MERRILL LYNCH
WORLD INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 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
<PAGE>
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
Important Tax
Information
(unaudited)
Of the monthly cash distributions paid by Merrill Lynch World Income
Fund, Inc. during its taxable year ended December 31, 1996, 2.69%
qualifies for the dividends received deduction for corporations.
Additionally, there were no long-term capital gains distributed by
the Fund during the year.
Please retain this information for your records.
DEAR SHAREHOLDER
Global Environment
Global economic activity converged during the latter part of the
year as the US economy slowed sharply and Europe's economy continued
to firm. US gross domestic product (GDP) in the second half of 1996
appears to have eased to a trend-like level of 2.25% compared to the
rapid 4.7% pace posted in the second quarter. In addition, the
composition of GDP was relatively weak as final sales rose only
0.5%. News about inflation generally continued to be positive as
overall inflation accelerated to 3.3% on the back of increases in
food and energy prices, but core inflation slowed.
The Federal Reserve Board's tightening bias (adopted July 2, 1996)
was unchanged at its November Federal Open Market Committee meeting
(FOMC), and was maintained at the December FOMC meeting. In Europe,
Bundesbank officials strongly suggested further interest rate
declines are not imminent, given the strong third quarter along with
the likelihood that money supply will not fall back within target
bands before year-end. However, since then, industrial production
and manufacturing orders for September and October's labor report
were soft enough to suggest a sharp pause in fourth quarter
activity.
<PAGE>
Arctic-type weather in Europe in December is likely to cause a weak
fourth quarter and a slow start to the new year. The United Kingdom
shocked investors by raising interest rates 25 basis points (0.25%)
following September's strong inflation report. Further interest rate
hikes in the near term cannot be ruled out but are less likely since
1996 ended with a sharp rise in the currency and the strong
possibility inflation will drift lower in the first quarter. Italy,
Spain and Sweden cut interest rates further as inflation continued
to post positive surprises. The Reserve Bank of Australia reduced
interest rates by 50 basis points to 6%, on the back of additional
signs of labor weakness coupled with improved inflationary
expectations. The Bank of Canada continued lowering interest rates
on the back of further currency strength and continued weak
activity. Finally, the emerging markets posted excellent gains in
the fourth quarter, despite a sharp decline in October fueled by
political tension in Argentina and volatility in the Mexican peso.
Investment Outlook &
Portfolio Strategy
During October and November, ten-year yields declined sharply as the
weak third quarter growth in the United States provided a very
positive backdrop off which positive inflation fundamentals in
Australia, Canada, Italy, Spain and Sweden fueled even larger
declines in these markets. During December, interest rates rose
sharply in the United States following sobering comments from
Federal Reserve Board Chairman Greenspan and strong activity data
reported in the last week of 1996. This rise had a negative
contagion effect on most of the world's other major bond markets.
Mr. Greenspan raised the profile of financial asset prices in
setting monetary policy, thereby suggesting that further strong
gains could provide a basis for raising interest rates in the new
year. The US dollar was generally unchanged versus the European
currencies except against the pound sterling, which rose over 9%
following the Bank of England's surprise interest rate hike. The
Canadian and Australian dollars were also unchanged, although they
rose sharply during the quarter but faded on the back of low and/or
declining interest rate support. During this period, the unmanaged
JP Morgan Global Government Index generated a total return of
roughly +2.8% in dollar terms, the unmanaged Merrill Lynch High
Yield Master Index recorded a gain of 3.9%, and the unmanaged JP
Morgan Brady Index gained 6.6%.
We shifted the mix of dollar bloc and European bloc exposures
slightly from 68%/32% to 70%/30% at year-end. Within the dollar bloc
we sold our Canadian position using the proceeds along with cash to
initiate a new position in Australia. In Europe, we sharply reduced
the Danish position, moving the proceeds into Italy and Sweden. We
increased the average maturity of the portfolio slightly from 6.4
years to 6.7 years. Currency movements had a small negative impact
on the portfolio.
<PAGE>
Over the past three months, the global fixed-income markets went
from facing the prospect of a Federal Reserve Board tightening to
one with no hike, back to the possibility of one following
December's news. The United States certainly took a big activity
breath in the second half of 1996, and Germany took one in the
fourth quarter. Given the weakness in the United States during the
third quarter, the jumping off point for the fourth quarter is quite
low, making it unlikely that above-trend growth will be achieved in
the second half. The critical issue is whether the US consumer, who
is armed with confidence, rising income and a solid balance sheet,
starts spending.
Europe's economy slowed toward the end of 1996 as cold weather,
strikes and the tax-induced collapse in French auto sales (all
temporary drags) negatively impacted activity. In addition, this
downshifting was only natural following the strong spring and
summer. The substantial easing in monetary conditions should
continue to spur consumer spending and rising global demand is
boosting exports. The expansion should continue to move forward,
although stresses in the labor market and tighter fiscal policy will
be constraining factors which will ensure continued growth-
supportive monetary conditions. European markets are likely to
continue to outperform in this environment, although the richer
valuations and the less-clear outlook for the United States casts
some uncertainty on this view. The outlook for emerging markets
remains positive given the continuation of fundamental and political
improvements in the domestic economies and the longevity of the
current global liquidity cycle.
Regarding currency movements, the wide spread between US short-term
interest rates and those of Germany and Japan should keep a solid
floor under the dollar, leaving the upside largely a function of
relative growth and monetary policy expectations. With the
satisfactory conclusion of the European Monetary Union (EMU) summit
in December, the timetable for EMU was reinforced, which should
maintain the dollar support from this factor during the first half
of 1997.
The High-Yield and
Convertible Bond Market
The quarter and year ended December 31, 1996 provided excellent
investment results for the high-yield market with returns for the
unmanaged Credit Suisse First Boston High Yield Index of +4.41% and
+12.42% for the quarter and year, respectively.
<PAGE>
While the ten-year US Treasury note returned a competitive +3.6% for
the quarter, the return for all of 1996 was an anemic 1%. Thus,
yield spreads between the two markets collapsed. Research provided
by Chase Securities, Inc. showed that the yield spread of the BB-
rated securities tightened from 3% at year-end 1995 to 2.125% off
Treasury issues of similar maturity; and B-rated issues tightened
even more dramatically from 5.50% at year-end 1995 to 3.875% in
1996.
The high-yield market benefited from positive fundamentals. These
included low defaults, merger and acquisition activity, which on
balance improved the credit quality of issuers, a buoyant equity
market, which encouraged new common stock offerings by leveraged
companies, and the further recovery of dollar-denominated emerging
market debt issued by companies domiciled in Argentina, Brazil and
other non-investment grade countries. A reflection of the overall
net improvement in credit quality is indicated by the credit quality
changes reported in 1996 by Duff and Phelps, an independent bond
rating firm. In addition, within the high-yield sector, this agency
reported 138 credit upgrades compared to 65 downgrades.
