MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Annual Report
December 31, 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.
Important Tax
Information
(unaudited)
Of the monthly cash distributions paid by Merrill Lynch Short-Term
Global Income Fund, Inc. in January 1996 and February 1996, 0.00%
and 11.65%, respectively, are characterized as a return of capital
distributions. For the period March 1996 through December 1996,
13.85% of the distributions are characterized as a 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.
<PAGE>
Additionally, the monthly cash distributions paid by the Fund in
January 1996 and February 1996, 50.58% and 67.06%, respectively, are
characterized as income from foreign sources. For the period March
1996 through December 1996, 70.31% of the distributions are
characterized as income from foreign sources.
The Fund incurred foreign taxes which it has elected to pass through
to its shareholders. Your share of the Fund's total foreign taxes
paid or withheld is 0.81% multiplied by cash distributions paid
during the taxable year ended December 31, 1996.
The foreign taxes paid or withheld represent taxes incurred by the
Fund on interest received by the Fund from foreign sources. Foreign
taxes paid or withheld should be included as foreign source taxable
income with an offsetting deduction from gross income or as a credit
for taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
Finally, there were no long-term capital gains distributed by the
Fund during the taxable year ended December 31, 1996.
Please retain this information for your records.
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
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
DEAR SHAREHOLDER
Fiscal Year in Review
During the past year, most global fixed-income prices improved while
the Fund remained conservatively positioned, with emphasis in the
higher-yielding "dollar bloc" markets. In general, international
bond markets responded positively to lower short-term international
interest rates initiated by central bank monetary easings. The Fund
maintained large exposures in Australia and New Zealand as yield
spreads remained attractive relative to the United States. On the
currency front, the US dollar appreciated after a period of
consolidation against the Deutschemark and the yen during 1996. We
continued to hedge our foreign currency exposure into US dollars to
take advantage of attractive interest rate differentials and
improving dollar fundamentals. This strategy hedged against any
foreign currency depreciation in the countries in which the Fund
retained bond holdings. During the year, this strategy helped reduce
net asset value volatility and allowed the Fund to not be adversely
affected as the US dollar appreciated in value.
Portfolio and Economic Review
As we entered 1996, the US bond market continued the positive trend
established in 1995 as expectations of a budget deficit reduction
plan and non-inflationary economic growth pushed interest rates to
sub 6.20% yield levels on the 30-year Treasury bond. Although US
fixed-income markets experienced volatility because of political
road blocks dealing with Republican Congressional pressure to have
the President concede to its version of the budget, the market
remained relatively firm through mid-January. However, aggressive
selling of US bonds following Federal Reserve Board Chairman Alan
Greenspan's February 1996 Humphrey/Hawkins testimony marked a break
in global fixed-income momentum on a worldwide basis. As a result of
this testimony, the willingness of central banks to continue
reducing interest rates was brought into question, especially in the
United States. In general, all core international markets were
negatively affected.
<PAGE>
As the first quarter of 1996 progressed, economic weakness in Europe
allowed for various European markets to stabilize. This trend
continued with the short end of European fixed-income markets
supported by the Bundesbank's reduction of the official discount
rate. Denmark, Sweden, Spain, France, Austria, Portugal, the
Netherlands, Belgium, Ireland, and Canada also reduced interest
rates in April. However, the US market was negatively affected by
strong economic data in the United States throughout April, as
evidenced by a gross domestic product (GDP) growth of 2.3%. These
fundamentals led to price declines in the US bond market and
reinforced the belief that the next move in interest rates by the US
Federal Reserve Board would be up.
The Group of Seven Industrialized Nations (G7) met on April 21,
1996. General sentiment favored the gains in the US dollar over the
past year with US Treasury Secretary Rubin stating that a strong US
dollar is in the interest of the United States. G7 members agreed to
continue to cooperate in the foreign exchange market and to reduce
imbalances. Subsequently, the US dollar continued its positive trend
and solidified our view of a strong dollar in 1996. In addition,
European central bank governors and finance ministers also met
during the month to discuss the relationship between those countries
not involved in the first round of European Monetary Union (EMU) and
those few that qualify. Concerns over limiting European exchange
rate volatility and moving forward to true economic and monetary
union in Europe were addressed. This was positive for high-yielding
markets, such as Spain and Italy, as currencies and bond markets
traded positively relative to core European currencies.
In May, the US dollar made significant gains against the yen on
dampened expectations of an increase in Japanese interest rates and
comments from Japanese officials favoring a stronger dollar. In
addition, the dollar was supported as US economic indicators did not
present the opportunity for an adjustment to interest rates at the
May meeting of the Federal Open Market Committee.
Entering the second half of 1996, we maintained exposure in higher-
yielding markets with the US sector focused in money market
instruments. With global interest rate convergence a factor, as well
as short-term interest rates in core Europe below US interest rates,
we utilized exposures in higher-yielding markets to achieve the
Fund's income objective. In addition, as the US dollar continued to
rally, we remained primarily hedged into US dollars thus offsetting
a majority of our foreign currency exposure.
This strategy proved constructive as central banks in Europe
continued to reduce short-term interest rates as inflation remained
virtually non-existent. Specifically, Italy lowered its official
interest rates following the decline in the Consumer Price Index to
below 4%. In addition, Sweden's Riksbank continued to lower the
repurchasing rate as Swedish inflation was calculated below 1% and
the economy was slowing. The central banks in the major economies
were also supportive to global fixed-income markets as the German
Bundesbank kept its repurchasing rate unchanged at 3.30% while the
US Federal Reserve Board, following much market 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 non-existent.
