MERRILL LYNCH
WORLD INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1996
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.
<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
James H. Bodurtha, 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
<PAGE>
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
Growth in the Group of Seven (G-7) economies showed signs of a
tentative trough, attributed mostly to the dramatic rebound in the
United States in the first quarter of 1996 where gross domestic
product (GDP) registered a +2.2% gain. Although first quarter US GDP
was revised down from its +2.8% reading, the composition was strong,
as the downward revision was mostly caused by inventories, while
final sales were revised up.
The global reflationary policies in place for the last year raised
the risk of a synchronized global economic upturn. Given the higher
starting point for capacity utilization when compared to the 1993
upturn, inflationary pressures could surface more quickly, thereby
forcing central banks to raise interest rates. US second quarter
growth will be above trend but this may not entice the Federal
Reserve Board to raise interest rates since the inflation backdrop
remains benign and economic activity is expected to slow during the
second half of 1996.
In Europe, monetary reflation efforts came to a halt in Germany as
the key repurchasing rate has not moved since February 14, 1996,
although the discount rate was lowered 50 basis points (0.50%) on
April 18, 1996 to 2.5%. The Bundesbank provided itself with enough
flexibility to cut interest rates further, if needed, while it
watches the development of accelerating money growth and the bounce
in economic activity from the weather-depressed first quarter. While
first quarter German GDP confirmed a recession since the third
quarter of 1995, economic strength in March and April showed hints
of sustainability.
In other parts of Europe, the United Kingdom is showing clear signs
of recovery in domestic demand, and French consumers are fading
after a strong start, while Denmark's consumers remain confident
amidst a soft manufacturing sector. Unfortunately, Sweden and Italy
are weakening quickly, reflecting the weakness in overall Europe
compounded by the rapid appreciation of their currencies since early
1995.
<PAGE>
Leading indicators of activity, mainly labor force data, continued
to point to a gradual slowing in the Australian economy, while first
quarter inflation data confirmed the peak occurred in the fourth
quarter of 1995. Canadian growth remained below potential for the
sixth consecutive quarter, but leading indicators suggest a
substantial rebound might have begun late in the first quarter. The
May 1996 Bank of Canada report strongly suggested further interest
rate cuts are likely if growth does not recover as they see
inflation well under control. Finally, the positive trend in
emerging markets continued, which allowed for the successful
completion of the first-ever exchange of Mexican Brady bonds for
uncollateralized 30-year Mexican obligations.
Investment Outlook &
Portfolio Strategy
During the quarter ended June 30, 1996, the major global markets in
the unmanaged JP Morgan Global Index experienced a positive total
return in local currency terms but with the small rise in the US
dollar, the Index generated a -1.2% return. The unmanaged Merrill
Lynch High Yield Master Index returned +1.4%, solely because of the
solid performance from B-rated credits (+1.8%) and less than B-rated
(+3.5%), while the unmanaged JP Morgan Brady Bond Index returned
+9.28%.
The best-performing developed markets continued to be in Europe,
with Italy leading the pack, largely because of the center-left
victory in the April elections, but also aided by a March inflation
figure at 4.5% versus 5.5% in January. The next best-performing
market was the United Kingdom, supported by a strong rally in June
fueled by unexpectedly good inflation data, a surprise interest rate
cut and a strong currency. Overall, Europe returned approximately
+3% in local terms, but only +1.5% in US dollar terms. In the dollar
bloc countries (Canada, Australia and New Zealand), Australian
yields were unchanged but the market posted solid gains in US dollar
terms as the Australian dollar firmed on the back of a rising US
dollar and its role as a more attractive alternative to the Canadian
and New Zealand dollars. The emerging markets continued to be the
best-performing fixed-income sector, outperforming all sectors, in
US dollar terms, except Italy.
By the end of the June quarter, the Fund's mix of dollar bloc
relative to Europe shifted slightly from 71%/29% to 70%/30% at March
31, 1996. Within the dollar bloc countries, we reduced the Fund's
high-yield portion from 46% of net assets to 36%, following the
substantial narrowing in spreads (80 basis points) from the start of
the year. Given the weak tone in all markets, most of the proceeds
remained in cash, with 1% moving into the convertible securities
arena. Finally, in the dollar bloc countries, we sold the 2%
position in Canada because of currency concerns given the
substantial narrowing in short-term interest rate spreads and
continued to move emerging market corporate exposure into Brady
bonds.
<PAGE>
In Europe, we reduced the Fund's exposure in Italy, Spain and the
United Kingdom, while adding to our investments in Germany, Denmark
and reinitiating a position in Sweden. The average portfolio
maturity declined from 7.3 years to 6.6 years. Currency movements
had a modestly negative impact on the portfolio as the Deutschemark
depreciated 5% without an offsetting rise in other European
currencies. The Australian and Canadian dollars were essentially
unchanged, although the Australian dollar hit a new 18-month high
during the quarter ended June 30, 1996.
The focus of the US market shifted more toward inflation concerns
and monetary policy given the expectations of above-trend US growth
for the June quarter and the recent increase in inflation
accompanied by more combative statements from Federal Reserve Board
members. Currently, investors are not pricing in an inflation rise
much above 3%. Given the relatively tight labor market and little
capacity, sustaining above-trend growth for more than one or two
quarters would be negative for bond prices.
Regarding currency movements, the relatively better growth outlook
for the United States coupled with a G-7 desire to see the US dollar
firm should keep a solid floor under the dollar. However, the recent
pickup in German growth needs to be monitored for sustainability, as
that could establish a ceiling for the dollar at recent year's
highs. We do not expect a formal delay in the timetable for European
Monetary Union this year; a key reason for strength in high-yield
Europe so far in 1996.
The High-Yield Market
During the quarter ended June 30, 1996, the high-yield bond market
produced a modest positive return in an environment of rising
interest rates. The yield on ten-year Treasury notes rose from 6.4%
to 6.7%, while the yield on the unmanaged Merrill Lynch High Yield
Master Index increased from 9.6% to 9.9%, and yield spreads remained
stable. Overall, the high-yield market appeared fully valued
relative to the Government market at June 30, 1996. Yield spreads
were at the narrow end of a 15-year range. The valuation reflected
the positive fundamentals, such as:
* Defaults were below normal rate for the five months of the year.
The annualized rate over the June period was 0.7%.
* Special events such as acquisitions of high-yield issuers by
investment-grade companies improved returns.
* Ready access to the equity market allowed high-yield issuers to
improve balance sheets. Both Trump Atlantic City Associates and Fort
Howard Corp., whose bonds are held in the Fund, issued equity in the
June quarter.
<PAGE>
* Cash flows into the high-yield market were strong. Mutual funds
received healthy cash flows all year, and a net of $3.5 billion in
assets during the June quarter. Other institutional investors such
as insurance companies were also net buyers.
Absolute valuation improved considerably over the course of the year
because of the significant rise in intermediate-term and long-term
interest rates. Given the cyclical pressures, interest rates
particularly at the short end of the yield curve, could continue to
rise further. This rise could be cyclical, with interest rates
falling later this year or in 1997; or secular--a longer-term or
protracted rise. We believe this rise is cyclical. Therefore, we
regard the current period as an opportunity to improve the earnings
power and/or quality of the Fund. We began to reposition the Fund
for a more favorable interest rate environment by selectively
selling short-term maturity issues with relatively tight yield
spreads to Treasury notes and reinvesting the proceeds. In addition,
we believed valuation favored reducing the high-yield portion of the
Fund modestly and shifted the composition from 40% of net assets to
36% during the June quarter. The bulk of proceeds were invested in
Treasury securities. The quality composition of high-yield assets
rose over the quarter ended June 30, 1996 reflecting more attractive
valuation in BB-rated issues. At June 30, 1996, the composition of
the high-yield sector of the Fund was: BBB-rated issues, 5% of net
assets compared to 7.6% at March 31, 1996; BB-rated issues, 54.7%,
previously 46%; and B-rated issues, 31.1% versus 36.8%.
