,681,375 179,681,375
Total Investments--98.5% $1,326,641,068 1,327,023,095
==============
Other Assets Less Liabilities--1.5% 20,592,128
--------------
Net Assets--100.0% $1,347,615,223
==============
<PAGE>
<FN>
*Corresponding industry groups for foreign securities
which are denominated in US dollars:
(1)Industrial Mining. (2)Financial Institution.
(3)Government Entity; Guaranteed by Japan.
(4)Energy Company; not Guaranteed by Canada.
(5)Government Entity; Guaranteed by the Province.
(6)Government Entity. (7)Industrial; Metals.
(8)Transportation. (9)Industrial.
**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.
***Repurchase Agreements are fully collateralized by
US Government Obligations.
(a)Medium-Term Note.
(b)Floating Rate Note.
(c)Name changed from Walt Disney Co.
(d)Restricted securities as to resale. The value of the
Portfolio's investment in restricted securities was
approximately $35,334,000, representing 2.6% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Bangkok Bank Public Company
Limited, 7.25% due 9/15/2005 9/22/1995 $ 8,799,674 $ 8,762,920
Electronic Data Systems Corp.,
6.85% due 5/15/2000 5/19/1995 1,998,420 2,030,000
Petroliam Nasional BHD,
6.875% due 7/01/2003 7/14/1995--8/07/1995 11,929,530 11,917,560
Telekom Malaysia BHD,
7.125% due 8/01/2005 8/04/1995--11/22/1995 12,644,470 12,624,000
$35,372,094 $35,334,480
=========== ===========
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 & Bonds:
Obligations--11.2% AAA Aaa $ 5,000,000 5.75% due 9/30/1997 $ 4,997,656 $ 5,005,450
AAA Aaa 1,000,000 8.875% due 11/15/1997 1,032,188 1,047,810
AAA Aaa 7,000,000 6.875% due 8/31/1999 7,240,625 7,183,750
AAA Aaa 8,500,000 7.75% due 12/31/1999 9,077,734 8,980,760
AAA Aaa 2,000,000 7.875% due 8/15/2001 2,076,563 2,155,000
AAA Aaa 2,000,000 7.50% due 11/15/2001 2,133,750 2,122,500
AAA Aaa 10,500,000 7.50% due 5/15/2002 11,308,828 11,184,180
AAA Aaa 3,000,000 6.375% due 8/15/2002 3,003,750 3,017,340
AAA Aaa 8,000,000 6.25% due 2/15/2003 7,968,750 7,976,240
AAA Aaa 2,000,000 5.875% due 11/15/2005 2,030,313 1,927,500
AAA Aaa 3,500,000 5.625% due 2/15/2006 3,424,531 3,319,540
------------ ------------
54,294,688 53,920,070
</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>
Banking--11.2% A- A3 $ 3,500,000 Bank of New York Company, Inc. (The),
7.875% due 11/15/2002 $ 3,873,450 $ 3,687,390
BankAmerica Corp.:
A A3 4,000,000 7.50% due 10/15/2002 4,268,880 4,145,640
A A3 3,000,000 7.125% due 5/12/2005 2,956,500 3,031,350
A+ A1 2,000,000 Citicorp, 8.80% due 2/01/2000 2,000,000 2,045,580
A+ A2 4,000,000 Fifth Third Bank, 6.75% due 7/15/2005 3,973,600 3,943,640
A- A3 4,000,000 Golden West Financial Corp., 9.15%
due 5/23/1998 4,542,960 4,225,880
A- A3 10,000,000 Huntington Bancshares, Inc., 5.68%
due 12/08/1998 9,996,100 9,854,200
A- A3 6,000,000 Mellon Financial, 6.875% due 3/01/2003 5,483,220 5,956,800
A+ A1 1,000,000 Norwest Corp., 6.625% due 3/15/2003 1,003,060 985,700
A- A3 2,500,000 US Bancorp, 6.75% due 10/15/2005 2,486,550 2,446,075
AA Aa3 5,000,000 Wachovia Corporation, 6% due 3/15/1999 4,890,950 4,967,400
BBB Baa1 9,000,000 Washington Mutual Inc., 7.25% due 8/15/2005 8,930,520 9,055,620
------------ ------------
54,405,790 54,345,275
<PAGE>
Federal AAA Aaa 2,500,000 Federal National Mortgage Association,
Agencies--0.5% 7.85% due 9/10/2004 2,496,484 2,571,475
Financial A+ A1 5,000,000 Ford Motor Credit Co., 7.75% due 3/15/2005 4,995,450 5,233,650
Services-- General Motors Acceptance Corp.:
Captive--5.3% A- A3 6,000,000 6.70% due 4/18/1997 6,090,180 6,055,620
A- A3 2,000,000 7.60% due 1/20/1998 1,957,400 2,051,920
A- A3 5,000,000 7.125% due 5/11/1998 5,056,400 5,093,250
A- A3 5,000,000 6.625% due 10/01/2002 4,991,000 4,951,350
A- A3 2,000,000 6.75% due 3/15/2003 1,998,180 1,988,260
------------ ------------
25,088,610 25,374,050
Financial BBB- Baa2 10,000,000 Advanta Corp., 6.26% due 9/01/1997 (a) 9,994,300 10,028,000
Services-- Associates Corp. of North America:
Consumer--7.8% AA- Aa3 1,500,000 8.375% due 1/15/1998 1,504,830 1,556,025
AA- Aa3 3,000,000 5.25% due 9/01/1998 2,908,770 2,934,480
CIT Group Holdings, Inc.:
A+ Aa3 4,000,000 7.625% due 12/05/1996 3,987,120 4,046,040
A+ Aa3 3,000,000 5.51% due 2/28/1997 2,998,020 2,997,360
A+ A1 5,000,000 Commercial Credit Corp., 5.55% due 2/15/2001 4,812,550 4,816,250
Finova Capital Corp.:
BBB+ Baa2 7,000,000 6.375% due 10/15/2000 6,972,980 6,908,090
BBB+ Baa1 5,000,000 6.625% due 9/15/2001 5,096,550 4,967,900
------------ ------------
38,275,120 38,254,145
Financial BBB Baa2 11,580,000 Alex Brown Inc., 7.625% due 8/15/2005 11,797,083 11,898,334
Services-- Bear Stearns Companies, Inc.:
Other--10.2% A A2 5,000,000 5.75% due 2/15/2001 4,986,800 4,819,050
A A2 3,000,000 8.75% due 3/15/2004 3,224,430 3,297,900
BBB Baa2 4,000,000 Comdisco, Inc., 7.25% due 4/15/1998 3,990,720 4,076,800
A A2 6,250,000 Dean Witter, Discover & Co., 6.75%
due 8/15/2000 6,226,437 6,286,812
A+ A1 8,000,000 Morgan Stanley Group, Inc., 5.625%
due 3/01/1999 7,983,520 7,853,120
BBB+ Baa1 4,000,000 PaineWebber Group, Inc., 8.875% due 3/15/2005 4,025,080 4,330,200
Smith Barney Holdings Inc.:
A- A3 3,000,000 6.50% due 10/15/2002 2,986,120 2,929,530
A- A3 1,000,000 6.875% due 6/15/2005 992,930 987,542
