MERRILL LYNCH
ASSET INCOME
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
September 30, 1997
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
and Senior Portfolio Manager
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800)637-3863
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on foreign
investments and on repatriation of capital invested in emerging markets,
currency fluctuations, and potential price volatility and less liquidity
of securities traded in emerging markets. In addition, there may be less
publicly available information about the issuers of securities, and such
issuers may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to which US
companies are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing in
emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please refer
to the propectus for details.
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 #18240 -- 9/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
MERRILL LYNCH ASSET INCOME FUND, INC.
Worldwide
Investments as of
September 30, 1997
Breakdown of
Stocks & Fixed-Income Percent of
Securities by Country Net Assets+
United States* 80.0%
United Kingdom 3.0
Canada 2.8
Sweden 2.5
Italy 1.8
Japan 1.6
Denmark 1.3
Mexico 0.7
Germany 0.6
Switzerland 0.6
Brazil 0.5
France 0.5
South Africa 0.4
Spain 0.2
Netherlands 0.2
Hong Kong 0.2
Australia 0.2
Indonesia 0.2
Argentina 0.2
Philippines 0.1
Norway 0.1
South Korea 0.0++++
* Includes investments in short-term securities.
+ Percent of net assets may not total 100%.
++++ Percent of net assets is less than 0.1%.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 2.0%
Insurance 1.4
Telecommunications 1.2
Oil Service 1.0
Computer Services & Software 1.0
Retail Stores 0.9
Electronics 0.9
Machine Tools & Machinery 0.8
Pharmaceuticals 0.8
Beverages 0.8
Percent
Ten Largest Holdings Country of Net
(Equity Investments) of Origin Assets
Smith International, Inc. United States 0.4%
UNUM Corporation United States 0.4
National Semiconductor
Corporation United States 0.4
Sears, Roebuck & Co. United States 0.4
Computer Associates
International, Inc. United States 0.4
Edison International United States 0.4
El Paso Natural Gas Co. United States 0.4
Rite Aid Corporation United States 0.4
WorldCom, Inc United States 0.4
BankAmerica Corp. United States 0.4
Merrill Lynch Asset Income Fund, Inc., September 30, 1997
DEAR SHAREHOLDER
As of September 30, 1997, the asset allocation for Merrill Lynch Asset
Income Fund, Inc. was: US bonds, 64% of net assets; foreign bonds, 9%;
US stocks, 15%; foreign stocks, 9%; and cash reserves, 3%.
During the three months ended September 30, 1997, we became more
positive toward US bonds. Therefore, we increased the portfolio
weighting from 43% of net assets at June 30, 1997 to 64% at September
30, 1997. Our more optimistic stance toward US bonds reflected
indications that inflationary pressures in the US economy were
exceptionally subdued as well as expectations that a slowdown in the
economy's growth rate would become evident in the months ahead. At the
same time, the rapid shrinkage of the Federal budget deficit reduced the
supply of newly issued US Government securities
relative to the demand.
The majority of the funds utilized to expand the US bond commitment were
taken from cash reserves, which we reduced from 21% of net assets to 3%
during the quarter ended September 30, 1997. Foreign bonds were also
reduced from 12% of net assets to 9% during the quarter. We eliminated
our position in Australian bonds and reduced commitments in Germany,
Italy, Spain and Sweden. A position was maintained in UK obligations,
given our belief that the total return potential of these bonds was
attractive. As of September 30, 1997, our expectation of further US
dollar strength led us to hedge our commitments in European stocks and
bonds, as well as Japanese and Australian equities, back to the US
dollar.
The foreign equity allocations did not materially change during the
three months ended September 30, 1997. Japan remained the largest single
commitment, although the weighting was below the unmanaged benchmark,
the Morgan Stanley Europe, Australia and Far East Index. In Japan, we
sold our Canon, Inc. holding at a profit. We continued to maintain a
meaningful position in Latin America, and initiated an investment in
Grupo Financiera Bancomer S.A. (Class B). The Fund's Canadian commitment
was reduced as a result of the sale of Canadian Pacific, Ltd. and Potash
Corp. of Saskatchewan, Inc. In Europe, portfolio changes included an
investment in Dixons Group PLC. We also maintained limited
representation in Asian markets other than Japan.
