MERRILL LYNCH
WORLD INCOME
FUND, INC.
[Graphic omitted]
STRATEGIC
Performance
Annual Report
December 31, 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
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
Important Tax
Information
(unaudited)
Of the monthly cash distributions paid by Merrill Lynch World Income Fund, Inc.
during its taxable year ended December 31, 1997, 4.63% are characterized as
return of capital distributions. The tax reporting treatment of a return of
capital is different from that of a taxable distribution. Rather than being
included in your current taxable income, a return of capital is non-taxable and
will reduce the cost basis in your shares of the Fund.
Additionally, 4.12% of the monthly cash distributions paid during the taxable
year ended December 31, 1997, qualifies for the dividends-received deduction for
corporations. Finally, there were no long-term capital gains distributed by the
Fund during the year.
Please retain this information for your records.
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
DEAR SHAREHOLDER
Fiscal Year in Review
For the fiscal year ended December 31, 1997, Merrill Lynch World Income Fund,
Inc.'s Class A, Class B, Class C and Class D Shares had total returns of +6.15%,
+5.34%, +5.28% and +5.88%, respectively. These returns were poor compared to
most US dollar fixed-income markets. The unmanaged Lehman Brothers US
Government/Corporate Bond Index, which is comprised of high-quality US bond
issues, had a total return of +7.87% for the year ended December 31, 1997. For
the same period, the unmanaged Merrill Lynch G5AO Index, which is comprised of
intermediate-term US Government bonds, had a total return of +7.77%. The Fund's
relative underperformance can be largely attributed to the currency losses
experienced by the Fund on the portion of the portfolio invested in non-dollar
denominated bonds. Over the course of the year, the US dollar was strong
relative to most currencies around the world. The Fund's shares provided returns
closer to those of an unmanaged Composite Index comprised of US high-yield
issues and global government bonds, which produced a total return of +6.47 in
1997 for the year ended December 31, 1997.
Investment Outlook & Portfolio Strategy
The most dramatic developments during the December quarter took place in the
emerging markets. The problems began in Southeast Asia, with a series of
dramatic currency devaluations. The currency devaluations put pressure on the
currencies of other emerging economies perceived to be vulnerable (for example,
Brazil's real). Because a devaluation of the real would impact Brazil's trading
partners, the securities markets in other Latin American countries (such as
Argentina) were negatively impacted. There has been much speculation that Hong
Kong, whose dollar is pegged to the US dollar, and possibly the People's
Republic of China will be forced to devalue currencies which have become
overvalued because of the devaluations elsewhere. In this environment, it is not
surprising that the yield on US Treasury bonds hit record lows, at least in part
reflecting a flight to quality.
In this environment, we did not change the Fund's asset allocations during the
December quarter. As of December 31, 1997, 42% of net assets were allocated to
the US high-yield market, 30% to the emerging markets, 20% to US and foreign
government obligations, and 8% to convertible securities. However, after the
December quarter close, our outlook for emerging markets debt improved, since we
began to perceive signs that the worst of the crisis in Asia was behind us. In
addition, our outlook for the US high-yield market remains constructive, despite
full valuations. As a result, we maintained our US high-yield exposure at 42% of
net assets as of January 31, but reduced the US and foreign government
allocations to 10%, while increasing the emerging markets exposure to 40%. As of
January 31, 1998 the allocation to the convertible market was unchanged at 8% of
net assets.
Our outlook for our markets over the next six months is based on the following
assumptions:
o We believe that US interest rates are likely to decline late in the second
quarter as the result of the Federal Reserve Board's easing of monetary policy
in response to a softer economy. We expect this environment to be favorable for
US high-yield securities and US Treasury notes and bonds. It is also likely to
be an environment that is reasonably supportive of US stocks and convertible
securities.
o We believe that the currency crisis around the world is currently about as bad
as it is going to get. The problems seem to have been fully discounted in the
price of emerging market bonds. In the first half of 1998, it seems likely that
solutions will begin to fall into place, improving markets and investor
sentiment. This should be quite beneficial to emerging market securities.
o The US dollar appears likely to remain strong. Therefore, we are concentrating
largely on US dollar-denominated securities. At the same time, we are
maintaining a very moderate exposure to non-US currencies.
Investment Overview
High-Yield Market
During the three-month period ended December 31, 1997, high-yield bond returns
lagged ten-year Treasury bond returns (+1.62% versus +4.04%, respectively) and
finished the year only slightly ahead of a strong Treasury performance (+12.63%
versus +11.10%, respectively) as measured by the unmanaged CS First Boston
Index. Despite the volatility caused by the Southeast Asian currency crisis,
high-yield spreads have widened on average only 40 basis points-50 basis points
(0.40%-0.50%) from their all-time tightest levels at mid-year, suggesting that
both markets benefited from a flight out of international emerging market debt
into the US market.
Yield spreads stayed at historically narrow levels throughout most of 1997,
driven by favorable economic conditions, a robust stock market and a steady pace
of corporate mergers and debt refinancings. Low default rates and strengthened
credit quality for many high-yield issuers have supported the technical strength
of the high-yield market.
During the December quarter, the best-performing industry groups in the
high-yield sector were cable television, radio and television broadcasting,
diversified media, and publishing and printing. These industry groups were all
comprised of domestic companies with large and stable free cash flows and low or
declining capital spending needs. Several basic industries--such as paper,
metals and mining, and forest products--were among the performance laggards
because they were perceived as most adversely affected by the economic problems
in Asia. It is our opinion that investors fear that the Pacific Rim countries
might try to export their way out of severe recessions, thereby depressing world
prices for commodities.
In general, fundamentals remain quite positive in the US high-yield sector.
Demand is extremely strong as investors seek attractive yields in an environment
of declining interest rates. We continue to emphasize quality, and remain
overweighted in BB-rated issues.
Emerging Markets
The Asian crisis has reached its peak, as the region in general has experienced
severe economic distress resulting in significant currency depreciations and
massive loss of stock market capitalizations. However, as discussed, we believe
the worst may be behind us in the emerging bond markets. South Korea, Indonesia
and Thailand have already sought and received financial assistance from the
International Monetary Fund (IMF). Malaysia, the Philippines and, to a lesser
extent, Hong Kong are still dealing with the crisis without external assistance.
South Korea, Thailand, Malaysia and Indonesia have been downgraded to "junk"
status by the international rating agencies.
The Asian experience has dampened the risk appetite of investors for emerging
market investments and has focused attention on Russia and Brazil, which are
most prone to contagion from Asia. Russia experienced a loss of $5 billion in
foreign exchange reserves as a result of a loss of investor confidence. Given
the strategic geo-political importance of Russia to the global economy and the
constructive relationship between Russia and the IMF, we believe Russia should
be able to overcome the current adversity. Brazil also has experienced loss of
investor confidence and foreign exchange reserves. In the absence of additional
external shocks, we believe Brazil will also be able to muddle through this
period without currency devaluations.
Among other key emerging markets, Mexico, Argentina and Venezuela are relatively
more insulated from the Asian fall out. These countries do not have significant
short-term borrowing needs. Overall, we believe that distressed conditions in
the world's developing economies are likely to get better during the first half
of 1998.
