MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1996
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.
<PAGE>
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
David B. Walter, Vice President
Stephen Yardley, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
As the September quarter began, the US dollar was trading at its two-
year high versus the Japanese yen. The Bank of Japan's accommodative
monetary policy and Japan's declining trade surplus with its major
trade partners negatively influenced the yen. In addition,
speculation of a tightening by the US Federal Reserve Board
following stronger employment statistics supported the US dollar.
With regard to fixed-income markets, central banks in Europe
continued to reduce short-term interest rates as inflationary
pressure remained virtually nonexistent. Specifically, Italy lowered
its official interest rates following the decline of the consumer
price index to below 4%. In addition, Sweden's Riksbank continued to
lower the repurchase agreement rate as Swedish inflation was
calculated below 1% and the domestic economy extended its decline.
In general, the central banks in the major economies were also
supportive of global fixed-income markets. The German Bundesbank
kept its repurchase agreement rate unchanged at 3.30%, and the US
Federal Reserve Board, following much investor speculation, did not
raise interest rates. Federal Reserve Board Chairman Alan Greenspan
commented that despite recent strong economic releases, inflation
remained mild. Australia and Canada also lowered short-term interest
rates as their respective currencies remained stable and price
pressures were relatively nonexistent.
We continued to maintain our exposure to higher-yielding markets.
With global interest rate convergence a factor and short-term
interest rates in core European markets below interest rates in the
United States, we utilized exposures in higher-yielding markets in
accordance with the Fund's income-oriented objective. In addition,
as the dollar continued to rally, we remained primarily hedged into
US dollars, thus negating the majority of our foreign currency
exposure.
<PAGE>
August progressed with US economic fundamentals once again showing
evidence of stronger-than-expected economic activity. Second-quarter
US gross domestic product increased by 4.8% while civilian
unemployment remained below 5.5%. The US bond market declined as
speculation arose that the Federal Reserve Board would raise
interest rates.
In Europe, bond markets continued their strong performance as the
Bundesbank lowered the fixed repurchase agreement rate to 3.00% from
3.30% in response to reduced expectations of money supply growth and
support for European Monetary Union (EMU). The cut in German
interest rates allowed other European countries, namely Belgium,
France, Denmark, Sweden, the Netherlands and Portugal, to also
reduce interest rates. In addition, in the dollar bloc, the Reserve
Bank of Australia and the Bank of Canada utilized stronger
currencies and favorable inflation data to cut short-term interest
rates. We took advantage of these cuts to reduce our market exposure
as we considered the interest rate reductions as being possibly the
last of the current interest rate cycle.
At its September 24, 1996 meeting, the Federal Open Market Committee
maintained the Federal Funds rate and the discount rate at 5.25% and
5.00%, respectively. A rate increase in the United States was not
yet warranted by the Federal Reserve Board as the result of
insufficient evidence of inflationary pressure. Additionally, during
the month favorable interest rate differentials, improvements in the
Japanese trade data with the United States, and capital outflows
from Japan helped the US dollar reach a new high versus the yen.
Both politics and economics suggest that the Bank of Japan's
interest rate policy is likely to remain unchanged until the end of
1996. In Europe, renewed interest in convergence trades among
investors also caused the Deutschemark to weaken against the Italian
lira, the Swedish krona and other high-yielding currencies. The
motivation behind these moves stems from the strong political will
being displayed by European governments to meet the Maastricht
guidelines on budget deficits and an effort to be part of the first
group of EMU participants. Continued low inflationary growth and the
resurgence in optimism over EMU will be supportive of the global
bond markets.
The United Kingdom's strong economic data and improving fundamentals
contributed to a significant appreciation of sterling. Leading
indicators suggest that the economy will strengthen over the next
few months. The pound sterling appreciated against the Deutschemark
to its 19-month high of 2.39. This move mitigated the need for any
immediate base interest rate increase.
<PAGE>
In the Pacific Basin, the Australian dollar came off its highs from
last month. The Australian dollar's vulnerability has been
attributed to lower commodity prices as well as growing expectations
of another cut in official interest rates later this year. If short-
term interest rates are driven down by the Reserve Bank currency,
weakness will likely abound. In addition, the New Zealand dollar
achieved its highest valuation versus the US dollar since June 1988.
Ongoing issuance of New Zealand dollar samurai bonds has been the
driving force in the sustained rally for the currency over the past
two months.
The Canadian dollar also appreciated as a result of foreign
investors' increasing awareness of Canada's vastly improving
inflation, fiscal and current account fundamentals. Further gains in
the Canadian dollar may allow additional interest rate cuts by the
Bank of Canada going forward.
Looking ahead, we anticipate the global monetary easing cycle to be
near conclusion. Therefore, we will continue to monitor the Federal
Reserve Board and economic data releases for any signs of tightening
by the US central bank. If the Federal Reserve Board responds
accordingly to strong growth factors in the US economy, the US
dollar should also continue to appreciate. However, if the Federal
Reserve Board delays, a marginal decline of the dollar is possible.
