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MERRILL LYNCH
ASSET INCOME
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
March 31, 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
Gerald M. Richard, Treasurer
Mark B. Goldfus, 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
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 -- 3/97
[RECYCLE LOGO] Printed on post-consumer recycled paper
Worldwide Breakdown of Stocks &
Investments as of Fixed-Income Securities Percent of
March 31, 1997 by Country Net Assets+
United States* 75.0%
Germany 3.5
Sweden 3.4
Canada 2.5
Italy 2.4
Japan 1.8
France 1.6
Finland 1.6
Australia 1.4
United Kingdom 1.3
Switzerland 0.7
Mexico 0.6
Brazil 0.5
Argentina 0.4
Hong Kong 0.4
South Africa 0.3
Spain 0.2
Philippines 0.2
Netherlands 0.2
Indonesia 0.1
Norway 0.1
South Korea 0.0
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Insurance 1.7%
Banking 1.7
Pharmaceuticals 1.7
Computer Services & Software 1.5
Telecommunications 1.5
Financial Services 1.3
Chemicals 0.9
Medical Services 0.9
Leisure/Tourism 0.8
Oil Service 0.8
Percent
Ten Largest Holdings Country of of Net
(Equity Investments) Origin Assets
American Standard
Companies, Inc. United States 0.5%
Carnival Corp.
(Class A) United States 0.5
BMC Software, Inc. United States 0.4
Edison International United States 0.4
Schlumberger Ltd. United States 0.4
Allstate Corp. United States 0.4
Sears, Roebuck & Co. United States 0.4
Oxford Health
Plans, Inc. United States 0.4
American Express
Company United States 0.4
Bank of New York
Co., Inc. United States 0.4
*Includes investments in short-term securities.
+Percent of net assets may not total 100%.
Merrill Lynch Asset Income Fund, Inc., March 31, 1997
DEAR SHAREHOLDER
As of March 31, 1997, the asset allocation for Merrill Lynch Asset
Income Fund, Inc. was: US bonds, 13% of net assets; foreign bonds, 14%;
US stocks, 16%; foreign stocks, 9%; and cash reserves, 46%.
We greatly reduced the Fund's exposure to US interest rate risk just
prior to the March 25, 1997 Federal Open Market Committee meeting. The
shift from US bonds to cash reserves reflected our assessment that the
probability of a tightening in monetary policy by the Federal Reserve
Board had materially increased. Mounting evidence of strength in
personal consumption expenditures, in light of still tight US labor
markets, seemed likely to lead to a more restrictive policy. Until the
extent of Federal Reserve Board tightening becomes clearer, we believe
it prudent to maintain a defensive posture in the US bond market.
At the same time, we maintained indirect exposure to US interest rates
through Canadian and Australian bonds during the three months ended
March 31, 1997. The trading pattern of Australian bonds closely
resembled that of US obligations. However, as evidence of benign
inflationary pressure in Australia and modest economic growth becomes
more apparent, the yield differential between US and Australian bonds of
comparable maturities should narrow. We believe Canadian bonds should
outperform US obligations, given the improving fiscal situation in
Canada and an inflation rate below that in the United States.
Our remaining foreign bond exposure remained concentrated in Europe
during the March quarter. Positions included obligations in the core
markets of Germany and France and the peripheral markets of Italy,
Sweden and Finland. European bond markets remained attractive, given the
less-than-robust economic recoveries of the core countries as a result
of a combination of high unemployment and ongoing fiscal and structural
reform.
We recently removed all of our currency forward contracts against our
European bond and equity commitments. We believe that the US dollar
could weaken over the near term as dollar-denominated assets are
negatively impacted by tighter monetary policy by the Federal Reserve
Board. We intend to maintain our currency hedge against our Japanese
equity positions. The tenuous nature of the Japanese economic recovery
warrants a continuing accommodative monetary policy by the Bank of
Japan, in our opinion. This policy will result in a widening of the
already large interest rate differentials between the United States
and Japan, supporting further dollar strength against the yen.
Expectations for further weakness in the Australian and Canadian dollars
led us to continue to hedge the obligations of these countries back to
the US dollar.
