MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 1998
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Paolo H. Valle, Senior Vice President
Donald C. Burke, Vice President
Daniel A. Luchansky, Vice President
Gerald M. Richard, Treasurer
Lawrence A. Rogers, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
DEAR SHAREHOLDER
The investment environment was challenging for Merrill Lynch World Income Fund,
Inc. during the quarter ended June 30, 1998. US high-yield bonds--which
accounted for 45% of the Fund's net assets at June quarter end--underperformed
the US Treasury and equity markets. At the same time, emerging markets, the
Fund's other major sector allocation, underperformed more established markets as
difficulties in Asia and Russia spread to other parts of the world.
Despite these difficulties, we believe that there are compelling reasons for
maintaining the Fund's current investment strategy, as detailed in the
discussion of the Fund's investment review. First, we believe that the US
high-yield market continues to offer attractive value. Second, in our view,
there is value also in the emerging markets sector. The portfolio's sector
allocation at June 30, 1998 and the previous quarter are compared below:
- --------------------------------------------------------------------------------
6/30/98 3/31/98
- --------------------------------------------------------------------------------
Emerging Markets
Securities 50% 50%
US High-Yield Bonds 42% 42%
Convertible Securities 8% 8%
Global High-Grade
Bonds -- --
--- ---
Total 100% 100%
=== ===
- --------------------------------------------------------------------------------
However, as a result of the difficult investment environment, our investments in
each of the sectors at June 30, 1998 were: emerging markets securities, 44% of
net assets; US high-yield bonds, 45%; convertible securities, 7%; and global
high-grade bonds, 4%.
Investment Overview
Emerging Markets Sector
Following a rally that propelled yields on emerging markets debt to tighten
approximately 150 basis points (1.50%) relative to US Treasury securities from
mid-January 1998 to mid-May 1998, emerging market spreads were negatively
impacted and reversed that tightening entirely from mid-May 1998 to mid-June
1998. A variety of factors negatively impacted the market: the Indonesian
crisis; South Korean labor unrest; the Japanese and Asian weakness in economic
growth, currencies and banks, especially the possibility of currency
devaluations in The People's Republic of China and Hong Kong; low world
commodity prices; and a crisis of confidence in Russia. As of June 30, 1998, US
dollar-denominated bonds of emerging-markets issuers were trading at yields
3%-5% in excess of the yields on US high-yield bonds of similar credit quality.
Russia and Brazil, which seem to be the most exposed countries to Asian
contagion, became once again the focus of investors. Brazil, which currently
enjoys an almost record-high level of international reserves, continues to see
improvements in its external sector, but is facing some fiscal pressures in an
electoral year. The government has scheduled the bulk of its aggressive
privatization calendar, including its flagship telecommunications company
Telebras, in the third quarter of 1998, which will provide greater support to
Brazil's international reserves and fiscal accounts. Current electoral polls
indicate that a re-election of President Cardoso in the first round is possible
in October. It is too early to speculate on what measures would be implemented
if President Cardoso were re-elected, especially on the fiscal front, to
continue strengthening the Real Plan.
In Russia, on the other hand, investors' uncertainties increased over the
adequacy of foreign reserves as compared to the amount of debt held by foreign
investors. An aggressive fiscal effort was announced and Group of Seven
Industrialized Countries (G-7) and multinational organizations became heavily
involved in advising the Russian government on alternatives to defend its
economic program. In July, after the closing of the quarter, a multi-billion
International Monetary Fund (IMF) and G-7 financial rescue package was enacted.
After a brief interlude, domestic market weakness and capital flight resumed in
the face of unfinished fiscal legislation, deterioration in Russia's domestic
banking sector, renewed Japanese yen weakness and the sharp correction in the US
equity markets. In order to protect its foreign currency reserves, Russian
authorities decreed on August 17, 1998 a widening of the Russian ruble band and
forced restructuring of its local currency debt.
Venezuela, a country which is a large oil producer, has seen its fiscal accounts
impacted by lower international oil prices and political concerns going into
regional and presidential elections toward the end of 1998. The government is
attempting to move forward in their privatization efforts and in passing
legislature to improve the fiscal accounts.
Ecuador and Colombia have recently elected candidates who intend to tighten
fiscal accounts. In the former case, recent fiscal performance has started to
improve markedly over last year, even before the new president is inaugurated.
There is considerable debate currently about the extent of the weakness in Asia
and its effects on the US economy and the rest of the world. The investment
community is focused on the new Japanese government's actions to revitalize its
economy and re-capitalize its banking sector. South Korea, which earlier this
year took decisive steps in that direction as part of their agreement with the
IMF and international banks, is already seeing some results, but the overall
strength of the area appears to hinge on future developments in Japan, given the
relative size of its economy.
We have adopted a cautious view in emerging market bonds, where yield spreads
relative to US Treasury bonds appear generous, but risks need to be monitored
very closely. We remain vigilant of developments in G-7 markets, of fiscal and
foreign exchange reforms in Russia, and of contagion risks in Latin America.
US High-Yield Sector
Buffeted by turmoil in the emerging markets sector, fixed-income investors fled
to the safety of Treasury securities during the June quarter. At the same time,
the US high-yield market began to have difficulty digesting the *heavy new-issue
supply, as inflows into high-yield mutual funds tapered off. During the quarter
ended June 30, 1998, new-issue supply totaled near $97 billion compared to $42
billion for the year-earlier period, a continuing acceleration in new-issue
volume that has led to a near doubling of the high-yield market since 1993.
However, offsetting the heavy supply to some extent has been a heavy pace of
debt retirement, largely a result of merger and acquisition activity. For the
six months ended June 30, 1998, $18 billion of high-yield issues have been
retired at a premium over par value of 8%.
Although changes in investor sentiment and an ample supply of new issues may
lead to a choppy market, we believe that current spreads offer a reasonable risk
premium for high-yield bonds relative to US Treasury securities and represent a
good investment value. Fundamentals for the high-yield market have remained
favorable. In recent years, many companies have acted to shore up balance sheets
through debt repayment and equity issuance and are now better able to withstand
an earnings shortfall. Merger and acquisition activity has been supporting
valuations and cash continues to enter the high-yield market, providing an
ongoing level of demand that tends to support prices.
