MERRILL LYNCH
ASSET INCOME
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Thomas R. Robinson, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
<PAGE>
Transfer Agent
Merrill Lynch 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
Asset Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH ASSET INCOME FUND, INC.
<PAGE>
Worldwide
Investments as of
September 30, 1996
Percent Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets++
United States 73.6%
Canada 5.4
Denmark 4.6
Germany 3.0
Sweden 2.8
Japan 1.7
United Kingdom 1.6
France 0.6
Brazil 0.6
Mexico 0.6
Switzerland 0.4
Hong Kong 0.4
Argentina 0.3
Italy 0.2
Spain 0.2
Philippines 0.2
Finland 0.2
Indonesia 0.2
Netherlands 0.1
South Korea 0.1
[FN]
++Percent of net assets may not total 100%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Computer Services &
Software 2.8%
Telecommunications 2.1
Banking 1.7
Insurance 1.5
Pharmaceuticals 1.4
Beverages 1.3
Aerospace 1.2
Electronics 1.2
Oil Service 0.9
Chemicals 0.8
Percent
Ten Largest Holdings Country of of Net
(Equity Investments) Origin Assets
<PAGE>
Carnival Corp.
(Class A) United States 0.5%
Electronic Data
Systems Corp. United States 0.5
Procter &
Gamble Co. United States 0.5
International
Business
Machines Corp. United States 0.5
TCI Pacific
Communications
(Convertible
Preferred) United States 0.5
Unocal Corp. United States 0.5
H.J. Heinz Company United States 0.5
General Electric
Company United States 0.5
Kimberly-Clark Corp. United States 0.5
The Coca-Cola Co. United States 0.5
DEAR SHAREHOLDER
As of September 30, 1996, the asset allocation for Merrill Lynch
Asset Income Fund, Inc. was: US bonds, 53% of net assets; foreign
bonds, 14%; US stocks, 21%; foreign stocks, 9%; and cash reserves,
3%.
During the three months ended September 30, 1996, we extended the
duration of our US bond holdings from two years to seven years.
Evidence has failed to confirm a strengthening US economy in the
third quarter. Rather, slowing consumer demand and business
investment as well as a weaker-than-expected trade balance pointed
to a slower third quarter for the US economy and a continuation of
this trend in the fourth quarter. Consequently, the increase in the
Federal Funds rate which we had anticipated earlier seems likely to
be postponed. This environment led us to expect a rally in US bond
prices, and the extension of duration enabled us to take advantage
of this anticipated uptrend.
We also established a long-duration position in the Canadian bond
market. At the time of purchase in September, Canada offered a ten-
year spread of over 50 basis points (0.50%) over the United States,
a differential which we expect to narrow in subsequent months.
Earlier in the September quarter, we significantly reduced our
exposure to European high-yielding bond markets by selling our
positions in Italian and Spanish bonds. By September quarter-end,
our position in high-yielding markets was limited to Sweden. The
upcoming 1997 European budget talks posed risks to countries such as
Italy and Spain which needed to sacrifice current growth and employment
prospects in exchange for strong spending cuts and increased revenue
measures. Such fiscal policies seemed necessary in order to attain
the Maastricht criteria established for countries wishing to be
first round participants in a single European currency.
<PAGE>
We shifted assets resulting from the sale of Spanish and Italian
bonds into Denmark and the United Kingdom. Denmark currently enjoys
the strongest fiscal position in Europe, while the UK bond market is
likely to benefit from evidence of a surprisingly benign rate of
inflation. We also maintained our bond commitment in Germany in view
of favorable economic data. At the same time, increased confidence
that the European Monetary Union will proceed on schedule led to
weakness in the Deutschemark. This trend led us to hedge our Danish
and German bond commitments back to the US dollar.
Our commitment to US equities did not change materially during the
September quarter. The largest proportion of US equity assets was
allocated to areas that will benefit from strength in capital
spending in the United States and abroad. These commitments included
companies involved in technology, such as Microsoft Corp. and cisco
Systems, Inc., and companies in defense and aerospace, such as
Boeing Co. and Northrop Grumman Corp. Companies which enjoy dominant
franchises within their respective industries, such as The Coca-Cola
Co. and Baxter International, Inc., continue to be well represented
in the portfolio.
