MERRILL LYNCH
WORLD INCOME
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
December 31, 1999
<PAGE>
MERRILL LYNCH WORLD INCOME FUND, INC.
Officers and Directors
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Adrian Churn, Senior Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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Robert R. Martin, Director of Merrill Lynch World Income Fund, Inc. has recently
retired. The Fund's Board of Directors wishes Mr. Martin well in his retirement.
- --------------------------------------------------------------------------------
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
DEAR SHAREHOLDER
Fiscal Year in Review
As 1999 unfolded, the general tone in the high-yield and emerging markets was
cautious and pessimistic. These markets had suffered severe price erosion in the
second half of 1998 because of Russia's early August debt default, general
economic weakness in Asia and Latin America, and severe market illiquidity. The
general expectation was that the economic weak-ness abroad would spread to the
United States.
As the year progressed, it became increasingly apparent that the consensus was
wrong. The focus in the financial markets shifted from deflation to inflation,
and from falling interest rates to rising interest rates. Economists hastily
changed their forecasts, hoping that by year-end no one would remember their
flawed vision. The Federal Reserve Board reversed its late 1998 policy of
monetary easing and turned restrictive, raising the Federal Funds rate three
times to slow economic growth. Long-term interest rates soared. This environment
had a favorable side for lower-quality bonds. Perceptions of credit risk in
emerging countries eased as their economies resumed growth; and economically
sensitive industries such as paper, energy and metals experienced stronger
demand and improved pricing, thus easing credit concerns somewhat.
Merrill Lynch World Income Fund, Inc.'s Class A, Class B, Class C and Class D
Shares had total returns of +11.95%, +11.27%, +11.04% and +11.86%, respectively,
for the fiscal year ended December 31, 1999. (Fund results do not reflect sales
charges; results would be lower if sales charges were included. Complete
performance information can be found on pages 5-7 of this report to
shareholders.) The unmanaged J.P. Morgan Emerging Markets Bond Index (EMBI+) had
a total return of +25.98% for the year, while the unmanaged Credit Suisse First
Boston (CSFB) Domestic High Yield Index had a total return of +2.26%. This
compares to the dismal -8.43% return for ten-year Treasury notes for the same
period. Throughout the 12-month period, we believed the high-yield and emerging
markets offered attractive investment potential. The Fund benefited from a
fully-invested position and from its exposure to the high-yield and emerging
markets.
Portfolio Matters
The themes in the December quarter continued a trend that characterized the full
year. The US high-yield and emerging markets, the two major asset categories in
which the Fund is invested, performed well relative to US Treasury and
high-quality corporate bonds. The stronger tone in the US high-yield market
reflected a more constructive earnings outlook for economically sensitive
industries. The supply of new issues eased significantly from mid-November
through year-end causing buyers to focus on large and relatively liquid
secondary issues in the cable and communications sectors. Above average
performance in these sectors contributed to positive results. Emerging markets
benefited from a continuing normalization of economic activity around the globe.
The recovery in Russian fixed-income securities was particularly dramatic for
both the quarter and year.
For the three months ended December 31, 1999, the unmanaged CSFB Global High
Yield Index had a total return of +2.08% while the EMBI+ had a total return of
+12.58%. In contrast, ten-year US Treasury notes returned -3.50% for the same
period, reflecting concerns that strong momentum in the US economy would result
in further upward pressure on interest rates. For the December quarter, Merrill
Lynch World Income Fund, Inc.'s Class A, Class B, Class C and Class D Shares had
total returns of +7.20%, +7.16%, +6.98% and +7.31%, respectively.
Investment Outlook
We believe that last year's major trends are likely to continue at least through
the first half of 2000. We expect there to be con tinued upward pressure on
short-term interest rates. The good news regarding interest rates is that it
seems unlikely that long-term and intermediate-term interest rates will rise at
anywhere near the same magnitude as last year. In fact, the peak may be close to
current levels. Inflation has remained low. Therefore, real interest rates
(nominal interest rates minus inflation) are quite compelling. We expect the
improvement in credit quality to continue as companies sensitive to overall
economic activity make up about one-quarter to one-third of the high-yield
universe. Last year, Moody's Investors Service, Inc.'s annual default rate
(percentage of issuers basis) rose to 5.51% compared with 3.4% in 1998. However,
the rate on a trailing 12 month basis actually peaked in October at 5.96%. We
believe that the trend in this lagging indicator will continue lower, reflecting
the improvement in fundamentals that has been in place for some time.
Since our last shareholder report, further evidence of an improvement in
economic fundamentals in emerging markets continued to accumulate. For instance,
Brazil delivered better-than-expected revenue collection and fiscal deficit
numbers. Its currency has seen a moderate appreciation and its congress has
adopted a friendlier stance toward the government's fiscal reforms. Mexico's
economic activity is surging. Inflation is coming in lower than expected, and
the peso has strengthened, reflecting record high foreign direct investment
inflows and Mexico's rapid integration with the US economy through in-bond and
manufactured exports. In addition, the doubling of oil prices from their
February 1999 lows has benefited many countries' external payments situation and
government finances, in particular Mexico and Venezuela. Other commodities
relevant to emerging countries are on the upswing as well. Finally, market
technicals in emerging markets bonds remain favorable. Despite the recent rally,
emerging market bonds are still out of favor as an asset class. Trading volumes
and brokerage houses' bond inventories are a fraction of year-ago levels, and
high-yield spreads have limited potential supply of new securities from
sovereign and corporate bonds. Contributing to the upward momentum, Brazil,
Mexico and Argentina launched successful Brady bond repurchases, an unmistakable
sign that asset prices were exces- sively inexpensive in relation to supply and
demand conditions and underlying fundamentals.
