MERRILL LYNCH
WORLD INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 1995
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
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
<PAGE>
Important Tax
Information
(unaudited)
Of the monthly cash distributions paid by Merrill Lynch World Income
Fund, Inc. during its taxable year ended December 31, 1995, 21.97%
are characterized as return of capital distributions. The tax
reporting treatment of a return of capital is different from that of
a taxable distribution. Rather than being included in your current
taxable income, a return of capital is non-taxable and will reduce
the cost basis in your shares of the Fund.
Additionally, 1.32% of the monthly cash distributions paid during
the taxable year ended December 31, 1995, qualifies for the
dividends-received deduction for corporations. Finally, there were
no long-term capital gains distributed by the Fund during the year.
Please retain this information for your records.
DEAR SHAREHOLDER
World growth continues to slow and inflation remains subdued,
although the US economy remains the most resilient, owing largely to
the substantial interest rate declines seen this year. The 4.2%
annualized increase in US third quarter 1995 gross domestic product,
while overstating the economy's underlying strength, suggests the
fourth quarter began at an above-trend pace. However, a decline in
October industrial production and retail sales without a rebound in
November brought this notion into question.
<PAGE>
European growth continues to disappoint as demand has remained weak
with interest rate-sensitive spending not yet responding to this
year's decline in interest rates. German economic weakness clearly
can be seen in the drop in third quarter capacity utilization, the
sharp drop in fourth quarter industrial production and waning
business and consumer confidence. The Bundesbank lowered interest
rates over 100 basis points (1.00%) in 1995 from 4.85% at year-end
1994, with its latest reduction in December, but the continued
softness suggests more needs to be done. Meanwhile, France announced
a very tough fiscal reform package coupled with an immediate sharp
hike in taxes, in an effort to ensure growth will stay soft. The
risks of a sharp inventory correction in the United Kingdom have
risen, posing a dilemma for policymakers following the United
Kingdom's relatively tight November budget. Italy shows clear signs
of slowing but interest rate declines are unlikely while inflation
stays high and political stability remains uncertain as Prime
Minister Dini's resignation at year-end could lead to elections over
the next few months. The "no" vote on Quebec separatism has lifted a
major cloud over the Canadian market, while in Australia inflation
drifts upward, albeit against a slowdown in economic activity. A
brighter picture for Latin American markets emerged over the last
six months on the back of stable political environments, a firm
dollar and US bond market, and rising global liquidity.
Investment Outlook & Portfolio
Strategy
During the fourth quarter of 1995, virtually all of the major
markets in which the Fund is invested continued their 1995 rallies.
The dollar remained in a fairly narrow range as compared to all
other currencies other than the yen, which declined just over 4%
relative to the dollar. Since August the US bond market rally has
continued as economic growth remained soft and inflationary
pressures remained subdued. Expectations for a constructive Federal
budget agreement have faded but have not been dashed. With the
background of a poor holiday selling season and a weather-induced
weak start to the new year, a positive tone to the US bond market is
likely to persist over the near term. European economic activity
remains below trend, which along with continued low inflation has
allowed many countries to lower interest rates. Continued below-
trend growth is expected for the first quarter of 1996, which should
provide a solid underpinning to the European markets. Not
surprisingly, in this environment of a steady dollar and rising bond
prices the higher-yielding markets in Europe have outperformed
Germany.
<PAGE>
During the December quarter, we slightly increased the Fund's
exposure to the US high-yield/convertible market from 44% of net
assets to 45% through purchases in the high-yield sector. We also
raised the European exposure from 31% of net assets to 34%. In the
dollar bloc (Canada, Australia and New Zealand) we moved 1% from New
Zealand to Australia while slightly extending the average portfolio
maturity. In Europe we raised the Spanish exposure to 11% of net
assets from 9% while extending the average portfolio maturity from
3.3 years to 5.7 years. We also extended average portfolio
maturities in the United Kingdom, Italy and Denmark. These
extensions, while allowing us to maintain overweighted positions in
the higher-yielding European markets, substantially boosted
performance in the December quarter. In the emerging markets arena,
we eliminated our small exposure to Mexico given the recent sharp
deterioration in the peso and continued negative growth announced
for the third quarter.
The outlook for global bond prices remains positive given sluggish
world economic activity, falling inflation and/or inflationary
expectations and expanding liquidity. However, since these positive
factors are recognized globally there is little value to insulate
prices from adverse news regarding any of the aforementioned
factors. We will continue to utilize emerging markets debt as a
dollar bloc alternative, constantly maintaining our preference for
the most liquid and creditworthy issuers.
From a currency perspective, the dollar is likely to remain within
a broad trading range given the easier monetary policy stances of
the Bank of Japan and the Bundesbank, while set against a background
of what appears to be much slower fourth quarter growth relative to
the third quarter in the United States. The performance of the
European economies over the next year will be critical in
determining the continued adherence to the current monetary union
timetable. Failure to maintain the present timetable could cause
undue volatility within European markets.
High-Yield Market
The high-yield bond market posted an outstanding year with 1995's
returns bested only by 1991's over the last ten years. The December
quarter also produced solid results. Total returns for the year and
quarter ended December 31, 1995 for the Merrill Lynch High-Yield
Master Index were 19.9% and 3.3%, respectively.
<PAGE>
The market driver for the year and quarter was falling interest
rates. Yields on ten-year US Treasury bonds fell from 7.85% to 5.63%
over the course of the year as investors reacted positively to
moderate economic growth, low inflation and falling short-term
interest rates. Because of its greater sensitivity to overall
interest rates, the higher-quality BB-rated sector of the high-yield
market outperformed issues rated B or less. The air transportation
industry (Delta Air Lines Inc., United Air Lines Inc., USAir Inc.)
all outperformed all other high-yield industry groups with a return
of 33.8%. Other above-average performers included: homebuilders,
+28.2%; cable TV, +26%; telecommunications, +24.7%; electric
utilities, +23%; and broadcasting, +22%. The weak performers were:
retailers, -0.7% and restaurants, +7.2%. Companies in these
industries struggled with weak earnings and a number of defaults.
Default rates rose from 1.4% in 1994 to 2.8% in 1995. The average
annual default rate since 1978 has been 3.1%, and 1995 represents a
normalization after several very low years, in our opinion. The
portfolio experienced a surprise bankruptcy in November when
Harrah's Jazz Company, a casino project in New Orleans, filed for
protection after the bank lenders withdrew financing. We are
pursuing recovery vigorously.
At year-end 1995, the portfolio was structured in a fashion that we
believe will optimize returns over the new year. As modest economic
growth and relatively stable interest rates seem the most likely
environment, at least for the next six months, corporate profits may
become the dominant driver of high-yield bond prices. Therefore, in
1996 industry and company selection seem likely to dominate
investment performance to an even greater degree than in 1995. We
would like to highlight several investment themes that have gained
momentum over the past year and should remain important in 1996.
Media and communication companies are the dominant industry group
accounting for approximately 25% of the high-yield universe. This
broad sector includes television and radio broadcasters and cable
television operators including companies in the United Kingdom
offering both cable TV and telephones, DBS (a satellite television
delivery system), wireless cable which is the delivery of multi-
channel television by broadcast signal, and wireless cellular and
paging communications. While broadcasting and cable delivery are
seasoned concepts, new satellite and electronic technologies have
created new picture and voice delivery systems at affordable and
often declining cost for a mass market. Our investments have helped
finance the rapid growth of these industries.
<PAGE>
The portion of holdings of companies domiciled outside the United
States has grown to approximately 17.7% of the high-yield universe.