Throughout the June quarter, our strategy in the high-yield sector of the Fund
was to maintain an above-average credit quality profile. A credit rating of BB
and above made up 58.6% of this sector's assets, compared to a market weighting
of approximately 34%. During the quarter, we reduced our BB-rated positions
through the sale of US Gypsum, Reliance Group Holdings, Inc., VikingStar
Shipping and TCI Communications preferred stock, all at yield spreads of less
than 2% compared to Treasury securities of similar maturity. Coleman Escrow
Corp. and Host Marriott Corporation were tendered at 1% spreads because mergers
and acquisitions activity required that the bonds be retired.
Convertible Securities Sector
After a somewhat overheated start to the year, the convertible market has
recently cooled off. New-issue activity, which is currently slowing, remains on
track in 1998 for a record number of new issues and record amount of capital
raised. However, investors have become more selective, with fewer new offerings
going to smaller price premiums compared to those of late 1997 and early 1998,
when most new issues traded up significantly in the aftermarket. In fact, some
issues have recently traded to immediate discounts to their offering prices,
notwithstanding more generous terms.
During the June quarter, conversion premiums on existing issues experienced some
compression, which resulted from a mild widening of credit quality spreads,
greater supply and the general satiation of demand from convertible investors.
The stock market made little progress over the past three months, its advance
becoming more narrow and selective. The market's breadth statistics (advance/
decline lines and new high/new low indicators) were generally weak and have thus
far failed to confirm new highs in some of the major equity indexes. This poor
breadth is a typical late-cycle bull market phenomenon, and unless the breadth
indicators improve and confirm these new highs, it may signal a corrective phase
for equity prices later this year. Given
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
these poor internal technical conditions, combined with high valuations on
equities and a general slowing in earnings growth, we will maintain a somewhat
cautious view toward the stock market over the next several quarters.
Throughout the June quarter, we made some significant changes in the Fund's
convertible holdings. Specifically, we found value in the oil sector by taking
advantage of the recent weakness in oil prices, and added the convertible
preferred shares of Chesapeake Energy Corporation and Lomak Petroleum Inc.,
convertible debentures, both of which are oil and gas exploration and
development companies. Other energy-related purchases included Halter Marine
Group, Inc., which constructs vessels that service the offshore oil drilling
industry, and Parker Drilling Company, a worldwide provider of oil and gas
drilling services. We also added to our position in Loews Corp. convertible into
Diamond Offshore Drilling, Inc., another offshore oil and gas drilling company.
In addition, we added the 4% convertibles of Thermo Instrument Systems, Inc., a
manufacturer of analytical instruments, to our existing position in the 4.5%
notes. Further, we added a second tranche to an existing position of Assisted
Living Concepts, Inc., a company that provides personal care and support for the
elderly.
Other significant purchases during the quarter included Kellstrom Industries,
Inc., which manufactures, services and refurbishes aircraft jet engines, and
Owens-Illinois, Inc., an international diversified manufacturer of packaging
products. We took profits in Alza Corp., a pharmaceuticals manufacturer, Apple
Computer, Inc., and Buffets, Inc., a buffet style restaurant chain (through our
holdings in the Hometown Buffets 7% notes). We partially liquidated and took
profits in the convertibles of Office Depot, Inc., an office products retailer.
Our holdings in U.S. Office Products Co., another office products retailer, were
profitably tendered into an exchange offer upon a reorganization of the company.
We profitably liquidated an arbitrage position in Premiere Technologies, Inc., a
company which provides communication services, as gains from short stock
proceeds exceeded losses on the decline in the convertibles. Finally, we sold
our positions in MedPartners, Inc., a physician practice management company,
because of a deterioration in the company's fundamentals.
In Conclusion
We thank you for your continued investment in Merrill Lynch World Income Fund,
Inc., and we look forward to reviewing our outlook and strategy with you again
in our next report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
/s/ Paolo Valle
Paolo Valle
Senior Vice President and
Portfolio Manager
/s/ Daniel A. Luchansky
Daniel A. Luchansky
Vice President and
Portfolio Manager
August 20, 1998
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.50% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.55% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of future
performance. Figures shown in the "Recent Performance Results" and "Average
Annual Total Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. Investment return
and principal value of shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account maintenance,
distribution and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
<TABLE>
<CAPTION>
Recent
Performance
Results*
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 6/30/98
==========================================================================================================
<S> <C> <C> <C> <C>
ML World Income Fund, Inc. Class A Shares +1.82% -5.94% +138.60% 10.48%
- ----------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class B Shares +0.92 -6.13 + 49.46 10.11
- ----------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class C Shares +0.98 -6.14 + 27.75 10.04
- ----------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class D Shares +1.56 -6.00 + 30.51 10.22
==========================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's inception dates are: Class A Shares,
9/29/88; Class B Shares, 11/18/91; and Class C and Class D Shares,
10/21/94.
