MERRILL LYNCH
CORPORATE BOND
FUND, INC.
FUND LOGO
Annual Report
September 30, 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 considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
Corporate Bond Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH CORPORATE BOND FUND, INC.
TO OUR SHAREHOLDERS
Although the US stock and bond markets rallied as the September
quarter drew to a close, much of the period was marked by volatility
in the capital markets. The US economy demonstrated surprising
resilience during the first half of the year. As a result, when
economic data releases appeared to indicate that the US economy was
expanding at a stronger-than-expected (and potentially inflationary)
rate, investors focused on the increasing possibility of monetary
policy tightening by the Federal Reserve Board. During these
periods, stock prices declined and long-term interest rates moved
higher. However, with inflationary pressures still under control,
the US central bank did not tighten monetary policy at its September
24 meeting. This development, coupled with several economic data
releases that showed growth was at or below expectations, helped to
assuage investors' concerns about an overheating economy. Stock and
bond prices improved, with stock market averages reaching historic
high levels.
<PAGE>
The shifts in perceptions were exemplified by investors' reactions
to the release of recent employment reports. Inflationary concerns
were heightened in early July with the release of a stronger-than-
expected employment report for June. However, more subdued job
growth and decelerating hourly wage gains were subsequently reported
for the month of July. Although the employment report for August
showed that unemployment had dropped to its lowest level since 1989,
these results were generally in line with expectations, and were
received favorably by investors. The greatest boost in investor
confidence occurred in early October with the release of September's
employment report, which showed a slight increase in unemployment.
Investors will continue to monitor economic data releases to
determine the probable direction of the US economy. The outcome of
the upcoming November election will also increasingly influence
investor psychology in the weeks ahead.
Fiscal Year in Review
High Income Portfolio
The high-yield market continued its upward momentum through
September. Third quarter statistics showed high-yield bonds
outperforming the ten-year Treasury note with a return of +3.90% as
compared to +1.95%. During the period, intense buying pressure
encouraged by the healthy stock market, a Treasury rally and
unabated inflows of cash into the market resulted in a 30 basis
point (0.30%) spread compression between high-yield securities and
Treasury securities. September represented the best total return
month for high-yield bonds thus far in 1996.
During the September quarter, BB-rated securities continued to lag
the B-rated sector with +2.98% and +4.88% total returns,
respectively. The CCC-rated and lower-rated securities returned just
+0.52% in response to adverse impact from credit problems not
apparent in the broader indexes.
High-yield new issuance will post its second-largest year ever. The
year-to-date volume of $48 billion exceeds the full-year volume for
any year other than 1993, when the all-time high of $72 billion was
recorded. The aggregate credit statistics indicate no deterioration
in credit quality, although some more speculative new issues were
issued recently.
Merger and acquisition activity continued to positively impact the
Portfolio's returns. The benefiting sectors included communications,
paper and utilities. Among those credits affected were PanAmSat
Corp., Repap Enterprises and Beaver Valley/Cleveland Electric, all
Portfolio holdings.
<PAGE>
The fiscal year ended September 30, 1996 provided excellent
investment returns. The total return on the Portfolio's Class A,
Class B, Class C and Class D Shares were +11.95%, +11.11%, +11.05%
and +11.82%, respectively, which compared very favorably to the
+10.77% return on the CS First Boston High Yield Index, an unmanaged
measure of the high-yield market. (Investment results shown do not
reflect sales charges and would be lower if sales charges were
included. Complete performance information, including average annual
total returns, can be found on pages 4--10 of this report to
shareholders.) Our performance over the course of the year was aided
by a modest overweighting in bonds rated below BB as compared with
the Index. Lower-quality issues in aggregate outperformed,
benefiting our returns. In addition, we were overweighted in certain
other sectors, such as zero-coupon issues which provided higher
returns than cash pay issues. Security selection may also have
contributed to positive results as high-yield bond issuers show a
wide variance in returns over any given year. Results were impacted
negatively by higher cash positions than might have been desired as
a result of the strong flow of new money experienced by the
Portfolio throughout the year. Over the fiscal year, net
subscriptions totaled $1.4 billion, and net assets increased 33.6%.
The high-yield market substantially outperformed US Treasury and
high-quality corporate securities during the calendar year-to-date.
For the nine months ended September 30, 1996, the CS First Boston
High Yield Index produced a +7.67% return compared to -2.63% for the
ten-year US Treasury. This caused yield spreads between the two
markets to narrow. By September 30, 1996, yield spreads were 3.8%
between markets, a historically narrow measure of the premium
afforded by high yield for the credit risk and lesser liquidity. As
we indicated in our June shareholder report, there are good reasons
for the richer valuations. The default rate as a percent of high-
yield debt outstanding declined to a relatively low 2.06% for the 12
months ended September 30, 1996 from 3.63% at December 31. Low-cost
equity as a result of the buoyant stock market supported balance
sheets, and resulted in 25 Moody's Investors Service, Inc. (Moody's)
credit quality upgrades for the nine months ended September 30,
1996. Acquisition activity also resulted in an additional six credit
quality upgrades. The ratio of Moody's upgrades to downgrades for
the nine month period was 1.5 to 1. Nevertheless, we believe the
market is fully priced, particularly among securities in the lower
quality B- and CCC end of the spectrum. Our strategy has been to
reduce credit risk through upgrading quality to BB and B+ and
retaining lower-yielding "yield to call" issues which are likely to
be called within the next year. We are also keeping a somewhat
higher cash position than is our norm.
<PAGE>
At September 30, 1996, our cash position was 7% of net assets. The
average maturity of the invested portion of the Portfolio was 6.3
years. Major industries represented in the portfolio were:
broadcasting/cable, 10.8% of net assets; communications, 9.7%;
energy, 8.6%; paper, 6.8%; and utilities, 6.0%.
Investment Grade Portfolio & Intermediate
Term Portfolio
Yields rose steadily in the first half of the year, sparked by a
surprising jump in employment numbers in February. This raised
concerns that the economy was growing faster than expected and that
fears of growing inflationary pressure would push interest rates
higher. By the beginning of summer, bond prices were quite erratic.
Although the yield on the bellwether 30-year Treasury bond on
September 30, 1996 was only one basis point different than its yield
on July 1, 1996 (6.92% and 6.91%, respectively), the bond market
experienced a great deal of volatility during the September quarter
which this point-to-point comparison hides. Prices fluctuated over
the summer in a swirl of speculation about the course of inflation.
From 6.91% at the start of July, the yield rose to 7.20% mid-month,
dropped to 6.70% in early August and then rose to 7.12% at the
beginning of September. Each turnaround was dictated by newly
released data pointing to either stronger or weaker economic growth
in the next few months. Looking for direction, investors focused
attention on the Federal Reserve Board's September 24 meeting and
its decision as to whether there would be a change in monetary
policy. When the Federal Reserve Board did not move in late
September, prices again rose, bringing yields back to 6.92% at
September month-end.
For the Investment Grade and Intermediate Term Portfolios, after
being defensive through the first half of the year, we extended
durations modestly during the summer from 4.53 years to 4.86 years
and from 3.84 years to 3.97 years, respectively, in order to remain
neutral to the general corporate bond index. To do this, we reduced
the cash positions and made some modest extension trades. These
extensions enabled us to participate in the rally which occurred
after Labor Day, benefiting the Portfolios' total returns. We remain
underweighted in the utility sector and are overweighted in
industrials and Yankee issues in each Portfolio.
The Federal Reserve Board's decision on September 24, 1996 not to
raise short-term interest rates was interpreted by investors as a
sign that the economy was slowing enough on its own in the third
quarter so that inflation would not be a problem. The reaction has
been a sense of relief that the Federal Reserve Board has not
changed policy. As a result, the yield on the long-term bond again
dropped below 6.85%. The prevailing attitude is that the market
wants to do better and is seizing on any data that can be
interpreted in a bullish light. In addition, a stronger dollar is
again attracting foreign buyers into the US bond market. While this
optimism may not be fully justified by the data, there is an
improved tone to investor sentiment in contrast to during the summer
months. Nevertheless, we do not believe that there is strong
evidence that the economy is slowing down enough to continue to push
bond prices higher. It is possible that we are still in the volatile
pattern that characterized the summer months. We believe that our
best investment course in the near future is to stay duration-
neutral relative to the market.
<PAGE>
In Conclusion
We thank you for your continued investment in Merrill Lynch
Corporate Bond Fund, Inc., and we look forward to reviewing our
outlook and strategy with you again in our next report to
shareholders.
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
November 6, 1996
<PAGE>
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 distribution 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 distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year 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. (There is no initial sales
charge for automatic share conversions.)
* 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. Intermediate 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.
<PAGE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--High Income Portfolio
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the CS First
Boston High Yield Index. Beginning and ending values are:
9/86 9/96
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class A Shares* $ 9,600 $29,029
CS First Boston High Yield Index++++ $10,000 $28,924
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the CS First
Boston High Yield Index. Beginning and ending values are:
10/21/88** 9/96
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class B Shares* $10,000 $23,432
CS First Boston High Yield Index++++ $10,000 $23,657
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the CS First Boston High Yield Index. Beginning and
ending values are:
10/21/94** 9/96
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class C Shares* $10,000 $12,539
ML Corporate Bond Fund, Inc.'s
High Income Portfolio++--
Class D Shares* $ 9,600 $12,170
CS First Boston High Yield Index++++ $10,000 $12,624
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests principally in fixed-income securities which
are rated in the lower rating categories of the established rating
services, or in unrated securities of comparable quality.
++++This unmanaged market-weighted Index, which mirrors the high-
yield debt market, is comprised of 423 securities rated BBB or
below.
Past performance is not predictive of future performance.
Average Annual Total Return--High Income Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +11.95% + 7.47%
Five Years Ended 9/30/96 +13.43 +12.51
Ten Years Ended 9/30/96 +11.70 +11.25
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +11.11% + 7.11%
Five Years Ended 9/30/96 +12.58 +12.58
Inception (10/21/88) through 9/30/96 +11.31 +11.31
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +11.05% +10.05%
Inception (10/21/94) through 9/30/96 +12.34 +12.34
[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 9/30/96 +11.82% + 7.34%
Inception (10/21/94) through 9/30/96 +12.97 +10.62
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Investment Grade Portfolio
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML COAO
Index. Beginning and ending values are:
9/86 9/96
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class A Shares* $ 9,600 $21,145
ML COAO Index++++ $10,000 $24,345
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML COAO
Index. Beginning and ending values are:
10/21/88** 9/96
<PAGE>
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class B Shares* $10,000 $18,292
ML COAO Index++++ $10,000 $20,000
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the ML COAO Index. Beginning and ending values are:
10/21/94** 9/96
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class C Shares* $10,000 $11,786
ML Corporate Bond Fund, Inc.'s
Investment Grade Portfolio++--
Class D Shares* $ 9,600 $11,441
ML COAO Index++++ $10,000 $12,272
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests primarily in long-term corporate bonds rated
A or better by Moody's Investors Service, Inc. or Standard & Poor's
Corp.
++++This unmanaged Index is comprised of all investment-grade
corporate bonds rated BBB3 or higher, of all maturities.
Past performance is not predictive of future performance.
Average Annual Total Return--Investment Grade Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +3.60% -0.55%
Five Years Ended 9/30/96 +7.60 +6.72
Ten Years Ended 9/30/96 +8.22 +7.78
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +2.81% -1.06%
Five Years Ended 9/30/96 +6.78 +6.78
Inception (10/21/88) through 9/30/96 +7.90 +7.90
[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 9/30/96 +2.85% +1.88%
Inception (10/21/94) through 9/30/96 +8.82 +8.82
[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 9/30/96 +3.43% -0.71%
Inception (10/21/94) through 9/30/96 +9.44 +7.16
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Intermediate Term Portfolio
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML C6AO
Index. Beginning and ending values are:
9/86 9/96
<PAGE>
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class A Shares* $ 9,900 $21,337
ML C6AO Index++++ $10,000 $24,171
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML C6AO
Index. Beginning and ending values are:
11/13/92** 9/96
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class B Shares* $10,000 $12,659
ML C6AO Index++++ $10,000 $13,436
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an
investment in the ML C6AO Index. Beginning and ending values are:
10/21/94** 9/96
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class C Shares* $10,000 $11,777
ML Corporate Bond Fund, Inc.'s
Intermediate Term Portfolio++--
Class D Shares* $ 9,900 $11,753
MLC6AO Index++++ $10,000 $12,260
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++The Portfolio invests primarily in bonds rated in the four highest
categories or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's Corp., with a maximum remaining maturity
not to exceed ten years and, depending on market conditions, an
average remaining maturity of five to seven years.
++++This unmanaged Index is comprised of all investment-grade
corporate bonds maturing in from five to ten years.
Past performance is not predictive of future performance.
<PAGE>
Average Annual Total Return--Intermediate Term Portfolio
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +4.56% +3.51%
Five Years Ended 9/30/96 +7.52 +7.31
Ten Years Ended 9/30/96 +7.98 +7.87
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +4.02% +3.04%
Inception (11/13/92) through 9/30/96 +6.26 +6.26
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +3.99% +3.01%
Inception (10/21/94) through 9/30/96 +8.77 +8.77
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
<PAGE>
Year Ended 9/30/96 +4.46% +3.41%
Inception (10/21/94) through 9/30/96 +9.22 +8.66
[FN]
*Maximum sales charge is 1%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
1/1-12/31 Beginning/Ending Net Asset Value Dividends Paid* % Change**
Period High Investment Intermediate High Investment Intermediate High Investment Intermediate
Covered Income Grade Term Income Grade Term Income Grade Term
<S> <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--9/30/96 7.83/7.93 11.84/11.16 11.80/11.28 0.53 0.54 0.52 + 8.69 - 0.95 + 0.28
------ ------ ------
Total $16.92 $17.07 $16.43
Cumulative total return as of 9/30/96: +617.38%** +434.78%** +411.01%**
<PAGE>
<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>
PERFORMANCE DATA (continued)
<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
<S> <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--9/30/96 7.83/7.93 11.84/11.16 11.80/11.28 0.49 0.48 0.48 + 8.08 - 1.52 - 0.11
------ ------ ------
Total $ 6.33 $ 6.85 $ 3.12
Cumulative total return as of 9/30/96: +134.32%** +82.92%** +26.59%**
<PAGE>
<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>
<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
<S> <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--9/30/96 7.83/7.94 11.84/11.17 11.80/11.28 0.49 0.47 0.48 + 8.17 - 1.47 - 0.13
------ ------ ------
Total $ 1.38 $ 1.31 $ 1.35
Cumulative total return as of 9/30/96: +25.39%** +17.86%** +17.77%**
<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
<S> <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 +18.90 +19.52 +17.98
1/1/96--9/30/96 7.83/7.94 11.84/11.17 11.80/11.28 0.52 0.52 0.52 + 8.62 - 1.05 + 0.21
------ ------ ------
Total $ 1.46 $ 1.44 $ 1.44
Cumulative total return as of 9/30/96: +26.77%** +19.17%** +18.71%**
<PAGE>
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Standardized
12 Month 3 Month 30-day Yield
9/30/96 6/30/96 9/30/95 % Change % Change As of 9/30/96
<S> <C> <C> <C> <C> <C> <C>
High Income Portfolio Class A Shares $ 7.93 $ 7.77 $ 7.80 + 1.67% +2.06% 9.17%
High Income Portfolio Class B Shares 7.93 7.77 7.80 + 1.67 +2.06 8.78
High Income Portfolio Class C Shares 7.94 7.77 7.81 + 1.66 +2.19 8.73
High Income Portfolio Class D Shares 7.94 7.77 7.80 + 1.79 +2.19 8.92
Investment Grade Portfolio Class A Shares 11.16 11.17 11.51 - 3.04 -0.09 6.46
Investment Grade Portfolio Class B Shares 11.16 11.17 11.51 - 3.04 -0.09 5.96
Investment Grade Portfolio Class C Shares 11.17 11.17 11.51 - 2.95 0.00 5.90
Investment Grade Portfolio Class D Shares 11.17 11.18 11.51 - 2.95 -0.09 6.20
Intermediate Term Portfolio Class A Shares 11.28 11.28 11.50 - 1.91 0.00 6.40
Intermediate Term Portfolio Class B Shares 11.28 11.28 11.50 - 1.91 0.00 5.87
Intermediate Term Portfolio Class C Shares 11.28 11.28 11.50 - 1.91 0.00 5.81
Intermediate Term Portfolio Class D Shares 11.28 11.28 11.50 - 1.91 0.00 6.26
High Income Portfolio Class A Shares--Total Return +11.95(1) +4.51(2)
High Income Portfolio Class B Shares--Total Return +11.11(3) +4.31(4)
High Income Portfolio Class C Shares--Total Return +11.05(5) +4.43(6)
High Income Portfolio Class D Shares--Total Return +11.82(7) +4.58(8)
Investment Grade Portfolio Class A Shares--Total Return + 3.60(9) +1.60(10)
Investment Grade Portfolio Class B Shares--Total Return + 2.81(11) +1.40(12)
Investment Grade Portfolio Class C Shares--Total Return + 2.85(13) +1.48(14)
Investment Grade Portfolio Class D Shares--Total Return + 3.43(15) +1.54(16)
Intermediate Term Portfolio Class A Shares--Total Return + 4.56(17) +1.63(18)
Intermediate Term Portfolio Class B Shares--Total Return + 4.02(19) +1.50(20)
Intermediate Term Portfolio Class C Shares--Total Return + 3.99(21) +1.49(22)
Intermediate Term Portfolio Class D Shares--Total Return + 4.46(23) +1.61(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 $0.757 per share
ordinary income dividends.
