MERRILL LYNCCH
WORLD INCOME
FUND, INC.
FUND LOGO
Quarterly Report
September 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
Printed on post-consumer recycled paper
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
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, Massachusetts 02101
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
The global economy remained strong, led by the United States in the
first half of the year. European growth, mainly in Germany,
rebounded sharply from a very weak first quarter. The positive
reception to the French and Italian budgets reinforced the momentum
toward European Monetary Union (EMU).
Following the US second-quarter gross domestic product (GDP) of
4.8%--the strongest domestic final sales half-year performance in the
current cycle--the pace of US growth eased during the quarter ended
September 30, 1996. Consumer spending, in particular, has weakened
after the strong second quarter. However, with employment growth
well above trend and real wages rising, the odds of a sharp drop in
consumer spending appear low. In addition, even with some slowing in
consumer spending, a positive export outlook should allow for a
renewed upswing in manufacturing activity. The lack of an interest
rate increase by the Federal Reserve Board at its September Federal
Open Market Committee (FOMC) meeting reflected a strong belief that
economic activity will slow soon, thereby keeping inflationary
pressures under control.
Europe's growth momentum will likely build and broaden as monetary
reflation efforts restarted with a 30 basis point (0.30%) cut in the
German repurchase rate, while 1996's inventory drag is nearing an
end. German activity will probably shift down a bit, but renewed
weakness is very unlikely since the Bundesbank will keep interest
rates low and next year's fiscal drag should amount to less than 1%.
In other parts of Europe, industrial production in the United
Kingdom remained soft, although domestic demand is accelerating,
while the outlook for inflation over the next few months is still
good. In Italy, a clear drop in inflation below 4% allowed the Bank
of Italy to cut official interest rates for the first time in 1996.
Further official cuts may await the passage of the 1997 budget as
the recent wages pick up should make it difficult to get inflation
below the 3% target set for 1997. Spain's inflation will probably
remain around its current 3.7% level over the next quarter, then
head lower as administered prices are reduced. In Sweden, the
economy continued to rebound, which is rapidly improving the fiscal
position, while inflation troughed below 1% and is unlikely to rise
above 2% over the medium term.
<PAGE>
The Reserve Bank of Australia's surprise 50 basis point cut in
official interest rates validated the recent decline in inflationary
expectations which are unlikely to be disappointed before 1997. The
Bank of Canada continued lowering interest rates after a further
rise in unemployment was coupled with no signs of inflation.
Finally, the emerging markets were greatly supported by a number of
events: lower inflation and the prospect of a partial debt buyback
in Brazil; surprisingly strong second-quarter growth in Mexico; and
the signing of a new International Monetary Fund agreement for
Venezuela.
Investment Outlook &
Portfolio Strategy
During the quarter ended September 30, 1996, ten-year yields
declined in all the developed global markets, except the United
States, where yields were unchanged. However, high volatility
characterized the US market as prices moved twice from the bottom to
the top of the trading range that has been in place since late
March. The European markets were largely boosted by an aggressive
interest rate reduction in Germany, aided by respectable budgets in
France and Italy. The Australian market recorded the best gain of
the developed markets as the surprise easing by the Reserve Bank of
Australia reinforced the belief that growth was slowing and the lack
of a drop in second-quarter inflation was only a pause in a downtrend.
The US dollar was unchanged versus the Deutschemark as a mid-summer
collapse on the back of the US stock market correction was reversed
following the lowering of German interest rates. The US dollar
declined slightly against the other European currencies and the
Australian and Canadian dollars. The unmanaged JP Morgan Global
Government Index generated a total return of +3.1% in local terms,
and +2.8% in US dollar terms, while the unmanaged Merrill Lynch High
Yield Master Index recorded a gain of 3.9% and the unmanaged
JP Morgan Brady Index gained over 10%.
The portfolio mix of dollar bloc countries (United States, Canada,
Australia and New Zealand) and European countries shifted slightly
during the quarter ended September 30, 1996 from 70%/30% at June 30,
1996 to 68%/32%. We increased the average portfolio maturity from
6.6 years to 7.6 years, then lowered it to 6.4 years by September
30, 1996. The major change in the portfolio was the elimination of
the Australian position in August because the currency's interest
rate support was removed after the Reserve Bank's interest rate
reductions. Part of the proceeds from the sale was used to initiate
a position in Canada as well as to raise the high-yield exposure. By
the end of July, we completed the reconfiguration of the emerging
markets sub-portfolio. We changed from a mix of European and Brady
bonds to all Brady issuers because we believe that Brady bonds'
outperformance would continue. In Europe, the Fund's overall
exposure was increased by adding to our investments in Spain and the
United Kingdom, and slightly reducing our position in Sweden.