In the foreign equity sector, we adhered to a strategy of adding to
European equity representation. The majority of new purchases were
in the UK market, which appeared to be particularly attractive after
an extended period of underperformance. New positions included
British Steel PLC, Glaxo Wellcome PLC, Grand Metropolitan PLC, Boots
Company PLC, National Westminster Bank PLC and Vodafone Group PLC.
Other new commitments included SGS-Thomson Microelectronics N.V. in
France. We realized profits in Royal Dutch Petroleum Co. and
eliminated our position in this company. In emerging markets, we
continued to prefer Latin America over Asia. We enlarged our
commitment to Latin America through the purchase of shares of
Petroleo Brasileiro S.A. (Petrobras).
In Conclusion
We thank you for your investment in Merrill Lynch Asset Income Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you in our upcoming annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Thomas R. Robinson)
Thomas R. Robinson
Vice President and
Senior Portfolio Manager
(Joel Heymsfeld)
Joel Heymsfeld
Portfolio Manager
October 18, 1996
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
<PAGE>
* 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 0.50% 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 0.55% 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).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
9/30/96 6/30/96 9/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.57 $10.40 $10.44 +1.59%(1) +1.63%
Class B Shares* 10.58 10.40 10.44 +1.69(1) +1.73
Class C Shares* 10.58 10.40 10.44 +1.69(1) +1.73
Class D Shares* 10.58 10.40 10.44 +1.69(1) +1.73
Class A Shares-Total Return* +7.51(2) +2.79(3)
Class B Shares-Total Return* +6.81(4) +2.70(5)
Class C Shares-Total Return* +6.75(6) +2.68(7)
Class D Shares-Total Return* +7.34(8) +2.83(9)
Class A Shares-Standardized 30-day Yield 4.29%
Class B Shares-Standardized 30-day Yield 3.72%
Class C Shares-Standardized 30-day Yield 3.67%
Class D Shares-Standardized 30-day Yield 4.05%
<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 $0.036 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.596 per share ordinary
income dividends and $0.036 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.117 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.518 per share ordinary
income dividends and $0.036 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.097 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.513 per share ordinary
income dividends and $0.036 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.096 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.570 per share ordinary
income dividends and $0.036 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.110 per share ordinary
income dividends.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +7.51% +3.21%
Inception (9/02/94) through 9/30/96 +8.96 +6.83
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +6.81% +2.81%
Inception (9/02/94) through 9/30/96 +8.19 +7.30
<PAGE>
[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 +6.75% +5.75%
Inception (10/21/94) through 9/30/96 +9.05 +9.05
[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 +7.34% +3.05%
Inception (10/21/94) through 9/30/96 +9.64 +7.37
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/02/94--12/31/94 $10.00 $ 9.68 -- $0.184 - 1.37%
1995 9.68 10.62 $0.036 0.662 +17.38
1/01/96--9/30/96 10.62 10.57 -- 0.371 + 3.22
------ ------
Total $0.036 Total $1.217
Cumulative total return as of 9/30/96:+19.50%**
<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 ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/02/94--12/31/94 $10.00 $ 9.68 -- $0.159 - 1.62%
1995 9.68 10.62 $0.036 0.586 +16.51
1/01/96--9/30/96 10.62 10.58 -- 0.314 + 2.74
------ ------
Total $0.036 Total $1.059
Cumulative total return as of 9/30/96:+17.76%**
<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 ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.88 $ 9.69 -- $0.097 - 0.94%
1995 9.69 10.62 $0.036 0.580 +16.33
1/01/96--9/30/96 10.62 10.58 -- 0.310 + 2.70
------ ------
Total $0.036 Total $0.987
Cumulative total return as of 9/30/96:+18.35%**
<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 ex-dividend 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>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 9.88 $ 9.69 -- $0.108 - 0.83%
1995 9.69 10.62 $0.036 0.637 +16.97
1/01/96--9/30/96 10.62 10.58 -- 0.352 + 3.12
------ ------
Total $0.036 Total $1.097
Cumulative total return as of 9/30/96:+19.61%**
<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 ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Percent of
COUNTRY Industries Shares Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 690 Banco Frances del Rio de la Plata S.A.
