MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
September 30, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless accompanied
or preceded by the Fund's current prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost.Statements and other information herein
are as dated and are subject to change.
Merrill Lynch
Short-Term Global
Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #11634 -- 9/97
[RECYCLE LOGO}
Printed on post-consumer recycled paper
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Senior Vice President
Alex V. Bouzakis, Vice President
Donald C. Burke, Vice President
Edward F. Gobora, Vice President
Stephen Yardley, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Short-Term Global Income Fund, Inc., September 30, 1997
DEAR SHAREHOLDER
Portfolio Strategy
During the three-month period ended September 30, 1997, we constructed
the portfolio to overweight dollar bloc bond markets since they
offered more attractive yields. In addition, the US dollar remained
firm while we continued with our dollar hedges. The currency hedging
helped reduce the negative impact of US dollar strength on the Fund's
net asset values, while the higher relative yields in the bond markets
enhanced income.
The strength of the US economy and interest rate differentials in
favor of the US fixed-income market were significant fundamental
factors holding the dollar at higher levels against the majority of
global currencies. In addition, various comments by US Government
officials displayed the Clinton Administration's preference
for a stronger dollar.
Our fixed-income positions emphasized the short-term areas of the
markets. In addition to approximately 85% of the portfolio invested in
the US market, our exposures were also in the relatively high-
yielding markets of Italy, New Zealand, the United Kingdom and
Australia. Fully hedged positions in Canada also were maintained.
These positions created a strong income stream while limiting price
volatility. The portfolio's bond positions remained primarily at the
short-term end of the yield curves of higher-yielding countries, while
currency exposures were generally hedged into the US dollar.
Market Review
North America
During the quarter ended September 30, 1997, the US Federal Reserve
Board left short-term interest rates unchanged since the US economy is
expected to moderate without further monetary restraint. In addition,
with the budget accord struck between the White House and Congress
designed to balance the budget by 2002, US bonds traded firmly.
Investors focused on reduced debt issuance by the Government and the
drag of reduced public spending on the economy. The lack of any price
pressures on consumers and producers also supported US markets during
the September quarter.
In Canada, the lack of price pressures restrained the Bank of Canada
from increasing interest rates. With inflation remaining below 2%, the
central bank did not react to the economy growing at a 4% rate year-
on-year with new orders and shipments continuing at record pace.
However, the Bank of Canada warned investors of an impending move.
Europe
Although there were declines in August, most European bonds remained
firm with long-term interest rates declining as inflation results
continued to positively affect markets. In Spain, consumer prices rose
on an annualized basis to 1.6%, while Sweden displayed a 1.5%
annualized rise. Similar inflation results caused further monetary
policy easing by the central banks of various countries such as
France, Portugal, Italy and Spain, where short-term borrowing rates
were reduced. However, as we ended the period European economies began
to show signs of sustainable economic growth. In addition, signs of
inflation cycles bottoming were evident in various Nordic countries,
the United Kingdom and in Germany. Any evidence of inflation exceeding
2% in Germany with continued weakness in the Deutschemark should bring
a prompt response by the Bundesbank. During the month of August, a
potential Bundesbank move was discounted into lower prices of European
bonds. This scenario may continue as we enter the fourth quarter of
1997.
The beginning of the September quarter was dominated by continued
strength in the US dollar. In Germany, high unemployment and
deteriorating confidence in Germany's economic performance contributed
to the Deutschemark's depreciation. However, Bundesbank President
Tietmeyer stated that he was against any further rise in the US dollar
against the Deutschemark, and a decrease in short-term interest rates
was unlikely in the near future. This helped to reverse the trend in
the US dollar versus the Deutschemark, with the currency relatively
unchanged for the quarter.
