MERRILL LYNCH
WORLD INCOME
FUND, Inc.
FUND LOGO
Semi-Annual Report
June 30, 1997
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
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury III, Vice President
Robert J. Parish, Vice President
Gerald M. Richard, Treasurer
Lawrence A. Rogers, Secretary
<PAGE>
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
During the June quarter, Merrill Lynch World Income Fund, Inc.
maintained its overall asset allocation. At June quarter-end, the
allocation of assets was: the US corporate high-yield market, 42% of
net assets; emerging markets, 30%; US Government securities, 20%;
and convertible securities, 8%. Within these broad asset allocation
guidelines, we continued to seek out the most attractive values.
However, if we find that the opportunities in any of these areas are
limited, the Fund's exposure will be less than the percent of net
assets allocated there. In fact, at June 30, 1997, the Fund was
underinvested with 36.4% of net assets invested in the US corporate
high-yield market, 13.9% in emerging markets, 14.0% in US Government
securities and 7.2% in convertible securities.
High-Yield Market
The high-yield market experienced a strong June quarter, bouncing
back from the soft March quarter which largely resulted from a
Federal Reserve Board (FRB) interest rate hike. Bond market
fundamentals were generally favorable during the three months ended
June 30, 1997. Reported inflation remained low, and a modest
softening in the economy allowed the FRB to avoid another monetary
policy tightening. The high-yield market continued to benefit from a
positive environment. Default rates remain low with Moody's
Investors Service, Inc. reporting a rate of 1.7% for the 12 months
ended June 30, 1997 as compared to 2.4% for the same period in 1996.
<PAGE>
Industry fundamentals in most of the areas of the high-yield market
have been positive. The domestic cable sector benefited from a $1
billion investment by Microsoft Corp. in Comcast Cable. Microsoft
believes that upgraded cable systems will provide an important
information link between personal computer programmers like
Microsoft and the home. For the cable industry, this would be a
major source of revenue. The improved perception of cable caused
yields on bonds in this sector to narrow by 0.5%--1% compared to US
Treasury securities of comparable maturities. In the depressed paper
industry, it appeared that price increases on various paper grades
were holding at June quarter-end and that perhaps depressed earnings
in the industry would begin to expand. The paper industry is one of
the few cyclical industries experiencing weak earnings. In general,
the bond rating firm Duff & Phelps Corp., which covers a large
percentage of the high-yield universe and changes its ratings
aggressively to reflect changed credit quality, reported 28 upgrades
versus 14 downgrades for the June quarter. For the six months ended
June 30, 1997, 66 upgrades and 30 downgrades were reported.
Reflecting the positive fundamentals, valuations remain quite full.
While we believe that the generally favorable environment for high-
yield securities is likely to continue, small credit risk premiums
leave no room for negative surprises. Bonds rated below BB by at
least one of the major rating agencies appear particularly
overvalued. Accordingly, we are overweighted in bonds rated at least
BB. Our heavy 42% weighting in high-yield bonds reflects our view
that positive fundamentals will continue.
Emerging Markets
With the unmanaged J.P. Morgan Emerging Markets Sovereign Index at
an all-time high, we believe that the emerging bond markets are
fully valued. While there has been substantial progress on the
reform front, the major Latin American countries had to increase
their borrowings during the past two years to help them deal with
the economic slowdown which resulted from the Mexican peso crisis.
While economic growth has been reestablished in the region, debt
service and other credit ratios are less favorable today than during
the previous Index high established in January 1994. While we
believe that continued economic growth coupled with reforms may
improve the debt/service ratio and other credit ratios in the
intermediate term, we believe that current price levels more than
adequately reflect our optimism. Emerging market assets of similar
duration are trading at spread parity with the US high-yield market.
We believe that this is an indication of a bull market excess. We do
not find value in these assets at this time.
Our concern in the near term is the liquidity-driven exuberance of
global markets and the complacency of investors toward a US economy
which is growing above historical trends in a tight labor market. We
are also in the midst of a currency crisis which has resulted in
devaluations in Thailand, the Philippines and the Czech Republic. We
believe that these external risks will dominate investor sentiment
in the emerging markets.
<PAGE>
Very low interest rates in Japan led to a liquidity boom as money
flowed from Japan to global markets and resulted in the inflation of
financial assets. This inflation is evidenced by record highs in
most global equity markets and historically tight spreads in credit
markets. This scenario prompted FRB Chairman Alan Greenspan to make
his "irrational exuberance" speech in December 1996. Investors
reacted negatively to his speech initially but soon shrugged off his
warning and markets proceeded to rally. This complacency has been a
characteristic of the emerging markets for the past six months.
The euphoria and complacency of 1997 is very similar to our
experience in 1994, when there was abundant liquidity financed by
very low interest rates in the United States. At that time,
investors were optimistic about the US interest rate outlook until
after a second FRB tightening. The major sell off took place when it
became evident that the economy was not responding to the higher
interest rates and that the FRB would have to continue in a
tightening mode. In our view, this scenario could repeat itself in
1997.
Based on our defensive view and the lack of value in emerging market
securities, we raised cash levels substantially during the June
quarter with a view to shifting out of long-term exposure into a
mixture of short-term exposure in emerging markets, where we see
relative value, and short-term US Treasury securities for safety.
Our effort in adding short-term emerging market exposure has been
slow and deliberate for two reasons. First, short-term securities
are in short supply as is usually the case at the top of bull
markets. In addition, we are re-doubling our research to ensure the
credit quality of these short-term assets. Despite our near-term
concerns, our longer-term view on emerging markets remains very
constructive. Fundamentals will continue to improve as fiscal and
structural reforms continue to be implemented. Although periods of
volatility are inevitable in emerging markets, over the long term we
believe emerging markets may provide attractive return potential
relative to more established markets. Therefore, we will be waiting
for the appropriate moment to extend duration in the portfolio.