A+ A1 2,000,000 The Travelers Corp., 9.50% due 3/01/2002 2,168,400 2,253,020
------------ ------------
48,381,520 48,732,308
</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>
Industrial-- AA- A1 $ 5,481,000 Anheuser-Busch Cos., Inc., 8.75%
Consumer due 12/01/1999 $ 6,189,909 $ 5,897,501
Goods--8.5% A A2 2,000,000 Disney Enterprises Inc., 6.375% due
3/30/2001 (b) 2,000,000 1,995,040
A+ A1 5,000,000 JC Penney & Co., 6.375% due 9/15/2000 4,991,900 4,964,550
Nabisco, Inc.:
BBB Baa2 5,000,000 6.70% due 6/15/2002 4,997,050 4,925,300
BBB Baa2 3,000,000 6.85% due 6/15/2005 2,994,300 2,912,880
A A1 4,000,000 PepsiCo., Inc., 6.125% due 1/15/1998 3,972,240 3,996,360
A A2 3,500,000 Philip Morris Cos., Inc., 9% due 1/01/2001 3,576,195 3,776,360
BBB- Baa3 3,000,000 RJR Nabisco Holding Corp., 8.75% due
4/15/2004 2,911,320 2,934,810
Sears, Roebuck & Co.:
BBB A2 2,500,000 9.25% due 4/15/1998 2,837,275 2,642,450
BBB A2 7,000,000 8.45% due 11/01/1998 7,762,380 7,323,470
------------ ------------
42,232,569 41,368,721
Industrial-- Texaco Capital Inc.:
Energy--0.9% A+ A1 2,000,000 6.875% due 7/15/1999 1,996,120 2,021,300
A+ A1 2,000,000 9% due 12/15/1999 2,342,460 2,151,240
------------ ------------
4,338,580 4,172,540
Industrial-- Applied Materials Inc.:
Other--13.7% BBB Baa2 4,000,000 6.65% due 9/05/2000 4,000,000 4,001,440
BBB Baa2 4,000,000 8% due 9/01/2004 3,970,760 4,213,720
A- A3 9,000,000 Carnival Cruise Lines, Inc.,
7.70% due 7/15/2004 8,799,420 9,255,060
BBB+ A3 7,000,000 Columbia/HCA Healthcare Corp.,
6.87% due 9/15/2003 7,043,300 6,943,510
A A1 3,500,000 Electronic Data Systems Corp.,
6.85% due 5/15/2000 (c) 3,497,235 3,552,500
BBB- Ba1 10,000,000 La Quinta Inns, Inc., 7.25% due 3/15/2004 9,949,000 9,737,210
McDonnell Douglas Corporation:
A- Baa2 4,000,000 8.625% due 4/01/1997 4,142,720 4,103,120
A- Baa2 5,000,000 6.30% due 10/20/1999 5,029,550 4,873,050
BBB- Baa3 8,000,000 Telecommunications, Inc., 9.25% due
4/15/2002 8,496,110 8,738,480
BBB- Baa3 5,000,000 Time Warner Entertainment, 9.625% due
5/01/2002 5,586,000 5,586,000
BBB- Ba1 5,000,000 Time Warner Inc., 7.95% due 2/01/2000 5,172,300 5,172,300
------------ ------------
65,686,395 66,176,390
<PAGE>
Transportation BB+ Baa3 4,310,000 AMR Corporation, 9.50% due 7/15/1998 4,606,528 4,564,376
Services--3.5% AA A1 4,000,000 Boeing Co. (The), 6.35% due 6/15/2003 3,599,960 3,910,560
Southwest Airlines, Inc.:
A- Baa1 6,500,000 9.40% due 7/01/2001 7,564,180 7,153,835
A- Baa1 1,000,000 8% due 3/01/2005 994,610 1,057,470
------------ ------------
16,765,278 16,686,241
Utilities-- A- A3 4,000,000 Pennsylvania Power & Light Co., 5.50%
Electric--0.8% due 4/01/1998 3,991,280 3,949,080
Utilities-- AA- A1 2,000,000 Consolidated Natural Gas Co., 8.75%
Gas--0.4% due 6/01/1999 2,125,440 2,128,780
Yankee BBB+ A3 5,000,000 Bangkok Metropolitan Bank Public Company
Corporates*-- Limited, 7.25% due 9/15/2005 (2) (c) 4,949,950 4,931,300
11.1% A+ A1 3,000,000 Bass America, Inc., 6.625% due 3/01/2003 (7) 2,825,520 2,965,620
AA- Aa3 4,000,000 CRA Finance Ltd., 6.50% due 12/01/2003 (4) 4,006,020 3,872,560
</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>
Yankee A+ A1 $ 2,000,000 Ford Motor Credit Co., 9.875% due
Corporates*-- 5/15/2002 (8) $ 2,300,380 $ 2,302,100
(concluded) Grand Metropolitan Investment Corp. (8):
A+ A2 3,000,000 6.50% due 9/15/1999 3,040,120 3,002,220
A+ A2 3,000,000 8.625% due 8/15/2001 3,069,700 3,274,680
BBB Baa3 14,500,000 News American Holdings, Inc., 8.50%
due 2/15/2005 (7) 14,789,005 15,593,300
A+ A1 2,000,000 Petroliam Nasional BHD, 6.875%
due 7/01/2003 (7) (c) 1,972,960 1,986,260
BBB+ A3 5,000,000 Philips Electronics N.V., 7.75% due
4/15/2004 (7) 5,430,750 5,222,100
A+ A1 1,000,000 Pohang Iron & Steel Co., 7.375%
due 5/15/2005 (6) 1,018,160 1,009,010
A+ A1 9,500,000 Telekom Malaysia BHD, 7.125% due
8/01/2005 (1) (c) 9,682,695 9,594,240
------------ ------------
53,085,260 53,753,390
<PAGE>
Yankee AA- A1 5,000,000 Export-Import Bank of Korea, 6.375%
Sovereign*-- due 2/15/2006 (1) 4,972,300 4,751,500
7.1% AAA Aaa 2,000,000 Metropolis of Tokyo (Japan), 8.70%
due 10/05/1999 (5) 2,312,940 2,145,880
Province of Quebec (Canada) (3):
A+ A2 9,000,000 7.50% due 7/15/2002 9,486,070 9,268,920
A+ A2 5,000,000 8.80% due 4/15/2003 5,538,670 5,515,650
BB+ Baa3 10,000,000 Republic of South Africa, 9.625%
due 12/15/1999 (1) 9,839,025 10,575,000
A- A3 2,000,000 State of Israel, 6.375% due 12/15/2005 (1) 1,983,100 1,908,180
------------ ------------
34,132,105 34,165,130
Total Investments in Bonds & Notes--92.2% 445,299,119 445,597,595
Short-Term Securities
Commercial 13,000,000 General Electric Capital Corp.,
Paper**--2.7% 5.38% due 4/08/1996 12,986,401 12,986,401
Repurchase 19,452,000 UBS Securities Funding, Inc., purchased on
Agreement***--4.0% 3/29/1996 to yield 5.30% to 4/01/1996 19,452,000 19,452,000
Total Investments in Short-Term
Securities--6.7% 32,438,401 32,438,401
Total Investments--98.9% $477,737,520 478,035,996
============
Other Assets Less Liabilities--1.1% 5,267,510
------------
Net Assets--100.0% $483,303,506
============
<FN>
*Corresponding industry groups for foreign securities,
which are denominated in US dollars:
(1)Government Entity. (2)Financial Institution;
Government-Owned & Guaranteed.