Convertible Securities
During the three months ended December 31, 1997, the convertible market
continued to be relatively firm with minor price declines in many equity indexes
being somewhat offset by increased volatility. This increase in volatility
helped sustain conversion premiums resulting from increases in the value of the
option embedded within the convertibles. The unmanaged Merrill Lynch All
Convertibles Index declined 0.9% during the December quarter, but ended the year
with a +19.6% total return. The return for the convertible portion of Merrill
Lynch World Income Fund, Inc. was positive for the December quarter,
Pages 2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
exceeding the benchmark index for the three months and 12 months ended December
31, 1997.
During the December quarter, we established a position in BankAtlantic Bancorp,
Inc., a Florida based savings bank; Key Energy Group, Inc., an oil well services
growth company; and US Filter Corp., a rapidly growing provider of water
treatment systems. We took profits in two homebuilders, selling most of
Continental Homes Holdings Corp. and all of Toll Brothers. We also took profits
in CNF Transportation Inc., a diversified freight transportation company. We
sold the convertible preferred stock of Coeur D'Alene Mines Corp., a gold and
silver producer, and bought its convertible bond which has a superior standing
in the company's capital structure.
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/ Paolo Valle
Paolo Valle
Vice President and Portfolio Manager
February 19, 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%
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.
================================================================================
Recent
Performance
Results
<TABLE>
<CAPTION>
12 Month 3 Month
12/31/97 9/30/97 12/31/96 % Change % Change
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.83 $8.94 $8.94 -1.23% -1.23%
- -----------------------------------------------------------------------------------------------------------
Class B Shares* 8.83 8.93 8.94 -1.23 -1.12
- -----------------------------------------------------------------------------------------------------------
Class C Shares* 8.82 8.92 8.93 -1.23 -1.12
- -----------------------------------------------------------------------------------------------------------
Class D Shares* 8.83 8.94 8.94 -1.23 -1.23
- -----------------------------------------------------------------------------------------------------------
Class A Shares--Total Return* +6.15(1) +0.69(2)
- -----------------------------------------------------------------------------------------------------------
Class B Shares--Total Return* +5.34(3) +0.61(4)
- -----------------------------------------------------------------------------------------------------------
Class C Shares--Total Return* +5.28(5) +0.59(6)
- -----------------------------------------------------------------------------------------------------------
Class D Shares--Total Return* +5.88(7) +0.63(8)
- -----------------------------------------------------------------------------------------------------------
Class A Shares--Standardized 30-day Yield 6.89%
- -----------------------------------------------------------------------------------------------------------
Class B Shares--Standardized 30-day Yield 6.40%
- -----------------------------------------------------------------------------------------------------------
Class C Shares--Standardized 30-day Yield 6.35%
- -----------------------------------------------------------------------------------------------------------
Class D Shares--Standardized 30-day Yield 6.65%
===========================================================================================================
</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 $0.637 per share ordinary income
dividends.
(2) Percent change includes reinvestment of $0.184 per share ordinary income
dividends.
(3) Percent change includes reinvestment of $0.569 per share ordinary income
dividends.
(4) Percent change includes reinvestment of $0.165 per share ordinary income
dividends.
(5) Percent change includes reinvestment of $0.564 per share ordinary income
dividends.
(6) Percent change includes reinvestment of $0.163 per share ordinary income
dividends.
(7) Percent change includes reinvestment of $0.615 per share ordinary income
dividends.
(8) Percent change includes reinvestment of $0.178 per share ordinary income
dividends.
Pages 4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
PERFORMANCE DATA (concluded)
================================================================================
Total Return
Based on a
$10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the ML G5A0 Index and the Composite
Index. Beginning and ending values are:
9/29/88** 12/97
--------- -----
ML World Income Fund, Inc.+--
Class A Shares* $ 9,600 $23,409
ML G5A0 Index++ $10,000 $20,773
Composite Index+++ $10,000 $24,767
A line graph depicting the growth of an investment in the Fund's Class B Shares
compared to growth of an investment in the ML G5A0 Index and the Composite
Index. Beginning and ending values are:
11/18/91** 12/97
---------- -----
ML World Income Fund, Inc.+--
Class B Shares* $10,000 $15,350
ML G5A0 Index++ $10,000 $15,027
Composite Index+++ $10,000 $17,768
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the ML G5A0 Index and
the Composite Index. Beginning and ending values are:
9/29/88** 12/97
--------- -----
ML World Income Fund, Inc.+--
Class C Shares* $10,000 $13,110
ML World Income Fund, Inc.+--
Class D Shares* $ 9,600 $12,819
ML G5A0 Index++ $10,000 $12,839
Composite Index+++ $10,000 $13,853
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML World Income Fund, Inc. invests in a global portfolio of fixed-income
securities denominated in various currencies, including multinational
currency units.
++ This unmanaged Index is comprised of intermediate-term Government bonds
maturing in one to ten years.
+++ This unmanaged Index, which is a blend of the First Boston High Yield
Index and the JP Morgan Global Government Bond Index, is comprised of
mutual funds whose objectives include high current income and total
returns. Past performance is not predictive of future performance.
================================================================================
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 12/31/97 +6.15% +1.90%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +8.29 +7.41
- --------------------------------------------------------------------------------
Inception (9/29/88) through 12/31/97 +10.11 +9.63
- --------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/97 +5.34% +1.39%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/97 +7.47 +7.47
- --------------------------------------------------------------------------------
Inception (11/18/91) through 12/31/97 +7.26 +7.26
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/97 +5.28% +4.29%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/97 +8.85 +8.85
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 12/31/97 +5.88% +1.65%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/97 +9.48 +8.09
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Pages 6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
LATIN AMERICA
Value Percent of
Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Argentina
Banking & Finance US$ 2,000,000 Banco Hipotecario Nacional, 8% due 6/04/1999 $ 2,005,000 $ 1,960,000 0.3%
----------------------------------------------------------------------------------------------------------------------------------
Foreign Government 7,000,000 Republic of Argentina, 9.75%
Obligations due 9/19/2027 5,852,000 6,685,000 0.8
9,600,000 Republic of Argentina, Floating Rate Brady Bonds,
6.687% due 3/31/2005+ 8,280,000 8,592,000 1.0
Republic of Argentina, Global Bonds:
3,000,000 8.375% due 12/20/2003 3,061,020 2,850,000 0.4
250,000 11.375% due 1/30/2017 266,625 274,000 0.0
------------ ------------ -----
17,459,645 18,401,000 2.2
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 19,464,645 20,361,000 2.5
====================================================================================================================================
Brazil
Communications 1,500,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (e) 1,500,000 1,470,000 0.2
----------------------------------------------------------------------------------------------------------------------------------
Foreign Government 35,348,060 Republic of Brazil, Floating Rate Brady Bonds,
Obligations 7.06% due 4/15/2014+ 27,573,266 27,659,857 3.3
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 29,073,266 29,129,857 3.5
====================================================================================================================================
