MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
June 30, 2000
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and Directors
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
DEAR SHAREHOLDER
Bond Market Review
The first half of 2000 was dominated by interest rate tensions much like those
experienced in 1999's second half. In February and March 2000, the Federal
Reserve Board raised interest rates in 0.25% increments and in May by a full
0.50% in response to clear signs of higher inflation and an economy growing at a
rate likely to further exacerbate inflation. Fortunately, this succession of
Federal Reserve Board moves, which began in mid-1999, appeared to take hold as
economic activity slowed in the spring. We believe that no further action will
be necessary. While we are comfortable with this forecast into the fall, the
respite could prove temporary. Moreover, it is difficult to make a case for
lower interest rates without much more severe weakness in the economy.
In our December 31, 1999 annual report, we suggested that long-term and
intermediate-term interest rates may have peaked in anticipation of a slowing
economy. This proved to be the case as ten-year Treasury note prices rose and
yields dropped, producing a total return for the six months ended June 30, 2000
of 5.4%. The Treasury market strength was the result of the improved interest
rate outlook as well as the Treasury Department's announcement that it intends
to buy back bonds with proceeds derived from the budget surplus.
However, we were wrong in believing that lower-quality bonds would outperform
Treasury issues. Both US high-yield and most dollar-denominated emerging market
sovereign and corporate securities underperformed. The reasons relate to factors
such as poor technical conditions caused by an outflow of cash from high-yield
funds as well as extreme stock market turbulence in April and May, which created
a temporary aversion to risk. Some well-publicized credit problems in the press
may have also been a factor. In June, lower-quality markets recovered. For the
six-month period ended June 30, 2000, the unmanaged CS First Boston Domestic
High Yield Index returned -0.84%. The unmanaged J.P. Morgan Emerging Market Bond
Index Plus (EMBI+) returned +8.1%, largely because Russia returned +49.8%.
Excluding Russia, the EMBI+ had a return of +4.3%.
Investment Outlook
In our view, economic growth will remain moderate into the fall although an
acceleration could occur at some point late in the second half of 2000. The odds
of a recession unfolding during the next six months seem remote. In this
environment, we believe that lower-quality bonds are likely to perform well. The
fundamentals in both US high-yield and in emerging markets appear quite
positive.
Emerging Market Investments
Our largest emerging market exposure is in Latin America, followed by Eastern
Europe. The underlying force behind this region's improving credit fundamentals
is the broad consensus in favor of globalization and the free market economic
model. This consensus is enforced by the flow of capital from abroad, which is
needed for economic development. When governments stray from sound economic
policies, capital dries up.
The macroeconomic environment in Latin America is currently the brightest since
1997. Growth in the region is likely to reach 4%, up from 0.2% in 1999.
Inflation is declining and the current account deficit is projected at 3% of
gross domestic product (GDP), only a slight deterioration from 1999. Countries
continue to pursue fiscally conservative policies, and exports and foreign
direct investment inflows are strong, alleviating foreign financing
requirements.
In Eastern Europe, Hungary and Poland continue to rationalize their economic
system in preparation for their eventual accession to the European Economic
Union, and their exchange rates are expected to appreciate substantially, as
foreign capital is attracted by the positive carry in their local money markets.
Russia's GDP grew 7.3% in the first half of 2000, while investment is rising at
roughly twice that rate. Tax collection is up sharply and foreign reserves
accumulation continues on the strength of oil prices. Recent political
developments have also been encouraging in terms of improving business
confidence.
The emerging market portion of the portfolio is weighted in US dollar sovereign
issues similar to the EMBI+, whose composition is 74.3% Latin America.
Argentina, Brazil, Mexico, and Russia comprise 75% of the Index. We are
currently overweighted in Brazil, Mexico and Russia and underweighted in
Argentina.
High-Yield Investments
High-yield securities are an out-of-favor asset class. Mutual fund cash flows
have been negative over the first half of the year. Companies wishing to finance
in the market take advantage of every window of opportunity and the weight of
supply has aborted rallies. A queue of prospective issuers is in place waiting
for the opportunity to issue. The reasons for the asset class' unpopularity
include poor investment performance over the past two years juxtaposed against
excellent equity performance, relatively high default rates, and the general
negative sentiment accruing to all fixed income. This could change. Poor market
returns in common stocks and the bursting of the NASDAQ technology bubble have
given stock market investors a dose of reality. Perhaps they will begin to seek
alternative and less volatile asset classes. While default rates on high-yield
bonds are high, we believe that rates are more likely to decline than rise. A
broad cross section of cyclicals (such as paper, chemicals, metals and
transportation) is demonstrating improving earnings and cash flow largely as the
result of improved pricing. Valuation, in our view, discounts the negatives.
