MERRILL LYNCH
GLOBAL BOND
FUND
For Investment and
Retirement
FUND LOGO
Quarterly Report
September 30, 1999
Officers and Trustees
Terry K.Glenn, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Edward D. Zinbarg, Trustee
Joseph T. Monagle, Jr., Senior Vice President
Harry J. Escobar, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, 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
A bar chart depicting portfolio composition according to
type of issues* for the quarter ended September 30, 1999
US Government & Agency Obligations--4.1%
Supranational--13.0%
Sovereign Government Obligations--47.8%
Commercial Paper--3.3%
Telecommunications--2.6%
Special Purpose--2.1%
Industrials--10.0%
US Government Obligations--1.0%
Commercial Paper-Foreign--2.4%
A pie chart depicting portfolio composition according to
geographical representation* for the quarter ended
September 30, 1999
Germany--9.3%
Denmark--3.0%
United Kingdom--13.7%
Greece--5.4%
United States--16.9%
France--2.6%
Italy--7.2%
Canada--9.6%
Norway--3.1%
Finland--2.9%
Spain--4.1%
Japan--20.7%
A bar chart depicting portfolio composition according
to Maturity of Investments* for the quarter ended
September 30, 1999.
0-1 yr--8.6%
1 yr-5 yrs--35.5%
5 yrs--10 yrs--30.1%
10 yrs+--25%
[FN]
*Percent of net assets may not equal 100%.
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1999
DEAR SHAREHOLDER
For the quarter ended September 30, 1999, Merrill Lynch Global Bond
Fund for Investment and Retirement's Class A, Class B, Class C and
Class D Shares had total returns of +1.20%, +1.00%, +0.99% and
+1.13%, respectively. (Fund results shown do not reflect sales
charges, and would be lower if included. For complete performance
information see page 4 of this report to shareholders.)
Investment Environment
During the period, there were three predominant forces at work in
the global bond markets. The first was the Federal Reserve Board's
attempt to preemptively slow economic growth before any inflationary
pressures materialized. At the end of June and August, the Federal
Reserve Board raised interest rates 50 basis points (0.50%) to
contain inflationary pressure. In addition, many new US corporate
bonds came to market as corporate treasurers issued securities in
advance of possible interest rate increases and illiquidity in the
fourth quarter caused by Year 2000 problems. This, combined with the
increasing US trade account deficit and weaker US dollar, put upward
pressure on interest rates globally.
The second factor influencing market activity was the rebound in the
Japanese economy and the resultant rise in the Japanese yen. Gross
domestic product (GDP) growth was surprisingly strong in the first
quarter, but more impressive was the fact that growth continued into
the second quarter, raising expectations that the upturn might last.
With this economic rebound came a robust stock market. The yen
improved relative to the US dollar from a low of YEN 124.32 on May
20, 1999 to a high of YEN 106.57 on September 13, 1999, for a 14.3%
increase. This was partly because of the capital flows into Japanese
equities from the United States and European stock markets.
The third important market influence was the pervasive weakness of
the euro throughout the period. The euro's weakness was primarily
attributed to a poor economy and persistent high unemployment. In
addition, the euro remains under pressure since the Japanese have
been large holders of eurobonds at an average price of 140 euro to
yen. As the euro weakened relative to the yen, eurobond sales hurt
the euro further. The euro should remain weak until most of these
positions are liquidated. For the longer term, the euro is likely to
strengthen if there is growth in Euroland, which is comprised of the
11 member countries of the European Monetary Union (EMU). Consumer
confidence has begun to emerge and industrial production in July
rose to 1% from 0.3% in June.
Market Review
North America
During the quarter ended September 30, 1999, the United States
witnessed a tightening of monetary policy. GDP for the second
quarter was reported at 1.8%, substantially lower than the first
quarter report of 4.3%. With the Federal Reserve Board raising
interest rates, growth is expected to stay within these two levels.
The consumer price index (CPI) in July and August was a modest 0.3%
and 0.2%, respectively, while the producer price index (PPI) has
been at 0.2% and 0.5%, respectively, during the same time.
