-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFhLyrNUvchiCLXiPlaJ7m2npSLbGgGSiZSnsvSyQ0mPQIYZ6wVvVt+LYxTlmDoe Flzp74pMz15naarcX9ZOyA== 0001005477-99-001083.txt : 19990311 0001005477-99-001083.hdr.sgml : 19990311 ACCESSION NUMBER: 0001005477-99-001083 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND CENTRAL INDEX KEY: 0000801421 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04839 FILM NUMBER: 99561204 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CENTER CITY: BOSTON STATE: MA ZIP: 02111-2646 BUSINESS PHONE: 6092823319 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH INSTITUTIONAL INTERMEDIATE FUND DATE OF NAME CHANGE: 19920703 N-30D 1 QUARTERLY REPORT MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND [GRAPHIC OMITTED] STRATEGIC Performance Quarterly Report January 31, 1999 Merrill Lynch Intermediate Government Bond Fund DEAR SHAREHOLDER Interest rates rallied slightly during the three months ended January 31, 1999. The ten-year Treasury note started the January quarter with a yield of 4.75% and fell slightly to 4.65% by the close of the January quarter. The three-month period was highlighted by the recovery of risk-based assets, spurred on by three easings of monetary policy by the Federal Reserve Board. This allowed securities that trade at a yield spread over US Treasury issues to outperform the Treasury market. While the Fund outperformed its peer group in December 1998 and January 1999, it under-performed in November 1998. As a result, for the three months ended January 31, 1999, the Fund's Class A, Class B, Class C and Class D Shares had total returns of +0.35%, +0.22%, +0.18% and +0.32%, respectively, underper-forming Lipper Analytical Services Inc.'s peer group of intermediate-term US Government bond funds, which had an average total return of +0.85%. However, for the 12 months ended January 31, 1999, the Fund's Class A, Class B, Class C and Class D Shares had total returns of +7.71%, +7.05%, +7.32% and +7.49%, respectively, well above the peer group's average total return of +6.80% for the same period. During the three months ended January 31, 1999, net assets continued to grow, exceeding $100 million for the first time since the Fund was established as an intermediate US Government bond fund in February 1997. In order to improve the Fund's competitiveness, in December, after consultation with the Fund's Board of Trustees, we began to invest a portion of the Fund's assets in mortgage-backed securities -- a large, highly liquid market. We believe this will give us greater investment flexibility, which could benefit the Fund's performance in the future. At the beginning of the three-month period ended January 31, 1999, the Fund was heavily invested in Treasury issues and cash, at approximately 78% of the portfolio's net assets. As our outlook for issues other than US Treasury securities improved, we invested in US Government agency debentures, and eventually mortgage-backed securities, bringing our position in Treasury issues and cash down to approximately 66% of net assets at January quarter-end. We believe the near-term environment will be categorized as the late stages to the reaction of the three Federal Reserve Board's easings in the fall of 1998. It appeared that these easings were undertaken to improve financial market liquidity. Since this objective appears to have been achieved, additional monetary easings do not seem likely in the near term. While the domestic economy has shown above-forecast strength in the first quarter of 1999, immediate Federal Reserve Board tightening is not probable, since its effect on still-fragile global markets cannot readily be determined. The risk to those markets of a tightening currently outweighs the benefits of attempting to slow domestic growth to contain inflationary pressures. Since we believe US Government agency issues and mortgage-backed securities still offer some value, we expect to increase our percentage allocation to this area. In Conclusion We thank you for your continued investment in Merrill Lynch Intermediate Government Bond Fund, and we look forward to discussing our outlook and strategy with you in our upcoming semi-annual report to shareholders. Sincerely, /s/ Robert W. Crook Robert W. Crook President and Trustee /s/ Ralph A. DeCesare Ralph A. DeCesare Vice President and Portfolio Manager February 26, 1999 1 Merrill Lynch Intermediate Government Bond Fund January 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: o Class A Shares incur a maximum initial sales charge (front-end load) of 1% and bear no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. o Class B Shares are subject to a maximum contingent deferred sales charge of 1% if redeemed during the first year, decreasing to 0% after the first year. In addition, Class B Shares are subject to a distribution fee of 0.25% 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.) o Class C Shares are subject to a distribution fee of 0.25% 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. o Class D Shares incur a maximum initial sales charge of 1% and an account maintenance fee of 0.10% (but no distribution fee). The Fund's shareholders as of February 18, 1997 became holders of Class D Shares. 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. Recent Performance Results*
