MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Quarterly Report
September 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
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
DEAR SHAREHOLDER
The quarter ended September 30, 1998 was dominated by global illiquidity and
falling stock and bond markets throughout the world. The collapse of the Russian
debt market in mid-August was the spark that ignited the fire, creating a rush
to quality. US Treasury bond prices rose and US corporate bonds declined,
particularly in the lower-quality end of the market. The Russian debt collapse
renewed concerns about the stability of emerging markets. Brazil was of
particular concern to investors because of its budget and trade deficits and the
perceived vulnerability of its currency. Since Brazil is the dominant economic
power in Latin America, its weakness shook confidence in the entire region. The
precipitous fall in market prices altered investor sentiment and risk tolerance.
Mutual funds that invest in lower-quality securities experienced heavy
redemptions and were forced to sell securities to meet redemp-tions. Hedge funds
were particularly disruptive as bank margin calls forced these leveraged
investment vehicles to sell large blocks of high-yield and emerging market
securities at distressed levels.
In this environment, we reduced our exposure to the most volatile markets until
some measure of stability returns. The portfolio's sector allocation at
September 30, 1998 and the previous quarter are compared below:
- --------------------------------------------------------------------------------
9/30/98 6/30/98
- --------------------------------------------------------------------------------
Emerging Markets
Securities 27.4% 42.8%
High-Yield Bonds 48.1% 39.7%
Convertible Securities 8.3% 10.3%
Short-Term Securities 13.5% 4.5%
----- -----
Total 97.3% 97.3%
===== =====
- --------------------------------------------------------------------------------
At September quarter-end, the Fund's largest components, US high-yield bonds and
emerging markets bonds, were trading at extraordinarily distressed levels. While
fundamentals deteriorated during the September quarter, we believe a major
reason for market weakness was illiquidity resulting from forced selling by
hedge funds and mutual funds. The Federal Reserve Board and other central banks
have begun to lower short-term interest rates in response to weakening economies
and illiquid markets. A rescue package to support Brazil is taking shape, which
should give the country time to put itself in order. For these reasons, we
anticipate improved market conditions in the months ahead.
Investment Overview
Emerging Markets Sector
During the three-month period ended September 30, 1998, the significant
dislocations in the global economic environment and in capital markets dynamics
were precipitated by the deepening of Japan's economic problems, the sharp
correction in the US equity markets, and the Russian local debt default and
devaluation. These events were magnified in emerging market economies, given
their larger dependency on financing from external markets and the higher
fundamental vulnerability of their economies.
Russia and Brazil remained the focus of emerging markets, given their
vulnerabilities and importance. In Russia, the International Monetary Fund (IMF)
package that we expected materialized. However, investors' optimism proved to be
short-lived as the Russian government failed in its legislative efforts to
implement the agreed-upon fiscal reforms. Investor confidence was quickly lost,
impeding rollover of domestic debt and accelerating capital outflows. With no
further Group of Seven Industrialized Nations (G-7) and multilateral assistance,
Russia devalued its currency on August 17, 1998. Authorities also decreed the
cessation of interest and amortization payments on its local ruble debt, and
announced their intention to restructure it into longer-term obligations. The
terms of that restructuring have yet to be made public. In Russia, these events
brought the downfall of the incumbent Prime Minister and his cabinet and opened
a new set of uncertainties in that country as to the general direction of its
macroeconomic policy and its ability and willingness to service its external
debt.
In Brazil, after the close of the reporting period, President Cardoso was
reelected. Bond investors remain focused on the newly announced fiscal austerity
and economic reform package and massive IMF-led financial rescue package and
their effectiveness in avoiding a currency crisis and in reducing crippling
levels of domestic interest rates, which threaten to unleash a sharp economic
contraction.
Venezuela successfully avoided pressures on its currency and managed to preserve
foreign exchange levels, at the cost of higher local interest rates. Public
discontent with traditional politics fueled the presidential candidacy of Mr.
Chavez, whose non-traditional, interventionist policies are seen as detrimental
to free markets.
