MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 1999
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and Directors
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Adrian Churn, Senior Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
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., June 30, 1999
DEAR SHAREHOLDER
During the quarter ended June 30, 1999, the interest rate environment continued
to be dominated by concerns over rising interest rates. The economic consensus
at the beginning of 1999 was that the US economy would slow in an environment of
low inflation, causing interest rates to decline. Instead, the US economy has
exhibited strong growth. In addition, growth in Japan has exceeded expectations
and the Pacific Rim appears to be recovering. While inflation has remained
benign, interest rate expectations have adjusted to a more negative view. It
came as no surprise when the Federal Reserve Board raised the discount rate 25
basis points (0.25%). The ten-year US Treasury note had total returns of -3.36%
and -6.52% for the three months and six months ended June 30, 1999,
respectively.
On the other hand, lower-quality assets benefited from the improved economic
environment. The US high-yield bond market is driven not just by interest rates
but also by expectations about credit quality. While default rates, a lagging
indicator, have been rising, expectations have been growing more positive as
conditions in a number of economically sensitive industries have improved. This
is reflected in the +1.16% and +2.82% total returns of the unmanaged CS First
Boston Global High Yield Index for the three months and six months ended June
30, 1999, respectively. The improved economic environment benefited emerging
markets even more than the high-yield market. The unmanaged J.P. Morgan Emerging
Markets Bond Index (EMBI+) had total returns of +5.25% and +10.57% for the three
months and six months ended June 30, 1999, respectively.
Current trends in US interest rates are uncertain, but depend primarily on the
strength of the US economy in the months ahead. During the second half of 1999,
we do not expect Treasury bonds to produce returns as dismal as in the first
half when yields on ten-year Treasury issues rose over 1%. We expect interest
rate changes to be more moderate in the second half of 1999. The trend of
outperformance by lower-quality bonds is likely to remain in place. Both US and
European high-yield issues and US dollar-denominated emerging market issues
remain inexpensive by historic standards. Accordingly, as of June 30, 1999, 50%
of the portfolio's net assets were allocated to the US high-yield sector, 30% to
US dollar-denominated below investment-grade emerging market government
securities, 10% to European high-yield issues and 10% to US dollar-denominated
emerging market corporate bonds.
High-Yield Investments
While the high-yield market outperformed Treasury issues year-to-date as of
June 30, 1999, valuations remain attractive. The yield of the unmanaged CS First
Boston Global High Yield Index exceeded US Treasury bonds by 5.75% at June
month-end. Although this is considerably tighter than the 6.46% level at the
beginning of the year, it is still wide by historic measures. We believe that
yield spreads may continue to narrow as conditions normalize over the remainder
of the year.
The high-yield market continued to experience relatively poor liquidity during
the June quarter. Net flows into high-yield mutual funds were weak throughout
the quarter, and firms involved in underwriting and market making appeared
unwilling to commit capital to provide liquidity to investors. Despite this,
approximately $31 billion of new-issue supply was sold. We believed that a large
amount of additional supply would enter the market if interest rates declined
significantly and that this could put a ceiling on price rallies.
While data relating to credit conditions in the high-yield market are mixed, on
balance we believe that credit quality is improving. Credit conditions in a
number of industries sensitive to economic conditions have improved markedly
this year. Oil and gas, steel and paper/forest product companies have
experienced good product demand and higher prices. Most industries have
maintained stable quality. It is difficult to think of a significant sector of
the high-yield universe that has experienced deteriorating fundamentals, with
the exception of managed care, which has been negatively affected by lower
Medicare/Medicaid payments. Nevertheless, default rates continue to rise. For
the 12 months ended June 30, 1999, Moody's Investors Service, Inc. reported a
default rate of 4.27% for the high-yield universe compared with 3.68% for the 12
months ended March 31, 1999. However, as we have noted, default rates are a
lagging indicator.
Given the general unease in the high-yield market at the end of May, we have
attempted modest improvement in portfolio quality. During the June quarter, we
established new positions in Energis PLC and Dine, SA de CV. We also disposed of
positions where we believed downside risk outweighed upside potential. We sold
Advanced Micro Devices, Inc., PennCorp Financial Group and NTL, Inc.
Emerging Market Investments
Despite the somewhat bearish sentiment created by the recent price action,
several positive trends continue to establish themselves in emerging markets.
o The risk of financial contagion that led to destabilizing foreign exchange
outflows and currency devaluations in the last two years has declined
significantly. Major emerging markets currencies have remained relatively stable
after the floating of the Brazilian real in January 1999. In general, emerging
market economies are now more resilient, have better economic management, more
conservative fiscal policies, more flexible foreign exchange regimes, and in
general, better fundamentals than two years ago, when spreads on their debt were
substantially tighter.
o The economic slowdown triggered in emerging markets by the 1998 financial
disturbances is reducing domestic inflation and import demand, which diminishes
foreign financing requirements and alleviates pressures on foreign exchange
rates. Local interest rates are declining, which bodes well for investments in
local currency instruments. In some countries, such as Mexico, economic activity
is being propped up by the strong demand for the country's exports. In other
countries, such as Brazil, domestic activity has begun bottoming out, signaling
that economic recessions may be milder than originally anticipated, preventing
an undue deterioration in private sector credit risk.
o Commodity prices have begun to recover in reaction to better growth prospects
in the Group of Seven Industrialized Nations. Commodity exporters, many of them
emerging markets, are benefiting. Oil, in particular, is up over 60% from its
lows in February, substantially improving the financial outlook for Mexico and
Venezuela, among others.
o Technical factors indicate emerging markets bond prices may be establishing a
solid base of support. The market is inexpensive. Emerging markets spreads, as
measured by the J.P. Morgan Emerging Markets Bond Index, are trading in excess
of 1,000 basis points over Treasury issues (compared to 450 basis points in May
1997), reflecting unrealistically high probabilities of sovereign default. Also,
the investor base is beginning to widen as crossover, opportunistic buyers, many
of them insurance companies and pension funds, are becoming mainstream
investors. Finally, leverage and market speculation has been severely curtailed,
which may prevent the excessive and destabilizing market volatility witnessed in
1998.
