MERRILL LYNCH
CONVERTIBLE
FUND, INC.
FUND LOGO
Quarterly Report
November 30, 1998
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent T. Lathbury III, Senior Vice
President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Daniel A. Luchansky, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Convertible Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH CONVERTIBLE FUND, INC.
DEAR SHAREHOLDER
The quarter ended November 30, 1998 was a volatile one for the
convertible market. Merrill Lynch Convertible Fund, Inc.'s Class A,
Class B, Class C and Class D Shares had total returns of +3.28%,
+3.04%, +3.03% and +3.19%, respectively. (Complete performance
information can be found on pages 2 and 3 of this report to
shareholders.)
There was tremendous volatility during the November quarter as stock
prices declined into early October only to rebound strongly by the
end of the quarter. An example of this extreme volatility was the
Volatility Index, which reflects a market consensus estimate of
future volatility based on the "at the money" quotes (when the
strike price and market price are the same) on Standard & Poor's 100
Index options. The Volatility Index started the quarter at an
abnormally high 48.3% and closed the period at about 25.0%, which is
a more normal level of volatility. However, at the stock market low
experienced in early October, this Index registered an astonishing
60.6%. This was a five-year high, which surpassed the 55.5% level
reached on October 27, 1997 when the Asian currency crises triggered
a 554 point decline of the Dow Jones Industrial Average (DJIA).
Interest rates trended lower during the November quarter, with the
long-term Treasury bond yield declining from 5.27% at the beginning
of the quarter to 5.06% at its close. Credit quality spreads, which
had widened dramatically earlier in the year, continued to widen.
According to Bloomberg L.P., the spread between five-year B3-rated
industrial corporate notes and similar maturity Government notes
increased from 465 basis points (4.65%) to 477 basis points during
the quarter. This was partially the result of a flight to quality as
well as forced hedge fund liquidations. There was also a concomitant
reduction in liquidity in the secondary market.
Present equity valuations give us reason to be cautious. Although it
is always difficult to predict the direction of the stock market, it
is clear that valuations are very high on a historical basis. During
the last 12 months, we observed a disparity between stock valuations
and corporate earnings. Valuations have skyrocketed while earnings
are generally flat. This phenomenon is evidenced in price/earnings
ratios of the equity indexes. The price/earnings ratio of the DJIA
expanded from 21.2 on November 30, 1997 to 24.1 on November 30,
1998. During the same period, the price/earnings ratio for the S&P
500 Index jumped from 24.0 to 30.1 (nearly double the quarterly
average price/earnings ratio for the last 20 years). The
price/earnings ratio for the NASDAQ 100 rocketed from 54.1 to a high
of 80.3. In each case, the numerator of the price/earnings ratio
rose sharply, while the denominator increased only slightly or
declined. Net income for the 30 companies that make up the DJIA rose
2.7%, but the Index still rose 16.5% during the year ended November
30, 1998. Earnings for the S&P 500 companies fell 2.9% but the Index
rose 21.8% over the last 12 months. Finally, earnings increases for
the NASDAQ 100 companies were a mere 0.8%, but investors still bid
up the Index by 49.7%. While lower interest rates may have explained
some of the price increases, the expansion in valuations appeared
disproportionate to the rate declines, in our view.
Two other areas of concern are investor sentiment (a contrarian
indicator) and the trading activity in Internet stocks. Recently,
investor psychology has shifted dramatically. According to a survey
conducted by one financial publication in September, the percentage
of investors who were bearish topped out at 47.5%, while the
percentage of bullish investors fell to 36.2%. In our opinion, this
was just as the market was making its way to a short-term bottom.
Now, after the market's recent recovery, sentiment seems to have
reversed. The bullish percentage recently reached a five-year high
at 57.9%, and the bear market percentage declined to only 29.0%.
These numbers suggest that caution is warranted.
The other indicator favoring a cautious posture is trading activity
in Internet stocks. While we recognize the immense potential of the
Internet, the trading action in Internet shares reflects manic
speculation on the part of the public, in our view. We believe that
despite the bright future for the sector, the valuations on many of
the Internet stocks appear overly optimistic.
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
Portfolio Matters
Transactions during the November quarter reflect our conservative
stance as well as issue-specific opportunities. While stocks in
aggregate were trading at high valuations, the strength of the major
indexes masked some bargains among individual issues. We
concentrated our investments in the out-of-favor issues of quality
companies.