Bond prices in Argentina and Mexico were also affected by the global turmoil,
although their economies have remained on solid footing. Argentina maintained an
austere fiscal policy and its fixed exchange rate and aggressively pursued
external financing while avoiding reserve losses and turmoil in its banking
system. Mexico repeatedly pared its government budget to reflect lower oil
revenues and absorbed the impact of the crisis through higher interest rates and
a flexible exchange rate.
Given the increased risks in emerging market economies and the ongoing
deleveraging process, the flight to quality by investors worldwide is of great
concern. These factors--along with the forecast reduction in economic
growth--will result in lower private capital flows into emerging economies,
which will be only partially replaced by inflows from official sources. While
most emerging countries appear committed to defend their economic progress
through free-market economic policies, the danger of additional systemic risks
and their heavy dependence on international capital markets warrant our
continuous close vigilance of short-term risks to these economies, while
balancing the potentially large longer-term returns implied by these depressed
asset prices.
US High-Yield Sector
A global revaluation of asset values occurred during the three months ended
September 30, 1998, and the high-yield market did not escape the downdraft.
Specifically, the unmanaged CS First Boston High Yield Index registered a total
return of -6.15% for the September quarter. August was a particularly difficult
month. As a result, the Index had a total return of -6.79%, the worst
performance since the recession month of September 1990, when the Index had a
total return of -7.62%. A flight to quality by investors has driven Government
bond yields to the lowest levels seen in more than a generation. This movement
in Treasury yields, combined with August/September high-yield selloff, resulted
in a dramatic widening of yield spreads in the high-yield market. Yield spreads
widened from 3.875% at June 30, 1998 to almost 7% as of September 30, 1998. This
flight to quality was also evident within the high-yield market as BB-rated
securities had a total return of -1.05% as compared to -6.13% for B-rated
securities, as measured by CS First Boston.
Certain industry sectors were particularly weak because of
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
deteriorating fundamentals. For example, the structure of product prices in the
steel and paper industries softened during the September quarter largely as the
result of lower priced imports. The supply of certain chemical products has been
excessive and several high-yield issuers in this industry are fairing poorly.
Oil prices have been soft all year, impacting the credit quality of this sector.
These trends seem unlikely to change course anytime soon, as slowing economic
growth will be dampening demand for these products. Away from these pockets of
weakness, overall credit quality is holding up well. We believe that current
prices overdiscount credit risk. Therefore, valuations are compelling, in our
opinion.
Convertible Securities Sector
The quarter ended September 30, 1998 was one of the most difficult quarters for
the convertible market in the past decade. Two major systemic factors
contributed to this weakness. The first was a bear market in secondary stocks.
For example, the unmanaged Russell 2000 Equity Index declined over 20% during
the quarter. The majority of convertible issuers underlying common stocks are
secondary stocks. As we mentioned in our June quarterly report, the stock
market's breadth statistics (advance/decline lines and new high/new low
indicators) have been weak and presaged the recent decline in stock prices. The
second factor was a dramatic widening of credit quality spreads during the
three-month period. According to Bloomberg L.P., the yield spread between
ten-year industrial corporate bonds rated B3 and similar maturity US Government
Treasury notes increased from 344 basis points (3.44%) to 603 basis points
during the September quarter. This was one of the most rapid deteriorations in
credit quality spreads on record. This also negatively impacted convertible
securities prices by lowering the investment values sometimes referred to as the
"bond floors."
The valuation of the stock market remains high, notwithstanding recent price
declines resulting from a concomitant decrease in corporate earnings. We would
like to see some improvement in the breadth statistics and valuations on common
stocks. Therefore, we remain cautious about the equity market and are
concentrating our holdings in less equity-sensitive convertibles.