Colombia
Energy 5,000,000 Oleoducto Central S.A., 9.35% due 9/01/2005 (e) 5,000,000 5,403,550 0.6
----------------------------------------------------------------------------------------------------------------------------------
Utilities 9,916,000 Transgas de Occidente S.A., 9.79% due 11/01/2010 (e) 10,052,345 10,643,448 1.3
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 15,052,345 16,046,998 1.9
====================================================================================================================================
Ecuador
Foreign Government 9,842,040 Republic of Ecuador, PDI, Floating Rate
Obligations Brady Bonds, 5.39% due 2/27/2015+ 6,264,994 6,421,931 0.8
5,000,000 Republic of Ecuador, Par, Global Brady Bonds,
- ------------------------------------------------------------------------------------------------------------------------------------
3.50% due 2/28/2025+ 2,953,125 2,725,000 0.3
Total Fixed-Income Investments in Ecuador 9,218,119 9,146,931 1.1
====================================================================================================================================
Mexico
Foreign Government 5,000,000 United Mexican States, Par, Series B, Floating Rate
Obligations Brady Bonds, 6.25% due 12/31/2019+ 4,181,250 4,162,500 0.5
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 4,181,250 4,162,500 0.5
====================================================================================================================================
Venezuela
Foreign Government 49,000,000 Republic of Venezuela, 9.25% due 9/15/2027 44,419,500 43,904,000 5.3
Obligations
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 44,419,500 43,904,000 5.3
====================================================================================================================================
Total Investments in Latin American Securities 121,409,125 122,751,286 14.8
====================================================================================================================================
NORTH
AMERICA
====================================================================================================================================
Canada
Broadcasting/Cable 10,000,000 Videotron Group, Ltd. Co., 10.25% due 10/15/2002 10,043,750 10,550,000 1.3
----------------------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 9,300,000 9,550,000 1.1
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 19,343,750 20,100,000 2.4
====================================================================================================================================
United States
Airlines 10,000,000 US Airways Group Inc., 10.375% due 3/01/2013 10,000,000 11,191,600 1.4
----------------------------------------------------------------------------------------------------------------------------------
Broadcasting/Cable 10,000,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 9,922,100 11,125,000 1.4
9,625,000 TCI Communications Financing II, 10%
due 5/31/2045 (a) 9,926,111 10,279,618 1.2
------------ ------------ -----
19,848,211 21,404,618 2.6
----------------------------------------------------------------------------------------------------------------------------------
Building Materials 10,000,000 Pacific Lumber Co., 10.50% due 3/01/2003 10,140,625 10,350,000 1.2
11,035,000 USG Corp., 8.75% due 3/01/2017 9,717,469 11,366,050 1.4
------------ ------------ ----------
19,858,094 21,716,050 2.6
----------------------------------------------------------------------------------------------------------------------------------
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 10,340,000 10,908,700 1.3
----------------------------------------------------------------------------------------------------------------------------------
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,400,000 1.3
----------------------------------------------------------------------------------------------------------------------------------
Consumer Products 10,000,000 Coleman Escrow Corp., 11.573%* due 5/15/2001 6,846,175 6,625,000 0.8
10,000,000 Playtex Products, Inc., 8.875% due 7/15/2004 10,000,000 10,162,500 1.2
------------ ------------ -----
16,846,175 16,787,500 2.0
----------------------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50% due 3/15/2012 (e) 9,941,400 9,925,000 1.2
10,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 10,000,000 10,500,000 1.3
TransAmerican Energy (e):
825,000 11.50% due 6/15/2002 816,750 808,500 0.1
14,350,000 13.29%* due 6/15/2002 11,890,362 11,480,000 1.4
------------ ------------ -----
32,648,512 32,713,500 4.0
----------------------------------------------------------------------------------------------------------------------------------
Entertainment 10,000,000 Viacom, Inc., 8% due 7/07/2006 10,031,250 10,050,000 1.2
----------------------------------------------------------------------------------------------------------------------------------
Financial Services 10,000,000 Penn Financial Corp., 9.25% due 12/15/2003 10,000,000 10,475,000 1.2
10,000,000 Reliance Group Holdings, Inc., 9% due 11/15/2000 10,000,000 10,483,400 1.3
------------ ------------ -----
20,000,000 20,958,400 2.5
----------------------------------------------------------------------------------------------------------------------------------
Food & Beverage 6,536,985 Fresh Del Monte Co., 10% due 5/01/2003 6,494,045 6,798,464 0.8
----------------------------------------------------------------------------------------------------------------------------------
Food Distribution 10,000,000 AmeriServ Food Company, 8.875% due 10/15/2006 10,000,000 10,050,000 1.2
----------------------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 Greate Bay Properties, Inc., 10.875% due 1/15/2004 9,996,250 8,400,000 1.0
7,500,000 Harrah's Jazz Co., 14.25% due 11/15/2001 (g) 5,178,125 2,325,000 0.3
10,000,000 Showboat, Inc., 9.25% due 5/01/2008 9,748,750 10,700,000 1.3
10,000,000 Trump Atlantic City Associates, 11.25% due 5/01/2006 9,943,750 9,750,000 1.2
------------ ------------ -----
34,866,875 31,175,000 3.8
----------------------------------------------------------------------------------------------------------------------------------
Hotels 10,000,000 HMC Acquisition Properties, 9% due 12/15/2007 9,346,250 10,450,000 1.3
----------------------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Container Corp. of America, 9.75% due 4/01/2003 10,200,000 10,750,000 1.3
----------------------------------------------------------------------------------------------------------------------------------
Semiconductors 10,000,000 Advanced Micro Devices, Inc., 11% due 8/01/2003 11,025,000 10,700,000 1.3
----------------------------------------------------------------------------------------------------------------------------------
Supermarkets 10,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 10,116,875 9,525,000 1.1
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pages 8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA
(Continued)
Value Percent of
Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States
(concluded)
====================================================================================================================================
Telecommunications US$ 10,000,000 Century Communications Corp., 9.50% due 3/01/2005 $ 9,797,500 $ 10,600,000 1.3%
10,000,000 Millicom International Cellular S.A., 11.834%*
due 6/01/2006 7,068,731 7,350,000 0.9
10,000,000 NTL Incorporated, 10% due 2/15/2007 9,880,000 10,525,000 1.2
------------ ------------ -----
26,746,231 28,475,000 3.4
----------------------------------------------------------------------------------------------------------------------------------
Transportation 5,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 (e) 4,987,500 4,500,000 0.5
9,921,000 Viking Star Shipping Co., 9.625% due 7/15/2003 9,949,141 10,417,050 1.3
------------ ------------ -----
14,936,641 14,917,050 1.8
----------------------------------------------------------------------------------------------------------------------------------
US Government US Treasury Bonds:
Obligations 30,000,000 6.625% due 2/15/2027 31,490,625 32,568,600 3.9
10,000,000 6.375% due 8/15/2027 10,484,375 10,546,900 1.3
------------ ------------ -----
41,975,000 43,115,500 5.2
----------------------------------------------------------------------------------------------------------------------------------
Utilities 9,848,000 Beaver Valley II Funding Corp., 9% due 6/01/2017 7,262,900 10,948,612 1.3
Midland Cogeneration Venture Limited Partnership:
6,693,446 10.33% due 7/23/2002 (b) 6,559,577 7,198,901 0.9
10,000,000 13.25% due 7/23/2006 11,183,750 12,848,300 1.5