We made a significant investment in HEALTHSOUTH Corporation, the
nation's top outpatient surgery and rehabilitation firm. We bought
this defensive common stock on weakness following an earnings
disappointment. By adding stock to our existing position of
convertible debentures, we in effect lowered its conversion premium
and consequently improved its upside equity participation. We
replaced investments in lower-rated Pride International, Inc.
convertibles with the investment-grade convertible debentures of
Diamond Offshore Drilling, Inc. We also initiated positions in two
major investment-grade integrated oil companies: Chevron Corp.
(through a convertible bond issued by Pennzoil Co.) and Unocal Corp.
(via a convertible preferred). Taking advantage of a turnaround
following a poorly executed merger, we bought Union Pacific
Corporation's convertible preferred. We sold out of Key Energy Group
Inc. and The Pep Boys--Manny, Moe & Jack in response to
deterioration in their fundamentals. Perceiving value in the real
estate investment trusts, we added to our position in Equities
Residential Properties Trust (which resulted from a merger with
Merry Land & Investment Co., Inc.) and initiated an investment in
Crescent Real Estate Equities Company. Finally, we purchased a Bell
Atlantic Financial Services Inc. bond that was convertible into
Cable & Wireless Communications PLC.
In Conclusion
We appreciate your continued interest in Merrill Lynch Convertible
Fund, Inc., and we look forward to assisting you with your financial
needs in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Daniel Luchansky)
Daniel Luchansky
Vice President and Portfolio Manager
January 4, 1999
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 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" table assume reinvestment
of all dividends and capital gains distributions at net asset value
on the ex-dividend date. 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.
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Convertible Fund, Inc. Class A Shares++ -3.04% +3.28% +136.43%
ML Convertible Fund, Inc. Class B Shares -3.78 +3.04 - 2.48
ML Convertible Fund, Inc. Class C Shares -3.80 +3.03 - 2.43
ML Convertible Fund, Inc. Class D Shares -2.95 +3.19 - 1.44
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's ten-year/since inception dates are: Class A Shares, for the
ten years ended 11/30/98; and Class B, Class C & Class D Shares,
from 8/04/97 to 11/30/98.
++Investment results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares when the Fund
was closed-end.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 9/30/98 -8.31% -13.12%
Five Years Ended 9/30/98 +6.00 + 4.87
Ten Years Ended 9/30/98 +8.08 + 7.49
[FN]
++Performance results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares when the Fund
was closed-end.
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge currently applicable to Class A
Shares.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 -9.02% -12.56%
Inception (8/04/97)
through 9/30/98 -4.36 - 6.07
[FN]
*Maximum contingent deferred sales charge is 4% and 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 9/30/98 -9.05% -9.93%
Inception (8/04/97)
through 9/30/98 -4.39 -4.39
[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 9/30/98 -8.30% -13.11%
Inception (8/04/97)
through 9/30/98 -3.60 - 7.99
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
S&P Moody's Face
Industry Rating Rating Amount Convertible Debentures Cost Value
<S> <S> <S> <C> <S> <C> <C>
Assisted Assisted Living Concepts, Inc.:
Living-- NR* NR* US$ 2,300,000 6% due 11/01/2002 $ 2,323,247 $ 1,926,250
2.7% NR* NR* 400,000 5.625% due 5/01/2003 400,000 295,500
------------ ------------
2,723,247 2,221,750