While our cautious approach during the June quarter has impacted the
short-term performance of the Fund, we are confident that our
investment strategy will enhance Fund performance over the long
term.
Government Bond Market
During the June quarter, ten-year yields declined sharply in all the
major industrialized markets, while the US dollar rose 4% versus the
Deutschemark but fell over 7% versus the yen. US yields declined
from late April as economic data pointed to a marked slowdown during
the second quarter as compared to the robust first quarter pace
which allowed the FRB to leave interest rates unchanged at both its
May and July Federal Open Market Committee meetings. Australian
yields declined substantially more than in the United States
following continued evidence of weak growth, low inflation and
further interest rate reductions by the central bank. At the same
time, these factors pulled the Australian dollar down by over 4%,
thereby erasing over 70% of the bond gain. Yields in the United
Kingdom, Italy, Spain and Sweden also fell more than in the United
States, largely on the back of further progress toward European
Monetary Union (EMU). These declines were also aided by the
unexpected announcement making the Bank of England independent
combined with continued good inflation in Italy, Spain and Sweden.
<PAGE>
The US dollar continued to rise versus all the European currencies
except the British pound on rising EMU sentiment, in spite of the
second quarter slowdown. Current US bond prices reflect sustained
moderation of activity and dormant inflation. Therefore, it is
unlikely the FRB will need to raise interest rates again during the
third and fourth quarters. A reacceleration in US growth poses a
clear risk for the US and global bond markets. Given the
fundamentals for consumer spending remain quite positive, a clear
case for a pickup in economic activity can be stated. European bonds
are likely to continue to outperform the United States in local
currency terms as they did in the first half of the year, given the
growth outlook for the United States is better than for Europe. We
expect the US dollar to remain well supported versus the European
currencies over the next few months as the relative interest rate
gap remains favorable with a potential boost from a recovery in US
growth.
During the June quarter, we maintained the Fund's underweighting of
government bonds, and given the outlook for the US dollar coupled
with the current relatively rich levels in bonds, we are maintaining
this underweight allocation going into the next three months.
Convertible Securities Market
During the June quarter, we continued to take profits in the
convertible portion of the Fund. We reduced our exposure to this
sector to 5.7% of total assets at June 30, 1997 from 6.1% at March
30, 1997. We currently view the valuation levels for the equity
market as extremely high. This increases price risk for stocks.
Therefore, we continue to focus mainly on defensively postured
convertible securities with lessened equity sensitivity resulting
from higher conversion premiums.
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,
<PAGE>
(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
August 18, 1997
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.
<PAGE>
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 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. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the payable date. 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.
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
6/30/97 3/31/97 6/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.81 $8.66 $8.64 +1.97% +1.73%
Class B Shares* 8.81 8.65 8.63 +2.09 +1.85
Class C Shares* 8.80 8.64 8.63 +1.97 +1.85
Class D Shares* 8.81 8.65 8.64 +1.97 +1.85
Class A Shares--Total Return* +9.63(1) +3.49(2)
Class B Shares--Total Return* +8.93(3) +3.41(4)
Class C Shares--Total Return* +8.75(5) +3.40(6)
Class D Shares--Total Return* +9.36(7) +3.54(8)
Class A Shares--Standardized 30-day Yield 6.64%
Class B Shares--Standardized 30-day Yield 6.14%
Class C Shares--Standardized 30-day Yield 6.09%
Class D Shares--Standardized 30-day Yield 6.40%
<PAGE>
<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 $0.639 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.148 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.571 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.131 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.566 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.130 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.617 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.143 per share ordinary
income dividends.
</TABLE>
<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
1/1/97--6/30/97 8.94 8.81 -- 0.291 + 2.01
------ ------
Total $0.050 Total $8.141
Cumulative total return as of 6/30/97: +134.34%**
<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 do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
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
1/1/97--6/30/97 8.94 8.81 -- 0.259 + 1.63
------ ------
Total $0.047 Total $3.875
Cumulative total return as of 6/30/97: +48.10%**
<FN>
*Figures may include short-term capital gains distributions and
return of capital distribution, if any.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.42 $8.19 -- $0.129 - 1.20%
1995 8.19 8.68 -- 0.645 +14.38
1996 8.68 8.93 -- 0.601 +10.19
1/1/97--6/30/97 8.93 8.80 -- 0.257 + 1.60
------
Total $1.632
Cumulative total return as of 6/30/97: +26.51%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions and
return of capital distribution, if any.
**Figures 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
1/1/97--6/30/97 8.94 8.81 -- 0.281 + 1.89
------
Total $1.769
Cumulative total return as of 6/30/97: +28.50%**
<FN>
*Figures may include short-term capital gains distributions and
return of capital distribution, if any.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 6/30/97 + 9.63% +5.25%
Five Years Ended 6/30/97 + 7.32 +6.45
Inception (9/29/88) through 6/30/97 +10.22 +9.71
<PAGE>
[FN]
++Performance results for per share net asset value of Class A
Shares prior to November 18, 1991 are for the period when the Fund
was closed-end.
