MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Annual Report
May 31, 1996
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
International
Equity Fund
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH INTERNATIONAL EQUITY FUND
International
Stock Market
Performance
Bar Graph Depicting Total Return in US Dollars* of the Fund's
Top Ten Country Positions For the Three-Month Period Ended
May 31, 1996
South Africa - 6.6%
Germany - 1.8%
Hong Kong + 2.3%
United Kingdom + 3.4%
Australia + 4.2%
France + 4.2%
Japan + 4.3%
Sweden + 5.6%
<PAGE>
Italy + 9.3%
Brazil +10.6%
Source: Financial Times/S&P--Actuaries Index.
[FN]
*For the three-month period ended May 31, 1996, total investment
return in US dollars for the Financial Times/S&P--Actuaries World
(Ex-US) Index was +3.60%.
DEAR SHAREHOLDER
International equity markets continued to rise during the three
months ended May 31, 1996. Equity markets generally outperformed
bond markets as stronger economic growth in the United States and
Japan boosted expectations of future interest rates. Among the major
regions, European equities underperformed over the May quarter,
while Japanese and Asian emerging markets generally rose relative to
international equity markets. Equity market returns, when expressed
in US dollars, were generally lower than local returns as the US
dollar appreciated against most major currencies.
The US dollar total return of the unmanaged Financial Times/Standard
& Poor's--Actuaries World (Ex-US) Index during the quarter ended
May 31, 1996 was +3.60%. Total returns for Merrill Lynch
International Equity Fund's Class A, Class B, Class C and Class D
Shares were +4.37%, +4.16%, +4.11% and +4.37%, respectively.
(Investment results shown do not reflect sales charges, and would be
lower if sales charges were included. Complete performance
information, including average annual total returns, can be found on
pages 4--7 of this report to shareholders.) The Fund's outperformance
during the quarter ended May 31, 1996 reflected the Fund's over-
weighting in US dollars, and overweightings in Asian and peripheral
European equity markets. Stock selection in Japan also positively
impacted performance.
Portfolio Matters
The continued rise in international equity markets, against the
background of higher bond yields, made many regions less attractive.
Therefore, our investment strategy became somewhat more defensive.
Overall, the Fund's total effective equity exposure (after adjusting
for the net expected impact of warrants and options) was slightly
below 90% at May 31, 1996. In the February quarter, the Fund's
equity exposure was about 94%. The most significant reduction in
holdings occurred in Europe, where we reduced the Fund's effective
exposure from 23.5% of net assets to 20.1%. Significant sales and
reductions in holdings included stocks in the Netherlands such as
Philips Industries Inc., ABN AMRO Bank, Amev N.V., and
Internationale Nederlanden Groep N.V. Elsewhere in Europe, we
reduced our position in Mannesmann AG, and sold holdings in Hoechst
AG, Kymmene OY and Repola OY S.
<PAGE>
We eliminated our exposure in Singapore by selling holdings in City
Developments Ltd. and Development Bank of Singapore Ltd. Other Fund
activity included the sale of Topix futures positions and related
purchases of Bridgestone Corporation, Rohm Co., Ltd. and Maruichi
Steel Tube, Ltd. Overall, the Fund retained 36.8% of net assets in
Japanese equities, 14.0% in emerging markets and 16.0% in developed
Pacific Rim markets, excluding Japan. The Fund's effective US dollar
exposure remains about 28%; however, we anticipate reducing this
exposure if the US dollar continues to appreciate.
Economic and Investment
Environment
US final demand, output and employment indicators continued to firm,
contributing to a sharp reversal in US interest rate expectations in
1996. The ten-year US Treasury yield rose to 7% at May 31, 1996 from
6.5% three months earlier. We expect continued strong economic
growth in the United States as previous excessive inventory levels
are reduced. However, it is possible that both the US housing and
automobile sectors already have reached peak expansion growth rates.
Additionally, it seems likely that the US Treasury market has
largely discounted the strengthening in economic growth and
potential inflationary risks. At the same time, US profit margins
remain at peak levels, and there appears to be little scope for a
further expansion in US earnings per share, especially in light of
the US dollar's recent strengthening. Against this background, US
equities may be exposed to a tightening in monetary policy, and as a
result, a number of other equity markets may experience volatility.
Outside the United States, economic indicators continued to show a
mixed picture in Europe, while Japanese data continued to confirm a
recovery in economic activity. In the first quarter of 1996,
European economies generally exhibited weak economic activity
responding to fiscal consolidation plans, the 1995 slowdown in world
trade growth and uncompetitive pricing. However, monetary easing
continued, and more recently imparted a potentially strong stimulus
to growth. Specifically, cuts in interest rates in both the core and
peripheral European economies, combined with weaker currencies
against both the US dollar and to a lesser extent the yen, should
improve both external and internal demand conditions. As a result,
we expect a firming of economic conditions across Europe in the
second half of 1996 and through 1997.
In Japan, the combination of easy fiscal policy, low interest rates
and the significant currency depreciation continues to result in
improved corporate profits. The banking system, while generally
still confronted by a large unrecoverable loan problem, is now
generating significant operating profits, partly as a result of the
Bank of Japan's current money market operations. Japanese growth
expectations overall rose steadily, and the firming in growth was
associated with an anticipation of higher interest rates and a rise
in bond yields. If the yen remains below 105 against the US dollar,
we believe that Japanese profits will continue to expand rapidly
even with modest gross domestic product growth.
<PAGE>
Fiscal Year in Review
For the year ended May 31, 1996, total returns for the Fund's Class
A, Class B, Class C and Class D Shares were +16.49%, +15.41%,
+15.35% and +16.26%, respectively. During the Fund's fiscal year,
total return of the unmanaged benchmark, the Financial Times/S&P--
Actuaries World (Ex-US) Index, was +11.44%. The Fund's
outperformance over the fiscal year was positively influenced by the
decision to hedge approximately one-third of the foreign exchange
positions (especially against the yen and Deutschemark) to the US
dollar. The year ended May 31, 1996 was marked by a significant
further easing of monetary policy in Japan, which prompted a 34%
rebound in Japanese equity prices and a 28% depreciation of the yen
against the US dollar.
Another significant development that impacted international markets
was the continued easing of interest rates in Europe, which
initially pushed many markets to new highs. However, disappointing
economic growth caused a setback in market performance through
October 1995. Many emerging markets also significantly
underperformed both their local bond markets and the US equity
market in late 1995. New money flows to European and emerging
markets in early 1996 reignited a rally in equity prices.