<PAGE>
As we entered August, US economic fundamentals once again showed
evidence of stronger-than-expected economic activity. Second-quarter
US gross national product increased 4.80% while civilian
unemployment remained below 5.5%. Subsequently, US bond markets
declined as investors speculated that interest rates would
increase. Concurrently, in Europe, bond markets performed admirably
as the Bundesbank lowered the fixed repurchasing rate to 3.00% from
3.30% because of reduced expectations of money supply growth and
support for the EMU. The cut in German interest rates allowed for
other European countries to also reduce rates. In addition, in the
dollar bloc, the Reserve Bank of Australia and Bank of Canada
utilized stronger currencies and favorable inflation data to also
cut short-term interest rates. We took advantage of these cuts to
reduce our market exposure because we believed these rate reductions
could possibly be the last of the current interest rate cycle.
The US fixed-income market was supported on September 24, 1996 as
the Federal Open Market Committee maintained the Federal Funds rate
and the discount rate at 5.25% and 5.00%, respectively. A rate
increase was not yet warranted because of insufficient evidence of
inflationary pressure. This factor, in addition to favorable
interest rate differentials, improvements in the Japanese trade data
with the United States, and capital outflows out of Japan helped the
US dollar reach a 2.5-year high relative to the yen.
Renewed interest in convergence trades among investors caused the
Deutschemark to weaken against the Italian lira, the Swedish krona
and other high-yielding currencies in September 1996. The motivation
behind these moves stems from the strong desire of European
governments to meet Maastricht guidelines on budget deficits and 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, in our opinion.
In October, the Fund remained primarily hedged as the US dollar
remained firm. The dollar reached a 42-month high against the yen,
breaching the 114 level for the first time since April 1993. The
event was somewhat attributed to Japanese investors diversifying
into higher-yielding markets. The US dollar also gained against the
Swiss franc while remaining stable relative the Deutschemark. The
dollar was capped against the Deutschemark on the possibility that
the next adjustment in German monetary policy would be an increase
in interest rates.
<PAGE>
While the US dollar performed well, European bond markets also held
their gains. As central banks remained in easing modes, the bond
markets correspondingly traded well. In Italy, given ongoing weak
economic releases, we expect Italian interest rates to be lowered in
the near term creating an opportunity to reduce current exposures.
In addition, with interest rate differentials favoring the United
Kingdom versus core Europe, additional short-term securities would
be accumulated in the portfolio following the United Kingdom's
raising of their base rate by 25 basis points to 6.00%. Raising
interest rates was a preemptive move caused by an acceleration in
growth rather than a response to rising inflationary pressures.
Investors expected sterling to extend its gains with sustained
positive sentiment. High-yield markets continued to be emphasized.
Volatility in the Swiss franc created the opportunity to benefit
from weak cross-currency relationships.
In the dollar bloc, the Bank of Canada eased its monetary stance
repeatedly in response to the strength in the Canadian dollar,
bringing the rate to a 33-year low of 3.50%. While in the Pacific
Basin, the Australian dollar was well supported by strong capital
flows into the domestic debt market and continued interest in new
samurai issues that are expected to proceed through the beginning of
November. In addition, the New Zealand dollar had a quick post
election rally and rose to an eight-year high of .7146. Foreign
investors were attracted by New Zealand's relatively high, short-
term interest rates. We remained invested in the short end of the
New Zealand yield curve.
In the United States, at its November meeting the Federal Reserve
Board kept interest rates unchanged because of a moderating trend of
growth and subdued inflationary pressures. Strong US asset markets,
favorable underlying fundamentals and more comments that Germany and
France welcomed a stronger dollar were supportive for the US dollar
versus European currencies. In addition, Bank of Japan officials
indicated that the current low level of interest rates in Japan was
to persist well into the new year. These factors supported the US
fixed-income market and allowed it to trade positively.
In the European bond arena, the Bundesbank made no changes in
interest rates in November as Germany's relatively easy monetary
policy was expected to promote economic expansion into the beginning
of 1997. The lira re-entered the European Rate Mechanism (ERM), as
European finance ministers agreed to a rate of 990 DM/Lit which
appeared to be a compromise between German and French preferences.
The United Kingdom experienced significant improvements in its
economy and the momentum prompted further appreciation of sterling
to the highest level since it left the ERM in 1992. This improved
outlook for the economy plus increased inflationary pressure
suggested that the Bank of England will likely push interest rates
higher in the near term.
<PAGE>
In the United States, subdued inflationary pressures, rising
inventory levels and moderate growth prompted the Federal Open
Market Committee to leave monetary policy unchanged. However,
Federal Reserve Board Chairman Alan Greenspan's comments that US
asset markets were showing "irrational exuberance" resulted in lower
prices as equity and fixed-income investors interpreted this as a
warning of a possible interest rate increase. European leaders'
support for a stronger dollar, the US Government's commitment to
balance the budget in the next few years, a decreasing US trade
deficit with Japan, and expectations of a tightening in US monetary
policy, all contributed to a stable dollar.