Discussions in Italy focused on participation in the European Monetary
Union (EMU) and budgetary issues. Earlier in the year, the EMU
statistical office approved Italy's tax computation, which increased
the government's chances of meeting the deficit/gross domestic product
(GDP) requirement necessary for EMU participation. Various European
leaders commented on Italy's prospects for EMU entry and the Italian
government reaffirmed its commitment to meeting EMU criteria. The
Italian government's three-year economic and financial plan is
intended to reduce the deficit by an additional 25 trillion Italian
lira in 1998 and reduce the deficit/GDP ratio to 2.8%. However, as of
September 30, 1997, the budget was not yet approved. While the
government is making every possible effort to qualify for EMU in the
first round, it is uncertain that they will achieve all of their
optimistic targets unless the budget is approved.The European Union
Commission (EUC) forecast that 13 of the 15 member states would meet
the Maastricht Treaty budget deficit criteria in 1997, excluding
Greece and Italy. However, it indicated that Germany and France risk
exceeding the 3% deficit/ GDP target, and predicted that Italy's
deficit/GDP ratio would reach 3.9% in 1998. In addition, EUC Finance
Ministers met to discuss the movement toward a single European
currency. The ministers agreed to announce the Euro conversion rates
at the time initial members were chosen in spring 1998. While no
method of determination was agreed on, preference was for existing
European Rate Mechanism interest rates. In addition, EUC members
agreed the bilateral exchange rates would be defended.
In the United Kingdom, the Monetary Policy Committee once again moved
official interest rates from 6.75% to 7.00% in August as growth
continued in an excessive manner. In addition, price measure continued
to exceed the 2.5% target. In September, the government appeared to
become pro EMU which allowed UK bond markets to rally.
Pacific Basin
During the quarter ended September 30, 1997, the New Zealand currency
declined as its Federal Reserve Governor Brash stated that the
exchange rate had risen to undesirable levels. In addition, the
Australian currency was under pressure, as anticipation of continued
interest rate declines became prevalent. We reduced our exposure to
both these countries during the quarter as spreads narrowed and the
currencies came under pressure.
As the Asian currency crisis continued, investors continued to look to
governmental authorities to take necessary policy reform actions to
restore confidence. At the Group of Seven meeting in Hong Kong in
September, members agreed to monitor the recent developments in
Southeast Asia and to assist Thailand. They also warned against
excessive yen depreciation. In general, we reduced the Fund's
exposures in the Pacific Basin markets.
Although the US dollar maintained its upward trend against the yen, US
officials expressed concern over the Japanese economy and its trade
imbalance. US Deputy Treasury Secretary Lawrence Summers stated that
Japan's increasing current account surplus was still worrying and that
markets remained concerned about Japan's ability to boost domestic
demand. In addition, US Treasury Secretary Rubin reiterated that a
sustained increase in Japan's global trade surplus was not in the best
interest of Japan or the rest of the world, and that Japan must
stimulate domestic demand. While difficulties in the Asian region
contributed to the volatility of the Japanese currency, the Bank of
Japan Governor Matsushita stated that he expects the Southeast Asian
crisis to have a limited effect on the Japanese economy. These factors
may reduce the prospects for continued yen depreciation.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/ALEX V. BOUZAKIS
Alex V. Bouzakis
Vice President and
Senior Portfolio Manager
/S/EDWARD F. GOBORA
Edward F. Gobora
Vice President and
Portfolio Manager
/S/STEPHEN YARDLEY
Stephen Yardley
Vice President and
Portfolio Manager
November 5, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] Class D Shares incur a maximum initial sales charge of
4% and an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables 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 9/30/97 +5.05% +0.84%
Inception (10/21/94)
through 9/30/97 +4.94 +3.49
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +3.28% -0.65%
Five Years Ended 9/30/97 +3.17 +3.17
Inception (8/3/90)
through 9/30/97 +3.05 +3.05
* 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 9/30/97 +3.64% +2.65%
Inception (10/21/94)
through 9/30/97 +3.06 +3.06
* 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 9/30/97 +3.84% -0.31%
Five Years Ended 9/30/97 +3.69 +2.85
Inception (8/3/90)
through 9/30/97 +3.61 +3.02
* Maximum sales charge is 4%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
9/30/97 6/30/97 9/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $7.77 $7.81 $7.82 -0.64% -0.51%
Class B Shares* 7.70 7.74 7.82 -1.53 -0.52
Class C Shares* 7.59 7.60 7.68 -1.17 -0.13
Class D Shares* 7.70 7.74 7.82 -1.53 -0.52
Class A Shares -- Total Return* +5.05(1) +0.89(2)
Class B Shares -- Total Return* +3.28(3) +0.68(4)
Class C Shares -- Total Return* +3.64(5) +1.07(6)
Class D Shares -- Total Return* +3.84(7) +0.82(8)
Class A Shares -- Standardized 30-day Yield 5.02%
Class B Shares -- Standardized 30-day Yield 4.39%
Class C Shares -- Standardized 30-day Yield 4.27%
Class D Shares -- Standardized 30-day Yield 4.74%
* 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 $0.437 per share ordinary income dividends.