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +8.93% +4.93%
Five Years Ended 6/30/97 +6.50 +6.50
Inception (11/18/91) through 6/30/97 +7.25 +7.25
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +8.75% +7.75%
Inception (10/21/94) through 6/30/97 +9.13 +9.13
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +9.36% +4.99%
Inception (10/21/94) through 6/30/97 +9.77 +8.12
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
LATIN Value Percent of
AMERICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking & US$ 2,000,000 Banco Hipotecario Nacional, 8% due
Finance 6/04/1999 $ 2,005,000 $ 2,002,500 0.2%
Communications 10,000,000 Telefonica de Argentina S.A.,
11.875% due 11/01/2004 9,800,800 11,925,000 1.2
Foreign Government 7,760,000 Republic of Argentina, Floating
Obligations Rate Brady Bonds, 6.75% due
3/31/2005++ 6,667,538 7,285,088 0.8
250,000 Republic of Argentina, Global Bonds,
11.375% due 1/30/2017 266,625 278,750 0.0
-------------- -------------- ------
6,934,163 7,563,838 0.8
Total Fixed-Income Investments in
Argentina 18,739,963 21,491,338 2.2
Brazil Broadcasting/Cable 8,000,000 Globo Communicacoes e Participacoes,
Ltd., 10.50% due 12/20/2006 (f) 7,997,640 8,500,000 0.9
Communications 1,500,000 Comtel Brasileira Ltd., 10.75% due
9/26/2004 (f) 1,500,000 1,605,000 0.2
Foreign 10,000,000 Brazil--DCB (Bearer), Floating Rate
Government Brady Bonds, 6.937% due 4/15/2012++ 8,308,080 8,250,000 0.8
Obligations
Total Fixed-Income Investments
in Brazil 17,805,720 18,355,000 1.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Value Percent of
(concluded) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Colombia Energy US$ 5,000,000 Oleoducts Central S.A., 9.35% due
9/01/2005 (f) $ 5,000,000 $ 5,279,900 0.5%
Utilities 9,958,000 Transgas de Occidente S.A., 9.79%
due 11/01/2010 (f) 10,094,923 10,511,605 1.1
Total Fixed-Income Investments in
Colombia 15,094,923 15,791,505 1.6
<PAGE>
Ecuador Foreign 9,686,790 Republic of Ecuador, PDI, 5.38%
Government due 2/27/2015 6,155,304 6,260,088 0.6
Obligations
Total Fixed-Income Investments
in Ecuador 6,155,304 6,260,088 0.6
Mexico Broadcasting & 7,500,000 Grupo Televisa S.A., 11.375% due
Publishing 5/15/2003 7,678,125 8,203,125 0.8
Foreign United Mexican States, Floating
Government Rate Brady Bonds++:
Obligations 3,000,000 6.351% due 12/31/2019 2,610,000 2,788,140 0.3
2,000,000 Discount, Series A, 6.867% due
12/31/2019 1,562,500 1,858,760 0.2
4,800,000 Discount, Series B, 8.50% due
12/31/2019 4,200,925 4,464,000 0.4
15,075,000 United Mexican States, Value
Recovery Rights (e) 0 15 0.0
-------------- -------------- ------
8,373,425 9,110,915 0.9
Total Fixed-Income Investments
in Mexico 16,051,550 17,314,040 1.7
Venezuela Foreign 57,250,000 Republic of Venezuela, Floating
Government Rate Brady Bonds, 6.75% due
Obligations 12/18/2007++ 48,945,000 53,063,880 5.4
Total Fixed-Income Investments in
Venezuela 48,945,000 53,063,880 5.4
Total Investments in Latin
American Securities 122,792,460 132,275,851 13.4
NORTH
AMERICA
Canada Broadcasting/Cable 10,000,000 Videotron Group, Ltd. Co., 10.25%
due 10/15/2002 10,043,750 10,600,000 1.1
Paper 10,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 9,300,000 9,650,000 1.0
Total Fixed-Income Investments in
Canada 19,343,750 20,250,000 2.1
United Airlines 12,500,000 US Airways Group Inc., 10.375% due
States 3/01/2013 12,500,000 13,500,000 1.4
<PAGE>
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc., 10.50%
due 6/15/2006 9,922,100 10,875,000 1.1
8,000,000 TCI Communications Financing II,
10% due 5/31/2045 8,200,000 8,240,000 0.8
-------------- -------------- ------
18,122,100 19,115,000 1.9
Building Materials 10,000,000 Pacific Lumber Co., 10.50% due
3/01/2003 10,140,625 10,300,000 1.0
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 11,366,050 1.2
-------------- -------------- ------
19,858,094 21,666,050 2.2
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due
2/15/2002 10,340,000 11,089,650 1.1
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,200,000 1.0
Consumer Products 10,000,000 Coleman Escrow Corp., 11.573%*
due 5/15/2001 6,476,902 6,325,000 0.6
10,000,000 Revlon Consumer Products Corp.,
9.375% due 4/01/2001 8,860,618 10,300,000 1.1
-------------- -------------- ------
15,337,520 16,625,000 1.7
Energy 10,000,000 Chesapeake Energy Corporation,
8.50% due 3/15/2012 (f) 9,941,400 9,100,000 0.9
9,100,000 Maxus Energy Corp., 9.875% due
10/15/2002 9,086,800 9,588,670 1.0
7,500,000 Rowan Companies, Inc., 11.875% due
12/01/2001 7,811,250 8,006,250 0.8
10,000,000 Seagull Energy Corp., 8.625% due
8/01/2005 10,000,000 10,200,000 1.0
Transamerican Energy (f):
2,478,000 11.50% due 6/15/2002 2,458,000 2,397,465 0.2
12,203,000 13.085%* due 6/15/2002 9,502,974 8,816,668 0.9
10,000,000 Trizec Hahn Corp., 10.43%* due
2/15/2000 7,626,602 7,575,000 0.8
-------------- -------------- ------