Our positive intermediate-term outlook does not negate short-term concerns that
potentially higher international interest rates could delay emerging markets'
economic recovery and their full access to international capital markets. In the
current situation, we believe there are some offsetting factors that may partly
cushion this negative impact. A prolonged period of rising interest rates is
likely to be caused, or be accompanied by, higher economic activity in the
United States and other industrialized countries, which would undoubtedly imply
higher demand and higher prices for commodities and emerging markets
manufactured goods, strengthening their balance of payments.
We are keeping a close watch on other short-term risks to the markets in which
we invest. In particular, we are monitoring Brazil's fiscal austerity program,
its compliance with the International Monetary Fund program, and its success in
establishing the long-term foundations for sound tax and social security systems
that would put an end to chronic fiscal profligacy. Argentina's foreign
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
exchange convertibility system will be tested with the advent of a new
presidential administration and by the sharp economic slowdown and political
pressures involved in maintaining a stimulative fiscal policy. Venezuela's new
government has embarked on an ambitious process of overhauling its political
structures, but its strategy to overcome social problems, domestic recession,
and its excessive dependence on oil revenues remains to be articulated. In
Mexico, short-term risks appear to be firmly under control, given the country's
solid export performance, signs of an incipient domestic activity recovery,
realized oil revenues in excess of its budgeted figures, and its contingent
planning to ensure a smooth presidential transition in the year 2000.
As of June 30, 1999, we continued to favor Mexico, maintaining a significantly
overweighted position there. Our next largest position was in Venezuela. We
trimmed our enthusiasm and position in Brazil and further reduced our already
underweight position in Argentina.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch World Income Fund, Inc.,
and we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Co-Portfolio Manager
/s/ Adrian Churn
Adrian Churn
Senior Vice President and
Co-Portfolio Manager
August 16, 1999
- --------------------------------------------------------------------------------
We are pleased to announce that Adrian Churn has become Senior Vice President
and Co-Portfolio Manager of Merrill Lynch World Income Fund, Inc. Mr. Churn has
been Managing Director of Merrill Lynch Asset Management (MLAM) Hong Kong, Ltd.
since 1998. Prior thereto, Mr. Churn was Senior Vice President of MLAM Hong Kong
from 1997 to 1998 and as Vice President from 1994 to 1997.
- --------------------------------------------------------------------------------
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.50% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.55% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of future
performance. Figures shown in the "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 6/30/99
============================================================================================================================
<S> <C> <C> <C> <C>
ML World Income Fund, Inc. Class A Shares -18.99% +1.24% +81.60% 9.52%
- ----------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class B Shares -19.53 +1.05 +20.27 9.12
- ----------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class C Shares -19.57 +1.20 + 2.75 9.06
- ----------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class D Shares -19.20 +1.18 + 5.46 9.28
============================================================================================================================
</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/since inception periods
are ten years for Class A Shares, from 11/18/91 for Class B Shares and
from 10/21/94 for Class C & Class D Shares.
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 6/30/99 -18.99% -22.23%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 + 1.63 + 0.81
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 + 6.15 + 5.72
- --------------------------------------------------------------------------------
+ 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 6/30/99 -19.53% -22.47%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 + 0.87 + 0.87
- --------------------------------------------------------------------------------
Inception (11/18/91) through 6/30/99 + 2.45 + 2.45
- --------------------------------------------------------------------------------
* 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 6/30/99 -19.57% -20.31%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 + 0.58 + 0.58
- --------------------------------------------------------------------------------
* 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 6/30/99 -19.20% -22.43%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 + 1.14 + 0.26
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Value Percent of
AFRICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nigeria Foreign US$ 1,750,000 Nigeria, Par, 6.25% due 11/15/2020++ $ 1,090,942 $ 1,067,500 0.4%
Government
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Nigeria 1,090,942 1,067,500 0.4
====================================================================================================================================
<CAPTION>
Shares Held Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Nigeria Energy 1,750 Nigeria Oil (Warrants) (f) 0 0 0.0
--------------------------------------------------------------------------------------------------------------------
Total Warrants in Nigeria 0 0 0.0
====================================================================================================================================
Total Investments in African
Securities 1,090,942 1,067,500 0.4
====================================================================================================================================
<CAPTION>
EUROPE Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Bulgaria Foreign US$ 2,300,000 Republic of Bulgaria, Discount,
Government Series A, 6.50% due 7/28/2024++ 1,597,393 1,552,500 0.5
Obligations 1,300,000 Republic of Bulgaria, Front-Loaded