Average portfolio maturity of the Fund's high yield sector rose from
8.5 years at March 31, 1996 to 9 years at June 30, 1996. The
convertible bond area of the fixed-income market was the best-
performing sector of the domestic fixed-income market through June
30, 1996. The unmanaged Merrill Lynch All Traditional Convertible
Index total return was +8.65%. The convertible bond portion of
Merrill Lynch World Income Fund, Inc. modestly outperformed this
Index. The movement of convertible securities is largely dictated by
the convertibles underlying common stock.
<PAGE>
Recently, the stock market showed signs of weakness. The advance/
decline lines broke their uptrends, but it is uncertain whether this
represents an intermediate correction or a long-term reversal toward
lower stock prices. While the daily advance/decline peaked
coincidentally with prices during at least one market cycle over the
past 50 years, breadth usually peaked first with an average lead
time of about one year. This leads us to believe that even if this
recent stock market weakness is the beginning of a market reversal
as opposed to a pullback in an extended advance, there should be an
upward bias to stock prices for some time, especially with the
strong momentum of this advance. We are also coming into a period of
seasonal strength as there is usually a summer rally. One area we
are watching closely is the Dow Jones Utility Average which declined
since the start of the year as the indexes rallied. This decline was
caused by the rise in interest rates since utilities are interest
sensitive stocks. Since the Average has stabilized we hope this
sector will recover soon. However, we may become more concerned
about the prospects for stocks if this Average fades again, and
substantially undercuts its lows at around the 205 level. The Dow
Jones Utility Average is usually a good early warning indicator of
impending stock market weakness. If utilities recover and breadth
and volume continue strong, it reinforces our bullish position on
stocks. If these statistics fade and the economic fundamentals
deteriorate, we will become more defensive.
The stock market's profit/earnings ratio is still only about 16
times earnings even though the Dow Jones Industrial Average advanced
several hundred points since the end of 1995, because earnings
growth matched the market rise. We still believe the market is
relatively inexpensive, based on earnings, given the current levels
of inflation and interest rates and the generally positive economic
environment. Therefore, while we recognize the deterioration in the
markets internal condition, we remain cautiously optimistic about
the market's prospect over the next several months.
Early in the June quarter we increased the Fund's weighting in
convertible securities from approximately 6.50% of net assets to 8%
at June 30, 1996.
In Conclusion
We thank you for your continued investment in Merrill Lynch World
Income Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Robert J. Parish)
Robert J. Parish
Vice President and Portfolio Manager
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
July 31, 1996
<PAGE>
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years.
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 6/30/96 +10.60% +6.18%
Five Years Ended 6/30/96 + 9.34 +8.46
Inception (9/29/88) through 6/30/96 +10.28 +9.70
[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 6/30/96 +9.75% +5.75%
Inception (11/18/91) through 6/30/96 +6.88 +6.88
[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 6/30/96 +9.68% +8.68%
Inception (10/21/94) through 6/30/96 +9.35 +9.35
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +10.32% +5.91%
Inception (10/21/94) through 6/30/96 + 9.99 +7.37
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/29/88--12/31/88 $9.35 $9.68 $0.001 $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
1995 8.20 8.69 -- 0.718 +15.35
1/1/96--6/30/96 8.69 8.64 -- 0.326 + 3.37
------ ------
Total $0.050 Total $7.503
Cumulative total return as of 6/30/96: +113.55%**
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <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
1995 8.19 8.69 -- 0.653 +14.61
1/1/96--6/30/96 8.69 8.63 -- 0.294 + 2.86
------ ------
Total $0.047 Total $3.304
Cumulative total return as of 6/30/96: +35.96%***
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.42 $8.19 -- $0.129 - 1.20%
1995 8.19 8.68 -- 0.645 +14.38
1/1/96--6/30/96 8.68 8.63 -- 0.292 + 2.95
------
Total $1.066
Cumulative total return as of 6/30/96: +16.34%***
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.43 $8.20 -- $0.139 - 1.09%
1995 8.20 8.69 -- 0.697 +15.06
1/1/96--6/30/96 8.69 8.64 -- 0.316 + 3.24
------
Total $1.152
Cumulative total return as of 6/30/96: +17.50%**
<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 distribution, 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.
***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>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
6/30/96 3/31/96 6/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.64 $8.64 $8.47 + 2.01% +0.00%
Class B Shares* 8.63 8.63 8.46 + 2.01 +0.00
Class C Shares* 8.63 8.63 8.46 + 2.01 +0.00
Class D Shares* 8.64 8.64 8.47 + 2.01 +0.00
Class A Shares--Total Return* +10.60(1) +1.96(2)
Class B Shares--Total Return* + 9.75(3) +1.76(4)
Class C Shares--Total Return* + 9.68(5) +1.75(6)
Class D Shares--Total Return* +10.32(7) +1.89(8)
Class A Shares--Standardized 30-day Yield 7.35%
Class B Shares--Standardized 30-day Yield 6.89%
Class C Shares--Standardized 30-day Yield 6.83%
Class D Shares--Standardized 30-day Yield 7.10%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.698 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.167 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.631 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.151 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.625 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.149 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.676 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.162 per share ordinary
income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
AFRICA Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
South Metals & US$ 1,000,000 Samancor Ltd., 7% due 6/30/2004 $ 965,000 $ 975,000 0.1%
Africa Mining
Total Investments in South
African Convertible Bonds 965,000 975,000 0.1
Fixed-Income Investments
Liberia Transportation 10,000,000 Viking Star Shipping Co.,
9.625% due 7/15/2003 10,028,437 10,150,000 0.7
Total Fixed-Income Investments
in Liberia 10,028,437 10,150,000 0.7
Total Investments in African
Securities 10,993,437 11,125,000 0.8
LATIN AMERICA &
THE CARIBBEAN Fixed-Income Investments
Argentina Communications 10,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004 9,800,800 10,725,000 0.8
