MERRILL LYNCH
EUROFUND
FUND LOGO
Quarterly Report
January 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
EuroFund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH EUROFUND
PORTFOLIO INFORMATION
As a Percentage of Stocks &
Convertible Warrants
As of January 31, 1997
A pie chart illustrating the following percentages:
<PAGE>
Spain 0.5%
Slovakia 0.5%
Denmark 0.6%
Portugal 0.7%
Ireland 1.1%
Hungary 2.4%
Finland 4.5%
Switzerland 7.4%
Germany 13.3%
France 15.2%
Sweden 9.2%
Netherlands 9.0%
Italy 8.3%
Poland 2.1%
Norway 1.8%
Turkey 1.3%
Russia 1.0%
Croatia 0.7%
Czech Republic 0.6%
Greece 0.1%
United Kingdom 19.7%
EUROPEAN STOCK MARKET PERFORMANCE
Total Return for the
Three-Month Period
Ended January 31, 1997
In US dollars*
A bar graph illustrating the following percentages:
Switzerland + 1.6
Ireland + 5.2
Germany + 5.3
United Kingdom + 6.3
Netherlands + 8.0
France + 8.6
Denmark + 9.2
Sweden + 9.6
Spain +16.7
Norway +20.3
Finland +20.5
Italy +24.7
Source: Financial Times/Standard & Poor's--Actuaries Index.
<PAGE>
[FN]
*For the three-month period ended January 31, 1997, total investment
return for the Financial Times/Standard & Poor's--Actuaries Europe
Index was +7.75%.
DEAR SHAREHOLDER
During the quarter ended January 31, 1997, the unmanaged Financial
Times/Standard & Poor's--Actuaries Europe Index had a total return
of +7.75%, while the total return for the unmanaged Morgan Stanley
Capital International Europe Index was +7.39%. For the same period,
Merrill Lynch EuroFund's Class A, Class B, Class C and Class D
Shares provided total returns of +9.88%, +9.65%, +9.66% and +9.85%,
respectively. (Results shown do not reflect sales charges, and would
be lower if sales charges were included. Complete performance
information can be found on pages 4--6 of this report to
shareholders).
The Fund's outperformance relative to the European stock indexes was
caused principally by the Fund's overexposure to value-oriented,
economically sensitive stocks. It appears that these areas of the
market are returning to favor, after being overshadowed for nearly
two and a half years by investor preference for growth stocks.
The global investment environment remained benign, although
currency, stock and bond markets exhibited a fair degree of
volatility. Continued evidence of low inflation and strong economic
growth in the United States led to renewed US dollar strength, which
had a particularly beneficial impact on European equities, while
returns in US dollar terms were clearly impacted negatively. Excess
global liquidity was in evidence, but as synchronous global economic
recovery becomes a reality, this support for the markets will start
to dissipate.
In the latter part of the year, European economies continued their
erratic recovery. Fourth-quarter 1996 growth was appreciably weaker
than the third quarter, but the upward trend was still intact. Much
of the slowdown was weather-related, and therefore temporary, with
some likelihood of a catch-up in the first quarter of 1997. Growth
generally remained unbalanced, with strong external demand (with the
exception of the United Kingdom) caused by depreciating currencies
and strong US growth. Domestic demand (again with the exception of
the United Kingdom) remained rather lackluster. High levels of
unemployment and tight fiscal policies are curtailing consumer
spending, but rising real wages could favorably impact growth as the
year progresses. In Italy, where fiscal policy tightening is most
evident and the currency strong, economic growth will be very
modest.
<PAGE>
Sluggish economic growth enabled bond yields to remain low and to
fall further in the peripheral economies as expectations concerning
their participation in the first round of the European Monetary
Union (EMU) strengthened further. In these countries, inflation
continued to fall sharply, and further interest rate reductions may
be possible. In core Europe, currency depreciation effectively
loosened monetary policy, and as such, further monetary easing is
unlikely. However, the recent huge rise in German unemployment may
swing the balance in favor of a further monetary easing. At some
point in late 1997 or early 1998, currency weakness may be reflected
in higher rates of inflation, causing the whole interest rate cycle
to begin to swing in the opposite direction.
