MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original
cost.Statements and other information herein are as dated and are
subject to change.
Merrill Lynch
Short-Term Global
Income Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH SHORT-TERM GLOBAL INCOME FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Senior Vice President
Alex V. Bouzakis, Vice President
Donald C. Burke, Vice President
Edward F. Gobora, Vice President
Stephen Yardley, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1998
DEAR SHAREHOLDER
The strength of the US economy and interest rate differentials
favoring the US fixed-income market were significant fundamental
factors holding the dollar at higher levels against the majority of
global currencies throughout the first quarter of 1998. In addition,
comments by US Government officials have demonstrated the Clinton
Administration's preference for a stronger dollar.
Accordingly, during the three-month period ended March 31, 1998,
Merrill Lynch Short-Term Global Income Fund, Inc. remained
overweighted in dollar-bloc bond markets as counterpart bond markets
continued to trade at lower levels. We also continued to hedge the
Fund's non-US dollar denominated investments back to the US dollar.
This strategy helped to limit the volatility of the Fund's net asset
values, while the higher relative yields offered by the dollar-bloc
bond markets enhanced income.
Our fixed-income positions emphasized the short-term areas of the
markets in which we were invested. Approximately 85% of the Fund's
net assets were invested in the United States. We also had exposures
to the relatively high-yielding markets of Italy, New Zealand, the
United Kingdom and Australia. We did not enter emerging Asian
markets because we believed depreciating currencies would be likely
to force interest rates to higher levels. We maintained fully hedged
positions in Canada, which created a strong income stream while
limiting price volatility from currency fluctuations. We primarily
kept the Fund's bond positions at the short-term area of the yield
curves of higher-yielding countries and generally hedged currency
exposures back to the US dollar.
Market Review
North America
US bond prices were negatively affected during the March quarter on
reports that the gross domestic product surged in the fourth quarter
of 1997 to approximately 4.0%. In addition, the news that the
employment cost index rose from 3.0% to 3.3% in the fourth quarter
also negatively impacted bonds. These factors pushed up bond yields
30 basis points (0.30%) from the lows in late 1997. On the positive
side, we believe that US markets are likely to be supported by
reduced debt issuance by the US Government and the drag of reduced
public spending on the economy. We will continue to monitor the US
economy for evidence of reduced growth domestically resulting from
the Asian currency crisis.
In Canada, the lack of price pressures did not restrain the Bank of
Canada from moving interest rates higher. With inflation remaining
below 2%, the central bank reacted to the economy growing at a 4%
rate year-on-year, with new orders and shipments continuing at a
record pace. As the central bank moved interest rates higher, it
also warned investors of continuing tightening moves if the currency
depreciated further. We expect the Asian crisis to markedly reduce
Canada's commodity exports in the western part of the country. We
believe this situation may moderate the central bank's stance.
Europe
Most European bond markets remained firm with long-term interest
rates declining as inflationary results continued to surprise on the
downside. Throughout Europe, consumer prices rose under 2% on an
annualized basis and allowed longer-term bonds to remain firm.
Similar inflationary results caused monetary policy easing by the
central banks of various countries such as Italy and Spain, where
short-term borrowing rates were reduced. As we ended the March
quarter, European economies continued to show signs of sustainable
economic growth. However, shorter-term bonds in core European
markets were weaker in price as interest rate convergence will most
likely push rates higher in Germany, France and other core markets.
This scenario has become evident as various European Monetary Union
convergence reports were released without any major problems. Italy
and Belgium were criticized regarding the sustainability of the
budgetary positions, but the green light was given to the start of
the single currency with all eleven countries as scheduled. In
addition, signs of bottoming inflationary cycles have been evident
in various Nordic countries, the United Kingdom and Germany. Any
evidence of inflation exceeding 2% in Germany with continued
weakness in the Deutschemark would likely bring a prompt response by
the Bundesbank.
European Union Finance Ministers met in January to discuss
additional movement toward a single European currency. With the
process continuing to maintain solid political backing, formal
members are expected to be announced in the spring of 1998.
Pacific Basin
Both the New Zealand and Australian currencies were under pressure
as competitive devaluation of currencies became prevalent in the
region. Late in the March quarter, comments suggesting interest rate
cuts would not be forthcoming in either country allowed some
stabilization in currency and the short end of both yield curves.
Although the US dollar maintained its upward trend against the yen,
US officials continued to express concern over the Japanese economy
and its trade imbalance. In fact, recent data underline the need for
government action to boost the economy and support the Asian region.
