MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 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
Roland M. Machold, 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
Edward F. Gobora, Vice President
Donald C. Burke, 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
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
DEAR SHAREHOLDER
Fiscal Year in Review
During the fiscal year ended December 31, 1998, we concentrated the
Fund's investments in high credit-quality countries whose interest
rates were close to or higher than those in the United States. We
generally hedged currency exposure back to US dollars. These
strategies enhanced the Fund's total returns by providing an
attractive income stream that was greater than each base currency's
interest rate, but did not subject the Fund's net asset values to
undue fluctuation related to currency volatility. For the 12 months
ended December 31, 1998, the Fund's Class A, Class B, Class C and
Class D Shares had total returns of +5.49%, +4.52%, +4.37% and
+4.96%. (Results shown do not reflect sales charges and would be
lower if sales charges were included. Complete performance
information can be found on pages 4--6 of this report to
shareholders.)
During the first half of the year, the US dollar was generally
stronger, supported by expectations for higher US interest rates
relative to those of Germany and Japan. By mid-year, the Asian
currency crisis had spread to Russia. The Russian debt crisis in
August sparked a global credit and liquidity crunch that prompted
the Federal Reserve Board to ease monetary policy three times in
quick succession. Given the United States' position as a net
importer of capital, these events led to a sharply weaker US dollar.
The uncertain currency environment persisted for the rest of the
year, highlighted by the sharp appreciation of the Japanese yen
relative to the US dollar in October. Throughout the year, the
Fund's currency hedging strategy proved beneficial, supporting total
returns in the first half of the year and insulating net asset
values from excessive volatility in the latter half.
In terms of fixed-income investments, we allocated the Fund's assets
to countries that offered yields above those available in the US
market, such as the United Kingdom, Canada, Norway and New Zealand.
Given that few countries offered yields above those available in the
US market, on average more than 50% of the Fund's assets remained
invested in the United States. We primarily kept the Fund's
investments at the short end of the yield curve. However, given our
expectation that global interest rates would generally be moving
lower, we maintained an average duration longer than the three-month
US Treasury bill.
Market Review
During the last quarter of 1998, central banks around the world
moved aggressively to ease monetary conditions, offsetting the
tightening in credit conditions that followed the Russian debt
crisis in August. The resulting flight to quality brought US
Treasury yields down sharply, with two-year and ten-year yields
hitting lows of 3.76% and 4.10%, respectively, in early October. At
the same time, yields on government agency, corporate and emerging
markets debt moved higher. In addition, the US dollar declined
relative to the Deutschemark and the Japanese yen. Currencies tied
to countries that run current account deficits suffered in the
illiquid environment as exchange rates had to adjust to finance the
deficits. The Swiss franc and Japanese yen were the strongest
currencies during the crisis.
Following the easing of monetary policies by central banks
worldwide, investor confidence improved. As a result, yields on US
Treasury notes began to move within neutral trading ranges from the
middle of October through the end of the year. The US dollar
rebounded, retracing much of the declines it had experienced
relative to the Deutschemark and Japanese yen. Approval by the US
Congress of an increase in funding for the International Monetary
Fund also contributed to improved investor confidence.
A significant theme during the December quarter was the continued
decline in commodity prices. Lower prices had a positive terms-of-
trade impact for countries that are net importers of commodities,
such as Japan and Switzerland. The weakness had a negative effect on
the currencies of oil-producing countries such as Norway and
Venezuela.
Economic Outlook
Global bond yields are being driven lower by continued expectations
of low inflation, interest rate cuts and subdued economic growth.
However, with many investors already overweighted in longer-term
fixed-income securities, yields may not decline dramatically below
current levels.
Although lower commodity prices are positive for the global
inflation outlook, they have had a negative impact on global
economic growth. With continued expectations for low inflation,
lower short-term interest rates have yet to translate into sustained
steeper yield curves that could support stronger global growth.
However, we expect the aggressive injections of liquidity by the
world's central banks will lead to stronger economic growth in the
first half of 1999. In our view, it is likely that the US economy
will outperform continental European economies, which still need to
contend with uncompetitive structural labor costs. We also expect
the Federal Reserve Board's monetary policy will remain on hold in
the first half of 1999. In this environment, inflationary pressures
could remain subdued as a rebound in global growth would first need
to absorb an oversupply of commodity inventories before putting
upward pressure on prices.