This trend has been encouraged by deregulation and privatization in
certain parts of the world. For example, the two privatized
telephone companies in Argentina and several privatized energy
companies in that country have issued US dollar-denominated bonds
rated below investment grade. These issuers are world class
companies with investment-grade financial statistics and American
depositary receipts trading on the New York Stock Exchange. Because
the Republic of Argentina is rated below investment grade, corporate
bond issuers domiciled there are subject to the bond rating
services' sovereign ceiling, a policy that no entity within a
country can be rated higher than the country. This creates very
attractive valuation as we believe that the positive trends already
in place in selected emerging markets will continue. At year-end,
Fund exposure to sovereign risk included Canada, 5.5%; the United
Kingdom, 3.2%; and Argentina, 1.6%. All obligations are US dollar-
denominated so these holdings possess no currency risk.
The credit quality of the high-yield market has noticeably improved
since 1992 as the lower tier (CCC rated) shrank from 7.7% of the
market to 5.1% at the end of 1995. Meanwhile, the upper tier (BB
rated) increased from 24% of the market to 28%. This improvement is
largely in response to new issuance of higher-rated BB and split BB
securities. The significant growth in the supply of more highly-
rated credits has allowed better quality and crossover investors to
increase the size and diversity of their higher-yielding holdings.
Fiscal Year in Review
Merrill Lynch World Income Fund, Inc.'s Class A, Class B, Class C
and Class D Shares registered solid +15.4%, +14.6%, +14.4% and
+15.1% total returns, respectively, for the fiscal year ended
December 31, 1995 as the bond debacle of 1994 reversed course. The
rally in the global markets largely occurred because inflation
failed to rise to the levels priced into bond yields as 1994 came to
a close. (Results shown do not reflect sales charges and would be
lower if sales charges were included. For complete performance
information, see pages 4--8 of this report to shareholders.)
<PAGE>
During the year, we attempted to stay fully invested in the high-
yield portion of the Fund's portfolio to seek to reap the benefits
of generally rising bond prices. While maintaining an overweighted
position in higher-quality credits, we added to holdings in
undervalued companies with rising earnings and sold bonds of issuers
with weak earnings. This strategy enhanced the total return for our
high-yield investments. Overall, however, the Fund underperformed
its benchmark for the fiscal year ended December 31, 1995 largely
because of its overweighted exposures to the dollar and higher-
yielding European markets entering the year. This posture reflected
our belief that solid growth in the United States would continue in
the first half of the year as would the dollar rally which had begun
in October 1994. In an environment of a rising dollar, your Fund is
overweighted in the higher-yielding European markets as their
currencies are generally rising versus the Deutschemark. The
Mexican peso devaluation in late December 1994 began to seriously
affect the higher-yielding currencies in February by casting a
negative light on all high-deficit countries. This led to massive
"safe haven" capital flows from the high-yielding European countries
into the Deutschemark and Swiss Franc. This, coupled with negative
implications regarding the US bailout of Mexico, caused new historic
lows for the dollar.
At the end of the first quarter of 1995, with the recovery beginning
in the emerging markets along with the first easing by the
Bundesbank, the higher-yielding markets started their recovery.
Adjusting our investment posture allowed us to take advantage of
this recovery, which helped enhance total return.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Robert J. Parish)
Robert J. Parish
Vice President and Portfolio Manager
<PAGE>
February 12, 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 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>
Total Return
Based on a
$10,000
Investment--
Class A and
Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML G5AO
Index and the Composite Index. Beginning and ending values are:
9/28/88** 12/95
ML World Income Fund, Inc.++--
Class A Shares*+++ $ 9,600 $19,834
ML G5AO Index++++ $10,000 $18,534
Composite Index++++++ $10,000 $18,705
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the ML G5AO
Index and the Composite Index. Beginning and ending values are:
11/18/91** 12/95
ML World Income Fund, Inc.++--
Class B Shares* $10,000 $13,218
ML G5AO Index++++ $10,000 $13,408
Composite Index++++++ $10,000 $13,508
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML World Income Fund, Inc. invests in a global portfolio of fixed-income
securities denominated in various currencies, including multinational
currency units.
++++This unmanaged Index is comprised of intermediate-term Government bonds
maturing in one to ten years.
++++++This unmanaged Index, which is a blend of the First Boston High Yield
Index and the JP Morgan Global Government Bond Index, is comprised of
mutual funds whose objectives include high current income and total
returns.
+++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.
Average Annual
Total Return--
Class A and
Class B Shares
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 12/31/95 +15.35% +10.73%
Five Years Ended 12/31/95 +10.54 + 9.64
Inception (9/29/88) through 12/31/95 +10.51 + 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 12/31/95 +14.61% +10.61%
Inception (11/18/91) through 12/31/95 + 7.01 + 7.01
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PERFORMANCE DATA (continued)
Total Return
Based on a
$10,000
Investment--
Class C and
Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C and
Class D Shares compared to growth of an investment in the ML G5AO Index and
the Composite Index. Beginning and ending values are:
10/21/94** 12/95
ML World Income Fund, Inc.++--
Class C Shares* $10,000 $11,300
ML World Income Fund, Inc.++--
Class D Shares* $9,600 $10,926
ML G5AO Index++++ $10,000 $11,456
Composite Index++++++ $10,000 $12,482
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML World Income Fund, Inc. invests in a global portfolio of fixed-income
securities denominated in various currencies, including multinational
currency units.
++++This unmanaged Index is comprised of intermediate-term Government bonds
maturing in one to ten years.
++++++This unmanaged Index, which is a blend of the First Boston High Yield
Index and the JP Morgan Global Government Bond Index, is comprised of
mutual funds whose objectives include high current income and total
returns.
Past performance is not predictive of future performance.