Currency movements had a small positive impact on the portfolio.
<PAGE>
The lack of tightening by the Federal Reserve Board at its September
FOMC meeting greatly reduced investor anxiety but may have only
delayed the inevitable as the strengthening global economic backdrop
remained in place. The US economy slowed during the quarter ended
September 30, 1996, but solid consumer fundamentals favor renewed
economic strengthening. In addition, European growth appears to be
on a sustainable upswing, and monetary policy is certainly not going
to be tightened given the fiscal tightening set for 1997. In this
environment the European markets should continue to outperform,
although the richer valuations as compared to earlier this year
could limit the extent of outperformance. We expect the emerging
markets to benefit from improving fundamentals, while watching
developments in Russia and Turkey. Regarding currency movements, the
generous spread of US short-term interest rates over Germany and
Japan and continued progress toward EMU should keep a solid floor
under the US dollar.
The High-Yield Market
The high-yield market continued its upward momentum throughout the
quarter ended September 30, 1996. Third-quarter statistics show high-
yield bonds outperforming the ten-year Treasury note 3.9% versus
1.95%, on a total return basis. During the September quarter,
intense buying pressure caused by the healthy stock market, a
Treasury rally and unabated inflows of cash into the market,
resulted in a 30 basis point spread compression between high-yield
bonds and Treasury notes.
September represented the best total return month for high-yield
bonds thus far in 1996. During the quarter, the BB-rated category
continued to lag the B-rated sector with +2.98% and +4.88% total
returns, respectively. CCC-rated and lower securities returned only
+0.52% because of an adverse impact from credit problems not
apparent in the broader indexes. High-yield new issuance could post
its second-largest year ever. The year-to-date volume of $48 billion
exceeds the full-year volume for any year other than 1993, when the
all-time high of $72 billion was recorded. The aggregate credit
statistics indicate no deterioration in credit quality although some
more speculative new issues were issued recently.
The high-yield market substantially outperformed the US Treasury
market and high-quality corporate securities thus far this year. For
the nine months ended September 30, 1996, the unmanaged Credit
Suisse First Boston High Yield Index produced a +7.67% return
compared to -2.63% for the ten-year Treasury bond. This caused yield
spreads between the two markets to narrow. Yield spreads are now
3.8% between markets, a historically narrow measure of the premium
afforded by high yield for the credit risk and lesser liquidity
involved in these securities. As we indicated in our June 30, 1996
shareholder's report, there were good reasons for the full
<PAGE>
valuations. The default rate as a percent of high-yield debt
outstanding declined to a relatively low 2.06% for the 12 months
ended September 30, 1996. The default rate was 3.63% at December 31,
1995. Low-cost equity, as a result of the buoyant stock market,
supported balance sheets and merger and acquisition activity and
resulted in credit quality upgrades. Nevertheless, we believe the
market is fully priced particularly among securities in the lower
quality B-rated and CCC-rated end of the spectrum. Therefore, our
strategy involved reducing credit risk through upgrading quality to
BB and B+ securities and retaining lower yielding "yield-to-call"
issues such as Rowan Companies, Inc. at 11.875% due 2001, which is
likely to be called within the next year; and Gulf Canada Resources
Ltd. at 9% due 1999, which has a shorter maturity.
The portfolio's allocation in high-yield bonds was approximately
37%--38% of net assets at September 30, 1996. Convertible securities
provided the highest component of return among asset categories
represented in the portfolio year-to-date. These securities
benefited from a strong stock market. As fundamental and technical
factors remain positive, we are maintaining the Fund's 7%--8% asset
allocation in this sector.
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
<PAGE>
October 31, 1996
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. (There is no initial
sales charge for automatic share conversions.)
* 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.
Average Annual
Total Return
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 9/30/96 +11.25% +6.80%
Five Years Ended 9/30/96 + 8.49 +7.60
Inception (9/29/88) through 9/30/96 +10.46 +9.90
[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 9/30/96 +10.53% +6.53%
Inception (11/18/91) through 9/30/96 + 7.32 +7.32
[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 9/30/96 +10.35% + 9.35%
Inception (10/21/94) through 9/30/96 +10.07 +10.07
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/96 +10.97% +6.53%
Inception (10/21/94) through 9/30/96 +10.72 +8.42
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
<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--9/30/96 8.69 8.80 -- 0.492 + 7.31
------ ------
Total $0.050 Total $7.669
Cumulative total return as of 9/30/96: +121.89%**
<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.