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class A Shares+*
==============================================================================
Year Ended 6/30/98 +1.82% -2.25%
- ------------------------------------------------------------------------------
Five Years Ended 6/30/98 +6.19 +5.32
- ------------------------------------------------------------------------------
Inception (9/29/88) through 6/30/98 +9.33 +8.87
- ------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
=============================================================================
Class B Shares*
=============================================================================
Year Ended 6/30/98 +0.92% -2.81%
- -----------------------------------------------------------------------------
Five Years Ended 6/30/98 +5.35 +5.35
- -----------------------------------------------------------------------------
Inception (11/18/91) through 6/30/98 +6.26 +6.26
- -----------------------------------------------------------------------------
* 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 6/30/98 +0.98% +0.05%
- -----------------------------------------------------------------------------
Inception (10/21/94) through 6/30/98 +6.86 +6.86
- -----------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
==============================================================================
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class D Shares*
==============================================================================
Year Ended 6/30/98 +1.56% -2.50%
- ------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/98 +7.48 +6.30
- ------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Value Percent of
Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
LATIN AMERICA
Argentina
Foreign US$ 250,000 Republic of Argentina, Global Bonds, 11.375%
Government due 1/30/2017 $ 266,625 $ 266,250 0.0%
Obligations
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 266,625 266,250 0.0
====================================================================================================================================
Brazil
Communications 1,500,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (c) 1,500,000 1,383,750 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Foreign 98,037,745 Republic of Brazil, Floating Rate 'C' Brady Bonds,
Government 8% due 4/15/2014+ (a) 80,055,605 72,180,290 11.0
Obligations
-----------------------------------------------------------------------------------------------------------------------------------
Industrial-- 2,000,000 MRS Logistica S.A., 10.625% due 8/15/2005 1,955,000 1,700,000 0.3
Other
-----------------------------------------------------------------------------------------------------------------------------------
Steel 3,000,000 CSN Iron S.A., 9.125% due 6/01/2007 2,707,500 2,415,000 0.4
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 86,218,105 77,679,040 11.9
====================================================================================================================================
Colombia
Energy 4,765,625 Oleoducts Central S.A., 9.35% due 9/01/2005 (c) 4,765,625 4,813,281 0.7
-----------------------------------------------------------------------------------------------------------------------------------
Utilities 9,864,000 Transgas de Occidente S.A., 9.79% due 11/01/2010 (c) 9,999,630 10,397,031 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 14,765,255 15,210,312 2.3
====================================================================================================================================
Ecuador
Foreign 10,014,030 Republic of Ecuador, PDI, Floating Rate Brady Bonds,
Government 6.625% due 2/27/2015+ (a) 6,374,960 5,739,341 0.9
Obligations 11,000,000 Republic of Ecuador, Par, Global Brady Bonds,
3.50% due 2/28/2025+ (a) 6,261,589 5,898,750 0.9
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Ecuador 12,636,549 11,638,091 1.8
====================================================================================================================================
Mexico
Utilities-- 2,000,000 Espirito Santo Centrais S.A., 10% due 7/15/2007 1,920,000 1,705,000 0.3
Electric
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 1,920,000 1,705,000 0.3
====================================================================================================================================
Peru
Foreign 4,000,000 Republic of Peru, Floating Rate Reduction Bonds,
Government 3.25% due 3/07/2017 2,470,024 2,235,000 0.3
Obligations
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 2,470,024 2,235,000 0.3
====================================================================================================================================
Venezuela
Foreign 74,000,000 Republic of Venezuela, 9.25% due 9/15/2027 66,679,500 57,239,000 8.7
Government
Obligations
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 66,679,500 57,239,000 8.7
====================================================================================================================================
Total Investments in Latin American Securities 184,956,058 165,972,693 25.3
====================================================================================================================================
NORTH AMERICA
====================================================================================================================================
Canada
Paper 10,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 9,300,000 9,775,000 1.5
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 9,300,000 9,775,000 1.5
====================================================================================================================================
United States
Airlines 10,000,000 US Airways Group Inc., 10.375% due 3/01/2013 10,000,000 11,278,200 1.7
-----------------------------------------------------------------------------------------------------------------------------------
Cable TV 10,000,000 Century Communications Corp., 9.50% due 3/01/2005 9,797,500 10,825,000 1.6
10,000,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 9,922,100 11,650,000 1.8
------------ ------------ ----
19,719,600 22,475,000 3.4
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 10,340,000 10,960,400 1.7
-----------------------------------------------------------------------------------------------------------------------------------
Computer 10,000,000 Hadco Corporation, 9.50% due 6/15/2008 (c) 9,966,000 9,950,000 1.5
Services--
Electronics
-----------------------------------------------------------------------------------------------------------------------------------
Conglomerates 10,000,000 Sequa Corp., 9.375% due 12/15/2003 9,915,000 10,350,000 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Consumer 10,000,000 Playtex Products, Inc., Series B, 8.875%
Products due 7/15/2004 (c) 10,000,000 10,275,000 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50%
due 3/15/2012 (c) 9,941,400 9,325,000 1.4
10,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 10,000,000 10,250,000 1.6
15,670,000 TransAmerican Energy Corp., Series B, 13.149%*
due 6/15/2002 13,806,094 12,771,050 1.9
------------ ------------ ----
33,747,494 32,346,050 4.9
-----------------------------------------------------------------------------------------------------------------------------------
Entertainment 10,000,000 Viacom, Inc., 8% due 7/07/2006 10,031,250 10,325,000 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Financial 10,000,000 PennCorp Financial, 9.25% due 12/15/2003 10,000,000 10,375,000 1.6
Services
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Value Percent of
Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
NORTH AMERICA
(continued)
United States
(concluded)
Gaming US $10,000,000 Greate Bay Properties, Inc., 10.875% due 1/15/2004 $ 9,996,250 $ 8,650,000 1.3%
7,500,000 Harrah's Jazz Co., 14.25% due 11/15/2001 (d) 5,178,125 2,400,000 0.4
10,000,000 Trump Atlantic City Associates, 11.25% due 5/01/2006 9,943,750 9,700,000 1.5
------------- ------------- ----
25,118,125 20,750,000 3.2
-----------------------------------------------------------------------------------------------------------------------------------
Health Care Columbia/HCA Healthcare Corp.:
5,000,000 7.25% due 5/20/2008 4,696,650 4,847,650 0.7
5,000,000 8.70% due 2/10/2010 5,106,750 5,373,850 0.8
10,000,000 Tenet Healthcare Corporation, 8.125% due 12/01/2008 9,961,200 10,062,500 1.5
------------- ------------- ----
19,764,600 20,284,000 3.0
-----------------------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Container Corp. of America, 9.75% due 4/01/2003 10,200,000 10,750,000 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Printing & 5,000,000 PRIMEDIA Inc., 7.625% due 4/01/2008 4,971,250 4,862,500 0.7
Publishing
-----------------------------------------------------------------------------------------------------------------------------------
Semiconductors 10,000,000 Advanced Micro Devices, Inc., 11% due 8/01/2003 11,025,000 10,550,000 1.6
-----------------------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 5,098,125 4,900,000 0.7
-----------------------------------------------------------------------------------------------------------------------------------
Utilities 10,000,000 Tucson Electric & Power Co., 10.732% due 1/01/2013 9,607,625 11,839,300 1.8