While new-issue supply in 1996 was a record $78 billion, the demand
from all categories of high-yield buyers was strong. This included
so-called "crossover" buyers, who are purchasers that normally buy
investment-grade bonds but moved into the high-yield market seeking
improved performance. Surprisingly, credit quality remained
relatively stable with no apparent excesses. The most default prone
ratings segment, B- and CCC-rated issues, composed 19% of new
issuance, which is slightly lower than in 1995.
While BB-rated bonds modestly outperformed B-rated bonds during the
quarter, B-rated bonds produced a +13.7% return compared to BB-rated
bonds with an +8% return for the year. We believe that valuation
currently favors the BB-rated sector. Consequently, we continued to
stress this area. At December 31, 1996, the quality composition of
the high-yield portion of the portfolio was as follows: BBB/BB,
61.3%; B, 32.1%; CCC, 3.3%; Not Rated, 3.3%. In addition, at
December 31, 1996, 38% of portfolio assets were in corporate high-
yield bonds.
At December 31, 1996, we had allocated 7%--8% of net assets to
convertible securities. This asset class is sensitive primarily to
the increases in the stock market. As measured by the unmanaged
Merrill Lynch Convertible Index, the Index returned +3.86% and
+15.92% for the quarter and year ended December 31, 1996,
respectively. Our holdings in this sector significantly outperformed
this Index. Furthermore, small-capitalization stocks lagged large-
capitalization stocks such as the composite Dow Jones Industrial
Average and the Standard & Poor's 500 Index. We believe that small-
capitalization stocks may outperform in 1997, which would benefit
our convertible holdings.
<PAGE>
Fiscal Year in Review
Overall, the strategies employed in 1996 favorably impacted the
Fund's performance. Specifically, during the first half of the year
we greatly de-emphasized the US bond market, maintained a constant
overweighting in the US high-yield, convertible and high-yield
European markets, and converted the emerging markets exposure to all
Brady bonds, which significantly outperformed the Latin Eurobond
market. While the Fund was relatively defensive in the first half,
we raised the average portfolio maturity in the late summer, thereby
allowing us to capture most of the September--November rally. The
rise in the US dollar relative to the European currencies negatively
impacted the Fund's return, although a much greater negative impact
was avoided by active management of the Fund's currency exposure.
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
(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>
January 31, 1997
As of December 31, 1996, N. John Hewitt retired as Senior Vice
President of the Fund. His colleagues at Merrill Lynch Asset
Management join the Fund's Board of Directors in wishing Mr. Hewitt
well in his retirement.
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.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.94 $8.80 $8.69 + 2.88% +1.59%
Class B Shares* 8.94 8.80 8.69 + 2.88 +1.59
Class C Shares* 8.93 8.79 8.68 + 2.88 +1.59
Class D Shares* 8.94 8.80 8.69 + 2.88 +1.59
Class A Shares--Total Return* +11.09(1) +3.52(2)
Class B Shares--Total Return* +10.25(3) +3.32(4)
Class C Shares--Total Return* +10.19(5) +3.31(6)
Class D Shares--Total Return* +10.82(7) +3.46(8)
Class A Shares--Standardized 30-day Yield 6.63%
Class B Shares--Standardized 30-day Yield 6.13%
Class C Shares--Standardized 30-day Yield 6.07%
Class D Shares--Standardized 30-day Yield 6.39%
<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 $0.673 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.182 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.606 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.163 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.601 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.161 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.652 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.175 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (continued)
<PAGE>
Total Return
Based on a
$10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the ML G5AO
Index and the Composite Index. Beginning and ending values are:
9/29/88* 12/96
ML World Income Fund++-- $ 9,600 $22,052
Class A Shares*
ML G5AO Index ++++ $10,000 $19,275
Composite Index++++++ $10,000 $23,254
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** 12/96
ML World Income Fund++-- $10,000 $14,573
Class B Shares*
ML G5AO Index++++ $10,000 $13,944
Composite Index++++++ $10,000 $16,685
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** 12/96
ML World Income Fund++-- $10,000 $12,452
Class C Shares*
ML World Income Fund++-- $ 9,600 $12,107
Class D Shares*
ML G5AO Index++++ $10,000 $11,914
<PAGE>
Composite Index++++++ $10,000 $12,996
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML World Income Fund 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 12/31/96 +11.09% + 6.65%
Five Years Ended 12/31/96 + 8.29 + 7.41
Inception (9/29/88) through 12/31/96 +10.60 +10.05
[FN]
++Performance results for per share net asset value of Class A
Shares prior to November 18, 1991 are for the period when the Fund
was closed-end.
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +10.25% +6.25%
Five Years Ended 12/31/96 + 7.47 +7.47
Inception (11/18/91) through 12/31/96 + 7.64 +7.64
<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.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/96 +10.19% + 9.19%
Inception (10/21/94) through 12/31/96 +10.51 +10.51
[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 12/31/96 +10.82% +6.38%
Inception (10/21/94) through 12/31/96 +11.15 +9.11
[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**
<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
1996 8.69 8.94 -- 0.673 +11.09
------ ------
Total $0.050 Total $7.850
<PAGE>
Cumulative total return as of 12/31/96: +129.72%**
<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>
PERFORMANCE DATA (concluded)
<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