</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--9/30/96 8.69 8.80 -- 0.443 + 6.70
------ ------
Total $0.047 Total $3.453
<PAGE>
Cumulative total return as of 9/30/96: +41.04%**
<FN>
*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
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<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--9/30/96 8.68 8.79 -- 0.439 + 6.66
------
Total $1.213
Cumulative total return as of 9/30/96: +20.53%**
<FN>
*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
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<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--9/30/96 8.69 8.80 -- 0.476 + 7.11
------
Total $1.312
<PAGE>
Cumulative total return as of 9/30/96: +21.90%**
<FN>
*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.
</TABLE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
9/30/96 6/30/96 9/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.80 $8.64 $8.56 + 2.80% +1.85%
Class B Shares* 8.80 8.63 8.55 + 2.92 +1.97
Class C Shares* 8.79 8.63 8.55 + 2.81 +1.85
Class D Shares* 8.80 8.64 8.56 + 2.80 +1.85
Class A Shares--Total Return* +11.25(1) +3.81(2)
Class B Shares--Total Return* +10.53(3) +3.74(4)
Class C Shares--Total Return* +10.35(5) +3.60(6)
Class D Shares--Total Return* +10.97(7) +3.75(8)
Class A Shares--Standardized 30-day Yield 7.23%
Class B Shares--Standardized 30-day Yield 6.76%
Class C Shares--Standardized 30-day Yield 6.70%
Class D Shares--Standardized 30-day Yield 6.99%
<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 $0.686 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.166 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.619 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.149 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.614 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.148 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.664 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.160 per share ordinary
income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Percent of
AFRICA Industries Face Amount Convertible Bonds Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Metals & US$ 1,000,000 Samancor Ltd., 7% due 6/30/2004 $ 965,000 $ 980,000 0.1%
Africa Mining
Total Investments in
African Securities 965,000 980,000 0.1
LATIN
AMERICA Fixed-Income Investments
Argentina Communications 10,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004 9,800,800 10,637,500 0.8
Foreign 4,000,000 Republic of Argentina, Brady Par
Government Bonds, 5.25% due 3/31/2023 2,223,483 2,335,000 0.2
Obligations 7,840,800 Republic of Argentina, Par Bonds,
6.625% due 3/31/2005 6,168,504 6,566,670 0.5
-------------- -------------- ------
8,391,987 8,901,670 0.7
Total Fixed-Income Investments
in Argentina 18,192,787 19,539,170 1.5
Brazil Communications 5,000,000 Comtel Brasileira Ltd., 10.75%
due 9/26/2004 5,000,000 5,112,500 0.4
Foreign 38,967,498 Republic of Brazil, C Bonds, 8%
Government due 4/15/2014 25,103,709 27,472,086 2.1
Obligations
Total Fixed-Income Investments
in Brazil 30,103,709 32,584,586 2.5
Colombia Energy 5,000,000 Oleoducts Central S.A., 9.35%
due 9/01/2005 5,000,000 4,955,200 0.4
Utilities 10,000,000 Transgas de Occidente S.A., 9.79%
due 11/01/2010 10,137,500 9,887,500 0.8
Total Fixed-Income Investments
in Colombia 15,137,500 14,842,700 1.2
Mexico Broadcasting & Grupo Televisa S.A.:
Publishing 5,000,000 11.375% due 5/15/2003 5,040,625 5,225,000 0.4
2,500,000 11.875% due 5/15/2006 2,679,688 2,662,500 0.2
-------------- -------------- ------
7,720,313 7,887,500 0.6
<PAGE>
Foreign United Mexican States, Floating
Government Rate Brady Bonds:
Obligations 2,000,000 Discount, Series A, 6.398%
due 12/31/2019 1,562,500 1,682,500 0.1
14,000,000 Par, Series A, 6.25% due 12/31/2019 9,295,472 9,660,000 0.8