Currency Outlook
We expect the US dollar to strengthen relative to the euro and the
Japanese yen in the first quarter of 1999. US growth could be
relatively stronger than European growth, with yield spreads likely
to move in the US dollar's favor. In addition, the US economy is
better positioned to adapt to the uncertain and potentially volatile
global economic outlook. With European policymakers involved in
internal battles on whether fiscal or monetary policy could provide
economic stimulus, the delay in policy implementation could have
negative consequences for European growth. Continued high levels of
European unemployment could put additional pressure on European
policies.
In Japan, policymakers continue to search for a way to improve the
country's economic situation. Given increasing fiscal, monetary and
political policy limitations, yen weakness could be the most viable
route to sustained growth. With Japanese export companies the
soundest sector of the Japanese economy and the largest potential
beneficiaries of such a move, it appears likely that policymakers in
Japan could return to a strategy of yen weakness to boost growth.
Investment Strategy
Given our objective for the Fund of providing a high level of
current income and our outlook for stable to lower global yields, we
are maintaining positions in high-quality short-term securities that
yield at or above US dollar-issued securities. At December 31, 1998,
we held sovereign, agency and corporate issues in the United
Kingdom, New Zealand, Norway and the United States. In response to
our currency outlook, we maintained a currency exposure that is
fully hedged back to the US dollar. In New Zealand, with short-term
interest rates below those in the United States, hedging the
exposure back into US dollars adds value to the Fund. Finally, we
expect to continue to actively seek opportunities to reduce hedging
costs in an effort to maintain stability in the Fund's net asset
values.
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 and strategy with you again in our next quarterly report to
shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Edward F. Gobora)
Edward F. Gobora
Vice President and
Senior Portfolio Manager
February 15, 1999
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 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, which, in the case of certain
eligible investors, 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/98 +5.49% +1.27%
Inception (10/21/94) through 12/31/98 +5.06 +4.04
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/98 +4.52% +0.52%
Five Years Ended 12/31/98 +2.97 +2.97
Inception (8/03/90) through 12/31/98 +3.25 +3.25
[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 12/31/98 +4.37% +3.37%
Inception (10/21/94) through 12/31/98 +3.42 +3.42
[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 12/31/98 +4.96% +0.76%
Five Years Ended 12/31/98 +3.50 +2.66
Inception (8/03/90) through 12/31/98 +3.81 +3.31
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A
Shares and Class C Shares compared to growth of an investment in the ML
Global Government Index and the Salomon Brothers World Government One--
Three Year Bond Index. Beginning and ending values are:
10/21/94** 12/98
ML Short-Term Global Income Fund, Inc.++--
Class A Shares* $ 9,600 $11,808
ML Short-Term Global Income Fund, Inc.++--
Class C Shares* $10,000 $11,516
ML Global Government Bond Index++++ $10,000 $12,550
Salomon Brothers World Government
One--Three Year Bond Index++++++ $10,000 $13,690
A line graph depicting the growth of an investment in the Fund's Class B
Shares and Class D Shares compared to growth of an investment in the ML
Global Government Index and the Salomon Brothers World Government One--
Three Year Bond Index. Beginning and ending values are:
8/03/90** 12/98
ML Short-Term Global Income Fund, Inc.++--
Class B Shares* $10,000 $13,090
ML Short-Term Global Income Fund, Inc.++--
Class D Shares* $ 9,600 $13,151
ML Global Government Bond Index++++ $10,000 $18,340
Salomon Brothers World Government
One--Three Year Bond Index++++++ $10,000 $17,745
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Short-Term Global Income Fund, Inc. invests, under normal
circumstances, in debt securities denominated in at least three
different currencies, including the US dollar.
++++This unmanaged Index is comprised of global government bonds
maturing in one to three years.
++++++This unmanaged Index is comprised of global government bonds
maturing in one to three years hedged into US dollars. The starting
date for the Index in the Class B &Class D Shares graph is from
7/31/90.
