MERRILL LYNCH
GLOBAL BOND
FUND
For Investment and
Retirement
FUND LOGO
Quarterly Report
September 30, 1998
Officers and Trustees
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Terry K. Glenn, Executive Vice President
Joseph T. Monagle, Jr., Senior Vice President
Paolo Valle, Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Lawrence A. Rogers, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
225 Franklin Street
Boston, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
Global Bond Fund
For Investment
And Retirement
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Global Bond Fund for Investment and Retirement
PORTFOLIO INFORMATION
Bar graph depicting
Type of Issues*
As of September 30, 1998
Telecommications 2.16%
Industrials 16.79%
Sovereign Government Obligations 35.90%
Supranational 4.53%
Commercial Paper 0.54%
US Government & Agency Obligations 6.34%
Financial Services 16.09%
Banking 11.68%
Pie graph depicting
Geographical Diversification*
As of September 30, 1998
Germany 6.39%
Finland 3.59%
Italy 9.87%
Greece 2.06%
Thailand 3.23%
United Kingdom 12.76%
France 4.15%
Denmark 8.47%
Japan 12.43%
Canada 5.87%
United States 25.21%
Bar graph depicting
Maturity of Investments*
As of September 30, 1998
5 yrs--10 yrs 22.06%
10 yrs+ 37.32%
0--1 yrs 7.05%
1 yr--5 yrs 33.92%
[FN]
*Percent of net assets may not equal 100%.
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1998
Dear Shareholder
Since our June 30, 1998 shareholder report, and as emerging markets
and global equity markets deteriorated, global Group of Seven
Industrialized Nations (G-7) bond markets have rallied with yields
in most markets falling to new lows. Though economic fundamentals
remain supportive with strong economic growth and benign inflation
in the United States and core Europe, the "flight to quality" has
been the main force influencing market conditions. In addition,
currency markets have been volatile, with currencies perceived as
safe havens remaining well bid, while commodity-based currencies
have been under extreme pressure. Correspondingly, we maintained a
relatively neutral duration as compared to the unmanaged JP Morgan
Global Bond Index. At the same time, we over-weighted core dollar
bloc currencies (for example, the US dollar and British pound
sterling).
With the turmoil in Russia escalating and the lack of growth in
Japan and the rest of Asia, credit spreads and swap spreads have
widened dramatically. Risk premiums have been on the rise as
corporate bond yield spreads in ten-year A-rated securities widened
50 basis points (0.50%) to approximately 120 basis points over US
Treasury issues. We have continued to upgrade the credit quality of
the portfolio by reducing positions in corporate issuers while
adding more liquid positions in government securities to maintain
the Fund's duration in line with the Index. Inflationary
fundamentals remained positive as commodity prices continue to
decline with the CRB Commodity Index falling below 200 for the first
time in 12 years. We continue to believe the turmoil in Asia, Russia
and Brazil will slow G-7 growth dramatically, while improving
inflationary demographics and possibly even leading to a
deflationary environment. On September 29, 1998, the US Federal
Reserve Board cut interest rates 25 basis points to support the
domestic economy and to help settle global nervousness. At the close
of the September quarter, we were slightly overweighted in the
United States as compared to Europe because we expected a continued
flight to quality and further interest rate cuts by the Federal
Reserve Board. The central bank unexpectedly cut the Federal Funds
rate another quarter point in mid-October.
Market Review
North America
US Treasury bonds rallied during the past six months with the yield
on the 30-year Treasury bond declining 95 basis points to 4.98% as
turbulence in Asia and Russia drove investors to the safety of US
Government securities. Domestic economic data continues to be
supportive as second quarter gross domestic product (GDP) fell to an
annualized rate of 1.6% from the first quarter's rapid 5.5% pace.
However, the effects of inventory buildup and the General Motors
strike have abated, and economic activity looks to be slightly
stronger in the third quarter. In addition, labor markets remain
tight with the unemployment rate stabilizing at 4.5% while the
employment cost index rose 0.9% for the second quarter compared to
0.7% for the March quarter. However, we believe that these issues
will be overshadowed by the lack of inflation and global market
uncertainty. Inflationary pressures remain well contained and
supported by falling oil and other commodity prices. We maintained
an overweighted interest rate exposure in the United States relative
to the Index because we expect the flight to quality to continue
while inflationary fundamentals remain positive. We will continue to
monitor the Russian and Brazilian situation closely because we
expect volatility in emerging markets and equities to remain high.