Interest Rate Reduction Bonds,
Series A, 2.50% due 7/28/2012++ 755,719 775,125 0.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Bulgaria 2,353,112 2,327,625 0.8
====================================================================================================================================
Luxembourg Wireless 10,000,000 Millicom International Cellular,
Communications-- 11.834%* due 6/01/2006 8,192,462 7,450,000 2.6
International
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Luxembourg 8,192,462 7,450,000 2.6
====================================================================================================================================
Poland Telecommunications 2,750,000 TPSA Finance BV, 7.75% due
12/10/2008 (e) 2,730,255 2,668,872 0.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Poland 2,730,255 2,668,872 0.9
====================================================================================================================================
Russia Foreign 3,725,000 Russian Federation Bonds (Regulation
Government S), 11% due 7/24/2018 (h) 1,514,818 1,834,563 0.6
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Russia 1,514,818 1,834,563 0.6
====================================================================================================================================
Turkey Foreign 1,550,000 Republic of Turkey, 12% due 12/15/2008 1,548,062 1,538,375 0.5
Government
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Turkey 1,548,062 1,538,375 0.5
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
EUROPE Value Percent of
(concluded) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United Kingdom Cable-- US$ 5,000,000 Telewest Communications PLC, 8.406%*
International due 4/15/2009 (e) $ 3,483,031 $ 3,331,250 1.2%
--------------------------------------------------------------------------------------------------------------------
Industrials 5,000,000 Energis PLC, 9.75% due 6/15/2009 (e) 4,981,050 5,062,500 1.7
--------------------------------------------------------------------------------------------------------------------
Telephone 5,000,000 RSL Communications PLC, 9.125% due
3/01/2008 4,672,500 4,612,500 1.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United Kingdom 13,136,581 13,006,250 4.5
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Ireland Dental Equipment & 500,000+ Phoenix Shannon PLC, 9.50% due
Supplies 11/01/2000 (e) 196,779 5,000 0.0
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 196,779 5,000 0.0
====================================================================================================================================
Total Investments in European
Securities 29,672,069 28,830,685 9.9
====================================================================================================================================
<CAPTION>
LATIN
AMERICA Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Argentina Cable-- 2,500,000 Cablevision SA, 13.75% due
International 5/01/2009 (e) 2,487,500 2,275,000 0.8
--------------------------------------------------------------------------------------------------------------------
Foreign 8,300,000 Republic of Argentina, 6% due
Government 3/31/2023++ (g) 6,059,000 5,239,375 1.8
Obligations 19,045,000 Republic of Argentina, 9.75% due
9/19/2027 16,956,900 14,521,813 4.9
------------ ------------ ----
23,015,900 19,761,188 6.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Argentina 25,503,400 22,036,188 7.5
====================================================================================================================================
Brazil Foreign 8,250,000 Republic of Brazil, 10.125% due
Government 5/15/2027 6,723,750 6,187,500 2.1
Obligations 17,630,380 Republic of Brazil, 'C', 8% due
4/15/2014++ (g) 10,450,960 11,492,804 3.9
3,750,000 Republic of Brazil, DCB, 5.9375%
due 4/15/2012++ (g) 2,173,313 2,306,250 0.8
2,500,000 Republic of Brazil, Discount Bond,
5.875% due 4/15/2024 (g) 1,562,500 1,584,375 0.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Brazil 20,910,523 21,570,929 7.4
====================================================================================================================================
Colombia Utilities 5,866,800 TransGas de Occidente SA, 9.79% due
11/01/2010 (e) 6,001,247 4,921,371 1.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Colombia 6,001,247 4,921,371 1.7
====================================================================================================================================
Mexico Conglomerates 5,000,000 Dine, SA de CV, 8.75% due 10/15/2007 4,333,750 4,281,250 1.5
- ------------------------------------------------------------------------------------------------------------------------
Foreign 6,800,000 United Mexican States, 11.50% due
Government 5/15/2026 7,371,750 7,480,000 2.5
Obligations 3,370,000 United Mexican States, Series B, 6.25%
due 12/31/2019 2,601,219 2,502,225 0.9
7,878,000 United Mexican States, Series W-A,
6.25% due 12/31/2019 5,966,899 5,849,415 2.0
------------ ------------ ----
15,939,868 15,831,640 5.4
--------------------------------------------------------------------------------------------------------------------
Industrials 3,000,000 Petroleos Mexicanos, 9.50% due
9/15/2027 2,827,500 2,490,000 0.9
--------------------------------------------------------------------------------------------------------------------
Transportation 5,000,000 TFM, SA de CV, 13.896%* due 6/15/2009 3,050,455 2,987,500 1.0
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Mexico 26,151,573 25,590,390 8.8
====================================================================================================================================
Panama Foreign 1,700,000 Panama, Front-Loaded Interest Rate
Government Reduction Bonds, 4.25% due
Obligations 7/17/2014++ 1,288,567 1,247,375 0.4
600,000 Republic of Panama, 8.875% due
9/30/2027 546,000 492,000 0.2
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Panama 1,834,567 1,739,375 0.6
====================================================================================================================================
Peru Foreign 2,820,000 Republic of Peru, Front-Loaded
Government Interest Rate Reduction Bonds, 3.75%
Obligations due 3/07/2017++ 1,766,865 1,558,050 0.5
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 1,766,865 1,558,050 0.5
====================================================================================================================================