Asset allocation shifts added about 1% to the Fund's performance in
the fiscal year. Stock selection was also relatively positive, with
significant outperformance in Japan and Australia offsetting
disappointing European stock selection. The most significant
positive factor for performance was the Fund's overweighted position
in the US dollar.
In Conclusion
Our investment strategy for the Fund is now more defensive. Although
we have retained a strategic diversified weighting in emerging
markets and the Pacific Rim, we are increasingly concerned with the
valuations of many larger developed equity markets. Much of our
concern reflects the potential correlation of these larger markets
with the US equity market, which our analysis suggests is probably
significantly overvalued.
The Fund has approximately 10% of net assets in cash, which may
increase should equity markets continue to rise in the face of
weaker bond markets and, in many cases, what we believe to be peak
profit margins. If the yen stabilizes between YEN 105--YEN 110
against the US dollar, the Japanese equity market potentially
remains the most attractive of the larger markets. However, a
potential risk for the Japanese market is the strength of the
economic recovery. As growth expectations rise, an increase in
interest rates may result in a firming of the yen and a
deterioration in the outlook for profits growth and equity
valuations.
<PAGE>
Although we outlined potential risks for international equity
markets, the medium-term outlook for continued economic growth and
profit expansion appears to offer reasonable prospects for positive
returns from international equity markets. The diversified Merrill
Lynch International Equity Fund is well-positioned to benefit from
this outlook.
We thank you for your continued interest in Merrill Lynch
International Equity Fund, and we look forward to reviewing our
investment outlook and strategy with you in our upcoming quarterly
report.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Andrew Bascand)
Andrew Bascand
Senior Portfolio Manager/
Asset Allocator
(Adrian Holmes)
Adrian Holmes
Co-Portfolio Manager
European Investments
<PAGE>
(Grace Pineda)
Grace Pineda
Co-Portfolio Manager
Emerging Markets Investments
(Stephen I. Silverman)
Stephen I. Silverman
Co-Portfolio Manager
Pacific Basin Investments
June 28, 1996
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, as detailed in the Fund's prospectus. If you were a Class
A shareholder on October 21, 1994, your Class A Shares were
redesignated to Class D Shares on October 21, 1994, which, in the
case of certain eligible investors, were simultaneously exchanged
for Class A Shares.
* 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.
* 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.
<PAGE>
* 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.
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 C Shares compared to growth of an
investment in Financial Times/S&P--Actuaries World (Ex-US) Index.
Beginning and ending values are:
10/21/94** 5/96
ML International Equity Fund++--
Class A Shares*+++ $ 9,475 $10,289
ML International Equity Fund++--
Class C Shares* $10,000 $10,686
Financial Times/S&P--
Actuaries World (Ex-US) Index++++ $10,000 $11,593
A line graph depicting the growth of an investment in the Fund's
Class B Shares and Class D Shares compared to growth of an investment
in Financial Times/S&P--Actuaries World (Ex-US) Index. Beginning and
ending values are:
7/30/93** 5/96
ML International Equity Fund++--
Class B Shares* $10,000 $12,222
ML International Equity Fund++--
Class D Shares*+++ $ 9,475 $12,031
Financial Times/S&P--
Actuaries World (Ex-US) Index++++ $10,000 $12,835
[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.
++++This unmanaged capitalization-weighted Index is comprised of over
1,800 companies in 24 countries, excluding the United States.
+++As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
<PAGE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +17.42% +11.26%
Inception (10/21/94) through 3/31/96 + 4.15 + 0.33
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +16.28% +12.28%
Inception (7/30/93) through 3/31/96 + 7.55 + 6.89
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +16.33% +15.33%
Inception (10/21/94) through 3/31/96 + 3.14 + 3.14
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/96 +17.19% +11.03%
Inception (7/30/93) through 3/31/96 + 8.38 + 6.22
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class A Shares***
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $11.73 $10.53 $0.091 $0.599 -4.23%
1995 10.53 11.13 -- -- +5.70
1/1/96--5/31/96 11.13 11.94 -- -- +7.28
------ ------
Total $0.091 Total $0.599
Cumulative total return as of 5/31/96: +8.59%**
<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.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 wereredesignated to Class D Shares.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/30/93--12/31/93 $10.00 $11.18 -- -- +11.80%
1994 11.18 10.52 $0.091 $0.490 - 0.61
1995 10.52 11.00 -- -- + 4.56
1/1/96--5/31/96 11.00 11.76 -- -- + 6.91
------ ------
Total $0.091 Total $0.490
Cumulative total return as of 5/31/96: +24.22%**
<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 deductionof any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $11.62 $10.43 $0.091 $0.582 -4.33%
1995 10.43 10.90 -- -- +4.51
1/1/96--5/31/96 10.90 11.65 -- -- +6.88
------ ------
Total $0.091 Total $0.582
Cumulative total return as of 5/31/96: +6.86%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/30/93--12/31/93 $10.00 $11.21 -- -- +12.10%
1994 11.21 10.56 $0.091 $0.566 + 0.18
1995 10.56 11.13 -- -- + 5.40
1/1/96--5/31/96 11.13 11.94 -- -- + 7.28
------ ------
Total $0.091 Total $0.566
Cumulative total return as of 5/31/96: +26.97%**
<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.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</TABLE>
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
5/31/96 2/29/96 5/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML International Equity Fund Class A Shares* $11.94 $11.44 $10.25 +16.49% +4.37%
ML International Equity Fund Class B Shares* 11.76 11.29 10.19 +15.41 +4.16
ML International Equity Fund Class C Shares* 11.65 11.19 10.10 +15.35 +4.11
ML International Equity Fund Class D Shares* 11.94 11.44 10.27 +16.26 +4.37
ML International Equity Fund Class A Shares--Total Return* +16.49 +4.37
ML International Equity Fund Class B Shares--Total Return* +15.41 +4.16
ML International Equity Fund Class C Shares--Total Return* +15.35 +4.11
ML International Equity Fund Class D Shares--Total Return* +16.26 +4.37
Financial Times/S&P--Actuaries World (Ex-US) Index**--Total Return +11.44 +3.60
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged capitalization-weighted index comprised of over 1,800
companies in 24 countries, excluding the United States.
</TABLE>
<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 Banking 523,160 Nedcor Ltd. (GDR) (d) (i) $ 5,570,789 $ 6,931,870 0.6%
Africa
Beverages 83,700 South African Breweries, Ltd. 2,411,145 2,551,360 0.2
Entertainment 2,100,000 Sun International (South
Africa), Ltd. 2,598,413 2,459,242 0.2
Mining 54,000 Anglo American Corp. of
South Africa, Ltd. 3,636,072 3,496,671 0.3
65,200 Anglo American Corp. of South
Africa, Ltd. (ADR) (a) 4,274,593 4,180,950 0.3
159,000 Driefontein Consolidated Ltd.