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United States 209,504,069 212,270,450 32.2
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Canada
Metals & Mining 1,500,000 Inco Limited, 5.75% due 7/01/2004 1,462,500 1,365,000 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Canada 1,462,500 1,365,000 0.2
====================================================================================================================================
United States
Aerospace & 1,000,000 Kellstrom Industries, Inc., 5.50% due 6/15/2003 1,000,000 1,057,500 0.2
Defense
-----------------------------------------------------------------------------------------------------------------------------------
Automotive Parts Pep Boys--Manny, Moe & Jack (The):
1,000,000 4% due 9/01/1999 1,028,750 981,250 0.2
1,500,000 4.029% due 9/20/2011 890,006 821,250 0.1
------------ ------------ ----
1,918,756 1,802,500 0.3
-----------------------------------------------------------------------------------------------------------------------------------
Banking BankAtlantic Bancorp, Inc.***:
823,000 6.75% due 7/01/2006 1,629,952 1,481,400 0.2
750,000 5.625% due 12/01/2007 750,000 816,563 0.1
------------ ------------ ----
2,379,952 2,297,963 0.3
-----------------------------------------------------------------------------------------------------------------------------------
Boat 1,000,000 Halter Marine Group, Inc., 4.50% due 9/15/2004 895,710 806,250 0.1
Construction
-----------------------------------------------------------------------------------------------------------------------------------
Computers 3,000,000 Apple Computer, Inc., 6% due 6/01/2001 (c)*** 2,945,000 3,453,750 0.5
-----------------------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corp., 12% due 7/01/1999 (e)*** 600,000 453,750 0.1
400,000 Thermo Electron Corp., 4.25% due 1/01/2003 (c) 400,000 425,500 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 (c) 1,000,000 1,008,750 0.2
Thermo Instrument Systems, Inc.:
500,000 4.50% due 10/15/2003 505,000 489,375 0.1
1,000,000 4.50% due 10/15/2003 (c) 1,017,500 997,500 0.2
2,000,000 4% due 1/15/2005 1,995,000 2,050,000 0.3
------------ ------------ ----
5,517,500 5,424,875 1.0
-----------------------------------------------------------------------------------------------------------------------------------
Environmental 725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 716,844 0.1
1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 (c) 1,114,735 952,714 0.1
1,500,000 US Filter Corp., 4.50% due 12/15/2001 1,580,250 1,515,000 0.2
------------ ------------ ----
3,419,079 3,184,558 0.4
-----------------------------------------------------------------------------------------------------------------------------------
Health Care 1,500,000 Integrated Health Services Inc., 5.75% due 1/01/2001 1,493,750 1,728,750 0.3
1,500,000 PhyCor, Inc., 4.50% due 2/15/2003 1,372,000 1,263,750 0.2
1,000,000 Quantum Health Resources, Inc., 4.75%
due 10/01/2000 935,000 947,500 0.1
------------ ------------ ----
3,800,750 3,940,000 0.6
-----------------------------------------------------------------------------------------------------------------------------------
Imaging Systems 600,000 ThermoTrex Corporation, 3.25% due 11/01/2007 600,000 561,000 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Manufacturing 1,000,000 Mark IV Industries, Inc., 4.75% due 11/01/2004 (c) 923,750 921,250 0.1
2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,880,000 0.3
------------ ------------ ----
2,766,250 2,801,250 0.4
-----------------------------------------------------------------------------------------------------------------------------------
Medical Laser 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 (c) 1,960,625 1,735,000 0.3
Systems
-----------------------------------------------------------------------------------------------------------------------------------
Mining 1,000,000 Coeur D'Alene Mines Corporation, 7.25%
due 10/31/2005 (c) 735,000 821,250 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Office Products 500,000 Office Depot, Inc., 4.891%* due 11/01/2008 302,234 390,000 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas Lomak Petroleum, Inc.:
500,000 6% due 2/01/2007 486,875 447,500 0.1
1,000,000 6% due 2/01/2007 (c) 972,500 873,750 0.1
------------ ------------ ----
1,459,375 1,321,250 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Oil Drilling 1,050,000 Loews Corp., 3.125% due 9/15/2007 (Convertible in
Diamond Offshore Drilling, Inc.) 1,048,500 969,937 0.1
1,000,000 Parker Drilling Company, 5.50% due 8/01/2004 1,010,000 852,500 0.1
------------ ------------ ----
2,058,500 1,822,437 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Oil Services 1,500,000 Key Energy Group, Inc., 5% due 9/15/2004 (c) 1,236,175 1,149,375 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Optical 1,585,000 Thermo Optik Corp., 5% due 10/15/2000 (c) 1,588,950 1,779,162 0.3
Equipment
-----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 500,000 Alza Corp., 5% due 5/01/2006 532,813 649,375 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Restaurants 250,000 Hometown Buffet Inc., 7% due 12/01/2002 252,500 347,813 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Retirement Care Assisted Living Concepts, Inc.:
700,000 6% due 11/01/2002 700,000 728,875 0.1
1,300,000 5.625% due 5/01/2003 1,300,000 1,233,375 0.2
------------ ------------ ----
2,000,000 1,962,250 0.3
-----------------------------------------------------------------------------------------------------------------------------------
Semiconductors 2,000,000 Cypress Semiconductor Corp., 6% due 10/01/2002 (c) 1,862,500 1,750,000 0.3
1,000,000 Integrated Device Technology, Inc., 5.50%
due 6/01/2002 850,000 805,000 0.1
------------ ------------ ----
2,712,500 2,555,000 0.4
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Value Percent of
Industries Face Amount Convertible Bonds Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
NORTH AMERICA
(continued)
United States
(concluded)
Technology US$ 1,250,000 Broadband Technologies, Inc., 5% due 5/15/2001 (c) $ 1,246,250 $ 831,250 0.1%
Data General Corporation:
250,000 6% due 5/15/2004 246,875 226,250 0.0
750,000 6% due 5/15/2004 (c) 750,000 690,000 0.1
------------- ------------ ----
2,243,125 1,747,500 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 42,324,794 41,610,058 6.4
====================================================================================================================================
<CAPTION>
Convertible Preferred Stocks, Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States
Broadcasting/ 137,257 On Command Corporation 4,061,096 1,904,441 0.3
Cable 43,675 On Command Corporation (Warrants) (b) 349,400 212,916 0.0
------------- ------------ ----
4,410,496 2,117,357 0.3
-----------------------------------------------------------------------------------------------------------------------------------
Building & 12,142 Engle Homes, Inc. 165,580 185,165 0.0
Construction
-----------------------------------------------------------------------------------------------------------------------------------
Conglomerates 105,000 Polyphase Corp.*** 158,550 73,500 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 13,125 5,250 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 26,250 16,800 0.0
------------- ------------ ----
197,925 95,550 0.0
-----------------------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens-Illinois, Inc., Conv. Pfd. 500,000 521,250 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Energy 5,000 Chesapeake Energy Corporation, Conv. Pfd. (c) 250,000 210,625 0.0
-----------------------------------------------------------------------------------------------------------------------------------
Entertainment 11,897 Time Warner, Inc. (Series M), Pfd. 11,954,973 13,220,541 2.0
-----------------------------------------------------------------------------------------------------------------------------------
Financial 28,125 NAL Acceptance Corp. (Warrants) (b)(e) 0 56 0.0
Services
-----------------------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Finance Corp.,
Liquidating Trust (d)(e) 75,000 0 0.0
-----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas 10,000 Lomak Petroleum, Inc., Conv. Pfd. (c) 500,000 357,500 0.1
20,000 Western Gas Resources, Inc., Conv. Pfd. $2.62 1,000,000 775,000 0.1
------------- ------------ ----
1,500,000 1,132,500 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 727 Crescendo Pharmaceuticals Corporation 8,360 9,224 0.0
-----------------------------------------------------------------------------------------------------------------------------------
Power Generation 10,000 Calenergy Capital Trust II, Conv. Pfd. (c) 500,000 463,750 0.1
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 455,000 0.1
------------- ------------ ----
1,000,000 918,750 0.2
-----------------------------------------------------------------------------------------------------------------------------------
Printing & 50,000 PRIMEDIA Inc., Pfd. 4,970,000 4,875,000 0.7
Publishing
-----------------------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 550,000 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Retail 30,000 Kmart Corporation, Conv. Pfd. 1,561,800 2,100,000 0.3
-----------------------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd.
