MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1997
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 datedand are
subject to change.
Merrill Lynch
Short-Term Global
Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
Printed on post-consumer recycled paper
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Senior Vice President
Alex V. Bouzakis, Vice President
Donald C. Burke, Vice President
Edward F. Gobora, Vice President
David B. Walter, Vice President
Stephen Yardley, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
DEAR SHAREHOLDER
Portfolio Review
During the six-month period ended June 30, 1997, the portfolio was
constructed to overweight dollar bloc bond markets as counterpart
markets continued to trade at lower yields. In addition, the US
dollar appreciated while we continued with our dollar hedges. The
currency hedging helped reduce the negative impact of US dollar
strength on net asset value, while the higher relative yields in the
bond markets enhanced income.
The strength of the US economy and interest rate differentials in
favor of the US fixed-income market were significant fundamental
factors propelling the dollar higher against the majority of global
currencies. In addition, various comments by US Government officials
displayed the administration's preference for a stronger dollar.
Similar to our strategy for the majority of 1996, we kept the
portfolio primarily hedged into the US dollar to offset any currency
depreciation of non-dollar assets.
In April, the US dollar continued to reach new highs versus both the
Deutschemark and the yen. US Treasury Secretary Rubin stated that
the US dollar's strength benefited the US economy. However, US
officials expressed concern over the widening trade deficit with
Japan, and both US and Japanese officials agreed Japan should
promote economic growth led by domestic demand.
Bond investors, especially in the dollar bloc countries, focused on
the possibility of inflation pressures emerging as economies
displayed rising growth patterns. In the United States, declines in
unemployment and upward pressure on wage rates led to a volatile
bond market. However, favorable comments by Federal Reserve Board
(FRB) Chairman Alan Greenspan detailing the 0.05%--1.5%
overstatement of inflation in the current calculation of the
Consumer Price Index allowed long-term US interest rates to remain
below 7%.
Our fixed-income positions emphasized the short-term ends of the
markets. In addition to the United States, our exposures were in the
following relatively high-yielding markets: Italy, New Zealand,
Spain, Ireland, and Australia. Positions in Canada and the United
Kingdom were also maintained. These positions created a strong
income stream while limiting price volatility. The portfolio's bond
positions remained primarily at the short-term end of the yield
curves of higher-yielding countries, while currency exposures were
generally hedged into the US dollar.
<PAGE>
Market Review
Finance ministers and central bank governors of the Group of Seven
Industrialized Nations met to discuss the foreign exchange and
financial markets. They expressed their belief that the major
misalignments in the foreign exchange markets noted in their April
1995 meeting were corrected. Officials also agreed that exchange
rates should reflect economic fundaments and excess volatility was
undesirable.
North America
At the March US Federal Open Market Committee (FOMC) meeting, the
Federal Funds rate was increased by 25 basis points (0.25%) to
contain inflationary pressures and to respond to continued strength
in the economy. FRB Chairman Alan Greenspan softened investors'
reaction by indicating earlier in the month that he wanted to act
preemptively. In the second part of his Humphrey-Hawkins testimony,
Greenspan stated that US stocks aren't overvalued as long as
earnings growth supports rising share prices. However, he indicated
that the US economy was running very close to full capacity. He
added that there were few signs of imbalance in the economy.
Nonetheless, he stressed that the United States needs to maintain
price stability.
At the May meeting, the FOMC left short-term interest rates
unchanged since the US economy is expected to slow down without
further monetary restraint. In addition, a budget deal struck
between the White House and Congress is designed to balance the
budget by 2002. The plan also includes new spending programs and
an increase in education spending. Criticism about the budget
stemmed from the belief that government spending reductions may
prove difficult to implement and that the economic growth estimates
were too optimistic.
In Canada, the ruling Liberals retained power after Canadian
elections, although with a smaller majority. Prime Minister Jean
Chretien stated he would continue to improve the economy and reduce
the budget deficit. In response to an excessive easing in monetary
conditions and a weaker Canadian dollar, the Bank of Canada raised
interest rates 25 basis points, bringing the target band for
overnight money to 3%--3.5% and the bank rate to 3.5%. We remained
fully hedged in Canada.
Europe
Most European bond markets remained firm with long-term interest
rates declining as inflation results continued to surprise on the
downside. In Spain, consumer prices rose on an annualized basis to
2.9%, while Sweden displayed a -0.2% annualized. These inflation
results caused further monetary policy easing by the central banks
of various countries such as France, Portugal, Italy and Spain,
where short-term borrowing rates were reduced.