1996 8.69 8.94 -- 0.606 +10.25
------ ------
Total $0.047 Total $3.616
Cumulative total return as of 12/31/96: +45.73%**
<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**
<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
1996 8.68 8.93 -- 0.601 +10.19
------
Total $1.375
Cumulative total return as of 12/31/96: +24.52%**
<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 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
1996 8.69 8.94 -- 0.652 +10.82
------
Total $1.488
Cumulative total return as of 12/31/96: +26.12%**
<FN>
*Figures may include short-term capital gains distributions and
return of capital distribution, if any.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
LATIN Value Percent of
AMERICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Argentina Communications US$ 10,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004 $ 9,800,800 $ 11,075,000 0.9%
Foreign 2,000,000 Republic of Argentina, Brady Par
Government Bonds, 5.25% due 3/31/2023++ 1,111,636 1,257,600 0.1
Obligations 12,740,000 Republic of Argentina, Floating
Rate Brady Bonds, 6.625% due
3/31/2005++ 10,698,538 11,068,512 0.9
-------------- -------------- ------
11,810,174 12,326,112 1.0
Total Fixed-Income Investments
in Argentina 21,610,974 23,401,112 1.9
Brazil Broadcasting/Cable 7,000,000 Globo Comunicacoes e Participacoes
Ltd., 10.50% due 12/20/2006 (h) 6,985,140 7,043,750 0.6
Communications 5,000,000 Comtel Brasileira Ltd., 10.75% due
9/26/2004 (h) 5,000,000 5,137,500 0.4
Foreign Government Republic of Brazil:
Obligations 18,000,000 6.50% due 4/15/2006 15,692,359 15,660,000 1.3
2,000,000 5% due 4/15/2024 1,237,500 1,260,000 0.1
11,013,797 C Bonds, 7.05% due 4/15/2014++ 7,962,652 8,150,210 0.6
-------------- -------------- ------
24,892,511 25,070,210 2.0
Total Fixed-Income Investments
in Brazil 36,877,651 37,251,460 3.0
Colombia Energy 5,000,000 Oleoducts Central S.A., 9.35% due
9/01/2005 5,000,000 5,218,750 0.4
Utilities 10,000,000 Transgas de Occidente S.A., 9.79%
due 11/01/2010 10,137,500 10,350,000 0.9
Total Fixed-Income Investments in
Colombia 15,137,500 15,568,750 1.3
<PAGE>
Mexico Broadcasting & 7,500,000 Grupo Televisa S.A., 11.375% due
Publishing 5/15/2003 7,678,125 8,053,125 0.7
Foreign Government United Mexican States, Floating
Obligations Rate Brady Bonds++:
2,000,000 Discount, Series A, 6.398% due
12/31/2019 1,562,500 1,722,500 0.1
4,000,000 Par, Series A, 6.25% due
12/31/2019 2,700,000 2,925,000 0.2
5,000,000 Par, Series B, 6.25% due
12/31/2019 3,408,558 3,656,250 0.3
United Mexican States, Government
Pound Bonds:
Sterling 10,000,000 12.25% due 12/03/1998 17,422,208 17,978,797 1.5
DM 22,000,000 8.125% due 9/10/2001 14,452,228 14,442,639 1.2
US$ 9,000,000 United Mexican States, Value
Recovery Rights (e) 0 9 0.0
-------------- -------------- ------
39,545,494 40,725,195 3.3
Total Fixed-Income Investments
in Mexico 47,223,619 48,778,320 4.0
Venezuela Foreign 21,000,000 Republic of Venezuela, Floating
Government Rate Brady Bonds, 6.565% due
Obligations 12/18/2007++ 16,341,875 18,506,250 1.5
Total Fixed-Income Investments
in Venezuela 16,341,875 18,506,250 1.5
Total Investments in Latin
American Securities 137,191,619 143,505,892 11.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH Value Percent of
AMERICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <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 $ 10,625,000 0.9%
Paper 10,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 9,300,000 9,350,000 0.7
Total Fixed-Income Investments
in Canada 19,343,750 19,975,000 1.6
<PAGE>
United Airlines 12,500,000 USAir Inc., 10.375% due 3/01/2013 12,500,000 13,062,500 1.1
States
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc.,
10.50% due 6/15/2006 9,922,100 10,550,000 0.9
Building Materials 10,000,000 Pacific Lumber Co., 10.50% due
3/01/2003 10,140,625 10,150,000 0.8
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 11,200,525 0.9
-------------- -------------- ------
19,858,094 21,350,525 1.7
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due
2/15/2002 10,340,000 10,598,500 0.9
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,200,000 0.8
Consumer 10,000,000 Revlon Consumer Products Corp.,
Products 9.375% due 4/01/2001 8,848,261 10,225,000 0.8
Energy 10,000,000 Clark R & M Holdings, Inc.,
10.43%* due 2/15/2000 7,249,284 7,175,000 0.6
9,100,000 Maxus Energy Corp., 9.875% due
10/15/2002 9,086,800 9,373,000 0.8
10,000,000 Rowan Companies, Inc., 11.875% due
12/01/2001 10,402,500 10,675,000 0.9
10,000,000 Seagull Energy Corp., 8.625% due
8/01/2005 10,000,000 10,150,000 0.8
10,000,000 TransTexas Gas Corp., 11.50% due
6/15/2002 9,996,125 10,800,000 0.9
-------------- -------------- ------
46,734,709 48,173,000 4.0
Financial 10,000,000 Penn Financial Corp., 9.25% due
Services 12/15/2003 10,000,000 10,400,000 0.9
10,000,000 Reliance Group Holdings, Inc.,
9% due 11/15/2000 10,000,000 10,300,000 0.8
-------------- -------------- ------
20,000,000 20,700,000 1.7
Food & Beverage 5,000,000 Coca-Cola Bottling Co., 9% due
11/15/2003 5,005,000 5,087,500 0.4
11,500,000 Del Monte Co., 10% due 5/01/2003 11,482,188 10,925,000 0.9
8,000,000 Specialty Foods Corp., 10.25% due
8/15/2001 8,000,000 7,400,000 0.6
-------------- -------------- ------
24,487,188 23,412,500 1.9
<PAGE>
Gaming 10,000,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004 9,996,250 8,400,000 0.7
7,500,000 Harrah's Jazz Co., 14.25% due
11/15/2001 (i) 5,178,125 3,684,375 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 9,825,000 0.8
10,000,000 Trump Atlantic City Associates,
11.25% due 5/01/2006 9,943,750 9,900,000 0.8
-------------- -------------- ------
34,866,875 31,809,375 2.6
Home Builders Del E. Webb Corp.:
9,250,000 10.875% due 3/31/2000 9,376,875 9,527,500 0.8
3,500,000 9.75% due 3/01/2003 3,472,455 3,570,000 0.3
1,000,000 Ryland Group, Inc., 10.50% due
7/15/2002 987,500 1,020,000 0.1
-------------- -------------- ------
13,836,830 14,117,500 1.2
Hotels 10,000,000 HMC Acquisition Properties, 9%
due 12/15/2007 9,346,250 10,150,000 0.8
Packaging 10,000,000 Owens-Illinois, Inc., 11% due
