MERRILL
LYNCH
INTERNATIONAL
EQUITY FUND
Annual Report May 31, 1994
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.
Merrill Lynch
International Equity Fund
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH INTERNATIONAL EQUITY FUND
International
Stock Market
Performance
GRAPHIC MATERIAL APPEAR HERE. SEE APPENDIX: GRAPHIC AND
IMAGE MATERIALS, ITEM 1.
<PAGE>
DEAR SHAREHOLDER
The correction in global bond
markets during the three months
ended May 31, 1994 led to significant
declines in many equity markets.
The total return for the unmanaged
Financial Times-Actuaries World
(Ex-US) Index was -0.22% during
the period. The continued strong
performance in Japan disguised
significant declines in other global
markets.
The investment strategy of Merrill
Lynch International Equity Fund has
continued to emphasize investments
in commodity-rich regions and late
economic cycle stock markets, such
as Japan. In contrast, the Fund has
retained underweighted positions in
most European stock markets, where
improving economic recovery pros-
pects now limit the scope for positive
interest rate surprises.
The Fund underperformed the
unmanaged benchmark index during
the three months ended May 31, 1994.
Total returns for Class A and Class B
Shares were -1.88% and -2.05%,
respectively. (Complete performance
information, including aggregate total
returns, can be found on pages 6 and
7 of this report.) Although the Japa-
nese equity portfolio provided posi-
tive returns during the May quarter,
our Japanese stocks underperformed
the benchmark, largely accounting for
the Fund's underperformance.
Merrill Lynch International Equity
Fund continues to experience posi-
tive net subscriptions. As of May 31,
1994, net assets stood at $1.05 billion,
compared with $897 million three
months earlier.
<PAGE>
Portfolio Matters
The Fund's investment strategy
remains essentially the same as that
expressed in our last shareholder
letter. Although world liquidity
growth remains favorable, financial
markets have increasingly discounted
further changes in interest rates, and
many stock markets still warrant a
conservative investment stance. We
still anticipate that laggard markets
such as Japan will outperform other
regions, and as a result the Fund's
effective exposure increased to
around 47% at the end of May com-
pared with 42% three months earlier.
We have also continued to emphasize
a number of smaller markets such as
Finland, Brazil, Ireland, New Zealand
and Portugal. In these markets we
expect that profit growth will be
geared to the world economic recov-
ery on the back of strong world trade
growth. Otherwise, the Fund only
retains overweighted positions in
Mexico and Australia, and in the
commodity-linked note purchased in
February 1994.
Our overall exposure to Europe has
continued to fall, especially following
withdrawals of market exposure
in Italy, Switzerland, Germany and
Holland. While 10% of the Fund's
net assets are invested in the United
Kingdom, this is also lower than three
months earlier, and compares with a
16% market capitalization benchmark,
or neutral, position.
<PAGE>
Our currency strategy remains essen-
tially unchanged, and prior to the late
April concerted action by central
banks, we further increased the
Fund's overweighted exposure to US
dollars. Over the past three months,
the latter view has detracted slightly
from generally very positive contri-
butions by other asset allocation
decisions. However, while higher
short-term US interest rates may yet
lift the dollar in the short term, we
expect that over the medium term
the yen and most European currencies
will lose support as strong US compe-
titiveness encourages both trade
and real exchange rate adjustments.
Economic Environment
As we noted in our last report, world
economic growth has accelerated sig-
nificantly; only in Japan and Latin
America are growth rates still sig-
nificantly weak relative to potential.
We favor equity markets like Japan
where the scope for earnings expan-
sion and accommodative monetary
policy is highest. Elsewhere, strong
business and consumer demand has
resulted in a continued upward drift
in investor expectations of future
interest rate levels. For instance,
US interest rate expectations (as
indicated in financial futures markets)
for year-end 1994 are now 5.9% (com-
pared with 4.4% at the beginning of
February). In Germany and the United
Kingdom, interest rate expectations
for year-end December 1994 are now
5.1% and 6.2%, respectively, compared
with 4.6% and 5.1%, respectively, at
the beginning of February.
<PAGE>
The rise in world interest rates has
continued to lift bond yields and con-
sequently worsen equity valuations,
despite an improving outlook for cor-
porate profits. While consumer infla-
tion pressures are currently limited,
longer-term leading indicators of infla-
tion have continued to rise. For exam-
ple, the production-based Goldman
Sachs Commodity Price basket is up
by around 8% for 1994 year-to-date,
and widespread producer output price
rises have been reported in the United
States. Even in Europe, the latest
business surveys show price expecta-
tions at their highest level since 1988.
In contrast, Japan is still experiencing
deflationary economic conditions.
Japanese interest rates are low but
overall monetary conditions are rela-
tively tight because of the strong
yen. The high real yen exchange rate
is inhibiting the domestic liquidity
cycle. The real value of the yen has
appreciated by about 65% since the
middle of 1989 and is around 80%
higher in real terms than the average
of the past 20 years. The overvalued
yen is causing a sharp external trade
volume adjustment. Higher imports
and lower exports are retarding the
recovery cycle. Despite the external
trade drag, recent evidence has
pointed toward rapidly improving
household financial balances and
firmer retail sales. As a result, Japa-
nese domestic demand is slowly lifting.
We expect a dramatic improvement in
corporate profitability in the next two
years accompanied by either a sharp-
ly lower yen (10%--15% down versus
the US dollar) or maintenance of very
low nominal interest rates (2%--3%).
As yet, both outcomes are possible.
<PAGE>
The cyclical upturn in European
economic growth has gained momen-
tum. The significant easing in Euro-
pean monetary policy over the past
two years has lifted both business
and consumer confidence. Consensus
forecasts of activity growth have also
risen. More significantly, business
surveys show a rise in output price
expectations, suggesting that further
monetary easing is becoming increas-
ingly unlikely. This European recovery
has coincided with further rises in
US interest rates, leading to yields
on the benchmark ECU bond rising
from around 6.2% to over 7.5%. As a
result, despite firmer growth expec-
tations, European equity prices have
generally weakened.
The economic and political environ-
ment in Latin America still generally
provides a positive medium-term
outlook. In particular, although 1994
growth expectations in Mexico have
been pared back, the country's repu-
tation for establishing lower inflation,
currency stability and ongoing fiscal
responsibility continues to improve.
As a result, we expect Mexican inter-
est rates to decline, supporting already
attractive equity valuations. The
outlooks for the Brazilian economy
and equity market are related to the
success of the Cardoso Plan (and in
particular the introduction of the
real, the new currency), and the
fluid political situation in the run
up to the forthcoming presidential
election. Over a 12 month horizon,
both Mexico and Brazil offer strong
economic prospects, and the region
as a whole is poised to benefit from
brighter world trade growth without
experiencing the braking influence of
higher domestic interest rates likely
in Asia.
<PAGE>
Regional Changes
Portfolio activity lessened signifi-
cantly in the three months ended
May 31, 1994. We continued to apply
cash flows to Japan, Mexico and
Brazil and reduced holdings in Italy,
Switzerland and Germany. Among
other markets, Fund positions in
Finland and Ireland were increased.
In Japan, we added four new issues
to our portfolio: Nippon Express Co.,
Ltd., Sangetsu Co., Shimachu Co. and
Shin-etsu Chemical Co., Ltd. In addi-
tion, we strengthened our positions
in a number of existing holdings.
Overall the Japanese portfolio retains
a bias toward non-life insurers and
the electrical equipment and bever-
age sectors. In addition, the Fund
purchased option contracts on the
price performance of the Tokyo Stock
Exchange Second Section to gain sig-
nificant diversified exposure to small
Japanese companies. The Fund
retains a relatively large exposure to
the broader Nikkei 225 Stock Index,
with positions in the June and Sep-
tember contracts quoted in US dollars
on the Chicago Mercantile Exchange
and positions in the June contract
quoted in yen on the Singapore Metals
Exchange. Overall the Fund effectively
has about a 47% exposure to the
Japanese equity market, roughly in
line with the percentage expressed
in the unmanaged Financial Times-
Actuaries World (Ex-US) Index.
Elsewhere in the Pacific Basin, the
Fund's exposures are little changed.
In Hong Kong we eliminated our
exposure to Citic Pacific Ltd.,
reduced our holdings in Sun Hung
Kai and Co. Ltd., and purchased war-
rants in The Hong Kong & China Gas
Co. We also bought back one of the
two Hang Seng Index call options that
the Fund had sold in January. As a
result, our effective market weighting
in Hong Kong has remained essentially
unchanged at about 3%.
