MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
December 31, 1998
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, 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., December 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
The primary investment objective of Merrill Lynch World Income Fund, Inc. is to
provide shareholders with high current income. Therefore, we look to the US
high-yield and worldwide emerging markets as the source of most of our
investments. The fixed-income securities in these markets are generally rated
below investment grade by the major bond rating agencies. Lower-quality bonds
performed well in the first and fourth quarters of the fiscal year ended
December 31, 1998, but performed extremely poorly in the middle two quarters of
the year.
The portfolio's US high-yield position was relatively stable at 42% of net
assets going into the third quarter of 1998, and we increased this allocation
modestly as weakness in that market created better value. The performance of the
Fund's US higher-yield investments was somewhat better than the +0.58% total
return of the unmanaged Credit Suisse First Boston (CSFB) High Yield Index for
the year ended December 31, 1998, since the credit quality of securities held by
the Fund was significantly higher than that of the Index. Thus, our high-yield
investments made a positive contribution to the Fund's total return for the
fiscal year.
On the other hand, emerging markets investments had a decidedly negative impact
on the Fund's performance. We increased the Fund's investment in the emerging
markets sector from 30% of net assets to 50% during the first quarter of 1998.
We were encouraged by the quick response of the major industrialized countries
and the International Monetary Fund (IMF) in addressing the financial crisis and
the constructive response by investors led us to a more aggressive investment
strategy. We maintained our positive outlook on emerging markets during the
resurgence of the Russian financial crisis. It was our belief that, as in the
case of Asia, international financial institutions would come to Russia's
assistance and bridge the country's finances until investor confidence returned.
This view was indeed confirmed on July 13, 1998 by the $22.6 billion IMF and
multilateral assistance package to Russia. However, the continued speculation
against the ruble and the loss of reserves continued, leading to the Russian
devaluation and local debt default when additional Group of Seven Industrialized
Nations' (G-7) financial assistance unexpectedly failed to materialize. The Fund
was severely impacted by the default, since approximately 13% of the Fund's net
assets was invested in Russian securities on June 30, 1998. These issues
declined to less than 10% of cost in the aftermath of the default.
In the wake of the Russian debt crisis, prices of emerging market issues plunged
during the summer of 1998. We reacted to the disorder by reducing the Fund's
allocation to that sector. At September 30, 1998, 27.4% of net assets were in
emerging market debt. However, this strategy sharply limited the Fund's ability
to benefit from the rally in emerging markets debt that occurred during the
final quarter of the year.
Investment Outlook & Portfolio Strategy
The quarter ended December 31, 1998 was characterized by a general easing of
world financial tensions. The Russian devaluation and default on its local
currency-denominated debt on August 17, 1998 were the detonators that triggered
worldwide financial deleveraging and wealth destruction in fixed-income and
equity markets already weakened by the Asian crisis and the drag of Japan's
economic recession. In this environment, lower-quality financial instruments
were particularly hard hit. US high-yield and emerging markets fixed-income
yields soared as prices plunged, sovereign yield curves inverted, local market
interest rates were raised to defend national currencies threatened by foreign
reserve losses, liquidity dried up, and investors braced themselves for the
possibility of further negative credit developments elsewhere, particularly in
Brazil.
Only after the much-publicized rescue of a highly leveraged US hedge fund and
the monetary policy easings by the US Federal Reserve Board did markets find the
support to initiate a recovery. The surprising strength of the upswing was
reinforced by several other factors. First, there was a strong rally in world
equities, exemplified by the 24.3% rise in the unmanaged Standard & Poor's 500
(S&P 500) Index between October 8, 1998 and November 27, 1998. In addition, G-7
efforts to shore up Brazil's finances and the announcement of an international
ad-hoc lending facility that would pool IMF and industrialized countries'
official funds to isolate potentially vulnerable emerging economies from
financial contagion aided the recovery. Finally, the enlarged Japanese fiscal
1999 stimulus package was viewed as providing a floor to that country's economic
problems and indirect support to the emerging economies in Asia.
While many markets had recovered considerably by year-end, both US high-yield
and US dollar obligations of emerging market issuers were historically
inexpensive. At year-end, the CSFB High Yield Index provided a yield of over 11%
and a yield spread relative to US Treasury securities of approximately 6.50%.
The J.P. Morgan Emerging Markets Bond Index (EMBI+) valuation was even more
extreme, with yield spreads relative to US Treasury issues somewhat over 11%. We
believe that both US high-yield and emerging markets are attractive because we
anticipate a further normalization of conditions in the first half of 1999. In
addition to attractive yields, this environment offers the prospect of capital
appreciation.
At December quarter-end, 50% of the Fund's net assets were in US high-yield and
convertible securities. Another 30% of net assets was invested in a broad cross
section of emerging market government securities with the composition closely
approximating the EMBI+. The three largest components of the EMBI+ are Brazil,
21.9%; Argentina, 28.5%; and Mexico, 20.6%. In the past few years, a number of
western European companies have issued high-yield debt. At year-end 1998, this
debt totaled $32.3 billion with over 70% issued by media and communications
companies. Examples include Fund holdings of TeleWest Communications PLC and NTL
Inc., large British cable and telephony providers. Other issuers of
dollar-denominated debt that are Fund holdings include Canadian forest products
company, Doman Industries Ltd.; Indonesian paper producer, P.T. Indah Kiat
International Finance; and Colombian energy company, Oleoducts Centrale S.A. We
have allocated 15% of assets to corporate issues around the world with the
balance in cash equivalents.
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
February 18, 1999
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
IMPORTANT TAX INFORMATION
Of the monthly cash distributions paid by Merrill Lynch World Income Fund, Inc.
during its taxable year ended December 31, 1998, 4.63% are characterized as
return of capital distributions. The tax reporting treatment of a return of
capital is different from that of a taxable distribution. Rather than being
included in your current taxable income, a return of capital is non-taxable and
will reduce the cost basis in your shares of the Fund.
Additionally, 2.79% of the monthly cash distributions paid during the taxable
year ended December 31, 1998, qualifies for the dividends-received deduction for
corporations. Finally, there were no long-term capital gains distributed by the
Fund during the year.
Please retain this information for your records.
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 12/31/98
=============================================================================================================
<S> <C> <C> <C> <C>
ML World Income Fund, Inc. Class A Shares -23.43% +3.01% +75.32% 9.30%
- -------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class B Shares -24.15 +2.80 +16.43 8.91
- -------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class C Shares -24.11 +2.79 - 0.51 8.84
- -------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class D Shares -23.75 +2.78 + 1.83 9.07
=============================================================================================================
</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: Class A Shares, for the ten years ended12/31/98; Class B Shares, from
11/18/91 to 12/31/98; and Class C & Class D Shares, from 10/21/94 to
12/31/98.
