MERRILL LYNCH
WORLD INCOME
FUND, INC.
STRATEGIC
Performance
Quarterly Report
September 30, 1997
<PAGE>
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
Daniel A. Luchansky, Vice President
Robert J. Parish, Vice President
Paolo H. Valle, Vice President
Gerald M. Richard, Treasurer
Lawrence A. Rogers, Secretary
Custodian
State Street Bank and 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
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
DEAR SHAREHOLDER
During the September quarter, our investment strategy for Merrill Lynch World
Income Fund, Inc. remained defensive. Given the strength of the US dollar, Fund
holdings were maintained in US dollars or were generally hedged to limit
currency risk. While US Treasury and agency securities appear to offer
reasonable value, yield spreads in US high-yield, emerging markets and
dollar-denominated corporate fixed-income securities in general are historically
narrow relative to Treasury securities. That is, the incremental yield
compensating investors for credit risk is small relative to historic norms.
Our allocation to the US high-yield sector remained at 42% of net assets during
the September quarter. Risk premiums in emerging markets were also perceived to
be narrow and inadequate compensation for the sovereign credit risk and
occasional extreme volatility that characterize this market. While the
allocation in this sector remained at 30% of net assets during the September
quarter, investments were predominately in relatively low-duration US dollar
obligations.
The government sector constituted 20% of net assets. During the September
quarter, a more positive view of the US Government market was adopted to reflect
the outlook for a steady monetary policy with continued subdued inflation. The
European bond exposure remained concentrated in Germany, with currency hedges no
longer being useful on a sustained basis. The Fund's New Zealand exposure is
providing solid income with low currency risk given the New Zealand dollar's 10%
decline from the beginning of the year.
High-Yield Market
The high-yield bond market posted modest price gains during the quarter, in line
with the performance of US Government notes. (The total returns of two
high-yield bond indexes and ten-year Treasury securities, as well as investment
results for all classes of shares of the Fund, can be found in the "Recent
Performance Results" table on pages 8 and 9 of this report to shareholders.)
High-yield market fundamentals remained positive during the quarter ended
September 30, 1997. Moderate economic growth kept corporate earnings strong
among cyclical businesses such as steel, chemicals and airlines. The paper
industry, which is one of the few soft markets, recently saw price increases
hold on several paper grades and earnings appear to be recovering. Even oil
refining, a business that suffered overcapacity for years, is experiencing
strong earnings gains this year, positively impacting two of our holdings:
Trizec Hahn Corp. and TransAmerican Energy.
In addition, merger and acquisition activity improved the credit quality of
high-yield issuers. Another factor affecting performance was that ready access
to equity provided high-yield issuers a source of financing that improved
balance sheets and credit quality. Fresh Del Monte Co., a portfolio holding, was
financed in the equity market during the quarter ended September 30, 1997.
We believe that the positive fundamental trends experienced to date will
continue. However, valuations reflect these positive factors and at times
excessive enthusiasm has resulted in overvaluation of many individual issues.
Our approach to the market is therefore quite selective. In general, we believe
that BB-rated issues and B+-rated issues have a more attractive risk/reward
profile than issues rated B- and CCC. Yield spreads between quality sectors are
compressed historically, and we believe that incremental yield in the
lower-quality end of the market is inadequate to compensate for the incremental
risk. Our quality profile is therefore overweighted toward higher-quality
issues.
Emerging Markets
During the three-month period ended September 30, 1997, the investment
environment in emerging markets was driven by several factors. First, the
abundance of liquidity caused by the accommodative monetary policy in Japan and
weak demand in Germany continued to provide bullish momentum to Latin American
markets. The recent hike in interest rates by the Bundesbank was the first
indication that the liquidity cycle has matured. With European interest rates at
record low levels and concerns of further tightening in both Germany and the
United States, further convergence in global interest rates seems unlikely. With
many European and American financial markets trading at record levels, a
reversal in global liquidity will be very negative.
Second, the US economy continued to be very strong. Inflation has been benign
despite above-trend economic growth, tight labor markets and record consumer
confidence levels. The US economy has been operating at full employment for most
of this year. We believe that the probability of encountering inflation in such
an environment is high. Producer price inflation, which in the past two quarters
had surprised consensus forecasts on the downside, surprised economists on the
upside in August. Federal Reserve Board (FRB) Chairman Greenspan and other FRB
governors recently began to comment that US economic growth is proceeding at an
unsustainable pace. Forecasts for both third and fourth quarter of 1997 US
economic growth are being revised upward by most economists. Sentiment is
gradually shifting from the view of lower inflation and interest rates to one
that recognizes that the FRB may have to be preemptive in the face of further
strong economic growth.
Third, the Asian currency crisis, which started with an attack on the Thai baht,
has spread to Indonesia, the Philippines and Malaysia. This crisis has resulted
in substantial loss of market capitalization and has generated volatility in
peripheral markets such as Taiwan and South Korea. Other than brief periods of
volatility in Brazil and South Africa, contagion of the Asian currency crisis
has been muted so far. We believe that the threat of contagion to markets in
Latin America will increase if the Asian currency crisis persists and deepens.