<PAGE>
Our exposure to European markets
has been reduced significantly in the
past three months, falling from 36%
at the end of February to around 33%
at the end of May. Principal market
exposure reductions were effected
in Italy, where we sold holdings
in Montedison S.p.A., Fiat S.p.A.
and Cartiere Burgo S.p.A. Sales of
Roche Holding Genusschein AG and
Winterthur reduced the Fund's Swiss
exposure. Within the UK equity
market, we significantly increased
our positions in Grand Metropolitan
PLC, Cable & Wireless Public Co. Ltd.,
Reuters Holdings PLC and Vendome
Luxury Group, while holdings in
British Gas PLC and Pearson PLC
were eliminated and the Tesco PLC
position was reduced. The Fund
reestablished a small weighting in
FTSE 100 June futures at the end of
May, and partially reduced market
exposure in Holland through the sale
of EOE20 June futures.
In Latin America, the Fund began
to selectively build up weightings
following the setbacks in March and
early April. In Brazil, we lifted our
holdings in Banco Bradesco PN and in
Mexico, we purchased further hold-
ings in Cementos Mexicanos, S.A. de
C.V. Nom 'B' (Cemex), Grupo Tribasa,
S.A. de C.V. (ADR) and Telefonos
de Mexico, S.A. de C.V. Overall the
Fund's total exposure to Latin
America remains little changed at
8% of net assets.
<PAGE>
Our currency strategy has continued
to focus on maintaining an overweight
exposure to US dollars through a
combination of buying investments
likely to benefit from dollar strength,
through outright forwards into US
dollars, and through US dollar call
option contracts. Prior to concerted
intervention by central banks in late
April to support the dollar, we had
strengthened our exposure to the
US dollar, buying a further call option
on the US dollar against the yen with
a strike of 105. The more recent
adjustment of short-term interest
rates by the major central banks did
not immediately result in a stronger
dollar, suggesting a continued lack of
confidence in US monetary policy. We
believe that the US economy possesses
a considerable competitive advantage
at current exchange rates and that the
prospective real return on US interest
rates will become sufficiently
attractive to encourage greater demand
for US dollar-denominated investments.
This demand should be sufficient to
offset a gradually shrinking current
account deficit. Currency positions
have significant potential to add
volatility to investment performance.
The Fund's investment strategy seeks
to dampen this prospective volatility
by its combined exposure to a spread
of assets that are likely to be
positively correlated with the US dollar.
<PAGE>
Derivatives Comment
In the past three months, the media
have emphasized the role various
derivative contracts may have played
in increasing market volatility. Addi-
tionally, a number of national and
supranational organizations have
deliberated on the regulatory frame-
work governing the usage of deriva-
tives. As described in its prospectus,
Merrill Lynch International Equity
Fund uses derivative contracts to seek
to alter market and security expo-
sures, to seek to reduce the risk
profile of the Fund, and to improve
liquidity. Derivatives, of course, have
their own risk characteristics, includ-
ing for some over-the-counter deriva-
tives, counterparty risk and some
degree of illiquidity and for virtually
all types of derivatives some degree
of correlation risk. The prospectus
describes these risks in more detail.
However, we are satisfied that over
time and when appropriately used,
selective derivative instruments offer
significant benefits, in terms of
reducing both transaction costs and
portfolio risk.
Fiscal Year in Review
Merrill Lynch International Equity
Fund provided positive returns for
shareholders in the first ten months
since its inception. For the fiscal year
ended May 31, 1994, total returns
for the Fund's Class A and Class B
Shares were +15.10% and +14.40%,
respectively. In addition, the Fund
outperformed an unmanaged bench-
mark, the Financial Times-Actuaries
World (Ex-US) Index, which had a
total return of +10.78% during
the period.
<PAGE>
The fiscal period was marked by
strong performance by all equity
markets. However, Southeast Asia and
European markets initially led the
performance as high liquidity flows
lifted equity prices. A switch in
market performance occurred at the
beginning of 1994 as expensive
valuations were exposed by rising
bond yields. Among the large markets,
only Japan and Italy avoided signifi-
cant corrections after the US Federal
Reserve Board began to increase
interest rates in February.
Subsequent rises in Japanese equity
prices have contributed very posi-
tively to the Fund's performance.
We increased the Fund's weighting
in Japan from a low of 18% of net
assets to effectively 48%, a relatively
aggressive asset shift, but one
justified by the subsequent relative
performance.
Throughout the period the Fund
maintained a generally overweighted
exposure to US dollars, which has
neither added to nor detracted from
its performance. The Fund also pur-
chased a commodity-linked note
which we believe provides significant
diversification benefits at this stage
of the investment cycle.
Overall net assets of the Fund grew
from $130 million since its inception
to $1.05 billion as of May 31, 1994,
and we believe that further growth is
likely given the successful contribu-
tion of regional equity specialists
combined with global asset allocation.
<PAGE>
In Conclusion
The Fund retains a diversified invest-
ment structure, with significant
exposures in Japan, Latin America
and Europe. We see the best prospects
for expected returns in Japan and
Latin America. The Fund is fully
invested, although we retain about
3% directly in a commodity-linked
investment, principally as a diversi-
fication strategy. Merrill Lynch
International Equity Fund is designed
to provide an investment vehicle
for US-based investors desiring
exposure to equity markets outside
the United States.
We thank you for your continued
interest in Merrill Lynch International
Equity Fund, and we look forward
to reviewing our strategy with you
in our next quarterly shareholder
letter.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Andrew Bascand)
Andrew Bascand
Senior Portfolio Manager/
Asset Allocator
(Adrian Holmes)
Adrian Holmes
Co-Portfolio Manager
European Investments
(Grace Pineda)
Grace Pineda
Co-Portfolio Manager
Emerging Market Investments
(Stephen I. Silverman)
Stephen I. Silverman
Co-Portfolio Manager
Pacific Basin Investments
July 18, 1994
<PAGE>
PERFORMANCE DATA
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.
Total Return
Based on a
$10,000
Investment
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX: GRAPHIC AND IMAGE MATERIALS,
ITEM 2.
<TABLE>
<CAPTION>
Recent
Performance
Results* Since Inception 3 Month
5/31/94 2/28/94 7/30/93** % Change % Change
<S> <C> <C> <C> <C> <C>
ML International Equity Fund Class A Shares $11.51 $11.73 $10.00 +15.10% -1.88%
ML International Equity Fund Class B Shares 11.44 11.68 10.00 +14.40 -2.05
ML International Equity Fund Class A Shares--Total Return +15.10 -1.88
ML International Equity Fund Class B Shares--Total Return +14.40 -2.05
Financial Times--Actuaries World (Ex-US) Index++--Total Return +10.78 -0.22
<FN>
* Investment results shown for the 3-month and since inception periods are before the deduction of any sales charges.
** Commencement of Operations.
++ An unmanaged capitalization-weighted index comprised of over 1,800 companies in 24 countries, excluding the United
States.
</TABLE>
<PAGE>
Aggregate
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (7/30/93)
through 3/31/94 +11.80% +4.53%
[FN]
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (7/30/93)
through 3/31/94 +11.20% +7.20%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
AFRICA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Mining 330,000 De Beers Consolidated Mines Ltd.
Africa (ADR)(a) $ 7,820,253 $ 6,930,000 0.7%
Total Investments in Africa 7,820,253 6,930,000 0.7
LATIN
AMERICA
Argentina Banking 109,425 Banco de Galicia y Buenos Aires S.A.
(ADR)(a) 2,983,033 4,130,794 0.4
Energy 161,600 Yacimientos Petroliferos Fiscales S.A.
Sponsored)(ADR)(a) 4,030,726 4,262,200 0.4
Utilities 31,000 ++Transportadora de Gas Del Sur(TGS)(c) 426,061 434,000 0.0
Total Investments in Argentina 7,439,820 8,826,994 0.8
Brazil Banking 219,915,138 Banco Bradesco PN 1,792,139 1,524,566 0.1
Mining 19,900,000 Companhia Vale do Rio Doce S.A. 2,156,632 2,016,297 0.2
Telecommunications 75,100 Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)(a)(c) 2,825,087 2,816,250 0.3
16,605,580 Telecomunicacoes Brasileiras S.A.--
Telebras PN 626,531 487,128 0.0
91,069,200 Telecomunicacoes Brasileiras S.A.--
Telebras (Preferred) 3,396,481 3,496,647 0.3
3,510,000 Telecomunicacoes de Sao Paulo S.A.
(Preferred) 1,036,415 1,020,120 0.1
------------- ------------- ------
7,884,514 7,820,145 0.7
Utilities--Electric 200,300 Companhia Energetica de Minas Gerais
S.A.(CEMIG)(ADR)(a) 4,545,774 3,054,575 0.3
Total Investments in Brazil 16,379,059 14,415,583 1.3
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US Dollars)
<CAPTION>
LATIN AMERICA Shares Held/ Value Percent of
(concluded)Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Chile Building & 55,000 Maderas y Sinteticos S.A.(MASISA)
Construction (Sponsored)(ADR)(a) $ 977,412 $ 1,512,500 0.1%
Telecommunications 20,000 Compania de Telefonos de Chile S.A.
