MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
March 31, 1998
<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
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Paolo H. Valle, Senior Vice President
Donald C. Burke, Vice President
Daniel A. Luchansky, 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., March 31, 1998
DEAR SHAREHOLDER
The quarter ended March 31, 1998 provided attractive returns for the two markets
in which Merrill Lynch World Income Fund, Inc. is most extensively involved: the
US high-yield market and the emerging markets. For the three months ended March
31, 1998, the unmanaged CS First Boston High Yield Index returned +3.01%, easily
surpassing the ten-year US Treasury return of +1.42%. Emerging markets returned
+5.24% as measured by the unmanaged J.P. Morgan Emerging Markets Bonds Index for
the same three-month period.
As we reported in our December 31, 1997 letter to shareholders, fixed-income
securities in most emerging markets declined precipitously during the last two
months of 1997 as bondholders sold in response to the wave of currency
devaluations that swept Asia. While Latin American currencies held steady,
certain countries that were perceived to be vulnerable (such as Brazil)
experienced a drain on reserves and countered with a mixture of high interest
rates and financial reform measures.
In our view, the decline in emerging markets was overdone. The currency
instability has released correcting forces. Individual countries have taken
measures to strengthen their financial structures and the International Monetary
Fund (IMF) has provided support. We therefore allocated an additional 20% of
Fund assets to emerging markets during the March quarter. Our position in the US
high-yield market remained at 42% of net assets because we continued to have a
positive fundamental outlook for this asset class. Convertible securities
remained at 8% of net assets, while the investment-grade government portion was
reduced to 0%.
The asset allocation at the end of the March period and as of our last report is
compared below:
- --------------------------------------------------------------------------------
3/31/98 12/31/97
- --------------------------------------------------------------------------------
Emerging Markets
Securities 50% 30%
US High-Yield Bonds 42% 42%
Convertible Securities 8% 8%
Global High-Grade
Bonds -- 20%
--- ---
Total 100% 100%
=== ===
- --------------------------------------------------------------------------------
Investment Overview
Emerging Markets
The J.P. Morgan Emerging Markets Bond Index tightened approximately 150 basis
points (1.50%) from mid-January to mid-March in response to a rally. Since then,
the Index has remained in a 50 basis point trading range with some volatility in
response to uncertainties in Asia and the US markets.
As it became apparent that the emerging market countries were making a fast and
effective policy response to contain the contagion of the Asian crisis, yield
spreads tightened. These macroeconomic responses were inspired and supported in
many cases by the IMF. The abundant global liquidity and the constructive
fundamental and market outlook in the United States and Europe supported this
rally. During this period, the ability of emerging market countries to access
global capital markets was remarkable. All of the major Latin American countries
were able to issue long-term bonds successfully in the market, and capital
inflows resumed with vigor.
Brazil and Russia, the countries most exposed to the "Asian contagion,"
continued to be the focus of investor attention. Brazil's fiscal and monetary
tightening and Russia's improved macroeconomic policy coordination with the IMF,
coupled with its geopolitical importance, allowed both countries to contain the
currency crisis. Both experienced substantial capital inflows since early in
1998. In Brazil, interest rates that were increased to high levels to defend the
currency have dropped faster than the market anticipated, on the back of these
very strong capital inflows. Capital inflows to Brazil were so impressive that
the country not only recovered all the reserves lost during last year's Asian
crisis, but reserves are now at record-highs and regulations on short-term
capital inflows have been tightened. In Russia, inflows were briefly reversed
while the uncertainties over the confirmation of the new Prime Minister were
weighing on the market.
In Asia, the prompt actions of the IMF and the eventual agreement of most
countries to follow politically difficult courses of adjustment led to a
stabilization of macroeconomic variables and some decrease in many Asian
countries' risk. This credit risk improvement was recognized not only with
sovereign spread tightening but also with a rating upgrade for South Korea.
Within the emerging markets portion of the Fund, our major geographic
allocations as of March 31, 1998 were: Brazil, 12.8% of net assets; Russia,
11.6%; and Venezuela, 8.9%. In recent weeks, investors have again become
concerned about the prospects for emerging bond markets. We believe that many of
these issues are currently overblown; therefore, we remain constructive in
emerging market bonds. Emerging market policies remain conducive to further
credit improvements. For example, Brazil's financial vulnerability has continued
decreasing. Similarly, Mexico has adjusted fiscal and monetary policies,
Venezuela is studying similar alternatives, and Argentina is ahead of its
refunding schedule. In Eastern Europe, Russia continues to focus on fiscal
efforts and its new cabinet is reform-oriented.