<PAGE>
Average Annual
Total Return--
Class C and
Class D Shares
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +14.38% +13.38%
Inception (10/21/94) through 12/31/95 +10.78 +10.78
[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 12/31/95 +15.06% +10.46%
Inception (10/21/94) through 12/31/95 +11.44 + 7.70
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Performance
Summary--
Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/29/88--12/31/88 $9.35 $9.68 $0.001 $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
------ ------
Total $0.050 Total $7.177
Cumulative total return as of 12/31/95: +106.60%**
<PAGE>
<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**
<C> <C> <C> <C> <C> <C>
11/18/91--12/31/91 $9.26 $9.30 -- $0.112 + 1.64%
1992 9.30 8.85 $0.019 0.919 + 5.34
1993 8.85 9.28 0.028 0.681 +13.27
1994 9.28 8.19 -- 0.645 - 4.90
1995 8.19 8.69 -- 0.653 +14.61
------ ------
Total $0.047 Total $3.010
Cumulative total return as of 12/31/95: +32.18%**
<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>
<PAGE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------
Total $0.774
Cumulative total return as of 12/31/95: +13.00%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------
Total $0.836
Cumulative total return as of 12/31/95: +13.81%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/31/95 9/30/95 12/31/94 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.69 $8.56 $8.20 + 5.98% +1.52%
Class B Shares* 8.69 8.55 8.19 + 6.11 +1.64
Class C Shares* 8.68 8.55 8.19 + 5.98 +1.52
Class D Shares* 8.69 8.56 8.20 + 5.98 +1.52
Class A Shares--Total Return* +15.35(1) +3.70(2)
Class B Shares--Total Return* +14.61(3) +3.61(4)
Class C Shares--Total Return* +14.38(5) +3.47(6)
Class D Shares--Total Return* +15.06(7) +3.63(8)
Class A Shares--Standardized 30-day Yield 8.07%
Class B Shares--Standardized 30-day Yield 7.63%
Class C Shares--Standardized 30-day Yield 7.59%
Class D Shares--Standardized 30-day Yield 7.85%
<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 $0.718 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.194 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.653 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.176 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.645 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.174 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.697 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.188 per share ordinary
income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
AFRICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
South Foreign US$ 5,000,000 Republic of South Africa, 9.625%
Africa Government due 12/15/1999 $ 4,984,250 $ 5,400,000 0.3%
Obligations
Total Fixed-Income Investments
in South Africa 4,984,250 5,400,000 0.3
Convertible Bonds
South Metals & US$ 1,000,000 Samancor Ltd., 7% due 6/30/2004 965,000 965,000 0.1
Africa Mining
Total Investments in South African
Convertible Bonds 965,000 965,000 0.1
Total Investments in
African Securities 5,949,250 6,365,000 0.4
LATIN AMERICA &
THE CARIBBEAN Fixed-Income Investments
Argentina Communications US$ 3,000,000 Telecom Argentina Stet--France Telecom
S.A., 8.375% due 10/18/2000 2,697,500 2,842,500 0.2
10,000,000 Telefonica de Argentina S.A., 11.875%
due 11/01/2004 9,800,800 10,350,000 0.7
-------------- -------------- ------
12,498,300 13,192,500 0.9
Energy 5,000,000 Transportadora de Gas del Sur, 9.79%
due 11/01/2010 (e) 5,000,000 5,100,000 0.3
Foreign 2,000,000 Republic of Argentina, 8.375% due
Government 12/20/2003 1,692,000 1,692,000 0.1
Obligations
Total Fixed-Income Investments
in Argentina 19,190,300 19,984,500 1.3
<PAGE>
Brazil Banking US$ 3,000,000 Banco Safra, 9.50% due 11/10/2003 (e) 2,992,500 2,985,000 0.2
3,000,000 Uniao de Brancos Brasileiros, 10.25%
due 6/12/1997 (e) 2,992,500 3,015,000 0.2
-------------- -------------- ------
5,985,000 6,000,000 0.4
Construction 3,000,000 Compania Brasileira de Projetos e
Obras, 12.50% due 12/22/1997 (e) 2,985,000 2,951,250 0.2
Total Fixed-Income Investments
in Brazil 8,970,000 8,951,250 0.6
Colombia Banking & US$ 5,000,000 Banco Ganadero S.A., 9.75%
Finance due 8/26/1999 (e) 4,992,340 5,125,000 0.3
5,000,000 Financira Energetica Nacional,
9% due 11/08/1999 5,140,000 5,187,500 0.4
Total Fixed-Income Investments
in Colombia 10,132,340 10,312,500 0.7
Mexico Foreign Pound 10,000,000 United Mexican States, Government Bond,
Government Sterling 12.25% due 12/03/1998 17,422,208 15,366,780 1.0
Obligations
Total Fixed-Income Investments
in Mexico 17,422,208 15,366,780 1.0
Trinidad & Foreign Republic of Trinidad & Tobago:
Tobago Government US$ 3,000,000 11.50% due 11/20/1997 3,123,750 3,165,000 0.2
Obligations 7,000,000 9.75% due 11/03/2000 (e) 6,987,850 7,210,000 0.5
-------------- -------------- ------
10,111,600 10,375,000 0.7
Total Fixed-Income Investments in
Trinidad & Tobago 10,111,600 10,375,000 0.7
Total Investments in Latin
American & Caribbean Securities 65,826,448 64,990,030 4.3
NORTH
AMERICA
Canada Energy US$ 10,000,000 Gulf Canada Resources, Ltd., 9%
due 8/15/1999 9,158,438 10,550,000 0.7
Paper 5,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 4,800,000 4,737,500 0.3
Total Fixed-Income Investments
in Canada 13,958,438 15,287,500 1.0
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Value Percent of
(continued) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
United Airlines US$ 10,000,000 Delta Air Lines, Inc.,
States 10.50% due 4/30/2016 $ 10,287,500 $ 12,606,500 0.8%
7,100,000 United Air Pass-Through,
10.125% due 3/22/2015 7,684,046 8,521,065 0.6
15,000,000 USAir Inc., 10.375% due 3/01/2013 15,000,000 13,950,000 0.9
-------------- -------------- ------
32,971,546 35,077,565 2.3
Broadcasting/ 10,000,000 Lenfest Communications Inc., 8.375%
Cable due 11/01/2005 9,970,600 10,000,000 0.7
10,000,000 Videotron Group, Ltd. Co., 10.25%
due 10/15/2002 10,043,750 10,500,000 0.7
-------------- -------------- ------
20,014,350 20,500,000 1.4
Building 15,300,000 Pacific Lumber Co., 10.50% due
Materials 3/01/2003 15,462,750 14,496,750 1.0
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 10,979,825 0.7
-------------- -------------- ------
25,180,219 25,476,575 1.7
Chemicals 23,860,000 GI Holdings, Inc., 11.38%*
due 10/01/1998 17,603,845 18,491,500 1.2
10,000,000 Uniroyal Chemical Co., 9%
