-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P7CqdmhcoJMBDFiLXft+a5QoSbNNun2dgF9lEqw8BBoqsrdf4/C9EOP9DxswAs4b pxkGdDrQrJ9p9/TnKbpgzQ== 0000900092-97-000142.txt : 19970812 0000900092-97-000142.hdr.sgml : 19970812 ACCESSION NUMBER: 0000900092-97-000142 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH CAPITAL FUND INC CENTRAL INDEX KEY: 0000110055 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132757134 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-02405 FILM NUMBER: 97655103 BUSINESS ADDRESS: STREET 1: P O BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543 BUSINESS PHONE: 6092823319 MAIL ADDRESS: STREET 1: P.O. BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: LIONEL D EDIE CAPITAL FUND INC DATE OF NAME CHANGE: 19760810 N-30B-2 1 QUARTERLY REPORT MERRILL LYNCH CAPITAL FUND, INC. FUND LOGO Quarterly Report June 30, 1997 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 Capital Fund, Inc. Box 9011 Princeton, NJ 08543-9011 Printed on post-consumer recycled paper MERRILL LYNCH CAPITAL FUND, INC. PORTFOLIO SUMMARY Security Diversification As a Percentage of Net Assets As of June 30, 1997 A pie chart illustrating the following percentages: US Bonds 35.8% Non-US Bonds 3.9% Cash & Cash Equivalents 2.4% US Stocks 47.2% Non-US Stocks 10.7% Sector Representation As a Percentage of Equities As of June 30, 1997 A pie chart illustrating the following percentages: Financial Services 24.4% Transportation 1.8% Consumer Services 7.2% Utilities 1.7% Consumer Cyclicals 9.2% Capital Goods--Technology 13.2% Energy 14.0% Basic Industries 8.9% Diversified 3.0% Consumer Staples 9.3% Credit Cyclicals 3.0% Capital Goods 4.3% Geographic Diversification Percent of As of June 30, 1997 Net Assets* United States 84.7% United Kingdom 4.5 Argentina 3.6 Switzerland 1.8 Mexico 0.9 Brazil 0.8 Finland 0.8 Netherlands 0.6 Italy 0.6 France 0.5 Japan 0.3 Chile 0.2 Hong Kong 0.2 South Korea 0.2 India 0.1 Thailand 0.1 Czech Republic 0.1 [FN] *Includes investments in short-term securities. US Common Stock Investments S&P As of June 30, 1997 Fund 500* Average Capitalization (in billions) $21.7 $13.4 Price/Book Value 2.8 5.0 Price/Earnings Ratio** 18.0 20.9 Yield Based on Current Dividend 1.9% 1.7% [FN] *An unmanaged broad-based index comprised of common stocks. **Based on 1997 earnings estimates. Fixed-Income Investments Merrill Lynch As of June 30, 1997 Fund DOAO Index* Duration 5.4 Years 5.1 Years Average Maturity 9.1 Years 12.9 Years Asset Breakdown: Corporates 51.2% 17.7% US Treasuries/Agencies 42.2% 53.2% Mortgage-Backed 1.4% 29.1% International Governments 5.2% -- [FN] *An unmanaged market-weighted corporate, Government and mortgage master bond index reflecting approximately 97% of total outstanding bonds. DEAR SHAREHOLDER US equity market performance during the second quarter of 1997 was more characteristic of the initial stages of a bull market than that which would typically be expected to occur after a lengthy period of economic growth and financial asset price appreciation. Following the modest correction experienced in early spring which erased the first quarter's +2.66% total return, the unmanaged Standard & Poor's 500 Index (S&P 500) soared to a stunning +17.43% second-quarter total return, the strongest second-quarter performance since 1938. The 1997-to-date total return of +20.55% is the fourth largest first half gain in 50 years. Two of the three instances of superior first half performance occurred after long periods of poor market returns. The +41.8% first half advance of 1975 followed the severe bear market of 1973--1974 when equity prices declined by over 40%. The +22.2% first half gain of 1983 came after three years of equity market stagnation prior to the market turn in August 1982. The +27.6% first half return in 1987 was preceded by two years of solid market gains but, in turn, preceded the significant price decline in the fourth quarter of that year. Indeed, never has such a remarkable gain as that of the first half of 1997 been achieved when stock prices had already advanced by more than 15% in the prior year, adding another record to this market's extraordinary advance. The catalysts to the stock market's strong price appreciation in the June quarter included evidence of a decelerating pace of real economic growth following the first quarter's blistering 5.9% rate of increase, continued benign inflationary pressures, expectations for good corporate profits performance, ongoing mutual fund cash inflows and enhanced prospects for a Federal balanced budget agreement which would include a reduced rate of capital gains taxation. The bond market also benefited from these trends, albeit to a much more modest degree than the stock market, with the unmanaged Merrill Lynch Domestic Bond Master Index providing a +3.65% total return in the second quarter while cash equivalents earned +1.36%. The total returns of Merrill Lynch Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares for the June quarter were +10.45%, +10.19%, +10.18% and +10.37%, respectively. On the economic front, first quarter real gross domestic product (GDP) growth of 5.9% was the strongest since the fourth quarter of 1987, driven by accelerating consumer spending to a 5.6% rate of increase (the highest in five years), strong corporate investment activity and increased inventory accumulation. However, indicators suggest second quarter GDP growth is likely to be considerably more modest. Personal consumption expenditures grew at a mere 1% annual rate; retail sales declined for the three consecutive months; the second decline occurred in the volatile durable goods orders series in the last three months; weak construction activity in May included a sharp decline in housing starts; and there was the first decline in factory shipments this year. This accumulating body of evidence of moderating economic growth, combined with continued disinflation, supported the Federal Reserve Board's decision to keep short-term interest rates unchanged in both May and early July, following its decision to increase interest rates in March. The inflation outlook is particularly encouraging. Through May, the Consumer Price Index (CPI) had risen at a 2.2% annual rate over the prior 12 months, the slowest such rate of increase in ten years, and through the first five months of 1997, the CPI increased at a mere 1.4% rate. This very favorable combination of moderate economic growth, low inflation and an accom- modating monetary policy provided the economic foundation for the powerful advance in financial asset prices in the June quarter. Portfolio Matters Our investment position at June 30, 1997 showed 57.9% of portfolio net assets invested in equities, 39.7% in bonds and 2.4% in cash or cash equivalents. This compares to 55.0% of net assets in equities, 42.0% in bonds and 3.0% in cash or cash equivalents at the end of the March quarter. This modest shift in asset mix largely reflects the relative outperformance of stocks compared to bonds during the June quarter, resulting in a significantly greater increase in the value of our equities than our bonds over this period. We have discussed for some time, and at some length, the rationale behind the large bond component of Merrill Lynch Capital Fund, but we believe the continued outperformance of stocks versus bonds necessitates a reiteration of our views. In the context of long-term historical valuation relationships both within and between the stock and bond markets, we believe bonds are attractively valued. Adjusted for the current rate of