The latest purchasing plans for durable goods in 1997 fell to 40.9
compared to 44.4 during the third quarter of 1997. This pessimism is
generating a continued rising tide of bankruptcies and deterioration
of the labor markets. Japanese markets were volatile prior to the
Liberal Democratic Party's fifth stimulus package, which was finally
announced at 16 trillion yen in late March. Even though this number
was higher than expected, no real details were given, which casts
doubt as to whether the package will be able to pull the worsening
Japanese economy out of recession. The yen lost 5.6% of its value
relative to the dollar for the month, falling from 126.10 at the
beginning of the month to 133.00. Without a solid economic stimulus
package, it is possible that the Japanese economy and the region as
a whole could reexperience the currency crisis of late 1997. The
Australian dollar and New Zealand dollar were also weaker relative
to the US dollar, hurt by the weakening yen as well as the overall
economic downturn in Asia. Therefore, we maintained a conservative
outlook toward Asia.
In Conclusion
Looking ahead, we expect to maintain our positions in the short end
of global money market yield curves, while hedging back into the US
dollar. Investors tended to focus more on economic numbers and
fiscal policy in March with the easing of military tensions in the
Persian Gulf and calmer market conditions in Asia. US bonds were
weaker as the US economy continued to show strong growth with little
or no inflationary pressure on the consumer or producer front. The
tightening labor markets remain the biggest area of concern with an
additional 310,000 workers added to non-farm payrolls and wages
showing a 4.1% increase year-on-year. The Federal Reserve Board left
interest rates unchanged at its March Federal Open Market Committee
meeting, continuing to wait for evidence of a slowdown from Asia
which has yet to materialize. Overall, the US and European economies
continue to show strong economic growth with little inflationary
pressure while the situation in Japan and Asia continues to
deteriorate.
We thank you for your continued investment in Merrill Lynch Short-
Term Global Income Fund, Inc., and we look forward to reviewing our
outlook with you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Alex V. Bouzakis)
Alex V. Bouzakis
Vice President and
Senior Portfolio Manager
(Edward F. Gobora)
Edward F. Gobora
Vice President and Portfolio Manager
(Stephen Yardley)
Stephen Yardley
Vice President and Portfolio Manager
May 1, 1998
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1998
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors, as
detailed in the Fund's prospectus. If you were a Class A shareholder
prior to October 21, 1994, your Class A Shares were redesignated to
Class D Shares on October 21, 1994. However, in the case of certain
eligible investors, the shares were simultaneously exchanged for
Class A Shares.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 10 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date.
Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their
original cost. Dividends paid to each class of shares will vary
because of the different levels of account maintenance, distribution
and transfer agency fees applicable to each class, which are
deducted from the income available to be paid to shareholders.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As Of 3/31/98
<S> <C> <C> <C> <C>
ML Short-Term Global Income Fund, Inc. Class A Shares +4.43% +1.17% +17.96% 5.33%
ML Short-Term Global Income Fund, Inc. Class B Shares +3.60 +0.85 +26.30 4.82
ML Short-Term Global Income Fund, Inc. Class C Shares +3.67 +0.69 +11.09 4.66
ML Short-Term Global Income Fund, Inc. Class D Shares +4.03 +0.85 +31.63 5.15
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's inception dates are:Class A and Class C Shares, 10/21/94; and
Class B and Class D Shares, 8/03/90.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/98 +4.43% +0.25%
Inception (10/21/94) through 3/31/98 +4.92 +3.68
<FN>
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/98 +3.60% -0.36%
Five Years Ended 3/31/98 +3.08 +3.08
Inception (8/03/90) through 3/31/98 +3.10 +3.10
<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 3/31/98 +3.67% +2.67%
