MERRILL LYNCH
WORLD INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 1994
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.
<PAGE>
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury, III, Vice President
Robert J. Parish, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
DEAR SHAREHOLDERS
1994 was one of the most difficult
years in history for global fixed-income
markets. The tumultuous combina-
tion of unexpected synchronized
global growth, heightened inflation-
ary fears, successive interest rate
hikes by the US Federal Reserve
Board, and massive selling by hedge
funds caused global bond prices
to plummet.
While 1993 was marked by chronic
global deflationary conditions, events
during 1994 confirmed the realiza-
tion that global growth had finally
returned. Initially, economic growth
was seen only among the English-
speaking countries, such as the United
States, Canada, Australia, New
Zealand, and the United Kingdom,
followed by a resurgence of growth
in continental Europe and the begin-
nings of a recovery in Japan. In 1994,
the Uruguay round of the General
Agreement on Tariffs and Trade was
finally concluded, which created
the foundations to further enhance
global growth prospects.
<PAGE>
Global conditions during the year also
challenged the value of the US dollar.
Early in 1994, we believed the relative
shift in monetary policy between the
United States and Germany would
support the US currency as the Fed-
eral Reserve Board raised US interest
rates because of an accelerating
economy while the Bundesbank low-
ered interest rates to boost growth.
However, negative investor sentiment
regarding the pace of interest rate
hikes severely depressed the US
dollar. In addition, the threat of a
trade war with Japan conveyed the
picture of a government willing to
use a weak currency to open up
the Japanese markets. Overall, this
resulted in a 12% drop in the US
dollar versus the Deutschemark and
the yen. Not until the Federal Reserve
Board's 75 basis point (0.75%) hike
in November 1994 was US monetary
policy credibility reestablished,
thereby allowing the US dollar to
rebound late in the fourth quarter.
With nominal short-term interest
rates continuing to favor the US
dollar versus the Deutschemark and
the yen, we believe that over the near
term the US dollar will maintain its
recent strength.
In the United States, six interest rate
hikes during 1994 by the Federal
Reserve Board resulted in an increase
in the Federal Funds rate from 3% to
5.5%, which completely reversed
realized bond market gains over the
past four years. The Federal Reserve
Board remains biased to further raise
short-term interest rates to contain
building inflationary pressures,
especially as growth momentum has
yet to show signs of slowing and the
new Republican Congress may shift
fiscal policy to a slightly
stimulative stance.
<PAGE>
During 1994, European gross domestic
product (GDP) growth registered a
2.6% pace compared to expectations
of below 1% a year ago. Industrial
production surged, led by a boom in
exports to rapidly growing economies
in Asia and Latin America at a time
when inventory levels were extra-
ordinarily low following the recession
of the prior few years. In Germany,
monetary policy continued to ease as
the key 14-day repurchase agreement
rate dropped from 6% to 4.85% during
the first seven months of 1994. How-
ever, following signs that GDP was not
about to slow, the Bundesbank shifted
to a neutral stance in July. Currently,
both European bond and foreign
exchange investors appear concerned
about an imminent hike in German
interest rates. Further moderation in
inflation and money supply growth,
continuation of lackluster consumer
trends, Deutschemark strength
within Europe, and a very restrictive
fiscal stance, argue for a steady policy
from the Bundesbank through the
first half of 1995.
During 1994, emerging market fixed-
income assets suffered dramatic
setbacks in the aftermath of several
challenging domestic and interna-
tional events. For example, the social
uprising in Chiapas, Mexico, the
assassination of the favored Mexican
presidential candidate and leader of its
ruling political party, the unexpected
devaluation of the Mexican peso,
investor anxieties leading up to the
Brazilian election, and turbulent eco-
nomic and political events in Russia
and Venezuela, combined with the
US Federal Reserve Board's dramatic
tightening of monetary policy, all con-
tributed to poor performance. As a
result, the unmanaged JP Morgan
Latin American Eurobond Index
declined 13%. Although we carefully
managed the Fund's emerging market
portfolio, concentrating on strong
credit quality issuers, performance
was greatly affected by the afore-
mentioned events, and the Fund's
emerging market portfolio declined
9%. We will continue to monitor this
portion of the portfolio since we
believe the outlook for the major
Asian, Latin American and Central
European nations remains positive.
<PAGE>
Fiscal Year in Review
Merrill Lynch World Income Fund,
Inc. registered its first negative total
return for a fiscal year since its
inception in September 1988 as the
US bond market suffered its worst
year on record. In fact, all of the
Fund's primary bond markets
recorded negative rates of return.
As we entered 1994, we foresaw a
moderation in the US economy from
its rapid pace in the second half of
1993, Europe and Japan remaining
in recession until late 1994, and
inflationary pressures remaining
subdued. However, US inflationary
pressures built rapidly, although
they have not shown up in consumer
price inflation, and European growth
exploded in the second quarter. Per-
formance suffered as our high average
maturity in a rising interest rate
environment, plus our overweight
holdings in Canada and Australia,
substantially underperformed the US
market. At the same time, within
Europe only the German and Belgian
markets outperformed the US market.
In addition, the Fund's 4% exposure
to emerging markets negatively
impacted overall performance. The
major positive for the Fund was the
maintenance of an overweight
exposure to US high-yield invest-
ments, which outperformed all of
the international markets the Fund
normally invests in. Although the
US dollar declined 12% versus
the Deutschemark, we did not take
full advantage of the decline given
our view the US dollar would be
supported by its monetary policy
stance relative to Germany.
<PAGE>
In 1995, the industrialized economies
appear likely to maintain 1994's 3%
GDP growth rate through the first half
of the year, while inflation should
show a mild pickup with the greatest
risk existing in the United States and
high deficit countries in Europe. The
keys for the global bond markets in
1995 will primarily be the extent of an
expected slowing in the second half
of the year, mainly in the United
States, and the magnitude of the
upswing in global inflation. The US
dollar should remain supported over
the next six months by the relatively
firm monetary policy stance in the
United States, but may come under
pressure later as the recovery matures
and the Bundesbank moves closer to
raising interest rates.
High-Yield Market
The year was a difficult one for most
investors as interest rates soared in
the face of stronger-than-expected
economic growth and heightened
inflationary expectations. Common
stock and bond indexes generally
posted negative returns, and fixed-
income returns were the worst for
any calendar year in the past 50 years.
Corporate profits in many industries
and companies exceeded and pro-
vided some countervailing positives
for certain asset categories. The high-
yield market was helped by the surge
in profits which positively impacted
cyclical industries such as steel,
chemicals, and paper. The total return
on the Merrill Lynch High Yield Master
Index was -1.17% compared with
+8.97% on 10-year Treasury notes.
<PAGE>
While we believe it likely that the
Federal Reserve Board will achieve
its objective of slowing the economy
to a non-inflationary growth rate
during the first half of 1995, a reces-
sion should be avoided. Certainly, the
interest rate environment should be
more benign in 1995. In this scenario,
high-yield bonds should perform
relatively well. This credit outlook
remains generally positive. Corporate
profits should increase in 1995,
particularly in certain cyclical indus-
tries like paper which only began
the recovery cycle last year. Initial
public offerings of equity should also
continue to provide credit support.
In first quarter 1995, three high-yield
issuers, Fort Howard Corp., American
Standard, and Uniroyal Chemical Co.
have equity issuance planned. We
believe that defaults and credit
problems will rise in 1995 but be
moderate by historic standards.
Currently, yield spreads and premiums
of high-yield bonds, when compared
with US Treasury notes of similar
maturity, are narrower than the
longer-term averages. However,
the long-term averages are biased
by the late 1980s and early 1990s
when the supply and quality of
high-yield debt was impacted by
leveraged buyout activity. The yield
premiums are attractive compared to
the first half of the decade, a period
that we believe resembles 1995.
A number of high-yield market sectors
that outperformed last year should
continue to be leaders in 1995. For
example, paper, chemical, and steel
companies experienced exceptional
demand and strong product price
improvement in 1995, and we expect
this trend to continue. Atlantic City
casinos performed poorly last year
because of concerns about legal-
ization of gaming in Pennsylvania.
Since the elections seem to have
diminished this threat, this area may
recover. Deferred interest bonds also
performed poorly last year. In a better
market these securities have excel-
lent recovery potential especially
since the issuers of deferred coupon
issues include many wireless com-
munications and entertainment
companies which have an excellent
operating outlook.
<PAGE>
As these examples indicate, there are
currently many sectors of the high-
yield market that are out of favor and
offer bonds at large discounts to par
value. This environment will provide
an opportunity and a challenge
in 1995.