inflation, interest rates rarely have been higher since the Great Depression of the 1930s. Indeed, excluding the 1981--1982 period when the prime rate of interest exceeded 21% and the economy suffered through a severe recession in response to aggressive Federal Reserve Board interest rate increases to stamp out the last vestiges of the inflationary psychology of the late 1970s, current inflation-adjusted interest rates are the highest in over 60 years. With the rate of inflation continuing to slow, we believe the current real return available in the bond market to be very attractive. Compared to the stock market, bonds are attractively valued. The relationships between current bond yields and stock market dividend and earnings yields are the most favorable to bonds since at least 1960. Meanwhile, stocks are very expensive on a long-term valuation basis. Indeed, on virtually every traditional valuation measure, the stock market is as highly valued as it has been in the post-war period. While this condition has not yet restrained the upward advance in equity prices, it has served to make stocks that much more expensive in a historical context. As a result, we continue to maintain a relatively large weighting in bonds in Merrill Lynch Capital Fund based upon our belief that, as a result of these valuation relationships, bond returns will be very competitive with those available from the broad equity market averages over the next 12 months. Within the equity component of the Fund, we added two new investments and eliminated 12 holdings during the June quarter. We increased our position in 22 stocks while reducing our ownership of an additional 15. We established a position in American Standard Companies, Inc. during the June quarter. This diversified manufacturer operates in three distinct businesses where it maintains leading market positions on a global basis: air conditioning under the Trane brand name, auto products under the Wabco name and plumbing equipment. Company management believes it can sustain a 15% revenue growth through the end of the decade and improve operating margins in each business segment, while deploying free cash flow for debt repayment and to fund a modest share repurchase authorization. This combination is expected to propel earnings per share growth at a greater-than-20% rate. In our opinion, this is also an exceptionally well-managed company with a strong record of value creation, and evidences significant insider stock ownership. Selling at approximately 15.0 times estimated 1997 earnings per share, American Standard appears to offer excellent value at its current price. The other new addition to the Fund is Sunbeam Corporation, the small appliance manufacturer. New management was installed at Sunbeam one year ago, and has imple- mented a dramatic restructuring program which is expected to result in significant shareholder value creation over the next several years. The company has adopted a set of aggressive financial goals, including the achievement of $2 billion in revenues, a 20% operating margin, a 25% return on shareholders' equity, $600 million in free cash flow and a debt-free balance sheet within three years. If successful, a company with the profitability, returns and cash generation capability to which Sunbeam aspires would command a significantly higher valuation in the market, suggesting substantial upside potential in the share price. In addition, management incentives are highly correlated to share price performance through both direct stock ownership and substantial stock option and restricted stock programs. With a well-articulated strategy for top- line growth, profitability improvement and free cash generation, suggesting significant earnings power enhancement and with a highly motivated management team with a proven record of value creation, we believe Sunbeam represents very good value. We eliminated our holding in Rockwell International Corporation, the diversified electronics and aerospace company. The stock had performed reasonably well over the last few years and had provided the Fund with a near-100% return from our initial purchase. Subsequent to the announced spin-off of the company's automotive operation, Rockwell will be a technology-based company with primary end markets in automation, avionics, electronics and space systems. However, generous assumptions about both operating margin expansion and improved stock valuation suggested only nominal upside potential in the stock, so we chose to sell our position and redeploy the proceeds into more attractive investment opportunities. We also sold our position in Cleveland-Cliffs, Inc., an iron ore supplier to the steel industry. The closure of the company's Australian mine, as a result of a lack of economic incremental reserves, has eliminated an important profit contributor and cash generator for the company. While it is endeavoring to replace both the lost production and earnings of this facility through a number of projects, it is likely to be 1999 before the company can resume a positive earnings growth trajectory. While well-managed and statistically inexpensive, expectations for three years of flat earnings and the lack of any discernible catalyst for significant share price appreciation supported the sale of our investment in the company. Examining the industry concentration of the Fund's equity holdings, we continue to maintain relatively low weightings relative to the S&P 500 in the broad consumer sector and electric utilities, while energy and financial services, specifically insurance, remain relatively heavily weighted in the Fund's mix. The consumer segment of the equity market is represented by many high-quality companies, but the stocks tend to sell at high valuation levels, limiting their current investment appeal. We have eliminated all of our holdings in electric utility companies based upon our view that the deregulation of electric power generation will prove extremely disruptive to this industry, as it has for every other deregulated industry, until capacity is rationalized, consolidation further advanced and capital more effectively allocated. This process can take several years to unfold, during which time the risks outweigh the potential rewards of ownership of equity securities of these companies, in our opinion. In contrast, real estate investment trusts provide many of the same defensive characteristics as utilities, such as high dividend yields and low valuation parameters, while offering attractive growth opportunities and superior managements. The Fund is invested in several such equities. We believe the insurance industry offers many attractive investment opportunities as many companies are well-advanced in the process of restructuring to concentrate on select, high return lines of business, freeing-up substantial excess capital as a result. In turn, this excess capital is being reinvested in acquisitions or share repurchases which we expect will help build value for shareholders. In addition, many such companies are managed by individuals with significant stock ownership, making for a mutuality of interest in achieving this objective. Finally, this is among the more reasonably valued segments of the market. While most of our energy stock investments benefited from the strong commodity price environment of 1996, our investment position in this sector is not based upon a top-down, commodity price forecast. Many energy companies offer attractive unit volume growth and substantial restructuring opportunities, while selling