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
PERFORMANCE DATA (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the ML US Treasury/Agency 1-10 Years
Index and the Composite Index. Beginning and ending values are:
12/88 12/98
================================================================================
ML World Income Fund, Inc.+--
Class A Shares* $ 9,600 $16,832
- --------------------------------------------------------------------------------
ML US Treasury/Agency
1-10 Years Index++ $10,000 $22,318
- --------------------------------------------------------------------------------
Composite Index+++ $10,000 $26,682
================================================================================
A line graph depicting the growth of an investment in the Fund's Class B Shares
compared to growth of an investment in the ML US Tresury/Agency 1-10 Years Index
and the Composite Index. Beginning and ending values are:
11/18/91** 12/98
================================================================================
ML World Income Fund, Inc.+--
Class B Shares* $10,000 $11,643
- --------------------------------------------------------------------------------
ML US Treasury/Agency 1-10
Years Index++ $10,000 $16,305
- --------------------------------------------------------------------------------
Composite Index+++ $10,000 $19,663
================================================================================
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the ML US
Treasury/Agency 1-10 Years Index and the Composite Index. Beginning and ending
values are:
10/21/94** 12/98
================================================================================
ML World Income Fund, Inc.+--
Class C Shares* $10,000 $9,949
- --------------------------------------------------------------------------------
ML World Income Fund, Inc.+--
Class D Shares* $ 9,600 $9,775
- --------------------------------------------------------------------------------
ML US Treasury/Agency
1-10 Years Index++ $10,000 $13,932
- --------------------------------------------------------------------------------
Composite Index+++ $10,000 $15,294
================================================================================
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML World Income Fund, Inc. invests in a global portfolio of fixed-income
securities denominated in various currencies, including multinational
currency units.
++ This unmanaged Index is comprised of intermediate-term Government bonds
maturing in one to ten years.
+++ This unmanaged Index, which is a blend of the ML High Yield US Corporates
Index and the JP Morgan Global Government Index (Ex-Japan), is comprised
of mutual funds whose objectives include high current income and total
return. The starting date for the Index in the Class B Shares graph is
11/30/91 and in the Class C & Class D Shares graph is 10/31/94.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 12/31/98 -23.43% -26.49%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 - 0.01 - 0.83
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/98 + 5.78 + 5.34
- --------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 12/31/98 -24.15% -26.87%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/98 - 0.81 - 0.81
- --------------------------------------------------------------------------------
Inception (11/18/91) through 12/31/98 + 2.16 + 2.16
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 12/31/98 -24.11% -24.79%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 - 0.12 - 0.12
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 12/31/98 -23.75% -26.80%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/98 + 0.43 - 0.54
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent
Value of Net
LATIN AMERICA Industries Face Amount Fixed-Income Investments Cost (Note 1a) Assets
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Argentina Foreign Government US$ 14,550,000 Republic of Argentina, Floating Rate 'L'
Obligations Brady Bonds, 5.75% due 3/31/2023+ $ 10,598,750 $ 10,476,000 2.8%
26,250,000 Republic of Argentina, Global Bonds,
9.75% due 9/19/2027 23,266,563 23,296,875 6.2
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Argentina 33,865,313 33,772,875 9.0
===================================================================================================================================
Brazil Foreign Government 22,021,494 Republic of Brazil, Floating Rate 'C'
Obligations Brady Bonds, 6.79% due 4/15/2014+ 13,676,046 13,102,789 3.5
18,000,000 Republic of Brazil, Global Bonds,
10.125% due 5/15/2027 14,680,000 11,970,000 3.2
------------ ------------ -----
28,356,046 25,072,789 6.7
--------------------------------------------------------------------------------------------------------------------
Industrial -- Other 1,000,000 MRS Logistica S.A., 10.625% due 8/15/2005 977,500 566,290 0.2
--------------------------------------------------------------------------------------------------------------------
Utilities -- Electric 100,000 Espirito Santo Centrais S.A., 10% due
7/15/2007 (f) 96,000 61,250 0.0
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 29,429,546 25,700,329 6.9
===================================================================================================================================
Bulgaria Foreign Government 2,300,000 Republic of Bulgaria, Discount 'A' Brady
Obligations Bonds, 6.687% due 7/28/2024+ 1,595,773 1,610,000 0.4
2,300,000 Republic of Bulgaria, Floating Rate,
2.50% due 7/28/2012+ 1,326,444 1,311,000 0.4
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Bulgaria 2,922,217 2,921,000 0.8
===================================================================================================================================
Colombia Energy 4,531,250 Oleoducts Centrale S.A., 9.35% due
9/01/2005 (f) 4,531,250 3,913,867 1.0
--------------------------------------------------------------------------------------------------------------------
Utilities 5,887,200 Transgas de Occidente S.A., 9.79%
due 11/01/2010 (f) 6,022,115 4,844,765 1.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 10,553,365 8,758,632 2.3
===================================================================================================================================
Ecuador Foreign Government 2,000,000 Republic of Ecuador, Brady Bonds, Par,
Obligations 3.50% due 2/28/2025+ 1,102,386 850,000 0.2
5,658,300 Republic of Ecuador, PDI Brady Bonds,
6.625% due 2/27/2015+ 2,787,942 2,277,466 0.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Ecuador 3,890,328 3,127,466 0.8
===================================================================================================================================
Mexico Foreign Government 4,000,000 United Mexican States, Global Bonds,
Obligations 11.50% due 5/15/2026 3,400,000 4,240,000 1.1
13,578,000 United Mexican States, Par Bonds 'A',
6.25% due 12/31/2019 10,526,967 10,522,950 2.8
9,120,000 United Mexican States, Par Bonds 'B',
6.25% due 12/31/2019 7,051,998 7,068,000 1.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 20,978,965 21,830,950 5.8
===================================================================================================================================
Panama Foreign Government 3,000,000 Republic of Panama, Front-Loaded Interest
Obligations Reduction Bonds, 4% due 7/17/2014+ 2,262,897 2,235,000 0.6
