MERRILL LYNCH
GLOBAL BOND
FUND
For Investment and
Retirement
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
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 a percentage of net assets
As of March 31, 1999
Commercial Paper 2.92%
Banking 8.81%
US Government Obligations 0.56%
Supranational 10.19%
Sovereign Govenment Obligations 44.81%
Industrials 12.45%
Financial Services 12.31%
Telecommunications 2.28%
Special Purpose 1.87%
Pie graph depicting Geographical Diversification*
as a percentage of net assets
As of March 31, 1999
Canada 6.98%
Norway 2.70%
United Kingdom 13.52%
Greece 4.59%
Germany 5.74%
Japan 16.01%
Spain 1.80%
Denmark 8.07%
Italy 10.49%
Finland 4.11%
France 3.12%
United States 19.07%
Bar graph depicting Maturity of Investments*
as a percentage of net assets
As of March 31, 1999
5 yrs-10 yrs 22.22%
10 yrs + 40.85%
0-1 yr 4.98%
1 yr-5 yrs 31.l5%
[FN]
*Percent of net assets
may not equal 100%.
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
DEAR SHAREHOLDER
For the quarter ended March 31, 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 -3.19%, -3.37%, -3.38% and -3.35%,
respectively, slightly outperforming the -3.90% total return for the
unmanaged J.P. Morgan Global Government Bond Index. (Fund results
shown do not reflect sales charges, and would be lower if included.
For complete performance information, see pages 5 and 6 of this
report to shareholders.) During the March quarter, our asset
allocation for the Fund consisted of an overweighted duration in
every country, with the exception of Japan. By quarter-end, we
shifted our focus primarily to non-European Monetary Union (EMU)
countries in order to take advantage of the second round of
convergence to the EMU and the higher yields in these countries. We
believe that the yield spread in the United Kingdom, Greece, Norway
and Denmark will tighten appreciably relative to the yields of EMU
countries.
Investment Environment
Global bond investors began 1999 with the belief that the turmoil
that had rocked the markets in late 1998 was mostly settled.
However, by January 12, 1999, the instability in Brazil was brought
about by the state of Minas' moratorium on payments to the central
government. This insurrection threatened to throw Brazil's fiscal
targets into disarray and panic international investors into
liquidating their holdings in Brazil and other Latin American
countries. The Bovespa (Brazilian stock market) sold off 7.6% on the
news and fear of recession. On January 13, 1999, Brazil devalued its
currency and the Bovespa traded down 10.23% before trading was
halted. The J.P. Morgan Emerging Market Bond Index (EMBI+) traded
down 206 points to 1,457. In addition, US markets were affected as
investors became concerned that a downturn in Latin America would
hurt US exports to that region while also lowering Latin America's
exports to the United States. The Dow Jones Industrial Average was
down 139 points within 10 minutes of trading and a flight to quality
in US Treasury securities ensued with the long-term bond trading up
almost 2 points to a 5.10% yield.
However, unlike the Russian devaluation in August 1998, the
Brazilian devaluation had less of an impact on the global markets
because there was less leverage in the marketplace and the
devaluation was somewhat expected. During the March quarter,
although the Brazilian real traded down from 1.20 to 2.20 and back
to 1.85 relative to the US dollar, it appeared that the Brazilian
contagion was localized to Latin America. Investors perceived this
and proceeded to refocus on the health of the global economy and,
more specifically, on growth and inflation within each country.
Market Review
North America
Growth in the United States was robust during the fourth quarter of
1998. Gross domestic product (GDP) growth, which was initially
reported to be 5.6%, was revised upward to 6.1% in February 1999.
GDP for the quarter ended March 31, 1999 was 4.5% compared to the
market expectation of 3.3%, while the price deflator was 1.4%,
higher than the expected 1%. These numbers, although lower than the
previous quarter, were robust. The United States is still the engine
of global growth. Global markets became nervous at the prospect of
this unabated growth. The predicted slowdown in the United States
was nowhere to be seen, and the worry was that the Federal Reserve
Board would raise interest rates to slow the economy and preempt
inflation. The fourth quarter GDP report raised investor concerns in
February. The long-term US Treasury bond yield, which had barely
moved in January, rose approximately 50 basis points (0.50%)to
5.58%. Investors had begun to discount a Federal Reserve Board hike
in interest rates of more than 25 basis points within the next two
quarters. It was believed that a rise in yields would eventually
slow the US economy.