at reasonable prices with high current dividend yields. In particular, many international oil companies headquartered outside the United States, such as Fund holdings YPF S.A. of Argentina, TOTAL S.A. of France and Ente Nazionale Idrocarburi S.p.A. (ENI) of Italy, appear quite inexpensive compared to comparable US-based companies. Within the fixed-income component of the portfolio, we maintained the average duration of our bonds at 5.4 years. We slightly extended the average portfolio maturity of our bonds to 9.1 years from 8.8 years at the end of the March quarter, reflecting the availability of attractive inflation-adjusted yields in longer-maturity securities. Though our bonds' average yield to maturity declined during the June quarter from 7.36% to 6.98% in response to overall market declines, we were able to mitigate some of this decrease through an ongoing program of swap trades for credit and yield enhancement. Investment-grade corporate bonds continued to represent the largest category of fixed-income holdings at June quarter-end at 46.6% of fixed-income assets compared to 44.8% at the end of March, while foreign government bond investments increased to 5.2% of fixed- income assets from 5.0%. US Treasury bonds decreased to 42.2% of fixed-income assets from 44.0%, and high-yield corporate bonds decreased from 4.8% to 4.5%. We maintained our position in mortgage- backed securities at 1.4% of fixed-income assets. We maintained the average quality ratings of our bond holdings at A1/A+ as rated by one of the nationally recognized rating agencies. Despite the high overall level of the stock market, we continue to identify and invest in above-average companies whose stocks sell at below-average valuation levels. We define an above-average company as one which maintains a strong competitive position, earns consistently high returns on capital, is financially sound, generates cash in excess of its internal reinvestment requirements and is managed by individuals motivated to create value for shareholders. We define a below-average price as one which does not adequately or accurately reflect what we believe to be the company's underlying intrinsic value. On average, the stocks held in Merrill Lynch Capital Fund, Inc. have generated comparable returns on shareholders' equity and have stronger balance sheets, while offering faster earnings growth than the average company as measured by the S&P 500. However, these same stocks sell at an average price/earnings ratio of 18.0 times estimated 1997 earnings per share versus 20.9 times for the S&P 500, 2.8 times current book value versus 5.1 times for the S&P 500 and provide a 1.9% dividend yield versus 1.7% for the S&P 500. We believe this formula will provide superior risk-adjusted returns over time. In Conclusion We appreciate your continued interest and participation in Merrill Lynch Capital Fund, Inc., and we look forward to assisting you with your financial needs in the months and years to come. Sincerely, (Arthur Zeikel) Arthur Zeikel President (Kurt Schansinger) Kurt Schansinger Vice President and Portfolio Manager July 25, 1997 OFFICERS AND DIRECTORS Arthur Zeikel, President and Director Donald Cecil, Director M. Colyer Crum, Director Edward H. Meyer, Director Jack B. Sunderland, Director J. Thomas Touchton, Director Terry K. Glenn, Executive Vice President Norman R. Harvey, Senior Vice President Donald C. Burke, Vice President Kurt Schansinger, Vice President and Portfolio Manager Gerald M. Richard, Treasurer Thomas D. Jones III, Secretary Custodian The Bank of New York 90 Washington Street, 12th Floor New York, NY 10286 Transfer Agent Merrill Lynch Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing SM System, which offers four pricing alternatives: * Class A Shares incur a maximum initial sales charge (front-end load) of 5.25% and bear no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. * Class B Shares are subject to a maximum contingent deferred sales charge of 4% if redeemed during the first year, decreasing 1% each year thereafter to 0% after the fourth year. In addition, Class B Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. These shares automatically convert to Class D Shares after approximately 8 years. (There is no initial sales charge for automatic share conversions.) * Class C Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. * Class D Shares incur a maximum initial sales charge of 5.25% and an account maintenance fee of 0.25% (but no distribution fee). None of the past results shown should be considered a representation of future performance. Figures shown in the "Average Annual Total Return" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. Average Annual Total Return % Return Without % Return With Sales Charge Sales Charge** Class A Shares* Year Ended 6/30/97 +22.40% +15.98% Five Years Ended 6/30/97 +15.01 +13.78 Ten Years Ended 6/30/97 +12.45 +11.85 [FN] *Maximum sales charge is 5.25%. **Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** Class B Shares* Year Ended 6/30/97 +21.16% +17.16% Five Years Ended 6/30/97 +13.85 +13.85 Inception (10/21/88) through 6/30/97 +12.90 +12.90 [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 6/30/97 +21.15% +20.15% Inception (10/21/94) through 6/30/97 +19.24 +19.24 [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 6/30/97 +22.09% +15.68% Inception (10/21/94) through 6/30/97 +20.16 +17.77 [FN] *Maximum sales charge is 5.25%. **Assuming maximum sales charge. PERFORMANCE DATA (concluded) Results of a $1,000 Investment Since Inception--Class A Shares (5.25% sales charge--$947.50 net amount invested; assuming reinvestment of all dividends and capital gains distributions) A mountain chart depicting the growth of an investment in the Fund's Class A Shares from $947.50 on November 8, 1973 to $18,394.29 on June 30, 1997. Recent Performance Results
12 Month 3 Month 6/30/97 3/31/97 6/30/96 % Change % Change ML Capital Fund, Inc. Class A Shares* $34.67 $31.39 $31.40 +15.83%(1) +10.45% ML Capital Fund, Inc. Class B Shares* 33.85 30.72 30.72 +15.69(1) +10.19 ML Capital Fund, Inc. Class C Shares* 33.54 30.44 30.49 +15.55(1) +10.18 ML Capital Fund, Inc. Class D Shares* 34.59 31.34 31.34 +15.79(1) +10.37 Dow Jones Industrial Average 7,672.79 6,583.48 5,654.63 +35.69 +16.55 Standard & Poor's 500 Index** 885.14 757.12 670.63 +31.99 +16.91 ML Capital Fund, Inc. Class A Shares--Total Return* +22.40(2) +10.45 ML Capital Fund, Inc. Class B Shares--Total Return* +21.16(3) +10.19 ML Capital Fund, Inc. Class C Shares--Total Return* +21.15(4) +10.18 ML Capital Fund, Inc. Class D Shares--Total Return* +22.09(5) +10.37 Dow Jones Industrial Average--Total Return +38.54 +17.09 Standard & Poor's 500 Index--Total Return** +34.65 +17.43 *Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. **An unmanaged broad-based index comprised of common stocks. Total investment returns for unmanaged indexes are based on estimates. (1)Percent change includes reinvestment of $1.464 per share capital gains distributions. (2)Percent change includes reinvestment of $1.725 per share ordinary income dividends and $1.464 per share capital gains distributions. (3)Percent change includes reinvestment of $1.412 per share ordinary income dividends and $1.464 per share capital gains distributions. (4)Percent change includes reinvestment of $1.437 per share ordinary income dividends and $1.464 per share capital gains distributions. (5)Percent change includes reinvestment of $1.652 per share ordinary income dividends and $1.464 per share capital gains distributions.