Venezuela Foreign 9,450,000 Republic of Venezuela, 9.25% due
Government 9/15/2027 8,443,575 6,118,875 2.1
Obligations 2,833,320 Republic of Venezuela, DCB, 6.3125%
due 12/18/2007 (g) 1,934,753 2,185,198 0.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Venezuela 10,378,328 8,304,073 2.8
====================================================================================================================================
Total Investments in Latin American
Securities 92,546,503 85,720,376 29.3
====================================================================================================================================
NORTH
AMERICA
====================================================================================================================================
Canada Paper 5,000,000 Doman Industries Limited, 8.75% due
3/15/2004 4,500,000 3,150,000 1.1
--------------------------------------------------------------------------------------------------------------------
Telephony 5,000,000 Metronet Communications, 10.625% due
11/01/2008 (e) 5,268,750 5,637,500 1.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Canada 9,768,750 8,787,500 3.0
====================================================================================================================================
United States Airlines 5,000,000 USAir Inc., 10.375% due 3/01/2013 5,000,000 5,307,500 1.8
--------------------------------------------------------------------------------------------------------------------
Automotive 5,000,000 Federal-Mogul Corporation, 7.375% due
1/15/2006 (e) 4,979,150 4,708,175 1.6
--------------------------------------------------------------------------------------------------------------------
Cable Television 5,000,000 Century Communications Corporation,
9.50% due 3/01/2005 4,897,500 5,162,500 1.7
--------------------------------------------------------------------------------------------------------------------
Chemicals 5,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 5,340,000 5,473,500 1.9
--------------------------------------------------------------------------------------------------------------------
Communications 5,000,000 Impsat Corp., 12.375% due 6/15/2008 4,525,000 4,100,000 1.4
--------------------------------------------------------------------------------------------------------------------
Computer Services-- 5,000,000 Hadco Corp., 9.50% due 6/15/2008 4,983,000 4,862,500 1.7
Electronics
--------------------------------------------------------------------------------------------------------------------
Consumer Services 5,000,000 Protection One Alarm Monitoring,
8.125% due 1/15/2009 (e) 5,000,000 4,631,250 1.6
--------------------------------------------------------------------------------------------------------------------
Energy 5,000,000 Chesapeake Energy Corp., 8.50% due
3/15/2012 (e) 4,970,700 4,000,000 1.4
5,000,000 Ocean Energy Inc., 8.375% due 7/01/2008 4,793,750 4,850,000 1.6
10,670,000+ TransAmerican Energy Corp., 13.22%*
due 6/15/2002 10,291,204 1,240,388 0.4
------------ ------------ ----
20,055,654 10,090,388 3.4
--------------------------------------------------------------------------------------------------------------------
Financial Services 5,000,000 SB Treasury Company LLC, 9.40%
due 12/29/2049 (d)(e)(g) 4,800,000 4,825,000 1.6
--------------------------------------------------------------------------------------------------------------------
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Value Percent of
(concluded) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Gaming US$10,000,000+ GB Property Funding Corp., 10.875%
(concluded) due 1/15/2004 $ 9,996,250 $ 6,025,000 2.1%
5,000,000 Harrah's Operating Co. Inc., 7.875%
due 12/15/2005 5,018,750 4,825,000 1.7
Jazz Casino Co., LLC:
3,335,227 5.867% due 11/15/2009 (a) 1,639,605 2,101,193 0.7
315,000 Contingent Notes, due
11/15/2009 (b)(g) 0 0 0.0
5,000,000 Trump Atlantic City Associates/Funding
Inc., 11.25% due 5/01/2006 4,900,000 4,475,000 1.5
------------ ------------ ----
21,554,605 17,426,193 6.0
--------------------------------------------------------------------------------------------------------------------
Health Care 5,000,000 Columbia/HCA Healthcare Corp., 7.25%
due 5/20/2008 4,696,650 4,531,350 1.6
5,000,000 Fresenius Medical Capital Trust I, 9%
due 12/01/2006 5,237,500 5,375,000 1.8
5,000,000 Tenet Healthcare Corp., 8.125%
due 12/01/2008 4,980,600 4,725,000 1.6
------------ ------------ ----
14,914,750 14,631,350 5.0
--------------------------------------------------------------------------------------------------------------------
Hotels 5,000,000 HMH Properties, Inc., 7.875% due
8/01/2008 4,967,600 4,612,500 1.6
--------------------------------------------------------------------------------------------------------------------
Internet Transport 5,000,000 PSINet, Inc., 10% due 2/15/2005 4,862,500 4,975,000 1.7
--------------------------------------------------------------------------------------------------------------------
Paper 5,000,000 Container Corporation of America,
9.75% due 4/01/2003 5,100,000 5,175,000 1.8
--------------------------------------------------------------------------------------------------------------------
Printing & 5,000,000 Primedia, Inc., 7.625% due 4/01/2008 4,971,250 4,775,000 1.6
Publishing
--------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50%
due 8/01/2003 5,098,125 4,912,500 1.7
--------------------------------------------------------------------------------------------------------------------
Telephony 5,000,000 Intermedia Communications Inc., 8.60%
due 6/01/2008 4,792,500 4,600,000 1.6
--------------------------------------------------------------------------------------------------------------------
Utilities 10,000,000 Tucson Electric & Power Co., 10.732%
due 1/01/2013 (c) 9,607,625 11,087,500 3.8
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United States 135,449,259 121,355,856 41.5
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Banking & 400,000 BankAtlantic Bancorp, Inc., 5.625%
Financial due 12/01/2007 400,000 319,000 0.1
--------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corporation, 12%
due 7/01/1999** (e) 600,000 132,000 0.0
1,000,000 Thermo Fibertek Inc., 4.50%
due 7/15/2004 (e) 887,500 835,000 0.3
------------ ------------ ----
1,487,500 967,000 0.3