12/01/2003 11,401,563 11,125,000 0.9
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 10,500,000 0.9
10,000,000 Fort Howard Corp., 9% due 2/01/2006 10,007,500 10,100,000 0.8
10,000,000 Stone Container Corp., 9.875% due
2/01/2001 9,317,650 10,100,000 0.8
-------------- -------------- ------
29,525,150 30,700,000 2.5
Restaurants 4,000,000 Flagstar Corp., 11.375% due
9/15/2003 3,640,000 1,660,000 0.1
Supermarkets 10,000,000 Pueblo Xtra International Inc.,
9.50% due 8/01/2003 10,116,875 9,375,000 0.8
Telecommunications 10,000,000 Century Communications Corp.,
9.50% due 3/01/2005 9,797,500 10,250,000 0.8
Textiles 10,000,000 WestPoint Stevens Inc., 8.75% due
12/15/2001 10,093,750 10,275,000 0.8
Transportation 10,000,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 10,028,437 10,450,000 0.9
<PAGE>
Utilities 9,848,000 Beaver Valley II Funding, 9% due
6/01/2017 7,262,900 9,404,742 0.8
4,000,000 CTC Mansfield Funding Corp., 11.125%
due 9/30/2016 4,301,250 4,220,000 0.3
Midland Cogeneration Venture
Limited Partnership:
7,680,600 10.33% due 7/23/2002 (b) 7,526,988 8,179,839 0.7
10,000,000 13.25% due 7/23/2006 11,183,750 11,553,300 0.9
10,000,000 Tucson Electric & Power Co.,
10.732% due 1/01/2013 (h) 9,607,625 9,799,900 0.8
-------------- -------------- ------
39,882,513 43,157,781 3.5
Total Fixed-Income Investments in 345,141,095 351,341,681 28.7
the United States
Convertible Bonds
Canada Metals & US$ 500,000 Inco Ltd., 5.75% due 7/01/2004 525,375 615,000 0.1
Mining
Total Investments in Canadian
Convertible Bonds 525,375 615,000 0.1
United Building & 800,000 Continental Homes Holding Corp.,
States Construction 6.875% due 11/01/2002 800,000 868,000 0.0
1,500,000 Toll Brothers Inc., 4.75% due
1/15/2004 1,500,000 1,522,500 0.1
1,000,000 US Home Corp., 4.875% due
11/01/2005 991,000 885,000 0.1
-------------- -------------- ------
3,291,000 3,275,500 0.2
Computers 5,000,000 Apple Computer, Inc., 6% due
6/01/2001 (h) 4,945,000 4,906,250 0.4
1,000,000 Data General Corp., 7.75% due
6/01/2001 994,375 1,020,000 0.1
-------------- -------------- ------
5,939,375 5,926,250 0.5
Conglomerates Polyphase Corp. (h):
500,000 12% due 12/01/1997 500,000 556,250 0.0
2,000,000 12% due 7/01/1999 2,000,000 2,070,000 0.2
2,000,000 Thermo Electron Corp., 4.25% due
1/01/2003 (h) 2,000,000 2,422,500 0.2
-------------- -------------- ------
4,500,000 5,048,750 0.4
<PAGE>
Electronics 1,500,000 Park Electrochemical Corporation,
5.50% due 3/01/2006 1,487,750 1,312,500 0.1
1,550,000 Thermaquest Corp., 5% due
8/15/2000 (h) 1,551,500 1,581,000 0.1
1,585,000 Thermo Optik Corp., 5% due
10/15/2000 (h) 1,588,950 1,616,700 0.1
-------------- -------------- ------
4,628,200 4,510,200 0.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH
AMERICA Value Percent of
(concluded)Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
United Environmental US$ 1,063,000 Thermo TerraTech, Inc., 4.625%
States due 5/01/2003 (h) $ 1,114,735 $ 967,330 0.1%
(concluded)
Financial 2,250,000 NAL Acceptance Corp., 10% due
Services 9/12/1998 (h) 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 1,481,250 0.1
1,000,000 US Diagnostic Labs, Inc., 9% due
3/31/2003 (h) 1,000,000 1,235,000 0.1
-------------- -------------- ------
2,493,750 2,716,250 0.2
Industrial 1,300,000 Mascotech, Inc., 4.50% due
12/15/2003 1,126,000 1,049,750 0.1
140,000 Recognition Equipment International,
Inc., 7.25% due 4/15/2011 103,600 135,800 0.0
-------------- -------------- ------
1,229,600 1,185,550 0.1
Insurance 2,000,000 Statesman Group, Inc. (The), 6.25%
due 5/01/2003 2,060,000 2,105,000 0.2
Machine-- 1,500,000 Cooper Industries, Inc., 7.05% due
Diversified 1/01/2015 1,474,999 1,590,000 0.1
Office 1,000,000 US Office Products Co., 5.50% due
Equipment 5/15/2003 (h) 1,000,000 935,000 0.1
Oil--Domestic 4,825,000 Key Energy Group, Inc., 7.50% due
7/01/2003 (h) 5,475,000 5,886,500 0.5
4,750,000 USX Corp., 7% due 6/15/2017 4,184,150 4,714,375 0.4
2,080,000 Wainoco Oil Corp., 7.75% due
6/01/2014 1,880,352 1,664,000 0.1
-------------- -------------- ------
11,539,502 12,264,875 1.0
<PAGE>
Pharmaceuticals 1,300,000 Bindley Western Industries, Inc.,
6.50% due 10/01/2002 1,293,875 1,404,000 0.1
Publishing/ 2,150,000 Graphic Industries, Inc., 7% due
Printing 5/15/2006 1,899,375 1,935,000 0.2
Retail 200,000 Baby Superstores Inc., 4.875% due
10/01/2000 200,000 198,000 0.0
825,000 Baker (J.) Inc., 7% due 6/01/2002 824,527 660,000 0.1
-------------- -------------- ------
1,024,527 858,000 0.1
Technology 1,250,000 Broadband Technologies, Inc., 5%
due 5/15/2001 (h) 1,246,250 954,688 0.1
Temporary Help 6,375,000 Quantum Health Resources, Inc.,
Services 4.75% due 10/01/2000 (f) 5,956,562 5,769,375 0.5
Textiles 1,025,000 Fieldcrest Cannon, Inc., 6% due
3/15/2012 763,625 776,437 0.1
Transportation 300,000 Varlen Corp., 6.50% due 6/01/2003 297,000 300,000 0.0
Products
Transportation 2,000,000 Offshore Logistics, Inc., 6% due
Services 12/15/2003 (h) 2,000,000 2,090,000 0.2
Total Investments in United
States Convertible Bonds 56,002,375 57,424,705 4.7
<CAPTION>
Convertible Preferred Stocks,
Preferred Stocks,
Shares Held Common Stocks & Warrants
United Banking & 59,843 RCSB Financial, Inc. 1,100,014 1,720,486 0.1
States Finance 50,200 Union Planters Corp., Conv. Pfd.
$2.00 1,775,655 2,459,800 0.2
-------------- -------------- ------
2,875,669 4,180,286 0.3
Broadcasting/ 137,257 On Command Corporation (i) 4,061,096 2,178,955 0.2
Cable 43,675 On Command Corporation
(Warrants) (c) 349,400 294,806 0.0
-------------- -------------- ------
4,410,496 2,473,761 0.2
<PAGE>
Electronics 105,500 Rexel S.A. (i) 1,084,093 1,674,812 0.1
Distributor
Entertainment 10,751 Time Warner, Inc. (Series M),
Pfd. (a) 10,688,355 11,664,835 1.0
Environmental 738,028 Allied Waste Industries, Inc.
(i)*** 3,520,401 6,734,505 0.5
Financial 15,000 Morgan Stanley Group, Inc.,
Services Conv. Pfd. 997,500 993,750 0.1
28,125 NAL Acceptance Corp. (Warrants)
(c)(h) 0 168,750 0.0
23,300 SunAmerica Inc., Conv. Pfd. 873,750 984,425 0.1
-------------- -------------- ------
1,871,250 2,146,925 0.2
Food & Beverage 465,500 RJR Nabisco, Inc., Conv. Pfd.