European finance ministers reached an agreement on the stability
pact setting penalties for countries exceeding the deficit/GDP
limits as officials compromised on previous hardline stances. In
addition, the Bundesbank broadened the money supply growth target
from 4%--6% in 1996 to 3.5%--6.5% in 1997, reflecting its
expectations of slower money supply growth in 1997 and preference
for a stable monetary environment ahead of EMU. Currency stability
and continued plans for EMU allowed various European nations to
reduce short-term interest rates. However, strength of the UK
currency, brought on by higher short-term interest rates, was only
temporarily subdued by political events. In addition to prospects
for an early election, the Prime Minister wanted to rule out the
United Kingdom's participation in the first round of EMU while
Chancellor Clarke insisted on maintaining a wait and see policy.
Despite this, sterling continued to perform well.
The strength of the Australian dollar, unemployment above the
government's 8.25% target, and low inflationary pressures prompted
the Reserve Bank of Australia to reduce cash rates 50 basis points
to 6.00%. Monetary policy will be watched closely in the beginning
of 1997 for the possibility of additional easing. The prospects for
lower interest rates also entered New Zealand as the First Party
formed a coalition with the National Party. Winston Peters was named
treasurer and deputy prime minister with National Party leader, Jim
Bolger, continuing for another term as prime minister. The Reserve
Bank of New Zealand's inflation target was widened to 0%--3% from
0%--2%, which created an environment for lower short-term interest
rates and a sustainable economic growth policy. Tax reductions
planned for 1997 will be deferred until 1998. Treasurer Peters
favors a lower New Zealand dollar and believes policies should be
aimed at correcting the overvaluation of the currency and the high
level of interest rates.
As we ended the December quarter, our short-term, higher-yielding
European positions and dollar bloc positions were maintained in
order to seek to generate an attractive current income stream while
hedging the currency exposure to limit net asset value volatility.
<PAGE>
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
(Edward F. Gobora)
Edward F. Gobora
Vice President and Portfolio Manager
(David B. Walter)
David B. Walter
Vice President and Portfolio Manager
<PAGE>
(Stephen Yardley)
Stephen Yardley
Vice President and Portfolio Manager
January 31, 1997
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).
<PAGE>
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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 +6.29% +2.04%
Inception (10/21/94) through 12/31/96 +5.45 +3.51
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +4.52% +0.57%
Five Years Ended 12/31/96 +1.96 +1.96
Inception (8/3/90) through 12/31/96 +3.08 +3.08
[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 12/31/96 +4.93% +3.94%
Inception (10/21/94) through 12/31/96 +2.99 +2.99
<PAGE>
[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 12/31/96 +5.09% +0.88%
Five Years Ended 12/31/96 +2.49 +1.66
Inception (8/3/90) through 12/31/96 +3.64 +2.99
[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 and Class C Shares compared to growth of an investment in
the Global Government Bond Index and the Salomon Brothers World
Government One--Three Year Bond Index. Beginning and ending values
are:
10/21/94** 12/96
ML Short-Term Global Income $ 9,600 $10,787
Fund, Inc.++--Class A Shares*++
ML Short-Term Global Income $10,000 $10,668
Fund, Inc.++--Class C Shares*
ML Global Government Bond Index++++ $10,000 $11,370
Salomon Brothers World Government
One--Three Year Bond Index++++++ $10,000 $12,383
A line graph depicting the growth of an investment in the Fund's
Class B and Class D Shares compared to growth of an investment in
the Global Government Bond Index and the Salomon Brothers World
Government One--Three Year Bond Index. Beginning and ending values
are:
<PAGE>
8/03/90** 12/96
ML Short-Term Global Income $10,000 $12,150
Fund, Inc.++--Class B Shares*
ML Short-Term Global Income $ 9,600 $12,076
Fund, Inc.++--Class D Shares*++
ML Global Government Bond Index++++ $10,000 $16,617
Salomon Brothers World Government
One--Three Year Bond Index++++++ $10,000 $16,074
[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 189 global government bonds
maturing in one to three years.
++++++This unmanaged Index is comprised of 189 global government
bonds maturing in one to three years hedged into US dollars.
++Class A Shares outstanding prior to October 21, 1994 were
redesignated to Class D Shares.
Past performance is not predictive of future performance.
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
1996 7.91 7.89 -- 0.500 +6.29
------
Total $1.140
Cumulative total return as of 12/31/96: +12.36%**
<PAGE>
<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.
***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>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.404 +3.40%
1991 9.93 9.68 -- 0.885 +6.63
1992 9.68 8.69 -- 0.687 -3.39
1993 8.69 8.63 -- 0.581 +6.15
1994 8.63 7.89 -- 0.463 -3.30
1995 7.89 7.90 -- 0.474 +6.31
1996 7.90 7.81 -- 0.438 +4.52
------
Total $3.932
Cumulative total return as of 12/31/96: +21.50%**
<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
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $8.11 $7.89 -- $0.079 -1.74%
1995 7.89 7.72 -- 0.435 +3.48
1996 7.72 7.67 -- 0.422 +4.93
------
Total $0.936
Cumulative total return as of 12/31/96: +6.68%**
<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
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares***
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/3/90--12/31/90 $10.00 $9.93 -- $0.436 +3.73%
1991 9.93 9.68 -- 0.941 +7.23
1992 9.68 8.70 -- 0.735 -2.79
1993 8.70 8.64 -- 0.625 +6.69
1994 8.64 7.89 -- 0.506 -2.91
1995 7.89 7.90 -- 0.517 +6.87
1996 7.90 7.81 -- 0.480 +5.09
------
Total $4.240
Cumulative total return as of 12/31/96: +25.78%**
<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.