Our expectation of tighter monetary policy also led us to reduce the
Fund's US equity exposure. However, the asset allocation within the US
equity sector has not materially changed. The largest concentration of
funds remained allocated to the financial services, technology and
healthcare areas. These sectors continued to be attractive based on the
potential for well-positioned companies to exhibit favorable earnings
patterns in upcoming quarters. In view of this outlook, we focused the
Fund's new positions in these areas during the quarter ended March 31,
1997. Additions to the portfolio included MGIC Investment Corporation,
Travelers Group, Inc., First USA, Inc. and Countrywide Credit Industries,
Inc. in financial services; American Home Products Corporation, Tenet
Healthcare Corporation and Oxford Health Plans, Inc. in healthcare; and
Cabletron Systems, Inc. in technology.
During the March quarter, we liquidated a number of positions in the
foreign sector which had performed well and where reward/risk
relationships no longer appeared attractive. Commitments sold on this
basis included Kimberly-Clark de Mexico, S.A. de C.V., Nokia Corp.,
Petroleo Brasileiro S.A. -- Petrobras, Societa Finanziara Telefonica
S.p.A. (STET) and Michelin (C.G.D.E.). We also eliminated the positions
in National Westminster Bank PLC and Nomura Securities Co., Ltd. in the
wake of unfavorable developments at each company. We established new
positions in the shares of companies which were laggard performers and
where upside potential appeared to be significant. These commitments
included RTZ Corporation PLC, Telefonos de Mexico, S.A. de C.V., De
Beers Consolidated Mines Limited and Sasol Limited. Other new positions
included Sony Corporation, Arnoldo Mondadori Editore S.p.A. and Roche
Holding AG.
As a result of these changes, the size of the Japanese equity position
remained below the unmanaged Morgan Stanley Europe, Australia and Far
East Index, during the three months ended March 31, 1997. Europe
remained well-represented, while significant positions were maintained
in Latin American markets and Canada. We continue to maintain a limited
commitment to the emerging markets of Asia.
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 semi-annual report to shareholders.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/THOMAS R. ROBINSON
Thomas R. Robinson
Vice President and
Senior Portfolio Manager
/S/JOEL HEYMSFELD
Joel Heymsfeld
Portfolio Manager
April 29, 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 conversations.).
(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.
<TABLE>
<CAPTION>
Recent
Performance
Results
12 Month 3 Month
3/31/97 12/31/96 3/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $10.40 $10.53 $10.37 +2.86%(1) -1.23%
Class B Shares* 10.40 10.53 10.37 +2.86(1) -1.23
Class C Shares* 10.40 10.53 10.37 +2.86(1) -1.23
Class D Shares* 10.40 10.53 10.37 +2.86(1) -1.23
Class A Shares - Total Return* +8.10(2) -0.14(3)
Class B Shares - Total Return* +7.30(4) -0.32(5)
Class C Shares - Total Return* +7.25(6) -0.33(7)
Class D Shares - Total Return* +7.84(8) -0.20(9)
Class A Shares - Standardized 30-day Yield 4.53%
Class B Shares - Standardized 30-day Yield 4.03%
Class C Shares - Standardized 30-day Yield 3.95%
Class D Shares - Standardized 30-day Yield 4.32%
* 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 $0.270 per share capital gains distributions.
(2) Percent change includes reinvestment of $0.531 per share ordinary income dividends and
$0.270 per share capital gains distributions.
(3) Percent change includes reinvestment of $0.110 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.452 per share ordinary income dividends
and $0.270 per share capital gains distributions.
(5) Percent change includes reinvestment of $0.092 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.447 per share ordinary income dividends and
$0.270 per share capital gains distributions.
(7) Percent change includes reinvestment of $0.091 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.504 per share ordinary income dividends
and $0.270 per share capital gains distributions.