At June 30, 2000, the US high-yield market (using the CS First Boston High Yield
Index as a proxy) produced a yield to maturity of 13.43% and a yield spread off
Treasury securities of 7.25%. This yield spread compares with a 12-year average
spread of about 5.5%. We think valuation is exceptional. We are fortunate that
the Fund's modest size allows us to include only the most attractive issues in
the portfolio. We believe that the quality of our high-yield portfolio holdings
is significantly higher than the universe as a whole.
Portfolio Matters
The composition of the Fund defined by asset class at June 30, 2000 and December
31, 1999 is as follows:
--------------------------------------------------------------------------------
6/30/00 12/31/99
--------------------------------------------------------------------------------
US High Yield 41% 50%
Emerging Markets
(Sovereign) 30 30
Emerging Corporates 21 10
European High Yield 8 10
--------------------------------------------------------------------------------
The major change was an increase in the allocation to emerging corporates and a
decrease in US high yield. Market weakness in April and May provided us with the
opportunity. We believe that the weakness was technical with fundamentals
strong.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch World Income Fund, Inc.,
and we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
August 8, 2000
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of 4%
and bear no ongoing distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.50% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 10 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.55% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 4% and an account
maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares+*
================================================================================
Year Ended 6/30/00 +9.95% +5.55%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +1.92 +1.09
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 +5.57 +5.14
--------------------------------------------------------------------------------
+ Performance results for per share net asset value of Class A Shares prior
to November 18, 1991 are for the period when the Fund was closed-end.
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/00 +8.91% +4.92%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +1.12 +1.12
--------------------------------------------------------------------------------
Inception (11/18/91) through 6/30/00 +3.18 +3.18
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/00 +8.86% +7.86%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +1.07 +1.07
--------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/00 +1.99 +1.99
--------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/00 +9.67% +5.29%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +1.66 +0.84
--------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/00 +2.59 +1.86
--------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
Recent
Performance
Results*
<TABLE>
<CAPTION>
Ten Years/
6 Month 12 Month Since Inception Standardized
As of June 30, 2000 Total Return Total Return Total Return 30-Day Yield
==========================================================================================================================
<S> <C> <C> <C> <C>
ML World Income Fund, Inc. Class A Shares +1.67% +9.95% +71.99% 10.72%
--------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class B Shares +1.11 +8.91 +30.99 10.38
--------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class C Shares +1.25 +8.86 +11.86 10.32
--------------------------------------------------------------------------------------------------------------------------
ML World Income Fund, Inc. Class D Shares +1.54 +9.67 +15.66 10.47
==========================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's ten-year/since inception periods are
ten years for Class A Shares, from 11/18/91 for Class B Shares and from
10/21/94 for Class C & Class D Shares.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent of
AFRICA Industries Face Amount Fixed-Income Investments Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Nigeria Foreign US$ 1,500,000 Central Bank of Nigeria 'WW', Par, 6.25%
Government due 11/15/2020++ $ 757,500 0.3%
Obligations
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Nigeria 757,500 0.3
====================================================================================================================================
<CAPTION>
Shares Held Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Nigeria Energy 1,500 Nigeria Oil (Warrants) (a) 0 0.0
---------------------------------------------------------------------------------------------------------------------
Total Warrants in Nigeria 0 0.0
====================================================================================================================================
Total Investments in African Securities
(Cost--$938,498) 757,500 0.3
====================================================================================================================================
<CAPTION>
EUROPE Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Bulgaria Foreign Republic of Bulgaria, Series A++:
Government US$ 2,300,000 Discount, 7.063% due 7/28/2024 1,839,747 0.9
Obligations 450,000 Front-Loaded Interest Rate Reduction Bonds,
2.75% due 7/28/2012 331,313 0.1
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Bulgaria 2,171,060 1.0
====================================================================================================================================
Luxembourg Wireless 6,500,000 Millicom International Cellular, 11.834%*
Communications-- due 6/01/2006 5,590,000 2.7
International
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Luxembourg 5,590,000 2.7
====================================================================================================================================
Netherlands Cable--International 2,500,000 United Pan-Europe Communications, 11.25% due
11/01/2009 2,200,000 1.1
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Netherlands 2,200,000 1.1
====================================================================================================================================
Poland Telecommunications 2,250,000 TPSA Finance BV, 7.75% due 12/10/2008 (e) 2,072,488 1.0
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Poland 2,072,488 1.0
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
EUROPE Percent of
(concluded) Industries Face Amount Fixed-Income Investments Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Russia Foreign Russian Federation Bonds:
Government US$ 3,725,000 (Regulation S), 11% due 7/24/2018 $ 2,784,438 1.3%
Obligations 4,050,000 (Regulation S), 12.75% due 6/24/2028 (e) 3,477,937 1.7
3,500,000 (Regulation S), 12.75% due 6/24/2028 (e) 3,010,000 1.4
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 9,272,375 4.4
====================================================================================================================================