Lately, several issues have kept emerging market bonds around the weaker end of
the trading range. Among those concerns, there continues to be some market
uncertainties about the possibility of recovery of the Japanese economy, the
weakness of its banking system and the effect on the rest of Asian countries;
the speed and depth of structural reform in Indonesia; the follow-through of the
reform effort in South Korea and other East Asian countries; the risk of a
preemptive monetary policy tightening by the US Federal Reserve Board; the
implementation risks in the European Monetary Policy; and concerns regarding
valuations of US and European equities. Despite these risks, we remain
constructive in emerging market bonds for the long term.
High-Yield Market
The quarter ended March 31, 1998 was positive for the high-yield market, despite
the fallout from the Asian financial crisis. In addition to the strong
performance of the unmanaged CS First Boston High Yield Index as compared to the
ten-year US Treasury return, yield spreads between the Index and US Government
securities of similar maturity narrowed slightly.
A record dollar volume of new issues came to market during the March quarter
($44 billion/229 issues), an astounding 76% increase from the first quarter of
1997. Companies in the media/communications sector were by far the most active
at raising capital in the high-yield market. Strong cash flows into mutual funds
helped absorb the flood of new issues. According to AMG Data Services,
approximately $5.3 billion flowed into high-yield funds during the March quarter
(a 20% increase from one year ago). Crossover buyers (those buyers who generally
buy investment-grade issues but who have chosen to buy below investment-grade
issues), insurance companies and pension funds were also active investors during
the March quarter. As a result, new issues tended to trade quite well in the
secondary market. In that regard, the unmanaged Bear Stearns New Issues Index,
which consists of a rolling basket of the most recent 25 issues, recorded a
total return of over +7% for the March quarter.
During the March quarter, the best-performing industry group was consumer
durables, which benefited from the acquisition of CLN Holdings and its
subsidiary Coleman Co. by non-rated Sunbeam Corp. CLN
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
senior secured second priority discount notes were one of the top total return
securities in the entire high-yield universe. Other strong performing groups
were gaming, where returns were boosted by speculation of further real estate
investment trust activity after Station Casinos announced that it would merge
with Crescent Real Estate Industries, and media/entertainment, which benefited
from several mergers/acquisitions and strategic investments. The laggards were
consumer non-durables, where a number of bonds were hurt by poor credit-specific
results, and energy, which suffered from the sharp decline in oil prices.
According to data compiled by Donaldson, Lufkin & Jenrette, a leading
underwriter in the high-yield market, 28 high-yield companies took advantage of
the vibrant equity markets and raised almost $6 billion of new equity during the
first quarter of 1998. With this heavy level of activity in both initial public
offerings and secondary offerings, high-yield companies are on a pace to match
the record amount of equity issuance of $23.5 billion in 1997. The willingness
of high-yield bond issuers to sell new equity to finance capital spending and
acquisitions and to retire debt has contributed to the healthy credit quality of
the high-yield market.
Valuations in the high-yield market have continued to reflect both favorable
fundamentals and solid technical underpinnings. On the fundamental side,
favorable economic conditions, the continuing strength of the stock market and a
steady pace of corporate mergers, equity issuance and debt refinancing have
supported full valuation of the market. These favorable fundamentals were
enhanced further by low default rates and improved credit quality for many
high-yield issuers. The technical side of the market has also supported
valuations. Significant ongoing capital flows into our market have more than
compensated for record levels of new issuance and have supported prices.
We believe that the healthy fundamentals and technical underpinnings of the
market will persist at least through mid-year. We will continue to emphasize
quality, and at March 31, 1998 we were overweighted in BB-rated issues.
Convertible Securities
During the past three months, convertible prices benefited from higher equity
prices, increased volatility and stable interest rates. The state of the
convertible market is currently somewhat overheated, with record amounts of new
issuance and almost all new issues going to immediate price premiums to their
offering prices. Nonetheless, we have somewhat muted expectations for
convertibles in 1998. This is because of excessively high valuations for common
stocks that already discount positive fundamentals, which include low inflation,
stable and relatively low interest rates, positive demographics and a healthy
economic environment. For example, at March 31, 1998 the Dow Jones Industrial
Average had a price/earnings ratio of 22 times earnings, a record high
price/book value ratio of 6 and a dividend yield of about 1.6%. This compares to
8 times earnings, 1 times book value and a dividend yield of 6.9% at the market
lows of August 1982. Also at March quarter-end, the S&P Industrial Average was
trading at 31 times earnings, a record 7 times book value and yielded only 1.3%.
Finally, the NASDAQ 100 Index was trading at about 45 times earnings and
yielding only 0.10% for the same period. Admittedly, there are many differences
between today's environment and that of the early 1980s. However, these
valuation levels and the concept of "reversion to the mean" (the process by
which over the long term, valuations tend to revert toward their average)
suggest this is not a low-risk entry point for new equity investments. As a
result, we are focusing our convertible investments on higher conversion premium
and less equity-sensitive convertibles as opposed to convertibles with lower
conversion premiums and greater equity sensitivity.