(ADR) (a) 2,395,717 2,325,375 0.2
263,000 Kinross Mines Ltd. 2,711,745 2,898,737 0.2
-------------- -------------- ------
13,018,127 12,901,733 1.0
Total Investments in South Africa 23,598,474 24,844,205 2.0
<PAGE>
Zimbabwe Beverages 1,591,000 Delta Corporation Ltd. 2,530,373 4,171,920 0.3
Total Investments in Zimbabwe 2,530,373 4,171,920 0.3
Total Investments in Africa 26,128,847 29,016,125 2.3
EUROPE
Finland Diversified 226,000 Outokumpu OY 3,296,280 3,980,646 0.3
Paper & Forest 628,100 Enso OY (Class A) (e) 4,574,740 4,691,790 0.4
Products 615,000 Metsa Serla OY (Class B) 4,764,160 4,176,305 0.3
515,160 UPM-Kymmene Corporation (f) (g) 9,389,414 9,904,610 0.8
-------------- -------------- ------
18,728,314 18,772,705 1.5
Total Investments in Finland 22,024,594 22,753,351 1.8
France Automobiles 52,350 Peugeot S.A. 7,547,721 7,290,522 0.6
Banking 69,200 Compagnie Financiere de Paribas 3,508,929 4,202,863 0.3
94,500 Compagnie Financiere de Suez
(Ordinary) 3,718,127 3,646,567 0.3
28,450 Societe Generale de Surveillance
S.A. (Class A)(Ordinary) 3,018,733 3,026,596 0.2
-------------- -------------- ------
10,245,789 10,876,026 0.8
Building & 20,494 Compagnie de Saint-Gobain S.A. 2,414,145 2,616,255 0.2
Construction
Communication 40,200 Alcatel Alsthom Cie Generale
Equipment d'Electricite S.A. 3,848,764 3,662,321 0.3
Engineering & 30,000 Bouygues 2,970,253 3,261,122 0.3
Construction
Financial Services 15,767 EuraFrance S.A. 4,887,174 5,995,730 0.5
Foods 21,200 Groupe Danone S.A. (ADR) (a) 3,367,962 3,100,039 0.2
Insurance 117,068 Assurances Generales de France
S.A. (AGF) 2,985,825 3,127,097 0.2
Steel 219,640 Usinor Sacilor S.A. (g) 3,279,715 3,526,135 0.3
Total Investments in France 41,547,348 43,455,247 3.4
<PAGE>
Germany Banking 17,800 Deutsche Bank AG (Ordinary) 867,216 835,760 0.1
44,498 Deutsche Bank AG (Warrants) (b) 741,059 680,884 0.0
-------------- -------------- ------
1,608,275 1,516,644 0.1
Chemicals 15,800 Bayer AG (Ordinary) 3,005,961 5,280,472 0.4
21,132 Henkel KGaA (Preferred) 8,719,082 8,883,472 0.7
-------------- -------------- ------
11,725,043 14,163,944 1.1
Engineering & 8,315 Philipp Holzmann AG 3,181,247 2,620,914 0.2
Construction
Machinery & 77,450 Kloeckner Werke AG (g) 3,951,498 2,766,071 0.2
Equipment 6,900 Mannesmann AG 1,713,447 2,393,296 0.2
-------------- -------------- ------
5,664,945 5,159,367 0.4
Retail 9,695 Karstadt AG 3,783,415 3,818,280 0.3
Total Investments in Germany 25,962,925 27,279,149 2.1
Greece Banking 33,480 Ergo Bank S.A. (Registered) 1,594,105 1,833,323 0.1
Food & Household 137,292 Hellenic Bottling Co. S.A. 2,763,631 4,749,220 0.4
Products
Telecommuni- 319,600 Hellenic Tellecommunication
cations Organization S.A. (g) 5,467,405 5,325,783 0.4
Total Investments in Greece 9,825,141 11,908,326 0.9
Hungary Telecommuni- 26,000 Magyar TarKozlesi Reszvenytarsasag
cations (Ordinary) (g) 4,349,463 3,927,492 0.3
Total Investments in Hungary 4,349,463 3,927,492 0.3
Ireland Insurance 1,217,000 Irish Life PLC 4,006,737 4,920,832 0.4
Packaging & 1,161,675 Jefferson Smurfit Group PLC
Containers (Ordinary) 3,553,498 3,023,440 0.2
Total Investments in Ireland 7,560,235 7,944,272 0.6
<PAGE>
Italy Automobiles 1,180,000 Fiat S.p.A. (Ordinary) 3,540,591 4,162,460 0.3
Building & 671,350 Fochi Filippo S.p.A. (g) 2,130,531 175,985 0.0
Construction
Chemicals 8,950,000 Montedison S.p.A. (g) 6,982,245 5,445,307 0.4
Diversified 8,003,400 Compagnie Industrial Riunite
S.p.A. (CIR) (g) 7,348,440 5,268,258 0.4
Insurance 275,000 Assicurazioni Generali S.p.A. 6,963,833 6,532,363 0.5
2,227,400 Istituto Nazionale delle
Assicurazioni S.p.A. (INA) (g) 3,156,353 3,337,496 0.3
-------------- -------------- ------
10,120,186 9,869,859 0.8
Oil & Related 774,900 Ente Nazionale Idrocarburi
S.p.A. (ENI) (g) 3,031,553 3,676,386 0.3
Telecommuni- 2,764,400 STET, Di Risp (Non-Convertible) 6,501,552 7,917,456 0.6
cations
Total Investments in Italy 39,655,098 36,515,711 2.8
Netherlands Chemicals 122,815 European Vinyls Corporation
International N.V. 4,990,011 4,241,445 0.3
Finance 63,100 AEGON N.V. (Ordinary) 1,391,625 3,021,295 0.2
Insurance 40,030 Amev N.V. (Ordinary) 1,576,490 3,118,704 0.2
43,250 Internationale Nederlanden
Groep N.V. 1,881,465 3,559,442 0.3
-------------- -------------- ------
3,457,955 6,678,146 0.5
Packaging & 128,600 Koninklijke KNP BT N.V. 3,005,375 3,206,720 0.3
Containers
Telecommuni- 81,600 Royal PTT Nederland N.V. 2,983,887 2,951,815 0.2
cations