$.60 (Series C) 3,021,638 3,142,125 0.3
Forest Products 65,000 James River Corp. of Virginia
& Paper (Series P), Conv. Pfd. 1,562,025 2,047,500 0.2
22,400 James River Corp. of Virginia,
$3.375 (Series K), Conv. Pfd. 1,007,686 1,150,800 0.1
38,400 James River Corp. of Virginia,
$3.50 (Series L), Conv. Pfd. 1,691,441 1,987,200 0.1
-------------- -------------- ------
4,261,152 5,185,500 0.4
Gaming 75,000 Goldriver Hotel & Casino Corp.,
Liquidating Trust (h)(i) 75,000 26,719 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B) (d)(i) 219,738 0 0.0
-------------- -------------- ------
294,738 26,719 0.0
Hotels 1,608 Buckhead America Corp. (i) 8,291 9,648 0.0
Industrial 118,500 Albany International Corp.
Services (Class A) 2,271,228 2,740,312 0.2
46,100 Mascotech, Inc., Conv. Pfd. $1.20 708,925 726,075 0.1
-------------- -------------- ------
2,980,153 3,466,387 0.3
Insurance 163,141 Kemper Corp., Conv. Pfd. $5.25
(Series E) (h) 8,349,078 8,483,332 0.7
1,500 Westbridge Capital Corp., Conv. Pfd. 1,500,000 1,758,000 0.1
-------------- -------------- ------
9,849,078 10,241,332 0.8
<PAGE>
Mining 148,400 Coeur d'Alene Mines Corp.,
Conv. Pfd. 2,772,608 2,597,000 0.2
Oil & Gas 43,000 Snyder Oil Corp., Conv. Pfd.
$1.50 (Series A) 906,023 1,042,750 0.1
20,000 Western Gas Resources, Inc., Conv.
Pfd $2.62 1,000,000 780,000 0.1
-------------- -------------- ------
1,906,023 1,822,750 0.2
Pharmaceuticals 40,000 IVAX Corp. 628,776 410,000 0.0
Telecommunications 6,249 ICG Communications, Inc.*** 125,313 110,139 0.0
Transportation 19,000 Sea Containers Ltd., Conv. Pfd.
$4.00 875,463 864,500 0.1
Total Investments in United
States Convertible Preferred
Stocks, Preferred Stocks, Common
Stocks & Warrants 51,173,497 56,751,224 4.6
Total Investments in North
American Securities 472,186,092 486,107,610 39.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC Value Percent of
BASIN Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
Australia Foreign Australian Government Bonds:
Government A$ 56,000,000 9.75% due 3/15/2002 $ 50,786,387 $ 49,641,884 4.0%
Obligations 51,500,000 9% due 9/15/2004 45,364,048 44,910,036 3.7
Total Fixed-Income Investments
in Australia 96,150,435 94,551,920 7.7
Indonesia Paper US$ 5,000,000 P.T. Indah Kiat International
Finance, 12.50% due 6/15/2006 5,025,000 5,500,000 0.5
Total Fixed-Income Investments
in Indonesia 5,025,000 5,500,000 0.5
Total Investments in Pacific
Basin Securities 101,175,435 100,051,920 8.2
<PAGE>
WESTERN
EUROPE
Denmark Foreign Dkr 100,000,000 Denmark Government Bonds, 7%
Government due 11/15/2007 16,967,679 17,270,952 1.4
Obligations
Total Fixed-Income Investments
in Denmark 16,967,679 17,270,952 1.4
Germany Foreign DM 66,000,000 German Unity Fund, 8% due 1/21/2002 49,733,112 48,784,660 4.0
Government
Obligations
Total Fixed-Income Investments in
Germany 49,733,112 48,784,660 4.0
Italy Foreign Buoni Poliennali del Tesoro
Government (Italian Government Bonds):
Obligations Lit 69,000,000,000 9.50% due 5/01/2001 49,253,670 50,246,271 4.1
22,500,000,000 8.25% due 7/01/2001 15,592,403 15,781,492 1.3
Total Fixed-Income Investments
in Italy 64,846,073 66,027,763 5.4
Poland Foreign US$ 4,000,000 Polish PDI Bonds, 4% due 10/27/2014 3,111,250 3,375,000 0.3
Government
Obligations
Total Fixed-Income Investments
in Poland 3,111,250 3,375,000 0.3
Spain Foreign Government of Spain:
Government Pta 2,500,000,000 9.40% due 4/30/1999 20,558,258 20,751,521 1.7
Obligations 1,850,000,000 10.10% due 2/28/2001 16,038,677 16,388,889 1.3
4,010,000,000 10.50% due 10/30/2003 37,067,225 37,521,768 3.1
Total Fixed-Income Investments
in Spain 73,664,160 74,662,178 6.1
<PAGE>
Sweden Foreign Government of Sweden:
Government Skr 111,500,000 10.25% due 5/05/2000 18,520,562 18,875,322 1.5
Obligations 112,000,000 6% due 2/09/2005 15,798,826 15,933,089 1.3
154,200,000 8% due 8/15/2007 24,374,590 24,697,794 2.0
Total Fixed-Income Investments
in Sweden 58,693,978 59,506,205 4.8
United Communications US$ 20,000,000 TeleWest Communications PLC,
Kingdom 11.41%* due 10/01/2000 13,389,615 13,950,000 1.1
Foreign Pound United Kingdom Gilt:
Government Sterling 24,000,000 8% due 12/07/2000 40,428,554 42,201,159 3.5
Obligations 8,900,000 8.50% due 12/07/2005 15,870,229 16,215,818 1.3
-------------- -------------- ------
56,298,783 58,416,977 4.8
Total Fixed-Income Investments
in the United Kingdom 69,688,398 72,366,977 5.9
Convertible Bonds
Ireland Dental US$ 500,000 Phoenix Shannon PLC, 9.50% due
Equipment & 11/01/2000 (h) 500,000 240,000 0.0
Supplies
Total Investments in Irish
Convertible Bonds 500,000 240,000 0.0
Total Investments in Western
European Securities 337,204,650 342,233,735 27.9
SHORT-TERM
SECURITIES Issue
Commercial US$ 20,000,000 Ciesco L.P., 5.28% due 1/10/1997 19,976,533 19,976,533 1.6
Paper** 17,090,000 Delaware Funding Corp., 5.68% due
1/17/1997 17,049,554 17,049,554 1.4
23,000,000 Eureka Securitization, Inc., 5.65%
due 1/24/1997 22,920,586 22,920,586 1.9
53,784,000 General Motors Acceptance Corp.,
7.50% due 1/02/1997 53,784,000 53,784,000 4.4
20,000,000 Lehman Brothers Holdings, Inc.,
5.70% due 1/29/1997 19,914,500 19,914,500 1.6
-------------- -------------- ------
133,645,173 133,645,173 10.9
<PAGE>
US Government US Treasury Bills:
& Agency 2,000,000 5.02% due 2/06/1997 1,990,239 1,990,400 0.2
Obligations** 3,000,000 5.27% due 3/13/1997 (g) 2,969,258 2,971,020 0.2
-------------- -------------- ------
4,959,497 4,961,420 0.4
Total Investments in Short-Term
Securities 138,604,670 138,606,593 11.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Nominal Value Premiums Value Percent of
PURCHASED Covered by Options Issue Paid (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Currency Put 21,935,483 German Deutschemark, expiring
Options Purchased February 1997 at DM1.55 $ 76,774 $ 204,000 0.0%
Total Options Purchased 76,774 204,000 0.0
Total Investments 1,186,439,240 1,210,709,750 98.8
OPTIONS Premiums
WRITTEN Received
Put Options Written 10,000,000 US Treasury Bill, expiring January
1997 at $96.797 (21,875) (9,380) 0.0
Total Options Written (21,875) (9,380) 0.0
Total Investments, Net of Options Written $1,186,417,365 1,210,700,370 98.8
==============
Short Sales (Proceeds--$4,980,614)*** (5,449,592) (0.4)
Variation Margin on Financial Futures Contracts**** 115,139 0.0
Unrealized Depreciation on Forward Foreign Exchange Contracts***** (2,972,119) (0.2)
Other Assets Less Liabilities 22,520,371 1.8
-------------- ------
Net Assets $1,224,914,169 100.0%
============== ======
<PAGE>
<FN>
++Brady Bonds are securities which have been issued to refinance
commercial bank loans and other debt. The risk associated with these
instruments is the amount of any uncollateralized principal or
interest payments since there is a high default rate of commercial
bank loans by countries issuing these securities.