(Convertible in Rouge Industries, Inc.) 850,000 625,000 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Utilities 6,387 Citizens Utilities Company (Class B) 64,282 61,470 0.0
50,200 Citizens Utilities Company, Conv. Pfd. (Class A) 2,149,062 2,371,950 0.4
------------- ------------ ----
2,213,344 2,433,420 0.4
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks & Warrants
in the United States 30,179,853 28,994,438 4.4
====================================================================================================================================
Total Investments in North American Securities 292,771,216 294,014,946 44.7
====================================================================================================================================
<CAPTION>
PACIFIC
BASIN Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
China
Transport- US$ 8,000,000 Cathay International Ltd., 13% due 4/15/2008 (c) 8,000,000 7,040,000 1.1
ation 10,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 9,262,500 7,162,500 1.1
Total Fixed-Income Investments in China 17,262,500 14,202,500 2.2
====================================================================================================================================
Indonesia
Paper 5,000,000 P.T. Indah Kiat International Finance, 12.50%
due 6/15/2006 5,025,000 4,000,000 0.6
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 5,025,000 4,000,000 0.6
====================================================================================================================================
Philippines
Banking 4,000,000 Bangko Sentral NG Pilipinas, 8.60% due 6/15/2027 3,519,320 3,440,000 0.5
-----------------------------------------------------------------------------------------------------------------------------------
Telecommuni- 5,000,000 Philippine Long Distance Telephone Co., 8.35%
cations due 3/06/2017 4,981,200 4,262,840 0.6
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 8,500,520 7,702,840 1.1
====================================================================================================================================
South Korea
Banking 5,000,000 Korea Development Bank, 11.50% due 3/05/1999 (c) 5,000,000 5,139,000 0.8
-----------------------------------------------------------------------------------------------------------------------------------
Foreign 10,000,000 Republic of Korea, Global Bonds, 8.875% due 4/15/2008 9,625,000 9,075,160 1.4
Government
Obligations
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in South Korea 14,625,000 14,214,160 2.2
====================================================================================================================================
Total Investments in Pacific Basin Securities 45,413,020 40,119,500 6.1
====================================================================================================================================
EUROPE
====================================================================================================================================
Luxembourg
Telecommuni- 10,000,000 Millicom International Cellular S.A., 11.834%*
cations due 6/01/2006 7,416,345 7,800,000 1.2
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Luxembourg 7,416,345 7,800,000 1.2
====================================================================================================================================
Russia
Financial 2,500,000 Unexim International Finance B.V., 9.875% 2,514,750 1,890,625 0.3
Services due 8/01/2000
-----------------------------------------------------------------------------------------------------------------------------------
Foreign 5,000,000 Ministry Finance of Russia, 10% due 6/26/2007 4,706,250 3,762,500 0.6
Government 1,833,285 Republic of Russia, IAN, 6.625% due 12/02/2015+ (f) 1,290,174 1,015,182 0.1
Obligations 144,500,000 Republic of Russia Principal Loans, 6.625%
due 12/15/2020+ 86,926,248 68,276,250 10.4
------------ ------------ ----
92,922,672 73,053,932 11.1
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 95,437,422 74,944,557 11.4
====================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Value Percent of
Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
EUROPE
(concluded)
====================================================================================================================================
United Kingdom
Communi- US$20,000,000 TeleWest Communications PLC, 11.41%*
cations due 10/01/2007 $ 15,711,064 $ 16,500,000 2.5%
-----------------------------------------------------------------------------------------------------------------------------------
Telecommuni- 10,000,000 NTL Incorporated, 10% due 2/15/2007 9,880,000 10,700,000 1.6
cations
-----------------------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United Kingdom 25,591,064 27,200,000 4.1
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Ireland
Dental 500,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 (a)(c) 196,779 5,000 0.0
Equipment
& Supplies
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 196,779 5,000 0.0
====================================================================================================================================
Total Investments in European Securities 128,641,610 109,949,557 16.7
====================================================================================================================================
<CAPTION>
SHORT-TERM
SECURITIES Issue
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial 242,000 General Motors Acceptance Corp., 6.50%
Paper** due 7/01/1998 242,000 242,000 0.0
5,000,000 International Securitization Corp., 5.53%
due 7/06/1998 4,996,160 4,996,160 0.8
------------ ------------ -----
5,238,160 5,238,160 0.8
====================================================================================================================================
Foreign
Government
Obligations**
Mexican Cetes:
Mxp 6,736,070 20.101% due 12/17/1998 763,995 672,020 0.1
40,492,150 20.75% due 2/11/1999 4,228,955 3,902,282 0.6
RUB 130,313,057 Russian GKO, 34.507% due 4/15/1999 (a)(f) 16,933,703 12,445,920 1.9
TRI 186,000,000,000 Turkish Treasury Bills, 95.891% due 7/15/1998 (a) 8,129,646 6,942,589 1.1
------------ ------------ -----
30,056,299 23,962,811 3.7
-----------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 35,294,459 29,200,971 4.5
====================================================================================================================================
Total Investments $687,076,363 639,257,667 97.3
============
Short Sales (Proceeds--$3,361,524)*** (3,381,695) (0.5)
Other Assets Less Liabilities 21,386,236 3.2
------------ -----
Net Assets $657,262,208 100.0%
============ =====
====================================================================================================================================
</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 by the Fund.