600,000 Republic of Panama, Global Bonds, 8.875%
due 9/30/2027 546,000 561,000 0.2
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Panama 2,808,897 2,796,000 0.8
===================================================================================================================================
Peru Foreign Government 3,820,000 Republic of Peru, Front-Loaded Interest
Obligations Reduction Bonds, 3.25% due 3/07/2017+ 2,378,260 2,153,525 0.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 2,378,260 2,153,525 0.6
===================================================================================================================================
Venezuela Foreign Government 10,750,000 Republic of Venezuela, Global Bonds, 9.25%
Obligations due 9/15/2027 9,605,125 6,557,500 1.8
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Venezuela 9,605,125 6,557,500 1.8
===================================================================================================================================
Total Investments in Latin American
Securities 116,432,016 107,618,277 28.8
===================================================================================================================================
NORTH
AMERICA
===================================================================================================================================
Canada Paper 10,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 9,300,000 7,900,000 2.1
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 9,300,000 7,900,000 2.1
===================================================================================================================================
United States Airlines 10,000,000 USAirways Group Inc., 10.375% due
3/01/2013 10,000,000 11,576,900 3.1
--------------------------------------------------------------------------------------------------------------------
Broadcasting -- Radio 1,000,000 LIN Television Corp., 8.375% due 3/01/2008 1,001,250 990,000 0.3
& Television
--------------------------------------------------------------------------------------------------------------------
Cable 5,000,000 Century Communications Corp., 9.50% due
Television 3/01/2005 4,897,500 5,650,000 1.5
10,000,000 Lenfest Communications, Inc., 10.50% due
6/15/2006 9,922,100 11,700,000 3.1
------------ ------------ -----
14,819,600 17,350,000 4.6
--------------------------------------------------------------------------------------------------------------------
Chemicals 5,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 5,340,000 5,566,950 1.5
--------------------------------------------------------------------------------------------------------------------
Computer Services -- 5,000,000 Hadco Corporation, 9.50% due 6/15/2008 (f) 4,983,000 4,950,000 1.3
Electronics
--------------------------------------------------------------------------------------------------------------------
Energy 10,000,000 Chesapeake Energy Corporation, 8.50% due
3/15/2012 (f) 9,941,400 6,500,000 1.7
5,000,000 Ocean Energy Inc., 8.375% due 7/01/2008 4,793,750 4,650,000 1.2
10,670,000 TransAmerican Energy Corp., Series B,
13.22%* due 6/15/2002 9,994,620 2,987,600 0.8
------------ ------------ -----
24,729,770 14,137,600 3.7
--------------------------------------------------------------------------------------------------------------------
Financial Services 10,000,000 PennCorp Financial Group Inc., 9.25% due
12/15/2003 10,000,000 5,900,000 1.6
5,000,000 SB Treasury Company LLC, 9.40% due
12/29/2049 4,800,000 4,750,000 1.2
------------ ------------ -----
14,800,000 10,650,000 2.8
--------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 Greate Bay Properties, Inc., 10.875% due
1/15/2004 9,996,250 6,200,000 1.7
5,000,000 Harrahs Operating Inc., 7.875% due
12/15/2005 5,018,750 5,000,000 1.3
Jazz Casino Company, LLC:
3,232,500 5.867% due 11/15/2009 1,545,861 1,503,113 0.4
315,000 Contingent Notes, due 11/15/2009 (i) 0 0 0.0
7,500,000 Trump Atlantic City Associates, 11.25%
due 5/01/2006 7,421,875 6,600,000 1.8
------------ ------------ -----
23,982,736 19,303,113 5.2
--------------------------------------------------------------------------------------------------------------------
Health Care 5,000,000 Columbia/HCA Healthcare Corp., 7.25% due
5/20/2008 4,696,650 4,803,000 1.3
5,000,000 Fresensius Medical Care AG, 9% due
12/01/2006 5,237,500 5,231,250 1.4
5,000,000 Tenet Healthcare Corporation, 8.125% due
12/01/2008 (f) 4,980,600 5,125,000 1.4
------------ ------------ -----
14,914,750 15,159,250 4.1
--------------------------------------------------------------------------------------------------------------------
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
NORTH AMERICA Value of Net
(continued) Industries Face Amount Fixed-Income Investments Cost (Note 1a) Assets
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Hotels US$ 5,000,000 HMH Properties Inc., 7.875% due 8/01/2008 $ 4,967,600 $ 4,825,000 1.3%
(concluded) --------------------------------------------------------------------------------------------------------------------
Industrial 2,000,000 Chancellor Media Corp., 8% due 11/01/2008 2,020,000 2,045,000 0.6
5,000,000 PSINet Inc., Series B, 10% due 2/15/2005 4,862,500 4,900,000 1.3
5,000,000 Protection One Alarm Monetary, 8.125%
due 1/15/2009 5,000,000 5,000,000 1.3
------------ ------------ -----
11,882,500 11,945,000 3.2
--------------------------------------------------------------------------------------------------------------------
Paper 5,000,000 Container Corp. of America, 9.75% due
4/01/2003 5,100,000 5,100,000 1.4
--------------------------------------------------------------------------------------------------------------------
Printing & Publishing 5,000,000 PRIMEDIA Inc., 7.625% due 4/01/2008 4,971,250 4,900,000 1.3
--------------------------------------------------------------------------------------------------------------------
Semiconductors 5,000,000 Advanced Micro Devices, Inc., 11% due
8/01/2003 5,512,500 5,300,000 1.4
--------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50% due
8/01/2003 5,098,125 4,800,000 1.3
--------------------------------------------------------------------------------------------------------------------
Telephone 5,000,000 Hermes Euro Rail, 10.375% due 1/15/2009 5,000,000 5,050,000 1.4
5,000,000 Intermedia Communications Inc., 8.60% due
6/01/2008 4,792,500 4,750,000 1.3
5,000,000 Metronet Communications, Inc., 10.625%
due 11/01/2008 5,268,750 5,300,000 1.4
------------ ------------ -----
15,061,250 15,100,000 4.1
--------------------------------------------------------------------------------------------------------------------
Utilities 2,000,000 AES Corp., 8.375% due 8/15/2007 2,022,500 2,015,000 0.5
10,000,000 Tucson Electric & Power Co., 10.732% due
1/01/2013 (h) 9,607,625 11,990,200 3.2
------------ ------------ -----
11,630,125 14,005,200 3.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United States 178,794,456 165,659,013 44.3
===================================================================================================================================
<CAPTION>
Convertible Bonds
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Aerospace & Defense 1,000,000 Kellstrom Industries, Inc., 5.50% due
6/15/2003 1,000,000 1,021,250 0.3
--------------------------------------------------------------------------------------------------------------------
