MERRILL LYNCH
GLOBAL BOND
FUND
For Investment and
Retirement
FUND LOGO
Quarterly Report
March 31, 1997
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.
<PAGE>
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
Type of Issues*
As of March 31, 1997
Bar graph depicting Type of Issues* as a percentage of net assets as
of March 31, 1997
US Government Obligations 0.97%
Financial Services 24.42%
Industrials 1.79%
Sovereign Government Obligations 61.38%
Commercial Paper 4.42%
<PAGE>
Geographical Diversification*
As of March 31, 1997
Pie graph depicting Geographical Diversification* as a percentage of
net assets as of March 31, 1997
Italy 11.69%
Australia 12.65%
Sweden 5.30%
United Kingdom 14.61%
Canada 4.77%
New Zealand 4.30%
Germany 9.41%
United States 14.52%
Japan 15.73%
Maturity of Investments*
As of March 31, 1997
Bar graph depicting Maturity of Investments* as a percentage of net
assets as of March 31, 1997
5 yrs-10 yrs 50%
10 yrs+ 23%
0-1 yr 10%
1 yr-5 yrs 17%
[FN]
*Percent of net assets may not equal 100%.
DEAR SHAREHOLDER
At the beginning of 1996 we discussed the possibility that the
global bond rally could extend further in the early part of the
year, but that there was a growing risk of a sell-off sometime in
the second half. We expected the slowdown in world economic growth
and continued low inflation to be supportive for global bonds well
into the latter part of 1996. The rebound in global economic
activity, led by Canada, the United States, the United Kingdom and
Australia, proved to be stronger than consensus expectations; and ex-
pansion could continue longer than expected.
<PAGE>
Central bank tightening is now the focus of discussion among global
investors. Federal Reserve Board Chairman Alan Greenspan's
reinforcement of an anticipatory move to increase the Federal Funds
rate is being taken with serious consideration as being just the
first of many possible multiple moves. Within the United States
alone, significant measures on the economy continue to point to even
stronger growth. Consumer confidence, new home sales and the
National Association of Purchasing Managers Index (with the "prices
paid" component rising to new highs), all point to the continuation
of the consumer buying power. These developments, along with other
data, are supportive of our view that the US economy rebounded to
above-trend growth coming into the first few months of 1997. The US
1996 fourth quarter gross domestic product report reflected a 3.9%
pace of growth. While we do expect growth to be above trend in the
first quarter of 1997, the pace should be below 3.9%, although the
risk is that it will be higher.
In Europe, the UK economy continued to expand. In our opinion, gilts
do represent value to some extent because the United Kingdom has
under-performed for such a prolonged period and is now one of only
two major bond markets (along with Italy) yielding more than 7.5%.
The main news regarding gilts so far in 1997 was the improvement in
inflation and interest rate sentiment. The former is justified and
could go further, the latter will be difficult to sustain now that
the general election is out of the way. With base interest rates
almost certainly on hold until after the general election, it is
easy to envisage periodic bouts of enthusiasm for the UK market for
the near term. In Germany, recent strength in business confidence,
manu-facturing orders and industrial production will feed more
broadly through the German economy and insure a healthy recovery.
Looking forward, we project that the Bundesbank will not raise
interest rates until the second half of 1997 as evidence of a
durable recovery mounts.
Portfolio Strategy and Positioning
The convergence of interest rates in high-yielding Europe to Germany
which took place for most of 1996 began to unwind as Italy's
potential to enter the European Monetary Union (EMU) in the first
round is being used as a motive for profit taking. The yield spread
to Germany narrowed to less than 140 basis points (1.40%) early in
1997 but has now pushed out to almost 200 basis points. We feel this
trend may continue for Italy as well as the other high-yielding
countries. We pared down our exposure to high-yielding Europe to 7%
of net assets from 21% early in November 1996. While the
fundamentals continue to point to even better inflation levels for
these economies (implying even higher real rates of return), we
believe that even better spread levels will materialize,
representing more attractive buying opportunities. The Fund's
largest position within Europe is the gilt exposure. With spreads
widening in the high-yield areas, the United Kingdom represents a
relatively safe haven. Currently, we believe spreads of the gilt
market over Bunds will not rise beyond 190 basis points, capping
significant pre-election weakness. We increased the dollar-bloc
exposure after a significant reduction in the high-yield sector.
Canada's very steep curve represents value, and we shifted new
exposure there.