10,000,000 Tucson Electric & Power Co., 10.732% due 1/01/2013 9,607,625 10,618,200 1.3
------------ ------------ -----
34,613,852 41,614,013 5.0
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments
in the United States 359,808,011 373,700,395 45.1
====================================================================================================================================
Convertible Bonds
====================================================================================================================================
United States
Automotive Parts The Pep Boys--Manny, Moe & Jack:
1,000,000 4% due 9/15/1999 1,028,750 987,500 0.1
1,500,000 4.029%* due 9/20/2011 872,881 806,250 0.1
------------ ------------ -----
1,901,631 1,793,750 0.2
----------------------------------------------------------------------------------------------------------------------------------
Banking BankAtlantic Bancorp, Inc.***:
823,000 6.75% due 7/01/2006 1,629,952 1,563,700 0.2
1,200,000 5.625% due 12/01/2007 1,200,000 1,290,000 0.1
------------ ------------ -----
2,829,952 2,853,700 0.3
----------------------------------------------------------------------------------------------------------------------------------
Building & Construction 1,613,000 M.D.C. Holdings, Inc., 8.75% due 12/15/2005*** 2,334,253 3,161,480 0.4
----------------------------------------------------------------------------------------------------------------------------------
Computers 4,000,000 Apple Computer, Inc., 6% due 6/01/2001 (e)*** 3,945,000 3,225,000 0.4
----------------------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corp., 12% due 7/01/1999 (f)*** 600,000 456,000 0.1
1,000,000 Thermo Electron Corp., 4.25% due 1/01/2003 (e) 1,000,000 1,241,250 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 1,000,000 1,066,250 0.1
Thermo Instrument Systems, Inc.:
500,000 4.50% due 10/15/2003 505,000 574,375 0.1
1,000,000 4.50% due 10/15/2003 (e) 1,017,500 1,137,500 0.1
------------ ------------ -----
4,122,500 4,475,375 0.5
----------------------------------------------------------------------------------------------------------------------------------
Environmental 725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 838,281 0.1
1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 (e) 1,114,735 946,070 0.1
1,500,000 US Filter Corp., 4.50% due 12/15/2001 1,580,250 1,522,500 0.2
------------ ------------ -----
3,419,079 3,306,851 0.4
----------------------------------------------------------------------------------------------------------------------------------
Health Care 1,500,000 Integrated Health Services Inc., 5.75% due 1/01/2001 1,493,750 1,584,375 0.2
----------------------------------------------------------------------------------------------------------------------------------
Health Services 2,370,000 PhyCor, Inc., 4.50% due 2/15/2003 2,241,600 2,298,900 0.3
1,000,000 Quantum Health Resources, Inc., 4.75% due 10/01/2000 935,000 925,000 0.1
------------ ------------ -----
3,176,600 3,223,900 0.4
----------------------------------------------------------------------------------------------------------------------------------
Homebuilders 350,000 Continental Homes Holding Corp., 6.875%
due 11/01/2002*** 350,000 611,625 0.1
170,000 Engle Homes, Inc., 7% due 3/01/2003 165,580 223,550 0.0
------------ ------------ -----
515,580 835,175 0.1
----------------------------------------------------------------------------------------------------------------------------------
Imaging Systems 600,000 ThermoTrex Corporation, 3.25% due 11/01/2007 600,000 600,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Manufacturing 2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,772,500 0.2
----------------------------------------------------------------------------------------------------------------------------------
Medical Laser Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 (e) 2,000,000 1,780,000 0.2
----------------------------------------------------------------------------------------------------------------------------------
Mining 1,000,000 Coeur D'Alene Mines Corporation, 7.25%
due 10/31/2005 (e) 735,000 775,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Office Products 2,000,000 Office Depot, Inc., 4.891%* due 11/01/2008 1,183,175 1,295,000 0.2
US Office Products Co.:
2,000,000 5.50% due 5/15/2003 1,711,875 1,833,500 0.2
2,500,000 5.50% due 5/15/2003 (e) 2,413,750 2,246,875 0.3
------------ ------------ -----
5,308,800 5,375,375 0.7
----------------------------------------------------------------------------------------------------------------------------------
Oil Drilling 500,000 Loews Corp., 3.125% due 9/15/2007
(Convertible in Diamond Offshore Drilling, Inc.) 500,000 501,875 0.1
----------------------------------------------------------------------------------------------------------------------------------
Oil Services 1,000,000 Key Energy Group, Inc., 5% due 9/15/2004 834,300 838,750 0.1
----------------------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,585,000 Thermo Optik Corp., 5% due 10/15/2000 (e) 1,588,950 1,798,975 0.2
----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,000,000 Alza Corp., 5% due 5/01/2006 1,065,625 1,038,750 0.1
----------------------------------------------------------------------------------------------------------------------------------
Restaurants 500,000 Boston Chicken, Inc., 7.75% due 5/01/2004 465,000 315,000 0.0
----------------------------------------------------------------------------------------------------------------------------------
Retirement Care 700,000 Assisted Living Concepts, Inc., 6% due 11/01/2002 700,000 756,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Semiconductors 750,000 Cypress Semiconductor Corp., 6% due 10/01/2002 (e) 750,000 630,938 0.1
----------------------------------------------------------------------------------------------------------------------------------
Technology 1,250,000 Broadband Technologies, Inc., 5% due 5/15/2001 (e) 1,246,250 787,500 0.1
750,000 Data General Corporation, 6% due 5/15/2004 750,000 724,688 0.1
------------ ------------ -----
1,996,250 1,512,188 0.2
----------------------------------------------------------------------------------------------------------------------------------
Telecommunications 500,000 Premiere Technologies, Inc., 5.75%
Equipment due 7/01/2004 (e)*** 500,000 519,375 0.1
----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 42,624,770 42,674,332 5.2
====================================================================================================================================
</TABLE>
Pages 10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA
(concluded)
Convertible Preferred Stocks, Preferred Stocks, Value Percent of
Industries Shares Held Common Stocks & Warrants Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States
Broadcasting/Cable 137,257 On Command Corporation $ 4,061,096 $ 1,715,713 0.2%
43,675 On Command Corporation (Warrants) (c) 349,400 242,942 0.0
----------- ----------- -----
4,410,496 1,958,655 0.2
----------------------------------------------------------------------------------------------------------------------------------
Entertainment 11,897 Time Warner, Inc. (Series M), Pfd. (a) 11,954,972 13,354,382 1.6
----------------------------------------------------------------------------------------------------------------------------------
Environmental 10,000 Allied Waste Industries, Inc. 48,105 233,125 0.0
----------------------------------------------------------------------------------------------------------------------------------
Financial Services 28,125 NAL Acceptance Corp. (Warrants) (c)(f) 0 4,500 0.0
----------------------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Corp., Liquidating Trust (f) 75,000 0 0.0
----------------------------------------------------------------------------------------------------------------------------------
Health Care 50,000 MedPartners, Inc., Conv. Pfd. 1,109,375 1,100,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas 10,000 Lomak Petroleum, Inc., Conv. Pfd. (e) 500,000 470,000 0.1
20,000 Western Gas Resources, Inc., Conv. Pfd. $2.62 1,000,000 817,500 0.1
----------- ----------- -----
1,500,000 1,287,500 0.2
----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 727 Crescendo Pharmaceuticals Corporation 8,360 8,360 0.0
----------------------------------------------------------------------------------------------------------------------------------
Power Generation 10,000 Calenergy Capital Trust II, Conv. Pfd. (e) 500,000 448,750 0.1
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 431,250 0.0
----------- ----------- -----
1,000,000 880,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 550,000 0.1
----------------------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd.