During March, the long-term bond continued to decline until it
reached 5.70% on March 4, 1999. The only sign of economic slowness
that appeared in early March was new homes sales, which were down 5%
for January. A relief rally began on March 5 after non-farm payroll
numbers were reported below expectations. US fixed-income markets
rallied after Federal Reserve Board Chairman Greenspan announced on
March 9 that he was not concerned about growth because of the low
level of inflation that was being held in check by high
productivity, competition and technology. Growth with no inflation
was the common refrain, which calmed the fear of an imminent
tightening by the Federal Reserve Board. Consequently, the market
proceeded to rally toward the 5.50% level.
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
Canadian growth is expected to fall in 1999 from a rate of 2.8% in
1998 to a level below 2%. Strong demand from the United States is
the key source of growth, as domestic demand continues to slow. The
concern is that a slowdown in demand from the United States will
impact Canada. Retail sales fell 0.3% month over month in December.
Excluding autos, retail sales were relatively weak at 3.1%. The
Consumer Price Index (CPI) rose 0.2% month over month in January.
Core CPI rose 1% for 1998. The Producer Price Index (PPI) fell 0.3%
in January. As the year progresses, we foresee continued benign
inflation with a potential for the central bank to ease if the
Canadian dollar improves. In this environment, the Canadian ten-year
sovereign bond has tracked the interest rate movement in the US long-
term bond. During January, the ten-year sovereign bond improved by
one basis point to 4.90%, while in February the yield on this
security rose 48 basis points to 5.38%. In March, the ten-year
sovereign bond rallied to 5.22%.
Europe
The first quarter of 1999 marked the beginning of the euro and the
convergence of eleven countries into the EMU. The convergence went
smoothly without any disruptions, but the expectation that the euro
would begin on the strong side did not materialize. The euro began
the year at 1.1697 relative to the US dollar and within a few days
began to trade down. By late March, the euro was trading at 1.09,
down 6.8%, mostly because of political infighting, a weak economy
and lack of progress on employment. Although German bonds and
interest rates fluctuated during the quarter, yields ended the
period virtually unchanged.
In non-EMU countries, we continued to see improvement in our UK,
Greek, Danish and Norwegian positions. We also maintained an
overweighted duration relative to the J.P. Morgan Global Government
Bond Index in the non-EMU sector because these countries are on
track for the second wave of convergence into the EMU and their
bonds are relatively inexpensive. We are mostly overweight in the
United Kingdom because we believe that the currency will improve or
remain stable, while short-term interest rates still have farther to
fall. During the March quarter, we added a new position in Norway
that we successfully traded out of and then re-established at
attractive levels. This trade was helped by strength in the
Norwegian currency brought about by the 30% rise in the price of
oil, Norway's chief export.
Pacific Basin
In December 1998, Japanese government bonds (JGB) backed up because
of the forecast of increased supply to the JGB market. Interest
rates in the 9-year-10-year sector rose 90 basis points--100 basis
points during the month. Ten-year JGBs traded above 2.00%, up from
the low of 0.79% on October 2, 1998. This increase in yield
continued in early February when the yield on the 10-year JGB
reached 2.69% on February 2, 1999. The descent in interest rates
began when the Bank of Japan decided to switch the issuance of JGBs
to shorter maturities, and also with the rumor that the Trust Fund
Bureau had reversed its decision to stop buying JGBs.
The yen continued to gain strength into 1999 given the expatriation
that was taking place before the Japanese year-end on March 31,
1999. The yen reached it strongest level on January 11 and then
proceeded to trade lower as Finance Minister Miyazawa said he would
tolerate a lower yen. In addition, there were signs that the Bank of
Japan might consider monetizing the debt to lower interest rates.
The bank continued to cut the call rates in Japan from 0.25% to
0.15%. The Bank of Japan announced that 0.15% would be the top rate
and that the bank would let it trade down to 0%. This was the Bank
of Japan's latest attempt to jumpstart the economy and demonstrate
to the world its resolve to do so. However, with interests rates
near zero, Japanese consumers are not enticed to begin spending.