Transportation 60,500 KLM Royal Dutch Airlines 1,656,767 2,160,208 0.2
Total Investments in the Netherlands 17,485,620 22,259,629 1.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
<PAGE>
Norway Consumer Goods 60,600 Orkla A.S. (Class A) $ 3,061,837 $ 3,009,611 0.2%
Oil & Gas Producers 187,545 Saga Petroleum A.S. (Class B) 2,077,990 2,457,901 0.2
Oil & Related 84,350 Norsk Hydro A.S. 3,532,985 4,001,644 0.3
Total Investments in Norway 8,672,812 9,469,156 0.7
Poland Automobiles & 97,200 T.C. Debica S.A. (g) 1,310,106 2,180,187 0.2
Equipment
Engineering & 660,503 Mostostal-Export S.A. 1,679,914 2,000,028 0.2
Construction
Total Investments in Poland 2,990,020 4,180,215 0.4
Portugal Banking 61,200 Banco Comercial Portugues
S.A. (ADR) (a) 872,389 757,350 0.1
Diversified 224,900 Sonae Investimentos-SGPS S.A. 5,144,776 5,696,226 0.4
Total Investments in Portugal 6,017,165 6,453,576 0.5
Spain Banking 24,500 Banco Popular Espanol (Ordinary) 2,677,926 4,277,022 0.4
Engineering & 17,550 Fomento de Construcciones Y
Construction Contratas S.A. (g) 1,453,057 1,405,638 0.1
Oil & Related 50,450 Repsol S.A. (Ordinary) 1,398,787 1,726,128 0.1
Total Investments in Spain 5,529,770 7,408,788 0.6
Sweden Automobiles & 127,200 Volvo AB (Class B) 2,331,066 2,696,078 0.2
Equipment
Banking 257,900 Sparbanken Sverige AB (Class A) 3,027,037 3,030,462 0.2
Electrical 102,705 Electrolux AB 4,981,607 5,239,817 0.4
Engineering & 107,300 SKF AB 1,967,545 2,346,105 0.2
Construction 38,050 SKF AB 'B' Free 738,751 854,598 0.1
269,900 Svedala Industry 3,249,266 5,178,727 0.4
-------------- -------------- ------
5,955,562 8,379,430 0.7
<PAGE>
Finance 137,475 Stadshypotek AB 2,033,430 2,821,846 0.2
Forest Products 145,600 Mo och Domsjo AB (Class B) 3,647,878 3,735,777 0.3
2,297,200 Rottneros Bruks AB 3,542,973 2,630,995 0.2
299,400 Stora Kopparbergs AB 3,864,464 3,985,706 0.3
-------------- -------------- ------
11,055,315 10,352,478 0.8
Insurance 78,350 Skandia Forsakrings AB 1,786,973 1,998,635 0.2
Metals & Mining 272,200 Avesta Sheffield AB 2,440,788 2,773,378 0.2
Total Investments in Sweden 33,611,778 37,292,124 2.9
Switzer- Chemicals 5,485 Ciba-Geigy AG (Registered) 3,825,119 6,044,210 0.5
land 7,005 Clariant AG 2,291,190 2,500,184 0.2
-------------- -------------- ------
6,116,309 8,544,394 0.7
Diversified 41,550 Oerlikon-Buehrle Holding AG (g) 4,477,942 4,322,583 0.3
Jewelry 23,010 SMH AG (Societe Suisse pour la
Microelectronique et l'Horlogerie) 3,231,478 3,572,295 0.3
Leisure 2,586 Fotolabo S.A. 1,072,731 1,086,468 0.1
Pharmaceu- 2,462 Sandoz AG 2,696,527 2,557,359 0.2
ticals
Total Investments in Switzerland 17,594,987 20,083,099 1.6
Turkey Beverages 6,090,927 Erciyas Biracilik Ve Malt
Sanayii A.S. 4,022,752 3,178,819 0.2
Metal 22,550,000 Eregli Demir Ve Celik Fabrikalari T.A.S. 2,537,377 2,439,855 0.2
Fabricating
Retail 4,640,825 Migros Turk A.S. 2,111,166 3,485,344 0.3
Total Investments in Turkey 8,671,295 9,104,018 0.7
<PAGE>
United Banking 648,960 Lloyds Bank PLC 3,037,529 3,136,751 0.2
Kingdom
Beverages 546,300 Grand Metropolitan PLC (Ordinary) 3,378,498 3,689,990 0.3
128,650 Matthew Clark PLC 1,533,586 1,590,451 0.1
-------------- -------------- ------
4,912,084 5,280,441 0.4
Diversified 1,005,800 Hanson PLC (Ordinary) 3,017,809 2,898,225 0.2
677,600 Tomkins PLC 2,319,318 2,687,329 0.2
-------------- -------------- ------
5,337,127 5,585,554 0.4
Food Processing 249,920 Unilever PLC 4,614,951 4,642,241 0.4
Insurance 487,500 Prudential Corp. PLC 2,379,631 3,247,510 0.3
Pharmaceuticals 310,200 Glaxo Holdings PLC 3,684,415 4,031,914 0.3
Retail 708,000 Tesco PLC (Ordinary) 3,035,926 3,301,469 0.3
Telecommuni- 1,110,200 British Telecommunications PLC
cations (Ordinary) 6,097,890 6,105,723 0.5
Utilities 953,900 British Gas PLC (Ordinary) 3,591,832 2,822,563 0.2
Total Investments in the 36,691,385 38,154,166 3.0
United Kingdom
Total Investments in Europe 288,189,636 308,188,319 24.0
LATIN
AMERICA
Argentina Banking 102,500 Banco Frances del Rio de la Plata
S.A. (ADR) (a) 2,380,657 2,882,812 0.2
Oil & 790,000 Companhia Naviera Perez Companc
Related S.A.C.F.I.M.F.A. (Class B) 4,882,504 5,040,956 0.4
Telecommuni- 46,700 Telefonica de Argentina S.A. (Class B)
cations (ADR) (a) 1,137,452 1,360,137 0.1
Total Investments in Argentina 8,400,613 9,283,905 0.7
<PAGE>
Brazil Banking 382,500,000 Banco Bradesco S.A. PN (Preferred) 4,430,630 4,445,892 0.3
Beverages 10,344,000 Companhia Cervejaria Brahma S.A.