(Convertible in Rouge Industries, Inc.) 850,000 681,250 0.1
----------------------------------------------------------------------------------------------------------------------------------
Transportation 19,000 Sea Containers Ltd., Conv. Pfd. $4.00 875,463 1,059,250 0.1
----------------------------------------------------------------------------------------------------------------------------------
Utilities 50,200 Citizens Utilities Company, Conv. Pfd. (Class A) 2,149,062 2,397,050 0.3
----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks, Preferred Stocks,
Common Stocks & Warrants in the United States 24,503,208 23,514,072 2.8
====================================================================================================================================
Total Investments in North American Securities 446,279,739 459,988,799 55.5
====================================================================================================================================
PACIFIC
BASIN Face Amount Fixed-Income Investments
====================================================================================================================================
Indonesia
Paper US$ 5,000,000 P.T. Indah Kiat International Finance, 12.50%
due 6/15/2006 5,025,000 4,837,500 0.6
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 5,025,000 4,837,500 0.6
====================================================================================================================================
Philippines
Telecommunications 5,000,000 Philippine Long Distance Telephone Co.,
8.35% due 3/06/2017 4,981,200 4,137,500 0.5
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 4,981,200 4,137,500 0.5
====================================================================================================================================
Total Investments in Pacific Basin Securities 10,006,200 8,975,000 1.1
====================================================================================================================================
WESTERN
EUROPE
====================================================================================================================================
Germany
Foreign Government Bundesobligations:
Obligations DM 32,000,000 6.625% due 1/20/1998 18,760,199 17,810,985 2.1
17,000,000 6.375% due 5/20/1998 10,066,914 9,541,472 1.2
95,000,000 Bundesrepublik Deutschland, 6% due 7/04/2007 56,073,993 55,374,416 6.7
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Germany 84,901,106 82,726,873 10.0
====================================================================================================================================
Russia
Financial Services US$ 2,500,000 Unexim International Finance B.V.,
9.875% due 8/01/2000 2,514,750 2,200,000 0.2
----------------------------------------------------------------------------------------------------------------------------------
Foreign Government 5,000,000 Ministry Finance of Russia, 10% due 6/26/2007 4,706,250 4,632,500 0.6
Obligations 27,500,000 Russia--Floating Rate Principal Loans, 5.623%
due 12/15/2020 (a) 16,980,784 16,764,463 2.0
----------- ----------- -----
21,687,034 21,396,963 2.6
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 24,201,784 23,596,963 2.8
====================================================================================================================================
Sweden
Foreign Government Skr 70,000,000 Government of Sweden, 5.50%
Obligations due 4/12/2002 9,151,263 8,781,498 1.0
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Sweden 9,151,263 8,781,498 1.0
====================================================================================================================================
United Kingdom
Communications US$ 20,000,000 TeleWest Communications PLC, 11.41%* due 10/01/2007 14,902,941 15,550,000 1.9
----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United Kingdom 14,902,941 15,550,000 1.9
====================================================================================================================================
Convertible Bonds
====================================================================================================================================
Ireland
Dental Equipment & 500,000 Phoenix Shannon PLC, 9.50%
Supplies due 11/01/2000 (e)(g) 272,370 60,000 0.0
----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 272,370 60,000 0.0
====================================================================================================================================
Total Investments in Western European Securities 133,429,464 130,715,334 15.7
====================================================================================================================================
SHORT-TERM
SECURITIES Issue
====================================================================================================================================
Commercial Paper** 27,000,000 AESOP Funding Corp., 5.75% due 1/20/1998 26,922,375 26,922,375 3.3
5,000,000 Block Financial Corp., 5.72% due 1/20/1998 4,985,700 4,985,700 0.6
15,000,000 Ciesco L.P., 5.75% due 1/12/1998 14,976,042 14,976,042 1.8
8,607,000 General Motors Acceptance Corp.,
6.75% due 1/02/1998 8,607,000 8,607,000 1.0
</TABLE>
Pages 12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
====================================================================================================================================
SHORT-TERM
SECURITIES Value Percent of
(concluded) Face Amount Issue Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial Paper** US$ 8,370,000 Goldman Sachs Group L.P., 5.80% due 1/16/1998 $ 8,351,121 $ 8,351,121 1.0%
(concluded) Lexington Parker Discount LLC:
20,000,000 5.75% due 1/08/1998 19,980,833 19,980,833 2.4
5,910,000 5.89% due 1/12/1998 5,900,331 5,900,331 0.7
20,000,000 WCP Funding Inc., 5.75% due 1/09/1998 19,977,639 19,977,639 2.4
------------ ------------ -----
109,701,041 109,701,041 13.2
----------------------------------------------------------------------------------------------------------------------------------
US Government 1,250,000 US Treasury Bills, 5.14% due 3/12/1998 (d) 1,237,685 1,237,638 0.2
Obligations**
----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 110,938,726 110,938,679 13.4
====================================================================================================================================
OPTIONS
PURCHASED
Nominal Value Premiums
Covered by Options Paid
====================================================================================================================================
Currency Put 28,000,000 Deutschemark, expiring January 1998 at DM 1.788 136,920 202,076 0.0
Options Purchased
----------------------------------------------------------------------------------------------------------------------------------
Total Options Purchased 136,920 202,076 0.0
====================================================================================================================================
Total Investments 822,200,174 833,571,174 100.5
====================================================================================================================================
OPTIONS Premiums
WRITTEN Received
====================================================================================================================================
Currency Call 28,000,000 Deutschemark, expiring January 1998 at DM 1.7385 (136,920) (28) 0.0
Options Written
----------------------------------------------------------------------------------------------------------------------------------
Total Options Written (136,920) (28) 0.0
====================================================================================================================================
Total Investments, Net of Options Written $822,063,254 833,571,146 100.5
============
Short Sales (Proceeds--$5,755,930)*** (5,668,356) (0.7)
Variation Margin on Financial Futures Contracts**** (104,367) 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts***** 10,018 0.0
Other Assets Less Liabilities 1,590,431 0.2
------------ -----
Net Assets $829,398,872 100.0%
============ =====
====================================================================================================================================
</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.
* 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 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 December 31, 1997 were as follows:
--------------------------------------------------------------------------
Value
Shares Issue (Note 1i)
--------------------------------------------------------------------------
70,000 Apple Computer, Inc. $ (918,750)
85,000 BankAtlantic Bancorp, Inc. (1,386,562)
7,000 Continental Homes Holding Corp. (281,750)
183,600 M.D.C. Holdings, Inc. (2,765,475)
4,500 Polyphase Corp. (3,656)
11,300 Premiere Technologies, Inc. (312,163)
--------------------------------------------------------------------------
Total (Proceeds--$5,755,930) $ (5,668,356)
============
--------------------------------------------------------------------------
**** Financial futures contracts sold as of December 31, 1997 were as follows:
--------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
--------------------------------------------------------------------------
151 Bundes LIFFE March 1998 $ 21,865,535
109 US Treasury Bonds CBOT March 1998 13,131,094
--------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$34,649,328) $ 34,996,629
=============
--------------------------------------------------------------------------
***** Forward foreign exchange contracts sold as of December 31, 1997 were as
follows:
--------------------------------------------------------------------------
Foreign Unrealized
Currency Expiration Appreciation
Sold Date (Note 1c)
--------------------------------------------------------------------------
DM 25,000,000 January 1998 $ 10,018
--------------------------------------------------------------------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$13,911,534) $ 10,018
=========
--------------------------------------------------------------------------
(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) Securities held as collateral in connection with open financial futures
contracts.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) Restricted securities as to resale. The value of the Fund's investments in
restricted securities was approximately $461,000, representing 0.1% of net
assets.
--------------------------------------------------------------------------
Acquisition Value
Issue Date(s) Cost (Note 1a)
--------------------------------------------------------------------------
Goldriver Hotel & Casino 5/04/1989-
Corp., Liquidating Trust 10/07/1993 $ 75,000 $ --
NAL Acceptance Corp.