--------------------------------------------------------------------------------------------------------------------
Energy 1,000,000 Pennzenergy Company, 4.95%
due 8/15/2008 (Convertible in
Chevron Corp.) 1,013,750 1,025,000 0.4
--------------------------------------------------------------------------------------------------------------------
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625%
due 5/01/2003 (e) 1,114,735 923,481 0.3
--------------------------------------------------------------------------------------------------------------------
Instruments/Scientific 500,000 ThermoQuest Corporation, 5%
due 8/15/2000 (e) 507,500 490,000 0.2
--------------------------------------------------------------------------------------------------------------------
Medical Laser 2,000,000 Thermolase Corp., 4.375%
Systems due 8/05/2004 (e) 1,960,625 1,672,500 0.6
--------------------------------------------------------------------------------------------------------------------
Oil Drilling 1,000,000 Diamond Offshore Drilling, 3.75%
due 2/15/2007 934,312 982,500 0.3
500,000 Parker Drilling Company, 5.50%
due 8/01/2004 505,000 330,000 0.1
1,439,312 1,312,500 0.4
--------------------------------------------------------------------------------------------------------------------
Optical 1,430,000 Thermo Optek Inc., 5% due
Equipment 10/15/2000 (e) 1,433,950 1,419,275 0.5
--------------------------------------------------------------------------------------------------------------------
Technology Data General Corp:
250,000 6% due 5/15/2004 246,875 215,000 0.1
750,000 6% due 5/15/2004 (e) 750,000 650,625 0.2
------------ ------------ ----
996,875 865,625 0.3
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the
United States 10,354,247 8,994,381 3.1
====================================================================================================================================
<CAPTION>
Convertible Preferred Stocks,
Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Broadcasting/Cable 137,257 On Command Corporation 4,061,096 2,367,683 0.8
43,675 On Command Corporation (Warrants) (f) 349,400 245,672 0.1
------------ ------------ ----
4,410,496 2,613,355 0.9
--------------------------------------------------------------------------------------------------------------------
Conglomerates 105,000 Polyphase Corporation 158,550 39,375 0.0
52,500 Polyphase Corporation (Warrants)** (f) 13,125 525 0.0
52,500 Polyphase Corporation (Warrants)** (f) 26,250 2,100 0.0
------------ ------------ ----
197,925 42,000 0.0
--------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens-Illinois Inc., 4.75% 500,000 437,500 0.2
--------------------------------------------------------------------------------------------------------------------
Energy TCR Holdings Corp., Conv. Pfd. (c):
25,172 (Class B) 1,510 1,510 0.0
13,845 (Class C) 775 775 0.0
36,500 (Class D) 1,934 1,934 0.0
75,516 (Class E) 4,758 4,758 0.0
------------ ------------ ----
8,977 8,977 0.0
--------------------------------------------------------------------------------------------------------------------
Gaming 91,338 JCC Holding Company (Class A) 365,352 707,870 0.2
--------------------------------------------------------------------------------------------------------------------
Manufactured 10,000 Fleetwood Capital Trust, 6% (e) 540,000 421,250 0.1
Housing
--------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc.
(Convertible, Series DECS into Rouge
Steel Common Stock), 7.25% 850,000 393,750 0.1
--------------------------------------------------------------------------------------------------------------------
Utilities 18,232 Citizens Utilities Company (Class B) 164,736 202,831 0.1
30,000 Citizens Utilities Trust, 5% 1,284,300 1,458,750 0.5
------------ ------------ ----
1,449,036 1,661,581 0.6
--------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks &
Warrants in the United States 8,321,786 6,286,283 2.1
====================================================================================================================================
Total Investments in North American
Securities 163,894,042 145,424,020 49.7
====================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
PACIFIC Value Percent of
BASIN/ASIA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
China Transportation US$ 6,620,000 Cathay International Ltd., 13%
due 4/15/2008 (e) $ 6,620,000 $ 2,515,600 0.9%
10,000,000 GS Superhighway Holdings, 9.875%
due 8/15/2004 9,262,500 5,100,000 1.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 15,882,500 7,615,600 2.6
====================================================================================================================================
Indonesia Paper 5,000,000 Indah Kiat International Finance,
12.50% due 6/15/2006 5,025,000 3,850,000 1.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Indonesia 5,025,000 3,850,000 1.3
====================================================================================================================================
South Korea Foreign Government 3,330,000 Republic of Korea, 8.875% due 4/15/2008 3,398,125 3,497,715 1.2
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
South Korea 3,398,125 3,497,715 1.2
====================================================================================================================================
Total Investments in Pacific
Basin/Asian Securities 24,305,625 14,963,315 5.1
====================================================================================================================================
Total Investments $311,509,181 276,005,896 94.4
============
Short Sales (Proceeds--$18,472)** (1,969) 0.0
Other Assets Less Liabilities 16,227,865 5.6
------------ -----
Net Assets $292,231,792 100.0%
============ =====
====================================================================================================================================
</TABLE>
(a) Represents a pay-in-kind security, which may pay interest/dividends in
additional face amount/shares.
(b) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Fund through 11/15/2009. The payments are based upon varying
interest rates and the amounts, which may be paid-in-kind, are contingent
upon the earnings before income taxes, depreciation and amortization of
Jazz Casino Co. LLC on a fiscal year basis.
(c) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $11,096,000, representing 3.8% of
net assets.