*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, 1996 were as
follows:
Value
Shares Issue (Note 1i)
581,270 Allied Waste Industries, Inc. $(5,376,748)
4,133 ICG Communications, Inc. (72,844)
Total (Proceeds--$4,980,614) $(5,449,592)
===========
****Financial futures contracts sold as of December 31, 1996 were as
follows:
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
130 Bonos MEFF-IBEX 35 March 1997 $11,291,291
189 Bundes LIFFE March 1997 30,954,355
48 Italian BTP LIFFE March 1997 8,182,052
250 US Treasury Notes CBOT March 1997 27,281,250
Total Financial Futures Contracts Sold
(Total Contract Price--$77,639,094) $77,708,948
===========
*****Forward foreign exchange contracts as of December 31, 1996 were
as follows:
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1c)
Dkr 105,586,000 January 1997 $ (21,199)
Lit 19,172,625,000 January 1997 123,895
Skr 47,876,500 January 1997 26,660
Total (US$ Commitment--$37,456,803) $ 129,356
-----------
Foreign Currency Sold
A$ 71,000,000 January 1997 $ 65,746
Dkr 206,965,500 January 1997 (156,660)
DM 68,985,590 January 1997 (447,674)
Pound 35,797,279 January 1997 (2,236,901)
<PAGE> Sterling
Lit 38,284,750,000 January 1997 (207,955)
Pta 5,865,150,000 January 1997 (155,016)
Skr 136,019,000 January 1997 36,985
Total (US$ Commitment--$284,865,856) $(3,101,475)
-----------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $(2,972,119)
===========
(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)The rights may be exercised until 2/06/2001.
(f)Quantum Health Resources, Inc. is convertible into Olsten Corp.
(g)Securities held as collateral in connection with open financial
futures contracts.
(h)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $58,934,000,
representing 4.3% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
Apple Computer, Inc., 6/04/1996-
6% due 6/01/2001 7/18/1996 $ 4,945,000 $ 4,906,250
Broadband Technologies, Inc., 5/30/1996-
5% due 5/15/2001 7/03/1996 1,246,250 954,688
Comtel Brasileira Ltd.,
10.75% due 9/26/2004 9/18/1996 5,000,000 5,137,500
Globo Comunicacoes e
Participacoes Ltd.,
10.50% due 12/20/2006 12/20/1996 6,985,140 7,043,750
Goldriver Hotel & Casino 5/04/1989-
Corp., Liquidating Trust 10/07/1993 75,000 26,719
Kemper Corp., Pfd. $5.25 4/04/1995-
(Series E) 4/01/1996 8,349,078 8,483,332
Key Energy Group, Inc., 6/28/1996-
7.50% due 7/01/2003 11/06/1996 5,475,000 5,886,500
NAL Acceptance Corp.,
10% due 9/12/1998 9/12/1996 2,250,000 2,812,500
NAL Acceptance Corp.
(Warrants) 9/12/1996 -- 168,750
Offshore Logistics, Inc.,
6% due 12/15/2003 12/12/1996 2,000,000 2,090,000
Phoenix Shannon PLC,
9.50% due 11/01/2000 11/21/1995 500,000 240,000
<PAGE> Polyphase Corp.,
12% due 12/01/1997 12/05/1995 500,000 556,250
Polyphase Corp.,
12% due 7/01/1999 7/05/1994 2,000,000 2,070,000
Thermaquest Corp.,
5% due 8/15/2000 7/20/1995 1,551,500 1,581,000
Thermo Electron Corp.,
4.25% due 1/01/2003 11/28/1995 2,000,000 2,422,500
Thermo Optik Corp., 9/28/1995-
5% due 10/15/2000 11/19/1996 1,588,950 1,616,700
Thermo TerraTech, Inc.,
4.625% due 5/01/2003 5/02/1996 1,114,735 967,330
Tucson Electric & Power Co., 8/03/1993-
10.732% due 1/01/2013 10/11/1996 9,607,625 9,799,900
US Diagnostic Labs, Inc.,
9% due 3/31/2003 4/03/1996 1,000,000 1,235,000
US Office Products Co.,
5.50% due 5/15/2003 5/22/1996 1,000,000 935,000
Total $57,188,278 $58,933,669
=========== ===========
(i)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,186,362,466)
(Note 1a) $1,210,505,750
Put options purchased, at value (cost--$76,774) (Notes 1a & 1c) 204,000
Cash 558,948
Deposit for securities sold short (Note 1i) 6,238,819
Receivables:
Interest $ 25,448,496
Securities sold 3,856,497
Capital shares sold 593,579
Dividends 135,071
Variation margin (Note 1c) 115,139 30,148,782
--------------
Prepaid registration fees and other assets (Note 1g) 103,519
--------------
Total assets 1,247,759,818
--------------
<PAGE>
Liabilities: Common stocks sold short, at market value (proceeds--
$4,980,614) (Note 1i) 5,449,592
Put options written, at value (premiums received--$21,875)
(Notes 1a & 1c) 9,380
Unrealized depreciation on forward foreign exchange contracts
(Note 1c) 2,972,119
Payables:
Dividends to shareholders (Note 1h) 5,132,915
Securities purchased 4,002,500
Capital shares redeemed 3,430,626
Distributor (Note 2) 642,154
Investment adviser (Note 2) 627,145 13,835,340
--------------
Accrued expenses and other liabilities 579,218
--------------
Total liabilities 22,845,649
--------------
Net Assets: Net assets $1,224,914,169
==============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 1,000,000,000 shares authorized $ 2,371,096
Class B Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 11,054,924
Class C Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 114,772
Class D Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 160,659
Paid-in capital in excess of par 1,246,257,428
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 5) (55,669,528)
Unrealized appreciation on investments and foreign currency
transactions--net 20,624,818
--------------
Net assets $1,224,914,169
==============
<PAGE>
Net Asset Class A--Based on net assets of $212,084,841 and 23,710,959
Value: shares outstanding $ 8.94
==============
Class B--Based on net assets of $988,208,896 and 110,549,240
shares outstanding $ 8.94
==============
Class C--Based on net assets of $10,251,044 and 1,147,722
shares outstanding $ 8.93
==============
Class D--Based on net assets of $14,369,388 and 1,606,592
shares outstanding $ 8.94
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1996
<S> <S> <C> <C>
Investment Interest and discount earned (net of $680,248 withholding tax) $ 113,511,396
Income Dividends 2,615,568
(Notes 1e & 1f): --------------
Total income 116,126,964
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 8,379,565
Investment advisory fees (Note 2) 8,216,118
Transfer agent fees--Class B (Note 2) 1,185,887
Custodian fees 225,062
Transfer agent fees--Class A (Note 2) 204,501
Printing and shareholder reports 200,568
Accounting services (Note 2) 165,821
Professional fees 107,934
Registration fees (Note 1g) 80,998
Account maintenance and distribution fees--Class C (Note 2) 62,235
Directors' fees and expenses 45,392
Account maintenance fees--Class D (Note 2) 28,273
Transfer agent fees--Class D (Note 2) 9,381
Transfer agent fees--Class C (Note 2) 8,219
Pricing fees 7,799
Short sale of dividends (Note 1i) 2,850
Other 28,605
--------------
Total expenses 18,959,208
--------------
Investment income--net 97,167,756
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 27,850,430
(Loss) on Foreign currency transactions--net (538,548) 27,311,882
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 12,128,789