(ADR)* $ 18,594 $ 18,026 0.1%
Oil & Gas Producers 1,200 Yacimientos Petroliferos Fiscales S.A.
(Class D)(ADR)* 25,283 27,450 0.2
Total Common Stocks in Argentina 43,877 45,476 0.3
Brazil Beverages 45,000 Companhia Cervejaria Brahma S.A. PN
(Preferred) 25,807 27,987 0.2
<PAGE>
Oil & Related 230,000 Petroleo Brasileiro S.A.-Petrobras
(Preferred) 27,101 27,030 0.2
Telecommunications 400 Telecomunicacoes Brasileiras S.A.-
Telebras (ADR)* 21,165 31,400 0.2
Total Common Stocks in Brazil 74,073 86,417 0.6
Canada Automobile Parts 500 Magna International Inc. (Class A) 22,929 24,125 0.2
Mining 280 Potash Corp. of Saskatchewan, Inc. 17,625 20,475 0.1
Multi-Industry 1,000 Canadian Pacific, Ltd. 17,418 23,125 0.2
Telecommunications 400 Northern Telecommunications Ltd. 13,924 23,100 0.2
Total Common Stocks in Canada 71,896 90,825 0.7
Finland Telecommunications 600 Nokia Corp. (ADR)* 20,894 26,550 0.2
Equipment
Total Common Stocks in Finland 20,894 26,550 0.2
France Iron & Steel 1,900 Usinor-Sacilor S.A. 29,039 29,341 0.2
Semiconductor Capital 700 SGS-Thomson Microelectronics N.V.
Equipment (NY Registered Shares) 25,696 33,163 0.2
Tires & Rubber 600 Michelin (C.G.D.E.)(Class B) 26,463 30,634 0.2
Total Common Stocks in France 81,198 93,138 0.6
Germany Chemicals 75 Henkel KGaA 3,334 3,234 0.0
675 Henkel KGaA (Preferred) 28,688 29,375 0.2
----------- ----------- ------
32,022 32,609 0.2
Electronics 500 Siemens AG 22,176 26,367 0.2
Machinery & Equipment 70 Mannesmann AG 19,573 26,242 0.2
Total Common Stocks in Germany 73,771 85,218 0.6
Hong Kong Banking 1,600 HSBC Holdings PLC 24,990 29,692 0.2
Telecommunications 1,200 Hong Kong Telecommunications Ltd. (ADR)* 21,418 21,600 0.2
Total Common Stocks in Hong Kong 46,408 51,292 0.4
Indonesia Telecommunications 720 P.T. Indonesian Satellite Corp. (ADR)* 26,205 23,760 0.2
Total Common Stocks in Indonesia 26,205 23,760 0.2
<PAGE>
Italy Telecommunications 9,500 Societa Finanziara Telefonica S.p.A.