Canada has also experienced a strong level of growth. This has not
prompted the Bank of Canada (BOC) to raise interest rates in line
with the United States. However, given the most recent reports, the
BOC may raise interest rates if the Federal Reserve Board tightens
monetary policy at its subsequent Federal Open Market Committee
meeting in November. Inflation has remained benign as revealed by
the July and August CPI report of 0.3% and 0.2%, respectively.
During the September quarter, we maintained a flat-to-short duration
position in the dollar bloc relative to our benchmark, the unmanaged
J.P. Morgan Global Government Bond Index. Although we do not
currently see much threat of inflation, we do believe that the
Federal Reserve Board is determined to prevent any potential rise in
inflation by raising interest rates gradually. However, further
action by the Federal Reserve Board is not certain in the near term,
especially since the central bank will probably want to maintain
liquidity as the end of the year approaches.
Europe
Although the euro's weakness was partially attributed to the weak
economy and prompted by Euroland's economic weakness, there were
some signs of strength during the period. At the same time,
inflationary pressures currently appear to be well contained. Even
though the market has been concerned about the European Central Bank
raising interest rates at the first sign of growth or inflation, we
believe a rate hike is not likely at this time. However, interest
rates rose for Germany's cash securities as the market absorbed the
dumping of euro-denominated issues. Euroland's interest rates also
increased because of the interest rate moves in the United States.
During the period, ten-year bond yields rose 60 basis points
(0.60%).
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1999
The global interest rate rise finally caught up with non-EMU
countries. Interest rates for ten-year sovereign bonds rose in the
United Kingdom 48 basis points; in Greece, 55 basis points; in
Denmark, 65 basis points; and in Norway, 32 basis points. During
this period, none of these countries raised interest rates except
for the United Kingdom. In a surprise move by the Bank of England
(BOE), interest rates were pushed up 25 basis points from 5.00% to
5.25%. The BOE's decision to raise interest rates seemed more
preemptive since the inflation rate in the United Kingdom was well
below the target of 2.5%. There was investor concern that this
preemptive rise in rates, similar to the US Federal Reserve Board,
would be followed in other countries such as Sweden and Germany.
In this environment, we kept a short duration in investments in EMU
countries, but held a modestly long duration in the non-EMU
countries. Although we shortened the maturities of our investments
somewhat, it was not enough to neutralize the rise in interest
rates. At this time, we intend to hold our positions in non-EMU
countries, since we believe that they represent attractive value,
especially with EMU convergence on the horizon.
Pacific Basin
Japan appears to us to be rebounding out of its deep recession.
During this period, the economic uplift of public works outlays
lessened, but private consumption remained relatively strong. In
early September, the GDP second quarter report surprised the market
with an increase of 0.2% versus a consensus decline of 0.3%. Amid
Japan's booming economy, inflationary pressures are almost non-
existent. However, we believe the yen's strength could have an
adverse effect on Japan's economic rebound because it represents a
risk to real economic activity, and it will keep prices under
downward pressure. The Bank of Japan (BOJ) has intervened once
during this period with a BOJ statement that the yen's appreciation
from YEN 111.18 to YEN 107.11 in one day was too excessive. The BOJ
has tried influencing rather than intervening to weaken the yen
since more than $40 billion has been spent without any effect.
During the September quarter, we kept our underweight position in
the yen, believing that US dollar strength relative to the yen will
soon resume. We maintained a short duration in order to take
advantage of a rise in Japanese interest rates as the economy
reflates.
In New Zealand, there is modest economic growth. The interest rate-
sensitive sectors of the economy are still providing the impetus for
growth, while net exports continue to provide a drag on growth
reflecting stronger imports and subdued exports. Underlying
inflationary pressures have remained low and further growth may lead
the Royal Bank of New Zealand (RBNZ) to raise interest rates in the
near future. In this environment, we continue to believe that any
tightening may be limited given that growth remains on the fragile-
to-modest side. However, going forward and in light of the RBNZ's
recent statements, we may look to reduce duration at opportune
times.
