<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholder
Select Asset Fund, Series 2, Inc.:
We have audited the accompanying statement of assets and liabilities of
Select Asset Fund, Series 2, Inc. including the portfolio of invest-
ments, as of December 31, 1995, and the related statements of operations
for the year then ended, and the statement of 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 two year period ended December
31, 1995 and the period from April 28, 1993 (commencement of operations)
through December 31, 1993. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and 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 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 con-
firmation of securities owned as of December 31, 1995, 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, the financial statements and financial highlights re-
ferred to above present fairly, in all material respects, the financial
position of Select Asset Fund, Series 2, Inc. as of December 31, 1995,
the results of its operations for the year then ended, its changes in
net assets for each of the years in the two-year period then ended and
its financial highlights for each of the years in the two year period
ended December 31, 1995 and the period from April 28, 1993 (commencement
of operations) through December 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick, LLP
February 16, 1996
New York, New York
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SELECT ASSET FUND, SERIES 2, INC.
Statement of Assets and Liabilities
December 31, 1995
Assets
Investments, at value (cost $687,404,300) $974,493,647
Cash 15,183
Dividends receivable 1,988,999
Interest receivable 90,883
Total Assets 976,588,712
Liabilities
Payable for securities purchased 1,398,750
Common stock dividend payable 38,644,827
Accrued expenses 64,726
Notes payable (note 6) 117,900
Accrued interest expense (note 6) 3,020
Total Liabilities 40,229,223
Net Assets $936,359,489
Net assets are represented by:
Common stock at par value, $.01 per share,
199,996,000 shares authorized,
64,972,958.8 shares issued and outstanding 649,730
Additional paid-in capital 648,620,412
Net unrealized appreciation of investments 287,089,347
Net Assets $936,359,489
Net asset value per common shares outstanding $14.41
See accompanying notes to the financial statements.
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SELECT ASSET FUND, SERIES 2, INC.
Statement of Operations
For the year ended December 31, 1995
Investment income:
Dividend income $24,308,840
Interest income 717,907
Total investment income 25,026,747
Expenses:
Broker dealer fee 613,290
Independent accountants 56,975
Auction agent fee 12,357
Custody / administration fees (note 2) 142,285
Directors fees and expenses 8,809
Interest expense 9,893
Insurance 18,923
Ratings agencies fees 24,243
Legal fees 247,474
Investment management fee (note 2) 88,556
Miscellaneous expense 502
Total expenses 1,223,307
Net investment income 23,803,440
Net realized and unrealized gain on investments:
Net realized gain on investments:
Proceeds from sales $345,139,426
Cost of securities sold (327,430,546)
17,708,880
Change in unrealized appreciation of investments:
Beginning of year 31,474,753
End of year 287,089,347
Increase in net unrealized
appreciation of investments 255,614,594
Net increase in net assets resulting from operations $297,126,914
See accompanying notes to the financial statements.
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SELECT ASSET FUND, SERIES 2, INC.
Statement of Changes in Net Assets
For the years ended December 31, 1995 and 1994
1995 1994
From operations:
Net investment income $23,803,440 $20,704,783
Net realized gain on investments 17,708,880 1,830,017
Increase (decrease) in net unrealized
appreciation of investments 255,614,594 (12,589,100)
Increase in net assets from
operations 297,126,914 9,945,700
Dividends to stockholders from net investment income:
Auction market preferred stock (20,646,887) (10,123,717)
Common stock (3,156,554) (16,783,020)
(23,803,441) (26,906,737)
Dividends to stockholders from net realized gains:
Auction market preferred stock 0 (1,354,966)
Common stock (35,488,273) (1,538,321)
(35,488,273) (2,893,287)
Decrease in net assets resulting from
dividends to stockholders (59,291,714) (29,800,024)
Increase (decrease) from capital transactions:
Return of capital dividend (90,287,871) 0
Common stock issuance 302,400,000 193,282,997
Redemption of auction market
preferred stock (400,000,000) 0
Decrease in net assets from
capital share transactions (187,887,871) 193,282,997
Total increase in net assets 49,947,329 173,428,673
Net assets:
Beginning of year 886,412,160 712,983,487
End of year 936,359,489 886,412,160
See accompanying notes to the financial statements.
<PAGE>
SELECT ASSET FUND, SERIES 2, INC.
Notes to the Financial Statements
December 31, 1995 and 1994
(1) Organization and Significant Accounting Policies
The Select Asset Fund, Series 2, Inc. (the "Fund") is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund commenced investment operations
on April 28, 1993.
The Fund's objective is long-term capital appreciation with income as a
secondary objective. The Fund's investments consist primarily of common
stocks of large and medium capitalization U.S. companies.
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements:
(a) Security Valuation
Investments in securities traded on a national securities exchange
(or reported on the Nasdaq national market) are valued at the last
reported sales price on the primary exchange. Temporary investments
are valued at amortized cost which approximates fair value.
(b) Security Transactions
Security transactions are accounted for on a trade date basis. The
cost of securities sold is determined using the identified cost
method. Dividend income is recorded on ex-dividend date.
(c) Federal Income Taxes
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies
and distribute its taxable income to shareholders. Therefore, no
provision for Federal income tax is required.
(d) Distribution of Income and Gains
The Fund distributes substantially all of its taxable income in
excess of the dividends paid to the preferred stockholders to the
common stockholder. Dividends to the common stockholder are
declared and paid at least annually. Net capital gains, if any, are
distributed annually.