Foreign 3,000,000 Republic of Argentina, Brady Par Bonds,
Government 5.25% due 3/31/2023 1,585,896 1,646,250 0.1
Obligations 13,860,000 Republic of Argentina, Par Bonds,
6.312% due 3/31/2005 10,748,925 10,828,125 0.8
-------------- -------------- ------
12,334,821 12,474,375 0.9
Total Fixed-Income Investments
in Argentina 22,135,621 23,199,375 1.7
Brazil Foreign Government 5,412,168 Republic of Brazil, C Bonds,
Obligations 8% due 4/15/2014 3,286,609 3,328,483 0.2
Total Fixed-Income Investments
in Brazil 3,286,609 3,328,483 0.2
Colombia Energy 5,000,000 Oleoducts Central S.A.,
9.35% due 9/01/2005 (h) 5,000,000 4,850,000 0.4
Utilities 10,000,000 Transgas de Occidente S.A.,
9.79% due 11/01/2010 (h) 10,137,500 9,512,500 0.7
Total Fixed-Income Investments
in Colombia 15,137,500 14,362,500 1.1
<PAGE>
Ecuador Foreign Government 2,000,000 Ecuador, Government Brady Bonds,
Obligations 6.062% due 2/28/2025 1,135,063 1,125,000 0.1
4,165,080 Ecuador, PDI Bonds, 6.062% due
2/27/2015 1,884,699 1,853,461 0.1
Total Fixed-Income Investments
in Ecuador 3,019,762 2,978,461 0.2
Mexico Broadcasting Grupo Televisa S.A.:
& Publishing 5,000,000 11.375% due 5/15/2003 (h) 5,040,625 5,050,000 0.4
5,000,000 12.908%* due 5/15/2008 2,737,508 2,662,500 0.2
-------------- -------------- ------
7,778,133 7,712,500 0.6
Financial Services 5,000,000 Huites Trust/BNCE, 11.25%
due 5/30/2006 (h) 4,958,850 4,950,000 0.4
Foreign Government 9,000,000 United Mexican States, Brady Par
Obligations Bonds, 6.25% due 12/31/2019 5,744,965 5,818,750 0.4
Pound 10,000,000 United Mexican States, Government
Sterling Bonds, 12.25% due 12/03/1998 17,422,208 16,265,580 1.2
US$ 9,000,000 United Mexican States, Value
Recovery Rights (f) 0 9 0.0
-------------- -------------- ------
23,167,173 22,084,339 1.6
Total Fixed-Income Investments
in Mexico 35,904,156 34,746,839 2.6
Netherlands Food & Beverage 14,000,000 Del Monte Corp., 10% due 5/01/2003 14,004,063 12,950,000 0.9
Antilles
Total Fixed-Income Investments in
the Netherlands Antilles 14,004,063 12,950,000 0.9
Venezuela Foreign Government 12,000,000 Republic of Venezuela, Floating Rate
Obligations Brady Bonds, 6.625% due 12/18/2007 8,315,000 8,445,000 0.6
Total Fixed-Income Investments in
Venezuela 8,315,000 8,445,000 0.6
Total Investments in Latin American
& Caribbean Securities 101,802,711 100,010,658 7.3
<PAGE>
NORTH
AMERICA
Canada Broadcasting/Cable 10,000,000 Videotron Group, Ltd. Co., 10.25%
due 10/15/2002 10,043,750 10,350,000 0.8
Chemicals 10,000,000 Veridian, Inc., 9.75% due 4/01/2003 10,048,250 10,275,000 0.8
Energy 10,000,000 Gulf Canada Resources Ltd.,
9% due 8/15/1999 9,158,438 10,000,000 0.7
Paper 10,000,000 Doman Industries Ltd., 8.75%
due 3/15/2004 9,300,000 9,000,000 0.6
Total Fixed-Income Investments
in Canada 38,550,438 39,625,000 2.9
United Airlines 7,100,000 United Air Pass-Through, 10.125%
States due 3/22/2015 7,684,046 8,172,029 0.6
15,000,000 USAir Inc., 10.375% due 3/01/2013 15,000,000 15,018,750 1.1
-------------- -------------- ------
22,684,046 23,190,779 1.7
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc.,
10.50% due 6/15/2006 (h) 9,922,100 10,050,000 0.7
Building Materials 10,000,000 Pacific Lumber Co., 10.50%
due 3/01/2003 10,140,625 9,700,000 0.7
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 10,814,300 0.8
-------------- -------------- ------
19,858,094 20,514,300 1.5
Chemicals G-I Holdings, Inc.:
10,853,000 9.24%* due 10/01/1998 8,457,611 8,709,532 0.6
10,340,000 10% due 2/15/2006 (h) 10,701,900 10,184,900 0.8
-------------- -------------- ------
19,159,511 18,894,432 1.4
Conglomerates 10,000,000 Coltec Industries Inc.,
10.25% due 4/01/2002 10,332,500 10,150,000 0.7
10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 9,600,000 0.7
-------------- -------------- ------
20,247,500 19,750,000 1.4
Consumer Products 10,000,000 Revlon Consumer Products Corp.,
9.375% due 4/01/2001 8,836,151 9,800,000 0.7
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Value Percent of
(continued) Industries Face Amount Fixed-Income Securities Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
United Energy US$ 10,000,000 Clark R & M Holdings, Inc., 10.43%*
States due 2/15/2000 $ 6,885,208 $ 6,862,500 0.5%
(concluded) 9,100,000 Maxus Energy Corp., 9.875%
due 10/15/2002 9,086,800 9,054,500 0.7
10,000,000 Rowan Companies, Inc.,
11.875% due 12/01/2001 10,402,500 10,750,000 0.8
15,000,000 Seagull Energy Corp., 8.625%
due 8/01/2005 15,000,000 14,100,000 1.0
12,500,000 TransTexas Gas Corp., 11.50%
due 6/15/2002 12,496,125 12,437,500 0.9
-------------- -------------- ------
53,870,633 53,204,500 3.9
Entertainment 20,280,000 Marvel Holdings Inc., 10.55%*
due 4/15/1998 16,418,464 16,224,000 1.2
5,000,000 Spectravision Inc., 10.92%*
due 10/01/2001 (g) 4,410,496 2,700,000 0.2
-------------- -------------- ------
20,828,960 18,924,000 1.4
Financial Services 15,000,000 KFW International Finance Inc., 7.50%
due 4/21/2005 15,228,000 15,337,500 1.2
10,000,000 Penn Financial Corp., 9.25%
due 12/15/2003 10,000,000 9,825,000 0.7
10,000,000 Reliance Group Holdings, Inc., 9%
due 11/15/2000 10,000,000 9,900,000 0.7
-------------- -------------- ------
35,228,000 35,062,500 2.6
Food & Beverage 5,000,000 Coca-Cola Bottling Co., 9%
due 11/15/2003 5,005,000 4,900,000 0.4
10,000,000 Specialty Foods Corp., 10.25%
due 8/15/2001 10,000,000 9,300,000 0.7
-------------- -------------- ------
15,005,000 14,200,000 1.1
Gaming 1,906,000 Goldriver Hotel & Casino Corp.,
13.375% due 8/31/1999 2,645,548 1,038,770 0.1
10,000,000 Greate Bay Properties, Inc., 10.875%
due 1/15/2004 9,996,250 9,000,000 0.6
7,500,000 Harrah's Jazz Co., 14.25% due
11/15/2001 5,178,125 3,750,000 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 10,100,000 0.7
5,000,000 Trump Atlantic City Associates,
11.25% due 5/01/2006 5,043,750 5,025,000 0.4
-------------- -------------- ------
32,612,423 28,913,770 2.1
<PAGE>
Home Builders Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 9,550,625 0.7
3,500,000 9.75% due 3/01/2003 3,472,455 3,325,000 0.2
Ryland Group, Inc.:
9,000,000 10.50% due 7/15/2002 8,907,530 8,685,000 0.7
1,250,000 9.625% due 6/01/2004 1,178,125 1,181,250 0.1
-------------- -------------- ------
22,934,985 22,741,875 1.7
Hotels 10,000,000 HMC Acquisition Properties, 9%
due 12/15/2007 9,346,250 9,100,000 0.7
Packaging 10,000,000 Owens-Illinois, Inc., 11%
due 12/01/2003 11,401,563 10,750,000 0.8
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 9,825,000 0.7
10,000,000 Fort Howard Corp., 9% due 2/01/2006 10,007,500 9,600,000 0.7
10,000,000 Stone Container Corp., 9.875%
due 2/01/2001 9,317,650 9,700,000 0.7
-------------- -------------- ------
29,525,150 29,125,000 2.1
Restaurants 12,000,000 Flagstar Corp., 11.375%
due 9/15/2003 11,640,000 8,040,000 0.6