The progress toward EMU assumes increased importance as 1997
progresses. Until recently, the EMU bandwagon rolled at full speed.
However, problems are beginning to arise, not the least of which is
that Germany, the acknowledged pillar of the whole system, may not
meet the Maastricht criteria by the end of 1997. Whether this means
the whole process is likely to be delayed, or whether it simply
means that the criteria will be relaxed, and thus allow more
countries to participate at the first stage, is highly debatable.
Since most of the recent performance of European equity markets was
predicated on a successful start to EMU in 1999, the equity market
risks have clearly increased.
In forthcoming months, politics are likely to have a greater
influence on markets than usual. In the United Kingdom, the general
election must take place in the next three months. In France,
Germany and Italy, a backlash against the impact of tight fiscal
policy on growth and unemployment is emerging. The risk is that
governments will capitulate to public pressure and lessen their
resolve to meet the EMU criteria.
Investment Strategy
The rapid rise in equity markets has resulted in equity valuations
becoming stretched, based on historic comparisons. On most
investment criteria, we believe the markets are 10%--15% overvalued.
Relative to interest rates and bond yields, markets are more fairly
valued. However, we believe that this valuation support could
diminish during the year, as economic growth picks up and bond
yields begin to rise. For this reason, we raised significant amounts
of cash over the last two months--three months, as individual stock
valuations became excessive. The Fund's cash reserve level as of
January 31, 1997 was 16.9% of net assets and was principally
denominated in Deutschemarks. It is likely that the cash level will
remain high, and will only be invested if the markets correct
substantially. The most likely causes for a broad market correction
would be a Wall Street correction, a fall in the US dollar, a US
interest rate increase, a postponement of EMU, or a technically
inspired fall caused by the overbought condition of many stocks and
markets.
<PAGE>
The currency strategy of the Fund changed recently, and the
Deutschemark is now the currency of preference. The US dollar is
fundamentally fairly-to-fully valued, and is technically stretched,
in our view. We believe the principal beneficiary of any US dollar
fall would be the Deutschemark.
Our market and sector views are little changed since our October 31,
1996 report and indeed have changed little in the last three years.
We remain underweighted in the United Kingdom, Spain, and
Switzerland, and overweighted in Italy, Sweden, Finland and
Emerging/ Eastern Europe. The sector bias remains very much toward
value/economic sensitivity and away from growth and defensive issues
whose valuations appear excessive. Our recent purchases maintained
the value bias, and focused principally on companies that are
embarking upon ambitious restructuring programs. The Fund may also
increase its exposure to small-capitalization issues, as these tend
to outperform larger-capitalization issues in periods of economic
growth.
In Conclusion
The equity market appreciation witnessed in the last quarter left
valuations at a high level, particularly for this point in the
economic cycle. Although an increased focus on returns and
shareholder value and structurally lower inflation might argue for
higher valuations than the historic norms, we believe that equity
markets already reflect that possibility. Should a market correction
of 10%--15% occur, the Fund would not escape without losses, but its
focus on value and its substantial cash reserves should afford some
protection.