(ADR)(a) 2,406,988 1,820,000 0.2
Total Investments in Chile 3,384,400 3,332,500 0.3
Mexico Beverages 278,000 Fomento Economico Mexicano, S.A. de C.V.
(Femsa)(ADR)(a)(c) 1,742,736 1,310,075 0.1
356,000 Fomento Economico Mexicano, S.A. de C.V.
(Femsa)(Class B) 1,965,085 1,746,779 0.2
215,000 Panamerican Beverages, Inc.(Class A) 6,826,250 6,423,125 0.6
------------- ------------- ------
10,534,071 9,479,979 0.9
Building & 89,437 Cementos Mexicanos, S.A. de C.V. (Cemex)
Construction (Class B)(ADR)(a) 1,607,856 1,274,477 0.1
953,437 Cementos Mexicanos, S.A. de C.V. Nom 'B'
(Cemex) 6,646,928 7,046,020 0.7
181,821 Grupo Tribasa, S.A. de C.V. (ADR)(a) 4,762,433 5,045,533 0.5
------------- ------------- ------
13,017,217 13,366,030 1.3
Diversified 210,000 ++Grupo Carso, S.A. de C.V.(ADR)(a) 4,070,394 4,200,000 0.4
735,000 Grupo Carso, S.A. de C.V. Series A 5,890,684 7,323,450 0.7
------------- ------------- ------
9,961,078 11,523,450 1.1
Financial Services 119,700 Servicios Financieros Quadrum,
S.A. de C.V. (ADR)(a)(c) 2,451,561 2,154,600 0.2
Leisure 75,000 Grupo Situr, S.A.(ADR)(a)(c) 1,875,000 2,165,625 0.2
542,000 Grupo Situr, S.A.(Ordinary) 1,640,868 1,517,339 0.1
------------- ------------- ------
3,515,868 3,682,964 0.3
Retail Stores 921,000 Cifra, S.A. de C.V. (Class C) 2,498,768 2,423,101 0.2
Telecommunications 215,600 Telefonos de Mexico, S.A. de C.V.(Telmex)
(ADR)(a) 12,419,026 13,394,150 1.3
Total Investments in Mexico 54,397,589 56,024,274 5.3
<PAGE>
Peru Mining 227,266 Southern Peru Copper Corp. 728,471 873,300 0.1
Total Investments in Peru 728,471 873,300 0.1
Venezuela Foods 140,000 Mavesa S.A.(ADR)(a)(c) 1,004,375 910,000 0.1
400,000 Mavesa S.A.(Ordinary) 137,354 134,211 0.0
------------- ------------- ------
1,141,729 1,044,211 0.1
Utilities--Electric 141,960 C.A. La Electricidad de Caracas
S.A.I.C.A.-S.A.C.A. 332,605 357,702 0.0
Total Investments in Venezuela 1,474,334 1,401,913 0.1
Total Investments in Latin America 83,803,673 84,874,564 7.9
NORTH
AMERICA
Canada Foreign Government Canadian Government Bonds:
Obligations C$ 12,750,000 6.50% due 8/01/1996 10,008,529 8,979,314 0.9
25,800,000 5.75% due 3/01/1999 18,644,485 16,763,480 1.6
-------------- ------------- ------
28,653,014 25,742,794 2.5
Total Investments in North America 28,653,014 25,742,794 2.5
PACIFIC
BASIN
Australia Diversified 2,067,000 BTR NYLEX 5,250,110 4,714,906 0.4
Engineering & 2,160,000 Australia National Industries, Ltd.
Construction (Ordinary) 2,844,419 3,268,750 0.3
Food & Beverage 768,836 Coca-Cola Amatil, Ltd.(Ordinary) 3,798,092 4,858,268 0.5
3,900,000 Goodman Fielder Wattie, Ltd.(Ordinary) 4,500,227 4,001,782 0.4
-------------- ------------- ------
8,298,319 8,860,050 0.9
Food & Household 1,762,200 Burns Philp & Co., Ltd.(Ordinary) 5,417,082 5,099,356 0.5
Products
<PAGE>
Media 704,074 The News Corp. Ltd. 5,132,939 4,690,015 0.4
Natural Gas 372,000 Broken Hill Proprietary Co. 5,154,321 5,030,862 0.5
Real Estate 494,221 Lend Lease Corp. 5,964,856 6,019,760 0.6
Total Investments in Australia 38,062,046 37,683,699 3.6
Hong Kong Banking 3,158,000 Winton Holdings 1,200,321 970,843 0.1
Property 2,588,000 Hang Lung Development Co., Ltd.(Ordinary) 4,128,204 4,689,923 0.4
Telecommunications 2,638,000 Hong Kong Telecommunications Ltd.
(Ordinary) 4,492,512 5,224,439 0.5
Utilities 2,196,000 The Hong Kong & China Gas Co.(Ordinary) 3,963,130 4,633,331 0.4
183,000 ++The Hong Kong & China Gas Co.
(Warrants)(b) 0 104,819 0.0
-------------- ------------- ------
3,963,130 4,738,150 0.4
Utilities--Electric 1,551,600 China Light & Power Co., Ltd. (Ordinary) 7,552,276 8,636,179 0.8
Total Investments in Hong Kong 21,336,443 24,259,534 2.2
Japan Automobiles 1,239,000 Suzuki Motor Co. (Ordinary) 14,003,522 16,464,723 1.6
407,000 Toyota Motor Corp. 7,430,442 8,210,038 0.8
-------------- ------------- ------
21,433,964 24,674,761 2.4
Beverages 99,000 Chukyo Coca-Cola Bottling Co., Ltd.
(Ordinary) 1,398,440 1,372,371 0.1
106,000 Hokkaido Coca-Cola Bottling Co., Ltd.
(Ordinary) 1,754,547 1,773,423 0.2
102,000 Kinki Coca-Cola Bottling Co., Ltd.
(Ordinary) 1,893,379 1,901,530 0.2
111,000 Mikuni Coca-Cola Bottling Co., Ltd. 2,093,307 1,899,522 0.2
111,000 Sanyo Coca-Cola Bottling Co., Ltd. 1,874,646 1,941,969 0.2
-------------- ------------- -------
9,014,319 8,888,815 0.9
Capital Goods 2,800,000 Mitsubishi Heavy Industries, Ltd. 18,078,701 20,531,549 1.9
Chemicals 116,000 Shimachu Co. (Ordinary) 4,860,372 4,934,990 0.5
250,000 Shin-Etsu Chemical Co., Ltd. (Ordinary) 5,053,884 5,282,027 0.5
-------------- ------------- ------
9,914,256 10,217,017 1.0
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Shares Held/ Value Percent of
(concluded)Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
JAPAN Construction 446,000 Sanki Engineering Co., Ltd. $ 6,307,262 $ 5,585,660 0.5%
(concluded) 371,000 Taihei Dengyo Kaisha, Ltd. 9,667,248 10,534,130 1.0
-------------- ------------- ------
15,974,510 16,119,790 1.5
Consumer 535,000 Matsushita Electric Industrial Co., Ltd. 8,511,279 9,359,943 0.9
Electronics 267,000 Rohm Co. 9,371,978 10,925,048 1.0
-------------- ------------- ------
17,883,257 20,284,991 1.9
Diversified 238,000 Sony Corp.(Ordinary) 13,375,906 14,152,581 1.3
Electric Construction 214,000 Chudenko Corp.(Ordinary) 8,045,860 8,285,851 0.8
Electrical Equipment 569,000 The Nippon Signal Co., Ltd. 7,950,113 7,180,497 0.7
1,415,000 Sumitomo Electric Industries, Ltd. 19,791,497 21,509,082 2.0
-------------- ------------- ------
27,741,610 28,689,579 2.7
Electronics 872,000 Hitachi Ltd. 7,650,968 9,003,442 0.9
390,000 Murata Manufacturing Co., Ltd. 15,255,815 17,449,331 1.7
-------------- ------------ ------
22,906,783 26,452,773 2.6
Iron & Steel 330,000 Maruichi Steel Tube, Ltd.(Ordinary) 5,881,382 6,025,813 0.6
Office Equipment 1,154,000 Canon, Inc.(Ordinary) 17,439,277 19,196,558 1.8
Packaging 609,000 Toyo Seikan Kaisha, Ltd.(Ordinary) 17,864,689 17,466,539 1.7
Pharmaceuticals 699,000 Sankyo Co., Ltd.(Ordinary) 17,050,198 15,637,285 1.5
763,000 Taisho Pharmaceutical Co., Ltd.(Ordinary) 15,232,435 14,588,910 1.4
-------------- ------------- ------
32,282,633 30,226,195 2.9
Photography 743,000 Fuji Photo Film Co., Ltd. 17,555,576 16,124,379 1.5
Property & Casualty 1,475,000 Dai-Tokyo Fire & Marine Insurance
Insurance Co., Ltd. 11,241,300 11,577,199 1.1
851,000 Fuji Fire & Marine Insurance Co., Ltd. 5,819,056 5,613,671 0.5
1,268,000 Koa Fire & Marine Insurance Co., Ltd. 8,833,667 8,849,331 0.8
363,000 Mitsui Marine & Fire Insurance Co., Ltd. 2,929,014 3,036,568 0.3
1,566,000 Nichido Fire & Marine Insurance Co., Ltd. 11,986,774 12,725,621 1.2
351,000 Nippon Fire & Marine Insurance Co., Ltd. 2,500,899 2,647,600 0.3
1,217,000 Sumitomo Marine & Fire Insurance Co.,
Ltd. 10,299,475 11,634,799 1.1
1,352,000 Tokio Marine & Fire Insurance Co., Ltd. 16,730,311 17,707,839 1.7
1,257,000 Yasuda Fire & Marine Insurance Co., Ltd. 9,408,702 10,010,335 0.9
-------------- ------------- ------
79,749,198 83,802,963 7.9
<PAGE>
Retail Sales 372,000 Ito-Yokado Co., Ltd.(Ordinary) 18,707,735 19,133,461 1.8
Retail Stores 33,000 Sangetsu Co.(Ordinary) 1,170,180 1,119,981 0.1
Telecommunications 278 Nippon Telephone & Telegraph Corp.