We made some substantial transactions in the portfolio since our June quarterly
report to shareholders. We initiated positions in pharmaceutical companies
Genzyme Corp., a developer of therapeutic and surgical products, and Glaxo
Welcome PLC (via convertible debentures). Glaxo Welcome is a leading
international pharmaceutical company with operations in 57 countries. We added
the convertible preferred shares of Fleetwood Enterprises Inc., a producer of
manufactured housing, and shares of two world class energy companies, Unocal
Inc. and the Dow Jones Industrial Average component Chevron Corp. (through a
convertible debenture). We also added convertible debentures of HealthSouth
Corp., an operator of 1,850 rehabilitation hospitals. We increased our
convertible bond holdings of semiconductor products maker Integrated Device
Technology, Inc. We eliminated the debentures of Coeur D'Alene Mines Corporation
along with the convertible preferred shares of Western Gas Inc. We sold our
common stock holdings of Engle Homes, Inc., which we received upon conversion of
our debentures because it had reached our price objective. Other notable
transactions included our swapping out of convertible debentures issued by Loews
Corp. in favor of those issued by Diamond Offshore Drilling. Although both
issues are convertible into Diamond Offshore Drilling common stock, the Diamond
Offshore Drilling issue exhibits better appreciation potential, in our opinion.
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
November 18, 1998
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 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.
Recent Performance Results*
<TABLE>
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 9/30/98
=======================================================================================================================
<S> <C> <C> <C> <C>
ML World Income Fund, Inc. Class A Shares -25.15% -24.03% +81.25% 10.71%
- -----------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class B Shares -25.77 -24.22 +13.25 10.37
- -----------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class C Shares -25.73 -24.23 - 3.21 10.31
- -----------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class D Shares -25.34 -24.08 - 0.92 10.46
=======================================================================================================================
</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 ten-year/inception periods are:
Class A Shares, for the ten years ended 9/30/98; Class B Shares, from
11/18/91 to 9/30/98; and Class C & Class D Shares, from 10/21/94 to
9/30/98.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class A Shares+*
==============================================================================
Year Ended 9/30/98 ` -25.15% -28.14%
- ------------------------------------------------------------------------------
Five Years Ended 9/30/98 + 0.05 - 0.77
- ------------------------------------------------------------------------------
Ten Years Ended 9/30/98 + 6.13 + 5.70
- ------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
=============================================================================
Class B Shares*
=============================================================================
Year Ended 9/30/98 -25.77% -28.43%
- -----------------------------------------------------------------------------
Five Years Ended 9/30/98 - 0.73 - 0.73
- -----------------------------------------------------------------------------
Inception (11/18/91) through 9/30/98 + 1.83 + 1.83
- -----------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
=============================================================================
% Return % Return
Without CDSC With CDSC**
=============================================================================
Class C Shares*
=============================================================================
Year Ended 9/30/98 -25.73% -26.39%
- -----------------------------------------------------------------------------
Inception (10/21/94) through 9/30/98 - 0.82 - 0.82
- -----------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
==============================================================================
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class D Shares*
==============================================================================
Year Ended 9/30/98 -25.34% -28.33%
- ------------------------------------------------------------------------------
Inception (10/21/94) through 9/30/98 - 0.23 - 1.26
- ------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent of
LATIN AMERICA Industries Face Amount Fixed-Income Investments Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Argentina Foreign US$ 500,000 Republic of Argentina, Global Bonds, 9.75%
Government due 9/19/2027 $ 392,500 $ 407,500 0.1%
Obligations
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 392,500 407,500 0.1
====================================================================================================================================
