MERRILL LYNCH
SHORT-TERM
GLOBAL INCOME
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 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
Roland M. Machold, 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
Gerald M. Richard, Treasurer of Merrill Lynch Short-Term Global
Income Fund, Inc., has recently retired. His colleagues at Merrill
Lynch Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Richard well in his retirement.
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1999
DEAR SHAREHOLDER
Economic Outlook
The persistent strength of the US economy and the lack of any
evidence of a recession sent domestic long-term bond yields higher
during the quarter ended March 31, 1999. Consumer spending and low
unemployment supported the US economy. Nevertheless, short-term US
interest rates remained unchanged as the Federal Open Market
Committee kept its neutral stance toward monetary policy.
While the US economy is strengthening, many other countries are
close to recession or are already experiencing negative growth. We
expect the US economy to continue to be fueled by consumer spending
and signs of a recovery in the manufacturing sector. Indications are
that gross domestic product (GDP) growth could post above 3.0% in
the first quarter of this year. We believe the Federal Reserve Board
will keep monetary policy on hold unless it sees significant signs
of broad-based inflation.
In contrast to the United States, declining business confidence, low
growth and high unemployment continued to plague the largest
economies of the Eurozone, which is comprised of the 11 countries in
the European Monetary Union. Although the Eurozone countries kept
interest rates on hold during the March quarter in response to an
absence of clear economic leadership and a weak euro, a modest
interest rate cut is becoming more likely as European Central Bank
(ECB) officials have publicly cited the downside risks to the
economy. The resignation of German Finance Minister Oskar Lafontaine
in March increased confidence in the euro and the ECB, since his
views on monetary and fiscal policy caused tension between the
region's central bankers. Eurozone inflation was 0.8%, while
inflation in Germany and France was almost non-existent at 0.2%.
Consumer prices should be stable in the region at around 0.5%--0.8%
as deregulation puts downward pressure on domestic prices. Eurozone
growth was disappointing in the fourth quarter of 1998 at 0.5%, and
is likely to remain below 2.0% for the near future.
Norway, the largest of the Fund's foreign allocations, and the
United Kingdom have attractive yields relative to short-term
interest rates in the United States. In Norway, the central bank
initiated a mandate to target exchange stability instead of
inflation. The Norges Bank lowered official interest rates by 100
basis points (1.00%) during the March quarter to 7.00% as the krone
strengthened relative to the euro. Norway is the world's second-
largest exporter of oil. After reaching a 12-year low, oil prices
stabilized, which helped support the Norwegian krone. Norwegian GDP
growth should rise 1.0% in 1999 as compared to 2.9% in 1998.
The UK bond market benefited from favorable supply conditions,
falling inflationary pressures and sluggish growth. The Bank of
England (BOE) reduced interest rates 200 basis points since October
1998. The aggressive pace of the easings has enhanced the chances of
an improvement in the economy and protected sterling from severe
selling pressure. The recent Bank of England Inflation Report
revised down its estimates for inflation, growth and average
earnings. However, leading indicators such as business confidence
suggest there could be a recovery in activity in the second half of
the year. UK growth for 1999 is expected to be between 1.0% and
1.5%, while inflation should be at the lower end of the BOE's target
of 2.5% and 3.5%.
During the March quarter, record high unemployment and depressed
consumer and business confidence contributed to Japan's economic
problems. The Ministry of Finance employed methods of combating
demand weakness through fiscal expansion, with a steeper yield curve
to help refinance the banks. The Bank of Japan (BOJ) cut the
overnight rate by 0.10% to 0.15% in February. It also announced it
would target short-term interest rates at zero and potentially work
toward providing a reflationary monetary policy. Japan considered
adopting an inflation target of 1% to 2%. GDP growth for last year
was a dismal -2.8%, while inflation was 0.4% in January. The Nikkei
Index rallied at the end of the March quarter as foreign investors
purchased shares prior to the Japanese year-end, which helped to
support the yen. Policymakers are taking steps toward reflating the
economy, but if this does not have the desired effect, recent
financial market gains could be eroded along with investor
confidence. Minutes from the BOJ meeting in February showed that
investors remain cautious on their evaluation of the economy. Given
the strength of deflationary pressures, GDP growth for 1999 may not
reach the government's target of 0.5%.
Looking ahead, the length of the Kosovo crisis will have an
important economic and political impact. Surrounding countries with
substantial tourist industries will most immediately feel the direct
consequences. Other countries that could be greatly affected are
Greece and Russia because of their cultural links. Initial investor
reaction to the conflict was to invest in safe-haven assets such as
US Treasury securities and the US dollar.
As 1999 continues to unfold, commodity prices may begin to show some
signs of stability. Inflation should be well contained across the
industrialized world, and higher oil prices should only cause a
slight increase in consumer prices.
