MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1999
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
Terry K. Glenn, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Joseph T. Monagle Jr., Senior Vice President
Edward F. Gobora, Vice President
Donald C. Burke, Vice President and Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Short-Term Global Income Fund, Inc., September 30, 1999
DEAR SHAREHOLDER
Market Review
On June 30, 1999 and August 24, 1999, the Federal Open Market
Committee (FOMC) raised its target for the Federal Funds rate in two
25 basis point (0.25%) increments to 5.25%. These adjustments to
monetary policy were as a result of the risks of inflationary
pressures and improving global markets. A wider trade deficit and
lower inventory accumulation accounted for gross domestic product
(GDP) of 1.6% in the second quarter of the year. Consumer prices
were stable, although there were some signs of wage pressures. The
US fixed-income market suffered because of investor concerns over
further official increases in rates by the FOMC and heavy corporate
supply. The two-year US Treasury note rose to 5.595% at the end of
the September quarter.
The European Central Bank left interest rates unchanged although
signs of an increase in economic activity put upward pressure on
yields throughout Europe. For the second quarter, the Eurozone
(which is comprised of the 11 countries in the European Monetary
Union (EMU)) had a growth of 1.7%. Contributing factors included
strong industrial production and an improvement in business and
consumer confidence. The consumer price index (CPI) for the EMU
member nations was 1.2% for August as inflation rates among the EMU
member nations continue to converge. Rising interest rates in the
United States and the belief that Eurozone growth will be
substantial next year caused German two-year yields to move higher,
closing the quarter at 3.662%.
A more positive global outlook and a reduction in production caused
commodity prices to recover since the beginning of the year. The
value of crude oil has more than doubled since reaching a low of
approximately $12 a barrel in February. Fifteen European central
banks recently stated their intentions to limit gold sales during
the next five years. This announcement pushed gold prices above $300
an ounce for the first time since March. Other base metals such as
aluminum, copper and nickel have risen more than 50% since last
year.
We have added positions in AA-rated securities denominated in the
South African rand. The South African Reserve Bank committed itself
toward globalization of its financial system and stabilization of
its monetary policy. Agricultural output has been the main
contributor to the encouraging GDP growth of 1.7% for the second
quarter. A gradual downward movement in official rates, lower
inflation and an improving outlook for commodities should be
supportive for South African markets.
Economic Outlook
Investors anticipate that US policy makers may raise interest rates
by the end of the year because of concerns of labor market tightness
and the potential for an increase in consumer prices. A steady
increase in the employment rate, high real income and strong
consumer spending helped the US economy achieve strong GDP growth
for the third quarter. In the Eurozone, falling unemployment, strong
domestic demand and an improving export sector may contribute to
growth for 1999. In Japan, the economy has rebounded and the
downside risks for the economy have clearly receded. Although the
employment situation in Japan has been deteriorating, leading labor
market indicators are showing signs of improvement.
Currency Outlook
During the September quarter, the euro rallied from historic lows as
the risk of moving to parity relative to the US dollar has
considerably lessened. Positive results from leading indicators, the
growing US current account deficit and narrowing interest rate
differentials helped to reverse some of the recent euro weakness.
The yen may rise in value because of the diminished expectations of
concerted intervention, further outperformance of the Japanese
equity market and a worsening US trade deficit. In our opinion, an
increase in Japanese government bond yields may discourage domestic
investors from diversifying into foreign currency positions. The US
dollar's strength has been instrumental in keeping inflation low and
supporting the US asset markets. Going forward, the dollar may find
it difficult to outperform the euro and the yen because of growing
investor optimism concerning growth in Europe and Japan.
Portfolio Strategy
During the quarter ended September 30, 1999, we concentrated the
Fund's global investments in high credit-quality securities with
maturities of less than two years. Our currency exposure was
generally hedged back into US dollars. These strategies provided the
Fund with a relatively high level of current income with limited net
asset value fluctuation. For the three months ended September 30,
1999, the Fund's Class A, Class B, Class C and Class D Shares had
total returns of +1.58%, +0.86%, +0.76% and +0.99%, respectively.
(Results shown do not reflect sales charges and would be lower if
sales charges were included. Complete performance information can be
found on pages 4 and 5 of this report.)
On average throughout the quarter, Norway was the Fund's largest
investment area outside of the United States. We maintained this
position because we expected lower interest rates, high credit
quality and attractive yields. The Norges Bank raised their key
deposit rate last year from 3.5% to 8.0% in order to defend the
Norwegian krona from weakening further in response to 1998 financial
shocks. The central bank has reinterpreted their monetary policy
guidelines and now targets growth and inflation instead of relying
solely on the krona. Since the start of the year, interest rates
have been lowered 200 basis points to 6.0%. We believe the Norwegian
economy should show signs of slowing this year. Lower growth, easing
wage and price pressures and a stable currency should allow for a
reduction in official interest rates.