(Ordinary) 2,565,202 2,298,948 0.2
112,000 Nisshinbo Industries 1,045,613 1,263,480 0.1
-------------- ------------ -----
3,610,815 3,562,428 0.3
Transportation 878,000 Nippon Express Co., Ltd. 8,878,536 9,149,331 0.9
-------------- ------------ ------
Total Investments in Japan 367,509,187 384,105,355 36.5
Malaysia Leisure 157,000 Genting BHD 1,450,561 1,886,946 0.2
Steel 1,032,000 Maruichi Malaysia Steel Tube BHD 2,616,958 2,880,782 0.3
Telecommunications 118,000 Uniphone Telecommunications BHD 462,197 594,735 0.1
Total Investments in Malaysia 4,529,716 5,362,463 0.6
New Paper & Forest Product 2,967,800 Carter Holt Harvey, Ltd. 6,873,959 6,861,040 0.7
Zealand
Telecommunication 60,000 Telecom Corp. of New Zealand
(Class C)(ADR)(a) 2,698,682 2,797,500 0.3
Total Investments in New Zealand 9,572,641 9,658,540 1.0
South Financial Services 170,590 Hanyang Securities Co. 3,913,001 3,027,348 0.3
Korea
Foods 1,400 ++Lotte Confectionary Co.(Ordinary) 188,438 167,607 0.0
Utilities 130,000 ++Korea Electric Power Corp. 4,919,521 4,968,975 0.5
Total Investments in South Korea 9,020,960 8,163,930 0.8
Thailand Banking 369,100 Bangkok Bank Co., Ltd.(Foreign Registered) 2,591,948 3,106,360 0.3
Total Investments in Thailand 2,591,948 3,106,360 0.3
Total Investments in the Pacific Basin 452,622,941 472,339,881 45.0
<PAGE>
SOUTHEAST
ASIA
India Publishing & Broadcasting 380,000 ++Videocon International Ltd.(ADR)(a) 4,045,504 3,040,000 0.3
Total Investments in Southeast Asia 4,045,504 3,040,000 0.3
WESTERN
EUROPE
Austria Utilities 46,355 Verbund Oesterreichische Elekrizitats AG 2,625,340 2,361,859 0.2
Total Investments in Austria 2,625,340 2,361,859 0.2
Belgium Banking 15,000 Generale de Banque S.A.(Ordinary) 3,677,777 3,649,128 0.3
Chemicals 3,200 Solvay Group(Ordinary) 1,240,133 1,489,802 0.1
Retail Trade 70,000 Delhaize 'le Lion' Group(Ordinary) 2,882,324 2,830,624 0.3
Total Investments in Belgium 7,800,234 7,969,554 0.7
Finland Banking 800,000 Kansallis-Osake-Pankki 2,025,866 1,765,777 0.2
Commodity Linked US$36,000,000 Finnish Export Credit, 0.00%
Notes due 3/10/1997(d) 36,000,000 35,737,200 3.4
Diversified 235,000 Outokumpu OY 3,395,069 3,976,677 0.4
Paper & Forest 306,500 Enso-Gutzeit OY 1,987,636 2,226,856 0.2
Products 86,150 Metsa Serla OY 3,366,405 3,533,660 0.3
165,300 Repola OY S(c) 2,629,547 2,736,403 0.3
-------------- ------------- ------
7,983,588 8,496,919 0.8
Total Investments in Finland 49,404,523 49,976,573 4.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
WESTERN EUROPE Shares Held/ Value Percent of
(continued)Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
France Automobiles 33,050 Peugeot S.A. $ 4,338,149 $ 4,750,791 0.5
Banking 26,092 Compagnie Financiere de Paribas 2,018,937 1,812,717 0.2
2,900 Compagnie Financiere de Paribas(Ordinary)
(New Shares) 184,249 191,169 0.0
35,300 Compagnie Financiere de Suez(Ordinary) 2,018,337 1,908,006 0.2
19,000 Societe Generale de Surveillance S.A.
(Class A)(Ordinary) 2,052,425 2,062,722 0.2
-------------- ------------- ------
6,273,948 5,974,614 0.6
Chemicals 155,900 Rhone-Poulenc S.A. 3,910,519 3,900,270 0.4
Insurance 35,400 Societe Centrale du Groupe des Assurances
Nationales S.A. 3,149,239 2,686,450 0.3
Total Investments in France 17,671,855 17,312,125 1.8
Germany Automobile Parts 13,500 Continental AG 2,068,760 2,237,682 0.2
21,000 ++Continental AG(Warrants)(b) 1,195,162 1,194,343 0.1
-------------- ------------- ------
3,263,922 3,432,025 0.3
Automobiles 10,520 Daimler-Benz AG 4,945,899 5,167,214 0.5
3,815 Volkswagen AG (Preferred) 711,409 880,652 0.1
26,212 ++Volkswagen AG (Preferred)(Warrants)(b) 2,406,624 2,723,242 0.3
-------------- ------------- ------
8,063,932 8,771,108 0.9
Banking 13,867 Deutsche Bank AG(Ordinary) 6,786,387 6,216,532 0.6
Chemicals 15,212 BASF AG(Ordinary) 2,448,022 2,886,949 0.3
23,946 Bayer AG(Ordinary) 4,396,079 5,288,803 0.5
-------------- ------------- ------
6,844,101 8,175,752 0.8
Insurance 3,650 ++Allianz AG Holding(Warrants)(b) 140,309 172,065 0.0
1,350 ++Munich Reinsurance Co.(Ordinary) 2,359,488 2,422,445 0.2
-------------- ------------- ------
2,499,797 2,594,510 0.2
<PAGE>
Machinery 68,200 Kloeckner Werke AG 3,365,767 6,160,402 0.6
Metal & Mining 29,860 Thyssen AG(Ordinary) 4,172,755 5,022,074 0.5
Utilities 41,000 ++Vereinigte Elektrizitaets & Bergwerks AG
(Veba)(Warrants)(b) 1,765,109 1,857,968 0.2
Total Investments in Germany 36,761,770 42,230,371 4.1
Greece Beverages 29,810 Hellenic Bottling Co. S.A. 792,760 854,529 0.1
Financial Services 44,800 Etba Leasing S.A.(Ordinary) 1,628,693 1,093,631 0.1
Total Investments in Greece 2,421,453 1,948,160 0.2
Hungary Foods 5,250 Pick Szeged Reszvenytarsasag(ADR)(a) 366,608 348,679 0.0
Total Investments in Hungary 366,608 348,679 0.0
Ireland Building & 610,000 CRH PLC (Ordinary) 2,912,864 3,157,238 0.3
Construction
Closed-End Funds 1,400,000 First Ireland Investment Co. 2,176,323 2,031,725 0.2
Foreign Government IEP3,500,000 Irish Gilts, 9.25% due 7/11/2003 5,950,560 5,419,063 0.5
Obligations
Forest Products 1,710,300 Jefferson Smurfit Group PLC(Ordinary) 8,331,246 8,093,413 0.8