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 12/31/98
<S> <S> <S> <S>
ML Short-Term Global Income Fund, Inc. Class A Shares +5.49% +1.66% +22.99% 6.51%
ML Short-Term Global Income Fund, Inc. Class B Shares +4.52 +1.46 +30.90 5.97
ML Short-Term Global Income Fund, Inc. Class C Shares +4.37 +1.54 +15.16 5.80
ML Short-Term Global Income Fund, Inc. Class D Shares +4.96 +1.60 +36.99 6.26
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's since inception periods are Class A & Class C Shares, from
10/21/94 to 12/31/98 and Class B & Class D Shares, from 8/03/90 to
12/31/98.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Maturity Interest Value Percent of
COUNTRIES Amount Date Issue Rate++ (Note 1a) Net Assets
<S> <C> <S> <C> <S> <C> <C> <C>
New Zealand NZ$ 5,870,000 12/18/00 Toyota Finance Authority (2) 7.25 % $ 3,150,545 2.61%
Total Investments in New Zealand
(Cost--$3,145,614) 3,150,545 2.61
Norway Nok 49,000,000 1/31/99 Norwegian Government Bond (1) 9.00 6,432,758 5.32
50,000,000 3/17/99 Norwegian Treasury Bill (1) 7.80 6,517,954 5.39
38,306,000 3/29/99 Svenska Handelsbanken, Time
Deposit (1) 7.95 5,029,344 4.15
Total Investments in Norway
(Cost--$18,345,354) 17,980,056 14.86
United Pound 2,135,000 8/10/99 Abbey National Treasury Service (2) 6.00 3,554,624 2.94
Kingdom Sterling 4,500,000 5/17/99 Deutsche Bank of Ireland (2) 6.61 7,310,218 6.04
3,200,000 8/10/99 General Electric Capital Corp. (2) 7.00 5,348,530 4.42
3,520,000 12/08/99 Kingdom of Sweden (1) 6.25 5,883,459 4.86
4,500,000 6/03/99 Westpac Banking Corporation (2) 6.41 7,293,142 6.03
Total Investments in the United Kingdom
(Cost--$29,213,925) 29,389,973 24.29
United US$ 6,000,000 1/20/99 CSW Credit Inc. (2) 5.36 5,985,707 4.95
States 5,000,000 1/15/99 Concorde Minutemen
Capital Co. LLC (2) 5.45 4,991,674 4.13
6,000,000 1/28/99 Eureka Securitization Inc. (2) 5.42 5,978,320 4.94
9,000,000 1/08/99 Federal Home Loan Mortgage
Corporation (3) 5.11 8,994,890 7.44
5,560,000 1/29/99 Federal Home Loan Mortgage
Corporation (3) 5.08 5,540,385 4.58
11,000,000 2/12/99 Federal Home Loan Mortgage
Corporation (3) 5.025 10,940,119 9.04
7,000,000 1/25/99 Federal National Mortgage
Association (3) 5.02 6,979,502 5.77
4,501,000 1/04/99 General Motors Acceptance
Corp. (2) 5.13 4,501,000 3.72
4,000,000 1/06/99 Lexington Parker Capital
Company, LLC (2) 5.45 3,998,789 3.30
6,000,000 2/02/99 Metropolitan Life Insurance
Company (2) 5.25 5,974,625 4.94
6,000,000 1/25/99 Pfizer Inc. (2) 5.20 5,981,800 4.94
Total Investments in the United States
(Cost--$69,866,810) 69,866,811 57.75
OPTIONS Nominal Value
PURCHASED Covered by Options Issue
Currency Call 3,850,000 British Pound, expiring February 1999
Options at Pound Sterling 2.85 19,208 0.02
Purchased
Currency Put 10,500,000 Deutschemark, expiring February
1999 at DM4.50 52,941 0.04
Options
Purchased
Total Options Purchased (Premiums Paid--$65,342) 72,149 0.06
Total Investments (Cost--$120,637,045) 120,459,534 99.57
OPTIONS
WRITTEN
Currency Call 3,850,000 British Pound, expiring February 1999
Options Written at Pound Sterling 2.90 (6,403) (0.01)
Currency Put 10,500,000 Deutschemark, expiring February 1999 at DM4.450 (39,070) (0.03)
Options Written
Total Options Written (Premiums Received--$32,341) (45,473) (0.04)
Total Investments, Net of Options Written (Cost--$120,604,704) 120,414,061 99.53
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 238,412 0.20
Other Assets Less Liabilities 325,814 0.27
------------ -------
Net Assets $120,978,287 100.00%
============ =======
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--19.72%
(2)Financial Services--52.96%
(3)Sovereign/Regional Government Obligations--Agency--26.83%
++Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates shown
reflect 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 December 31, 1998.