Automotive Magna International Inc.:
Parts--9.6% A- Baa1 C$ 500,000 4.875% due 2/15/2005 502,500 533,125
A- Baa1 2,000,000 4.875% due 2/15/2005 2,015,000 2,120,000
Mark IV Industries:
BB+ Ba2 US$ 650,000 4.75% due 11/01/2004 617,500 547,625
BB+ Ba2 1,000,000 4.75% due 11/01/2004 923,750 842,500
B+ B1 2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,840,000 1,625,000
B+ NR* 2,250,000 Tower Automotive, Inc., 5% due 8/01/2004 2,346,000 2,415,937
------------ ------------
8,244,750 8,084,187
Aviation Kellstrom Industries Inc.:
Equipment-- B- B3 1,000,000 5.75% due 10/15/2002 1,000,000 1,017,500
1.8% B- B3 500,000 5.50% due 6/15/2003 500,000 463,750
------------ ------------
1,500,000 1,481,250
Banking & NR* NR* 2,000,000 BankAtlantic Bancorp, Inc., 5.625% due 1,932,175 1,610,000
Financial-- 12/01/2007
1.9%
Boat B+ B2 1,000,000 Halter Marine Group, Inc., 4.50%
Construction-- due 9/15/2004 897,855 628,750
0.7%
Conglo- NR* NR* 600,000 Polyphase Corporation, 12% due 7/01/1999** 600,000 168,000
merates--
0.2%
Electronics-- NR* NR* YEN50,000,000 Matsushita Electric Industrial Company,
1.5% Ltd., Series 5, 1.30% due 3/29/2002 513,387 518,530
NR* NR* 30,000,000 Sony Corporation, Series 3, 1.40% due
9/30/2003 361,652 414,499
NR* NR* 30,000,000 Tokyo Electron Ltd., Series 2, 0.90% due
9/30/2003 343,548 363,540
------------ ------------
1,218,587 1,296,569
Energy--6.5% A- Baa2 US$ 2,000,000 Diamond Offshore Drilling, Inc.,
3.75% due 2/15/2007 1,976,875 1,810,000
NR* B2 600,000 Lomak Petroleum, Inc., 6% due 2/01/2007 584,250 368,250
B- B3 585,000 Parker Drilling Co., 5.50% due 8/01/2004 591,337 412,425
BBB Ba1 3,000,000 Pennzoil Co., 4.95% due 8/15/2008 3,007,500 2,970,000
------------ ------------
6,159,962 5,560,675
Environ- A- Baa3 1,605,000 Thermo Ecotek Corp., 4.875%
mental-- due 4/15/2004 1,606,119 1,452,525
2.7% A- Baa3 1,000,000 Thermo Fibertek Inc., 4.50%
due 7/15/2004 775,000 818,750
------------ ------------
2,381,119 2,271,275
Food & NR* NR* YEN14,000,000 Sanyo Coca-Cola Bottling Co.,
Beverage--0.1% Series 1, 0.90% due 6/30/2003 146,267 113,215
</TABLE>
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
S&P Moody's Face
Industry Rating Rating Amount Convertible Debentures Cost Value
<S> <S> <S> <C> <S> <C> <C>
Healthcare BBB- Ba2 US$ 1,250,000 HEALTHSOUTH Corporation, 3.25% due $ 1,182,500 $ 1,043,750
Services--3.6% 4/01/2003
B- B3 2,325,000 Integrated Health Services Inc.,
5.75% due 1/01/2001 2,373,313 2,022,750
------------ ------------
3,555,813 3,066,500
Home BBB- Ba1 2,500,000 Lennar Corp., 4.276% due 7/29/2018 (b) 1,088,358 1,056,250
Builders--1.3%
Home A- Baa1 1,450,000 Newell Financial Trust I, 5.25%
Furnishings-- due 12/01/2027 1,571,924 1,620,375
1.9%
Medical NR* NR* 550,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 216,707 5,500
Supplies-- A- NR* 250,000 Thermolase Corp., 4.375% due 8/05/2004 224,895 201,875
0.2% ------------ ------------
441,602 207,375
Paper--2.2% NR* NR* 2,000,000 Metsa Serla Oyj (A Shares), 4.375% due
10/15/2002 1,973,425 1,822,500
Pharmaceuti- BBB- Baa3 750,000 ALZA Corp., 5% due 5/01/2006 750,000 1,106,250
cals--5.6% NR* NR* 1,900,000 Genzyme Corp., 5.25% due 6/01/2005 1,843,750 2,396,375
NR* NR* 1,200,000 Swiss Life Finance Ltd., 2% due 5/20/2003 1,272,750 1,284,000
------------ ------------
3,866,500 4,786,625
Real Estate NR* B3 1,500,000 Healthcare Realty Trust Inc., 6.55%
Investment due 3/14/2002 1,397,318 1,381,875
Trusts--1.6%
Restaurants-- NR* B2 400,000 Hometown Buffet Inc., 7% due 12/01/2002 402,000 437,000
0.5%
Retail-- A+ A1 1,750,000 Home Depot Inc., 3.25% due 10/01/2001** 1,754,688 3,928,750
Building
Materials--4.6%
Scientific A- NR* 2,000,000 Thermo Cardio Systems, 4.75% due 5/15/2004 2,000,000 1,770,000