(2)Percent change includes reinvestment of $0.186 per share
ordinary income dividends.
(3)Percent change includes reinvestment of $0.697 per share
ordinary income dividends.
(4)Percent change includes reinvestment of $0.171 per share
ordinary income dividends.
(5)Percent change includes reinvestment of $0.694 per share
ordinary income dividends.
(6)Percent change includes reinvestment of $0.170 per share
ordinary income dividends.
(7)Percent change includes reinvestment of $0.738 per share
ordinary income dividends.
(8)Percent change includes reinvestment of $0.181 per share
ordinary income dividends.
(9)Percent change includes reinvestment of $0.755 per share
ordinary income dividends.
(10)Percent change includes reinvestment of $0.185 per share
ordinary income dividends.
(11)Percent change includes reinvestment of $0.668 per share
ordinary income dividends.
(12)Percent change includes reinvestment of $0.164 per share
ordinary income dividends.
(13)Percent change includes reinvestment of $0.662 per share
ordinary income dividends.
(14)Percent change includes reinvestment of $0.163 per share
ordinary income dividends.
(15)Percent change includes reinvestment of $0.727 per share
ordinary income dividends.
(16)Percent change includes reinvestment of $0.179 per share
ordinary income dividends.
(17)Percent change includes reinvestment of $0.733 per share
ordinary income dividends.
(18)Percent change includes reinvestment of $0.182 per share
ordinary income dividends.
(19)Percent change includes reinvestment of $0.674 per share
ordinary income dividends.
(20)Percent change includes reinvestment of $0.167 per share
ordinary income dividends.
(21)Percent change includes reinvestment of $0.671 per share
ordinary income dividends.
(22)Percent change includes reinvestment of $0.166 per share
ordinary income dividends.
(23)Percent change includes reinvestment of $0.722 per share
ordinary income dividends.
(24)Percent change includes reinvestment of $0.179 per share
ordinary income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Airlines--2.0% Piedmont Aviation, Inc.:
B+ B1 $ 1,304,000 Series 88J, 10.05% due 5/13/2005 $ 1,181,685 $ 1,293,822
B+ B1 1,116,000 Series 88J, 10.10% due 5/13/2007 999,021 1,111,519
B+ B1 3,767,000 Series 88J, 10.10% due 5/13/2009 3,327,542 3,804,237
B+ B1 2,710,000 Series 88J, 10.15% due 5/13/2011 2,366,806 2,629,946
B+ B1 104,000 Series 88J, 10.20% due 5/13/2012 90,874 99,333
B+ B1 870,000 Series 88K, 9.95% due 5/13/2003 796,746 870,465
B+ B1 2,226,000 Series 88K, 10% due 5/13/2004 2,026,506 2,204,152
B+ B1 2,666,000 Series 88K, 10.10% due 5/13/2008 2,374,020 2,691,194
B+ B1 2,550,000 Series 88K, 10.15% due 5/13/2010 2,251,293 2,585,585
B+ B1 200,000 Series C, 9.70% due 1/15/1999 201,676 200,603
B+ B1 100,000 Series C, 10.25% due 1/15/2007 103,706 100,540
B+ B1 1,985,000 Series E, 10.30% due 3/28/2007 1,855,291 2,002,706
B+ B1 1,950,000 Series F, 10.35% due 3/28/2011 1,999,718 1,921,618
B+ B1 50,000 Series G, 10.35% due 3/28/2011 51,424 49,272
B+ B1 450,000 Series H, 9.85% due 5/08/2005 454,617 441,427
B+ B1 1,500,000 Series H, 10% due 11/08/2012 1,493,250 1,392,630
B+ B1 536,000 Series I, 10% due 11/08/2012 545,048 497,633
United Air Lines Inc.:++
BB+ Baa1 4,000,000 10.02% due 3/22/2014 4,050,000 4,514,420
BB+ Baa1 2,000,000 9.08% due 10/26/2015 1,847,200 2,142,300
BB+ Baa1 7,100,000 9.35% due 4/07/2016 7,215,446 7,746,278
BB+ Baa1 10,500,000 9.21% due 1/21/2017 10,480,125 11,344,882
USAir Inc.:
CCC+ B3 30,000,000 9.625% due 2/01/2001 24,109,906 28,650,000
B+ B1 21,000,000 10.375% due 3/01/2013 20,768,125 21,000,000
B+ B1 5,000,331 Series 89A1, 9.33% due 1/01/2006++ 4,730,165 4,681,559
B+ B1 1,432,000 Series A, 10.70% due 1/15/2007 1,525,137 1,480,244
B+ B1 1,815,000 Series C, 10.70% due 1/15/2007 1,933,048 1,876,147
B+ B1 421,000 Series E, 10.70% due 1/01/2002 382,895 433,796
B+ B1 1,107,000 Series E, 10.70% due 1/15/2007 1,159,472 1,144,295
B+ B1 1,092,000 Series F, 10.70% due 1/01/2003 984,165 1,129,871
B+ B1 1,092,000 Series G, 10.70% due 1/01/2003 984,165 1,129,871
B+ B1 1,092,000 Series H, 10.70% due 1/01/2003 984,165 1,129,871
B+ B1 1,092,000 Series I, 10.70% due 1/01/2003 984,165 1,129,871
-------------- --------------
104,257,402 113,430,087
Automotive-- B B3 14,000,000 Collins & Aikman Corp., 11.50%
0.8% due 4/15/2006 14,000,000 14,770,000
B+ B1 21,875,000 Exide Corp., 10.75% due 12/15/2002 22,358,281 22,859,375
B B3 10,150,000 SPX Inc., 11.75% due 6/01/2002 10,175,000 11,190,375
-------------- --------------
46,533,281 48,819,750
<PAGE>
Broadcasting & B+ B2 17,500,000 EZ Communications, Inc., 9.75%
Publishing-- due 12/01/2005 17,361,575 17,806,250
3.0% BB Ba3 30,000,000 Grupo Televisa S.A., 13.21% due
5/15/2008 (a) 16,664,189 18,712,500
BB- B1 21,500,000 Hollinger, Inc., 9.25% due
2/01/2006 20,925,312 20,801,250
B B3 14,000,000 The Katz Corp., 12.75% due
11/15/2002 14,313,750 15,540,000
B Caa 25,000,000 NWCG Holding Corp., 13.79% due
6/15/1999 (a) 17,395,053 20,125,000
Sinclair Broadcasting Group Inc.:
B B2 15,000,000 10% due 12/15/2003 15,036,250 15,056,250
B B2 42,315,000 10% due 9/30/2005 42,516,600 42,896,831
BB- B1 20,000,000 World Color Press, Inc., 9.125%
due 3/15/2003 20,019,375 19,900,000
B B2 2,000,000 Young Broadcasting Inc., 10.125%
due 2/15/2005 2,000,000 1,992,500
-------------- --------------
166,232,104 172,830,581
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Broadcasting/ CCC+ Caa $38,190,545 American Telecasting, Inc.,
Cable--10.8% 14.86% due 6/15/2004 (a) (b) $ 25,119,044 $ 28,547,432
B- B2 19,240,000 Argyle Television Inc., 9.75% due
11/01/2005 19,003,950 19,264,050
CCC Caa 79,117,000 Australis Media Ltd.,
13.81% due 5/15/2003 (a) (f) 49,085,415 46,679,030
BB- B2 59,000,000 Bell Cablemedia PLC, 11.86% due
9/15/2005 (a) 37,424,804 39,972,500
BB- B3 7,125,000 CAI Wireless Systems, Inc., 12.25%
due 9/15/2002 7,125,000 7,445,625
CCC+ Caa 10,500,000 CS Wireless Systems Inc.,
12% due 3/01/2006 (a) (c)+++ 6,153,419 5,407,500
Century Communications Corporation:
BB- Ba3 30,750,000 9.75% due 2/15/2002 30,486,250 31,403,438
BB- Ba3 17,750,000 9.50% due 3/01/2005 17,471,250 17,750,000
BB- B1 15,350,000 Comcast Corporation, 9.50% due
1/15/2008 14,511,000 15,676,188
B B2 55,000,000 Comcast UK Cable Partners Ltd.,
11.23% due 11/15/2007 (a) 35,007,451 34,925,000
B B2 50,000,000 Echostar Communications Corp.,
13.48% due 6/01/2004 (a) (i) 34,437,267 39,421,810
B NR 30,000,000 Echostar Satellite Broadcasting
<PAGE> Corp., 13.125% due 3/15/2004 (a) 19,328,919 20,700,000
B B2 25,000,000 Intermedia Capital Partners,
11.25% due 8/01/2006+++ 25,000,000 26,062,500
B B3 70,000,000 International Cabletel Inc., Series
B, 11.71% due 2/01/2006 (a) 42,431,291 42,175,000
Lenfest Communications, Inc.:
BB+ Ba3 50,000,000 8.375% due 11/01/2005 47,987,450 47,000,000
BB- B2 30,000,000 10.50% due 6/15/2006+++ 29,921,700 30,825,000
CCC+ Caa 20,000,000 People's Choice T.V. Corporation,
13.48% due 6/01/2004 (a) (g) 12,145,331 12,400,000
B- B3 35,000,000 SFX Broadcasting Inc., 10.75% due
5/15/2006 34,918,750 36,465,625
B- B2 45,000,000 UIH Australia/Pacific, Series B,
14% due 5/15/2006 (a) 24,128,629 24,187,500
United International Holdings,
Inc. (a):
B- B3 5,000,000 12.18% due 11/15/1999 3,388,238 3,525,000
B- B3 50,000,000 13.99% due 11/15/1999 (h) 32,768,012 35,250,000
B- B3 18,750,000 14% due 11/15/1999 12,284,601 13,125,000
BB+ Ba3 11,250,000 Videotron Groupe L'TEE, 10.25% due
10/15/2002 11,322,500 11,868,750
Videotron Holdings PLC:
B+ B3 50,000,000 12.08% due 7/01/2004 (a) 35,014,820 37,625,000
BB+ Ba3 3,300,000 10.625% due 2/15/2005 3,279,375 3,597,000
-------------- --------------
609,744,466 631,298,948
Building BB B1 15,000,000 Cemex S.A., 12.75% due 7/15/2006+++ 15,000,000 16,462,500
Materials--1.9% B- Caa 20,000,000 Inter-City Products Corp., 9.75%
due 3/01/2000 19,508,750 19,300,000
B- B2 20,550,000 Nortek Inc., 9.875% due 3/01/2004 20,362,365 20,036,250
B+ B3 27,220,000 Pacific Lumber Co., 10.50% due
3/01/2003 26,868,237 26,947,800
BB Ba2 29,084,000 US Gypsum Corp., 8.75% due 3/01/2017 25,890,006 28,575,030
-------------- --------------
107,629,358 111,321,580
Capital Goods-- B+ B1 21,450,000 Essex Group Inc., 10% due 5/01/2003 21,546,500 22,091,819
0.8% B- B3 25,000,000 International Wire Group, 11.75%
due 6/01/2005 24,986,250 26,562,500
-------------- --------------
46,532,750 48,654,319
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
<PAGE>
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Chemicals--1.9% B+ Ba3 $15,000,000 Agriculture Minerals & Chemicals
Company, L.P., 10.75% due
9/30/2003 $ 15,060,000 $ 15,918,750
G-I Holdings, Inc.:
B+ Ba3 20,469,000 11.51% due 10/01/1998 (a) 16,342,374 17,692,892
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 25,000,000 25,562,500
BB+ Ba3 30,000,000 Viridian Inc., 9.75% due 4/01/2003 29,829,687 31,200,000
-------------- --------------
106,416,631 109,973,652
Communications-- NR* NR* 35,000,000 Brooks Fiber Properties Inc.,
9.7% 11.56% due 3/01/2006 (a) 20,824,054 21,612,500
NR* NR* 29,500,000 Comtel Brasileir Ltd., 10.75% due
9/26/2004+++ 29,500,000 30,200,625
B+ B3 53,472,000 Comunicacion Celular,
12.76% due 11/15/2003 (a) (j) 32,405,554 33,152,640
CCC- B3 20,000,000 Dial Call Communications, 13.83%
due 4/15/2004 (a) 13,458,581 13,900,000
B- B3 82,250,000 Millicom International Cellular
S.A., 13.53% due 6/01/2006 (a)+++ 44,626,148 47,293,750
Mobilemedia Communication, Inc.:
B- B3 33,000,000 11.58% due 12/01/2003 (a) 24,845,986 22,110,000
B- B3 10,126,000 9.375% due 11/01/2007 9,013,705 8,151,430
B- B3 80,000,000 Nextel Communications Inc.,
12.02% due 8/15/2004 (a) 55,784,199 51,700,000
NR* NR* 21,000,000 Page Mart Inc., 12.74% due
11/01/2003 (a) 15,946,703 16,432,500
B B2 20,000,000 Paging Network, Inc., 11.75% due
5/15/2002 20,387,500 21,450,000
B B3 46,210,000 PanAmSat L.P., 11.09% due
8/01/2003 (a) 38,139,920 42,166,625
Rogers Communications Inc.:
BB- B2 35,925,000 10.875% due 4/15/2004 36,431,094 37,182,375
BB- B2 2,000,000 9.125% due 1/15/2006 1,897,500 1,895,000
BB- B1 15,000,000 Telecom Argentina S.A., 8.375%
due 10/18/2000 12,159,375 14,625,000
BB- B1 40,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004 38,763,075 42,600,000
Teleport Communications Group Inc.:
B B1 20,000,000 9.875% due 7/01/2006 19,817,000 20,550,000
B B1 30,000,000 11.04% due 7/01/2007 (a) 18,075,266 19,275,000
BB B1 75,000,000 TeleWest Communications PLC,
11.02% due 10/01/2007 (a) 48,802,645 47,718,750
B- B2 19,730,000 USA Mobile Communications Holdings,
Inc., 9.50% due 2/01/2004 18,997,875 19,039,450
B+ B1 25,000,000 Vanguard Cellular Systems,
9.375% due 4/15/2006 24,975,250 24,812,500
B- B3 50,338,000 Wireless One Inc., 13.50% due
8/01/2006 (a) 26,761,011 27,560,055
-------------- --------------
551,612,441 563,428,200
<PAGE>
Computer BB- Ba1 38,500,000 Advanced Micro Devices, 11%
Services--1.8% due 8/01/2003 38,938,750 39,895,625
ComputerVision Corp.:
B- B3 15,000,000 11.375% due 8/15/1999 14,473,750 15,787,500
B B2 12,500,000 8% due 12/01/2009 6,802,472 10,140,625
B- B3 40,000,000 Dictaphone Corp., 11.75% due
8/01/2005 39,705,625 36,600,000
-------------- --------------
99,920,597 102,423,750
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Conglomerates-- B+ B3 $39,700,000 Coltec Industries, Inc., 10.25%
1.9% due 4/01/2002 $ 40,735,075 $ 41,387,250
CCC+ B3 20,000,000 The Interlake Corp., 12.125%
due 3/01/2002 20,147,500 21,000,000
B+ B2 10,000,000 JB Poindexter & Co., Inc.,
12.50% due 5/15/2004 10,000,000 9,800,000
NR* NR* 9,100,000 MacAndrews & Forbes Holdings,
Inc., 13% due 3/01/1999 8,568,400 9,145,500
B+ B3 26,000,000 Sequa Corp., 9.375% due 12/15/2003 25,146,562 26,195,000
-------------- --------------
104,597,537 107,527,750
Consumer B NR* 39,760,000 Coleman Holdings, Inc.,