- --------------------------------------------------------------------------------
Acquisition Value
Issue Date(s) Cost (Note 1a)
- --------------------------------------------------------------------------------
TCR Holdings Corp., Conv. Pfd.:
(Class B) 12/10/1998 $ 1,510 $ 1,510
(Class C) 12/11/1998 775 775
(Class D) 12/10/1998 1,934 1,934
(Class E) 12/10/1998 4,758 4,758
Tucson Electric & Power Co., 8/03/1993-
10.732% due 1/01/2013 10/11/1996 9,607,625 11,087,500
- --------------------------------------------------------------------------------
Total $9,616,602 $11,096,477
========== ===========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
(d) The security is a perpetual bond and has no definite maturity date.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) 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.
(g) Floating rate note.
(h) Due to the uncertainty of financial and economic conditions in Russia,
effective September 24, 1998, interest accrual ceased.
+ Non-income producing security.
++ Brady Bonds are securities that 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 reflects
the effective yield at the time of purchase by the Fund.
** Covered short sales entered into as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Value
Shares Issue (Note 1i)
- --------------------------------------------------------------------------------
4,500 Polyphase Corp. $(1,969)
- --------------------------------------------------------------------------------
Total (Proceeds--$18,472) $(1,969)
=======
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$311,509,181) (Note 1a) ................... $ 276,005,896
Foreign cash (Note 1d) ............................................................ 551
Receivables:
Securities sold ................................................................. $ 13,152,241
Interest ........................................................................ 6,365,537
Capital shares sold ............................................................. 51,142
Dividends ....................................................................... 18,750
Principle paydowns .............................................................. 12,000 19,599,670
-------------
Prepaid registration fees and other assets (Note 1g) .............................. 130,962
-------------
Total assets ...................................................................... 295,737,079
-------------
===================================================================================================================================
Liabilities: Common stocks sold short, at market value (proceeds--$18,472) (Note 1i) ........... 1,969
Payables:
Custodian bank (Note 1j) ........................................................ 1,243,791
Capital shares redeemed ......................................................... 994,815
Dividends to shareholders (Note 1h) ............................................. 606,746
Investment adviser (Note 2) ..................................................... 146,420
Distributor (Note 2) ............................................................ 141,930
Administration fees ............................................................. 2,457
Short sales (Note 1i) ........................................................... 1,364 3,137,523
-------------
Accrued expenses and other liabilities ............................................ 365,795
-------------
Total liabilities ................................................................. 3,505,287
-------------
===================================================================================================================================
Net Assets: Net assets ........................................................................ $ 292,231,792
=============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized ... $ 1,006,658
Consist of: Class B Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized ... 3,625,503
Class C Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized ... 50,406
Class D Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized ... 107,633
Paid-in capital in excess of par .................................................. 529,973,018
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 5) ...................................................... (207,044,615)
Unrealized depreciation on investments and foreign currency transactions--net ..... (35,486,811)
-------------
Net assets ........................................................................ $ 292,231,792
=============
===================================================================================================================================
Net Asset Class A--Based on net assets of $61,442,055 and 10,066,584 shares outstanding ..... $ 6.10
Value: =============
Class B--Based on net assets of $221,148,130 and 36,255,031 shares outstanding .... $ 6.10
=============
Class C--Based on net assets of $3,072,493 and 504,062 shares outstanding ......... $ 6.10
=============
Class D--Based on net assets of $6,569,114 and 1,076,334 shares outstanding ....... $ 6.10
=============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned (net of $49,969 foreign withholding tax) .............. $ 14,998,420
Income Dividends .......................................................................... 144,922
(Notes 1e & 1f): ------------
Total income ....................................................................... 15,143,342
------------
===================================================================================================================================
Expenses: Investment advisory fees (Note 2) .................................................. $ 964,146
Account maintenance and distribution fees--Class B (Note 2) ........................ 912,136
Transfer agent fees--Class B (Note 2) .............................................. 249,517
Printing and shareholder reports ................................................... 61,519
Transfer agent fees--Class A (Note 2) .............................................. 59,144
Professional fees .................................................................. 58,202
Accounting services (Note 2) ....................................................... 55,350
Registration fees (Note 1g) ........................................................ 36,266
Directors' fees and expenses ....................................................... 23,824
Custodian fees ..................................................................... 22,953
Account maintenance and distribution fees--Class C (Note 2) ........................ 13,996
Account maintenance fees--Class D (Note 2) ......................................... 8,940
Transfer agent fees--Class D (Note 2) .............................................. 6,282
Transfer agent fees--Class C (Note 2) .............................................. 3,591
Pricing fees ....................................................................... 3,582
Other .............................................................................. 14,483
------------
Total expenses ..................................................................... 2,493,931
------------
Investment income--net ............................................................. 12,649,411
------------
===================================================================================================================================
Realized & Realized loss from:
Unrealized Gain Investments--net ................................................................. (35,045,924)
(Loss) on Foreign currency transactions--net ............................................... (13,567,532) (48,613,456)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net ................................................................. 46,966,660
(Notes 1c, 1d, Foreign currency transactions--net ............................................... (77) 46,966,583
1f & 3): ------------ ------------
Net realized and unrealized loss on investments and foreign currency transactions .. (1,646,873)
------------
Net Increase in Net Assets Resulting from Operations ............................... $ 11,002,538
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
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: 1999 1998
=============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ..................................................... $ 12,649,411 $ 53,632,026
Realized loss on investments and foreign currency transactions--net ........ (48,613,456) (114,431,739)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net ............................................... 46,966,583 (93,571,294)
------------- -------------
Net increase (decrease) in net assets resulting from operations ............ 11,002,538 (154,371,007)