We believe that the Asian currency crisis could set the stage for an upward
revision in risk premiums for emerging market investments. We believe that the
current complacency of the market in recognizing the broader impact of the Asian
currency crisis is not warranted. Given the global nature of today's financial
markets, any perceived decoupling from the Asian currency crisis is more a
result of abundant global liquidity rather than distinctly different
fundamentals. We are of the opinion that the liquidity cycle is mature and could
reverse with the FRB tightening monetary policy, which we believe is a distinct
possibility in the near future.
Finally, emerging fixed-income markets are at record levels but remain dependent
on global liquidity and a benign US interest rate environment. Major countries
in Latin America are taking advantage of the abundance of liquidity by extending
the maturity profile of their external debt.
After the close of the September quarter, the Asian currency crisis continued
deepening and spreading to other countries. The crisis deepened to such an
extent that both Thailand and Indonesia requested, and finally received, support
of the International Monetary Fund and the Group of Seven Industrialized
Nations. The currency board in Hong Kong came under strong attack, forcing
leading banks to halt early withdrawals of time deposits and allowing local
interest rates to increase significantly. The resulting crash of the Hong Kong
market spread to European, US and non-Asian emerging markets.
Brazil was the most affected by the spreading of the crisis to other regions.
With a currency reportedly overvalued by approximately 25%-30% by some
financial analyst estimates and with little progress to show for in their fiscal
and structural reform, Brazilian equities and Brady bonds led the market down.
The recent market developments have highlighted the vulnerability of the
Brazilian Real Plan. Its survival appears to be hinging on the ability of the
Brazilian government to obtain very quick passage in congress of the fiscal
reforms that have fizzled in the past few years.
In Argentina, the congressional mid-term elections gave the victory to the
opposition, which captured the majority in congress. This event increased the
possibility of gridlock in congress in the remaining two years of President
Menem's administration, despite the opposition support of the current economic
model.
Given the historically tight credit spreads and our defensive view on the global
financial environment, we substantially underweighted our allocation of 30% to
emerging markets. Our current exposure to emerging markets stands at 16% of net
assets. The exposure is weighted with floating rate Latin American securities
and short-term exposure to Russia. We
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
will extend duration and increase our exposure in the event of a significant
correction.
Government Sector
The US economy continued its solid performance in the September quarter with
real gross domestic product (GDP) likely to have grown at 3% or more following a
4% rate in the first six months of the year. Inflation continues to remain
subdued, thereby allowing the FRB to keep interest rates unchanged while
maintaining a tightening bias, at least through the August Federal Open Market
Committee meeting. The receding concerns of inflation have apparently made the
FRB more comfortable about letting the current above trend growth continue
without tightening policy.
The Canadian economy remains strong with little sign of inflationary pressure.
The Bank of Canada has responded to this strength by raising interest rates 25
basis points (0.25%) in an attempt to rebalance monetary conditions. Further
interest rate hikes are likely as strong growth maintains upward pressure on
inflation. In Australia, second-quarter growth deteriorated while inflation
dropped further. The Reserve Bank of Australia (RBA) used this backdrop to lower
interest rates again, with the potential for one more cut before year-end.
In Europe, German economic reports late in the period confirmed a second and
third quarter of 1997 growth rate of about 4%, led by the manufacturing sector,
with some signs of domestic recovery. Inflation spiked up on the back of energy
and a weaker Deutschemark, but core inflation remained subdued. The Bank of
England (BOE) raised interest rates twice during the September quarter by a
total of 50 basis points as economic activity remained strong and the new budget
appeared likely to be at most mildly restrictive. Following the second interest
rate hike, the BOE signaled it was going on hold given the aggregate restraint
in the pipeline from the cumulative interest rate hikes along with the
substantial strength of the pound over the last year. In other European markets,
inflation troughed in Italy, Spain and Sweden; activity continues to recover
smartly; and the fiscal outlook in Italy continues to improve. On the European
Monetary Union (EMU) front, the French audit of public finances by the new
administration was favorable, likely leaving Germany as the last pitfall on the
road to EMU.
During the September quarter, ten-year yields fell in all major markets, largely
led by the second quarter slowdown in the United States. This slowdown, when
accompanied by inflation's drop to a six-year low (2.2%), led investors to
believe the FRB was very unlikely to raise interest rates this year. Australia
outperformed following renewed interest rate cuts while Canadian yields dropped
slightly more than the United States. Yields in the core European markets fell
less than those in the United States but fell more in the high-yielding sector
largely on the favorable outcome of the French budget audit which substantially
raised the odds EMU would start on schedule. The dollar rose sharply versus the
Deutschemark, reaching a high of 1.89 in early August as any EMU doubts were
dashed by the French audit along with an easing of concerns regarding the US
trade balance. The dollar has since pulled back to the 1.77 area as the
Bundesbank used threats of an interest rate hike to prevent a further sharp
decline in the Deutschemark that was fueling inflationary concerns at the
Bundesbank. The Australian dollar declined over 4% as its interest rate support
was eliminated by the RBA cuts during the September quarter. The Canadian dollar
was unchanged.