56,427,026 55,684,053 5.6
Entertainment 10,000,000 Viacom, Inc., 8% due 7/07/2006 10,031,250 9,700,000 1.0
Financial 10,000,000 Penn Financial Corp., 9.25% due
Services 12/15/2003 10,000,000 10,600,000 1.1
10,000,000 Reliance Group Holdings, Inc., 9%
due 11/15/2000 10,000,000 10,400,000 1.0
-------------- -------------- ------
20,000,000 21,000,000 2.1
<PAGE>
Food & Beverage 5,000,000 Coca-Cola Bottling Co., 9% due
11/15/2003 5,005,000 5,162,500 0.5
11,500,000 Del Monte Co., 10% due 5/01/2003 11,482,188 11,787,500 1.2
-------------- -------------- ------
16,487,188 16,950,000 1.7
Gaming 10,000,000 Greate Bay Properties, Inc.,
10.875% due 1/15/2004 9,996,250 8,900,000 0.9
7,500,000 Harrah's Jazz Co., 14.25% due
11/15/2001 (h) 5,178,125 2,850,000 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 10,300,000 1.0
10,000,000 Trump Atlantic City Associates,
11.25% due 5/01/2006 9,943,750 9,750,000 1.0
-------------- -------------- ------
34,866,875 31,800,000 3.2
Hotels 10,000,000 HMC Acquisition Properties, 9% due
12/15/2007 9,346,250 10,162,500 1.0
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 10,500,000 1.1
Supermarkets 10,000,000 Pueblo Xtra International Inc., 9.50%
due 8/01/2003 10,116,875 9,700,000 1.0
Telecommunications 10,000,000 Century Communications Corp., 9.50%
due 3/01/2005 9,797,500 10,250,000 1.0
10,000,000 International Cabletel Inc., 10%
due 2/15/2007 (f) 9,880,000 10,175,000 1.0
10,000,000 Millicom International Cellular
S.A., 11.834%* due 6/01/2006 6,735,277 7,300,000 0.8
-------------- -------------- ------
26,412,777 27,725,000 2.8
Textiles 10,000,000 WestPoint Stevens Inc., 8.75% due
12/15/2001 10,093,750 10,300,000 1.0
Transportation 9,921,000 Viking Star Shipping Co., 9.625%
due 7/15/2003 9,949,141 10,466,655 1.1
Utilities 9,848,000 Beaver Valley II Funding Corp., 9%
due 6/01/2017 7,262,900 10,281,903 1.1
Midland Cogeneration Venture
Limited Partnership:
7,287,064 10.33% due 7/23/2002 (b) 7,141,323 7,971,611 0.8
10,000,000 13.25% due 7/23/2006 11,183,750 12,174,600 1.2
10,000,000 Tucson Electric & Power Co.,
10.732% due 1/01/2013 9,607,625 9,964,000 1.0
-------------- -------------- ------
35,195,598 40,392,114 4.1
<PAGE>
Total Fixed-Income Investments in
the United States 335,199,444 346,576,022 35.0
</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> <C> <S> <C> <C> <C>
United Building & US$ 800,000 Continental Homes Holding Corp.,
States Construction 6.875% due 11/01/2002 $ 800,000 $ 788,000 0.1%
1,740,000 Engle Homes, Inc., 7% due
3/01/2003*** 1,694,760 1,600,800 0.2
1,500,000 Toll Brothers Inc., 4.75% due
1/15/2004 1,500,000 1,537,500 0.1
1,000,000 US Home Corp., 4.875% due 11/01/2005 991,000 945,000 0.1
-------------- -------------- ------
4,985,760 4,871,300 0.5
Computers 5,000,000 Apple Computer, Inc., 6% due
6/01/2001 4,945,000 4,225,000 0.4
Conglomerates Polyphase Corp.***:
500,000 12% due 12/01/1997 (f) 500,000 82,500 0.0
2,000,000 12% due 7/01/1999 (g) 2,000,000 300,000 0.0
1,000,000 Thermo Electron Corp., 4.25% due
1/01/2003 (f) 1,000,000 1,082,500 0.1
1,500,000 Thermo Instrument Systems, Inc.,
4.50% due 10/15/2003 1,522,500 1,500,000 0.2
-------------- -------------- ------
5,022,500 2,965,000 0.3
Electronics 1,585,000 Thermo Optik Corp., 5% due
10/15/2000 (f) 1,588,950 1,610,756 0.2
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625% due
5/01/2003 (f) 1,114,735 1,005,864 0.1
Financial Services 2,250,000 NAL Acceptance Corp., 10% due
9/12/1998 (g) 2,250,000 1,845,000 0.2
Healthcare 1,500,000 Integrated Health Services Inc.,
5.75% due 1/01/2001 1,493,750 1,800,000 0.2
Industrial 140,000 Recognition Equipment International,
Inc., 7.25% due 4/15/2011 103,600 136,500 0.0
<PAGE>
Medical Healthsource, Inc.:
3,350,000 5% due 3/01/2003 3,340,705 3,345,812 0.3
1,650,000 5% due 3/01/2003 (f) 1,638,450 1,647,937 0.2
-------------- -------------- ------
4,979,155 4,993,749 0.5
Office Equipment US Office Products Co.:
500,000 5.50% due 5/15/2003 448,125 460,000 0.0
4,000,000 5.50% due 5/15/2003 (f) 3,677,500 3,540,000 0.4
-------------- -------------- ------
4,125,625 4,000,000 0.4
Oil--Domestic 1,482,000 Key Energy Group, Inc., 7.50% due
7/01/2003 (f) 2,371,292 2,812,095 0.3
Restaurants 1,500,000 Boston Chicken, Inc., 7.75% due
5/01/2004 1,367,500 1,346,250 0.1
Technology 1,250,000 Broadband Technologies, Inc., 5%
due 5/15/2001 (f) 1,246,250 926,562 0.1
1,250,000 Data General Corporation, 6% due
5/15/2004 (f) 1,250,000 1,534,375 0.1
-------------- -------------- ------
2,496,250 2,460,937 0.2
Telecommunications 500,000 Premiere Technologies, Inc., 5.75%
Equipment due 7/01/2004 (f) 500,000 517,500 0.1
Total Investments in United States
Convertible Bonds 37,344,117 34,589,951 3.5
Convertible Preferred Stocks,
Preferred Stocks, Common Stocks
Shares Held & Warrants
United Banking & Finance 10,000 BankAtlantic Bancorp. Inc., Conv.