(e) Reclassification Policy
It is the Funds' policy to reclassify certain amounts to conform to
the current years presentation when necessary.
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(f) Use of Estimates
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ from
these amounts.
(2) Related Party Transactions
A collective trust fund for employee benefit plans is the sole common
stockholder of the Fund. Certain officers and directors of the Fund are
affiliated with the common stockholder. No fees or expenses were paid to
the affiliated officers and directors.
During the years ended December 31, 1995 and 1994, dividends paid to the
common stockholder were $38,644,827 and $18,321,341, respectively.
Comerica Bank serves as both custodian and administrator for the Fund. An
affiliate of Comerica Bank serves as investment advisor to the Fund. The
annual investment management fee is 0.01% of average equity investments.
The management fee is calculated and accrued on a monthly basis.
During the year ended December 31, 1995, the Fund made a return of capital
distribution to the common stockholder in the amount of $90,287,871, of
which approximately $39,500,000 is considered taxable for IRS purposes.
During 1995, additional paid-in capital was reduced by $18,466,435 in
connection with related party loss disallowances required for IRS
purposes.
(3) Investment Transactions
The aggregate cost of securities purchased and the aggregate proceeds of
securities sold, for the year ended December 31, 1995 were $148,263,623
and $347,936,644, respectively.
As of December 31, 1995, based on cost for Federal income tax purposes,
the aggregate gross unrealized appreciation and depreciation for all
securities were $294,241,518 and $7,152,171, respectively.
(4) Auction Market Preferred Stock
The Fund is structured to issue Auction Market Preferred Stock ("AMPS").
The liquidation value of the AMPS is $100,000 per share. Dividends are
cumulative from the date of original issue and are paid every 49 days at a
rate set through a Dutch Auction. Each Series of AMPS is redeemable at
the option of the Fund in whole, but not in part, at a price of $100,000
per share plus accumulated and unpaid dividends. The Fund is subject to
certain asset coverage tests, and the AMPS are subject to mandatory
redemption if the tests are not met.
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In addition, the AMPS are subject to mandatory redemption if the Fund
ceases to qualify as a regulated investment company or if Merrill Lynch,
Pierce, Fenner & Smith Incorporated ceases to be the broker dealer. The
liquidation value under mandatory redemption of the AMPS is $100,000 per
share plus accumulated and unpaid dividends.
The Fund had no Auction Market Preferred Stock, ("AMPS") outstanding on
December 31, 1995. During the year, 1000 shares of Series B, 1000 shares
of Series C, 1000 shares of Series E and 1000 shares of Series G AMPS were
redeemed. The aggregate liquidation value was $400 million plus accrued
dividends of $3,179,958 at redemption. The series G AMPS holders received
a $2,400,000 redemption premium.
(5) Capital Share Transactions
During the year the Fund issued 20,630,496.2 shares of common stock for
$302,400,000. During 1994, the Fund issued 8,189,990.10 shares of common
stock for $193,282,997.
(6) Notes Payable
As of December 31, 1995, the Fund had $117,900 of principal notes
outstanding to investors. The notes due on April 28, 2018, bear interest
at a floating rate. The interest rate, which resets annually, is set at
the one-year U.S. Treasury bill rate plus 2.50%. As of December 31, 1995,
the Fund was paying interest at 8.70% per annum.
(7) Subsequent Event
The Fund circulated a preliminary Private Placement Memorandum on January
8, 1996 for the issuance of $250 million AMPS.
<PAGE>
SELECT ASSET FUND, SERIES 2, INC.
Financial Highlights
For the years ended December 31, 1995 and 1994
and the period April 28, 1993 (commencement of operations)
through December 31, 1993
1995 1994 1993***
For a share of common stock outstanding throughout the period:
Net asset value, beginning of year $10.97 $11.42 $10.00
Net investment income 0.52 0.46 0.35
Net gains (losses) on securities
realized and unrealized 6.00 (0.24) 1.25
Total from investment ope 6.52 0.22 1.60
Less dividends from net investment income and realized gains:
Common share equivalent of distributions paid
to AMPS holders (0.45) (0.26) (0.12)
Dividends paid to common sharehold (0.59) (0.41) (0.06)
Less dividends from net paid-in capital:
Return of capital dividend
to common shareholders (2.04) 0.00 0.00
Total distributions (3.08) (0.67) (0.18)
Net asset value, end of year $14.41 $10.97 $11.42
Total investment return 59.43% 1.93% 14.85%*
Net assets at end of year (000s) $936,359 $886,412 $712,983
Ratio of expenses to average net assets applicable to common
shares 0.13% 0.15% 0.24%**
Ratio of net investment income to average net assets applicable
to common shares + 0.24% 1.25% 5.32%**
Portfolio turnover 16.27% 3.52% 1.00%
+Net investment income is adjusted for distributions paid to AMPS holders.
*Total investment return for the period; not annualized
**Annualized
***For the period April 28, 1993 (commencement of operations)
through December 31, 1993
See accompanying notes to the financial statements.
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SELECT ASSET FUND, SERIES 2, INC.