++++Forward foreign exchange contracts as of December 31, 1998 are as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Sold Date (Note 1d)
Pound Sterling 17,679,873 February 1999 $ 399,388
Nok 141,407,086 February 1999 (141,559)
NZ$ 6,429,398 January 1999 (19,417)
-------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$51,469,280) $ 238,412
=============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$120,571,703)
(Note 1a) $ 120,387,385
Options purchased, at value (premiums paid--$65,342)
(Notes 1a & 1d) 72,149
Unrealized appreciation on forward foreign exchange
contracts (Note 1d) 238,412
Receivables:
Interest $ 1,101,397
Forward foreign exchange contracts (Note 1d) 22,815
Capital shares sold 16,814 1,141,026
-------------
Prepaid registration fees and other assets (Note 1g) 174,266
-------------
Total assets 122,013,238
-------------
Liabilities: Options written, at value (premiums received--$32,341)
(Notes 1a & 1d) 45,473
Payables:
Capital shares redeemed 371,826
Dividends to shareholders (Note 1h) 320,648
Distributor (Note 2) 84,222
Investment adviser (Note 2) 62,072
Forward foreign exchange contracts (Note 1d) 6,984 845,752
-------------
Accrued expenses and other liabilities 143,726
-------------
Total liabilities 1,034,951
-------------
Net Assets: Net assets $ 120,978,287
=============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 1,000,000,000 shares authorized $ 84
Class B Shares of Common Stock, $0.10 par value,
1,000,000,000 shares authorized 1,437,849
Class C Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 226
Class D Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized 129,060
Paid-in capital in excess of par 166,896,275
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 5) (47,511,075)
Unrealized appreciation on investments and foreign
currency transactions--net 25,868
-------------
Net assets $ 120,978,287
=============
Net Asset Class A--Based on net assets of $6,564 and 841 shares outstanding $ 7.80
Value: =============
Class B--Based on net assets of $110,989,173 and 14,378,489
shares outstanding $ 7.72
=============
Class C--Based on net assets of $17,191 and 2,260 shares outstanding $ 7.61
=============
Class D--Based on net assets of $9,965,359 and 1,290,599 shares outstanding $ 7.72
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1998
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 8,417,558
(Notes 1e & 1f):
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 1,026,789
Investment advisory fees (Note 2) 816,524
Transfer agent fees--Class B (Note 2) 242,708
Professional fees 62,249
Accounting services (Note 2) 56,427
Registration fees (Note 1g) 48,080
Printing and shareholder reports 43,468
Directors' fees and expenses 36,784
Account maintenance fees--Class D (Note 2) 28,755
Custodian fees 15,134
Transfer agent fees--Class D (Note 2) 15,074
Account maintenance and distribution fees--Class C (Note 2) 337
Transfer agent fees--Class C (Note 2) 88
Pricing fees 16
Transfer agent fees--Class A (Note 2) 12
-------------
Total expenses 2,392,445
-------------
Investment income--net 6,025,113
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 86,218
(Loss) on Foreign currency transactions--net (279,654) (193,436)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 711,482
(Notes 1c, 1d, Foreign currency transactions--net (170,537) 540,945
1f & 3): ------------- -------------
Net realized and unrealized gain on investments and
foreign currency transactions 347,509
-------------
Net Increase in Net Assets Resulting from Operations $ 6,372,622
=============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 6,025,113 $ 9,800,510
Realized loss on investments and foreign
currency transactions--net (193,436) (1,367,047)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 540,945 (2,089,986)
------------- -------------
Net increase in net assets resulting from operations 6,372,622 6,343,477
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (431) (262)
Shareholders Class B (5,311,497) (8,318,276)
(Note 1h): Class C (1,613) (9,502)
Class D (506,824) (745,677)
Return of capital--net:
Class A (15) (21)
Class B (186,847) (666,283)
Class C (57) (761)
Class D (17,829) (59,728)
------------- -------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (6,025,113) (9,800,510)
------------- -------------
Capital Share Net decrease in net assets derived from capital
Transactions share transactions (53,051,958) (80,385,611)
(Note 4): ------------- -------------
Net Assets: Total decrease in net assets (52,704,449) (83,842,644)
Beginning of year 173,682,736 257,525,380
------------- -------------
End of year $ 120,978,287 $ 173,682,736
============= =============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
Period For the Period
The following per share data and ratios have been derived Nov. 1, Year Oct. 21,
from information provided in the financial statements. For the Year Ended 1995 to Ended 1994++ to
December 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in 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 .38 .42 .54 .09 .49 .01
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .04 (.13) (.06) (.02) (.12) --
-------- -------- -------- -------- -------- --------
Total from investment operations .42 .29 .48 .07 .37 .01
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.37) (.39) (.44) (.09) (.27) --
