MERRILL LYNCH
GLOBAL BOND
FUND
For Investment and
Retirement
FUND LOGO
Quarterly Report
September 30, 1997
Officers and Trustees
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
Lawrence A. Rogers, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
225 Franklin Street
Boston, MA 02101
<PAGE>
Transfer Agent
Merrill Lynch 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
PORTFOLIO INFORMATION
Type of Issues*
As of September 30, 1997
A bar chart illustrating the following percentages:
US Government Obligations 5.32%
Sovereign Government Obligations 20.94%
Transportation 2.88%
Financial Services 65.17%
Industrials 3.54%
<PAGE>
Geographical Diversification*
As of September 30, 1997
A pie chart illustrating the following percentages:
Spain 5.35%
Japan 10.72%
Canada 3.05%
United States 41.38%
United Kingdom 14.74%
Thailand 3.54%
Denmark 6.19%
Italy 7.97%
South Korea 2.85%
Germany 2.06%
Maturity of Investments*
As of September 30, 1997
A bar chart depicting the following percentages:
5 yrs--10 yrs 40.5%
10 yrs+ 41.0%
0--1 yr 6.0%
1 yr--5 yrs 12.5%
[FN]
*Percent of net assets may not equal 100%.
DEAR SHAREHOLDER
During the quarter ended September 30, 1997, we shifted the Fund's
investment emphasis. Currently, the portfolio reflects a greater
exposure to the US dollar market based on the increasingly
attractive real rates of return along with increased corporate
issuance. In addition, early in the quarter we increased investments
in Australian and New Zealand markets. However, we again shifted our
investment strategy later in the quarter and decreased our holdings
in those two markets. With the portfolio restructuring, US
investments represented 57.9% of net assets as of September 30,
1997, compared to 45% at June 30, 1997. Australia fell from 12.5% of
net assets from the June quarter to 0% at the close of the September
quarter, and the New Zealand weighting decreased from 10.4% of net
assets to 0% during the same periods. These weightings compare to
the unmanaged JP Morgan Global Government Bond Index weightings of
39.6%, 1.1% and 0.0%, respectively.
<PAGE>
The bulk of this US overexposure comes at the expense of core
Europe, which is 24.6% of the Index weighting, and 8.3% of the
portfolio's net assets. The Japanese positions are 14.8% of the
Index weighting, and currently 4.2% of our net assets. We
significantly underweighted both of these bond markets in the Fund's
portfolio because of the expected rise of the US dollar (higher
hedging cost) and a greater sense of comfort in the above markets to
produce positive bond returns. For example, the central bank of
Australia reduced short-term interest rates three times in the past
three months. In late June, 10-year Australian bonds traded 180
basis points (1.80%) over US bonds. As of late August, the yield
spread declined to just over 15 basis points. During the second week
of September, we sold the entire position as spreads fell below US
yield levels. The proceeds were redistributed to the US corporate
market where there continues to be a positive spread over Treasury
issues.
In the United States, we invested in corporate issues that we
believe represent not only absolute value but also the potential for
credit improvement as well. For example, in the US banking sector
companies such as Chase Corp. and Bankers Trust issued corporate
trust certificates in order to improve balance sheets. These bonds
are of longer duration and issued at a spread of anywhere from 100
basis points to 140 basis points over 30-year US Government
securities. The Fund invested in these as well as issues of the
insurance sector and certain corporate situations. The overall
investment rating of the Fund's holdings by the major rating
agencies remains at AA.
Outside of the United States and dollar-bloc invest-ments, the Fund
still maintains a slight overweighting to the high-yield markets of
Europe. With important meetings taking place in mid-September which
will impact the next step in the European Monetary Union (EMU), we
still believe spreads over German interest rates will continue to
decline.
We maintained an investment strategy for a stronger US dollar in
comparison to European currencies since the beginning of 1997. With
the Deutschemark recently trading up to 1.89, investors believe that
the strong reaction to EMU and a weaker EURO (the new European
currency) have reached a fever pitch. Our outlook is now for the
dollar to trade within a 1.73--1.80 range until year-end.