7,000,000 Par, Series B, 6.25% due 12/31/2019 4,687,489 4,830,000 0.4
Pound Sterling 10,000,000 United Mexican States, Government
Bonds, 12.25% due 12/03/1998 17,422,208 16,682,900 1.3
US$ 23,000,000 United Mexican States, Value
Recovery Rights (f) 0 23 0.0
-------------- -------------- ------
32,967,669 32,855,423 2.6
Total Fixed-Income Investments
in Mexico 40,687,982 40,742,923 3.2
Venezuela Foreign 13,000,000 Republic of Venezuela, Floating Rate,
Government Brady Bonds 6.625% due 12/18/2007 9,516,875 10,757,500 0.8
Obligations
Total Fixed-Income Investments
in Venezuela 9,516,875 10,757,500 0.8
Total Investments in Latin American
Securities 113,638,853 118,466,879 9.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH Percent of
AMERICA Industries Face Amount Fixed-Income Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada Broadcasting/ US$ 10,000,000 Videotron Group, Ltd. Co., 10.25%
Cable due 10/15/2002 $ 10,043,750 $ 10,500,000 0.8%
Chemicals 10,000,000 Veridian, Inc., 9.75% due 4/01/2003 10,048,250 10,350,000 0.8
Energy 10,000,000 Gulf Canada Resources Ltd.,
9% due 8/15/1999 9,158,438 10,350,000 0.8
Foreign C$ 38,000,000 Government of Canada, 7.50%
Government due 9/01/2000 28,861,671 29,295,154 2.3
Obligations
Paper US$ 10,000,000 Doman Industries Ltd., 8.75%
due 3/15/2004 9,300,000 9,300,000 0.7
Total Fixed-Income Investments
in Canada 67,412,109 69,795,154 5.4
<PAGE>
United Airlines 7,100,000 United Air Pass-Through, 10.125%
States due 3/22/2015 7,684,046 8,117,075 0.6
15,000,000 USAir Inc., 10.375% due 3/01/2013 15,000,000 14,925,000 1.2
-------------- -------------- ------
22,684,046 23,042,075 1.8
Broadcasting/ 10,000,000 Lenfest Communications, Inc.,
Cable 10.50% due 6/15/2006 9,922,100 10,250,000 0.8
Building 10,000,000 Pacific Lumber Co., 10.50%
Materials due 3/01/2003 10,140,625 9,850,000 0.8
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 10,786,712 0.8
-------------- -------------- ------
19,858,094 20,636,712 1.6
Chemicals 10,340,000 G-I Holdings, Inc., 10%
due 2/15/2006 10,701,900 10,340,000 0.8
Conglomerates 10,000,000 Coltec Industries Inc., 10.25%
due 4/01/2002 10,332,500 10,375,000 0.8
10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,025,000 0.8
-------------- -------------- ------
20,247,500 20,400,000 1.6
Consumer 10,000,000 Revlon Consumer Products Corp.,
Products 9.375% due 4/01/2001 8,842,084 10,150,000 0.8
Energy 10,000,000 Clark R & M Holdings, Inc., 10.43%*
due 2/15/2000 7,064,305 7,112,500 0.6
9,100,000 Maxus Energy Corp., 9.875%
due 10/15/2002 9,086,800 9,236,500 0.7
10,000,000 Rowan Companies, Inc., 11.875%
due 12/01/2001 10,402,500 10,662,500 0.8
10,000,000 Seagull Energy Corp., 8.625%
due 8/01/2005 10,000,000 9,900,000 0.8
10,000,000 TransTexas Gas Corp., 11.50%
due 6/15/2002 9,996,125 10,625,000 0.8
-------------- -------------- ------
46,549,730 47,536,500 3.7
Entertainment 2,880,000 Marvel Holdings Inc., 11.828%*
due 4/15/1998 2,392,968 2,282,400 0.2
5,000,000 Spectravision Inc., 10.92%*
due 10/01/2001 4,410,496 2,625,000 0.2
-------------- -------------- ------
6,803,464 4,907,400 0.4
Financial 10,000,000 Penn Financial Corp., 9.25%
Services due 12/15/2003 10,000,000 10,250,000 0.8
10,000,000 Reliance Group Holdings, Inc., 9%
due 11/15/2000 10,000,000 10,100,000 0.8
-------------- -------------- ------
20,000,000 20,350,000 1.6
<PAGE>
Food & Beverage 5,000,000 Coca-Cola Bottling Co., 9%
due 11/15/2003 5,005,000 5,075,000 0.4
14,000,000 Del Monte Co., 10% due 5/01/2003 14,004,063 13,177,500 1.0
10,000,000 Specialty Foods Corp., 10.25%
due 8/15/2001 10,000,000 9,200,000 0.7
-------------- -------------- ------
29,009,063 27,452,500 2.1
Gaming 1,906,000 Goldriver Hotel & Casino Corp.,
13.375% due 8/31/1999 2,645,548 609,920 0.0