Turkey Foreign 2,050,000 Republic of Turkey, 11.875% due 1/15/2030 2,176,823 1.1
Government
Obligations
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Turkey 2,176,823 1.1
====================================================================================================================================
United
Kingdom Industrials 5,000,000 Energis PLC, 9.75% due 6/15/2009 4,900,000 2.3
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United Kingdom 4,900,000 2.3
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Ireland Dental Equipment 500,000 +Phoenix Shannon PLC, 9.50% due 11/01/2000 (e) 5,000 0.0
& Supplies
---------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 5,000 0.0
====================================================================================================================================
Total Investments in European Securities
(Cost--$26,663,393) 28,387,746 13.6
====================================================================================================================================
<CAPTION>
LATIN
AMERICA Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Argentina Cable--International 5,000,000 Cablevision SA, 13.75% due 5/01/2009 4,550,000 2.2
---------------------------------------------------------------------------------------------------------------------
Foreign Government Republic of Argentina:
Obligations 2,960,000 7.375% due 3/31/2005++ (b) 2,701,000 1.3
4,360,000 6% due 3/31/2023 3,509,800 1.7
3,200,000 9.75% due 9/19/2027 2,480,000 1.2
6,850,000 Par, 6% due 3/31/2023++ (b) 4,546,688 2.1
------------ -----
13,237,488 6.3
---------------------------------------------------------------------------------------------------------------------
Transportation 7,000,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (e) 5,390,000 2.6
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 23,177,488 11.1
====================================================================================================================================
Brazil Broadcasting 5,000,000 Globo Comunicacoes e Participacoes, Ltd., 10.50%
Radio & Television due 12/20/2006 (e) 4,293,750 2.1
---------------------------------------------------------------------------------------------------------------------
Foreign Government Republic of Brazil:
Obligations 2,500,000 11.625% due 4/15/2004 2,525,000 1.2
372,000 7.375% due 4/15/2006 339,450 0.2
1,600,000 10.125% due 5/15/2027 1,260,000 0.6
4,002,082 'C', 8% due 4/15/2014++ (b) 2,946,533 1.4
4,275,000 DCB, 7.4375% due 4/15/2012++ (b) 3,155,121 1.5
4,100,000 Discount, 7.375% due 4/15/2024 (b) 3,239,000 1.5
4,450,000 Par Z-L, 6% due 4/15/2024 2,903,625 1.4
------------ -----
16,368,729 7.8
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 20,662,479 9.9
====================================================================================================================================
Colombia Utilities 5,823,600 TransGas de Occidente SA, 9.79% due 11/01/2010 (e) 4,207,551 2.0
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 4,207,551 2.0
====================================================================================================================================
Mexico Conglomerates 2,500,000 Dine, SA de CV, 8.75% due 10/15/2007 2,175,000 1.1
---------------------------------------------------------------------------------------------------------------------
Foreign Government United Mexican States:
Obligations 4,600,000 8.625% due 3/12/2008 4,450,500 2.1
7,128,000 'W-A', Par, 6.25% due 12/31/2019 5,951,880 2.9
3,370,000 'W-B', Par, 6.25% due 12/31/2019 2,813,950 1.3
------------ -----
13,216,330 6.3
---------------------------------------------------------------------------------------------------------------------
Metals & Mining 3,000,000 Grupo Minero Mexico SA, 8.25% due 4/01/2008 2,430,000 1.2
---------------------------------------------------------------------------------------------------------------------
Transportation 5,000,000 TFM, SA de CV, 13.896%* due 6/15/2009 3,425,000 1.6
---------------------------------------------------------------------------------------------------------------------
Wireless 5,000,000 Grupo Iusacell, SA de CV, 14.25% due 12/01/2006 5,225,000 2.5
Communications--
International
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 26,471,330 12.7
====================================================================================================================================
Panama Foreign Government 1,920,000 Panama, Front-Loaded Interest Rate Reduction Bonds,
Obligations 4% due 7/17/2014++ 1,530,739 0.7
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Panama 1,530,739 0.7
====================================================================================================================================
Peru Foreign Government 2,070,000 Republic of Peru, Front-Loaded Interest Rate
Obligations Reduction Bonds, 3.75% due 3/07/2017++ 1,247,175 0.6
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 1,247,175 0.6
====================================================================================================================================
Venezuela Foreign Government Republic of Venezuela:
Obligations 1,475,000 9.25% due 9/15/2027 971,656 0.5
2,142,840 DCB, 7.875% due 12/18/2007 (b) 1,749,093 0.8
666,660 Front-Loaded Interest Rate Reduction Bonds, 7.438%
due 3/31/2007 544,995 0.3
1,615,000 Par 'A', 6.75% due 3/31/2020 1,122,425 0.5
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 4,388,169 2.1
====================================================================================================================================
<CAPTION>
Shares Held Rights
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Venezuela Energy 8,075 Venezuela Oil Obligations 0 0.0
---------------------------------------------------------------------------------------------------------------------
Total Rights in Venezuela 0 0.0
====================================================================================================================================
Total Investments in Latin American Securities
(Cost--$81,426,187) 81,684,931 39.1
====================================================================================================================================
<CAPTION>
NORTH AMERICA Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Canada Paper US$ 5,000,000 Doman Industries Limited, 8.75% due 3/15/2004 3,850,000 1.8
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 3,850,000 1.8
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Percent of
(concluded) Industries Face Amount Fixed-Income Investments Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Automotive US$ 5,000,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 $ 3,636,285 1.7%
---------------------------------------------------------------------------------------------------------------------
Cable Television 5,000,000 Century Communications Corporation, 9.50%
due 3/01/2005 4,787,500 2.3