Assisted Living Assisted Living Concepts, Inc.:
700,000 6% due 11/01/2002 700,000 574,000 0.2
1,300,000 5.625% due 5/01/2003 (f) 1,300,000 934,375 0.2
------------ ------------ -----
2,000,000 1,508,375 0.4
--------------------------------------------------------------------------------------------------------------------
Banking 750,000 BankAtlantic Bancorp, Inc., 5.625% due
12/01/2007 750,000 573,750 0.1
--------------------------------------------------------------------------------------------------------------------
Biomedical Products 900,000 Genzyme General Division, 5.25% due
6/01/2005 (f) 850,000 1,271,250 0.3
--------------------------------------------------------------------------------------------------------------------
Boat Construction 1,000,000 Halter Marine Group, Inc., 4.50% due
9/15/2004 895,710 560,000 0.1
--------------------------------------------------------------------------------------------------------------------
Conglomerates 600,000 Polyphase Corp., 12% due 7/01/1999 (h)*** 600,000 165,000 0.1
400,000 Thermo Electron Corp., 4.25% due
1/01/2003 (f) 400,000 354,500 0.1
1,000,000 Thermo Fibertek Inc., 4.50% due
7/15/2004 (f) 887,500 841,250 0.2
------------ ------------ -----
1,887,500 1,360,750 0.4
--------------------------------------------------------------------------------------------------------------------
Energy 1,000,000 Pennzoil Co., 4.95% due 8/15/2008
(Convertible in Chevron Corp.) 1,013,750 977,500 0.3
--------------------------------------------------------------------------------------------------------------------
Environmental 725,000 Thermo Ecotek Corp., 4.875% due 4/15/2004 724,094 614,438 0.2
1,063,000 Thermo TerraTech, Inc., 4.625% due
5/01/2003 (f) 1,114,735 899,564 0.2
1,500,000 US Filter Corp., 4.50% due 12/15/2001 1,580,250 1,402,500 0.4
------------ ------------ -----
3,419,079 2,916,502 0.8
--------------------------------------------------------------------------------------------------------------------
Health Care 500,000 HealthSouth Corp., 3.25% due 4/01/2003 499,375 422,500 0.1
1,500,000 Integrated Health Services Inc., 5.75%
due 1/01/2001 1,493,750 1,303,125 0.4
------------ ------------ -----
1,993,125 1,725,625 0.5
--------------------------------------------------------------------------------------------------------------------
Manufacturing 1,000,000 Mark IV Industries, Inc., 4.75% due
11/01/2004 (f) 923,750 796,250 0.2
2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,842,500 1,585,000 0.4
------------ ------------ -----
2,766,250 2,381,250 0.6
--------------------------------------------------------------------------------------------------------------------
Medical Laser Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 (f) 1,960,625 1,630,000 0.4
--------------------------------------------------------------------------------------------------------------------
Oil Drilling 1,000,000 Loews Corp., 3.75% due 2/15/2007
(Convertible in Diamond Offshore
Drilling, Inc.) 934,312 926,250 0.2
1,000,000 Parker Drilling Company, 5.50% due
8/01/2004 1,010,000 631,250 0.2
------------ ------------ -----
1,944,312 1,557,500 0.4
--------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,430,000 Thermo Optik Corp., 5% due 10/15/2000 (f) 1,433,950 1,363,863 0.4
--------------------------------------------------------------------------------------------------------------------
Semiconductors 2,000,000 Integrated Device Technology, Inc., 5.50%
due 6/01/2002 1,642,500 1,400,000 0.4
--------------------------------------------------------------------------------------------------------------------
Technology 1,250,000 Broadband Technologies, Inc., 5% due
5/15/2001 (f) 1,246,250 456,250 0.1
Data General Corporation:
750,000 6% due 5/15/2004 (f) 750,000 704,062 0.2
250,000 6% due 5/15/2004 246,875 237,500 0.1
------------ ------------ -----
2,243,125 1,397,812 0.4
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United
States 25,799,926 21,645,427 5.8
===================================================================================================================================
<CAPTION>
Convertible Preferred Stocks, Preferred
Shares Held Stocks, Common Stocks & Warrants
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Airlines 2,500 Continental Air Finance Trust, Pfd. (a)*** 193,817 172,746 0.0
--------------------------------------------------------------------------------------------------------------------
Broadcasting/Cable 137,257 On Command Corporation 4,061,096 1,243,892 0.3
43,675 On Command Corporation (Warrants) (b) 349,400 152,862 0.1
------------ ------------ -----
4,410,496 1,396,754 0.4
--------------------------------------------------------------------------------------------------------------------
Conglomerates 105,000 Polyphase Corp.*** 158,550 39,375 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 13,125 525 0.0
52,500 Polyphase Corp. (Warrants) (b)*** 26,250 2,625 0.0
------------ ------------ -----
197,925 42,525 0.0
--------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens Illinois, Inc., Conv. Pfd. 500,000 425,000 0.1
--------------------------------------------------------------------------------------------------------------------
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
NORTH AMERICA Convertible Preferred Stocks, Preferred Value of Net
(concluded) Industries Shares Held Stocks, Common Stocks & Warrants Cost (Note 1a) Assets
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Energy TCR Holdings Corp., Conv. Pfd.:
(concluded) 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
7,000 Unocal Capital Trust, Conv. Pfd. 378,000 340,375 0.1
------------ ------------ -----
386,977 349,352 0.1
--------------------------------------------------------------------------------------------------------------------
Gaming 75,000 Goldriver Hotel & Casino Finance Corp.,
Liquidating Trust (g)(h) 75,000 0 0.0
91,338 JCC Holding Co. (Class A) 365,352 308,266 0.1
------------ ------------ -----
440,352 308,266 0.1
--------------------------------------------------------------------------------------------------------------------
Manufactured Housing 10,000 Fleetwood Enterprises, Inc., Conv. Pfd. (f) 540,000 466,250 0.1
--------------------------------------------------------------------------------------------------------------------
Power Generation 10,000 Calenergy Capital Trust II, Conv. Pfd. (f) 500,000 500,000 0.2
10,000 Calenergy Capital Trust III, Conv. Pfd. 500,000 482,500 0.1
------------ ------------ -----
1,000,000 982,500 0.3
--------------------------------------------------------------------------------------------------------------------
Printing & Publishing 50,000 PRIMEDIA Inc., Pfd. 4,970,000 4,812,500 1.3
--------------------------------------------------------------------------------------------------------------------
Restaurants 10,000 Wendy's Financing I, Conv. Pfd. 522,375 520,000 0.1
--------------------------------------------------------------------------------------------------------------------
Retail 20,500 Kmart Corporation, Conv. Pfd. 1,067,230 1,187,719 0.3
--------------------------------------------------------------------------------------------------------------------
Special Services 10,000 Union Pacific Capital Trust, Conv. Pfd. 460,625 462,500 0.1
--------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc., Conv. Pfd.