due 9/01/2000 10,000,000 10,000,000 0.7
-------------- -------------- ------
27,603,845 28,491,500 1.9
Conglomerates 10,000,000 ADT Operations, 9.25% due 8/01/2003 10,066,078 10,725,000 0.7
20,000,000 Coltec Industries Inc., 10.25%
due 4/01/2002 20,387,500 20,550,000 1.4
10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 9,300,000 0.6
10,000,000 Sherritt Gordon, Ltd., 9.75% due
4/01/2003 10,048,250 10,650,000 0.7
-------------- -------------- ------
50,416,828 51,225,000 3.4
Consumer 15,000,000 Revlon Consumer Products Corp.,
Products 9.375% due 4/01/2001 13,237,328 15,187,500 1.0
<PAGE>
Energy 10,000,000 Clark R & M Holdings, Inc., 10.43%*
due 2/15/2000 6,545,715 6,650,000 0.4
9,100,000 Maxus Energy Corp., 9.875% due
10/15/2002 9,086,800 9,145,500 0.6
5,000,000 Oleoducts Central S.A., 9.35%
due 9/01/2005 5,000,000 5,062,500 0.3
15,000,000 Rowan Companies, Inc., 11.875%
due 12/01/2001 15,590,000 16,275,000 1.1
15,000,000 Seagull Energy Corp., 8.625% due
8/01/2005 15,000,000 14,550,000 1.0
10,000,000 TransTexas Gas Corp., 11.50%
due 6/15/2002 (f) 9,999,250 10,325,000 0.7
-------------- -------------- ------
61,221,765 62,008,000 4.1
Entertainment Marvel Holdings Inc.:
1,125,000 9.125% due 2/15/1998 995,625 1,035,000 0.1
26,780,000 11.47%* due 4/15/1998 20,599,454 19,281,600 1.2
5,000,000 Spectravision Inc., 10.92%* due
10/01/2001 4,410,496 1,000,000 0.1
-------------- -------------- ------
26,005,575 21,316,600 1.4
Financial 17,375,000 Lomas Mortgage USA, Inc.,
Services 10.25%* due 10/01/2002 17,387,500 8,340,000 0.5
10,000,000 Penn Financial Corp., 9.25%
due 12/15/2003 10,000,000 10,150,000 0.7
10,000,000 Reliance Group Holdings, Inc.,
9% due 11/15/2000 10,000,000 10,287,500 0.7
-------------- -------------- ------
37,387,500 28,777,500 1.9
Food & Beverage 10,000,000 Canandaigua Wine Inc., 8.75% due
12/15/2003 10,000,000 10,050,000 0.7
10,000,000 Coca-Cola Bottling Co., 9% due
11/15/2003 10,005,000 10,000,000 0.6
20,000,000 Del Monte Corp., 10% due 5/01/2003 20,025,313 17,750,000 1.2
10,000,000 Specialty Foods Corp., 10.25% due
8/15/2001 10,000,000 9,400,000 0.6
-------------- -------------- ------
50,030,313 47,200,000 3.1
Gaming 1,906,000 Goldriver Hotel & Casino Corp.,
13.375% due 8/31/1999 2,645,548 895,820 0.1
10,000,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004 9,996,250 8,775,000 0.6
7,500,000 Harrah's Jazz Co., 14.25% due
11/15/2001 5,178,125 2,062,500 0.1
10,000,000 Showboat, Inc., 9.25% due
5/01/2008 9,748,750 10,050,000 0.7
10,000,000 Trump Plaza Funding, Inc.,
10.875% due 6/15/2001 7,536,875 10,350,000 0.7
-------------- -------------- ------
35,105,548 32,133,320 2.2
<PAGE>
Health Services 5,000,000 Tenet Healthcare Corp.,
8.625% due 12/01/2003 4,983,300 5,275,000 0.3
Home Builders Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 9,435,000 0.6
3,500,000 9.75% due 3/01/2003 3,472,455 3,561,250 0.2
Kaufman & Broad Home, Inc.:
2,000,000 10.375% due 9/01/1999 2,020,000 2,040,000 0.1
5,250,000 9.375% due 5/01/2003 5,217,188 5,184,375 0.4
Ryland Group, Inc.:
9,000,000 10.50% due 7/15/2002 8,907,530 8,910,000 0.6
1,250,000 9.625% due 6/01/2004 1,178,125 1,206,250 0.1
-------------- -------------- ------
30,172,173 30,336,875 2.0
Packaging 20,000,000 Owens-Illinois, Inc., 11%
due 12/01/2003 21,906,563 22,600,000 1.5
Paper 10,000,000 Container Corp. of America,
9.75% due 4/01/2003 10,200,000 9,750,000 0.6
15,000,000 Fort Howard Corp., 9% due 2/01/2006 15,007,500 14,700,000 1.0
10,000,000 Riverwood International Corp.,
11.25% due 6/15/2002 10,385,750 10,850,000 0.7
Stone Container Corp.:
12,500,000 9.875% due 2/01/2001 11,667,085 12,156,250 0.8
7,500,000 10.75% due 10/01/2002 7,425,000 7,743,750 0.5
-------------- -------------- ------
54,685,335 55,200,000 3.6
Restaurants 15,000,000 Flagstar Corp., 11.375% due 9/15/2003 14,640,000 10,650,000 0.7
Supermarkets 15,435,000 Grand Union Co., 12% due 9/01/2004 (f) 15,399,431 13,351,275 0.9
15,000,000 Penn Traffic Co., 9.625% due 4/15/2005 15,334,540 11,700,000 0.8
15,000,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 15,111,875 14,400,000 0.9
-------------- -------------- ------
45,845,846 39,451,275 2.6
Steel 3,500,000 WCI Steel Inc., 10.50% due 3/01/2002 3,320,000 3,403,750 0.2
Textiles 10,000,000 WestPoint Stevens Inc., 8.75%
due 12/15/2001 10,093,750 10,000,000 0.7
Transportation 10,000,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 10,028,438 10,350,000 0.7
Utilities 9,848,000 Beaver Valley II Funding, 9% due
6/01/2017 7,262,900 8,306,591 0.5
4,000,000 CTC Mansfield Funding Corp.,
11.125% due 9/30/2016 4,301,250 4,258,400 0.3
<PAGE> Midland Cogeneration Venture
Limited Partnership:
8,681,888 10.33% due 7/23/2002 (b) 8,508,250 9,155,823 0.6
10,000,000 13.25% due 7/23/2006 11,183,750 10,503,300 0.7
9,100,000 Tucson Electric & Power Co., 10.732%
due 1/01/2013 (e) 8,713,250 9,157,785 0.6
-------------- -------------- ------
39,969,400 41,381,899 2.7
Total Fixed-Income Investments
in the United States 614,819,622 596,042,359 39.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Value Percent of
(continued) Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Canada Metals & US$ 500,000 Inco Ltd., 5.75% due 7/01/2004 $ 525,375 $ 649,375 0.0%
Mining
Paper 1,500,000 Repap Enterprises Inc., 8.50%
due 8/01/1997*** 1,589,399 1,490,625 0.1
Total Investments in
Canadian Convertible Bonds 2,114,774 2,140,000 0.1
United Airlines US$ 3,660,000 AMR Corp., 6.125% due 11/01/2024*** 3,126,770 3,797,250 0.3
States
Building & 800,000 Continental Homes Holding Corp., 6.875%
Construction due 11/01/2002 800,000 944,000 0.1
1,500,000 Toll Brothers Inc., 4.75% due 1/15/2004 1,500,000 1,560,000 0.1
1,000,000 US Home Corp., 4.875% due 11/01/2005 991,000 950,000 0.1
-------------- -------------- ------
3,291,000 3,454,000 0.3
Computers 2,500,000 Data General Corp., 7.75%
due 6/01/2001 2,479,375 2,443,750 0.2
1,000,000 Storage Technology Corp., 8% due
5/31/2015 1,132,500 970,000 0.1
-------------- -------------- ------
3,611,875 3,413,750 0.3
<PAGE>
Conglomerates Polyphase Corp. (e):
500,000 12% due 12/01/1997 500,000 476,250 0.0
2,000,000 12% due 7/01/1999 2,000,000 1,615,000 0.1
2,000,000 Thermo Electron Corp., 4.25%
due 1/01/2003 (e) 2,000,000 2,165,000 0.2
-------------- -------------- ------
4,500,000 4,256,250 0.3
Electronics 1,000,000 Analog Devices Inc., 3.50%