Supermarkets 15,000,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 15,111,875 13,500,000 1.0
Textiles 10,000,000 WestPoint Stevens Inc., 8.75%
due 12/15/2001 10,093,750 9,875,000 0.7
US Government 47,000,000 US Treasury Bonds, 6.875%
Obligations due 8/15/2025 50,084,062 46,522,480 3.4
21,400,000 US Treasury Notes, 6.50% due
8/15/2005 20,944,293 21,092,268 1.6
-------------- -------------- ------
71,028,355 67,614,748 5.0
Utilities 9,848,000 Beaver Valley II Funding, 9%
due 6/01/2017 7,262,900 8,038,233 0.6
4,000,000 CTC Mansfield Funding Corp.,
11.125% due 9/30/2016 4,301,250 4,100,480 0.3
Midland Cogeneration Venture
Limited Partnership:
8,224,404 10.33% due 7/23/2002 (b) 8,059,916 8,553,380 0.6
10,000,000 13.25% due 7/23/2006 11,183,750 10,726,300 0.8
9,100,000 Tucson Electric & Power Co.,
10.732% due 1/01/2013 (h) 8,713,250 8,462,272 0.6
-------------- -------------- ------
39,521,066 39,880,665 2.9
Total Fixed-Income Investments
in the United States 478,855,412 463,131,569 34.0
Convertible Bonds
<PAGE>
Canada Industrial 1,000,000 Laidlaw Inc., 6% due 1/15/1999 1,263,130 1,245,000 0.1
Services
Metals & Mining 500,000 Inco Ltd., 5.75% due 7/01/2004 525,375 627,500 0.0
Paper 2,000,000 Repap Enterprises Inc., 8.50%
due 8/01/1997 2,095,024 1,932,500 0.2
-------------- -------------- ------
2,620,399 2,560,000 0.2
Total Investments in Canadian
Convertible Bonds 3,883,529 3,805,000 0.3
United Airlines 515,000 Air Wis Services, Inc., 7.75%
States due 6/15/2010 466,229 477,019 0.0
Building 800,000 Continental Homes Holding Corp.,
& Construction 6.875% due 11/01/2002 800,000 856,000 0.1
1,500,000 Toll Brothers Inc., 4.75%
due 1/15/2004 1,500,000 1,455,000 0.1
1,000,000 US Home Corp., 4.875% due 11/01/2005 991,000 886,250 0.1
-------------- -------------- ------
3,291,000 3,197,250 0.3
Computers 4,000,000 Apple Computer, Inc., 6%
due 6/01/2001 (h) 4,000,000 3,810,000 0.3
2,500,000 Data General Corp., 7.75%
due 6/01/2001 2,479,375 2,462,500 0.2
1,000,000 Storage Technology Corp., 8%
due 5/31/2015 1,132,500 1,182,500 0.1
-------------- -------------- ------
7,611,875 7,455,000 0.6
Conglomerates Polyphase Corp.:
500,000 12% due 12/01/1997 (h) 500,000 462,500 0.0
2,000,000 12% due 7/01/1999 2,000,000 1,670,000 0.1
2,000,000 Thermo Electron Corp., 4.25%
due 1/01/2003 (h) 2,000,000 2,460,000 0.2
-------------- -------------- ------
4,500,000 4,592,500 0.3
Electronics 1,500,000 Park Electrochemical Corporation,
5.50% due 3/01/2006 1,487,750 1,198,125 0.1
1,500,000 Thermaquest Corp., 5%
due 8/15/2000 (h) 1,500,000 1,635,000 0.1
1,500,000 Thermo Optik Corp., 5%
due 10/15/2000 (h) 1,500,000 1,631,250 0.1
-------------- -------------- ------
4,487,750 4,464,375 0.3
</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> <S> <C> <S> <C> <C> <C>
United Environ- US$ 1,063,000 Thermo TerraTech, Inc., 4.625%
States mental due 5/01/2003 (h) $ 1,114,735 $ 1,063,000 0.1%
(concluded)
Food & Beverage 2,250,000 Boston Chicken Inc., 4.50%
due 2/01/2004 2,250,000 2,705,625 0.2
Healthcare 1,500,000 Integrated Health Services
Inc., 5.75% due 1/01/2001 1,493,750 1,485,000 0.1
1,000,000 US Diagnostic Labs, Inc., 9%
due 3/31/2003 (h) 1,000,000 1,465,000 0.1
-------------- -------------- ------
2,493,750 2,950,000 0.2
Industrial 500,000 Mascotech, Inc., 4.50% due 12/15/2003 500,000 395,000 0.0
140,000 Recognition Equipment International,
Inc., 7.25% due 4/15/2011 103,600 120,400 0.0
-------------- -------------- ------
603,600 515,400 0.0
Insurance 1,075,000 American Travelers Corp., 6.50%
due 10/01/2025*** 1,234,500 1,683,719 0.1
2,000,000 Statesman Group, Inc. (The), 6.25%
due 5/01/2003 2,060,000 2,060,000 0.2
-------------- -------------- ------
3,294,500 3,743,719 0.3
Machine-- 1,500,000 Cooper Industries, Inc., 7.05%
Diversified due 1/01/2015 1,474,999 1,597,500 0.1
Mining 2,000,000 Coeur d'Alene Mines Corp.,
6.375% due 1/31/2004 (h)*** 1,916,550 1,960,000 0.1
Office Equipment 1,000,000 US Office Products Co., 5.50%
due 5/15/2003 (h) 1,000,000 965,000 0.1
Oil--Domestic 5,000,000 Key Energy Group, Inc., 7%
due 7/01/2003 5,000,000 5,000,000 0.4
4,750,000 USX Corp., 7% due 6/15/2017 4,184,150 4,465,000 0.3
2,080,000 Wainoco Oil Corp., 7.75% due
6/01/2014 1,880,352 1,643,200 0.1
-------------- -------------- ------
11,064,502 11,108,200 0.8
Paper 800,000 Sappi Ltd., 7.50% due 8/01/2002 (h) 800,000 742,000 0.1
Pharmaceuticals 2,600,000 Bindley Western Industries, Inc.,
6.50% due 10/01/2002 2,563,000 2,626,000 0.2
2,000,000 IVAX Corp., 6.50% due 11/15/2001 1,897,500 1,867,500 0.1
-------------- -------------- ------
4,460,500 4,493,500 0.3
<PAGE>
Publishing/Printing 2,150,000 Graphic Industries, Inc., 7%
due 5/15/2006 1,899,375 1,935,000 0.1
Real Estate 1,720,000 Pacific Gulf Properties, Inc.,
Investment Trust 8.375% due 2/15/2001 1,513,262 1,720,000 0.1
Retail 200,000 Baby Superstores Inc., 4.875%
due 10/01/2000 200,000 156,500 0.0
825,000 Baker (J.) Inc., 7% due 6/01/2002 824,527 664,125 0.0
1,000,000 Michaels Stores, Inc., 6.75%
due 1/15/2003 1,016,000 850,000 0.1
750,000 Williams-Sonoma, Inc., 5.25%
due 4/15/2003 (h) 750,000 796,875 0.1
-------------- -------------- ------
2,790,527 2,467,500 0.2
Technology 1,000,000 Broadband Technologies, Inc.,
5% due 5/15/2001 (h) 1,000,000 982,500 0.1
500,000 Safeguard Scientifics, Inc., 6%
due 2/01/2006 (h) 500,000 678,750 0.1
-------------- -------------- ------
1,500,000 1,661,250 0.2
Telecommunications 3,525,000 Intelcom Group Inc., 7%
due 10/30/1998 (a)(h)*** 3,484,312 4,849,138 0.4
Temporary Help 6,375,000 Quantum Health Resources, Inc.,
Services 4.75% due 10/01/2000 (i) 5,956,562 5,737,500 0.4
Textiles 1,025,000 Fieldcrest Cannon, Inc., 6%
due 3/15/2012 763,625 812,312 0.1
Transportation 300,000 Varlen Corp., 6.50% due 6/01/2003 297,000 324,000 0.0
Products
Total Investments in
United States Convertible Bonds 69,034,653 71,536,788 5.3
Convertible Preferred Stocks,
Preferred Stocks,
Shares Held Common Stocks & Warrants
<PAGE>
United Banking & Finance 38,300 Rochester Community Savings Bank,
States $1.75 (Series B) 1,100,014 1,532,000 0.1
50,200 Union Planters Corp., Pfd. $2.00 1,775,655 1,907,600 0.1
-------------- -------------- ------
2,875,669 3,439,600 0.2
Electronics 120,054 Rexel S.A. (g) 1,201,065 1,695,763 0.1
Distributor
Entertainment 10,256 Time Warner, Inc. (Series K),
Pfd. (a)(h) 10,183,900 9,871,400 0.7
Environmental 35,200 Allied Waste Industries, Inc.,
$90 Conv. Pfd. (e)(h)*** 3,520,401 6,300,800 0.5
Food & Beverage 465,500 RJR Nabisco, Inc., Pfd. $.60
(Series C) 3,021,638 3,025,750 0.2
Forest Products 38,400 James River Corp. of Virginia 1,691,441 1,800,000 0.1
& Paper 65,000 James River Corp. of Virginia
(Series P), Conv. Pfd. 1,562,025 1,641,250 0.1
22,400 James River Corp. of Virginia, $3.375
(Series K), Conv. Pfd. 1,007,686 1,024,800 0.1