In the US equity sector, the largest concentration remained in the
financial services category which we expect will be a beneficiary of
declining US interest rates. We maintained other meaningful positions in
the technology, healthcare and energy sectors. These areas of emphasis
are unchanged over the three months ended September 30, 1997, and
reflect our expectations that earnings of selected companies in these
sectors should continue to exceed consensus expectations despite a
slower rate of growth in the US economy.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/THOMAS R. ROBINSON
Thomas R. Robinson
Vice President and Senior
Portfolio Manager
October 23, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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 10 years. (There is no initial sales charge for automatic
share conversions.)
[bullet] 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.
[bullet] 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. Figures shown in the "Average Annual Total Return"
tables as well as the total returns and cumulative total returns in the
"Performance Summary" tables assume reinvestment of all dividends and
capital gains distributions at net asset value on the payable 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.
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
Class A Shares*
Year Ended 9/30/97 +15.04% +10.44%
Inception (9/02/94) through 9/30/97 +10.90 + 9.44
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +14.08% +10.08%
Inception (9/02/94) through 9/30/97 +10.07 + 9.81
* 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 9/30/97 +14.13% +13.13%
Inception (10/21/94) through 9/30/97 +10.76 +10.76
* 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 9/30/97 +14.65% +10.06%
Inception (10/21/94) through 9/30/97 +11.33 + 9.80
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
9/30/97 6/30/97 9/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $11.19 $10.94 $10.57 + 9.51%(1) +3.16%(2)
Class B Shares* 11.19 10.94 10.58 + 9.41(1) +3.16(2)
Class C Shares* 11.20 10.94 10.58 + 9.51(1) +3.26(2)
Class D Shares* 11.19 10.94 10.58 + 9.41(1) +3.16(2)
Class A Shares - Total Return* +15.04(3) +4.32(4)
Class B Shares - Total Return* +14.08(5) +4.13(6)
Class C Shares - Total Return* +14.13(7) +4.21(8)
Class D Shares - Total Return* +14.65(9) +4.26(10)
Class A Shares - Standardized 30-day Yield 4.35%
Class B Shares - Standardized 30-day Yield 3.79%
Class C Shares - Standardized 30-day Yield 3.77%
Class D Shares - Standardized 30-day Yield 4.11%
* 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 $0.365 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.095 per share capital gains distributions.
(3) Percent change includes reinvestment of $0.532 per share ordinary income dividends and $0.365 per share
capital gains distributions.
(4) Percent change includes reinvestment of $0.122 per share ordinary income dividends and $0.095 per share
capital gains distributions.
(5) Percent change includes reinvestment of $0.452 per share ordinary income dividends and $0.365 per share
capital gains distributions.
(6) Percent change includes reinvestment of $0.101 per share ordinary income dividends and $0.095 per share
capital gains distributions.
(7) Percent change includes reinvestment of $0.446 per share ordinary income dividends and $0.365 per share
capital gains distributions.
(8) Percent change includes reinvestment of $0.100 per share ordinary income dividends and $0.095 per share
capital gains distributions.
(9) Percent change includes reinvestment of $0.505 per share ordinary income dividends and $0.365 per share
capital gains distributions.
(10) Percent change includes reinvestment of $0.115 per share ordinary income dividends and $0.095 per share
capital gains distributions.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary --
Class A Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/2/94 -- 12/31/94 $10.00 $ 9.68 -- $0.184 - 1.37%
1995 9.68 10.62 $0.036 0.662 +17.38
1996 10.62 10.53 0.270 0.549 + 7.11
1/1/97 -- 9/30/97 10.53 11.19 0.095 0.354 +10.87
Total $0.401 Total $1.749
Cumulative total return as of 9/30/97: +37.47%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary --
Class B Shares
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/2/94 -- 12/31/94 $10.00 $ 9.68 -- $0.159 - 1.62%
1995 9.68 10.62 $0.036 0.586 +16.51
1996 10.62 10.53 0.270 0.470 + 6.31
1/1/97 -- 9/30/97 10.53 11.19 0.095 0.296 +10.25
Total $0.401 Total $1.511
Cumulative total return as of 9/30/97: +34.35%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary --
Class C Shares
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
1996 10.62 10.53 0.270 0.464 + 6.25
1/1/97 -- 9/30/97 10.53 11.20 0.095 0.292 +10.31
Total $0.401 Total $1.433
Cumulative total return as of 9/30/97: +35.07%**
* Figures may include short-term capital gains distributions.
** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary --
Class D Shares
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
1996 10.62 10.53 0.270 0.522 + 6.84
1/1/97 -- 9/30/97 10.53 11.19 0.095 0.335 +10.66
Total $0.401 Total $1.602
Cumulative total return as of 9/30/97: +37.14%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Asset Income Fund, Inc., September 30, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Shares Percent of
COUNTRY Industries Held Common Stocks Cost Value Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Oil & Gas Producers 500 Yacimientos Petroliferos Fiscales S.A. (ADR)* $10,224 $18,438 0.2%
----------- ----------- -----
Total Common Stocks in Argentina 10,224 18,438 0.2
=========== =========== =====
Australia Diversified 1,800 Broken Hill Proprietary Co., Ltd. 23,683 20,961 0.2
----------- ----------- -----
Total Common Stocks in Australia 23,683 20,961 0.2
=========== =========== =====
Brazil Banking 400 Uniao de Bancos Brasileiros S.A. 13,500 14,650 0.1
(Unibanco)(GDR)**
Beverages 25,000 Companhia Cervejaria Brahma S.A. PN 14,337 19,171 0.2
(Preferred)
Telecommunications 150 Telecomunicacoes Brasileiras S.A. - 7,792 19,313 0.2
Telebras (ADR)* ----------- ----------- -----
Total Common Stocks in Brazil 35,629 53,134 0.5
=========== =========== =====
Canada Automobile Parts 200 Magna International Inc. (Class A) 9,381 13,825 0.1
Leisure/Tourism 800 Imax Corp. 12,650 20,700 0.2
----------- ----------- -----
Total Common Stocks in Canada 22,031 34,525 0.3
=========== =========== =====
France Iron & Steel 100 Usinor - Sacilor S.A. 1,414 2,021 0.0
Reinsurance 700 Scor S.A. 26,665 30,247 0.3
Semiconductor Capital 200 SGS - Thomson Microelectronics N.V. 7,659 18,775 0.2
Equipment (NY Registered Shares) ----------- ----------- -----
Total Common Stocks in France 35,738 51,043 0.5
=========== =========== =====
Germany Electronics 500 Siemens AG 22,176 33,799 0.3
Machinery & Equipment 70 Mannesmann AG 19,573 33,382 0.3
----------- ----------- -----
Total Common Stocks in Germany 41,749 67,181 0.6
=========== =========== =====
Hong Kong Banking 700 HSBC Holdings PLC 10,618 23,430 0.2
----------- ----------- -----
Total Common Stocks in Hong Kong 10,618 23,430 0.2
=========== =========== =====
Indonesia Telecommunications 720 P.T. Indonesian Satellite Corp. (ADR)* 26,205 18,900 0.2
----------- ----------- -----
Total Common Stocks in Indonesia 26,205 18,900 0.2
=========== =========== =====
Italy Apparel 400 Gucci Group N.V. (NY Registered Shares) 27,509 18,750 0.2
Publishing 2,000 Arnoldo Mondadori Editore S.p.A. 16,894 14,633 0.1
----------- ----------- -----
Total Common Stocks in Italy 44,403 33,383 0.3
=========== =========== =====
Japan Building & Construction 3,000 Maeda Corp. 31,463 10,766 0.1
1,000 Matsushita Electric Works, Ltd. 11,398 10,443 0.1
4,000 Okumura Corp. 35,729 20,653 0.2
----------- ----------- -----
78,590 41,862 0.4
Capital Goods 3,000 Mitsubishi Heavy Industries, Inc. 24,018 16,435 0.1
Electrical Equipment 3,000 Mitsubishi Electric Co. 21,636 11,810 0.1
Electronics 300 Sony Corporation (ADR)* 21,921 28,181 0.3
Insurance 2,000 Tokio Marine & Fire Insurance Co., Ltd. 24,908 24,034 0.2
Textiles 3,000 Toray Industries Ltd. 19,082 17,728 0.2