We thank you for your investment in Merrill Lynch EuroFund, and we
look forward to reviewing our outlook and strategy with you in the
next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Adrian C. Holmes)
Adrian C. Holmes
Vice President and Portfolio Manager
March 7, 1997
<PAGE>
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 5.25% 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 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% 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 5.25% 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. 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*
<PAGE>
Year Ended 12/31/96 +25.26% +18.69%
Five Years Ended 12/31/96 +12.95 +11.74
Inception (10/26/88)
through 12/31/96 +12.53 +11.79
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +24.00% +20.00%
Five Years Ended 12/31/96 +11.78 +11.78
Inception (1/30/87) through 12/31/96 + 9.04 + 9.04
[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 12/31/96 +23.93% +22.93%
Inception (10/21/94)
through 12/31/96 +14.26 +14.26
[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 12/31/96 +24.90% +18.35%
Inception (10/21/94) through 12/31/96 +15.17 +12.37
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/26/88--12/31/88 $ 8.83 $ 8.83 $0.023 -- + 0.26%
1989 8.83 10.99 -- $0.087 +25.48
1990 10.99 10.53 -- 0.230 - 2.23
1991 10.53 11.75 -- 0.451 +16.20
1992 11.75 11.12 -- -- - 5.36
1993 11.12 14.67 -- -- +31.92
1994 14.67 13.62 0.737 0.889 + 4.29
1995 13.62 14.27 0.986 0.071 +12.72
1996 14.27 14.99 1.725 1.047 +25.26
1/1/97--1/31/97 14.99 15.36 -- 0.001 + 2.47
------ ------
Total $3.471 Total $2.776
Cumulative total return as of 1/31/97: +169.26%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
1/30/87--12/31/87 $10.00 $ 8.61 $0.737 $0.055 - 5.98%
1988 8.61 8.80 0.023 0.126 + 3.98
1989 8.80 10.85 -- 0.071 +24.13
1990 10.85 10.38 -- 0.124 - 3.26
1991 10.38 11.59 -- 0.332 +15.08
1992 11.59 10.85 -- -- - 6.38
1993 10.85 14.17 -- -- +30.60
1994 14.17 12.95 0.737 0.889 + 3.24
1995 12.95 13.36 0.986 0.071 +11.52
1996 13.36 13.85 1.725 0.886 +24.00
1/1/97--1/31/97 13.85 14.18 -- 0.001 + 2.39
------ ------
Total $4.208 Total $2.555
<PAGE>
Cumulative total return as of 1/31/97: +141.46%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.08 $12.94 $0.737 $0.889 - 3.07%
1995 12.94 13.35 0.986 0.071 +11.53
1996 13.35 13.77 1.725 0.940 +23.93
1/1/97--1/31/97 13.77 14.10 -- 0.001 + 2.40
------ ------
Total $3.448 Total $1.901
Cumulative total return as of 1/31/97: +37.19%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and 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 Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.75 $13.61 $0.737 $0.889 - 2.93%
1995 13.61 14.22 0.986 0.071 +12.44
1996 14.22 14.92 1.725 1.006 +24.90
1/1/97--1/31/97 14.92 15.29 -- 0.001 + 2.49
------ ------
Total $3.448 Total $1.967
<PAGE>
Cumulative total return as of 1/31/97: +39.71%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
1/31/97 10/31/96 1/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML EuroFund Class A Shares $15.36 $16.67 $14.50 +18.62%(1) +3.18%(1)
ML EuroFund Class B Shares 14.18 15.47 13.57 +18.04(1) +3.54(1)
ML EuroFund Class C Shares 14.10 15.45 13.55 +17.63(1) +3.16(1)
ML EuroFund Class D Shares 15.29 16.57 14.44 +18.62(1) +3.37(1)
ML EuroFund Class A Shares--Total Return +26.33(2) +9.88(2)
ML EuroFund Class B Shares--Total Return +25.00(3) +9.65(3)
ML EuroFund Class C Shares--Total Return +25.03(4) +9.66(4)
ML EuroFund Class D Shares--Total Return +26.06(5) +9.85(5)
<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 $1.725 per share capital
gains distributions.