Brazil Foreign 8,956,821 Republic of Brazil, Floating Rate 'C' Brady
Government Bonds, 8% due 4/15/2014+ 5,472,549 5,329,309 1.3
Obligations 28,000,000 Republic of Brazil, Global Bonds, 10.125%
due 5/15/2027 22,842,500 17,570,000 4.2
----------- ----------- ----
28,315,049 22,899,309 5.5
-------------------------------------------------------------------------------------------------------------------
Industrial--Other 2,000,000 MRS Logistica S.A., 10.625% due 8/15/2005 1,955,000 840,000 0.2
-------------------------------------------------------------------------------------------------------------------
Steel 2,000,000 CSN Iron S.A., 9.125% due 6/01/2007 1,805,000 1,120,000 0.3
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 32,075,049 24,859,309 6.0
====================================================================================================================================
Colombia Energy 4,531,250 Oleoducts Central S.A., 9.35% due 9/01/2005 4,531,250 3,557,031 0.8
-------------------------------------------------------------------------------------------------------------------
Utilities 9,864,000 Transgas de Occidente S.A., 9.79%
due 11/01/2010 9,999,630 7,093,518 1.7
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 14,530,880 10,650,549 2.5
====================================================================================================================================
Ecuador Foreign 15,843,240 Republic of Ecuador, Floating Rate Global
Government Bearer Brady Bonds, PDI, 6.625% due 2/27/2015+ 8,980,206 5,228,269 1.2
Obligations 11,000,000 Republic of Ecuador, Global Brady Bonds, Par,
3.50% due 2/28/2025+ 6,276,384 4,510,000 1.1
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Ecuador 15,256,590 9,738,269 2.3
====================================================================================================================================
Mexico Foreign 4,000,000 United Mexican States, Global Bonds, 11.50%
Government due 5/15/2026 3,400,000 3,930,000 0.9
Obligations
-------------------------------------------------------------------------------------------------------------------
Utilities--Electric 2,000,000 Espirito Santo Centrais S.A., 10%
due 7/15/2007 1,920,000 1,120,000 0.3
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 5,320,000 5,050,000 1.2
====================================================================================================================================
Peru Foreign 4,000,000 Republic of Peru, Front-Loaded Interest
Government Reduction Bonds, 3.25% due 3/07/2017+ 2,479,855 1,840,000 0.4
Obligations
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 2,479,855 1,840,000 0.4
====================================================================================================================================
Venezuela Foreign 49,000,000 Republic of Venezuela, 9.25% due 9/15/2027 42,527,500 27,195,000 6.4
Government
Obligations
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 42,527,500 27,195,000 6.4
====================================================================================================================================
Total Investments in Latin American Securities 112,582,374 79,740,627 18.9
====================================================================================================================================
NORTH AMERICA
====================================================================================================================================
Canada Paper 10,000,000 Doman Industries Ltd., 8.75% due 3/15/2004 9,300,000 7,200,000 1.7
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 9,300,000 7,200,000 1.7
====================================================================================================================================
United States Airlines 10,000,000 US Airways Group Inc., 10.375% due 3/01/2013 10,000,000 10,989,900 2.6
-------------------------------------------------------------------------------------------------------------------
Cable TV 10,000,000 Century Communications Corp., 9.50%
due 3/01/2005 9,797,500 10,875,000 2.6
10,000,000 Lenfest Communications, Inc., 10.50%
due 6/15/2006 9,922,100 11,400,000 2.7
----------- ----------- ----
19,719,600 22,275,000 5.3
-------------------------------------------------------------------------------------------------------------------
Chemicals 10,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 10,340,000 10,650,200 2.5
-------------------------------------------------------------------------------------------------------------------
Computer 10,000,000 Hadco Corporation, 9.50% due 6/15/2008 9,966,000 8,800,000 2.1
Services--Electronics
-------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50%
due 3/15/2012 9,941,400 7,400,000 1.8
15,670,000 TransAmerican Energy Corp., Series B, 13.149%*
due 6/15/2002 14,248,313 7,521,600 1.8
----------- ----------- ----
24,189,713 14,921,600 3.6
-------------------------------------------------------------------------------------------------------------------