10,000,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004 9,996,250 8,700,000 0.7
7,500,000 Harrah's Jazz Co., 14.25%
due 11/15/2001 5,178,125 4,162,500 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 9,975,000 0.8
10,000,000 Trump Atlantic City Associates,
11.25% due 5/01/2006 9,943,750 9,875,000 0.8
-------------- -------------- ------
37,512,423 33,322,420 2.6
Home Builders Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 9,342,500 0.7
3,500,000 9.75% due 3/01/2003 3,472,455 3,500,000 0.3
Ryland Group, Inc.:
9,000,000 10.50% due 7/15/2002 8,907,530 9,045,000 0.7
1,250,000 10.50% due 7/01/2006 1,240,625 1,246,875 0.1
-------------- -------------- ------
22,997,485 23,134,375 1.8
Hotels 10,000,000 HMC Acquisition Properties, 9%
due 12/15/2007 9,346,250 9,612,500 0.7
Packaging 10,000,000 Owens-Illinois, Inc., 11%
due 12/01/2003 11,401,563 10,937,500 0.8
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 10,150,000 0.8
10,000,000 Fort Howard Corp., 9% due 2/01/2006 10,007,500 9,850,000 0.7
10,000,000 Stone Container Corp., 9.875%
due 2/01/2001 9,317,650 10,050,000 0.8
-------------- -------------- ------
29,525,150 30,050,000 2.3
Restaurants 10,000,000 Flagstar Corp., 11.375% due 9/15/2003 9,640,000 5,850,000 0.4
Supermarkets 15,000,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 15,111,875 13,462,500 1.0
Textiles 10,000,000 WestPoint Stevens Inc., 8.75%
due 12/15/2001 10,093,750 10,125,000 0.8
<PAGE>
Transportation 10,000,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 10,028,438 10,250,000 0.8
US Government 47,000,000 US Treasury Bonds, 6.875% due
Obligations 8/15/2025 50,084,063 46,302,520 3.6
Utilities 9,848,000 Beaver Valley II Funding, 9%
due 6/01/2017 7,262,900 8,855,912 0.7
4,000,000 CTC Mansfield Funding Corp.,
11.125% due 9/30/2016 4,301,250 4,231,720 0.3
Midland Cogeneration Venture
Limited Partnership:
7,680,600 10.33% due 7/23/2002 (b) 7,526,988 8,064,630 0.6
10,000,000 13.25% due 7/23/2006 11,183,750 11,391,200 0.9
9,100,000 Tucson Electric & Power Co.,
10.732% due 1/01/2013 8,713,250 8,781,136 0.7
-------------- -------------- ------
38,988,138 41,324,598 3.2
Total Fixed-Income Investments
in the United States 439,347,116 429,436,600 33.2
Convertible Bonds
Canada Metals & US$ 500,000 Inco Ltd., 5.75% due 7/01/2004 525,375 597,500 0.1
Mining
Paper 1,500,000 Repap Enterprises Inc., 8.50%
due 8/01/1997 1,572,709 1,466,250 0.1
Total Investments in Canadian
Convertible Bonds 2,098,084 2,063,750 0.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Percent of
(continued) Industries Face Amount Convertible Bonds Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Airlines US$ 515,000 Air Wis Services, Inc., 7.75%
States due 6/15/2010 $ 466,229 $ 476,375 0.0%
Building & 800,000 Continental Homes Holding Corp.,
Construction 6.875% due 11/01/2002 800,000 800,000 0.1
1,500,000 Toll Brothers Inc., 4.75%
due 1/15/2004 1,500,000 1,425,000 0.1
1,000,000 US Home Corp., 4.875% due 11/01/2005 991,000 805,000 0.1
-------------- -------------- ------
3,291,000 3,030,000 0.3
<PAGE>
Computers 5,000,000 Apple Computer, Inc., 6%
due 6/01/2001 4,945,000 4,962,500 0.4
1,000,000 Data General Corp., 7.75%
due 6/01/2001 994,375 990,000 0.1
-------------- -------------- ------
5,939,375 5,952,500 0.5
Conglomerates Polyphase Corp.:
500,000 12% due 12/01/1997 500,000 672,500 0.0
2,000,000 12% due 7/01/1999 2,000,000 2,430,000 0.2
2,000,000 Thermo Electron Corp., 4.25%
due 1/01/2003 2,000,000 2,420,000 0.2
-------------- -------------- ------
4,500,000 5,522,500 0.4
Electronics 1,500,000 Park Electrochemical Corporation,
5.50% due 3/01/2006 1,487,750 1,228,125 0.1
1,500,000 Thermaquest Corp., 5% due 8/15/2000 1,500,000 1,545,000 0.1
1,540,000 Thermo Optik Corp., 5% due 10/15/2000 1,542,600 1,663,200 0.1
-------------- -------------- ------