Although the Fund's gains were modest during the September quarter,
they compare favorably on a total return basis to the unmanaged JP
Morgan Global Government Bond Index for the same period, which had a
total return of +1.72%. The Fund's long-term positions gained
significant value with the rally of the US dollar and dollar-bloc
economies. Looking ahead, many of the markets that we have invested
in have very steep yield curves. As a result, they offer attractive
yields as well as potential price appreciation if interest rates
fall. The average life of the portfolio is currently just over 12
years. We continue to expect lower global interest rates with no
corresponding pickup in inflation for some time to come.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Sean J. Casey)
Sean J. Casey
Vice President and Portfolio Manager
October 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.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
<PAGE>
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
9/30/97 6/30/97 9/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares* $9.18 $9.02 $9.35 -1.82% +1.77%
Class B Shares* 9.19 9.03 9.35 -1.71 +1.77
Class C Shares* 9.18 9.02 9.35 -1.82 +1.77
Class D Shares* 9.18 9.02 9.35 -1.82 +1.77
Class A Shares--Total Return* +4.03(1) +3.28(2)
Class B Shares--Total Return* +3.34(3) +3.08(4)
Class C Shares--Total Return* +3.13(5) +3.06(6)
Class D Shares--Total Return* +3.77(7) +3.22(8)
Class A Shares--Standardized 30-day Yield 5.50%
Class B Shares--Standardized 30-day Yield 4.95%
Class C Shares--Standardized 30-day Yield 4.89%
Class D Shares--Standardized 30-day Yield 5.26%
<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 $0.533 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.131 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.462 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.114 per share ordinary
income dividends.
(5)Percent change includes reinvestment of $0.453 per share ordinary
income dividends.
(6)Percent change includes reinvestment of $0.112 per share ordinary
income dividends.
(7)Percent change includes reinvestment of $0.510 per share ordinary
income dividends.
(8)Percent change includes reinvestment of $0.126 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**
<C> <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--9/30/97 9.56 9.18 -- 0.371 + 0.24
------ ------
Total $0.116 Total $8.033
Cumulative total return as of 9/30/97: +106.59%**
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<C> <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--9/30/97 9.56 9.19 -- 0.321 - 0.23
------ ------
Total $0.498 Total $9.450
Cumulative total return as of 9/30/97: +149.71%***
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<C> <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--9/30/97 9.56 9.18 -- 0.316 - 0.40
------
Total $1.397
Cumulative total return as of 9/30/97: +16.11%***
<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**
<C> <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--9/30/97 9.55 9.18 -- 0.355 + 0.16
------
Total $1.559
Cumulative total return as of 9/30/97: +18.19%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/97 +4.03% -0.13%
Five Years Ended 9/30/97 +5.61 +4.75
Inception (10/25/88)
through 9/30/97 +8.46 +7.97
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +3.34% -0.60%
Five Years Ended 9/30/97 +4.80 +4.80
Ten Years Ended 9/30/97 +8.59 +8.59
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/97 +3.13% +2.15%
Inception (10/21/94)
through 9/30/97 +5.21 +5.21
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/97 +3.77% -0.38%
Inception (10/21/94)
through 9/30/97 +5.84 +4.38
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
<S> <S> <S> <C> <C> <C>
Canada
Sovereign C$ 1,000,000 Canada Government Bond 7.25 % 6/01/2007 $ 801,808 0.29%
Government 7,300,000 Province of Quebec 7.00 1/30/2007 7,457,680 2.76
Obligations
Total Investments in Canada