(2) Percent change includes reinvestment of $0.110 per share ordinary income dividends.
(3) Percent change includes reinvestment of $0.373 per share ordinary income dividends.
(4) Percent change includes reinvestment of $0.093 per share ordinary income dividends.
(5) Percent change includes reinvestment of $0.364 per share ordinary income dividends.
(6) Percent change includes reinvestment of $0.091 per share ordinary income dividends.
(7) Percent change includes reinvestment of $0.415 per share ordinary income dividends.
(8) Percent change includes reinvestment of $0.104 per share ordinary income dividends.
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Short-Term Global Income Fund, Inc., September 30, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
Face Maturity Interest Percent of
COUNTRIES Amount Date Issue Rate+ Value Net Assets
<S> <C> <C> <C> <C> <C> <C>
Canada C$ 500,000 2/01/00 Government of Canada (1) 5.50% $367,270 0.19%
5,235,000 12/19/97 Toyota Motor Credit Corp. (2) 6.25 3,809,338 1.99
------- ------------ -------
Total Investments in Canada (Cost --
$4,314,991) 4,176,608 2.18
============ =======
Germany DM 4,500,000 5/15/00 Bundes Obligations (1) 5.875 2,644,540 1.38
8,221,183 10/06/97 Grand Cayman, Time Deposit (2) 3.00 4,656,311 2.43
4,618,579 11/13/97 Grand Cayman, Time Deposit (2) 3.062 2,615,869 1.37
------- ------------ -------
Total Investments in Germany (Cost --
$9,638,249) 9,916,720 5.18
============ =======
Italy Lit 4,990,000,000 10/14/97 ABB Finance Inc. (2) 11.40 2,906,518 1.52
------- ------------ -------
Total Investments in Italy (Cost --
$3,262,771) 2,906,518 1.52
============ =======
New Zealand NZ$ 15,000,000 11/21/97 New Zealand Treasury Bill (1) 7.98 9,590,474 5.01
------- ------------ -------
Total Investments in New Zealand (Cost --
$9,402,560) 9,590,474 5.01
============ =======
United Kingdom # 2,135,000 8/10/99 Abbey National PLC (2) 6.00 3,375,662 1.76
1,300,000 2/25/00 Daimler Benz UK (2) 7.00 2,078,779 1.08
------- ------------ -------
Total Investments in the United Kingdom
(Cost -- $5,549,954) 5,454,441 2.84
============ =======
United States US$ 8,000,000 10/06/97 Asset Securitization Co. (2) 5.51 7,993,878 4.17
5,000,000 10/06/97 BBL North America (2) 5.51 4,996,173 2.61
6,000,000 10/27/97 Corporate Asset Funding Co. Inc. (2) 5.52 5,976,080 3.12
7,000,000 10/24/97 Corporate Receivables Corp. (2) 5.54 6,975,224 3.64
6,000,000 10/03/97 Creditanstalt Finance, Inc. (2) 5.53 5,998,157 3.13
8,000,000 10/02/97 Dresdner US Finance Inc. (2) 5.53 7,998,771 4.18
8,000,000 10/21/97 Eureka Securitization PLC (2) 5.52 7,975,467 4.16
10,000,000 10/15/97 Federal Home Loan Mortgage Corp. (3) 5.41 9,978,961 5.21
8,000,000 10/17/97 Federal Home Loan Mortgage Corp. (3) 5.41 7,980,764 4.17
45,000,000 11/13/97 Federal Home Loan Mortgage Corp. (3) 5.44 44,707,600 23.34
7,422,000 10/01/97 General Motors Acceptance Corp. (2) 6.50 7,422,000 3.87