During the quarter ended March 31, 1998, we initiated positions in Buffets, Inc.
(through the purchase of Hometown Buffet Inc. 7% convertible notes), which owns
and operates buffet style restaurants, and Inco Limited, a global metals and
mining company. Other new purchases included Integrated Device Technology, Inc.,
a designer and manufacturer of integrated circuits; K-Mart Corporation, an
international retailer; and Mark IV Industries, Inc., an automotive parts
manufacturer. We added to our positions in Cypress Semiconductor Corp., a
designer and manufacturer of semiconductors; Data General Corporation, an open
systems computer producer; and Key Energy Group, Inc., an oil well service
company. We also added to our position in Thermo Instrument Systems, Inc., which
produces analytical instruments, by adding the 4% convertible notes to our
existing position in the 4.5% convertibles. We took profits in Office Depot,
Inc., an office product retailer. We also sold two homebuilders, Continental
Homes Holding Corp. and MDC Holdings Inc., and Sea Containers Ltd., a
diversified transportation company, all of which hit our price objectives.
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
Senior Vice President and
Portfolio Manager
/s/ Paolo Valle
Paolo Valle
Senior Vice President and
Portfolio Manager
/s/ Daniel A. Luchansky
Daniel A. Luchansky
Vice President and
Portfolio Manager
May 14, 1998
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM 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%
contin gent 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 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 3/31/98
=========================================================================================================
<S> <C> <C> <C> <C>
MLWorld Income Fund, Inc. Class A Shares +12.02% +4.03% +153.66% 8.19%
- ---------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class B Shares +11.17 +3.72 + 59.22 7.76
- ---------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class C Shares +11.25 +3.83 + 36.11 7.70
- ---------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class D Shares +11.87 +3.97 + 38.84 7.94
=========================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's inception dates are: Class A Shares,
9/29/88; Class B Shares, 11/18/91; and Class C and Class D Shares,
10/21/94.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 3/31/98 +12.02% +7.54%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/98 + 8.07 +7.19
- --------------------------------------------------------------------------------
Inception (9/29/88) through 3/31/98 +10.29 +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 3/31/98 +11.17% +7.17%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/98 +7.25 +7.25
- --------------------------------------------------------------------------------
Inception (11/18/91) through 3/31/98 +7.58 +7.58
- --------------------------------------------------------------------------------
* 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 3/31/98 +11.25% +10.25%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 3/31/98 + 9.37 + 9.37
- --------------------------------------------------------------------------------
* 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 3/31/98 +11.87% +7.40%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 3/31/98 +10.01 +8.71
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent
of Net
LATIN AMERICA Industries Face Amount Fixed-Income Investments Cost Value Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking & US$ 2,000,000 Banco Hipotecario Nacional, 8% due 6/04/1999 $ 2,005,000 $ 1,995,000 0.3%
Finance
----------------------------------------------------------------------------------------------------------------------
Communications 4,000,000 Telefonica de Argentina S.A., 11.875% due 11/01/2004 4,571,250 4,600,000 0.6
----------------------------------------------------------------------------------------------------------------------
Foreign 250,000 Republic of Argentina, Global Bonds, 11.375%
Government due 1/30/2017 266,625 282,750 0.0
Obligations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 6,842,875 6,877,750 0.9
====================================================================================================================================
Brazil Communications 1,500,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 1,500,000 1,556,250 0.2
----------------------------------------------------------------------------------------------------------------------
Foreign 94,071,450 Republic of Brazil, C Bonds, Floating Rate
Government Brady Bonds, 8% due 4/15/2014+ 74,647,213 79,079,283 10.4
Obligations 10,000,000 Republic of Brazil, Global Bonds, 10.125%
due 5/15/2027 9,500,000 9,912,500 1.3
----------- ------------ ----
84,147,213 88,991,783 11.7
----------------------------------------------------------------------------------------------------------------------
Industrial--Other 2,000,000 MRS Logistica S.A., 10.625% due 8/15/2005 1,955,000 1,970,000 0.2
----------------------------------------------------------------------------------------------------------------------
Steel 3,000,000 CSN Iron S.A., 9.125% due 6/01/2007 2,707,500 2,812,500 0.4
----------------------------------------------------------------------------------------------------------------------
Utilities--Electric 2,000,000 Espirito Santo Centrais, 10% due 7/15/2007 1,920,000 1,950,000 0.3
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 92,229,713 97,280,533 12.8
====================================================================================================================================