(9) Percent change includes reinvestment of $0.104 per share ordinary income dividends.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/97 +8.10% +3.78%
Inception (9/02/94) through 3/31/97 +8.65 +6.94
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/97 +7.30% +3.30%
Inception (9/02/94) through 3/31/97 +7.84 +7.15
* 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 3/31/97 +7.25% +6.25%
Inception (10/21/94) through 3/31/97 +8.50 +8.50
* 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 3/31/97 +7.84% +3.52%
Inception (10/21/94) through 3/31/97 +9.10 +7.29
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<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>
9/02/94 -- 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
1/01/97 -- 3/31/97 10.53 10.40 -- 0.110 - 0.14
Total $0.306 Total $1.505
Cumulative total return as of 3/31/97: +23.83%**
</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>
9/02/94 -- 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
1/01/97 -- 3/31/97 10.53 10.40 -- 0.092 - 0.32
Total $0.306 Total $1.307
Cumulative total return as of 3/31/97: +21.46%***
</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
1/01/97 -- 3/31/97 10.53 10.40 -- 0.091 - 0.33
Total $0.306 Total $1.232
Cumulative total return as of 3/31/97: +22.04%***
</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
1/01/97 -- 3/31/97 10.53 10.40 -- 0.104 - 0.20
Total $0.306 Total $1.371
Cumulative total return as of 3/31/97: +23.68%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
*** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Asset Income Fund, Inc., March 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Percent of
Shares Net
COUNTRY Industries Held Common Stocks Cost Value Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking 793 Banco Frances del Rio de la Plata S.A. (ADR)* $18,594 $23,790 0.2%
Oil & Gas Producers 900 Yacimientos Petroliferos Fiscales S.A.
(Class D)(ADR)* 18,590 23,850 0.2
----------- ----------- ------
Total Common Stocks in Argentina 37,184 47,640 0.4
=========== =========== ======
Brazil Beverages 45,000 Companhia Cervejaria Brahma S.A. PN (Preferred) 25,807 29,341 0.2
Telecommunications 300 Telecomunicacoes Brasileiras S.A.-Telebras (ADR)* 15,584 30,713 0.3
----------- ----------- ------
Total Common Stocks in Brazil 41,391 60,054 0.5
=========== =========== ======
Canada Automobile Parts 500 Magna International Inc. (Class A) 22,929 24,813 0.2
Mining 280 Potash Corp. of Saskatchewan, Inc. 17,625 21,280 0.1
Multi-Industry 1,000 Canadian Pacific, Ltd. 17,418 24,000 0.2
----------- ----------- ------
Total Common Stocks in Canada 57,972 70,093 0.5
=========== =========== ======
France Iron & Steel 1,900 Usinor-Sacilor S.A. 29,039 31,217 0.2
Reinsurance 700 Scor S.A. 26,665 28,690 0.2
Semiconductor Capital 300 SGS-Thomson Microelectronics N.V.
Equipment (NY Registered Shares) 11,349 19,838 0.2
----------- ----------- ------
Total Common Stocks in France 67,053 79,745 0.6
=========== =========== ======
Germany Chemicals 75 Henkel KGaA 3,334 3,837 0.0
675 Henkel KGaA (Preferred) 28,688 37,331 0.3
----------- ----------- ------
32,022 41,168 0.3
Electronics 500 Siemens AG 22,176 27,021 0.2
Footwear 100 Puma AG 3,247 3,745 0.0
Machinery & Equipment 70 Mannesmann AG 19,573 26,847 0.2
----------- ----------- ------