** Commercial Paper and certain Foreign Government Obligations are traded on
a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Fund.
*** Covered Short Sales entered into as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Value
Shares Issue (Note 1i)
- --------------------------------------------------------------------------------
70,000 Apple Computer, Inc. $(2,012,500)
115,625 BankAtlantic Bancorp, Inc. (1,365,820)
4,500 Polyphase Corp. (3,375)
- --------------------------------------------------------------------------------
Total (Proceeds--$3,361,524) $(3,381,695)
===========
- --------------------------------------------------------------------------------
(a) Represents a pay-in-kind security which may pay interest/ dividends in
additional face/shares.
(b) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Non-income producing security.
(e) Restricted security as to resale. The value of the Fund's investments in
restricted securities was approximately $454,000, representing 0.1% of net
assets.
- --------------------------------------------------------------------------------
Acquisition Value
Issue Date(s) Cost (Note 1a)
- --------------------------------------------------------------------------------
Goldriver Hotel & Casino 5/01/1989-
Corp., Liquidating Trust 10/07/1993 $ 75,000 --
NAL Acceptance Corp.
(Warrants) 9/12/1996 -- $ 56
Polyphase Corp., 12%
due 7/01/1999 7/05/1994 600,000 453,750
- --------------------------------------------------------------------------------
Total $675,000 $453,806
======== ========
- --------------------------------------------------------------------------------
(f) Subject to principal paydowns.
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$687,076,363) (Note 1a) ................... $ 639,257,667
Foreign cash (Note 1d) ............................................................ 579
Deposit for securities sold short (Note 1i) ....................................... 3,361,525
Receivables:
Interest ........................................................................ $ 12,563,731
Securities sold ................................................................. 9,816,809
Capital shares sold ............................................................. 275,875
Dividends ....................................................................... 32,980 22,689,395
--------------
Prepaid registration fees and other assets (Note 1g) .............................. 121,679
-------------
Total assets ...................................................................... 665,430,845
-------------
====================================================================================================================================
Liabilities: Common stocks sold short, at market value (proceeds--$3,361,524) (Note 1i) ........ 3,381,695
Payables:
Capital shares redeemed ......................................................... 2,356,882
Dividends to shareholders (Note 1h) ............................................. 1,316,043
Investment adviser (Note 2) ..................................................... 338,191
Distributor (Note 2) ............................................................ 331,504
Dividends on short sales (Note 1i) .............................................. 3,052 4,345,672
--------------
Accrued expenses and other liabilities ............................................ 441,270
-------------
Total liabilities ................................................................. 8,168,637
-------------
====================================================================================================================================
Net Assets: Net assets ........................................................................ $ 657,262,208
=============
====================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. $ 1,622,804
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 6,057,686
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 117,282
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 165,204
Paid-in capital in excess of par .................................................. 730,341,340
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 5) ...................................................... (33,203,240)
Unrealized depreciation on investments and foreign currency transactions--net ..... (47,838,868)
-------------
Net assets ........................................................................ $ 657,262,208
=============
====================================================================================================================================
Net Asset Class A--Based on net assets of $134,014,417 and 16,228,036 shares outstanding .... $ 8.26
Value: =============
Class B--Based on net assets of $499,934,602 and 60,576,861 shares outstanding .... $ 8.25
=============
Class C--Based on net assets of $9,671,772 and 1,172,822 shares outstanding ....... $ 8.25
=============
Class D--Based on net assets of $13,641,417 and 1,652,040 shares outstanding ...... $ 8.26
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned (net of $171,077 foreign withholding tax) ............ $ 35,690,130
Income Dividends ......................................................................... 1,034,622
(Notes 1e & 1f): -------------
Total income ...................................................................... 36,724,752
-------------
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ................................................. $ 2,237,717
Account maintenance and distribution fees--Class B (Note 2) ....................... 2,142,718
Transfer agent fees--Class B (Note 2) ............................................. 364,886
Transfer agent fees--Class A (Note 2) ............................................. 80,295
Printing and shareholder reports .................................................. 69,843
Custodian fees .................................................................... 67,238
Professional fees ................................................................. 64,478
Accounting services (Note 2) ...................................................... 60,948
Account maintenance and distribution fees--Class C (Note 2) ....................... 42,724
Registration fees (Note 1g) ....................................................... 36,444
Directors' fees and expenses ...................................................... 23,363
Account maintenance fees--Class D (Note 2) ........................................ 18,287
Transfer agent fees--Class D (Note 2) ............................................. 7,871
Transfer agent fees--Class C (Note 2) ............................................. 6,901
Dividends on short sales (Note 1i) ................................................ 6,105
Pricing fees ...................................................................... 3,318
Other ............................................................................. 11,265
-------------
Total expenses .................................................................... 5,244,401
-------------
Investment income--net ............................................................ 31,480,351
-------------
====================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Investments--net ................................................................ 13,960,987
Gain Loss) on Foreign currency transactions--net .............................................. (679,241) 13,281,746
Investments -------------
& Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net ................................................................ (58,884,984)
Transactions-- Foreign currency transactions--net .............................................. (71,784) (58,956,768)
Net (Notes 1c, ------------- -------------
1d, 1f & 3): Net realized and unrealized loss on investments and foreign currency transactions . (45,675,022)
-------------
Net Decrease in Net Assets Resulting from Operations .............................. $ (14,194,671)
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1998 1997
====================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................... $ 31,480,351 $ 66,437,399
Realized gain (loss) on investments and foreign currency transactions--net 13,281,746 (6,800,453)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net ............................................. (58,956,768) (9,506,918)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations .......... (14,194,671) 50,130,028
--------------- ---------------
====================================================================================================================================
Dividends to Investment income--net:
Shareholders Class A ................................................................ (6,759,128) (12,612,653)
(Note 1h): Class B ................................................................ (23,636,097) (49,068,797)
Class C ................................................................ (439,875) (685,580)
Class D ................................................................ (645,251) (991,622)