<PAGE>
However, in the United Kingdom, strength in domestic demand and
above-trend economic growth kept retail price inflation above 3%. As
a result, Bank of England (BOE) Governor Eddie George stressed the
importance of a preemptive interest rate increase and kept short-
term interest rates relatively firm.
February was dominated by continued strength in the US dollar. In
Germany, high unemployment and deteriorating confidence in Germany's
economic performance contributed to the Deutschemark depreciation.
However, Bundesbank President Tietmeyer stated that he was against
any further rise in the US dollar against the Deutschemark, and a
decrease in short-term interest rates was unlikely in the near
future. In addition, Finance Minister Mitsuzuka stated an excessive
weakening of the yen was unlikely as currencies should reflect
economic fundamentals.
Discussions in Italy focused on participation in the European
Monetary Union (EMU). The EMU statistical office approved Italy's
tax computation, which increased the government's chances of meeting
the deficit/gross domestic product (GDP) requirement necessary for
EMU participation. Various European leaders commented on Italy's
prospects for EMU entry and the Italian government reaffirmed its
commitment to meeting EMU criteria. The lower house and the senate
approved the 1997 budget which will reduce the public sector deficit
by 37.2 billion Italian lira during the year. An approved mini-
budget will reduce the budget deficit by 15 trillion Italian lira.
The supplementary budget will be critical in reducing the deficit to
3% of GDP, thereby meeting the deficit requirement set by the
Maastricht Treaty.
The Italian's government three-year economic and financial plan is
intended to reduce the deficit by an additional 25 trillion Italian
lira in 1998 and reduce the deficit/GDP ratio to 2.8%. While the
government is making every possible effort to qualify for EMU in the
first round, it is uncertain that they will achieve all of their
optimistic targets.
Early in the period, Europe focused on the potential of a delay in
the EMU start date because of the lack of strong economic growth in
some nations. Officials stressed the importance of a timely start
while adhering strictly to the Maastricht criteria. Germany's
Finance Minister Waigel stated they would strive to meet the
criteria to join EMU on time, and also study further spending cuts
to ensure meeting the 3% GDP/deficit target.
Later in the period, the European Union Commission forecasted that
13 of the 15 member states would meet the Maastricht Treaty budget
deficit criteria in 1997, excluding Greece and Italy. However, it
indicated that Germany and France risk exceeding the 3% deficit/GDP
target; and forecasted that Italy's deficit/GDP ratio would reach
3.9% in 1998.
<PAGE>
After a victory in the French elections, Socialist leader Lionel
Jospin was asked by President Chirac to form a government with
support of the Greens and the Communists (needed to form a majority
in the National Assembly). While the Socialist party supports EMU,
it is in favor of a flexible interpretation to the Maastricht Treaty
and a broader EMU, one which includes Italy and Spain. Jospin also
stated he doesn't feel the obligation to respect the stability pact
which limits budget deficits after the start of EMU. This may
pressure French bonds going forward.
The UK Labour government gained a landslide victory in the May 1,
1997 general elections and Gordon Brown took over as Chancellor of
The Exchequer. Shortly after the election, the BOE was given
operational responsibility for setting short-term interest rates. To
reduce the influence of politics on monetary policy, a new committee
was established comprised of central bank officials and outside
advisors. The Monetary Policy Council meets monthly and interest
rate decisions are based on a majority vote.
Near mid-year 1997, the council raised official interest rates to
6.5% from 6.25% in response to growing inflation pressures. This
marks the first time the BOE changed monetary policy without
instruction from the government. Chancellor Brown also announced his
change of the inflation target from 2.5% or less to a range of
1.5%--3.5%, with a target of 2.5%.
Pacific Basin
During the six months ended June 30, 1997, the New Zealand currency
declined as Federal Reserve Governor Brash stated that the exchange
rate had risen to undesirable levels. In addition, the Australian
currency was under pressure after the largest trade deficit in 12
months was reported.
The downward movement in average wage growth, subdued unemployment
growth and a lower inflation rate prompted the Reserve Bank of
Australia to again reduce its key short-term interest rate 50 basis
points to 5.50%. Investors were surprised by the central bank's
action because in his semi-annual "Statement of Monetary Policy" to
Parliament, Reserve Bank of Australia Governor Ian Macfarland
stressed that monetary policy was set appropriately for recovery,
and that the 1997 economic growth outlook was upbeat. He also
expressed concern about wages, and the high unemployment rate.
However, leading indicators point to a pickup in employment growth.
Macfarland further stated that the effect of the three 50 basis
point cuts in second half 1996 have yet to fully take effect.
<PAGE>
In March, Japan announced a package of measures aimed at boosting
liquidity in Japan's land market. Under the deal, the government
will purchase land held as collateral for loans. The package will
make it easier for banks to convert their bad land loans into cash
and help banks resolve the bad loan situation.