Products--3.5% 11.57% due 5/27/1998 (a) 32,763,523 33,994,800
B+ Ba3 15,000,000 Coty Inc., 10.25% due 5/01/2005 15,000,000 15,937,500
B+ Ba2 38,880,000 International Semi-Tech
Microelectronics, Inc., 13.62%
due 8/15/2003 (a) 23,585,158 23,814,000
B- B2 16,000,000 Polymer Group Inc., 12.25% due
7/15/2002 16,323,750 17,520,000
Revlon Consumer Products Corp.:
B B2 3,500,000 9.50% due 6/01/1999 3,199,935 3,508,750
B B2 27,000,000 9.375% due 4/01/2001 24,935,005 27,472,500
B- B3 9,500,000 10.50% due 2/15/2003 8,795,000 9,880,000
B- B2 36,650,000 Samsonite Corporation, 11.125%
due 7/15/2005 36,088,625 38,940,625
B+ B1 32,550,000 Sealy Corp., 9.50% due 5/01/2003 32,274,650 32,387,250
-------------- --------------
192,965,646 203,455,425
<PAGE>
Convertible B B2 6,195,000 Builders Transport, Inc., 8% due
Bonds**--0.3% 8/15/2005 (3) 3,614,250 5,203,800
B+ B2 2,000,000 OHM Corp., 8% due 10/01/2006 (4) 1,400,000 1,807,500
BBB+ Ba1 6,375,000 Quantum Health Resources Inc.,
4.75% due 10/01/2000 (2) 5,956,562 5,833,125
B Caa 3,659,000 UNC, Inc., 7.50% due 3/31/2006 (1) 2,151,592 3,450,894
-------------- --------------
13,122,404 16,295,319
Diversified-- B B1 25,000,000 Foamex Capital Corp., 11.25% due
0.6% 10/01/2002 24,964,375 26,125,000
B- B3 10,000,000 RBX Corporation, 11.25% due
10/15/2005 10,006,250 9,400,000
-------------- --------------
34,970,625 35,525,000
Energy--8.6% B+ Ba1 35,000,000 AES Corporation (The), 10.25% due
7/15/2006 35,000,000 37,275,000
BB Ba2 30,000,000 CE Casecnan Water & Energy Co.,
11.45% due 11/15/2005 30,000,000 31,406,250
BB Ba2 24,000,000 California Energy Company, Inc.,
9.875% due 6/30/2003 24,122,500 24,540,000
B+ B1 49,500,000 Clark R&M Holdings, Inc., 11% due
2/15/2000 (a) 34,490,633 35,454,375
B+ B2 9,000,000 Clark USA Inc., Series B, 10.875%
due 12/01/2005 9,000,000 9,180,000
NR* NR* 18,500,000 Consolidated Hydro, Inc.,
12.22% due 7/15/2003 (a) 14,828,506 4,625,000
B+ Ba1 20,000,000 Global Marine Inc., 12.75% due
12/15/1999 20,047,500 21,650,000
BB- Ba3 10,000,000 Gulf Canada Resources Ltd., 9.25%
due 1/15/2004 9,726,605 10,262,500
B- B1 22,000,000 KCS Energy Inc., 11% due 1/15/2003 22,723,750 23,925,000
Maxus Energy Corp.:
BB- B1 17,750,000 9.875% due 10/15/2002 16,726,250 18,016,250
BB- B1 7,550,000 11.50% due 11/15/2015 7,363,000 7,936,938
BB Ba2 8,750,000 Noble Drilling Corp., 9.25% due
10/01/2003 8,925,000 9,078,125
BBB- Baa3 28,000,000 Oleoducto Centrale S.A., 9.35% due
9/01/2005+++ 27,967,500 27,819,120
B+ Ba2 15,000,000 Rowan Companies, Inc., 11.875% due
12/01/2001 15,085,000 16,050,000
BB- B1 25,000,000 Seagull Energy Corp., 8.625% due
8/01/2005 24,990,000 24,812,500
CCC+ B3 4,016,000 Tesoro Petroleum Corp., 12.75% due
3/15/2001 3,473,254 4,076,240
NR* NR* 17,000,000 Transamerican Exploration Corp., 14%
due 9/19/1998+++ 16,830,000 17,000,000
</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> <S> <C> <C>
Energy Transamerican Refining Corp.:
(concluded) CCC+ Caa $60,000,000 19.40% due 2/15/2002 (a) $ 45,383,400 $ 45,000,000
CCC+ Caa 10,000,000 16.50% due 2/15/2002 9,504,286 9,600,000
BB- B2 50,000,000 TransTexas Gas Corp., 11.50% due
6/15/2002 50,018,750 53,250,000
B+ B1 31,525,000 Triton Energy Corp., 10.61% due
11/01/1997 (a) 28,066,853 29,081,813
BB- B1 46,000,000 Yacimientos Petroliferos Fiscales
S.A. (YPF) (Sponsored), 8% due
2/15/2004 37,389,250 43,125,000
-------------- --------------
491,662,037 503,164,111
Entertainment-- B- B2 50,000,000 AMF Group Inc., Series B, 12.41%
1.8% due 3/15/2006 (a) 29,083,467 30,250,000
Marvel Holdings Inc.:
B- Caa 15,000,000 9.125% due 2/15/1998 13,305,750 14,100,000
B- Caa 4,500,000 12.07% due 4/15/1998 (a) 3,723,111 3,583,125
B B2 40,000,000 Six Flags Theme Parks, 12.18% due
6/15/2005 (a) 32,734,260 35,300,000
Spectravision Inc. (k):
D Caa 39,250,000 11.74% due 10/01/2001 (a) 33,732,587 20,998,750
D Ca 24,040,000 11.65% due 12/01/2002++++ 21,422,831 2,524,200
-------------- --------------
134,002,006 106,756,075
Financial NR* Ba3 12,000,000 First Nationwide Escrow, 10.625%
Services-- due 10/01/2003+++ 12,000,000 12,555,000
1.5% B B2 17,000,000 First Nationwide Holdings, 12.50%
due 4/15/2003 16,806,710 18,445,000
BB- B1 15,000,000 Olympic Financial Ltd., 13% due
5/01/2000 15,000,000 16,950,000
BB+ B1 9,000,000 Penncorp Financial Group Inc.,
9.25% due 12/15/2003 9,090,000 9,270,000
Reliance Group Holdings, Inc.:
BB+ Ba3 7,425,000 9% due 11/15/2000 6,798,125 7,517,813
BB- B1 22,575,000 9.75% due 11/15/2003 21,362,500 22,857,188
-------------- --------------
81,057,335 87,595,001
<PAGE>
Food & Chiquita Brands International Inc.:
Beverage--3.4% B+ B1 30,000,000 9.125% due 3/01/2004 29,585,625 30,150,000
B+ B1 20,000,000 10.25% due 11/01/2006 19,881,400 20,700,000
NR* NR* 25,692,000 Cumberland Farms Inc., DE, 10.50%
due 10/01/2003 24,511,045 25,049,700
B B3 23,450,000 Curtice Burns Food, Inc., 12.25%
due 2/01/2005 23,562,125 23,098,250
B- B3 26,463,000 Envirodyne Industries, Inc.,
10.25% due 12/01/2001 25,608,891 24,213,645
CCC+ Caa 25,000,000 Fresh Del Monte Corp., 10% due
5/01/2003 25,012,500 23,750,000
Specialty Foods Corp.:
B B3 19,250,000 10.25% due 8/15/2001 18,784,375 17,902,500
B B3 12,000,000 11.125% due 10/01/2002 11,970,000 11,280,000
B+ B1 20,000,000 Texas Bottling Group, Inc., 9%
due 11/15/2003 20,002,500 20,250,000
-------------- --------------
198,918,461 196,394,095
Foreign BB Ba2 35,000,000 Banco Nationale de Commerce,
Government 7.25% due 2/02/2004 29,613,750 30,219,819
Obligations-- BB- B1 25,000,000 Republic of Argentina, 8.375% due
0.9% 12/20/2003 20,075,000 22,586,074
-------------- --------------
49,688,750 52,805,893
Gaming--4.6% BB Ba3 30,000,000 Bally's Park Place, Inc., 9.25%
due 3/15/2004 28,485,200 32,325,000
B+ B2 37,000,000 GB Property Funding Corp.,
10.875% due 1/15/2004 35,072,500 32,375,000
BB- B1 15,000,000 GNF Corp., 10.625% due 4/01/2003 14,975,000 16,462,500
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued> High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Gaming D NR* $ 7,682,000 Goldriver Hotel & Casino Corp.,
(concluded) 13.375% due 8/31/1999 (k) $ 8,609,882 $ 2,496,650
BB Ba3 20,000,000 Grand Casinos Inc., 10.125% due
12/01/2003 19,837,500 19,700,000
D Caa 60,115,000 Harrah's Jazz Co., 14.25% due
11/15/2001 49,536,050 33,664,400
B+ B2 20,000,000 Hollywood Casino Corp.,
12.75% due 11/01/2003 19,153,426 20,000,000
BB- Ba3 30,000,000 Showboat Inc., 9.25% due 5/01/2008 30,107,350 30,000,000
BB- B1 83,000,000 Trump Atlantic City, 11.25% due
5/01/2006 82,139,062 81,962,500
-------------- --------------
287,915,970 268,986,050
<PAGE>
Health Services-- B+ B1 45,200,000 Beverly Enterprises, Inc., 9%
1.7% due 2/15/2006 44,200,550 44,070,000
B B 14,190,000 MEDIQ, Inc., 12.125% due 7/01/1999 14,252,600 15,378,412
B+ Ba3 20,000,000 Tenet Healthcare Corp., 10.125%
due 3/01/2005 20,062,500 21,750,000
B B3 20,000,000 Unilab Corp., 11% due 4/01/2006 19,843,480 15,400,000
-------------- --------------
98,359,130 96,598,412
Home Builders-- Del E. Webb Corp.:
1.6% B+ Ba3 3,500,000 10.875% due 3/31/2000 3,524,375 3,552,500
B- B2 7,000,000 9.75% due 3/01/2003 6,944,910 7,035,000
B- B2 4,000,000 9% due 2/15/2006 3,140,000 3,860,000
B B1 20,000,000 Greystone Homes Inc., 10.75% due
3/01/2004 19,115,000 19,900,000
BB Ba2 20,000,000 Ryland Group, Inc. (The), 10.50%
due 7/01/2006 19,697,400 20,050,000
BB Ba2 36,300,000 U.S. Home Corp., 9.75% due 6/15/2003 36,367,250 36,572,250
-------------- --------------
88,788,935 90,969,750
Hotels--1.9% BB- Ba3 80,000,000 HMC Acquisition Properties, 9% due
12/15/2007 79,272,500 77,200,000
BB- B1 35,000,000 HMH Properties Inc., 9.50% due
5/15/2005 34,017,653 35,262,500
-------------- --------------
113,290,153 112,462,500
Industrial Thermadyne Industries, Inc.:
Services--0.2% CCC B3 5,706,000 10.25% due 5/01/2002 5,711,822 5,848,650
CCC Caa 7,912,000 10.75% due 11/01/2003 7,914,802 8,090,020
-------------- --------------
13,626,624 13,938,670
Industrials-- BB Ba3 23,500,000 Grupo Televisa S.A., 11.875%
0.4% due 5/15/2006 25,141,562 25,086,250
Metals & B- B2 40,000,000 Kaiser Aluminum & Chemical Corp.,
Mining--1.4% 12.75% due 2/01/2003 40,803,125 43,425,000
Maxxam Group, Inc.:
B- B3 5,000,000 11.25% due 8/01/2003 4,918,750 5,150,000
B- B3 41,155,000 12.37% due 8/01/2003 (a) 32,919,534 30,351,812
-------------- --------------
78,641,409 78,926,812
<PAGE>
Packaging-- CCC- Ca 35,775,000 Anchor Glass Container Corp.,
1.3% 9.875% due 12/15/2008 32,401,062 4,293,000
B- Caa 21,500,000 Ivex Packaging Corp., 13.22% due
3/15/2005 (a) 13,807,427 13,706,250
Owens-Illinois, Inc.:
BB Ba3 20,000,000 11% due 12/01/2003 20,810,000 21,900,000
B+ B2 6,000,000 9.95% due 10/15/2004 5,931,250 6,255,000
B+ Ba3 6,000,000 Plastic Container Corp., 10.75%
due 4/01/2001 6,022,500 6,210,000
B+ B3 15,000,000 Printpack Inc., 10.625% due
8/15/2006+++ 15,000,000 15,375,000
B- B3 10,301,000 Silgan Holdings Inc., 13.25% due
12/15/2002 10,301,000 10,507,020
-------------- --------------
104,273,239 78,246,270
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds (continued) High Income Portfolio
<S> <S> <S> <C> <S> <C> <C>
Paper--6.3% BB Ba3 $35,500,000 APP International Finance,
11.75% due 10/01/2005 $ 35,306,250 $ 36,920,000
Container Corporation of America:
B+ B1 15,420,000 9.75% due 4/01/2003 15,433,400 15,689,850
B+ B1 13,000,000 11.25% due 5/01/2004 13,000,000 13,828,750
B B3 25,000,000 Crown Paper Co., 11% due 9/01/2005 23,108,781 24,750,000
BB- Ba3 50,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 47,581,250 46,750,000
Fort Howard Corp.:
B+ B1 10,000,000 9.25% due 3/15/2001 10,000,000 10,250,000
B B2 35,250,000 9% due 2/01/2006 32,561,250 34,897,500
B B3 35,000,000 Gaylord Container Corp., 11.50%
due 5/15/2001 35,401,250 37,187,500
P.T. Indah Kiat International
Finance:
BB Ba3 3,000,000 11.875% due 6/15/2002 3,000,000 3,202,500
BB Ba2 14,500,000 12.50% due 6/15/2006 14,572,500 15,551,250
<PAGE> B+ B3 25,500,000 Repap New Brunswick, 10.625% due
4/15/2005 25,597,500 25,755,000
BB- B2 25,000,000 Repap Wisconsin Inc., 9.25% due
2/01/2002 23,537,500 25,437,500
B B3 30,000,000 Riverwood International Corp.,
10.875% due 4/01/2008 30,105,000 29,700,000
B+ B1 16,000,000 S.D. Warren Co., 12% due 12/15/2004 16,000,000 17,260,000
Stone Container Corp.:
B+ B1 15,000,000 9.875% due 2/01/2001 13,948,672 15,112,500
BB- B1 15,000,000 10.75% due 10/01/2002 14,825,000 15,787,500
-------------- --------------
353,978,353 368,079,850
Restaurants-- CCC+ Caa 20,000,000 Flagstar Corp., 11.375% due
0.7% 9/15/2003 20,092,500 11,850,000
B+ Ba3 27,000,000 Foodmaker, Inc., 9.75% due
11/01/2003 26,216,200 26,055,000
-------------- --------------
46,308,700 37,905,000
Retail B+ B1 20,000,000 Specialty Retailers Group,
Specialty--0.4% Inc., 10% due 8/15/2000 20,000,000 20,100,000
Steel--1.0% B B3 20,000,000 Republic Engineered Steel Inc.,
9.875% due 12/15/2001 19,455,000 19,200,000
B B2 23,000,000 Weirton Steel Corporation, 10.75%
due 6/01/2005 22,413,750 22,425,000
BB- B1 20,000,000 Wheeling-Pittsburg Steel Corp.,
9.375% due 11/15/2003 18,670,000 19,100,000
-------------- --------------
60,538,750 60,725,000
Supermarkets-- Penn Traffic Co.:
1.8% BB- B1 10,000,000 8.625% due 12/15/2003 8,369,260 8,250,000
BB- B1 19,000,000 11.50% due 4/15/2006 17,086,250 16,815,000
B- B2 20,325,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 18,787,125 18,343,312
Ralph's Grocery Co.:
B B1 20,000,000 10.45% due 6/15/2004 18,951,699 20,450,000
B B1 10,000,000 10.45% due 6/15/2004 9,702,500 10,162,500
B- B3 31,000,000 Smith's Food & Drug Centers Inc.,
11.25% due 5/15/2007 31,065,000 33,015,000
-------------- --------------
103,961,834 107,035,812
Textiles--0.4% B+ B2 25,000,000 Westpoint Stevens Inc., 9.375%
due 12/15/2005 25,100,000 25,093,750
</TABLE>
<PAGE>
<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> <S> <C> <C>