In Canada, continued weakness in commodity prices kept the Canadian
dollar under extreme pressure during the September quarter. Despite
weak domestic economic data, the Bank of Canada was forced to raise
short-term interest rates by 100 basis points in order to support
the currency. However, the interest rate hike had little impact,
since the Canadian dollar ended the three-month period near C$1.53
relative to the US dollar. Second quarter GDP came in at an
annualized rate of 3.1%, down from the first quarter's 3.7% rate
with June's retail sales number falling. With inflation running at
the bottom of the 1%--3% target band and the Canadian dollar at
depressed levels, we are looking to increase investments in Canada
at very attractive levels.
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1998
Europe
As the year progresses, it appears that the European Monetary Union
(EMU) will move ahead as scheduled. Yields in Europe fell to new
lows as capital flows into the region accelerated as a result of
emerging and equity market turmoil. In addition, expectations that
Germany will raise short-term interest rates have dissipated. Since
global growth is expected to slow and the level of unemployment in
the region is already high, it would seem likely that interest rates
will converge near the current German repurchase rate of 3.30%. In
our view, this will force interest rates lower in the peripheral
European economies, which should ensure that growth in the region
does not slow too dramatically. We continue to maintain exposure in
peripheral European markets such as Italy, Denmark and Greece,
although spreads have widened recently in response to global
turmoil.
Fundamentals in Europe remained extremely supportive as growth in
the EMU seems to be leveling off near 3%, with net exports slowing
slightly while the service sector accelerates at a moderate pace. In
addition, we believe that gradually falling fiscal deficits and
sizable account surpluses will also add support to the area. Helped
by the backdrop of generally weak commodity prices, inflation in
Europe may remain low for some time. Fallout from the Russian crisis
is one area of concern in the region, as Europe has a much higher
degree of exposure to Russia than does the United States. We will
monitor the situation closely as we expect European currencies to
weaken relative to the US dollar in the coming months.
Pacific Basin
During the September quarter, weakness in the region's bond markets
and currencies persisted even though the Russian crisis took the
spotlight away from the economic turmoil in Asia. Both the
Australian and New Zealand currencies have remained under extreme
pressure, since weakness in commodity prices and the region as a
whole has hit the currencies hard. Consumer confidence remained poor
as unemployment rose in the region. We have fully hedged our New
Zealand government bond position in order to seek to take advantage
of the interest rate differentials without taking on currency
exposure. Nevertheless, we plan to actively manage our currency
hedges as opportunities arise.
In Japan, the yen's decline slowed by the close of the September
quarter on hopes that the new government will take the appropriate
steps to stabilize the banking system and stimulate the economy.
Prime Minister Hashimoto was forced to resign as the economic
situation deteriorated and former Foreign Minister Obuchi was
elected to the Prime Minister position. It appears that Japan's
economy will suffer its largest post-war decline ever this year as
unemployment remains at a record high of 4.3%. In addition, enormous
wealth has disappeared and balance sheets weakened as the Nikkei
Stock Index traded to new lows. It is likely that disposable income
will fall outright for the first time even if permanent tax cuts are
implemented. In September, there were signs of a potential banking
bill that would infuse public money into the ailing banking system.
The bill was debated by the opposing parties throughout the month.
As a result, we maintained our exposure in Japan of 12.43% of net
assets as the economic and banking situation unfolds and the lack of
consumption could lead toward a deflationary environment.
In Conclusion
We thank you for your continued investment in Merrill Lynch Global
Bond Fund for Investment and Retirement, and we look forward to
reviewing our outlook with you again in our next report to
shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Paolo Valle)
Paolo Valle
Senior Vice President and Portfolio Manager
November 11, 1998
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 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.