Currency Outlook
During the March quarter, the US dollar was stronger in response to
interest rate differentials, flight to quality flows and relative
growth expectations. Policymakers in Japan returned to a strategy of
yen depreciation in order to boost growth. After starting the year
strong at above O1.1800 relative to the US dollar, weak Eurozone
economies, a lack of expected reserve adjustments and a belief that
ECB officials favor a weaker euro caused the currency to weaken to
near O1.0700 at the end of the March quarter.
We expect the US dollar to strengthen relative to the euro and the
Japanese yen in the first half of 1999. US growth could be
relatively stronger than European growth, with yield spreads likely
to move in the US dollar's favor. In addition, the US economy is
better positioned to adapt to the uncertain and potentially volatile
global economic outlook, in our view. With European policymakers
involved in internal battles on whether fiscal or monetary policy
could provide economic stimulus, the delay in policy implementation
could have negative consequences for European growth. Persistent
high levels of unemployment could put additional pressure on
European policies.
Japanese officials continue to search for a way to improve the
country's economic situation. Given increasing fiscal, monetary and
political policy limitations, yen weakness could be the most viable
route to sustained growth. Export companies, the soundest sector of
the economy, are the largest potential beneficiaries of such a move.
Also, the reduction of capital flows associated with year-end
repatriation of capital should contribute to a significant
deterioration in the value of the Japanese yen.
Portfolio Strategy
During the quarter ended March 31, 1999, we concentrated the Fund's
investments in high-credit quality countries whose interest rates
were close to or higher than those in the United States.
Additionally, we generally hedged currency exposure back to US
dollars. These strategies enhanced the Fund's total returns during
the March quarter by providing a relatively high level of current
income, but did not subject the Fund's net asset values to undue
fluctuations related to currency volatility. For the three months
ended March 31, 1999, the Fund's Class A, Class B, Class C and Class
D Shares had total returns of +1.09%, +0.77%, +0.72% and +0.90%,
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 to
shareholders.)
Given that few countries offered yields above those available in the
US market, on average more than half of the Fund's assets remained
invested in the United States. However, we made allocations to other
countries, such as Australia, Canada, Norway, Germany and Sweden. We
primarily kept the Fund's investments at the short end of the yield
curve. However, given our expectation that global interest rates
would generally be moving lower, we maintained an average duration
longer than the three-month US Treasury bill.
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1999
Given our objective of providing a high level of current income and
our outlook for stable-to-lower global yields, we are maintaining
positions in high-quality, short-term securities that yield at or
above US dollar-denominated securities. On March 31, 1999, we held
sovereign, agency and corporate issues in the United Kingdom,
Norway, Canada, and the United States. In response to our foreign
exchange outlook, the portfolio's currency exposure will remain
fully hedged back to the US dollar. In New Zealand and Canada, with
short-term interest rates below those in the United States, hedging
exposure back into US dollars adds value to the Fund. Finally, we
expect to continue to actively pursue opportunities to reduce
hedging costs while seeking to maintain the stability of 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 share-
holders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Edward F. Gobora)
Edward F. Gobora
Vice President and
Senior Portfolio Manager
May 10, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Short-Term Global
Income Fund, Inc.'s Board of Directors. We are pleased to announce
that Terry K. Glenn has been elected President and Director of the
Fund. Mr. Glenn has held the position of Executive Vice President of
MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
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>
Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 3/31/99
<S> <C> <C> <C> <C>
ML Short-Term Global Income Fund, Inc. Class A Shares +5.40% +1.09% +24.33% 5.77%
ML Short-Term Global Income Fund, Inc. Class B Shares +4.43 +0.77 +31.90 5.22
ML Short-Term Global Income Fund, Inc. Class C Shares +4.40 +0.72 +15.98 4.96
ML Short-Term Global Income Fund, Inc. Class D Shares +5.00 +0.90 +38.22 5.54
<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 periods are Class A & Class C Shares, from 10/21/94