Total Investments in Ireland 19,370,993 18,701,439 1.8
Italy Diversified 2,220,000 Compagnie Industrial Riunite S.p.A.(CIR) 2,154,516 3,627,907 0.3
Insurance 154,900 Assicurazioni Generali(Ordinary) 4,070,240 4,410,415 0.4
Telecommunications 1,000,000 STET, Di Risp(Non Conv.) 2,016,347 2,809,554 0.3
Total Investments in Italy 8,241,103 10,847,876 1.0
Nether- Banking 89,500 ABN Amro Bank(Ordinary) 3,083,255 2,930,767 0.3
lands
Beverages 8,504 Heineken Holdings(Class A) 705,797 912,872 0.1
9,000 Heineken N.V. 949,291 1,100,298 0.1
-------------- ------------- ------
1,655,088 2,013,170 0.2
<PAGE>
Chemicals 41,125 Akzo N.V.(Ordinary) 3,932,413 4,637,571 0.4
Electrical Equipment 218,500 Philips Industries Inc. 5,139,779 6,077,013 0.6
Insurance 79,282 AEGON N.V.(Ordinary) 3,874,041 4,139,255 0.4
94,665 Amev N.V.(Ordinary) 3,772,731 3,746,568 0.4
91,197 Internationale Nederlanden Groep N.V. 3,491,374 3,752,699 0.4
-------------- ------------- ------
11,138,146 11,638,522 1.2
Paper & Forest 130,477 ++Koninklijke KNP 2,479,390 3,388,370 0.3
Products 43,492 ++Koninklijke KNP(Preferred) 176,682 180,617 0.0
-------------- ------------- ------
2,656,072 3,568,987 0.3
Transportation 192,180 KLM Royal Dutch Airlines 3,769,039 5,344,990 0.5
Total Investments in the Netherlands 31,373,792 36,211,020 3.5
Portugal Banking 341,700 Banco Comercial Portugues S.A. 5,019,557 4,734,156 0.4
89,000 Banco Comercial Portugues S.A.(ADR)(a) 1,289,946 1,212,625 0.1
-------------- ------------- ------
6,309,503 5,946,781 0.5
Building & 37,800 Sociedade de Construsoes Soares da Costa
Construction S.A. 976,555 717,469 0.1
Retail Stores 6,300 Estabelecimentes Jeronimo Martins & Filho
S.A. 494,447 479,789 0.0
Total Investments in Portugal 7,780,505 7,144,039 0.6
Spain Banking 16,920 Banco Popular Espanol(Ordinary) 1,907,099 1,906,074 0.2
Oil--Related 112,640 Repsol S.A.(Ordinary) 3,018,225 3,556,615 0.3
Real Estate 3,527 Vallehermoso Espanola S.A.(New) 43,620 69,994 0.0
Telecommunications 328,940 Telefonica Nacional de Espana S.A.
(Ordinary) 3,958,662 4,465,139 0.4
Total Investments in Spain 8,927,606 9,997,822 0.9
<PAGE>
Sweden Building Related 158,100 Svedala Industry(c) 3,038,534 3,467,817 0.3
Engineering 183,850 ++SKF AB 3,438,484 3,089,322 0.3
95,800 ++SKF AB'B'Free 1,859,982 1,609,774 0.2
-------------- ------------- ------
5,298,466 4,699,096 0.5
Metals & Mining 204,460 ++Trelleborg AB(Class B) 1,373,199 2,911,116 0.3
Pharmaceutical-- 151,750 Astra 'A' Fria 3,179,941 3,231,208 0.3
Prescription
Total Investments in Sweden 12,890,140 14,309,237 1.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
WESTERN EUROPE Shares Held/ Value Percent of
(concluded)Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Switzer- Banking 14,033 Swiss Bank Corp(Bearer) $ 4,475,325 $ 4,043,746 0.4%
land
Chemicals 5,512 Ciba-Geigy AG(Registered) 2,750,861 3,341,797 0.3
Electrical 10,481 BBC Brown Boveri & Cie 6,662,929 9,419,444 0.9
Equipment
Health & 11,960 Sandoz AG(Registered) 5,509,003 5,877,632 0.6
Personal Care
Total Investments in Switzerland 19,398,118 22,682,619 2.2
Turkey Automobiles & 245,600 ++Turk Otomobil Fabrikasi A.S.(c) 3,927,600 1,719,200 0.2
Equipment
Total Investments in Turkey 3,927,600 1,719,200 0.2
United Aerospace 300,000 Rolls Royce PLC(Ordinary) 808,335 816,318 0.1
Kingdom
Banking 674,000 National Westminster Bank PLC(Ordinary) 5,149,381 4,340,453 0.4
Beverages 1,336,600 Grand Metropolitan PLC(Ordinary) 8,759,700 8,829,752 0.8
Building Materials 500,000 Blue Circle Industries PLC(Ordinary) 2,201,422 2,199,523 0.2
1,907,350 Tarmac PLC(Ordinary) 4,878,546 4,180,844 0.4
-------------- ------------- ------
7,079,968 6,380,367 0.6
<PAGE>
Conglomerates 2,380,000 Hanson PLC(Ordinary) 9,968,800 9,089,059 0.9
Consumer--Goods 792,900 Vendome Luxury Group(Units) 4,735,895 5,297,931 0.5
Electrical 1,098,400 General Electric Co., Ltd. PLC(Ordinary) 5,507,919 4,989,656 0.5
Equipment
Food & Beverage 728,000 Tate & Lyle PLC(Ordinary) 4,399,437 4,611,169 0.4
Food & Household 415,000 Cadbury Schweppes PLC(Ordinary) 3,315,705 2,881,914 0.3
Products
Insurance 456,300 Commercial Union Assurance Co. PLC
(Ordinary) 4,365,810 3,580,866 0.3
Leisure & 541,200 Granada Group PLC 4,445,193 3,998,620 0.4
Entertainment 852,350 The Rank Organisation PLC (Ordinary) 5,179,878 4,864,078 0.5
175,600 Thorn EMI (Ordinary) 2,625,146 2,724,891 0.3
-------------- ------------- ------
12,250,217 11,587,589 1.2
Media/Publishing 902,400 Reuters Holdings PLC 6,518,327 6,261,486 0.6
1,270,000 WPP Group PLC 1,865,806 2,265,434 0.2
-------------- ------------- ------
8,384,133 8,526,920 0.8
Oil--Related 716,000 British Petroleum Co., Ltd. 3,681,500 4,157,681 0.4
Pharmaceuticals 1,091,300 Smithkline Beecham Corp. PLC(Class A) 6,606,311 6,334,918 0.6
Retail 1,038,400 Tesco PLC(Ordinary) 3,506,944 3,308,247 0.3
Retail Trade 210,800 Boots Co. PLC(Ordinary) 1,756,467 1,628,385 0.2
2,640,200 Sears Holdings 4,730,391 4,789,428 0.5
-------------- ------------- ------
6,486,858 6,417,813 0.7
Telecommunications 883,800 Cable & Wireless Public Co. Ltd.