Japan's unadjusted customs cleared trade surplus widened for the
first time since November 1994. US Treasury Secretary Rubin
expressed concern over the growing trade deficit with Japan. US
officials encouraged the Japanese government to ensure economic
recovery is led by strong domestic demand and to avoid a significant
increase in its trade surplus. Finance Minister Mitsuzuka stated
that the economy is on a strong and firm recovery trend. However,
the April 1 hike in the consumption tax from 3% to 5% could slow the
economy.
As we approached mid-year 1997, Japan's growing trade surplus slowed
the US dollar's rise versus the yen. The overall tone of the Tankan
quarterly survey of corporate sentiment indicated that larger
manufacturers, which are more export biased, were doing well while
smaller companies and non-manufacturers did not show improved
sentiment. Ministry of Finance official Sakakibara said Japan would
take decisive action to counter excessive swings in the foreign
exchange markets.
In Conclusion
We thank you for your continued investment in Merrill Lynch Short-
Term Global Income Fund, Inc., and we look forward to reviewing our
outlook with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Alex V. Bouzakis)
Alex V. Bouzakis
Vice President and
Senior Portfolio Manager
<PAGE>
(Edward F. Gobora)
Edward F. Gobora
Vice President and
Portfolio Manager
(David B. Walter)
David B. Walter
Vice President and
Portfolio Manager
(Stephen Yardley)
Stephen Yardley
Vice President and
Portfolio Manager
August 4, 1997
PERFORMANCE DATA
About Fund
Performance
<PAGE>
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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, as
detailed in the Fund's prospectus. If you were a Class A shareholder
prior to October 21, 1994, your Class A Shares were redesignated to
Class D Shares on October 21, 1994. However, in the case of certain
eligible investors, the shares were simultaneously exchanged for
Class A Shares.
* 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.)
* 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.
* 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 "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" 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.
PERFORMANCE DATA (continued)
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.11 $7.90 -- $0.103 -1.33%
1995 7.90 7.91 -- 0.537 +7.14
1996 7.91 7.89 -- 0.500 +6.29
1/1/97--6/30/97 7.89 7.81 -- 0.196 +1.66
------
Total $1.336
Cumulative total return as of 6/30/97: +14.23%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.404 +3.40%
1991 9.93 9.68 -- 0.885 +6.63
1992 9.68 8.69 -- 0.687 -3.39
1993 8.69 8.63 -- 0.581 +6.15
1994 8.63 7.89 -- 0.463 -3.30
1995 7.89 7.90 -- 0.474 +6.31
1996 7.90 7.81 -- 0.438 +4.52
1/1/97--6/30/97 7.81 7.74 -- 0.166 +1.39
------
Total $4.098
Cumulative total return as of 6/30/97: +23.19%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.11 $7.89 -- $0.079 -1.74%
1995 7.89 7.72 -- 0.435 +3.48
1996 7.72 7.67 -- 0.422 +4.93
1/1/97--6/30/97 7.67 7.60 -- 0.162 +1.36
------
Total $1.098
Cumulative total return as of 6/30/97: +8.13%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.436 +3.73%
1991 9.93 9.68 -- 0.941 +7.23
1992 9.68 8.70 -- 0.735 -2.79
1993 8.70 8.64 -- 0.625 +6.69
1994 8.64 7.89 -- 0.506 -2.91
1995 7.89 7.90 -- 0.517 +6.87
1996 7.90 7.81 -- 0.480 +5.09
1/1/97--6/30/97 7.81 7.74 -- 0.185 +1.66
------
Total $4.425
Cumulative total return as of 6/30/97: +27.87%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
6/30/97 3/31/97 6/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $7.81 $7.83 $7.85 -0.51% -0.26%
Class B Shares* 7.74 7.75 7.84 -1.28 -0.13
Class C Shares* 7.60 7.62 7.70 -1.30 -0.26
Class D Shares* 7.74 7.76 7.84 -1.28 -0.26
Class A Shares--Total Return* +5.34(1) +1.12(2)
Class B Shares--Total Return* +3.72(3) +1.05(4)
Class C Shares--Total Return* +3.66(5) +0.90(6)
Class D Shares--Total Return* +4.28(7) +1.05(8)
Class A Shares--Standardized 30-day Yield 4.53%
Class B Shares--Standardized 30-day Yield 3.89%
Class C Shares--Standardized 30-day Yield 3.87%
Class D Shares--Standardized 30-day Yield 4.26%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.449 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.107 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.385 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.090 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.376 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.088 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.427 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.101 per share ordinary
income dividends.