***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 wereredesignated to Class D Shares.
</TABLE>
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $7.89 $7.82 $7.91 -0.25% +0.90%
Class B Shares* 7.81 7.82 7.90 -1.14 -0.13
Class C Shares* 7.67 7.68 7.72 -0.65 -0.13
Class D Shares* 7.81 7.82 7.90 -1.14 -0.13
Class A Shares--Total Return* +6.29(1) +2.42(2)
Class B Shares--Total Return* +4.52(3) +1.18(4)
Class C Shares--Total Return* +4.93(5) +1.17(6)
Class D Shares--Total Return* +5.09(7) +1.32(8)
Class A Shares--Standardized 30-day Yield 4.27%
Class B Shares--Standardized 30-day Yield 3.72%
Class C Shares--Standardized 30-day Yield 3.69%
Class D Shares--Standardized 30-day Yield 4.08%
<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 $0.500 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.132 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.438 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.422 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.111 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.480 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.126 per share ordinary
income dividends.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Maturity Interest Value Percent of
COUNTRIES Amount Date Issue Rate++ (Note 1a) Net Assets
<S> <S> <C> <S> <S> <C> <C> <C>
Australia A$ 15,950,000 5/14/97 Queensland Treasury Corp. (3) 8.00 % $ 12,758,316 4.96%
13,294,585 1/21/97 Swiss Bank Corp., Time Deposit (2) 5.625 10,558,559 4.10
Total Investments in Australia
(Cost--$23,136,036) 23,316,875 9.06
Canada C$ 3,258,000 9/02/97 General Electric Capital Corp. (2) 6.25 2,418,768 0.94
5,235,000 12/19/97 Toyota Motor Credit Corp. (2) 6.25 3,897,591 1.51
Total Investments in Canada
(Cost--$6,337,889) 6,316,359 2.45
Germany DM 9,060,000 7/11/97 Depfa Bank (2) 3.125 5,886,792 2.29
6,936,215 1/08/97 Deutsche Bank AG, Time Deposit (2) 3.125 4,508,427 1.75
4,916,866 1/03/97 Dresdner Bank, Time Deposit (2) 3.00 3,195,883 1.24
4,925,471 1/24/97 Dresdner Bank, Time Deposit (2) 2.937 3,201,476 1.24
Total Investments in Germany
(Cost--$16,857,040) 16,792,578 6.52
Ireland Iep 7,320,000 7/27/97 Irish Government Treasury Gilt (1) 8.75 12,563,792 4.88
Total Investments in Ireland
(Cost--$12,085,996) 12,563,792 4.88
Italy Lit 4,990,000,000 10/14/97 ABB Finance Inc. (2) 11.40 3,391,524 1.32
3,420,000,000 9/05/97 Abbey National Treasury Services PLC (2) 10.70 2,302,342 0.89
14,960,000,000 8/01/97 Buoni Poliennali del Tesoro (Italian
Government Bonds) (1) 8.50 9,899,850 3.85
2,360,000,000 6/02/97 Council of Europe (1) 11.40 1,577,734 0.61
1,770,000,000 5/12/97 Electricite de France (2) 8.00 1,167,510 0.45
Total Investments in Italy
(Cost--$18,053,425) 18,338,960 7.12
New Zealand NZ$ 31,600,000 3/12/97 New Zealand Treasury Bill (1) 9.05 22,061,205 8.57
17,000,000 6/18/97 New Zealand Treasury Bill (1) 9.50 11,638,131 4.52
Total Investments in New Zealand
(Cost--$32,569,067) 33,699,336 13.09
<PAGE>
Spain Pta 2,000,000,000 2/28/97 Bonos del Estado (Spanish Government
Bonds) (1) 9.00 15,453,915 6.00
Total Investments in Spain
(Cost--$16,014,575) 15,453,915 6.00
United Pound 3,600,000 2/28/97 Halifax Building Society (2) 6.537 6,160,266 2.39
Kingdom Sterling 8,750,000 8/06/97 United Kingdom Gilt (1) 7.00 15,014,408 5.83
Total Investments in the United Kingdom
(Cost--$20,611,439) 21,174,674 8.22
United States US$ 10,000,000 1/02/97 BZW Security, Repurchase Agreement*
purchased on 12/26/96 (2) 5.50 10,000,000 3.88
12,000,000 1/06/97 Chase Manhattan Bank, Repurchase
Agreement* purchased on 12/30/96 (2) 5.20 12,000,000 4.66
10,000,000 1/02/97 Citibank New York State, Repurchase
Agreement* purchased on 12/26/96 (2) 5.55 10,000,000 3.88
27,200,000 2/06/97 Federal Home Loan Mortgage Corp. (3) 5.20 27,054,480 10.50
22,700,000 2/07/97 Federal National Mortgage
Association (3) 5.20 22,575,377 8.77
13,853,000 1/02/97 HSBC Holdings PLC, Repurchase
Agreement* purchased on 12/31/96 (2) 6.50 13,853,000 5.38
14,000,000 1/02/97 Morgan (J.P.) & Company, Inc.,
Repurchase Agreement* purchased on
12/31/96 (2) 6.50 14,000,000 5.44
Total Investments in the United States
(Cost--$109,497,449) 109,482,857 42.51
Total Investments (Cost--$255,162,916) 257,139,346 99.85
Nominal Value Expiration Strike
Covered by Options Date Price
Currency Put US$ 9,058,000 January 1997 New Zealand Dollar NZ $ .7000 (9,058) 0.00
Options Written
Total Options Written (Premiums
Received--$6,341) (9,058) 0.00
Total Investments, Net of Options Written (Cost--$255,156,575) 257,130,288 99.85
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (420,936) (0.16)
Other Assets Less Liabilities 816,028 0.31
------------ -------
Net Assets $257,525,380 100.00%
============ =======
<PAGE>
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--34.26%
(2)Financial Services--41.36%
(3)Sovereign/Regional Government Obligations--Agency--24.23%
*Repurchase Agreements are fully collateralized by US Government
& Agency Obligations.
++Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates
shown represent the yield-to-maturity at the time of purchase
by the Fund. Other securities bear interest at the rates shown,
payable at fixed dates or upon maturity. Interest rates on
floating rate securities are adjusted periodically based on
appropriate indexes; the interest rates shown are those in
effect at December 31, 1996.
++++Forward foreign exchange contracts as of December 31, 1996 are
as follows:
Unrealized
Appreciation
Expiration (Depreciation)
Date (Note 1d)
Foreign Currency Purchased
A$ 2,290,995 January 1997 $ (1,865)
C$ 6,097,380 January 1997 (69,311)
Chf 11,808,540 January 1997 80,354
DM 27,199,000 January 1997 113,141
Pound 2,777,314 January 1997 104,621
Sterling
Pta 575,945,000 January 1997 36,315
Total (US$ Commitment--$41,712,308) $ 263,255
============
Foreign Currency Sold
A$ 32,086,007 January 1997 $ 51,787
C$ 8,934,654 January 1997 169,694
Chf 11,578,498 January 1997 176,064
DM 55,558,777 January 1997 (345,369)
IEP 7,534,422 January 1997 (204,394)
Pound 16,271,495 January 1997 (451,046)
Sterling
Lit 29,244,886,449 January 1997 (13,400)
NZ$ 47,823,911 January 1997 (58,010)
Pta 2,005,314,921 January 1997 (9,517)
Total (US$ Commitment--$185,217,925) $ (684,191)
------------
<PAGE>
Total Unrealized Depreciation--Net on
Forward Foreign Exchange Contracts $ (420,936)
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$255,162,916) (Note 1a) $ 257,139,346
Cash 242
Foreign cash (Note 1c) 1,995,338
Receivables:
Interest $ 3,129,763
Securities sold 1,819,954
Capital shares sold 17,868
Options written 6,341 4,973,926
-------------
Prepaid registration fees and other assets (Note 1g) 165,301
-------------
Total assets 264,274,153
-------------
Liabilities: Options written, at value (premiums received--$6,341)
(Notes 1a & 1d) 9,058
Unrealized depreciation on forward foreign exchange contracts
(Note 1d) 420,936
Payables:
Securities purchased 3,199,368
Capital shares redeemed 1,286,662
Dividends to shareholders (Note 1h) 747,728
Option transactions 170,696
Distributor (Note 2) 159,980
Investment adviser (Note 2) 123,014 5,687,448
-------------
Accrued expenses and other liabilities 631,331
-------------
Total liabilities 6,748,773
-------------
Net Assets: Net assets $ 257,525,380
=============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 1,000,000,000
Consist of: shares authorized $ 34
Class B Shares of Common Stock, $0.10 par value, 1,000,000,000
shares authorized 3,064,985
Class C Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized 2,025
Class D Shares of Common Stock, $0.10 par value, 300,000,000
shares authorized 229,691
Paid-in capital in excess of par 299,535,869
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 6) (46,882,133)
Unrealized appreciation on investments and foreign currency
transactions--net 1,574,909
-------------
Net assets $ 257,525,380
=============
Net Asset Class A--Based on net assets of $2,682 and 340 shares
Value: outstanding $ 7.89
=============
Class B--Based on net assets of $239,419,009 and 30,649,850
shares outstanding $ 7.81
=============
Class C--Based on net assets of $155,407 and 20,253 shares
outstanding $ 7.67
=============
Class D--Based on net assets of $17,948,282 and 2,296,911
shares outstanding $ 7.81
=============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1996
<S> <S> <C> <C>
Investment Income Interest and discount earned (net of $149,122 foreign withholding tax) $ 23,842,159
(Notes 1e & 1f):
<PAGE>
Expenses: Account maintenance and distribution fees--Class B (Note 2) 2,265,534
Investment advisory fees (Note 2) 1,778,380
Transfer agent fees--Class B (Note 2) 695,814
Printing and shareholder reports 171,263
Custodian fees 169,835
Accounting services (Note 2) 125,960
Registration fees (Note 1g) 95,725
Professional fees 86,136
Account maintenance fees--Class D (Note 2) 52,898
Transfer agent fees--Class D (Note 2) 40,507
Directors' fees and expenses 22,129
Account maintenance and distribution fees--Class C (Note 2) 605
Transfer agent fees--Class C (Note 2) 150
Transfer agent fees--Class A (Note 2) 71
Other 21,460
-------------
Total expenses 5,526,467
-------------
Investment income--net 18,315,692
-------------
Realized & Realized loss from:
Unrealized Gain Investments--net $ (1,347,992)
(Loss) on Foreign currency transactions--net (4,369,292) (5,717,284)
Investments & -------------
Foreign Currency
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1c, 1d, Investments--net 1,205,690
1f & 3): Foreign currency transactions--net 553,119 1,758,809
------------- -------------
Net realized and unrealized loss on investments and foreign
currency transactions (3,958,475)
-------------
Net Increase in Net Assets Resulting from Operations $ 14,357,217
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the
For the Period For the