---------------------------------------------------------------------------------------------------------------------
Chemicals 5,340,000 ISP Holdings Inc., 9.75% due 2/15/2002 5,193,150 2.5
---------------------------------------------------------------------------------------------------------------------
Communications 5,000,000 Impsat Corp., 12.375% due 6/15/2008 3,950,000 1.9
---------------------------------------------------------------------------------------------------------------------
Consumer Services 5,000,000 Protection One Alarm Monitoring, 8.125% due
1/15/2009 (e) 3,100,000 1.5
---------------------------------------------------------------------------------------------------------------------
Energy 5,000,000 Chesapeake Energy Corp., 8.50% due 3/15/2012 (e) 4,325,000 2.1
5,000,000 Ocean Energy Inc., 8.375% due 7/01/2008 4,850,000 2.3
------------ -----
9,175,000 4.4
---------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 +GB Property Funding Corp., 10.875% due 1/15/2004 6,100,000 2.9
2,500,000 Harrah's Operating Co. Inc., 7.875% due 12/15/2005 2,350,000 1.1
Jazz Casino Co. LLC:
3,536,864 1.459% due 11/15/2009 (c) 601,267 0.3
315,000 Contingent Notes due 11/15/2009 (b)(d) 0 0.0
------------ -----
9,051,267 4.3
---------------------------------------------------------------------------------------------------------------------
Health Care 5,000,000 Columbia/HCA Healthcare Corp., 7.25% due 5/20/2008 4,452,770 2.2
5,000,000 Fresenius Medical Capital Trust I, 9% due 12/01/2006 4,825,000 2.3
2,500,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 1,925,000 0.9
------------ -----
11,202,770 5.4
---------------------------------------------------------------------------------------------------------------------
Hotels 5,000,000 HMH Properties, Inc., Series B, 7.875% due 8/01/2008 4,487,500 2.2
---------------------------------------------------------------------------------------------------------------------
Internet Transport 2,500,000 PSINet, Inc., 10% due 2/15/2005 2,300,000 1.1
---------------------------------------------------------------------------------------------------------------------
Paper 3,000,000 Container Corporation of America, 9.75% due 4/01/2003 2,985,000 1.4
---------------------------------------------------------------------------------------------------------------------
Printing & Publishing 5,000,000 Primedia, Inc., 7.625% due 4/01/2008 4,450,000 2.1
---------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 2,425,000 1.2
---------------------------------------------------------------------------------------------------------------------
Telephone 8,500,000 Nextel International Inc., 14.044%* due 4/15/2008 5,525,000 2.6
Communications
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United States 72,268,472 34.6
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Conglomerates 1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 (e) 840,000 0.4
---------------------------------------------------------------------------------------------------------------------
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 (e) 946,070 0.5
---------------------------------------------------------------------------------------------------------------------
Medical Laser Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 (e) 1,680,000 0.8
---------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 3,466,070 1.7
====================================================================================================================================
<CAPTION>
Shares Convertible Preferred Stocks, Preferred Stocks,
Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Broadcasting/Cable 78,128 +On Command Corporation 1,079,143 0.5
43,675 On Command Corporation (Warrants) (a) 177,430 0.1
------------ -----
1,256,573 0.6
---------------------------------------------------------------------------------------------------------------------
Conglomerates 100,500 +Polyphase Corporation 75,375 0.1
52,500 Polyphase Corporation (Warrants) (a) 39,375 0.0
52,500 Polyphase Corporation (Warrants) (a) 39,375 0.0
------------ -----
154,125 0.1
---------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens-Illinois Inc., 4.75% 222,500 0.1
---------------------------------------------------------------------------------------------------------------------
Gaming 91,338 +JCC Holding Company (Class A) 74,212 0.0
---------------------------------------------------------------------------------------------------------------------
Manufactured Housing 10,000 Fleetwood Capital Trust, 6% (e) 291,250 0.1
---------------------------------------------------------------------------------------------------------------------
Steel 50,000 Rouge Industries, Inc. (Class A) 150,000 0.1
---------------------------------------------------------------------------------------------------------------------
Utilities 15,000 Citizens Utilities Trust, 5% 1,010,625 0.5
---------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks, Preferred Stocks,
Common Stocks & Warrants in the United States 3,159,285 1.5
====================================================================================================================================
Total Investments in North American Securities
(Cost--$100,772,774) 82,743,827 39.6
====================================================================================================================================
<CAPTION>
PACIFIC
BASIN/ASIA Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
China Transportation US$ 6,620,000 Cathay International Ltd., 13.50% due 4/15/2008 (e) 3,310,000 1.6
7,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 4,970,000 2.4
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 8,280,000 4.0
====================================================================================================================================
Indonesia Paper 5,000,000 Indah Kiat International Finance, 12.50% due 6/15/2006 3,550,000 1.7
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 3,550,000 1.7
====================================================================================================================================
Philippines Foreign Government 850,000 Republic of the Philippines, 9.875% due 1/15/2019 690,625 0.3
Obligations
---------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 690,625 0.3
====================================================================================================================================
Total Investments in Pacific Basin/Asian Securities
(Cost--$18,722,075) 12,520,625 6.0
====================================================================================================================================
Total Investments (Cost--$228,522,927) 206,094,629 98.6
Other Assets Less Liabilities 2,845,665 1.4
------------ -----
Net Assets $208,940,294 100.0%
============ =====
====================================================================================================================================
</TABLE>
+ Non-income producing security.