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,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Harry Escobar)
Harry Escobar
Vice President and Portfolio Manager
November 4, 1999
Merrill Lynch Global Bond Fund for Investment and Retirement
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.
* 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 9/30/99 -2.89% -6.77%
Five Years Ended 9/30/99 +5.10 +4.24
Ten Years Ended 9/30/99 +7.77 +7.33
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/99 -3.53% -7.21%
Five Years Ended 9/30/99 +4.33 +4.33
Ten Years Ended 9/30/99 +6.96 +6.96
[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 -3.69% -4.61%
Inception (10/21/94)
through 9/30/99 +4.01 +4.01
[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 -3.13% -7.00%
Inception (10/21/94)
through 9/30/99 +4.63 +3.77
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/
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>
ML Global Bond Fund Class A Shares +1.20% -2.89% +111.35% 4.00%
ML Global Bond Fund Class B Shares +1.00 -3.53 + 95.91 3.38
ML Global Bond Fund Class C Shares +0.99 -3.69 + 21.44 3.32
ML Global Bond Fund Class D Shares +1.13 -3.13 + 25.05 3.76
<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 ten years for Class A & Class
B Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
Canada
<S> <S> <C> <S> <C> <C> <C> <C>
Sovereign NZ$ 11,450,000 Canada Government Bond 6.625% 10/03/2007 $5,572,410 4.2%
Government
Obligations
Supra- C$ 5,470,000 Inter-American Development Bank 7.25 11/03/2003 3,873,497 3.0
national
Total Investments in Canada (Cost--$10,736,059) 9,445,907 7.2
Denmark
Sovereign DKr 26,600,000 Kingdom of Denmark 6.00 11/15/2009 3,924,859 3.0
Government
Obligations
Total Investments in Denmark (Cost--$3,986,377) 3,924,859 3.0
Finland
Sovereign Euro 3,195,570 Finnish Government Bond 7.25 4/18/2006 3,817,124 2.9
Government
Obligations
Total Investments in Finland (Cost--$3,960,538) 3,817,124 2.9
France
Telecom- Euro 3,170,939 France Telecom 5.75 4/25/2007 3,470,012 2.6
munications
Total Investments in France (Cost--$3,718,545) 3,470,012 2.6
Germany
Sovereign Euro 3,533,000 Bundesschatzanweisungen 4.00 3/17/2000 3,777,866 2.9
Government 6,200,000 Deutschland Republic 4.75 7/04/2028 5,686,851 4.3
Obligations
Special DM 5,350,000 European Credit Card Office 5.25 6/18/2008 2,792,191 2.1
Purpose
Total Investments in Germany (Cost--$12,986,942) 12,256,908 9.3
Greece
Sovereign GRD 1,961,000,000 Hellenic Republic 8.60 3/26/2008 7,065,354 5.4
Government
Obligations
Total Investments in Greece (Cost--$7,854,238) 7,065,354 5.4
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1999
<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>
Italy
Sovereign Euro 7,530,640 Buoni Poliennali Del Tesoro 10.00 % 8/01/2003 $ 9,538,390 7.2%
Government
Obligations
Total Investments in Italy (Cost--$10,040,898) 9,538,390 7.2
Japan
Sovereign YEN 1,311,000,000 Japan Government Bond #157 4.50 6/20/2003 14,076,279 10.7
Government
Obligations
Supranational 930,000,000 African Development Bank 6.20 6/18/2002 10,115,247 7.7
282,000,000 World Bank 5.25 3/20/2002 2,969,997 2.3
Total Investments in Japan (Cost--$24,886,421) 27,161,523 20.7
Norway
Sovereign Nok 33,000,000 Norwegian Government 5.50 5/15/2009 4,055,889 3.1
Government
Obligations
Total Investments in Norway (Cost--$4,318,652) 4,055,889 3.1
Spain