</TABLE>
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
<PAGE>
Class A Shares*
Year Ended 6/30/97 +5.34% +1.13%
Inception (10/21/94) through 6/30/97 +5.07 +3.49
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +3.72% -0.23%
Five Years Ended 6/30/97 +1.52 +1.52
Inception (8/3/90) through 6/30/97 +3.07 +3.07
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/97 +3.66% +2.67%
Inception (10/21/94) through 6/30/97 +2.95 +2.95
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/97 +4.28% +0.10%
Five Years Ended 6/30/97 +2.03 +1.20
Inception (8/3/90) through 6/30/97 +3.62 +3.01
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Face Maturity Interest Value Percent of
COUNTRIES Amount Date Issue Rate++ (Note 1a) Net Assets
<S> <S> <C> <S> <S> <C> <C> <C>
Australia A$ 13,950,000 7/31/97 Australian Treasury Bill (3) 5.27 % $ 10,412,392 4.98%
Total Investments in Australia
(Cost--$10,399,410) 10,412,392 4.98
Canada C$ 3,258,000 9/02/97 General Electric Capital Corp. (2) 6.25 2,374,077 1.13
3,500,000 2/01/00 Government of Canada (1) 5.50 2,560,239 1.22
5,235,000 12/19/97 Toyota Motor Credit Corp. (2) 6.25 3,838,494 1.84
Total Investments in Canada
(Cost--$8,906,966) 8,772,810 4.19
Germany DM 9,060,000 7/11/97 Depfa Bank (2) 3.125 5,198,088 2.49
7,045,968 7/14/97 Grand Cayman, Time Deposit (2) 2.96 4,043,365 1.93
4,576,575 7/14/97 Grand Cayman, Time Deposit (2) 3.00 2,626,291 1.26
7,662,220 7/23/97 Grand Cayman, Time Deposit (2) 2.96 4,397,004 2.10
Total Investments in Germany
(Cost--$17,239,985) 16,264,748 7.78
Italy Lit 4,990,000,000 10/14/97 ABB Finance Inc. (2) 11.40 2,974,746 1.42
3,420,000,000 9/05/97 Abbey National Treasury Services
PLC (2) 10.70 2,022,389 0.97
14,960,000,000 8/01/97 Buoni Poliennali Del Tesoro
(Italian Government Bonds) (1) 8.50 8,795,963 4.20
Total Investments in Italy
(Cost--$15,356,609) 13,793,098 6.59
New Zealand NZ$ 30,000,000 9/17/97 New Zealand Treasury Bill (1) 7.40 20,038,098 9.58
Total Investments in New Zealand
(Cost--$20,499,241) 20,038,098 9.58
United Pound 2,135,000 8/10/99 Abbey National PLC (2) 6.00 3,464,228 1.66
Kingdom Sterling 1,300,000 2/25/00 Daimler Benz UK (2) 7.00 2,130,336 1.02
11,000,000 8/06/97 United Kingdom Gilt (1) 7.00 18,293,000 8.74
Total Investments in the
United Kingdom (Cost--$23,682,137) 23,887,564 11.42
<PAGE>
United US$ 7,000,000 7/22/97 Alpine Securitization Co. (2) 5.57 6,977,256 3.34
States 8,000,000 7/10/97 Deutsche Bank Financial Inc. (2) 5.51 7,988,980 3.82
8,000,000 7/17/97 Falcon Asset Securitization Corp. (2) 5.54 7,980,302 3.81
11,970,000 7/03/97 Federal Farm Credit Banks (3) 5.42 11,966,396 5.72
4,200,000 7/01/97 General Motors Acceptance Corp. (2) 6.25 4,200,000 2.01
6,000,000 7/10/97 Monte Rosa Capital Corp. (2) 5.55 5,991,675 2.86
8,000,000 7/18/97 Old Line Funding Corp. (2) 5.58 7,978,920 3.81
7,000,000 7/02/97 Preferred Receivable Funding Corp. (2) 5.57 6,998,917 3.35
45,000,000 10/15/97 US Treasury Note (1) 8.75 45,414,900 21.71
8,000,000 7/21/97 Windmill Funding Corp. (2) 5.57 7,975,244 3.81
Total Investments in the
United States (Cost--$113,546,362) 113,472,590 54.24
Total Investments (Cost--$209,630,710) 206,641,300 98.78
OPTIONS Nominal Value Strike
WRITTEN Covered by Options Price
Call 3,000,000 Canadian Bonds, 5.50% 2/01/00,
Options expiring July 1997 C$ 101.25 (153) (0.00)
Written
Total Options Written
(Premiums Received--$2,394) (153) (0.00)
Total Investments, Net of Options Written (Cost--$209,628,316) 206,641,147 98.78
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 310,446 0.15
Other Assets Less Liabilities 2,235,880 1.07
------------ -------
Net Assets $209,187,473 100.00%
============ =======
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--45.45%
(2)Financial Services--42.63%
(3)Sovereign/Regional Government Obligations--Agency--10.70%
++Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates shown
represent the yield-to-maturity at the time of purchase by the Fund.