The outlook for US bonds is currently very mixed, especially following the sharp
upward revision to second-quarter growth. Even the most optimistic forecasters
see second-half GDP marginally below the first half, which leaves the FRB in a
"wait and see" mode regarding whether inflationary reassures begin to
significantly rise, thus warranting an interest rate hike. Until one or both of
these events occur, prices will likely remain range-bound, leading to a trading
strategy. European bonds seem unlikely to substantially outperform the US
market given the recent clear signs of recovery in Europe, along with inflation
rates biased to edge up over the next few months. The dollar is likely to
remain in a range versus the European currencies over the near term while the
FRB is on hold and with a bias to rise given the FRB is more likely to raise
interest rates before the Bundesbank does.
The government sector of the Fund finished the period with 25% of its assets
invested in Germany, 15% in New Zealand and 60% in US bonds as both the German
and New Zealand markets achieved very attractive valuations in dollar terms in
August. We expect to use further weakness in the US dollar to reposition the
portfolio away from European bonds, likely emphasizing more of the dollar bloc
markets in Canada, Australia and New Zealand.
Convertible Securities
The stock market has been extraordinarily volatile over the past several months.
This increased volatility helps keep convertible premiums high, supporting their
market prices. The new-issue market for convertible issues as been quite hot.
Most new issues trade to immediate premiums to their offering prices,
notwithstanding more aggressive pricing by the issuers. Meanwhile, the stock
market's valuation has become extreme on all measures including price/book,
price/earnings, price/cash flow and dividend yield. Accordingly, we have become
more defensive. All common stocks,, except Allied Waste Industries, have been
sold (excluding those received in exchange for non-convertible corporate debt
instruments). Convertible securities with less equity exposure selling closer to
investment value have been favored versus lower premium, highly equity-sensitive
issues. In addition, we have made an effort to upgrade the credit quality of the
convertible sector of this portfolio. Over the longer term (the past 20 years),
convertible securities have historically been the best-performing sub-sector of
the fixed-income universe (according to Lipper Analytical Services). Given this
fact and our conservative posture, we are keeping this portion of the portfolio
at about 5% of net assets.
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Vice President and Portfolio Manager
/s/ Daniel A. Luchansky
Daniel A. Luchansky
Vice President and Portfolio Manager
/s/ Robert J. Parish
Robert J. Parish
Vice President and Portfolio Manager
/s/ Paolo Valle
Paolo Valle
Vice President and Portfolio Manager
November 13, 1997
================================================================================
Effective April 10, 1997, Daniel A. Luchansky became responsible for the
day-to-day management of the Fund's investments in convertible securities. Mr.
Luchansky has been employed by Merrill Lynch Asset Management, L.P. (an
affiliate of the Fund's investment adviser) since 1991 as Vice President and
Portfolio Manager. Prior thereto he was involved in high-yield analysis as well
as convertible bond portfolio management and analysis from 1986 to 1991.
Effective September 19, 1997, Paolo Valle became responsible for the day-to-day
management of the Fund's investments in emerging markets. Mr. Valle has served
as First Vice President and Portfolio Manager of Merrill Lynch Asset Management,
L.P. (an affiliate of the Fund's investment adviser) since 1997 and as Vice
President and Portfolio Manager from 1992 to 1997. Prior thereto he was Vice
President and Manager, Emerging Markets Trading, PNC Bank from 1987 to 1992.
================================================================================
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 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:
o 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.
o 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.)
o 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.
o 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.
Performance Summary -- Class A Shares+
<TABLE>
<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 -- 9/30/97 8.94 8.94 -- 0.453 + 5.42
- ----------------------------------------------------------------------------------------------
Total $0.050 Total $8.303
==============================================================================================
Cumulative total return as of 9/30/97: +142.16%**
==============================================================================================
</TABLE>
+ 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.
Performance Summary -- Class B Shares
<TABLE>
<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 -- 9/30/97 8.94 8.93 -- 0.404 + 4.70
- -----------------------------------------------------------------------------------------------
Total $0.047 Total $4.020
===============================================================================================
Cumulative total return as of 9/30/97: +52.58%**
===============================================================================================
</TABLE>
* 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.
Performance Summary -- Class C Shares
<TABLE>
<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 -- 9/30/97 8.93 8.92 -- 0.400 + 4.66
- --------------------------------------------------------------------------------------------
Total $1.775
============================================================================================
Cumulative total return as of 9/30/97: +30.32%**
============================================================================================
</TABLE>
* 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.