In Conclusion
We thank you for your continued
support of Merrill Lynch World
Income Fund, Inc., and we look
forward to reviewing our outlook
and strategy with you again in our upcoming
quarterly report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Robert J. Parish)
Robert J. Parish
Vice President and Portfolio Manager
February 3, 1995
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase
shares of the Fund through the Merrill Lynch Select Pricing SM
System, which offers four pricing alternatives:
*Class A Shares incur a maximum initial sales charge (front-end load)
of 4% and bear no ongoing distribution or account maintenance fees.
Class A Shares are available only to eligible investors.
<PAGE>
*Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing
1% each year thereafter to 0% after the fourth year. In addition,
Class B Shares are subject to a distribution fee of 0.50% and an
account maintenance fee of 0.25%. These shares automatically
convert to Class D Shares after 10 years.
*Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares
are subject to a 1% contingent deferred sales charge if redeemed
within one year of purchase.
*Class D Shares incur a maximum initial sales charge of 4% and
an account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Total Return Based on a $10,000 Investment",
"Performance Summary" and "Average Annual Total Return"
tables on pages 6 and 7. "Aggregate Total Return" tables for
Class C and Class D Shares are also presented om page 7. Data
for all of the Fund's shares, including Class C and Class D
Shares, are presented in the "Recent Performance Results" table.
The "Recent Performance Results" table below shows investment
results before the deduction of any sales charges for Class A and
Class B Shares for the 12-month and 3-month periods ended
December 31, 1994 and for Class C and Class D Shares for the
period since inception through December 31, 1994. All data in
this table assume imposition of the actual total expenses
incurred by each class of shares during the relevant period.
None of the past results shown should be considered a represen-
tation of future performance. Investment return and principal
value of shares will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. Dividends
paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/31/94 9/30/94++ 12/31/93 % Change % Change++
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.20 $8.43 $9.28 -11.64% -2.73%
Class B Shares* 8.19 8.42 9.28 -11.75 -2.73
Class C Shares* 8.19 8.42 -- -- -2.73
Class D Shares* 8.20 8.43 -- -- -2.73
Class A Shares--Total Return* - 4.05(1) -0.52(2)
Class B Shares--Total Return* - 4.90(3) -0.73(4)
Class C Shares--Total Return* -- -1.20(5)
Class D Shares--Total Return* -- -1.09(6)
Class A Shares--Standardized 30-day Yield 9.32%
Class B Shares--Standardized 30-day Yield 8.94%
Class C Shares--Standardized 30-day Yield 8.85%
Class D Shares--Standardized 30-day Yield 9.09%
<FN>
*Investment results shown do not reflect sales charges;
results shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
(1)Percent change includes reinvestment of $0.711 per share ordinary
income dividends and return of capital distributions.
(2)Percent change includes reinvestment of $0.197 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.645 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.180 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.129 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.139 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML G5A0
Index and the Composite Index. Beginning and ending values are:
9/29/88** 12/94
ML World Income Fund, Inc.++--
Class A Shares* $ 9,600 $17,195
ML G5A0 Index++++ $10,000 $16,121
Composite Index++++++ $10,000 $17,882
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML G5A0
Index and the Composite Index. Beginning and ending values are:
11/18/91** 12/94
ML World Income Fund, Inc.++--
Class B Shares* $10,000 $11,448
ML G5A0 Index++++ $10,000 $11,657
Composite Index++++++ $10,000 $12,948
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML World Income Fund, Inc. invests in a global portfolio of
fixed-income securities denominated in various currencies,
including multinational currency units.
++++This unmanaged Index is comprised of intermediate-term
Government bonds maturing in one to ten years.
++++++This unmanaged Index, which is a blend of the First Boston
High Yield Index and the JP Morgan Global Government Bond
Index, is comprised of mutual funds whose objectives
include high current income and total returns.
Past performance is not indicative of future performance.
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/29/88--12/31/88 $9.35 $9.68 -- $0.280 + 6.53%
1989 9.68 9.13 $0.002 1.159 + 6.32
1990 9.13 8.53 -- 1.463 + 9.46
1991 8.53 9.30 -- 1.106 +21.99
1992 9.30 8.85 0.019 0.990 + 6.15
1993 8.85 9.28 0.028 0.750 +14.12
1994 9.28 8.20 -- 0.711 - 4.05
------ ------
Total $0.049 Total $6.459
Cumulative total return as of 12/31/94: +79.11%**
<FN>
++Performance results for per share net asset value of Class A Shares prior to
November 18, 1991 are for the period when the Fund was closed-end.
*Figures may include short-term capital gains distributions and return of
capital distributions, if any.
**Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not include sales charge; results
would be lower if sales charge was included.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/18/91--12/31/91 $9.26 $9.30 -- $0.112 + 1.64%
1992 9.30 8.85 $0.019 0.919 + 5.34
1993 8.85 9.28 0.028 0.681 +13.27
1994 9.28 8.19 -- 0.645 - 4.90
------ ------
Total $0.047 Total $2.357
Cumulative total return as of 12/31/94: +15.33%**
<FN>
*Figures may include short-term capital gains distributions and return of
capital distributions, if any.
**Figures assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date, and do not reflect deduction of any
sales charge; results would be lower if sales charge was deducted.
</TABLE>
<PAGE>
Average Annual
Total Return++
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 -4.05% -7.89%
Five Years Ended 12/31/94 +9.51 +8.61
Inception (9/29/88) through 12/31/94 +9.76 +9.05
[FN]
++Performance results for per share net asset value of Class A Shares prior to
November 18, 1991 are for the period when the Fund was closed-end.
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 -4.90% -8.41%
Inception (11/18/91) through 12/31/94 +4.68 +4.43
[FN]
*Maximum contingent deferred sales charge is 4% and
is reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate
Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94) through 12/31/94 -1.20% -2.18%
[FN]
*Maximum contingent deferred sales charge is 1% and is
reduced to 0% after one year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 12/31/94 -1.09% -5.04%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
AFRICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Foreign US$ 10,000,000 Republic of South Africa, 9.625%
Africa Government due 12/15/1999 $ 9,968,500 $ 9,700,000 0.5%
Obligations
Total Investments in Africa 9,968,500 9,700,000 0.5
LATIN AMERICA &
THE CARIBBEAN
Argentina Energy Transportadora de Gas del Sur:
2,000,000 7.75% due 12/23/1998 1,837,500 1,635,000 0.1
2,000,000 ++7.75% due 12/23/1998 2,042,500 1,652,500 0.1
------------- -------------- ------
3,880,000 3,287,500 0.2
Foreign Lit 5,000,000,000 Republic of Argentina,
Government 13.45% due 10/21/1997 3,089,063 3,042,083 0.2
Obligations
Telecommunications US$ 500,000 Telecom Argentina Stet-France Telecom
S.A., 8.375% due 10/18/2000 460,000 401,250 0.0
2,500,000 ++Telecom Argentina Stet-France
Telecom S.A., 8.375% due 10/18/2000 2,490,625 2,025,000 0.1
Telefonica de Argentina S.A.:
3,000,000 8.375% due 10/01/2000 3,033,750 2,445,000 0.1
10,000,000 11.875% due 11/01/2004 9,800,800 9,000,000 0.5
------------- -------------- ------
15,785,175 13,871,250 0.7
<PAGE>
Total Fixed-Income Investments
in Argentina 22,754,238 20,200,833 1.1
Brazil Construction 5,000,000 ++Compania Brasileira de Projetos e
Obras, 12.50% due 12/22/1997 4,975,000 4,875,000 0.3
Total Fixed-Income Investments
in Brazil 4,975,000 4,875,000 0.3
Colombia Banking 3,000,000 Banco Ganadero S.A., 9.75%
due 8/26/1999 2,987,340 2,910,000 0.2
Total Fixed-Income Investments
in Colombia 2,987,340 2,910,000 0.2
Mexico Construction 5,000,000 Empresas ICA Sociedad Controladora,
S.A. de C.V., 9.75% due 2/11/1998 5,093,750 4,437,500 0.2
Food & Beverage 5,000,000 Fomento Economico Mexico, S.A. de C.V.