Colombia Energy 4,765,625 Oleoducts Central S.A., 9.35% due 9/01/2005 4,765,625 4,932,422 0.6
----------------------------------------------------------------------------------------------------------------------
Utilities 9,916,000 Transgas de Occidente S.A., 9.79% due 11/01/2010 10,052,345 10,652,541 1.4
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 14,817,970 15,584,963 2.0
====================================================================================================================================
Ecuador Foreign 10,014,030 Republic of Ecuador, PDI, Floating Rate Brady Bonds,
Government 6.625% due 2/27/2015+ 6,374,960 6,452,841 0.8
Obligations 11,000,000 Republic of Ecuador, Par, Global Brady Bonds,
3.50% due 2/28/2025+ 6,247,061 6,015,680 0.8
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Ecuador 12,622,021 12,468,521 1.6
====================================================================================================================================
Mexico Foreign 5,000,000 United Mexican States, Par Series B, Floating Rate
Government Brady Bonds, 6.25% due 12/31/2019+ 4,181,250 4,243,750 0.6
Obligations
----------------------------------------------------------------------------------------------------------------------
Industrial 10,000,000 Petroleos Mexicanos, 9.50% due 9/15/2027 10,112,500 10,100,000 1.3
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 14,293,750 14,343,750 1.9
====================================================================================================================================
Peru Foreign 4,000,000 Republic of Peru, Floating Rate Reduction
Government Bonds, 3.25% due 3/07/2017 2,460,512 2,510,000 0.3
Obligations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 2,460,512 2,510,000 0.3
====================================================================================================================================
Venezuela Foreign 74,000,000 Republic of Venezuela, 9.25% due 9/15/2027 66,679,500 67,377,000 8.9
Government
Obligations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 66,679,500 67,377,000 8.9
====================================================================================================================================
Total Investments in Latin American Securities 209,946,341 216,442,517 28.4
====================================================================================================================================
NORTH AMERICA
====================================================================================================================================
Canada Paper 10,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 9,300,000 9,975,000 1.3
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 9,300,000 9,975,000 1.3
====================================================================================================================================
United States Airlines 10,000,000 US Airways Group Inc., 10.375% due 3/01/2013 10,000,000 11,206,800 1.5
----------------------------------------------------------------------------------------------------------------------
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 9,922,100 11,400,000 1.5
9,625,000 TCI Communications Financing II, 10% due 5/31/2045 (a) 9,923,854 10,328,566 1.4
----------- ------------ ----
19,845,954 21,728,566 2.9
----------------------------------------------------------------------------------------------------------------------
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 10,340,000 11,012,100 1.4
----------------------------------------------------------------------------------------------------------------------
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,500,000 1.4
----------------------------------------------------------------------------------------------------------------------
Consumer Products 10,000,000 Coleman Escrow Corp., 11.573%* due 5/15/2001 7,033,453 7,950,000 1.0
10,000,000 Playtex Products, Inc., 8.875% due 7/15/2004 10,000,000 10,350,000 1.4
----------- ------------ ----
17,033,453 18,300,000 2.4
----------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50% due 3/15/2012 9,941,400 9,625,000 1.3
10,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 10,000,000 10,275,000 1.4
15,670,000 TransAmerican Energy, 13.149%* due 6/15/2002 13,380,326 13,241,150 1.7
----------- ------------ ----
33,321,726 33,141,150 4.4
----------------------------------------------------------------------------------------------------------------------
Entertainment 10,000,000 Viacom, Inc., 8% due 7/07/2006 10,031,250 10,212,500 1.3
----------------------------------------------------------------------------------------------------------------------
Financial Services 10,000,000 Penn Financial Corp., 9.25% due 12/15/2003 10,000,000 10,475,000 1.4
10,000,000 Reliance Group Holdings, Inc., 9% due 11/15/2000 10,000,000 10,460,200 1.4
----------- ------------ ----
20,000,000 20,935,200 2.8
----------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 Greate Bay Properties, Inc., 10.875% due 1/15/2004 9,996,250 8,750,000 1.1
7,500,000 Harrah's Jazz Co., 14.25% due 11/15/2001 5,178,125 2,212,500 0.3
10,000,000 Trump Atlantic City Associates, 11.25% due 5/01/2006 9,943,750 10,275,000 1.4
----------- ------------ ----
25,118,125 21,237,500 2.8
----------------------------------------------------------------------------------------------------------------------
Health Care Columbia/HCA Healthcare Corp.:
5,000,000 7.25% due 5/20/2008 4,696,650 4,672,100 0.6