Ten Years/ Standardized 12 Month 3 Month Since Inception 30-Day Yield Total Return Total Return Total Return As of 1/31/99 =============================================================================================================================== ML Intermediate Government Bond Fund Class A Shares +7.71% +0.35% + 16.19% 3.90% - ------------------------------------------------------------------------------------------------------------------------------- ML Intermediate Government Bond Fund Class B Shares +7.05 +0.22 + 15.21 4.07 - ------------------------------------------------------------------------------------------------------------------------------- ML Intermediate Government Bond Fund Class C Shares +7.32 +0.18 + 15.30 4.35 - ------------------------------------------------------------------------------------------------------------------------------- ML Intermediate Government Bond Fund Class D Shares +7.49 +0.32 + 107.04+ 4.43 ===============================================================================================================================
* Investment results shown do not reflect sales charges; results 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/since inception periods are Class A, Class B & Class C Shares, from 2/18/97 to 1/31/99 and Class D Shares, for the ten years ended 1/31/99. + Performance for Class D Shares for the period prior to 2/18/97 was when the Fund operated under a different investment objective. 2 Merrill Lynch Intermediate Government Bond Fund January 31, 1999 PERFORMANCE DATA (concluded) Average Annual Total Return ================================================================================ % Return Without % Return With Sales Charge Sales Charge** ================================================================================ Class A Shares* - -------------------------------------------------------------------------------- Year Ended 12/31/98 +8.91% +7.82% - -------------------------------------------------------------------------------- Inception (2/18/97) through 12/31/98 +8.12 +7.54 - -------------------------------------------------------------------------------- * Maximum sales charge is 1%. ** Assuming maximum sales charge. ================================================================================ % Return % Return Without CDSC With CDSC** ================================================================================ Class C Shares* - -------------------------------------------------------------------------------- Year Ended 12/31/98 +8.51% +7.51% - -------------------------------------------------------------------------------- Inception (2/18/97) through 12/31/98 +7.69 +7.69 - -------------------------------------------------------------------------------- * Maximum contingent deferres charge is 1% and is reduced to 0% after 1 year. ** Assuming payment of applicable contingent deferred sales charge. ================================================================================ % Return % Return Without CDSC With CDSC** ================================================================================ Class B Shares* - -------------------------------------------------------------------------------- Year Ended 12/31/98 +8.24% +7.24% - -------------------------------------------------------------------------------- Inception (2/18/97) through 12/31/98 +7.66 +7.66 - -------------------------------------------------------------------------------- * 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 12/31/98 +8.69% +7.60% - -------------------------------------------------------------------------------- Five Years Ended 12/31/98+ +5.72 +5.51 - -------------------------------------------------------------------------------- Ten Years Ended 12/31/98+ +7.58 +7.47 - -------------------------------------------------------------------------------- * Maximum sales charge is 1%. ** Assuming maximum sales charge. + Performance for Class D Shares for the period prior to 2/18/97 was when the Fund operated under a different investment objective. SCHEDULE OF INVESTMENTS
Face Interest Maturity Issue Amount Rate Date Value ============================================================================================================================= US Government & Agency Obligations -- 92.5 % ============================================================================================================================= US Treasury Notes & Bonds $ 1,000,000 8.875% 2/15/99 $ 1,001,410 250,000 5.625 12/31/99 252,188 1,000,000 5.125 8/31/00 1,007,030 1,000,000 6.25 8/31/00 1,023,750 4,000,000 5.50 12/31/00 4,063,120 2,000,000 7.875 8/15/01 2,152,820 2,100,000 13.375 8/15/01 2,534,427 500,000 6.625 4/30/02 529,845 1,000,000 7.50 5/15/02 1,085,940 1,000,000 6.50 5/31/02 1,057,030 250,000 5.75 10/31/02 259,375 1,250,000 5.25 8/15/03 1,283,788 13,500,000 5.75 8/15/03 14,115,870 2,000,000 11.875 11/15/03 2,606,560 4,400,000 7.25 5/15/04 4,933,500 3,750,000 7.25 8/15/04 4,215,225 3,250,000 7.50 2/15/05 3,724,305 1,500,000 7.00 7/15/06 1,708,125 4,000,000 5.50 2/15/08 4,235,000 11,000,000 5.625 5/15/08 11,728,750 1,000,000 10.00 5/15/10 1,272,030 - ----------------------------------------------------------------------------------------------------------------------------- Federal Farm Credit Banks 1,000,000 6.375 8/06/07 1,066,090 - -----------------------------------------------------------------------------------------------------------------------------