Financial Services 10,000,000 PennCorp Financial Group Inc., 9.25%
due 12/15/2003 10,000,000 6,100,000 1.4
-------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 Greate Bay Properties, Inc., 10.875%
due 1/15/2004 9,996,250 8,150,000 1.9
7,500,000 Harrah's Jazz Co., 14.25% due 11/15/2001 5,178,125 1,462,500 0.3
10,000,000 Trump Atlantic City Associates, 11.25%
due 5/01/2006 9,943,750 8,250,000 2.0
----------- ----------- ----
25,118,125 17,862,500 4.2
-------------------------------------------------------------------------------------------------------------------
Health Care Columbia/HCA Healthcare Corp.:
5,000,000 7.25% due 5/20/2008 4,696,650 4,876,150 1.2
5,000,000 8.70% due 2/10/2010 5,106,750 5,271,000 1.2
10,000,000 Tenet Healthcare Corporation, 8.125%
due 12/01/2008 9,961,200 10,125,000 2.4
----------- ----------- ----
19,764,600 20,272,150 4.8
-------------------------------------------------------------------------------------------------------------------
Hotels 5,000,000 HMH Properties Inc., 7.875% due 8/01/2008 4,967,600 4,925,000 1.2
-------------------------------------------------------------------------------------------------------------------
Paper 10,000,000 Container Corp. of America, 9.75%
due 4/01/2003 10,200,000 9,900,000 2.3
-------------------------------------------------------------------------------------------------------------------
Printing & Publishing 5,000,000 PRIMEDIA Inc., 7.625% due 4/01/2008 4,971,250 4,850,000 1.2
-------------------------------------------------------------------------------------------------------------------
Semiconductors 10,000,000 Advanced Micro Devices, Inc., 11%
due 8/01/2003 11,025,000 10,100,000 2.4
-------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50%
due 8/01/2003 5,098,125 4,600,000 1.1
-------------------------------------------------------------------------------------------------------------------
Utilities 10,000,000 Tucson Electric & Power Co., 10.732%
due 1/01/2013 9,607,625 11,959,900 2.8
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United States 174,967,638 158,206,250 37.5
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Percent of
(continued) Industries Face Amount Convertible Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Aerospace & Defense US$ 1,000,000 Kellstrom Industries, Inc., 5.50%
due 6/15/2003 $ 1,000,000 $ 771,250 0.2%
-------------------------------------------------------------------------------------------------------------------
Assisted Living Assisted Living Concepts, Inc.:
700,000 6% due 11/01/2002 700,000 608,125 0.1
1,300,000 5.625% due 5/01/2003 1,300,000 1,049,750 0.2
------------ ----------- ----
2,000,000 1,657,875 0.3
-------------------------------------------------------------------------------------------------------------------
Banking 750,000 BankAtlantic Bancorp, Inc., 5.625% due 12/01/2007 750,000 678,750 0.2
-------------------------------------------------------------------------------------------------------------------
Boat Construction 1,000,000 Halter Marine Group, Inc., 4.50% due 9/15/2004 895,710 710,000 0.2
-------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corp., 12% due 7/01/1999*** 600,000 192,000 0.0
400,000 Thermo Electron Corp., 4.25% due 1/01/2003 400,000 341,500 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 1,000,000 877,500 0.2
2,000,000 Thermo Instrument Systems, Inc., 4%
due 1/15/2005 1,995,000 1,592,500 0.4
------------ ----------- ----
3,995,000 3,003,500 0.7
-------------------------------------------------------------------------------------------------------------------
Energy 1,000,000 Pennzoil Co., 4.95% due 8/15/2003
(Convertible in Chevron Corp.) 1,013,750 1,011,250 0.2
-------------------------------------------------------------------------------------------------------------------
Environmental 725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 734,063 0.2
1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 1,114,735 918,166 0.2
1,500,000 US Filter Corp., 4.50% due 12/15/2001 1,580,250 1,428,750 0.3
------------ ----------- ----
3,419,079 3,080,979 0.7
-------------------------------------------------------------------------------------------------------------------
Health Care 500,000 HealthSouth Corp., 3.25% due 4/01/2003 499,375 430,000 0.1
1,500,000 Integrated Health Services Inc., 5.75%
due 1/01/2001 1,493,750 1,320,000 0.3
------------ ----------- ----
1,993,125 1,750,000 0.4
-------------------------------------------------------------------------------------------------------------------
Industrial 900,000 Genzyme General Division, 5.25% due 6/01/2005 850,000 969,750 0.2
-------------------------------------------------------------------------------------------------------------------
Manufacturing 1,000,000 Mark IV Industries, Inc., 4.75% due 11/01/2004 923,750 830,000 0.2
2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,665,000 0.4
------------ ----------- ----
2,766,250 2,495,000 0.6
