Hong Kong Baptist University
1998 Superannuation Fund
5 September 2003
Contents
•
Portfolio Size Summary
•
Performance Summary
•
Asset Allocation
•
Performance Review
•
Current Investment Strategy and Market Outlook
Hong Kong Baptist University
2
Portfolio Size Summary
Portfolio Size Summary
MLIIF US Dollar Global Bond
31 July 2003
*
+
Stable Fund
US$
HK$
US$
HK$
1,122,258.84
8,752,833.37*
909,840.77
7,096,394.07+
The exchange rate is the deal FX rate, which is 7.7993 HKD/USD as of 31 July 2003.
The exchange rate is based on the spot rate from Bloomberg, which is 7.7996 HKD/USD as of 31 July 2003.
Hong Kong Baptist University
4
Performance Summary
Performance Summary
As at 31 July 2003
MLIIF US Dollar Global Bond
Actual %
July 2003
1
Benchmark %
Stable Fund
2
Actual %
3
Benchmark %
-1.54
-1.82
-1.01
-0.67
2Q 2003
1.61
1.62
5.09
6.12
1 Year (1 August 02 – 31 July 03)
5.08
5.33
5.27
6.86
YTD (1 January 03 – 31 July 03)
0.93
1.01
3.59
4.74
Inception-to-date (26 April 02 – 31 July 03)
6.95
8.31
3.08
4.33
4
Remarks:
1. Performance figures are net of 1.15% management fee and after 0.75% rebate.
2. Citigroup WGBI - 18 US $ Hdgd
3. Performance figures are net of 1.15% management fee and after 0.70% rebate.
4. 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)
Hong Kong Baptist University
6
Cumulative Real Return*
MLIIF US Dollar Global Bond, as at 29 July 2003

Assume USD1,000 contribution on every 29th of the month
18. 50
18000
1000
900
18.50
18.27
700
17.90 17.86
17.76
17.69
17.57
17.36 17.37
17.16 17.22
17.04
16.93
600
500
400
300
100
18.19
16000
18. 00
17.90 17.86
17.76 17.69
17.57
17.36 17.37
17.16 17.22
17.04
16.93
14000
18.19
18.00
17.75
12000
10000
17.50
8000
17.75
17. 50
17. 00
16.68
16.66
16. 50
6000
17.00
16. 00
4000
16.68
16.66
16.50
2000
15. 50
Apr - 0 2
0
M ay- 0 2
Jun - 0 2
Jul- 0 2
Aug- 0 2
Sep- 0 2
Oct - 0 2
Nov- 0 2
Dec- 0 2
Jan - 0 3
Feb- 0 3
M ar - 0 3
Apr - 0 3
M ay- 0 3
Jun - 0 3
16.00
Alloted Shares
Apr - 0 2
M ay- 0 2
Jun - 0 2
Jul- 0 2
Aug- 0 2
Cumulative Alloted Shares
Sep- 0 2
Oct - 0 2
Nov- 0 2
Dec- 0 2
Jan - 0 3
Feb- 0 3
M ar - 0 3
Apr - 0 3
04
/0 2
05
/0 2
06
/0 2
07
/0 2
08
/0 2
09
/0 2
10
/0 2
11
/0 2
12
/0 2
01
/0 3
02
/0 3
03
/0 3
04
/0 3
05
/0 3
06
/0 3
07
/0 3
/0
05 2
/0
06 2
/02
07
/0
08 2
/02
09
/0
10 2
/0
11 2
/02
12
/0
01 2
/0
02 3
/03
03
/0
04 3
/03
05
/0
06 3
/0
07 3
/03
0
04
No. of Shares
800
200
18.27
Unit Price
15.50
M ay- 0 3
Jun - 0 3
Source: Internal
* Excess returns are calculated net of management fee and before rebate.
Hong Kong Baptist University
Cumulative Capital Employed
Jul- 0 3
Cumulative Invested Assets
Unit Price
7
Jul- 0 3
Cumulative Real Return*
Stable Fund, as at 29 July 2003

Assume USD1,000 contribution on every 29th of the month
1800
18000
1600
10.40
10.35
10.30
10.29
10.24
10.40
14000
10.35
10.30
10.29
10.24
10.20
1200
12000
10.20
10.10
1000
10000
10.00
10.01
9.98
800
600
9.87
9.87
9.84
9.77
400
9.87
8000
9.77 9.79
9.84
9.80
9.67
200
10.00
10.10
10.00
10.01
10.00
9.98
9.90
9.62
0
6000
9.70
4000
9.60
2000
9.50
0
9.87
9.87
9.84
9.77
9.90
9.87
9.84
9.80
9.77 9.79
9.70
9.67
9.62
9.60
9.40
Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03
Alloted Shares
Cumulative Alloted Shares
Unit Price
04
/02
05
/02
06
/02
07
/02
08
/02
09
/02
10
/02
11
/02
12
/02
01
/03
02
/03
03
/03
04
/03
05
/03
06
/03
07
/03
9.50
04
/0
05 2
/0
06 2
/0
07 2
/0
08 2
/0
09 2
/0
10 2
/0
11 2
/0
12 2
/0
01 2
/0
02 3
/0
03 3
/0
04 3
/0
05 3
/0
06 3
/0
07 3
/0
3
No. of Shares
1400
16000
Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03
Cumulative Capital Employed
Cumulative Invested Assets
Unit Price
Source: Internal
* Excess returns are calculated net of management fee and before rebate.
Hong Kong Baptist University
8
9.40
Cumulative Real Return*
As at 29 July 2003