Tires & Rubber 1,000 Bridgestone Corporation 17,241 24,034 0.2
Warehouse & Storage 3,000 Mitsui-Soko Co., Ltd. 25,215 13,178 0.1
----------- ----------- -----
Total Common Stocks in Japan 232,611 177,262 1.6
=========== =========== =====
Mexico Beverages 400 Panamerican Beverages, Inc. (Class A) 8,120 15,625 0.2
Financial Services 800 Grupo Financiera Bancomer S.A. 11,533 10,800 0.1
(Class B) (ADR)*
Multi-Industry 2,100 Grupo Carso, S.A. de C.V.(ADR)* 33,457 33,338 0.3
Telecommunications 300 Telefonos de Mexico, S.A. de C.V. (ADR)* 11,540 15,525 0.1
----------- ----------- -----
Total Common Stocks in Mexico 64,650 75,288 0.7
=========== =========== =====
Netherlands Banking 1,200 ABN AMRO Holding N.V. 16,900 24,315 0.2
----------- ----------- -----
Total Common Stocks in the Netherlands 16,900 24,315 0.2
=========== =========== =====
Norway Cruise Lines 3,000 Color Line ASA 11,280 13,538 0.1
----------- ----------- -----
Total Common Stocks in Norway 11,280 13,538 0.1
=========== ========= ====
Philippines Beverages 9,075 San Miguel Corp. (Class B) 26,591 14,770 0.1
----------- ----------- -----
Total Common Stocks in the Philippines 26,591 14,770 0.1
=========== =========== =====
South Africa Diversified 2,000 Sasol Limited 22,967 27,569 0.2
Mining 600 De Beers Consolidated Mines Limited (ADR)* 19,815 17,663 0.2
----------- ----------- -----
Total Common Stocks in South Africa 42,782 45,232 0.4
=========== =========== =====
South Korea Engineering & Construction 710 Hyundai Engineering & Construction Co.,
Ltd. (GDR)** 9,121 2,400 0.0
----------- ----------- -----
Total Common Stocks in South Korea 9,121 2,400 0.0
=========== =========== =====
Spain Energy & Petroleum 600 Repsol S.A. (ADR)* 22,129 26,025 0.2
----------- ----------- -----
Total Common Stocks in Spain 22,129 26,025 0.2
=========== =========== =====
Sweden Banking 1,200 Sparbanken Sverige AB (Class A) 15,094 28,972 0.3
Chemicals 700 Perstorp AB (Class B) 13,135 13,945 0.1
Investment Management 1,300 Bure Investment AB 10,894 16,894 0.1
Real Estate Investment Trusts 600 Castellum AB 4,025 5,779 0.1
----------- ----------- -----
Total Common Stocks in Sweden 43,148 65,590 0.6
=========== =========== =====
Switzerland Electrical Equipment 15 ABB AG (a) 13,027 22,127 0.2
Pharmaceuticals 200 Novartis AG (ADR)* 8,661 15,400 0.1
3 Roche Holding AG 25,201 26,651 0.3
----------- ----------- -----
33,862 42,051 0.4
Total Common Stocks in Switzerland 46,889 64,178 0.6
=========== =========== =====
United Kingdom Automobile Parts 4,000 LucasVarity PLC 13,760 15,140 0.1
Beverages 2,900 Grand Metropolitan PLC 19,773 27,675 0.3
Chemicals 400 Imperial Chemical Industries PLC (ADR)* 22,878 26,450 0.3
Merchandising 600 Boots Company PLC 5,638 8,521 0.1
Mining 1,600 Rio Tinto PLC 23,875 25,466 0.2
Retail Stores 1,100 Dixons Group PLC 11,578 11,352 0.1
----------- ----------- -----
Total Common Stocks in the United Kingdom 97,502 114,604 1.1
=========== =========== =====
United States Aerospace 680 Allied Signal, Inc. 25,031 28,900 0.3
200 GenCorp, Inc. 5,970 5,688 0.0
425 United Technologies Corp. 13,279 34,425 0.3
----------- ----------- -----
44,280 69,013 0.6
Airlines 200 US Airways Group Inc. 7,284 8,275 0.1