(Femsa), 9.50% due 7/22/1997 5,099,375 4,500,000 0.3
3,000,000 Gruma S.A., de C.V., 9.75%
due 3/09/1998 2,987,500 2,726,250 0.2
7,500,000 Grupo Embotellador de Mexico, S.A. de
C.V. (GEMEX), 10.75% due 11/19/1997 7,967,500 7,137,225 0.4
------------- -------------- ------
16,054,375 14,363,475 0.9
Foreign Government & 3,000,000 Banco Nacional de Commerce Exterior,
Agency Obligations 8.00% due 8/05/2003 2,636,250 2,238,750 0.1
6,500,000 Nafinsa, 10.625% due 11/22/2001 7,034,375 5,963,750 0.3
5,000,000 United Mexican States, 8.50%
due 9/15/2002 4,768,750 3,925,000 0.2
10,000,000 United Mexican States, Government
Bond, 12.25% due 12/03/1998 17,422,208 16,239,420 0.9
------------- -------------- ------
31,861,583 28,366,920 1.5
Industrial Services 3,000,000 Cemex, S.A., 10.00% due 11/05/1999 3,037,500 2,625,000 0.1
Retail Stores 3,000,000 Controladora Comercial Mexicana,
S.A. de C.V., 8.75% due 4/21/1998 2,970,000 2,535,000 0.1
Total Fixed-Income Investments
in Mexico 59,017,208 52,327,895 2.8
<PAGE>
Trinidad Foreign Government
& Tobago Obligations Republic of Trinidad and Tobago:
3,000,000 11.50% due 11/20/1997 3,123,750 3,000,000 0.2
4,000,000 ++9.75% due 11/03/2000 3,991,600 3,660,000 0.2
------------- -------------- ------
7,115,350 6,660,000 0.4
Total Fixed-Income Investments in
Trinidad & Tobago 7,115,350 6,660,000 0.4
Total Investments in Latin American
& Caribbean Securities 96,849,136 86,973,728 4.8
NORTH AMERICA
Canada Foreign Government Canadian Government Bonds:
Obligations C$ 25,000,000 6.50% due 9/01/1998 19,219,059 16,480,108 0.9
22,000,000 7.75% due 9/01/1999 15,155,309 14,955,796 0.8
------------- -------------- ------
34,374,368 31,435,904 1.7
Total Fixed-Income Investments
in Canada 34,374,368 31,435,904 1.7
United Air Transport Delta Air Lines, Inc.:
States US$ 16,332,054 9.375% due 9/11/2007(b) 16,611,005 15,250,055 0.8
10,000,000 10.50% due 4/30/2016 10,287,500 9,815,100 0.5
7,100,000 United Air Pass-Through, 10.125%
due 3/22/2015 7,684,046 6,669,385 0.4
15,000,000 USAir Inc., 10.375% due 3/01/2013 15,000,000 12,225,000 0.7
------------- -------------- ------
49,582,551 43,959,540 2.4
Broadcasting & 10,190,000 Century Communications Corp., 11.875%
Publishing due 10/15/2003 10,701,550 10,623,075 0.6
10,000,000 Continental Cablevision, 9.50%
due 8/01/2013 10,000,000 9,150,000 0.5
13,000,000 Heritage Media Corp., 11.00%
due 6/15/2002 13,295,625 13,195,000 0.7
5,000,000 K-III Communications Corp., 10.625%
due 5/01/2002 5,090,000 4,850,000 0.3
10,000,000 Videotron Group, Ltd. Co., 10.25%
due 10/15/2002 10,043,750 9,800,000 0.5
------------- -------------- ------
49,130,925 47,618,075 2.6
<PAGE>
Building Materials 15,300,000 Pacific Lumber Co., 10.50%
due 3/01/2003 15,462,750 14,229,000 0.8
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 9,379,750 0.5
------------- -------------- ------
25,180,219 23,608,750 1.3
Business Services 18,500,000 ADT Operations, 9.25% due 8/01/2003 18,573,188 17,112,500 0.9
8,000,000 Bell & Howell Co., Series B, 10.75%
due 10/01/2002 8,000,000 7,600,000 0.4
------------- -------------- ------
26,573,188 24,712,500 1.3
Chemicals 33,860,000 GI Holdings, Inc., 11.38%* due
10/01/1998 22,375,651 20,527,625 1.1
10,000,000 Uniroyal Chemical Co., 9.00%
due 9/01/2000 10,000,000 9,400,000 0.5
------------- -------------- ------
32,375,651 29,927,625 1.6
Conglomerates 20,000,000 Coltec Industries Inc., 10.25%
due 4/01/2002 20,387,500 19,600,000 1.1
10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 8,800,000 0.5
10,100,000 Sherritt Gordon, Ltd., 9.75%
due 4/01/2003 10,148,750 9,696,000 0.5
10,000,000 Southern Pacific Rail Co., 9.375%
due 8/15/2005 10,000,000 9,200,000 0.5
------------- -------------- ------
50,451,250 47,296,000 2.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH
AMERICA Value Percent of
(continued) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Consumer Goods Liggett Group, Inc.:
States US$ 8,000,000 11.50% due 2/01/1999 $ 7,724,541 $ 5,600,000 0.3%
(concluded) 4,199,000 16.50% due 2/01/1999 4,199,000 3,611,140 0.2
------------- -------------- ------
11,923,541 9,211,140 0.5
Containers 20,000,000 Owens Illinois, 11.00% due 12/01/2003 21,906,563 20,750,000 1.2
6,100,000 Silgan Holdings Corp., 11.75%
due 6/15/2002 6,194,875 6,313,500 0.4
------------- -------------- ------
28,101,438 27,063,500 1.6
<PAGE>
Cosmetics 20,000,000 Revlon Consumer Products Corp.,
9.375% due 4/01/2001 17,607,494 17,900,000 1.0
Energy Clark Oil Co.:
8,360,000 10.50% due 12/01/2001 8,827,300 8,569,000 0.5
500,000 9.50% due 9/15/2004 500,000 487,500 0.0
7,000,000 Clark R & M Holdings, Inc., 10.54%*
due 2/15/2000 4,120,703 3,990,000 0.2
Gulf Canada Resources, Ltd.:
10,000,000 9.00% due 8/15/1999 9,158,438 9,500,000 0.5
6,500,000 9.25% due 1/15/2004 6,458,855 5,980,000 0.3
Maxus Energy Corp.:
6,500,000 9.875% due 10/15/2002 6,485,050 5,655,000 0.3
1,000,000 11.50% due 11/15/2015 1,051,250 920,000 0.1
15,000,000 Rowan Companies, Inc., 11.875%
due 12/01/2001 15,590,000 15,450,000 0.9
15,000,000 Seagull Energy Corp., 8.625%
due 8/01/2005 15,000,000 12,787,500 0.7
10,000,000 Trans Texas Gas Corp., 10.50%
due 9/01/2000 10,000,000 9,550,000 0.5
------------- -------------- ------
77,191,596 72,889,000 4.0
Entertainment Marvel Holdings, Inc.:
26,780,000 11.47%* due 4/15/1998 18,450,899 16,469,700 0.9
1,125,000 9.125% due 2/15/1998 995,625 978,750 0.1
5,000,000 Spectravision Inc., 10.92%*
due 10/01/2001 4,211,312 2,150,000 0.1
10,000,000 Trump Plaza Funding, Inc., 10.875%
due 6/15/2001 7,536,875 7,600,000 0.4
------------- -------------- ------
31,194,711 27,198,450 1.5
Financial Services 17,375,000 Lomas Mortgage USA, 10.25%
due 10/01/2002 17,387,500 14,421,250 0.8
10,000,000 Penn Financial Corp., 9.25%
due 12/15/2003 10,000,000 8,800,000 0.5
10,000,000 Reliance Group Holdings, 9.00%
due 11/15/2000 10,000,000 9,100,000 0.5
------------- -------------- ------
37,387,500 32,321,250 1.8
<PAGE>
Food & Beverage 10,000,000 Canandaigua Wine Inc., 8.75%
due 12/15/2003 10,000,000 9,100,000 0.5
10,000,000 Coca-Cola Bottling Co., 9.00%
due 11/15/2003 10,005,000 8,775,000 0.5
20,000,000 Del Monte Corp., 10.00%
due 5/01/2003 20,025,313 13,600,000 0.8
25,000,000 Grand Union Co., 11.25%
due 7/15/2000 25,524,063 22,250,000 1.2
18,000,000 Penn Traffic Co., 9.625%
due 4/15/2005 18,308,350 15,660,000 0.9
20,000,000 Pueblo Xtra International Inc., 9.50%
due 8/01/2003 20,111,875 16,800,000 0.9
10,000,000 Specialty Foods Corp., 10.25%
due 8/15/2001 10,000,000 8,900,000 0.5
------------- -------------- ------
113,974,601 95,085,000 5.3
Furniture/Home 1,400,000 ++Zenith Electronics Corp., 8.50%
Appliance due 11/19/2000** 2,060,380 1,921,500 0.1
Health Services 15,000,000 Continental Medical Systems, Inc.,
10.875% due 8/15/2002 15,029,062 12,075,000 0.7
2,500,000 MEDIQ, Inc., 11.125% due 7/01/1999 2,500,000 2,325,000 0.1
------------- -------------- ------
17,529,062 14,400,000 0.8
High Technology 15,000,000 Computervision Corp., 10.875%
due 8/15/1997 15,025,000 13,800,000 0.8
Home Building Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 8,787,500 0.5
3,500,000 9.75% due 3/01/2003 3,472,455 2,905,000 0.2
Kaufman & Broad Home, Inc.:
3,000,000 10.375% due 9/01/1999 3,030,000 2,985,000 0.2
5,250,000 9.375% due 5/01/2003 5,217,187 4,567,500 0.3