4,530,350 4,436,325 0.3
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625%
due 5/01/2003 1,114,735 1,020,480 0.1
Financial 2,250,000 NAL Acceptance Corp., 10%
Services due 9/12/1998 2,250,000 2,812,500 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 1,000,000 1,600,000 0.1
-------------- -------------- ------
2,493,750 3,085,000 0.2
Industrial 1,300,000 Mascotech, Inc., 4.50% due 12/15/2003 1,126,000 991,250 0.1
140,000 Recognition Equipment International,
Inc., 7.25% due 4/15/2011 103,600 128,800 0.0
-------------- -------------- ------
1,229,600 1,120,050 0.1
Insurance 2,000,000 Statesman Group, Inc. (The), 6.25%
due 5/01/2003 2,060,000 2,110,000 0.2
Machine-- 1,500,000 Cooper Industries, Inc., 7.05%
Diversified due 1/01/2015 1,474,999 1,620,000 0.1
Mining 2,000,000 Coeur d'Alene Mines Corp., 6.375%
due 1/31/2004 1,916,550 1,780,000 0.1
<PAGE>
Office Equipment 1,000,000 US Office Products Co., 5.50%
due 5/15/2003 1,000,000 950,000 0.1
Oil--Domestic 3,000,000 Key Energy Group, Inc., 7%
due 7/01/2003 3,000,000 3,052,500 0.2
4,750,000 USX Corp., 7% due 6/15/2017 4,184,150 4,488,750 0.4
2,080,000 Wainoco Oil Corp., 7.75% due 6/01/2014 1,880,352 1,664,000 0.1
-------------- -------------- ------
9,064,502 9,205,250 0.7
Pharmaceuticals 2,600,000 Bindley Western Industries, Inc.,
6.50% due 10/01/2002 2,563,000 2,691,000 0.2
2,000,000 IVAX Corp., 6.50% due 11/15/2001 1,897,500 1,780,000 0.1
-------------- -------------- ------
4,460,500 4,471,000 0.3
Publishing/ 2,150,000 Graphic Industries, Inc.,
Printing 7% due 5/15/2006 1,899,375 1,859,750 0.1
Real Estate 1,720,000 Pacific Gulf Properties, Inc.,
Investment 8.375% due 2/15/2001 1,513,262 1,728,600 0.1
Trust
Retail 200,000 Baby Superstores Inc., 4.875%
due 10/01/2000 200,000 164,000 0.0
825,000 Baker (J.) Inc., 7% due 6/01/2002 824,527 651,750 0.1
-------------- -------------- ------
1,024,527 815,750 0.1
Technology 1,250,000 Broadband Technologies, Inc.,
5% due 5/15/2001 1,246,250 993,750 0.1
250,000 Safeguard Scientifics, Inc., 6%
due 2/01/2006 250,000 333,125 0.0
-------------- -------------- ------
1,496,250 1,326,875 0.1
Temporary Help 6,375,000 Quantum Health Resources, Inc.,
Services 4.75% due 10/01/2000 (g) 5,956,562 5,833,125 0.5
Textiles 1,025,000 Fieldcrest Cannon, Inc., 6%
due 3/15/2012 763,625 738,000 0.1
Transportation 300,000 Varlen Corp., 6.50% due 6/01/2003 297,000 321,000 0.0
Products
Total Investments in United States
Convertible Bonds 58,742,191 60,215,080 4.6
Convertible Preferred Stocks, Preferred
Shares Held Stocks, Common Stocks & Warrants
<PAGE>
United Banking & 59,843 RCSB Financial, Inc. 1,100,014 1,593,320 0.1
States Finance 50,200 Union Planters Corp., Pfd. $2.00 1,775,655 2,208,800 0.2
-------------- -------------- ------
2,875,669 3,802,120 0.3
Communications 195,831 ICG Communications, Inc. (i)*** 3,484,312 4,112,451 0.3
Electronics 120,054 Rexel S.A. 1,201,065 1,890,850 0.1
Distributor
Entertainment 10,483 Time Warner, Inc. (Series K) Pfd. (a) 10,406,955 10,902,320 0.8
Environmental 35,200 Allied Waste Industries, Inc.,
$90 Conv. Pfd. (e)*** 3,520,401 6,617,600 0.5
Financial Services 28,125 NAL Acceptance Corp. (Warrants)(c) 0 151,172 0.0
Food & Beverage 465,500 RJR Nabisco, Inc., Pfd. $.60
(Series C) 3,021,638 2,502,062 0.2
Forest Products & 38,400 James River Corp. of Virginia 1,691,441 1,828,800 0.2
Paper 65,000 James River Corp. of Virginia
(Series P), Conv. Pfd. 1,562,025 1,673,750 0.1
22,400 James River Corp. of Virginia,
$3.375 (Series K), Conv. Pfd. 1,007,686 1,064,000 0.1
-------------- -------------- ------
4,261,152 4,566,550 0.4
Gaming 75,000 Goldriver Hotel & Casino Corp.,
Liquidating Trust 75,000 26,719 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B)(d) 219,738 0 0.0
-------------- -------------- ------