(Notes 1c, 1d, Foreign currency transactions--net (3,261,010) 8,867,779
1f & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 36,179,661
--------------
Net Increase in Net Assets Resulting from Operations $ 133,347,417
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year
Ended December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 97,167,756 $ 128,796,717
Realized gain (loss) on investments and foreign currency
transactions--net 27,311,882 (49,514,841)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 8,867,779 144,343,205
-------------- --------------
Net increase in net assets resulting from operations 133,347,417 223,625,081
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (18,005,131) (18,898,095)
Shareholders Class B (77,786,819) (81,220,841)
(Note 1h): Class C (534,218) (203,152)
Class D (841,588) (179,224)
Return of capital:
Class A -- (5,320,682)
Class B -- (22,867,399)
Class C -- (57,196)
Class D -- (50,460)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (97,167,756) (128,797,049)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share transactions (325,693,217) (384,702,641)
Transactions -------------- --------------
(Note 4):
<PAGE>
Net Assets: Total decrease in net assets (289,513,556) (289,874,609)
Beginning of year 1,514,427,725 1,804,302,334
-------------- --------------
End of year $1,224,914,169 $1,514,427,725
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
The following per share data and
ratios have been derived from For the
information provided in the Four For the
financial statements. Months Year
For the Year Ended Ended Ended
Increase (Decrease) in Net December 31, Dec. 31, Aug. 31,
Asset Value: 1996 1995 1994++ 1993 1992 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 8.69 $ 8.20 $ 9.28 $ 8.85 $ 9.34 $ 9.07
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .67 .72 .72 .75 .29 .99
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net .25 .49 (1.09) .46 (.41) .40
-------- -------- -------- -------- -------- --------
Total from investment
operations .92 1.21 (.37) 1.21 (.12) 1.39
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.67) (.56) (.45) (.58) (.35) (1.12)
Realized gain on
investments--net -- -- -- (.03) (.02) --
Return of capital--net -- (.16) (.26) (.17) -- --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (.67) (.72) (.71) (.78) (.37) (1.12)
======== ======== ======== ======== ======== ========
Net asset value, end of
period $ 8.94 $ 8.69 $ 8.20 $ 9.28 $ 8.85 $ 9.34
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value
Return:** per share 11.09% 15.35% (4.05%) 14.12% (1.26%)+++ 16.09%
======== ======== ======== ======== ======== ========
Ratios to Average Expenses .75% .80% .77% .78% .76%* .88%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 7.71% 8.54% 8.17% 8.22% 8.09%* 11.16%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $212,085 $260,806 $311,181 $467,625 $455,672 $526,631
======== ======== ======== ======== ======== ========
Portfolio turnover 208.53% 116.00% 115.95% 182.88% 68.42% 76.18%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
The following per share data and
ratios have been derived from For the For the
information provided in the Four Period
financial statements. Months Nov. 18,
For the Year Ended Ended 1991++ to
Increase (Decrease) in Net December 31, Dec. 31, Aug. 31,
Asset Value: 1996 1995 1994++ 1993 1992 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 8.69 $ 8.19 $ 9.28 $ 8.85 $ 9.33 $ 9.26
Performance: ---------- ---------- ---------- ---------- ---------- ----------
Investment income--net .61 .65 .65 .70 .27 .77
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net .25 .50 (1.10) .44 (.40) --
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations .86 1.15 (.45) 1.14 (.13) .77
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.61) (.51) (.40) (.53) (.33) (.70)
Realized gain on
investments--net -- -- -- (.03) (.02) --
Return of capital--net -- (.14) (.24) (.15) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (.61) (.65) (.64) (.71) (.35) (.70)
========== ========== ========== ========== ========== ==========
Net asset value, end of
period $ 8.94 $ 8.69 $ 8.19 $ 9.28 $ 8.85 $ 9.33
========== ========== ========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value
Return:** per share 10.25% 14.61% (4.90%) 13.27% (1.42%)+++ 8.61%+++
========== ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.52% 1.56% 1.54% 1.55% 1.53%* 1.63%*
Net Assets: ========== ========== ========== ========== ========== ==========
Investment income--net 6.94% 7.77% 7.41% 7.42% 7.08%* 8.02%*
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 988,209 $1,241,896 $1,490,507 $2,106,120 $1,582,270 $1,514,406
========== ========== ========== ========== ========== ==========
Portfolio turnover 208.53% 116.00% 115.95% 182.88% 68.42% 76.18%
========== ========== ========== ========== ========== ==========
<CAPTION>
Class C Class D
The following per share data
and ratios have been derived For the For the
from information provided in Period Period
the financial statements. Oct. 21, Oct. 21,
For the Year Ended 1994++ to For the Year Ended 1994++ to
Increase (Decrease) in Net December 31, Dec. 31, December 31, Dec. 31,
Asset Value: 1996 1995 1994++++ 1996 1995 1994++++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 8.68 $ 8.19 $ 8.42 $ 8.69 $ 8.20 $ 8.43
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .60 .64 .10 .65 .70 .11
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net .25 .49 (.20) .25 .49 (.20)
-------- -------- -------- -------- -------- --------
Total from investment
operations .85 1.13 (.10) .90 1.19 (.09)
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.60) (.50) (.08) (.65) (.55) (.09)
Return of capital--net -- (.14) (.05) -- (.15) (.05)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (.60) (.64) (.13) (.65) (.70) (.14)
======== ======== ======== ======== ======== ========
Net asset value, end of
period $ 8.93 $ 8.68 $ 8.19 $ 8.94 $ 8.69 $ 8.20
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value
Return:** per share 10.19% 14.38% (1.20%)+++ 10.82% 15.06% (1.09%)+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.56% 1.65% 1.64%* 0.99% 1.04% 1.04%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 6.85% 7.65% 8.00%* 7.42% 8.23% 8.60%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 10,251 $ 5,406 $ 1,204 $ 14,369 $ 6,320 $ 1,410
======== ======== ======== ======== ======== ========
Portfolio turnover 208.53% 116.00% 115.95% 208.53% 116.00% 115.95%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales
loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
<PAGE>
(a) Valuation of 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.