Assume USD1,000 contribution on every 29th of the month
MLIIF US Dollar Global Bond
5%
Stable Fund
5%
4%
4%
3%
3.0%
3.2%
1 year
Since
Inception
3%
1.7%
2%
2%
1%
0.5%
1%
0%
-1%
3 months
6 months
-1.1%
-2%
1.6%
-1.8%
1 year
Since
Inception
0%
3 months
-1%
-0.5%
6 months
Source: Internal
* Excess returns are calculated net of management fee and before rebate.
Hong Kong Baptist University
9
Asset Allocation
MLIIF US Dollar Global Bond Fund
By Region, as at 31 July 2003
MLIIF US Dollar Global Bond Fund (%)
2.0
9.0
22.0
16.0
51.0
Benchmark* (%)
The Fund
(%)
Benchmark*
(%)
North America
22.0
23.4
Europe
51.0
47.7
Japan
16.0
28.5
Other
2.0
0.4
Cash
9.0
0.0
Total
100
100
0.4
23.4
28.5
47.7
* Citigroup WGBI - 18 US $ Hdgd
Source: Internal; Datastream
Hong Kong Baptist University
11
Stable Fund
By Asset Class, as at 31 July 2003
Stable Fund (%)
11.2
34.5
54.3
The Fund
(%)
Benchmark*
(%)
Equities
34.5
30.0
Bonds
54.3
70.0
Cash
11.2
0.0
Total
100
100
Benchmark* (%)
30
70
* 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)
Source: Internal; Datastream
Hong Kong Baptist University
12
Stable Fund
By Region, as at 31 July 2003
The Fund
(%)
Benchmark*
(%)
North America
20.8
17.9
11.8
Europe
11.8
8.6
1.7
Japan
1.7
2.5
0.2
Pacific Basin
0.2
0.9
Total Equities
34.5
30.0
North America
16.8
16.4
Europe
27.7
33.4
Japan
8.7
19.9
Other
1.1
0.3
Total Bonds
54.3
70.0
Cash
11.2
0.0
Total Fund
100
100
Stable Fund (%)
11.2
20.8
1.1
Equities
8.7
27.7
16.8
Bonds
Benchmark* (%)
0.3
19.9
17.9
8.6
2.5
0.9
33.4
16.4
* 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)
Source: Internal; Datastream
Hong Kong Baptist University
13
Stable Fund
By Sector, as at 31 July 2003
Stable Fund* (%)
+
The Fund* Benchmark
(%)
(%)
4 21
5
26
8
7
11
Financials
26.0
23.7
Healthcare
14.0
12.4
Consumer Dis.
11.0
11.9
Consumer Staples
11.0
9.3
Information Tech.
11.0
12.7
Energy
7.0
7.1
Industrials
8.0
9.6
Materials
5.0
4.6
Telecoms Services
4.0
5.1
Utilities
2.0
3.6
Cash
1.0
0.0
Total
100
100
14
11
11
Benchmark+ (%)
5.1
3.6
4.6
23.7
9.6
7.1
12.4
12.7
9.3
11.9
* Allocation only includes the equity portion of Stable Fund.
+ MSCI World (net)
Source: Internal; Datastream
Hong Kong Baptist University
14
Performance Review
MLIIF US Dollar Global Bond Fund
MLIIF US Dollar Global Bond Fund

Our overweight duration position in euro-zone bonds benefited from an extended rally,
although this was partially offset by market sell-offs in March and June.

We remained underweight duration in US dollar bloc bonds, which detracted as US bond
yields declined beyond expectations.

Being overweight duration in corporate bonds also benefited, these were attractive given
positive issuance and low government bond yields.
Hong Kong Baptist University
16
Performance Review
Stable Fund
Stable Fund

The fund slightly underperformed the benchmark for the quarter. The performance suffered
due to the defensive stance taken. Over the quarter, we significantly underweighed bonds
as we believed the bond valuation is very expensive.

The overall bond investment performance is the same as benchmark.

On equity side, our underweight in information technology detracted, as many of these
shares rallied strongly in the second quarter, as investors sought high earnings leverage
into the anticipated economic recovery.

In consumer discretionary, the media segment was impacted by similar trends. Our
holdings in high quality publishing companies like Reed Elsevier lagged.