++ 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 reflects
the effective yield at the time of purchase by the Fund.
(a) 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.
(b) Floating rate note.
(c) Represents a pay-in-kind security, which may pay interest/dividends in
additional face amount/shares.
(d) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Fund through 11/15/2009. The payments are based upon varying
interest rates and the amounts, which may be paid-in-kind, are contingent
upon the earnings before income taxes, depreciation and amortization of
Jazz Casino Co. LLC on a fiscal year basis.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 2000
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$228,522,927)............................... $ 206,094,629
Foreign cash........................................................................ 512
Receivables:
Interest.......................................................................... $ 4,707,027
Securities sold................................................................... 774,179
Capital shares sold............................................................... 11,157
Dividends......................................................................... 9,375 5,501,738
-------------
Prepaid registration fees and other assets.......................................... 110,865
-------------
Total assets........................................................................ 211,707,744
-------------
====================================================================================================================================
Liabilities: Payables:
Custodian bank.................................................................... 1,158,831
Capital shares redeemed........................................................... 689,072
Dividends to shareholders......................................................... 319,107
Distributor....................................................................... 105,634
Investment adviser................................................................ 96,716 2,369,360
-------------
Accrued expenses and other liabilities.............................................. 398,090
-------------
Total liabilities................................................................... 2,767,450
-------------
====================================================================================================================================
Net Assets: Net assets ......................................................................... $ 208,940,294
=============
====================================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized..... $ 755,494
Consist of: Class B Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized..... 2,550,713
Class C Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized..... 36,774
Class D Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized..... 85,163
Paid-in capital in excess of par.................................................... 435,788,200
Accumulated realized capital losses on investments and foreign currency
transactions--net................................................................. (207,847,684)
Unrealized depreciation on investments and foreign currency transactions--net....... (22,428,366)
-------------
Net assets.......................................................................... $ 208,940,294
=============
====================================================================================================================================
Net Asset Class A--Based on net assets of $46,067,766 and 7,554,944 shares outstanding........ $ 6.10
Value: =============
Class B--Based on net assets of $155,440,176 and 25,507,125 shares outstanding...... $ 6.09
=============
Class C--Based on net assets of $2,239,656 and 367,741 shares outstanding........... $ 6.09
=============
Class D--Based on net assets of $5,192,696 and 851,631 shares outstanding........... $ 6.10
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 2000
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned.................................................. $ 11,851,786
Income: Dividends..................................................................... 61,172
-------------
Total income.................................................................. 11,912,958
-------------
====================================================================================================================================
Expenses: Investment advisory fees...................................................... $ 684,383
Account maintenance and distribution fees--Class B............................ 639,892
Transfer agent fees--Class B.................................................. 154,319
Professional fees............................................................. 64,391
Accounting services........................................................... 59,679
Transfer agent fees--Class A.................................................. 37,551
Registration fees............................................................. 36,563
Printing and shareholder reports.............................................. 34,922
Custodian fees................................................................ 19,885
Account maintenance and distribution fees--Class C............................ 9,989
Directors' fees and expenses.................................................. 9,418
Account maintenance fees--Class D............................................. 7,037
Transfer agent fees--Class D.................................................. 4,280
Pricing fees.................................................................. 2,854
Transfer agent fees--Class C.................................................. 2,239
-------------
Total expenses................................................................ 1,767,402
-------------
Investment income--net........................................................ 10,145,556
-------------
====================================================================================================================================
Realized & Realized loss from investments--net........................................... (14,007,879)
Unrealized Gain Change in unrealized depreciation on:
(Loss) on Investments--net............................................................ 6,747,444
Investments & Foreign currency transactions--net.......................................... (26) 6,747,418
Foreign Currency ------------- -------------
Transactions--Net: Net Increase in Net Assets Resulting from Operations.......................... $ 2,885,095
=============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 2000 1999
====================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net.............................................................. $ 10,145,556 $ 24,604,497