due 12/01/2000 1,000,000 1,067,500 0.1
1,500,000 Thermaquest Corp., 5% due
8/15/2000 (e) 1,500,000 1,571,250 0.1
1,500,000 Thermo Optik Corp., 5% due
10/15/2000 (e) 1,500,000 1,571,250 0.1
-------------- -------------- ------
4,000,000 4,210,000 0.3
Entertainment 4,500,000 Time Warner Inc., 7.99%* due
12/17/2012 1,504,871 1,580,625 0.1
Food & Beverage 2,250,000 Boston Chicken Inc., 4.50%
due 2/01/2004 2,250,000 2,722,500 0.2
1,000,000 Starbucks Corp., 4.25% due 11/01/2002 1,000,000 1,060,000 0.1
-------------- -------------- ------
3,250,000 3,782,500 0.3
Healthcare 700,000 Pharmaceutical Marketing Services,
Inc., 6.25% due 2/01/2003*** (e) 536,700 633,500 0.0
Industrial 500,000 Mascotech, Inc., 4.50% due 12/15/2003 500,000 388,750 0.0
140,000 Recognition Equipment International,
Inc., 7.25% due 4/15/2011 103,600 123,200 0.0
-------------- -------------- ------
603,600 511,950 0.0
Insurance 1,225,000 American Travelers Corp., 6.50%
due 10/01/2005*** 1,384,500 1,678,250 0.1
Machine-- 1,500,000 Cooper Industries, Inc., 7.05% due
Diversified 1/01/2015 (f) 1,474,999 1,545,000 0.1
Machinery 531,000 Raymond Corp., 6.50% due 12/15/2003*** 676,494 732,780 0.0
Machinery--Paper 750,000 Albany International Corp., 5.25%
due 3/15/2002 691,006 671,250 0.0
Mining 2,000,000 Coeur d'Alene Mines Corp., 6.375%
due 1/31/2004 1,916,550 1,845,000 0.1
<PAGE>
Oil--Domestic 2,750,000 USX Corp., 7% due 6/15/2017 2,321,650 2,612,500 0.2
2,080,000 Wainoco Oil Corp., 7.75% due 6/01/2014 1,880,352 1,549,600 0.1
-------------- -------------- ------
4,202,002 4,162,100 0.3
Paper 800,000 Sappi Ltd., 7.50% due 8/01/2002 (e) 800,000 748,000 0.0
Pharmaceuticals 2,600,000 Bindley Western Industries, Inc.,
6.50% due 10/01/2002 2,563,000 2,678,000 0.2
2,000,000 IVAX Corp., 6.50% due 11/15/2001 1,897,500 2,135,000 0.1
-------------- -------------- ------
4,460,500 4,813,000 0.3
Publishing/Printing 2,150,000 Graphic Industries, Inc., 7%
due 5/15/2006*** 1,899,375 1,967,250 0.1
Real Estate 1,720,000 Pacific Gulf Properties, Inc.,
Investment Trust 8.375% due 2/15/2001 1,513,263 1,591,000 0.1
Retail 200,000 Baby Superstores Inc., 4.875% due
10/01/2000 200,000 229,500 0.0
825,000 Baker (J.) Inc., 7% due 6/01/2002 824,527 565,125 0.0
1,000,000 Michaels Stores, Inc., 4.75% due
1/15/2003 1,016,000 805,000 0.1
-------------- -------------- ------
2,040,527 1,599,625 0.1
Telecommunications 3,420,000 Intelcom Group Inc., 7% due
10/30/1998 (a)(f) 3,365,137 2,873,688 0.2
Textiles 375,000 Fieldcrest Cannon, Inc., 6%
due 3/15/2012 285,000 255,000 0.0
Transportation 212,000 Alaska Air Group Inc., 7.75%
due 6/15/2010 193,450 192,920 0.0
2,500,000 UAL Corp., 6.375% due 2/01/2025*** 2,245,647 2,806,250 0.2
300,000 Varlen Corp., 6.50% due 6/01/2003 297,000 300,000 0.0
-------------- -------------- ------
2,736,097 3,299,170 0.2
Total Investments in United States
Convertible Bonds 51,870,266 53,420,938 3.5
Convertible Preferred Stocks,
Shares Held Common Stocks & Warrants
Canada Water Filtration 33,000 Laidlaw Inc. 701,250 853,875 0.1
Total Investments in Canadian
Convertible Preferred Stocks,
Common Stocks & Warrants 701,250 853,875 0.1
<PAGE>
United Banking & Finance 25,000 Glendale Federal Savings Bank
States (Series E), Conv. Pfd.*** 1,074,625 1,131,250 0.1
38,300 Rochester Community Savings Bank,
$1.75 (Series B) 1,100,014 1,407,525 0.1
26,300 Southern National Corp., Pfd. $1.6875 843,178 1,019,125 0.1
50,200 Union Planters Corp., Pfd. $2.00 1,775,655 1,982,900 0.1
-------------- -------------- ------
4,793,472 5,540,800 0.4
Electronics 85,154 Rexel S.A. (f) 787,820 1,149,579 0.1
Entertainment 30,000 Time Warner Financial 930,000 937,500 0.1
Environmental 35,200 Allied Waste Industries, Inc.,
$90 Conv. Pfd.*** (e)(g) 3,520,401 5,033,600 0.3
Financial Services 35,000 U.S. West Communications, Inc.,
Conv. Pfd. 840,000 918,750 0.1
Food & Beverage 346,500 RJR Nabisco, Inc., Pfd.
$.60 (Series C) 2,250,782 2,208,938 0.1
Forest Products & 44,800 James River Corp. of Virginia 1,969,537 2,077,600 0.1
Paper 15,000 James River Corp. of Virginia, $3.375
(Series K), Conv. Pfd. 668,330 686,250 0.0
-------------- -------------- ------
2,637,867 2,763,850 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Convertible Preferred Stocks, Value Percent of
(concluded) Industries Face Amount Common Stocks & Warrants Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
United Gaming 75,000 Goldriver Hotel & Casino Corp.,
States Liquidating Trust $ 75,000 $ 53,437 0.0%
(concluded) 30,000 Goldriver Hotel & Casino Corp.
(Series B)(d) 219,738 30,000 0.0
6,000 Trump Taj Mahal Funding, Inc.
(Class A) 3,000 108,000 0.0
-------------- -------------- ------
297,738 191,437 0.0
<PAGE>
High Technology 91,053 Anacomp, Inc. (Warrants)(c) 120,000 2,850 0.0
Hotels 1,608 Buckhead America Corp. 8,291 9,648 0.0
Industrial Services 20,000 Mascotech, Inc., Pfd $1.20 312,460 250,000 0.0
10,000 UGI Corp. (Warrants)(c) 43,750 1,500 0.0
-------------- -------------- ------
356,210 251,500 0.0
Insurance 36,200 Kemper Corp., Pfd. $5.25
(Series E) (e) 1,674,974 1,900,500 0.1
1,500 Westbridge Capital Corp., Pfd. (e) 1,500,000 1,320,000 0.1
-------------- -------------- ------
3,174,974 3,220,500 0.2
Oil & Gas 28,000 Callon Petroleum Co. 700,000 756,000 0.0
39,000 Enron Corp. 848,250 936,000 0.1
35,000 Lomak Petroleum Inc. (e) 875,000 988,750 0.1
43,000 Snyder Oil Corp., Pfd. $1.50
(Series A) 906,023 849,250 0.1
20,000 Western Gas Resources, Inc.,
Pfd. $2.62 1,000,000 700,000 0.0
-------------- -------------- ------
4,329,273 4,230,000 0.3
Total Investments in United
States Convertible Preferred Stocks,
Common Stocks & Warrants 24,046,828 26,458,952 1.7
Total Investments in North American
Securities 707,511,178 694,203,624 45.8
PACIFIC
BASIN Face Amount Fixed-Income Investments
Australia Foreign Australian Government Bonds:
Government A$ 65,000,000 10% due 10/15/2002 53,972,473 53,344,302 3.5
Obligations 48,000,000 9.50% due 8/15/2003 36,936,368 38,559,289 2.6
-------------- -------------- ------
90,908,841 91,903,591 6.1
Total Fixed-Income Investments
in Australia 90,908,841 91,903,591 6.1
India Chemicals US$ 3,000,000 Reliance Industries, Ltd.,
8.125% due 9/27/2005 (e) 2,994,900 3,015,000 0.2
Total Fixed-Income Investments
in India 2,994,900 3,015,000 0.2
<PAGE>
New Zealand Foreign NZ$ 47,000,000 New Zealand Government Bonds, 10%