Return of capital--net (.01) (.03) (.06) -- (.28) (.01)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.38) (.42) (.50) (.09) (.55) (.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.80 $ 7.76 $ 7.89 $ 7.91 $ 7.93 $ 8.11
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.49% 3.77% 6.29% .92%+++ 4.62% .12%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses .84% .76% .95% 1.02%* .96% .97%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 4.75% 5.39% 6.45% 6.91%* 6.75% 6.28%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 7 $ 18 $ 3 $ 75 $ 66 $ 59
======== ======== ======== ======== ======== ========
Portfolio turnover 174.18% 287.81% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
For the
Period
The following per share data and ratios have been derived Nov. 1,
from information provided in the financial statements. For the Year Ended 1995 to For the Year Ended
December 31, Dec. 31, October 31,
Increase (Decrease) in 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 .31 .35 .44 .08 .47 .50
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .03 (.12) (.09) (.03) (.15) (.58)
-------- -------- -------- -------- -------- --------
Total from investment operations .34 .23 .35 .05 .32 (.08)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.30) (.32) (.38) (.08) (.24) --
Return of capital--net (.01) (.03) (.06) -- (.25) (.47)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.31) (.35) (.44) (.08) (.49) (.47)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.72 $ 7.69 $ 7.81 $ 7.90 $ 7.93 $ 8.10
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.52% 3.08% 4.52% .66%+++ 3.96% (1.02%)
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.65% 1.62% 1.74% 1.80%* 1.73% 1.52%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 3.99% 4.59% 5.62% 6.13%* 5.95% 5.68%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $110,989 $160,096 $239,419 $376,049 $398,136 $750,750
======== ======== ======== ======== ======== ========
Portfolio turnover 174.18% 287.81% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ======== ========
<CAPTION>
Class C
For the For the
Period For the Period
The following per share data and ratios have been derived Nov. 1, Year Oct. 21,
from information provided in the financial statements. For the Year Ended 1995 to Ended 1994++ to
December 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in 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 .29 .35 .38 .08 .35 .01
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .03 (.09) (.01) (.02) (.28) (.01)
-------- -------- -------- -------- -------- --------
Total from investment operations .32 .26 .37 .06 .07 --
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.28) (.32) (.37) (.08) (.21) --
Return of capital--net (.01) (.03) (.05) -- (.22) (.01)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.29) (.35) (.42) (.08) (.43) (.01)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.61 $ 7.58 $ 7.67 $ 7.72 $ 7.74 $ 8.10
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.37% 3.42% 4.93% .78%+++ .89% .00%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.76% 1.60% 1.73% 1.83%* 1.83% 2.14%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 3.94% 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 174.18% 287.81% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ======== ========
<CAPTION>
Class D
For the
Period
The following per share data and ratios have been derived Nov. 1,
from information provided in the financial statements. For the Year Ended 1995 to For the Year Ended
December 31, Dec. 31, October 31,
Increase (Decrease) in 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 .35 .40 .48 .09 .52 .54
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net .02 (.11) (.09) (.03) (.17) (.58)
-------- -------- -------- -------- -------- --------
Total from investment operations .37 .29 .39 .06 .35 (.04)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.34) (.37) (.42) (.09) (.26) --
Return of capital--net (.01) (.03) (.06) -- (.27) (.51)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.35) (.40) (.48) (.09) (.53) (.51)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.72 $ 7.70 $ 7.81 $ 7.90 $ 7.93 $ 8.11
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 4.96% 3.77% 5.09% .75%+++ 4.40% (.51%)
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.10% 1.08% 1.20% 1.27%* 1.20% 1.01%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 4.54% 5.13% 6.13% 6.67%* 6.49% 6.19%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 9,965 $ 13,225 $ 17,948 $ 24,240 $ 26,619 $ 48,879
======== ======== ======== ======== ======== ========
Portfolio turnover 174.18% 287.81% 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
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. The Fund's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. Options written or purchased are valued at
the last sale price in the case of exchange-traded options. In the
case of options traded in the over-the-counter market, valuation is
the last asked price (options written) or the last bid price
(options purchased). Short-term securities are valued at amortized
cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not available
are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements 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.
* 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).