SCHEDULE OF INVESTMENTS
Shares Percent of Industries Held Common Stocks Cost Value Net Assets Aerospace 1,125,000 Lockheed Martin Corp. $ 83,216,555 $ 116,507,812 1.2% Appliances & Furniture 750,000 Sunbeam Corporation 29,442,355 28,312,500 0.3 Automobile Equipment 1,900,000 Echlin Inc. 60,716,252 68,400,000 0.7 Automotive 1,000,000 General Motors Corp. 47,511,108 55,687,500 0.6 Banking 1,300,000 The Chase Manhattan Corp. 91,963,256 126,181,250 1.3 Building Materials 1,018,000 American Standard Companies, Inc. 48,494,451 45,555,500 0.5 2,400,000 Masco Corporation 75,254,389 100,200,000 1.0 -------------- -------------- ------ 123,748,840 145,755,500 1.5 Capital Goods 800,000 Kennametal, Inc. 28,294,647 34,400,000 0.3 1,500,000 United Dominion Industries, Ltd. 34,449,123 36,843,750 0.4 -------------- -------------- ------ 62,743,770 71,243,750 0.7 Chemicals 1,200,000 duPont (E.I.) de Nemours & Co. 50,935,827 75,450,000 0.8 1,400,000 Engelhard Corp. 25,445,579 29,312,500 0.3 1,300,000 Grace (W.R.) & Co. 66,236,105 71,662,500 0.7 2,000,000 Imperial Chemical Industries PLC (ADR)* 98,975,520 113,750,000 1.1 500,000 Millennium Chemicals Inc. 13,552,415 11,375,000 0.1 -------------- -------------- ------ 255,145,446 301,550,000 3.0 Communications 400,000 Cisco Systems, Inc. 18,761,482 26,850,000 0.3 Equipment Computer Software 1,200,000 Computer Associates International, Inc. 52,000,835 66,825,000 0.7 Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 33,476,020 0.3 Diversified 2,300,000 Tenneco, Inc. 93,831,299 103,931,250 1.0 Companies 6,000,000 Tomkins PLC 24,678,005 25,942,800 0.3 1,900,000 United Technologies Corp. 56,635,222 157,700,000 1.6 1,300,000 Varian Associates, Inc. 67,737,058 70,525,000 0.7 -------------- -------------- ------ 242,881,584 358,099,050 3.6 Drug Stores 2,150,000 Rite Aid Corp. 68,282,570 107,231,250 1.1 Electrical 1,450,000 Belden Inc. 45,973,282 49,390,625 0.5 Equipment 650,000 Cooper Industries, Inc. 26,521,205 32,337,500 0.3 1,600,000 General Electric Co. 40,557,953 104,600,000 1.1 600,000 Philips Electronics N.V. (NY Registered Shares) 18,270,764 43,125,000 0.4 -------------- -------------- ------ 131,323,204 229,453,125 2.3 Electronic 1,500,000 Avnet, Inc. 83,947,762 86,250,000 0.9 Components Financial Services 2,000,000 Federal National Mortgage Association 52,392,099 87,250,000 0.9 1,100,000 Transamerica Corporation 81,108,138 102,918,750 1.0 -------------- -------------- ------ 133,500,237 190,168,750 1.9 Food Distribution 2,248,000 Dairy Farm International Holdings Ltd. (Ordinary) 1,869,442 1,686,000 0.0
SCHEDULE OF INVESTMENTS (continued)
Shares Percent of Industries Held Common Stocks Cost Value Net Assets Foods/Food 2,000,000 Archer-Daniels-Midland Co. $ 34,105,377 $ 47,000,000 0.5% Processing 1,800,000 Grand Metropolitan PLC (ADR)* 56,579,217 70,537,500 0.7 90,000 Nestle S.A. (Registered) 94,193,609 118,913,357 1.2 -------------- -------------- ------ 184,878,203 236,450,857 2.4 Footwear 8,000,000 Yue Yuen Industrial (Holdings Limited) 10,727,086 16,574,586 0.2 Hardware & Tools 1,900,000 The Black & Decker Corporation 63,049,672 70,656,250 0.7 Hospital 3,200,000 Columbia/HCA Healthcare Corp. 102,856,502 125,800,000 1.2 Management 3,600,000 Tenet Healthcare Corp. 52,634,362 106,425,000 1.1 -------------- -------------- ------ 155,490,864 232,225,000 2.3 Insurance 2,300,000 Allstate Corporation 69,292,895 167,900,000 1.7 725,000 American International Group, Inc. 50,038,180 108,296,875 1.1 544,000 Ayudhya Insurance Company, Ltd. (Foreign) 4,110,362 4,100,502 0.0 1,200,000 Berkley (W.R.) Corporation 62,155,678 69,750,000 0.7 1,900,000 EXEL Ltd. 41,181,437 100,225,000 1.0 2,000,000 Fremont General Corp. 33,362,385 80,500,000 0.8 1,100,000 Horace Mann Educators Corp. 34,550,993 53,900,000 0.5 2,000,000 Penncorp Financial Group, Inc. 62,850,796 77,000,000 0.8 2,000,000 Provident Companies, Inc. 79,650,937 107,000,000 1.1 1,800,000 TIG Holdings, Inc. 54,108,848 56,250,000 0.5 3,000,000 Travelers Group, Inc. 39,986,618 189,187,500 1.9 -------------- -------------- ------ 531,289,129 1,014,109,877 10.1 Iron & Steel 1,600,000 Birmingham Steel Corp. 28,005,214 24,800,000 0.2 900,000 Nucor Corporation 45,502,522 50,850,000 0.5 -------------- -------------- ------ 73,507,736 75,650,000 0.7 