Government due 7/15/1997 31,760,291 31,548,485 2.1
Obligations
Total Fixed-Income Investments
in New Zealand 31,760,291 31,548,485 2.1
Philippines Industrial US$ 3,000,000 San Miguel Corp., 9% due 4/27/2000 (e) 2,981,000 3,165,000 0.2
Telecommunications 6,000,000 Philippine Long Distance Telephone Co.,
9.875% due 8/01/2005 5,999,220 6,367,500 0.4
Total Fixed-Income Investments
in the Philippines 8,980,220 9,532,500 0.6
Total Investments in
Pacific Basin Securities 134,644,252 135,999,576 9.0
WESTERN
EUROPE
Denmark Foreign Denmark Government Bonds:
Government Dkr 47,500,000 8% due 5/15/2003 8,901,926 9,128,946 0.6
Obligations 38,270,000 8% due 3/15/2006 6,911,463 7,262,532 0.5
190,750,000 Denmark Kingdom, 9% due 11/15/2000 37,427,487 38,222,267 2.5
-------------- -------------- ------
53,240,876 54,613,745 3.6
Total Fixed-Income Investments
in Denmark 53,240,876 54,613,745 3.6
Germany Consumer US$ 10,000,000 Tarkett International, 9% due
Products 3/01/2002 10,000,000 10,637,500 0.7
Foreign DM 65,000,000 German Unity Fund, 8% due 1/21/2002 51,194,207 51,173,594 3.4
Government
Obligations
Total Fixed-Income Investments
in Germany 61,194,207 61,811,094 4.1
Ireland Dental US$ 500,000 Phoenix Shannon PLC, 9.50% due
Equipment & 11/01/2000 (e) 500,000 500,000 0.0
Supplies
Total Fixed-Income Investments
in Ireland 500,000 500,000 0.0
<PAGE>
Italy Foreign Buoni Poliennali del Tesoro
Government (Italian Government Bonds):
Obligations Lit 114,250,000,000 10.50% due 4/01/2000 69,861,583 72,629,842 4.8
69,000,000,000 10.50% due 9/01/2005 39,988,905 43,154,385 2.8
-------------- -------------- ------
109,850,488 115,784,227 7.6
Total Fixed-Income Investments
in Italy 109,850,488 115,784,227 7.6
Spain Foreign Government of Spain:
Government Pta 9,299,000,000 12.25% due 3/25/2000 77,526,746 84,208,676 5.6
Obligations 6,810,000,000 10.50% due 10/30/2003 53,942,369 58,799,085 3.9
-------------- -------------- ------
131,469,115 143,007,761 9.5
Total Fixed-Income Investments
in Spain 131,469,115 143,007,761 9.5
Sweden Foreign Sek 160,000,000 Government of Sweden,
Government 11% due 1/21/1999 24,416,724 25,946,794 1.7
Obligations
Total Fixed-Income Investments
in Sweden 24,416,724 25,946,794 1.7
Turkey Foreign US$ 2,000,000 Republic of Turkey, 8.75%
Government due 10/05/1998 (e) 1,994,820 1,975,000 0.1
Obligations
Total Fixed-Income Investments
in Turkey 1,994,820 1,975,000 0.1
United Broadcasting US$ 15,000,000 Videotron Holdings PLC, 11%*
Kingdom /Cable due 8/15/2005 8,967,548 9,300,000 0.6
Communications 20,000,000 Telewest Communications PLC, 10.98%*
due 10/01/2007 12,028,180 12,075,000 0.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
WESTERN EUROPE Value Percent of
(concluded) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
United Foreign Pound United Kingdom Gilt:
Kingdom Government Sterling 37,350,000 9.75% due 8/27/2002 $ 63,735,056 $ 65,873,719 4.4%
(concluded) Obligations 17,350,000 8.50% due 12/07/2005 27,960,025 28,967,167 1.9
-------------- -------------- ------
91,695,081 94,840,886 6.3
Total Fixed-Income Investments
in the United Kingdom 112,690,809 116,215,886 7.7
Total Investments in
Western European Securities 495,357,039 519,854,507 34.3
SHORT-TERM
SECURITIES Issue
Commercial US$ 16,320,000 General Electric Capital Corp., 5.90%
Paper** due 1/02/1996 16,320,000 16,320,000 1.1
20,886,000 Matterhorn Capital Corp., 5.74%
due 1/23/1996 20,816,067 20,816,067 1.5
-------------- -------------- ------
37,136,067 37,136,067 2.6
US Government US Treasury Bills:
& Agency 2,000,000 5.335% due 2/15/1996 1,986,959 1,986,900 0.1
Obligations** 2,000,000 5.36% due 2/15/1996 1,986,898 1,986,900 0.1
9,000,000 5.375% due 2/15/1996 8,940,875 8,941,050 0.6
2,000,000 5.34% due 2/22/1996 1,984,870 1,985,700 0.1
2,000,000 5.345% due 2/22/1996 1,984,856 1,985,700 0.1
3,000,000 5.255% due 3/14/1996 2,968,470 2,969,490 0.2
-------------- -------------- ------
19,852,928 19,855,740 1.2
Total Investments in
Short-Term Securities 56,988,995 56,991,807 3.8
Total Investments 1,466,277,162 1,478,404,544 97.6
<PAGE>
OPTIONS Number of Contracts/ Premiums
WRITTEN Face Amount Received
Currency Put 40,000,000 German Deutschemark/Italian Lira,
Options Written expiring February 1996 at
DM/Lit 1,090 (230,028) (166,040) 0.0
Total Options Written (230,028) (166,040) 0.0
Total Investments, Net of Options Written $1,466,047,134 1,478,238,504 97.6
==============
Short Sales (Proceeds--$7,738,513)*** (8,377,737) (0.6)
Unrealized Depreciation on Forward Foreign Exchange Contracts--Net++ (97,888) 0.0
Other Assets Less Liabilities 44,664,846 3.0
-------------- ------
Net Assets $1,514,427,725 100.0%
============== ======
<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 December 31, 1995 are as
follows:
<CAPTION>
Common Value
Shares Issue (Note 1i)
<C> <S> <C>
27,800 AMR Corp. $(2,060,675)
196,370 Allied Waste Industries, Inc. (1,399,136)
43,100 American Travelers Corp. (1,212,188)
50,000 Glendale Federal Savings Bank (868,750)
12,000 Graphic Industries, Inc. (147,000)
26,200 Pharmaceutical Marketing Services, Inc. (396,275)
25,200 Raymond Corp. (585,900)
72,200 Repap Enterprises Inc. (320,388)
7,800 UAL Corp. (1,387,425)
Total (Proceeds--$7,738,513) $(8,377,737)
===========
<PAGE>
++Forward foreign exchange contracts as of December 31, 1995 are
as follows:
<CAPTION>
Unrealized
Appreciation
Expiration (Depreciation)
Date (Note 1c)
Foreign Currency Purchased
<S> <C> <S> <C>
DM 38,000,000 January 1996 $ 183,457
Total (US$ Commitment--$26,383,392) $ 183,457
------------
Foreign Currency Sold
Lit 42,352,900,000 January 1996 $ (281,345)
Total (US$ Commitment--$26,383,392) $ (281,345)
------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $ (97,888)
============
(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)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $62,222,000,
representing 4.1% of net assets.
<PAGE>
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Allied Waste Industries, Inc., 9/23/1993-
$90 Conv. Pfd. 10/6/1994 $ 3,520,401 $ 5,033,600
Banco Ganadero S.A., 8/10/1994-
9.75% due 8/26/1999 6/06/1995 4,992,340 5,125,000
Banco Safra, 9.50%
due 11/10/2003 11/02/1995 2,992,500 2,985,000
Compania Brasileira de
Projetos e Obras, 12.50%
due 12/22/1997 12/14/1994 2,985,000 2,951,250
Kemper Corp., Pfd.
