MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1998
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
Short-Term Global
Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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
Stephen Yardley, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank N.A.
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
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
DEAR SHAREHOLDER
During the quarter ended June 30, 1998, Merrill Lynch Short-Term
Global Income Fund, Inc. remained overweighted in dollar-bloc bond
markets, as counterpart markets continued to trade at lower yields.
Meanwhile, the volatile US dollar continued to trend higher versus
Southeast Asian currencies while trading lower versus European
currencies. Currency hedging helped to reduce volatility on the
Fund's net asset values throughout the period, while the higher
relative yields in the bond markets enhanced income.
Our fixed-income positions continued to be overweighted in the short-
term areas of higher-yielding markets, primarily in the United
States and the United Kingdom, since economic growth in the United
States and Europe threatened to keep the Federal Reserve Board more
conservative in its monetary policy. We have not entered emerging
Asian markets, since depreciating currencies will continue to force
interest rates to higher levels before they reach equilibrium.
Currency exposures were generally hedged into the US dollar. These
positions created a strong income stream while limiting price
volatility for the Fund.
Market Review
North America
US bonds remained in a narrow trading range in recent months. The
bond market continued to fluctuate between strong domestic data and
external factors related to the Asian financial crisis. First
calendar quarter of 1998 gross domestic product (GDP) surged to
4.8%, led by an extremely strong housing sector and strong consumer
demand. In addition, tight labor markets continued to be a concern,
since the employment cost index for the first quarter of 1998 was up
3.3% from the first quarter of 1997 while the unemployment rate in
April fell to a 28-year low of 4.3%. Inflation reports were benign,
helped by declining commodity and oil prices. With the relatively
flat US yield curve, we remained invested in US money markets. We
will continue to monitor the US economy for any evidence of reduced
growth or an increase in inflation.
In Canada, economic growth appeared to be moderating slightly with
first quarter of 1998 GDP falling to 3.7% from 3.9% in the fourth
quarter of 1997. The 50-basis point hike in short-term rates to
support the weak Canadian dollar, combined with the fallout from the
Asian financial crisis, has helped moderate economic growth. Retail
sales levels fell to a more sustainable 4%--5% range. Even with
inflation numbers at or below the bottom of the 1%--3% target band,
the Bank of Canada expressed that it would raise interest rates
further if the Canadian dollar experienced additional downward
pressure. Once the currency stabilizes, we will look to add to our
Canadian exposure.
Europe
As 1998 has progressed, European growth continued relatively
unhindered, with real GDP in the European Union bloc approximately
2.5%. However, the engine of growth shifted to include the domestic
demand sector, along with the export sector, with final demand
negligibly affected by the Asian economic crisis. Consumer
confidence continues to rise across Europe, which has been helped
regionwide by a decline in unemployment. Economic growth has not
adversely impacted the favorable inflation scenario, but a trough in
inflation may have been seen. As weak oil prices played a large role
in reducing European inflation during 1997, stable-to-higher oil
prices may result in a modest inflation increase. Consequently,
European bond markets continued to trade firmly thus far in 1998
with European Monetary Union (EMU) convergence trades still trending
toward the narrow end of respective trading ranges. We maintained
our positions in Italy since we anticipate rates to converge
further. Monetary policy in core European markets may rise modestly
while short-term rates in the peripheral countries may continue to
be reduced as the EMU convergence process continues.
The first round entrants in the European Union were announced in
May. As expected, 11 countries will be included. We added positions
in Greece since we anticipate a Greek entry in the next round of EMU
entrants. Since growth is essential to a unified Europe, the
economic recovery that started in the smaller countries, especially
the Scandinavian countries, is now flowing into the core countries.
In addition, since exchange rates are fixed, short-term interest
rates should converge. The convergence should be in the form of
peripheral European bond markets converging to the core at
approximately 3.5% to 4%. Relatively low nominal interest rates,
negligible effects from the Asian crisis, and reduced fiscal
constraint should continue the growth engine for European economies.