Both the high-yield and emerging markets are attractive relative to Treasury
bonds, in our view. Despite significant tightening in 1999, yield spreads are
still above the historic norm. As of December 31, 1999, the yield spread between
the CSFB Global High Yield Index and Treasury issues of similar maturity was
about 5.75%. During most of the 1990s, these yield spreads ranged in the 4%-5%
area under normal market conditions. The EMBI+, an index that generally reflects
the structure of Merrill Lynch World Income Fund, Inc.'s emerging market
holdings, provided yields 8.25% higher than US Treasury securities of similar
maturity. We believe that these spreads will probably tighten further.
Portfolio Composition
Given our positive outlook on both the high-yield and emerging markets, we
maintained a fully-invested position. As of December 31, 1999, the Fund's asset
allocation was: US high-yield securities, 50% of net assets; emerging market
government issues, 30%; emerging market corporate bonds, 10%; and European
high-yield issues, 10%. All securities are US dollar denominated.
In the high-yield portion of the portfolio, we were overweighted relative to the
CSFB Domestic High Yield Index in healthcare, paper and gaming. At December 31,
1999, the Fund's quality was above the benchmark, and the Fund's duration was
approximately the same. In the emerging markets portion, we were modestly
overweighted relative to the EMBI+ in Brazil and Venezuela and underweighted in
Argentina.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch World Income Fund, Inc.,
and we look forward to assisting you with your financial needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
February 9, 2000
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To reduce shareholders' expenses, Merrill Lynch World Income Fund, Inc. will no
longer be printing and mailing quarterly reports to shareholders. We will
continue to provide you with reports on a semi-annual and annual basis.
- --------------------------------------------------------------------------------
2 & 3
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
IMPORTANT TAX INFORMATION
Of the monthly cash distributions paid by Merrill Lynch World Income Fund, Inc.
during its taxable year ended December 31, 1999, 49.79% are characterized as
return of capital distributions. The tax reporting treat- ment 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, 49.09% of the monthly cash distributions represent income from
foreign sources.
The Fund incurred foreign taxes which it has elected to pass through to its
shareholders. Your share of the Fund's total foreign taxes paid or withheld is
.2031% multiplied by the cash distributions paid during the year.
The foreign taxes paid or withheld represent taxes incurred by the Fund on
dividends and/or interest received by the Fund from foreign sources. Foreign
taxes paid or withheld should be included as foreign source taxable income with
an offsetting deduction from gross income or as a credit for taxes paid to
foreign governments. You should consult your tax adviser regarding the
appropriate treatment of foreign taxes paid.
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 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%
contin gent 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/
3 Month 12 Month Since Inception Standardized
As of December 31, 1999 Total Return Total Return Total Return 30-Day Yield
=========================================================================================================================
<S> <C> <C> <C> <C>
MLWorld Income Fund, Inc. Class A Shares +7.20% +11.95% +83.59% 10.10%
- -------------------------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class B Shares +7.16 +11.27 +29.55 9.72
- -------------------------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class C Shares +6.98 +11.04 +10.48 9.68
- -------------------------------------------------------------------------------------------------------------------------
MLWorld Income Fund, Inc. Class D Shares +7.31 +11.86 +13.90 9.85
=========================================================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the payable date. The Fund's ten-year/since inception periods are
ten years for Class A Shares, from 11/18/91 for Class B Shares and from
10/21/94 for Class C & Class D Shares.