<PAGE>
Our current foreign currency/fixed-income strategy reflects the
following three major positionings: Unhedged/overweight Canada; 25%
hedge/overweight Australia; and 50% hedge/overweight United Kingdom.
The net result of these positions and others imply an overexposure
to dollars and the dollar-bloc economies, with the exception of the
United Kingdom, at the expense of European currencies. Japan is
still significantly underweighted.
Currency Outlook
Whether the US dollar moves higher or lower depends, to a large
extent, on developments in the G3 (the United States, Germany and
Japan) balance of payments and real interest rate differentials and
inflationary expectations. Currently, short-term real interest rates
favor the United States against both Germany and Japan and long-term
real interest rates favor the United States against Japan, but are
neutral against Germany. In contrast, we expect long-term real
interest rate differentials are likely to widen in favor of the
United States temporarily against the Deutschemark but move back by
year end 1997 in favor of the Deutschemark. Judging from these
forward rate positions, we conclude that the US dollar will rise
further in the first half of 1997 but then fall back in the second
half of the year. In addition, we are factoring inflationary
expectations into our currency outlook. According to the latest 1997
consensus forecast of Consensus Economics, the average expectation
for the Consumer Price Index in 1997 is 3.0% in the United States,
2.0% in Germany and 0.7% in Japan.
In Conclusion
Looking at both interest rate and inflationary expectations, the
recent US dollar strength might not benefit as much in terms of real
interest rates. Expressed alternatively, further US dollar strength
may depend greatly on US interest rates rising ahead of other
countries and before US inflation expectations rise too much.
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 and strategy with you again in our upcoming
semi-annual report to shareholders.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Sean J. Casey)
Sean J. Casey
Vice President and Portfolio Manager
April 29, 1997
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.
<PAGE>
* 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 "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" 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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
3/31/97 12/31/96 3/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $8.99 $9.56 $9.24 -2.71% -5.96%
Class B Shares* 8.99 9.56 9.24 -2.71 -5.96
Class C Shares* 8.99 9.56 9.24 -2.71 -5.96
Class D Shares* 8.99 9.55 9.24 -2.71 -5.86
Class A Shares--Total Return* +3.24(1) -4.64(2)
Class B Shares--Total Return* +2.45(3) -4.82(4)
Class C Shares--Total Return* +2.35(5) -4.84(6)
Class D Shares--Total Return* +2.99(7) -4.60(8)
Class A Shares--Standardized 30-day Yield 5.13%
Class B Shares--Standardized 30-day Yield 4.56%
Class C Shares--Standardized 30-day Yield 4.47%
Class D Shares--Standardized 30-day Yield 4.89%
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.554 per share ordinary
income dividends
(2)Percent change includes reinvestment of $0.112 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.482 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.097 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.473 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.095 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.531 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.107 per share ordinary
income dividends.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/25/88--12/31/88 $10.22 $10.24 -- $0.251 + 2.66%
1989 10.24 9.77 -- 1.131 + 7.27
1990 9.77 9.93 -- 1.266 +15.64
1991 9.93 10.38 -- 1.045 +16.00
1992 10.38 9.79 $0.096 1.276 + 7.83
1993 9.79 10.03 0.020 0.998 +13.21
1994 10.03 8.96 -- 0.546 - 5.29
1995 8.96 9.54 -- 0.585 +13.39
1996 9.54 9.56 -- 0.564 + 6.42
1/1/97--3/31/97 9.56 8.99 -- 0.112 - 4.64
------ ------
Total $0.116 Total $7.774