On September 30, 1999, we held sovereign, agency and corporate
issues denominated in Canadian dollars, Greek drachmas, Icelandic
kronas, New Zealand dollars, the Norwegian krone, Polish zloty, the
South African rand, British pounds and US dollars. In response to
our foreign exchange outlook, the portfolio's currency exposure
will, at times, be fully hedged back to the US dollar. Finally, we
expect to continue to actively seek opportunities to reduce hedging
costs while seeking to maintain the stability in the Fund's net
asset values.
In Conclusion
We thank you for your continued investment in Merrill Lynch Short-
Term Global Income Fund, Inc., and we look forward to reviewing our
outlook and strategy with you again in our next report to
shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Edward F. Gobora)
Edward F. Gobora
Vice President and
Senior Portfolio Manager
November 8, 1999
Merrill Lynch Short-Term Global Income Fund, Inc., September 30, 1999
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 "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent
Performance
Results*
<CAPTION>
3 Month 12 Month Since Inception Standardized
As of September 30, 1999 Total Return Total Return Total Return 30-Day Yield
<S> <C> <C> <C> <C>
ML Short-Term Global Income Fund, Inc. Class A Shares +1.58% +5.47% +27.60% 3.35%
ML Short-Term Global Income Fund, Inc. Class B Shares +0.86 +3.97 +34.14 2.73
ML Short-Term Global Income Fund, Inc. Class C Shares +0.76 +3.85 +17.78 2.48
ML Short-Term Global Income Fund, Inc. Class D Shares +0.99 +4.54 +40.95 3.15
<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 since inception periods arefrom 10/21/94 for Class A & Class
C Shares and from 8/03/90 for Class B & Class D Shares.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/99 +5.47% +1.26%
Inception (10/21/94) through 9/30/99 +5.06 +4.19
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/99 +3.97% -0.03%
Five Years Ended 9/30/99 +3.86 +3.86
Inception (8/03/90) through 9/30/99 +3.26 +3.26
[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 9/30/99 +3.85% +2.85%
Inception (10/21/94) through 9/30/99 +3.37 +3.37
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/99 +4.54% +0.36%
Five Years Ended 9/30/99 +4.42 +3.57
Inception (8/03/90) through 9/30/99 +3.82 +3.36
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Short-Term Global Income Fund, Inc., September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Face Maturity Interest Percent of
COUNTRY Amount Date Issue Rate++ Value Net Assets
<S> <S> <C> <C> <S> <C> <C> <C>
Australia NZ$ 4,700,000 2/12/01 New South Wales Treasury Corporation (1) 5.25 % $ 2,398,603 2.4%
5,870,000 12/18/00 Toyota Finance Australia (2) 7.25 3,061,910 3.1
Total Investments in Australia (Cost--$5,626,893) 5,460,513 5.5
Austria US$ 1,700,000 2/05/01 Deutsche Bank Finance NV (2) 6.375 1,702,040 1.7
Total Investments in Austria (Cost--$1,701,020) 1,702,040 1.7
Canada 2,600,000 1/30/01 Canadian Government Bond (1) 5.50 2,580,009 2.6
C$ 8,750,000 9/15/00 European Investment Bank (2) 6.625 6,017,183 6.1
US$ 4,300,000 1/14/01 Shell Canada Ltd. (4) 8.875 4,445,469 4.5
Total Investments in Canada (Cost--$12,945,219) 13,042,661 13.2
Germany ZAR 2,400,000 11/29/99 Bayer Hypo-Vereinsbank (2) 14.50 400,247 0.4
PLN 9,900,000 3/24/00 LB Baden-Wuerttemberg (2) 19.75 2,445,385 2.5
Total Investments in Germany (Cost--$3,017,625) 2,845,632 2.9
Greece GRD 404,000,000 6/15/00 European Investment Bank (2) 9.15 1,313,867 1.3
Total Investments in Greece (Cost--$1,324,892) 1,313,867 1.3
Iceland ISK 379,600,000 10/13/99 ISK Time Deposits (2) 8.50 5,304,639 5.4
Total Investments in Iceland (Cost--$5,202,138) 5,304,639 5.4
Netherlands ZAR 2,800,000 11/30/99 ABN-Amro Bank NV (2) 14.75 467,095 0.5