(2)Percent change includes reinvestment of $1.048 per share ordinary
income dividends and $1.725 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.887 per share ordinary
income dividends and $1.725 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.941 per share ordinary
income dividends and $1.725 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.007 per share ordinary
income dividends and $1.725 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Croatia
Banking 90,000 Zagrebacka Banka (GDR)* $ 1,234,184 $ 2,868,750 0.2%
Pharmaceuticals 277,500 Pliva D.D. (GDR)* 2,255,760 4,717,500 0.4
Total Investments in Croatia 3,489,944 7,586,250 0.6
Czech Republic
Banking 44,000 Komercni Banka A.S. 1,148,451 1,140,899 0.1
Mining 5,490 Severoceske Doly 119,136 147,303 0.0
Telecommunications 27,500 SPT Telecom A.S. 2,535,302 3,366,962 0.3
Utility 55,000 Ceske Energeticke Zavody 1,659,778 1,745,465 0.1
Total Investments in the
Czech Republic 5,462,667 6,400,629 0.5
Denmark
Textiles 113,877 Carli Gry International A/S 3,257,298 5,814,236 0.5
Total Investments in Denmark 3,257,298 5,814,236 0.5
Finland
Metals & Mining 405,100 Outokumpu OY 6,167,229 6,556,493 0.5
Paper & Forest 1,445,655 Enso-Gutzeit OY 'R'(Ordinary)
Products (Registered) 10,651,652 11,610,022 0.9
1,959,500 Metsa Serla OY (Class B) 14,945,500 14,291,492 1.2
741,447 UPM-Kymmene Corp. 15,230,692 14,506,605 1.2
-------------- -------------- ------
40,827,844 40,408,119 3.3
Total Investments in Finland 46,995,073 46,964,612 3.8
<PAGE>
France
Automobiles & 70,682 Peugeot S.A. 9,520,592 7,579,462 0.6
Equipment 96,600 Sommer Allibert S.A. 2,862,214 2,987,089 0.3
-------------- -------------- ------
12,382,806 10,566,551 0.9
Banking 87,750 Societe Generale de France S.A. 9,244,244 10,092,043 0.8
Communication 211,880 Alcatel Alsthom Cie Generale
Equipment d'Electricite S.A. 19,121,917 20,996,427 1.7
Construction 108,150 Bouygues S.A. 10,968,837 10,619,430 0.9
Electronics 88,051 SGS-Thomson Microelectronics N.V. 4,065,218 6,305,280 0.5
Financial Services 201,300 Compagnie de Suez S.A. 7,592,048 9,555,380 0.8
150,200 Compagnie Financiere de Paribas S.A. 8,164,002 10,274,984 0.8
48,020 EuraFrance S.A. 13,909,651 20,388,962 1.6
-------------- -------------- ------
29,665,701 40,219,326 3.2
Food Manufacturing 37,620 Groupe Danone S.A. 5,976,543 5,816,474 0.5
Insurance 240,945 Assurances Generales de France
S.A. (AGF) 6,542,733 7,677,126 0.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
France (concluded)
Machinery 177,431 Compagnie de Fives-Lille S.A. $ 9,488,305 $ 15,304,627 1.2%
Metals & Steel 893,378 Usinor-Sacilor 13,251,879 12,697,922 1.0
Oil--Related 169,290 Elf Aquitaine S.A. 12,219,543 16,439,192 1.3
Total Investments in France 132,927,726 156,734,398 12.6
Germany
<PAGE>
Automobiles 43,548 Volkswagen AG 16,437,824 20,442,200 1.7
Banking 226,003 Commerzbank AG 5,522,409 5,725,262 0.5
168,000 Deutsche Bank AG (Warrants)(a) 1,440,551 1,599,805 0.1
-------------- -------------- ------
6,962,960 7,325,067 0.6
Chemicals 77,016 Henkel KGaA 3,295,326 3,789,214 0.3
387,409 Henkel KGaA (Preferred) 16,360,407 19,675,515 1.6
-------------- -------------- ------
19,655,733 23,464,729 1.9
Construction 30,480 Philipp Holzmann AG 11,661,385 7,777,219 0.6
Engineering 321,783 Kloeckner Werke AG 14,985,368 17,285,377 1.4
Insurance 13,558 Allianz AG Holding 23,994,954 25,200,897 2.0
Manufacturing 80,132 Thyssen AG 14,738,361 15,251,592 1.2
Metals 19,014 Degussa AG 6,577,431 8,113,042 0.7
Retail Trade 30,485 Karstadt AG 11,896,585 9,304,420 0.7
55,190 Moebel Walther AG (Preferred) 2,067,520 3,503,699 0.3
-------------- -------------- ------
13,964,105 12,808,119 1.0
Total Investments in Germany 128,978,121 137,668,242 11.1
Greece
Beverages 27,500 Hellenic Bottling Co. 915,027 917,983 0.1
Total Investments in Greece 915,027 917,983 0.1
Hungary
Chemicals 90,000 Tisza Vegyi Kombinat
Reszvenytarsasag (GDR)* 792,900 1,341,000 0.1
Food/Grocery 27,500 Pick Szeged Reszvenytarsasag 1,236,392 1,724,925 0.1
Packaging & 29,500 Cofinec S.A. (GDR)* 1,066,831 1,092,975 0.1
Containers
<PAGE>
Pharmaceuticals 90,000 Egis 1,899,574 5,989,752 0.5
220,000 Gedeon Richter (GDR)* 3,141,407 14,245,000 1.1
-------------- -------------- ------
5,040,981 20,234,752 1.6
Total Investments in Hungary 8,137,104 24,393,652 1.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Held/ Percent of
Industries Face Amount Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Ireland
Paper & Forest 4,279,417 Jefferson Smurfit Group PLC $ 12,726,781 $ 11,623,913 0.9%
Products
Total Investments in Ireland 12,726,781 11,623,913 0.9
Italy
Construction/ 771,200 Italcementi S.p.A. 5,174,183 4,782,617 0.4
Building Materials
Diversified 13,030,335 Compagnie Industriali Riunite S.p.A.