5,000,000 8.70% due 2/10/2010 5,106,750 5,042,500 0.7
----------- ------------ ----
9,803,400 9,714,600 1.3
----------------------------------------------------------------------------------------------------------------------
Hotels 10,000,000 HMC Acquisition Properties, 9% due 12/15/2007 9,346,250 10,525,000 1.4
----------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Container Corp. of America, 9.75% due 4/01/2003 10,200,000 10,737,500 1.4
----------------------------------------------------------------------------------------------------------------------
Printing &
Publishing 5,000,000 PRIMEDIA Inc., 7.625% due 4/01/2008 4,971,250 4,900,000 0.6
----------------------------------------------------------------------------------------------------------------------
Semiconductors 10,000,000 Advanced Micro Devices, Inc., 11% due 8/01/2003 11,025,000 10,700,000 1.4
----------------------------------------------------------------------------------------------------------------------
Supermarkets 10,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 10,116,875 9,750,000 1.3
----------------------------------------------------------------------------------------------------------------------
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
NORTH AMERICA of Net
(continued) Industries Face Amount Fixed-Income Investments Cost Value Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
UNITED Telecommuni- US$10,000,000 Century Communications Corp., 9.50% due 3/01/2005 $ 9,797,500 $ 10,750,000 1.4%
STATES cations
(concluded) ----------------------------------------------------------------------------------------------------------------------
US Government 10,000,000 US Treasury Bonds, 6.125% due 11/15/2027 10,287,500 10,254,700 1.4
Obligations
----------------------------------------------------------------------------------------------------------------------
Utilities 3,068,271 Midland Cogeneration Venture Limited Partnership,
10.33% due 7/23/2002 (b) 3,006,906 3,302,930 0.4
10,000,000 Tucson Electric & Power Co., 10.732% due 1/01/2013 9,607,625 10,570,900 1.4
----------- ------------ ----
12,614,531 13,873,830 1.8
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United States 243,767,814 249,479,446 32.9
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Canada Metals & Mining 1,500,000 Inco Limited, 5.75% due 7/01/2004 1,462,500 1,477,500 0.2
----------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Canada 1,462,500 1,477,500 0.2
====================================================================================================================================
United Automotive Parts The Pep Boys--Manny, Moe & Jack:
States 1,000,000 4% due 9/01/1999 1,028,750 977,500 0.1
1,500,000 4.029%* due 9/20/2011 881,369 821,250 0.1
----------- ------------ ----
1,910,119 1,798,750 0.2
----------------------------------------------------------------------------------------------------------------------
Banking BankAtlantic Bancorp, Inc.***:
823,000 6.75% due 7/01/2006 1,629,952 1,687,150 0.2
750,000 5.625% due 12/01/2007 750,000 901,875 0.1
----------- ------------ ----
2,379,952 2,589,025 0.3
----------------------------------------------------------------------------------------------------------------------
Computers 4,000,000 Apple Computer, Inc., 6% due 6/01/2001*** 3,945,000 4,520,000 0.6
----------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corp., 12% due 7/01/1999*** 600,000 393,000 0.1
400,000 Thermo Electron Corp., 4.25% due 1/01/2003 400,000 471,500 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 1,000,000 1,095,000 0.1
Thermo Instrument Systems, Inc.:
500,000 4.50% due 10/15/2003 505,000 539,375 0.1
1,000,000 4.50% due 10/15/2003 1,017,500 1,081,250 0.1
1,000,000 4% due 1/15/2005 1,000,000 1,090,000 0.1
----------- ------------ ----
4,522,500 4,670,125 0.6
----------------------------------------------------------------------------------------------------------------------
Environmental 725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 856,406 0.1
1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 1,114,735 973,974 0.2
1,500,000 US Filter Corp., 4.50% due 12/15/2001 1,580,250 1,653,750 0.2
----------- ------------ ----
3,419,079 3,484,130 0.5
----------------------------------------------------------------------------------------------------------------------
Health Care 1,500,000 Integrated Health Services Inc., 5.75% due 1/01/2001 1,493,750 1,813,125 0.2
1,500,000 PhyCor, Inc., 4.50% due 2/15/2003 1,372,000 1,355,625 0.2
1,000,000 Quantum Health Resources, Inc., 4.75% due 10/01/2000 935,000 940,000 0.1
----------- ------------ ----
3,800,750 4,108,750 0.5
----------------------------------------------------------------------------------------------------------------------
Imaging Systems 600,000 ThermoTrex Corporation, 3.25% due 11/01/2007 600,000 552,000 0.1
----------------------------------------------------------------------------------------------------------------------
Manufacturing 1,000,000 Mark IV Industries, Inc., 4.75% due 11/01/2004 923,750 946,250 0.1
2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,860,000 0.3
----------- ------------ ----
2,766,250 2,806,250 0.4
----------------------------------------------------------------------------------------------------------------------
Medical Laser
Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 1,960,625 1,780,000 0.2
----------------------------------------------------------------------------------------------------------------------
Mining 1,000,000 Coeur D'Alene Mines Corporation, 7.25% due 10/31/2005 735,000 910,000 0.1