Transportation-- BB- Ba2 $25,000,000 Eletson Holdings, Inc., 9.25%
2.3% due 11/15/2003 $ 24,472,500 $ 24,374,244
BB Ba2 20,000,000 Gearbulk Holdings, Ltd., 11.25%
due 12/01/2004 20,518,750 21,600,000
Transportacion Maritima Mexicana,
S.A. de C.V.:
BB- Ba2 5,475,000 8.50% due 10/15/2000 3,175,500 5,214,937
BB- Ba2 20,000,000 9.25% due 5/15/2003 17,092,750 19,050,000
B- B3 54,606,000 Transtar Holdings L.P., 12.04%
due 12/15/2003 (a) 38,785,079 41,295,787
BB Ba2 20,000,000 Viking Star Shipping Co., Inc.,
9.625% due 7/15/2003 20,045,000 20,450,000
-------------- --------------
124,089,579 131,984,968
Utilities-- Beaver Valley Funding Corp.:
5.8% B+ B1 8,070,000 8.625% due 6/01/2007 7,099,175 7,653,144
B+ B1 34,469,000 9% due 6/01/2017 31,081,506 31,057,084
CTC Mansfield Funding Corp.:
B+ Ba3 15,950,000 10.25% due 3/30/2003 15,903,640 16,293,801
B+ Ba3 25,000,000 11.125% due 9/30/2016 26,416,875 26,502,999
BB Ba2 15,000,000 Cleveland Electric Illuminating
Co., 9.50% due 5/15/2005 14,971,200 15,413,100
BB- Ba3 27,000,000 El Paso Electric Company, 9.40%
due 5/01/2011 26,990,000 27,945,000
BB- B1 40,000,000 Metrogas S.A., 12% due 8/15/2000 40,031,875 42,800,000
Midland Cogeneration Venture
Limited Partnership:
BB- Ba3 4,110,433 10.33% due 7/23/2002++ 4,399,884 4,341,645
BB- Ba3 20,826,836 10.33% due 7/23/2002++ 21,575,578 21,998,345
B- B2 11,250,000 11.75% due 7/23/2005 11,310,000 12,137,062
B- B2 5,500,000 13.25% due 7/23/2006 6,002,565 6,274,015
NR* NR* 15,886,164 Sunflower Electric Power Corp.,
8% due 12/31/2016+++++ 10,420,874 12,907,509
B+ B1 20,000,000 Texas-New Mexico Power Corp.,
10.75% due 9/15/2003 20,065,000 21,150,000
BBB- NR* 42,000,000 Trans Gas de Occidente, 9.79% due
11/01/2010+++ 42,075,000 41,632,500
Tucson Electric & Power Co.+++++:
NR* NR* 33,847,782 10.21% due 1/01/2009 32,005,359 32,497,255
NR* NR* 17,426,207 10.732% due 1/01/2013 16,252,461 16,815,593
-------------- --------------
326,600,992 337,419,052
<PAGE>
Waste Manage- D Ca 23,700,000 Mid-American Waste Systems, Inc.,
ment--0.2% 12.25% due 2/15/2003 23,667,250 14,220,000
Total Investments in Bonds--87.2% 5,034,146,311 5,079,477,682
Shares Held
Preferred Stocks
Broadcasting & 421,000 K-III Communications Corp. 10,562,750 11,209,125
Publishing 144,358 K-III Communications Corp.,
- --0.6% Series B 14,545,939 14,363,649
125,000 K-III Communications Corp.,
Series C+++ 12,500,000 11,750,000
-------------- --------------
37,608,689 37,322,774
Broadcasting/ 62,705 Cablevision Systems Corp.,
Cable--0.1% Series M 5,851,695 5,972,651
Energy--0.1% 29,517 Consolidated Hydro, Inc. 14,891,917 3,542,040
250 Transamerican Energy 25,000 28,031
-------------- --------------
14,916,917 3,570,071
Entertainment--1.4% 78,714 Time Warner Inc. (Series K)+++ 78,536,311 82,256,130
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
Preferred Stocks (concluded) High Income Portfolio
<S> <C> <S> <C> <C>
Paper--0.5% 295,000 S.D. Warren Co.+++ $ 8,333,750 $ 8,628,750
535,000 S.D. Warren Co., Series B 15,072,190 18,858,750
-------------- --------------
23,405,940 27,487,500
Steel--0.2% 550,000 USX Capital LLC 13,750,000 13,681,250
Utilities--0.2% 100,000 El Paso Electric Company 10,000,000 11,475,000
Total Investments in Preferred
Stocks--3.1% 184,069,552 181,765,376
<PAGE>
Common Stocks
Communications--0.1% 210,096 Echostar Communications Corp. 1,492,461 5,751,378
Consumer-- 200,369 Culligan Water Technologies Inc. 1,686,248 7,588,976
Products--0.2% 200,369 Samsonite Corp. 2,398,992 5,472,578
-------------- --------------
4,085,240 13,061,554
Energy--0.0% 57,237 Mesa Inc. 199,648 236,103
Food & 147,263 Foodbrands America 5,771,245 1,803,972
Beverage--0.1% 763,000 Seven-UP/RC Bottling Company 13,403,214 7,725,375
-------------- --------------
19,174,459 9,529,347
Gaming--0.0% 75,500 Goldriver Hotel & Casino Corporation
(Class B)(d)(k) 540,045 0
Hotels--0.0% 6,539 Buckhead America Corp. 36,373 40,460
Industrial Services 11,400 Thermadyne Industries, Inc. 165,300 239,400
- --0.0%
Supermarkets--0.1% 120,194 ABCO Markets Inc. (k)+++ 4,054,875 0
521,389 Grand Union Co. 29,475,625 3,258,681
-------------- --------------
33,530,500 3,258,681
Total Investments in Common
Stocks--0.5% 59,224,026 32,116,923
Trusts & Warrants
Broadcasting/ 177,500 American Telecasting Inc.
Cable--0.0% (Warrants) (e) 413,723 931,875
20,000 People's Choice T.V. Corp.
(Warrants) (e) 117,784 20,000
-------------- --------------
531,507 951,875
Communications--0.0% 53,472 Comunicacion Celular (Warrants)
(e)+++ 109,680 294,096
57,040 Page Mart Inc. (Warrants) (e) 236,127 385,020
-------------- --------------
345,807 679,116
Energy--0.1% 18,000 Consolidated Hydro Inc. (Warrants) (e) 390,123 258,750
407,677 Transamerican Refining Corp.
(Warrants) (e) 950,408 917,273
-------------- --------------
1,340,531 1,176,023
<PAGE>
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) 165,310 187,500
Total Investments in Trusts &
Warrants--0.1% 2,575,475 3,063,028
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value
Industries Amount Issue Cost (Note la)
Short-Term Securities High Income Portfolio
<S> <C> <S> <C> <C>
Commercial $15,000,000 Alpine Securitization Co., 5.40%
Paper***-- due 11/13/1996 $ 14,903,250 $ 14,903,250
7.1% 30,000,000 Ciesco L.P., 5.28% due 10/16/1996 29,934,000 29,934,000
70,448,000 General Electric Capital Corp.,
5.80% due 10/01/1996 70,448,000 70,448,000
15,000,000 Lucent Technologies, Inc., 5.36%
due 11/04/1996 14,924,067 14,924,067
10,000,000 McKenna Triangle National Corp.,
5.37% due 11/04/1996 9,949,283 9,949,283
50,000,000 Morgan Stanley Group, Inc., 5.30%
due 10/25/1996 49,823,333 49,823,333
National Fleet Funding Corp.:
25,000,000 5.32% due 10/01/1996 25,000,000 25,000,000
35,000,000 5.29% due 10/02/1996 34,994,857 34,994,857
15,000,000 5.27% due 10/18/1996 14,962,671 14,962,671
60,000,000 Navistar Financial Corp., 5.75%
due 10/21/1996 59,808,333 59,808,333
60,000,000 Onyx Corp., 5.85% due 10/21/1996 59,805,000 59,805,000
30,000,000 Xerox Corporation, 5.33% due
11/05/1996 29,844,542 29,844,542
-------------- --------------
414,397,336 414,397,336
Total Investments in Short-Term
Securities--7.1% 414,397,336 414,397,336
Total Investments--98.0% $5,694,412,700 5,710,820,345
==============
Other Assets Less Liabilities--2.0% 117,402,861
--------------
Net Assets--100.0% $5,828,223,206
==============
<PAGE>
<FN>
++Subject to principal paydowns.
++++Represents a pay-in-kind security which may pay
interest/dividends in additional face/shares.
*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 warrant of American
Telecasting, Inc.
(c)Each $1,000 face amount contains four common shares of CS
Wireless Systems Inc.
(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 as to resale. The value of the Portfolio's
investments in restricted securities was approximately $435,851,000,
representing 7.5% of net assets.
<PAGE>
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
ABCO Markets Inc. 11/19/1992 $ 4,054,875 $ 0
CS Wireless Systems Inc.,
12% due 3/01/2006 2/16/1996--9/09/1996 6,153,419 5,407,500
Cemex S.A., 12.75% due 7/15/2006 7/16/1996 15,000,000 16,462,500
Comtel Brasileir Ltd.,
10.75% due 9/26/2004 9/18/1996 29,500,000 30,200,625
Comunicacion Celular S.A. (Warrants) 11/17/1995--9/06/1996 109,680 294,096
First Nationwide Escrow,
10.625% due 10/01/2003 4/12/1996 12,000,000 12,555,000
Goldriver Hotel & Casino
Corp., Liquidating Trust 8/31/1992--11/17/1992 192,320 68,514
Intermedia Capital Partners,
11.25% due 8/01/2006 7/19/1996 25,000,000 26,062,500
K-III Communications Corp. Series C 1/19/1996 12,500,000 11,750,000
Lenfest Communications, Inc.,
10.50% due 6/15/2006 11/08/1995--6/10/1996 29,921,700 30,825,000
Millicom International Cellular S.A.,
13.53% due 6/01/2006 5/24/1996--7/12/1996 44,626,148 47,293,750
Oleoducto Centrale S.A.,
9.35% due 9/01/2005 6/21/1995--10/19/1995 27,967,500 27,819,120
Printpack Inc., 10.625% due 8/15/2006 8/15/1996 15,000,000 15,375,000
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 10,420,874 12,907,509
Time Warner Inc. (Series K) 4/03/1996--9/06/1996 78,536,311 82,256,130
Trans Gas de Occidente,
9.79% due 11/01/2010 11/02/1995--2/20/1996 42,075,000 41,632,500
Transamerican Exploration Corp.,
14% due 9/19/1998 9/17/1996 16,830,000 17,000,000
Tucson Electric & Power Co.:
10.21% due 1/01/2009 7/27/1993--4/01/1996 32,005,359 32,497,255
10.732% due 1/01/2013 3/01/1993--7/16/1993 16,252,461 16,815,593
Total $426,479,397 $435,851,342
============ ============
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury Bonds
Obligations--5.6% & Notes:
AAA Aaa $ 6,000,000 5.75% due 9/30/1997 $ 5,994,453 $ 5,996,220
AAA Aaa 11,000,000 8.875% due 11/15/1997 11,354,063 11,348,920
AAA Aaa 5,000,000 9.25% due 8/15/1998 5,289,844 5,272,650
AAA Aaa 9,000,000 6.375% due 5/15/1999 8,990,156 9,026,730
AAA Aaa 3,500,000 5.875% due 6/30/2000 3,502,835 3,440,395
AAA Aaa 16,000,000 6.25% due 8/31/2000 16,012,734 15,909,920
AAA Aaa 2,500,000 7.50% due 5/15/2002 2,634,375 2,617,575
AAA Aaa 5,000,000 7.25% due 5/15/2004 5,510,938 5,180,450
AAA Aaa 6,000,000 7.25% due 8/15/2004 6,110,625 6,215,640
AAA Aaa 4,000,000 7.875% due 11/15/2004 4,612,500 4,298,760
AAA Aaa 3,000,000 7% due 7/15/2006 3,007,813 3,062,340
AAA Aaa 10,000,000 6% due 2/15/2026 8,952,762 8,787,500
-------------- --------------
81,973,098 81,157,100
Asset-Backed AAA Aaa 15,000,000 Advanta Corp., 5.639% due
Securities++-- 6/15/2005 (a) 14,995,313 14,990,550
5.8% AAA Aaa 31,255,000 Banc One, Master Trust (Series B),
7.55% due 12/15/1999 31,858,028 31,713,823
AAA Aaa 10,000,000 Citibank Credit Card Master
Trust I, 5.67% due 9/15/2005 9,992,240 9,984,300
AAA Aaa 28,000,000 Fifth Third Auto Grantor Trust,
6.45% due 7/15/2002 27,989,062 28,052,500
-------------- --------------
84,834,643 84,741,173
Banking-- AA- Aa3 2,000,000 Banc One, Dayton, 6.625% due
11.0% 4/15/2003 2,082,060 1,943,020
AA- Aa3 3,000,000 Banc One, Milwaukee, 6.625% due
4/15/2003 3,123,090 2,914,530
BankAmerica Corp.:
A+ A1 4,000,000 6.65% due 5/01/2001 3,996,120 3,972,680
A+ A1 3,000,000 7.125% due 5/12/2005 3,087,560 2,959,980
A A2 5,000,000 7.125% due 5/01/2006 4,846,700 4,921,500
A- A2 10,300,000 Chase Manhattan Bank Corporation,
8.65% due 2/13/1999 10,805,215 10,773,285
A+ A1 7,000,000 Citicorp, 8.80% due 2/01/2000 7,000,000 7,064,470
A- A2 9,000,000 Comerica Bank, 7.875% due 9/15/2026 8,891,820 9,049,590
A+ A1 6,000,000 Fifth Third Bank, 6.75% due
7/15/2005 5,960,400 5,778,480
<PAGE> First Bank System, Inc.:
A1 Aa3 10,000,000 6.375% due 3/15/2001 9,850,727 9,740,300
A- A3 8,500,000 6.875% due 9/15/2007 8,421,290 8,134,925
A A2 3,000,000 First Chicago Corp., 9% due
6/15/1999 3,182,940 3,152,520
First Union Corp.:
A- A2 9,000,000 6.75% due 1/15/1998 9,069,660 9,024,480
A- A2 6,350,000 7.50% due 7/15/2006 6,352,921 6,390,386
A- A3 5,000,000 Golden West Financial Corp.,
9.15% due 5/23/1998 5,678,700 5,202,150
BBB+ A3 5,000,000 MBNA Corporation, 5.775% due
9/14/1998 5,000,000 5,003,370
NationsBank Corporation:
A A2 5,000,000 7.50% due 2/15/1997 4,995,700 5,031,900
A A2 4,000,000 6.50% due 8/15/2003 3,804,120 3,845,320
A- A3 6,000,000 7.75% due 8/15/2015 6,000,000 5,988,540
Norwest Corp.:
AA- Aa3 17,000,000 6.25% due 4/15/1999 16,944,240 16,884,060
AA- Aa3 3,500,000 6.75% due 5/12/2000 3,494,785 3,503,815
A+ A1 3,500,000 6.625% due 3/15/2003 3,553,235 3,387,825
A A2 11,475,000 Security Pacific Corp., 9.80%
due 7/01/2003 13,389,719 13,122,466
</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>
Banking A- A3 $ 7,500,000 US Bancorp, 6.75% due 10/15/2005 $ 7,459,650 $ 7,166,025
(concluded) AA+ Aa2 6,000,000 Wachovia Bank of North Carolina,
6.55% due 6/09/1997 5,995,620 6,031,140
-------------- --------------
162,986,272 160,986,757
Canadian BBB+ A3 5,000,000 Petro-Canada, 9.25% due
Provinces*-- 10/15/2021 (4) 5,300,650 5,805,850