(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.
NOTES TO FINANCIAL STATEMENTS (continued)
(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.
<PAGE>
* 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.
* Options--The Fund is authorized to write and purchase call and 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).
<PAGE>
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). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment
income, excluding transaction gains/losses, are declared daily and
paid monthly. Distributions of capital gains are recorded on the ex-
dividend dates. A portion of the net investment income paid by the
Fund during the fiscal year ended December 31, 1995 is characterized
as a return of capital.
(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
proceeds received.
<PAGE>
(j) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$2,066,050 have been reclassified between accumulated net realized
capital losses and paid-in capital in excess of par. 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.
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.
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.
<PAGE>
For the year ended December 31, 1996, 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 $3,597 $29,956
Class D $4,675 $50,380
For the year ended December 31, 1996, MLPF&S received contingent
deferred sales charges of $1,827,822 and $5,909 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $52,478 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 1996.
During the year ended December 31, 1996, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $2,768 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1996 were $2,600,291,272 and
$3,012,592,084, respectively.
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
<PAGE>
Investments:
Long-term $ 33,532,224 $ 24,141,361
Short-term 11,710 1,923
Short sales (1,166,748) (468,978)
Options purchased 14,844 --
Options written 81,172 12,495
Financial futures contracts (4,622,772) (69,854)
-------------- --------------
Total investments 27,850,430 23,616,947
-------------- --------------
Currency transactions:
Options purchased (829,475) 127,226
Options written (3,043,560) --
Foreign currency transactions 9,782,977 (147,236)
Forward foreign exchange
contracts (6,448,490) (2,972,119)
-------------- --------------
Total currency transactions (538,548) (2,992,129)
-------------- --------------
Total $ 27,311,882 $ 20,624,818
============== ==============
Transactions in call options written for the year ended December 31,
1996 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options
written, beginning of year -- $ --
Options written 313,262,331 3,353,427
Options closed (274,573,750) (3,204,589)
Options expired (38,688,581) (148,838)
-------------- --------------
Outstanding call options
written, end of year -- $ --
============== ==============
Transactions in put options written for the year ended December 31,
1996 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
<PAGE>
Outstanding put options
written, beginning of year 40,000,000 $ 230,028
Options written 95,000,000 603,437
Options closed (45,000,000) (274,559)
Options exercised (80,000,000) (537,031)
-------------- --------------
Outstanding put options
written, end of year 10,000,000 $ 21,875
============== ==============
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $23,661,144, of which $38,286,778
related to appreciated securities and $14,625,634 related to
depreciated securities. The aggregate cost of investments, net
premiums received for options written, at December 31, 1996 for
Federal income tax purposes was $1,186,835,226.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $325,693,217 and $384,702,641 for the years ended December 31,
1996 and December 31, 1995, respectively.
Transactions in shares of capital for each class were as follows:
Class A Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 387,712 $ 3,388,308
Shares issued to shareholders
in reinvestment of dividends 659,250 5,758,981
-------------- --------------
Total issued 1,046,962 9,147,289
Shares redeemed (7,346,115) (64,121,789)
-------------- --------------
Net decrease (6,299,153) $ (54,974,500)
============== ==============
Class A Shares for the Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 1,983,935 $ 16,765,904
Shares issued to shareholders
in reinvestment of dividends
and distributions 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)
============== ==============
<PAGE>
Class B Shares for the Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 9,132,221 $ 79,678,830
Shares issued to shareholders
in reinvestment of dividends 3,887,024 33,921,915
-------------- --------------
Total issued 13,019,245 113,600,745
Automatic conversion of shares (505,096) (4,380,377)
Shares redeemed (44,956,418) (392,147,393)
-------------- --------------
Net decrease (32,442,269) $ (282,927,025)
============== ==============
Class B Shares for the Dollar
Year Ended December 31, 1995 Shares Amount
Shares sold 9,982,719 $ 81,289,015
Shares issued to shareholders
in reinvestment of dividends
and distributions 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)
============== ==============
Class C Shares for the Dollar
Year Ended December 31, 1996 Shares Amount
Shares sold 854,651 $ 7,451,497
Shares issued to shareholders
in reinvestment of dividends 32,774 286,396
-------------- --------------
Total issued 887,425 7,737,893
Shares redeemed (362,658) (3,170,946)
-------------- --------------
Net increase 524,767 $ 4,566,947
============== ==============
Class C Shares for the Dollar
Year Ended December 31, 1995 Shares Amount
<PAGE>
Shares sold 820,363 $ 6,919,696
Shares issued to shareholders
in reinvestment of dividends
and distributions 19,627 165,998
-------------- --------------
Total issued 839,990 7,085,694
Shares redeemed (364,156) (3,104,404)
-------------- --------------
Net increase 475,834 $ 3,981,290
============== ==============
Class D Shares for the Dollar
Year Ended December 31, 1996 Shares Amount
Shares sold 790,966 $ 6,912,547
Automatic conversion of shares 504,658 4,380,377
Shares issued to shareholders
in reinvestment of dividends 52,423 458,594
-------------- --------------
Total issued 1,348,047 11,751,518
Shares redeemed (468,704) (4,110,157)
-------------- --------------
Net increase 879,343 $ 7,641,361
============== ==============
Class D Shares for the Dollar
Year Ended December 31, 1995 Shares Amount
Shares sold 768,363 $ 6,548,248
Automatic conversion of shares 44,790 382,703
Shares issued to shareholders
in reinvestment of dividends
and distributions 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
============== ==============
5. Capital Loss Carryforward:
At December 31, 1996, the Fund had a net capital loss carryforward
of approximately $51,122,000, of which $25,379,000 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, 1996, the related
statements of operations for the year then ended and changes in net
assets for each of the years in 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, 1996 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, 1996, 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 7, 1997
</AUDIT-REPORT>
<PAGE>