-------------------------------------------------------------------------------------------------------------------
Medical Laser 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 1,960,625 1,625,000 0.4
Systems
-------------------------------------------------------------------------------------------------------------------
Oil & Gas Lomak Petroleum, Inc.:
500,000 6% due 2/01/2007 486,875 325,000 0.1
1,000,000 6% due 2/01/2007 972,500 713,750 0.2
------------ ----------- ----
1,459,375 1,038,750 0.3
-------------------------------------------------------------------------------------------------------------------
Oil Drilling 1,000,000 Loews Corp., 3.75% due 2/15/2007 (Convertible
in Diamond Offshore Drilling, Inc.) 934,313 930,000 0.2
1,000,000 Parker Drilling Company, 5.50% due 8/01/2004 1,010,000 745,000 0.2
------------ ----------- ----
1,944,313 1,675,000 0.4
-------------------------------------------------------------------------------------------------------------------
Oil Services 1,100,000 Key Energy Group, Inc., 5% due 9/15/2004 902,455 679,250 0.2
-------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,585,000 Thermo Optik Corp., 5% due 10/15/2000 1,588,950 1,474,050 0.4
-------------------------------------------------------------------------------------------------------------------
Semiconductors 2,000,000 Integrated Device Technology, Inc., 5.50%
due 6/01/2002 1,642,500 1,520,000 0.4
-------------------------------------------------------------------------------------------------------------------
Technology 1,250,000 Broadband Technologies, Inc., 5% due 5/15/2001 1,246,250 715,625 0.2
Data General Corporation:
250,000 6% due 5/15/2004 246,875 197,813 0.0
750,000 6% due 5/15/2004 750,000 595,313 0.1
------------ ----------- ----
2,243,125 1,508,751 0.3
-------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 30,424,257 25,649,155 6.1
====================================================================================================================================
Convertible Preferred Stocks, Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
United States Airlines 5,000 Continental Air Finance Trust, Conv. Pfd.*** 388,165 393,750 0.1
-------------------------------------------------------------------------------------------------------------------
Broadcasting/Cable 137,257 On Command Corporation 4,061,096 1,115,213 0.3
43,675 On Command Corporation (Warrants) (b) 349,400 92,809 0.0
------------ ----------- ----
4,410,496 1,208,022 0.3
-------------------------------------------------------------------------------------------------------------------
Conglomerates 105,000 Polyphase Corp.*** 158,550 29,400 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 13,125 1,050 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 26,250 6,825 0.0
------------ ----------- ----
197,925 37,275 0.0
-------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens Illinois, Inc., Conv. Pfd. 500,000 357,500 0.1
-------------------------------------------------------------------------------------------------------------------
Energy 7,000 Unocal Capital Trust, Conv. Pfd. 378,000 364,875 0.1
-------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Finance Corp.,
Liquidating Trust 75,000 0 0.0
-------------------------------------------------------------------------------------------------------------------
Manufactured Housing 10,000 Fleetwood Enterprises, Inc., Conv. Pfd. 540,000 440,000 0.1
-------------------------------------------------------------------------------------------------------------------
Oil & Gas 10,000 Lomak Petroleum, Inc., Conv. Pfd. 500,000 275,000 0.1
-------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 727 Crescendo Pharmaceuticals Corporation 8,360 9,360 0.0
-------------------------------------------------------------------------------------------------------------------
Power Generation 10,000 Calenergy Capital Trust II, Conv. Pfd. 500,000 415,000 0.1
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 402,500 0.1
------------ ----------- ----
1,000,000 817,500 0.2
-------------------------------------------------------------------------------------------------------------------
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Convertible Preferred Stocks, Preferred Stocks, Percent of
(concluded) Industries Shares Held Common Stocks & Warrants Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Printing & Publishing 50,000 PRIMEDIA Inc., Pfd. $ 4,970,000 $ 4,550,000 1.1%
(concluded) -------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 524,375 0.1
-------------------------------------------------------------------------------------------------------------------
Retail 20,500 Kmart Corporation, Conv. Pfd. 1,067,230 1,025,000 0.2
-------------------------------------------------------------------------------------------------------------------
Special Services 10,000 Union Pacific Capital Trust, Conv. Pfd. 460,625 452,500 0.1
-------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd.