(3)Government Entity; Guaranteed by Province.
(4)Industrial Mining. (5)Government Entity;
Guaranteed by Japan. (6)Industrial; Metals.
(7)Industrial. (8)Financial Institution.
**Commercial Paper is traded on a discount basis; the
interest rate shown is the discount rate paid
at the time of purchase by the Portfolio.
***Repurchase Agreements are fully collateralized by
US Government Obligations.
(a)Floating Rate Note.
(b)Name changed from Walt Disney Co.
(c)Restricted security as to resale. The value of the
Portfolio's investments in restricted securities was
approximately $20,064,000, representing 4.2% of net assets.
<PAGE>
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Bangkok Metropolitan Bank
Public Company Limited,
7.25% due 9/15/2005 9/29/1995 $ 4,949,950 $ 4,931,300
Electronic Data Systems Corp.,
6.85% due 5/15/2000 5/19/1995 3,497,235 3,552,500
Petroliam Nasional BHD,
6.875% due 7/01/2003 8/07/1995 1,972,960 1,986,260
Telekom Malaysia BHD,
7.125% due 8/01/2005 10/06/1995-11/22/1995 9,682,695 9,594,240
$20,102,840 $20,064,300
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statements of Assets and Liabilities as of March 31, 1996
<CAPTION>
High Income Investment Intermediate
Portfolio Grade Portfolio Term Portfolio
<S> <S> <C> <C> <C>
Assets: Investments, at value* (Note 1a) $5,021,366,294 $1,327,023,095 $478,035,996
Cash 7,928,967 11,995 13,623
Receivables:
Interest 101,492,334 22,959,701 8,196,910
Securities sold 8,349,846 5,619,591 14,574,684
Capital shares sold 21,622,576 5,013,571 1,093,368
Dividends 618,293 -- --
Loans -- 15,328 3,404
Prepaid registration fees and other assets (Note 1e) 77,987 27,629 32,630
-------------- -------------- ------------
Total assets 5,161,456,297 1,360,670,910 501,950,615
-------------- -------------- ------------
Liabilities: Payables:
Securities purchased 17,165,178 6,240,203 16,044,502
Capital shares redeemed 8,495,100 3,146,191 1,359,953
Investment adviser (Note 2) 1,763,263 408,655 147,287
Dividends to shareholders (Note 1f) 11,813,165 2,264,396 810,749
Distributor (Note 2) 2,574,957 486,687 98,734
Accrued expenses and other liabilities 1,380,781 509,555 185,884
-------------- -------------- ------------
Total liabilities 43,192,444 13,055,687 18,647,109
-------------- -------------- ------------
<PAGE>
Net Assets: Net assets $5,118,263,853 $1,347,615,223 $483,303,506
============== ============== ============
Net Assets Class A Common Stock, $.10 par value++ $ 11,672,596 $ 4,862,376 $ 2,005,282
Consist of: Class B Common Stock, $.10 par value++++ 48,002,020 6,209,580 1,928,941
Class C Common Stock, $.10 par value++++++ 3,308,458 454,843 75,585
Class D Common Stock, $.10 par value++++++++ 2,271,715 378,145 221,954
Paid-in capital in excess of par 5,114,079,639 1,366,915,797 488,741,245
Accumulated investment loss--net (2,817,521) -- --
Accumulated realized capital losses on investments--net (41,081,560) -- (566,943)
Accumulated distributions in excess of realized
capital gains on investments--net -- (31,587,545) (9,401,034)
Unrealized appreciation (depreciation) on investments--net (17,171,494) 382,027 298,476
-------------- -------------- ------------
Net assets $5,118,263,853 $1,347,615,223 $483,303,506
============== ============== ============
Net Asset Class A: Net assets $ 915,286,020 $ 550,396,333 $229,013,092
Value: ============== ============== ============
Shares outstanding 116,725,957 48,623,755 20,052,818
============== ============== ============
Net asset value and redemption price per share $ 7.84 $ 11.32 $ 11.42
============== ============== ============
Class B: Net assets $3,765,063,348 $ 702,883,784 $220,307,594
============== ============== ============
Shares outstanding 480,020,199 62,095,799 19,289,406
============== ============== ============
Net asset value and redemption price per share $ 7.84 $ 11.32 $ 11.42
============== ============== ============
Class C: Net assets $ 259,674,235 $ 51,505,158 $ 8,632,878
============== ============== ============
Shares outstanding 33,084,583 4,548,433 755,846
============== ============== ============
Net asset value and redemption price per share $ 7.85 $ 11.32 $ 11.42
============== ============== ============
Class D: Net assets $ 178,240,250 $ 42,829,948 $ 25,349,942
============== ============== ============
Shares outstanding 22,717,150 3,781,451 2,219,541
============== ============== ============
Net asset value and redemption price per share $ 7.85 $ 11.33 $ 11.42
============== ============== ============
<FN>
*Identified cost $5,038,537,788 $1,326,641,068 $477,737,520
============== ============== ============
++Authorized shares--Class A 400,000,000 100,000,000 50,000,000
============== ============== ============
++++Authorized shares--Class B 700,000,000 100,000,000 50,000,000
============== ============== ============
++++++Authorized shares--Class C 200,000,000 100,000,000 50,000,000
============== ============== ============
++++++++Authorized shares--Class D 500,000,000 100,000,000 50,000,000
============== ============== ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Operations for the Six Months Ended March 31, 1996
<CAPTION>
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
<S> <S> <C> <C> <C>
Investment Interest and discount earned $ 231,513,252 $ 44,919,438 $ 16,912,008
Income Dividends 3,416,481 -- --
(Note 1d): Loaned securities -- 170,313 83,578
Other 3,252,578 -- --
-------------- -------------- ------------
Total income 238,182,311 45,089,751 16,995,586
-------------- -------------- ------------
Expenses: Account maintenance and distribution fees--Class B
(Note 2) 13,056,649 2,527,726 569,167
Investment advisory fees (Note 2) 9,707,077 2,281,473 888,900