Pacific Basin
As the Asian currency crisis persisted, both the New Zealand and the
Australian currencies remained under pressure. With economic growth
in both countries potentially negatively impacted by the deepening
recession in Asia, we purchased short-term government bonds in New
Zealand at a 100 basis point spread to comparable US Treasury
securities, fully hedged to the US dollar. Problems in Indonesia
continued, with social unrest forcing the resignation of President
Suharto. It appeared that the problems in Indonesia might have
stabilized slightly when Vice President Habibie replaced Suharto.
However, we remained very cautious of Indonesia and Southeast Asia
in general.
In Japan, the yen continued to trade weaker against the US dollar as
it ended the period just below the YEN 140 level. The Japanese
government finally announced the long-awaited details of its latest
fiscal stimulus package of 16 trillion yen spread over two years.
The majority of the package focused on public works spending, which
the government believes will add approximately 3% to GDP. However,
investors were disappointed that no permanent tax cuts were
announced. The economic numbers in Japan are still deteriorating
with unemployment rising to a post-World War II record high of 4.1%.
Japanese government bond yields hit new lows as consumer sentiment
deteriorated because of a rising level of bankruptcies and declining
employment prospects. These fundamentals should negatively influence
the entire region.
In Conclusion
Looking ahead, we expect to maintain our positions in the short end
of global yield curves, while hedging currencies back into the US
dollar. Overall, the United States and core European economies
continue to show strong economic growth with little inflationary
pressure while the situation in Japan and Asia continues to
deteriorate.
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
(Edward F. Gobora)
Edward F. Gobora
Vice President and
Portfolio Manager
(Stephen Yardley)
Stephen Yardley
Vice President and
Portfolio Manager
August 7, 1998
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* 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 "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.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 6/30/98
<S> <C> <C> <C> <C>
ML Short-Term Global Income Fund, Inc. Class A Shares +4.38% +1.07% +19.23% 5.24%
ML Short-Term Global Income Fund, Inc. Class B Shares +3.42 +0.87 +27.40 4.66
ML Short-Term Global Income Fund, Inc. Class C Shares +3.74 +0.97 +12.17 4.52
ML Short-Term Global Income Fund, Inc. Class D Shares +3.98 +1.01 +32.96 5.00
<FN>
*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 inception dates are:Class A and Class C Shares, 10/21/94; and
Class B and Class D Shares, 8/03/90.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/98 +4.38% +0.20%
Inception (10/21/94) through 6/30/98 +4.88 +3.73
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/98 +3.42% -0.54%
Five Years Ended 6/30/98 +2.85 +2.85
Inception (8/03/90) through 6/30/98 +3.11 +3.11
[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 6/30/98 +3.74% +2.74%
Inception (10/21/94) through 6/30/98 +3.16 +3.16
[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 6/30/98 +3.98% -0.18%
Five Years Ended 6/30/98 +3.40 +2.56
Inception (8/03/90) through 6/30/98 +3.67 +3.13
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