Performance Summary -- Class D Shares
<TABLE>
<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 -- 9/30/97 8.94 8.94 -- 0.437 + 5.22
- ---------------------------------------------------------------------------------------------
Total $1.925
=============================================================================================
Cumulative total return as of 9/30/97: +32.71%**
=============================================================================================
</TABLE>
* 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.
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 9/30/97 + 9.13% +4.77%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 + 8.46 +7.58
- --------------------------------------------------------------------------------
Inception (9/29/88) through 9/30/97 +10.32 +9.82
- --------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 9/30/97 +8.18% +4.18%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 +7.61 +7.61
- --------------------------------------------------------------------------------
Inception (11/18/88) through 9/30/97 +7.47 +7.47
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 9/30/97 +8.13% +7.13%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 9/30/97 +9.42 +9.42
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 9/30/97 + 8.86% +4.51%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 9/30/97 +10.09 +8.58
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Recent Performance Results
<TABLE>
<CAPTION>
12 Month 3 Month
9/30/97 6/30/97 9/30/96 % Change % Change
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.94 $8.81 $8.80 +1.59% +1.48%
- -----------------------------------------------------------------------------------------------------
Class B Shares* 8.93 8.81 8.80 +1.48 +1.36
- -----------------------------------------------------------------------------------------------------
Class C Shares* 8.92 8.80 8.79 +1.48 +1.36
- -----------------------------------------------------------------------------------------------------
Class D Shares* 8.94 8.81 8.80 +1.59 +1.48
- -----------------------------------------------------------------------------------------------------
Class A Shares -- Total Return* +9.13(1) +3.34(2)
- -----------------------------------------------------------------------------------------------------
Class B Shares -- Total Return* +8.18(3) +3.02(4)
- -----------------------------------------------------------------------------------------------------
Class C Shares -- Total Return* +8.13(5) +3.01(6)
- -----------------------------------------------------------------------------------------------------
Class D Shares -- Total Return* +8.86(7) +3.27(8)
- -----------------------------------------------------------------------------------------------------
Class A Shares -- Standardized 30-day Yield 6.84%
- -----------------------------------------------------------------------------------------------------
Class B Shares -- Standardized 30-day Yield 6.36%
- -----------------------------------------------------------------------------------------------------
Class C Shares -- Standardized 30-day Yield 6.28%
- -----------------------------------------------------------------------------------------------------
Class D Shares -- Standardized 30-day Yield 6.58%
=====================================================================================================
</TABLE>
* 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 $0.635 per share ordinary income
divi dends.
(2) Percent change includes reinvestment of $0.162 per share ordinary income
dividends.
(3) Percent change includes reinvestment of $0.567 per share ordinary income
dividends.
(4) Percent change includes reinvestment of $0.145 per share ordinary income
dividends.
(5) Percent change includes reinvestment of $0.562 per share ordinary income
dividends.
SCHEDULE OF INVESTMENTS (in US dollars)
LATIN AMERICA
<TABLE>
<CAPTION>
Percent of
Industries Face Amount Fixed-Income Investments Cost Value Net Assets
====================================================================================================================================
Argentina
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Banking & Finance US$ 2,000,000 Banco Hipotecario Nacional, 8% due 6/04/1999 $ 2,005,000 $ 2,010,000 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Communications 10,000,000 Telefonica de Argentina S.A., 11.875% due 11/01/2004 9,800,800 12,150,000 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government 7,760,000 Republic of Argentina, Floating Rate
Obligations Brady Bonds, 6.75% due 3/31/2005+ 6,667,538 7,383,640 0.8
Republic of Argentina, Global Bonds:
3,000,000 8.375% due 12/20/2003 3,061,020 3,015,000 0.3
250,000 11.375% due 1/30/2017 266,625 290,750 0.1
----------- ----------- ------
9,995,183 10,689,390 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 21,800,983 24,849,390 2.7
====================================================================================================================================
<CAPTION>
Brazil
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Broadcasting/Cable 8,000,000 Globo Communicacoes e Participacoes, Ltd.,
10.50% due 12/20/2006 7,997,640 8,350,000 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Communications 1,500,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 1,500,000 1,591,875 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 9,497,640 9,941,875 1.1
====================================================================================================================================
<CAPTION>
Colombia
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Energy 5,000,000 Oleoducto Central S.A., 9.35% due 9/01/2005 5,000,000 5,350,940 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities 9,958,000 Transgas de Occidente S.A., 9.79% due 11/01/2010 10,094,923 10,436,910 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 15,094,923 15,787,850 1.7
====================================================================================================================================