(STET) 27,872 33,001 0.2
Total Common Stocks in Italy 27,872 33,001 0.2
Japan Building & Construction 3,000 Maeda Corp. 31,463 25,964 0.2
4,000 Okumura Corp. 35,729 31,175 0.2
----------- ----------- ------
67,192 57,139 0.4
Capital Goods 3,000 Mitsubishi Heavy Industries, Inc. 24,018 24,404 0.2
Electrical Equipment 3,000 Mitsubishi Electric Co. 21,636 20,448 0.1
Electronics 1,000 Canon, Inc. 19,005 19,641 0.2
1,000 Matsushita Electric Industrial
Co., Ltd. 16,152 16,771 0.1
----------- ----------- ------
35,157 36,412 0.3
Financial Services 1,000 Nomura Securities Co., Ltd. 22,237 18,386 0.1
Insurance 2,000 Tokio Marine & Fire Insurance Co., Ltd. 24,908 23,677 0.2
Pharmaceuticals 1,000 Eisai Co., Ltd. 17,650 19,013 0.1
Textiles 3,000 Toray Industries Ltd. 19,082 18,996 0.1
Warehouse & Storage 3,000 Mitsui-Soko Co., Ltd. 25,215 24,996 0.2
Total Common Stocks in Japan 257,095 243,471 1.7
Mexico Beverages 700 Panamerican Beverages, Inc. (Class A) 28,172 28,788 0.2
Multi-Industry 2,100 Grupo Carso, S.A. de C.V. (ADR)* 33,457 19,163 0.1
2,100 Invercorporacion S.A. (ADR)* 294 231 0.0
----------- ----------- ------
33,751 19,394 0.1
Paper Products 700 Kimberly-Clark de Mexico, S.A. de
C.V. (ADR)* 26,338 25,900 0.2
Telecommunications 2,100 Carso Global Telecom (ADR)* 9,975 10,763 0.1
Total Common Stocks in Mexico 98,236 84,845 0.6
Netherlands Banking 300 ABN AMRO Holding N.V. 16,900 16,641 0.1
Total Common Stocks in the Netherlands 16,900 16,641 0.1
<PAGE>
Philippines Beverages 8,750 San Miguel Corp. (Class B) 29,384 28,721 0.2
Total Common Stocks in the Philippines 29,384 28,721 0.2
South Korea Engineering & 700 Hyundai Engineering & Construction
Construction Co., Ltd. (GDR)** 9,121 5,950 0.1
Total Common Stocks in South Korea 9,121 5,950 0.1
Spain Energy & Petroleum 900 Repsol S.A. (ADR)* 31,784 29,813 0.2
Total Common Stocks in Spain 31,784 29,813 0.2
Sweden Banking 2,100 Sparbanken Sverige AB (Class A) 26,415 30,444 0.2
Investment Management 2,300 Bure Investment AB 19,273 22,055 0.2
Total Common Stocks in Sweden 45,688 52,499 0.4
Switzerland Electrical Equipment 25 BBC Brown Boveri & Cie (Bearer) 22,679 30,592 0.2
Pharmaceuticals 500 Sandoz AG (ADR)* 21,705 29,688 0.2
Total Common Stocks in Switzerland 44,384 60,280 0.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Percent of
COUNTRY Industries Shares Held Common Stocks Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Banking 2,600 National Westminster Bank PLC $ 27,449 $ 27,629 0.2%
Kingdom
Beverages 3,900 Grand Metropolitan PLC 26,591 29,083 0.2
Chemicals 400 Imperial Chemical Industries PLC (ADR)* 22,878 21,100 0.2
Electrical Equipment 5,000 General Electric Co. PLC (Ordinary) 22,639 30,948 0.2
Merchandising 2,800 Boots Company PLC 26,311 27,300 0.2
Pharmaceuticals 2,000 Glaxo Wellcome PLC 27,207 31,347 0.2
Steel 10,000 British Steel PLC 26,271 30,987 0.2
Telecommunications 8,000 Vodafone Group PLC 27,839 27,732 0.2
<PAGE>
Total Common Stocks in the United
Kingdom 207,185 226,126 1.6
United Aerospace 500 Boeing Co. 39,122 47,250 0.3
States 800 Northrop Grumman Corp. 53,863 64,200 0.5
500 United Technologies Corp. 31,448 60,063 0.4
----------- ----------- ------
124,433 171,513 1.2
Airlines 390 Delta Air Lines, Inc. 30,823 28,080 0.2
Automobile 1,300 General Motors Corp. 70,364 62,400 0.4
Automobile Parts 1,700 Lear Corporation 57,537 56,100 0.4
Banking 2,100 Bank of New York Co., Inc. 54,532 61,687 0.4