* 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 +9.49% +5.11%
Five Years Ended 9/30/98 +5.01 +4.16
Inception (10/25/88)
through 9/30/98 +8.57 +8.12
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 +8.53% +4.53%
Five Years Ended 9/30/98 +4.18 +4.18
Ten Years Ended 9/30/98 +8.14 +8.14
[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 9/30/98 +8.59% +7.59%
Inception (10/21/94)
through 9/30/98 +6.06 +6.06
[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 9/30/98 +9.22% +4.86%
Inception (10/21/94)
through 9/30/98 +6.69 +5.59
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/ Standardized
12 Month 3 Month Since Inception 30-Day Yield
Total Return Total Return Total Return As of 9/30/98
<S> <C> <C> <C> <C>
ML Global Bond Fund Class A Shares +9.49% +3.49% +126.20% 4.43%
ML Global Bond Fund Class B Shares +8.53 +3.29 +118.71 3.85
ML Global Bond Fund Class C Shares +8.59 +3.38 + 26.09 3.79
ML Global Bond Fund Class D Shares +9.22 +3.53 + 29.09 4.19
<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 ten-year/inception periods are: Class A Shares, from 10/25/88
to 9/30/98; Class B Shares, for the ten years ended 9/30/98; and
Class C & Class D Shares, from 10/21/94 to 9/30/98.
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
<S> <S> <C> <S> <C> <C> <C> <C>
Canada
Sovereign C$ 5,850,000 Canadian Government Bond 5.25 % 9/01/2003 $ 3,912,652 2.06%
Government NZ$ 14,250,000 Canadian Government Bond 6.625 10/03/2007 7,248,049 3.81
Obligations
Total Investments in Canada (Cost--$12,445,111) 11,160,701 5.87
Denmark
Banking US$ 8,250,000 Den Danske Bank A/S 7.40 6/15/2010 9,218,080 4.85
Financial Dkr 42,443,000 Nykredit A/S 6.00 10/01/2026 6,875,853 3.62
Services
Total Investments in Denmark (Cost--$14,450,660) 16,093,933 8.47
Finland
Sovereign YEN 271,000,000 Republic of Finland 6.00 1/29/2002 2,349,423 1.24
Government Fim 19,000,000 Republic of Finland 7.25 4/18/2006 4,474,850 2.35
Obligations
Total Investments in Finland (Cost--$6,485,751) 6,824,273 3.59
France
Sovereign ECU 2,185,000 Government of France 8.25 4/25/2022 3,768,509 1.99
Government
Obligations
Telecom- Frf 20,800,000 France Telecom 5.75 4/25/2007 4,109,939 2.16
munications
Total Investments in France (Cost--$7,442,109) 7,878,448 4.15
Germany
Banking DM 5,000,000 Deutsche Ausgleichbank 6.00 7/04/2007 3,366,467 1.77
Sovereign 13,700,000 Land Baden-Wuerttemberg 5.75 1/19/2028 8,779,485 4.62
Government
Obligations
Total Investments in Germany (Cost--$10,297,741) 12,145,952 6.39
Greece
Sovereign GRD 1,106,500,000 Hellenic Republic 13.30 12/27/2002 3,909,113 2.06
Government
Obligations
Total Investments in Greece (Cost--$3,810,478) 3,909,113 2.06
Italy
Sovereign Lit 24,650,000,000 Buoni Poliennali Del Tesoro
Government (Italian Government Bond) 10.00 8/01/2003 18,757,867 9.87
Obligations
Total Investments in Italy (Cost--$16,920,022) 18,757,867 9.87
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
<S> <S> <C> <S> <C> <C> <C> <C>
Japan
Sovereign YEN 1,741,000,000 Japanese Government Bond 4.80 % 12/20/2002 $ 15,019,339 7.90%
Government
Obligations
Supra- 990,000,000 African Development Bank 6.20 6/18/2002 8,607,494 4.53
national
Total Investments in Japan (Cost--$23,515,458) 23,626,833 12.43
Thailand
Industrials US$ 9,550,000 PTTEP International Limited 7.625 10/01/2006 6,128,436 3.23
Total Investments in Thailand (Cost--$9,741,865) 6,128,436 3.23
United
Kingdom
Financial Pound 8,300,000 Friends Professional
Services Sterling Finance PLC 9.125 ++ 15,138,756 7.96
Industrials 1,000,000 BOC Group PLC 7.25 6/07/2002 1,730,330 0.91
3,000,000 British Airways PLC 7.875 2/10/2007 5,602,282 2.95
1,000,000 Vodafone Group PLC 7.875 11/06/2001 1,786,985 0.94
Total Investments in the
United Kingdom (Cost--$22,696,755) 24,258,353 12.76
United
States