4 & 5
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
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. Beginning and ending values are:
12/89 12/99
ML World Income Fund, Inc.+ -- Class A Shares* $9,600 $17,625
ML US Treasury/Agency 1-10 Years Index++ $10,000 $19,935
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. Beginning and ending values are:
11/18/91** 12/99
ML World Income Fund, Inc.+ -- Class B Shares* $10,000 $12,955
ML US Treasury/Agency 1-10 Years Index++ $10,000 $16,403
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. Beginning and ending values are:
10/21/94** 12/99
ML World Income Fund, Inc.+ -- Class C Shares* $10,000 $11,048
ML World Income Fund, Inc.+ -- Class D Shares* $9,600 $10,934
ML US Treasury/Agency 1-10 Years Index++ $10,000 $14,015
* 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. 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 12/31/99 +11.95% +7.47%
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Five Years Ended 12/31/99 + 3.12 +2.28
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Ten Years Ended 12/31/99 + 6.26 +5.83
- --------------------------------------------------------------------------------
+ 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 12/31/99 +11.27% +7.27%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 + 2.35 +2.35
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Inception (11/18/91) through 12/31/99 + 3.24 +3.24
- --------------------------------------------------------------------------------
* 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 12/31/99 +11.04% +10.04%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/99 + 2.26 + 2.26
- --------------------------------------------------------------------------------
Inception (10/21/94) through 12/31/99 + 1.94 + 1.94
- --------------------------------------------------------------------------------
* 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 12/31/99 +11.86% +7.38%
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Five Years Ended 12/31/99 + 2.86 +2.03
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Inception (10/21/94) through 12/31/99 + 2.54 +1.73
- --------------------------------------------------------------------------------
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
6 & 7
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
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$ 1,750,000 Central Bank of Nigeria, 6.25% due 11/15/2020++ $ 1,015,000 0.4%
Government
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Nigeria 1,015,000 0.4
====================================================================================================================================
<CAPTION>
Shares Held Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Nigeria Energy 1,750 Nigeria Oil (Warrants) (a) 0 0.0
--------------------------------------------------------------------------------------------------------------------
Total Warrants in Nigeria 0 0.0
====================================================================================================================================
Total Investments in African Securities
(Cost -- $1,092,866) 1,015,000 0.4
====================================================================================================================================
<CAPTION>
EUROPE Face Amount Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Bulgaria Foreign Republic of Bulgaria, Series A++:
Government US$ 2,300,000 Discount, 5.875% due 7/28/2024 1,845,750 0.7
Obligations 450,000 Front-Loaded Interest Rate Reduction Bonds,
2.75% due 7/28/2012 322,875 0.1
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Bulgaria 2,168,625 0.8
====================================================================================================================================
Luxembourg Wireless 10,000,000 Millicom International Cellular, 11.834%* 8,250,000 3.3
Communications -- due 6/01/2006
International
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Luxembourg 8,250,000 3.3
====================================================================================================================================
Poland Telecommunications 2,750,000 TPSA Finance BV, 7.75% due 12/10/2008 (f) 2,545,859 1.0
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Poland 2,545,859 1.0
====================================================================================================================================
Russia Foreign Russian Federation Bonds (Regulation S):
Government 3,725,000 11% due 7/24/2018 2,346,750 0.9
Obligations 3,500,000 12.75% due 6/24/2028 2,436,875 1.0
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Russia 4,783,625 1.9
====================================================================================================================================
Turkey Foreign 1,550,000 Republic of Turkey, 12% due 12/15/2008 1,650,750 0.7
Government
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Turkey 1,650,750 0.7
====================================================================================================================================
United Kingdom Cable -- 5,000,000 TeleWest Communications PLC, 8.406%* due 4/15/2009 (f) 3,150,000 1.2
International
--------------------------------------------------------------------------------------------------------------------
Industrials 5,000,000 Energis PLC, 9.75% due 6/15/2009 (f) 5,175,000 2.1
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United Kingdom 8,325,000 3.3
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Ireland Dental Equipment 500,000+ Phoenix Shannon PLC, 9.50% due 11/01/2000 (f) 5,000 0.0
$ Supplies
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in Ireland 5,000 0.0
====================================================================================================================================
Total Investments in European Securities
(Cost -- $27,154,983) 27,728,859 11.0
====================================================================================================================================
<CAPTION>
LATIN AMERICA Fixed-Income Investments
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Argentina Cable -- 2,500,000 Cablevision SA, 13.75% due 5/01/2009 (f) 2,443,750 1.0
International
--------------------------------------------------------------------------------------------------------------------
Foreign Republic of Argentina:
Government 15,745,000 9.75% due 9/19/2027 14,249,225 5.6
Obligations 2,500,000 Discount, 6% due 3/31/2023 1,993,750 0.8
4,550,000 Par, 6% due 3/31/2023++ (b) 2,991,625 1.2
------------ -----
19,234,600 7.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Argentina 21,678,350 8.6
====================================================================================================================================
Brazil Foreign Republic of Brazil:
Government 3,500,000 11.625% due 4/15/2004 3,500,000 1.4
Obligations 7,250,000 10.125% due 5/15/2027 6,220,500 2.5
11,707,476 'C', 8% due 4/15/2014++ (b)(c) 8,736,704 3.5