Leisure/Hotels 2,200,000 Carnival Corp. (Class A) 57,830,550 90,750,000 0.9 3,000,000 Harrah's Entertainment, Inc. 55,543,541 54,750,000 0.5 -------------- -------------- ------ 113,374,091 145,500,000 1.4 Natural Gas 1,300,000 Coastal Corp. 46,005,120 69,143,750 0.7 Suppliers 1,200,000 El Paso Natural Gas Co. 50,497,788 66,000,000 0.6 5,200,000 Williams Companies, Inc. 92,336,036 227,500,000 2.3 -------------- -------------- ------ 188,838,944 362,643,750 3.6 Oil--Integrated 1,100,000 Ente Nazionale Idrocarburi S.p.A. (ENI) (ADR)* 53,518,082 62,562,500 0.6 170,000 Mobil Corporation 9,451,663 11,878,750 0.1 1,000,000 Phillips Petroleum Company 34,052,303 43,750,000 0.5 1,000,000 TOTAL S.A. (ADR)* 31,610,031 50,625,000 0.5 5,500,000 YPF S.A. (ADR)* 104,737,166 169,125,000 1.7 -------------- -------------- ------ 233,369,245 337,941,250 3.4 Oil--Service 2,900,000 Dresser Industries, Inc. 77,166,439 108,025,000 1.1 Paper & Forest 790,000 Temple-Inland, Inc. 36,163,014 42,660,000 0.4 Products 1,800,000 Weyerhaeuser Co. 82,324,719 93,600,000 1.0 -------------- -------------- ------ 118,487,733 136,260,000 1.4
SCHEDULE OF INVESTMENTS (continued)
Shares Percent of Industries Held Common Stocks Cost Value Net Assets Pharmaceuticals 2,900,000 Glaxo Wellcome PLC (ADR)* $ 76,317,258 $ 121,256,250 1.2% 400,000 Merck & Co., Inc. 19,645,017 41,400,000 0.4 41,000 Novartis AG (Registered) 47,806,723 65,647,253 0.6 300,000 Pfizer, Inc. 17,304,400 35,850,000 0.4 -------------- -------------- ------ 161,073,398 264,153,503 2.6 Railroads 1,625,000 Kansas City Southern Industries, Inc. 71,881,332 104,812,500 1.0 Real Estate 1,000,000 CarrAmerica Realty Corp. 27,000,078 28,750,000 0.3 Investment Trusts 1,800,000 RFS Hotel Investors, Inc. 27,076,754 32,400,000 0.3 750,000 Walden Residential Properties, Inc. 13,361,662 19,218,750 0.2 -------------- -------------- ------ 67,438,494 80,368,750 0.8 Restaurants 1,200,000 McDonald's Corporation 59,143,895 57,975,000 0.6 Retail Trade 3,000,000 Wal-Mart Stores, Inc. 73,541,970 101,437,500 1.0 Telecommunications 2,000,000 Frontier Corporation 56,365,986 39,875,000 0.4 1,300,000 GTE Corp. 43,114,794 57,037,500 0.6 1,100,000 Nokia Corp. (ADR)* 46,271,231 81,125,000 0.8 500,000 Telecomunicacoes Brasileiras S.A.-- Telebras (ADR)* 26,932,551 75,875,000 0.7 -------------- -------------- ------ 172,684,562 253,912,500 2.5 Tires & Rubber 2,750,000 The Goodyear Tire & Rubber Co. 109,640,501 174,109,375 1.7 Total Common Stocks 3,981,112,277 5,786,483,205 57.9 Face Amount Corporate Bonds Automobile Parts US$ 7,000,000 Cummins Engine Company, Inc., 6.75% due 2/15/2007 6,978,790 6,868,701 0.1 20,000,000 Eaton Corp., 6.50% due 6/01/2025 19,929,200 19,447,600 0.2 -------------- -------------- ------ 26,907,990 26,316,301 0.3 Automotive Hertz Corp.: 25,000,000 6.70% due 6/15/2002 24,815,300 24,787,500 0.3 13,000,000 6% due 1/15/2003 12,891,670 12,444,640 0.1 15,000,000 Hyundai Motor Co., Ltd., 7.60% due 7/15/2007 14,989,500 14,989,500 0.1 -------------- -------------- ------ 52,696,470 52,221,640 0.5 Banking 25,000,000 Banco Nacional de Comercio Exterior SNC, Global Bonds, 7.25% due 2/02/2004 23,425,000 23,312,500 0.2 13,600,000 Banco Rio de la Plata, 8.75% due 12/15/2003 13,751,700 14,144,000 0.1 25,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 23,519,000 24,089,500 0.2 BankAmerica Corp.: 15,000,000 6.875% due 6/01/2003 14,149,050 14,967,150 0.2 30,000,000 6.75% due 9/15/2005 29,591,750 29,426,700 0.3 The Chase Manhattan Corp.: 15,000,000 6.50% due 8/01/2005 14,552,850 14,489,700 0.2 15,000,000 6.25% due 1/15/2006 13,892,250 14,160,450 0.1 6,000,000 First Hawaiian, Inc., 6.25% due 8/15/2000 5,841,600 5,897,280 0.1 20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 19,714,940 0.2 30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 29,109,600 0.3 22,750,000 Firstbank Puerto Rico, 7.625% due 12/15/2005 22,140,803 22,595,755 0.2 10,000,000 Great Western Financial Corp., 6.375% due 7/01/2000 9,998,800 9,913,900 0.1