294,738 26,719 0.0
Hotels 1,608 Buckhead America Corp. 8,291 9,648 0.0
Industrial 113,000 Albany International Corp. (Class A) 2,146,773 2,443,625 0.2
Services 30,900 Mascotech, Inc., Pfd $1.20 471,164 440,325 0.0
-------------- -------------- ------
2,617,937 2,883,950 0.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Convertible Preferred Stocks, Preferred Percent of
(concluded) Industries Shares Held Stocks, Common Stocks & Warrants Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Insurance 163,141 Kemper Corp., Pfd. $5.25 (Series E) $ 8,349,078 $ 8,707,651 0.7%
States 1,500 Westbridge Capital Corp., Pfd. 1,500,000 1,530,000 0.1
(concluded) -------------- -------------- ------
9,849,078 10,237,651 0.8
<PAGE>
Mining 50,000 Coeur d'Alene Mines Corp., Pfd. 1,062,500 818,750 0.1
Oil & Gas 43,000 Snyder Oil Corp., Pfd. $1.50
(Series A) 906,023 860,000 0.1
20,000 Western Gas Resources, Inc.,
Pfd $2.62 1,000,000 670,000 0.0
-------------- -------------- ------
1,906,023 1,530,000 0.1
Transportation 19,000 Sea Containers Ltd., Conv. Pfd. $4.00 875,463 897,750 0.1
Total Investments in United
States Convertible Preferred
Stocks, Preferred Stocks,
Common Stocks & Warrants 45,385,222 50,949,593 3.9
Total Investments in North American
Securities 612,984,722 612,460,177 47.3
PACIFIC
BASIN Face Amount Fixed-Income Investments
Indonesia Paper US$ 5,000,000 P.T. Indah Kiat International
Finance, 12.50% due 6/15/2006 5,025,000 5,350,000 0.4
Total Investments in Pacific
Basin Securities 5,025,000 5,350,000 0.4
WESTERN
EUROPE
Denmark Finance Dkr 124,000,000 Nykredit, 6% due 10/01/2026 17,749,907 17,966,198 1.4
Foreign Denmark Government Bonds:
Government 303,000,000 8% due 11/15/2001 57,031,108 56,600,417 4.4
Obligations 111,000,000 8% due 5/15/2003 20,280,063 20,634,372 1.6
52,770,000 8% due 3/15/2006 9,593,697 9,658,344 0.7
-------------- -------------- ------
86,904,868 86,893,133 6.7
Total Fixed-Income Investments
in Denmark 104,654,775 104,859,331 8.1
Germany Foreign DM 12,500,000 German Unity Fund, 8% due 1/21/2002 9,845,040 9,231,223 0.7
Government 20,000,000 Rheinland-Pfalz Girozentrale,
Obligations 5.75% due 10/16/2003 13,171,797 13,038,406 1.0
58,500,000 Treuhandanstalt, 7.125% due 1/29/2003 40,818,960 41,461,463 3.2
Total Fixed-Income Investments
in Germany 63,835,797 63,731,092 4.9
<PAGE>
Italy Foreign Lit50,500,000,000 Buoni Poliennali del Tesoro
Government (Italian Government Bonds), 9.50%
Obligations due 2/01/2001 34,044,607 35,058,564 2.7
Total Fixed-Income Investments
in Italy 34,044,607 35,058,564 2.7
Poland Foreign US$ 1,000,000 Polish Government Brady Bonds,
Government 6.437% due 10/27/2024 863,750 952,500 0.1
Obligations 3,000,000 Polish PDI Bonds, 3.75% due 10/27/2014 2,260,000 2,370,000 0.2
Total Fixed-Income Investments
in Poland 3,123,750 3,322,500 0.3
Spain Foreign Government of Spain:
Government Pta 8,100,000,000 10.10% due 2/28/2001 69,494,128 69,608,882 5.4
Obligations 2,070,000,000 11.30% due 1/15/2002 18,220,584 18,772,731 1.4
Total Fixed-Income Investments
in Spain 87,714,712 88,381,613 6.8
Sweden Foreign Skr 223,500,000 Government of Sweden, 10.25%
Government due 5/05/2000 37,177,798 37,880,584 2.9
Obligations
Total Fixed-Income Investments
in Sweden 37,177,798 37,880,584 2.9
United Broadcasting/ US$ 3,000,000 Videotron Holdings PLC, 10.82%*
Kingdom Cable due 8/15/2005 1,948,399 1,987,500 0.2
Communications 20,000,000 TeleWest Communications PLC,
11.41%* due 10/01/2007 13,028,286 12,700,000 1.0
Foreign Pound United Kingdom Gilt:
Government Sterling 17,000,000 8.50% due 12/07/2005 27,312,245 28,159,730 2.2
Obligations 18,500,000 7.75% due 9/08/2006 28,710,753 29,061,072 2.2
-------------- -------------- ------
56,022,998 57,220,802 4.4
Total Fixed-Income Investments