(Cost--$8,209,352) 8,259,488 3.05
Denmark
Financial Dkr 120,000,000 Nykredit A/S 6.00 10/01/2026 16,731,198 6.19
Services
Total Investments in Denmark
(Cost--$16,731,198) 16,731,198 6.19
Germany
Sovereign DM 3,000,000 Bundes Obligations 5.25 2/21/2001 1,736,350 0.64
Government 6,400,000 Bundesrepublik Deutschland 6.25 4/26/2006 3,822,746 1.42
Obligations
Total Investments in Germany
(Cost--$6,252,757) 5,559,096 2.06
Italy
<PAGE>
Sovereign Lit 1,000,000,000 Buoni Poliennali Del Tesoro
Government (Italian Government Bond) 10.50 11/01/1998 607,571 0.22
Obligations 15,500,000,000 Buoni Poliennali Del Tesoro
(Italian Government Bond) 6.00 2/15/2000 9,129,805 3.38
15,000,000,000 Buoni Poliennali Del Tesoro
(Italian Government Bond) 9.50 2/01/2006 10,611,920 3.92
YEN 130,000,000 Government of Italy 3.75 6/08/2005 1,206,158 0.45
Total Investments in Italy
(Cost--$21,750,265) 21,555,454 7.97
Japan
Financial US$ 4,400,000 Fuji Bank Limited 6.743 3/29/2049 4,394,720 1.62
Services 6,900,000 Fuji Bank Limited 7.30 3/29/2049 6,965,550 2.57
YEN 100,000,000 IBRD World Bank 4.50 6/20/2000 909,995 0.34
225,000,000 World Bank 4.50 3/20/2003 2,153,779 0.80
Sovereign 690,000,000 Credit Local de France 6.00 10/31/2001 6,780,482 2.51
Government
Obligations
Transporta- US$ 7,500,000 East Japan Railway Company 7.25 10/11/2006 7,781,250 2.88
tion
Total Investments in Japan
(Cost--$28,975,027) 28,985,776 10.72
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Interest Maturity Percent of
Amount Long-Term Obligations Rate Date Value Net Assets
<S> <S> <S> <C> <C> <C>
South Korea
Financial US$ 7,700,000 Export-Import Bank of Korea 7.125% 9/20/2001 $ 7,700,000 2.85%
Services
Total Investments in
South Korea (Cost--$7,655,340) 7,700,000 2.85
Spain
Sovereign Pta 1,900,000,000 Government of Spain 8.00 5/30/2004 14,465,938 5.35
Government
Obligations
Total Investments in Spain
(Cost--$14,686,177) 14,465,938 5.35
<PAGE>
Thailand
Industrials US$ 9,550,000 PTTEP International Limited 7.625 10/01/2006 9,558,499 3.54
Total Investments in Thailand
(Cost--$9,741,865) 9,558,499 3.54
United Kingdom
Financial Pound 12,500,000 Friends Professional
Services Sterling Finance PLC 9.125 11/29/2049 22,240,625 8.22
9,200,000 Royal Bank of Scotland 9.50 8/29/2049 17,624,684 6.52
Total Investments in the
United Kingdom (Cost--$38,802,168) 39,865,309 14.74
United States
Financial US$ 7,500,000 Aon Capital Trust A 8.205 1/01/2027 8,064,750 2.98
Services 16,700,000 BT Institutional Capital
Trust A 8.09 12/01/2026 16,882,865 6.24
4,800,000 Bank of New York 7.78 12/01/2026 4,799,218 1.78
4,800,000 Citicorp Capital II 8.015 2/15/2027 4,959,792 1.83
9,400,000 Columbia/HCA Healthcare Corp. 6.91 6/15/2005 9,147,892 3.38
4,800,000 Comerica Bank 7.875 9/15/2026 5,068,512 1.88
6,000,000 Commercial Credit Corp. 6.75 7/01/2007 6,040,380 2.23
7,450,000 JP Morgan Capital Trust II 7.95 2/01/2027 7,650,629 2.83
10,000,000 Mellon Capital II 7.995 1/15/2027 10,215,200 3.78
5,250,000 PNC Institution Capital Bank 8.315 5/15/2027 5,503,449 2.04
5,750,000 Santander Finance Limited 6.60 9/29/2049 5,750,000 2.13
13,200,000 Wells Fargo Capital I 7.96 12/15/2026 13,415,688 4.96
US Government 14,380,000 United States Treasury Notes 6.125 8/15/2007 14,386,759 5.32
Obligations
Total Investments in the
United States (Cost--$110,597,212) 111,885,134 41.38
Total Investments (Cost--$263,401,361) 264,565,892 97.85
Other Assets Less Liabilities 5,820,832 2.15
------------ -------
Net Assets $270,386,724 100.00%
============ =======
<PAGE>
Net Asset Value: Class A--Based on net assets of $31,368,845 and 3,415,982
shares outstanding $ 9.18
============
Class B--Based on net assets of $184,869,100 and 20,125,001
shares outstanding $ 9.19
============
Class C--Based on net assets of $2,438,256 and 265,563
shares outstanding $ 9.18
============
Class D--Based on net assets of $51,710,523 and 5,631,635
shares outstanding $ 9.18
============
</TABLE>