$5.25 (Series E) 4/4/1995 1,674,974 1,900,500
Lomak Petroleum Inc. 1/15/1996 875,000 988,750
Pharmaceutical Marketing
Services, Inc., 6.25% 10/28/1994-
due 2/01/2003 11/01/1994 536,700 633,500
Phoenix Shannon PLC,
9.50% due 11/01/2000 11/21/1995 500,000 500,000
Polyphase Corp.,
12% due 12/01/1997 12/05/1995 500,000 476,250
Polyphase Corp.,
12% due 7/01/1999 7/05/1994 2,000,000 1,615,000
Reliance Industries, Ltd.,
8.125% due 9/27/2005 9/22/1995 2,994,900 3,015,000
Republic of Trinidad & Tobago, 10/15/1993-
9.75% due 11/03/2000 8/18/1995 6,987,850 7,210,000
Republic of Turkey,
8.75% due 10/05/1998 9/19/1995 1,994,820 1,975,000
San Miguel Corp., 9/26/1994-
9% due 4/27/2000 9/30/1994 2,981,000 3,165,000
Sappi Ltd., 7.50%
due 8/01/2002 7/19/1995 800,000 748,000
Thermaquest Corp.,
5% due 8/15/2000 7/20/1995 1,500,000 1,571,250
Thermo Electron Corp.,
4.25% due 1/01/2003 11/28/1995 2,000,000 2,165,000
Thermo Optik Corp.,
5% due 10/15/2000 9/28/1995 1,500,000 1,571,250
Transportadora de Gas del Sur,
9.79% due 11/01/2010 11/02/1995 5,000,000 5,100,000
Tucson Electric & Power Co.,
10.732% due 1/01/2013 8/03/1993 8,713,250 9,157,785
Uniao de Brancos Brasileiros, 5/24/1995-
10.25% due 6/12/1997 5/25/1995 2,992,500 3,015,000
Westbridge Capital Corp., Pfd. 4/12/1994 1,500,000 1,320,000
<PAGE>
Total $59,541,235 $62,222,135
=========== ===========
(f)Non-income producing security.
(g)Each unit consists of 10 shares.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,466,277,162) (Note 1a) $1,478,404,544
Cash 1,932,347
Foreign cash (Note 1d) 3,243,505
Receivables:
Interest $ 41,562,485
Short sales (Note 1i) 7,761,183
Capital shares sold 4,819,734
Securities sold 3,035,338
Dividends 143,631
Forward foreign exchange contracts (Note 1c) 55,302 57,377,673
--------------
Prepaid registration fees and other assets (Note 1g) 116,410
--------------
Total assets 1,541,074,479
--------------
Liabilities: Common stocks sold short, at market value
(proceeds--$7,738,513) (Note 1i) 8,377,737
Options written, at value (premiums received--$230,028)
(Notes 1a & 1c) 166,040
Unrealized depreciation on forward foreign exchange contracts
(Note 1c) 97,888
Payables:
Dividends to shareholders (Note 1h) 7,673,344
Capital shares redeemed 4,427,660
Securities purchased 3,835,549
Distributor (Note 2) 817,661
Investment adviser (Note 2) 793,729
Forward foreign exchange contracts (Note 1c) 11,249 17,559,192
--------------
Accrued expenses and other liabilities 445,897
--------------
Total liabilities 26,646,754
--------------
<PAGE>
Net Assets: Net assets $1,514,427,725
==============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 1,000,000,000 shares authorized $ 3,001,011
Class B Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 14,299,151
Class C Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 62,296
Class D Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 72,725
Paid-in capital in excess of par 1,570,282,963
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 6) (85,047,460)
Unrealized appreciation on investments and foreign
currency transactions--net 11,757,039
--------------
Net assets $1,514,427,725
==============
Net Asset Class A--Based on net assets of $260,806,316 and 30,010,112
Value: shares outstanding $ 8.69
==============
Class B--Based on net assets of $1,241,895,723 and 142,991,509
shares outstanding $ 8.69
==============
Class C--Based on net assets of $5,405,846 and 622,955 shares
outstanding $ 8.68
==============
Class D--Based on net assets of $6,319,840 and 727,249 shares
outstanding $ 8.69
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned (net of $1,785,700 withholding tax) $ 149,652,318
Income Dividends 1,703,626
(Notes 1e & 1f): Other income 736,648
--------------
Total income 152,092,592
--------------
<PAGE>
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 10,044,327
Investment advisory fees (Note 2) 9,774,596
Transfer agent fees--Class B (Note 2) 1,732,922
Custodian fees 507,288
Printing and shareholder reports 333,033
Transfer agent fees--Class A (Note 2) 312,274
Accounting services (Note 2) 150,832
Registration fees (Note 1g) 140,376
Professional fees 131,120
Directors' fees and expenses 41,697
Account maintenance and distribution fees--Class C (Note 2) 27,242
Short sale of dividends (Note 1i) 20,458
Pricing fees 10,061
Account maintenance fees--Class D (Note 2) 6,975
Transfer agent fees--Class C (Note 2) 5,552
Transfer agent fees--Class D (Note 2) 3,016
Other 54,106
--------------
Total expenses 23,295,875
--------------
Investment income--net 128,796,717
--------------
Realized & Realized loss from:
Unrealized Gain Investments--net (15,611,546)
(Loss) on Foreign currency transactions--net (33,903,295) (49,514,841)
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 138,925,679
(Notes 1c, 1d, Foreign currency transactions--net 5,417,526 144,343,205
1f & 3): -------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 94,828,364
--------------
Net Increase in Net Assets Resulting from Operations $ 223,625,081
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 128,796,717 $ 167,081,662
Realized loss on investments and foreign currency
transactions--net (49,514,841) (107,581,837)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 144,343,205 (173,922,162)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 223,625,081 (114,422,337)
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (18,898,095) (19,926,079)
Shareholders Class B (81,220,841) (84,931,858)
(Note 1h): Class C (203,152) (4,853)
Class D (179,224) (6,907)
Return of capital:
Class A (5,320,682) (11,820,707)
Class B (22,867,399) (50,383,950)
Class C (57,196) (2,879)
Class D (50,460) (4,097)
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (128,797,049) (167,081,330)
-------------- --------------
Capital Share Net decrease in net assets derived from capital
Transactions share transactions (384,702,641) (487,938,280)
(Note 4): -------------- --------------
Net Assets: Total decrease in net assets (289,874,609) (769,441,947)
Beginning of year 1,804,302,334 2,573,744,281
-------------- --------------
End of year $1,514,427,725 $1,804,302,334
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data
and ratios have been derived
from information provided in Class A
the financial statements. For the Four
For the Year Ended Months Ended For the Year Ended
Increase (Decrease) December 31, Dec. 31, August 31,
in Net Asset Value: 1995 1994++++ 1993 1992 1992 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07 $ 9.48
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .72 .72 .75 .29 .99 1.12
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
--net .49 (1.09) .46 (.41) .40 (.16)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.21 (.37) 1.21 (.12) 1.39 .96
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.56) (.45) (.58) (.35) (1.12) (1.37)
Realized gain on investments
--net -- -- (.03) (.02) -- --
Return of capital--net (.16) (.26) (.17) -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.72) (.71) (.78) (.37) (1.12) (1.37)
======== ======== ======== ======== ======== ========
Net asset value, end of period $ 8.69 $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value
Return:** per share 15.35% (4.05%) 14.12% (1.26%)+++ 16.09% 11.50%
======== ======== ======== ======== ======== ========
Ratios to Average Expenses .80% .77% .78% .76%* .88% .85%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 8.54% 8.17% 8.22% 8.09%* 11.16% 12.38%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $260,806 $311,181 $467,625 $455,672 $526,631 $292,709
======== ======== ======== ======== ======== ========
Portfolio turnover 116.00% 115.95% 182.88% 68.42% 76.18% 63.83%
======== ======== ======== ======== ======== ========
<PAGE>
<CAPTION>
Class B
For the For the
The following per share data and ratios Four Period
have been derived from information Months Nov. 18,
provided in the financial statements. For the Year Ended Ended 1991++ to
December 31, Dec. 31, Aug. 31,
Increase (Decrease) in Net Asset Value: 1995 1994++++ 1993 1992 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.19 $ 9.28 $ 8.85 $ 9.33 $ 9.26
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .65 .65 .70 .27 .77
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .50 (1.10) .44 (.40) --
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.15 (.45) 1.14 (.13) .77
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.51) (.40) (.53) (.33) (.70)
Realized gain on investments--net -- -- (.03) (.02) --
Return of capital--net (.14) (.24) (.15) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.65) (.64) (.71) (.35) (.70)
========== ========== ========== ========== ==========
Net asset value, end of period $ 8.69 $ 8.19 $ 9.28 $ 8.85 $ 9.33
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 14.61% (4.90%) 13.27% (1.42%)+++ 8.61%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses, excluding account
Net Assets: maintenance and distribution fees .81% .79% .80% .78%* .88%*
========== ========== ========== ========== ==========
Expenses 1.56% 1.54% 1.55% 1.53%* 1.63%*
========== ========== ========== ========== ==========
Investment income--net 7.77% 7.41% 7.42% 7.08%* 8.02%*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $1,241,896 $1,490,507 $2,106,120 $1,582,270 $1,514,406
========== ========== ========== ========== ==========
Portfolio turnover 116.00% 115.95% 182.88% 68.42% 76.18%
========== ========== ========== ========== ==========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios For the Period For the Period
have been derived from information Year Oct. 21, Year Oct. 21,
provided in the financial statements. Ended 1994++ to Ended 1994++ to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995 1994++++ 1995 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.19 $ 8.42 $ 8.20 $ 8.43
Operating -------- -------- -------- --------
Performance: Investment income--net .64 .10 .70 .11
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .49 (.20) .49 (.20)
-------- -------- -------- --------
Total from investment operations 1.13 (.10) 1.19 (.09)
-------- -------- -------- --------
Less dividends:
Investment income--net (.50) (.08) (.55) (.09)
Return of capital--net (.14) (.05) (.15) (.05)
-------- -------- -------- --------
Total dividends (.64) (.13) (.70) (.14)
======== ======== ======== ========
Net asset value, end of period $ 8.68 $ 8.19 $ 8.69 $ 8.20
======== ======== ======== ========
Total Investment Based on net asset value per share 14.38% (1.20%)+++ 15.06% (1.09%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees .85% .84%* .79% .79%*
======== ======== ======== ========
Expenses 1.65% 1.64%* 1.04% 1.04%*
======== ======== ======== ========
Investment income--net 7.65% 8.00%* 8.23% 8.60%*
======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 5,406 $ 1,204 $ 6,320 $ 1,410
======== ======== ======== ========
Portfolio turnover 116.00% 115.95% 116.00% 115.95%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
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. 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 contracts 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).