Portfolio of investments
December 31, 1995
No. of
shares Value
Common Stocks
BUILDING AND CONSTRUCTION 1.55%
BUILDING MATERIALS
12,700 CHAMPION INTERNATIONAL CORP $533,400
27,600 GEORGIA PACIFIC CORP 1,894,050
144,400 HOME DEPOT 6,913,150
6,200 LOUISIANA PACIFIC CORP 150,350
9,100 MASCO CORPORATION 285,513
CONSTRUCTION EQUIPMENT
11,300 GIDDINGS & LEWIS 186,450
PAINT AND FLAT GLASS
28,200 PPG INDUSTRIES INC 1,290,150
25,900 SHERWIN WILLIAMS COMPANY 1,055,425
INDUSTRIAL CHEMICALS
4,400 GREAT LAKES CHEMICAL CORP 316,800
9,500 ROHM & HAAS CO 611,563
MISCELLANEOUS
10,800 FLUOR CORP 712,800
10,900 FOSTER WHEELER CORP 463,250
9,800 KAUFMAN & BROAD HOME CORPORATION 145,774
TOTAL BUILDING AND CONSTRUCTION $14,558,675
CHEMICALS AND DRUGS 14.84%
CHEMICALS
15,400 AIR PRODUCTS & CHEMICALS INC $812,350
34,400 AMGEN INC COMMON STOCK 2,042,500
45,400 BOSTON SCIENTIFIC CORP 2,224,600
81,600 DOW CHEMICAL CO 5,742,600
168,300 DUPONT DE NEMOURS & CO. 11,759,963
11,300 EASTMAN CHEMICAL CO 707,663
40,425 ENGLEHARD CORP 879,244
11,100 FMC CORP-NEW 750,638
29,300 GRACE WR & CO 1,732,363
33,800 HERCULES INC 1,905,475
15,300 MONSANTO CO 1,874,250
45,000 MORTON INTERNATIONAL 1,614,375
20,500 NALCO CHEMICAL CO 617,563
42,000 PRAXAIR INC 1,412,250
15,200 SIGMA-ALDRICH CORP 752,400
41,600 UNION CARBIDE CORPORATION 1,560,000
<PAGE>
DRUGS
102,600 ABBOT LABS 4,283,550
12,100 ALZA CORP CLASS A 299,475
94,000 AMERICAN HOME PRODUCTS 9,118,000
153,800 BRISTOL MYERS SQUIBB CO 13,207,575
83,300 JOHNSON & JOHNSON 7,132,563
167,000 LILLY ELI & COMPANY 9,393,750
374,600 MERCK & COMPANY, INC. 24,629,950
35,090 PHARMACIA & UPJOHN INC 1,359,738
192,300 PFIZER INC 12,114,900
51,200 SCHERING PLOUGH 2,803,200
34,800 WALGREEN CO 1,039,650
COSMETICS
3,900 ALBERTO CULVER CO CLASS B 134,063
20,600 AVON PRODUCTS INC 1,552,725
15,700 INTERNATIONAL FLAVORS & FRAGRANCES 753,600
HEALTH PRODUCTS/CARE
9,400 ALLERGAN INC 305,500
16,800 BARD C R INC 541,800
7,500 BAUSCH & LOMB INC 297,188
83,900 BAXTER INTERNATIONAL INC. 3,513,313
20,000 BECTON DICKINSON & COMPANY 1,500,000
12,000 BEVERLY ENTERPRISES INC 127,500
71,170 COLUMBIA/HCA HEALTHCARE CORP 3,611,878
13,200 COMMUNITY PSYCHIATRIC CENTERS 161,700
9,900 MALLINCKRODT GROUP INC 360,113
60,600 TENET HEALTHCARE CORP 1,257,450
28,700 UNITED HEALTHCARE CORP 1,879,850
17,100 U S HEALTH CARE INC 795,150
17,300 U S SURGICAL 369,788
TOTAL CHEMICAL AND DRUGS $138,932,196
CONSUMER PRODUCTS 11.99%
CONFECTIONS AND BEVERAGES
77,500 ANHEUSER-BUSCH COS $5,182,813
20,900 BROWN FORMAN INC CLASS B 762,850
173,200 COCA COLA COMPANY 12,860,100
23,400 NEWELL COMPANY 605,475
100,700 PEPSICO INC 5,626,613
<PAGE>
CONTAINERS
16,100 AVERY DENNISON CORP 807,013
9,100 BALL CORPORATION 250,250
12,600 CROWN CORK & SEAL INC 526,050
29,000 STONE CONTAINER 416,875
17,000 TEMPLE INLAND INC 750,125
PACKAGED FOOD
80,915 ARCHER DANIELS MIDLAND CO 1,456,470
44,300 CPC INTERNATIONAL, INC. 3,040,088
33,400 CAMPBELL SOUP CO 2,004,000
34,900 CONAGRA INC 1,439,625
13,600 COORS ADOLPH CO CLASS B 300,900
21,800 GENERAL MILLS INCORPORATED 1,258,950
46,050 HEINZ H J COMPANY 1,525,406
23,500 HERSHEY FOODS CORP 1,527,500
28,700 KELLOG COMPANY 2,217,075
3,600 PIONEER HI BRED INTERNATIONAL INC 200,250
18,300 QUAKER OATS CO 631,350
32,100 RALSTON-PURINA GROUP 2,002,238
101,700 SARA LEE CORPORATION 3,241,688
55,400 SYSCO CORP 1,800,500
16,100 WRIGLEY WILLIAM JR CO 845,250
PAPER
28,500 AMERICAN GREETINGS CLASS A 787,313
15,600 BEMIS CO 399,750
14,500 BOISE CASCADE CORP 502,063
5,600 FEDERAL PAPER BOARD INC 290,500
77,200 INTERNATIONAL PAPER CO 2,923,950