Realized loss on investments and foreign currency transactions--net................. (14,007,879) (47,658,846)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net ....................................................... 6,747,418 53,277,610
------------- -------------
Net increase in net assets resulting from operations................................ 2,885,095 30,223,261
------------- -------------
====================================================================================================================================
Dividends to Investment income--net:
Shareholders: Class A........................................................................... (2,343,284) (2,788,824)
Class B........................................................................... (7,433,995) (9,141,407)
Class C........................................................................... (108,152) (129,850)
Class D........................................................................... (260,125) (294,216)
Return of capital:
Class A........................................................................... -- (2,765,325)
Class B........................................................................... -- (9,064,382)
Class C........................................................................... -- (128,755)
Class D........................................................................... -- (291,738)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders ................ (10,145,556) (24,604,497)
------------- -------------
====================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions.................. (36,048,325) (127,433,195)
------------- -------------
Transactions:
====================================================================================================================================
Net Assets: Total decrease in net assets........................................................ (43,308,786) (121,814,431)
Beginning of period................................................................. 252,249,080 374,063,511
------------- -------------
End of period....................................................................... $ 208,940,294 $ 252,249,080
============= =============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have ---------------------------------------------------------
been derived from information provided in For the Six For the Year Ended
the financial statements. Months Ended December 31,
June 30, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period.................... $ 6.29 $ 6.14 $ 8.83 $ 8.94 $ 8.69
Operating ------- ------- ------- -------- --------
Performance: Investment income--net.................................. .29 .54 .71 .64 .67
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ................. (.19) .15 (2.69) (.11) .25
------- ------- ------- -------- --------
Total from investment operations........................ .10 .69 (1.98) .53 .92
------- ------- ------- -------- --------
Less dividends:
Investment income--net................................ (.29) (.27) (.68) (.61) (.67)
Return of capital--net................................ -- (.27) (.03) (.03) --
------- ------- ------- -------- --------
Total dividends......................................... (.29) (.54) (.71) (.64) (.67)
------- ------- ------- -------- --------
Net asset value, end of period.......................... $ 6.10 $ 6.29 $ 6.14 $ 8.83 $ 8.94
======= ======= ======= ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share...................... 1.67%+ 11.95% (23.43%) 6.15% 11.09%
Return:** ======= ======= ======= ======== ========
====================================================================================================================================
Ratios to Average Expenses................................................ .95%* .93% .81% .76% .75%
Net Assets: ======= ======= ======= ======== ========
Investment income--net.................................. 9.52%* 8.90% 9.36% 7.21% 7.71%
======= ======= ======= ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands)................ $46,068 $53,515 $78,528 $161,347 $212,085
Data: ======= ======= ======= ======== ========
Portfolio turnover...................................... 33.54% 37.04% 148.67% 217.60% 208.53%
======= ======= ======= ======== ========
====================================================================================================================================
<CAPTION>
Class B
The following per share data and ratios have --------------------------------------------------------------
been derived from information provided in For the Six For the Year Ended
the financial statements. Months Ended December 31,
June 30, ------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 6.29 $ 6.13 $ 8.83 $ 8.94 $ 8.69
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .27 .49 .65 .57 .61
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .............................. (.20) .16 (2.70) (.11) .25
-------- -------- -------- -------- --------
Total from investment operations ............... .07 .65 (2.05) .46 .86
-------- -------- -------- -------- --------
Less dividends:
Investment income--net ....................... (.27) (.25) (.62) (.54) (.61)
Return of capital--net ....................... -- (.24) (.03) (.03) --
-------- -------- -------- -------- --------
Total dividends ................................ (.27) (.49) (.65) (.57) (.61)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 6.09 $ 6.29 $ 6.13 $ 8.83 $ 8.94
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on net asset value per share ............. 1.11%+ 11.27% (24.15%) 5.34% 10.25%
Return:** ======== ======== ======== ======== ========
====================================================================================================================================
Ratios to Average Expenses ....................................... 1.74%* 1.71% 1.59% 1.53% 1.52%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ......................... 8.74%* 8.12% 8.56% 6.43% 6.94%
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ....... $155,440 $189,572 $283,018 $641,242 $988,209
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 33.54% 37.04% 148.67% 217.60% 208.53%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C
The following per share data and ratios have -----------------------------------------------------------
been derived from information provided in For the Six For the Year Ended
the financial statements. Months Ended December 31,
June 30, ---------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................. $ 6.28 $ 6.13 $ 8.82 $ 8.93 $ 8.68
Operating ------ ------ ------- ------- -------
Performance: Investment income--net ............................... .27 .49 .65 .56 .60
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ............... (.19) .15 (2.69) (.11) .25