Ryland Group, Inc.:
3,750,000 10.50% due 7/15/2002 3,733,850 3,356,250 0.2
12,250,000 9.625% due 6/01/2004 11,991,250 10,290,000 0.6
------------- -------------- ------
36,821,617 32,891,250 2.0
Hotels & Casinos 1,906,000 Goldriver Hotel & Casino Corp.,
13.375% due 8/31/1999 2,645,548 1,658,220 0.1
10,000,000 Greate Bay Properties, Inc., 10.875%
due 1/15/2004 9,996,250 8,100,000 0.5
15,000,000 Showboat, Inc., 9.25% due 5/01/2008 14,698,750 12,525,000 0.7
------------- -------------- ------
27,340,548 22,283,220 1.3
<PAGE>
Leisure Time 5,925,000 AMC Entertainment, Inc., 12.625%
due 8/01/2002 6,017,020 6,265,688 0.3
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 9,475,000 0.5
15,000,000 Fort Howard Corp., 9.00% due 2/01/2006 15,007,500 12,900,000 0.7
10,000,000 Riverwood International Corp., 11.25%
due 6/15/2002 10,385,750 10,275,000 0.6
12,500,000 Stone Container Corp., 9.875%
due 2/01/2001 11,667,085 11,750,000 0.7
7,500,000 Stone Container Gorp., 10.75%
due 10/01/2002 7,425,000 7,462,500 0.4
------------- -------------- ------
54,685,335 51,862,500 2.9
Restaurants & 10,000,000 Family Restaurant Inc., 9.75%
Food Services due 2/01/2002 10,000,000 7,850,000 0.4
Flagstar Corp.:
2,000,000 10.875% due 12/01/2002 2,000,000 1,860,000 0.1
17,000,000 11.375% due 9/15/2003 16,640,000 14,110,000 0.8
20,000,000 Foodmaker, Inc., 9.75% due 6/01/2002 19,554,250 15,000,000 0.8
------------- -------------- ------
48,194,250 38,820,000 2.1
Retail Stores 10,000,000 Specialty Retailers, Inc., 10.00%
due 8/15/2000 10,112,500 9,000,000 0.5
Textiles 15,000,000 WestPoint Stevens Inc., 8.75%
due 12/15/2001 15,093,750 13,800,000 0.8
Transport Services 10,000,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 10,028,437 9,100,000 0.5
US Government & Agency 9,000,000 Federal National Mortgage Association,
Obligations 8.55% due 12/10/2004 8,992,969 8,916,750 0.5
Utilities 9,848,000 Beaver Valley II Funding, 9.00%
due 6/01/2017 7,262,900 6,992,080 0.4
Utilities--Electric 4,000,000 CTC Mansfield Funding Corp., 11.125%
due 9/30/2016 4,301,250 3,706,280 0.2
Midland Cogeneration:
9,372,115 ++10.33% due 7/23/2002 (b) 9,184,673 8,856,649 0.5
10,000,000 13.25% due 7/23/2006 11,183,750 9,629,500 0.5
9,100,000 Tucson Electric Power Co., 10.732%
due 1/01/2013 8,713,250 8,326,500 0.5
------------- -------------- ------
33,382,923 30,518,929 1.7
Total Fixed-Income Investments in
the United States 843,221,356 759,362,747 42.2
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH
AMERICA Value Percent of
(concluded) Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Airlines US$ 3,000,000 AMR Corp., 6.125% due 11/01/2024 $ 2,441,875 $ 2,415,000 0.1%
States
Building & 1,500,000 Toll Brothers Inc., 4.75% due 1/15/2004 1,500,000 1,020,000 0.1
Construction 1,750,000 US Home Corp., 4.875% due 11/01/2005 1,741,000 1,124,375 0.1
------------- -------------- ------
3,241,000 2,144,375 0.2
Building Materials 3,000,000 Owens-Corning Fiberglass Corp.,
8.00% due 12/30/2005** 3,232,257 3,292,500 0.2
Computers 2,500,000 Data General Corp., 7.75%
due 6/01/2001 2,479,375 2,162,500 0.1
1,000,000 Storage Technology Corp., 8.00%
due 5/31/2015** 1,132,500 975,000 0.1
------------- -------------- ------
3,611,875 3,137,500 0.2
Electrical Equipment 2,000,000 Polyphase Corp., 12.00% due 7/01/1999 2,000,000 1,620,000 0.1
Electronics 3,000,000 Wilcox & Gibbs Inc., 7.00%
due 8/01/2014 2,955,000 2,490,000 0.1
Entertainment 4,500,000 Time Warner Inc., 7.99%*
due 12/17/2012 1,410,560 1,372,500 0.1
Environmental Control 900,000 Ray F. Weston, Inc., 7.00%
due 4/15/2002 756,900 756,000 0.0
Food & Beverage 3,000,000 Boston Chicken Inc., 4.50%
due 2/01/2004 3,000,000 2,205,000 0.1
3,000,000 Farm Fresh, Inc., 7.50%
due 3/01/2010 1,562,500 1,850,286 0.1
------------- -------------- ------
4,562,500 4,055,286 0.2
Healthcare 1,000,000 IVAX Corp., 6.50% due 11/15/2001 987,500 872,500 0.0
Pharmaceutical Marketing
Services, Inc.:
700,000 ++6.25% due 2/01/2003** 536,700 462,000 0.0
1,050,000 6.25% due 2/01/2003 813,250 672,000 0.0
------------- -------------- ------
2,337,450 2,006,500 0.0
Home Building 3,300,000 ++Engle Homes, Inc., 7.00%
due 3/01/2003 2,884,280 2,524,500 0.1
<PAGE>
Industrial Services 3,500,000 ++Cemex, S.A., 4.25% due 11/01/1997 3,500,000 2,800,000 0.2
500,000 Mascotech, Inc., 4.50% due 12/15/2003 500,000 333,750 0.0
1,015,000 Sanifill Inc., 7.50% due 6/01/2006** 1,073,068 969,325 0.1
2,080,000 Wainoco Oil Corp., 7.75%
due 6/01/2014 1,880,352 1,788,800 0.1
------------- -------------- ------
6,953,420 5,891,875 0.4
Insurance 3,320,000 Statesman Group, Inc., 6.25%
due 5/01/2003 3,368,958 3,353,200 0.2
Machinery 2,000,000 Albany International Corp., 5.25%
due 3/15/2002 1,823,117 1,705,000 0.1
Medical 1,950,000 Sun Healthcare Group, Inc., 6.00%
due 3/01/2004** 2,269,500 2,447,250 0.1
Mining Coeur D'Alene Mines Corp.:
2,000,000 7.00% due 11/30/2002** 2,112,500 2,250,000 0.1
1,500,000 6.375% due 1/31/2004 1,500,000 1,248,750 0.1
------------- -------------- ------
3,612,500 3,498,750 0.2
Oil/Gas-Exploration 3,000,000 The Western Company of North America,
7.25% due 1/15/2015** 3,347,400 3,093,750 0.2
Pharmaceuticals 2,600,000 Bindley Western Industries, Inc., 6.50%
due 10/01/2002 2,563,000 2,463,500 0.1
Retail 2,250,000 Big B Inc., 6.50% due 3/15/2003** 2,663,775 2,587,500 0.1
Technology 1,570,000 Conner Peripherals Inc., 6.50%
due 3/01/2002** 1,409,546 1,091,150 0.1
Telecommunications 3,210,000 Intelcom Group Inc., 7.00%
due 10/30/1998 (a) 3,199,631 2,575,979 0.1
Textiles 2,125,000 Interface, Inc., 8.00% due 9/15/2013 2,052,650 1,917,813 0.1
Transportation 511,000 Builders Transport & Trucking Co., 8.00%
due 8/15/2005** 514,832 449,680 0.0
Waste Management 1,000,000 Phillips Environmental, Inc., 6.00%
due 10/15/2000 1,000,000 1,015,000 0.1
1,950,000 USA Waste Services Inc., 8.50%
due 10/15/2002 2,273,000 2,349,750 0.1
------------- -------------- ------
3,273,000 3,364,750 0.2
<PAGE>
Total Investments in United States
Convertible Bonds 66,485,026 60,254,358 3.2
Convertible Preferred Stocks,
Shares Held Common Stocks & Warrants
United Airlines 52,500 Delta Air Lines Inc., $3.50
States (Series C), Conv. Pfd. 2,756,900 2,296,875 0.1
25,000 ++United Airlines Corp., $6.25
(Series A), Conv. Pfd. 2,482,500 2,075,000 0.1
------------- -------------- ------
5,239,400 4,371,875 0.2
Banking & Finance 48,300 Rochester Community Savings Bank
(Series B) 1,387,224 1,279,950 0.1
36,300 Southern National Corp., Pfd. $1.6875 1,158,678 1,057,238 0.1
55,200 Union Planters Corp. 1,949,405 1,531,800 0.1
------------- -------------- ------
4,495,307 3,868,988 0.3
Cement 125,000 Southdown, Inc.** (e) 1,268,750 1,187,500 0.1
Computers 42,500 Storage Technology Corp.,
$3.50, Conv. Pfd. 2,355,987 2,805,000 0.2
Electronics 60,000 Cooper Industries, $8.00 1,536,750 1,230,000 0.1
Environmental 3,520,000 ++Allied Waste Industries, Inc.,
Conv. Pfd. 3,520,401 3,424,784 0.2
Financial--Banks 105,000 Citicorp, Pfd. "P" 2,066,925 2,008,125 0.1
Food & Beverage 18,676 Hudson Foods, Inc. (Class A) 413,555 469,235 0.0
231,500 RJR Nabisco, Inc. 1,534,269 1,389,000 0.1
------------- -------------- ------
1,947,824 1,858,235 0.1
High Technology 91,053 Anacomp, Inc. (Warrants) (c) 120,000 91,053 0.0
Hotels & Casinos 75,000 Goldriver Hotel & Casino Corp.