SCHEDULE OF INVESTMENTS (continued)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets Banking Household Bank: (concluded) US$ 10,000,000 6.87% due 5/15/2001 $ 9,868,800 $ 10,047,800 0.1% 20,000,000 6.875% due 3/17/2003 19,886,200 19,925,800 0.2 10,300,000 6.50% due 7/15/2003 10,202,253 10,056,405 0.1 NationsBank Corp.: 40,000,000 5.60% due 2/07/2001 40,000,000 38,526,400 0.4 10,000,000 6.20% due 8/15/2003 9,670,360 9,630,500 0.1 25,000,000 6.50% due 8/15/2003 22,104,200 24,437,000 0.3 25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 24,351,225 0.2 20,000,000 People's Bank--Bridgeport, 7.20% due 12/01/2006 19,956,700 19,550,200 0.2 25,000,000 Provident Bank, 6.375% due 1/15/2004 24,296,430 24,058,750 0.2 Union Planters Corp.: 20,000,000 6.25% due 11/01/2003 18,756,100 19,156,400 0.2 12,500,000 6.75% due 11/01/2005 12,001,875 12,107,750 0.1 -------------- -------------- ------ 432,284,946 433,669,705 4.3 Beverages 22,000,000 Coca-Cola Femsa S.A., 8.95% due 11/01/2006 21,984,595 22,341,792 0.2 Broadcasting 20,000,000 British Sky Broadcasting Group PLC, 7.30% due 10/15/2006 20,037,440 20,014,800 0.2 15,000,000 Comcast Cable Communications Systems, 8.125% due 5/01/2004 14,986,500 15,614,850 0.2 -------------- -------------- ------ 35,023,940 35,629,650 0.4 Chemicals 8,000,000 Airgas, Inc., 7.14% due 3/08/2004 8,000,000 8,025,496 0.1 26,900,000 Lyondell Petrochemical Company, 6.50% due 2/15/2006 25,498,197 25,478,604 0.3 25,000,000 Union Carbide Corp., 6.79% due 6/01/2025 25,000,000 24,315,500 0.2 -------------- -------------- ------ 58,498,197 57,819,600 0.6 Consumer Services 20,000,000 Loewen Group, Inc., 8.25% due 10/15/2003 20,208,132 20,676,500 0.2 Diversified 10,000,000 Tenneco, Inc., 6.70% due 12/15/2005 9,808,500 9,777,180 0.1 Companies Electronics 16,000,000 Litton Industries, Inc., 6.98% due 3/15/2006 16,000,000 15,884,832 0.2 15,000,000 Philips Electronics N.V., 7.125% due 5/15/2025 14,954,200 14,910,750 0.1 -------------- -------------- ------ 30,954,200 30,795,582 0.3 Finance Ford Motor Credit Co.: 40,000,000 5.75% due 1/25/2001 39,596,900 38,806,400 0.4 9,000,000 5.90% due 2/23/2001 8,704,260 8,763,390 0.1 General Motors Acceptance Corp.: 50,000,000 6.375% due 4/04/2000 49,887,500 49,754,850 0.5 55,000,000 5.625% due 2/15/2001 54,450,000 53,099,750 0.5 30,000,000 6.75% due 6/10/2002 29,520,300 29,844,900 0.3 50,000,000 Sears, Roebuck Acceptance Corp., 5.63% due 2/07/2001 49,996,500 48,220,700 0.5 15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,544,000 0.1 -------------- -------------- ------ 247,151,260 243,033,990 2.4 Financial GATX Corp.: Leasing 7,000,000 6.66% due 3/15/2001 6,997,900 6,960,870 0.1 12,000,000 6.27% due 12/05/2001 11,823,270 11,704,200 0.1 25,000,000 6.69% due 11/30/2005 24,984,750 24,225,750 0.2
SCHEDULE OF INVESTMENTS (continued)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets Financial XTRA Corp.: Leasing US$ 20,000,000 6.79% due 8/01/2001 $ 19,945,800 $ 19,937,440 0.2% (concluded) 20,000,000 6.68% due 11/30/2001 20,000,000 19,828,180 0.2 -------------- -------------- ------ 83,751,720 82,656,440 0.8 Financial Finova Capital Corp.: Services 25,000,000 6.45% due 6/01/2000 24,766,550 24,835,500 0.3 15,000,000 5.98% due 2/27/2001 14,968,950 14,597,685 0.1 10,000,000 6.56% due 11/15/2002 10,000,000 9,833,900 0.1 McDonnell Douglas Finance Corp.: 20,000,000 6.78% due 12/19/2003 19,993,400 19,488,400 0.2 20,000,000 6.965% due 9/12/2005 20,049,200 19,848,600 0.2 35,000,000 Morgan Stanley Group, Inc., 5.75% due 2/15/2001 34,968,150 33,939,360 0.3 Salomon Inc.: 10,000,000 6.75% due 2/15/2003 9,804,000 9,799,660 0.1 5,000,000 6.875% due 12/15/2003 4,968,500 4,909,030 0.0 Smith Barney Shearson Holdings, Inc.: 10,000,000 5.875% due 2/01/2001 9,621,300 9,748,400 0.1 15,000,000 6.50% due 10/15/2002 14,690,800 14,751,300 0.2 30,000,000 7% due 3/15/2004 29,927,700 29,923,260 0.3 -------------- -------------- ------ 193,758,550 191,675,095 1.9 Food & Tobacco Nabisco Inc.: 20,000,000 6.70% due 6/15/2002 19,838,770 19,731,600 0.2 20,000,000 6.85% due 6/15/2005 20,000,000 19,570,600 0.2 5,000,000 RJR Nabisco Inc., 8.25% due 7/01/2004 4,971,250 4,971,250 0.1 -------------- -------------- ------ 44,810,020 44,273,450 0.5 Foreign Government Republic of Argentina: Obligations 50,634,000 Floating Rate Brady Bonds, Series L, 6.75% due 3/31/2005++ 33,835,320 47,535,199 0.5 25,000,000 Global Bonds, 8.375% due 12/20/2003 23,631,250 25,437,500 0.2 70,000,000 Global Bonds, 11% due 10/09/2006 73,296,700 77,962,500 0.8 United Mexican States: 5,000,000 8.50% due 9/15/2002 5,043,750 