3.2% AA- Aa3 11,000,000 Province of Ontario (Canada),
7.75% due 6/04/2002 (5) 10,910,730 11,478,390
Province of Quebec (Canada) (5):
A+ A2 9,535,000 7.50% due 7/15/2002 10,058,986 9,754,591
A+ A2 6,000,000 8.80% due 4/15/2003 6,774,360 6,505,680
A+ A2 4,500,000 13% due 10/01/2013 5,706,285 5,214,510
A+ A2 9,000,000 7.125% due 2/09/2024 8,673,600 8,234,370
-------------- --------------
47,424,611 46,993,391
<PAGE>
Federal AAA Aaa 15,000,000 Federal National Mortgage
Agencies--1.0% Association, 7.85% due
9/10/2004 14,817,438 15,203,850
Financial A- A3 14,000,000 Chrysler Financial Corp.,
Services-- 10.95% due 8/01/2017 16,298,000 15,199,660
Captive--4.5% Ford Motor Credit Co.:
A+ A1 10,000,000 7% due 9/25/2001 9,960,200 10,024,500
A+ A1 1,000,000 7.75% due 3/15/2005 999,090 1,023,210
General Motors Acceptance Corp.:
A- A3 7,630,000 5% due 1/27/1997 7,501,587 7,610,544
A- A3 8,000,000 7.60% due 1/20/1998 7,829,600 8,142,320
A- A3 6,100,000 7.125% due 5/11/1998 6,168,808 6,176,311
A- A3 4,000,000 6.625% due 9/19/2002 3,915,080 3,906,120
A- A3 7,000,000 7.125% due 5/01/2003 6,964,230 6,983,830
A- A3 7,000,000 7.40% due 9/01/2025 6,943,580 6,634,180
-------------- --------------
66,580,175 65,700,675
Financial Advanta Corp.:
Services-- BBB- Baa2 15,000,000 6.26% due 9/01/1997 14,991,450 14,939,700
Consumer--7.2% BBB- Baa2 3,000,000 7% due 5/01/2001 2,974,950 2,928,900
American General Finance Corp.:
A+ A1 1,300,000 7.70% due 11/15/1997 1,322,074 1,318,707
A+ A1 2,500,000 8.50% due 8/15/1998 2,848,650 2,585,675
A+ A1 4,000,000 5.875% due 7/01/2000 3,850,040 3,879,080
A+ A1 10,000,000 6.375% due 3/01/2003 9,926,100 9,588,800
Associates Corp. of North America:
AA- Aa3 6,000,000 8.375% due 1/15/1998 6,019,320 6,149,760
AA- Aa3 2,000,000 5.25% due 9/01/1998 1,939,180 1,957,120
AA- Aa3 1,500,000 7.25% due 9/01/1999 1,481,430 1,523,775
CIT Group Holdings, Inc.:
A+ Aa3 8,000,000 5.65% due 5/02/1997 (a) 8,000,000 7,989,920
A+ Aa3 13,000,000 7% due 9/30/1997 13,118,040 13,109,590
Finova Capital Corp.:
A- Baa1 31,460,000 8.25% due 3/11/1997 31,956,159 31,778,690
A- Baa1 7,000,000 6.375% due 10/15/2000 6,972,850 6,877,780
-------------- --------------
105,400,243 104,627,497
Financial Bear Stearns Companies, Inc.:
Services-- A A2 2,000,000 6.75% due 5/01/2001 1,993,680 1,981,280
Other--7.8% A A2 9,900,000 6.70% due 8/01/2003 8,945,640 9,582,606
A A2 3,000,000 8.75% due 3/15/2004 3,224,430 3,239,430
</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 Dean Witter, Discover & Co.:
Services-- A A2 $ 3,500,000 6.75% due 8/15/2000 $ 3,486,805 $ 3,491,215
Other A A2 3,000,000 6.30% due 1/15/2006 2,986,800 2,774,943
(concluded) A A2 9,500,000 6.75% due 1/01/2016 9,064,450 8,491,670
A+ A2 10,000,000 Equitable Cos. Inc., 9% due
12/15/2004 11,040,500 10,991,200
AA Aa1 13,000,000 GE Global Insurance Holding Corp.,
7% due 2/15/2026 12,876,500 12,132,770
AAA Aaa 3,500,000 General Electric Capital Corp.,
8.125% due 5/15/2012 3,721,480 3,726,170
A Baa1 5,000,000 Lehman Brothers Inc., 7.375% due
8/15/1997 4,993,500 5,033,600
A+ A1 7,000,000 Morgan Stanley Group Inc., 5.625%
due 3/01/1999 6,985,580 6,856,710
PaineWebber Group Inc.:
BBB+ Baa1 10,000,000 8.875% due 3/15/2005 9,997,850 10,748,200
BBB+ Baa1 1,500,000 7.625% due 2/15/2014 1,432,470 1,401,885
Smith Barney Holdings, Inc.:
A- A2 7,000,000 6.50% due 10/15/2002 6,961,080 6,783,560
A- A2 6,000,000 6.875% due 6/15/2005 5,957,580 5,786,640
The Travelers Corp.:
A+ A1 9,000,000 9.50% due 3/01/2002 9,610,100 10,005,480
A+ A1 10,800,000 7.875% due 5/15/2025 10,845,324 10,880,784
-------------- --------------
114,123,769 113,908,143
Industrial-- AA- A1 3,000,000 Anheuser-Busch Cos., Inc., 8.75%
Consumer due 12/01/1999 3,367,590 3,176,850
Goods--4.0% AA- Aa2 10,400,000 Archer-Daniels-Midland Co.,
8.125% due 6/01/2012 11,522,436 11,042,824
AA Aa2 5,000,000 Kimberly-Clark Corporation, 7.875%
due 2/01/2023 5,084,900 4,983,150
BBB Baa2 9,000,000 Nabisco, Inc., 7.55% due 6/15/2015 8,981,960 8,536,770
A A2 9,500,000 Philip Morris Cos., Inc., 9% due
1/01/2001 9,698,815 10,147,140
RJR Nabisco, Inc.:
BBB- Baa3 4,750,000 6.25% due 1/31/1997 4,731,000 4,740,358
BBB- Baa3 3,000,000 8.75% due 4/15/2004 2,912,220 2,962,710
BBB- Baa3 13,000,000 8.75% due 8/15/2005 12,720,550 12,757,680
-------------- --------------
59,019,471 58,347,482
<PAGE>
Industrial-- BP America Inc.:
Energy--3.0% AA Aa3 4,075,000 9.375% due 11/01/2000 4,488,287 4,453,853
AA Aa3 11,000,000 10% due 7/01/2018 11,869,080 12,024,100
AA- A1 7,500,000 Consolidated Natural Gas Co.,
8.75% due 6/01/1999 7,450,660 7,859,700
A- A1 5,900,000 Dresser Industries, Inc., 7.60%
due 8/15/2096 5,882,831 5,794,803
Texaco Capital Inc.:
A+ A1 5,500,000 9% due 12/15/1999 6,215,190 5,871,635
A+ A1 2,000,000 8.875% due 2/15/2021 1,999,720 2,311,340
A+ A1 4,500,000 8.625% due 4/01/2032 4,792,770 5,065,110
-------------- --------------
42,698,538 43,380,541
Industrial-- AA- Aa3 4,500,000 du Pont (E.I.) de Nemours & Co.,
Manufacturing-- 8.25% due 1/15/2022 4,676,445 4,600,890
4.0% Lockheed Martin Corp.:
BBB+ A3 10,000,000 6.625% due 6/15/1998 9,998,700 10,034,300
BBB+ A3 8,750,000 6.55% due 5/15/1999 8,745,800 8,737,400
BBB+ A3 5,000,000 6.85% due 5/15/2001 4,995,950 4,995,200
BBB+ A3 11,000,000 Loral Corporation, 8.375% due
6/15/2024 11,056,040 11,766,480
BBB+ A3 4,000,000 Martin Marietta Corporation,
7.375% due 4/15/2013 3,846,440 3,917,160
</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-- McDonnell Douglas Financial
Manufacturing Corp.:
(concluded) A- Baa2 $ 9,000,000 8.625% due 4/01/1997 $ 9,203,220 $ 9,120,600
A- Baa2 5,000,000 6.30% due 10/20/1999 5,029,550 4,838,100
-------------- --------------
57,552,145 58,010,130
<PAGE>
Industrial-- A+ A1 10,000,000 Bass America, Inc., 8.125% due
Services-- 3/31/2002 10,250,610 10,532,200
13.2% A A2 11,000,000 Carnival Cruise Lines, Inc., 7.70%
due 7/15/2004 11,028,940 11,249,810
BBB+ Baa2 6,000,000 Circus Circus Enterprises, Inc.,
6.45% due 2/01/2006 5,986,860 5,564,820
Columbia/HCA Healthcare Corp.:
A- A2 9,000,000 6.87% due 9/15/2003 9,101,160 8,933,220
A- A2 6,000,000 9% due 12/15/2014 6,651,540 6,694,260
A- A2 5,000,000 7.05% due 12/01/2027 4,688,200 4,612,850
A- A2 5,000,000 7.75% due 7/15/2036 4,961,400 4,980,600
Dillard Department Stores, Inc.:
A+ A2 4,000,000 7.375% due 6/15/1999 4,254,860 4,051,320
A+ A2 5,000,000 9.125% due 8/01/2011 6,054,000 5,654,750
A+ A1 2,000,000 Electronic Data Systems Corp.,
6.85% due 5/15/2000 (b) 1,998,420 2,009,004
A- A3 3,000,000 International Paper Company, 7%
due 6/01/2001 2,993,730 3,014,310
JC Penney & Co:
A+ A1 5,000,000 6.375% due 9/15/2000 4,991,900 4,929,400
A+ A1 16,000,000 7.65% due 8/15/2016 15,590,110 15,842,560
AAA Aaa 7,000,000 Johnson & Johnson Co., 8.72% due
11/01/2024 7,057,420 7,569,520
News American Holdings, Inc.:
BBB Baa3 4,000,000 9.125% due 10/15/1999 4,298,640 4,248,880
BBB Baa3 10,000,000 8.625% due 2/01/2003 10,965,400 10,662,800
BBB Baa3 10,000,000 7.60% due 10/11/2015 9,917,800 9,427,200
Royal Caribbean Cruises Ltd.:
BBB- Baa3 2,500,000 8.25% due 4/01/2005 2,568,775 2,583,775
BBB- Baa3 3,500,000 7.25% due 8/15/2006 3,372,950 3,428,530
Sears, Roebuck & Co.:
A- A2 5,000,000 9.25% due 4/15/1998 5,712,125 5,210,150
A- A2 8,785,000 8.45% due 11/01/1998 9,709,797 9,074,817
Service Corporation International:
BBB+ Baa1 7,000,000 6.75% due 6/01/2001 6,978,580 6,912,507
BBB+ Baa1 9,500,000 7.20% due 6/01/2006 9,471,215 9,290,145
Time Warner Entertainment Co.:
BBB- Ba1 6,000,000 8.875% due 10/01/2012 6,624,540 6,381,240
BBB- Ba1 5,000,000 8.375% due 3/15/2023 5,281,450 4,935,250
AA A2 14,345,000 Wal-Mart Stores, Inc., 8.50% due
9/15/2024 14,488,240 15,093,809
A A2 10,000,000 Walt Disney Co., 6.375% due
3/30/2001 10,000,000 9,845,500
-------------- --------------
194,998,662 192,733,227
Industrial-- BBB Baa2 9,000,000 Federal Express Corporation,
Transportation-- 9.65% due 6/15/2012 10,137,590 10,446,120
2.7% BBB+ Baa2 15,000,000 Kansas City Southern Industries,
Inc., 7% due 12/15/2025 14,805,750 13,148,850
Southwest Airlines, Inc.:
A- A3 10,000,000 9.40% due 7/01/2001 11,326,040 10,798,500
A- A3 2,000,000 8% due 3/01/2005 1,989,220 2,063,220
A- A3 3,000,000 7.875% due 9/01/2007 2,983,950 3,036,840
-------------- --------------
41,242,550 39,493,530
</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>
Supranational-- Asian Development Bank:
2.0% AAA Aaa $ 3,000,000 10.75% due 6/01/1997 $ 3,302,730 $ 3,089,760
AAA Aaa 5,000,000 6.125% due 3/09/2004 4,952,900 4,821,250
AAA Aaa 8,000,000 Inter-American Development Bank
Co., 8.875% due 6/01/2009 10,115,250 9,166,640
AAA Aaa 10,000,000 International Bank for
Reconstruction & Development,
12.375% due 10/15/2002 13,082,110 12,689,600
-------------- --------------
31,452,990 29,767,250
Utilities-- GTE Corp.:
Communications BBB+ A3 7,500,000 9.375% due 12/01/2000 8,235,170 8,166,750
- --2.8% BBB+ A3 4,000,000 9.10% due 6/01/2003 4,242,720 4,411,160
BBB+ A3 3,000,000 10.30% due 11/15/2017 3,285,270 3,265,800
BBB+ A3 9,500,000 8.75% due 11/01/2021 9,904,225 10,488,380
AAA Aaa 7,000,000 Indiana Bell Telephone Co. Inc.,
7.30% due 8/15/2026 6,988,030 6,868,540
A A2 6,000,000 MCI Communications Corporation,
6.95% due 8/15/2006 5,980,200 5,896,500
AA Aa3 2,000,000 Southwestern Bell Telecommunications
Corp., 6.125% due 3/01/2000 2,011,250 1,965,620
-------------- --------------
40,646,865 41,062,750
Utilities-- A A2 22,800,000 Central Power & Light Co., 6% due
Electric--4.2% 10/01/1997 22,712,058 22,767,396
AA- Aa2 6,000,000 Duke Power Co., 8% due 11/01/1999 5,964,660 6,221,640
A+ A1 2,000,000 Georgia Power Co., 6.125% due
9/01/1999 1,961,420 1,973,020
AA- A1 5,000,000 Northern States Power Company,
7.125% due 7/01/2025 5,305,900 4,657,740
A- A3 11,000,000 Public Service Electric & Gas Co.,
7.125% due 11/01/1997 11,092,510 11,074,690
AA- A1 5,000,000 TECO Energy, Inc., 9.27% due
6/12/2000 5,000,000 5,405,100
A A2 8,500,000 Virginia Electric & Power Co.,
8.625% due 10/01/2024 8,377,160 9,044,306
-------------- --------------
60,413,708 61,143,892
<PAGE>
Yankee AA- Aa2 6,000,000 ABN AMRO Bank, 7.55% due
Corporates*-- 6/28/2006 (2) 5,999,160 6,112,680
10.2% A+ A1 6,000,000 Australia & New Zealand Banking
Group Ltd., 7.55% due
9/15/2006 (2) 5,990,880 6,089,640
BBB+ A3 8,885,000 Bangkok Metropolitan Bank Public
Company Limited, 7.25% due
9/15/2005 (2) (b) 8,799,674 8,565,495
AA- Aa3 9,500,000 CRA Finance Ltd., 6.50% due
12/01/2003 (2) 9,519,310 9,101,380
BBB Baa1 7,500,000 China International Trust, 9% due
10/15/2006 (2) 8,060,850 8,007,675
A A3 4,000,000 China Light & Power Company,
Limited, 7.50% due 4/15/2006 (9) 3,974,520 3,945,160
Ford Capital B.V. (2):
A+ A1 10,000,000 9.875% due 5/15/2002 10,531,200 11,274,100
A+ A1 3,995,000 9.50% due 6/01/2010 4,430,215 4,610,430
Grand Metropolitan Investment
Corp. (2):
A+ A2 4,000,000 6.50% due 9/15/1999 4,000,000 3,971,560
A+ A2 9,000,000 8.625% due 8/15/2001 9,412,690 9,650,610
A A3 11,500,000 Mass Transit Railway Corp.,
7.25% due 10/01/2005 (8) 11,657,700 11,201,000
A- A2 6,250,000 Maybank New York, 7.125% due
9/15/2005 (2) 6,217,937 6,092,875
A A1 8,000,000 Midland Bank PLC, 7.625% due
6/15/2006 (2) 7,980,960 8,130,160
A A2 10,000,000 Norsk Hydro AS, 7.15% due
11/15/2025 (9) 9,958,300 9,300,500
A+ A1 12,000,000 Petroliam Nasional BHD, 6.875% due
7/01/2003 (9) (b) 11,929,530 11,827,080
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (concluded) Investment Grade Portfolio
<S> <S> <S> <C> <S> <C> <C>
Yankee BBB+ A3 $ 5,000,000 Philips Electronics N.V., 7.20%
Corporates* due 6/01/2026 (9) $ 4,988,700 $ 4,971,650
(concluded) A+ A1 12,000,000 Pohang Iron & Steel Industries
Co., Ltd., 7.375% due
5/15/2005 (7) 12,217,645 11,871,000
A+ A1 6,500,000 Telekom Malaysia BHD, 7.125%
due 8/01/2005 (9) (b) 6,668,405 6,431,295
A A2 9,000,000 WMC (Western Mining Corp.)