(Warrants) 9/12/1996 -- 4,500
Polyphase Corp., 12%
due 7/01/1999 7/05/1994 600,000 456,000
--------------------------------------------------------------------------
Total $675,000 $460,500
======== ========
--------------------------------------------------------------------------
(g) Non-income producing security.
See Notes to Financial Statements.
Pages 14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of December 31, 1997
==================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$822,063,254) (Note 1a) .................... $ 833,369,098
Put options purchased, at value (cost--$136,920) (Notes 1a & 1c) ................... 202,076
Cash ............................................................................... 307,436
Unrealized appreciation on forward foreign exchange contracts (Note 1c) ............ 10,018
Deposit for securities sold short (Note 1i) ........................................ 5,755,930
Receivables:
Interest ....................................................................... $17,584,716
Securities sold ................................................................ 3,154,199
Capital shares sold ............................................................ 184,214
Dividends .......................................................................... 89,466 21,012,595
----------
Prepaid registration fees and other assets (Note 1g) ............................... 90,701
--------------
Total assets ....................................................................... 860,747,854
--------------
==================================================================================================================================
Liabilities: Common stocks sold short, at market value (proceeds--$5,755,930) (Note 1i) ......... 5,668,356
Call options written, at value (premiums received--$136,920) (Notes 1a & 1c) ....... 28
Payables:
Securities purchased ........................................................... 17,659,925
Dividends to shareholders (Note 1h) ............................................ 3,611,860
Capital shares redeemed ........................................................ 2,789,221
Investment adviser (Note 2) .................................................... 441,021
Distributor (Note 2) ........................................................... 438,187
Forward foreign exchange contracts (Note 1c) ................................... 233,939
Variation margin (Note 1c) ..................................................... 104,367
Dividends on short sales (Note 1i) ............................................. 3,155 25,281,675
----------
Accrued expenses and other liabilities ............................................. 398,923
--------------
Total liabilities .................................................................. 31,348,982
--------------
==================================================================================================================================
Net Assets: Net assets ......................................................................... $ 829,398,872
==============
==================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized ... $ 1,826,688
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized ... 7,264,455
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized ... 133,076
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized ... 170,641
Paid-in capital in excess of par 855,371,098
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 5) ....................................................... (46,484,986)
Unrealized appreciation on investments and foreign currency transactions--net ...... 11,117,900
--------------
Net assets ......................................................................... $ 829,398,872
==============
==================================================================================================================================
Net Asset Class A--Based on net assets of $161,346,717 and 18,266,879 shares outstanding ..... $ 8.83
Value: ==============
Class B--Based on net assets of $641,242,067 and 72,644,554 shares outstanding ..... $ 8.83
==============
Class C--Based on net assets of $11,737,599 and 1,330,763 shares outstanding ....... $ 8.82
==============
Class D--Based on net assets of $15,072,489 and 1,706,412 shares outstanding ....... $ 8.83
==============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
==================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned $ 77,526,268
Income Dividends 2,903,796
-------------
(Notes 1e & 1f): Total income 80,430,064
-------------
==================================================================================================================================
Expenses: Investment advisory fees (Note 2) $ 6,059,356
Account maintenance and distribution fees--Class B (Note 2) 6,002,265
Transfer agent fees--Class B (Note 2) 907,983
Transfer agent fees--Class A (Note 2) 172,663
Accounting services (Note 2) 170,484
Printing and shareholder reports 161,464
Custodian fees 100,915
Professional fees 99,266
Account maintenance and distribution fees--Class C (Note 2) 89,735
Registration fees (Note 1g) 73,952
Directors' fees and expenses 45,438
Account maintenance fees--Class D (Note 2) 37,287
Dividends on short sales (Note 1i) 16,703
Transfer agent fees--Class D (Note 2) 13,958
Transfer agent fees--Class C (Note 2) 12,827
Pricing fees 5,314
Other 23,055
Total expenses ----------- 13,992,665
-------------
Investment income--net 66,437,399
-------------
==================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 10,208,728
(Loss) on Foreign currency transactions--net (17,009,181) (6,800,453)
Investments & -----------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net (12,570,830)
Transactions - Foreign currency transactions--net 3,063,912 (9,506,918)
Net (Notes 1c, ----------- ----------
1d, 1f & 3) Net realized and unrealized loss on investments and
foreign currency transactions (16,307,371)
-------------
Net Increase in Net Assets Resulting from Operations $ 50,130,028
=============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------
Increase (Decrease) in Net Assets: 1997 1996
====================================================================================================================================
<C> <S> <C> <C>
Operations: Investment income--net ................................................... $ 66,437,399 $ 97,167,756
Realized gain (loss) on investments and foreign currency transactions--net (6,800,453) 27,311,882
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ..................................... (9,506,918) 8,867,779
--------------- ---------------
Net increase in net assets resulting from operations ..................... 50,130,028 133,347,417
--------------- ---------------
====================================================================================================================================
Dividends to Investment income--net:
Shareholders Class A .............................................................. (12,612,653) (18,005,131)
(Note 1h): Class B .............................................................. (49,068,797) (77,786,819)
Class C .............................................................. (685,580) (534,218)
Class D .............................................................. (991,622) (841,588)
Return of capital:
Class A .............................................................. (612,879) --
Class B .............................................................. (2,384,369) --
Class C .............................................................. (33,314) --
Class D .............................................................. (48,185) --
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders ...... (66,437,399) (97,167,756)
--------------- ---------------
====================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions ....... (379,207,926) (325,693,217)
Transactions --------------- ---------------
(Note 4):
====================================================================================================================================
Net Assets: Total decrease in net assets ............................................. (395,515,297) (289,513,556)
Beginning of year ........................................................ 1,224,914,169 1,514,427,725
--------------- ---------------
End of year .............................................................. $ 829,398,872 $ 1,224,914,169
=============== ===============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-----------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
-----------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995
=================================================================================================================================
<C> <S> <C> <C> <C>
Per Share Net asset value, beginning of year ........................... $ 8.94 $ 8.69 $ 8.20
Operating ----------- ----------- -----------
Performance: Investment income--net ....................................... .64 .67 .72
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net ................................... (.11) .25 .49
----------- ----------- -----------
Total from investment operations ............................. .53 .92 1.21
----------- ----------- -----------
Less dividends and distributions:
Investment income--net ....................................... (.61) (.67) (.56)
Realized gain on investments--net ............................ -- -- --
Return of capital--net ....................................... (.03) -- (.16)
----------- ----------- -----------
Total dividends and distributions ............................ (.64) (.67) (.72)
----------- ----------- -----------
Net asset value, end of year ................................. $ 8.83 $ 8.94 $ 8.69
=========== =========== ===========
=================================================================================================================================
Total Investment Based on net asset value per share ........................... 6.15% 11.09% 15.35%
Return:* =========== =========== ===========
=================================================================================================================================
Ratios to Average Expenses ..................................................... .76% .75% .80%
Net Assets: =========== =========== ===========
Investment income--net ....................................... 7.21% 7.71% 8.54%
=========== =========== ===========
=================================================================================================================================
Supplemental Net assets, end of year (in thousands) ....................... $ 161,347 $ 212,085 $ 260,806
Data =========== =========== ===========
Portfolio turnover ........................................... 217.60% 208.53% 116.00%
=========== =========== ===========
=================================================================================================================================
<CAPTION>
Class A
------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
------------------------
Increase (Decrease) in Net Asset Value: 1994+ 1993
=================================================================================================================
<C> <S> <C> <C>
Per Share Net asset value, beginning of year ........................... $ 9.28 $ 8.85
Operating ----------- -----------
Performance: Investment income--net ....................................... .72 .75
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net ................................... (1.09) .46
----------- -----------
Total from investment operations ............................. (.37) 1.21
----------- -----------
Less dividends and distributions:
Investment income--net ....................................... (.45) (.58)
Realized gain on investments--net ............................ -- (.03)
Return of capital--net ....................................... (.26) (.17)
----------- -----------
Total dividends and distributions ............................ (.71) (.78)
----------- -----------
Net asset value, end of year ................................. $ 8.20 $ 9.28
=========== ===========
=================================================================================================================
Total Investment Based on net asset value per share ........................... (4.05%) 14.12%
Return:* =========== ===========
=================================================================================================================
Ratios to Average Expenses ..................................................... .77% .78%
Net Assets: =========== ===========
Investment income--net ....................................... 8.17% 8.22%
=========== ===========
=================================================================================================================
Supplemental Net assets, end of year (in thousands) ....................... $ 311,181 $ 467,625
Data =========== ===========
Portfolio turnover ........................................... 115.95% 182.88%
=========== ===========
=================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Based on average shares outstanding. See Notes to
Financial Statements.