5,087,500 0.1 40,000,000 Global Bonds, 9.875% due 1/15/2007 41,982,500 42,200,000 0.4 -------------- -------------- ------ 177,789,520 198,222,699 2.0 Hardware & Tools 20,000,000 The Black & Decker Corporation, 6.625% due 11/15/2000 19,217,900 19,888,000 0.2 Hospital Management 26,500,000 Tenet Healthcare Corp., 8% due 1/15/2005 26,470,375 26,566,250 0.3 Industrial 12,750,000 Diamond Shamrock, Inc., 7.65% due 7/01/2026 12,741,187 13,377,300 0.1 7,800,000 Interface, Inc., 9.50% due 11/15/2005 7,552,000 8,034,000 0.1 20,000,000 News America Holdings, Inc., 7.60% due 10/11/2015 19,216,600 19,105,600 0.2 12,000,000 Reliance Industries Ltd., 8.25% due 1/15/2027 11,839,359 12,133,200 0.1 10,000,000 Triton Energy Ltd., 8.75% due 4/15/2002 9,957,500 10,276,210 0.1 15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 14,775,000 0.1 Williams Holdings of Delaware, Inc.: 20,000,000 6.91% due 6/13/2002 19,988,200 19,915,120 0.2 50,000,000 6.25% due 2/01/2006 49,739,500 47,097,500 0.5 -------------- -------------- ------ 146,034,346 144,713,930 1.4 Insurance 10,125,000 Integon Corp., 8% due 8/15/1999 10,208,769 10,215,852 0.1 20,000,000 Travelers Inc., 6.875% due 6/01/2025 20,037,200 19,838,200 0.2 -------------- -------------- ------ 30,245,969 30,054,052 0.3
SCHEDULE OF INVESTMENTS (continued)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets Machinery US$ 20,000,000 FMC Corp., 6.375% due 9/01/2003 $ 18,940,800 $ 19,249,000 0.2% 22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 21,894,750 0.2 -------------- -------------- ------ 41,402,650 41,143,750 0.4 Natural Gas 20,000,000 Coastal Corp., 6.70% due 2/15/2027 19,800,400 19,692,660 0.2 Suppliers 15,000,000 ENSERCH Corporation, 7.125% due 6/15/2005 15,095,150 14,942,100 0.1 -------------- -------------- ------ 34,895,550 34,634,760 0.3 Oil--Integrated 18,375,000 Occidental Petroleum Corp., 6.24% due 11/24/2000 18,135,306 18,055,091 0.2 Union Texas Petroleum Holdings, Inc.: 10,000,000 6.70% due 11/18/2002 10,000,000 9,826,940 0.1 20,000,000 6.81% due 12/05/2007 20,000,000 19,355,800 0.2 10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 9,497,960 0.1 30,000,000 YPF S.A., 8% due 2/15/2004 26,971,875 30,561,000 0.3 -------------- -------------- ------ 85,107,181 87,296,791 0.9 Oil--Related Tosco Corporation: 20,000,000 7% due 7/15/2000 19,894,250 20,143,800 0.2 20,000,000 7.25% due 1/01/2007 20,299,500 20,108,600 0.2 -------------- -------------- ------ 40,193,750 40,252,400 0.4 Paper & Forest 20,000,000 Boise Cascade Corporation, 7.66% due Products 5/27/2005 20,000,000 20,165,100 0.2 20,400,000 Champion International Corp., 6.40% due 2/15/2026 20,238,456 19,577,819 0.2 -------------- -------------- ------ 40,238,456 39,742,919 0.4 Real Estate 20,000,000 Meditrust Corporation, 7.82% due Investment Trust 9/10/2026 20,633,700 20,758,280 0.2 Services 20,000,000 ADT Operations, 8.25% due 8/01/2000 20,158,312 20,800,000 0.2 Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 9,676,060 0.1 43,200,000 PanAmSat L.P., 9.50%*** due 8/01/2003 41,275,192 42,082,848 0.4 25,000,000 Worldcom Inc., 7.55% due 4/01/2004 24,958,500 25,244,050 0.3 -------------- -------------- ------ 76,233,692 77,002,958 0.8 Tires & Rubber 40,000,000 The Goodyear Tire & Rubber Co., 6.625% due 12/01/2006 39,840,000 38,558,800 0.4 Transportation 10,000,000 General American Transportation Corp., 6.44% due 11/13/2001 10,000,000 9,821,200 0.1 15,000,000 Transportacion Maritima Mexicana, S.A. de C.V., 10% due 11/15/2006 15,130,250 15,187,500 0.2 -------------- -------------- ------ 25,130,250 25,008,700 0.3 Travel & Lodging Royal Caribbean Cruises Ltd.: 10,000,000 7.125% due 9/18/2002 9,900,050 10,045,200 0.1 10,000,000 7.25% due 8/15/2006 9,854,415 9,877,000 0.1 -------------- -------------- ------ 19,754,465 19,922,200 0.2 Utilities-- 28,250,000 Connecticut Light & Power Co., 7.75% Electric, due 6/01/2002 28,173,725 28,144,062 0.3 Gas & Water 25,000,000 Empresa Nacional de Electricidad S.A. (Endesa), 7.325% due 2/01/2037 25,000,000 25,046,125 0.2 30,000,000 Enron Corp., 6.75% due 7/01/2005 28,878,400 29,423,700 0.3 5,000,000 Long Island Lighting Co., 7.625% due 4/15/1998 4,986,210 5,058,350 0.1 20,000,000 PECO Energy Co., 5.625% due 11/01/2001 18,908,800 19,201,400 0.2 5,000,000 United Illuminating Co., 6.20% due 1/15/1999 4,693,050 4,985,050 0.0 -------------- -------------- ------ 110,640,185 111,858,687 1.1 Total Corporate Bonds 2,211,824,821 2,227,312,101 22.3