Liquidating Trust 75,000 53,438 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B) (d) 219,738 84,375 0.0
6,000 Trump Taj Mahal Funding, Inc. (Class A) 3,000 48,000 0.0
------------- -------------- ------
297,738 185,813 0.0
<PAGE>
Industrial 20,000 Mascotech, Inc. 312,460 275,000 0.0
58,800 Petrolane, Inc. 683,550 779,100 0.0
10,000 UGI Corp. (Warrants) (c) 43,750 8,125 0.0
------------- -------------- ------
1,039,760 1,062,225 0.0
Insurance 1,500 Westbridge Capital Corp. 1,500,000 1,522,500 0.1
Oil & Gas 113,600 Gerrity Oil & Gas Corp. 1,882,785 1,476,800 0.1
Diversified 20,000 Western Gas Resources, Inc. 1,000,000 635,000 0.0
------------- -------------- ------
2,882,785 2,111,800 0.1
Paper Products 50,000 James River Corp. of Virginia (Series P) 862,500 1,012,500 0.1
Total Investments in United States
Convertible Preferred Stocks,
Common Stocks & Warrants 29,134,127 26,740,398 1.6
Total Investments in
North American Securities 973,214,877 877,793,407 48.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC Value Percent of
BASIN Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Foreign Government Australian Government Bonds:
Obligations-- A$ 38,000,000 12.00% due 11/15/2001 $ 31,852,684 $ 32,229,855 1.8%
Regional & Agency 52,600,000 9.50% due 8/15/2003 38,699,872 39,494,353 2.2
41,500,000 Queensland Treasury Corp., Global
Notes, 8.00% due 5/14/2003 31,269,513 28,003,716 1.6
16,000,000 Victoria Financial Corp., 10.25%
due 9/15/1999 12,421,713 12,331,634 0.7
------------- -------------- ------
114,243,782 112,059,558 6.3
Total Fixed-Income Investments
in Australia 114,243,782 112,059,558 6.3
New Foreign Government New Zealand Government Bonds:
Zealand Obligations NZ$ 37,000,000 8.00% due 7/15/1998 21,664,910 22,908,212 1.3
14,200,000 10.00% due 3/15/2002 8,974,507 9,739,382 0.5
------------- -------------- ------
30,639,417 32,647,594 1.8
Total Fixed-Income Investments
in New Zealand 30,639,417 32,647,594 1.8
<PAGE>
Philip- Industrial US$ 3,000,000 ++San Miguel Corp., 9.00% due 4/27/2000 2,981,000 2,866,875 0.2
pines
Total Fixed-Income Investments
in the Philippines 2,981,000 2,866,875 0.2
Total Fixed-Income Investments in
the Pacific Basin 147,864,199 147,574,027 8.3
Convertible Bonds
Hong Kong Engineering & HK$ 1,450,000 Paul Y-ITC Construction Holdings, Inc.,
Construction 5.00% due 2/03/2001 1,165,812 1,022,250 0.1
Total Investments in
Hong Kong Convertible Bonds 1,165,812 1,022,250 0.1
Japan Foreign Government Yen 85,000,000 Makita Electric Works Co., Ltd.,
Obligations 3.60% due 3/31/1999 938,422 879,900 0.0
Total Investments in
Japanese Convertible Bonds 938,422 879,900 0.0
Total Investments in Pacific Basin
Convertible Bonds 2,104,234 1,902,150 0.1
Total Investments in
Pacific Basin Securities 149,968,433 149,476,177 8.4
WESTERN
EUROPE Fixed-Income Investments
Denmark Foreign Dkr 200,000,000 Denmark Kingdom, 9.00% due 11/15/1998 32,728,737 33,185,258 1.8
Government
Obligations
Total Fixed-Income Investments
in Denmark 32,728,737 33,185,258 1.8
Germany Consumer Products US$ 10,000,000 Tarkett International, 9.00%
due 3/01/2002 10,000,000 9,125,000 0.5
Total Fixed-Income Investments
in Germany 10,000,000 9,125,000 0.5
<PAGE>
Italy Foreign Government Buoni Poliennali del Tesoro
Obligations (Italian Government Bonds):
Lit80,000,000,000 8.50% due 8/01/1997 48,051,282 45,785,511 2.5
55,000,000,000 12.00% due 9/18/1998 36,600,703 34,005,924 1.9
70,400,000,000 9.00% due 10/01/1998 42,566,872 39,992,595 2.2
53,000,000,000 8.50% due 1/01/1999 31,647,308 29,341,580 1.6
------------- -------------- ------
158,866,165 149,125,610 8.2
Total Fixed-Income Investments
in Italy 158,866,165 149,125,610 8.2
Portugal Supranational Esc 750,000,000 European Investment Bank, 15.50%
Entities due 7/12/1995 6,389,454 4,764,750 0.3
Total Fixed-Income Investments
in Portugal 6,389,454 4,764,750 0.3
Spain Foreign Government Government of Spain:
Obligations Pta 2,950,000,000 11.00% due 6/15/1997 22,951,273 22,279,171 1.2
15,092,000,000 10.25% due 11/30/1998 114,736,692 109,814,233 6.1
------------- -------------- ------
137,687,965 132,093,404 7.3
Total Fixed-Income Investments
in Spain 137,687,965 132,093,404 7.3
Sweden Foreign Government Government of Sweden:
Obligations Skr 190,000,000 11.00% due 1/21/1999 25,252,784 26,084,711 1.4
60,000,000 13.00% due 6/15/2001 8,705,625 8,948,461 0.5
------------- -------------- ------
33,958,409 35,033,172 1.9
Total Fixed-Income Investments
in Sweden 33,958,409 35,033,172 1.9
United Foreign Government United Kingdom Gilt:
Kingdom Obligations Pound 7,000,000 10.50% due 2/21/1997 11,631,933 11,424,459 0.6
Sterling 47,000,000 9.00% due 3/03/2000 74,903,779 74,545,026 4.1
46,000,000 7.00% due 11/06/2001 71,171,278 65,620,294 3.6
10,250,000 9.50% due 4/18/2005 17,203,187 16,823,978 0.9
------------- -------------- ------
174,910,177 168,413,757 9.2
<PAGE>
Total Fixed-Income Investments in
the United Kingdom 174,910,177 168,413,757 9.2
Convertible Bonds
United 1,250,000 Hanson Trust PLC, 9.50% due 1/31/2006 2,074,884 2,016,225 0.1
Kingdom
Total Investments in United Kingdom
Convertible Bonds 2,074,884 2,016,225 0.1
Total Investments in Western European
Securities 556,615,791 533,757,176 29.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Issue Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Commercial US$ 40,000,000 Ciesco L.P., 5.85% due 2/03/1995 $ 39,798,500 $ 39,798,500 2.2%
States Paper*** 50,033,000 General Electric Capital Corp.,
5.80% due 1/03/1995 50,033,000 50,033,000 2.8
25,000,000 National Rural Utilities Cooperative
Finance Corp., 5.78% due 1/27/1995 24,904,667 24,904,667 1.4
10,000,000 Xerox Credit Corp., 5.85% due 2/06/1995 9,944,750 9,944,750 0.6
------------- -------------- ------
124,680,917 124,680,917 7.0
US Government US Treasury Bill:
Obligations*** 100,000 5.392% due 2/02/1995 99,560 99,560 0.0
1,100,000 5.425% due 2/02/1995 1,095,132 1,095,132 0.1
------------- -------------- ------
1,194,692 1,194,692 0.1
Total Investments in
Short-Term Securities 125,875,609 125,875,609 7.1
OPTIONS Premiums
PURCHASED Paid
Currency Put 20,587,500 Australian Dollar, expiring January
Options Purchased 1995, at A$.7625 111,996 49,410 0.0
79,000,000 British Pound, expiring January 1995,
at Pound Sterling 1.5450 450,300 418,700 0.0
50,000,000 Italian Lira, expiring January 1995,
at Lit1690 147,500 70,000 0.0
56,000,000 Spanish Peseta, expiring January 1995,
at Pta135.50 266,000 212,800 0.0
<PAGE>
Total Options Purchased 975,796 750,910 0.0
Total Investments 1,913,468,142 1,784,327,007 98.8
OPTIONS Premiums
WRITTEN Received
Currency Call 21,195,000 Australian Dollar, expiring January 1995,
Options Written at A$.785 (111,994) (76,302) 0.0
79,000,000 British Pound, expiring January 1995,
at Pound Sterling 1.5820 (323,900) (355,500) 0.0
50,000,000 Italian Lira, expiring January 1995,
at Lit1590 (64,000) (125,000) 0.0
56,000,000 Spanish Peseta, expiring January 1995,
at Pta 129.5 (112,000) (140,000) 0.0
Total Options Written (611,894) (696,802) 0.0
Total Investments, Net of Currency Options Written $1,912,856,248 1,783,630,205 98.8
==============
Variation Margin on Stock Index Futures Contracts++ 23,437 0.0
Short Sales (Proceeds--$17,254,233)** (15,765,349) (0.8)
Unrealized Depreciation on Forward Foreign Exchange Contracts+++++ (4,835,455) (0.3)
Other Assets Less Liabilities 41,249,496 2.3
-------------- ------
Net Assets $1,804,302,334 100.0%
============== ======
<FN>
*Represents the yield to maturity on this zero coupon issue.