Appliances 900 Sunbeam Corporation 35,192 39,938 0.4
Automobile Parts 500 Federal-Mogul Corp. 18,256 18,563 0.2
Automobile Rental 100 Avis Rent-A-Car, Inc. 1,700 2,388 0.0
700 Hertz Corp. (Class A) 20,734 26,381 0.2
----------- ----------- -----
22,434 28,769 0.2
Banking 391 Banc One Corp. 16,683 21,823 0.2
750 Bank of New York Co., Inc. 20,839 36,000 0.3
550 BankAmerica Corp. 29,431 40,322 0.4
670 First Union Corp. 33,018 33,542 0.3
----------- ----------- -----
99,971 131,687 1.2
Broadcasting/Cable 1,146 Tele-Communications TCI Ventures Group 20,349 23,708 0.2
Class A)
Chemicals 500 duPont (E.I.) de Nemours & Co. 27,292 30,781 0.3
Computer Services 600 Computer Associates International, Inc. 24,432 43,088 0.4
& Software 170 International Business Machines Corp. 9,472 18,009 0.2
120 Microsoft Corp. 13,043 15,878 0.1
828 Oracle Corp. 20,413 30,170 0.3
----------- ----------- -----
67,360 107,145 1.0
Computers 45 Compaq Computer Corp. 1,348 3,364 0.0
600 Quantum Corp. 17,080 22,950 0.2
----------- ----------- -----
18,428 26,314 0.2
Containers 1,150 Owens-Illinois, Inc. 32,914 39,028 0.4
Cosmetics & Toiletries 500 Avon Products, Inc. 34,613 31,000 0.3
Cruise Lines 200 Royal Caribbean Cruises Ltd. 8,125 8,750 0.1
Electronics 360 Intel Corp. 24,115 33,255 0.3
Financial Services 210 American Express Company 9,466 17,194 0.1
700 MGIC Investment Corporation 27,000 40,119 0.4
----------- ----------- -----
36,466 57,313 0.5
Hardware Products 700 Black & Decker Corporation 23,461 26,075 0.2
Health Care 200 HEALTHSOUTH Corp. 5,396 5,337 0.0
Health Care -- Managed Care 400 Oxford Health Plans, Inc. 25,545 29,950 0.3
Insurance 315 Hartford Life, Inc. (Class A) 10,221 12,108 0.1
500 Provident Companies, Inc. 33,157 34,969 0.3
500 Travelers Group, Inc. 26,998 34,125 0.3
100 Travelers Property Casualty Corp. (Class A) 3,869 4,050 0.1
1,000 UNUM Corporation 31,713 45,625 0.4
----------- ----------- -----
105,958 130,877 1.2
Leisure/Tourism 850 Brunswick Corporation 21,306 29,962 0.3
Machine Tools & Machinery 500 American Standard Companies, Inc. 16,280 20,062 0.2
400 Harnischfeger Industries, Inc. 17,397 17,100 0.1
900 Ingersoll-Rand Co. 27,375 38,756 0.3
300 SPX Corp. 17,572 17,587 0.2
----------- ----------- -----
78,624 93,505 0.8
Medical Equipment 400 DENTSPLY International Inc. 20,156 22,400 0.2
Natural Gas 700 El Paso Natural Gas Co. 35,652 42,394 0.4
320 Enron Corp. 13,039 12,320 0.1
----------- ----------- -----
48,691 54,714 0.5
Office Equipment 300 Danka Business Systems PLC (ADR)* (b) 14,816 13,313 0.1
Oil Service 850 Dresser Industries, Inc. 21,698 36,550 0.3
300 Schlumberger Ltd. 12,665 25,256 0.3
600 Smith International, Inc. 27,162 46,612 0.4
----------- ----------- -----
61,525 108,418 1.0
Petroleum 50 Pennzoil Co. 2,247 3,984 0.0
850 Unocal Corp. 28,542 36,762 0.4
----------- ----------- -----
30,789 40,746 0.4
Pharmaceuticals 400 American Home Products Corporation 23,723 29,200 0.3
175 Merck & Co., Inc. 6,050 17,489 0.1
----------- ----------- -----
29,773 46,689 0.4
Railroads 350 Burlington Northern Santa Fe Inc. 28,317 33,819 0.3
Real Estate Investment 800 Prentiss Properties Trust 16,001 23,100 0.2
Trusts 680 Starwood Lodging Trust 30,600 39,057 0.4