<CAPTION>
Ecuador
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Foreign Government 9,842,040 Republic of Ecuador, PDI, Floating Rate Brady Bond,
Obligations 5.72% due 2/27/2015+ 6,264,994 7,135,479 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Ecuador 6,264,994 7,135,479 0.8
====================================================================================================================================
<CAPTION>
Mexico
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Broadcasting & 7,500,000 Grupo Televisa S.A., 11.375% due 5/15/2003 7,678,125 8,296,875 0.9
Publishing
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government 5,000,000 Cemex S.A., 10.75% due 7/15/2000 5,375,000 5,367,000 0.6
Obligations United Mexican States, Floating Rate Brady Bonds+:
3,000,000 6.812% due 12/31/2019 2,610,000 2,865,000 0.3
2,000,000 Discount, Series A, 6.867% due 12/31/2019 1,562,500 1,910,000 0.2
4,800,000 Discount, Series B, 6.835% due 12/31/2019 4,202,809 4,578,000 0.5
15,075,000 United Mexican States, Value Recovery Rights (d) 0 15 0.0
----------- ----------- ------
13,750,309 14,720,015 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 21,428,434 23,016,890 2.5
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
LATIN AMERICA (concluded)
<TABLE>
<CAPTION>
Percent of
Industries Face Amount Fixed-Income Investments Cost Value Net Assets
====================================================================================================================================
Venezuela
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Foreign Government US$ 7,250,000 Republic of Venezuela, Floating Rate Brady Bonds,
Obligations 6.75% due 12/18/2007+ $ 6,737,969 $ 6,910,193 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 6,737,969 6,910,193 0.7
====================================================================================================================================
Total Investments in Latin American Securities 80,824,943 87,641,677 9.5
====================================================================================================================================
<CAPTION>
NORTH AMERICA
Canada
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Broadcasting/Cable 10,000,000 Videotron Group, Ltd. Co., 10.25% due 10/15/2002 10,043,750 10,550,000 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 9,300,000 9,875,000 1.1
====================================================================================================================================
Total Fixed-Income Investments in Canada 19,343,750 20,425,000 2.2
====================================================================================================================================
<CAPTION>
United States
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Airlines 12,500,000 US Airways Group Inc., 10.375% due 3/01/2013 12,500,000 13,989,250 1.5
====================================================================================================================================
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 9,922,100 11,025,000 1.2
9,625,000 TCI Communications Financing II, 10% due 5/31/2045 9,938,750 10,322,813 1.1
----------- ----------- ------
19,860,850 21,347,813 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Building Materials 10,000,000 Pacific Lumber Co., 10.50% due 3/01/2003 10,140,625 10,350,000 1.1
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 11,324,669 1.2
----------- ----------- ------
19,858,094 21,674,669 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 10,340,000 11,167,200 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,375,000 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Products 10,000,000 Coleman Escrow Corp., 11.573%* due 5/15/2001 6,657,248 6,800,000 0.8
10,000,000 Playtex Products Inc., 8.875% due 7/15/2004 10,000,000 10,100,000 1.1
10,000,000 Revlon Consumer Products Corp., 9.375%
due 4/01/2001 8,867,144 10,337,500 1.1
----------- ----------- ------
25,524,392 27,237,500 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50% due 3/15/2012 9,941,400 9,700,000 1.1
9,100,000 Maxus Energy Corp., 9.875% due 10/15/2002 9,086,800 9,552,816 1.0
7,500,000 Rowan Companies, Inc., 11.875% due 12/01/2001 7,811,250 7,837,500 0.8
10,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 10,000,000 10,500,000 1.1
TransAmerican Energy:
1,560,000 11.50% due 6/15/2002 1,544,400 1,552,200 0.2
13,430,000 13.19%* due 6/15/2002 10,750,354 10,660,063 1.2
10,000,000 Trizec Hahn Corp., 10.43%* due 2/15/2000 7,826,488 7,862,500 0.9
----------- ----------- ------
56,960,692 57,665,079 6.3
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment 10,000,000 Viacom, Inc., 8% due 7/07/2006 10,031,250 9,975,000 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services 10,000,000 Penn Financial Corp., 9.25% due 12/15/2003 10,000,000 10,525,000 1.1
10,000,000 Reliance Group Holdings, Inc., 9% due 11/15/2000 10,000,000 10,459,600 1.1
----------- ----------- ------
20,000,000 20,984,600 2.2
- ------------------------------------------------------------------------------------------------------------------------------------
Food & Beverage 11,500,000 Fresh Del Monte Co., 10% due 5/01/2003 11,482,188 12,204,375 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 Greate Bay Properties, Inc., 10.875% due 1/15/2004 9,996,250 8,975,000 1.0
7,500,000 Harrah's Jazz Co., 14.25% due 11/15/2001 5,178,125 2,850,000 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 10,375,000 1.1
10,000,000 Trump Atlantic City Associates, 11.25% due 5/01/2006 9,943,750 9,687,500 1.1
----------- ----------- ------
34,866,875 31,887,500 3.5
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels 10,000,000 HMC Acquisition Properties, 9% due 12/15/2007 9,346,250 10,300,000 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Container Corp. of America, 9.75% due 4/01/2003 10,200,000 10,800,000 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Supermarkets 10,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 10,116,875 9,875,000 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications 10,000,000 Century Communications Corp., 9.50% due 3/01/2005 9,797,500 10,462,500 1.1