(Convertible in Rouge Industries, Inc.) 850,000 425,000 0.1
--------------------------------------------------------------------------------------------------------------------
Utilities 13,880 Citizens Utilities Company (Class B) 130,117 112,775 0.0
30,000 Citizens Utilities Company, Conv. Pfd.
(Class A) 1,284,300 1,278,750 0.4
------------ ------------ -----
1,414,417 1,391,525 0.4
--------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks,
Preferred Stocks, Common Stocks &
Warrants in the United States 16,954,214 12,942,637 3.4
===================================================================================================================================
Total Investments in North American
Securities 230,848,596 208,147,077 55.6
===================================================================================================================================
<CAPTION>
PACIFIC
BASIN Face Amount Fixed-Income Investments
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
China Transportation US$ 6,620,000 Cathay International Ltd., 13% due
4/15/2008 (f) 6,620,000 2,515,600 0.7
10,000,000 GS Superhighway Holdings, 9.875% due
8/15/2004 9,262,500 4,800,000 1.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 15,882,500 7,315,600 2.0
===================================================================================================================================
Indonesia Paper 5,000,000 P.T. Indah Kiat International Finance,
12.50% due 6/15/2006 5,025,000 3,250,000 0.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Indonesia 5,025,000 3,250,000 0.9
===================================================================================================================================
South Korea Banking 5,000,000 Korea Development Bank, 11.50% due
3/05/1999 (f) 5,000,000 4,990,500 1.3
--------------------------------------------------------------------------------------------------------------------
Foreign Government 1,130,000 Republic of Korea, Global Bonds, 8.875%
Obligations due 4/15/2008 1,087,625 1,160,200 0.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in South
Korea 6,087,625 6,150,700 1.6
===================================================================================================================================
Total Investments in Pacific Basin
Securities 26,995,125 16,716,300 4.5
===================================================================================================================================
EUROPE
===================================================================================================================================
Luxembourg Telecommunications 10,000,000 Millicom International Cellular S.A.,
11.834%* due 6/01/2006 7,800,601 7,000,000 1.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in
Luxembourg 7,800,601 7,000,000 1.9
===================================================================================================================================
Netherlands Financial Services 4,750,000 TPSA Finance BV, 7.75% due 12/10/2008 4,715,895 4,689,680 1.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
Netherlands 4,715,895 4,689,680 1.3
===================================================================================================================================
Russia Financial Services 2,500,000 Unexim International Finance B.V.,
9.875% due 8/01/2000 (d) 2,514,750 50,000 0.0
--------------------------------------------------------------------------------------------------------------------
Foreign Government 4,854,119 VnesheconomBank-Government National Bank,
Obligations Floating Rate, Interest Accrual Note,
6.625% due 12/15/2015 (a)(d)(f) 1,675,331 524,852 0.1
36,780,000 VnesheconomBank-Government National Bank,
Floating Rate, Principal Loan,
6.625% due 12/15/2020 (a)(d) 21,535,462 2,206,800 0.6
------------ ------------ -----
23,210,793 2,731,652 0.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 25,725,543 2,781,652 0.7
===================================================================================================================================
United Kingdom Communications 10,000,000 TeleWest Communications PLC, 11%* due
10/01/2007 8,298,535 8,325,000 2.2
--------------------------------------------------------------------------------------------------------------------
Telecommunications 5,000,000 NTL Inc., 10% due 2/15/2007 4,925,000 5,125,000 1.4
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the
United Kingdom 13,223,535 13,450,000 3.6
===================================================================================================================================
<CAPTION>
Convertible Bonds
===================================================================================================================================
Ireland Dental Equipment & 500,000 Phoenix Shannon PLC, 9.50% due 11/01/2000
Supplies (f)(g) 196,779 5,000 0.0
--------------------------------------------------------------------------------------------------------------------
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 1,132,500 0.3
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Switzerland 1,063,750 1,132,500 0.3
===================================================================================================================================
Total Investments in European Securities 52,726,103 29,058,832 7.8
===================================================================================================================================
</TABLE>
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Percent
SHORT-TERM Value of Net
SECURITIES Industries Face Amount Issue Cost (Note 1a) Assets
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper** US$ 10,256,000 Block Financial Corp., 5.28% due 1/04/1999 $ 10,256,000 $ 10,256,000 2.7%
1,693,000 General Motors Acceptance Corp., 5.13% due
1/04/1999 1,693,000 1,693,000 0.5
Obligations** ------------ ------------ -----
11,949,000 11,949,000 3.2
--------------------------------------------------------------------------------------------------------------------
Foreign Government RUB 130,313,057 Russian GKO, 34.41% due 4/15/1999 (c)(e) 17,806,157 779,384 0.2
Obligations** ------------ ------------ -----
Total Investments in Short-Term Securities 29,755,157 12,728,384 3.4
===================================================================================================================================
Total Investments $456,756,997 374,268,870 100.1
============
Short Sales (Proceeds -- $208,261)*** (173,576) (0.1)
Liabilities in Excess of Other Assets (31,783) (0.0)
------------ -----
Net Assets $374,063,511 100.0%
============ =====
===================================================================================================================================
</TABLE>
+ Brady Bonds are securities which have been issued to refinance commercial
bank loans and other debt. The risk associated with these instruments is
the amount of any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
* Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
** Commercial Paper and certain Foreign Government Obligations are traded on
a discount basis; the interest rates reflect the discount rates paid at
the time of purchase by the Fund.
*** Covered Short Sales entered into as of December 31, 1998 were as follows:
---------------------------------------------------------------------
Value
Shares Issue (Note 1i)
---------------------------------------------------------------------
5,131 Continental Airlines, Inc. $ (171,889)
4,500 Polyphase Corp. (1,687)
---------------------------------------------------------------------
Total (Proceeds -- $208,261) $ (173,576)
============
---------------------------------------------------------------------
(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 the time, interest accruals
ceased due to this uncertainty. Details of this restructuring are not
complete.
(f) The security may be offered and sold to 'qualified institutional buyers'
under Rule 144A of the Securities Act of 1933.