Transfer agent fees--Class B (Note 2) 1,455,487 481,266 170,226
Account maintenance and distribution fees--Class C
(Note 2) 772,078 151,700 22,722
Transfer agent fees--Class A (Note 2) 317,602 322,718 148,941
Registration fees (Note 1e) 287,509 97,962 44,145
Accounting services (Note 2) 159,757 58,604 34,971
Printing and shareholder reports 182,270 49,026 14,296
Account maintenance fees--Class D (Note 2) 170,124 42,957 10,211
Custodian fees 79,472 36,987 18,533
Transfer agent fees--Class C (Note 2) 83,173 28,010 7,799
Transfer agent fees--Class D (Note 2) 47,535 21,583 13,250
Professional fees 47,195 15,993 6,147
Pricing fees (Note 2) 8,950 4,624 3,213
Directors' fees and expenses 17,088 4,516 1,537
Other 26,310 7,322 2,608
-------------- -------------- ------------
Total expenses 26,418,276 6,132,467 1,956,666
-------------- -------------- ------------
Investment income--net 211,764,035 38,957,284 15,038,920
-------------- -------------- ------------
Realized & Realized gain (loss) on investments--net (4,414,957) 8,097,738 4,795,981
Unrealized Gain Change in unrealized appreciation/depreciation on
(Loss) on investments--net 31,567,663 (32,898,186) (8,103,109)
Investments--Net -------------- -------------- ------------
(Notes 1b, Net Increase in Net Assets Resulting from
1d & 3): Operations $ 238,916,741 $ 14,156,836 $ 11,731,792
============== ============== ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets High Income Portfolio
<CAPTION>
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 211,764,035 $ 360,156,487
Realized loss on investments--net (4,414,957) (21,583,485)
Change in unrealized appreciation/depreciation on investments--net 31,567,663 103,640,401
-------------- --------------
Net increase in net assets resulting from operations 238,916,741 442,213,403
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (44,588,606) (92,450,302)
(Note 1f): Class B (157,730,506) (259,162,896)
Class C (8,647,785) (4,442,179)
Class D (6,490,512) (4,101,110)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (217,457,409) (360,156,487)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 736,021,893 1,054,930,541
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 757,481,225 1,136,987,457
Beginning of period 4,360,782,628 3,223,795,171
-------------- --------------
End of period* $5,118,263,853 $4,360,782,628
-------------- --------------
<FN>
*Undistributed (accumulated) investment income (loss)--net $ (2,817,521) $ 2,875,853
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets (continued) Investment Grade Portfolio
<CAPTION>
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 38,957,284 $ 63,342,700
Realized gain (loss) on investments--net 8,097,738 (6,680,118)
Change in unrealized appreciation/depreciation on investments--net (32,898,186) 69,854,981
-------------- --------------
Net increase in net assets resulting from operations 14,156,836 126,517,563
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (17,058,540) (28,557,399)
(Note 1f) Class B (19,709,317) (33,602,341)
Class C (1,097,116) (458,421)
Class D (1,092,311) (724,539)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (38,957,284) (63,342,700)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 217,579,529 241,816,022
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 192,779,081 304,990,885
Beginning of period 1,154,836,142 849,845,257
-------------- --------------
End of period $1,347,615,223 $1,154,836,142
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio
<CAPTION>
For the Six For the
Months Ended Year Ended
March 31, September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 15,038,920 $ 22,585,754
Realized gain (loss) on investments--net 4,795,981 (5,362,923)
Change in unrealized appreciation/depreciation on investments--net (8,103,109) 22,789,142
-------------- --------------
Net increase in net assets resulting from operations 11,731,792 40,011,973
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (7,474,132) (12,207,578)
(Note 1f): Class B (6,659,928) (9,963,391)
Class C (264,772) (58,841)
Class D (640,088) (355,944)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders (15,038,920) (22,585,754)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 33,595,112 124,155,845
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 30,287,984 141,582,064
Beginning of period 453,015,522 311,433,458
-------------- --------------
End of period $ 483,303,506 $ 453,015,522
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights High Income Portfolio
<CAPTION>
Class A
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.80 $ 7.66 $ 8.13 $ 7.84 $ 7.02
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .37 .81 .75 .79 .87
Realized and unrealized gain (loss) on
investments--net .05 .14 (.47) .29 .82
-------- -------- -------- -------- --------
Total from investment operations .42 .95 .28 1.08 1.69
-------- -------- -------- -------- --------
Less dividends from investment income--net (.38) (.81) (.75) (.79) (.87)
-------- -------- -------- -------- --------
Net asset value, end of period $ 7.84 $ 7.80 $ 7.66 $ 8.13 $ 7.84
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.54%+++ 13.26% 3.42% 14.35% 25.22%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .51%* .55% .53% .55% .59%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 9.57%* 10.70% 9.27% 9.78% 11.44%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $915,286 $902,321 $876,573 $886,784 $683,801
Data: ======== ======== ======== ======== ========
Portfolio turnover 16.54% 24.58% 32.52% 34.85% 40.52%
======== ======== ======== ======== ========
<FN>
++Based on average shares outstanding during the period.