Finance Ltd., 7.25% due
11/15/2013 (1) 9,089,100 8,578,980
-------------- --------------
151,426,776 149,733,270
<PAGE>
Yankee AAA Aaa 4,000,000 Export-Import Bank of Japan,
Sovereign*-- 8.35% due 12/01/1999 (3) 4,226,640 4,197,880
3.1% AA- A1 4,000,000 Export-Import Bank of Korea,
6.375% due 2/15/2006 (6) 3,977,840 3,752,920
AA- A1 7,000,000 Korea Development Bank, 7.25% due
5/15/2006 (2) 6,850,340 6,977,740
Metropolis of Tokyo (Japan) (3):
AAA Aaa 3,550,000 9.25% due 10/11/1998 4,134,756 3,736,730
AAA Aaa 3,000,000 8.70% due 10/05/1999 3,469,410 3,167,550
AAA Aaa 4,000,000 9.25% due 11/08/2000 4,219,660 4,354,240
BBB A3 5,000,000 People's Republic of China,
7.375% due 7/03/2001 (6) 5,033,025 5,027,895
AA Aa3 10,803,000 Republic of Italy, 6.875% due
9/27/2023 (6) 9,420,095 9,832,242
A- A3 5,000,000 State of Israel, 6.375% due
12/15/2005 (6) 4,957,750 4,662,150
-------------- --------------
46,289,516 45,709,347
Total Investments in Bonds &
Notes--95.3% 1,403,881,470 1,392,700,005
Short-Term Securities
Repurchase 44,619,000 Lehman Brothers Inc., purchased
Agreements** on 9/30/1996 to yield 5.80%
to 10/01/1996 44,619,000 44,619,000
Total Investments in
Short-Term Securities--3.0% 44,619,000 44,619,000
Total Investments--98.3% $1,448,500,470 1,437,319,005
==============
Other Assets Less Liabilities--1.7% 24,423,880
--------------
Net Assets--100.0% $1,461,742,885
==============
<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.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
++Subject to principal paydowns.
<PAGE>
(a)Floating Rate Note.
(b)Restricted securities as to resale. The value of the Portfolio's
investments in restricted securities was approximately $28,833,000,
representing 2.0% of net assets.
Acquisition Value
Issue Date(s) Cost (Note 1a)
Bangkok Metropolitan Bank Public
Company Limited,7.25% due 9/15/2005 9/29/1995 $ 8,799,674 $ 8,565,495
Electronic Data Systems Corp.,
6.85% due 5/15/2000 5/19/1995 1,998,420 2,009,004
Petroliam Nasional BHD,
6.875% due 7/01/2003 8/07/1995 11,929,530 11,827,080
Telekom Malaysia BHD,
7.125% due 8/01/2005 10/06/1995--11/22/1995 6,668,405 6,431,295
Total $29,396,029 $28,832,874
=========== ===========
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
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 Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
US Government United States Treasury
Obligations--4.7% Bonds & Notes:
AAA Aaa $ 5,000,000 6% due 8/15/1999 $ 4,982,813 $ 4,964,850
AAA Aaa 6,000,000 7.75% due 12/31/1999 6,271,875 6,245,640
AAA Aaa 2,000,000 6.25% due 8/31/2000 2,000,781 1,988,740
AAA Aaa 1,000,000 8% due 5/15/2001 1,070,000 1,060,940
AAA Aaa 1,000,000 7.50% due 5/15/2002 1,053,750 1,047,030
AAA Aaa 3,000,000 6.375% due 8/15/2002 3,003,750 2,979,360
AAA Aaa 4,000,000 7% due 7/15/2006 4,051,953 4,083,120
-------------- --------------
22,434,922 22,369,680
Asset-Backed AAA Aaa 2,000,000 Banc One, Master Trust
Securities++--0.4% (Series B), 7.55% due
12/15/1999 2,037,109 2,029,360
<PAGE>
Banking--17.3% A- A2 3,500,000 Bank of New York Company, Inc.
(The), 7.875% due 11/15/2002 3,873,450 3,627,820
BankAmerica Corp.:
A+ A1 5,000,000 6.65% due 5/01/2001 4,997,250 4,965,850
A A2 4,000,000 7.50% due 10/15/2002 4,268,880 4,083,320
A+ A1 3,000,000 7.125% due 5/12/2005 2,956,500 2,959,980
A+ A1 2,000,000 Citicorp, 8.80% due 2/01/2000 2,000,000 2,018,420
A+ A1 4,000,000 Fifth Third Bank, 6.75% due
7/15/2005 3,973,600 3,852,320
A A2 9,000,000 First Chicago Corp., 9% due
6/15/1999 9,548,820 9,457,560
A- A3 4,000,000 Golden West Financial Corp.,
9.15% due 5/23/1998 4,542,960 4,161,720
A- A3 6,000,000 Mellon Financial, 6.875% due
3/01/2003 5,483,220 5,914,260
Nationsbank Corp.:
A A2 11,500,000 6.65% due 4/09/2002 11,423,540 11,328,190
A A2 6,000,000 6.50% due 8/15/2003 5,706,180 5,767,980
Norwest Corp.:
AA- Aa3 7,000,000 6.25% due 4/15/1999 6,977,040 6,952,260
A+ A1 1,000,000 6.625% due 3/15/2003 1,003,060 967,950
A- A3 2,500,000 US Bancorp, 6.75% due 10/15/2005 2,486,550 2,388,675
AA+ Aa2 5,000,000 Wachovia Corporation, 6% due
3/15/1999 4,890,950 4,951,850
BBB Baa1 9,000,000 Washington Mutual Inc., 7.25% due
8/15/2005 8,930,520 8,839,530
-------------- --------------
83,062,520 82,237,685
Canadian Province of Quebec (Canada) (3):
Provinces*-- A+ A2 9,000,000 7.50% due 7/15/2002 9,486,070 9,207,270
3.1% A+ A2 5,000,000 8.80% due 4/15/2003 5,538,670 5,421,400
-------------- --------------
15,024,740 14,628,670
Federal AAA Aaa 2,500,000 Federal National Mortgage
Agencies--0.5% Association, 7.85% due
9/10/2004 2,496,484 2,533,975
Finance--21.0% Advanta Corp.:
BBB- Baa2 10,000,000 6.26% due 9/01/1997 9,994,300 9,959,800
BBB- Baa2 11,000,000 7% due 5/01/2001 10,980,980 10,739,300
BBB Baa2 11,580,000 Alex Brown Inc., 7.625% due
8/15/2005 11,797,083 11,607,908
AA- Aa3 10,000,000 Associates Corp. of North America,
7.375% due 8/01/2006 10,122,100 10,078,600
Bear Stearns Companies, Inc.:
A A2 2,000,000 6.75% due 5/01/2001 1,993,680 1,981,280
A A2 3,000,000 8.75% due 3/15/2004 3,224,430 3,239,430
</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>
Finance CIT Group Holdings, Inc.:
(concluded) A+ Aa3 $ 4,000,000 7.625% due 12/05/1996 $ 3,987,120 $ 4,011,880
A+ Aa3 3,000,000 5.533% due 2/28/1997 (a) 2,998,020 2,999,760
BBB+ Baa2 4,000,000 Comdisco, Inc., 7.25% due
4/15/1998 3,990,720 4,049,080
A A2 6,250,000 Dean Witter, Discover & Co.,
6.75% due 8/15/2000 6,226,438 6,234,312
Finova Capital Corp.:
A- Baa1 7,000,000 6.375% due 10/15/2000 6,972,980 6,877,780
A- Baa1 5,000,000 6.625% due 9/15/2001 5,096,550 4,908,950
BBB+ A3 5,000,000 MBNA Corporation, 7.29% due
12/08/1997 5,074,550 5,066,000
A+ A1 8,000,000 Morgan Stanley Group, Inc., 5.625%
due 3/01/1999 7,983,520 7,836,240
BBB+ Baa1 4,000,000 PaineWebber Group, Inc., 8.875%
due 3/15/2005 4,025,080 4,299,280
Smith Barney Holdings Inc.:
A- A2 3,000,000 6.50% due 10/15/2002 2,986,120 2,907,240
A- A2 1,000,000 6.875% due 6/15/2005 992,930 964,440
A+ A1 2,000,000 The Travelers Corp., 9.50% due
3/01/2002 2,168,400 2,223,440
-------------- --------------
100,615,001 99,984,720
Industrial-- AA- A1 5,481,000 Anheuser-Busch Cos., Inc., 8.75%
Consumer due 12/01/1999 6,189,909 5,804,105
Goods--5.1% Nabisco, Inc.:
BBB Baa2 5,000,000 6.70% due 6/15/2002 4,997,050 4,884,200
BBB Baa2 3,000,000 6.85% due 6/15/2005 2,994,300 2,873,790
A A1 4,000,000 PepsiCo., Inc., 6.125% due 1/15/1998 3,972,240 3,988,880
A A2 3,500,000 Philip Morris Cos., Inc., 9% due
1/01/2001 3,576,195 3,738,420
BBB- Baa3 3,000,000 RJR Nabisco Holding Corp., 8.75%
due 4/15/2004 2,911,320 2,962,710
-------------- --------------
24,641,014 24,252,105
Industrial-- Texaco Capital Inc.:
Energy--0.9% A+ A1 2,000,000 6.875% due 7/15/1999 1,996,120 2,006,460
A+ A1 2,000,000 9% due 12/15/1999 2,342,460 2,135,140
-------------- --------------
4,338,580 4,141,600
<PAGE>
Industrial-- BBB Baa2 4,000,000 Applied Materials Inc., 6.65% due
Manufacturing-- 9/05/2000 4,000,000 3,965,640
10.2% A+ A1 5,000,000 Ford Motor Credit Co., 7.75% due
3/15/2005 4,995,450 5,116,050
General Motors Acceptance Corp.:
A- A3 6,000,000 6.70% due 4/18/1997 6,090,180 6,026,280
A- A3 2,000,000 7.60% due 1/20/1998 1,957,400 2,035,580
A- A3 5,000,000 7.125% due 5/11/1998 5,056,400 5,062,550
A- A3 5,000,000 6.625% due 10/01/2002 4,991,000 4,888,250
A- A3 2,000,000 7.125% due 5/01/2003 1,989,780 1,995,380
A- A3 2,000,000 International Paper Company,
7% due 6/01/2001 1,995,820 2,009,540
Lockheed Martin Corp.:
BBB+ A3 1,000,000 6.625% due 6/15/1998 999,870 1,003,430
BBB+ A3 2,500,000 6.55% due 5/15/1999 2,498,800 2,496,400
BBB+ A3 5,000,000 6.85% due 5/15/2001 4,995,950 4,995,200
McDonnell Douglas Corporation:
A- Baa2 4,000,000 8.625% due 4/01/1997 4,142,720 4,053,600
A- Baa2 5,000,000 6.30% due 10/20/1999 5,029,550 4,838,100
-------------- --------------
48,742,920 48,486,000
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Issue Cost (Note 1a)
Bonds & Notes (continued) Intermediate Term Portfolio
<S> <S> <S> <C> <S> <C> <C>
Industrial-- A+ A1 $ 3,000,000 Bass America, Inc., 6.625% due
Services--18.3% 3/01/2003 $ 2,825,520 $ 2,912,010
A A2 9,000,000 Carnival Cruise Lines, Inc.,
7.70% due 7/15/2004 8,799,420 9,204,390
A- A2 7,000,000 Columbia/HCA Healthcare Corp.,
6.87% due 9/15/2003 7,043,300 6,948,060
A+ A1 3,500,000 Electronic Data Systems Corp.,
6.85% due 5/15/2000 (b) 3,497,235 3,515,757
A+ A1 5,000,000 JC Penney & Co., 6.375% due
9/15/2000 4,991,900 4,929,400
BBB- Ba1 10,000,000 La Quinta Inns, Inc., 7.25% due
3/15/2004 9,949,000 9,627,610
BBB Baa3 14,500,000 News American Holdings, Inc., 8.50%
due 2/15/2005 14,789,005 15,345,350
Royal Caribbean Cruises Ltd.:
BBB- Baa3 2,500,000 8.25% due 4/01/2005 2,568,775 2,583,775
<PAGE> BBB- Baa3 1,800,000 7.25% due 8/15/2006 1,776,006 1,763,244
Sears, Roebuck & Co.:
A- A2 2,500,000 9.25% due 4/15/1998 2,837,275 2,605,075
A- A2 7,000,000 8.45% due 11/01/1998 7,762,380 7,230,930
A- A2 5,550,000 Sears Roebuck Acceptance Corp.,
6.22% due 3/25/1999 5,478,183 5,508,319
Service Corporation International:
BBB+ Baa1 1,000,000 6.75% due 6/01/2001 996,940 987,501
BBB+ Baa1 1,500,000 7.20% due 6/01/2006 1,495,455 1,466,865
Time Warner Entertainment:
BBB- Ba1 5,000,000 7.95% due 2/01/2000 5,172,300 5,115,050
BBB- Ba1 5,000,000 9.625% due 5/01/2002 5,586,000 5,522,850
A A2 2,000,000 Walt Disney Co., 6.375% due
3/30/2001 2,000,000 1,969,100
-------------- --------------
87,568,694 87,235,286
Industrial-- BB+ Baa3 4,310,000 AMR Corporation, 9.50% due
Transportation-- 7/15/1998 4,606,528 4,508,993
3.4% AA A1 4,000,000 Boeing Co. (The), 6.35% due
6/15/2003 3,599,960 3,861,840
Southwest Airlines, Inc.:
A- A3 6,500,000 9.40% due 7/01/2001 7,564,180 7,019,025
A- A3 1,000,000 8% due 3/01/2005 994,610 1,031,610
-------------- --------------
16,765,278 16,421,468
Utilities-- GTE Corporation:
Communications-- BBB+ A3 1,000,000 9.375% due 12/01/2000 1,090,310 1,088,900
2.4% BBB+ A3 2,000,000 9.10% due 6/01/2003 2,194,920 2,205,580
A A2 6,000,000 MCI Communications Corporation,
6.95% due 8/15/2006 5,980,200 5,896,500
AA Aa3 2,200,000 Southwestern Bell Capital Corp.,
6.625% due 4/01/2005 2,108,590 2,130,766
-------------- --------------
11,374,020 11,321,746
Utilities-- A- A3 4,000,000 Pennsylvania Power & Light Co.,
Electric--0.8% 5.50% due 4/01/1998 3,991,280 3,949,480
Utilities-- AA- A1 2,000,000 Consolidated Natural Gas Co., 8.75%
Gas--0.4% due 6/01/1999 2,125,440 2,095,920
Yankee BBB+ A3 5,000,000 Bangkok Metropolitan Bank Public
Corporates*-- Company Limited, 7.25% due
6.2% 9/15/2005 (8) (b) 4,949,950 4,820,200
AA- Aa3 4,000,000 CRA Finance Ltd., 6.50% due
12/01/2003 (8) 4,006,020 3,832,160
A+ A1 2,000,000 Ford Capital B.V., 9.875% due
5/15/2002 (8) 2,300,380 2,254,820
Grand Metropolitan Investment
Corp. (8):
A+ A2 3,000,000 6.50% due 9/15/1999 3,040,120 2,978,670
A+ A2 3,000,000 8.625% due 8/15/2001 3,069,700 3,216,870
</TABLE>
<PAGE>
<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 $ 1,000,000 Midland Bank PLC, 7.625% due
Corporates* 6/15/2006 (8) $ 992,340 $ 1,016,270
(concluded) A+ A1 2,000,000 Petroliam Nasional BHD, 6.875%
due 7/01/2003 (7) (b) 1,972,960 1,971,180
BBB+ A3 5,000,000 Philips Electronics N.V., 7.75%
due 4/15/2004 (7) 5,430,750 5,103,150
A+ A1 1,000,000 Pohang Iron & Steel Co., 7.375%
due 5/15/2005 (6) 1,018,160 989,250
A+ A1 3,500,000 Telekom Malaysia BHD, 7.125%
due 8/01/2005 (7) (b) 3,595,295 3,463,005
-------------- --------------
30,375,675 29,645,575
Yankee AA- A1 3,000,000 Export-Import Bank of Korea, 6.375%
Sovereign*-- due 2/15/2006 (1) 2,983,380 2,814,690
2.2% AA- A1 2,000,000 Korea Development Bank, 7.25%
due 5/15/2006 (2) 1,957,240 1,993,640
AAA Aaa 2,000,000 Metropolis of Tokyo (Japan), 8.70%
due 10/05/1999 (5) 2,312,940 2,111,700
BBB A3 1,500,000 People's Republic of China, 7.75%
due 7/05/2006 (1) 1,475,865 1,505,760
A- A3 2,000,000 State of Israel, 6.375% due
12/15/2005 (1) 1,983,100 1,864,860
-------------- --------------
10,712,525 10,290,650
Total Investments in Bonds &
Notes--96.9% 466,306,202 461,623,920
Short-Term Securities
Repurchase 9,529,000 UBS Securities Funding, Inc.,
Agreements**--2.0% purchased on 9/30/1996 to yield
5.75% to 10/01/1996 9,529,000 9,529,000
Total Investments in
Short-Term Securities--2.0% 9,529,000 9,529,000
Total Investments--98.9% $ 475,835,202 471,152,920
==============
Other Assets Less Liabilities--1.1% 5,447,012
--------------
Net Assets--100.0% $ 476,599,932
==============
<PAGE>
<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 the Province.