States Pfd. 250,000 253,750 0.0
Broadcasting/Cable 137,257 On Command Corporation 4,061,096 1,647,084 0.2
43,675 On Command Corporation (Warrants)(c) 349,400 229,294 0.0
-------------- -------------- ------
4,410,496 1,876,378 0.2
Entertainment 11,311 Time Warner, Inc. (Series M),
Pfd. (a) 11,299,375 12,498,655 1.3
Environmental 32,007 Allied Waste Industries, Inc. 153,079 544,119 0.1
Financial Services 28,125 NAL Acceptance Corp. (Warrants)
(c)(g) 0 5,273 0.0
<PAGE>
Forest Products 11,700 James River Corp. of Virginia
& Paper (Series P), Conv. Pfd. 282,964 403,650 0.0
Gaming 75,000 Goldriver Hotel & Casino Corp.,
Liquidating Trust (g) 75,000 0 0.0
30,000 Goldriver Hotel & Casino Corp.
(Series B)(d) 219,738 0 0.0
-------------- -------------- ------
294,738 0 0.0
Industrial Services 118,500 Albany International Corp.
(Class A) 2,271,228 2,666,250 0.3
Insurance 163,141 Kemper Corp., Conv. Pfd. $5.25
(Series E)(f) 8,349,078 8,544,510 0.8
1,500 Westbridge Capital Corp., Conv.
Pfd. 1,500,000 1,680,000 0.2
-------------- -------------- ------
9,849,078 10,224,510 1.0
Mining 148,400 Coeur d'Alene Mines Corp., Conv.
Pfd. 2,772,608 2,485,700 0.2
Oil--Domestic 34,799 Key Energy Group, Inc. 428,042 619,857 0.1
Oil & Gas 20,000 Calenergy Capital Trust II, Conv.
Pfd. (f) 1,000,000 1,115,000 0.1
20,000 Western Gas Resources, Inc., Conv.
Pfd $2.62 1,000,000 792,500 0.1
-------------- -------------- ------
2,000,000 1,907,500 0.2
Transportation 5,000 CNF Transportation Inc., Conv. Pfd. 250,000 280,000 0.0
19,000 Sea Containers Ltd., Conv. Pfd.
$4.00 875,463 954,750 0.1
-------------- -------------- ------
1,125,463 1,234,750 0.1
Utilities 107,688 Citizens Utilities Company (Class A) 1,242,181 1,009,574 0.1
Total Investments in United States
Convertible Preferred Stocks,
Preferred Stocks, Common Stocks 36,379,252 35,729,966 3.6
& Warrants
Total Investments in North American
Securities 428,266,563 437,145,939 44.2
PACIFIC
BASIN Face Amount Fixed-Income Investments
<PAGE>
Indonesia Paper US$ 5,000,000 P.T. Indah Kiat International
Finance, 12.50% due 6/15/2006 5,025,000 5,662,500 0.5
Total Fixed-Income Investments in
Indonesia 5,025,000 5,662,500 0.5
Philippines Telecommuni- 5,000,000 Philippine Long Distance Telephone
cations Co., 8.35% due 3/06/2017 4,981,200 4,737,500 0.5
Total Fixed-Income Investments in
the Philippines 4,981,200 4,737,500 0.5
Total Investments in Pacific Basin
Securities 10,006,200 10,400,000 1.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
WESTERN Value Percent of
EUROPE Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Germany Foreign DM 80,000,000 Bundesobligation, 5.75% due 8/22/2000 $ 48,883,433 $ 48,167,107 4.9%
Government
Obligations
Total Fixed-Income Investments in
Germany 48,883,433 48,167,107 4.9
United Communications US$ 20,000,000 TeleWest Communications PLC, 11.41%*
Kingdom due 10/01/2007 14,115,676 14,400,000 1.4
Total Fixed-Income Investments in
the United Kingdom 14,115,676 14,400,000 1.4
Convertible Bonds
Finland Paper & Fim 2,320,000 Kymmene Corp., 8.25% due 11/18/2043 549,503 559,263 0.1
Forest Products
Total Investments in Finnish Covertible
Bonds 549,503 559,263 0.1
<PAGE>
Ireland Dental & US$ 500,000 Phoenix Shannon PLC, 9.50% due
Equipment 11/01/2000 (h) 500,000 150,000 0.0
Supplies
Total Investments in Irish Convertible
Bonds 500,000 150,000 0.0
Total Investments in Western European
Securities 64,048,612 63,276,370 6.4
SHORT-TERM
SECURITIES Issue
Commercial 20,000,000 A.H. Robins Company, 5.55% due
Paper** 7/30/1997 19,910,583 19,910,583 2.0
50,000,000 Atlantic Asset Securitization Corp.,
5.57% due 7/16/1997 49,883,958 49,883,958 5.0
Banco Indosuez Tranche 3:
11,500,000 12.50% due 9/24/1997 11,170,991 11,159,106 1.1
1,850,000 12.50% due 10/14/1997 1,785,056 1,782,429 0.2
10,000,000 GTE Corp., 5.59% due 7/08/1997 9,989,131 9,989,131 1.0
38,540,000 General Motors Acceptance Corp.,
6.25% due 7/01/1997 38,540,000 38,540,000 3.9
25,000,000 Morgan Stanley Group, Inc., 5.58%
due 8/08/1997 24,852,750 24,852,750 2.5
10,000,000 Riverwoods Funding Corp., 5.57%
due 7/31/1997 9,953,583 9,953,583 1.0
40,000,000 Russian GKO, 12% due 11/17/1997 38,270,965 38,275,003 3.9
-------------- -------------- ------
204,357,017 204,346,543 20.6
US Government 128,000,000 Federal Home Loan Bank, 5.40% due
& Agency 7/07/1997 127,884,800 127,884,800 12.9
Obligations** 4,000,000 Federal National Mortgage
Association, 5.42% due 7/10/1997 3,994,580 3,994,580 0.4
1,250,000 US Treasury Bills, 5.17% due
8/21/1997 1,240,845 1,241,025 0.2
-------------- -------------- ------
133,120,225 133,120,405 13.5
Total Investments in Short-Term
Securities 337,477,242 337,466,948 34.1
Total Investments 962,591,077 980,565,108 99.1
<CAPTION>
OPTIONS Nominal Value Premiums
WRITTEN Covered by Options Received
Currency Call 25,000,000 Deutschemark, expiring July 1997 at
Options Written DM1.69 (70,000) (7,500) 0.0
Total Options Written (70,000) (7,500) 0.0
<PAGE>
Total Investments, Net of Options Written $ 962,521,077 980,557,608 99.1
==============
Short Sales (Proceeds--$737,358)*** (676,750) (0.1)
Unrealized Appreciation on Forward Foreign Exchange Contracts**** 21,550 0.0
Other Assets Less Liabilities 9,463,598 1.0
-------------- ------
Net Assets $ 989,366,006 100.0%
============== ======
<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 June 30, 1997 were as
follows:
Value
Shares Issue (Note 1i)
67,000 Engle Homes, Inc. $ (670,000)
4,500 Polyphase Corp. (6,750)
Total (Proceeds--$737,358) $ (676,750)
==========
****Forward foreign exchange contracts sold as of June 30, 1997 were
as follows:
Foreign Unrealized
Currency Expiration Appreciation
Sold Date (Note 1c)
DM 43,465,375 July 1997 $ 21,550