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued) High Income Portfolio
<CAPTION>
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996++++ 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.80 $ 7.66 $ 8.13 $ 7.85 $ 7.02
Operating ---------- ---------- ---------- ---------- --------
Performance: Investment income--net .34 .75 .69 .72 .81
Realized and unrealized gain (loss) on
investments--net .05 .14 (.47) .28 .83
---------- ---------- ---------- ---------- --------
Total from investment operations .39 .89 .22 1.00 1.64
---------- ---------- ---------- ---------- --------
Less dividends from investment
income--net (.35) (.75) (.69) (.72) (.81)
---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 7.84 $ 7.80 $ 7.66 $ 8.13 $ 7.85
========== ========== ========== ========== ========
Total Investment Based on net asset value per share 5.14%+++ 12.42% 2.66% 13.35% 24.44%
Return:** ========== ========== ========== ========== ========
Ratios to Average Expenses 1.28%* 1.32% 1.29% 1.31% 1.35%
Net Assets: ========== ========== ========== ========== ========
Investment income--net 8.79%* 9.81% 8.53% 8.94% 10.42%
========== ========== ========== ========== ========
Supplemental Net assets, end of period
Data: (in thousands) $3,765,064 $3,220,767 $2,347,223 $1,823,275 $847,354
========== ========== ========== ========== ========
Portfolio turnover 16.53% 24.58% 32.52% 34.85% 40.52%
========== ========== ========== ========== ========
<PAGE>
<CAPTION>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 21, Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
March 31, Sept. 30, March 31, Sept. 30,
Increase (Decrease) in Net Asset Value: 1996++++ 1995 1996++++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.81 $ 7.59 $ 7.80 $ 7.59
Operating -------- -------- -------- --------
Performance: Investment income--net .34 .71 .36 .75
Realized and unrealized gain on investments--net .05 .22 .07 .21
-------- -------- -------- --------
Total from investment operations .39 .93 .43 .96
-------- -------- -------- --------
Less dividends from investment income--net (.35) (.71) (.38) (.75)
-------- -------- -------- --------
Net asset value, end of period $ 7.85 $ 7.81 $ 7.85 $ 7.80
======== ======== ======== ========
Total Investment Based on net asset value per share 5.12%+++ 12.93%+++ 5.54%+++ 13.37%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.33%* 1.38%* .76%* .81%*
Net Assets: ======== ======== ======== ========
Investment income--net 8.70%* 9.06%* 9.28%* 9.70%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $259,674 $135,019 $178,240 $102,676
Data: ======== ======== ======== ========
Portfolio turnover 16.53% 24.58% 16.53% 24.58%
======== ======== ======== ========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.51 $ 10.77 $ 12.81 $ 12.30 $ 11.59
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .38 .80 .75 .81 .88
Realized and unrealized gain (loss) on
investments--net (.19) .74 (1.49) .67 .71
-------- -------- -------- -------- --------
Total from investment operations .19 1.54 (.74) 1.48 1.59
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.38) (.80) (.75) (.81) (.88)
Realized gain on investments--net -- -- (.10) (.16) --
In excess of realized gain on
investments--net -- -- (.45) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.38) (.80) (1.30) (.97) (.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.32 $ 11.51 $ 10.77 $ 12.81 $ 12.30
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.63%+++ 14.92% (6.03%) 12.76% 14.30%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .53%* .58% .53% .56% .58%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 6.60%* 7.30% 6.61% 6.94% 7.43%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $550,396 $472,388 $366,792 $407,625 $362,139
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.28% 108.07% 159.05% 121.34% 65.43%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
Class B
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.51 $ 10.77 $ 12.81 $ 12.30 $ 11.59
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .34 .72 .66 .72 .79
Realized and unrealized gain (loss) on
investments--net (.19) .74 (1.49) .67 .71
-------- -------- -------- -------- --------
Total from investment operations .15 1.46 (.83) 1.39 1.50
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.72) (.66) (.72) (.79)
Realized gain on investments--net -- -- (.10) (.16) --
In excess of realized gain on
investments--net -- -- (.45) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.34) (.72) (1.21) (.88) (.79)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.32 $ 11.51 $ 10.77 $ 12.81 $ 12.30
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.25%+++ 14.05% (6.73%) 11.91% 13.44%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.29%* 1.35% 1.29% 1.29% 1.34%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.83%* 6.52% 5.85% 5.80% 6.65%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $702,884 $631,517 $483,053 $515,402 $325,706
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.28% 108.07% 159.05% 121.34% 65.43%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 21, Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
March 31, Sept. 30, March 31, Sept. 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.51 $ 10.67 $ 11.51 $ 10.67
Operating ------- ------- ------- -------
Performance: Investment income--net .34 .67 .37 .73
Realized and unrealized gain (loss) on
investments--net (.19) .84 (.18) .84
------- ------- ------- -------
Total from investment operations .15 1.51 .19 1.57
------- ------- ------- -------
Less dividends from investment income--net (.34) (.67) (.37) (.73)
------- ------- ------- -------
Net asset value, end of period $ 11.32 $ 11.51 $ 11.33 $ 11.51
======= ======= ======= =======
Total Investment Based on net asset value per share 1.22%+++ 14.61%+++ 1.60%+++ 15.21%+++
Return:** ======= ======= ======= =======
Ratios to Average Expenses 1.35%* 1.40%* .78%* .83%*
Net Assets: ======= ======= ======= =======
Investment income--net 5.77%* 6.27%* 6.34%* 6.91%*
======= ======= ======= =======
Supplemental Net assets, end of period (in thousands) $51,505 $25,778 $42,830 $25,153
Data: ======= ======= ======= =======
Portfolio turnover 48.28% 108.07% 48.28% 108.07%
======= ======= ======= =======
<FN>
++Commencement of Operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Intermediate Term Portfolio
<CAPTION>
Class A
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
March 31, For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.50 $ 10.90 $ 12.44 $ 12.03 $ 11.41
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .37 .79 .75 .76 .88
Realized and unrealized gain (loss) on
investments--net (.08) .60 (1.26) .55 .62
-------- -------- -------- -------- --------
Total from investment operations .29 1.39 (.51) 1.31 1.50
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.37) (.79) (.75) (.76) (.88)
Realized gain on investments--net -- -- -- (.14) --
In excess of realized gain on
investments--net -- -- (.28) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.37) (.79) (1.03) (.90) (.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.42 $ 11.50 $ 10.90 $ 12.44 $ 12.03
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.49%+++ 13.32% (4.25%) 11.39% 13.71%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .54%* .59% .53% .58% .62%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 6.36%* 7.14% 6.48% 6.42% 7.54%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $229,013 $217,714 $170,222 $193,505 $154,333
Data: ======== ======== ======== ======== ========
Portfolio turnover 65.88% 142.84% 155.42% 180.52% 95.33%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded) Intermediate Term Portfolio
<CAPTION>
Class B
For the For the
Six Period
The following per share data and ratios have been derived Months Nov. 13,
from information provided in the financial statements. Ended For the Year Ended 1992++ to
March 31, September 30, Sept. 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.50 $ 10.90 $ 12.44 $ 11.68
Operating -------- -------- -------- --------
Performance: Investment income--net .34 .74 .69 .61
Realized and unrealized gain (loss) on
investments--net (.08) .60 (1.26) .90
-------- -------- -------- --------
Total from investment operations .26 1.34 (.57) 1.51