Year Ended Nov. 1, 1995 Year Ended
Dec. 31, to Dec. 31, Oct. 31,
Increase (Decrease) in Net Assets: 1996 1995 1995
<S> <S> <C> <C> <C>
Operations: Investment income--net $ 18,315,692 $ 4,308,676 $ 34,243,785
Realized gain (loss) on investments and foreign
currency transactions--net (5,717,284) 2,259,658 (17,288,580)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 1,758,809 (3,501,943) 423,350
------------- ------------- -------------
Net increase in net assets resulting from
operations 14,357,217 3,066,391 17,378,555
------------- ------------- -------------
Dividends & Investment income--net:
Distributions to Class A (2,092) (829) (1,391)
Shareholders Class B (14,841,426) (4,016,322) (15,511,689)
(Note 1h): Class C (3,463) (1,650) (1,005)
Class D (1,135,414) (289,875) (1,111,053)
Return of capital:
Class A (305) -- (1,474)
Class B (2,166,725) -- (16,438,660)
Class C (506) -- (1,065)
Class D (165,761) -- (1,177,448)
------------- ------------- -------------
Net decrease in net assets resulting from
dividends to shareholders (18,315,692) (4,308,676) (34,243,785)
------------- ------------- -------------
Capital Share Net decrease in net assets derived from capital
Transactions share transactions (138,983,406) (23,220,490) (357,893,795)
(Note 4): ------------- ------------- -------------
Net Assets: Total decrease in net assets (142,941,881) (24,462,775) (374,759,025)
Beginning of period 400,467,261 424,930,036 799,689,061
------------- ------------- -------------
End of period $ 257,525,380 $ 400,467,261 $ 424,930,036
============= ============= =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++++
For the For the
The following per share data and ratios have been For the Period For the Period
derived from information provided in the financial Year Nov. 1, Year Oct. 21,
statements. Ended 1995 to Ended 1994++ to
Dec. 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.91 $ 7.93 $ 8.11 $ 8.11
Operating -------- -------- -------- --------
Performance: Investment income--net .54 .09 .49 .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (.06) (.02) (.12) --
-------- -------- -------- --------
Total from investment operations .48 .07 .37 .01
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.44) (.09) (.27) --
Return of capital (.06) -- (.28) (.01)
-------- -------- -------- --------
Total dividends and distributions (.50) (.09) (.55) (.01)
-------- -------- -------- --------
Net asset value, end of period $ 7.89 $ 7.91 $ 7.93 $ 8.11
======== ======== ======== ========
Total Investment Based on net asset value per share 6.29% .92%+++ 4.62% .12%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses .95% 1.02%* .96% .97%*
Net Assets: ======== ======== ======== ========
Investment income--net 6.45% 6.91%* 6.75% 6.28%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3 $ 75 $ 66 $ 59
Data: ======== ======== ======== ========
Portfolio turnover 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
The following per share data For the
and ratios have been derived Period
from information provided in For the Ended
the financial statements. Year Nov. 1,
Ended 1995 to
Increase (Decrease) in Net Dec. 31, Dec. 31, For the Year October 31,
Asset Value: 1996++++ 1995++++ 1995++++ 1994++++ 1993 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 7.90 $ 7.93 $ 8.10 $ 8.65 $ 8.85 $ 9.84
Performance: -------- -------- -------- -------- ---------- ----------
Investment income--net .44 .08 .47 .50 .57 .72
Realized and unrealized
loss on investments and
foreign currency
transactions--net (.09) (.03) (.15) (.58) (.20) (.99)
-------- -------- -------- -------- ---------- ----------
Total from investment
operations .35 .05 .32 (.08) .37 (.27)
-------- -------- -------- -------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.38) (.08) (.24) -- -- --
Return of capital (.06) -- (.25) (.47) (.57) (.72)
-------- -------- -------- -------- ---------- ----------
Total dividends and
distributions (.44) (.08) (.49) (.47) (.57) (.72)
-------- -------- -------- -------- ---------- ----------
Net asset value, end of
period $ 7.81 $ 7.90 $ 7.93 $ 8.10 $ 8.65 $ 8.85
======== ======== ======== ======== ========== ==========
Total Investment Based on net asset value
Return:** per share 4.52% .66%+++ 3.96% (1.02%) 4.63% (3.00%)
======== ======== ======== ======== ========== ==========
Ratios to Average Expenses 1.74% 1.80%* 1.73% 1.52% 1.60% 1.50%
Net Assets: ======== ======== ======== ======== ========== ==========
Investment income--net 5.62% 6.13%* 5.95% 5.68% 7.26% 7.60%
======== ======== ======== ======== ========== ==========
<PAGE>
Supplemental Net assets, end of period
Data: (in thousands) $239,419 $376,049 $398,136 $750,750 $1,664,602 $3,182,520
======== ======== ======== ======== ========== ==========
Portfolio turnover 349.34% 25.09% 312.13% 259.50% 284.62% 120.77%