----------- ----------- -----
46,601 62,157 0.6
Retail Stores 760 Rite Aid Corporation 24,882 42,132 0.4
100 Safeway, Inc. 5,285 5,437 0.0
760 Sears, Roebuck & Co. 35,726 43,272 0.4
----------- ----------- -----
65,893 90,841 0.8
Semiconductors 1,100 National Semiconductor Corporation 44,311 45,100 0.4
Software -- Computer 500 BMC Software, Inc. 18,803 32,344 0.3
Telecommunications 500 AirTouch Communications, Inc. 13,966 17,719 0.1
1,104 Tele-Communications, Inc. (Class A) 20,028 22,564 0.2
(Convertible Preferred)
1,150 WorldCom, Inc. 28,792 40,609 0.4
----------- ----------- -----
62,786 80,892 0.7
Transport Services 660 OMI Corp. 8,459 8,250 0.1
Travel & Lodging 790 Carnival Corp. (Class A) 22,760 36,537 0.3
Utilities 1,700 Edison International 31,893 42,925 0.4
----------- ----------- -----
Total Common Stocks in the United States 1,292,942 1,688,390 15.3
=========== =========== =====
Total Investments in Common Stocks 2,156,825 2,632,587 23.9
=========== =========== =====
<CAPTION>
Face Percent of
COUNTRY Industries Amount Fixed-Income Securities Cost Value Net Assets
<S> <C> <C> <C> <C> <C> <C>
Canada Foreign Government C$ 350,000 Canadian Government Bonds, 7% due 12/01/2006 $265,903 $275,696 2.5%
Obligations
Total Fixed-Income Securities in Canada 265,903 275,696 2.5
=========== =========== =====
Denmark Foreign Government Dkr 850,000 Government of Denmark, 7% due 11/15/2007 135,796 135,941 1.3
Obligations
Total Fixed-Income Securities in Denmark 135,796 135,941 1.3
=========== =========== =====
Italy Foreign Government Lit 250,000,000 Buoni Poliennali del Tesoro (Italian
Obligations Government Bonds), 8.50% due 1/01/2004 177,115 164,140 1.5
Total Fixed-Income Securities in Italy 177,115 164,140 1.5
=========== =========== =====
Sweden Foreign Government Skr 1,400,000 Government of Sweden, 8% due 8/15/2007 204,289 209,595 1.9
Obligations
Total Fixed-Income Securities in Sweden 204,289 209,595 1.9
=========== =========== =====
United Kingdom Foreign Government [Pound] 125,000 UK Treasury Bills, 7.25% due 12/07/2007 206,901 212,903 1.9
Obligations
Total Fixed-Income Securities in the 206,901 212,903 1.9
United Kingdom =========== =========== =====
United States US Government Federal National Mortgage Association:
Agency Obligations US$ 334,533 6% due 11/01/2000 331,187 332,462 3.0
760,026 6% due 6/01/2001 752,307 753,718 6.9
448,720 6% due 2/01/2004 443,392 444,888 4.0
----------- ----------- -----
1,526,886 1,531,068 13.9
US Government 2,425,000 US Treasury Bonds, 6.625% due 2/15/2027 2,341,371 2,482,982 22.6
Obligations US Treasury Notes:
1,425,000 6% due 8/15/1999 1,426,352 1,429,004 13.0
750,000 6.50% due 5/31/2002 755,039 764,295 6.9
525,000 6.25% due 2/15/2007 529,184 527,709 4.8
300,000 6.625% due 5/15/2007 303,734 309,843 2.8
----------- ----------- -----
5,355,680 5,513,833 50.1
Total Fixed-Income Securities in the 6,882,566 7,044,901 64.0
United States =========== =========== =====
Total Investments in Fixed-Income 7,872,570 8,043,176 73.1
Securities =========== =========== =====
Short-Term Securities
US Government 82,000 Federal Home Loan Mortgage Corp., 6.05% 82,000 82,000 0.7
Agency Obligations*** due 10/01/1997
Total Investments in Short-Term Securities 82,000 82,000 0.7