Total Common Stocks in Germany 77,018 98,781 0.7
=========== =========== ======
Hong Kong Banking 1,200 HSBC Holdings PLC 18,562 27,876 0.2
Telecommunications 1,200 Hong Kong Telecommunications, Ltd. (ADR)* 21,418 19,650 0.2
----------- ----------- ------
Total Common Stocks in Hong Kong 39,980 47,526 0.4
=========== =========== ======
Indonesia Telecommunications 720 P.T. Indonesian Satellite Corp. (ADR)* 26,205 19,260 0.1
----------- ----------- ------
Total Common Stocks in Indonesia 26,205 19,260 0.1
=========== =========== ======
Italy Publishing 2,000 Arnoldo Mondadori Editore S.p.A. 16,894 12,635 0.1
----------- ----------- ------
Total Common Stocks in Italy 16,894 12,635 0.1
=========== =========== ======
Japan Building & Construction 3,000 Maeda Corp. 31,463 16,282 0.1
4,000 Okumura Corp. 35,729 22,260 0.2
----------- ----------- ------
67,192 38,542 0.3
Capital Goods 3,000 Mitsubishi Heavy Industries, Inc. 24,018 19,563 0.1
Electrical Equipment 3,000 Mitsubishi Electric Co. 21,636 16,889 0.1
Electronics 1,000 Canon, Inc. 19,005 21,466 0.2
1,000 Matsushita Electric Industrial Co., Ltd. 16,152 15,634 0.1
300 Sony Corporation (ADR)* 21,921 20,738 0.2
----------- ----------- ------
57,078 57,838 0.5
Insurance 2,000 Tokio Marine & Fire Insurance Co., Ltd. 24,908 20,413 0.2
Pharmaceuticals 1,000 Eisai Co., Ltd. 17,650 17,173 0.1
Textiles 3,000 Toray Industries Ltd. 19,082 17,473 0.1
Tires & Rubber 2,000 Bridgestone Corporation 34,483 37,586 0.3
Warehouse & Storage 3,000 Mitsui-Soko Co., Ltd. 25,215 14,605 0.1
----------- ----------- ------
Total Common Stocks in Japan 291,262 240,082 1.8
=========== =========== ======
Mexico Beverages 500 Panamerican Beverages, Inc. (Class A) 20,309 26,813 0.2
Multi-Industry 2,100 Grupo Carso, S.A. de C.V. (ADR)* 33,457 24,413 0.2
Telecommunications 600 Telefonos de Mexico, S.A. de C.V. (ADR)* 22,783 23,100 0.2
----------- ----------- ------
Total Common Stocks in Mexico 76,549 74,326 0.6
=========== =========== ======
Netherlands Banking 300 ABN AMRO Holding N.V. 16,900 20,695 0.2
----------- ----------- ------
Total Common Stocks in the Netherlands 16,900 20,695 0.2
=========== =========== ======
Norway Cruise Lines 3,000 Color Line ASA 11,280 14,585 0.1
----------- ----------- ------
Total Common Stocks in Norway 11,280 14,585 0.1
=========== =========== ======
Philippines Beverages 6,250 San Miguel Corp. (Class B) 20,578 21,711 0.2
----------- ----------- ------
Total Common Stocks in the Philippines 20,578 21,711 0.2
=========== =========== ======
South
Africa Diversified 2,000 Sasol Limited 22,967 21,385 0.2
Mining 600 De Beers Consolidated Mines Limited (ADR)* 19,815 21,150 0.1
----------- ----------- ------
Total Common Stocks in South Africa 42,782 42,535 0.3
=========== =========== ======
South Korea Engineering
& Construction 700 Hyundai Engineering &
Construction Co., Ltd. (GDR)** 9,121 2,363 0.0
----------- ----------- ------
Total Common Stocks in South Korea 9,121 2,363 0.0
=========== =========== ======
Spain Energy & Petroleum 600 Repsol S.A. (ADR)* 22,129 24,450 0.2
----------- ----------- ------
Total Common Stocks in Spain 22,129 24,450 0.2
=========== =========== ======
Sweden Banking 1,200 Sparbanken Sverige AB (Class A) 15,094 22,320 0.2
Investment Management 1,300 Bure Investment AB 10,894 16,926 0.1