25,000 JAMES RIVER CORP 603,125
84,480 KIMBERLY CLARK CORP 6,990,720
8,400 MEAD CORP 438,900
8,900 POTLATCH CORP 356,000
21,300 UNION CAMP CORP 1,014,413
10,200 WEYERHAEUSER CO 441,150
PRINTING AND PUBLISHING
11,700 JOSTENS INC 283,725
7,600 KNIGHT-RIDDER INC 475,000
6,700 MCGRAW-HILL COMPANIES INC 583,738
3,900 MEREDITH CORP 163,313
14,000 NEW YORK TIMES CO CLASS A 414,750
117,100 TIME WARNER INC 4,435,163
6,800 TIMES MIRROR CO CL A NEW 230,350
8,800 TRIBUNE CO 537,900
30,750 WESTVACO CORP 853,313
<PAGE>
RECREATIONAL EQUIPMENT
5,200 BALLY ENTERTAINMENT CORP 72,800
29,100 BRUNSWICK CORP 698,400
31,100 HARRAH'S ENTERTAINMENT INC 754,175
26,600 HASBRO INC 824,600
61,225 MATTEL INC 1,882,669
2,600 OUTBOARD MARINE CORP 52,975
SOAPS
15,900 CLOROX CO 1,138,838
OTHER CONSUMER PRODUCTS
56,300 AMERICAN BRANDS INC 2,512,388
18,500 COLGATE PALMOLIVE CO 1,299,625
28,300 DIAL CORP ARIZ 838,388
134,500 GILLETTE CO 7,010,813
91,300 PROCTER & GAMBLE CO 7,577,900
47,900 RUBBERMAID INC 1,221,450
4,860 SCHWEITZER-MAUDUIT INTL INC 112,388
6,100 SPRINGS INDUSTRIES INC 252,388
59,200 UST INC 1,975,800
31,800 WHITMAN CORPORATION 739,350
PHOTOGRAPHY
42,400 EASTMAN KODAK CO 2,840,800
13,700 POLAROID CORP 649,038
HOUSEHOLD FURN/APPLIANCES
11,300 ARMSTRONG WORLD INDUSTUSTRIES 700,600
32,600 MAYTAG CO 660,150
RETAIL
5,100 TJX COMPANIES INC (NEW) 96,263
APPAREL
2,700 BROWN GROUP INC 38,475
17,600 LIMITED INC 305,800
4,000 LIZ CLAIBORNE INC 111,000
19,800 NIKE INC CL B 1,378,575
15,000 STRIDE RITE CORP 112,500
19,400 V F CORP 1,023,350
BROADCASTING
11,100 KING WORLD INC 431,513
<PAGE>
MISCELLANEOUS
34,700 PALL CORPORATION 932,563
TOTAL CONSUMER PRODUCTS $112,250,153
DURABLE GOODS 23.58%
AEROSPACE-AIRCRAFT
45,700 BOEING CO $3,581,738
19,100 GENERAL DYNAMICS CORP 1,129,288
60,761 LOCKHEED MARTIN CORPORATION 4,800,119
34,300 MCDONNELL DOUGLAS CORP 3,155,600
15,000 NORTHROP GRUMMAN CORP 960,000
34,200 RAYTHEON COMPANY 1,615,950
26,500 ROCKWELL INTERNATIONAL 1,401,188
12,100 TEXTRON INC 816,750
15,900 UNITED TECHNOLOGIES CORP 1,508,513
AGRICULTURAL MACHINERY
60,300 CATERPILLAR INC 3,542,625
35,400 DEERE & CO 1,247,850
AUTOMOBILE AND PARTS
48,300 CHRYSLER CORP 2,674,613
6,300 COOPER TIRE & RUBBER 155,138
12,300 CUMMINS ENGINE INC 455,100
30,700 DANA CORP 897,975
23,600 EATON CORP 1,265,550
8,600 ECHLIN INC 313,900
325,700 FORD MOTOR CO 9,445,300
226,600 GENERAL MOTORS CORP 11,981,475
37,200 GENUINE PARTS CO 1,525,200
3,600 NAVISTAR INTL CORP (NEW) 37,800
8,600 TRW INC 666,500
12,400 VARITY CORP NEW 460,350
ELECTRICAL
27,028 AMP INC 1,037,200
67 EMCOR GROUP INC SER Z WTS 12/15/99 0
30,700 EMERSON ELECTRIC COMPANY 2,509,725
27,600 HONEYWELL INC 1,342,050
13,400 RAYCHEM CORP 762,125
118,900 WESTINGHOUSE ELECTRIC CORPORATION 1,961,850
<PAGE>
ELECTRONICS
14,400 ADVANCED MICRO-DEVICES 237,600
49,400 APPLIED MATLS INC 1,945,125
15,200 CISCO SYSTEMS INC 1,134,300
2,200 E G & G INC 53,350
510,200 GENERAL ELECTRIC CORPORATION 36,734,400
14,100 GENERAL SIGNAL CORP 456,488
126,400 HEWLETT PACKARD CO 10,586,000
99,000 INTEL CORP 5,618,250
52,000 LORAL CORPORATION 1,839,500
62,600 MICRON TECHNOLGY INC. 2,480,525
31,200 NATIONAL SEMICONDUCTOR CORP 694,200
6,500 NATIONAL SERVICES INDUSTRIES INC 210,438
156,100 ORACLE CORPORATION 6,614,738
12,800 PERKIN ELMER CORP 483,200
9,800 TEKTRONIX INC 481,425
16,900 TELEDYNE INC 433,063
52,000 TEXAS INSTRUMENTS 2,691,000
6,000 THOMAS AND BETTS CORPORATION 442,500
INDUSTRIAL MACHINERY
8,800 BRIGGS & STRATTON CORP 381,700
9,800 CINCINNATI MILACRON INC 257,250
16,000 COOPER INDUSTRIES INC 588,000
34,400 DOVER CORPORATION 1,268,500