Other securities bear interest at the rates shown, payable at fixed
dates or upon maturity. Interest rates on floating rate securities
are adjusted periodically based on appropriate indexes; the interest
rates shown are those in effect at June 30, 1997.
++++Forward foreign exchange contracts as of June 30, 1997 are as
follows:
<PAGE>
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Purchased Date (Note 1d)
DM 7,288,990 July 1997 $ (45,859)
NZ$ 17,000,000 July 1997 (213,979)
Total (US$ Commitment--$15,964,929) (259,838)
----------
Foreign Currency Sold
A$ 13,669,331 July 1997 (14,052)
C$ 12,495,625 July 1997 (48,095)
Chf 12,211,022 July 1997 101,107
DM 20,843,664 July 1997 104,180
Pound 14,963,791 July 1997 (183,444)
Sterling
Lit 24,573,130,679 July 1997 127,147
NZ$ 45,577,569 July 1997 483,441
Total (US$ Commitment--$110,455,247) 570,284
----------
Total Unrealized Appreciation on
Forward Foreign Exchange Contracts--Net $ 310,446
==========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$209,630,710) (Note 1a) $ 206,641,300
Unrealized appreciation on forward foreign exchange
contracts (Note 1d) 310,446
Cash 500
Foreign cash (Note 1c) 2,472,553
Receivables:
Interest $ 2,659,940
Capital shares sold 1,007,825
Forward foreign exchange contracts (Note 1d) 2,954 3,670,719
--------------
Prepaid registration fees and other assets (Note 1g) 165,301
--------------
Total assets 213,260,819
--------------
<PAGE>
Liabilities: Options written, at value (premiums received--$2,394)
(Notes 1a & 1d) 153
Payables:
Securities purchased 2,182,270
Capital shares redeemed 790,991
Dividends to shareholders (Note 1h) 316,382
Distributor (Note 2) 120,502
Investment adviser (Note 2) 92,996 3,503,141
--------------
Accrued expenses and other liabilities 570,052
--------------
Total liabilities 4,073,346
--------------
Net Assets: Net assets $ 209,187,473
==============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 1,000,000,000 shares authorized $ 88
Class B Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 2,500,161
Class C Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 2,029
Class D Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 201,581
Paid-in capital in excess of par 254,133,070
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 5) (44,959,986)
Unrealized depreciation on investments and foreign currency
transactions--net (2,689,470)
--------------
Net assets $ 209,187,473
==============
Net Asset Class A--Based on net assets of $6,863 and 879
Value: shares outstanding $ 7.81
==============
Class B--Based on net assets of $193,425,997 and
25,001,606 shares outstanding $ 7.74
==============
Class C--Based on net assets of $154,331 and
20,296 shares outstanding $ 7.60
==============
Class D--Based on net assets of $15,600,282 and
2,015,813 shares outstanding $ 7.74
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1997
<S> <S> <C> <C>
Investment Income Interest and discount earned (net of $19,646 foreign withholding tax) $ 7,254,031
(Notes 1e & 1f): -------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) 797,428
Investment advisory fees (Note 2) 631,210
Transfer agent fees--Class B (Note 2) 180,486
Professional fees 72,586
Accounting services (Note 2) 54,919
Registration fees (Note 1g) 40,330
Custodian fees 39,974
Printing and shareholder reports 31,779
Account maintenance fees--Class D (Note 2) 20,898
Directors' fees and expenses 20,818
Transfer agent fees--Class D (Note 2) 10,738
Account maintenance and distribution fees--Class C (Note 2) 647
Transfer agent fees--Class C (Note 2) 118
Transfer agent fees--Class A (Note 2) 2
-------------
Total expenses 1,901,933
-------------
Investment income--net 5,352,098
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ (364,894)
(Loss) on Foreign currency transactions--net 2,287,041 1,922,147
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (4,963,599)
(Notes 1c, 1d, Foreign currency transactions--net 699,220 (4,264,379)
1f & 3): ------------- -------------
Net realized and unrealized loss on investments and foreign
currency transactions (2,342,232)
-------------
Net Increase in Net Assets Resulting from Operations $ 3,009,866
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, Dec. 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 5,352,098 $ 18,315,692
Realized gain (loss) on investments and foreign currency
transactions--net 1,922,147 (5,717,284)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (4,264,379) 1,758,809
------------- -------------
Net increase in net assets resulting from operations 3,009,866 14,357,217
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (86) (2,092)
Shareholders Class B (4,916,354) (14,841,426)
(Note 1h): Class C (3,723) (3,463)
Class D (431,935) (1,135,414)
Return of capital:
Class A -- (305)
Class B -- (2,166,725)
Class C -- (506)
Class D -- (165,761)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (5,352,098) (18,315,692)
------------- -------------
Capital Share Net decrease in net assets derived from capital share transactions (45,995,675) (138,983,406)
Transactions ------------- -------------
(Note 4):