<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> <C> <S> <C> <C> <C>
Canada C$ 2,888,000 8/01/99 Government of Canada (1) 6.50 % $ 1,990,376 1.36%
500,000 2/01/00 Government of Canada (1) 5.50 341,362 0.23
5,400,000 12/29/99 Kingdom of Sweden (1) 8.25 3,804,654 2.61
2,350,000 12/29/99 Rabobank Nederland N.V. (2) 7.125 1,631,745 1.12
2,065,000 12/29/99 Toronto Dominion Australia (1) 6.25 1,416,570 0.97
Total Investments in Canada
(Cost--$9,606,461) 9,184,707 6.29
Germany DM 4,500,000 5/15/00 Bundes Obligations (1) 5.875 2,574,812 1.76
4,731,711 7/07/98 Grand Cayman, Time Deposit (2) 3.34 2,621,156 1.80
8,440,783 7/10/98 Grand Cayman, Time Deposit (2) 3.35 4,675,816 3.20
Total Investments in Germany
(Cost--$9,841,913) 9,871,784 6.76
Italy Lit 4,835,000,000 10/01/98 Buoni Poliennali del Tesoro
(Italian Government Bonds) (1) 9.00 2,744,278 1.88
Total Investments in Italy
(Cost--$2,903,089) 2,744,278 1.88
New Zealand NZ$ 15,800,000 7/08/98 New Zealand Treasury Bill (1) 9.23 8,080,145 5.53
Total Investments in New Zealand
(Cost--$8,651,191) 8,080,145 5.53
United Pound 2,135,000 8/10/99 Abbey National PLC (2) 6.00 3,491,715 2.39
Kingdom Sterling 1,300,000 2/25/00 Daimler Benz UK (2) 7.00 2,139,768 1.47
Total Investments in the
United Kingdom
(Cost--$5,549,954) 5,631,483 3.86
United States US$ 6,000,000 7/27/98 BBL of North America (2) 5.56 5,975,907 4.09
6,828,000 7/13/98 Commerzbank US Finance Inc. (2) 5.52 6,815,436 4.67
6,742,000 7/20/98 Delaware Funding Corp. (2) 5.55 6,722,252 4.60
4,000,000 7/01/98 Eureka Securitization Inc. (2) 5.53 4,000,000 2.74
10,596,000 7/06/98 Federal Home Loan Mortgage
Corp. (3) 5.41 10,588,038 7.25
6,337,000 7/10/98 Federal Home Loan Mortgage
Corp. (3) 5.46 6,328,350 4.34
7,119,000 12/11/98 General Electric Capital
Corp. (2) 5.50 7,124,588 4.88
3,183,000 7/01/98 General Motors Acceptance
Corp. (2) 6.50 3,183,000 2.18
6,500,000 7/13/98 International Securitization
Corp. (2) 5.53 6,488,018 4.44
5,126,000 12/03/98 Landesbank Rhein (2) 5.25 5,122,089 3.51
6,500,000 7/16/98 Mont Blanc Capital Corp. (2) 5.54 6,484,996 4.44
7,500,000 7/20/98 Monte Rosa Capital Corp. (2) 5.65 7,477,635 5.12
6,660,000 9/30/98 Novartis AG (2) 4.00 6,628,032 4.54
7,000,000 7/10/98 Old Line Funding Corp. (2) 5.54 6,990,305 4.79
6,500,000 7/15/98 Park Avenue Receivables
Corp. (2) 5.57 6,485,920 4.44
6,801,000 7/09/98 Twin Towers Inc. (2) 5.55 6,792,612 4.67
7,000,000 7/07/98 Windmill Funding Corp. (2) 5.55 6,993,525 4.79
Total Investments in the
United States
(Cost--$110,084,740) 110,200,703 75.49
Total Investments (Cost--$146,637,348) 145,713,100 99.81
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (92,242) (0.06)
Other Assets Less Liabilities 363,778 0.25
------------ -------
Net Assets $145,984,636 100.00%
============ =======
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--14.34%
(2)Financial Services--73.88%
(3)Sovereign/Regional Government Obligations--Agency--11.59%
++Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates shown
represent the yield-to-maturity at the time of purchase by the Fund.
Other securities bear interest at the rates shown, payable at fixed
dates or upon maturity. Interest rates on floating rate securities
are adjusted periodically based on appropriate indexes; the interest
rates shown are those in effect at June 30, 1998.
See Notes to Financial Statements.