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.74) (.69) (.61)
Realized gain on investments--net -- -- (.14)
In excess of realized gain on investments--net -- -- (.28) --
-------- -------- -------- --------
Total dividends and distributions (.34) (.74) (.97) (.75)
-------- -------- -------- --------
Net asset value, end of period $ 11.42 $ 11.50 $ 10.90 $ 12.44
======== ======== ======== ========
Total Investment Based on net asset value per share 2.23%+++ 12.74% (4.72%) 13.30%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.06%* 1.11% 1.04% 1.07%*
Net Assets: ======== ======== ======== ========
Investment income--net 5.83%* 6.61% 5.98% 5.61%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $220,308 $212,146 $141,212 $134,122
Data: ======== ======== ======== ========
Portfolio turnover 65.88% 142.84% 155.42% 180.52%
======== ======== ======== ========
<CAPTION>
<PAGE>
Class C Class D
For the For the For the For the
Six Period Six Period
The following per share data and ratios have been derived Months Oct. 21, Months Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
March 31, Sept. 30, March 31, Sept. 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.50 $ 10.81 $ 11.50 $ 10.81
Operating -------- -------- -------- --------
Performance: Investment income--net .34 .70 .36 .74
Realized and unrealized gain (loss) on
investments--net (.08) .69 (.08) .69
-------- -------- -------- --------
Total from investment operations .26 1.39 .28 1.43
-------- -------- -------- --------
Less dividends from investment income--net (.34) (.70) (.36) (.74)
-------- -------- -------- --------
Net asset value, end of period $ 11.42 $ 11.50 $ 11.42 $ 11.50
======== ======== ======== ========
Total Investment Based on net asset value per share 2.21%+++ 13.26%+++ 2.47%+++ 13.65%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.08%* 1.14%* .64%* .70%*
Net Assets: ======== ======== ======== ========
Investment income--net 5.81%* 6.24%* 6.25%* 6.81%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 8,633 $ 6,806 $ 25,350 $ 16,349
Data: ======== ======== ======== ========
Portfolio turnover 65.88% 142.84% 65.88% 142.84%
======== ======== ======== ========
<FN>
++Commencement of Operations.
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++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 management invest-
ment company consisting of three separate portfolios:
the High Income Portfolio, the Investment Grade
Portfolio and the Intermediate Term Portfolio. These
unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to
a fair statement of the results for the interim period
presented. All such adjustments are of a normal recur-
ring nature. The Fund offers four classes of shares
under the Merrill Lynch Select Pricing SM System. Shares
of Class A and Class D are sold with a front-end sales
charge. Shares of Class B and Class C may be subject to
a contingent deferred sales charge. All classes of shares
have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such
shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distri-
bution expenditures. The following is a summary 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 most recent bid prices (in the case of the Investment
Grade and Intermediate Term Portfolios) or at the mean of
the most recent bid and ask prices (in the case of the
High Income Portfolio) 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.
<PAGE>
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
pricing service retained by the Fund which may use a
matrix system for valuations.
(b) Derivative financial instruments--The Fund may
engage in various portfolio strategies to seek to increase
its return by hedging its portfolio against adverse
movements in the equity, debt and currency markets.
Losses may arise due to changes in the value of the con-
tract or if the counterparty does not perform under
the contract.
* Financial futures contracts--The Fund may purchase
or sell interest rate futures contracts and options on
such futures contracts for the purpose of hedging the
market risk on existing securities or the intended pur-
chase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral
such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the con-
tract, the Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation
in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract
is closed, the Fund records a realized gain or loss
equal to the difference between the value of the con-
tract at the time it was opened and the value at the
time it was closed.
* Options--The Fund is authorized to purchase and
write call and put options. When the Fund writes an
option, an amount equal to the premium received by
the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently
marked to market to reflect the current market value of
the option written.
<PAGE>
When a security is purchased or sold through an exer-
cise of an option, the related premium paid (or received)
is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund real-
izes a gain or loss on the option to the extent of the
premiums received or paid (or loss or gain to the extent
the cost of the closing transaction exceeds the pre-
mium paid or received).
Written and purchased options are non-income produc-
ing investments.
(c) 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.
(d) 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.
(e) Prepaid registration fees--Prepaid registration fees
are charged to expense as the related shares are issued.
(f) 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. Distributions in excess of realized
capital gains are due primarily to differing tax treat-
ments for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Fund Asset Management, L.P. ("FAM").
The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), which is the limited
partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of Merrill Lynch Group, Inc.
<PAGE>
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.
Aggregate of Average Rate of Advisory Fee
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 FAM
during any fiscal year which will cause such expenses
to exceed the pro rata expense limitation at the time of
such payment.
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of
1940, the Fund pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued
daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<PAGE>
Account Distribution
Maintenance Fees Fees
Class B Class C Class D Class B Class C
High Income
Portfolio 0.25% 0.25% 0.25% 0.50% 0.55%
Investment Grade
Portfolio 0.25% 0.25% 0.25% 0.50% 0.55%
Intermediate Term
Portfolio 0.25% 0.25% 0.10% 0.25% 0.25%
Pursuant to a sub-agreement with the Distributor,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account main-
tenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account main-
tenance services to Class B, Class C and Class D share-
holders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C
shareholders.
For the six months ended March 31, 1996, MLFD earned
underwriting discounts and MLPF&S earned dealer
concessions and direct commissions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Portfolio Class A Class D Class A Class D
High Income $24,946 $78,218 $245,809 $752,575
Investment Grade 5,834 12,982 57,060 99,348
Intermediate Term 524 2,127 6,441 19,630
For the six months ended March 31, 1996, MLPF&S re-
ceived contingent deferred sales charges of $2,965,250
relating to transactions in Class B Shares, amounting to
$2,280,118, $574,454, and $137,678 in the High Income,
Investment Grade, and Intermediate Term Portfolios,
respectively, and $97,067 relating to transactions in
Class C Shares, amounting to $81,144, $12,869 and
$3,054 in the High Income, Investment Grade, and
Intermediate Term Portfolios, respectively. In addition,
MLPF&S received $26,734 in commissions on the execution
of portfolio security transactions for the High Income
Portfolio for the six months ended March 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"),
a wholly-owned subsidiary of ML & Co., is the Fund's
transfer agent.
<PAGE>
During the six months ended March 31, 1996, the Fund
paid Merrill Lynch Security Pricing Service, an affiliate
of MLPF&S, $18,155 for security price quotations to
compute the net asset value of the Fund.