----------------------------------------------------------------------------------------------------------------------
Office Products 1,000,000 Office Depot, Inc., 4.891%* due 11/01/2008 597,959 747,500 0.1
US Office Products Co.:
2,000,000 5.50% due 5/15/2003 1,711,875 1,730,000 0.2
2,500,000 5.50% due 5/15/2003 2,413,750 2,162,500 0.3
----------- ------------ ----
4,723,584 4,640,000 0.6
----------------------------------------------------------------------------------------------------------------------
Oil Drilling 500,000 Loews Corp., 3.125% due 9/15/2007 (Convertible
in Diamond Offshore Drilling, Inc.) 500,000 483,125 0.1
----------------------------------------------------------------------------------------------------------------------
Oil Services 1,500,000 Key Energy Group, Inc., 5% due 9/15/2004 1,236,175 1,220,625 0.2
----------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,585,000 Thermo Optik Corp., 5% due 10/15/2000 1,588,950 1,957,475 0.3
----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,000,000 Alza Corp., 5% due 5/01/2006 1,065,625 1,280,000 0.2
----------------------------------------------------------------------------------------------------------------------
Restaurants 500,000 Boston Chicken, Inc., 7.75% due 5/01/2004 465,000 265,000 0.0
500,000 Hometown Buffet Inc., 7% due 12/01/2002 505,000 600,625 0.1
----------- ------------ ----
970,000 865,625 0.1
----------------------------------------------------------------------------------------------------------------------
Retirement Care 700,000 Assisted Living Concepts, Inc., 6% due 11/01/2002 700,000 791,875 0.1
----------------------------------------------------------------------------------------------------------------------
Semiconductors 2,000,000 Cypress Semiconductor Corp., 6% due 10/01/2002 1,862,500 1,775,000 0.2
1,000,000 Integrated Device Technology, Inc., 5.50% due 850,000 885,000 0.1
6/01/2002 ----------- ------------ ----
2,712,500 2,660,000 0.3
----------------------------------------------------------------------------------------------------------------------
Technology 1,250,000 Broadband Technologies, Inc., 5% due 5/15/2001 1,246,250 823,438 0.1
Data General Corporation:
250,000 6% due 5/15/2004 246,875 245,625 0.0
750,000 6% due 5/15/2004 750,000 729,375 0.1
----------- ------------ ----
2,243,125 1,798,438 0.2
----------------------------------------------------------------------------------------------------------------------
Telecommunications 500,000 Premiere Technologies, Inc., 5.75% due 7/01/2004*** 500,000 598,125 0.1
Equipment
----------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 42,279,234 43,514,318 5.7
====================================================================================================================================
<CAPTION>
Convertible Preferred Stocks, Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United Broadcasting/Cable 137,257 On Command Corporation 4,061,096 1,818,655 0.2
States 43,675 On Command Corporation (Warrants) (c) 349,400 226,564 0.0
----------- ------------ ----
4,410,496 2,045,219 0.2
----------------------------------------------------------------------------------------------------------------------
Building & Construction 12,142 Engle Homes, Inc. 165,580 204,137 0.0
----------------------------------------------------------------------------------------------------------------------
Entertainment 11,897 Time Warner, Inc. (Series M), Pfd. (a) 11,954,973 13,294,898 1.8
----------------------------------------------------------------------------------------------------------------------
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Convertible Preferred Stocks, Percent
NORTH AMERICA Preferred Stocks, of Net
(concluded) Industries Shares Held Common Stocks & Warrants Cost Value Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United Environmental 10,000 Allied Waste Industries, Inc. $ 48,105 $ 249,375 0.0%
States ----------------------------------------------------------------------------------------------------------------------
(concluded) Financial Services 28,125 NAL Acceptance Corp. (Warrants) (c) 0 141 0.0
----------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Corp., Liquidating Trust 75,000 0 0.0
----------------------------------------------------------------------------------------------------------------------
Health Care 50,000 MedPartners, Inc., Conv. Pfd. 1,109,375 653,125 0.1
----------------------------------------------------------------------------------------------------------------------
Oil & Gas 10,000 Lomak Petroleum, Inc., Conv. Pfd. 500,000 470,000 0.1
20,000 Western Gas Resources, Inc., Conv. Pfd. $2.62 1,000,000 850,000 0.1
----------- ------------ ----
1,500,000 1,320,000 0.2
----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 727 Crescendo Pharmaceuticals Corporation 8,360 9,178 0.0
----------------------------------------------------------------------------------------------------------------------
Power Generation 10,000 Calenergy Capital Trust II, Conv. Pfd. 500,000 465,000 0.1
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 455,000 0.1
----------- ------------ ----
1,000,000 920,000 0.2
----------------------------------------------------------------------------------------------------------------------
Printing & Publishing 50,000 PRIMEDIA Inc., Pfd. 4,970,000 4,925,000 0.6
----------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 525,625 0.1
----------------------------------------------------------------------------------------------------------------------