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 ...... (31,480,351) (66,437,399)
--------------- ---------------
====================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions ....... (126,461,642) (379,207,926)
Transactions --------------- ---------------
(Note 4):
====================================================================================================================================
Net Assets: Total decrease in net assets ............................................. (172,136,664) (395,515,297)
Beginning of period ...................................................... 829,398,872 1,224,914,169
--------------- ---------------
End of period ............................................................ $ 657,262,208 $ 829,398,872
=============== ===============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
The following per share data and ratios -----------------------------------------------------------------------
have been derived from information For the Six
provided in the financial statements. Months Ended For the Year Ended December 31,
June 30, ------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994+
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 8.83 $ 8.94 $ 8.69 $ 8.20 $ 9.28
Operating -------- -------- -------- ---------- ----------
Performance: Investment income--net ................. .40 .64 .67 .72 .72
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... (.57) (.11) .25 .49 (1.09)
-------- -------- -------- ---------- ----------
Total from investment operations ....... (.17) .53 .92 1.21 (.37)
-------- -------- -------- ---------- ----------
Less dividends:
Investment income--net ............... (.40) (.61) (.67) (.56) (.45)
Return of capital--net ............... -- (.03) -- (.16) (.26)
-------- -------- -------- ---------- ----------
Total dividends ........................ (.40) (.64) (.67) (.72) (.71)
-------- -------- -------- ---------- ----------
Net asset value, end of period ......... $ 8.26 $ 8.83 $ 8.94 $ 8.69 $ 8.20
======== ======== ======== ========== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ..... (2.15%)++ 6.15% 11.09% 15.35% (4.05%)
Return:** ======== ======== ======== ========== ==========
====================================================================================================================================
Ratios to Average Expenses ............................... .80%* .76% .75% .80% .77%
Net Assets: ======== ======== ======== ========== ==========
Investment income--net ................. 9.06%* 7.21% 7.71% 8.54% 8.17%
======== ======== ======== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) $134,014 $161,347 $212,085 $ 260,806 $ 311,181
Data: ======== ======== ======== ========== ==========
Portfolio turnover ..................... 70.49% 217.60% 208.53% 116.00% 115.95%
======== ======== ======== ========== ==========
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B
The following per share data and ratios -----------------------------------------------------------------------
have been derived from information For the Six
provided in the financial statements. Months Ended For the Year Ended December 31,
June 30, ------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994+
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 8.83 $ 8.94 $ 8.69 $ 8.19 $ 9.28
Operating -------- -------- -------- ---------- ----------
Performance: Investment income--net ................. .36 .57 .61 .65 .65
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... (.58) (.11) .25 .50 (1.10)
-------- -------- -------- ---------- ----------
Total from investment operations ....... (.22) .46 .86 1.15 (.45)
-------- -------- -------- ---------- ----------
Less dividends:
Investment income--net ............... (.36) (.54) (.61) (.51) (.40)
Return of capital--net ............... -- (.03) -- (.14) (.24)
-------- -------- -------- ---------- ----------
Total dividends ........................ (.36) (.57) (.61) (.65) (.64)
-------- -------- -------- ---------- ----------
Net asset value, end of period ......... $ 8.25 $ 8.83 $ 8.94 $ 8.69 $ 8.19
======== ======== ======== ========== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ..... (2.64%)++ 5.34% 10.25% 14.61% (4.90%)
Return:** ======== ======== ======== ========== ==========
====================================================================================================================================
Ratios to Average Expenses ............................... 1.57%* 1.53% 1.52% 1.56% 1.54%
Net Assets: ======== ======== ======== ========== ==========
Investment income--net ................. 8.27%* 6.43% 6.94% 7.77% 7.41%
======== ======== ======== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) $499,935 $641,242 $988,209 $1,241,896 $1,490,507
Data: ======== ======== ======== ========== ==========
Portfolio turnover ..................... 70.49% 217.60% 208.53% 116.00% 115.95%
======== ======== ======== ========== ==========
====================================================================================================================================
</TABLE>
+ Based on average shares outstanding.
++ Aggregate total investment return.
* Annualized.
** Total investment returns exclude the effects of sales
loads.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------
For the For the
The following per share data and ratios Six Period
have been derived from information Months Oct. 21,
provided in the financial statements. Ended For the Year Ended December 31, 1994+ to
June 30, ------------------------------------ Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 8.82 $ 8.93 $ 8.68 $ 8.19 $ 8.42
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................. .36 .56 .60 .64 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... (.57) (.11) .25 .49 (.20)
--------- --------- --------- --------- ---------
Total from investment operations ....... (.21) .45 .85 1.13 (.10)
--------- --------- --------- --------- ---------
Less dividends:
Investment income--net ............... (.36) (.53) (.60) (.50) (.08)
Return of capital--net ............... -- (.03) -- (.14) (.05)
--------- --------- --------- --------- ---------
Total dividends ........................ (.36) (.56) (.60) (.64) (.13)
--------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 8.25 $ 8.82 $ 8.93 $ 8.68 $ 8.19
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Based on net asset value per share ..... (2.55%)++ 5.28% 10.19% 14.38% (1.20%)++
Return:** ========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Expenses ............................... 1.62%* 1.58% 1.56% 1.65% 1.64%*
Net Assets: ========= ========= ========= ========= =========
Investment income--net ................. 8.24%* 6.41% 6.85% 7.65% 8.00%*
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Net assets, end of period (in thousands) $ 9,672 $ 11,738 $ 10,251 $ 5,406 $ 1,204
Data: ========= ========= ========= ========= =========
Portfolio turnover ..................... 70.49% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= ========= =========
==================================================================================================================================
<CAPTION>
Class D
---------------------------------------------------------------------
For the For the
Six Period
Months Oct. 21,
Ended For the Year Ended December 31, 1994+ to
June 30, ------------------------------------ Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 8.83 $ 8.94 $ 8.69 $ 8.20 $ 8.43
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ................. .38 .61 .65 .70 .11
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... (.57) (.11) .25 .49 (.20)
--------- --------- --------- --------- ---------
Total from investment operations ....... (.19) .50 .90 1.19 (.09)
--------- --------- --------- --------- ---------
Less dividends:
Investment income--net ............... (.38) (.58) (.65) (.55) (.09)
Return of capital .................... -- (.03) -- (.15) (.05)
--------- --------- --------- --------- ---------
Total dividends ........................ (.38) (.61) (.65) (.70) (.14)
--------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 8.26 $ 8.83 $ 8.94 $ 8.69 $ 8.20
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Based on net asset value per share ..... (2.27%)++ 5.88% 10.82% 15.06% (1.09%)++
Return:** ========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Expenses ............................... 1.05%* 1.01% .99% 1.04% 1.04%*
Net Assets: ========= ========= ========= ========= =========
Investment income--net ................. 8.82%* 6.97% 7.42% 8.23% 8.60%*
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Net assets, end of period (in thousands) $ 13,641 $ 15,072 $ 14,369 $ 6,320 $ 1,410
Data: ========= ========= ========= ========= =========
Portfolio turnover ..................... 70.49% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= ========= =========
==================================================================================================================================
</TABLE>
+ Commencement of operations.