Cumulative total return as of 3/31/97: +96.54%**
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
8/29/86--12/31/86 $10.00 $10.16 -- $0.194 + 3.93%
1987 10.16 10.68 $0.382 1.303 +22.85
1988 10.68 10.24 -- 0.817 + 3.82
1989 10.24 9.77 -- 1.057 + 6.45
1990 9.77 9.93 -- 1.191 +14.76
1991 9.93 10.39 -- 0.969 +15.23
1992 10.39 9.79 0.096 1.197 + 6.91
1993 9.79 10.03 0.020 0.921 +12.36
1994 10.03 8.96 -- 0.475 - 6.01
1995 8.96 9.54 -- 0.514 +12.52
1996 9.54 9.56 -- 0.491 + 5.60
1/1/97--3/31/97 9.56 8.99 -- 0.097 - 4.82
------ ------
Total $0.498 Total $9.226
<PAGE>
Cumulative total return as of 3/31/97: +138.23%***
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $9.21 $8.96 -- $0.091 - 1.73%
1995 8.96 9.54 -- 0.507 +12.44
1996 9.54 9.56 -- 0.483 + 5.51
1/1/97--3/31/97 9.56 8.99 -- 0.095 - 4.84
------
Total $1.176
Cumulative total return as of 3/31/97: +10.93%***
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
***Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $9.21 $8.96 -- $0.101 - 1.62%
1995 8.96 9.54 -- 0.562 +13.11
1996 9.54 9.55 -- 0.541 + 6.05
1/1/97--3/31/97 9.55 8.99 -- 0.107 - 4.60
------
Total $1.311
Cumulative total return as of 3/31/97: +12.58%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/97 +3.24% -0.89%
Five Years Ended 3/31/97 +6.04 +5.18
Inception (10/25/88)
through 3/31/97 +8.35 +7.82
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/97 +2.45% -1.44%
Five Years Ended 3/31/97 +5.23 +5.23
Ten Years Ended 3/31/97 +7.73 +7.73
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/97 +2.35% +1.38%
Inception (10/21/94)
through 3/31/97 +4.34 +4.34
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/97 +2.99% -1.13%
Inception (10/21/94)
through 3/31/97 +4.97 +3.23
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
<S> <S> <C> <S> <C> <S> <C> <C>
Australia
Sovereign A$ 17,750,000 Government of Australia 9.50 % 8/15/2003 $ 15,082,371 3.75%
Government 29,700,000 Government of Australia 6.75 11/15/2006 21,316,758 5.30
Obligations 18,400,000 Queensland Treasury Corp. 8.00 5/14/2003 14,480,068 3.60
Total Investments in Australia
(Cost--$52,048,767) 50,879,197 12.65
Canada
Sovereign C$ 24,250,000 Province of Ontario 7.50 2/07/2024 17,465,753 4.34
Government 2,000,000 Province of Quebec 9.375 1/16/2023 1,704,036 0.43
Obligations
Total Investments in Canada
(Cost--$20,606,811) 19,169,789 4.77
Germany
<PAGE>
Financial DM 8,000,000 KFW International Finance Inc. 6.25 10/15/2003 5,012,030 1.25
Services 8,000,000 KFW International Finance Inc. 6.75 6/20/2005 5,074,602 1.26
Sovereign 3,000,000 Bundes Obligations 5.25 2/21/2001 1,849,594 0.46
Government 6,400,000 Bundesrepublik Deutschland 6.25 4/26/2006 3,952,726 0.98
Obligations 8,000,000 Deutschland Republic 6.75 4/22/2003 5,171,265 1.28
27,800,000 Deutschland Republic 6.00 1/04/2007 16,798,653 4.18
Total Investments in Germany
(Cost--$39,400,362) 37,858,870 9.41
Italy
Sovereign Lit 1,000,000,000 Buoni Poliennali Del Tesoro
Government (Italian Government Bond) 10.50 11/01/1998 627,798 0.15
Obligations 20,150,000,000 Buoni Poliennali Del Tesoro
(Italian Government Bond) 8.25 7/01/2001 12,464,630 3.10
15,000,000,000 Buoni Poliennali Del Tesoro
(Italian Government Bond) 9.50 2/01/2006 9,882,672 2.46
18,000,000,000 Government of Italy 9.50 4/15/1999 11,284,116 2.80
10,050,000,000 Government of Italy 7.75 9/15/2001 6,129,774 1.52
YEN 130,000,000 Government of Italy 3.75 6/08/2005 1,151,308 0.29
675,000,000 Republic of Italy 0.566 7/26/1999 5,495,140 1.37
Total Investments in Italy
(Cost--$49,748,355) 47,035,438 11.69
</TABLE>
<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> <S> <C> <C>
Japan
Financial YEN 2,725,000,000 Export Import Bank Japan 4.375% 10/01/2003 $ 25,164,034 6.26%
Services 690,000,000 IBRD World Bank 4.75 12/20/2004 6,592,588 1.64
550,000,000 World Bank 4.50 3/20/2003 5,106,156 1.27
Sovereign 1,725,000,000 Japan Government Bond 2.70 3/20/2007 14,252,734 3.54
Government 1,500,000,000 Statens Bostadsfinansier 0.503 2/22/1999 12,165,249 3.02
Obligations