700 Citicorp 56,412 63,437 0.5
----------- ----------- ------
110,944 125,124 0.9
Beverages 1,380 The Coca-Cola Co. 66,871 70,207 0.5
Broadcasting--Media 1,366 Viacom, Inc. (Class B) 49,846 48,493 0.3
Building Products 1,600 Spieker Properties, Inc. 43,279 47,000 0.3
Chemicals 1,100 PPG Industries, Inc. 53,966 59,812 0.4
Computer Services 570 cisco Systems, Inc. 26,449 35,340 0.3
& Software 1,200 Electronic Data Systems Corp. (a) 62,166 73,650 0.5
815 First Data Corp. 61,774 66,524 0.5
580 International Business Machines Corp. 61,069 72,210 0.5
385 Microsoft Corp. 45,688 50,724 0.4
1,552 Oracle Corp. (b) 53,991 65,960 0.5
200 Sun Microsystems, Inc. 12,613 12,400 0.1
----------- ----------- ------
323,750 376,808 2.8
Electronics 1,300 Corning, Inc. 42,362 50,700 0.4
775 General Electric Company 61,542 70,525 0.5
----------- ----------- ------
103,904 121,225 0.9
Engineering & 1,400 Foster Wheeler Corp. 61,904 61,250 0.4
Construction
Financial Services 1,275 American Express Company 58,512 58,969 0.4
Foods 2,100 H.J. Heinz Company 68,919 70,875 0.5
Hospital Supplies 1,400 Baxter International, Inc. 63,878 65,450 0.5
<PAGE>
Household Products 750 Procter & Gamble Co. 65,578 73,125 0.5
Insurance 800 Aetna Inc. (c) 58,747 56,300 0.4
1,000 Allstate Corp. 41,288 49,250 0.4
1,000 Unum Corporation 63,757 64,125 0.5
----------- ----------- ------
163,792 169,675 1.3
Leisure/Tourism 780 TCI Pacific Communications
(Convertible Preferred) 73,118 72,150 0.5
Machine Tools & 1,400 American Standard Companies, Inc. 45,663 47,950 0.3
Machinery 1,500 Deere & Co. 59,778 63,000 0.5
----------- ----------- ------
105,441 110,950 0.8
Manufacturing 1,000 Fisher Scientific International, Inc. 30,407 41,250 0.3
Medical Services 1,100 Health Management Associates, Inc.
(Class A) 24,669 27,362 0.2
Natural Gas 1,500 Enron Corp. 58,589 61,125 0.4
Oil Service 2,000 Dresser Industries, Inc. 45,125 59,500 0.4
750 Schlumberger Ltd. 50,020 63,375 0.5
----------- ----------- ------
95,145 122,875 0.9
Paper 800 Kimberly-Clark Corp. 61,852 70,500 0.5
Petroleum 700 Pennzoil Co. 29,082 37,012 0.3
2,000 Unocal Corp. 67,336 72,000 0.5
----------- ----------- ------
96,418 109,012 0.8
Pharmaceuticals 1,400 Abbott Laboratories 52,187 68,950 0.5
800 Merck & Co., Inc. 27,464 56,300 0.4
----------- ----------- ------
79,651 125,250 0.9
Railroads 600 Burlington Northern Inc. 48,542 50,625 0.4
800 Conrail, Inc. 56,291 57,900 0.4
----------- ----------- ------
104,833 108,525 0.8
Retail Apparel 3,000 The Limited, Inc. 64,404 57,375 0.4
<PAGE>
Retail Stores 1,060 Sears, Roebuck & Co. 47,686 47,435 0.3
200 Thrifty PayLess Holdings, Inc. (Class B) 3,614 3,725 0.0
----------- ----------- ------
51,300 51,160 0.3
Software--Computer 700 BMC Software, Inc. 52,083 55,650 0.4
Steel 1,300 AK Steel Holding Corp. 52,133 53,300 0.4
Telecommunications 1,800 Airtouch Communications, Inc. 51,785 49,725 0.4
1,000 Bell Atlantic Corporation 54,539 59,875 0.4
----------- ----------- ------
106,324 109,600 0.8
Tobacco 300 Philip Morris Companies, Inc. 27,059 26,925 0.2
Travel & Lodging 2,450 Carnival Corp. (Class A) 70,113 75,950 0.5
Total Common Stocks in the
United States 2,671,839 2,945,065 21.0
Total Investments in Common Stocks 3,877,810 4,229,088 30.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Percent of
COUNTRY Face Amount Fixed-Income Securities Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada C$ 900,000 Canadian Government Bonds, 7% due