Equipment-- A- Ba2 1,100,000 Thermo Electron Corporation, 4.25% due
3.8% 1/01/2003 1,270,500 970,750
A- Baa3 500,000 Thermo Optek Inc., 5% due 10/15/2000 517,500 492,500
------------ ------------
3,788,000 3,233,250
Semi- B NR* 750,000 Cypress Semiconductor Corp., 6%
conductors-- due 10/01/2002 750,000 663,750
0.8%
Technology-- NR* NR* 1,000,000 Apple Computer, 6% due 6/01/2001** 950,000 1,215,000
3.4% Data General Corp.:
B B3 500,000 6% due 5/15/2004 500,000 480,000
B B3 1,250,000 6% due 5/15/2004 1,205,000 1,221,875
------------ ------------
2,655,000 2,916,875
Tele- Bell Atlantic Financial Services Inc.:
communica- A+ A1 1,000,000 5.75% due 4/01/2003 1,012,500 1,027,500
tions--4.1% NR* NR* 2,400,000 4.25% due 9/15/2005 2,445,500 2,475,000
------------ ------------
3,458,000 3,502,500
Water Treatment BBB- Ba3 2,350,000 U.S. Filter Corp., 4.50% due 12/15/2001 2,386,000 2,238,375
Systems--2.6%
Total Convertible Debentures--63.9% 54,892,590 54,297,671
</TABLE>
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
S&P Moody's Shares
Industry Rating Rating Held Convertible Preferred Stocks Cost Value
<S> <S> <S> <C> <S> <C> <C>
Airlines--0.6% B B1 375,000 Continental Air Finance Trust,
8.50% due 12/01/2020 $ 581,451 $ 555,000
Banking & NR* A1 10,000 Jefferson Pilot Corp. (ACESsm)
Financial-- (into NATIONSBANK), 7.25% (c) 725,000 1,110,000
1.3%
Construction & BBB+ Baa3 25,000 Fleetwood Capital Trust, 6% 1,260,625 1,121,875
Housing--2.9% BBB+ Baa3 30,000 Fleetwood Capital Trust, 6% 1,305,000 1,346,250
------------ ------------
2,565,625 2,468,125
Containers-- BB- Ba3 20,000 Owen-Illinois Inc., 4.75% 1,000,000 880,000
1.0%
Energy--3.6% BB- Ba2 20,000 CalEnergy Capital Trust II, 6.25% 1,000,000 940,000
BBB Baa2 40,000 Unocal Capital Trust, 6.25% 2,136,250 2,150,000
------------ ------------
3,136,250 3,090,000
Oil & Gas B B3 27,000 Lomak Petroleum, Inc., 5.75% 1,350,000 391,500
Producers-- BBB- Baa3 10,000 Occidental Petroleum Corp., $3 580,600 528,750
1.1% ------------ ------------
1,930,600 920,250
Paper--2.3% BBB Baal 40,000 International Paper Capital
Trust, 5.25% 1,902,000 1,915,000
Railroads-- BB+ Ba2 51,000 Union Pacific Capital Trust, 6.25% 2,386,813 2,435,250
2.9%
Real Estate BB NR* 75,000 Crescent Real Estate Equities
Investment Company, 6.75% 1,298,250 1,321,875
Trusts--3.0% NR* Baa1 45,000 Equity Residential Properties,
Series J, $2.15 1,198,462 1,234,688
------------ ------------
2,496,712 2,556,563
Restaurants-- BBB Baa2 20,000 Wendy's Financing I, Series A, 5% 1,044,750 983,750
1.2%
Retail--3.1% BB- B1 44,500 Kmart Financing I, 7.75% 2,417,045 2,611,594
Steel--5.5% NR* Baa3 30,000 USX Capital Trust I, 6.75% 1,387,500 1,314,375
B Caa 60,000 WHX Corporation, Series A, 6.50% 2,584,540 2,475,000
A- A3 103,610 Worthington Industries, Inc. (into
Rouge Steel Common Stock), 7.25% 1,751,527 841,831
------------ ------------
5,723,567 4,631,206
Utilities--1.0% A+ A2 20,000 Citizens Utilities Trust, 5% 886,200 860,000
Total Convertible Preferred Stocks--29.5% 26,796,013 25,016,738
Common Stocks & Warrants
Airlines--0.7% 15,508 Continental Airlines, Inc., Class B** 581,451 547,626
Building & Construction--0.8% 74,100 Morrison Knudsen Corp. 919,835 713,213
Conglomerates--0.0% 105,000 Polyphase Corporation** 158,550 21,000
52,500 Polyphase Corporation (Warrants)(a)** 13,125 525
52,500 Polyphase Corporation (Warrants)(a)** 26,250 4,200
------------ ------------
197,925 25,725
Consumer Products--1.2% 35,000 RJR Nabisco Holdings Corp. 1,142,475 1,008,438
Engineering & Construction--0.5% 27,000 Foster Wheeler Corporation 448,791 462,375
Healthcare Services--1.0% 60,000 HEALTHSOUTH Corporation 658,699 806,250
Machinery--0.6% 22,000 Case Corporation 579,773 533,500
</TABLE>
Merrill Lynch Convertible Fund, Inc.