8,900 HARNISCHFEGER INDUSTRIES INC 295,925
13,300 INGERSOLL RAND CO 467,163
2,700 NACCO INDUSTRIES INC CLASS A 149,850
3,400 TRINOVA CORP 97,325
OFFICE EQUIPMENT AND SUPPLIE
15,200 ALCO STANDARD CORP 693,500
4,000 DELUXE CORP 116,000
9,300 HARLAND JOHN H COMPANY 194,138
20,700 PITNEY BOWES INC 972,900
32,600 XEROX CORPORATION 4,466,200
RUBBER
7,900 GOODRICH B F CO 538,188
20,200 GOODYEAR TIRE & RUBBER CO 916,575
8,000 PREMARK INTERNATIONAL INC 405,000
OTHER DURABLE GOODS
69,700 CORNING INCORPORATED 2,230,400
9,300 CRANE CO 342,938
35,600 ILLINOIS TOOL WORKS INC 2,100,400
5,200 MILLIPORE CORP 213,850
127,400 MINNESOTA MINING & MANUFACTURING 8,440,250
15,300 OWENS CORNING FIBERGLASS CORP-NEW 686,588
6,100 STANLEY WORKS 314,150
<PAGE>
COMPUTERS AND SOFTWARE
6,200 APPLE COMPUTER INC 197,625
13,900 CERIDIAN CORP (FORMERLY CONTROL DATA CORP DEL) 573,375
34,800 COMPAQ COMPUTER CORPORATION 1,670,400
73,150 COMPUTER ASSOCIATES INTERNATIONAL INC. 4,160,406
3,300 CRAY RESEARCH INC 81,675
4,900 DATA GENERAL CORP 67,375
40,400 DIGITAL EQUIPMENT CORPORATION 2,590,650
18,900 INTERGRAPH CORP 297,675
172,500 IBM COMMON 15,826,875
177,100 MICROSOFT CORP 15,540,525
20,500 NOVELL INC 292,125
45,500 SILICON GRAPHICS 1,251,250
64,200 SUN MICROSYSTEMS 2,929,125
35,400 TANDEM COMPUTERS INC 376,125
30,000 THREE COM CORP 1,398,750
52,000 UNISYS CORP 292,500
HOUSEHOLD FURN/APPLIANCES
22,400 WHIRLPOOL CORP 1,192,800
TELECOMMUNICATIONS
149,900 AIRTOUCH COMMUNICATIONS 4,234,675
4,350 ANDREW CORP 166,388
31,500 DSC COMMUNICATIONS 1,161,563
MISCELLANEOUS
37,900 ALLIED-SIGNAL INC 1,800,250
11,300 BLACK & DECKER CORP 398,325
14,400 ITT INDUSTRIES INC 345,600
12,400 JOHNSON CONTROLS INC 852,500
22,350 PARKER HANNIFIN CORP 765,488
12,200 SNAP ON TOOLS CORPORATION 552,050
36,400 TYCO LABRATORIES INC 1,296,750
TOTAL DURABLE GOODS $220,837,200
FINANCIAL 12.58%
BANKS
54,590 BANC ONE CORP $2,060,773
28,800 BANK OF BOSTON CORP 1,332,000
48,200 BANK NEW YORK INC 2,349,750
56,600 BANKAMERICA CORPORATION 3,664,850
10,500 BANKERS TRUST NEW YORK CORP 698,250
29,500 BARNETT BANKS INC 1,740,500
39,300 BOATMEN'S BANCSHARES INC 1,606,388
45,100 CHASE MANHATTAN CORP 2,734,188
<PAGE>
31,400 CHEMICAL BANKING CORPORATION (FORMERLY CHEMICA 1,844,750
50,400 CITICORP 3,389,400
42,300 CORESTATES FINANCIAL CORP 1,602,113
22,420 DEAN WITTER DISCOVER & CO 1,053,740
72,732 FIRST CHICAGO NBD CORP 2,872,914
24,300 FIRST FIDELITY BANCORPORATION NEW 1,831,613
23,000 FIRST INTERSTATE BANCORP 3,139,500
52,100 FIRST UNION CORP 2,898,063
54,214 FLEET FINANCIAL GROUP INC 2,209,221
25,650 KEYCORP NEW 929,813
30,450 MBNA CORP 1,122,844
31,000 MELLON BANK CORP 1,666,250
14,100 MORGAN J P & CO 1,131,525
44,700 NATIONAL CITY CORP 1,480,688
81,900 NATIONSBANK CORP 5,702,288
98,600 NORWEST CORP 3,253,800
12,000 PNC FINANCIAL CORPORATION 387,000
34,600 SUNTRUST BANKS INC 2,370,100
33,700 U S BANCORP ORE 1,133,163
24,000 WACHOVIA CORP 1,098,000
6,400 WELLS FARGO & CO 1,382,400
FINANCE COMPANIES
69,600 AMERICAN EXPRESS CO 2,879,700
16,100 BENEFICIAL CORP 750,663
23,000 FEDERAL HOME LOAN MORTGAGE CORP 1,920,500
29,700 HOUSEHOLD INTERNATIONAL CORP 1,756,013
HOLDING COMPANY
6,100 EASTERN ENTERPRISES 215,025
FIRE AND CASUALTY INSURANCE
12,100 CHUBB CORP 1,170,675
11,300 GENERAL RE CORP 1,751,500
17,200 SAFECO CORP 593,400
INSURANCE
34,300 AETNA LIFE & CASUALTY CO 2,375,275
5,900 ALEXANDER & ALEXANDER SERVICES INC 112,100
58,854 ALLSTATE CORPORATION 2,420,371
143,750 AMERICAN INTERNATIONAL GROUP 13,296,875
10,400 CIGNA CORP 1,073,800
14,400 ITT HARTFORD 696,600