------ ------ ------- ------- -------
Total from investment operations ..................... .08 .64 (2.04) .45 .85
------ ------ ------- ------- -------
Less dividends:
Investment income--net ............................. (.27) (.25) (.62) (.53) (.60)
Return of capital--net ............................. -- (.24) (.03) (.03) --
------ ------ ------- ------- -------
Total dividends ...................................... (.27) (.49) (.65) (.56) (.60)
------ ------ ------- ------- -------
Net asset value, end of period ....................... $ 6.09 $ 6.28 $ 6.13 $ 8.82 $ 8.93
====== ====== ======= ======= =======
====================================================================================================================================
Total Investment Based on net asset value per share ................... 1.25%+ 11.04% (24.11%) 5.28% 10.19%
Return:** ====== ====== ======= ======= =======
====================================================================================================================================
Ratios to Average Expenses ............................................. 1.79%* 1.76% 1.64% 1.58% 1.56%
Net Assets: ====== ====== ======= ======= =======
Investment income--net ............................... 8.69%* 8.07% 8.53% 6.41% 6.85%
====== ====== ======= ======= =======
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $2,239 $2,771 $ 4,370 $11,738 $10,251
Data: ====== ====== ======= ======= =======
Portfolio turnover ................................... 33.54% 37.04% 148.67% 217.60% 208.53%
====== ====== ======= ======= =======
====================================================================================================================================
<CAPTION>
Class D
-----------------------------------------------------------
The following per share data and ratios have For the Six For the Year Ended
been derived from information provided in Months Ended December 31,
the financial statements. June 30, ---------------------------------------------
2000 1999 1998 1997 1996
Increase (Decrease) in Net Asset Value:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 6.29 $ 6.13 $ 8.83 $ 8.94 $ 8.69
Operating ------ ------ ------- ------- -------
Performance: Investment income--net .............................. .28 .53 .69 .61 .65
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .............. (.19) .16 (2.70) (.11) .25
------ ------ ------- ------- -------
Total from investment operations .................... .09 .69 (2.01) .50 .90
------ ------ ------- ------- -------
Less dividends:
Investment income--net ............................ (.28) (.27) (.66) (.58) (.65)
Return of capital ................................. -- (.26) (.03) (.03) --
------ ------ ------- ------- -------
Total dividends ..................................... (.28) (.53) (.69) (.61) (.65)
------ ------ ------- ------- -------
Net asset value, end of period ...................... $ 6.10 $ 6.29 $ 6.13 $ 8.83 $ 8.94
====== ====== ======= ======= =======
====================================================================================================================================
Total Investment Based on net asset value per share .................. 1.54%+ 11.86% (23.75%) 5.88% 10.82%
Return:** ====== ====== ======= ======= =======
====================================================================================================================================
Ratios to Average Expenses ............................................ 1.21%* 1.18% 1.06% 1.01% .99%
Net Assets: ====== ====== ======= ======= =======
Investment income--net .............................. 9.27%* 8.66% 9.12% 6.97% 7.42%
====== ====== ======= ======= =======
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $5,193 $6,391 $ 8,148 $15,072 $14,369
Data: ====== ====== ======= ======= =======
Portfolio turnover .................................. 33.54% 37.04% 148.67% 217.60% 208.53%
====== ====== ======= ======= =======
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund's financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal, recurring nature. The Fund
offers four classes of shares under the Merrill Lynch Select Pricing(SM) System.
Shares of Class A and Class D are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of such shares,
and Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to its account maintenance and distribution expenditures.
The following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements.
14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
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.
If the counterparty defaults and the fair value of the collateral declines,
liquidation of the collateral by the Fund may be delayed or limited.
(c) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(e) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital gains at
various rates.
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(g) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(h) Dividends and distributions--Dividends from net investment income, excluding
transaction gains/losses, are declared daily and paid monthly. Distributions of
capital gains are recorded on the ex-dividend dates.
(i) Short sales--When the Fund engages in a short sale, an amount equal to the
proceeds received by the Fund is reflected as an asset and equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Fund maintains a segregated account of
securities as collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock exceeds the
proceeds received.
(j) Custodian Bank--The Fund recorded an amount payable to the Custodian Bank
reflecting an overdraft, which resulted from management estimates of available
cash.
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 FAM Distributors, Inc.
("FAMD" or the "Distributor"), 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
.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 .......................... .25% .50%
Class C .......................... .25% .55%
Class D .......................... .25% --
--------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., June 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
and distribution services to the Fund. The ongoing account maintenance fee
compensates the Distributor and MLPF&S for providing account maintenance
services to Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C shareholders.
For the six months ended June 30, 2000, FAMD 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:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A ................................... $777 $3,744
Class D ................................... $ 89 $1,381
--------------------------------------------------------------------------------
For the six months ended June 30, 2000, MLPF&S received contingent deferred
sales charges of $61,492 and $574 relating to transactions in Class B and Class
C Shares, respectively.