(Convertible in Rouge Industries, Inc.) 850,000 375,000 0.1
-------------------------------------------------------------------------------------------------------------------
Utilities 9,761 Citizens Utilities Company (Class B) 96,483 79,305 0.0
50,200 Citizens Utilities Company, Conv. Pfd. (Class A) 2,149,062 2,158,600 0.5
------------ ----------- ----
2,245,545 2,237,905 0.5
-------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks & Warrants
in the United States 18,113,721 13,068,062 3.1
====================================================================================================================================
Total Investments in North American Securities 232,805,616 204,123,467 48.4
====================================================================================================================================
PACIFIC
BASIN Face Amount Fixed-Income Investments
====================================================================================================================================
China Transportation US$ 8,000,000 Cathay International Ltd., 13% due 4/15/2008 8,000,000 4,640,000 1.1
10,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 9,262,500 4,100,000 0.9
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 17,262,500 8,740,000 2.0
====================================================================================================================================
Indonesia Paper 5,000,000 P.T. Indah Kiat International Finance, 12.50%
due 6/15/2006 5,025,000 2,500,000 0.6
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 5,025,000 2,500,000 0.6
====================================================================================================================================
Philippines Banking 4,000,000 Bangko Sentral NG Philipinas, 8.60%
due 6/15/2027 3,519,320 2,650,000 0.6
-------------------------------------------------------------------------------------------------------------------
Telecommunications 5,000,000 Philippine Long Distance Telephone Co., 8.35%
due 3/06/2017 4,981,200 3,232,910 0.8
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
Philippines 8,500,520 5,882,910 1.4
====================================================================================================================================
South Korea Banking 5,000,000 Korea Development Bank, 11.50% due 3/05/1999 5,000,000 4,882,500 1.2
-------------------------------------------------------------------------------------------------------------------
Foreign 10,000,000 Republic of Korea, Global Bonds, 8.875%
Government due 4/15/2008 9,625,000 8,590,770 2.0
Obligations
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in South Korea 14,625,000 13,473,270 3.2
====================================================================================================================================
Total Investments in Pacific Basin Securities 45,413,020 30,596,180 7.2
====================================================================================================================================
EUROPE
====================================================================================================================================
Luxembourg Telecommunications 10,000,000 Millicom International Cellular S.A., 11.834%*
due 6/01/2006 7,602,000 6,350,000 1.5
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Luxembourg 7,602,000 6,350,000 1.5
====================================================================================================================================
Russia Financial Services 2,500,000 Unexim International Finance B.V., 9.875%
due 8/01/2000 (d) 2,514,750 150,000 0.0
-------------------------------------------------------------------------------------------------------------------
Foreign 1,833,285 VnesheconomBank-Government National Bank,
Government Floating Rate, Interest Accrual Note,
Obligations 6.625% due 12/15/2015 (a)(d) 1,290,174 155,829 0.1
89,700,000 VnesheconomBank-Government National Bank,
Floating Rate, Principal Loan, 6.625%
due 12/15/2020 (a)(d) 54,000,836 5,049,432 1.2
------------ ----------- ----
55,291,010 5,205,261 1.3
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 57,805,760 5,355,261 1.3
====================================================================================================================================
United Kingdom Communications 20,000,000 TeleWest Communications PLC, 11.41%*
due 10/01/2007 16,139,687 16,500,000 3.9
-------------------------------------------------------------------------------------------------------------------
Telecommunications 10,000,000 NTL Incorporated, 10% due 2/15/2007 9,880,000 10,100,000 2.4
-------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United Kingdom 26,019,687 26,600,000 6.3
====================================================================================================================================
Convertible Bonds
====================================================================================================================================