In Conclusion
We thank you for your continued investment in Merrill Lynch Short-
Term Global Income Fund, Inc., and we look forward to reviewing our
outlook with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Alex V. Bouzakis)
Alex V. Bouzakis
Vice President and
Senior Portfolio Manager
<PAGE>
(Edward F. Gobora)
Edward F. Gobora
Vice President and Portfolio Manager
(David B. Walter)
David B. Walter
Vice President and Portfolio Manager
(Stephen Yardley)
Stephen Yardley
Vice President and Portfolio Manager
October 23, 1996
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.
<PAGE>
* 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. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.11 $7.90 -- $0.103 -1.33%
1995 7.90 7.91 -- 0.537 +7.14
1/1/96--9/30/96 7.91 7.82 -- 0.368 +3.78
------
Total $1.008
Cumulative total return as of 9/30/96: +9.71%**
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.404 +3.40%
1991 9.93 9.68 -- 0.885 +6.63
1992 9.68 8.69 -- 0.687 -3.39
1993 8.69 8.63 -- 0.581 +6.15
1994 8.63 7.89 -- 0.463 -3.30
1995 7.89 7.90 -- 0.474 +6.31
1/1/96--9/30/96 7.90 7.82 -- 0.324 +3.31
------
Total $3.818
Cumulative total return as of 9/30/96: +20.09%***
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.11 $7.89 -- $0.079 -1.74%
1995 7.89 7.72 -- 0.435 +3.48
1/1/96--9/30/96 7.72 7.68 -- 0.310 +3.72
------
Total $0.824
Cumulative total return as of 9/30/96: +5.45%***
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.436 +3.73%
1991 9.93 9.68 -- 0.941 +7.23
1992 9.68 8.70 -- 0.735 -2.79
1993 8.70 8.64 -- 0.625 +6.69
1994 8.64 7.89 -- 0.506 -2.91
1995 7.89 7.90 -- 0.517 +6.87
1/1/96--9/30/96 7.90 7.82 -- 0.354 +3.72
------
Total $4.114
<PAGE>
Cumulative total return as of 9/30/96: +24.15%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the payable date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
++As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</TABLE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
9/30/96 6/30/96 9/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $7.82 $7.85 $7.92 -1.26% -0.38%
Class B Shares* 7.82 7.84 7.91 -1.14 -0.26
Class C Shares* 7.68 7.70 7.73 -0.65 -0.26
Class D Shares* 7.82 7.84 7.91 -1.14 -0.26
Class A Shares--Total Return* +5.42(1) +1.17(2)
Class B Shares--Total Return* +4.85(3) +1.10(4)
Class C Shares--Total Return* +5.25(5) +1.09(6)
Class D Shares--Total Return* +5.42(7) +1.24(8)
Class A Shares--Standardized 30-day Yield 5.47%
Class B Shares--Standardized 30-day Yield 4.91%
Class C Shares--Standardized 30-day Yield 4.77%
Class D Shares--Standardized 30-day Yield 5.20%
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.523 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.121 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.461 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.106 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.444 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.103 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.503 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.116 per share ordinary
income dividends.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +5.42% +1.21%
Inception (10/21/94) through 9/30/96 +4.88 +2.70
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +4.85% +0.89%
Five Years Ended 9/30/96 +1.87 +1.87
Inception (8/3/90) through 9/30/96 +3.02 +3.02
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +5.25% +4.25%
Inception (10/21/94) through 9/30/96 +2.77 +2.77
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/96 +5.42% +1.21%
Five Years Ended 9/30/96 +2.36 +1.53
Inception (8/3/90) through 9/30/96 +3.57 +2.89
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Maturity Interest Percent of
COUNTRIES Face Amount Date Issue Rate++ Value Net Assets
<S> <S> <C> <S> <S> <C> <C> <C>
Australia A$ 18,200,000 5/14/97 Queensland Treasury Corp. (3) 8.00% $ 14,505,323 4.98%
13,043,289 10/03/96 Swiss Bank Corp., Time Deposit (2) 6.75 10,317,242 3.54
Total Investments in Australia
(Cost--$24,688,692) 24,822,565 8.52
Canada C$ 3,258,000 9/02/97 General Electric Capital Corp. (2) 6.25 2,429,387 0.84
Total Investments in Canada
(Cost--$2,390,865) 2,429,387 0.84
<PAGE>
Germany DM 6,900,000 10/17/96 Deutsche Bank AG, Time Deposit (2) 3.00 4,522,218 1.56
10,049,431 10/09/96 Dresdner Bank AG, Time Deposit (2) 2.937 6,586,336 2.26
Total Investments in Germany
(Cost--$11,183,520) 11,108,554 3.82