++++Forward foreign exchange contracts as of June 30, 1998 are as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Sold Date (Note 1d)
C$ 13,923,574 July 1998 $ 10,921
DM 17,573,644 July 1998 18,923
Pound Sterling 3,442,791 July 1998 6,989
Lit 5,531,001,399 July 1998 2,119
NZ$ 15,237,387 July 1998 (131,194)
----------
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts--Net
(US$ Commitment--$35,873,338) $ (92,242)
==========
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$146,637,348) (Note 1a) $ 145,713,100
Cash 325
Foreign cash (Note 1c) 278,592
Receivables:
Interest $ 1,212,554
Capital shares sold 14,579 1,227,133
-------------
Prepaid registration fees and other assets (Note 1g) 161,694
-------------
Total assets 147,380,844
-------------
Liabilities: Unrealized depreciation on forward foreign exchange
contracts (Note 1d) 92,242
Payables:
Capital shares redeemed 667,441
Dividends to shareholders (Note 1h) 179,282
Distributor (Note 2) 87,852
Investment adviser (Note 2) 67,871 1,002,446
-------------
Accrued expenses and other liabilities 301,520
-------------
Total liabilities 1,396,208
-------------
Net Assets: Net assets $ 145,984,636
=============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 1,000,000,000 shares authorized $ 75
Class B Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 1,754,953
Class C Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 218
Class D Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 147,830
Paid-in capital in excess of par 192,618,269
Accumulated realized capital losses on investments
and foreign currency transactions--net (Note 5) (47,518,972)
Unrealized depreciation on investments and foreign
currency transactions--net (1,017,737)
-------------
Net assets $ 145,984,636
=============
Net Asset Class A--Based on net assets of $5,825 and 752
Value: shares outstanding $ 7.75
=============
Class B--Based on net assets of $134,619,017 and 17,549,526
shares outstanding $ 7.67
=============
Class C--Based on net assets of $16,503 and 2,183
shares outstanding $ 7.56
=============
Class D--Based on net assets of $11,343,291 and 1,478,297
shares outstanding $ 7.67
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1998
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 4,589,227
(Notes 1e & 1f):
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 554,535
Investment advisory fees (Note 2) 439,907
Transfer agent fees--Class B (Note 2) 158,067
Accounting services (Note 2) 47,562
Professional fees 32,724
Printing and shareholder reports 31,962
Registration fees (Note 1g) 29,572
Directors' fees and expenses 18,667
Account maintenance fees--Class D (Note 2) 15,016
Transfer agent fees--Class D (Note 2) 10,239
Custodian fees 8,032
Account maintenance and distribution fees--Class C (Note 2) 276
Transfer agent fees--Class C (Note 2) 71
Pricing fees 8
Transfer agent fees--Class A (Note 2) 8
-------------
Total expenses 1,346,646
-------------
Investment income--net 3,242,581
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net (131)
(Loss) on Foreign currency transactions--net 3,546 3,415
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (28,448)
(Notes 1c, 1d, Foreign currency transactions--net (474,212) (502,660)
1f & 3): ------------- -------------
Net realized and unrealized loss on investments
and foreign currency transactions (499,245)
-------------
Net Increase in Net Assets Resulting from Operations $ 2,743,336
=============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
<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: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 3,242,581 $ 9,800,510
Realized gain (loss) on investments and foreign
currency transactions--net 3,415 (1,367,047)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (502,660) (2,089,986)
------------- -------------
Net increase in net assets resulting from operations 2,743,336 6,343,477
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (210) (262)
Shareholders Class B (2,967,289) (8,318,276)
(Note 1h): Class C (1,372) (9,502)
Class D (273,710) (745,677)
Return of capital--net:
Class A -- (21)
Class B -- (666,283)
Class C -- (761)
Class D -- (59,728)
------------- -------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (3,242,581) (9,800,510)
------------- -------------
Capital Share Net decrease in net assets derived from capital
Transactions share transactions (27,198,855) (80,385,611)
(Note 4): ------------- -------------
Net Assets: Total decrease in net assets (27,698,100) (83,842,644)