----------- ----------- ------
Total Common Stocks in Sweden 25,988 39,246 0.3
=========== =========== ======
Switzerland Chemicals 50 Ciba Specialty Chemicals AG (ADR)* 1,881 2,013 0.0
Electrical Equipment 25 BBC Brown Boveri & Cie (Bearer) 22,679 30,097 0.2
Pharmaceuticals 500 Novartis AG (ADR)* 21,705 30,563 0.3
3 Roche Holding AG 25,201 25,981 0.2
----------- ----------- ------
46,906 56,544 0.5
Total Common Stocks in Switzerland 71,466 88,654 0.7
=========== =========== ======
United
Kingdom Beverages 2,900 Grand Metropolitan PLC 19,773 23,468 0.0
Chemicals 1,200 Imperial Chemical Industries PLC 15,490 13,752 0.1
400 Imperial Chemical Industries PLC (ADR)* 22,878 18,200 0.1
----------- ----------- ------
38,368 31,952 0.2
Merchandising 2,800 Boots Company PLC 26,311 31,119 0.3
Mining 1,600 RTZ Corporation PLC 23,875 25,369 0.2
Steel 10,000 British Steel PLC 26,271 26,838 0.2
Telecommunications 6,000 Vodafone Group PLC 20,879 27,562 0.2
----------- ----------- ------
Total Common Stocks in the United Kingdom 155,477 166,308 1.3
=========== =========== ======
United
States Aerospace 400 Allied Signal, Inc. 29,436 28,500 0.2
600 United Technologies Corp. 18,809 45,150 0.3
----------- ----------- ------
48,245 73,650 0.5
Automobile Parts 700 Lear Corporation 24,037 23,363 0.2
Banking 1,400 Bank of New York Co., Inc. 37,991 51,450 0.4
200 BankAmerica Corp. 20,429 20,150 0.1
500 Chase Manhattan Corporation 51,118 46,813 0.4
----------- ----------- ------
109,538 118,413 0.9
Chemicals 300 du Pont (E.I.) de Nemours & Co. 32,753 31,800 0.2
400 FMC Corporation 28,932 24,500 0.2
----------- ----------- ------
61,685 56,300 0.4
Computer Services & 1,300 Cabletron Systems, Inc. 44,911 38,025 0.3
Software 570 cisco Systems, Inc. 26,449 27,431 0.2
900 Computer Associates International, Inc. 36,358 34,988 0.3
1,230 First Data Corp. 47,688 41,666 0.3
200 International Business Machines Corp. 21,125 27,475 0.2
652 Oracle Corp. 23,780 25,102 0.2
----------- ----------- ------
200,311 194,687 1.5
Computers 400 Compaq Computer Corp. 29,673 30,650 0.2
Fertilizers 500 IMC Global, Inc. 19,377 18,063 0.1
Financial Services 875 American Express Company 40,319 52,391 0.4
900 Countrywide Credit Industries, Inc. 27,295 22,275 0.2
1,000 First USA, Inc. 50,802 42,375 0.3
700 MGIC Investment Corporation 52,816 49,525 0.4
----------- ----------- ------
171,232 166,566 1.3
Foods 400 H.J. Heinz Company 12,824 15,800 0.1
Hardware Products 800 Black & Decker Corporation 26,789 25,700 0.2
Healthcare --
Managed Care 900 Oxford Health Plans, Inc. 54,668 52,650 0.4
Insurance 400 Aetna Inc. 28,876 34,350 0.3
900 Allstate Corp. 37,195 53,438 0.4
300 Nationwide Financial Services, Inc. 7,050 7,725 0.1
1,000 Travelers Group, Inc. 52,728 47,875 0.3
700 UNUM Corporation 44,604 51,100 0.4
----------- ----------- ------
170,453 194,488 1.5
Leisure/Tourism 1,800 Brunswick Corporation 44,654 48,375 0.4
400 Imax Corp. 12,650 13,550 0.1
480 TCI Pacific Communications
(Convertible Preferred) 44,276 43,080 0.3
----------- ----------- ------
101,580 105,005 0.8
Machine Tools &
Machinery 1,400 American Standard Companies, Inc. 45,663 63,000 0.5
Manufacturing 700 Fisher Scientific International, Inc. 21,337 30,887 0.2
Medical Services 700 Centocor, Inc. 25,470 21,350 0.2
1,700 Health Management Associates, Inc.