Positive contribution came from financials, our holdings in Banca Intessa , BNP Paribas
and US corporate and municipal bond insurer, AMBAC Financial outperformed towards end
June.
Hong Kong Baptist University
18
Performance Review
Major Markets Summary
Major Markets Summary
July 2003
%
MSCI Hong Kong (27.0%)
HSBC (Reg) (3.0%)
MSCI North America (14%)
MSCI Europe (9%)
MSCI Japan (5%)
MSCI Pacific free ex Japan & Hong Kong (7.5%)
MSCI Emerging Markets Free (7.5%)
Lehman Global Agg.Bond (50% hedged)(27%)
YTD 2003
%
6.4
3.4
1.8
2.1
4.1
4.6
6.3
-2.5
10.1
12.2
14.6
13.0
7.3
21.6
23.4
2.3
Selected “small” markets in local currency terms
Thailand (SET)
Indonesia (JCI)
Philippines (PHISX)
Korea (KOSPI)
Taiwan (weighted)
Mexico (IPC)
Brazil (BOVESPA)
4.8
0.5
1.4
6.5
9.2
4.3
4.6
35.8
19.5
21.8
13.7
19.5
20.0
20.4
MSCI World
Hang Seng
S&P 500
MSCI Europe ex UK
FT All Share (UK)
TOPIX
2.0
6.2
1.8
2.9
1.3
3.6
13.4
11.2
13.7
15.8
10.4
10.5
HK Dollar
HK Dollar
HK Dollar
HK Dollar
0.4
2.6
2.0
3.5
1.6
0.1
-6.8
-13.1
to Japanese Yen
to Sterling
to Euro
to Aus Dollar
All indices in HK dollar terms except where indicated
Hong Kong Baptist University
20
Investment Outlook
What We Said And What Happened
We Said
What Happened
Outlook
Growth
Below trend/no double dip As forecast
Improving

Deflation
Low risk
Growing fear
Still low
=
Bonds
Struggle to make positive
returns
+11 (USD)
Will struggle to make
positive returns
-
Credit
Outperforms government
debt
CORRECT
More of the same

Interest Rates
No rise in 2003
CORRECT
View maintained

Equities
Range bound but positive
CORRECT
View maintained

Gold
Effective diversifier
CORRECT
Remains so

Score
1
5 /2 / 7
Source: MLIM
Hong Kong Baptist University
22
Markets Have Come A Long Way
% Return 01/04/03 –
30/06/03
% Return YTD
DAX
40.3
22.3
DJ EUROSTOXX
27.1
13.1
NASDAQ
21.0
21.5
FTSE ALL SHARE
19.6
9.0
S&P 500
15.4
11.8
NIKKEI 225
12.5
4.6
In US dollar terms:
Source: Bloomberg
Hong Kong Baptist University
23
Global recovery to consolidate
World GDP Growth
%
5
Actual
Forecast
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2000
2001
2002
2003
2004
World GDP Growth
Source: OEF / MLIM
Hong Kong Baptist University
24
Deflation risk is low, particularly in the US & UK
Probability of deflation in 2004
%
90
80
70
60
50
40
30
20
10
0
G7
UK
US
Eurozone
Germany
Japan
Source: Datastream; MLIM
Hong Kong Baptist University
25
High operational leverage is boosting earnings
Real earnings per share, MSCI world
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
80
82
84
Source: Datastream; MLIM
Hong Kong Baptist University
86
88
90
92
94
96
98
00
02
Trend Earnings
Actual Earnings
26
Global equities close to fair value in aggregate
MSCI world, price to normalised earnings
40
35
30
25
20
15
Average
10
5
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
Source: MLIM; MSCI
Hong Kong Baptist University
27
For the rest of the year...
Topic
Forecast
Focus
Economic Growth
Slow recovery, US led
US vs ROW
Equity Returns
Modest Gains
Growth quantum
Deflation
Low risk ex Germany/Japan
Growth quantum
Interest Rates
No rises until 2004
Growth quantum
Government Bonds
Poor returns
Policy desire to flatten curve &
Growth quantum
Geopolitical Risk
Remains high
Oil supply threat
Asset Preference
Equities
Growth quantum
Currencies
$ weakens
Policy/Growth/Structural
Source: MLIM
Hong Kong Baptist University
28
Conclusions
•
Extreme risk aversion has subsided
•
Short term market direction now dependent on economic follow through
•
Global equity valuations no longer cheap but opportunities exist in UK
•
Bonds are still expensive, particularly investment grade
Hong Kong Baptist University
29
The following notes should be read in conjunction with the attached document:
1.
Issued by Merrill Lynch Investment Managers Limited, regulated by The FSA and a subsidiary of Merrill Lynch & Co., Inc. Merrill
Lynch Investment Managers is a trading name of Merrill Lynch Investment Managers Limited. Merrill Lynch & Co., Inc. and its
subsidiaries are known as the Merrill Lynch Group.
2.
Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as
well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between
currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher
volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time
to time.
3.
Any research in this document has been procured and may have been acted on by Merrill Lynch Investment Managers for its own
purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or
any other advice and are subject to change. They do not necessarily reflect the views of any company in the Merrill Lynch Group or
any part thereof and no assurances are made as to their accuracy.
4.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Merrill Lynch
Group funds and has not been prepared in connection with any such offer.
5.
This material is for distribution to Intermediate Customers (as defined by The FSA Rules).
Unless otherwise specified, all information contained in this document is current as at February 2003.