======== ======== ======== ======== ========== ==========
<CAPTION>
Class C++++
For the For the
The following per share data and ratios have been For the Period For the Period
derived from information provided in the financial Year Nov. 1, Year Oct. 21,
statements. Ended 1995 to Ended 1994++ to
Dec. 31, Dec. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.72 $ 7.74 $ 8.10 $ 8.11
Operating -------- -------- -------- --------
Performance: Investment income--net .38 .08 .35 .01
Realized and unrealized loss on investments and
foreign currency transactions--net (.01) (.02) (.28) (.01)
-------- -------- -------- --------
Total from investment operations .37 .06 .07 --
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.37) (.08) (.21) --
Return of capital (.05) -- (.22) (.01)
-------- -------- -------- --------
Total dividends and distributions (.42) (.08) (.43) (.01)
-------- -------- -------- --------
Net asset value, end of period $ 7.67 $ 7.72 $ 7.74 $ 8.10
======== ======== ======== ========
Total Investment Based on net asset value per share 4.93% .78%+++ .89% .00%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.73% 1.83%* 1.83% 2.14%*
Net Assets: ======== ======== ======== ========
Investment income--net 5.23% 6.09%* 5.99% 5.63%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 155 $ 103 $ 109 $ 1
Data: ======== ======== ======== ========
Portfolio turnover 349.34% 25.09% 312.13% 259.50%
======== ======== ======== ========
<PAGE>
<CAPTION>
Class D
The following per share data For the
and ratios have been derived Period
from information provided in For the Ended
the financial statements. Year Nov. 1,
Ended 1995 to
Increase (Decrease) in Net Dec. 31, Dec. 31, For the Year October 31,
Asset Value: 1996++++ 1995++++ 1995++++ 1994++++ 1993 1992
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 7.90 $ 7.93 $ 8.11 $ 8.66 $ 8.85 $ 9.85
Performance: -------- -------- -------- -------- ---------- ----------
Investment income--net .48 .09 .52 .54 .61 .77
Realized and unrealized
loss on investments and
foreign currency
transactions--net (.09) (.03) (.17) (.58) (.19) (1.00)
-------- -------- -------- -------- ---------- ----------
Total from investment
operations .39 .06 .35 (.04) .42 (.23)
-------- -------- -------- -------- ---------- ----------
Less dividends and
distributions:
Investment income--net (.42) (.09) (.26) -- -- --
Return of capital (.06) -- (.27) (.51) (.61) (.77)
-------- -------- -------- -------- ---------- ----------
Total dividends and
distributions (.48) (.09) (.53) (.51) (.61) (.77)
-------- -------- -------- -------- ---------- ----------
Net asset value, end
of period $ 7.81 $ 7.90 $ 7.93 $ 8.11 $ 8.66 $ 8.85
======== ======== ======== ======== ========== ==========
Total Investment Based on net asset value
Return:** per share 5.09% .75%+++ 4.40% (.51%) 5.28% (2.60%)
======== ======== ======== ======== ========== ==========
Ratios to Average Expenses 1.20% 1.27%* 1.20% 1.01% .98% 1.00%
Net Assets: ======== ======== ======== ======== ========== ==========
Investment income--net 6.13% 6.67%* 6.49% 6.19% 7.24% 8.11%
======== ======== ======== ======== ========== ==========
Supplemental Net assets, end of
Data: period (in thousands) $ 17,948 $ 24,240 $ 26,619 $ 48,879 $ 99,037 $ 188,623
======== ======== ======== ======== ========== ==========
Portfolio turnover 349.34% 25.09% 312.13% 259.50% 284.62% 120.77%
======== ======== ======== ======== ========== ==========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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 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.
<PAGE>
(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.
* 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.
<PAGE>
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 ordinary income distributions paid
by the Fund during the fiscal year ended December 31, 1996 and
October 31, 1995 are characterized as a return of capital.
<PAGE>
(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
$2,333,297 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, Inc. ("MLFD" or "Distributor"), 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, 1996, MLAM paid MLAM U.K.
a fee of $161,870 pursuant to such Agreement.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25% 0.55%
Class D 0.25% --
<PAGE>
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.
NOTES TO FINANCIAL STATEMENTS (continued)
For the year ended December 31, 1996, 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 $312 $3,245
For the year ended December 31, 1996, MLPF&S received no contingent
deferred sales charges relating to transactions in Class B Shares
and Class C Shares, respectively.
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, MLPF&S, MLFDS, 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, 1996 were $449,610,812 and
$555,634,475, respectively.