4,000 MARSH & MCLENNAN COMPANIES INC. 355,000
12,000 SAINT PAUL COMPANIES INC 667,500
4,500 TORCHMARK CORPORATION 203,625
9,700 TRANSAMERICA CORP 706,888
89,414 TRAVELERS GROUP INC 5,621,905
13,200 UNUM CORPORATION 726,000
11,800 USF & G CORP 199,125
<PAGE>
LIFE INSURANCE
62,100 AMERICAN GENERAL CORP 2,165,738
21,600 JEFFERSON PILOT CORP 1,004,400
31,500 LINCOLN NATIONAL CORP IND 1,693,125
4,700 PROVIDIAN CORP 191,525
447 TRANSPORT HOLDINGS, INC 18,215
10,400 USLIFE CORP 310,700
REAL ESTATE
82,700 FEDERAL NATIONAL MORTGAGE ASSOCIATION 10,265,138
SAVINGS & LOANS
13,900 AHMANSON H F & CO 368,350
17,800 GOLDEN WEST FINANCIAL CORP 983,450
41,200 GREAT WESTERN FINANCIAL 1,050,600
BROKERAGE
22,100 MERRILL LYNCH & CO 1,127,100
12,700 SALOMON INC 450,850
TOTAL FINANCIAL $117,807,607
METALS AND MINING 1.06%
ALUMINUM
23,800 ALUMINUM CO OF AMERICA $1,258,425
19,200 REYNOLDS METALS CO 1,087,200
MINING
41,800 HOMESTAKE MINING CO 653,125
STEEL
32,200 ARMCO, INC. 189,175
17,800 BETHLEHEM STEEL CORPORATION 249,200
16,100 INLAND STEEL INDUSTRIES INC 404,513
26,500 NUCOR CORP 1,513,813
9,500 TIMKEN CO 363,375
11,500 USX-U S STEEL GROUP 353,625
13,200 WORTHINGTON INDUSTRIES INC 274,725
OTHER METALS
12,900 ASARCO INC 412,800
12,237 NEWMONT MINING CORP 553,724
21,100 PHELPS DODGE CORP 1,313,475
23,300 FREEPORT-MCMORAN COPPER-B 655,313
<PAGE>
MINERALS
24,050 CYPRUS AMAX MINERALS CO 628,306
TOTAL METALS AND MINING $9,910,793
OIL-ENERGY 9.14%
OIL & GAS PRODUCERS
12,400 AMERADA HESS CORP $657,200
148,900 AMOCO CORPORATION 10,702,188
31,800 COASTAL CORP 1,184,550
20,500 ENSERCH CORP 333,125
7,500 HELMERICH AND PAYNE INC. 223,125
96,500 OCCIDENTAL PETROLEUM CORP 2,062,688
24,500 ROWAN COMPANIES INC 241,938
27,400 SANTA FE ENERGY RES INC 263,725
54,100 TENNECO INC 2,684,713
36,200 USX-MARATHON GROUP COM NEW FORMERLY USX CORP 705,900
NATURAL RESOURCES
23,800 DRESSER INDUSTRIES INC 580,125
15,700 KERR MCGEE CORP 996,950
10,200 LOUISIANA LAND & EXPLORATION CO 437,325
11,800 WILLIAMS COMPANIES INC-DELAWARE 517,725
OIL EQUIPMENT, WELLS & SVCS
19,300 ASHLAND, INC 677,913
6,800 BAKER HUGHES INC 165,750
34,600 HALLIBURTON CO 1,751,625
16,100 WESTERN ATLAS INC 813,050
OIL - DOMESTIC
6,600 BURLINGTON RESOURCES INC 259,050
2,300 PENNZOIL CO 97,175
79,500 PHILLIPS PETROLEUM CO 2,712,938
34,000 UNOCAL CORP 990,250
<PAGE>
OIL-INTERNATIONAL
8,700 ATLANTIC RICHFIELD CO 963,525
90,200 CHEVRON CORP 4,735,500
376,600 EXXON CORP. 30,175,075
120,000 MOBIL CORP 13,440,000
31,300 ORYX ENERGY COMPANY 418,638
22,900 SUN COMPANY INC 626,888
78,900 TEXACO INC 6,193,650
TOTAL OIL-ENERGY $85,612,300
RETAIL 4.32%
DEPARTMENT STORES
21,800 DAYTON HUDSON CORP $1,635,000
34,300 DILLARD DEPARTMENT STORES 977,550
22,100 HARCOURT GENERAL INC 925,438
139,300 K MART 1,009,925
20,600 MAY DEPARTMENT STORES COMPANY 870,350
15,300 MELVILLE CORPORATION 470,475
5,200 MERCANTILE STORES 240,500
68,500 PENNEY JC INC 3,262,313
52,700 SEARS ROEBUCK & CO 2,055,300
696,200 WAL MART STORES INC 15,577,475
21,400 WINN-DIXIE STORES INC 789,125
40,300 WOOLWORTH CORP 523,900
GROCERY
36,100 ALBERTSON'S INC 1,186,788
20,600 AMERICAN STORES CO 551,050
600 BRUNOS INC NEW 6,300
11,400 FLEMING COMPANIES 235,125
18,000 GIANT FOOD INC 567,000
11,600 GREAT ATLANTIC & PACIFIC TEA INC 266,800
35,300 KROGER CO 1,323,750
3,600 SUPERVALUE INC 113,400
OTHER RETAIL
5,200 CIRCUIT CITY STORES 143,650
6,100 LONGS DRUG STORES CORP 292,038
48,700 LOWES COMPANIES INC 1,631,450
18,800 PEP BOYS - MANNY, MOE, AND JACK 481,750
38,267 PRICE/COSTCO INC 583,572
11,500 RITE AID CORPORATION 393,875
9,500 TANDY CORP 394,250
<PAGE>
SPORTING GOODS