November 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares
Industry Held Common Stocks & Warrants Cost Value
<S> <C> <S> <C> <C>
Mining--1.0% 37,000 Cyprus Amax Minerals Co. $ 625,776 $ 420,875
40,000 Inco Limited 739,218 462,500
------------ ------------
1,364,994 883,375
Semiconductors--0.9% 32,500 Cypress Semiconductor Corp. 452,262 331,094
75,000 Integrated Device Technology, Inc. 700,299 440,625
------------ ------------
1,152,561 771,719
Steel--0.5% 20,000 AK Steel Holding Corporation 300,775 383,750
Utilities--0.1% 12,940 Citizens Utilities Company (Class B) 118,048 103,522
Total Common Stocks & Warrants--7.3% 7,465,327 6,239,493
Total Investments--100.7% $ 89,153,930 85,553,902
============
Short Sales (Proceeds--$3,220,033)--(4.6%)** (3,925,256)
Other Assets Less Liabilities--3.9% 3,314,237
------------
Net Assets--100.0% $ 84,942,883
============
Net Asset Class A--Based on net assets of $50,059,023 and 4,180,468 share of
Value: beneficial interest outstanding $ 11.97
============
Class B--Based on net assets of $22,840,077 and 1,922,406 shares of
beneficial interest outstanding $ 11.88
============
Class C--Based on net assets of $5,090,131 and 428,274 shares of
beneficial interest outstanding $ 11.89
============
Class D--Based on net assets of $6,953,652 and 580,265 shares of
beneficial interest outstanding $ 11.98
============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number
of shares of Common Stock and are non-income producing. The
purchase price and number of shares are subject to adjustment
under certain conditions until the expiration date.
(b)Represents a zero coupon or step bond; the interest rate shown
is the effective yield at the time of purchase by the Fund.
(c)Adjustable Convertible Extendable Securities.
*Not Rated.
**Covered short sales entered into as of November 30, 1998 were as
follows:
Shares Issue Value
31,500 Apple Computer $ (1,008,000)
31,000 Continental Airlines, Inc. (1,094,687)
36,600 Home Depot Inc. (1,820,850)
5,500 Polyphase Corporation (1,719)
-------------
Total (Proceeds--$3,220,033) $ (3,925,256)
=============
</TABLE>
PORTFOLIO INFORMATION
As of November 30, 1998
Percent of
Ten Largest Holdings Net Assets
Home Depot Inc., 3.25% due 10/01/2001 4.6%
Bell Atlantic Financial Services Inc.* 4.1
Pennzoil Co., 4.95% due 8/15/2008 3.5
Magna International Inc., 4.875%
due 2/15/2005* 3.1
Kmart Financing I, 7.75% 3.1
WHX Corporation, Series A, 6.50% 2.9
Fleetwood Capital Trust, 6%* 2.9
Union Pacific Capital Trust, 6.25% 2.9
Tower Automotive, Inc., 5% due 8/01/2004 2.8
Genzyme Corp., 5.25% due 6/01/2005 2.8
[FN]
*Includes combined holdings.