-------------- -------------- ------
4,261,152 4,466,050 0.3
Gaming 75,000 Goldriver Hotel & Casino Corp.,
Liquidating Trust (h) 75,000 26,719 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B) (d)(g) 219,738 0 0.0
-------------- -------------- ------
294,738 26,719 0.0
Hotels 1,608 Buckhead America Corp. (g) 8,291 9,849 0.0
Industrial Services 113,000 Albany International Corp. (Class A) 2,146,773 2,556,625 0.2
20,000 Mascotech, Inc., Pfd $1.20 312,460 300,000 0.0
10,000 UGI Corp. (Warrants) (c) 43,750 2,000 0.0
-------------- -------------- ------
2,502,983 2,858,625 0.2
Insurance 163,141 Kemper Corp., Pfd. $5.25
(Series E) (h) 8,349,078 8,748,436 0.6
1,500 Westbridge Capital Corp., Pfd. 1,500,000 1,387,500 0.1
-------------- -------------- ------
9,849,078 10,135,936 0.7
Mining 50,000 Coeur d'Alene Mines Corp., Pfd.*** 1,062,500 987,500 0.1
Oil & Gas 18,000 Callon Petroleum Co. 450,000 571,500 0.0
43,000 Snyder Oil Corp., Pfd. $1.50 (Series A) 906,023 817,000 0.1
20,000 Western Gas Resources, Inc.,
Pfd. $2.62 1,000,000 695,000 0.1
-------------- -------------- ------
2,356,023 2,083,500 0.2
<PAGE>
Transportation 44,000 Sea Containers Ltd., Conv. Pfd. $4.00 2,009,213 2,068,000 0.2
Total Investments in United States
Convertible Preferred Stocks,
Preferred Stocks, Common Stocks
& Warrants 43,146,651 46,969,492 3.4
Total Investments in North American
Securities 633,470,683 625,067,849 45.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC Value Percent of
BASIN Industries Face Amount Fixed Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Australia Foreign A$ 93,500,000 Australia Government Bonds,
Government 8.75% due 1/15/2001 $ 74,508,579 $ 74,108,859 5.4%
Obligations 32,800,000 Queensland Treasury Corp.,
8% due 8/14/2001 25,300,151 25,003,069 1.8
Total Fixed-Income Investments
in Australia 99,808,730 99,111,928 7.2
Indonesia Paper US$ 5,000,000 P.T. Indah Kiat International
Finance, 12.50% due 6/15/2006 5,025,000 5,300,000 0.4
Total Fixed-Income Investments
in Indonesia 5,025,000 5,300,000 0.4
Philippines Banking 1,000,000 Central Bank of the Philippines,
6.25% due 12/01/2017 780,000 796,250 0.1
Total Fixed-Income Investments
in the Philippines 780,000 796,250 0.1
Total Investments in Pacific
Basin Securities 105,613,730 105,208,178 7.7
<PAGE>
WESTERN
EUROPE
Bulgaria Foreign 3,000,000 Bulgaria, Floating Rate Brady Bonds,
Government 6.75% due 7/28/2011 1,368,125 1,425,000 0.1
Obligations
Total Fixed-Income Investments in
Bulgaria 1,368,125 1,425,000 0.1
Denmark Foreign Denmark Government Bonds:
Government Dkr 226,000,000 8% due 5/15/2003 41,463,328 40,932,139 3.0
Obligations 361,770,000 8% due 3/15/2006 66,009,269 64,207,695 4.7
Total Fixed-Income Investments in
Denmark 107,472,597 105,139,834 7.7
Germany Banking DM 20,000,000 Deutsche Pfandbriefe Bank, 5.625%
due 2/07/2003 13,401,519 12,737,672 0.9
Consumer US$ 5,000,000 Tarkett International,
Products 9% due 3/01/2002 5,000,000 5,056,250 0.4
Foreign DM 12,500,000 German Unity Fund, 8%due 1/21/2002 9,845,040 9,066,404 0.7
Government Treuhandanstalt:
Obligations 60,000,000 7.125% due 1/29/2003 42,543,606 41,676,529 3.1
11,000,000 6.625% due 7/09/2003 7,377,177 7,405,654 0.5
-------------- -------------- ------
59,765,823 58,148,587 4.3
Total Fixed-Income Investments
in Germany 78,167,342 75,942,509 5.6
Italy Foreign Lit 50,500,000,000 Buoni Poliennali del Tesoro
Government (Italian Government Bonds),
Obligations 9.50% due 2/01/2001 34,044,607 34,049,242 2.5
Total Fixed-Income Investments
in Italy 34,044,607 34,049,242 2.5
Poland Foreign US$ 1,000,000 Polish Government Brady Bonds,
Government 6.437% due 10/27/2024 863,750 926,250 0.1
Obligations 5,000,000 Polish PDI Bonds, 3.75% due
10/27/2014 3,600,625 3,837,500 0.3
Total Fixed-Income Investments
in Poland 4,464,375 4,763,750 0.4
<PAGE>
Spain Foreign Pta 7,420,000,000 Government of Spain, 11.30%
Government due 1/15/2002 65,520,582 65,378,535 4.8
Obligations
Total Fixed-Income Investments
in Spain 65,520,582 65,378,535 4.8
Sweden Foreign Skr 299,000,000 Government of Sweden, 10.25%
Government due 5/05/2003 49,501,999 50,647,683 3.7
Obligations
Total Fixed-Income Investments
in Sweden 49,501,999 50,647,683 3.7
United Broadcasting/ US$ 3,000,000 Videotron Holdings PLC,
Kingdom Cable 10.82%* due 8/15/2005 1,895,783 1,912,500 0.1
Communications 20,000,000 TeleWest Communications PLC,
11.41%* due 10/01/2007 12,682,292 11,800,000 0.9
Foreign Pound 35,500,000 United Kingdom Gilt, 8.50%
Government Sterling due 12/07/2005 57,217,762 57,070,980 4.2
Obligations
Total Fixed-Income Investments
in the United Kingdom 71,795,837 70,783,480 5.2
Convertible Bonds
Ireland Dental US$ 500,000 Phoenix Shannon PLC, 9.50%
Equipment due 11/01/2000 (h) 500,000 480,000 0.0
& Supplies
Total Investments in Irish Convertible
Bonds 500,000 480,000 0.0
Total Investments in Western
European Securities 412,835,464 408,610,033 30.0
<PAGE>
SHORT-TERM
SECURITIES Issue
Commercial** US$ 20,000,000 ESC Securitization Inc.,
Paper 5.28% due 7/11/1996 19,970,667 19,970,667 1.5
12,277,000 General Electric Capital Corp.,
5.56% due 7/01/1996 12,277,000 12,277,000 0.9
30,000,000 Goldman Sachs Group L.P., 5.33% due
7/26/1996 29,888,958 29,888,958 2.2
21,275,000 Sheffield Receivables Corp., 5.32%
due 7/02/1996 21,271,856 21,271,856 1.6
-------------- -------------- ------
83,408,481 83,408,481 6.2
US Government US Treasury Bills:
& Agency 3,000,000 4.85% due 7/18/1996 2,993,129 2,994,090 0.2
Obligations** 4,000,000 5.01% due 8/01/1996 3,982,744 3,983,561 0.3
-------------- -------------- ------
6,975,873 6,977,651 0.5
Total Investments in Short-Term
Securities 90,384,354 90,386,132 6.7
Total Investments 1,355,100,379 1,340,407,850 98.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Number of Contracts/ Premiums Value Percent of
WRITTEN Face Amount Issue Received (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Call Options 9,500,000 US Treasury Note, expiring
Written July 1996 at US$99.320 $ (31,172) $ (31,169) 0.0%
Currency Call 19,875,000 Australian Dollar, expiring May
Options Written 1997 at A$0.795 (495,881) (263,920) 0.0
Total Options Written (527,053) (295,089) 0.0
Total Investments $1,354,573,326 1,340,112,761 98.4
==============
Short Sales (Proceeds--$10,950,399)*** (11,801,871) (0.9)
Variation Margin on Financial Futures Contracts**** (30,469) 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts***** 179,131 0.0
Other Assets Less Liabilities 33,748,032 2.5
-------------- ------
Net Assets $1,362,207,584 100.0%
============== ======
<FN>
*Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
**Commercial Paper 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.
***Covered Short Sales entered into as of June 30, 1996 were as
follows:
<PAGE>
<CAPTION>
Value
Shares Issue (Note 1i)
<C> <S> <C>