(Class A) 38,381 40,375 0.3
1,900 Tenet Healthcare Corporation 49,343 46,787 0.4
----------- ----------- ------
113,194 108,512 0.9
Natural Gas 800 El Paso Natural Gas Co. 40,480 45,300 0.3
1,200 Enron Corp. 47,249 45,600 0.3
----------- ----------- ------
87,729 90,900 0.6
Oil Service 1,600 Dresser Industries, Inc. 36,951 48,400 0.4
500 Schlumberger Ltd. 36,095 53,625 0.4
----------- ----------- ------
73,046 102,025 0.8
Paper 500 Kimberly-Clark Corp. 38,794 49,687 0.4
Petroleum 400 Pennzoil Co. 17,276 20,700 0.2
1,000 Unocal Corp. 33,548 38,125 0.3
----------- ----------- ------
50,824 58,825 0.5
Pharmaceuticals 700 Abbott Laboratories 29,869 39,287 0.3
800 American Home Products Corporation 47,173 48,000 0.4
600 Merck & Co., Inc. 20,626 50,550 0.4
----------- ----------- ------
97,668 137,837 1.1
Railroads 400 Burlington Northern Santa Fe Inc. 32,353 29,600 0.2
Real Estate
Investment 950 Prentiss Properties Trust 19,118 24,106 0.2
Trust 800 Starwood Lodging Trust 36,000 31,200 0.2
----------- ----------- ------
55,118 55,306 0.4
Retail Stores 1,110 Rite Aid Corporation 34,689 46,620 0.4
1,060 Sears, Roebuck & Co. 47,686 53,265 0.4
----------- ----------- ------
82,375 99,885 0.8
Software -- Computer 1,200 BMC Software, Inc. 44,805 55,200 0.4
Telecommunications 1,400 Airtouch Communications, Inc. 39,863 32,200 0.2
200 Tele-Communications, Inc. (Class A)
(Convertible Preferred) 2,883 2,400 0.0
1,500 WorldCom, Inc. 37,692 32,812 0.3
----------- ----------- ------
80,438 67,412 0.5
Tobacco 200 Philip Morris Companies, Inc. 18,039 22,825 0.2
Travel & Lodging 1,650 Carnival Corp. (Class A) 47,536 61,050 0.5
Utilities 2,400 Edison International 44,885 54,000 0.4
----------- ----------- ------
Total Common Stocks in the United States 1,964,216 2,162,286 16.5
=========== =========== ======
Total Investments in Common Stocks 3,071,445 3,332,975 25.5
=========== =========== ======
<CAPTION>
Percent
of Net
COUNTRY Face Amount Fixed-Income Securities Cost Value Assets
<S> <C> <C> <C> <C> <C>
Australia A $ 250,000 Government of Australia, 6.75% due 11/15/2006 $ 181,346 $ 179,434 1.4%
----------- ----------- ------
Total Fixed-Income Securities in Australia 181,346 179,434 1.4
=========== =========== ======
Canada C $ 350,000 Canadian Government Bonds, 7% due 12/01/2006 265,903 257,912 2.0
----------- ----------- ------
Total Fixed-Income Securities in Canada 265,903 257,912 2.0
=========== =========== ======
Finland Fim 1,000,000 Finnish Government Bonds, 7.25% due 4/18/2006 213,165 215,509 1.6
----------- ----------- ------
Total Fixed-Income Securities in Finland 213,165 215,509 1.6
=========== =========== ======
France French Government O.A.T.:
Frf 476,000 6.75% due 10/25/2003 92,290 91,978 0.7
250,000 5.50% due 4/25/2004 47,107 45,031 0.3
----------- ----------- ------
Total Fixed-Income Securities in France 139,397 137,009 1.0
=========== =========== ======
Germany DM 550,000 Bundesrepublik Deutschland, 7.125% due 12/20/2002 387,865 362,071 2.8
----------- ----------- ------
Total Fixed-Income Securities in Germany 387,865 362,071 2.8
=========== =========== ======
Italy Lit 490,000,000 Buoni Poliennali del Tesoro (Italian Government
Bonds), 8.50% due 1/01/2004 347,145 304,923 2.3
----------- ----------- ------
Total Fixed-Income Securities in Italy 347,145 304,923 2.3
=========== =========== ======
Sweden Government of Sweden:
Skr 1,000,000 10.25% due 5/05/2000 171,007 150,545 1.2
1,800,000 8% due 8/15/2007 282,566 251,661 1.9
----------- ----------- ------
Total Fixed-Income Securities in Sweden 453,573 402,206 3.1
=========== =========== ======
United
States Federal National Mortgage Association:
US 365,405 6% due 11/01/2000 361,751 360,622 2.7
830,630 6% due 6/01/2001 822,194 808,437 6.2
505,510 6% due 2/01/2004 499,507 492,235 3.8
----------- ----------- ------
Total Fixed-Income Securities in the United States 1,683,452 1,661,294 12.7
=========== =========== ======
Total Investments in Fixed-Income Securities 3,671,846 3,520,358 26.9
=========== =========== ======
Short-Term Securities
US Government & 2,500,000 Federal Home Loan Bank, 6.45% due 4/01/1997 2,500,000 2,500,000 19.1
Agency
Obligations*** 3,500,000 Federal Home Loan Mortgage Corp., 6.50%
due 4/01/1997 3,500,000 3,500,000 26.7
----------- ----------- ------
Total Investments in Short-Term Securities 6,000,000 6,000,000 45.8
=========== =========== ======
Total Investments $12,743,291 12,853,333 98.2
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts+ 2,766 0.0
Other Assets Less Liabilities 238,001 1.8
----------- ------
Net Assets $13,094,100 100.0%
=========== ======
Net Asset Value: Class A -- Based on net assets of $4,342,919 and 417,503 shares outstanding $10.40
===========
Class B -- Based on net assets of $7,850,642 and 754,510 shares outstanding $10.40
===========
Class C -- Based on net assets of $266,757 and 25,641 shares outstanding $10.40
===========
Class D -- Based on net assets of $633,782 and 60,924 shares outstanding $10.40
===========
* American Depositary Receipts (ADR).