Banking US$ 8,500,000 Comerica Bank 7.875 9/15/2026 9,614,010 5.06
Financial 3,000,000 Associates Corp. of
Services North America 7.375 6/11/2007 3,232,500 1.70
5,000,000 Mellon Capital II 7.995 1/15/2027 5,336,850 2.81
Industrials DM 10,600,000 Ford Motor Credit Co. 5.25 6/16/2008 6,469,808 3.40
US$ 10,000,000 Phelps Dodge Corporation 7.125 11/01/2027 10,194,100 5.36
US Government 6,960,000 Federal National Mortgage
& Agency Association 5.25 1/15/2003 7,106,786 3.74
Obligations 3,740,000 United States Treasury Notes 5.50 8/15/2028 4,042,716 2.13
Total Investments in the
United States (Cost--$43,797,976) 45,996,770 24.20
Total Investments in
Long-Term Obligations (Cost--$171,603,926) 176,780,679 93.02
Short-Term Obligations
Commercial US$ 1,028,000 General Motors Acceptance
Paper* Corp. 5.88 10/01/1998 1,028,000 0.54
US Government 900,000 United States Treasury
Obligations* Bill (a) 4.53 12/24/1998 891,180 0.47
Total Investments in
Short-Term Obligations (Cost--$1,918,487) 1,919,180 1.01
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Nominal Value Percent of
Covered by Options Issue Value Net Assets
<S> <C> <S> <C> <C>
Currency Call Options Written
21,960,000 Deutschemark, expiring October
1998 at DM 82.5 $ (76,267) 0.00%
Total Currency Call Options Written
(Premiums Received--$43,779) (76,267) 0.00
Currency Put Options Written
13,500,000 Deutschemark, expiring October
1998 at YEN 2.9 (567) 0.00
13,750,000 Japanese Yen, expiring October 1998
at YEN 137.2 (96,250) (0.09)
Total Currency Put Options Written
(Premiums Received--$41,384) (96,817) (0.09)
Total Currency Options Written
(Premiums Received--$85,163) (173,084) (0.09)
Total Investments, Net of Options Written (Cost--$173,437,250) 178,526,775 93.94
Unrealized Depreciation on Forward Foreign Exchange Contracts** (72,153) (0.04)
Variation Margin on Financial Futures Contracts*** (235,562) (0.12)
Other Assets Less Liabilities 11,823,386 6.22
------------ -------
Net Assets $190,042,446 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $25,239,970 and 2,659,377 shares of
beneficial interest outstanding $ 9.49
============
Class B--Based on net assets of $114,508,796 and 12,061,508 shares of
beneficial interest outstanding $ 9.49
============
Class C--Based on net assets of $1,602,092 and 168,826 shares of
beneficial interest outstanding $ 9.49
============
Class D--Based on net assets of $48,691,588 and 5,131,047 shares of
beneficial interest outstanding $ 9.49
============
<FN>
*Commercial Paper and certain US Government Obligations
are traded on a discount basis; the interest rates shown reflect
the discount rates paid at the time of purchase by the Fund.
**Forward foreign exchange contracts as of September 30, 1998 were
as follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
DM 49,566,746 October 1998 $ (250,024)
GRD 1,271,103,200 October 1998 (45,576)
Pound Sterling 6,000,885 October 1998 (61,869)
YEN 3,393,825,650 October 1998 118,260
----------
Total (US$ Commitment--$69,098,697) (239,209)
----------
Foreign Currency Purchased
DM 42,196,017 October 1998 150,947
Pound Sterling 2,091,117 October 1998 16,109
----------
Total (US$ Commitment--$28,678,593) 167,056
----------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $ (72,153)
==========
***Financial futures contracts sold as of September 30, 1998 were as
follows:
Number of Expiration
Contracts Issue Exchange Date Value
29 UK Gilt LIFFE December 1998 $ 5,709,922
111 US Treasury Bonds CBT December 1998 14,593,031
-----------
Total Financial Futures Contracts Sold
(Total Contract Price--$19,488,944) $20,302,953
===========
(a)Portion of securities held as collateral in connection with open
financial futures contracts.
++The security is a perpetual bond and has no stated maturity date.
</TABLE>