in the United Kingdom 70,999,683 71,908,302 5.6
Convertible Bonds
Ireland Dental US$ 500,000 Phoenix Shannon PLC, 9.50%
Equipment due 11/01/2000 500,000 395,000 0.0
& Supplies
Total Investments in
Irish Convertible Bonds 500,000 395,000 0.0
<PAGE>
Total Investments in Western
European Securities 402,051,122 405,536,986 31.3
SHORT-TERM
SECURITIES Issue
Commercial US$ 37,456,000 General Electric Capital Corp., 5.80%
Paper** due 10/01/1996 37,456,000 37,456,000 2.9
20,000,000 National Fleet Funding Corp., 5.27%
due 10/18/1996 19,950,228 19,950,228 1.5
-------------- -------------- ------
57,406,228 57,406,228 4.4
US Government & 25,000,000 Federal Home Loan Bank, 5.33%
Agency due 11/14/1996 24,837,139 24,837,139 1.9
Obligations** 20,000,000 Federal National Mortgage Association,
5.28% due 11/12/1996 19,876,800 19,876,800 1.6
US Treasury Bills (h):
3,000,000 5.045% due 11/07/1996 2,984,445 2,984,790 0.2
3,000,000 5.27% due 3/13/1997 2,928,416 2,930,310 0.2
-------------- -------------- ------
50,626,800 50,629,039 3.9
Total Investments in
Short-Term Securities 108,033,028 108,035,267 8.3
Total Investments 1,242,697,725 1,250,829,309 96.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Nominal Value Premiums Percent of
WRITTEN Covered by Options Issue Received Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Currency Call US$ 27,030,000 British Pound, expiring November
Options 1996 at Pound Sterling1.59 $ (102,714) $ (29,733) 0.0%
Written
Total Options Written (102,714) (29,733) 0.0
Total Investments $1,242,595,011 1,250,799,576 96.6
==============
Short Sales (Proceeds--$9,500,872)*** (9,561,857) (0.8)
Variation Margin on Financial Futures Contracts**** (440,177) (0.0)
Unrealized Depreciation on Forward Foreign Exchange Contracts***** (1,403,623) (0.1)
Other Assets Less Liabilities 55,616,126 4.3
-------------- ------
Net Assets $1,295,010,045 100.0%
============== ======
<PAGE>
Net Asset Value: Class A--Based on net assets of $222,650,728 and 25,289,824
shares outstanding $ 8.80
==============
Class B--Based on net assets of $1,050,131,321 and 119,354,214
shares outstanding $ 8.80
==============
Class C--Based on net assets of $8,943,772 and 1,017,350
shares outstanding $ 8.79
==============
Class D--Based on net assets of $13,284,224 and 1,508,965
shares outstanding $ 8.80
==============
<FN>
(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)Quantum Health Resources, Inc. is convertible into Olsten Corp.
(h)All or a portion of securities held as collateral in connection
with open financial futures contracts.
(i)Formerly Intelcom Group, Inc.
*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 September 30, 1996 were as
follows:
Shares Issue Value
581,270 Allied Waste Industries, Inc. $(5,449,406)
195,831 ICG Communications, Inc. (4,112,451)
Total (Proceeds--$9,500,872) $(9,561,857)
===========
****Financial futures contracts sold as of September 30, 1996 were
as follows:
<PAGE>
Number of Expiration
Contracts Issue Exchange Date Value
329 Bundes LIFFE December 1996 $ (53,183,805)
105 Gilts LIFFE December 1996 (8,922,334)
67 Italian BTP LIFFE December 1996 (10,700,447)
288 US Treasury Bonds CBOT December 1996 (31,446,000)
Total Financial Futures Contracts Sold
(Total Contract Price--$102,276,970) $(104,252,586)
=============
*****Forward foreign exchange contracts as of September 30, 1996
were as follows:
Foreign Currency Expiration Unrealized
Purchased Date Depreciation
DM 161,982,268 October 1996 $(1,383,577)
Total (US$ Commitment--$107,573,292) $(1,383,577)
-----------
Foreign Expiration Unrealized
Currency Sold Date Depreciation
Pound Sterling 8,380,544 October 1996 $ (20,046)
Total (US$ Commitment--$13,093,292) $ (20,046)
-----------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $(1,403,623)
===========
</TABLE>