2,500,000 Discount, 6.938% due 4/15/2024 (b) 1,896,875 0.7
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Brazil 20,354,079 8.1
====================================================================================================================================
Colombia Utilities 5,846,400 TransGas de Occidente SA, 9.79% due 11/01/2010 (f) 5,071,752 2.0
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Colombia 5,071,752 2.0
====================================================================================================================================
Mexico Conglomerates 5,000,000 Dine, SA de CV, 8.75% due 10/15/2007 4,400,000 1.7
--------------------------------------------------------------------------------------------------------------------
Foreign United Mexican States:
Government 4,475,000 11.50% due 5/15/2026 5,336,437 2.1
Obligations 5,378,000 'W-A', Par, 6.25% due 12/31/2019 4,235,175 1.7
3,370,000 'W-B', Par, 6.25% due 12/31/2019 2,653,875 1.0
------------ -----
12,225,487 4.8
--------------------------------------------------------------------------------------------------------------------
Industrials 2,500,000 Petroleos Mexicanos, 9.50% due 9/15/2027 2,443,750 1.0
--------------------------------------------------------------------------------------------------------------------
Transportation 5,000,000 TFM, SA de CV, 13.896%* due 6/15/2009 3,200,000 1.3
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Mexico 22,269,237 8.8
====================================================================================================================================
Panama Foreign 1,700,000 Panama, Front-Loaded Interest Rate Reduction Bonds,
Government 4% due 7/17/2014++ 1,315,375 0.5
Obligations 600,000 Republic of Panama, 8.875% due 9/30/2027 504,000 0.2
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Panama 1,819,375 0.7
====================================================================================================================================
Peru Foreign 2,070,000 Republic of Peru, Front-Loaded Interest Rate Reduction
Government Bonds, 3.75% due 3/07/2017++ 1,278,225 0.5
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Peru 1,278,225 0.5
====================================================================================================================================
Venezuela Foreign Republic of Venezuela:
Government 6,750,000 9.25% due 9/15/2027 4,455,000 1.8
Obligations 2,833,320 DCB, 7% due 12/18/2007 (b)(c) 2,209,990 0.9
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Venezuela 6,664,990 2.7
====================================================================================================================================
Total Investments in Latin American Securities
(Cost -- $77,834,074) 79,136,008 31.4
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent of
NORTH AMERICA Industries Face Amount Fixed-Income Investments Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Canada Paper US$ 5,000,000 Doman Industries Limited, 8.75% due 3/15/2004 $ 4,300,000 1.7%
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Canada 4,300,000 1.7
====================================================================================================================================
United States Airlines 5,000,000 USAir Inc., 10.375% due 3/01/2013 4,800,000 1.9
--------------------------------------------------------------------------------------------------------------------
Automotive 5,000,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 4,581,290 1.8
--------------------------------------------------------------------------------------------------------------------
Cable Television 5,000,000 Century Communications Corporation, 9.50%
due 3/01/2005 5,000,000 2.0
--------------------------------------------------------------------------------------------------------------------
Chemicals 5,340,000 ISP Holdings Inc., Series B, 9.75% due 2/15/2002 5,346,675 2.1
--------------------------------------------------------------------------------------------------------------------
Communications 5,000,000 Impsat Corp., 12.375% due 6/15/2008 4,450,000 1.8
--------------------------------------------------------------------------------------------------------------------
Computer
Services -- 5,000,000 Hadco Corporation, 9.50% due 6/15/2008 4,837,500 1.9
Electronics
--------------------------------------------------------------------------------------------------------------------
Consumer Services 5,000,000 Protection One Alarm Monitoring, 8.625% due 1/15/2009 (f) 2,450,000 1.0
--------------------------------------------------------------------------------------------------------------------
Energy 5,000,000 Chesapeake Energy Corp., Series B, 8.50% due 3/15/2012 4,075,000 1.6
5,000,000 Ocean Energy Inc., Series B, 8.375% due 7/01/2008 4,800,000 1.9
10,670,000 +TransAmerican Energy Corp., Series B, 13.22%*
due 6/15/2002 1,067,000 0.4
------------ -----
9,942,000 3.9
--------------------------------------------------------------------------------------------------------------------
Gaming 10,000,000 +GB Property Funding Corp., 10.875% due 1/15/2004 6,975,000 2.8
5,000,000 Harrah's Operating Co. Inc., 7.875% due 12/15/2005 4,812,500 1.9
Jazz Casino Co. LLC:
3,434,066 5.987% due 11/15/2009 (c) 2,043,269 0.8
315,000 Contingent Notes, due 11/15/2009 (b)(d) 0 0.0
5,000,000 Trump Atlantic City Associates/Funding Inc., 11.25%
due 5/01/2006 4,050,000 1.6
------------ -----
17,880,769 7.1
--------------------------------------------------------------------------------------------------------------------
Health Care 5,000,000 Columbia/HCA Healthcare Corp., 7.25% due 5/20/2008 4,500,000 1.8
5,000,000 Fresenius Medical Capital Trust I, 9% due 12/01/2006 4,900,000 1.9
5,000,000 Kinetic Concepts, Inc., Series B, 9.625% due 11/01/2007 3,700,000 1.5
5,000,000 Tenet Healthcare Corp., Series B, 8.125% due 12/01/2008 4,650,000 1.8
------------ -----
17,750,000 7.0
--------------------------------------------------------------------------------------------------------------------
Hotels 5,000,000 HMH Properties, Inc., Series B, 7.875% due 8/01/2008 4,456,250 1.8
--------------------------------------------------------------------------------------------------------------------
Internet
Transport 5,000,000 PSINet, Inc., Series B, 10% due 2/15/2005 4,943,750 2.0
--------------------------------------------------------------------------------------------------------------------
Paper 5,000,000 Container Corporation of America, 9.75% due 4/01/2003 5,100,000 2.0
--------------------------------------------------------------------------------------------------------------------
Printing &
Publishing 5,000,000 Primedia, Inc., 7.625% due 4/01/2008 4,675,000 1.9
--------------------------------------------------------------------------------------------------------------------
Supermarkets 5,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 3,100,000 1.2
--------------------------------------------------------------------------------------------------------------------