Ireland Dental Equipment & 500,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 196,779 5,000 0.0
Supplies
-------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 196,779 5,000 0.0
====================================================================================================================================
Switzerland Pharmaceuticals 1,000,000 Swiss Life Finance Ltd., 2% due 5/20/2003
(Convertible in Glaxo Wellcome PLC) 1,063,750 1,070,000 0.2
-------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Switzerland 1,063,750 1,070,000 0.2
====================================================================================================================================
Total Investments in European Securities 92,687,976 39,380,261 9.3
====================================================================================================================================
SHORT-TERM
SECURITIES Issue
====================================================================================================================================
Commercial Paper** 9,998,000 Concord Minutemen Capital Corp., 5.55%
due 10/08/1998 9,987,210 9,987,210 2.4
16,544,000 General Motors Acceptance Corp., 5.88%
due 10/01/1998 16,544,000 16,544,000 3.9
10,000,000 Lexington Parker Capital Company LLC, 5.60%
due 10/07/1998 9,990,667 9,990,667 2.4
10,000,000 Three Rivers Funding Corp., 5.57%
due 10/19/1998 9,972,150 9,972,150 2.4
5,000,000 Variable Funding Capital Corp., 5.55%
due 10/08/1998 4,994,604 4,994,604 1.2
------------ ----------- ----
51,488,631 51,488,631 12.3
-------------------------------------------------------------------------------------------------------------------
</TABLE>
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., September 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
SHORT-TERM
SECURITIES Percent of
(concluded) Face Amount Issue Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Foreign Mexican Cetes:
Government Mxp 6,736,070 20.16% due 12/17/1998 $ 794,813 $ 613,657 0.1%
Obligations** 40,492,150 20.75% due 2/11/1999 4,421,922 3,503,840 0.8
RUB 130,313,057 Russian GKO, 34.41% due 4/15/1999 (c)(e) 17,806,157 1,024,474 0.2
------------ ----------- ------
23,022,892 5,141,971 1.1
-------------------------------------------------------------------------------------------------------------------
US Government US$ 380,000 US Treasury Bills, 4.53% due 12/24/1998 375,983 376,276 0.1
Obligations**
-------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 74,887,506 57,006,878 13.5
====================================================================================================================================
Total Investments $558,376,492 410,847,413 97.3
============
Short Sales (Proceeds--$399,456)*** (390,794) (0.1)
Other Assets Less Liabilities 11,652,169 2.8
------------ ------
Net Assets $422,108,788 100.0%
============ ======
====================================================================================================================================
Net Asset Value: Class A--Based on net assets of $89,153,675 and 14,600,525
shares outstanding $ 6.11
============
Class B--Based on net assets of $318,411,416 and 52,178,031
shares outstanding $ 6.10
============
Class C--Based on net assets of $6,233,674 and 1,022,333
shares outstanding $ 6.10
============
Class D--Based on net assets of $8,310,023 and 1,361,084
shares outstanding $ 6.11
============
====================================================================================================================================
</TABLE>
+ Brady Bonds are securities which have been issued to refinance commercial
bank loans and other debt. The risk associated with these instruments is
the amount of any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
(a) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(b) 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) Subject to principal paydowns.
(d) Due to uncertainty of financial and economic conditions in Russia,
effective September 30, 1998, interest accrual was ceased.
(e) In August 1998, the Russian government announced the potential
restructuring of its short-term debt. At that time, interest accruals
ceased due to this uncertainty. Details of this restructuring are not
complete.
* 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 and US Government Obligations are
traded on a discount basis; the interest rates reflect the discount rates
paid at the time of purchase by the Fund.
*** Covered Short Sales entered into as of September 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Shares Issue Value
- --------------------------------------------------------------------------------
10,300 Continental Airlines, Inc. $(388,825)
4,500 Polyphase Corp. (1,969)
- --------------------------------------------------------------------------------
Total (Proceeds--$399,456) $(390,794)
=========
- --------------------------------------------------------------------------------
14
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10788--9/98
[RECYCLE LOGO] Printed on post-consumer recycled paper