(Ordinary) 6,321,413 5,798,416 0.5
Utilities--Electric 836,000 Scottish Power PLC(Ordinary) 4,327,044 4,350,567 0.4
Total Investments in the United Kingdom 105,655,370 101,299,636 9.7
Total Investments in Western Europe 334,617,010 345,060,209 33.1
<PAGE>
<CAPTION>
SHORT-TERM Face
SECURITIES Amount Issue
<S> <C> <S> <C> <C> <C>
Commercial Paper* US$ 10,000,000 ANZ (Delaware) Inc., 4.00% due 6/03/1994 9,997,778 9,997,778 0.9
10,089,000 General Capital Electric Co.,
4.22% due 6/01/1994 10,089,000 10,089,000 1.0
-------------- ------------- ------
20,086,778 20,086,778 1.9
US Government US Treasury Bills:
Obligations* 485,000 3.40% due 6/16/1994 484,313 484,235 0.0
385,000 3.42% due 6/16/1994 384,451 384,393 0.0
725,000 3.43% due 6/16/1994 723,964 723,857 0.0
350,000 3.48% due 6/16/1994 349,492 349,448 0.0
70,000 3.50% due 6/16/1994 69,898 69,890 0.0
450,000 3.51% due 6/16/1994 449,342 449,290 0.0
220,000 3.52% due 6/16/1994 219,677 219,653 0.0
825,000 3.53% due 6/16/1994 823,787 823,699 0.1
250,000 3.65% due 6/16/1994 249,620 249,606 0.0
39,000,000 3.71% due 6/23/1994 38,911,578 38,907,559 3.7
700,000 3.105% due 7/07/1994 697,827 697,194 0.1
-------------- ------------- ------
43,363,949 43,358,824 3.9
Total Investments in Short-Term
Securities 63,450,727 63,445,602 5.8
<CAPTION>
OPTIONS Number of Contracts/ Premiums
PURCHASED Face Amount Paid
<S> <C> <S> <C> <C> <C>
Call Options 194,819 Topix Index, expiring October 1994
Purchased at Yen 2270 278,895 313,181 0.0
188,501 Topix Index, expiring May 1995
at Yen 2330 420,000 370,731 0.0
-------------- ------------- ------
698,895 683,912 0.0
Currency Call 10,000,000 French Franc, expiring September 1994 at
Options Purchased Frf 5.77 145,500 329,800 0.0
8,500,000 German Deutschemark, expiring September
1994 at DM 1.679 133,875 266,475 0.0
5,160,000 Netherlands Guilder, expiring September
1994 at NLG 1.885 83,334 162,024 0.0
-------------- ------------- ------
362,709 758,299 0.0
<PAGE>
Currency Put 14,800,000 German Deutschemark, expiring June 1994
Options Purchased at DM 1.70 236,060 19,240 0.0
40,000,000 Japanese Yen, expiring September 1994
at Yen 105 924,000 688,000 0.0
80,000,000 Japanese Yen, expiring September 1994
at Yen 107 1,792,000 752,000 0.1
12,640,000 Netherlands Guilder, expiring June 1994
at NLG 1.915 195,920 12,008 0.0
-------------- ------------- ------
3,147,980 1,471,248 0.1
Total Options Purchased 4,209,584 2,913,459 0.1
Total Investments 979,222,706 1,004,346,509 95.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Number of Contracts/ Premiums Value Percent of
WRITTEN Face Amount Issue Received (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Call Options Written 9,039 Hang Seng Index, expiring July 1994
at HKD 12212 $ (664,005) $ (103,933) 0.0%
Currency Call $ 10,000,000 French Franc, expiring September 1994
Options Written at Frf 5.595 (64,500) (156,500) 0.0
8,500,000 German Deutschemark, expiring September
1994 at DM 1.628 (60,350) (127,925) 0.0
5,160,000 Netherlands Guilder, expiring September
1994 at NLG 1.827 (37,926) (77,658) 0.0
-------------- ------------- ------
(162,776) (362,083) 0.0
Put Options Written 194,819 Topix Index, expiring October 1994 at
Yen 2270 (205,795) (158,072) 0.0
Total Options Written (1,032,576) (624,088) 0.0
Total Investments, Net of Options Written $978,190,130 1,003,722,421 95.4
============
Variation Margin on Stock Index Futures Contracts** 309,684 0.0
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (883,161) (0.1)
Other Assets Less Liabilities 49,152,748 4.7
============== ======
Net Assets $1,052,301,692 100.0%
============== ======
<PAGE>
<FN>
(a) American Depositary Receipt(ADR).
(b) Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and the number of shares
are subject to adjustment under certain conditions until the
expiration date.
(c) Restricted securities pursuant to Rule 144A. The value of the Fund's
investment in restricted securities was approximately $17,714,000, representing
1.7% of net assets.
(d) The redemption value including interest, if any, is linked to the Goldman
Sachs Commodity Index. This note is not principal protected.
++ Non-income producing security.
* 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.
** Stock index futures contracts as of May 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Exchange Date (Note 1d)
45 FTSE 100 LIFFE June 1994 $ 5,032,260
184 Nikkei 225 CME June 1994 19,283,200
333 Nikkei 225 SIMEX June 1994 33,379,588
433 Nikkei 225 CME September 1994 45,703,150
Total Stock Index Futures Contracts Purchased
(Total Contract Price--$101,425,951) $ 103,398,198
=============
** Stock index features contracts sold as of May 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Exchange Date (Note 1d)
150 EOE20 EOE June 1994 $(6,531,689)
Total Stock Index Futures Contracts Sold
(Total Contract Price-$6,779,073) $(6,531,689)
============
<PAGE>
*** Forward foreign exchange contracts as of May 31, 1994 were as follows:
Unrealized
Appreciation
Foreign Expiration (Depreciation)
Currency Sold Date (Note 1b)
A$ 23,732,602 September 1994 $ (85,964)
Bf 207,054,996 September 1994 (262,617)
DM 33,651,062 September 1994 (847,398)
Fmk 18,726,095 September 1994 (45,699)
Frf 86,635,768 September 1994 (658,555)
Nlg 27,242,454 September 1994 (603,995)
Pta 1,012,303,596 September 1994 (185,644)
Skr 29,179,296 September 1994 (57,881)
Yen 14,896,716,999 September 1994 1,864,592
Total (US Commitment--$215,822,774) $ (883,161)
============
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts $ (883,161)
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$975,013,122) (Note 1a) $1,001,433,050
Put options purchased, at value (cost--$4,209,584) 2,913,459
Variation margin on stock index futures contracts (Notes 1d & 5) 309,684
Foreign cash (Note 1b) 6,052,023
Cash 972,464
Receivables:
Securities sold $47,458,000
Capital shares sold 12,920,369
Dividends 3,551,811
Forward foreign exchange contracts (Note 1b) 707,316
Interest 651,653 65,289,149
-----------
Deferred organization expenses (Note 1g) 56,896
Prepaid registration fees and other assets (Note 1g) 58,099
--------------
Total assets 1,077,084,824
--------------
<PAGE>
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1b) 883,161
Call options written, at value (premiums received--$1,032,576) (Notes 1a & 1c) 624,088
Payables:
Securities purchased 18,069,030
Capital shares redeemed 2,975,288
Distributor (Note 2) 759,700
Investment adviser (Note 2) 670,109 22,474,127
-----------
Accrued expenses and other liabilities 801,756
--------------
Total liabilities 24,783,132
--------------
Net Assets: Net assets $1,052,301,692
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited number of shares
Consist of: authorized $ 1,806,845
Class B Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized 7,379,906
Paid-in capital in excess of par 979,944,938
Undistributed realized capital gains on investments and foreign currency transactions--
net 36,233,997
Unrealized appreciation on investments and foreign currency transactions--net 26,936,006
--------------
Net assets $1,052,301,692
==============
Net Asset Class A--Based on net assets of $208,006,811 and 18,068,449 shares of beneficial
Value: interest outstanding $ 11.51
==============
Class B--Based on net assets of $844,294,881 and 73,799,056 shares of beneficial
interest outstanding $ 11.44
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period
July 30, 1993++
to May 31,1994
<S> <S> <C> <C>
Investment Dividends (net of $1,043,207 foreign withholding tax) $ 7,646,918
Income Interest and discount earned 2,508,301
(Notes 1e & --------------
1f) : Total income 10,155,219
--------------
Expenses: Distribution and maintenance fees--Class B (Note 2) 4,246,574
Investment advisory fees (Note 2) 4,054,791
Custodian fees 564,442
Registration fees (Note 1g) 406,198
Transfer agent fees--Class B (Note 2) 369,783
Maintenance fees--Class A (Note 2) 289,933
Accounting services (Note 2) 142,452
Transfer agent fees--Class A (Note 2) 84,847
Printing and shareholder reports 73,513
Trustees' fees and expenses 26,827
Professional fees 25,401
Amortization of organization expenses (Note 1g) 11,454
Pricing fees 8,558
Other 14,000
--------------
Total expenses 10,318,773
--------------
Investment loss--net (163,554)
--------------
Realized & Realized gain (loss) from:
Unrealized Investments--net $ 45,327,087
Gain (Loss) Foreign currency transactions--net (8,929,536) 36,397,551
on Invest- -------------
ments & Unrealized appreciation/depreciation on:
Foreign Investments-net 29,232,371
Currency Foreign currency transactions--net (2,296,365) 26,936,006
Transactions ------------- --------------
- - --Net(Notes Net realized and unrealized gain on investments and foreign currency transactions 63,333,557
1b, 1f & 3): --------------
Net Increase in Net Assets Resulting from Operations $ 63,170,003
==============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
July 30, 1993++
to May 31, 1994
Increase (Decrease) in Net Assets:
<S> <S> <C>
Operations: Investment loss--net $ (163,554)
Realized gain on investments and foreign currency transactions--net 36,397,551
Unrealized appreciation on investments and foreign currency transactions--net 26,936,006
--------------
Net increase in net assets resulting from operations 63,170,003
--------------
Beneficial Net increase in net assets derived from beneficial interest transactions 989,031,689
Interest ==============
Transactions
(Note 4):
Net Assets: Total increase in net assets 1,052,201,692
Beginning of period 100,000
--------------
End of period $1,052,301,692
==============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. July 30, 1993++ to
May 31, 1994
Increase (Decrease) in Net Asset Value: Class A Class B*
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00
Operating ----------- -----------
Performance: Investment income (loss)--net .04 (.02)
Realized and unrealized gain on investments and foreign currency
transactions--net 1.47 1.46
----------- -----------
Total from investment operations 1.51 1.44
----------- -----------
Net asset value, end of period $ 11.51 $ 11.44
=========== ===========
Total Based on net asset value per share 15.10%+++ 14.40%+++
Investment =========== ===========
Return:***
Ratios to Expenses, excluding account maintenance and distribution fees 1.06%** 1.07%**
Average =========== ===========
Net Assets: Expenses 1.31%** 2.07%**
=========== ===========
Investment income (loss)--net .55%** (.19)%**
=========== ===========
Supplemental Net assets, end of period (in thousands) $ 208,007 $ 844,295
Data: =========== ===========
Portfolio turnover 50.63% 50.63%
=========== ===========
<FN>
*Based on average outstanding shares during the period.