Technology 250,000 EMC Corporation, 6% due 5/15/2004 342,188 0.1
--------------------------------------------------------------------------------------------------------------------
Telephone 8,500,000 Nextel International Inc., 14.044%* due 4/15/2008 5,015,000 2.0
Communications
--------------------------------------------------------------------------------------------------------------------
Telephony 5,000,000 Intermedia Communications Inc., Series B, 8.60%
due 6/01/2008 4,575,000 1.8
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the United States 109,245,422 43.3
====================================================================================================================================
<CAPTION>
Convertible Bonds
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Conglomerates 1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 (f) 805,000 0.3
--------------------------------------------------------------------------------------------------------------------
Environmental 1,063,000 Thermo TerraTech, Inc., 4.625% due 5/01/2003 (f) 872,989 0.3
--------------------------------------------------------------------------------------------------------------------
Instruments/
Scientific 500,000 ThermoQuest Corporation, 5% due 8/15/2000 (f) 488,750 0.2
--------------------------------------------------------------------------------------------------------------------
Medical Laser
Systems 2,000,000 Thermolase Corp., 4.375% due 8/05/2004 (f) 1,550,000 0.6
--------------------------------------------------------------------------------------------------------------------
Optical Equipment 1,430,000 Thermo Optek Inc., 5% due 10/15/2000 (f) 1,404,975 0.6
--------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds in the United States 5,121,714 2.0
====================================================================================================================================
<CAPTION>
Convertible Preferred Stocks, Preferred Stocks,
Shares Held Common Stocks & Warrants
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
United States Broadcasting/
Cable 137,257 +On Command Corporation 2,556,412 1.0
43,675 On Command Corporation (Warrants) (a) 267,509 0.1
------------ -----
2,823,921 1.1
--------------------------------------------------------------------------------------------------------------------
Conglomerates 105,000 +Polyphase Corporation** 52,500 0.0
52,500 Polyphase Corporation (Warrants)** (a) 525 0.0
52,500 Polyphase Corporation (Warrants)** (a) 2,100 0.0
------------ -----
55,125 0.0
--------------------------------------------------------------------------------------------------------------------
Containers 10,000 Owens-Illinois Inc., 4.75% 312,500 0.1
--------------------------------------------------------------------------------------------------------------------
Energy TCR Holdings Corp., Conv. Pfd. (e):
25,172 (Class B) 252 0.0
13,845 (Class C) 138 0.0
36,500 (Class D) 365 0.0
75,516 (Class E) 755 0.0
------------ -----
1,510 0.0
--------------------------------------------------------------------------------------------------------------------
Gaming 91,338 +JCC Holding Company (Class A) 256,888 0.1
--------------------------------------------------------------------------------------------------------------------
Manufactured 10,000 Fleetwood Capital Trust, 6% (f) 346,250 0.1
Housing
--------------------------------------------------------------------------------------------------------------------
Steel 50,000 Worthington Industries, Inc. (Convertible, Series
DECS into Rouge Steel Common Stock), 7.25% 375,000 0.2
--------------------------------------------------------------------------------------------------------------------
Utilities 18,232 +Citizens Utilities Company (Class B) 258,667 0.1
30,000 Citizens Utilities Trust, 5% 1,691,250 0.7
------------ -----
1,949,917 0.8
--------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks, Preferred Stocks,
Common Stocks & Warrants in the United States 6,121,111 2.4
====================================================================================================================================
Total Investments in North American Securities
(Cost -- $148,773,223) 124,788,247 49.4
====================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
PACIFIC BASIN/ Percent of
ASIA Industries Face Amount Fixed-Income Investments Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
China Transportation US$ 6,620,000 Cathay International Ltd., 13.50% due 4/15/2008 (f) $ 3,326,550 1.3%
10,000,000 GS Superhighway Holdings, 9.875% due 8/15/2004 6,392,280 2.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in China 9,718,830 3.9
====================================================================================================================================
Indonesia Paper 5,000,000 Indah Kiat International Finance, Series C,
12.50% due 6/15/2006 4,100,000 1.6
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in Indonesia 4,100,000 1.6
====================================================================================================================================
Philippines Foreign Government 850,000 Republic of the Philippines, 9.875% due 1/15/2019 836,187 0.3
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in the Philippines 836,187 0.3
====================================================================================================================================
South Korea Foreign Government 2,830,000 Republic of Korea, 8.875% due 4/15/2008 2,971,500 1.2
Obligations
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Income Investments in South Korea 2,971,500 1.2
====================================================================================================================================
Total Investments in Pacific Basin/Asian Securities
(Cost -- $24,631,450) 17,626,517 7.0
====================================================================================================================================
Total Investments (Cost -- $279,486,596) 250,294,631 99.2
Short Sales (Proceeds -- $18,472)** (2,250) 0.0
Other Assets Less Liabilities 1,956,699 0.8
------------ -----
Net Assets $252,249,080 100.0%
============ =====
====================================================================================================================================
</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.
** Covered Short Sales entered into as of December 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Shares Issue Value
- --------------------------------------------------------------------------------
4,500 Polyphase Corporation $(2,250)
- --------------------------------------------------------------------------------
Total (Proceeds -- $18,472) $(2,250)
=======
- --------------------------------------------------------------------------------
(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. See Notes to Financial Statements.
(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) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $1,500, representing 0.0% of net
assets.