PN (Preferred) 5,032,202 6,167,014 0.5
608,470 Companhia Cervejaria Brahma S.A. PN
(Warrants) (b) 30,843 30,484 0.0
-------------- -------------- ------
5,063,045 6,197,498 0.5
Steel 5,242,300,000 Usinas Siderurgicas de Minas Gerais--
Usiminas S.A. (Preferred) 5,649,992 5,725,556 0.4
Telecommuni- 238,000 Telecomunicacoes Brasileiras S.A--
cations Telebras (ADR) (a) 10,705,155 15,321,250 1.2
Utilities 103,250 Companhia Energetica de Minas Gerais
S.A.(CEMIG) (ADR) (a) 2,650,313 2,684,500 0.2
Total Investments in Brazil 28,499,135 34,374,696 2.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Chile Banking 100,000 Banco O'Higgins S.A. (ADR) (a) $ 2,450,920 $ 2,275,000 0.2%
Telecommuni- 52,825 Compania de Telecomunicaciones
cations de Chile S.A. (ADR) (a) 3,756,222 4,820,281 0.4
Utilities 80,000 Enersis S.A. (ADR) (a) 2,002,257 2,350,000 0.2
Total Investments in Chile 8,209,399 9,445,281 0.8
Mexico Beverages 116,600 Panamerican Beverages, Inc. (Class A) 5,234,832 4,897,200 0.4
Broadcast--Media 78,000 Grupo Televisa, S.A. de C.V.
(ADR) (a)(g) 2,010,348 2,398,500 0.2
Building & 797,050 Apasco, S.A. de C.V. 4,427,193 4,307,214 0.3
Construction
Forestry 216,000 Kimberly-Clark de Mexico, S.A. de
C.V. (ADR) (a) 7,896,272 7,857,000 0.6
Multi-Industry 814,063 Grupo Carso, S.A. de C.V. 'A1' (g) 4,153,613 6,026,838 0.5
Total Investments in Mexico 23,722,258 25,486,752 2.0
Total Investments in Latin America 68,831,405 78,590,634 6.1
<PAGE>
MIDDLE
EAST
Israel Banking 2,099,000 Bank Hapoalim Ltd. 3,513,500 3,108,497 0.2
Engineering & 58,140 Koor Industries Ltd. 5,336,358 5,028,849 0.4
Construction
Total Investments in the Middle East 8,849,858 8,137,346 0.6
PACIFIC
BASIN
Australia Food & Beverage 2,877,315 Coca-Cola Amatil, Ltd. 15,727,203 31,333,874 2.4
Media 458,847 The News Corp., Ltd. (Ordinary) 2,356,360 2,573,459 0.2
260,450 The News Corp., Ltd. (Preferred) 1,148,701 1,269,579 0.1
-------------- -------------- ------
3,505,061 3,843,038 0.3
Merchandising 78,500 Amway Asia Pacific Ltd. 2,536,717 2,286,312 0.2
Property 1,556,541 Lend Lease Corp. 20,004,400 24,339,445 1.9
Resources 191,964 Broken Hill Proprietary Co. 2,423,961 2,894,514 0.2
Total Investments in Australia 44,197,342 64,697,183 5.0
Hong Kong Banking 1,564,826 HSBC Holdings PLC 19,354,506 23,664,130 1.8
132,000 J.C.G. Holdings Ltd. 124,849 108,339 0.0
-------------- -------------- ------
19,479,355 23,772,469 1.8
Conglomerates 2,333,325 Hutchison Whampoa Ltd. 12,386,774 14,988,917 1.2
Diversified 2,136,000 Swire Pacific Ltd. (Class A) 14,470,683 18,980,716 1.5
Foods 20,838,000 Tingyi (Cayman Islands) Holdings
Co. (g) 5,493,255 5,656,059 0.4
Insurance 698,000 National Mutual Asia Ltd. 733,581 631,527 0.1
Property 1,897,000 Cheung Kong (Holdings) Ltd. 13,189,233 14,037,231 1.1
Total Investments in Hong Kong 65,752,881 78,066,919 6.1
<PAGE>
Japan Automobiles 1,879,000 Suzuki Motor Corp. 21,118,332 23,850,922 1.9
Beverages 139,000 Chukyo Coca-Cola Bottling Co., Ltd. 1,835,949 1,609,840 0.1
183,000 Hokkaido Coca-Cola Bottling Co., Ltd. 2,818,281 2,594,181 0.2
165,000 Kinki Coca-Cola Bottling Co., Ltd. 2,625,747 2,491,893 0.2
197,000 Mikuni Coca-Cola Bottling Co., Ltd. 3,160,732 2,938,664 0.2
153,000 Sanyo Coca-Cola Bottling Co., Ltd. 2,332,375 2,268,137 0.2
-------------- -------------- ------
12,773,084 11,902,715 0.9
Capital Goods 4,072,000 Mitsubishi Heavy Industries, Ltd. 28,643,076 35,049,458 2.7
Chemicals 972,300 Shin-Etsu Chemical Co., Ltd. 19,285,491 19,458,612 1.5
Containers 906,000 Toyo Seikan Kaisha, Ltd. 27,433,696 32,402,112 2.5
Electric 380,000 Chudenko Corp. 13,592,350 13,731,122 1.1
Construction 935,000 Kinden Corp. 16,982,687 14,987,029 1.2
435,000 Sanki Engineering Co., Ltd. 6,151,018 5,884,369 0.5
448,800 Taihei Dengyo Kaisha, Ltd. 9,664,950 6,861,114 0.5
-------------- -------------- ------
46,391,005 41,463,634 3.3
Electrical 981,000 Murata Manufacturing Co., Ltd. 36,563,258 35,993,329 2.8
Equipment 1,042,000 NEC Corporation 14,026,740 11,488,743 0.9
532,000 Rohm Co., Ltd. 22,784,844 33,320,856 2.6
-------------- -------------- ------
73,374,842 80,802,928 6.3
Iron & Steel 381,000 Maruichi Steel Tube, Ltd. 6,880,001 6,918,929 0.5
Office Equipment 1,792,000 Canon Inc. 31,370,583 35,199,111 2.7
Pharmaceuticals 883,000 Sankyo Co., Ltd. 19,663,821 20,943,945 1.6
633,000 Taisho Pharmaceutical Co., Ltd. 12,492,487 14,134,439 1.1
-------------- -------------- ------
32,156,308 35,078,384 2.7
Property & 2,080,000 Dai-Tokyo Fire & Marine Insurance
Casualty Co., Ltd. 15,360,286 15,128,324 1.2
Insurance 851,000 Fuji Fire & Marine Insurance
Co., Ltd. 5,819,056 4,612,573 0.4
1,268,000 Koa Fire & Marine Insurance
Co., Ltd. 8,833,667 8,047,623 0.6
742,000 Mitsui Marine & Fire Insurance
Co., Ltd. 6,045,628 5,740,480 0.5
1,780,800 Nichido Fire & Marine Insurance
Co., Ltd. 12,951,468 14,503,133 1.1
733,000 Nippon Fire & Marine Insurance
Co., Ltd. 5,400,442 4,849,087 0.4
2,124,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 17,960,159 19,246,475 1.5
1,468,000 Tokio Marine & Fire Insurance
Co., Ltd. 17,341,002 19,041,972 1.5
1,257,000 Yasuda Fire & Marine Insurance
Co., Ltd. 9,408,702 9,363,736 0.7
-------------- -------------- ------
99,120,410 100,533,403 7.9
</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 Retail 564,000 Ito-Yokado Co., Ltd. $ 29,397,786 $ 32,032,984 2.5%
(concluded) 138,000 Sangetsu Co., Ltd. 4,742,639 3,401,093 0.3
-------------- -------------- ------
34,140,425 35,434,077 2.8
Tire & Rubber 787,000 Bridgestone Corporation 14,319,984 13,708,515 1.1