13,100 REEBOK INTERNATIONAL LIMITED 370,075
11,800 RUSSELL CORP 327,450
APPAREL
43,300 CHARMING SHOPPES INC 124,488
43,700 GAP INC 1,835,400
31,300 NORDSTROM INC 1,267,650
TOTAL RETAIL $40,433,209
UTILITIES 12.28%
ELECTRIC
24,800 AMERICAN ELECTRIC POWER INC $1,004,400
44,700 BALTIMORE GAS & ELECTRIC CO 1,273,950
8,100 CAROLINA POWER & LIGHT CO 279,450
10,000 CENTRAL & SOUTH WEST CORP 278,750
47,521 CINERGY CORP 1,455,331
12,300 CONSOLIDATED EDISON NY INC 393,600
19,600 DETROIT EDISON CO 676,200
24,000 DOMINION RESOURCES INC-VA 990,000
62,100 DUKE POWER CO 2,941,988
10,900 ENTERGY CORP NEW 318,825
56,100 FPL GROUP INC 2,601,638
35,300 GENERAL PUBLIC UTILITIES CORPORATION 1,200,200
35,400 HOUSTON INDUSTRIES INC 858,450
19,800 NIAGARA MOHAWK POWER 190,575
9,200 NORTHERN STATES POWER CO 451,950
21,000 OHIO EDISON CO 493,500
29,700 PECO ENERGY CO 894,713
128,700 PACIFIC GAS & ELECTRIC 3,651,863
86,200 PACIFICORP 1,831,750
13,000 PUBLIC SERVICE ENTERPRISE GROUP 398,125
80,800 SBC COMMUNICATIONS INC 4,646,000
135,300 SCE CORP 2,401,575
88,400 SOUTHERN CO 2,176,850
10,100 UNICOM CORPORATION 330,775
5,300 UNION ELECTRIC CO 221,275
GAS
6,800 COLUMBIA GAS SYSTEM INC 298,350
4,800 CONSOLIDATED NATURAL GAS 217,800
76,400 ENRON CORP 2,912,750
7,400 NICOR COMMON 203,500
5,800 NORAM ENERGY CORP 51,475
3,700 ONEOK INC 84,638
<PAGE>
25,700 PACIFIC ENTERPRISES 726,025
45,400 PANHANDLE EASTERN CORP 1,265,525
4,800 PEOPLES ENERGY CORP 152,400
26,200 SONAT INC 933,375
68,500 TEXAS UTILITIES CO 2,817,063
TELEPHONE
481,000 A T & T 31,144,750
57,300 ALLTEL CORP 1,690,350
59,300 BELL ATLANTIC CORP 3,965,688
134,400 BELLSOUTH CORP 5,846,400
294,700 GTE CORP 12,966,800
24,100 NYNEX CORP 1,301,400
129,900 PACIFIC TELESIS GROUP 4,367,888
105,700 SPRINT CORP 4,214,788
36,000 U S WEST INC 1,287,000
36,000 US WEST MEDIA GROUP 684,000
WASTE DISPOSAL
26,700 BROWNING FERRIS INDUSTRIES INC 787,650
68,400 LAIDLAW TRANS INC CL B NON VOTING 701,100
147,000 WMX TECHNOLOGIES INC 4,391,625
TOTAL UTILITIES $114,974,068
MISCELLANEOUS 10.73%
BROADCAST/COMMUNICATIONS
46,700 CAPITAL CITIES/ABC INC $5,761,613
13,000 COMCAST CORP CLASS A SPL 236,438
19,500 GANNETT CO., INC. 1,196,813
61,300 MCI COMMUNICATIONS 1,601,463
47,000 MOTOROLA INC 2,679,000
232,700 TELE COMMUNICATIONS INC CL A 4,624,913
6,000 TELLABS INC 222,000
109,500 VIACOM INC CL B VTG 5,187,563
71,100 DISNEY WALT CO 4,194,900
BUSINESS SERVICES
15,500 AMDAHL CORP 131,750
21,400 AUTODESK INC 732,950
19,400 AUTOMATIC DATA PROCESSING 1,440,450
31,700 BLOCK H & R INC 1,283,850
7,600 COMPUTER SCIENCES CORP 533,900
46,600 DONNELLEY R R & SONS 1,834,875
29,400 DOW JONES & CO 1,172,325
<PAGE>
8,700 DUN & BRADSTREET 563,325
10,200 ECOLAB INC 306,000
25,500 FIRST DATA CORP 1,705,313
15,400 GRAINGER W W INC 1,020,250
23,700 INTERPUBLIC GROUP COMPANIES INC 1,027,988
6,700 OGDEN CORP 143,213
17,500 SAFETY KLEEN CORP 273,438
23,400 SCIENTIFIC-ATLANTA 351,000
31,400 SERVICE CORPORATION INTERNATIONAL 1,381,600
FOOD SERVICE
21,800 DARDEN RESTAURANTS INC 258,875
7,100 LUBYS CAFETERIAS INC 157,975
84,300 MCDONALDS CORPORATION 3,804,038
254,700 PHILLIP MORRIS COMPANIES INC 23,050,350
18,500 RYANS FAMILY STEAK HOUSE 129,500
2,100 SHONEY'S INC 21,525
31,000 WENDYS INTERNATIONAL INC 658,750
HOTEL & MOTEL
14,600 HILTON HOTELS CORP 897,900
14,400 ITT CORP NEW 763,200
35,000 MARRIOTT INTERNATIONAL CORP 1,338,750
HOUSING
8,200 PULTE CORP 275,725
MED SERV & SUPPLIES
15,400 BIOMET INC 275,275
18,900 MANOR CARE INC 661,500
30,000 MEDTRONIC INC 1,676,250
25,650 ST. JUDE MEDICAL INC. 1,102,950