NOTES TO FINANCIAL STATEMENTS (continued)
Written and purchased options are non-income producing
investments.
(d) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends, and capital gains at various
rates.
(f) Security transactions and investment income--Security
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.
<PAGE>
(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 years ended December 31, 1995 and December
31, 1994 is characterized as a return of capital.
(i) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds received by the Fund is reflected as an asset
and equivalent liability. The amount of the liability is
subsequently marked to market to reflect the market value of the
short sale. The Fund maintains a segregated account of securities as
collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock
exceeds the market value of the securities in the segregated
account.
(j) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $28,295,737 have been reclassified from paid-in capital in excess
of par to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., 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.
<PAGE>
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 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% --
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 year ended December 31, 1995, MLFD earned underwriting
discounts and commissions 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 $5,727 $42,975
Class D $8,054 $70,140
For the year ended December 31, 1995, MLPF&S received contingent
deferred sales charges of $3,902,431 and $4,150 relating to
transactions in Class B and Class C Shares, respectively.
<PAGE>
In addition, MLPF&S received $59,004 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 1995.
During the year ended December 31, 1995, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $5,414 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 year ended December 31, 1995 were $1,711,198,428 and
$2,097,266,197, respectively.
Net realized and unrealized gains (losses) as of December 31, 1995
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ (10,535,610) $ 12,124,570
Short-term -- 2,812
Short sales 2,810,789 (639,224)
Financial futures contracts (7,886,725) --
------------- -------------
Total investments (15,611,546) 11,488,158
------------- -------------
Currency transactions:
Options purchased (2,886,131) --
Options written (186,000) 63,988
Foreign currency transactions 12,030,834 302,781
Forward foreign exchange
contracts (42,861,998) (97,888)
------------- -------------
Total currency transactions (33,903,295) 268,881
------------- -------------
Total $ (49,514,841) $ 11,757,039
============= =============
<PAGE>
Transactions in call options written for the year ended December 31,
1995 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options
written, beginning of year $ 206,195,000 $ 611,894
Options written 539,233,080 3,136,587
Options closed (278,596,300) (1,710,551)
Options expired (466,831,780) (2,037,930)
------------- -------------
Outstanding call options
written, end of year $ -- $ --
============= =============
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in put options written for the year ended December 31,
1995 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
Outstanding put options
written, beginning of year -- --
Options written 517,000,000 $ 3,595,692
Options closed (382,000,000) (2,536,299)
Options exercised (95,000,000) (829,365)
------------- -------------
Outstanding put options
written, end of year 40,000,000 $ 230,028
============= =============
As of December 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $9,956,722, of which $54,325,787
related to appreciated securities and $44,369,065 related to
depreciated securities. The aggregate cost of investments at
December 31, 1995 for Federal income tax purposes was
$1,468,447,822.
<PAGE>
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $(384,702,641) and $(487,938,280) for the years ended December
31, 1995 and December 31, 1994, respectively.
Transactions in shares of capital for each class were as follows:
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 A Shares for the Year Dollar
Ended December 31, 1994 Shares Amount
Shares sold 2,498,395 $ 22,105,372
Shares issued to shareholders
in reinvestment of dividends &
distributions 1,047,864 9,035,061
------------- -------------
Total issued 3,546,259 31,140,433
Shares redeemed (15,962,356) (138,247,016)
------------- -------------
Net decrease (12,416,097) $(107,106,583)
============= =============
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 B Shares for the Year Dollar
Ended December 31, 1994 Shares Amount
Shares sold 22,383,630 $ 198,076,750
Shares issued to shareholders
in reinvestment of dividends &
distributions 7,257,720 62,563,579
------------- -------------
Total issued 29,641,350 260,640,329
Automatic conversion of shares (10,524) (87,484)
Shares redeemed (74,723,963) (644,026,143)
------------- -------------
Net decrease (45,093,137) $(383,473,298)
============= =============
Class C Shares for the
Year Ended Dollar
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 C Shares for the
Period October 21, 1994++ to Dollar
December 31, 1994 Shares Amount
Shares sold 149,131 $ 1,233,348
Shares issued to shareholders
in reinvestment of dividends &
distributions 710 5,824
------------- -------------
Total issued 149,841 1,239,172
Shares redeemed (2,720) (22,392)
------------- -------------
Net increase 147,121 $ 1,216,780
============= =============
[FN]
++Commencement of Operations.
<PAGE>
Class D Shares for the
Year Ended Dollar
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
============= =============
Class D Shares for the
Period October 21, 1994++ to Dollar
December 31, 1994 Shares Amount
Shares sold 177,383 $ 1,470,555
Shares issued to shareholders
in reinvestment of dividends &
distributions 827 6,792
Automatic conversion of shares 10,511 87,484
------------- -------------
Total issued 188,721 1,564,831
Shares redeemed (16,769) (140,010)
------------- -------------
Net increase 171,952 $ 1,424,821
============= =============
[FN]
++Commencement of Operations.
5. Commitments:
At December 31, 1995, the Fund entered into foreign exchange
contracts, in addition to the contracts listed in the Schedule of
Investments, under which it had agreed to sell various foreign
currencies with a value of approximately $55,000.
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.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch World Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
World Income Fund, Inc. as of December 31, 1995, the related
statements of operations for the year then ended and changes in net
assets for the two-year period then ended, and the financial
highlights for the periods presented. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch World Income Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 12, 1996
</AUDIT-REPORT