(g) Non-income producing security.
(h) Restricted security as to resale. The value of the Fund's investments in
restricted securities was $165,000, representing 0.04% of net assets.
--------------------------------------------------------------------
Acquisition Value
Issue Date(s) Cost (Note 1a)
--------------------------------------------------------------------
Goldriver Hotel & Casino 5/01/1989-
Corp., Liquidating Trust 10/07/1993 $ 75,000 $ --
Polyphase Corp., 12%
due 7/01/1999 7/05/1994 600,000 165,000
Tucson Electric &
Power Co., 10.732% 8/03/1993-
due 1/01/2013 10/11/1996 9,607,625 11,990,200
--------------------------------------------------------------------
Total $10,282,625 $12,155,200
=========== ===========
--------------------------------------------------------------------
(i) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Portfolio 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.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of December 31, 1998
==================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $456,756,997) (Note 1a) ................ $ 374,268,870
Cash .............................................................................. 1,913,134
Foreign cash (Note 1d) ............................................................ 628
Receivables:
Interest ........................................................................ $ 8,778,303
Capital shares sold ............................................................. 139,416
Dividends ....................................................................... 134,375 9,052,094
-------------
Prepaid registration fees and other assets (Note 1g) .............................. 149,607
-------------
Total assets ...................................................................... 385,384,333
-------------
==================================================================================================================================
Liabilities: Common stocks sold short, at market value (proceeds -- $208,261) (Note 1i) ....... 173,576
Payables:
Securities purchased ............................................................ 5,000,000
Capital shares redeemed ......................................................... 2,650,971
Dividends to shareholders (Note 1h) ............................................. 2,263,581
Short sales (Note 1i) ........................................................... 456,922
Investment adviser (Note 2) ..................................................... 214,745
-------------
Distributor (Note 2) ............................................................ 208,221 10,794,440
Accrued expenses and other liabilities ............................................ 352,806
-------------
Total liabilities ................................................................. 11,320,822
-------------
==================================================================================================================================
Net Assets: Net assets ........................................................................ $ 374,063,511
=============
==================================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. $ 1,279,938
Consist of: Class B Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 4,615,966
Class C Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 71,333
Class D Shares of Common Stock, $0.10 par value, 1,000,000,000 shares authorized .. 132,820
Paid-in capital in excess of par .................................................. 608,848,006
Accumulated realized capital losses on investments and foreign currency
transactions -- net (Note 5) ...................................................... (158,431,158)
Unrealized depreciation on investments and foreign currency transactions -- net ... (82,453,394)
-------------
Net assets ........................................................................ $ 374,063,511
=============
==================================================================================================================================
Net Asset Class A -- Based on net assets of $78,527,588 and 12,799,376 shares outstanding ... $ 6.14
Value: =============
Class B -- Based on net assets of $283,017,682 and 46,159,659 shares outstanding .. $ 6.13
=============
Class C -- Based on net assets of $4,370,363 and 713,325 shares outstanding ....... $ 6.13
=============
Class D -- Based on net assets of $8,147,878 and 1,328,204 shares outstanding ..... $ 6.13
=============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
==================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned (net of $187,152 foreign withholding tax) .. $ 60,851,104
Income Dividends ............................................................... 1,497,891
(Notes 1e & 1f): --------------
Total income ............................................................ 62,348,995
--------------
==================================================================================================================================
Expenses: Investment advisory fees (Note 2) ....................................... $ 3,683,766
Account maintenance and distribution fees -- Class B (Note 2) ........... 3,508,375
Transfer agent fees -- Class B (Note 2) ................................. 642,347
Transfer agent fees -- Class A (Note 2) ................................. 143,397
Accounting services (Note 2) ............................................ 142,069
Professional fees ....................................................... 132,613
Printing and shareholder reports ........................................ 120,239
Custodian fees .......................................................... 74,018
Account maintenance and distribution fees -- Class C (Note 2) ........... 70,640
Registration fees (Note 1g) ............................................. 56,099
Directors' fees and expenses ............................................ 45,795
Account maintenance fees -- Class D (Note 2) ............................ 30,998
Transfer agent fees -- Class D (Note 2) ................................. 14,224
Transfer agent fees -- Class C (Note 2) ................................. 12,309
Pricing fees ............................................................ 7,125
Dividends on short sales (Note 1i) ...................................... 6,105
Other ................................................................... 26,850
--------------
Total expenses .......................................................... 8,716,969
--------------
Investment income -- net ................................................ 53,632,026
--------------
==================================================================================================================================
Realized & Realized loss from:
Unrealized Loss on Investments -- net .................................................... (111,658,085)
Investments & Foreign currency transactions -- net .................................. (2,773,654) (114,431,739)
Foreign Currency --------------
Transactions -- Net Change in unrealized appreciation/depreciation on:
(Notes 1c, 1d, Investments -- net .................................................... (93,499,559)
1f & 3): Foreign currency transactions -- net .................................. (71,735) (93,571,294)
-------------- --------------
Net realized and unrealized loss on investments and foreign currency
transactions ............................................................ (208,003,033)
--------------
Net Decrease in Net Assets Resulting from Operations .................... $ (154,371,007)
==============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------
Increase (Decrease) in Net Assets: 1998 1997
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net ................................................ $ 53,632,026 $ 66,437,399
Realized loss on investments and foreign currency transactions -- net ... (114,431,739) (6,800,453)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions -- net .................................... (93,571,294) (9,506,918)
-------------- --------------
Net increase (decrease) in net assets resulting from operations ......... (154,371,007) 50,130,028
-------------- --------------
==================================================================================================================================
Dividends to Investment income -- net:
Shareholders Class A ............................................................... (11,149,847) (12,612,653)
(Note 1h): Class B ............................................................... (38,200,363) (49,068,797)
Class C ............................................................... (718,374) (685,580)
Class D ............................................................... (1,077,875) (991,622)
Return of capital:
Class A ............................................................... (541,850) (612,879)
Class B ............................................................... (1,856,425) (2,384,369)
Class C ............................................................... (34,910) (33,314)
Class D ............................................................... (52,382) (48,185)
-------------- --------------
Net decrease in net assets resulting from dividends to shareholders ..... (53,632,026) (66,437,399)
-------------- --------------
==================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions ...... (247,332,328) (379,207,926)
Transactions -------------- --------------
(Note 4):
==================================================================================================================================
Net Assets: Total decrease in net assets ............................................ (455,335,361) (395,515,297)
Beginning of year ....................................................... 829,398,872 1,224,914,169
-------------- --------------
End of year ............................................................. $ 374,063,511 $ 829,398,872
============== ==============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
The following per share data and ratios -----------------------------------------------------------------
have been derived from information For the Year Ended
provided in the financial statements. December 31,