**Covered Short Sales entered into as of December 31, 1994 are as follows:
<PAGE>
<CAPTION>
Value
Shares Issue (Note 1h)
<C> <S> <C>
139,800 Big B Inc. $ (1,922,250)
6,800 Builders Transport & Trucking Co. (74,800)
109,900 Coeur D'Alene Mines Corp. (1,799,613)
31,400 Conner Peripherals Inc. (298,300)
68,900 Owens-Corning Fiberglass Corp. (2,204,800)
57,000 Pharmaceutical Marketing Services, Inc. (513,000)
17,800 Sanifill Inc. (445,000)
43,700 Southdown, Inc. (633,650)
102,900 Storage Technology Corp. (2,984,100)
71,098 Sun Healthcare Group, Inc. (1,804,112)
89,100 Western Company of North America (The) (1,503,562)
136,100 Zenith Electronics Corp. (1,582,162)
============
Total (proceeds--$17,254,233) $(15,765,349)
<FN>
***Commercial Paper and certain US Government Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at the
time of purchase by the Fund.
++Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $37,144,000, representing 2.06%
of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Allied Waste Industries, Inc., Conv. Pfd. 9/23/1993 $ 3,520,401 $ 3,424,784
Cemex, S.A., 4.25% due 11/01/1997 9/28/1994 3,500,000 2,800,000
Compania Brasileira de Projetos e
Obras, 12.50% due 12/22/1997 12/14/1994 4,975,000 4,875,000
Engle Homes, Inc., 7.00% due 3/01/2003 6/29/1994-
7/8/1994 2,884,280 2,524,500
Midland Cogeneration, 10.33% due 7/23/2002 7/13/1994 9,184,673 8,856,649
Pharmaceutical Marketing Services, Inc., 6.25% due 2/01/2003 10/02/2003 536,700 462,000
Republic of Trinidad and Tobago, 9.75% due 11/03/2000 10/15/1994 3,991,600 3,660,000
San Miguel Corp., 9.00% due 4/27/2000 9/26/1994-
9/30/1994 2,981,000 2,866,875
Telecom Argentina Stet-France Telecom,
S.A., 8.375% due 10/18/2000 10/04/1994 2,490,625 2,025,000
Transportadora de Gas del Sur, 7.75% due 12/23/1998 1/28/1994 2,042,500 1,652,500
United Airlines Corp., $6.25 (Series A), Conv. Pfd. 3/03/1993 2,482,500 2,075,000
Zenith Electronics Corp., 8.50% due 11/19/2000 10/25/1994-
10/26/1994 2,060,380 1,921,500
Total $40,649,659 $37,143,808
=========== ===========
<PAGE>
+++Financial futures contracts sold as of December 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Exchange Date (Note 1c)
75 US Treasury Bond OTC March 1995 $(7,436,719)
Total Futures Contracts Sold
(Total Contract Price--$7,426,563) $(7,436,719)
===========
The market value of pledged securities is $1,194,693.
+++++Forward foreign exchange contracts as of December 31, 1994 are as follows:
<CAPTION>
Unrealized
Expiration Appreciation
Date (Depreciation)
(Note 1c)
Foreign Currency Purchased
<S> <C> <S> <C>
A$ 32,139,180 January 1995 $ 458,787
C$ 44,076,139 January 1995 (372,857)
DM 77,012,625 January 1995 620,544
Lit 17,395,318,900 January 1995 (139,655)
Pta 1,314,735,000 January 1995 (11,393)
Skr 69,818,867 January 1995 (62,987)
Total (US$ Commitment--$135,732,700) $ 492,439
------------
Foreign Currency Sold
A$ 102,695,480 January 1995 $ (990,960)
DM 369,310,250 January 1995 (3,841,101)
Dkr 75,265,297 January 1995 (176,155)
Lit 26,000,000,000 January 1995 (213,437)
NZ$ 44,390,612 February 1995 135,391
Pta 4,378,887,944 January 1995 152,591
Skr 250,140,700 January 1995 (394,223)
Total (US$ Commitment--$436,711,222) $ (5,327,894)
------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $ (4,835,455)
============
<PAGE>
(a)Represents a pay-in-kind security which may pay interest/dividends
in additional face/shares.
(b)Subject to principal paydowns as a result of prepayments or refinancings
of the underlying mortgage instruments. As a result, the average life may
be substantially less than the original maturity.
(c)Warrants entitle the Fund to purchase a predetermined number of shares
of Common Stock. The purchase price and number of shares are subject
to adjustment under certain conditions until the expiration date.
(d)Each share of Series B stock contains a right which entitles the holder
to purchase a predetermined number of shares of Preferred Stock.