++ Based on average shares outstanding.
++ Aggregate total investment return.
* Annualized.
** Total investment returns exclude the effects of sales
loads.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. These unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the Merrill Lynch
Select Pricing(SM) System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
18 & 19
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
(b) Repurchase agreements--The Fund invests in securities pursuant to repurchase
agreements. Under such agreements, the counterparty 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 financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
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.
(i) Short sales--When the Fund engages in a short sale, an amount equal to the
proceeds received by the Fund is reflected as an asset and equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Fund maintains a segregated account of
securities as collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock exceeds the
proceeds received.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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 subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the six months ended June 30, 1998, 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 ................................... $ 995 $ 9,285
Class D ................................... $1,013 $10,484
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, MLPF&S received contingent deferred
sales charges of $214,590 and $1,081 relating to transactions in Class B and
Class C Shares, respectively.
During the six months ended June 30, 1998, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of
20 & 21
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
MLPF&S, $1,584 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
PFD, FAM, PSI, MLFDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1998 were $486,029,840 and $562,119,196, respectively.
Net realized gains (losses) for the six months June 30, 1998 and unrealized
losses as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Investments:
Long-term ............................... $ 15,638,705 $(47,818,696)
Short-term .............................. (26,605) --
Short sales ............................. (676,032) (20,171)
Options purchased ....................... (84,375) --
Options written ......................... 140,125 --
Financial futures contracts ............. (1,030,831) --
------------ ------------
Total investments ......................... $ 13,960,987 $(47,838,867)
------------ ------------
Currency transactions:
Options purchased ....................... 15,537 --
Options written ......................... 126,539 --
Foreign currency transactions ........... (1,207,945) (1)
Forward foreign
exchange contracts ...................... 386,628 --
------------ ------------
Total currency transactions ............... (679,241) (1)
------------ ------------
Total ..................................... $ 13,281,746 $(47,838,868)
============ ============
- --------------------------------------------------------------------------------
Transactions in call options written for the six months ended June 30, 1998 were
as follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ....................... 28,000,000 $ 136,920
Options written ........................... 40,900,000 147,565
Options closed
Options exercised ......................... (3,000,000) (3,300)
Options expired ........................... (65,900,000) (281,185)
------------ ------------
Outstanding call options written,
end of period ............................. -- $ --
============ ============
- --------------------------------------------------------------------------------
Transactions in put options written for the six months ended June 30, 1998 were
as follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ....................... -- $ --
Options written ........................... 63,000,000 58,620
Options exercised ......................... (12,000,000) (12,000)
Options expired ........................... (51,000,000) (46,620)
------------ ------------
Outstanding put options written,
end of period ............................. -- $ --
============ ============
- --------------------------------------------------------------------------------
As of June 30, 1998, net unrealized depreciation for Federal income tax purposes
aggregated $47,818,696, of which $16,514,629 related to appreciated securities
and $64,333,325 related to depreciated securities. The aggregate cost of
investments at June 30, 1998 for Federal income tax purposes was $687,076,363.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$126,461,642 and $379,207,926 for the six months ended June 30, 1998 and for the
year ended December 31, 1997, respectively.
Transactions in shares of capital for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................... 338,745 $ 2,986,731
Shares issued to shareholders
in reinvestment of dividends .............. 307,337 2,699,763
------------ ------------
Total issued .............................. 646,082 5,686,494
Shares redeemed ........................... (2,684,925) (23,692,069)
------------ ------------
Net decrease .............................. (2,038,843) $(18,005,575)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 1,448,295 $ 12,747,914
Shares issued to shareholders
in reinvestment of dividends .............. 1,347,229 11,834,172
------------ ------------
Total issued .............................. 2,795,524 24,582,086
Automatic conversion of shares ............ (90,918) (789,003)
Shares redeemed ........................... (14,772,299) (130,354,098)
------------ ------------
Net decrease .............................. (12,067,693) $(106,561,015)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 C Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 174,832 $ 1,541,443
Shares issued to shareholders
in reinvestment of dividends .............. 33,687 295,472
------------ ------------
Total issued .............................. 208,519 1,836,915
Shares redeemed ........................... (366,460) (3,232,966)
------------ ------------
Net decrease .............................. (157,941) $ (1,396,051)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 D Shares for the Six Months Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................... 1,157,407 $ 10,174,249
Automatic conversion of shares ............ 90,862 789,003
Shares issued to shareholders
in reinvestment of dividends .............. 45,358 398,396
------------ ------------
Total issued .............................. 1,293,627 11,361,648
Shares redeemed ........................... (1,347,999) (11,860,649)
------------ ------------
Net decrease .............................. (54,372) $ (499,001)
============ ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
============ ============
- --------------------------------------------------------------------------------
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.
22 & 23
<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--6/98
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