Net Assets: Total decrease in net assets (48,337,907) (142,941,881)
Beginning of period 257,525,380 400,467,261
------------- -------------
End of period $ 209,187,473 $ 257,525,380
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
<PAGE>
For the For the
The following per share data and ratios have For the Six For the Period For the Period
been derived from information provided in the Months Year Nov. 1, Year Oct. 21,
financial statements. Ended Ended 1995 to Ended 1994++ to
June 30, Dec. 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1997 1996++++ 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.89 $ 7.91 $ 7.93 $ 8.11 $ 8.11
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .21 .54 .09 .49 .01
Realized and unrealized loss on investments
and foreign currency transactions--net (.08) (.06) (.02) (.12) --
-------- -------- -------- -------- --------
Total from investment operations .13 .48 .07 .37 .01
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.21) (.44) (.09) (.27) --
Return of capital--net -- (.06) -- (.28) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.21) (.50) (.09) (.55) (.01)
-------- -------- -------- -------- --------
Net asset value, end of period $ 7.81 $ 7.89 $ 7.91 $ 7.93 $ 8.11
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.66%+++ 6.29% .92%+++ 4.62% .12%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses .89%* .95% 1.02%* .96% .97%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 5.46%* 6.45% 6.91%* 6.75% 6.28%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 7 $ 3 $ 75 $ 66 $ 59
Data: ======== ======== ======== ======== ========
Portfolio turnover 154.34% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
<PAGE>
The following per share data
and ratios have been derived For the For the
from information provided Six For the Period
in the financial statements. Months Year Nov. 1,
Ended Ended 1995 to
Increase (Decrease) in Net June 30, Dec. 31, Dec. 31, For the Year Ended October 31,
Asset Value: 1997 1996++++ 1995++++ 1995++++ 1994++++ 1993
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.81 $ 7.90 $ 7.93 $ 8.10 $ 8.65 $ 8.85
Performance: ---------- ---------- ---------- ---------- ---------- ----------
Investment income--net .18 .44 .08 .47 .50 .57
Realized and unrealized
loss on investments and
foreign currency
transactions--net (.07) (.09) (.03) (.15) (.58) (.20)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations .11 .35 .05 .32 (.08) .37
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.18) (.38) (.08) (.24) -- --
Return of capital--net -- (.06) -- (.25) (.47) (.57)
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (.18) (.44) (.08) (.49) (.47) (.57)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period $ 7.74 $ 7.81 $ 7.90 $ 7.93 $ 8.10 $ 8.65
========== ========== ========== ========== ========== ==========
Total Investment Based on net asset value
Return:** per share 1.39%+++ 4.52% .66%+++ 3.96% (1.02%) 4.63%
========== ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.70%* 1.74% 1.80%* 1.73% 1.52% 1.60%
Net Assets: ========== ========== ========== ========== ========== ==========
Investment income--net 4.62%* 5.62% 6.13%* 5.95% 5.68% 7.26%
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $ 193,426 $ 239,419 $ 376,049 $ 398,136 $ 750,750 $1,664,602
========== ========== ========== ========== ========== ==========
Portfolio turnover 154.34% 349.34% 25.09% 312.13% 259.50% 284.62%
========== ========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
Class C
For the For the
The following per share data and ratios have For the Six For the Period For the Period
been derived from information provided in the Months Year Nov. 1, Year Oct. 21,
financial statements. Ended Ended 1995 to Ended 1994++ to
June 30, Dec. 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1997 1996++++ 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.67 $ 7.72 $ 7.74 $ 8.10 $ 8.11
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .17 .38 .08 .35 .01
Realized and unrealized loss on investments
and foreign currency transactions--net (.07) (.01) (.02) (.28) (.01)
-------- -------- -------- -------- --------
Total from investment operations .10 .37 .06 .07 --
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.17) (.37) (.08) (.21) --
Return of capital--net -- (.05) -- (.22) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions (.17) (.42) (.08) (.43) (.01)
-------- -------- -------- -------- --------
Net asset value, end of period $ 7.60 $ 7.67 $ 7.72 $ 7.74 $ 8.10
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 1.36%+++ 4.93% .78%+++ .89% 0.00%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.72%* 1.73% 1.83%* 1.83% 2.14%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 4.60%* 5.23% 6.09%* 5.99% 5.63%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 154 $ 155 $ 103 $ 109 $ 1
Data: ======== ======== ======== ======== ========
Portfolio turnover 154.34% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ========
<CAPTION>
Class D
<PAGE>
The following per share data
and ratios have been derived For the For the
from information provided Six For the Period