Holdings (CIR) 12,170,577 10,106,049 0.8
22,853,050 Montedison S.p.A. 21,738,076 18,518,386 1.5
-------------- -------------- ------
33,908,653 28,624,435 2.3
Insurance 8,106,664 Istituto Nazionale delle Assicurazioni
(INA) 11,436,541 11,191,492 0.9
US$ 1,755,000 Republic of Italy, INA Convertible,
5% due 6/28/2001 1,755,000 1,750,613 0.1
-------------- -------------- ------
13,191,541 12,942,105 1.0
Oil & Gas Producers 1,501,354 Ente Nazionale Idrocarburi S.p.A.
(ENI) 6,716,575 8,374,494 0.7
Publishing 7,347,051 Seat S.p.A. 2,044,683 1,855,339 0.2
Telecommunications 7,347,051 Societa Finanziaria Telefonica S.p.A.
(STET) 17,586,684 28,855,763 2.3
Total Investments in Italy 78,622,319 85,434,753 6.9
<PAGE>
Netherlands
Automobiles & 152,000 Vredestein Groep N.V. 1,513,329 1,958,039 0.2
Equipment
Chemicals 103,590 Akzo Nobel 12,803,628 14,554,851 1.2
310,870 European Vinyls Corporation
International N.V. 11,599,987 8,651,236 0.7
-------------- -------------- ------
24,403,615 23,206,087 1.9
Diversified Holdings 141,504 Internatio-Mueller N.V. 2,822,501 4,014,843 0.3
Electrical Equipment 439,875 Philips Electronics N.V. 15,878,566 17,692,548 1.4
112,592 Twentsche Kabel Holding N.V. 4,628,319 5,569,014 0.4
-------------- -------------- ------
20,506,885 23,261,562 1.8
Engineering & 145,320 Kondor Wessels Groep N.V. 5,517,686 5,805,533 0.5
Construction
Financial Services 760,927 Internationale Nederlanden Groep N.V. 20,024,803 28,661,942 2.3
Transportation 202,108 KLM Royal Dutch Airlines N.V. 6,051,185 6,041,928 0.5
Total Investments in the Netherlands 80,840,004 92,949,934 7.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Norway
Computer Software 38,100 Merkantildata ASA $ 762,932 $ 926,979 0.1%
Manufacturing 93,712 Orkla A.S. (Class A) 4,734,833 7,446,164 0.6
Oil & Gas Producers 311,424 Saga Petroleum A.S. (Class B) 3,816,498 5,490,922 0.4
Publishing 196,647 Schibsted ASA 4,055,970 4,360,512 0.4
Total Investments in Norway 13,370,233 18,224,577 1.5
<PAGE>
Poland
Automobile Components 23,926 Stomil Olsztyn S.A. 312,543 315,026 0.0
Banking 200,000 Wielkopolsky Bank Kredytowy S.A. 997,075 1,566,667 0.1
Chemicals 387,805 Polifarb Wroclaw S.A. 991,199 2,223,415 0.2
Electrical Equipment 600,000 Bydgoska Fabryka Kabli S.A. 1,790,810 3,700,000 0.3
73,203 Elektrobudowa S.A. 928,099 1,415,258 0.1
-------------- -------------- ------
2,718,909 5,115,258 0.4
Engineering & 890,000 Elektrim S.A. 3,945,778 9,374,667 0.8
Construction 360,000 Mostostal Zabrze 1,713,606 2,040,000 0.2