7,600 SHARED MEDICAL SYSTEM CORP 413,250
REAL ESTATE
8,500 CENTEX CORP 295,375
TRANSPORTATION
23,100 AMR CORP 1,715,175
43,054 BURLINGTON NORTHERN SANTA FE 3,358,212
28,600 CSX CORP 1,304,875
23,800 CONRAIL INC 1,666,000
7,200 CONSOLIDATED FREIGHTWAYS 190,800
15,500 DELTA AIR LINES INC 1,145,063
17,000 FEDERAL EXPRESS CORP 1,255,875
14,000 FLEETWOOD ENTERPRISES INC 360,500
39,700 NORFOLK SOUTHERN CORP 3,151,188
<PAGE>
5,095 PACCAR INC 214,627
12,600 PITTSTON BRINKS GROUP 395,325
5,400 ROADWAY SERVICES 263,925
23,900 RYDER SYSTEMS INC 591,525
39,820 SANTA FE PACIFIC GOLD 482,818
7,400 SOUTHWEST AIRLINES CO 172,050
29,300 UNION PACIFIC CORP 1,933,800
4,800 U S AIR GROUP 63,600
3,500 YELLOW CORPORATION 43,313
MISCELLANEOUS
4,600 HANDLEMAN CO-DELAWARE 26,450
18,400 WARNER-LAMBERT 1,787,100
TELECOMMUNICATIONS
72,400 AMERITECH CORP 4,271,600
11,900 HARRIS CORP-DELAWARE 650,037
TOTAL MISCELLANEOUS $100,431,968
TOTAL COMMON STOCK 955,748,169
<PAGE>
OTHER
PREFERRED STOCKS 0.00%
821 TELEDYNE PFRD SERIES E 11,802
11,802
MUTUAL FUNDS - OPEN END 2.00%
18,733,676 AMERICAN AADVANTAGE MM FUND 18,733,676
18,733,676
TOTAL OTHER 18,745,478
TOTAL INVESTMENTS - 104.07% $974,493,647
LIABILITIES IN EXCESS
OF OTHER ASSETS-(4.07%) (38,134,158)
NET ASSETS - 100% $936,359,489
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
To the Board of Directors and Shareholder
Select Asset Fund, Series 2, Inc.:
In planning and performing our audit of the financial statements of Select
Asset Fund, Series 2, Inc. for the year ended December 31, 1995, we consid-
ered its internal control structure, including procedures for safeguarding
securities, in order to determine our auditing procedures for the purpose
of expressing our opinion on the financial statements and to comply with
the requirements of Form N-SAR, not to provide assurance on the internal
control structure.
The management of Select Asset Fund, Series 2, Inc. is responsible for es-
tablishing and maintaining an internal control structure. In fulfilling
this responsibility, estimates and judgments by management are required to
assess the expected benefits and related costs of internal control policies
and procedures. Two of the objectives of an internal control structure are
to provide management with reasonable, but not absolute, assurance that
assets are safeguarded against loss from unauthorized use or disposition
and that transactions are executed in accordance with management's authori-
zation and recorded properly to permit preparation of financial statements
in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors
or irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that
it may become inadequate because of changes in conditions or that the ef-
fectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be mate-
rial weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a condition in which
the design or operation of the specific internal control structure elements
does not reduce to a relatively low level the risk that errors or irregu-
larities in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely
period by employees in the normal course of performing their assigned func-
tions. However, we noted no matters involving the internal control struc-
ture, including procedures for safeguarding securities, that we consider to
be material weaknesses as defined above as of December 31, 1995.
This report is intended solely for the information and use of the Board of
Directors, management and the Securities and Exchange Commission.
KPMG Peat Marwick, LLP
February 16, 1996
New York, New York