10,000,000 Millicom International Cellular S.A., 11.834%*
due 6/01/2006 6,898,195 7,750,000 0.9
10,000,000 NTL Incorporated, 10% due 2/15/2007 9,880,000 10,450,000 1.1
----------- ----------- ------
26,575,695 28,662,500 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
Textiles 10,000,000 WestPoint Stevens Inc., 8.75% due 12/15/2001 10,093,750 10,400,000 7.7
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation 9,921,000 Viking Star Shipping Co., 9.625% due 7/15/2003 9,949,141 10,429,451 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
US Government & NZ$20,000,000 Federal National Mortgage Association,
Agency Obligations 7% due 9/26/2000 12,650,857 12,751,214 1.4
US$20,000,000 US Treasury Bonds, 6.625% due 2/15/2027 20,506,250 20,478,200 2.2
----------- ----------- ------
33,157,107 33,229,414 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities 9,848,000 Beaver Valley II Funding Corp., 9% due 6/01/2017 7,262,900 10,669,619 1.2
Midland Cogeneration Venture Limited Partnership:
6,693,446 10.33% due 7/23/2002 (b) 6,559,577 7,447,429 0.8
10,000,000 13.25% due 7/23/2006 11,183,750 12,639,800 1.4
10,000,000 Tucson Electric & Power Co., 10.732% due 1/01/2013 9,607,625 10,301,900 1.1
----------- ----------- ------
34,613,852 41,058,748 4.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United States 375,392,011 393,263,099 42.6
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
Canada
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Metals & Mining US$ 1,500,000 Inco Limited, 5.75% due 7/01/2004 1,790,425 1,650,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Canada 1,790,425 1,650,000 0.2
====================================================================================================================================
<CAPTION>
United States
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Automotive Parts The Pep Boys -- Manny, Moe & Jack:
1,000,000 4% due 9/01/1999 1,028,750 982,500 0.1
1,500,000 4.029%* due 9/20/2011 864,082 791,250 0.1
----------- ----------- ------
1,892,832 1,773,750 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Computers 4,000,000 Apple Computer, Inc., 6% due 6/01/2001*** 3,945,000 3,990,000 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Conglomerates Polyphase Corp.***:
500,000 12% due 12/01/1997 500,000 135,000 0.0
2,000,000 12% due 7/01/1999 2,000,000 540,000 0.1
725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 723,187 0.1
1,000,000 Thermo Electron Corp., 4.25% due 1/01/2003 1,000,000 1,186,250 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 1,000,000 1,050,000 0.1
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
NORTH AMERICA (concluded)
<TABLE>
<CAPTION>
Percent of
Industries Face Amount Fixed-Income Investments Cost Value Net Assets
====================================================================================================================================
United States (concluded)
<S> <C> <C> <C> <C> <C>
Conglomerates Thermo Instrument Systems, Inc.:
(concluded) US$ 500,000 4.50% due 10/15/2003 $ 505,000 $ 567,500 0.1%
1,000,000 4.50% due 10/15/2003 1,017,500 1,135,000 0.1
----------- ----------- ------
6,746,594 5,336,937 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 1,114,735 1,025,795 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care 1,500,000 Integrated Health Services Inc., 5.75% due 1/01/2001 1,493,750 1,672,500 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Homebuilders 800,000 Continental Homes Holding Corp., 6.875%
due 11/01/2002 800,000 1,032,000 0.1
1,740,000 Engle Homes, Inc., 7% due 3/01/2003*** 1,694,760 1,946,625 0.2
1,500,000 Toll Brothers Inc., 4.75% due 1/15/2004 1,500,000 1,680,000 0.2
----------- ----------- ------
3,994,760 4,658,625 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial 140,000 Recognition Equipment International, Inc., 7.25%
due 4/15/2011 103,600 140,700 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing 2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,810,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Medical Laser Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 2,000,000 2,140,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Office Products 2,000,000 Office Depot, Inc., 4.891%* due 11/01/2008 1,170,065 1,232,500 0.1
4,500,000 US Office Products Co., 5.50% due 5/15/2003 4,125,625 4,445,625 0.5
----------- ----------- ------
5,295,690 5,678,125 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Oil Drilling 500,000 Loews Corp., 3.125% due 9/15/2007 (Convertible in
Diamond Offshore) 500,000 522,500 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Oil Services 2,775,000 Key Energy Group, Inc., 5% due 9/15/2004 2,775,000 2,816,625 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,585,000 Thermo Optik Corp., 5% due 10/15/2000 1,588,950 1,983,231 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,000,000 Alza Corp., 5% due 5/01/2006 1,065,625 1,005,000 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurants 500,000 Boston Chicken, Inc., 7.75% due 5/01/2004 465,000 452,500 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Semiconductors 750,000 Cypress Semiconductor Corp., 6% due 10/01/2002 750,000 742,500 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Technology 1,250,000 Broadband Technologies, Inc., 5% due 5/15/2001 1,246,250 912,500 0.1
750,000 Data General Corporation, 6% due 5/15/2004 750,000 922,500 0.1
----------- ----------- ------
1,996,250 1,835,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications 500,000 Premiere Technologies, Inc., 5.75% due 7/01/2004 500,000 593,750 0.1
Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 38,070,286 38,177,538 4.2
====================================================================================================================================
<CAPTION>
Convertible Preferred Stocks, Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States