During the six months ended June 30, 2000, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $699 for security price quotations to
compute the net asset value of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, FAMD, PSI, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2000 were $75,282,214 and $113,464,693, respectively.
Net realized gains (losses) for the six months ended June 30, 2000 and
unrealized losses as of June 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
--------------------------------------------------------------------------------
Investments:
Long-term .............................. $(14,019,556) $(22,428,298)
Short sales ............................ 11,677 --
------------ ------------
Total investments ........................ (14,007,879) (22,428,298)
------------ ------------
Currency transactions:
Foreign currency transactions .......... -- (68)
------------ ------------
Total currency transactions .............. -- (68)
------------ ------------
Total .................................... $(14,007,879) $(22,428,366)
============ ============
--------------------------------------------------------------------------------
As of June 30, 2000, net unrealized depreciation for Federal income tax purposes
aggregated $22,428,298, of which $6,247,143 related to appreciated securities
and $28,675,441 related to depreciated securities. The aggregate cost of
investments at June 30, 2000 for Federal income tax purposes was $228,522,927.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$36,048,325 and $127,433,195 for the six months ended June 30, 2000 and the year
ended December 31, 1999, respectively.
Transactions in shares of capital for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 130,353 $ 810,720
Shares issued to shareholders
in reinvestment of dividends ............. 105,166 648,371
------------- -------------
Total issued ............................. 235,519 1,459,091
Shares redeemed .......................... (1,184,503) (7,344,781)
------------- -------------
Net decrease ............................. (948,984) $ (5,885,690)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 301,428 $ 1,839,275
Shares issued to shareholders
in reinvestment of dividends ............. 252,402 1,540,595
------------- -------------
Total issued ............................. 553,830 3,379,870
Shares redeemed .......................... (4,849,278) (29,598,994)
------------- -------------
Net decrease ............................. (4,295,448) $ (26,219,124)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 252,456 $ 1,563,827
Shares issued to shareholders
in reinvestment of dividends ............. 439,657 2,710,685
------------- -------------
Total issued ............................. 692,113 4,274,512
Automatic conversion of shares ........... (36,674) (226,306)
Shares redeemed .......................... (5,291,320) (32,739,927)
------------- -------------
Net decrease ............................. (4,635,881) $ (28,691,721)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 1,094,092 $ 6,689,117
Shares issued to shareholders
in reinvestment of dividends ............. 1,156,235 7,052,633
------------- -------------
Total issued ............................. 2,250,327 13,741,750
Automatic conversion of shares ........... (116,927) (712,892)
Shares redeemed .......................... (18,150,053) (110,676,747)
------------- -------------
Net decrease ............................. (16,016,653) $ (97,647,889)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 57,457 $ 356,340
Shares issued to shareholders
in reinvestment of dividends ............. 7,893 48,654
------------- -------------
Total issued ............................. 65,350 404,994
Shares redeemed .......................... (138,421) (857,061)
------------- -------------
Net decrease ............................. (73,071) $ (452,067)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 29,199 $ 178,382
Shares issued to shareholders
in reinvestment of dividends ............. 21,666 132,077
------------- -------------
Total issued ............................. 50,865 310,459
Shares redeemed .......................... (323,378) (1,970,166)
------------- -------------
Net decrease ............................. (272,513) $ (1,659,707)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Six Months Dollar
Ended June 30, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 34,875 $ 218,128
Automatic conversion of shares ........... 36,665 226,306
Shares issued to shareholders
in reinvestment of dividends ............. 16,501 101,746
------------- -------------
Total issued ............................. 88,041 546,180
Shares redeemed .......................... (252,102) (1,565,027)
------------- -------------
Net decrease ............................. (164,061) $ (1,018,847)
============= =============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
--------------------------------------------------------------------------------
Shares sold .............................. 139,459 $ 856,909
Automatic conversion of shares ........... 116,886 712,892
Shares issued to shareholders
in reinvestment of dividends ............. 41,655 254,097
------------- -------------
Total issued ............................. 298,000 1,823,898
Shares redeemed .......................... (610,512) (3,730,373)
------------- -------------
Net decrease ............................. (312,512) $ (1,906,475)
============= =============
--------------------------------------------------------------------------------
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM,
entered into a one-year, unsecured $1,000,000,000 credit agreement with The Bank
of New York and certain other institutions party thereto. The funds may borrow
money for temporary or emergency purposes to fund shareholder redemptions. The
agreement bears interest at the Federal Funds rate plus .50%. The Fund did not
borrow from the facility during the year ended June 30, 2000.
6. Capital Loss Carryforward:
At December 31, 1999, the Fund had a net capital loss carryforward of
approximately $189,177,000, of which $12,482,000 expires in 2002, $25,743,000
expires in 2003, $61,021,000 expires in 2006 and $89,931,000 expires in 2007.
This amount will be available to offset like amounts of any future taxable
gains.
18 & 19
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10788--6/00
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