2/01/2006 $ 641,897 $ 653,987 4.7%
Total Fixed-Income Securities in
Canada 641,897 653,987 4.7
Denmark Dkr 3,500,000 Denmark Government Bonds, 8% due
3/15/2006 641,002 640,595 4.6
Total Fixed-Income Securities in
Denmark 641,002 640,595 4.6
Germany DM 500,000 Bundes Obligations, 5.875% due
5/15/2000 336,900 341,591 2.4
Total Fixed-Income Securities in
Germany 336,900 341,591 2.4
<PAGE>
Sweden Government of Sweden:
Skr 1,000,000 11% due 1/21/1999 163,988 167,306 1.2
1,000,000 10.25% due 5/05/2000 163,574 169,488 1.2
Total Fixed-Income Securities in
Sweden 327,562 336,794 2.4
United States US Treasury Notes:
US$ 1,900,000 5% due 1/31/1998 1,877,812 1,876,554 13.4
3,275,000 7% due 7/15/2006 3,337,480 3,343,054 23.9
2,200,000 6.75% due 8/15/2026 2,105,469 2,150,148 15.3
Total Fixed-Income Securities in the
United States 7,320,761 7,369,756 52.6
Total Investments in Fixed-Income
Securities 9,268,122 9,342,723 66.7
Total Investments $13,145,932 13,571,811 96.8
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts++ 6,269 0.1
Other Assets Less Liabilities 437,897 3.1
----------- ------
Net Assets $14,015,977 100.0%
=========== ======
Net Asset Value: Class A--Based on net assets of $3,890,152 and
367,865 shares outstanding $ 10.57
===========
Class B--Based on net assets of $8,950,806 and
846,230 shares outstanding $ 10.58
===========
Class C--Based on net assets of $355,300 and
33,594 shares outstanding $ 10.58
===========
Class D--Based on net assets of $819,719 and
77,508 shares outstanding $ 10.58
===========
<FN>
(a)Formerly General Motors Corp. (Class E).
(b)Formerly Oracle Systems Corp.
(c)Formerly Aetna Life &Casualty Company.
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
++Forward foreign exchange contracts as of September 30, 1996
were as follows:
Foreign Expiration Unrealized
Currency Sold Date Appreciation
DM 651,064 October 1996 $ 4,950
1,021,781 December 1996 1,319
<PAGE>
Total Unrealized Appreciation on Forward Foreign
Exchange Contracts (US$ Commitment--$1,107,000) $ 6,269
==========
</TABLE>
COMMON STOCK PORTFOLIO CHANGES
For the Quarter Ended September 30, 1996
Additions ABN AMRO Holding N.V.
Airtouch Communications, Inc.
BMC Software, Inc.
Boots Company PLC
British Steel PLC
Burlington Northern Inc.
Carso Global Telecom (ADR)
*Compaq Computer Corp.
Glaxo Wellcome PLC
Grand Metropolitan PLC
H.J. Heinz Company
Health Management Associates, Inc.
(Class A)
Henkel KGaA
*Hyundai Engineering & Construction
Co. Ltd. (Rights)
Invercorporacion S.A. (ADR)
Kimberly-Clark Corp.
Lear Corporation
*National Processing Inc.
National Westminster Bank PLC
Petroleo Brasileiro S.A.-Petrobras
(Preferred)
SGS-Thomson Microelectronics N.V.
(NY Registered Shares)
TCI Pacific Communications
(Convertible Preferred)
Thrifty PayLess Holdings, Inc. (Class B)
Unum Corporation
Vodafone Group PLC
<PAGE>
Deletions AT&T Corp.
Associates First Capital Corp.
AutoZone, Inc.
Cincinnati Milacron, Inc.
*Compaq Computer Corp.
Eastman Kodak Co.
Ford Motor Co.
Humana, Inc.
*Hyundai Engineering & Construction
Co. Ltd. (Rights)
Intel Corp.
Lexmark International Group, Inc.
(Class A)
Lucent Technologies, Inc.
*National Processing Inc.
Royal Dutch Petroleum Co.
(NY Registered Shares)
SGL Carbon AG (ADR)
The Stanley Works Co.
Wheelabrator Technologies Inc.
[FN]
*Added and deleted in the same quarter.