Broadcasting/Cable 137,257 On Command Corporation 4,061,096 1,835,812 0.2
43,675 On Command Corporation (Warrants) (c) 349,400 240,212 0.0
----------- ----------- ------
4,410,496 2,076,024 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment 11,600 Time Warner, Inc. (Series M), Pfd. (a) 11,622,333 13,224,000 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental 32,007 Allied Waste Industries, Inc. 153,079 612,134 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services 28,125 NAL Acceptance Corp. (Warrants) (c) 0 10,547 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Corp., Liquidating Trust 75,000 0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Health Care 50,000 MedPartners, Inc., Conv. Pfd. 1,109,375 1,071,875 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Mining 13,000 Coeur d'Alene Mines Corp. 188,520 212,062 0.0
125,500 Coeur d'Alene Mines Corp., Conv. Pfd. 2,285,983 2,329,594 0.3
----------- ----------- ------
2,474,503 2,541,656 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas 20,000 Western Gas Resources, Inc., Conv. Pfd. $2.62 1,000,000 813,750 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Power Generation 20,000 Calenergy Capital Trust II, Conv. Pfd. 1,000,000 1,022,500 0.1
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 483,750 0.1
----------- ----------- ------
1,500,000 1,506,250 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 521,250 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd. (Convertible in
Rouge Industries, Inc.) 850,000 812,500 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation 5,000 CNF Transportation Inc., Conv. Pfd. 250,000 321,875 0.0
19,000 Sea Containers Ltd., Conv. Pfd. $4.00 875,463 992,750 0.1
----------- ----------- ------
1,125,463 1,314,625 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities 50,200 Citizens Utilities Company, Conv. Pfd. (Class A) 2,149,062 2,296,650 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks & Warrants
in the United States 26,991,686 26,801,261 2.9
====================================================================================================================================
Total Investments in North American Securities 461,588,158 480,316,898 52.1
====================================================================================================================================
<CAPTION>
PACIFIC BASIN
Face Amount Fixed-Income Investments
====================================================================================================================================
Indonesia
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Paper US$ 5,000,000 P.T. Indah Kiat International Finance, 12.50%
due 6/15/2006 5,025,000 5,525,000 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 5,025,000 5,525,000 0.6
====================================================================================================================================
<CAPTION>
New Zealand
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Foreign Government NZ$ 25,000,000 New Zealand Government Bond, 6.50% due 2/15/2000 15,904,421 15,873,438 1.7
Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in New Zealand 15,904,421 15,873,438 1.7
====================================================================================================================================
<CAPTION>
Philippines
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Telecommunications US$ 5,000,000 Philippine Long Distance Telephone Co., 8.35%
due 3/06/2017 4,981,200 4,712,500 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 4,981,200 4,712,500 0.5
====================================================================================================================================
Total Investments in Pacific Basin Securities 25,910,621 26,110,938 2.8
====================================================================================================================================
<CAPTION>
WESTERN EUROPE
Germany
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Foreign Government DM 95,000,000 Bundesobligation, 5.75% due 8/22/2000 53,732,182 55,721,568 6.1
Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Germany 53,732,182 55,721,568 6.1
====================================================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1997
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
WESTERN EUROPE (concluded)
<TABLE>
<CAPTION>
Percent of
Industries Face Amount Fixed-Income Investments Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Russia
Banking US$10,000,000 Vnesheconombank US$ Loans (Russia), 5%
due 12/29/2049 $ 7,461,250 $ 7,462,500 0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Financial 2,500,000 Unexim International Finance B.V., 9.875%
Services due 8/01/2000 2,514,750 2,530,000 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 9,976,000 9,992,500 1.1
====================================================================================================================================
United Kingdom
====================================================================================================================================
Communications 20,000,000 TeleWest Communications PLC, 11.41%* due 10/01/2007 14,500,774 15,000,000 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
the United Kingdom 14,500,774 15,000,000 1.6
====================================================================================================================================
Ireland
Convertible Bonds
====================================================================================================================================
Dental Equipment & 500,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 500,000 150,000 0.0
Supplies
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 500,000 150,000 0.0
====================================================================================================================================
Total Investments in Western European Securities 78,708,956 80,864,068 8.8
====================================================================================================================================