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$25,000,000) $ 21,550
==========
<PAGE>
(a)Represents a pay-in-kind security which may pay interest/dividends
in additional face/shares.
(b)Subject to principal paydowns as a result of prepayments or
refinancings of the underlying mortgage instruments. As a result,
the average life may be substantially less than the original
maturity.
(c)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(d)Each share of Series B stock contains a right which entitles the
holder to purchase a predetermined number of shares of Preferred
Stock.
(e)The rights may be exercised until 2/06/2001.
(f)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(g)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $2,150,000,
representing 0.2% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
Goldriver Hotel & Casino 5/04/1989-
Corp., Liquidating Trust 10/07/1993 $ 75,000 $ --
NAL Acceptance Corp.,
10% due 9/12/1998 9/12/1996 2,250,000 1,845,000
NAL Acceptance Corp.
(Warrants) 9/12/1996 -- 5,273
Polyphase Corp.,
12% due 7/01/1999 7/05/1994 2,000,000 300,000
Total $ 4,325,000 $ 2,150,273
=========== ===========
(h)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$962,591,077) (Note 1a) $ 980,565,108
Cash 2,436,892
Foreign cash (Note 1d) 38,539
Unrealized appreciation on forward foreign exchange contracts
(Note 1c) 21,550
Deposit for securities sold short (Note 1i) 737,358
Receivables:
Interest $ 12,568,998
Securities sold 4,719,289
Capital shares sold 389,740
Dividends 388,577
Forward foreign exchange contracts (Note 1c) 81,727 18,148,331
--------------
Prepaid registration fees and other assets (Note 1g) 101,567
--------------
Total assets 1,002,049,345
--------------
<PAGE>
Liabilities: Common stocks sold short, at market value (proceeds--$737,358)
(Note 1i) 676,750
Call options written, at value (premiums received--$70,000)
(Notes 1a & 1c) 7,500
Payables:
Capital shares redeemed 5,913,407
Securities purchased 3,124,019
Dividends to shareholders (Note 1h) 1,434,449
Distributor (Note 2) 491,095
Investment adviser (Note 2) 484,061 11,447,031
--------------
Accrued expenses and other liabilities 552,058
Total liabilities 12,683,339
--------------
Net Assets: Net assets $ 989,366,006
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000
Consist of: shares authorized $ 2,033,040
Class B Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 8,914,406
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 123,752
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 163,363
Paid-in capital in excess of par 1,032,245,015
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 5) (72,200,641)
Unrealized appreciation on investments and foreign currency
transactions--net 18,087,071
--------------
Net assets $ 989,366,006
==============
Net Asset Class A--Based on net assets of $179,127,880 and 20,330,397
Value: shares outstanding $ 8.81
==============
Class B--Based on net assets of $784,957,661 and 89,144,064
shares outstanding $ 8.81
==============
Class C--Based on net assets of $10,887,476 and 1,237,516
shares outstanding $ 8.80
==============
Class D--Based on net assets of $14,392,989 and 1,633,633
shares outstanding $ 8.81
==============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1997
<S> <S> <C> <C>
Investment Interest and discount earned $ 41,239,226
Income Dividends 1,623,293
(Note 1f): --------------
Total income 42,862,519
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 3,298,265
Investment advisory fees (Note 2) 3,293,029
Transfer agent fees--Class B (Note 2) 539,597
Printing and shareholder reports 101,053
Transfer agent fees--Class A (Note 2) 100,422
Accounting services (Note 2) 75,471
Custodian fees 63,695
Professional fees 53,403
Account maintenance and distribution fees--Class C (Note 2) 42,657
Registration fees (Note 1g) 39,795
Directors' fees and expenses 24,494
Account maintenance fees--Class D (Note 2) 18,252
Transfer agent fees--Class D (Note 2) 7,614
Transfer agent fees--Class C (Note 2) 6,690
Dividends on short sales (Note 1i) 5,360
Pricing fees 3,342
Other 13,523
--------------
Total expenses 7,686,662
--------------
Investment income--net 35,175,857
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 96,879
(Loss) on Foreign currency transactions--net (16,627,992) (16,531,113)
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (5,582,308)
(Notes 1c, 1d, Foreign currency transactions--net 3,044,561 (2,537,747)
1f & 3): -------------- --------------
Net realized and unrealized loss on investments and foreign
currency transactions (19,068,860)
--------------
Net Increase in Net Assets Resulting from Operations $ 16,106,997
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 35,175,857 $ 97,167,756
Realized gain (loss) on investments and foreign currency
transactions--net (16,531,113) 27,311,882
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (2,537,747) 8,867,779
-------------- --------------
Net increase in net assets resulting from operations 16,106,997 133,347,417
-------------- --------------
Dividends to Investment income--net:
Shareholders Class A (6,784,308) (18,005,131)
(Note 1h): Class B (27,565,879) (77,786,819)
Class C (330,928) (534,218)
Class D (494,742) (841,588)
-------------- --------------
Net decrease in net assets resulting from dividends to
shareholders (35,175,857) (97,167,756)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (216,479,303) (325,693,217)
(Note 4): -------------- --------------
<PAGE>
Net Assets: Total decrease in net assets (235,548,163) (289,513,556)
Beginning of period 1,224,914,169 1,514,427,725
-------------- --------------
End of period $ 989,366,006 $1,224,914,169
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