Ireland Iep 7,320,000 7/27/97 Irish Government Treasury Gilt (1) 8.75 12,003,841 4.12
Total Investments in Ireland
(Cost--$12,085,996) 12,003,841 4.12
Italy Lit 4,990,000,000 10/14/97 ABB Finance Inc. (2) 11.40 3,391,389 1.17
3,420,000,000 9/05/97 Abbey National Treasury Services PLC (2) 10.70 2,298,063 0.79
1,390,000,000 10/20/97 Abbey National Treasury Services PLC (2) 11.50 944,528 0.32
25,000,000,000 10/01/96 Buoni Poliennali del Tesoro (Italian
Government Bonds) (1) 9.00 16,429,769 5.64
6,800,000,000 8/01/97 Buoni Poliennali del Tesoro (Italian
Government Bonds) (1) 8.50 4,493,167 1.54
2,360,000,000 6/02/97 Council of Europe (1) 11.40 1,579,667 0.54
1,255,000,000 5/27/97 Credit Suisse Finance (1) 11.625 841,541 0.29
1,770,000,000 5/12/97 Electricite de France (2) 8.00 1,160,946 0.40
Total Investments in Italy
(Cost--$29,548,513) 31,139,070 10.69
New Zealand NZ$ 31,600,000 11/15/96 New Zealand Government Bonds (1) 9.00 22,039,399 7.57
17,000,000 6/18/97 New Zealand Treasury Bill (1) 9.51 11,144,440 3.82
Total Investments in New Zealand
(Cost--$32,185,936) 33,183,839 11.39
Spain Pta 2,000,000,000 2/28/97 Bonos del Estado (Spanish Government
Bonds) (1) 9.00 15,688,352 5.39
Total Investments in Spain
(Cost--$16,014,575) 15,688,352 5.39
United Pound 11,800,000 12/30/96 General Electric Capital Corp. (2) 8.25 18,563,028 6.37
Kingdom Sterling
Total Investments in the United Kingdom
(Cost--$19,134,699) 18,563,028 6.37
United US$ 14,200,000 10/01/96 CS First Boston Inc., Repurchase Agreement*
States purchased on 9/24/96 (2) 5.30 14,200,000 4.87
14,000,000 10/02/96 Chase Manhattan Bank, Repurchase Agreement*
purchased on 9/25/96 (2) 5.28 14,000,000 4.80
14,000,000 10/02/96 Deutsche Bank Securities, Repurchase
Agreement* purchased on 9/25/96 (2) 5.20 14,000,000 4.81
17,507,000 10/01/96 HSBC Holdings PLC, Repurchase Agreement*
purchased on 9/30/96 (2) 5.60 17,507,000 6.01
17,500,000 10/01/96 Morgan (J.P.) & Company, Inc., Repurchase
Agreement* purchased on 9/30/96 (2) 5.40 17,500,000 6.01
14,500,000 10/04/96 Morgan Stanley Group, Inc., Repurchase
Agreement* purchased on 9/27/96 (2) 5.20 14,500,000 4.98
14,000,000 10/03/96 PaineWebber Inc., Repurchase Agreement*
purchased on 9/26/96 (2) 5.23 14,000,000 4.81
40,880,000 12/31/96 US Treasury Note (1) 7.50 41,097,073 14.11
<PAGE>
Total Investments in the United States
(Cost--$146,888,803) 146,804,073 50.40
Total Investments (Cost--$294,121,599) 295,742,709 101.54
Nominal Value Expiration Strike
Covered by Options Date Price
Currency Put US$ 5,455,000 Oct. 1996 German Deutschemark DM 1.5385 (136) 0.00
Options
Written Total Options Written (Premiums
Received--$2,728) (136) 0.00
Total Investments, Net of Options Written (Cost--$294,118,871) 295,742,573 101.54
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 544,968 0.18
Liabilities in Excess of Other Assets (5,021,371) (1.72)
------------ -------
Net Assets $291,266,170 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $9,882 and 1,263
shares outstanding $ 7.82
============
Class B--Based on net assets of $271,188,454 and
34,670,927 shares outstanding $ 7.82
============
Class C--Based on net assets of $154,835 and 20,151
shares outstanding $ 7.68
============
Class D--Based on net assets of $19,912,999 and
2,544,953 shares outstanding $ 7.82
============
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--43.02%
(2)Financial Services--53.54%
(3)Sovereign/Regional Government Obligations--Agency--4.98%
*Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
++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 September 30, 1996.
++++Forward foreign exchange contracts as of September 30, 1996 were
as follows:
<PAGE>
Unrealized
Expiration Appreciation
Date (Depreciation)
Foreign Currency Purchased
DM 18,294,029 September 1996 $ (86,754)
Lit 18,108,183,680 October 1996 3,839
Total (US$ Commitment--$23,948,589) $ (82,915)
----------
Foreign Currency Sold
A$ 31,411,322 October 1996 $ 248,024
C$ 3,323,025 October 1996 (9,115)
DM 18,294,029 September 1996 276,659
DM 10,108,129 October 1996 21,668
Iep 7,534,422 October 1996 46,608
Pound 12,626,013 October 1996 (37,588)
Sterling
Lit 41,830,285,825 October 1996 20,290
NZ$ 40,451,541 October 1996 (18,001)
Pta 2,062,868,461 October 1996 79,338
Total (US$ Commitment--$150,027,203) $ 627,883
----------
Total Unrealized Appreciation--Net on
Forward Foreign Exchange Contracts $ 544,968
==========
</TABLE>