-------------- -------------- ------
5,659,384 11,414,667 1.0
Metals 110,000 Stalexport S.A. 1,887,541 1,283,333 0.1
Total Investments in Poland 12,566,651 21,918,366 1.8
Portugal
Construction/ 225,000 Cimpor-Cimentos de Portugal S.A. 4,581,513 5,162,699 0.4
Building Materials
Telecommunications 50,000 Portugal Telecom S.A. 1,143,326 1,728,966 0.1
Total Investments in Portugal 5,724,839 6,891,665 0.5
Russia
Natural Gas 525,000 RAO Gazprom (ADR)** 8,268,750 10,631,250 0.8
Total Investments in Russia 8,268,750 10,631,250 0.8
Slovakia
Metals & Mining 27,500 VSZ 389,875 551,698 0.0
121,700 Zavod SNP 1,835,272 2,047,114 0.2
-------------- -------------- ------
2,225,147 2,598,812 0.2
<PAGE>
Pharmaceuticals 25,000 Slovakofarma 1,522,842 2,854,938 0.2
Total Investments in Slovakia 3,747,989 5,453,750 0.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Spain
Construction 56,459 Fomento de Construciones y Contratas
S.A. $ 4,664,375 $ 5,052,323 0.4%
Total Investments in Spain 4,664,375 5,052,323 0.4
Sweden
Appliances 285,800 Electrolux AB 13,761,199 17,209,259 1.4
Banking 122,090 Sparbanken Sverige AB (Class A) 1,430,696 1,939,061 0.1
Engineering 445,350 SKF AB (Class A) 8,101,991 10,148,430 0.8
257,281 Svedala Industry AB 3,378,656 4,601,410 0.4
-------------- -------------- ------
11,480,647 14,749,840 1.2
Insurance 411,950 Skandia Forsakrings AB 9,778,411 11,094,113 0.9
Metals & Steel 717,884 Avesta-Sheffield AB 6,417,381 7,386,250 0.6
Paper & Forest 381,026 Mo och Domsj AB (Class B) 8,992,127 10,445,484 0.8
Products 7,313,800 Rottneros Bruks AB 10,774,603 8,585,695 0.7
961,500 Stora Kopparbergs AB 11,893,654 12,216,606 1.0
-------------- -------------- ------
31,660,384 31,247,785 2.5
Pharmaceuticals 250,453 Astra AB 'A' 10,839,557 11,950,546 1.0
Total Investments in Sweden 85,368,275 95,576,854 7.7
<PAGE>
Switzerland
Banking 294,109 CS Holding AG (Registered) 29,725,758 30,227,295 2.4
Chemicals 20,248 Clariant AG (Registered) 6,645,306 9,732,700 0.8
Consumer 44,461 Societe Suisse pour la
Products Microelectronique et l'Horlogerie
AG (Registered) 6,244,014 6,834,746 0.5
Diversified Holdings 212,567 Oerlikon-Buehrle Holding AG 22,632,161 21,435,955 1.7
Machinery 6,609 Saurer AG (Registered) 2,877,027 3,107,112 0.3
Retail 13,500 Fotolabo S.A. 5,606,913 5,075,545 0.4
Total Investments in Switzerland 73,731,179 76,413,353 6.1
Turkey
Appliances 5,078,000 Ardem Pisirici Ve Isitici Cihazlar
Sanayii A.S. 1,260,218 1,268,297 0.1
Banking 11,407,000 Turk Dis Ticaret Bankasi A.S.