The following per share data and ratios
have been derived from information For the Six For the Year Ended
provided in the financial statements. Months Ended December 31,
June 30,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++ 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.94 $ 8.69 $ 8.20 $ 9.28 $ 8.85
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .30 .67 .72 .72 .75
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.13) .25 .49 (1.09) .46
---------- ---------- ---------- ---------- ----------
Total from investment operations .17 .92 1.21 (.37) 1.21
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.30) (.67) (.56) (.45) (.58)
Realized gain on investments--net -- -- -- -- (.03)
Return of capital--net -- -- (.16) (.26) (.17)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.30) (.67) (.72) (.71) (.78)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.81 $ 8.94 $ 8.69 $ 8.20 $ 9.28
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 2.01%+++ 11.09% 15.35% (4.05%) 14.12%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses .77%* .75% .80% .77% .78%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 7.03%* 7.71% 8.54% 8.17% 8.22%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 179,128 $ 212,085 $ 260,806 $ 311,181 $ 467,625
========== ========== ========== ========== ==========
Portfolio turnover 92.05% 208.53% 116.00% 115.95% 182.88%
========== ========== ========== ========== ==========
<PAGE>
Class B
The following per share data and ratios
have been derived from information For the Six For the Year Ended
provided in the financial statements. Months Ended December 31,
June 30,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++ 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.94 $ 8.69 $ 8.19 $ 9.28 $ 8.85
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .27 .61 .65 .65 .70
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.13) .25 .50 (1.10) .44
---------- ---------- ---------- ---------- ----------
Total from investment operations .14 .86 1.15 (.45) 1.14
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.27) (.61) (.51) (.40) (.53)
Realized gain on investments--net -- -- -- -- (.03)
Return of capital--net -- -- (.14) (.24) (.15)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.27) (.61) (.65) (.64) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.81 $ 8.94 $ 8.69 $ 8.19 $ 9.28
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 1.63%+++ 10.25% 14.61% (4.90%) 13.27%
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.54%* 1.52% 1.56% 1.54% 1.55%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 6.27%* 6.94% 7.77% 7.41% 7.42%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 784,958 $ 988,209 $1,241,896 $1,490,507 $2,106,120
========== ========== ========== ========== ==========
Portfolio turnover 92.05% 208.53% 116.00% 115.95% 182.88%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C
For the For the
The following per share data and ratios have Six Period
been derived from information provided in the Months Oct. 21,
financial statements. Ended For the Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.93 $ 8.68 $ 8.19 $ 8.42
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .27 .60 .64 .10
Realized and unrealized gain (loss) on
investments and foreign currency transactions
--net (.13) .25 .49 (.20)
---------- ---------- ---------- ----------
Total from investment operations .14 .85 1.13 (.10)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.27) (.60) (.50) (.08)
Return of capital--net -- -- (.14) (.05)
---------- ---------- ---------- ----------
Total dividends and distributions (.27) (.60) (.64) (.13)
---------- ---------- ---------- ----------
Net asset value, end of period $ 8.80 $ 8.93 $ 8.68 $ 8.19
========== ========== ========== ==========
Total Investment Based on net asset value per share 1.60%+++ 10.19% 14.38% (1.20%)+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.59%* 1.56% 1.65% 1.64%*
Net Assets: ========== ========== ========== ==========
Investment income--net 6.21%* 6.85% 7.65% 8.00%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 10,887 $ 10,251 $ 5,406 $ 1,204
Data: ========== ========== ========== ==========
Portfolio turnover 92.05% 208.53% 116.00% 115.95%
========== ========== ========== ==========
<PAGE>
Class D
For the For the
The following per share data and ratios have Six Period
been derived from information provided in the Months Oct. 21,
financial statements. Ended For the Year Ended 1994++ to
June 30, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.94 $ 8.69 $ 8.20 $ 8.43
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .29 .65 .70 .11
Realized and unrealized gain (loss) on
investments and foreign currency transactions
--net (.13) .25 .49 (.20)
---------- ---------- ---------- ----------
Total from investment operations .16 .90 1.19 (.09)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.29) (.65) (.55) (.09)
Return of capital -- -- (.15) (.05)
---------- ---------- ---------- ----------
Total dividends and distributions (.29) (.65) (.70) (.14)
---------- ---------- ---------- ----------
Net asset value, end of period $ 8.81 $ 8.94 $ 8.69 $ 8.20
========== ========== ========== ==========
Total Investment Based on net asset value per share 1.89%+++ 10.82% 15.06% (1.09%)+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 1.02%* .99% 1.04% 1.04%*
Net Assets: ========== ========== ========== ==========
Investment income--net 6.78%* 7.42% 8.23% 8.60%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 14,393 $ 14,369 $ 6,320 $ 1,410
Data: ========== ========== ========== ==========
Portfolio turnover 92.05% 208.53% 116.00% 115.95%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Directors.