(e)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,912,492,346) (Note 1a) $1,783,576,097
Put options purchased, at value (cost--$975,796) (Notes 1a & 1c) 750,910
Cash 679
Foreign cash (Note 1d) 255,026
Receivables:
Interest $ 45,480,021
Short sales (Note 1i) 17,260,136
Securities sold 1,998,100
Capital shares sold 1,053,330
Forward foreign exchange contracts (Note 1c) 213,061
Dividends 102,123
Variation margin (Note 1g) 23,437 66,130,208
------------
Prepaid registration fees and other assets (Note 1f) 116,115
--------------
Total assets 1,850,829,035
--------------
Liabilities: Common stocks sold short, at market value (proceeds--$17,254,233) (Note 1i) 15,765,349
Call options written, at value (premiums--$611,894) (Notes 1a & 1c) 696,802
Unrealized depreciation of forward foreign exchange contracts (Note 1c) 4,835,455
Payables:
Dividends to shareholders (Note 1h) 10,110,517
Capital shares redeemed 9,601,776
Distributor (Note 2) 1,029,572
Investment adviser (Note 2) 997,268
Forward foreign exchange contracts (Note 1c) 981,223
Securities purchased 181,225 22,901,581
------------
Accrued expenses and other liabilities 2,327,514
--------------
Total liabilities 46,526,701
--------------
Net Assets: Net assets $1,804,302,334
==============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized $ 3,796,142
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 18,194,910
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 14,712
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized 17,195
Paid-in capital in excess of par 1,978,693,897
Accumulated realized capital losses on investments and foreign currency transactions--net (63,828,356)
Unrealized depreciation on investments and foreign currency transactions--net (132,586,166)
--------------
Net assets $1,804,302,334
==============
Net Asset Class A--Based on net assets of $311,181,573 and 37,961,421 shares outstanding $ 8.20
==============
Value: Class B--Based on net assets of $1,490,506,743 and 181,949,101 shares outstanding $ 8.19
==============
Class C--Based on net assets of $1,204,423 and 147,121 shares outstanding $ 8.19
==============
Class D--Based on net assets of $1,409,595 and 171,952 shares outstanding $ 8.20
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1994
<S> <S> <C> <C>
Investment Interest and discount earned (net of $1,103,072 foreign withholding tax) $ 195,018,063
Income Dividend 1,988,020
(Notes 1e & 1f): Other income 1,187,844
--------------
Total income 198,193,927
--------------
Expenses: Distribution fees--Class B (Note 2) 13,694,529
Investment advisory fees (Note 2) 13,289,517
Transfer agent fees--Class B (Note 2) 2,028,532
Custodian fees 701,719
Printing and shareholder reports 408,711
Transfer agent fees--Class A (Note 2) 378,471
Accounting services (Note 2) 315,069
Professional fees 118,268
Registration fees (Note 1g) 55,942
Directors' fees and expenses 49,247
Short sale of dividends (Note 1i) 35,171
Distribution fees--Class C (Note 2) 773
Account maintenance fees--Class D (Note 2) 320
Transfer agent fees--Class C (Note 2) 151
Transfer agent fees--Class D (Note 2) 133
<PAGE> Other 35,712
--------------
Total expenses 31,112,265
--------------
Investment income-net 167,081,662
--------------
Realized & Realized loss from:
Unrealized Loss Investments--net $(62,626,451)
on Investments & Foreign currency transactions-net (44,955,386) (107,581,837)
Foreign Currency ------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1c, 1d, Investments--net (169,594,564)
1f & 3): Foreign currency transactions--net (4,327,598) (173,922,162)
------------ --------------
Net realized and unrealized loss on investments and foreign
currency transactions (281,503,999)
--------------
Net Decrease in Net Assets Resulting from Operations $ (114,422,337)
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 167,081,662 $ 175,662,845
Realized gain (loss) on investments and foreign currency transactions--net (107,581,837) 15,185,945
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (173,922,162) 98,246,283
-------------- --------------
Net increase (decrease) in net assets resulting from operations (114,422,337) 289,095,073
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (19,926,079) (29,629,878)
Shareholders Class B (84,931,858) (106,918,287)
(Note 1h): Class C (4,853) --
Class D (6,907) --
Realized gain on investments--net:
Class A -- (1,417,282)
Class B -- (6,362,072)
Return of capital:
Class A (11,820,707) (8,487,578)
Class B (50,383,950) (30,627,102)
Class C (2,879) --
<PAGE> Class D (4,097) --
-------------- --------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (167,081,330) (183,442,199)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital share transactions (487,938,280) 430,150,076
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (769,441,947) 535,802,950
Beginning of year 2,573,744,281 2,037,941,331
-------------- --------------
End of year* $1,804,302,334 $2,573,744,281
============== ==============
<FN>
*Undistributed investment income--net $ -- $ --
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS Class A
For the Four
Months
The following per share data and ratios For the Year Ended Ended
have been derived from information December 31, Dec. 31, For the Year Ended August 31,
provided in the financial statements. 1994++++ 1993 1992 1992 1991 1990
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48 $ 9.32
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .72 .75 .29 .99 1.12 1.23
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.09) .46 (.41) .40 (.16) .15
-------- -------- -------- -------- -------- --------
Total from investment operations (.37) 1.21 (.12) 1.39 .96 1.38
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.58) (.35) (1.12) (1.37) (1.17)
-------- -------- -------- -------- -------- --------
Realized gain on investments--net -- (.03) (.02) -- -- (.05)
-------- -------- -------- -------- -------- --------
Return of capital--net (.26) (.17) -- -- -- --
Total dividends and distributions (.71) (.78) (.37) (1.12) (1.37) (1.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share (4.05%) 14.12% (1.26%)+++ 16.09% 11.50% 16.48%
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses .77% .78% .76%* .88% .85% .86%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 8.17% 8.22% 8.09%* 11.16% 12.38% 16.27%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $311,181 $467,625 $455,672 $526,631 $292,709 $299,700
======== ======== ======== ======== ======== ========
Portfolio turnover 115.95% 182.88% 68.42% 76.18% 63.83% 99.86%
======== ======== ======== ======== ======== ========
<CAPTION>
Class B
For the Four For the
Months Period
The following per share data and ratios For the Year Ended Ended Nov. 18, 1991++
have been derived from information December 31, Dec. 31, to Aug. 31
provided in the financial statements. 1994++++ 1993 1992 1992
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.28 $ 8.85 $ 9.33 $ 9.26
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .65 .70 .27 .77
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.10) .44 (.40) --
---------- ---------- ---------- ----------
Total from investment operations (.45) 1.14 (.13) .77
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.40) (.53) (.33) (.70)
Realized gain on investments--net -- (.03) (.02) --
Return of capital--net (.24) (.15) -- --
---------- ---------- ---------- ----------
Total dividends and distributions (.64) (.71) (.35) (.70)
---------- ---------- ---------- ----------
Net asset value, end of period $ 8.19 $ 9.28 $ 8.85 $ 9.33
========== ========== ========== ==========
Total Investment Based on net asset value per share (4.90%) 13.27% (1.42%)+++ 8.61%+++
Return:** ========== ========== ========== ==========
<PAGE>
Ratios to Average Expenses, excluding distribution fees .79% .80% .78% .88%*
Net Assets: ========== ========== ========== ==========
Expenses 1.54% 1.55% 1.53% 1.63%*
========== ========== ========== ==========
Investment income--net 7.41% 7.42% 7.08% 8.02%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $1,490,507 $2,106,120 $1,582,270 $1,514,406
Data: ========== ========== ========== ==========
Portfolio turnover 115.95% 182.88% 68.42% 76.18%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
December 31, 1994++++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S>
Per Share Net asset value, beginning of period $ 8.42 $ 8.43
Operating ------- -------
Performance: Investment income--net .10 .11
Realized and unrealized loss on investments and
foreign currency transactions--net (.20) (.20)
------- -------
Total from investment operations (.10) (.09)
------- -------
Less dividends and distributions:
Investment income--net (.08) (.09)
Return of capital--net (.05) (.05)
------- -------
Total dividends (.13) (.14)
------- -------
Net asset value, end of period $ 8.19 $ 8.20
======= =======
<PAGE>
Total Investment Based on net asset value per share (1.20%)+++ (1.09%)+++
Return:** ======= =======
Ratios to Average Expenses, excluding account maintenance and distribution fees .84%* .79%*
Net Assets: ======= =======
Expenses 1.64%* 1.04%*
======= =======
Investment income--net 8.00%* 8.60%*
======= =======
Supplemental Net assets, end of period (in thousands) $ 1,204 $ 1,410
Data: ======= =======
Portfolio turnover 115.95% 115.95%
======= =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company. The Fund offers four
classes of shares under the Merrill Lynch Select Pricing SM System.
Shares of Class A and Class D are sold with a front-end sales charge.
Shares of Class B and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain expenses related
to the account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(a) Valuation of securities--Securities traded in the over-the-counter
market are valued at the last available bid price or yield equivalents
obtained from one or more dealers in the over-the-counter market
prior to the time of valuation. Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the principal
market on which such securities are traded, as of the close of busi-
ness on the day the securities are being valued or, lacking any sales,
at the last available bid price. Options traded on exchanges are
valued at the last asked price for options written and the last bid price
for options purchased. Options traded in the over-the-counter market
are valued at the average of the last asked price as obtained from
one or more dealers for options written and at the average of the
last bid price as obtained from two or more dealers, unless there
is only one dealer, in which case that dealer's price is used for
options purchased. Other investments, including futures contracts
and related options, are stated at market value or otherwise at the
fair value at which it is expected they may be resold, as determined
in good faith by or under the direction of the Board of Directors.
Short-term securities with remaining maturities of sixty days or less
are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank
of the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer
agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities,
marks to market such securities and, if necessary, receives additional
securities daily to ensure that the contract is fully collateralized.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
*Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts are
not entered on the Fund's records. However, the effect on operations
is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
*Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as a
short or long hedge against possible variations in foreign exchange
rates. Such transactions may be effected with respect to hedges on
non-US dollar denominated securities owned by the Fund, sold by
the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
<PAGE>
*Options--The Fund is authorized to write and purchase call and
put options. When the Fund sells an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium received or paid is deducted from or
added to the basis of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent that the premium received
or paid on the written option and purchased option is greater than
or less than the premium paid or received on the closing transaction.