571,270 Allied Waste Industries, Inc. $ (5,070,021)
64,650 American Travelers Corp. (1,486,950)
19,000 Coeur d'Alene Mines Corp. (349,125)
195,831 Intelcom Group Inc. (4,895,775)
Total (Proceeds--$10,950,399) $(11,801,871)
============
****Financial futures contracts sold as of June 30, 1996 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1c)
<C> <S> <S> <C>
75 US Treasury Bonds September 1996 $ (8,214,844)
Total Financial Futures Contracts Sold
(Total Contract Price--$8,184,375) $ (8,214,844)
============
*****Forward foreign exchange contracts as of June 30, 1996 were as follows:
<CAPTION>
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1c)
<C> <S> <C>
DM 89,369,540 July 1996 $ 252,314
Total (US$ Commitment--$58,528,471) $ 252,314
Foreign Currency Sold
DM 30,671,000 July 1996 $ (73,183)
Total (US$ Commitment--$20,108,984) $ (73,183)
------------
Total Unrealized Appreciation on
ForwardForeign Exchange Contracts--Net $ 179,131
============
<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)Each unit consists of 10 shares of Allied Waste Industries, Inc.
(f)The rights may be exercised until 2/06/2001.
(g)Non-income producing security.
(h)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $101,988,000,
representing 7.5% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Allied Waste Industries, Inc., 9/23/1993-
$90 Conv. Pfd. 10/06/1994 $ 3,520,401 $ 6,300,800
Apple Computer, Inc., 6/07/1996-
6% due 6/01/2000 7/23/1996 4,000,000 3,810,000
Broadband Technologies, Inc., 6/04/1996-
5% due 5/15/2001 7/09/1996 1,000,000 982,500
Coeur d'Alene Mines Corp.,
6.375% due 1/31/2004 1/19/1994 1,916,550 1,960,000
G-I Holdings Inc.,
10% due 2/15/2006 10/05/1993 10,701,900 10,184,900
Goldriver Hotel & Casino 5/04/1989-
Corp. Liquidating Trust 10/07/1993 75,000 26,719
Grupo Televisa S.A., 5/13/1996-
11.375% due 5/15/2003 5/28/1996 5,040,625 5,050,000
Huites Trust/BNCE,
11.25% due 5/30/2006 5/30/1996 4,958,850 4,950,000
Intelcom Group Inc., 11/01/1993-
7% due 10/30/1998 4/30/1996 3,484,312 4,849,138
Kemper Corp., Pfd. $5.25 4/04/1995-
(Series E) 4/01/1996 8,349,078 8,748,436
Lenfest Communications,
Inc., 10.50% due 6/15/2006 6/27/1996 9,922,100 10,050,000
Oleoducts Central S.A.,
9.35% due 9/01/2005 6/28/1995 5,000,000 4,850,000
Phoenix Shannon PLC,
9.50% due 11/01/2000 11/21/1995 500,000 480,000
<PAGE>
Polyphase Corp.,
12% due 12/01/1997 12/05/1995 500,000 462,500
Safeguard Scientifics, Inc.,
6% due 2/01/2006 7/22/1996 500,000 678,750
Sappi Ltd., 7.50% due
8/01/2002 7/19/1995 800,000 742,000
Thermaquest Corp., 5% due
8/15/2000 7/20/1995 1,500,000 1,635,000
Thermo Electron Corp.,
4.25% due 1/01/2003 11/28/1995 2,000,000 2,460,000
Thermo Optik Corp.,
5% due 10/15/2000 9/28/1995 1,500,000 1,631,250
Thermo TerraTech, Inc.,
4.625% due 5/01/2003 5/02/1996 1,114,735 1,063,000
Time Warner, Inc. 5/13/1996-
(Series K), Pfd. 6/07/1996 10,183,900 9,871,400
Transgas del Occidente S.A., 11/10/1995-
9.79% due 11/01/2010 2/21/1996 10,137,500 9,512,500
Tucson Electric & Power Co.,
10.732% due 1/01/2013 8/03/1993 8,713,250 8,462,272
US Diagnostic Labs, Inc.,
9% due 3/31/2003 4/03/1996 1,000,000 1,465,000
US Office Products Co.,
5.50% due 5/15/2003 5/22/1996 1,000,000 965,000
Williams-Sonoma, Inc.,
5.25% due 4/15/2003 4/10/1996 750,000 796,875
Total $98,168,201 $101,988,040
=========== ============
(i)Quantum Health Resources, Inc. is convertible into Olsten Corp.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,355,100,379) (Note 1a) $1,340,407,850
Cash 1,642,474
Foreign cash (Note 1d) 4,967,759
Unrealized appreciation on forward foreign exchange
contracts (Note 1c) 179,131
Receivables:
Securities sold $ 126,156,301
Interest 30,517,148
Short sales (Note 1i) 10,950,399
Forward foreign exchange contracts (Note 1c) 857,025
Dividends 405,972
Capital shares sold 288,210
Options written (Notes 1a & 1c) 31,172 169,206,227
--------------
Prepaid registration fees and other assets (Note 1g) 115,162
--------------
Total assets 1,516,518,603
--------------
<PAGE>
Liabilities: Common stocks sold short, at market value (proceeds--$10,950,399)
(Note 1i) 11,801,871
Options written, at value (premiums received--$527,053)
(Notes 1a & 1c) 295,089
Payables:
Securities purchased 135,027,903
Capital shares redeemed 3,568,715
Dividends to shareholders (Note 1h) 1,637,007
Distributor (Note 2) 650,692
Investment adviser (Note 2) 629,134
Variation margin (Note 1c) 30,469
Forward foreign exchange contracts (Note 1c) 1,900 141,545,820
--------------
Accrued expenses and other liabilities 668,239
--------------
Total liabilities 154,311,019
--------------
Net Assets: Net assets $1,362,207,584
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000
Consist of: shares authorized $ 2,643,020
Class B Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 12,911,939
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 89,359
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 133,599
Paid-in capital in excess of par 1,428,785,049
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 6) (67,175,179)
Unrealized depreciation on investments and foreign currency
transactions--net (15,180,203)
--------------
Net assets $1,362,207,584
==============
Net Asset Class A--Based on net assets of $228,307,698 and 26,430,201 shares
Value: outstanding $ 8.64
==============
Class B--Based on net assets of $1,114,652,067 and 129,119,385 shares
outstanding $ 8.63
==============
Class C--Based on net assets of $7,707,629 and 893,594 shares
outstanding $ 8.63
==============
Class D--Based on net assets of $11,540,190 and 1,335,988 shares
outstanding $ 8.64
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1996
<S> <S> <C> <C>
Investment Interest and discount earned (net of $459,143 withholding tax) $ 60,741,585
Income
(Notes 1e & 1f): Dividends 1,117,212
--------------
Total income 61,858,797
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 4,390,931
Investment advisory fees (Note 2) 4,285,150
Transfer agent fees--Class B (Note 2) 724,539
Printing and shareholder reports 134,083
Transfer agent fees--Class A (Note 2) 127,776
Custodian fees 124,202
Accounting services (Note 2) 89,755
Professional fees 60,523
Registration fees (Note 1g) 54,621
Account maintenance and distribution fees--Class C (Note 2) 26,116
Directors' fees and expenses 24,977
Account maintenance fees--Class D (Note 2) 11,711
Transfer agent fees--Class D (Note 2) 4,943
Pricing fees 4,941
Transfer agent fees--Class C (Note 2) 4,194
Short sale of dividends (Note 1i) 2,850
Other 17,841
--------------
Total expenses 10,089,153
--------------
Investment income--net 51,769,644
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 20,183,589
(Loss) on Foreign currency transactions--net (2,314,801) 17,868,788
Investments & Change in unrealized appreciation/depreciation on:
Foreign Currency Investments--net (27,062,625)
Transactions--Net Foreign currency transactions--net 125,383 (26,937,242)
(Notes 1c, 1d, -------------- --------------
1f & 3): Net realized and unrealized loss on investments and foreign
currency transactions (9,068,454)
--------------
Net Increase in Net Assets Resulting from Operations $ 42,701,190
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 51,769,644 $ 128,796,717
Realized (gain) loss on investments and foreign currency
transactions--net 17,868,788 (49,514,841)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (26,937,242) 144,343,205
-------------- --------------
Net increase in net assets resulting from operations 42,701,190 223,625,081
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (9,522,558) (18,898,095)
Shareholders Class B (41,655,441) (81,220,841)
(Note 1h): Class C (230,322) (203,152)
Class D (357,830) (179,224)
Return of capital:
Class A -- (5,320,682)
Class B -- (22,867,399)
Class C -- (57,196)
Class D -- (50,460)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (51,766,151) (128,797,049)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (143,155,180) (384,702,641)
(Note 4): -------------- --------------
Net Assets: Total decrease in net assets (152,220,141) (289,874,609)
Beginning of period 1,514,427,725 1,804,302,334
-------------- --------------
End of period $1,362,207,584 $1,514,427,725
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
The following per share data
and ratios have been derived For the For the
from information provided in Six Months Four Months For the
the financial statements. Ended For the Year Ended Ended Year Ended
June 30, December 31, Dec. 31, August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994++ 1993 1992 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.69 $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .33 .72 .72 .75 .29 .99
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.05) .49 (1.09) .46 (.41) .40
-------- -------- -------- -------- -------- --------
Total from investment operations .28 1.21 (.37) 1.21 (.12) 1.39
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.33) (.56) (.45) (.58) (.35) (1.12)
Realized gain on investments--net -- -- -- (.03) (.02) --
Return of capital--net -- (.16) (.26) (.17) -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.33) (.72) (.71) (.78) (.37) (1.12)
======== ======== ======== ======== ======== ========
Net asset value, end of period $ 8.64 $ 8.69 $ 8.20 $ 9.28 $ 8.85 $ 9.34
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 3.37%+++ 15.35% (4.05%) 14.12% (1.26%)+++ 16.09%
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses .78%* .80% .77% .78% .76%* .88%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 7.86%* 8.54% 8.17% 8.22% 8.09%* 11.16%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $228,308 $260,806 $311,181 $467,625 $455,672 $526,631
======== ======== ======== ======== ======== ========
Portfolio turnover 106.40% 116.00% 115.95% 182.88% 68.42% 76.18%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
The following per share data
and ratios have been derived For the For the
from information provided in Six Months Four Months For the
the financial statements. Ended For the Year Ended Ended Year Ended
June 30, December 31, Dec. 31, August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994++ 1993 1992 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 8.69 $ 8.19 $ 9.28 $ 8.85 $ 9.33 $ 9.26
Performance: ---------- ---------- ---------- ---------- ---------- ----------
Investment income--net .29 .65 .65 .70 .27 .77
Realized and unrealized gain
(loss) on investments and
foreign currency transactions--net (.06) .50 (1.10) .44 (.40) --
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .23 1.15 (.45) 1.14 (.13) .77
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.29) (.51) (.40) (.53) (.33) (.70)
Realized gain on investments--net -- -- -- (.03) (.02) --
Return of capital--net -- (.14) (.24) (.15) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.29) (.65) (.64) (.71) (.35) (.70)
========== ========== ========== ========== ========== ==========
Net asset value, end of period $ 8.63 $ 8.69 $ 8.19 $ 9.28 $ 8.85 $ 9.33
========== ========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 2.86%+++ 14.61% (4.90%) 13.27% (1.42%)+++ 8.61%+++
Return:** ========== ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.54%* 1.56% 1.54% 1.55% 1.53%* 1.63%*
Net Assets: ========== ========== ========== ========== ========== ==========
Investment income--net 7.10%* 7.77% 7.41% 7.42% 7.08%* 8.02%*
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $1,114,652 $1,241,896 $1,490,507 $2,106,120 $1,582,270 $1,514,406
========== ========== ========== ========== ========== ==========
Portfolio turnover 106.40% 116.00% 115.95% 182.88% 68.42% 76.18%
========== ========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
Class C Class D
For the For the For the For the
The following per share data and ratios Six For the Period Six For the Period
have been derived from information Months Year Oct. 21, Months Year Oct. 21,
provided in the financial statements. Ended Ended 1994++ to Ended Ended 1994++ to
June 30, Dec. 31, Dec. 31, June 30, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994++++ 1996 1995 1994++++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 8.68 $ 8.19 $ 8.42 $ 8.69 $ 8.20 $ 8.43
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .29 .64 .10 .32 .70 .11
Realized and unrealized gain
(loss) on investments and foreign
currency transactions--net (.05) .49 (.20) (.05) .49 (.20)
-------- -------- -------- -------- -------- --------
Total from investment operations .24 1.13 (.10) .27 1.19 (.09)
-------- -------- -------- -------- -------- --------
Less dividends:
Investment income--net (.29) (.50) (.08) (.32) (.55) (.09)
Return of capital--net -- (.14) (.05) -- (.15) (.05)
-------- -------- -------- -------- -------- --------
Total dividends (.29) (.64) (.13) (.32) (.70) (.14)
======== ======== ======== ======== ======== ========
Net asset value, end of period $ 8.63 $ 8.68 $ 8.19 $ 8.64 $ 8.69 $ 8.20
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 2.95%+++ 14.38% (1.20%)+++ 3.24%+++ 15.06% (1.09%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.60%* 1.65% 1.64%* 1.03%* 1.04% 1.04%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 7.04%* 7.65% 8.00%* 7.62%* 8.23% 8.60%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 7,708 $ 5,406 $ 1,204 $ 11,540 $ 6,320 $ 1,410
======== ======== ======== ======== ======== ========
Portfolio turnover 106.40% 116.00% 115.95% 106.40% 116.00% 115.95%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. 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.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Directors.