(Disbank) 399,831 432,269 0.0
45,000,000 Yapi Ve Kredi Bankasi A.S. 1,915,778 1,937,818 0.2
-------------- -------------- ------
2,315,609 2,370,087 0.2
Diversified Holdings 45,000,000 Dogan Sirketler Grubu Holding A.S. 802,249 1,724,658 0.1
Electronics 3,051,000 Vestel Elektronik Sanayi Ve
Ticaret A.S. 1,113,527 1,195,595 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Turkey (concluded)
Food Service 450,000 Usas Ucak Servisi A.S. $ 825,119 $ 1,240,203 0.1%
Machinery 27,000,000 Izmir Demir Celik Sanayii A.S. 217,903 616,226 0.1
<PAGE>
Petroleum 4,180,000 Turcas Petroculuk A.S. 455,906 405,004 0.0
Pharmaceuticals 6,884,000 Eczacibasi Ilac Sanayi Ve Ticaret A.S. 311,578 503,953 0.0
Printing & 8,730,000 Hurriyet Gazetecilik Ve Matbaacilik
A.S. 390,929 864,654 0.1
Publishing
Steel 3,750,000 Eregli Demir Ve Celik Fabrikalari
T.A.S. 777,120 694,385 0.1
Telecommunications 6,000,000 Alcatel Teletas Telekomunikasyon
Endustri Ve Ticaret A.S. 880,671 800,965 0.1
Textiles 1,103,000 Aksu Iplik Dokuma Ve Boya Apre
Fabrikalari T.A.S. 104,914 109,246 0.0
Utilities--Electric 900,000 Aktas Elektrik Ticaret A.S. 1,474,941 1,550,254 0.1
Total Investments in Turkey 10,930,684 13,343,527 1.1
United Kingdom
Beverages 840,020 Allied Domecq PLC 5,803,781 5,781,637 0.5
617,140 Matthew Clark PLC 6,049,421 2,927,342 0.2
-------------- -------------- ------
11,853,202 8,708,979 0.7
Chemicals 768,789 Imperial Chemical Industries PLC 9,286,045 9,295,320 0.7
1,495,500 Inspec Group PLC 6,707,529 4,625,320 0.4
-------------- -------------- ------
15,993,574 13,920,640 1.1
Computer/ 328,500 Misys PLC 3,955,589 5,790,634 0.5
Commercial/Office
Financial Services 724,000 HSBC Holdings PLC 11,099,447 17,327,736 1.4
Food & Beverage 1,240,800 Cadbury Schweppes PLC 10,423,624 9,345,395 0.8
2,222,960 Grand Metropolitan PLC 14,283,698 16,546,853 1.3
981,800 Unilever PLC 18,696,594 21,963,750 1.8
-------------- -------------- ------
43,403,916 47,855,998 3.9
Insurance 1,193,300 Prudential Corp. PLC 5,739,834 10,316,660 0.8
Pharmaceuticals 785,000 Glaxo Wellcome PLC 10,033,870 12,573,335 1.0
<PAGE>
Real Estate 687,475 Land Securities PLC 6,551,222 8,405,808 0.7
Retail 6,387,680 Asda Group PLC 11,752,819 12,437,053 1.0
2,910,000 Tesco PLC 12,545,688 16,671,208 1.3
-------------- -------------- ------
24,298,507 29,108,261 2.3
Telecommunications 1,310,130 Cable & Wireless PLC 8,843,750 9,783,592 0.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
United Kingdom (concluded)
Utilities--Electric, 458,350 Anglian Water PLC $ 4,170,424 $ 4,653,095 0.4%
Gas & Water 517,175 Severn Trent PLC 5,282,947 5,838,705 0.5
831,000 South West Water PLC 6,526,211 8,980,500 0.7
687,000 Thames Water PLC 5,710,625 7,458,716 0.6
609,500 United Utilities PLC 5,559,936 6,578,234 0.5
529,650 Yorkshire Water PLC 5,154,410 6,263,879 0.5
-------------- -------------- ------
32,404,553 39,773,129 3.2
Total Investments in the
United Kingdom 174,177,464 203,564,772 16.4
<CAPTION>
Face
Amount Short-Term Securities
Repurchase US$ 27,105,000 UBS Securities Funding Corp.,
Agreements*** purchased on 1/31/1997 to yield
5.50% to 2/03/1997 27,105,000 27,105,000 2.2
Total Investments in Short-Term
Securities 27,105,000 27,105,000 2.2
Total Investments $ 922,007,503 1,060,664,039 85.3
==============
Other Assets Less Liabilities 182,268,915 14.7
-------------- ------
Net Assets $1,242,932,954 100.0%
============== ======
<PAGE>
Net Asset Class A--Based on net assets of $311,073,745 and
Value: 20,246,831 shares of beneficial interest
outstanding $ 15.36
==============
Class B--Based on net assets of $787,689,729 and
55,550,808 shares of beneficial interest
outstanding $ 14.18
==============
Class C--Based on net assets of $19,956,703 and
1,415,855 shares of beneficial interest
outstanding $ 14.10
==============
Class D--Based on net assets of $124,212,777 and
8,123,409 shares of beneficial interest
outstanding $ 15.29
==============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
*Global Depositary Receipts (GDR).