See Notes to Financial Statements
Pages 18 & 19
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class B
--------------------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
--------------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995
===============================================================================================================================
<C> <S> <C> <C> <C>
Per Share Net asset value, beginning of year ........................... $ 8.94 $ 8.69 $ 8.19
Operating ------------- ------------- -------------
Performance: Investment income--net ....................................... .57 .61 .65
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net ................................... (.11) .25 .50
------------- ------------- -------------
Total from investment operations ............................. .46 .86 1.15
------------- ------------- -------------
Less dividends and distributions:
Investment income--net ..................................... (.54) (.61) (.51)
Realized gain on investments--net .......................... -- -- --
Return of capital--net ..................................... (.03) -- (.14)
------------- ------------- -------------
Total dividends and distributions ............................ (.57) (.61) (.65)
------------- ------------- -------------
Net asset value, end of year ................................. $ 8.83 $ 8.94 $ 8.69
============= ============= =============
===============================================================================================================================
Total Investment Based on net asset value per share ........................... 5.34% 10.25% 14.61%
Return:** ============= ============= =============
===============================================================================================================================
Ratios to Average Expenses ..................................................... 1.53% 1.52% 1.56%
Net Assets: ============= ============= =============
Investment income--net ....................................... 6.43% 6.94% 7.77%
============= ============= =============
===============================================================================================================================
Supplemental Net assets, end of year (in thousands) ....................... $ 641,242 $ 988,209 $ 1,241,896
Data: ============= ============= =============
Portfolio turnover ........................................... 217.60% 208.53% 116.00%
============= ============= =============
===============================================================================================================================
<CAPTION>
Class B
-------------------------------
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. December 31,
-------------------------------
Increase (Decrease) in Net Asset Value: 1994++ 1993
===================================================================================================================
<C> <S> <C> <C>
Per Share Net asset value, beginning of year ........................... $ 9.28 $ 8.85
Operating ------------- -------------
Performance: Investment income--net ....................................... .65 .70
Realized and unrealized gain (loss) on investments and foreign
currency transactions--net ................................... (1.10) .44
------------- -------------
Total from investment operations ............................. (.45) 1.14
------------- -------------
Less dividends and distributions:
Investment income--net ..................................... (.40) (.53)
Realized gain on investments--net .......................... -- (.03)
Return of capital--net ..................................... (.24) (.15)
------------- -------------
Total dividends and distributions ............................ (.64) (.71)
------------- -------------
Net asset value, end of year ................................. $ 8.19 $ 9.28
============= =============
===================================================================================================================
Total Investment Based on net asset value per share ........................... (4.90%) 13.27%
Return:** ============= =============
===================================================================================================================
Ratios to Average Expenses ..................................................... 1.54% 1.55%
Net Assets: ============= =============
Investment income--net ....................................... 7.41% 7.42%
============= =============
===================================================================================================================
Supplemental Net assets, end of year (in thousands) ....................... $ 1,490,507 $ 2,106,120
Data: ============= =============
Portfolio turnover ........................................... 115.95% 182.88%
============= =============
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------
For the
Period
Oct. 21,
The following per share data and ratios have been derived For the Year Ended 1994+ to
from information provided in the financial statements. December 31, Dec. 31,
---------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++
=================================================================================================================================
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 8.93 $ 8.68 $ 8.19 $ 8.42
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net ............................. .56 .60 .64 .10
Realized and unrealized gain (loss) on
investments and foreign currency transactions--net . (.11) .25 .49 (.20)
---------- ---------- ---------- ----------
Total from investment operations ................... .45 .85 1.13 (.10)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ........................... (.53) (.60) (.50) (.08)
Return of capital--net ........................... (.03) -- (.14) (.05)
---------- ---------- ---------- ----------
Total dividends and distributions .................. (.56) (.60) (.64) (.13)
---------- ---------- ---------- ----------
Net asset value, end of period ..................... $ 8.82 $ 8.93 $ 8.68 $ 8.19
========== ========== ========== ==========
=================================================================================================================================
Total Investment Based on net asset value per share ................. 5.28% 10.19% 14.38% (1.20%)+++
Return:** ========== ========== ========== ==========
=================================================================================================================================
Ratios to Average Expenses ........................................... 1.58% 1.56% 1.65% 1.64%*
Net Assets: ========== ========== ========== ==========
Investment income--net ............................. 6.41% 6.85% 7.65% 8.00%*
========== ========== ========== ==========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ........... $ 11,738 $ 10,251 $ 5,406 $ 1,204
Data: ========== ========== ========== ==========
Portfolio turnover ................................. 217.60% 208.53% 116.00% 115.95%
========== ========== ========== ==========
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class D
------------------------------------------------------
For the
Period
Oct. 21,
The following per share data and ratios have been derived For the Year Ended 1994+ to
from information provided in the financial statements. December 31, Dec. 31,
---------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994++
=================================================================================================================================
<C> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 8.94 $ 8.69 $ 8.20 $ 8.43
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .............................. .61 .65 .70 .11
Realized and unrealized gain (loss) on
investments and foreign currency transactions--net .. (.11) .25 .49 (.20)
---------- ---------- ---------- ----------
Total from investment operations .................... .50 .90 1.19 (.09)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ............................ (.58) (.65) (.55) (.09)
Return of capital ................................. (.03) -- (.15) (.05)
---------- ---------- ---------- ----------
Total dividends and distributions ................... (.61) (.65) (.70) (.14)
---------- ---------- ---------- ----------
Net asset value, end of period ...................... $ 8.83 $ 8.94 $ 8.69 $ 8.20
========== ========== ========== ==========
=================================================================================================================================
Total Investment Based on net asset value per share .................. 5.88% 10.82% 15.06% (1.09%)+++
Return:** ========== ========== ========== ==========
=================================================================================================================================
Ratios to Average Expenses ............................................ 1.01% .99% 1.04% 1.04%*
Net Assets: ========== ========== ========== ==========
Investment income--net .............................. 6.97% 7.42% 8.23% 8.60%*
========== ========== ========== ==========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $ 15,072 $ 14,369 $ 6,320 $ 1,410
Data: ========== ========== ========== ==========
Portfolio turnover .................................. 217.60% 208.53% 116.00% 115.95%
========== ========== ========== ==========
=================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
Pages 20 & 21
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund offers four classes of shares under the Merrill
Lynch Select PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
(b) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements with a member bank of the Federal Reserve System or a
primary dealer in US Government securities. Under such agreements, the bank or
primary dealer agrees to repurchase the security at a mutually agreed upon time
and price. The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additional securities daily
to ensure that the contract is fully collateralized.