**Annualized.
***Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch International Equity Fund (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-
end management investment company. The shares of the Fund are
divided into Class A Shares and Class B Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares may be subject
to a contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that Class A Shares bear the expenses
of its ongoing account maintenance fee with respect to the Class A
Shares and Class B Shares bear the expenses of its ongoing account
maintenance fee and distribution fee with respect to the Class B
Shares and have exclusive voting rights with respect to matters relat-
ing to its respective distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the principal
market on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Securities traded in the over-
the-counter market are valued at the last available bid price in the
over-the-counter market prior to the time of valuation. Portfolio
securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Short-term securities are valued at amortized cost,
which approximates market value.
Options written by the Fund are valued at the last asked price in the
case of exchange-traded options or, in the case of options traded in
the over-the-counter market, at the average of the last asked price
as obtained from one or more dealers. Options purchased by the
Fund are valued at their last bid price in the case of exchange-
traded options or, in the case of options traded in the over-the-
counter market, the average of the last bid price as obtained from two
or more dealers, unless there is only one dealer, in which case
that dealer's price is used.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund.
<PAGE>
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign cur-
rency transactions are the result of settling (realized) or valuing
(unrealized) such transactions expressed in foreign currencies into
US dollars. Realized and unrealized gains or losses from investments
include the effects of foreign exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or portfolio
positions. Such contracts are not entered on the Fund's records.
However, the effect on operations is recorded from the date the
Fund enters into such contracts. Premium or discount is amortized
over the life of the contracts.
The Fund may also purchase or sell listed or over-the-counter for-
eign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be
effected with respect to hedges on non-US dollar-denominated
securities owned by the Fund, sold by the Fund but not yet delivered,
or committed or anticipated to be purchased by the Fund.
(c) Options--The Fund can write covered call options and purchase
put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is sold through an exercise of an option, the related
premium received (or paid) is deducted from (or added to) the basis
of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or
loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(d) Futures contracts--The Fund may purchase or sell futures con-
tracts and options on such futures contracts. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation
in value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Fund as unrealized gains
or losses. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
<PAGE>
(e) Income taxes--It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated invest-
ment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax provi-
sion is required. Under the applicable foreign tax law, a withholding
tax may be imposed on interest, dividends, and capital gains at
various rates.
(f) Security transactions and investment income--Security transac-
tions are recorded on the dates the transactions are entered into
(the trade dates). Dividend income is recorded on the ex-dividend
dates except that if the ex-dividend date has passed, certain divi-
dends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income (including amorti-
zation of discount) is recognized on the accrual basis. Realized gains
and losses on security transactions are determined on the identified
cost basis.
(g) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a
straight-line basis over a five-year period. Prepaid registration fees
are charged to expense as the related shares are issued.
(h) Dividends and distributions--Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates.
(i) Reclassification--Accumulated investment loss--net in the
amount of $163,554 was reclassified to undistributed realized
gains--net.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January
1, 1994, the investment advisory business of MLAM was reorganized
from a corporation to a limited partnership. Both prior to and after
the reorganization, ultimate control of MLAM was vested with
Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of MLAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an
indirect wholly-owned subsidiary of ML & Co. The Fund has also
entered into a Distribution Agreement and a Distribution Plan with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of MLIM.
<PAGE>
MLAM is responsible for the management of the Fund's portfolio
and provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund. For
such services, the Fund pays a monthly fee of 0.75%, on an annual
basis, of the average daily value of the Fund's net assets. MLAM has
entered into a Sub-Advisory Agreement with Merrill Lynch Asset
Management U.K., Ltd. ("MLAM U.K."), an affiliate of MLAM, pursu-
ant to which MLAM pays MLAM U.K. a fee in an amount to be
determined from time to time by the Investment Adviser and MLAM
U.K. but in no event in excess of the amount that the Investment
Adviser actually receives. For the period July 30, 1993 to May 31,
1994, MLAM paid MLAM U.K. a fee of $401,250 pursuant to such
Agreement. Certain of the states in which the shares of the Fund
are qualified for sale impose limitations on the expenses of the
Fund. The most restrictive annual expense limitation requires
that the Investment Adviser reimburse the Fund to the extent the
Fund's expenses (excluding interest, taxes, distribution fees,
brokerage fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets, and 1.5% of
the average daily net assets in excess thereof. MLAM's obligation to
reimburse the Fund is limited to the amount of the management
fee. No fee payment will be made to MLAM during any fiscal year
which will cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
The Fund has adopted separate Plans of Distribution (the "Distribu-
tion Plan") for Class A and Class B Shares in accordance with
Rule 12b-1 under the Investment Company Act of 1940 pursuant to
which MLFD receives from the Fund at the end of each month
(a) an account maintenance fee, at an annual rate of 0.25% of the
average daily net assets of the Fund's Class A Shares in order to
compensate the Distributor and Merrill Lynch (pursuant to a sub-
agreement) in connection with account maintenance activities, and
(b) an account maintenance fee and a distribution fee at the annual
rates of 0.25% and 0.75%, respectively, of the average daily net assets
of the Fund's Class B Shares in order to compensate the Distributor
and Merrill Lynch (pursuant to a sub-agreement) for the services
it provides and the expenses borne by the Distributor under the
Distribution Agreement. As authorized by the Distribution Plans,
the Distributor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLAM,
which provides for the compensation of MLPF&S in connection
with account maintenance activities for Class A Shares and for
providing account maintenance and distribution-related services
to the Fund for Class B Shares. For the period ended May 31, 1994,
MLFD earned $289,933 and $4,246,574 for Class A and Class B
Shares, respectively, under the Distribution Plans, all of which was
paid to MLPF&S pursuant to the agreement.
For the period ended May 31, 1994, MLFD earned underwriting
discounts of $228,535, and MLPF&S earned dealer concessions of
$4,273,549, on sales of the Fund's Class A Shares.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
MLPF&S also received contingent deferred sales charges of
$428,332 relating to transactions in Class B Shares and $122,975 in
commissions on the execution of portfolio security transactions
for the Fund during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period from July 30, 1993 (commencement of operations) to
May 31, 1994 were $1,167,065,890 and $290,085,723, respectively.
Net realized and unrealized gains (losses) as of May 31, 1994 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ 34,782,900 $ 26,425,052
Short-term 709 (5,124)
Stock index futures contracts 9,813,375 2,219,631
Options written 730,103 607,795
Options purchased -- (14,983)
------------ ------------
Total Investments 45,327,087 29,232,371
Currency transactions:
Options written (654,392) (199,307)
Options purchased (1,019,600) (1,281,142)
Forward foreign exchange contracts 2,975,734 (883,161)
Foreign currency transactions (10,231,278) 67,245
------------ ------------
Total currency transactions (8,929,536) (2,296,365)
------------ ------------
Total $ 36,397,551 $ 26,936,006
============ ============
<PAGE>
Transactions in call options purchased for the period July 30, 1993
to May 31, 1994 were as follows:
Par Value
Covered by
Written Premiums
Options Received
Outstanding call options written
at beginning of period -- --
Options written $(45,677,012) $ (1,795,687)
Options closed 1,007,973 827,756
Options expired 21,000,000 141,150
------------ ------------
Outstanding call options written
at end of period $(23,669,039) (826,781)
============ ============
Transactions in put options written for the period July 30, 1993
to May 31, 1994 were as follows:
Par Value
Covered by
Written Premiums
Options Received
Outstanding put options written
at beginning of period -- --
Options written $(101,194,819) $ (1,033,445)
Options expired 33,000,000 389,250
Options exercised 68,000,000 438,400
------------- ------------
Outstanding put options written
at end of period $ (194,819) $ (205,795)
============= ============
As of May 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $26,304,596, of which $60,379,500 related
to appreciated securities and $34,074,904 related to depreciated
securities. At May 31, 1994, the aggregate cost of investments, for
Federal income tax purposes was $975,550,361.