------------- -------------
=============================================================================================================================
Dividends to Investment income--net:
Shareholders Class A .................................................................. (2,860,586) (11,149,847)
(Note 1h): Class B .................................................................. (9,360,580) (38,200,363)
Class C .................................................................. (133,894) (718,374)
Class D .................................................................. (294,351) (1,077,875)
Return of capital:
Class A .................................................................. -- (541,850)
Class B .................................................................. -- (1,856,425)
Class C .................................................................. -- (34,910)
Class D .................................................................. -- (52,382)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders ........ (12,649,411) (53,632,026)
------------- -------------
=============================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions ......... (80,184,846) (247,332,328)
Transactions ------------- -------------
(Note 4):
=============================================================================================================================
Net Assets: Total decrease in net assets ............................................... (81,831,719) (455,335,361)
Beginning of period ........................................................ 374,063,511 829,398,872
------------- -------------
End of period .............................................................. $ 292,231,792 $ 374,063,511
============= =============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been --------------------------------------------------------------
derived from information provided in the For the Six For the Year Ended
financial statements. Months Ended December 31,
June 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 6.14 $ 8.83 $ 8.94 $ 8.69 $ 8.20
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ........................... .25 .71 .64 .67 .72
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ......... (.04) (2.69) (.11) .25 .49
-------- -------- -------- -------- --------
Total from investment operations ................. .21 (1.98) .53 .92 1.21
-------- -------- -------- -------- --------
Less dividends:
Investment income--net ......................... (.25) (.68) (.61) (.67) (.56)
Return of capital--net ......................... -- (.03) (.03) -- (.16)
-------- -------- -------- -------- --------
Total dividends .................................. (.25) (.71) (.64) (.67) (.72)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 6.10 $ 6.14 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ............... 3.52%+ (23.43%) 6.15% 11.09% 15.35%
Return:** ======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ......................................... .95%* .81% .76% .75% .80%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ........................... 8.48%* 9.36% 7.21% 7.71% 8.54%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 61,442 $ 78,528 $161,347 $212,085 $260,806
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 20.22% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been --------------------------------------------------------------
derived from information provided in the For the Six For the Year Ended
financial statements. Months Ended December 31,
June 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.19
Operating -------- -------- -------- -------- ----------
Performance: Investment income--net ........................... .23 .65 .57 .61 .65
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ......... (.03) (2.70) (.11) .25 .50
-------- -------- -------- -------- ----------
Total from investment operations ................. .20 (2.05) .46 .86 1.15
-------- -------- -------- -------- ----------
Less dividends:
Investment income--net ......................... (.23) (.62) (.54) (.61) (.51)
Return of capital--net ......................... -- (.03) (.03) -- (.14)
-------- -------- -------- -------- ----------
Total dividends .................................. (.23) (.65) (.57) (.61) (.65)
-------- -------- -------- -------- ----------
Net asset value, end of period ................... $ 6.10 $ 6.13 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ............... 3.30%+ (24.15%) 5.34% 10.25% 14.61%
Return:** ======== ======== ======== ======== ==========
====================================================================================================================================
Ratios to Average Expenses ......................................... 1.73%* 1.59% 1.53% 1.52% 1.56%
Net Assets: ======== ======== ======== ======== ==========
Investment income--net ........................... 7.70%* 8.56% 6.43% 6.94% 7.77%
======== ======== ======== ======== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $221,148 $283,018 $641,242 $988,209 $1,241,896
Data: ======== ======== ======== ======== ==========
Portfolio turnover ............................... 20.22% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ==========
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class C
The following per share data and ratios have been --------------------------------------------------------------
derived from information provided in the For the Six For the Year Ended
financial statements. Months Ended December 31,
June 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 6.13 $ 8.82 $ 8.93 $ 8.68 $ 8.19
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ........................... .23 .65 .56 .60 .64
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ......... (.03) (2.69) (.11) .25 .49
-------- -------- -------- -------- --------
Total from investment operations ................. .20 (2.04) .45 .85 1.13
-------- -------- -------- -------- --------
Less dividends:
Investment income--net ......................... (.23) (.62) (.53) (.60) (.50)
Return of capital--net ......................... -- (.03) (.03) -- (.14)
-------- -------- -------- -------- --------
Total dividends .................................. (.23) (.65) (.56) (.60) (.64)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 6.10 $ 6.13 $ 8.82 $ 8.93 $ 8.68
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ............... 3.27%+ (24.11%) 5.28% 10.19% 14.38%
Return:** ======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ......................................... 1.78%* 1.64% 1.58% 1.56% 1.65%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ........................... 7.65%* 8.53% 6.41% 6.85% 7.65%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 3,073 $ 4,370 $ 11,738 $ 10,251 $ 5,406
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 20.22% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Aggregate total investment return.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class D
The following per share data and ratios have been --------------------------------------------------------------
derived from information provided in the For the Six For the Year Ended
financial statements. Months Ended December 31,
June 30, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............. $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.20
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ........................... .24 .69 .61 .65 .70
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ......... (.03) (2.70) (.11) .25 .49
-------- -------- -------- -------- --------
Total from investment operations ................. .21 (2.01) .50 .90 1.19
-------- -------- -------- -------- --------
Less dividends:
Investment income--net ......................... (.24) (.66) (.58) (.65) (.55)
Return of capital .............................. -- (.03) (.03) -- (.15)
-------- -------- -------- -------- --------
Total dividends .................................. (.24) (.69) (.61) (.65) (.70)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 6.10 $ 6.13 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ............... 3.56%+ (23.75%) 5.88% 10.82% 15.06%
Return:** ======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ......................................... 1.20%* 1.06% 1.01% .99% 1.04%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ........................... 8.23%* 9.12% 6.97% 7.42% 8.23%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ......... $ 6,569 $ 8,148 $ 15,072 $ 14,369 $ 6,320
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................... 20.22% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Aggregate total investment return.