-----------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ...... $ 8.83 $ 8.94 $ 8.69 $ 8.20 $ 9.28
Operating --------- --------- --------- ----------- -----------
Performance: Investment income -- net ................ .71 .64 .67 .72 .72
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ..................... (2.69) (.11) .25 .49 (1.09)
--------- --------- --------- ----------- -----------
Total from investment operations ........ (1.98) .53 .92 1.21 (.37)
--------- --------- --------- ----------- -----------
Less dividends:
Investment income -- net .............. (.68) (.61) (.67) (.56) (.45)
Return of capital -- net .............. (.03) (.03) -- (.16) (.26)
--------- --------- --------- ----------- -----------
Total dividends ......................... (.71) (.64) (.67) (.72) (.71)
--------- --------- --------- ----------- -----------
Net asset value, end of year ............ $ 6.14 $ 8.83 $ 8.94 $ 8.69 $ 8.20
========= ========= ========= =========== ===========
================================================================================================================================
Total Investment Based on net asset value per share ...... (23.43%) 6.15% 11.09% 15.35% (4.05%)
Return:** ========= ========= ========= =========== ===========
================================================================================================================================
Ratios to Average Expenses ................................ .81% .76% .75% .80% .77%
Net Assets: ========= ========= ========= =========== ===========
Investment income -- net ................ 9.36% 7.21% 7.71% 8.54% 8.17%
========= ========= ========= =========== ===========
================================================================================================================================
Supplemental Net assets, end of year (in thousands) .. $ 78,528 $ 161,347 $ 212,085 $ 260,806 $ 311,181
Data: ========= ========= ========= =========== ===========
Portfolio turnover ...................... 148.67% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= =========== ===========
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B
The following per share data and ratios -----------------------------------------------------------------
have been derived from information For the Year Ended
provided in the financial statements. December 31,
-----------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ...... $ 8.83 $ 8.94 $ 8.69 $ 8.19 $ 9.28
Operating --------- --------- --------- ----------- -----------
Performance: Investment income -- net ................ .65 .57 .61 .65 .65
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ..................... (2.70) (.11) .25 .50 (1.10)
--------- --------- --------- ----------- -----------
Total from investment operations ........ (2.05) .46 .86 1.15 (.45)
--------- --------- --------- ----------- -----------
Less dividends:
Investment income -- net .............. (.62) (.54) (.61) (.51) (.40)
Return of capital -- net .............. (.03) (.03) -- (.14) (.24)
--------- --------- --------- ----------- -----------
Total dividends ......................... (.65) (.57) (.61) (.65) (.64)
--------- --------- --------- ----------- -----------
Net asset value, end of year ............ $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.19
========= ========= ========= =========== ===========
================================================================================================================================
Total Investment Based on net asset value per share ...... (24.15%) 5.34% 10.25% 14.61% (4.90%)
Return:** ========= ========= ========= =========== ===========
================================================================================================================================
Ratios to Average Expenses ................................ 1.59% 1.53% 1.52% 1.56% 1.54%
Net Assets: ========= ========= ========= =========== ===========
Investment income -- net ................ 8.56% 6.43% 6.94% 7.77% 7.41%
========= ========= ========= =========== ===========
================================================================================================================================
Supplemental Net assets, end of year (in thousands) .. $ 283,018 $ 641,242 $ 988,209 $ 1,241,896 $ 1,490,507
Data: ========= ========= ========= =========== ===========
Portfolio turnover ...................... 148.67% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= =========== ===========
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
For the
The following per share data and ratios Period
have been derived from information For the Year Ended Oct. 21,
provided in the financial statements. December 31, 1994+ to
-------------------------------------------------- Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ..... $ 8.82 $ 8.93 $ 8.68 $ 8.19 $ 8.42
Operating --------- --------- --------- ----------- -----------
Performance: Investment income -- net ................. .65 .56 .60 .64 .10
Realized and unrealized gain (loss)
on investments and foreign currency
transactions -- net ...................... (2.69) (.11) .25 .49 (.20)
--------- --------- --------- ----------- -----------
Total from investment operations ......... (2.04) .45 .85 1.13 (.10)
--------- --------- --------- ----------- -----------
Less dividends:
Investment income -- net ............... (.62) (.53) (.60) (.50) (.08)
Return of capital -- net ............... (.03) (.03) -- (.14) (.05)
--------- --------- --------- ----------- -----------
Total dividends .......................... (.65) (.56) (.60) (.64) (.13)
--------- --------- --------- ----------- -----------
Net asset value, end of period ........... $ 6.13 $ 8.82 $ 8.93 $ 8.68 $ 8.19
========= ========= ========= =========== ===========
===============================================================================================================================
Total Investment Based on net asset value per share ....... (24.11%) 5.28% 10.19% 14.38% (1.20%)+++
Return:** ========= ========= ========= =========== ===========
===============================================================================================================================
Ratios to Average Expenses ................................. 1.64% 1.58% 1.56% 1.65% 1.64%*
Net Assets: ========= ========= ========= =========== ===========
Investment income -- net ................. 8.53% 6.41% 6.85% 7.65% 8.00%*
========= ========= ========= =========== ===========
===============================================================================================================================
Supplemental Net assets, end of period (in thousands).. $ 4,370 $ 11,738 $ 10,251 $ 5,406 $ 1,204
Data: ========= ========= ========= =========== ===========
Portfolio turnover ....................... 148.67% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= =========== ===========
===============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class D
----------------------------------------------------------------
For the
The following per share data and ratios Period
have been derived from information For the Year Ended Oct. 21,
provided in the financial statements. December 31, 1994+ to
-------------------------------------------------- Dec. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994++
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .... $ 8.83 $ 8.94 $ 8.69 $ 8.20 $ 8.43
Operating --------- --------- --------- ----------- -----------
Performance: Investment income -- net ................ .69 .61 .65 .70 .11
Realized and unrealized gain (loss)
on investments and foreign currency
transactions -- net ..................... (2.70) (.11) .25 .49 (.20)
--------- --------- --------- ----------- -----------
Total from investment operations ........ (2.01) .50 .90 1.19 (.09)
--------- --------- --------- ----------- -----------
Less dividends:
Investment income -- net .............. (.66) (.58) (.65) (.55) (.09)
Return of capital ..................... (.03) (.03) -- (.15) (.05)
--------- --------- --------- ----------- -----------
Total dividends ......................... (.69) (.61) (.65) (.70) (.14)
--------- --------- --------- ----------- -----------
Net asset value, end of period .......... $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.20
========= ========= ========= =========== ===========
===============================================================================================================================
Total Investment Based on net asset value per share ...... (23.75%) 5.88% 10.82% 15.06% (1.09%)+++
Return:** ========= ========= ========= =========== ===========
===============================================================================================================================
Ratios to Average Expenses ................................ 1.06% 1.01% .99% 1.04% 1.04%*
Net Assets: ========= ========= ========= =========== ===========
Investment income -- net ................ 9.12% 6.97% 7.42% 8.23% 8.60%*
========= ========= ========= =========== ===========
===============================================================================================================================
Supplemental Net assets, end of period (in thousands) $ 8,148 $ 15,072 $ 14,369 $ 6,320 $ 1,410
Data: ========= ========= ========= =========== ===========
Portfolio turnover ...................... 148.67% 217.60% 208.53% 116.00% 115.95%
========= ========= ========= =========== ===========
===============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
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. The Fund offers four classes of shares under the Merrill
Lynch Select Pricing(SM) System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
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
20 & 21
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
specific future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(e) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital gains at
various rates.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment income, excluding
transaction gains/losses, are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates. A portion of the net
investment income dividends paid by the Fund during the years ended December 31,
1998 and December 31, 1997 are characterized as a return of capital.