(c) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts--The Fund may purchase or sell interest rate
futures contacts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts. Premium or discount is amortized over the life
of the contracts.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(e) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital gains at
various rates.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment income, excluding
transaction gains/losses, are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. A portion of the net
investment income dividends paid by the Fund during the year ended December 31,
1997 is characterized as a return of capital.
(i) Short sales--When the Fund engages in a short sale, an amount equal to the
proceeds received by the Fund is reflected as an asset and equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Fund maintains a segregated account of
securities as collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock exceeds the
proceeds received.
(j) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $15,984,995 have been reclassified between accumulated
net realized capital losses and paid-in capital in excess of par. These
reclassifications have no effect on net assets or net asset values per share.
Pages 22 & 23
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
0.60%, on an annual basis, of the average daily value of the Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ................................ 0.25% 0.50%
Class C ................................ 0.25% 0.55%
Class D ................................ 0.25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a sub- sidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders. For the year ended December 31, 1997, MLFD earned underwriting
discounts and commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ................................................. $1,741 $19,208
Class D ................................................. $1,583 $15,414
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, MLPF&S received contingent deferred sales
charges of $1,140,664 and $4,508 relating to transactions in Class B and Class C
Shares, respectively.
During the year ended December 31, 1997, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $3,079 for security price quotations to
compute the net asset value of the Fund.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
MLFD, FAM, PSI, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1997 were $1,606,883,203 and $1,939,387,292,
respectively.
Net realized and unrealized gains (losses) as of December 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Investments:
Long-term ........................ $ 12,530,153 $ 11,305,892
Short-term ....................... 9,303 (48)
Short sales ...................... (1,152,536) 87,574
Options written .................. 365,264 --
Financial futures contracts ...... (1,543,456) (347,301)
------------ ------------
Total investments .................. $ 10,208,728 $ 11,046,117
------------ ------------
Currency transactions:
Options purchased ................ (120,220) 65,156
Options written .................. 1,212,653 136,892
Foreign currency transactions .... (24,595,449) (140,283)
Forward foreign
exchange contracts ............... 6,493,835 10,018
------------ ------------
Total currency transactions ........ (17,009,181) 71,783
------------ ------------
Total .............................. $ (6,800,453) $ 11,117,900
============ ============
- --------------------------------------------------------------------------------
Transactions in call options written for the year ended December 31, 1997 were
as follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year .................. -- $ --
Options written ...................... 595,875,500 2,844,582
Options closed ....................... (215,100,000) (1,610,878)
Options exercised .................... (25,000,000) (46,875)
Options expired ...................... (327,775,500) (1,049,909)
------------ ------------
Outstanding call options written,
end of year ........................ 28,000,000 $ 136,920
============ ============
- --------------------------------------------------------------------------------
Transactions in put options written for the year ended December 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year .................. 10,000,000 $ 21,875
Options exercised .................... (10,000,000) (21,875)
------------ ------------
Outstanding put options written,
end of year ........................ -- $ --
============ ============
- --------------------------------------------------------------------------------
As of December 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $5,916,589, of which $24,515,737 related to appreciated
securities and $18,599,148 related to depreciated securities. The aggregate cost
of investments at December 31, 1997 for Federal income tax purposes was
$827,452,509.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$379,207,926 and $325,693,217 for the years ended December 31, 1997 and December
31, 1996, respectively.
Transactions in shares of capital for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 1,471,571 $ 13,032,610
Shares issued to shareholders
in reinvestment of dividends ......... 490,171 4,320,941
------------ ------------
Total issued ......................... 1,961,742 17,353,551
Shares redeemed ...................... (7,405,822) (65,315,197)
------------ ------------
Net decrease ......................... (5,444,080) $(47,961,646)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 387,712 $ 3,388,308
Shares issued to shareholders
in reinvestment of dividends ......... 659,250 5,758,981
------------ ------------
Total issued ......................... 1,046,962 9,147,289
Shares redeemed ...................... (7,346,115) (64,121,789)
------------ ------------
Net decrease ......................... (6,299,153) $(54,974,500)
============ ============
- --------------------------------------------------------------------------------
Pages 24 & 25
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 4,411,827 $ 38,945,000
Shares issued to shareholders
in reinvestment of dividends ......... 2,511,110 22,118,936
------------ ------------
Total issued ......................... 6,922,937 61,063,936
Automatic conversion of shares ....... (394,158) (3,459,877)
Shares redeemed ...................... (44,433,465) (391,363,688)
------------ ------------
Net decrease ......................... (37,904,686) $(333,759,629)
=========== =============
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 9,132,221 $ 79,678,830
Shares issued to shareholders
in reinvestment of dividends ......... 3,887,024 33,921,915
------------ ------------
Total issued ......................... 13,019,245 113,600,745
Automatic conversion of shares ....... (505,096) (4,380,377)
Shares redeemed ...................... (44,956,418) (392,147,393)
------------ ------------
Net decrease ......................... (32,442,269) $(282,927,025)
============ =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 667,088 $ 5,892,830
Shares issued to shareholders
in reinvestment of dividends ......... 45,030 396,332
------------ ------------
Total issued ......................... 712,118 6,289,162
Shares redeemed ...................... (529,077) (4,662,828)
------------ ------------
Net increase ......................... 183,041 $ 1,626,334
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 854,651 $ 7,451,497
Shares issued to shareholders
in reinvestment of dividends ......... 32,774 286,396
------------ ------------
Total issued ......................... 887,425 7,737,893
Shares redeemed ...................... (362,658) (3,170,946)
------------ ------------
Net increase ......................... 524,767 $ 4,566,947
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 290,672 $ 2,569,167
Automatic conversion of shares ....... 393,764 3,459,877
Shares issued to shareholders
in reinvestment of dividends ......... 63,282 557,815
------------ ------------
Total issued ......................... 747,718 6,586,859
Shares redeemed ...................... (647,898) (5,699,844)
------------ ------------
Net increase ......................... 99,820 $ 887,015
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 790,966 $ 6,912,547
Automatic conversion of shares ....... 504,658 4,380,377
Shares issued to shareholders
in reinvestment of dividends ......... 52,423 458,594
------------ ------------
Total issued ......................... 1,348,047 11,751,518
Shares redeemed ...................... (468,704) (4,110,157)
------------ ------------
Net increase ......................... 879,343 $ 7,641,361
============ ============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At December 31, 1997, the Fund had a net capital loss carryforward of
approximately $38,225,000, of which $12,482,000 expires in 2002 and $25,743,000
expires in 2003. This amount will be available to offset like amounts of any
future taxable gains.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch World Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch World Income Fund, Inc. as of
December 31, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch World
Income Fund, Inc. as of December 31, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 20, 1998
Pages 26 & 27
<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--12/97
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