** Global Depositary Receipts (GDR).
*** Certain US Government & Agency Obligations are traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
+ Forward foreign exchange contracts sold as of March 31, 1997 were as follows:
<CAPTION>
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
<S> <C> <C> <C>
A$ 235,000 April 1997 $94
C$ 370,000 April 1997 3,297
Chf 125,000 June 1997 (1,524)
[POUND] 100,000 April 1997 (3,265)
(yen) 29,500,000 April 1997 4,164
Total Unrealized Appreciation on Forward Foreign
Exchange Contracts -- Net (US$ Commitment --
$946,231) $2,766
======
</TABLE>
COMMON STOCK PORTFOLIO CHANGES
For the Quarter Ended March 31, 1997
Additions American Home Products Corporation
Arnoldo Mondadori Editore S.p.A.
Black & Decker Corporation
Cabletron Systems, Inc.
Centocor, Inc.
Chase Manhattan Corporation
Ciba Specialty Chemicals AG (ADR)
Computer Associates International, Inc.
Countrywide Credit Industries, Inc.
*Covance Inc.
De Beers Consolidated Mines Limited (ADR)
du Pont (E.I.) de Nemours & Co.
First USA, Inc.
Imax Corp.
MGIC Investment Corporation
Nationwide Financial Services, Inc.
Oxford Health Plans, Inc.
*Quest Diagnostics Inc.
RTZ Corporation PLC
Roche Holding AG
Sasol Limited
*Seat S.p.A.
Sony Corporation (ADR)
Starwood Lodging Trust
Tele-Communications, Inc. (Class A)
(Convertible Preferred)
Telefonos de Mexico, S.A. de C.V. (ADR)
Tenet Healthcare Corporation
Travelers Group, Inc.
WorldCom, Inc.
Deletions AK Steel Holding Corp.
Bell Atlantic Corporation
Carso Global Telecom, S.A. de C.V. (ADR)
Citicorp
Corning, Inc.
*Covance Inc.
Deere & Co.
Foster Wheeler Corp.
General Electric Co. PLC (Ordinary)
General Electric Company
General Motors Corp.
Glaxo Wellcome PLC
Grupo Financiero Inbursa, S.A. de C.V. (ADR)
Gulfstream Aerospace Corp.
Kimberly-Clark de Mexico, S.A. de C.V. (ADR)
Linear Technology Corporation
Michelin (C.G.D.E) (Class B)
National Westminster Bank PLC
Nokia Corp. (ADR)
Nomura Securities Co., Ltd.
Northrop Grumman Corp.
Oakwood Homes Corporation
PPG Industries, Inc.
Petroleo Brasileiro S.A.-Petrobras (Preferred)
*Quest Diagnostics Inc.
*Seat S.p.A.
Societa Finanziara Telefonica S.p.A. (STET)
Spieker Properties, Inc.
Toys 'R' Us, Inc.
Viacom, Inc. (Class B)
*Added and deleted in the same quarter.
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