- --------------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
- --------------------------------------------------------------------------------
TCR Holdings Corp.,
Conv. Pfd.:
(Class B) 12/10/1998 $1,510 $ 252
(Class C) 12/11/1998 775 138
(Class D) 12/10/1998 1,935 365
(Class E) 12/10/1998 4,758 755
- --------------------------------------------------------------------------------
Total $8,978 $1,510
====== ======
- --------------------------------------------------------------------------------
(f) 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.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of December 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $279,486,596) ............................ $ 250,294,631
Foreign cash ....................................................................... 539
Receivables:
Interest ......................................................................... $ 5,099,682
Securities sold .................................................................. 1,566,953
Capital shares sold .............................................................. 45,748
Dividends ........................................................................ 18,750
Paydowns ......................................................................... 12,000 6,743,133
-------------
Prepaid registration fees and other assets ......................................... 110,865
-------------
Total assets ....................................................................... 257,149,168
-------------
===================================================================================================================================
Liabilities: Common stocks sold short, at market value (proceeds -- $18,472) .................... 2,250
Payables:
Custodian bank ................................................................... 1,681,069
Dividends to shareholders ........................................................ 1,645,734
Capital shares redeemed .......................................................... 938,447
Investment adviser ............................................................... 146,283
Distributor ...................................................................... 133,031
Short sales ...................................................................... 1,382 4,545,946
-------------
Accrued expenses and other liabilities ............................................. 351,892
-------------
Total liabilities .................................................................. 4,900,088
-------------
===================================================================================================================================
Net Assets: Net assets ......................................................................... $ 252,249,080
=============
===================================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized .... $ 850,393
Consist of: Class B Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized .... 3,014,301
Class C Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized .... 44,081
Class D Shares of Common Stock, $.10 par value, 1,000,000,000 shares authorized .... 101,569
Paid-in capital in excess of par ................................................... 471,254,324
Accumulated realized capital losses on investments and foreign currency
transactions -- net ................................................................ (193,839,804)
Unrealized depreciation on investments and foreign currency transactions -- net .... (29,175,784)
-------------
Net assets ......................................................................... $ 252,249,080
=============
===================================================================================================================================
Net Asset Class A -- Based on net assets of $53,515,293 and 8,503,928 shares outstanding ..... $ 6.29
Value: =============
Class B -- Based on net assets of $189,571,980 and 30,143,006 shares outstanding ... $ 6.29
=============
Class C -- Based on net assets of $2,770,455 and 440,812 shares outstanding ........ $ 6.28
=============
Class D -- Based on net assets of $6,391,352 and 1,015,692 shares outstanding ...... $ 6.29
=============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned (net of $49,969 foreign withholding tax) ............. $ 28,913,037
Income: Dividends ......................................................................... 237,390
------------
Total income ...................................................................... 29,150,427
------------
===================================================================================================================================
Expenses: Investment advisory fees .......................................................... $ 1,779,833
Account maintenance and distribution fees -- Class B .............................. 1,681,951
Transfer agent fees -- Class B .................................................... 422,949
Professional fees ................................................................. 120,261
Printing and shareholder reports .................................................. 115,698
Transfer agent fees -- Class A .................................................... 99,002
Registration fees ................................................................. 78,587
Accounting services ............................................................... 68,902
Directors' fees and expenses ...................................................... 45,568
Custodian fees .................................................................... 40,046
Account maintenance and distribution fees -- Class C .............................. 25,638
Account maintenance fees -- Class D ............................................... 16,907
Transfer agent fees -- Class D .................................................... 10,713
Transfer agent fees -- Class C .................................................... 6,026
Pricing fees ...................................................................... 5,009
Other ............................................................................. 28,840
------------
Total expenses .................................................................... 4,545,930
------------
Investment income -- net .......................................................... 24,604,497
------------
===================================================================================================================================
Realized & Realized loss from:
Unrealized Gain Investments -- net .............................................................. (34,093,771)
(Loss) on Foreign currency transactions -- net ............................................ (13,565,075) (47,658,846)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Investments -- net .............................................................. 53,277,700
Net: Foreign currency transactions -- net ............................................ (90) 53,277,610
------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions ........................................................... 5,618,764
------------
Net Increase in Net Assets Resulting from Operations .............................. $ 30,223,261
============
===================================================================================================================================
</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: 1999 1998
=============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net .................................................... $ 24,604,497 $ 53,632,026
Realized loss on investments and foreign currency transactions -- net ....... (47,658,846) (114,431,739)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions -- net ...................................... 53,277,610 (93,571,294)
------------ -------------
Net increase (decrease) in net assets resulting from operations ............. 30,223,261 (154,371,007)
------------ -------------
=============================================================================================================================
Dividends to Investment income -- net:
Shareholders: Class A ................................................................... (2,788,824) (11,149,847)
Class B ................................................................... (9,141,407) (38,200,363)