Retail 30,000 Kmart Corporation, Conv. Pfd. 1,561,800 1,882,500 0.2
----------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd. (Convertible
in Rouge Industries, Inc.) 850,000 793,750 0.1
----------------------------------------------------------------------------------------------------------------------
Utilities 3,241 Citizens Utilities Company (Class B) 31,366 34,234 0.0
50,200 Citizens Utilities Company, Conv. Pfd. (Class A) 2,149,062 2,447,250 0.3
----------- ------------ ----
2,180,428 2,481,484 0.3
----------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks & Warrants
in the United States 30,356,492 29,304,432 3.8
====================================================================================================================================
Total Investments in North American Securities 327,166,040 333,750,696 43.9
====================================================================================================================================
<CAPTION>
PACIFIC
BASIN Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
China Transportation US$ 10,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 9,262,500 8,500,000 1.1
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 9,262,500 8,500,000 1.1
====================================================================================================================================
Indonesia Paper 1,000,000 APP International Finance, 11.75% due 10/01/2005 915,000 940,000 0.1
5,000,000 P.T. Indah Kiat International Finance, 12.50%
due 6/15/2006 5,025,000 4,600,000 0.6
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 5,940,000 5,540,000 0.7
====================================================================================================================================
Philippines Banking 4,000,000 Bangko Sentral NG Philipinas, 8.60% due 6/15/2027 3,519,320 3,670,000 0.5
----------------------------------------------------------------------------------------------------------------------
Telecommuni- 5,000,000 Philippine Long Distance Telephone Co., 8.35%
cations due 3/06/2017 4,981,200 4,493,750 0.6
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 8,500,520 8,163,750 1.1
====================================================================================================================================
South Korea Banking 5,000,000 Korea Development Bank, 11.50% due 3/05/1999 5,000,000 5,041,000 0.7
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in South Korea 5,000,000 5,041,000 0.7
====================================================================================================================================
Total Investments in Pacific Basin Securities 28,703,020 27,244,750 3.6
====================================================================================================================================
<CAPTION>
WESTERN
EUROPE Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Germany Foreign DM 10,000,000 Bundesrepublik Deutschland, 6% due 7/04/2007 5,882,790 5,844,071 0.8
Government
Obligations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Germany 5,882,790 5,844,071 0.8
====================================================================================================================================
Luxembourg Telecommuni- US$ 10,000,000 Millicom International Cellular S.A., 11.834%*
cations due 6/01/2006 7,237,954 7,800,000 1.0
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Luxembourg 7,237,954 7,800,000 1.0
====================================================================================================================================
Russia Financial US$ 2,500,000 Unexim International Finance B.V., 9.875%
Services due 8/01/2000 2,514,750 2,284,750 0.3
----------------------------------------------------------------------------------------------------------------------
Foreign 5,000,000 Ministry Finance of Russia, 10% due 6/26/2007 4,706,250 4,775,000 0.6
Government 104,500,000 Russia--Floating Rate Principal Loans, 6.71875%
Obligations due 12/15/2020 (a) 63,977,938 64,968,111 8.6
----------- ------------ ----
68,684,188 69,743,111 9.2
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 71,198,938 72,027,861 9.5
====================================================================================================================================
Sweden Foreign Skr 70,000,000 Government of Sweden, 5.50% due 4/12/2002 9,151,263 8,920,888 1.2
Government
Obligations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Sweden 9,151,263 8,920,888 1.2
====================================================================================================================================
United
Kingdom Communications US$ 20,000,000 TeleWest Communications PLC, 11.41%* due 10/01/2007 15,298,274 16,100,000 2.1
----------------------------------------------------------------------------------------------------------------------
Foreign (pound) 5,000,000 UK Treasury Bills, 7.25% due 12/07/2007 8,851,664 9,207,525 1.2
Government
Obligations
----------------------------------------------------------------------------------------------------------------------
Telecommuni- US$ 10,000,000 NTL Incorporated, 10% due 2/15/2007 9,880,000 10,800,000 1.4
cations
----------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United Kingdom 34,029,938 36,107,525 4.7
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Ireland Dental US$ 500,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 272,370 60,000 0.0
Equipment
& Supplies
----------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 272,370 60,000 0.0