to 3/31/99 and Class B & Class D Shares, from 8/03/90 to 3/31/99.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/99 +5.40% +1.18%
Inception (10/21/94) through 3/31/99 +5.03 +4.07
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/99 +4.43% +0.43%
Five Years Ended 3/31/99 +3.40 +3.40
Inception (8/03/90) through 3/31/99 +3.25 +3.25
[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 3/31/99 +4.40% +3.40%
Inception (10/21/94) through 3/31/99 +3.40 +3.40
[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 3/31/99 +5.00% +0.80%
Five Years Ended 3/31/99 +3.95 +3.11
Inception (8/03/90) through 3/31/99 +3.81 +3.32
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Short-Term Global Income Fund, Inc., March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Face Maturity Interest Percent of
COUNTRIES Amount Date Issue Rate++ Value Net Assets
<S> <S> <C> <C> <S> <C> <C> <C>
Australia NZ$ 5,870,000 12/18/00 Toyota Finance Australia (2) 7.25 % $ 3,211,377 2.78%
Pound 4,500,000 6/03/99 Westpac Banking (2) 6.415 7,193,094 6.22
Sterling
Total Investments in Australia
(Cost--$10,500,781) 10,404,471 9.00
Canada C$ 8,750,000 9/15/00 European Investment Bank (2) 6.625 5,894,853 5.10
Total Investments in Canada (Cost
--$5,875,875) 5,894,853 5.10
Germany Pound 4,500,000 5/17/99 Deutsche Bank of Ireland (2) 6.61 7,210,803 6.24
Sterling
Total Investments in Germany (Cost
--$7,259,931) 7,210,803 6.24
Norway Nok 134,000,000 6/16/99 Norwegian Treasury Bill (1) 5.20 17,323,306 14.99
39,075,000 4/29/99 Svenska Handelsbanken Time Deposits (2) 6.71 5,062,184 4.38
40,550,000 1/10/00 Unibank Time Deposits (2) 6.25 5,253,271 4.54
Total Investments in Norway (Cost
--$27,817,808) 27,638,761 23.91
Sweden Pound 2,520,000 12/08/99 Kingdom of Sweden (1) 6.25 4,093,351 3.54
Sterling
US$ 4,400,000 10/16/00 Swedish Export Credit (2) 6.25 4,449,984 3.85
Total Investments in Sweden (Cost
--$8,609,304) 8,543,335 7.39
United Pound 2,135,000 8/10/99 Abbey National Treasury Service (2) 6.00 3,452,437 2.99
Kingdom Sterling
Total Investments in the United
Kingdom (Cost--$3,554,467) 3,452,437 2.99
United US$ 7,500,000 4/14/99 Federal Home Loan Mortgage Corporation (3) 4.79 7,487,027 6.48
States 7,000,000 4/22/99 Federal Home Loan Mortgage Corporation (3) 4.74 6,980,645 6.04
3,291,000 5/06/99 Federal Home Loan Mortgage Corporation (3) 4.74 3,275,834 2.83
10,000,000 4/06/99 Federal National Mortgage Association (3) 4.74 9,993,417 8.65
7,000,000 5/11/99 Federal National Mortgage Association (3) 4.74 6,963,133 6.02
Pound 3,200,000 8/10/99 General Electric Capital Corp. (2) 7.00 5,190,108 4.49
Sterling
US$ 4,560,000 4/01/99 General Motors Acceptance Corp. (2) 5.13 4,560,000 3.95
5,000,000 4/12/99 Unifunding Inc. (2) 4.83 4,992,621 4.32
Total Investments in the United States
(Cost--$49,590,113) 49,442,785 42.78
Nominal Value
OPTIONS Covered by
PURCHASED Options
Currency Put 2,700,000 British Pound, expiring April 23, 1999
Options Purchased at Pound Sterling 1.625 33,912 0.03
Total Options Purchased (Premiums
Paid---$18,333) 33,912 0.03
Total Investments (Cost---$113,226,612) 112,621,357 97.44
OPTIONS
WRITTEN
Currency Call 2,700,000 British Pound, expiring April 23, 1999
Options Written at Pound Sterling 1.6402 (4,968) (0.00)
Total Options Written (Premiums Received
---$18,333) (4,968) (0.00)
Total Investments, Net of Options Written (Cost--$113,208,279) 112,616,389 97.44
Unrealized Depreciation on Forward Foreign Exchange Contracts++++ (246,151) (0.21)
Other Assets Less Liabilities 3,198,442 2.77
------------ -------
Net Assets $115,568,680 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $19,307 and 2,476
shares outstanding $ 7.80
============
Class B--Based on net assets of $106,163,980 and
13,770,286 shares outstanding $ 7.71
============
Class C--Based on net assets of $11,436 and 1,505
shares outstanding $ 7.60
============
Class D--Based on net assets of $9,373,957 and
1,215,498 shares outstanding $ 7.71
============
<FN>
Corresponding industry groups for securities (percent of net
assets):
(1)Sovereign Government Obligations--18.53%
(2)Financial Services--48.86%
(3)Sovereign/Regional Government Obligations--Agency--30.02%
++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 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, 1999.
++++Forward foreign exchange contracts as of March 31, 1999 were as
follows:
Unrealized
Foreign Currency Expiration Appreciation
Purchased Date (Depreciation)
Pound 2,689,312 April 1999 $ (17,824)
Sterling
(US$ Commitment--$4,357,836) $ (17,824)
===========
Foreign Currency
Sold
C$ 9,184,918 May 1999 $ (6,559)
Pound 17,943,217 April 1999 308,623
Sterling
Nok 173,622,501 April 1999 (371,101)
Nok 46,433,096 May 1999 (115,988)
NZ$ 6,429,398 May 1999 (43,302)
(US$ Commitment--$66,711,895) $ (228,327)
-----------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $ (246,151)
===========
</TABLE>