3 Merrill Lynch Intermediate Government Bond Fund January 31, 1999 SCHEDULE OF INVESTMENTS (concluded)
Face Interest Maturity Issue Amount Rate Date Value ============================================================================================================================ US Government & Agency Obligations (concluded) ============================================================================================================================ Federal Home Loan Banks $ 1,000,000 6.67 % 5/10/01 $ 1,035,470 3,000,000 4.875 1/22/02 2,992,020 - ---------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation 2,000,000 5.75 7/15/03 2,058,740 4,000,000 6.00 TBA(1) 4,020,000 3,000,000 6.50 TBA(1) 3,049,680 - ---------------------------------------------------------------------------------------------------------------------------- Federal National Mortgage Association 1,000,000 6.50 10/25/03 1,044,290 992,314 6.40 1/01/06+ 1,032,462 2,000,000 6.95 11/13/06 2,067,500 995,734 6.105 8/01/08+ 1,025,833 497,770 6.175 8/01/08+ 515,126 4,000,000 5.94 12/19/08 3,965,000 2,000,000 7.15 8/27/12 2,094,380 3,050,000 6.96 9/05/12 3,355,488 365,904 6.00 4/01/13 367,277 525,359 6.00 9/01/13 527,328 1,047,037 6.00 10/01/13 1,050,963 2,528,013 6.00 11/01/13 2,537,493 1,560,455 6.00 12/01/13 1,566,307 - ---------------------------------------------------------------------------------------------------------------------------- Student Loan Marketing Association 2,000,000 7.50 3/08/00 2,053,440 - ---------------------------------------------------------------------------------------------------------------------------- Total US Government & Agency Obligations (Cost--$101,548,767) 102,214,975 - ---------------------------------------------------------------------------------------------------------------------------- Face Amount Short-Term Securities ============================================================================================================================ US Government Agency Obligations * -- 12.1% ============================================================================================================================ $13,337,000 Federal Home Loan Mortgage Corporation, 4.62% due 2/01/1999 13,337,000 - ---------------------------------------------------------------------------------------------------------------------------- Total Short-Term Securities (Cost--$13,337,000) 13,337,000 - ---------------------------------------------------------------------------------------------------------------------------- Total Investments (Cost--$114,885,767)--104.6% 115,551,975 Liabilities in Excess of Other Assets--(4.6%) (5,107,879) ------------ Net Assets--100.0% $110,444,096 ============ - ---------------------------------------------------------------------------------------------------------------------------- Net Asset Class A-- Based on net assets of $24,396,927 and 2,440,359 shares Value: of beneficial interest outstanding $ 10.00 ============ Class B-- Based on net assets of $47,580,825 and 4,759,597 shares of beneficial interest outstanding $ 10.00 ============ Class C-- Based on net assets of $5,753,049 and 575,877 shares of beneficial interest outstanding $ 9.99 ============ Class D-- Based on net assets of $32,713,295 and 3,272,702 shares of beneficial interest outstanding $ 10.00 ============ ============================================================================================================================
(1) Represents a "to-be-announced" (TBA) transaction. The Fund has committed to purchasing securities for which all specific information is not available at this time. * Certain US Government Agency Obligations are traded on a discount basis; the interest rate shown reflects the discount rate paid at the time of purchase by the Fund. + Subject to principal paydowns. 4 Merrill Lynch Intermediate Government Bond Fund January 31, 1999 OFFICERS AND TRUSTEES Robert W. Crook, President and Trustee A. Bruce Brackenridge, Trustee Charles C. Cabot Jr., Trustee James T. Flynn, Trustee Terry K. Glenn, Trustee George W. Holbrook Jr., Trustee W. Carl Kester, Trustee Christopher G. Ayoub, Senior Vice President Michael J. Brady, Senior Vice President William M. Breen, Senior Vice President James J. Fatseas, Senior Vice President Joseph T. Monagle Jr., Senior Vice President William Wasel, Senior Vice President Ann Catlin, Vice President Ralph A. DeCesare, Vice President Diana Frankland, Vice President Mark E. Maguire, Vice President Dianne F. McDonough, Vice President Patricia A. Schena, Vice President Barry F. X. Smith, Vice President Karen D. Young, Vice President Donald C. Burke, Treasurer Phillip Gillespie, Secretary Custodian State Street Bank and Trust Company P.O. Box 351 Boston, MA 02101 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 5 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 Intermediate Government Bond Fund Box 9011 Princeton, NJ 08543-9011 #IGB01 -- 1/99 [LOGO] Printed on post-consumer recycled paper -----END PRIVACY-ENHANCED MESSAGE-----