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. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. 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 that 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
that 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
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements. 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
18 & 19
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
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.
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.
(j) Custodian bank--The Fund recorded an amount payable to the Custodian Bank
resulting from a timing difference of security transaction settlements.
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 the "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 Incorporated ("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, 1999, MLFD earned underwriting discounts and
direct 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 ................................................... $ 67 $ 847
Class D ................................................... $363 $3,136
- --------------------------------------------------------------------------------
For the six months ended June 30, 1999, MLPF&S received contingent deferred
sales charges of $128,815 and $837 relating to transactions in Class B and Class
C Shares, respectively.
During the six months ended June 30, 1999, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $686 for security price quotations to
compute the net asset value of the Fund.
Financial Data Services, Inc. ("FDS"), 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, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 1999 were $64,192,142 and $149,800,950, respectively.
20 & 21
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized gains (losses) for the six months ended June 30, 1999 and
unrealized gains (losses) as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Investments:
Long-term .............................. $(31,158,154) $(35,503,285)
Short-term ............................. (3,887,770) --
Short sales ............................ -- 16,503
------------ ------------
Total investments ........................ $(35,045,924) $(35,486,782)
------------ ------------
Currency transactions:
Foreign currency transactions .......... (13,567,532) (29)
------------ ------------
Total currency transactions .............. (13,567,532) (29)
------------ ------------
Total .................................... $(48,613,456) $(35,486,811)
============ ============
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized depreciation for Federal income tax purposes
aggregated $35,503,285, of which $6,112,506 related to appreciated securities
and $41,615,791 related to depreciated securities. The aggregate cost of
investments at June 30, 1999 for Federal income tax purposes was $311,509,181.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$80,184,846 and $247,332,328 for the six months ended June 30, 1999 and for the
year ended December 31, 1998, respectively.
Transactions in shares of capital for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 202,847 $ 1,239,179
Shares issued to shareholders
in reinvestment of dividends ........... 121,451 745,597
---------- ------------
Total issued ........................... 324,298 1,984,776
Shares redeemed ........................ (3,057,090) (18,733,125)
---------- ------------
Net decrease ........................... (2,732,792) $(16,748,349)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 658,427 $ 5,073,461
Shares issued to shareholders
in reinvestment of dividends ........... 537,929 4,232,303
---------- ------------
Total issued ........................... 1,196,356 9,305,764
Shares redeemed ........................ (6,663,859) (49,352,504)
---------- ------------
Net decrease ........................... (5,467,503) $(40,046,740)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 514,770 $ 3,160,456
Shares issued to shareholders
in reinvestment of dividends ........... 571,739 3,506,545
----------- ------------
Total issued ........................... 1,086,509 6,667,001
Automatic conversion of shares ......... (56,800) (346,751)
Shares redeemed ........................ (10,934,337) (66,931,725)
----------- ------------
Net decrease ........................... (9,904,628) $(60,611,475)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 3,319,965 $ 25,131,106
Shares issued to shareholders
in reinvestment of dividends ........... 2,268,590 17,966,966
----------- -------------
Total issued ........................... 5,588,555 43,098,072
Automatic conversion of shares ......... (139,633) (1,135,306)
Shares redeemed ........................ (31,933,817) (242,493,230)
----------- -------------
Net decrease ........................... (26,484,895) $(200,530,464)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 19,230 $ 117,902
Shares issued to shareholders
in reinvestment of dividends ............. 10,895 66,767
-------- -----------
Total issued ............................. 30,125 184,669
Shares redeemed .......................... (239,388) (1,461,043)
-------- -----------
Net decrease ............................. (209,263) $(1,276,374)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 334,228 $ 2,657,390
Shares issued to shareholders
in reinvestment of dividends ............. 58,648 461,639
---------- -----------
Total issued ............................. 392,876 3,119,029
Shares redeemed .......................... (1,010,314) (7,335,844)
---------- -----------
Net decrease ............................. (617,438) $(4,216,815)
========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 77,905 $ 477,341
Automatic conversion of shares ........... 56,770 346,751
Shares issued to shareholders
in reinvestment of dividends ............. 20,674 126,784
-------- -----------
Total issued ............................. 155,349 950,876
Shares redeemed .......................... (407,219) (2,499,524)
-------- -----------
Net decrease ............................. (251,870) $(1,548,648)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,423,304 $ 11,887,210
Automatic conversion of shares ......... 139,526 1,135,306
Shares issued to shareholders
in reinvestment of dividends ........... 78,047 616,623
---------- ------------
Total issued ........................... 1,640,877 13,639,139
Shares redeemed ........................ (2,019,085) (16,177,448)
---------- ------------
Net decrease ........................... (378,208) $ (2,538,309)
========== ============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At December 31, 1998, the Fund had a net capital loss carryforward of
approximately $99,260,000, of which $12,482,000 expires in 2002, $25,743,000
expires in 2003 and $61,035,000 expires in 2006. 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--6/99
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