(i) Short sales--When the Fund engages in a short sale, an amount equal to the
proceeds received by the Fund is reflected as an asset and equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Fund maintains a segregated account of
securities as collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock exceeds the
proceeds received.
(j) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $2,485,567 have been reclassified between accumulated
net realized capital losses and paid-in capital in excess of par. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
0.60%, on an annual basis, of the average daily value of the Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ................................ 0.25% 0.50%
Class C ................................ 0.25% 0.55%
Class D ................................ 0.25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1998, 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 ................................ $1,707 $13,798
Class D ................................ $2,238 $21,522
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, MLPF&S received contingent deferred sales
charges of $507,394 and $3,091 relating to transactions in Class B and Class C
Shares, respectively.
During the year ended December 31, 1998, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $4,395 for security price quotations to
compute the net asset value of the Fund.
In addition, MLPF&S received $553 in commissions on the execution of portfolio
security transactions for the year ended December 31, 1998.
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.
22 & 23
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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
year ended December 31, 1998 were $823,291,683 and $1,002,336,091, respectively.
Net realized gains (losses) for the year December 31, 1998 and unrealized gains
(losses) as of December 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Investments:
Long-term .......................... $ (109,481,456) $ (82,488,127)
Short-term ......................... (91,994) --
Short sales ........................ (1,109,554) 34,685
Options purchased .................. (84,375) --
Options written .................... 140,125 --
Financial futures contracts ........ (1,030,831) --
-------------- --------------
Total investments .................... $ (111,658,085) $ (82,453,442)
-------------- --------------
Currency transactions:
Options written .................... 142,076 --
Foreign currency transactions ...... (3,302,358) 48
Forward foreign
exchange contracts ............... 386,628 --
-------------- --------------
Total currency transactions .......... (2,773,654) 48
-------------- --------------
Total ................................ $ (114,431,739) $ (82,453,394)
============== ==============
- --------------------------------------------------------------------------------
Transactions in call options written for the year ended December 31, 1998 were
as follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year .................. 28,000,000 $ 136,920
Options written ...................... 40,900,000 147,565
Options exercised .................... (3,000,000) (3,300)
Options expired ...................... (65,900,000) (281,185)
-------------- --------------
Outstanding call options written,
end of year ........................ -- $ --
============== ==============
- --------------------------------------------------------------------------------
Transactions in put options written for the year ended December 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of year .................. -- $ --
Options written ...................... 63,000,000 58,620
Options exercised .................... (12,000,000) (12,000)
Options expired ...................... (51,000,000) (46,620)
-------------- --------------
Outstanding put options written,
end of year ........................ -- $ --
============== ==============
- --------------------------------------------------------------------------------
As of December 31, 1998, net unrealized depreciation for Federal income tax
purposes aggregated $86,928,520, of which $8,946,559 related to appreciated
securities and $95,875,079 related to depreciated securities. The aggregate cost
of investments at December 31, 1998 for Federal income tax purposes was
$461,197,390.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$247,332,328 and $379,207,926 for the years ended December 31, 1998 and December
31, 1997, respectively.
Transactions in shares of capital for each class were as follows:
- --------------------------------------------------------------------------------
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 A Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 1,471,571 $ 13,032,610
Shares issued to shareholders
in reinvestment of dividends ......... 490,171 4,320,941
-------------- --------------
Total issued ......................... 1,961,742 17,353,551
Shares redeemed ...................... (7,405,822) (65,315,197)
-------------- --------------
Net decrease ......................... (5,444,080) $ (47,961,646)
============== ==============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the 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 B Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 4,411,827 $ 38,945,000
Shares issued to shareholders
in reinvestment of dividends ......... 2,511,110 22,118,936
-------------- --------------
Total issued ......................... 6,922,937 61,063,936
Automatic conversion of shares ....... (394,158) (3,459,877)
Shares redeemed ...................... (44,433,465) (391,363,688)
-------------- --------------
Net decrease ......................... (37,904,686) $ (333,759,629)
============== ==============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the 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 C Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 667,088 $ 5,892,830
Shares issued to shareholders
in reinvestment of dividends ......... 45,030 396,332
-------------- --------------
Total issued ......................... 712,118 6,289,162
Shares redeemed ...................... (529,077) (4,662,828)
-------------- --------------
Net increase ......................... 183,041 $ 1,626,334
============== ==============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the 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)
============== ==============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .......................... 290,672 $ 2,569,167
Automatic conversion of shares ....... 393,764 3,459,877
Shares issued to shareholders
in reinvestment of dividends ......... 63,282 557,815
-------------- --------------
Total issued ......................... 747,718 6,586,859
Shares redeemed ...................... (647,898) (5,699,844)
-------------- --------------
Net increase ......................... 99,820 $ 887,015
============== ==============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At December 31, 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.
24 & 25
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch World Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch World Income Fund, Inc. as of
December 31, 1998, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch World
Income Fund, Inc. as of December 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 22, 1999
26
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10788--12/98
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