NOTES TO FINANCIAL STATEMENTS (continued)
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, MLPF&S, MLFD, MLFDS,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the six months ended March 31, 1996
were as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
Purchases $1,239,019,318 $690,793,678 $346,110,213
============== ============ ============
Sales $ 709,320,357 $555,656,050 $298,601,099
============== ============ ============
Net realized and unrealized gains (losses) as of
March 31, 1996 were as follows:
Realized Unrealized
High Income Portfolio Losses Losses
Long-term investments $(4,306,941) $(17,171,494)
Short-term investments (108,016) --
----------- ------------
Total $(4,414,957) $(17,171,494)
=========== ============
Realized Unrealized
Investment Grade Portfolio Gains Gains
Long-term investments $ 8,097,738 $ 382,027
----------- ------------
Total $ 8,097,738 $ 382,027
=========== ============
<PAGE>
Realized
Gains Unrealized
Intermediate Term Portfolio (Losses) Gains
Long-term investments $ 4,796,331 $ 298,476
Short-term investments (350) --
----------- ------------
Total $ 4,795,981 $ 298,476
=========== ============
As of March 31, 1996, net unrealized appreciation
(depreciation) for Federal income tax purposes was
as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
Gross unrealized
appreciation $ 187,471,635 $ 20,880,779 $ 5,794,995
Gross unrealized
depreciation (204,643,129) (20,498,752) (5,496,519)
------------- ------------ -----------
Net unrealized
appreciation
(depreciation) $ (17,171,494) $ 382,027 $ 298,476
============= ============ ===========
The aggregate cost of investments at March 31, 1996
for Federal income tax purposes was $5,038,537,788
for the High Income Portfolio, $1,326,641,068 for the
Investment Grade Portfolio, and $477,737,520 for the
Intermediate Term Portfolio.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions for the six months ended March 31, 1996,
was $736,021,893 for the High Income Portfolio,
$217,579,529 for the Investment Grade Portfolio and
$33,595,112 for the Intermediate Term Portfolio.
Net increase in net assets derived from capital share
transactions for the year ended September 30, 1995,
was $1,054,930,541 for the High Income Portfolio,
$241,816,022 for the Investment Grade Portfolio and
$124,155,845 for the Intermediate Term Portfolio.
<PAGE>
Transactions in capital shares for each class were
as follows:
High Income Portfolio
Class A Shares for the
Six Months Ended Dollar
March 31, 1996 Shares Amount
Shares sold 7,314,948 $ 57,548,040
Shares issued to shareholders in
reinvestment of dividends 2,823,931 22,202,796
------------- ---------------
Total issued 10,138,879 79,750,836
Shares redeemed (9,106,868) (71,533,931)
------------- ---------------
Net increase 1,032,011 $ 8,216,905
============= ===============
High Income Portfolio
Class A Shares for the
Year Ended Dollar
Ended September 30, 1995 Shares Amount
Shares sold 17,000,487 $ 129,792,483
Shares issued to shareholders in
reinvestment of dividends 6,278,026 47,543,088
------------- ---------------
Total issued 23,278,513 177,335,571
Shares redeemed (22,086,202) (167,868,415)
------------- ---------------
Net increase 1,192,311 $ 9,467,156
============= ===============
<PAGE>
High Income Portfolio
Class B Shares for the
Six Months Ended Dollar
March 31, 1996 Shares Amount
Shares sold 100,293,279 $ 788,455,416
Shares issued to shareholders in
reinvestment of dividends 9,341,962 73,473,964
------------- ---------------
Total issued 109,635,241 861,929,380
Automatic conversion of shares (427,897) (3,369,074)
Shares redeemed (42,024,832) (330,340,289)
------------- ---------------
Net increase 67,182,512 $ 528,220,017
------------- ---------------
High Income Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 159,617,311 $1,217,867,803
Shares issued to shareholders in
reinvestment of dividends 15,892,010 120,624,151
------------- ---------------
Total issued 175,509,321 1,338,491,954
Automatic conversion of shares (128,848) (985,692)
Shares redeemed (69,059,662) (524,845,954)
------------- ---------------
Net increase 106,320,811 $ 812,660,308
============= ===============
High Income Portfolio
Class C Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 18,737,210 $ 147,502,100
Shares issued to shareholders in
reinvestment of dividends 603,219 4,749,727
------------- ---------------
Total issued 19,340,429 152,251,827
Shares redeemed (3,551,598) (27,946,467)
------------- ---------------
Net increase 15,788,831 $ 124,305,360
------------- ---------------
<PAGE>
High Income Portfolio
Class C Shares for the Period
Ended October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 19,648,421 $ 150,754,337
Shares issued to shareholders in
reinvestment of dividends 304,333 2,351,332
------------- ---------------
Total issued 19,952,754 153,105,669
Shares redeemed (2,657,002) (20,513,998)
------------- ---------------
Net increase 17,295,752 $ 132,591,671
============= ===============
[FN]
++Commencement of Operations.
High Income Portfolio
Class D Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 24,821,373 $ 195,274,981
Automatic conversion of shares 427,671 3,369,074
Shares issued to shareholders in
reinvestment of dividends 407,575 3,208,096
------------- ---------------
Total issued 25,656,619 201,852,151
Shares redeemed (16,097,200) (126,572,540)
------------- ---------------
Net increase 9,559,419 $ 75,279,611
============= ===============
High Income Portfolio
Class D Shares for the Period
October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 21,574,941 $ 165,091,505
Automatic conversion of shares 128,848 985,692
Shares issued to shareholders in
reinvestment of dividends 257,744 1,984,388
------------- ---------------
Total issued 21,961,533 168,061,585
Shares redeemed (8,803,802) (67,850,179)
------------- ---------------
Net increase 13,157,731 $ 100,211,406
============= ===============
[FN]
++Commencement of Operations.