=========== =========== =====
Total Investments $10,111,395 10,757,763 97.7
===========
Unrealized Depreciation on Forward Foreign Exchange Contracts+ (7,319) 0.0
Other Assets Less Liabilities 256,696 2.3
----------- -----
Net Assets $11,007,140 100.0%
=========== =====
Net Asset Value: Class A -- Based on net assets of $2,114,778 and 188,931 shares outstanding $11.19
======
Class B -- Based on net assets of $8,116,072 and 725,169 shares outstanding $11.19
======
Class C -- Based on net assets of $397,700 and 35,522 shares outstanding $11.20
======
Class D -- Based on net assets of $378,590 and 33,839 shares outstanding $11.19
======
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** Certain US Government Agency Obligations are traded on a discount
basis; the interest rates shown are the discount rates paid at the time of
purchase by the Fund.
(a) Formerly BBC Brown Boveri & Cie (Bearer).
(b) Consistent with the general policy of the Securities and Exchange
Commission, the nationality or domicile of an issuer for determination
of foreign issuer status may be (i) the country under whose laws the
issuer is organized, (ii) the country in which the issuer's securities are
principally traded, or (iii) the country in which the issuer derives a
significant proportion (at least 50%) of its revenue or profits from goods
produced and sold, investments made, or services performed in the
country, or in which at least 50% of the assets of the issuer are situated.
+ Forward foreign exchange contracts sold as of September 30, 1997 were
as follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
A$ 25,000 October 1997 $(163)
Chf 150,000 October 1997 (1,562)
Dkr 910,000 October 1997 215
DM 165,000 October 1997 (2,217)
Frf 495,000 October 1997 (2,041)
[Pound] 225,000 October 1997 (6,732)
Lit 350,000,000 October 1997 346
Pta 3,700,000 October 1997 (286)
Skr 1,978,000 October 1997 52
(yen) 28,000,000 October 1997 5,069
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts -- Net (US$ Commitment -- $1,511,993) $(7,319)
========
</TABLE>
COMMON STOCK PORTFOLIO CHANGES
For the Quarter Ended September 30, 1997
Additions
Avis Rent-A-Car, Inc.
Avon Products, Inc.
DENTSPLY International Inc.
Danka Business Systems PLC (ADR)
Dixons Group PLC
Federal-Mogul Corp.
First Union Corp.
GenCorp, Inc.
Grupo Financiera Bancomer S.A. (Class B) (ADR)
*Gulf Indonesia Resources Ltd.
HEALTHSOUTH Corp.
Harnischfeger Industries, Inc.
National Semiconductor Corporation
OMI Corp.
Perstorp AB (Class B)
Provident Companies, Inc.
Quantum Corp.
Royal Caribbean Cruises Ltd.
SPX Corp.
Safeway, Inc.
Tele-Communications TCI Ventures Group (Class A)
Deletions
Abbott Laboratories
Aetna Inc.
Allstate Corp.
British Steel PLC
Cabletron Systems, Inc.
Canadian Pacific, Ltd.
Canon, Inc.
Chase Manhattan Corporation
First Data Corp.
*Gulf Indonesia Resources Ltd.
IMC Global, Inc.
Imperial Chemical Industries PLC
Kimberly-Clark Corp.
Matsushita Electric Industrial Co., Ltd.
Nationwide Financial Services, Inc.
Philip Morris Companies, Inc.
Potash Corp. of Saskatchewan, Inc.
TCI Pacific Communications (Convertible Preferred)
Tenet Healthcare Corporation
Vodafone Group PLC
*Added and deleted in the same quarter.