Beginning of period 173,682,736 257,525,380
------------- -------------
End of period $ 145,984,636 $ 173,682,736
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
The following per share data
and ratios have been derived For the For the For the
from information provided in Six Period For the Period
the financial statements. Months For the Nov. 1, Year Oct. 21,
Ended Year Ended 1995 to Ended 1994++ to
Increase (Decrease) in June 30, December 31, Dec. 31, Oct. 31, Oct. 31,
Net Asset Value: 1998 1997 1996++++ 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.76 $ 7.89 $ 7.91 $ 7.93 $ 8.11 $ 8.11
Performance: --------- --------- --------- --------- --------- ---------
Investment income--net .18 .42 .54 .09 .49 .01
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net (.01) (.13) (.06) (.02) (.12) --
--------- --------- --------- --------- --------- ---------
Total from investment
operations .17 .29 .48 .07 .37 .01
--------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income--net (.18) (.39) (.44) (.09) (.27) --
Return of capital--net -- (.03) (.06) -- (.28) (.01)
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions (.18) (.42) (.50) (.09) (.55) (.01)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period $ 7.75 $ 7.76 $ 7.89 $ 7.91 $ 7.93 $ 8.11
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value
Return:** per share 2.26%+++ 3.77% 6.29% .92%+++ 4.62% .12%+++
========= ========= ========= ========= ========= =========
Ratios to Average Expenses .93%* .76% .95% 1.02%* .96% .97%*
Net Assets: ========= ========= ========= ========= ========= =========
Investment income--net 4.77%* 5.39% 6.45% 6.91%* 6.75% 6.28%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 6 $ 18 $ 3 $ 75 $ 66 $ 59
========= ========= ========= ========= ========= =========
Portfolio turnover 32.56% 278.81% 349.34% 25.09% 312.13% 259.50%
========= ========= ========= ========= ========= =========
<FN>
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B
The following per share data
and ratios have been derived For the
from information provided Six For the
in the financial statements. Months For the Period
Ended Year Ended Nov. 1, 1995 For the Year
Increase (Decrease) in June 30, December 31, to Dec. 31, Ended October 31,
Net Asset Value: 1998 1997 1996++ 1995++ 1995++ 1994++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.69 $ 7.81 $ 7.90 $ 7.93 $ 8.10 $ 8.65
Performance: --------- --------- --------- --------- --------- ---------
Investment income--net .15 .35 .44 .08 .47 .50
Realized and unrealized loss
on investments and foreign
currency transactions--net (.02) (.12) (.09) (.03) (.15) (.58)
--------- --------- --------- --------- --------- ---------
Total from investment
operations .13 .23 .35 .05 .32 (.08)
--------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income--net (.15) (.32) (.38) (.08) (.24) --
Return of capital--net -- (.03) (.06) -- (.25) (.47)
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions (.15) (.35) (.44) (.08) (.49) (.47)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period $ 7.67 $ 7.69 $ 7.81 $ 7.90 $ 7.93 $ 8.10
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value
Return:** per share 1.73%+++ 3.08% 4.52% .66%+++ 3.96% (1.02%)
========= ========= ========= ========= ========= =========
Ratios to Average Expenses 1.71%* 1.62% 1.74% 1.80%* 1.73% 1.52%
Net Assets: ========= ========= ========= ========= ========= =========
Investment income--net 3.98%* 4.59% 5.62% 6.13%* 5.95% 5.68%
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 134,619 $ 160,096 $ 239,419 $ 376,049 $ 398,136 $ 750,750
========= ========= ========= ========= ========= =========
Portfolio turnover 32.56% 287.81% 349.34% 25.09% 312.13% 259.50%
========= ========= ========= ========= ========= =========
<FN>
++Based on average shares outstanding.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class C
The following per share data
and ratios have been derived For the For the For the
from information provided in Six Period For the Period
the financial statements. Months For the Nov. 1, Year Oct. 21,
Ended Year Ended 1995 to Ended 1994++ to
Increase (Decrease) in June 30, December 31, Dec. 31, Oct. 31, Oct. 31,
Net Asset Value: 1998 1997 1996++++ 1995++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.58 $ 7.67 $ 7.72 $ 7.74 $ 8.10 $ 8.11
Performance: --------- --------- --------- --------- --------- ---------
Investment income--net .15 .35 .38 .08 .35 .01