Total Investments in Japan 447,007,237 471,802,800 36.8
Malaysia Banking 854,000 Malayan Banking BHD 7,214,839 8,105,647 0.6
1,826,000 Public Bank (Malaysia) BHD 4,300,793 4,936,123 0.4
'Foreign' -------------- -------------- ------
11,515,632 13,041,770 1.0
Broadcasting & 956,000 New Straits Times Press (Malaysia) BHD 5,178,451 4,938,887 0.4
Publishing
Telecommunications 599,000 Telekom Malaysia BHD 4,661,003 5,469,443 0.4
Total Investments in Malaysia 21,355,086 23,450,100 1.8
New Chemicals 60,000 Fernz Corporation Ltd. 163,272 176,508 0.0
Zealand
Diversified 1,781,100 Brierley Investments Ltd. 1,368,515 1,585,204 0.1
Electronics 25,000 PDL Holdings Ltd. 140,651 123,141 0.0
Finance 2,484,300 Wrightson Ltd. 1,894,078 1,721,590 0.1
Foreign NZ$ 12,200,000 New Zealand Government Bonds,
Government 9% due 11/15/1996 7,599,617 8,265,803 0.6
Obligations
Telecommuni- 698,000 Telecom Corporation of New Zealand 3,007,863 2,835,843 0.2
cations
Textiles 298,800 Lane Walker Rudkin Industries, Ltd. 356,852 324,808 0.0
Total Investments in New Zealand 14,530,848 15,032,897 1.0
<PAGE>
South Korea Telecommuni- 169,000 Korea Mobile Telecommunications
cations Corp. (GDR) (d) (i) 7,568,688 9,717,500 0.8
Utilities 274,900 Korea Electric Power Corp. 10,807,463 12,222,740 1.0
Total Investments in South Korea 18,376,151 21,940,240 1.8
Thailand Banking 320,500 Finance One Public Co., Ltd. 'Foreign' 2,622,142 2,406,917 0.2
1,675,300 Krung Thai Bank Public Co., Ltd. 7,939,717 8,542,043 0.7
1,111,400 Phatra Thanakit Public Co., Ltd.
'Foreign' 10,496,114 9,664,348 0.8
Total Investments in Thailand 21,057,973 20,613,308 1.7
Total Investments in the
Pacific Basin 632,277,518 695,603,447 54.2
SOUTHEAST
ASIA
India Automobiles 144,000 Ashok Leyland Ltd. (GDR) (d) 1,763,344 2,052,000 0.2
102,000 Ashok Leyland Ltd. (GDR) (d) (i) 1,304,580 1,453,500 0.1
-------------- -------------- ------
3,067,924 3,505,500 0.3
Banking 455,000 State Bank of India (g) 3,153,342 3,670,830 0.3
Chemicals 265,000 Reliance Industries Ltd. 1,806,744 1,818,404 0.1
139,300 Reliance Industries Ltd. (GDS) (c) (i) 2,581,221 2,124,325 0.2
-------------- -------------- ------
4,387,965 3,942,729 0.3
Financial 1,000,400 Industrial Credit & Investment
Services Corporation of India 3,286,841 2,663,999 0.2
Hotels 100,000 East India Hotels Ltd. (GDR) (d) 2,772,887 2,800,000 0.2
Real Estate 44,280 Housing Development Finance
Corp., Ltd. 3,461,023 3,651,543 0.3
Utilities 146,500 Bombay Suburban Electric Supply
Co. Ltd.(GDR) (d) (g) 2,711,447 2,856,750 0.2
Total Investments in India 22,841,429 23,091,351 1.8
<PAGE>
Indonesia Food & Household 1,285,000 P.T. Wicaksana Overseas
Products International 2,158,799 3,306,175 0.3
Telecommuni- 2,980,000 P.T. Kabelmetal Indonesia 3,771,842 1,565,395 0.1
cations
Total Investments in Indonesia 5,930,641 4,871,570 0.4
Total Investments in Southeast Asia 28,772,070 27,962,921 2.2
SHORT-TERM Face
SECURITIES Amount Issue
Commercial US$ 25,000,000 CXC Inc., 5.30% due 6/11/1996 24,963,194 24,963,194 2.0
Paper* 5,500,000 Eureka Securitization, 5.30%
due 7/18/1996 5,461,943 5,461,943 0.4
5,525,000 Falcon Asset Securitization Corp.,
5.30% due 6/03/1996 5,523,373 5,523,373 0.4
8,744,000 Ford Motor Credit Co., 5.40%
due 6/03/1996 8,741,377 8,741,377 0.7
Total Investments in Commercial Paper 44,689,887 44,689,887 3.5
Foreign C$ 43,030,000 Canadian Treasury Bills, 4.935%
Government due 10/24/1996 30,942,029 30,796,602 2.4
Obligations*
Total Investments in Foreign
Government Obligations 30,942,029 30,796,602 2.4
US Government & United States Treasury Bills (h):
Agency US$ 90,000 4.95% due 7/25/1996 89,332 89,357 0.0
Obligations* 10,000,000 4.955% due 7/25/1996 9,925,675 9,928,500 0.8
380,000 4.96% due 7/25/1996 377,173 377,283 0.0
32,050,000 4.99% due 7/25/1996 31,810,106 31,820,843 2.5
8,000,000 4.995% due 7/25/1996 7,940,060 7,942,800 0.6
Total Investments in US Government &
Agency Obligations 50,142,346 50,158,783 3.9
Total Investments in Short-Term
Securities 125,774,262 125,645,272 9.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
OPTIONS Number of Contracts/ Premiums Value Percent of
PURCHASED Face Amount Issue Paid (Note 1a) Net Access
<S> <C> <S> <C> <C> <C>
Call Options 3,655 NZ Top Ten, expiring August 1996
Purchased at NZ$1,094.34 $ 180,690 $ 32,432 0.0%
Currency Call 25,810,000 Canadian Dollar, expiring August
Options Purchased 1996 at C$1.34 38,715 30,972 0.0
Currency Put 120,000,000 Japanese Yen, expiring June 1996
Options Purchased at YEN 108 1,062,000 696,000 0.1
51,000,000 Japanese Yen, expiring September
1996 at YEN 105 1,198,500 1,438,200 0.1
-------------- -------------- ------
2,260,500 2,134,200 0.2
Put Options Purchased 150 Bovespa, expiring November 1996
at US$55,198 450,000 500,397 0.0
Total Options Purchased 2,929,905 2,698,001 0.2
Total Investments 1,181,753,501 1,275,842,065 99.4
OPTIONS Premiums
WRITTEN Received
Call Options Written 150 Bovespa, expiring November 1996 at
US$55,198 (450,000) (1,014,220) (0.1)
Put Options Written 3,655 NZ Top Ten, expiring August 1996
at NZ$1,094.34 (85,749) (165,140) 0.0
Total Options Written (535,749) (1,179,360) (0.1)
<PAGE>
Total Investments, Net of Options Written $1,181,217,752 1,274,662,705 99.3
==============
Variation Margin on Financial Futures Contracts** 179,070 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 52,261 0.0
Other Assets Less Liabilities 9,238,402 0.7
Net Assets $1,284,132,438 100.0%
============== ======
<FN>
(a)American Depositary Receipts (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)Global Depositary Shares (GDS).