in the financial statements. Months Year Nov. 1,
Ended Ended 1995 to
Increase (Decrease) in Net June 30, Dec. 31, Dec. 31, For the Year Ended October 31,
Asset Value: 1997 1996++++ 1995++++ 1995++++ 1994++++ 1993
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.81 $ 7.90 $ 7.93 $ 8.11 $ 8.66 $ 8.85
Performance: ---------- ---------- ---------- ---------- ---------- ----------
Investment income--net .20 .48 .09 .52 .54 .61
Realized and unrealized
loss on investments and
foreign currency
transactions--net (.07) (.09) (.03) (.17) (.58) (.19)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations .13 .39 .06 .35 (.04) .42
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.20) (.42) (.09) (.26) -- --
Return of capital--net -- (.06) -- (.27) (.51) (.61)
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (.20) (.48) (.09) (.53) (.51) (.61)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period $ 7.74 $ 7.81 $ 7.90 $ 7.93 $ 8.11 $ 8.66
========== ========== ========== ========== ========== ==========
Total Investment Based on net asset value
Return:** per share 1.66%+++ 5.09% .75%+++ 4.40% (.51%) 5.28%
========== ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.16%* 1.20% 1.27%* 1.20% 1.01% .98%
Net Assets: ========== ========== ========== ========== ========== ==========
Investment income--net 5.17%* 6.13% 6.67%* 6.49% 6.19% 7.24%
========== ========== ========== ========== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $ 15,600 $ 17,948 $ 24,240 $ 26,619 $ 48,879 $ 99,037
========== ========== ========== ========== ========== ==========
Portfolio turnover 154.34% 349.34% 25.09% 312.13% 259.50% 284.62%
========== ========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Short-Term Global Income Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. 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 which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. 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 with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer 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 additions to such
securities daily to ensure that the contract is fully
collateralized.
<PAGE>
(c) 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.
(d) 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 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.
* 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. Premium or discount is amortized over the life of the
contracts.
* 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.
* Options--The Fund is authorized to purchase and write 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 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
paid or received (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
<PAGE>
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts as
a hedge against adverse changes in the interest rate. A futures
contract is an agreement between two parties to buy and sell a
security, respectively, for a set price on a future date. 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
payment 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.
(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 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). 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.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM 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, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
MLAM 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 based upon the average daily
value of the Fund's net assets, at the following annual rates: 0.55%
of the Fund's average daily net assets not exceeding $2 billion;
0.525% of average daily net assets in excess of $2 billion but not
exceeding $4 billion; 0.50% of average daily net assets in excess of
$4 billion but not exceeding $6 billion; 0.475% of average daily net
assets in excess of $6 billion but not exceeding $10 billion; 0.45%
of average daily net assets in excess of $10 billion but not
exceeding $15 billion; and 0.425% of average daily net assets in
excess of $15 billion. MLAM has entered into a Sub-Advisory
Agreement with Merrill Lynch Asset Management U.K., Ltd. ("MLAM
U.K."), an affiliate of MLAM, pursuant to which MLAM pays MLAM U.K.
a fee in an amount to be determined from time to time by MLAM and
MLAM U.K. but in no event in excess of the amount that MLAM actually
receives. For the six months ended June 30, 1997, MLAM paid MLAM
U.K. a fee of $57,945 pursuant to such Agreement.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the Distributor
and MLPF&S for providing account maintenance services to Class B,
Class C and Class D shareholders. The ongoing distribution fee
compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
For the six months ended June 30, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $49 $473
For the six months ended June 30, 1997, MLPF&S received contingent
deferred sales charges of $37,373 relating to transactions in Class
B Shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1997 were $132,380,599 and
$125,794,703, respectively.