Monetary policy must be supplemented with a fiscal stimulus package
and inflation target. GDP does not show any sustained signs of
improving and inflation is non-existent.
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
There has been some speculation lately that the Japanese economy may
be bottoming out given the Nikkei Index's 18% rise year to date. We
believe the economy has not bottomed, but if it has, it will not
necessarily rise in the short term. There are still too many factors
negatively affecting consumers to create a smooth recovery. We also
anticipate a weakening yen throughout the year relative to the US
dollar. Until we see any signs of this pattern of slow growth and a
weak yen changing, we will remain under-weighted in Japan and
overweighted in US dollars.
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
May 14, 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 Global Bond Fund
for Investment and Retirement's Board of Trustees. We are pleased to
announce that Terry K. Glenn has been elected President and Trustee
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 Trustees 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
Trustees.
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 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 3/31/99 +6.14% +1.89%
Five Years Ended 3/31/99 +5.37 +4.51
Ten Years Ended 3/31/99 +8.50 +8.06
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/99 +5.32% +1.32%
Five Years Ended 3/31/99 +4.57 +4.57
Ten Years Ended 3/31/99 +7.67 +7.67
[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 +5.26% +4.26%
Inception (10/21/94)
through 3/31/99 +5.25 +5.25
[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 +5.76% +1.53%
Inception (10/21/94)
through 3/31/99 +5.85 +4.88
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
PERFORMANCE DATA (concluded)
<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 3/31/99
<S> <C> <C> <C> <C>
ML Global Bond Fund Class A Shares +6.14% -3.19% +126.12% 3.73%
ML Global Bond Fund Class B Shares +5.32 -3.37 +109.40 3.10
ML Global Bond Fund Class C Shares +5.26 -3.38 + 25.52 3.05
ML Global Bond Fund Class D Shares +5.76 -3.35 + 28.74 3.49
<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 & Class B Shares, for
the ten years ended 3/31/99 and Class C & Class D Shares, from
10/21/94 to 3/31/99.
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
<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 NZ$ 14,250,000 Canada Government Bond 6.625% 10/03/2007 $ 7,675,703 2.34%
Government
Obligations
Supra- C$ 5,470,000 Interamerican Development Bank 7.25 11/03/2003 3,876,119 4.64
national
Total Investments in Canada (Cost--$12,463,007) 11,551,822 6.98
Denmark
Banking US$ 7,250,000 Den Danske Bank 7.40 6/15/2010 7,384,952 4.46
Sovereign DKr 36,100,000 Kingdom of Denmark 6.00 11/15/2009 5,964,298 3.61
Government
Obligations
Total Investments in Denmark (Cost--$14,043,909) 13,349,250 8.07
Finland
Sovereign EMU 3,195,570 Finnish Government Bond 7.25 4/18/2006 4,149,376 2.51
Government YEN 271,000,000 Republic of Finland 6.00 1/29/2002 2,645,066 1.60
Obligations
Total Investments in Finland (Cost--$6,485,751) 6,794,442 4.11
France
Sovereign EMU 885,000 Government of France 8.25 4/25/2022 1,387,224 0.84
Government
Obligations
Telecom- Frf 20,800,000 France Telecom 5.75 4/25/2007 3,772,246 2.28
munications
Total Investments in France (Cost--$5,226,716) 5,159,470 3.12
Germany
Sovereign EMU 5,470,823 Land Baden-Wuerttemberg 5.75 1/19/2028 6,400,677 3.87
Government
Obligations
Special DM 5,350,000 European Credit Card Office 5.25 6/18/2008 3,088,837 1.87
Purpose
Total Investments in Germany (Cost--$9,101,383) 9,489,514 5.74
Greece
Sovereign GRD 1,961,000,000 Hellenic Republic 8.60 3/26/2008 7,602,878 4.59
Government
Obligations
Total Investments in Greece (Cost--$7,854,238) 7,602,878 4.59