Inception (10/21/94) through 3/31/98 +3.10 +3.10
<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 3/31/98 +4.03% -0.13%
Five Years Ended 3/31/98 +3.61 +2.77
Inception (8/03/90) through 3/31/98 +3.65 +3.10
<FN>
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1998
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Maturity Interest Percent of
COUNTRIES Amount Date Issue Rate++ Value Net Assets
<S> <S> <C> <C> <S> <C> <C> <C>
Canada C$ 2,888,000 8/01/99 Government of Canada (1) 6.50 % $ 2,070,343 1.28%
500,000 2/01/00 Government of Canada (1) 5.50 352,180 0.21
5,400,000 12/29/99 Kingdom of Sweden (1) 8.25 3,975,190 2.45
2,350,000 12/29/99 Rabobank Nederland N.V. (2) 7.125 1,697,999 1.05
2,065,000 12/29/99 Toronto Dominion Australia (1) 6.25 1,471,087 0.91
Total Investments in Canada
(Cost--$9,606,461) 9,566,799 5.90
Germany DM 4,500,000 5/15/00 Bundes Obligations (1) 5.875 2,521,900 1.56
4,000,000 4/17/98 German Treasury Bill (1) 3.36 2,162,426 1.33
701,749 4/07/98 Grand Cayman, Time Deposit (2) 3.10 379,940 0.23
8,363,592 4/07/98 Grand Cayman, Time Deposit (2) 3.187 4,528,203 2.80
Total Investments in Germany
(Cost--$9,690,854) 9,592,469 5.92
Italy Lit 4,835,000,000 10/01/98 Buoni Poliennali del Tesoro
(Italian Government Bonds)(1) 9.00 2,704,414 1.67
Total Investments in Italy
(Cost--$2,903,089) 2,704,414 1.67
New NZ$ 15,460,000 4/08/98 New Zealand Treasury Bill (1) 8.64 8,355,833 5.16
Zealand
Total Investments in New Zealand
(Cost--$8,788,326) 8,355,833 5.16
United Pound 2,135,000 8/10/99 Abbey National PLC (2) 6.00 3,523,513 2.17
Kingdom Sterling 1,300,000 2/25/00 Daimler Benz UK (2) 7.00 2,168,342 1.34
Total Investments in the United Kingdom
(Cost--$5,549,954) 5,691,855 3.51
United US$ 7,000,000 4/07/98 BBL North America (2) 5.53 6,993,548 4.32
States 5,000,000 4/09/98 BTAB Holdings Funding Corp. (2) 5.65 4,993,722 3.08
7,000,000 4/06/98 Bank of Scotland Treasury
Services PLC (2) 5.47 6,994,682 4.32
7,000,000 5/06/98 Caisse des Depots et
Consignations (2) 5.53 6,962,365 4.30
7,000,000 4/15/98 Clipper Receivables Corp. (2) 5.54 6,984,919 4.31
7,000,000 4/20/98 Corporate Receivables Corp. (2) 5.53 6,979,570 4.31
7,500,000 4/06/98 Den Norske Bank ASA (2) 5.53 7,494,240 4.62
10,000,000 4/03/98 Federal Home Loan Mortgage
Corp. (3) 5.48 9,996,956 6.17
11,000,000 4/13/98 Federal Home Loan Mortgage
Corp. (3) 5.44 10,980,053 6.78
7,119,000 12/11/98 General Electric Capital
Corp. (2) 5.50 7,117,163 4.39
4,088,000 4/01/98 General Motors Acceptance
Corp. (2) 6.13 4,088,000 2.52
6,613,000 4/07/98 Greenwich Funding Corp. (2) 5.50 6,606,938 4.08
5,126,000 12/03/98 Landesbank Rhein (2) 5.25 5,112,626 3.15
7,000,000 4/30/98 Mont Blanc Capital Corp. (2) 5.56 6,968,648 4.30
6,660,000 9/30/98 Novartis AG (2) 4.00 6,588,072 4.07
7,000,000 4/15/98 Park Avenue Receivables Corp. (2) 5.55 6,984,892 4.31
7,000,000 4/03/98 Preferred Receivables Funding
Corp. (2) 5.51 6,997,857 4.32
7,000,000 4/17/98 Windmill Funding Corp. (2) 5.55 6,982,733 4.31
Total Investments in the United States
(Cost--$125,767,867) 125,826,984 77.66
Total Investments (Cost--$162,306,551) 161,738,354 99.82
Unrealized Appreciation on Forward Foreign Exchange Contracts++++ 190,020 0.12
Other Assets Less Liabilities 102,939 0.06
------------ -------
Net Assets $162,031,313 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $3,778 and
487 shares outstanding $ 7.76
============
Class B--Based on net assets of $149,960,482 and
19,535,733 shares outstanding $ 7.68
============
Class C--Based on net assets of $16,398 and
2,168 shares outstanding $ 7.56
============
Class D--Based on net assets of $12,050,655 and
1,569,390 shares outstanding $ 7.68
============
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--14.57%
(2)Financial Services--72.30%
(3)Sovereign/Regional Government Obligations--Agency--12.95%
++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 March 31, 1998.
++++Forward foreign exchange contracts as of March 31, 1998
were as follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
C$ 13,923,574 April 1998 $ (3,722)
DM 17,573,644 April 1998 104,572
Pound Sterling 3,442,791 April 1998 (18,384)
Lit 5,531,001,399 April 1998 31,896
NZ$ 7,178,189 April 1998 75,658
Total Unrealized Appreciation on
Forward Foreign Exchange Contracts--Net
(US$ Commitment--$32,272,640) $ 190,020
</TABLE>