Class C ................................................................... (129,850) (718,374)
Class D ................................................................... (294,216) (1,077,875)
Return of capital:
Class A ................................................................... (2,765,325) (541,850)
Class B ................................................................... (9,064,382) (1,856,425)
Class C ................................................................... (128,755) (34,910)
Class D ................................................................... (291,738) (52,382)
------------ -------------
Net decrease in net assets resulting from dividends to shareholders ......... (24,604,497) (53,632,026)
------------ -------------
=============================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions .......... (127,433,195) (247,332,328)
Transactions: ------------ -------------
=============================================================================================================================
Net Assets: Total decrease in net assets ................................................ (121,814,431) (455,335,361)
Beginning of year ........................................................... 374,063,511 829,398,872
------------ -------------
End of year ................................................................. $252,249,080 $ 374,063,511
============ =============
=============================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
The following per share data and ratios have been For the Year Ended
derived from information provided in the financial December 31,
statements. -------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................ $ 6.14 $ 8.83 $ 8.94 $ 8.69 $ 8.20
Operating -------- -------- -------- -------- ----------
Performance: Investment income -- net .......................... .54 .71 .64 .67 .72
Realized and unrealized gain (loss) on
investments and foreign
currency transactions -- net ...................... .15 (2.69) (.11) .25 .49
-------- -------- -------- -------- ----------
Total from investment operations .................. .69 (1.98) .53 .92 1.21
-------- -------- -------- -------- ----------
Less dividends:
Investment income -- net ........................ (.27) (.68) (.61) (.67) (.56)
Return of capital -- net ........................ (.27) (.03) (.03) -- (.16)
-------- -------- -------- -------- ----------
Total dividends ................................... (.54) (.71) (.64) (.67) (.72)
-------- -------- -------- -------- ----------
Net asset value, end of year ...................... $ 6.29 $ 6.14 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ................ 11.95% (23.43%) 6.15% 11.09% 15.35%
Return:* ======== ======== ======== ======== ==========
====================================================================================================================================
Ratios to Average Expenses .......................................... .93% .81% .76% .75% .80%
Net Assets: ======== ======== ======== ======== ==========
Investment income -- net .......................... 8.90% 9.36% 7.21% 7.71% 8.54%
======== ======== ======== ======== ==========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............ $ 53,515 $ 78,528 $161,347 $212,085 $ 260,806
Data: ======== ======== ======== ======== ==========
Portfolio turnover ................................ 37.04% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ==========
====================================================================================================================================
<CAPTION>
Class B
-------------------------------------------------------------
The following per share data and ratios have been For the Year Ended
derived from information provided in the financial December 31,
statements. -------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................ $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.19
Operating -------- -------- -------- -------- ----------
Performance: Investment income -- net .......................... .49 .65 .57 .61 .65
Realized and unrealized gain (loss) on
investments and foreign
currency transactions -- net ...................... .16 (2.70) (.11) .25 .50
-------- -------- -------- -------- ----------
Total from investment operations .................. .65 (2.05) .46 .86 1.15
-------- -------- -------- -------- ----------
Less dividends:
Investment income -- net ........................ (.25) (.62) (.54) (.61) (.51)
Return of capital -- net ........................ (.24) (.03) (.03) -- (.14)
-------- -------- -------- -------- ----------
Total dividends ................................... (.49) (.65) (.57) (.61) (.65)
-------- -------- -------- -------- ----------
Net asset value, end of year ...................... $ 6.29 $ 6.13 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ................ 11.27% (24.15%) 5.34% 10.25% 14.61%
Return:* ======== ======== ======== ======== ==========
====================================================================================================================================
Ratios to Average Expenses .......................................... 1.71% 1.59% 1.53% 1.52% 1.56%
Net Assets: ======== ======== ======== ======== ==========
Investment income -- net .......................... 8.12% 8.56% 6.43% 6.94% 7.77%
======== ======== ======== ======== ==========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............ $189,572 $283,018 $641,242 $988,209 $1,241,896
Data: ======== ======== ======== ======== ==========
Portfolio turnover ................................ 37.04% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ==========
====================================================================================================================================
<CAPTION>
Class C
-------------------------------------------------------------
The following per share data and ratios have been For the Year Ended
derived from information provided in the financial December 31,
statements. -------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................ $ 6.13 $ 8.82 $ 8.93 $ 8.68 $ 8.19
Operating -------- -------- -------- -------- ----------
Performace: Investment income -- net .......................... .49 .65 .56 .60 .64
Realized and unrealized gain (loss) on
investments and foreign
currency transactions -- net ...................... .15 (2.69) (.11) .25 .49
-------- -------- -------- -------- ----------
Total from investment operations .................. .64 (2.04) .45 .85 1.13
-------- -------- -------- -------- ----------
Less dividends:
Investment income -- net ........................ (.25) (.62) (.53) (.60) (.50)
Return of capital -- net ........................ (.24) (.03) (.03) -- (.14)
-------- -------- -------- -------- ----------
Total dividends ................................... (.49) (.65) (.56) (.60) (.64)
-------- -------- -------- -------- ----------
Net asset value, end of year ...................... $ 6.28 $ 6.13 $ 8.82 $ 8.93 $ 8.68
======== ======== ======== ======== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ................ 11.04% (24.11%) 5.28% 10.19% 14.38%
Return:* ======== ======== ======== ======== ==========
====================================================================================================================================
Ratios to Average Expenses .......................................... 1.76% 1.64% 1.58% 1.56% 1.65%
Net Assets: ======== ======== ======== ======== ==========
Investment income -- net .......................... 8.07% 8.53% 6.41% 6.85% 7.65%
======== ======== ======== ======== ==========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............ $ 2,771 $ 4,370 $ 11,738 $ 10,251 $ 5,406
Data: ======== ======== ======== ======== ==========
Portfolio turnover ................................ 37.04% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ==========
====================================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class D
-------------------------------------------------------------
The following per share data and ratios have been For the Year Ended
derived from information provided in the financial December 31,
statements. -------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................ $ 6.13 $ 8.83 $ 8.94 $ 8.69 $ 8.20