(d)Global Depositary Receipts (GDR).
(e)Created from the merger of Enso-Gutzeit OY and Veitsiluoto OY.
(f)Created from the merger of Kymmene Corporation and Repola Ltd.
(g)Non-income producing security.
(h)Securities held as collateral in connection with open financial
futures contracts.
(i)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $20,227,000,
representing 1.6% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
Ashok Leyland Ltd. 3/09/1995-
(GDR) 10/23/1995 $1,304,580 $1,453,500
Korea Mobile
Telecommuni-
cations Corp.(GDR) 11/01/1995-
2/26/1996 7,568,688 9,717,500
Nedcor Ltd. (GDR) 5/23/1995 5,570,789 6,931,870
Reliance Industries 5/18/1995-
Ltd.(GDS) 7/11/1995 2,581,221 2,124,325
Total $17,025,278 $20,227,195
=========== ===========
*Commercial Paper and certain Foreign Government and US Government &
Agency Obligations are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund.
<PAGE>
**Financial futures contracts purchased as of May 31, 1996 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
<C> <S> <S> <S> <C>
220 Tokyo-Topix TFE June 1996 $34,162,883
Total Financial Futures Contracts Purchased
(Total Contract Price--$31,355,415) $34,162,883
===========
Financial futures contracts sold as of May 31, 1996 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
<C> <S> <S> <S> <C>
77 DAX Index DTB June 1996 $12,733,257
Total Financial Futures Contracts Sold
(Total Contract Price--$12,800,721) $12,733,257
===========
***Forward foreign exchange contracts as of May 31, 1996 were as follows:
<CAPTION>
Unrealized
Foreign Appreciation
Currency Expiration (Depreciation)
Purchased Date (Note 1c)
<S> <C> <S> <C>
Chf 9,565,600 August 1996 $(181,975)
YEN 3,224,340,000 June 1996 (68,448)
YEN 1,256,112,000 August 1996 (235,520)
Total (US Commitment--$49,886,228) $(485,943)
---------
Foreign
Currency Sold
Chf 9,565,600 August 1996 175,154
DM 21,046,350 June 1996 (1,013)
YEN 2,061,059,962 August 1996 307,013
NZ$ 12,500,000 August 1996 57,050
Total (US Commitment--$49,756,623) $ 538,204
---------
Total Unrealized Appreciation--Net on
Forward Foreign Exchange Contracts $ 52,261
=========
See Notes to Financial Statements.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments as of
May 31, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Murata Manufacturing Co., Ltd. 2.8%
Canon Inc. 2.7
Mitsubishi Heavy Industries, Ltd. 2.7
Rohm Co., Ltd. 2.6
Toyo Seikan Kaisha, Ltd. 2.5
Ito-Yokado Co., Ltd. 2.5
Coca-Cola Amatil, Ltd. 2.4
Lend Lease Corp. 1.9
Suzuki Motor Corp. 1.9
HSBC Holdings PLC 1.8
Percent of
Ten Largest Countries Net Assets
Japan 36.8 %
Hong Kong 6.1
Australia 5.0
France 3.4
United Kingdom 3.0
Sweden 2.9
Italy 2.8
Brazil 2.6
Germany 2.1
Mexico 2.0
Percent of
Asset Mix* Net Assets
Japan 36.8%
Europe (Ex-United Kingdom
and Ireland) 20.4
Pacific Basin (Ex-Japan) 17.4
Other Emerging Markets 11.2
Cash 9.8
United Kingdom and Ireland 3.6
[FN]
*Percent of net assets may not equal 100%, and
excludes the impact of futures and options.