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
<PAGE>
Investments:
Long-term $ (4,718,113) $ 1,991,022
Short-term 3,335,996 (14,592)
Options written 34,125 --
------------ ------------
Total investments (1,347,992) 1,976,430
------------ ------------
Currency transactions:
Options purchased (399,901) --
Options written 195,755 (2,717)
Forward foreign exchange
contracts (7,828,510) (420,936)
Foreign currency transactions 3,663,364 22,132
------------ ------------
Total currency transactions (4,369,292) (401,521)
------------ ------------
Total $ (5,717,284) $ 1,574,909
============ ============
Transactions in call options written for the year ended December 31,
1996 were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning of year -- --
Options written 972,804,034 $ 970,886
Options exercised (129,201,000) (233,093)
Options expired (843,603,034) (737,793)
------------ ------------
Outstanding call options at
end of year -- $ --
============ ============
Transactions in put options written for the year ended December 31,
1996 were as follows:
Nominal Value
Covered by Premiums
Written Options Received
<PAGE>
Outstanding put options
written at beginning of year -- --
Options written 1,118,893,000 $ 933,787
Options exercised (200,398,000) (186,726)
Options expired (909,437,000) (740,720)
------------ ------------
Outstanding put options
written at end of year 9,058,000 $ 6,341
============ ============
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $1,976,430, of which $2,741,868
related to appreciated securities and $765,438 related to
depreciated securities. At December 31, 1996, the aggregate cost of
investments for Federal income tax purposes was $255,162,916.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $138,983,406, $23,220,490 and $357,893,795 for the year ended
December 31, 1996, for the period November 1, 1995 to December 31,
1995 and for the year ended October 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 13,395 $ 105,688
Shares issued to shareholders
in reinvestment of dividends 207 831
------------ ------------
Total issued 13,602 106,519
Shares redeemed (22,814) (178,935)
------------ ------------
Net decrease (9,212) $ (72,416)
============ ============
Class A Shares for the Period Dollar
Nov. 1, 1995 to Dec. 31, 1995 Shares Amount
Shares sold 1,115 $ 8,833
Shares issued to shareholders in
reinvestment of dividends 123 975
------------ ------------
Net increase 1,238 $ 9,808
============ ============
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 19,710 $ 156,702
Shares issued to shareholders
in reinvestment of dividends 306 2,424
------------ ------------
Total issued 20,016 159,126
Shares redeemed (18,948) (150,761)
------------ ------------
Net increase 1,068 $ 8,365
============ ============
Class B Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 484,935 $ 3,805,839
Shares issued to shareholders
in reinvestment of dividends 1,105,083 8,669,991
------------- -------------
Total issued 1,590,018 12,475,830
Automatic conversion of shares (253,004) (1,985,115)
Shares redeemed (18,275,411) (143,419,152)
------------- -------------
Net decrease (16,938,397) $(132,928,437)
============= =============
Class B Shares for the Period Dollar
Nov. 1, 1995 to Dec. 31, 1995 Shares Amount
Shares sold 620,889 $ 4,905,975
Shares issued to shareholders in
reinvestment of dividends 398,231 3,149,817
------------ ------------
Total issued 1,019,120 8,055,792
Automatic conversion of shares (18,623) (147,125)
Shares redeemed (3,644,789) (28,831,450)
------------ ------------
Net decrease (2,644,292) $(20,922,783)
============ ============
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,165,649 $ 8,282,644
Shares issued to shareholders
in reinvestment of dividends 2,111,691 16,712,284
------------- -------------
Total issued 3,277,340 24,994,928
Automatic conversion of shares (44,087) (350,642)
Shares redeemed (45,649,821) (361,409,238)
------------- -------------
Net decrease (42,416,568) $(336,764,952)
============= =============
<PAGE>
Class C Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 18,676 $ 144,329
Shares issued to shareholders in
reinvestment of dividends 226 1,217
------------ ------------
Total issued 18,902 145,546
Shares redeemed (11,957) (92,313)
------------ ------------
Net increase 6,945 $ 53,223
============ ============
Class C Shares for the Period Dollar
Nov. 1, 1995 to Dec. 31, 1995 Shares Amount
Shares sold 12,066 $ 93,387
Shares issued to shareholders in
reinvestment of dividends 122 945
------------ ------------
Total issued 12,188 94,332
Shares redeemed (12,969) (100,120)
------------ ------------
Net decrease (781) $ (5,788)
============ ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 77,597 $ 607,611
Shares issued to shareholders
in reinvestment of dividends 10 76
------------ ------------
Total issued 77,607 607,687
Shares redeemed (63,628) (499,869)
------------ ------------
Net increase 13,979 $ 107,818
============ ============
<PAGE>
Class D Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 550,920 $ 4,350,585
Shares issued to shareholders in
reinvestment of dividends 93,940 737,010
Automatic conversion of shares 252,835 1,985,115
------------ ------------
Total issued 897,695 7,072,710
Shares redeemed (1,667,413) (13,108,496)
------------ ------------
Net decrease (769,718) $ (6,035,786)
============ ============
Class D Shares for the Period Dollar
Nov. 1, 1995 to Dec. 31, 1995 Shares Amount
Shares sold 11,529 $ 91,195
Shares issued to shareholders in
reinvestment of dividends 33,954 268,726
Automatic conversion of shares 18,623 147,125
------------ ------------
Total issued 64,106 507,046
Shares redeemed (354,944) (2,808,773)
------------ ------------
Net decrease (290,838) $ (2,301,727)
============ ============
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 141,026 $ 1,012,351
Shares issued to shareholders in
reinvestment of dividends 142,590 1,231,159
Automatic conversion of shares 44,065 350,642
------------ ------------
Total issued 327,681 2,594,152
Shares redeemed (3,000,651) (23,839,178)
------------ ------------
Net decrease (2,672,970) $(21,245,026)
============ ============
5. Commitments:
At December 31, 1996, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to buy and sell various
foreign currencies with values of approximately $173,000 and
$1,991,000, respectively.
<PAGE>
6. Capital Loss Carryforward:
At December 31, 1996, the Fund had a capital loss carryforward of
approximately $45,595,000, of which $32,232,000 expires in 1999,
$10,816,000 expires in 2001, $1,042,000 expires in 2002, and
$490,000 expires in 2003 and $1,015,000 expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
<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, 1996, the
related statements of operations for the year then ended and changes
in net assets for the year then ended, for the period November 1,
1995 to December 31, 1995 and for the year ended October 31, 1995,
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 comfirmation of securities owned at December
31, 1996 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,
1996, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
February 10, 1997
</AUDIT-REPORT>