Net realized and unrealized gains (losses) as of June 30, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 804,618 $ (2,989,410)
Short-term (1,238,882) --
Options written 69,370 2,241
------------ ------------
Total investments (364,894) (2,987,169)
------------ ------------
Currency transactions:
Options purchased (170,202) --
Options written 174,371 --
Forward foreign exchange
contracts 4,443,314 310,446
Foreign currency transactions (2,160,442) (12,747)
------------ ------------
Total currency transactions 2,287,041 297,699
------------ ------------
Total $ 1,922,147 $ (2,689,470)
============ ============
<PAGE>
Transactions in call options written for the six months ended June
30, 1997 were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning of period -- --
Options written 625,566,660 $ 432,231
Options exercised (22,543,000) (18,385)
Options closed (9,066,000) (15,412)
Options expired (590,957,660) (396,040)
------------ ------------
Outstanding call options
written at end of period 3,000,000 $ 2,394
============ ============
Transactions in put options written for the six months ended June
30, 1997 were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding put options
written at beginning of period 9,058,000 $ 6,341
Options written 542,797,763 349,709
Options exercised (72,276,000) (58,682)
Options expired (479,579,763) (297,368)
------------ ------------
Outstanding put options
written at end of period -- $ --
============ ============
As of June 30, 1997, net unrealized depreciation for Federal income
tax purposes aggregated $2,987,169, of which $222,580 related to
appreciated securities and $3,209,749 related to depreciated
securities. At June 30, 1997, the aggregate cost of investments,
less premiums received for options written, for Federal income tax
purposes was $209,628,316.
<PAGE>
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $45,995,675 and $138,983,406, for the six months ended June 30,
1997 and for the year ended December 31, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended June 30, 1997 Shares Amount
Shares sold 572 $ 4,535
Shares issued to shareholders
in reinvestment of dividends 18 74
------------ ------------
Total issued 590 4,609
Shares redeemed (51) (400)
------------ ------------
Net increase 539 $ 4,209
============ ============
Class A Shares for the
Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 13,395 $ 105,688
Shares issued to shareholders
in reinvestment of dividends
and distributions 207 831
------------ ------------
Total issued 13,602 106,519
Shares redeemed (22,814) (178,935)
------------ ------------
Net decrease (9,212) $ (72,416)
============ ============
Class B Shares for the
Six Months Ended Dollar
June 30, 1997 Shares Amount
Shares sold 1,675,618 $ 12,989,072
Shares issued to shareholders
in reinvestment of dividends 304,826 2,364,151
------------- -------------
Total issued 1,980,444 15,353,223
Automatic conversion of shares (111,456) (864,601)
Shares redeemed (7,517,233) (58,309,435)
------------- -------------
Net decrease (5,648,245) $ (43,820,813)
============= =============
<PAGE>
Class B Shares for the
Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 484,935 $ 3,805,839
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,105,083 8,669,991
------------- -------------
Total issued 1,590,018 12,475,830
Automatic conversion of shares (253,004) (1,985,115)
Shares redeemed (18,275,411) (143,419,152)
------------- -------------
Net decrease (16,938,397) $(132,928,437)
============= =============
Class C Shares for the
Six Months Ended Dollar
June 30, 1997 Shares Amount
Shares sold 22,302 $ 169,417
Shares issued to shareholders
in reinvestment of dividends 44 640
------------ ------------
Total issued 22,346 170,057
Shares redeemed (22,303) (169,576)
------------ ------------
Net increase 43 $ 481
============ ============
Class C Shares for the
Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 18,676 $ 144,329
Shares issued to shareholders
in reinvestment of dividends
and distributions 226 1,217
------------ ------------
Total issued 18,902 145,546
Shares redeemed (11,957) (92,313)
------------ ------------
Net increase 6,945 $ 53,233
============ ============
<PAGE>
Class D Shares for the
Six Months Ended Dollar
June 30, 1997 Shares Amount
Shares sold 45,202 $ 352,108
Shares issued to shareholders
in reinvestment of dividends 29,808 231,213
Automatic conversion of shares 111,436 864,601
------------ ------------
Total issued 186,446 1,447,922
Shares redeemed (467,543) (3,627,474)
------------ ------------
Net decrease (281,097) $ (2,179,552)
============ ============
Class D Shares for the
Year Ended Dollar
December 31, 1996 Shares Amount
Shares sold 550,920 $ 4,350,585
Shares issued to shareholders in
reinvestment of dividends and
distributions 93,940 737,010
Automatic conversion of shares 252,835 1,985,115
------------ ------------
Total issued .. 897,695 7,072,710
Shares redeemed (1,667,413) (13,108,496)
------------ ------------
Net decrease (769,718) $ (6,035,786)
============ ============
5. Capital Loss Carryforward:
At December 31, 1996, the Fund had a capital loss carryforward of
approximately $45,595,000, of which $32,232,000 expires in 1999,
$10,816,000 expires in 2001, $1,042,000 expires in 2002, $490,000
expires in 2003 and $1,015,000 expires in 2004. This amount will be
available to offset like amounts of any future taxable gains.