NOTES TO FINANCIAL STATEMENTS (continued)
<PAGE>
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additional
securities daily to ensure that the contract is fully
collateralized.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contacts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
<PAGE>
* Options--The Fund is authorized to write 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).
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.
<PAGE>
(i) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds received by the Fund is reflected as an asset
and equivalent liability. The amount of the liability is
subsequently marked to market to reflect the market value of the
short sale. The Fund maintains a segregated account of securities as
collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock
exceeds the proceeds received.
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 six months ended June 30, 1997, 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 $1,071 $11,773
Class D $ 697 $ 6,760
For the six months ended June 30, 1997, MLPF&S received contingent
deferred sales charges of $741,918 and $2,916 relating to
transactions in Class B and Class C Shares, respectively.
During the six months ended June 30, 1997, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $1,484 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 MLFD, FAM, PSI, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1997 were $702,426,176 and
$1,106,671,226, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of June 30, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
<PAGE>
Investments:
Long-term $ 737,686 $ 17,984,325
Short-term 10,927 (10,294)
Short sales (229,111) 60,608
Options written 42,178 --
Financial futures
contracts (464,801) --
-------------- --------------
Total investments 96,879 18,034,639
-------------- --------------
Currency transactions:
Options purchased 1,096,240 --
Options written 179,504 62,500
Foreign currency
transactions (23,966,313) (31,618)
Forward foreign exchange
contracts 6,062,577 21,550
-------------- --------------
Total currency transactions (16,627,992) 52,432
-------------- --------------
Total $ (16,531,113) $ 18,087,071
============== ==============
Transactions in call options written for the six months ended June
30, 1997 were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options
written, beginning of period -- $ --
Options written 142,320,000 400,765
Options closed (35,100,000) (221,050)
Options expired (82,220,000) (109,715)
-------------- --------------
Outstanding call options
written, end of period 25,000,000 $ 70,000
============== ==============
Transactions in put options written for the six months ended June
30, 1997 were as follows:
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
<PAGE>
Outstanding put options
written, beginning of period 10,000,000 $ 21,875
Options exercised (10,000,000) (21,875)
-------------- --------------
Outstanding put options
written, end of period -- $ --
============== ==============
As of June 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $17,974,031, of which $33,077,287 related to
appreciated securities and $15,103,256 related to depreciated
securities. The aggregate cost of investments at June 30, 1997 for
Federal income tax purposes was $962,591,077.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $216,479,303 and $325,693,217 for the six months ended June 30,
1997 and for the year ended December 31, 1996, respectively.
Transactions in shares of capital for each class were as follows:
Class A Shares for the Six Months Dollar
Ended June 30, 1997 Shares Amount
Shares sold 410,629 $ 3,626,593
Shares issued to shareholders
in reinvestment of dividends 235,866 2,075,164
------------- -------------
Total issued 646,495 5,701,757
Shares redeemed (4,027,057) (35,401,684)
------------- -------------
Net decrease (3,380,562) $ (29,699,927)
============= =============
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 B Shares for the Six Months Dollar
Ended June 30, 1997 Shares Amount
<PAGE>
Shares sold 2,495,385 $ 21,974,838
Shares issued to shareholders
in reinvestment of dividends 1,289,786 11,337,527
------------- -------------
Total issued 3,785,171 33,312,365
Automatic conversion of shares (275,064) (2,407,285)
Shares redeemed (24,915,283) (218,723,056)
------------- -------------
Net decrease (21,405,176) $(187,817,976)
============= =============
Class B Shares for the Year Dollar
Ended 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 C Shares for the Six Months Dollar
Ended June 30, 1997 Shares Amount
Shares sold 341,213 $ 3,006,799
Shares issued to shareholders
in reinvestment of dividends 19,218 168,755
------------- -------------
Total issued 360,431 3,175,554
Shares redeemed (270,637) (2,379,494)
------------- -------------
Net increase 89,794 $ 796,060
============= =============
Class C Shares for the Year Dollar
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
============= =============
<PAGE>
Class D Shares for the Six Months Dollar
Ended June 30, 1997 Shares Amount
Shares sold 116,530 $ 1,026,232
Automatic conversion of shares 274,750 2,407,285
Shares issued to shareholders
in reinvestment of dividends 28,555 251,146
------------- -------------
Total issued 419,835 3,684,663
Shares redeemed (392,794) (3,442,123)
------------- -------------
Net increase 27,041 $ 242,540
============= =============
Class D Shares for the Year Dollar
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
============= =============
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.