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 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 EMU 12,730,640 Buoni Poliennali Del Tesoro 10.00 % 8/01/2003 17,347,475 10.49%
Government
Obligations
Total Investments in Italy (Cost--$16,920,022) 17,347,475 10.49
Japan
Sovereign YEN 1,772,000,000 Japan Government Bond #57 4.50 6/20/2003 17,309,290 10.46
Government
Obligations
Supranational 930,000,000 African Development Bank 6.20 6/18/2002 9,170,715 5.55
Total Investments in Japan (Cost--$25,931,839) 26,480,005 16.01
Norway
Sovereign Nok 33,000,000 Norwegian Government Bond 5.50 5/15/2009 4,463,272 2.70
Government
Obligations
Total Investments in Norway (Cost--$4,318,652) 4,463,272 2.70
Spain
Sovereign EMU 2,600,000 Spanish Government Bond 7.40 7/30/1999 2,974,470 1.80
Government
Obligations
Total Investments in Spain (Cost--$3,155,456) 2,974,470 1.80
United
Kingdom
Financial POUND 8,300,000 FP Finance PLC 9.125 ++ 15,144,404 9.16
Services STERLING
Industrials 3,000,000 BAA PLC 7.875 2/10/2007 5,524,722 3.34
1,000,000 BOC Group PLC 7.25 6/07/2002 1,690,019 1.02
Total Investments in the United Kingdom
(Cost--$21,023,940) 22,359,145 13.52
United States
Banking US$ 6,500,000 Comerica Bank 7.875 9/15/2026 7,192,055 4.35
Financial 5,000,000 Mellon Capital II 7.995 1/15/2027 5,208,350 3.15
Services
Industrials DM 7,100,000 Ford Motor Credit Co. 5.25 6/16/2008 4,076,827 2.46
US$ 10,000,000 Phelps Dodge Corporation 7.125 11/01/2027 9,312,400 5.63
US 1,000,000 US Treasury Bonds 5.25 11/15/2028 932,660 0.56
Government
Obligations
Total Investments in the United States
(Cost--$26,841,611) 26,722,292 16.15
Total Investments in Long-Term Obligations
(Cost--$153,366,524) 154,294,035 93.28
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Interest Maturity Percent of
Amount Short-Term Obligations Rate Date Value Net Assets
<S> <S> <C> <S> <C> <C> <C> <C>
Commercial US$ 4,835,000 General Electric Capital Corp. 5.08 % 4/01/1999 $ 4,835,000 2.92%
Paper*
Total Investments in Short-Term Obligations
(Cost--$4,835,000) 4,835,000 2.92
Total Investments (Cost--$158,201,524) 159,129,035 96.20
Unrealized Appreciation on Forward Foreign Exchange Contracts** 87,874 0.05
Other Assets Less Liabilities 6,197,854 3.75
------------ -------
Net Assets $165,414,763 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $23,635,783 and 2,559,083 shares of
beneficial interest outstanding $ 9.24
============
Class B--Based on net assets of $95,533,085 and 10,340,540 shares of
beneficial interest outstanding $ 9.24
============
Class C--Based on net assets of $1,514,343 and 163,975 shares of
beneficial interest outstanding $ 9.24
============
Class D--Based on net assets of $44,731,552 and 4,843,835 shares of
beneficial interest outstanding $ 9.23
============
<FN>
++The security is a perpetual bond and has no stated maturity date.
*Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rates paid at the time of purchase by
the Fund.
**Forward foreign exchange contracts as of March 31, 1999 were as
follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
POUND STERLING 4,994,434 April 1999 $ 170,199
YEN 3,900,323,850 May 1999 (87,901)
Total (US$ Commitment--$41,352,148) 82,298
---------
Foreign Currency Purchased
YEN 1,950,161,925 April 1999 5,576
Total (US$ Commitment--$16,484,885) 5,576
---------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net $ 87,874
=========
</TABLE>
Merrill Lynch Global Bond Fund for Investment and Retirement
March 31, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
Donald Cecil, Trustee
Roland M. Machold, 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
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
Gerald M. Richard, Treasurer of Merrill Lynch Global Bond Fund for
Investment and Retirement has recently retired. His colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's Board of
Trustees in wishing Mr. Richard well in his retirement.
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