NOTES TO FINANCIAL STATEMENTS (continued)
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or valuing
(unrealized) assets or liabilities expressed in foreign currencies into
US dollars. Realized and unrealized gains or losses from investments
include the effects of foreign exchange rates on investments.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax may
be imposed on interest, dividends, and capital gains at various rates.
(f) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Interest income (including amortization of dis-
count) is recognized on the accrual basis. Realized gains and losses
on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
<PAGE>
(h) Dividends and distributions--Dividends from net investment
income, excluding transaction gains/losses, are declared daily and
paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. A portion of the net investment income paid by
the Fund during the fiscal year ended December 31, 1994 is
characterized as a return of capital.
(i) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds received by the Fund is reflected as an asset
and equivalent liability. The amount of the liability is subsequently
marked to market to reflect the market value of the short sale. The
Fund maintains a segregated account of securities as collateral for
the short sales. The Fund is exposed to market risk based on the
amount, if any, that the market value of the stock exceeds the
market value of the securities in the segregated account.
(j) Reclassification--Generally accepted accounting principles
require that differences between accumulated net realized capital
losses for financial reporting and tax purposes, if permanent, be
reclassified to paid-in capital. These classifications have no effect
on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement
with Fund Asset Management, L.P. ("FAM"). The general partner
of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the
limited partner. The Fund has entered into a Distribution Agree-
ment and Distribution Plans with Merrill Lynch Funds Distributor,
Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
ML Group, Inc.
FAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee of 0.60%, on an annual
basis, of the average daily value of the Fund's net assets. Certain of
the states in which the shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The most restrictive
annual expense limitation requires that the Investment Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest rates, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the Fund's next $70 million of
average daily net assets, and 1.5% of the average daily net assets in
excess thereof. No fee payment will be made to FAM during any fiscal
year which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans") adopted
by the Fund in accordance with Rule 12b-1 under the Investment
Company Act of 1940, the Fund pays the Distributor ongoing account
maintenance and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average daily net assets
of the shares as follows:
Account Maintenance Fee Distribution Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services
to Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing share-
holder and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 24,292 $ 245,317
Class D $ 902 $ 6,720
MLPF&S received contingent deferred sales charges of $6,980,132
relating to transactions in Class B Shares of beneficial interest,
$64 relating to transactions in Class C Shares of beneficial interest,
and $59,092 in commissions on the execution of portfolio security
transactions for the Fund for the year ended December 31, 1994.
During the period June 20, 1994 to December 31, 1994, the Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, provided
security price quotations to the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLPF&S, MLFD, FAM, PSI, FDS, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1994 were $2,313,190,156 and
$2,707,710,251, respectively.
Net realized and unrealized gains (losses) as of December 31, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ (59,712,620) $(128,916,249)
Short-term (3,984) --
Short sales (3,089,687) 1,488,884
Financial futures contracts 68,316 (10,156)
Options purchased (125,276) --
Options written 236,800 --
------------- -------------
Total investments (62,626,451) (127,437,521)
------------- -------------
Currency Transactions:
Options written 357,733 (84,908)
Options purchased (691,934) (224,886)
Foreign currency transactions (2,044,831) (3,396)
Financial futures contracts (23,525) --
Forward foreign exchange contracts (46,642,491) (4,835,455)
------------- -------------
Total currency transactions (44,955,386) (5,148,645)
------------- -------------
Total $(107,581,837) $(132,586,166)
============= =============
Transactions in call options written for the year ended December 31,
1994 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options written,
beginning of year $ 29,510,000 $ 234,902
Options written 355,858,807 2,495,368
Options repurchased (23,520,000) (358,400)
Options expired (128,143,807) (1,525,074)
Options exercised (29,510,000) (234,902)
------------- -------------
Outstanding call options written,
end of year $ 206,195,000 $ 611,894
============= =============
<PAGE>
Transactions in put options written for the year ended December 31,
1994 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
Outstanding put options written,
beginning of year -- --
Options written $ 57,266,896 $ 311,209
Options repurchased (13,000,000) (91,155)
Options exercised (44,266,896) (220,054)
------------- -------------
Outstanding put options written,
end of year $ -- $ --
============= =============
As of December 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $129,918,478, of which $7,025,871
related to appreciated securities and $136,944,349 related to depreci-
ated securities. The aggregate cost of investments at December 31,
1994 for Federal income tax purposes was $1,913,494,575.
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(487,938,280) and $430,150,076 for the years
ended December 31, 1994 and December 31, 1993, respectively.
Transactions in shares of capital for each class were as follows:
Class A Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 2,498,395 $ 22,105,372
Shares issued to shareholders in
reinvestment of dividends 1,047,864 9,035,061
------------- -------------
Total issued 3,546,259 31,140,433
Shares redeemed (15,962,356) (138,247,016)
------------- -------------
Net decrease (12,416,097) $(107,106,583)
============= =============
<PAGE>
Class A Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 9,678,184 $ 88,499,395
Shares issued to shareholders in
reinvestment of dividends &
distributions 1,510,091 13,811,988
------------- -------------
Total issued 11,188,275 102,311,383
Shares redeemed (12,293,992) (112,364,468)
------------- -------------
Net decrease (1,105,717) $ (10,053,085)
============= =============
Class B Shares for the Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 22,383,630 $ 198,076,750
Shares issued to shareholders in
reinvestment of dividends 7,257,720 62,563,579
------------- -------------
Total issued 29,641,350 260,640,329
Conversion of shares (10,524) (87,484)
Shares redeemed (74,723,963) (644,026,143)
------------- -------------
Net decrease (45,093,137) $(383,473,298)
============= =============
Class B Shares for the Year Ended Dollar
December 31, 1993 Shares Amount
Shares sold 72,899,782 $ 666,438,413
Shares issued to shareholders in
reinvestment of dividends &
distributions 7,596,227 69,595,664
------------- -------------
Total issued 80,496,009 736,034,077
Shares redeemed (32,339,396) (295,830,916)
------------- -------------
Net increase 48,156,613 $ 440,203,161
============= =============
<PAGE>
Class C Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 149,131 $ 1,233,348
Shares issued to shareholders in
reinvestment of dividends 710 5,824
------------- -------------
Total issued 149,841 1,239,172
Shares redeemed (2,720) (22,392)
------------- -------------
Net increase 147,121 $ 1,216,780
============= =============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
October 21, 1994++ to December 31, 1994 Shares Amount
Shares sold 177,383 $ 1,470,555
Shares issued to shareholders in
reinvestment of dividends 827 6,792
Conversion of shares 10,511 87,484
------------- -------------
Total issued 188,721 1,564,831
Shares redeemed (16,769) (140,010)
------------- -------------
Net increase 171,952 $ 1,424,821
============= =============
[FN]
++Commencement of Operations.
5. Capital Loss Carryforward:
At December 31, 1994, the Fund had a net capital loss carryforward
of approximately $53,153,000, all of which expires in 2002.
This amount will be available to offset like amounts of any
future taxable gains.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch World Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch World
Income Fund, Inc. as of December 31, 1994, the related statements
of operations for the year then ended and changes in net assets for
the two-year period then ended, and the financial highlights for
the periods presented. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned at December 31, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch World Income Fund, Inc. as of December 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 3, 1995
</AUDIT-REPORT>
<PAGE>
IMPORTANT TAX INFORMATION (unaudited)
Of the monthly cash distributions paid by Merrill Lynch World
Income Fund, Inc. during its taxable year ended December 31,
1994, 1.19% qualifies for the dividends-received deduction for
corporations. Additionally, there were no long-term capital gains
distributed by the Fund during the year.
The law varies in each state as to whether and what percentage
of dividend income attributable to Federal obligations is exempt
from state income tax. We recommend that you consult your tax
adviser to determine if any portion of the dividends you received
is exempt from state income tax.
Listed below are the percentages of total assets of the Fund
invested in Federal obligations as of the end of each quarter of the
fiscal year:
For the Quarter Percentage of
Ended Federal Obligations*
March 31, 1994 3.87%
June 30, 1994 .96%
September 30, 1994 --
December 31, 1994 .06%
Of the monthly cash distributions paid by the fund, 4.20% was
attributable to Federal Obligations. In calculating the foregoing
percentage, Fund expenses have been allocated on a pro rata basis.
Please retain this information for your records.
[FN]
*For purposes of this calculation, Federal obligations include U.S. Treasury
Notes, U.S. Treasury Bills, and U.S. Treasury Bonds. Also included are
obligations issued by the following agencies: Banks for Cooperatives, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Banks
and the Student Loan Marketing Association. Repurchase agreements are
not included in this calculation.