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, 1998 is
characterized as a return of capital.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$204,748 have been reclassified between accumulated net realized
capital losses and paid-in capital in excess of par. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
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 year ended December 31, 1998, MLAM paid MLAM U.K.
a fee of $74,146 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 Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended December 31, 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 $72 $1,869
For the year ended December 31, 1998, MLPF&S received contingent
deferred sales charges of $50,596 and $76 relating to transactions
in Class B Shares and Class C Shares, respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, FDS, MLFD, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1998 were $61,936,468 and
$72,917,926, respectively.
Net realized gains (losses) for the year ended December 31, 1998 and
net unrealized gains (losses) as of December 31, 1998 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ 928,884 $ (152,569)
Short-term (842,666) (31,749)
Options written -- --
Options purchased -- --
------------ ------------
Total investments 86,218 (184,318)
------------ ------------
Currency transactions:
Options written 28,669 (13,132)
Options purchased (45,105) 6,807
Forward foreign exchange
contracts 1,020,811 238,412
Foreign currency transactions (1,284,029) (21,901)
------------ ------------
Total currency transactions (279,654) 210,186
------------ ------------
Total $ (193,436) $ 25,868
============ ============
As of December 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $184,318, of which $206,731 related
to appreciated securities and $391,049 related to depreciated
securities. At December 31, 1998, the aggregate cost of investments
for Federal income tax purposes was $120,571,703.
Transactions in options written for the year ended December 31, 1998
were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options written,
beginning of year -- --
Options written 8,766,000 $ 43,931
Options expired (4,916,000) (28,668)
------------ ------------
Outstanding call options written,
end of year 3,850,000 $ 15,263
============ ============
Nominal Value
Covered by Premiums
Put Options Written Written Options Received
Outstanding put options written,
beginning of year -- --
Options written 10,500,000 $ 17,078
Options closed -- --
------------ ------------
Outstanding put options written,
end of year 10,500,000 $ 17,078
============ ============
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $53,051,958 and $80,385,611 for the year ended December 31, 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 Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 2,330 $ 18,100
Shares issued to shareholders in
reinvestment of dividends 49 383
------------ ------------
Total issued 2,379 18,483
Shares redeemed (3,799) (29,521)
------------ ------------
Net decrease (1,420) $ (11,038)
============ ============
Class A Shares for the Year Dollar
Ended 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 Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 2,168,042 $ 16,681,600
Shares issued to shareholders in
reinvestment of dividends 361,212 2,777,966
------------ ------------
Total issued 2,529,254 19,459,566
Automatic conversion of shares (59,307) (455,694)
Shares redeemed (8,897,683) (68,428,445)
------------ ------------
Net decrease (6,427,736) $(49,424,573)
============ ============
Class B Shares for the Year Dollar
Ended 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 Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 186,138 $ 1,411,639
Shares issued to shareholders in
reinvestment of dividends 142 1,078
------------ ------------
Total issued 186,280 1,412,717
Shares redeemed (229,410) (1,739,574)
------------ ------------
Net decrease (43,130) $ (326,857)
============ ============
Class C Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 983,199 $ 7,428,596
Shares issued to shareholders in
reinvestment of dividends 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 Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 44,879 $ 345,959
Shares issued to shareholders in
reinvestment of dividends 40,344 310,437
Automatic conversion of shares 59,280 455,694
------------ ------------
Total issued 144,503 1,112,090
Shares redeemed (572,114) (4,401,580)
------------ ------------
Net decrease (427,611) $ (3,289,490)
============ ============
Class D Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 76,707 $ 594,693
Shares issued to shareholders in
reinvestment of dividends 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, 1998, the Fund had a capital loss carryforward of
approximately $47,027,000, 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, $1,289,000 expires in
2005 and $143,000 expires in 2006. This amount will be available to
offset like amounts of any future taxable gains.
Merrill Lynch Short-Term Global Income Fund, Inc., December 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Short-Term Global Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Short-Term Global Income Fund, Inc. as of December 31, 1998, the
related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then
ended and the financial highlights for the periods presented. These
financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Short-Term Global Income Fund, Inc. as of December 31,
1998, the results of its operations, the changes in its net assets,
and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 19, 1999
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
Of the monthly cash distributions paid by Merrill Lynch Short-Term
Global Income Fund, Inc. during the fiscal year ended December 31,
1998, 3.40% is characterized as return of capital distributions. The
tax reporting treatment of a return of capital is different from
that of a taxable distribution. Rather than being included in your
current taxable income, a return of capital is non-taxable and will
reduce the cost basis in your shares of the Fund.
Additionally, there were no long-term capital gains distributed by
the Fund during the taxable year ended December 31, 1998.
Please retain this information for your records.