SCHEDULE OF INVESTMENTS (concluded)
Face Percent of Amount Collateralized Mortgage Obligations Cost Value Net Assets Federal Home Loan Mortgage Corp.: US$ 9,241,900 6.50% due 5/15/2008 $ 8,831,790 $ 8,603,562 0.1% 5,000,000 7% due 8/15/2008 4,762,500 4,889,050 0.1 13,000,000 6% due 2/15/2011 12,020,938 12,008,750 0.1 Federal National Mortgage Association: 13,400,000 7% due 7/25/2006 13,236,688 13,316,250 0.1 12,000,000 6.50% due 1/25/2008 11,608,125 11,632,440 0.1 5,010,000 6.50% due 4/25/2008 4,653,037 4,798,641 0.1 Total Collateralized Mortgage Obligations 55,113,078 55,248,693 0.6 US Government Obligations US Treasury Notes: 25,000,000 6.25% due 2/28/2002 24,941,406 24,859,250 0.3 460,000,000 5.75% due 8/15/2003 446,237,813 444,185,200 4.4 400,000,000 5.875% due 2/15/2004 397,917,969 387,564,000 3.9 685,000,000 5.875% due 11/15/2005 670,211,794 655,353,200 6.6 175,000,000 6.25% due 8/15/2023 158,131,641 162,011,500 1.6 Total US Government Obligations 1,697,440,623 1,673,973,150 16.8 Short-Term Investments Commercial 37,250,000 Falcon Asset Securitization Corp., Paper** 5.56% due 7/21/1997 37,134,939 37,134,939 0.4 50,000,000 GTE Corporation, 5.55% due 7/17/1997 49,876,667 49,876,667 0.5 61,940,000 General Motors Acceptance Corp., 6.25% due 7/01/1997 61,940,000 61,940,000 0.6 50,000,000 Goldman Sachs Group L.P., 5.53% due 7/08/1997 49,946,236 49,946,236 0.5 Commercial Czk 300,000,000 International Bank for Reconstruction Paper-- & Development, 11.50% due 10/09/1997 11,157,441 9,032,238 0.1 Foreign** US Government US$ 15,450,000 Federal Home Loan Mortgage Corp., Agency 5.43% due 7/03/1997 15,445,339 15,445,339 0.1 Obligations** Total Short-Term Investments 225,500,622 223,375,419 2.2 Total Investments $8,170,991,421 9,966,392,568 99.8 ============== Other Assets Less Liabilities 20,307,992 0.2 -------------- ------ Net Assets $9,986,700,560 100.0% ============== ====== Net Asset Class A--Based on net assets of $3,552,717,587 and 102,473,667 Value: shares outstanding $ 34.67 ============== Class B--Based on net assets of $5,276,527,663 and 155,902,239 shares outstanding $ 33.85 ============== Class C--Based on net assets of $351,981,014 and 10,495,372 shares outstanding $ 33.54 ============== Class D--Based on net assets of $805,474,296 and 23,284,517 shares outstanding $ 34.59 ============== *American Depositary Receipt (ADR). **Commercial Paper, Commercial Paper--Foreign and 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. ***Represents a step bond; the interest rate shown is the effective yield at the time of purchase by the Fund. ++Brady Bonds are securities which have been issued to refinance commercial bank loans and other debt. The risk associated with these instruments is the amount of any uncollateralized principal or interest payments since there is a high default rate of commercial bank loans by countries issuing these securities.
PORTFOLIO INFORMATION Ten Largest Percent of Common Stock Holdings Net Assets Williams Companies, Inc. 2.3% Travelers Group, Inc. 1.9 The Goodyear Tire & Rubber Co. 1.7 YPF S.A. (ADR) 1.7 Allstate Corporation 1.7 United Technologies Corp. 1.6 The Chase Manhattan Corp. 1.3 Columbia/HCA Healthcare Corp. 1.2 Glaxo Wellcome PLC (ADR) 1.2 Nestle S.A. (Registered) 1.2 Percent of Ten Largest Industries Net Assets* Insurance 10.4% Banking 5.6 Oil--Integrated 4.3 Natural Gas Suppliers 3.9 Financial Services 3.8 Diversified Companies 3.7 Chemicals 3.6 Telecommunications 3.3 Pharmaceuticals 2.6 Hospital Management 2.6 [FN] *Based on total holdings in common stocks and bonds. Common Stock Portfolio Changes for the Quarter Ended June 30, 1997 Additions American Standard Companies, Inc. Sunbeam Corporation Deletions Block Drug, Inc. (Class A) Cincinnati Milacron, Inc. Cleveland-Cliffs, Inc. Creative Technology, Ltd. Industrias Penoles S.A. Lowndes Lambert Group Holdings PLC Mandarin Oriental International Ltd. Minsura Sociedad Limitada S.A. (T Shares) Pinnacle West Capital Corp. Rockwell International Corporation Thai Theparos Food Product Public Company Limited (Foreign) Union Planters Corp. -----END PRIVACY-ENHANCED MESSAGE-----