<PAGE>
(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.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contacts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* 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.
* 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.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes 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 paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds 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 of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
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
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
discount) 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.
(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, 1995 is characterized
as a return of capital.
<PAGE>
(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.
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., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch 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 FAM 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.
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% --
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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 shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended June 30, 1996, 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 $2,107 $15,378
Class D $2,740 $28,977
For the six months ended June 30, 1996, MLPF&S received contingent
deferred sales charges of $1,125,075 and $160 relating to
transactions in Class B and Class C Shares, respectively.
During the six months ended June 30, 1996, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $2,455 for
security price quotations to compute the net asset value of the
Fund.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1996 were $1,415,750,342 and
$1,589,448,087, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of June 30, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 19,719,538 $ (14,694,307)
Short-term 11,840 1,778
Short sales (538,572) (851,472)
Options purchased 14,844 --
Options written 50,000 3
Financial futures contracts 925,939 (30,469)
------------- --------------
Total investments 20,183,589 (15,574,467)
Currency transactions:
Options purchased (871,097) --
Options written (2,685,166) 231,961
Foreign currency
transactions 5,096,876 (16,828)
Forward foreign exchange
contracts (3,855,414) 179,131
------------- --------------
Total currency transactions (2,314,801) 394,264
------------- --------------
Total $ 17,868,788 $ (15,180,203)
============= ==============
Transactions in call options written for the year ended June 30,
1996 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options
written,beginning of period -- $ --
Options written 228,518,750 2,219,294
Options closed (179,643,750) (1,661,772)
Options expired (19,500,000) (30,469)
------------- --------------
Outstanding call options
written,end of period 29,375,000 $ 527,053
============= ==============
<PAGE>
Transactions in put options written for the year ended June 30, 1996
were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
Outstanding put options written,
beginning of period 40,000,000 $ 230,028
Options written 85,000,000 581,562
Options closed (45,000,000) (274,559)
Options exercised (80,000,000) (537,031)
------------- --------------
Outstanding put options written,
end of period -- $ --
============= ==============
As of June 30, 1996, net unrealized depreciation for Federal income
tax purposes aggregated $14,692,526 of which $20,294,151 related to
appreciated securities and $34,986,677 related to depreciated
securities. The aggregate cost of investments, net premiums received
for options written, at June 30, 1996 for Federal income tax
purposes was $1,355,100,379.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $143,155,180 and $384,702,641 for the six months ended June 30,
1996 and the year ended December 31, 1995, respectively.
Transactions in shares of capital for each class were as follows:
Class A Shares for the Six Months Dollar
Ended June 30, 1996 Shares Amount
Shares sold 219,519 $ 1,904,366
Shares issued to shareholders
in reinvestment of dividends 336,125 2,908,102
------------- --------------
Total issued 555,644 4,812,468
Shares redeemed (4,135,555) (35,822,739)
------------- --------------
Net decrease (3,579,911) $ (31,010,271)
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<PAGE>
Class A Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 1,983,935 $ 16,765,904
Shares issued to shareholders
in reinvestment of dividends 896,095 7,557,191
------------- --------------
Total issued 2,880,030 24,323,095
Shares redeemed (10,831,339) (91,176,950)
------------- --------------
Net decrease (7,951,309) $ (66,853,855)
============= ==============
Class B Shares for the Six Months Dollar
Ended June 30, 1996 Shares Amount
Shares sold 5,742,322 $ 49,867,656
Shares issued to shareholders
in reinvestment of dividends 2,048,232 17,711,364
------------- --------------
Total issued 7,790,554 67,579,020
Automatic conversion of shares (303,177) (2,604,253)
Shares redeemed (21,359,501) (184,724,418)
------------- --------------
Net decrease (13,872,124) $ (119,749,651)
============= ==============
Class B Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 9,982,719 $ 81,289,015
Shares issued to shareholders
in reinvestment of dividends 5,486,644 49,358,629
------------- --------------
Total issued 15,469,363 130,647,644
Automatic conversion of shares (44,833) (382,703)
Shares redeemed (54,382,122) (456,837,622)
------------- --------------
Net decrease (38,957,592) $ (326,572,681)
============= ==============
<PAGE>
Class C Shares for the Six Months Dollar
Ended June 30, 1996 Shares Amount
Shares sold 456,277 $ 3,949,937
Shares issued to shareholders
in reinvestment of dividends 13,924 120,187
------------- --------------
Total issued 470,201 4,070,124
Shares redeemed (199,562) (1,736,365)
------------- --------------
Net increase 270,639 $ 2,333,759
============= ==============
Class C Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 820,363 $ 6,919,696
Shares issued to shareholders
in reinvestment of dividends 19,627 165,998
------------- --------------
Total issued 839,990 7,085,694
Shares redeemed (364,156) (3,104,404)
------------- --------------
Net increase 475,834 $ 3,981,290
============= ==============
Class D Shares for the Six Months Dollar
Ended June 30, 1996 Shares Amount
Shares sold 441,808 $ 3,838,710
Automatic conversion of shares 302,846 2,604,253
Shares issued to shareholders
in reinvestment of dividends 22,228 192,002
------------- --------------
Total issued 766,882 6,634,965
Shares redeemed (158,143) (1,363,982)
------------- --------------
Net increase 608,739 $ 5,270,983
============= ==============
Class D Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 768,363 $ 6,548,248
Automatic conversion of shares 44,790 382,703
Shares issued to shareholders
in reinvestment of dividends 14,856 125,926
------------- --------------
Total issued 828,009 7,056,877
Shares redeemed (272,712) (2,314,272)
------------- --------------
Net increase 555,297 $ 4,742,605
============= ==============
<PAGE>
5. Commitments:
At June 30, 1996, the Fund entered into foreign exchange contracts,
in addition to the contracts listed on the Schedule of Investments,
under which it had agreed to purchase various foreign currencies
with a value of approximately $379,000.
6. Capital Loss Carryforward:
At December 31, 1995, the Fund had a net capital loss carryforward
of approximately $78,896,000, of which $53,153,000 expires in 2002
and $25,743,000 expires in 2003. This amount will be available to
offset like amounts of any future taxable gains.