SHORT-TERM SECURITIES
Issue
====================================================================================================================================
Commercial Paper** 1,850,000 Banco Indosuez Tranche 3, 12.20% due 10/14/1997 1,841,959 1,842,400 0.2
31,625,000 General Motors Acceptance Corp., 6.50% due 10/01/1997 31,625,000 31,625,000 3.4
20,000,000 Goldman Sachs Group L.P., 5.65% due 10/02/1997 19,996,861 19,996,861 2.2
35,000,000 Morgan Stanley Group, Inc., 5.52% due 10/14/1997 34,930,233 34,930,233 3.8
30,000,000 Three Rivers Funding Corp., 5.54% due 10/16/1997 29,930,750 29,930,750 3.2
----------- ----------- ------
118,324,803 118,325,244 12.8
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government Russian GKO US Linked Note:
Obligations** 40,000,000 11.35% due 11/17/1997 39,415,362 39,429,621 4.3
10,000,000 9.74% due 12/30/1997 9,759,808 9,730,000 1.1
----------- ----------- ------
49,175,170 49,159,621 5.4
- ------------------------------------------------------------------------------------------------------------------------------------
US Government & 57,000,000 Federal Home Loan Mortgage Corp., 5.55%
Agency Obligations** due 10/03/1997 56,982,425 56,982,425 6.2
28,000,000 Federal National Mortgage Association, 5.46%
due 10/02/1997 27,995,753 27,995,753 3.0
1,250,000 US Treasury Bills, 5% due 12/18/1997 1,236,458 1,237,325 0.1
----------- ----------- ------
86,214,636 86,215,503 9.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 253,714,609 253,700,368 27.5
====================================================================================================================================
OPTIONS PURCHASED
Premiums
Paid
====================================================================================================================================
Currency Put 25,000,000 Deutschemark, expiring November 1997 at DM 1.825 259,750 77,500 0.0
Options Purchased
Total Options Purchased 259,750 77,500 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments 901,007,037 928,711,449 100.7
====================================================================================================================================
OPTIONS
WRITTEN
Premiums
Received
====================================================================================================================================
Currency Call 25,000,000 Deutschemark, expiring October 1997 at DM 1.765 (277,750) (340,300) 0.0
Options Written 25,000,000 Deutschemark, expiring November 1997 at DM 1.7592 (259,750) (387,500) 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Options Written (537,000) (727,800) 0.0
====================================================================================================================================
Total Investments, Net of Options Written $900,470,037 927,983,649 100.7
Short Sales (Proceeds -- $2,624,970)*** ============ (2,460,281) (0.3)
Unrealized Depreciation on Forward Exchange Contracts**** (434,343) (0.1)
Liabilities in Excess of Other Assets (3,178,677) (0.3)
------------ -----
Net Assets $921,910,348 100.0%
============ =====
====================================================================================================================================
Net Asset Value Class A - Based on net assets of $175,718,174 and 19,660,356 shares outstanding $ 8.94
============
Class B - Based on net assets of $178,354,906 and 80,421,717 shares outstanding $ 8.93
============
Class C - Based on net assets of $12,261,119 and 1,373,852 shares outstanding $ 8.92
============
Class D - Based on net assets of $15,576,149 and 1,742,829 shares outstanding $ 8.94
============
====================================================================================================================================
</TABLE>
+ 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.
(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) The rights may be exercised until 2/06/2001.
* 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, Foreign Government Obligations and certain US Government
& Agency Obligations are traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the Fund.
*** Covered Short Sales entered into as of September 30, 1997 were as follows:
--------------------------------------------------------------------------
Shares Issue Value
--------------------------------------------------------------------------
70,000 Apple Computer, Inc. $(1,522,500)
67,000 Engle Homes, Inc. (929,625)
4,500 Polyphase Corp. (8,156)
--------------------------------------------------------------------------
Total (Proceeds -- $2,624,970) $(2,460,281)
===========
--------------------------------------------------------------------------
**** Forward foreign exchange contracts as of September 30, 1997 were as
follows:
--------------------------------------------------------------------------
Unrealized
Foreign Currency Expiration Appreciation
Sold Date (Depreciation)
--------------------------------------------------------------------------
DM 98,017,600 October 1997 $ (296,593)
NZ$ 45,000,000 October 1997 (163,950)
--------------------------------------------------------------------------
Total (US$ Commitment -- $83,894,726) (460,543)
-----------
--------------------------------------------------------------------------
Foreign Currency
Purchased
--------------------------------------------------------------------------
NZ$ 10,000,000 October 1997 26,200
--------------------------------------------------------------------------
Total (US$ Commitment -- $6,370,000) 26,200
-----------
--------------------------------------------------------------------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts -- Net
(US$ Commitment -- $90,264,726) $ (434,343)
===========
--------------------------------------------------------------------------
14 & 15
<PAGE>
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.
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#10788 - 9/97
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