Total Investments in the Netherlands (Cost--$460,887) 467,095 0.5
Norway Nok 40,550,000 1/10/00 Unibank Time Deposits (2) 6.25 5,233,271 5.3
Total Investments in Norway (Cost--$5,455,328) 5,233,271 5.3
Poland PLN 3,400,000 5/22/00 European Bank Reconstruction and Development (2) 18.625 840,244 0.9
Total Investments in Poland (Cost--$914,226) 840,244 0.9
Sweden Pound 2,520,000 12/08/99 Kingdom of Sweden (1) 6.25 4,148,942 4.2
Sterling
US$ 4,400,000 10/16/00 Swedish Export Credit (2) 6.25 4,407,775 4.5
Total Investments in Sweden (Cost--$8,609,304) 8,556,717 8.7
United US$ 3,755,000 10/07/99 Abbey National NA Corp. (2) 5.399 3,751,670 3.8
States 1,000,000 11/22/99 Abbey National NA Corp. (2) 5.426 992,330 1.0
1,700,000 1/15/01 Associates Corporation of North America (2) 5.85 1,690,956 1.7
4,900,000 10/01/99 Associates First Capital Corp. (2) 5.709 4,900,000 5.0
4,900,000 10/04/99 BBL North America Funding Corp. (2) 5.346 4,897,848 5.0
1,800,000 10/21/99 Chase Manhattan Corp. (2) 5.319 1,794,770 1.8
3,000,000 11/01/99 Chase Manhattan Corp. (2) 5.420 2,986,257 3.0
4,900,000 10/25/99 Den Danske Corp. (2) 5.393 4,882,687 5.0
4,800,000 10/22/99 Den Norske Bank ASA (2) 5.309 4,785,384 4.9
3,200,000 10/14/99 Deutsche Bank AG, NY (2) 5.385 3,193,875 3.2
1,600,000 10/22/99 Deutsche Bank AG, NY (2) 5.371 1,595,072 1.6
4,000,000 10/04/99 Federal Home Loan Mortgage Corporation (3) 5.285 3,998,263 4.1
4,552,000 10/01/99 General Motors Acceptance Corp. (5) 5.770 4,552,000 4.6
3,975,000 10/05/99 Halifax Building (5) 5.581 3,972,571 4.0
3,400,000 3/15/01 NationsBank NA (2) 5.75 3,374,398 3.4
2,500,000 10/08/99 UBS Finance Delaware Inc. (2) 5.309 2,497,458 2.5
Total Investments in the United States
(Cost--$53,872,239) 53,865,539 54.6
Nominal Value
OPTIONS Covered by
PURCHASED Options
Currency Call 3,235,750 Euro Dollar, expiring October 1999 at c 1.075 4,206 0.0
Options 1,278,388 Greek Drachma, expiring February 2000 at GRD 340 3,861 0.0
Purchased 3,418,698 Polish Zloty, expiring October 1999 at PLN 4.4 44,272 0.1
Total Options Purchased (Premiums Paid--$47,339) 52,339 0.1
Total Investments (Cost--$99,177,110) 98,684,557 100.1
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (198,792) (0.2)
Other Assets Less Liabilities 74,397 0.1
------------ ------
Net Assets $ 98,560,162 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $7,739 and 991 shares
outstanding $ 7.81
============
Class B--Based on net assets of $90,337,108 and 11,762,613
shares outstanding $ 7.68
============
Class C--Based on net assets of $13,564 and 1,792 shares
outstanding $ 7.57
============
Class D--Based on net assets of $8,201,751 and 1,067,685
shares outstanding $ 7.68
============
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--9.2%
(2)Financial Services--73.6%
(3)Sovereign/Regional Government Obligations--Agency--4.1%
(4)Petroleum Company--4.5%
(5)Financial Company--8.6%
++Commercial Paper and certain US Treasury and Foreign Treasury
Obligations are traded on a discount basis; the interest rates shown
reflect the yield-to-maturity at the time of purchase by the Fund.
Other securities bear interest at the rates shown, payable at the
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, 1999.
++++Forward foreign exchange contracts as of September 30, 1999 were
as follows:
Unrealized
Foreign Currency Expiration Appreciation
Sold Date (Depreciation)
C$ 9,184,918 October 1999 $ (23,313)
Euro 3,250,000 October 1999 (43,696)
Euro 1,200,000 February 2000 2,982
ISK 379,600,000 October 1999 (126,314)
Pound 2,229,058 October 1999 (87,903)
Sterling
Nok 37,755,772 October 1999 (65,166)
NZ$ 11,183,854 October 1999 142,404
ZAR 5,781,437 November 1999 2,214
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$31,382,561) $ (198,792)
===========
</TABLE>