**American Depositary Receipts (ADR).
***Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
</TABLE>
PORTFOLIO INFORMATION
As of January 31, 1997
Percent of
Ten Largest Equity Holdings Net Assets
CS Holding AG (Registered) 2.4%
Societa Finanziaria Telefonica S.p.A. (STET) 2.3
Internationale Nederlanden Groep N.V. 2.3
Allianz AG Holding 2.0
Unilever PLC 1.8
Oerlikon-Buehrle Holding AG 1.7
Alcatel Alsthom Cie Generale d'Electricite S.A. 1.7
Volkswagen AG 1.7
EuraFrance S.A. 1.6
Henkel KGaA (Preferred) 1.6
<PAGE>
Percent of
Ten Largest Industries Net Assets
Financial Services 6.9%
Paper & Forest Products 6.7
Chemicals 6.0
Insurance 5.3
Banking 4.5
Diversified Holdings 4.4
Pharmaceuticals 4.2
Food & Beverage 3.9
Telecommunications 3.6
Utilities--Electric, Gas & Water 3.2
Equity Portfolio Changes for the
Quarter Ended January 31, 1997
Additions
Aksu Iplik Dokuma Ve Boya
Apre Fabrikalari T.A.S.
Alcatel Teletas
Telekomunikasyon
Endustri Ve Ticaret A.S.
Allianz AG Holding
Allied Domecq PLC
Ardem Pisirici Ve Isitici
Cihazlar Sanayii A.S.
Atkas Elektrik Ticaret A.S.
Commerzbank AG
Eregli Demir Ve Celik
Fabrikalari T.A.S.
Imperial Chemical
Industries PLC
Merkantildata ASA
Saurer AG (Registered)
Schibsted ASA
Seat S.p.A.
Thyssen AG
Turcas Petroculuk A.S.
Turk Dis Ticaret Bankasi
A.S. (Disbank)
Vestel Elektronik Sanayi
Ve Ticaret A.S.
Deletions
<PAGE>
Aegon N.V.
Alarko Holdings A.S.
Altinyildiz Mensucat Ve
Konfeksiyon Fabriklari A.S.
Bayer AG
British Biotech PLC
Ciba-Geigy AG
Commerzbank AG (Warrants)
Cukurova Elektrik A.S.
Empresa Nacional de
Electricidad S.A. (Endesa)
Ente Nazionale Idrocarburi
S.p.A. (ENI) (Warrants)
Filippo Fochi S.p.A.
Finans Bank A.S.
Fortis Amev N.V.
Garphyttan Industrier AB
Getinge Industrier AB
(Class B)
Hanson PLC (Ordinary)
Imperial Tobacco Group PLC
Kartonsan Karton Sanayi Ve
Ticaret A.S.
Koc Yatirim Ve Sanayi
Mamulleri Pazarlama S.A.
Koninklijke KNP BT N.V.
Mol Re Hung Oil & Gas
Net Holding A.S.
Otosan Otomobil Sanayii A.S.
Peninsular & Oriental Steam
Navigation Co.
Sandoz AG (Registered)
Stadshyotek AB
Tomkins PLC
Zivnobanka-Investicni Fond
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
Norman R. Harvey, Senior Vice President
Alan J. Albert, Vice President
Donald C. Burke, Vice President
Adrian C. Holmes, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
<PAGE>
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