(4)Industrial Mining.
(5)Government Entity; Guaranteed by Japan.
(6)Industrial; Metals.
(7)Industrial.
(8)Financial Institution.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
++Subject to principal paydowns.
(a)Floating Rate Note.
(b)Restricted securities as to resale. The value of the Portfolio's
investments in restricted securities was approximately $13,770,000,
representing 2.9% of net assets.
<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 9/22/1995--9/29/1995 $ 4,949,950 $ 4,820,200
Electronic Data Systems Corp.,
6.85% due 5/15/2000 5/19/1995 3,497,235 3,515,757
Petroliam Nasional BHD,
6.875% due 7/01/2003 7/14/1995--8/07/1995 1,972,960 1,971,180
Telekom Malaysia BHD,
7.125% due 8/01/2005 10/06/1995--11/22/1995 3,595,295 3,463,005
Total $14,015,440 $13,770,142
=========== ===========
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statements of Assets and Liabilities as of September 30, 1996
<CAPTION>
High Income Investment Intermediate
Portfolio Grade Portfolio Term Portfolio
<S> <S> <C> <C> <C>
Assets: Investments, at value* (Note 1a) $5,710,820,345 $1,437,319,005 $ 471,152,920
Cash 1,553,815 407,420 1,873
Receivables:
Interest 107,581,606 26,107,005 8,594,863
Securities sold 63,713,835 2,501,953 --
Capital shares sold 20,211,893 4,743,968 761,814
Paydowns 80,712 -- --
Loans -- 1,989 1,874
Prepaid registration fees and other assets
(Note 1e) 114,224 65,728 46,378
-------------- -------------- --------------
Total assets 5,904,076,430 1,471,147,068 480,559,722
-------------- -------------- --------------
Liabilities: Payables:
Securities purchased 46,962,985 2,500,000 --
Dividends to shareholders (Note 1f) 15,311,894 2,758,083 866,906
Distributor (Note 2) 2,643,810 463,564 88,988
Capital shares redeemed 7,377,540 2,555,686 2,606,318
Investment adviser (Note 2) 1,784,478 397,985 130,664
Accrued expenses and other liabilities 1,772,517 728,865 266,914
-------------- -------------- --------------
Total liabilities 75,853,224 9,404,183 3,959,790
-------------- -------------- --------------
Net Assets: Net assets $5,828,223,206 $1,461,742,885 $ 476,599,932
============== ============== ==============
Net Assets Class A Common Stock, $.10 par value++ $ 11,945,721 $ 5,453,973 $ 1,919,796
Consist of: Class B Common Stock, $.10 par value++++ 53,574,971 6,485,860 1,920,584
Class C Common Stock, $.10 par value++++++ 4,566,240 581,389 89,930
Class D Common Stock, $.10 par value++++++++ 3,372,744 571,318 294,925
Paid-in capital in excess of par 5,746,162,805 1,498,276,635 487,940,541
Accumulated distributions in excess of
investment income--net (Note 1f) (2,665,658) -- --
Accumulated realized capital losses on
investments--net (5,141,262) (6,680,118) (5,362,923)
Accumulated distributions in excess of realized
capital gains on investments--net (Note 1f) -- (31,764,707) (5,520,639)
Unrealized appreciation (depreciation) on
investments--net 16,407,645 (11,181,465) (4,682,282)
-------------- -------------- --------------
Net assets $5,828,223,206 $1,461,742,885 $ 476,599,932
============== ============== ==============
<PAGE>
Net Asset Class A: Net assets $ 947,479,106 $ 608,900,606 $ 216,545,160
Value: ============== ============== ==============
Shares outstanding 119,457,213 54,539,733 19,197,959
============== ============== ==============
Net asset value and redemption price per share $ 7.93 $ 11.16 $ 11.28
============== ============== ==============
Class B: Net assets $4,250,539,421 $ 724,088,680 $ 216,641,211
============== ============== ==============
Shares outstanding 535,749,707 64,858,598 19,205,835
============== ============== ==============
Net asset value and redemption price per share $ 7.93 $ 11.16 $ 11.28
============== ============== ==============
Class C: Net assets $ 362,517,515 $ 64,931,023 $ 10,144,279
============== ============== ==============
Shares outstanding 45,662,400 5,813,886 899,296
============== ============== ==============
Net asset value and redemption price per share $ 7.94 $ 11.17 $ 11.28
============== ============== ==============
Class D: Net assets $ 267,687,164 $ 63,822,576 $ 33,269,282
============== ============== ==============
Shares outstanding 33,727,435 5,713,177 2,949,249
============== ============== ==============
Net asset value and redemption price per share $ 7.94 $ 11.17 $ 11.28
============== ============== ==============
<FN>
*Identified cost $5,694,412,700 $1,448,500,470 $ 475,835,202
============== ============== ==============
++Authorized shares--Class A 400,000,000 250,000,000 100,000,000
============== ============== ==============
++++Authorized shares--Class B 1,000,000,000 250,000,000 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 Year Ended September 30, 1996
<CAPTION>
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
<S> <S> <C> <C> <C>
Investment Interest and discount earned $ 494,568,206 $ 96,053,974 $ 33,808,458
Income Dividends 10,274,484 -- --
(Note 1d): Loaned securities -- 264,364 104,466
Other 4,272,092 -- --
-------------- -------------- --------------
Total income 509,114,782 96,318,338 33,912,924
-------------- -------------- --------------
Expenses: Account maintenance and distribution
fees--Class B (Note 2) 27,772,529 5,197,514 1,111,276
Investment advisory fees (Note 2) 20,696,123 4,816,371 1,743,030
Transfer agent fees--Class B (Note 2) 2,995,870 1,142,543 449,465
Account maintenance and distribution
fees--Class C (Note 2) 1,973,424 386,450 46,132
Transfer agent fees--Class A (Note 2) 612,406 813,512 402,094
Registration fees (Note 1e) 707,091 257,891 87,772
Accounting services (Note 2) 443,142 115,335 47,858
Account maintenance fees--Class D (Note 2) 446,161 108,621 25,451
Printing and shareholder reports 399,622 114,864 49,641
Transfer agent fees--Class C (Note 2) 207,462 83,877 21,447
Custodian fees 143,526 84,160 45,760
Transfer agent fees--Class D (Note 2) 120,879 65,941 48,645
Professional fees 102,613 30,090 13,140
Directors' fees and expenses 34,362 9,508 3,282
Pricing fees (Note 2) 19,921 11,990 6,748
Other 57,976 14,481 6,958
-------------- -------------- --------------
Total expenses 56,733,107 13,253,148 4,108,699
-------------- -------------- --------------
Investment income--net 452,381,675 83,065,190 29,804,225
-------------- -------------- --------------
Realized & Realized gain on investments--net 31,483,874 1,240,458 3,880,395
Unrealized Gain Change in unrealized appreciation/depreciation
(Loss) on on investments--net 65,146,802 (44,461,678) (13,083,867)
Investments--Net -------------- -------------- --------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from
Operations $ 549,012,351 $ 39,843,970 $ 20,600,753
============== ============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets High Income Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 452,381,675 $ 360,156,487
Realized gain (loss) on investments--net 31,483,874 (21,583,485)
Change in unrealized appreciation/depreciation on
investments--net 65,146,802 103,640,401
-------------- --------------
Net increase in net assets resulting from operations 549,012,351 442,213,403
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (87,755,895) (92,450,302)
Shareholders Class B (329,093,983) (259,162,896)
(Note 1f): Class C (21,699,154) (4,442,179)
Class D (16,708,496) (4,101,110)
In excess of investment income--net:
Class A (505,842) --
Class B (1,896,961) --
Class C (125,078) --
Class D (96,311) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (457,881,720) (360,156,487)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 1,376,309,947 1,054,930,541
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 1,467,440,578 1,136,987,457
Beginning of year 4,360,782,628 3,223,795,171
-------------- --------------
End of year* $5,828,223,206 $4,360,782,628
============== ==============
<FN>
*Undistributed (accumulated) investment income
(loss)--net (Note 1g) $ (2,665,658) $ 2,875,853
============== ==============
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets (continued) Investment Grade Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 83,065,190 $ 63,342,700
Realized gain (loss) on investments--net 1,240,458 (6,680,118)
Change in unrealized appreciation/depreciation on
investments--net (44,461,678) 69,854,981
-------------- --------------
Net increase in net assets resulting from operations 39,843,970 126,517,563
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (36,619,895) (28,557,399)
(Note 1f): Class B (40,835,373) (33,602,341)
Class C (2,822,765) (458,421)
Class D (2,787,157) (724,539)
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (83,065,190) (63,342,700)
-------------- --------------
Capital Share Net increase in net assets derived from capital share 350,127,963 241,816,022
Transactions transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 306,906,743 304,990,885
Beginning of year 1,154,836,142 849,845,257
-------------- --------------
End of year $1,461,742,885 $1,154,836,142
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets (concluded) Intermediate Term Portfolio
<CAPTION>
For the Year Ended September 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 29,804,225 $ 22,585,754
Realized gain (loss) on investments--net 3,880,395 (5,362,923)
Change in unrealized appreciation/depreciation on
investments--net (13,083,867) 22,789,142
-------------- --------------
Net increase in net assets resulting from operations 20,600,753 40,011,973
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (14,523,748) (12,207,578)
(Note 1f): Class B (13,124,698) (9,963,391)
Class C (542,378) (58,841)
Class D (1,613,401) (355,944)
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (29,804,225) (22,585,754)
-------------- --------------
Capital Share Net increase in net assets derived from capital share 32,787,882 124,155,845
Transactions transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 23,584,410 141,582,064
Beginning of year 453,015,522 311,433,458
-------------- --------------
End of year $ 476,599,932 $ 453,015,522
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Financial Highlights High Income Portfolio
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 7.80 $ 7.66 $ 8.13 $ 7.84 $ 7.02
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .75 .81 .75 .79 .87
Realized and unrealized gain (loss)
on investments--net .14 .14 (.47) .29 .82
---------- ---------- ---------- ---------- ----------
Total from investment operations .89 .95 .28 1.08 1.69
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.76) (.81) (.75) (.79) (.87)
In excess of investment income--net --** -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.76) (.81) (.75) (.79) (.87)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.93 $ 7.80 $ 7.66 $ 8.13 $ 7.84
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 11.95% 13.27% 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 year (in thousands) $ 947,479 $ 902,321 $ 876,573 $ 886,784 $ 683,801
Data: ========== ========== ========== ========== ==========
Portfolio turnover 32.44% 24.58% 32.52% 34.85% 40.52%
========== ========== ========== ========== ==========
<FN>
++Based on average shares outstanding during the period.
*Total investment returns exclude the effect of sales loads.
**Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights High Income Portfolio
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
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 year $ 7.80 $ 7.66 $ 8.13 $ 7.85 $ 7.02
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .69 .75 .69 .72 .81
Realized and unrealized gain (loss)
on investments--net .15 .14 (.47) .28 .83
---------- ---------- ---------- ---------- ----------
Total from investment operations .84 .89 .22 1.00 1.64
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.71) (.75) (.69) (.72) (.81)
In excess of investment income--net --+++++ -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.71) (.75) (.69) (.72) (.81)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.93 $ 7.80 $ 7.66 $ 8.13 $ 7.85
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 11.11% 12.41% 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 8.80% 9.81% 8.53% 8.94% 10.42%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $4,250,539 $3,220,767 $2,347,223 $1,823,275 $ 847,354
Data: ========== ========== ========== ========== ==========
Portfolio turnover 32.44% 24.58% 32.52% 34.85% 40.52%
========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Sept. 30, Sept. 30, Sept. 30, 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 .68 .71 .72 .75
Realized and unrealized gain on investments--net .15 .22 .16 .21
---------- ---------- ---------- ----------
Total from investment operations .83 .93 .88 .96
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.70) (.71) (.74) (.75)
In excess of investment income--net --+++++ -- --+++++ --
---------- ---------- ---------- ----------
Total dividends and distributions (.70) (.71) (.74) (.75)
========== ========== ========== ==========
Net asset value, end of period $ 7.94 $ 7.81 $ 7.94 $ 7.80
========== ========== ========== ==========
Total Investment Based on net asset value per share 11.05% 12.92%+++ 11.82% 13.37%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.33% 1.38%* .76% .81%*
Net Assets: ========== ========== ========== ==========
Investment income--net 8.73% 9.06%* 9.30% 9.70%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 362,518 $ 135,019 $ 267,687 $ 102,676
Data: ========== ========== ========== ==========
Portfolio turnover 32.44% 24.58% 32.44% 24.58%
========== ========== ========== ==========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued) Investment Grade Portfolio
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.51 $ 10.77 $ 12.81 $ 12.30 $ 11.59
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .76 .80 .75 .81 .88
Realized and unrealized gain (loss)
on investments--net (.35) .74 (1.49) .67 .71
---------- ---------- ---------- ---------- ----------
Total from investment operations .41 1.54 (.74) 1.48 1.59
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.76) (.80) (.75) (.81) (.88)
Realized gain on investments--net -- -- (.10) (.16) --
In excess of realized gain on
investments--net -- -- (.45) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.76) (.80) (1.30) (.97) (.88)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 11.16 $ 11.51 $ 10.77 $ 12.81 $ 12.30
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 3.60% 14.93% (6.03%) 12.76% 14.30%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses .56% .58% .53% .56% .58%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 6.64% 7.30% 6.61% 6.94% 7.43%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 608,901 $ 472,388 $ 366,792 $ 407,625 $ 362,139
Data: ========== ========== ========== ========== ==========
Portfolio turnover 88.53% 108.07% 159.05% 121.34% 65.43%
========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.51 $ 10.77 $ 12.81 $ 12.30 $ 11.59
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .67 .72 .66 .72 .79
Realized and unrealized gain (loss)
on investments--net (.35) .74 (1.49) .67 .71
---------- ---------- ---------- ---------- ----------
Total from investment operations .32 1.46 (.83) 1.39 1.50
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.67) (.72) (.66) (.72) (.79)
Realized gain on investments--net -- -- (.10) (.16) --
In excess of realized gain on
investments--net -- -- (.45) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.67) (.72) (1.21) (.88) (.79)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 11.16 $ 11.51 $ 10.77 $ 12.81 $ 12.30
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 2.81% 14.04% (6.73%) 11.91% 13.44%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.32% 1.35% 1.29% 1.29% 1.34%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 5.88% 6.52% 5.85% 5.80% 6.65%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 724,089 $ 631,517 $ 483,053 $ 515,402 $ 325,706
Data: ========== ========== ========== ========== ==========
Portfolio turnover 88.53% 108.07% 159.05% 121.34% 65.43%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effect of sales loads.