<PAGE>
Investment Grade Portfolio
Class A Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 10,778,533 $ 125,480,108
Shares issued to shareholders in
reinvestment of dividends 786,275 9,170,399
------------- ---------------
Total issued 11,564,808 134,650,507
Shares redeemed (3,994,922) (46,466,293)
------------- ---------------
Net increase 7,569,886 $ 88,184,214
============= ===============
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 14,319,272 $ 159,951,974
Shares issued to shareholders in
reinvestment of dividends 1,399,551 15,395,612
------------- ---------------
Total issued 15,718,823 175,347,586
Shares redeemed (8,729,534) (96,092,634)
------------- ---------------
Net increase 6,989,289 $ 79,254,952
============= ===============
Investment Grade Portfolio
Class B Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 15,040,984 $ 175,078,763
Shares issued to shareholders in
reinvestment of dividends 1,071,646 12,499,133
------------- ---------------
Total issued 16,112,630 187,577,896
Automatic conversion of shares (105,249) (1,225,765)
Shares redeemed (8,795,722) (102,430,010)
------------- ---------------
Net increase 7,211,659 $ 83,922,121
============= ===============
<PAGE>
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 23,189,348 $ 258,078,382
Shares issued to shareholders in
reinvestment of dividends 1,854,252 20,437,623
------------- ---------------
Total issued 25,043,600 278,516,005
Automatic conversion of shares (35,738) (395,466)
Shares redeemed (14,986,713) (164,956,465)
------------- ---------------
Net increase 10,021,149 $ 113,164,074
============= ===============
Investment Grade Portfolio
Class C Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 2,789,341 $ 32,473,834
Shares issued to shareholders in
reinvestment of dividends 62,930 733,236
------------- ---------------
Total issued 2,852,271 33,207,070
Shares redeemed (543,418) (6,339,563)
------------- ---------------
Net increase 2,308,853 $ 26,867,507
============= ===============
NOTES TO FINANCIAL STATEMENTS (concluded)
Investment Grade Portfolio
Class C Shares for the Period
October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 2,612,510 $ 29,346,737
Shares issued to shareholders in
reinvestment of dividends 25,192 284,361
------------- ---------------
Total issued 2,637,702 29,631,098
Shares redeemed (398,122) (4,456,879)
------------- ---------------
Net increase 2,239,580 $ 25,174,219
============= ===============
<PAGE>
[FN]
++Commencement of Operations.
Investment Grade Portfolio
Class D Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 2,108,339 $ 24,550,079
Automatic conversion of shares 105,164 1,225,765
Shares issued to shareholders in
reinvestment of dividends 65,586 764,534
------------- ---------------
Total issued 2,279,089 26,540,378
Shares redeemed (682,364) (7,934,691)
------------- ---------------
Net increase 1,596,725 $ 18,605,687
============= ===============
Investment Grade Portfolio
Class D Shares for the Period
October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 2,756,661 $ 30,609,293
Automatic conversion of shares 35,721 395,466
Shares issued to shareholders in
reinvestment of dividends 45,859 515,048
------------- ---------------
Total issued 2,838,241 31,519,807
Shares redeemed (653,515) (7,297,030)
------------- ---------------
Net increase 2,184,726 $ 24,222,777
============= ===============
[FN]
++Commencement of Operations.
Intermediate Term Portfolio
Class A Shares for the
Six Months Ended Dollar
March 31, 1996 Shares Amount
Shares sold 4,539,503 $ 52,723,573
Shares issued to shareholders in
reinvestment of dividends 350,589 4,094,810
------------- ---------------
Total issued 4,890,092 56,818,383
Shares redeemed (3,765,277) (43,976,071)
------------- ---------------
Net increase 1,124,815 $ 12,842,312
============= ===============
<PAGE>
Intermediate Term Portfolio
Class A Shares for the
Year Ended Dollar
September 30, 1995 Shares Amount
Shares sold 6,450,433 $ 73,291,315
Shares issued to shareholders in
reinvestment of dividends 649,107 7,173,693
------------- ---------------
Total issued 7,099,540 80,465,008
Shares redeemed (3,794,801) (41,909,273)
------------- ---------------
Net increase 3,304,739 $ 38,555,735
============= ===============
Intermediate Term Portfolio
Class B Shares for the
Six Months Ended Dollar
March 31, 1996 Shares Amount
Shares sold 5,612,306 $ 65,255,609
Shares issued to shareholders in
reinvestment of dividends 369,857 4,319,096
------------- ---------------
Total issued 5,982,163 69,574,705
Automatic conversion of shares (17,083) (199,773)
Shares redeemed (5,119,590) (59,816,380)
------------- ---------------
Net increase 845,490 $ 9,558,552
============= ===============
Intermediate Term Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1995 Shares Amount
Shares sold 10,542,654 $ 118,768,676
Shares issued to shareholders in
reinvestment of dividends 517,191 5,742,084
------------- ---------------
Total issued 11,059,845 124,510,760
Automatic conversion of shares (832) (17,252)
Shares redeemed (5,575,382) (61,692,334)
------------- ---------------
Net increase 5,483,631 $ 62,801,174
============= ===============
<PAGE>
Intermediate Term Portfolio
Class C Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 521,728 $ 6,061,518
Shares issued to shareholders in
reinvestment of dividends 17,203 200,995
------------- ---------------
Total issued 538,931 6,262,513
Shares redeemed (374,813) (4,383,867)
------------- ---------------
Net increase 164,118 $ 1,878,646
============= ===============
Intermediate Term Portfolio
Class C Shares for the Period
October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 663,716 $ 7,580,309
Shares issued to shareholders in
reinvestment of dividends 2,521 28,709
------------- ---------------
Total issued 666,237 7,609,018
Shares redeemed (74,509) (852,210)
------------- ---------------
Net increase 591,728 $ 6,756,808
============= ===============
[FN]
++Commencement of Operations.
Intermediate Term Portfolio
Class D Shares for the Six Dollar
Months Ended March 31, 1996 Shares Amount
Shares sold 1,334,150 $ 15,589,249
Automatic conversion of shares 17,083 199,773
Shares issued to shareholders in
reinvestment of dividends 35,740 416,844
------------- ---------------
Total issued 1,386,973 16,205,866
Shares redeemed (588,781) (6,890,264)
------------- ---------------
Net increase 798,192 $ 9,315,602
============= ===============
<PAGE>
Intermediate Term Portfolio
Class D Shares for the Period
October 21, 1994++ to Dollar
September 30, 1995 Shares Amount
Shares sold 1,674,458 $ 18,850,195
Automatic conversion of shares 832 17,252
Shares issued to shareholders in
reinvestment of dividends 15,083 170,456
------------- ---------------
Total issued 1,690,373 19,037,903
Shares redeemed (269,024) (2,995,775)
------------- ---------------
Net increase 1,421,349 $ 16,042,128
============= ===============
[FN]
++Commencement of Operations.
5. Loaned Securities:
At March 31, 1996, the Investment Grade Portfolio
held US Treasury Bonds/Notes having an aggregate
value of approximately $29,000,000 as collateral for
Portfolio securities loaned, having a market value of
approximately $27,870,000. The Intermediate Term
Portfolio held US Treasury Bonds/Notes having an aggre-
gate value of approximately $9,500,000 as collateral for
Portfolio securities loaned, having a market value of
approximately $9,084,000.
6. Capital Loss Carryforward:
At September 30, 1995, the Fund had a capital loss
carryforward of approximately $11,795,000 in the High
Income Portfolio, all of which expires in 1999; approxi-
mately $35,299,000 in the Investment Grade Portfolio,
all of which expires in 2003; and approximately
$12,447,000 in the Intermediate Term Portfolio, all of
which expires in 2003. These amounts will be available
to offset like amounts of any future taxable gains.
<PAGE>
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
Ira J. Shapiro, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