Sovereign Euro 2,400,000 Bonos y Obligation Del Estado 5.25 1/31/2003 2,629,425 2.0
Government 2,600,000 Spanish Government Bond 5.15 7/30/2009 2,730,120 2.1
Obligations
Total Investments in Spain (Cost--$5,777,761) 5,359,545 4.1
United Kingdom
Financial Pound 6,600,000 FP Finance PLC 9.125 ++ 11,156,100 8.5
Services Sterling
Industrials 3,000,000 BAA PLC 7.875 2/10/2007 5,177,134 3.9
1,000,000 BOC Group PLC 7.25 6/07/2002 1,640,949 1.3
Total Investments in the United Kingdom
(Cost--$18,138,396) 17,974,183 13.7
United States
Financial US$ 5,000,000 Mellon Capital II 7.995 1/15/2027 4,844,000 3.7
Services
Industrials DM 7,100,000 Ford Motor Credit Co. 5.25 6/16/2008 3,705,524 2.8
US$ 3,000,000 Phelps Dodge Corporation 7.125 11/01/2027 2,652,960 2.0
US Government 1,000,000 Federal National Mortgage Association 6.50 8/15/2004 1,005,000 0.8
& Agency 5,100,000 US Treasury Bonds 5.25 11/15/2028 4,420,272 3.3
Obligations
Total Investments in the United States
(Cost--$17,376,572) 16,627,756 12.6
Total Investments in Long-Term Obligations
(Cost--$123,781,399) 120,697,450 91.8
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Interest Maturity Percent of
Amount Short-Term Obligations Rate Date Value Net Assets
<S> <S> <C> <S> <C> <C> <C> <C>
Canada
Commercial C$ 4,800,000 Canadian Treasury Bills 4.638% 1/06/2000 $ 3,227,106 2.4%
Paper--
Foreign*
Total Short-Term Obligations in Canada
(Cost--$3,239,213) 3,227,106 2.4
United States
Commercial US$ 4,299,000 General Motors Acceptance Corp. 5.69 10/01/1999 4,299,000 3.3
Paper*
US Government 1,297,000 US Treasury Bills 4.66 1/20/2000 1,278,362 1.0
Obligations*
Total Short-Term Obligations in the
United States (Cost--$5,578,084) 5,577,362 4.3
Total Investments in Short-Term
Obligations (Cost--$8,817,297) 8,804,468 6.7
Options Purchased
Currency Put 6,600,000 Japanese Yen, expiring December 1999 at YEN 118 11,088 0.0
Options
Purchased
Total Currency Options Purchased (Cost--$13,860) 11,088 0.0
Total Investments (Cost--$132,612,556) 129,513,006 98.5
Unrealized Depreciation on Forward Foreign Exchange Contracts** (198,036) (0.1)
Other Assets Less Liabilities 2,129,977 1.6
------------ ------
Net Assets $131,444,947 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $20,121,675 and
2,298,952 shares outstanding $ 8.75
============
Class B--Based on net assets of $72,285,734 and
8,256,481 shares outstanding $ 8.76
============
Class C--Based on net assets of $988,722 and
112,980 shares outstanding $ 8.75
============
Class D--Based on net assets of $38,048,816 and
4,347,773 shares outstanding $ 8.75
============
<FN>
++The security is a perpetual bond and has no stated maturity date.
*Commercial Paper, Commercial Paper--Foreign 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, 1999 were
as follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
C$ 4,740,960 October 1999 $ 12,375
DKr 4,759,552 October 1999 (9,568)
Euro 7,070,190 October 1999 (80,288)
Euro 5,051,720 October 1999 (141,776)
Nok 32,978,400 October 1999 (65,288)
YEN 1,471,681,925 October 1999 12,930
---------
Total (US$ Commitment--$37,597,585) (271,615)
---------
Foreign Currency Purchased
C$ 4,740,960 October 1999 (2,322)
YEN 4,639,495 October 1999 76,839
Nok 16,489,200 October 1999 (938)
---------
Total (US$ Commitment--$10,224,170) 73,579
---------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $(198,036)
=========
</TABLE>