Operating -------- -------- -------- -------- ----------
Performance: Investment income -- net .......................... .53 .69 .61 .65 .70
Realized and unrealized gain (loss) on
investments and foreign
currency transactions -- net ...................... .16 (2.70) (.11) .25 .49
-------- -------- -------- -------- ----------
Total from investment operations .................. .69 (2.01) .50 .90 1.19
-------- -------- -------- -------- ----------
Less dividends:
Investment income -- net ........................ (.27) (.66) (.58) (.65) (.55)
Return of capital ............................... (.26) (.03) (.03) -- (.15)
-------- -------- -------- -------- ----------
Total dividends ................................... (.53) (.69) (.61) (.65) (.70)
-------- -------- -------- -------- ----------
Net asset value, end of year ...................... $ 6.29 $ 6.13 $ 8.83 $ 8.94 $ 8.69
======== ======== ======== ======== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ................ 11.86% (23.75%) 5.88% 10.82% 15.06%
Return:* ======== ======== ======== ======== ==========
====================================================================================================================================
Ratios to Average Expenses .......................................... 1.18% 1.06% 1.01% .99% 1.04%
Net Assets: ======== ======== ======== ======== ==========
Investment income -- net .......................... 8.66% 9.12% 6.97% 7.42% 8.23%
======== ======== ======== ======== ==========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............ $ 6,391 $ 8,148 $ 15,072 $ 14,369 $ 6,320
Data: ======== ======== ======== ======== ==========
Portfolio turnover ................................ 37.04% 148.67% 217.60% 208.53% 116.00%
======== ======== ======== ======== ==========
====================================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales charges.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch World Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. The Fund offers four classes of shares under
the Merrill Lynch Select Pricingsm System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund takes
possession of the underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the contract is
fully collateralized. 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
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a
18 & 19
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
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,
1999 and December 31, 1998 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) Custodian bank--The Fund recorded an amount payable to the custodian bank
reflecting an overdraft, which resulted from management estimates of available
cash.
(k) 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 $12,250,200 have been reclassified between paid-in
capital in excess of par and accumulated net realized capital losses. 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 the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
.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 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, 1999, MLFD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the Fund's
Class A and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A .................................................... $292 $3,003
Class D .................................................... $399 $3,681
- --------------------------------------------------------------------------------
For the year ended December 31, 1999, MLPF&S received contingent deferred sales
charges of $210,016 and $1,084 relating to transactions in Class B and Class C
Shares, respectively.
During the year ended December 31, 1999, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $857 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, PFD, PSI, FDS, and/or ML & Co.
20 & 21
<PAGE>
Merrill Lynch World Income Fund, Inc., December 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1999 were $107,285,178 and $226,881,631, respectively.
Net realized losses for the year ended December 31, 1999 and unrealized gains
(losses) as of December 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Gains (Losses)
- --------------------------------------------------------------------------------
Investments:
Long-term ............................... $(30,206,001) $(29,191,964)
Short-term .............................. (3,887,770) --
Short sales ............................. -- 16,222
------------ ------------
Total investments ........................ $(34,093,771) $(29,175,742)
------------ ------------
Currency transactions:
Foreign currency transactions ........... (13,565,075) (42)
------------ ------------
Total currency transactions .............. (13,565,075) (42)
------------ ------------
Total .................................... $(47,658,846) $(29,175,784)
============ ============
- --------------------------------------------------------------------------------
As of December 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $31,463,383, of which $6,639,731 related to appreciated
securities and $38,103,114 related to depreciated securities. The aggregate cost
of investments at December 31, 1999 for Federal income tax purposes was
$281,758,014.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$127,433,195 and $247,332,328 for the years ended December 31, 1999 and December
31, 1998, respectively.
Transactions in shares of capital for each class were as follows:
- --------------------------------------------------------------------------------
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 A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 658,427 $ 5,073,461
Shares issued to shareholders
in reinvestment of dividends ........... 537,929 4,232,303
---------- ------------
Total issued ........................... 1,196,356 9,305,764
Shares redeemed ........................ (6,663,859) (49,352,504)
---------- ------------
Net decrease ........................... (5,467,503) $(40,046,740)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the 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 B Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 3,319,965 $ 25,131,106
Shares issued to shareholders
in reinvestment of dividends ........... 2,268,590 17,966,966
----------- -------------
Total issued ........................... 5,588,555 43,098,072
Automatic conversion of shares ......... (139,633) (1,135,306)
Shares redeemed ........................ (31,933,817) (242,493,230)
----------- -------------
Net decrease ........................... (26,484,895) $(200,530,464)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the 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 C Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 334,228 $ 2,657,390
Shares issued to shareholders
in reinvestment of dividends ............. 58,648 461,639
--------- -----------
Total issued ............................. 392,876 3,119,029
Shares redeemed .......................... (1,010,314) (7,335,844)
--------- -----------
Net decrease ............................. (617,438) $(4,216,815)
========= ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the 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)
======== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,423,304 $ 11,887,210
Automatic conversion of shares ......... 139,526 1,135,306
Shares issued to shareholders
in reinvestment of dividends ........... 78,047 616,623
--------- ------------
Total issued ........................... 1,640,877 13,639,139
Shares redeemed ........................ (2,019,085) (16,177,448)
--------- ------------
Net decrease ........................... (378,208) $ (2,538,309)
========= ============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At December 31, 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 and $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.
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, 1999, 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, 1999 by correspondence with the custodian. 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, 1999, 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 11, 2000
22 & 23
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
World Income
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10788--12/99
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