Realized and unrealized loss
on investments and foreign
currency transactions--net (.02) (.09) (.01) (.02) (.28) (.01)
--------- --------- --------- --------- --------- ---------
Total from investment
operations .13 .26 .37 .06 .07 --
--------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income--net (.15) (.32) (.37) (.08) (.21) --
Return of capital--net -- (.03) (.05) -- (.22) (.01)
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions (.15) (.35) (.42) (.08) (.43) (.01)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period $ 7.56 $ 7.58 $ 7.67 $ 7.72 $ 7.74 $ 8.10
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value
Return:** per share 1.67%+++ 3.42% 4.93% .78%+++ .89% .00%+++
========= ========= ========= ========= ========= =========
Ratios to Average Expenses 1.77%* 1.60% 1.73% 1.83%* 1.83% 2.14%*
Net Assets: ========= ========= ========= ========= ========= =========
Investment income--net 3.97%* 4.46% 5.23% 6.09%* 5.99% 5.63%*
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 17 $ 344 $ 155 $ 103 $ 109 $ 1
========= ========= ========= ========= ========= =========
Portfolio turnover 32.56% 287.81% 349.34% 25.09% 312.13% 259.50%
========= ========= ========= ========= ========= =========
<FN>
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
The following per share data
and ratios have been derived For the For the
from information provided Six Period
in the financial statements. Months For the Nov. 1,
Ended Year Ended 1995 to For the Year
Increase (Decrease) in June 30, December 31, Dec. 31, Ended October 31,
Net Asset Value: 1998 1997 1996++ 1995++ 1995++ 1994++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of period $ 7.70 $ 7.81 $ 7.90 $ 7.93 $ 8.11 $ 8.66
Performance: --------- --------- --------- --------- --------- ---------
Investment income--net .17 .40 .48 .09 .52 .54
Realized and unrealized loss
on investments and foreign
currency transactions--net (.03) (.11) (.09) (.03) (.17) (.58)
--------- --------- --------- --------- --------- ---------
Total from investment
operations .14 .29 .39 .06 .35 (.04)
--------- --------- --------- --------- --------- ---------
Less dividends and
distributions:
Investment income--net (.17) (.37) (.42) (.09) (.26) --
Return of capital--net -- (.03) (.06) -- (.27) (.51)
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions (.17) (.40) (.48) (.09) (.53) (.51)
--------- --------- --------- --------- --------- ---------
Net asset value,
end of period $ 7.67 $ 7.70 $ 7.81 $ 7.90 $ 7.93 $ 8.11
========= ========= ========= ========= ========= =========
Total Investment Based on net asset
Return:** value per share 1.87%+++ 3.77% 5.09% .75%+++ 4.40% (.51%)
========= ========= ========= ========= ========= =========
Ratios to Average Expenses 1.17%* 1.08% 1.20% 1.27%* 1.20% 1.01%
Net Assets: ========= ========= ========= ========= ========= =========
Investment income--net 4.51%* 5.13% 6.13% 6.67%* 6.49% 6.19%
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 11,343 $ 13,225 $ 17,948 $ 24,240 $ 26,619 $ 48,879
========= ========= ========= ========= ========= =========
Portfolio turnover 32.56% 287.81% 349.34% 25.09% 312.13% 259.50%
========= ========= ========= ========= ========= =========
<FN>
++Based on average shares outstanding.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
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.
(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.
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
* 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).
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 by 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. A portion of the net investment income dividends
paid by the Fund for the year ended December 31, 1997 is
characterized as a return of capital.
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 ("MLFD" or "Distributor"), a division of Princeton Funds
Distribution, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
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, 1998, MLAM paid MLAM
U.K. a fee of $40,530 pursuant to such Agreement.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended June 30, 1998, 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 $3 $32
For the six months ended June 30, 1998, MLPF&S received contingent
deferred sales charges of $35,017 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, PFD, 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, 1998 were $21,378,195 and
$12,582,691, respectively.