====================================================================================================================================
Total Investments in Western European Securities 127,773,253 130,760,345 17.2
====================================================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Percent
SHORT-TERM of Net
SECURITIES Face Amount Issue Cost Value Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial US$ 4,772,000 General Motors Acceptance Corp., 6.13%
Paper** due 4/01/1998 $ 4,772,000 $ 4,772,000 0.7%
18,500,000 International Securitization Corp., 5.54%
due 4/17/1998 18,454,449 18,454,449 2.4
----------- ------------ ----
23,226,449 23,226,449 3.1
----------------------------------------------------------------------------------------------------------------------
Foreign Mexican Cetes*:
Government Mxp 34,370,600 19.399% due 4/08/1998 4,135,499 4,017,922 0.5
Obligations** 35,169,100 18.752% due 4/23/1998 4,122,117 4,080,392 0.5
36,932,260 20.80% due 10/22/1998 4,023,008 3,883,308 0.5
6,736,070 20.101% due 12/17/1998 730,734 687,252 0.1
RUB 97,429,957 Russian GKO, 31.999%* due 4/23/1998 15,821,844 15,782,135 2.1
TRL 1,860,000,000,000 Turkish Treasury Bill, 95.891%* due 7/15/1998 6,904,098 6,042,474 0.8
----------- ------------ ----
35,737,300 34,493,483 4.5
----------------------------------------------------------------------------------------------------------------------
US Government US Treasury Bills:
Obligations** US$ 20,000 4.93% due 4/02/1998 19,997 19,997 0.0
300,000 4.99% due 4/02/1998 299,958 299,955 0.0
100,000 5% due 4/02/1998 99,986 99,985 0.0
350,000 5.03% due 4/02/1998 349,951 349,948 0.1
----------- ------------ ----
769,892 769,885 0.1
----------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 59,733,641 58,489,817 7.7
====================================================================================================================================
Total Investments 753,322,295 766,688,125 100.8
====================================================================================================================================
<CAPTION>
OPTIONS Nominal Value Premiums
WRITTEN Covered by Options Received
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Currency Call 17,500,000 American Call, expiring April 1998 at RUB 65.50 (55,750) (80,000) 0.0
Options Written
----------------------------------------------------------------------------------------------------------------------
Total Options Written (55,750) (80,000) 0.0
====================================================================================================================================
Total Investments, Net Options Written $753,266,545 766,608,125 100.8
============
Short Sales (Proceeds--$3,731,452)*** (3,905,930) (0.5)
Unrealized Appreciation on Forward Foreign Exchange Contracts**** 266,621 0.0
Liabilities in Excess of Other Assets (2,578,814) (0.3)
------------ -----
Net Assets $760,390,002 100.0%
============ =====
====================================================================================================================================
Net Asset Value: Class A--Based on net assets of $153,535,301 and 17,062,445 shares outstanding $ 9.00
============
Class B--Based on net assets of $581,479,024 and 64,661,339 shares outstanding $ 8.99
============
Class C--Based on net assets of $10,855,779 and 1,208,109 shares outstanding $ 8.99
============
Class D--Based on net assets of $14,519,898 and 1,613,782 shares outstanding $ 9.00
============
=============================================================================================================================
</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.
* Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase.
** Commercial Paper and certain US and Foreign Government 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 March 31, 1998 were as follows:
- -------------------------------------------------------------------------
Shares Issue Value
- -------------------------------------------------------------------------
70,000 Apple Computer, Inc. $(1,925,000)
115,625 BankAtlantic Bancorp, Inc. (1,582,617)
4,500 Polyphase Corp. (2,813)
11,300 Premiere Technologies, Inc. (395,500)
- -------------------------------------------------------------------------
Total (Proceeds--$3,731,452) $(3,905,930)
===========
- -------------------------------------------------------------------------
**** Forward foreign exchange contracts as of March 31, 1998 were as
follows:
- -------------------------------------------------------------------------
Foreign Unrealized
Currency Expiration Appreciation
Sold Date (Depreciation)
- -------------------------------------------------------------------------
DM 10,991,490 April 1998 $ 65,405
(Yen) 660,843,178 April 1998 333,034
- -------------------------------------------------------------------------
Total (US$ Commitment--$11,326,161) $ 398,439
---------
- -------------------------------------------------------------------------
Foreign
Currency
Purchased
- -------------------------------------------------------------------------
(Yen) 683,209,375 April 1998 $(131,818)
- -------------------------------------------------------------------------
Total (US$ Commitment--$5,287,998) $(131,818)
---------
- -------------------------------------------------------------------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$16,614,159) $ 266,621
=========
- -------------------------------------------------------------------------
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--3/98
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