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 Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Sept. 30, Sept. 30, Sept. 30, 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 .66 .67 .73 .73
Realized and unrealized gain (loss) on
investments--net (.34) .84 (.34) .84
---------- ---------- ---------- ----------
Total from investment operations .32 1.51 .39 1.57
---------- ---------- ---------- ----------
Less dividends from investment income--net (.66) (.67) (.73) (.73)
---------- ---------- ---------- ----------
Net asset value, end of period $ 11.17 $ 11.51 $ 11.17 $ 11.51
========== ========== ========== ==========
Total Investment Based on net asset value per share 2.85% 14.60%+++ 3.43% 15.22%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.38% 1.40%* .81% .83%*
Net Assets: ========== ========== ========== ==========
Investment income--net 5.83% 6.27%* 6.40% 6.91%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 64,931 $ 25,778 $ 63,822 $ 25,153
Data: ========== ========== ========== ==========
Portfolio turnover 88.53% 108.07% 88.53% 108.07%
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) Intermediate Term Portfolio
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.50 $ 10.90 $ 12.44 $ 12.03 $ 11.41
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .73 .79 .75 .76 .88
Realized and unrealized gain (loss) on
investments--net (.22) .60 (1.26) .55 .62
---------- ---------- ---------- ---------- ----------
Total from investment operations .51 1.39 (.51) 1.31 1.50
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.73) (.79) (.75) (.76) (.88)
Realized gain on investments--net -- -- -- (.14) --
In excess of realized gain on
investments--net -- -- (.28) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.73) (.79) (1.03) (.90) (.88)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 11.28 $ 11.50 $ 10.90 $ 12.44 $ 12.03
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 4.56% 13.33% (4.25%) 11.39% 13.71%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses .59% .59% .53% .58% .62%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 6.41% 7.14% 6.48% 6.42% 7.54%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 216,545 $ 217,714 $ 170,222 $ 193,505 $ 154,333
Data: ========== ========== ========== ========== ==========
Portfolio turnover 96.40% 142.84% 155.42% 180.52% 95.33%
========== ========== ========== ========== ==========
<FN>
++Commencement of Operations.
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights (continued) Intermediate Term Portfolio
Class B
For the
Period
The following per share data and ratios have been derived Nov. 13,
from information provided in the financial statements. 1992++ to
For the Year Ended 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 .67 .74 .69 .61
Realized and unrealized gain (loss) on
investments--net (.22) .60 (1.26) .90
---------- ---------- ---------- ----------
Total from investment operations .45 1.34 (.57) 1.51
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.67) (.74) (.69) (.61)
Realized gain on investments--net -- -- -- (.14)
In excess of realized gain on investments--net -- -- (.28) --
---------- ---------- ---------- ----------
Total dividends and distributions (.67) (.74) (.97) (.75)
---------- ---------- ---------- ----------
Net asset value, end of period $ 11.28 $ 11.50 $ 10.90 $ 12.44
========== ========== ========== ==========
Total Investment Based on net asset value per share 4.02% 12.73% (4.72%) 13.30%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.11% 1.11% 1.04% 1.07%*
Net Assets: ========== ========== ========== ==========
Investment income--net 5.89% 6.61% 5.98% 5.61%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 216,641 $ 212,146 $ 141,212 $ 134,122
Data: ========== ========== ========== ==========
Portfolio turnover 96.40% 142.84% 155.42% 180.52%
========== ========== ========== ==========
<FN>
++Commencement of Operations.
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights (concluded) Intermediate Term Portfolio
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Sept. 30, Sept. 30, Sept. 30, 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 .67 .70 .72 .74
Realized and unrealized gain (loss) on
investments--net (.22) .69 (.22) .69
---------- ---------- ---------- ----------
Total from investment operations .45 1.39 .50 1.43
---------- ---------- ---------- ----------
Less dividends from investment income--net (.67) (.70) (.72) (.74)
---------- ---------- ---------- ----------
Net asset value, end of period $ 11.28 $ 11.50 $ 11.28 $ 11.50
========== ========== ========== ==========
Total Investment Based on net asset value per share 3.99% 13.25%+++ 4.46% 13.65%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.15% 1.14%* .71% .70%*
Net Assets: ========== ========== ========== ==========
Investment income--net 5.86% 6.24%* 6.32% 6.81%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 10,144 $ 6,806 $ 33,270 $ 16,349
Data: ========== ========== ========== ==========
Portfolio turnover 96.40% 142.84% 96.40% 142.84%
========== ========== ========== ==========
<FN>
++Commencement of Operations.
*Annualized.
**Total investment returns exclude the effect 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 investment company consisting of three separate
portfolios: the High Income Portfolio, the Investment Grade
Portfolio and the Intermediate Term Portfolio. 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 distribution 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.
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. Interest 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.
<PAGE>
(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
contract 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 purchase 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 contract, 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 contract 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.
When a security is purchased or sold through an exercise 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
realizes 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 premium paid or received) Written
and purchased options are non-income producing 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
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend 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.
<PAGE>
(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
treatments for post-October losses.
(g) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$41,466 on the High Income Portfolio have been reclassified between
accumulated net realized capital losses and accumulated
distributions in excess of net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
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.
FAM is responsible for the management of the Fund's Portfolios and
provides the necessary personnel, facilities, 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%
<PAGE>
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%
Pursuant to the distribution plans (the "Distribution Plan") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor 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:
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 maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. 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 year ended September 30, 1996, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions 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 $46,008 $159,008 $428,269 $1,536,552
Investment Grade 9,077 21,853 87,256 186,693
Intermediate Term 802 2,646 10,768 28,889
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
For the year ended September 30, 1996, MLPF&S received contingent
deferred sales charges of $6,208,136 relating to transactions in
Class B Shares, amounting to $4,772,201, $1,143,774, and $292,161 in
the High Income, Investment Grade, and Intermediate Term Portfolios,
respectively, $242,898 relating to transactions in Class C Shares,
amounting to $200,924, $35,555 and $6,419 in the High Income,
Investment Grade, and Intermediate Term Portfolios, respectively and
$51,319 relating to transactions subject to front-end sales charge
waivers in Class D Shares, amounting to $27,054, $22,295, and $1,970
in the High Income, Investment Grade, and Intermediate Term
Portfolios, respectively. In addition, MLPF&S received $58,500 in
commissions on the execution of security transactions, for the High
Income Portfolio for the year ended September 30, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
During the year ended September 30, 1996, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $31,336 for
security price quotations to compute the net asset value of the
Fund.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFD, MLFDS and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended September 30, 1996 were as follows:
High Investment Intermediate
Income Grade Term
Portfolio Portfolio Portfolio
Purchases $2,620,285,720 $1,476,525,727 $504,005,990
============== ============== ============
Sales $1,492,933,779 $1,077,698,245 $434,623,613
============== ============== ============
Net realized and unrealized gains (losses) as of September 30, 1996
were as follows:
Realized Unrealized
High Income Portfolio Gains (Losses) Gains
Long-term investments $ 31,593,051 $ 16,407,645
Short-term investments (109,177) --
------------- -------------
Total $ 31,483,874 $ 16,407,645
============= =============
Realized Unrealized
Investment Grade Portfolio Gains Losses
Long-term investments $ 1,240,458 $ (11,181,465)
------------- -------------
Total $ 1,240,458 $ (11,181,465)
============= =============
Realized Unrealized
Intermediate Term Portfolio Gains (Losses) Losses
Long-term investments $ 3,880,745 $ (4,682,282)
Short-term investments (350) --
------------- -------------
Total $ 3,880,395 $ (4,682,282)
============= =============
As of September 30, 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 $ 216,506,264 $ 13,913,520 $ 3,199,085
Gross unrealized
depreciation (207,626,085) (25,752,806) (8,058,104)
------------- ------------- -------------
Net unrealized
appreciation
(depreciation) $ 8,880,179 $ (11,839,286) $ (4,859,019)
============= ============= =============
The aggregate cost of investments at September 30, 1996 for Federal
income tax purposes was $5,701,940,166 for the High Income
Portfolio, $1,449,158,291 for the Investment Grade Portfolio, and
$476,011,939 for the Intermediate Term Portfolio.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
for the year ended September 30, 1996, was $1,376,309,947 for the
High Income Portfolio, $350,127,963 for the Investment Grade
Portfolio and $32,787,882 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.
Transactions in capital shares for each class were as follows:
High Income Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 17,653,142 $138,206,292
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,577,702 43,685,460
------------ ------------
Total issued 23,230,844 181,891,752
Shares redeemed (19,467,577) (152,268,118)
------------ ------------
Net increase 3,763,267 $ 29,623,634
============ ============
<PAGE>
High Income Portfolio
Class A Shares for the Year 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
============ ============
High Income Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 182,572,014 $1,430,080,855
Shares issued to shareholders
in reinvestment of dividends
and distributions 19,579,491 153,319,965
-------------- --------------
Total issued 202,151,505 1,583,400,820
Automatic conversion of shares (2,223,768) (17,369,063)
Shares redeemed (77,015,717) (603,076,378)
-------------- --------------
Net increase 122,912,020 $962,955,379
============== ==============
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
============== ==============
<PAGE>
High Income Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 35,104,878 $275,231,433
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,535,893 12,030,927
------------ ------------
Total issued 36,640,771 287,262,360
Shares redeemed (8,274,123) (64,777,972)
------------ ------------
Net increase 28,366,648 $222,484,388
============ ============
High Income Portfolio
Class C Shares for the Period
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 Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 45,431,713 $356,012,837
Automatic conversion of shares 2,222,223 17,369,063
Shares issued to shareholders
in reinvestment of dividends 997,894 7,813,928
------------ ------------
Total issued 48,651,830 381,195,828
Shares redeemed (28,082,126) (219,949,282)
------------ ------------
Net increase 20,569,704 $161,246,546
============ ============
<PAGE>
High Income Portfolio
Class D Shares for the Period
October 24, 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.
Investment Grade Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 21,512,307 $245,167,944
Shares issued to shareholders
in reinvestment of dividends 1,723,312 19,614,975
------------ ------------
Total issued 23,235,619 264,782,919
Shares redeemed (9,749,755) (110,603,218)
------------ ------------
Net increase 13,485,864 $154,179,701
============ ============
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
============ ============
<PAGE>
Investment Grade Portfolio
Class B Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 25,682,986 $293,704,255
Shares issued to shareholders
in reinvestment of dividends 2,302,336 26,218,517
------------ ------------
Total issued 27,985,322 319,922,772
Automatic conversion of shares (492,211) (5,556,607)
Shares redeemed (17,518,653) (199,596,946)
------------ ------------
Net increase 9,974,458 $114,769,219
============ ============
NOTES TO FINANCIAL STATEMENTS (concluded)
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 Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 4,830,230 $ 55,222,029
Shares issued to shareholders
in reinvestment of dividends 170,995 1,937,935
------------ ------------
Total issued 5,001,225 57,159,964
Shares redeemed (1,426,919) (16,176,400)
------------ ------------
Net increase 3,574,306 $ 40,983,564
============ ============
<PAGE>
Investment Grade Portfolio
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Sept. 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
============ ============
[FN]
++Commencement of Operations.
Investment Grade Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 4,314,720 $ 49,192,753
Automatic conversion of shares 491,987 5,556,607
Shares issued to shareholders
in reinvestment of dividends 169,863 1,927,735
------------ ------------
Total issued 4,976,570 56,677,095
Shares redeemed (1,448,119) (16,481,616)
------------ ------------
Net increase 3,528,451 $ 40,195,479
============ ============
Investment Grade Portfolio
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Sept. 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.
<PAGE>
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 7,219,026 $ 82,894,354
Shares issued to shareholders
in reinvestment of dividends 697,766 8,005,089
------------ ------------
Total issued 7,916,792 90,899,443
Shares redeemed (7,646,836) (87,796,852)
------------ ------------
Net increase 269,956 $ 3,102,591
============ ============
Intermediate Term Portfolio
Class A Shares for the Year Dollar
Ended 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 Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 8,947,464 $102,809,743
Shares issued to shareholders
in reinvestment of dividends 750,062 8,601,518
------------ ------------
Total issued 9,697,526 111,411,261
Automatic conversion of shares (94,088) (1,066,696)
Shares redeemed (8,841,519) (101,696,552)
------------ ------------
Net increase 761,919 $ 8,648,013
============ ============
<PAGE>
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
============ ============
Intermediate Term Portfolio
Class C Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 807,328 $ 9,279,082
Shares issued to shareholders
in reinvestment of dividends 36,273 415,777
------------ ------------
Total issued 843,601 9,694,859
Shares redeemed (536,033) (6,197,495)
------------ ------------
Net increase 307,568 $ 3,497,364
============ ============
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.
<PAGE>
Intermediate Term Portfolio
Class D Shares for the Year Dollar
Ended September 30, 1996 Shares Amount
Shares sold 2,494,925 $ 28,661,987
Automatic conversion of shares 94,087 1,066,696
Shares issued to shareholders
in reinvestment of dividends 95,536 1,090,298
------------ ------------
Total issued 2,684,548 30,818,981
Shares redeemed (1,156,648) (13,279,067)
------------ ------------
Net increase 1,527,900 $ 17,539,914
============ ============
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 September 30, 1996, the Investment Grade Portfolio held US
Treasury Bonds/Notes having an aggregate value of approximately
$12,208,000 as collateral for Portfolio securities loaned, having a
market value of approximately $11,903,000. The Intermediate Term
Portfolio held US Treasury Bonds/Notes having an aggregate value of
approximately $9,203,000 as collateral for Portfolio securities
loaned, having a market value of approximately $9,084,000.
<PAGE>
6. Capital Loss Carryforward:
At September 30, 1996, the Fund had a capital loss carryforward of
approximately $4,727,000 in the High Income Portfolio, all of which
expires in 1999; approximately $34,388,000 in the Investment Grade
Portfolio, all of which expires in 2003; and approximately
$10,707,000 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.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Corporate Bond Fund, Inc.:
We have audited the accompanying statements of assets and
liabilities, including the schedule of investments, of High Income,
Investment Grade and Intermediate Term Portfolios of Merrill Lynch
Corporate Bond Fund, Inc. as of September 30, 1996, the related
statements of operations for the year then ended, and changes in net
assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at
September 30, 1996 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
High Income, Investment Grade and Intermediate Term Portfolios of
Merrill Lynch Corporate Bond Fund, Inc. as of September 30, 1996,
the results of their operations, the changes in their net assets,
and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
November 7, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
High Income Portfolio
Of the ordinary income distributions paid monthly by the Portfolio
during the fiscal year ended September 30, 1996, 2.2% qualifies for
the dividends received deduction for corporations. Additionally,
there were no long-term capital gain distributions paid during the
year.
Investment Grade and Intermediate Term
Portfolios
None of the ordinary income distributions paid monthly by the
Portfolio during the fiscal year ended September 30, 1996 qualify
for the dividends received deduction for corporations. Additionally,
there were no long-term capital gain distributions paid during the
year.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Listed below are the percentages of total assets of the Portfolios
invested in Federal obligations* as of the end of each quarter of
the fiscal year.
For the Quarter Investment Grade Intermediate Term
Ended Portfolio Portfolio
December 31, 1995 9.83% 15.64%
March 31, 1996 9.61% 10.32%
June 30, 1996 4.24% 3.08%
September 30, 1996 5.32% 4.57%
Of the Fund's ordinary income dividends paid monthly to shareholders
from the Intermediate Term and Investment Grade Portfolios during
the fiscal year ended September 30, 1996, 9.22% and 7.40%,
respectively, were attributable to Federal obligations. In
calculating the foregoing percentages, expenses of the Portfolios
have been allocated on a pro rata basis.
<PAGE>
Please retain this information for your records.
[FN]
*For purposes of this calculation, Federal obligations include US
Treasury Notes, US Treasury Bills, and US Treasury Bonds. Also
included are obligations issued by the following agencies: Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Home Loan Banks, and the Student Loan Marketing Association.
Repurchase agreements are not included in this calculation.
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 P. 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