Net realized gains (losses) for the six months ended June 30, 1998
and net unrealized losses as of June 30, 1998 were as follows:
Realized
Gains Unrealized
(Losses) Losses
Investments:
Long-term $ 751 $ (310,368)
Short-term (882) (613,880)
----------- ------------
Total investments (131) (924,248)
----------- ------------
Currency transactions:
Forward foreign exchange
contracts 517,308 (92,242)
Foreign currency
transactions (513,762) (1,247)
----------- ------------
Total currency transactions 3,546 (93,489)
----------- ------------
Total $ 3,415 $ (1,017,737)
----------- ------------
As of June 30, 1998, net unrealized depreciation for Federal income
tax purposes aggregated $924,248, of which $270,198 related to
appreciated securities and $1,194,446 related to depreciated
securities. At June 30, 1998, the aggregate cost of investments for
Federal income tax purposes was $146,637,348.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $27,198,855 and $80,385,611, for the six months ended June 30,
1998 and for the year ended December 31, 1997 respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
June 30, 1998 Shares Amount
Shares sold 313 $ 2,429
Shares issued to shareholders in
reinvestment of dividends 23 176
---------- ------------
Total issued 336 2,605
Shares redeemed (1,845) (14,302)
---------- ------------
Net decrease (1,509) $ (11,697)
========== ============
Merrill Lynch Short-Term Global Income Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the
Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 2,790 $ 21,716
Shares issued to shareholders in
reinvestment of dividends and
distributions 37 259
---------- ------------
Total issued 2,827 21,975
Shares redeemed (906) (7,048)
---------- ------------
Net increase 1,921 $ 14,927
========== ============
Class B Shares for the
Six Months Ended Dollar
June 30, 1998 Shares Amount
Shares sold 1,673,375 $ 12,868,905
Shares issued to shareholders in
reinvestment of dividends 181,657 1,395,778
---------- ------------
Total issued 1,855,032 14,264,683
Automatic conversion of shares (42,884) (329,427)
Shares redeemed (5,068,847) (38,951,033)
---------- ------------
Net decrease (3,256,699) $(25,015,777)
========== ============
Class B Shares for the
Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 5,543,706 $ 42,750,438
Shares issued to shareholders in
reinvestment of dividends and
distributions 595,588 4,602,590
----------- ------------
Total issued 6,139,294 47,353,028
Automatic conversion of shares (143,168) (1,108,763)
Shares redeemed (15,839,751) (122,363,775)
----------- ------------
Net decrease (9,843,625) $(76,119,510)
=========== ============
Class C Shares for the
Six Months Ended Dollar
June 30, 1998 Shares Amount
Shares sold 184,222 $ 1,397,104
Shares issued to shareholders in
reinvestment of dividends 113 857
---------- ------------
Total issued 184,335 1,397,961
Shares redeemed (227,542) (1,725,439)
---------- ------------
Net decrease (43,207) $ (327,478)
========== ============
Class C Shares for the
Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 983,199 $ 7,428,596
Shares issued to shareholders in
reinvestment of dividends and
distributions 378 3,167
---------- ------------
Total issued 983,577 7,431,763
Shares redeemed (958,440) (7,241,148)
---------- ------------
Net increase 25,137 $ 190,615
========== ============
Class D Shares for the
Six Months Ended Dollar
June 30, 1998 Shares Amount
Shares sold 3,575 $ 27,523
Shares issued to shareholders in
reinvestment of dividends 19,619 150,804
Automatic conversion of shares 42,864 329,427
---------- ------------
Total issued 66,058 507,754
Shares redeemed (305,971) (2,351,657)
---------- ------------
Net decrease (239,913) $ (1,843,903)
========== ============
Class D Shares for the
Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 76,707 $ 594,693
Shares issued to shareholders in
reinvestment of dividends and
distributions 60,197 465,309
Automatic conversion of shares 143,133 1,108,763
---------- ------------
Total issued 280,037 2,168,765
Shares redeemed (858,738) (6,640,408)
---------- ------------
Net decrease (578,701) $ (4,471,643)
========== ============
5. Capital Loss Carryforward:
At December 31, 1997, the Fund had a capital loss carryforward of
approximately $46,971,000, 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, $1,015,000 expires in 2004 and $1,376,000 expires
in 2005. This amount will be available to offset like amounts of any
future taxable gains.