8,000,000 10/23/97 Monte Rosa Capital Corp. (2) 5.58 7,972,720 4.16
5,000,000 10/01/97 National Australia Funding (Delaware) Inc. (2) 5.50 5,000,000 2.61
8,000,000 10/07/97 Old Line Funding Corp. (2) 5.57 7,992,573 4.17
6,000,000 10/09/97 Park Avenue Receivables Corp. (2) 5.52 5,992,640 3.13
7,000,000 11/07/97 Unifunding Inc. (2) 5.52 6,960,287 3.63
8,000,000 10/10/97 Windmill Funding Corp. (2) 5.55 7,988,900 4.17
------- ------------ -------
Total Investments in the United States
(Cost -- $159,910,195) 159,910,195 83.47
============ =======
Total Investments (Cost -- $192,078,720) 191,954,956 100.20
============ =======
<CAPTION>
OPTIONS Nominal Value Strike
WRITTEN Covered by Options Price
<S> <C> <C> <C> <C> <C>
Currency 4,500,000 Bundesobligation, expiring October 1997 DM 104.05 (508) (0.00)
Call Options ------------ -------
Written
Total Options Written (Premiums Received --
$507) (508) (0.00)
============ =======
Total Investments, Net of Options Written (Cost -- $192,078,213) 191,954,448 100.20
Unrealized Depreciation on Forward Foreign Exchange Contracts++ (239,657) (0.13)
Liabilities in Excess of Other Assets (138,487) (0.07)
------------ -------
Net Assets $191,576,304 100.00%
============ =======
Net Asset Value: Class A -- Based on net assets of $3,138 and 404 shares
outstanding $7.77
============
Class B -- Based on net assets of $176,647,321 and 22,941,013
shares outstanding $7.70
============
Class C -- Based on net assets of $354,301 and 46,668 shares
outstanding $7.59
============
Class D -- Based on net assets of $14,571,544 and 1,891,762
shares outstanding $7.70
============
Corresponding industry groups for securities (percent of net assets):
(1) Sovereign Government Obligations -- 6.58%
(2) Financial Services -- 60.90%
(3) Sovereign/Regional Government Obligations -- Agency -- 32.72%
+ Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates shown
represent the yield-to-maturity at the time of purchase by the Fund.
Other securities bear interest at the rates shown, payable at fixed
dates or upon maturity. Interest rates on floating rate securities are
adjusted periodically based on appropriate indexes; the interest rates
shown are those in effect at September 30, 1997.
++ Forward foreign exchange contracts as of September 30, 1997 were as
follows:
<CAPTION>
Unrealized
Expiration Appreciation
Foreign Currency Purchased Date (Depreciation)
<S> <C> <C> <C>
NZ$ 15,000,000 October 1997 $54,825
Total (US$ Commitment -- $9,540,000) 54,825
---------
Foreign Currency Sold
C$ 6,166,985 October 1997 6,160
Chf 12,211,022 October 1997 (16,538)
DM 1,697,204 October 1997 (760)
# 3,655,791 October 1997 (53,104)
Lit 6,193,130,679 October 1997 (1,921)
NZ$ 29,826,078 October 1997 (228,319)
Total (US$ Commitment -- $42,144,911) (294,482)
---------
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts -- Net $(239,657)
=========
</TABLE>