Total Investments in Japan
(Cost--$64,660,166) 63,280,761 15.73
New Zealand
<PAGE>
Sovereign NZ$ 25,200,000 New Zealand Government Bond 8.00 7/15/1998 17,277,656 4.30
Government
Obligations
Total Investments in New Zealand
(Cost--$18,036,607) 17,277,656 4.30
Sweden
Sovereign Skr 168,800,000 Government of Sweden 6.50 10/25/2006 21,327,346 5.30
Government
Obligations
Total Investments in Sweden
(Cost--$20,816,645) 21,327,346 5.30
United
Kingdom
Financial Pound 13,150,000 Abbey National PLC 8.00 4/02/2003 21,716,429 5.40
Services Sterling
Sovereign 5,400,000 United Kingdom Gilt 7.50 12/07/2006 8,791,075 2.19
Government 16,700,000 United Kingdom Gilt 8.00 6/07/2021 28,244,126 7.02
Obligations
Total Investments in the United Kingdom
(Cost--$60,070,801) 58,751,630 14.61
United
States
Financial US$ 31,500,000 Institutional Capital Trust 8.09 12/01/2026 29,526,210 7.34
Services
Industrials 7,500,000 Phillip Morris Company, Inc. 6.80 12/01/2003 7,207,800 1.79
Total Investments in the United States
(Cost--$39,109,532) 36,734,010 9.13
Total Investments in Long-Term
Obligations
(Cost--$364,498,046) 352,314,697 87.59
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Interest Maturity Percent of
Amount Short-Term Obligations Rate Date Value Net Assets
<S> <C> <S> <C> <S> <C> <C>
Commercial US$ 17,769,000 Associates Corp. of North
Paper* America 6.75 % 4/01/1997 $ 17,769,000 4.42%
US Government 750,000 United States Treasury Bill (a) 4.985 8/14/1997 735,203 0.18
Obligations* 2,000,000 United States Treasury Bill (a) 5.17 8/21/1997 1,957,960 0.49
800,000 United States Treasury Bill (a) 5.225 8/21/1997 783,184 0.19
450,000 United States Treasury Bill (a) 5.24 8/21/1997 440,541 0.11
Total Investments in Short-Term
Obligations
(Cost--$21,688,272) 21,685,888 5.39
Total Investments (Cost--$386,186,318) 374,000,585 92.98
Unrealized Depreciation on Forward Foreign Exchange Contracts** (304,000) (0.07)
Variation Margin on Financial Futures Contracts*** 1,444,079 0.36
Other Assets Less Liabilities 27,080,880 6.73
------------ -------
Net Assets $402,221,544 100.00%
============ =======
Net Asset Value: Class A--Based on net assets of $69,686,571 and
7,752,612 shares outstanding $ 8.99
============
Class B--Based on net assets of $276,953,404 and
30,803,267 shares outstanding $ 8.99
============
Class C--Based on net assets of $7,221,861 and
803,403 shares outstanding $ 8.99
============
Class D--Based on net assets of $48,359,708 and
5,381,066 shares outstanding $ 8.99
============
<FN>
*Commercial Paper and certain US Government Obligations are traded
on a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund.
**Forward foreign exchange contracts as of March 31, 1997 were as
follows:
<PAGE>
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Depreciation)
C$ 22,000,000 April 1997 $ 115,229
Lit 68,778,625,260 April 1997 (670,865)
NZ$ 55,000,000 April 1997 31,350
Skr 164,899,313 April 1997 (614,702)
Total (US$ Commitment--$116,236,604) (1,138,988)
------------
Expiration Unrealized
Foreign Currency Purchased Date Appreciation
DM 104,492,951 April 1997 834,988
Total (US$ Commitment--$61,996,583) 834,988
------------
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts--Net $ (304,000)
============
***Financial futures contracts sold as of March 31, 1997 were as
follows:
Number of Expiration
Contracts Issue Exchange Date Value
150 German Bonds LIFFE June 1997 $ 22,545,086
150 Italian BTP LIFFE June 1997 22,550,542
1,050 US Treasury Bonds CBOT June 1997 112,579,688
Total Financial Futures Contracts Sold
(Total Contract Price--$159,258,755) $157,675,316
============
(a)Security held as collateral in connection with open financial
futures contracts.
</TABLE>
OFFICERS AND TRUSTEES
<PAGE>
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
Donald C. Burke, Vice President
Sean J. Casey, Vice President
Robert J. Parish, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
225 Franklin Street
Boston, Massachusetts 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