4. Beneficial Interest Transactions:
Net increase in net assets derived from beneficial interest trans-
actions was $989,031,689 for the period from July 30, 1993 to
May 31, 1994.
<PAGE>
Transactions in shares of beneficial interest for Class A and Class B
shares were as follows:
Class A Shares for the Period Dollar
July 30, 1993++ to May 31, 1994 Shares Amount
Shares sold 22,000,407 $236,735,011
Shares redeemed (3,936,958) (43,370,904)
------------ ------------
Net increase 18,063,449 $193,364,107
============ ============
[FN]
++Prior to July 30, 1993 (commencement of operations), the Fund issued
5,000 shares to MLAM for $50,000.
Class B Shares for the Period Dollar
July 30, 1993++ to May 31, 1994 Shares Amount
Shares sold 78,960,422 $853,108,016
Shares redeemed (5,166,366) (57,440,434)
------------ ------------
Net increase 73,794,056 $795,667,582
============ ============
[FN]
++Prior to July 30, 1993 (commencement of operations), the Fund issued
5,000 shares to MLAM for $50,000.
5. Commitments:
At May 31, 1994, the Fund had entered into forward foreign exchange
contracts under which it agreed to purchase and sell various foreign
currency with an approximate value of $1,909,000 and $14,866,000,
respectively.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch International Equity Fund:
We have audited the accompanying statement of assets and
liabilities including the schedule of investments of Merrill Lynch
International Equity Fund, as of May 31, 1994, and the related
statements of operations and changes in net assets, and the
financial highlights for the period from July 30, 1993 (commence-
ment of operations) to May 31, 1994. These financial statements
and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audit.
<PAGE>
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and per-
form the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evi-
dence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned at May 31, 1994, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch International Equity Fund as of May 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the period from July 30, 1993 to May 31, 1994
in conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
July 13, 1994
</AUDIT-REPORT>
<PAGE>
PORTFOLIO CHANGES
For the Quarter Ended May 31, 1994
Additions
Assiscurazioni Generali(Ordinary)
Blue Circle Industries PLC(Ordinary)
*Cartiere Burgo S.p.A.(Rights)
Compagnie Financiere de Paribas
(Ordinary)(New Shares)
*Compagnie Financiere de Paribas(Rights)
*Compagnie Industriali Riunite S.p.A.
(CIR)(Rights)
Companhia Energetica de Minas Gerais S.A.
(CEMIG)S.A.
Grupo Carso, S.A. de C.V.(ADR)
The Hong Kong & China Gas Co.(Warrants)
Jefferson Smurfit Group PLC(Ordinary)
*Kingfisher PLC
Koninklijke KNP(Preferred)
*Koninklijke KNP(Rights)
Korea Electric Power Corp.
Lotte Confectionary Co.(Ordinary)
*Mannesmann AG(Rights)
Munich Reinsurance Co.(Ordinary)
Nippon Express Co., Ltd.
Nippon Telephone & Telegraph Corp.
(Ordinary)
Panamerican Beverages, Inc.(Class A)
Pick Szeged Reszvenytarsasag(ADR)
Reuters Holdings PLC
Rhone-Poulenc S.A.
Sangetsu Co.(Ordinary)
Scottish Power PLC(Ordinary)
Shimachu Co.(Ordinary)
Shin-Etsu Chemical Co., Ltd.(Ordinary)
Telecomunicacoes de Sao Paulo
S.A.(Preferred)
Transportadora de Gas Del Sur(TGS)
Turk Otomobil Fabrikasi A.S.
<PAGE>
Deletions
Argyll Group PLC(Ordinary)
The Australian Gas Light Co.(Ordinary)
Bank of Ireland(Ordinary)
British Gas PLC(Ordinary)
Carlton Communications PLC(Ordinary)
Cartiere Burgo S.p.A.(Ordinary)
Cartiere Burgo S.p.A.(Ordinary)(Rights)
*Cartiere Burgo S.p.A.(Rights)
Citic Pacific Ltd.(Ordinary)
*Compagnie Financiere de Paribas(Rights)
*Compagnie Industriali Riunite S.p.A(CIR)
(Rights)
Danish Government Bond, 7.00%
due 12/15/2004
Dutch State Mining N.V.(Ordinary)
Energie--Versongung Niederoesterreich AG
Fiat S.p.A.(Ordinary)
Fiat S.p.A.(Preferred)
Grupo Empresarial Fenix, S.A. de C.V.
Elektra 'L' Shares
*Kingfisher PLC
*Koninklijke KNP(Rights)
*Mannesmann AG(Rights)
Montedison S.p.A.
Pearson PLC(Ordinary)
Ports of Auckland Ltd.
Roche Holding Genusschein AG
Schering AG
Sun Hung Kai & Co., Ltd.(Ordinary)
Telekom Malaysia BHD
Total S.A.(Class B)
Union Miniere N.V.
Vereinigte Elektrizitaets &
Bergwerks AG(Veba)(Ordinary)
Winterthur(Registered)
[FN]
*Added and deleted in the same quarter.
<PAGE>
PORTFOLIO INFORMATION
Worldwide
Investments
As of May 31, 1994
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Property & Casualty Insurance 7.9%
Electrical Equipment 6.4
Telecommunications 4.6
Diversified 4.4
Banking 4.4
Automobiles 3.8
Pharmaceuticals 3.5
Chemicals 3.0
Beverages 2.1
Utilities--Electric 1.5
Percent of
Ten Largest Countries Net Assets
Japan 36.5%
United Kingdom 9.7
Mexico 5.3
Germany 4.1
Australia 3.6
Netherlands 3.5
Canada 2.5
Hong Kong 2.2
Switzerland 2.2
Ireland 1.8
Percent of
Asset Mix* Net Assets
Japan 36.5%
Europe (Ex. United Kingdom
and Ireland) 18.0
United Kingdom and Ireland 11.5
Other Emerging Markets 14.8
Pacific Basin (Ex. Japan) 8.7
Cash 5.8
[FN]
*Percent of net assets may not equal 100%.
<PAGE>
Stock Index
Futures Contracts
Percent of
Country Issue Exchange Net Assets
Japan Nikkei 225 CME 1.8%
Japan Nikkei 225 SIMEX 6.2
United Kingdom FTSE 100 LIFFE 3.2
Netherlands EOE20 EOE (0.6)
-----
10.6%
=====
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
<PAGE>
Merrill Lynch
International
Equity Fund
Management
Team
Andrew John Bascand--Senior Portfolio Manager/Asset
Allocator. As the Fund's Asset Allocator, Mr. Bascand is
primarily responsible for determining the allocation of the
Fund's assets among equity markets in Europe, the
emerging markets and the Pacific Basin.
Adrian Holmes--Co-Portfolio Manager--European
Investments. Mr. Holmes is primarily responsible for the
Fund's European investments.
Grace Pineda--Co-Portfolio Manager--Emerging Markets
Investments. Ms. Pineda is primarily responsible for
investments in emerging markets in Europe, Latin America
and the smaller markets in the Pacific Basin.
Stephen I. Silverman--Co-Portfolio Manager--Pacific
Basin Investments. Mr. Silverman is primarily responsible for
the Fund's investments in the larger Pacific Basin markets.
<PAGE>
APPENDIX: GRAPHIC AND IMAGE MATERIALS.
ITEM 1:
International Stock Market Performance--Total Return in
US Dollars* of the Fund's Top Ten Country Positions for the
Three-Month Period Ended May 31, 1994.
Bar graph ilustrating the following percentages:
United Kingdom -8.4%
Mexico -7.5%
Hong Kong -6.0%
France -5.4%
Switzerland -2.5%
Netherlands -0.8%
Sweden 0.4%
Australia 0.8%
Japan 2.8%
Germany 4.3%
Source: Financial Times--Actuaries Index.
[FN]
*For the three-month period ended May 31, 1994, total investment
return in US dollars for the Financial Times--Actuaries World
(Ex-US) Index was -0.22%.
<PAGE>
ITEM 2:
Total Return Based on a $10,000 Investment.
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class B Shares compared to growth of an
investment in the Financial Times--Actuaries World (Ex-US) Index.
Beginning and ending values are:
7/30/93** 5/94
ML International Equity Fund++--
Class A Shares* $ 9,350 $10,762
ML International Equity Fund++--
Class B Shares* $10,000 $11,040
Financial Times--Actuaries
World (Ex-US) Index++++ $10,000 $11,07
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++Merrill Lynch International Equity Fund invests in a
diversified portfolio of equity securities of issuers
located in countries other than the United States.
++++The unmanaged capitalization-weighted Index is comprised of
over 1,800 companies in 24 countries, excluding the United
States.