<PAGE>
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 8.2%
Property & Casualty Insurance 7.9
Electrical Equipment 6.3
Telecommunications 5.2
Chemicals 4.3
Retail 3.7
Diversified 3.4
Electrical Construction 3.3
Pharmaceuticals 3.2
Automobiles 3.1
Financial Futures Contracts
Percent of
Country Issue Exchange Net Assets
Japan Tokyo-Topix TFE 2.7%
Germany DAX Index DTB (1.0)
-----
1.7%
=====
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,178,823,596) (Note 1a) $1,273,144,064
Unrealized appreciation on forward foreign exchange contracts
(Note 1c) 52,261
Variation margin on stock index futures contracts (Note 1c) 179,070
Options purchased, at value (cost--$2,929,905) (Notes 1a & 1c) 2,698,001
Foreign cash (Note 1b) 675,908
Receivables:
Securities sold $ 8,104,754
Dividends 5,284,629
Capital shares sold 1,589,282
Forward foreign exchange contracts (Note 1c) 447,496
Interest 34,461 15,460,622
--------------
Deferred organization expenses (Note 1f) 54,971
Prepaid registration fees and other assets (Note 1f) 51,232
--------------
Total assets 1,292,316,129
--------------
<PAGE>
Liabilities: Options written, at value (premiums received--$535,749)
(Notes 1a & 1c) 1,179,360
Payables:
Capital shares redeemed 2,666,245
Securities purchased 680,914
Distributor (Note 2) 882,873
Investment adviser (Note 2) 820,586
Forward foreign exchange contracts (Note 1c) 786,225
-------------- 5,836,843
Accrued expenses and other liabilities 1,167,488
--------------
Total liabilities 8,183,691
--------------
Net Assets: Net assets $1,284,132,438
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 976,942
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 8,039,467
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 403,198
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 1,467,280
Paid-in capital in excess of par 1,177,664,605
Undistributed investment income--net 9,462,216
Accumulated realized capital losses on investments
and foreign currency transactions--net (10,263,611)
Unrealized appreciation on investments and foreign
currency transactions--net 96,382,341
--------------
Net assets $1,284,132,438
==============
Net Asset Class A--Based on net assets of $116,627,795 and 9,769,423
Value: shares of beneficial interest outstanding $ 11.94
==============
Class B--Based on net assets of $945,368,518 and 80,394,674
shares of beneficial interest outstanding $ 11.76
==============
Class C--Based on net assets of $46,984,696 and 4,031,983
shares of beneficial interest outstanding $ 11.65
==============
Class D--Based on net assets of $175,151,429 and 14,672,797
shares of beneficial interest outstanding $ 11.94
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 1996
<S> <S> <C> <C>
Investment Income Dividends (net of $2,408,337 foreign withholding tax) $ 20,015,429
(Notes 1d & 1e): Interest and discount earned 10,967,277
Other 174,902
--------------
Total income 31,157,608
--------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) 9,457,982
Investment advisory fees (Note 2) 9,452,920
Transfer agent fees--Class B (Note 2) 1,833,863
Custodian fees 1,218,514
Account maintenance fees--Class D (Note 2) 454,995
Account maintenance and distribution fees--Class C (Note 2) 361,124
Printing and shareholder reports 314,488
Transfer agent fees--Class D (Note 2) 296,886
Transfer agent fees--Class A (Note 2) 153,052
Registration fees (Note 1f) 106,749
Professional fees 93,963
Accounting services (Note 2) 82,867
Transfer agent fees--Class C (Note 2) 71,630
Trustees' fees and expenses 38,821
Amortization of organization expenses (Note 1f) 25,500
Pricing fees 14,509
Other 48,196
--------------
Total expenses 24,026,059
--------------
Investment income--net 7,131,549
--------------
Realized & Realized gain from:
Unrealized Gain on Investments--net $ 60,098,642
Investment & Foreign currency transactions--net 15,506,326 75,604,968
Foreign Currency --------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments--net 75,561,933
1e & 3): Foreign currency transactions--net 24,712,028 100,273,961
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 175,878,929
--------------
Net Increase in Net Assets Resulting from Operations $ 183,010,478
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 7,131,549 $ 5,814,078
Realized gain (loss) on investments and foreign
currency transactions--net 75,604,968 (57,502,198)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 100,273,961 (30,827,626)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 183,010,478 (82,515,746)
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A -- (599,105)
Shareholders Class B -- (3,723,247)
(Note 1g): Class C -- (112,393)
Class D -- (2,136,488)
Realized gain on investments--net:
Class A -- (2,168,344)
Class B -- (50,410,142)
Class C -- (457,066)
Class D -- (9,932,493)
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders -- (69,539,278)
-------------- --------------
Beneficial Net increase (decrease) in net assets derived from
Interest beneficial interest transactions (149,701,161) 350,576,453
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 33,309,317 198,521,429
Beginning of year 1,250,823,121 1,052,301,692
-------------- --------------
End of year* $1,284,132,438 $1,250,823,121
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ 8,006,727 --
============== ==============
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the
The following per share data and ratios Period Period
have been derived from information provided For the Oct. 21, July 30,
in the financial statements. Year Ended 1994++ to For the Year 1993++ to
May 31, May 31, Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.25 $ 11.73 $ 10.19 $ 11.44 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .16 .26 .04 .02 (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.53 (1.05) 1.53 (.69) 1.46
-------- -------- -------- -------- --------
Total from investment operations 1.69 (.79) 1.57 (.67) 1.44
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.15) -- (.04) --
Realized gain on investments--net -- (.54) -- (.54) --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.69) -- (.58) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.94 $ 10.25 $ 11.76 $ 10.19 $ 11.44
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 16.49% (6.78%)+++ 15.41% (5.91%) 14.40%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.06% 1.23%* 2.09% 2.13% 2.07%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net 1.47% 4.64%* .37% .23% (.19%)*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $116,628 $ 74,478 $945,368 $961,941 $844,295
Data: ======== ======== ======== ======== ========
Portfolio turnover 71.86% 63.95% 71.86% 63.95% 50.63%
======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0005 -- $ .0005 -- --
======== ======== ======== ======== ========
<PAGE>
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios Period Period
have been derived from information provided For the Oct. 21, July 30,
in the financial statements. Year Ended 1994++ to For the Year 1993++ to
May 31, May 31, Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.10 $ 11.62 $ 10.27 $ 11.51 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .05 .24 .13 .10 .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.50 (1.09) 1.54 (.68) 1.47
-------- -------- -------- -------- --------
Total from investment operations 1.55 (.85) 1.67 (.58) 1.51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.13) -- (.12) --
Realized gain on investments--net -- (.54) -- (.54) --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.67) -- (.66) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.65 $ 10.10 $ 11.94 $ 10.27 $ 11.51
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 15.35% (7.36%)+++ 16.26% (5.11%) 15.10%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.09% 2.30%* 1.31% 1.34% 1.31%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net .45% 4.26%* 1.13% .85% .55%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 46,985 $ 25,822 $175,151 $188,583 $208,007
Data: ======== ======== ======== ======== ========
Portfolio turnover 71.86% 63.95% 71.86% 63.95% 50.63%
======== ======== ======== ======== ========
Average commission rate period++++++ $ .0005 -- $ .0005 -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995, the
Fundis required to disclose its average commission rate per share
for purchases and sales of equity securities.
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 Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
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 exchange
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 prior to
the time of valuation. 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. 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. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Trustees.
(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
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
<PAGE>
(c) Derivative financial instruments-- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt, and
currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. 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.
* Foreign currency options and futures--The Fund may also
purchase or sell listed or over-the-counter foreign 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.
* Forward foreign exchange contracts--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.
* Options--The Fund is authorized to write and purchase put and call
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 market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds 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).
<PAGE>
Written and purchased options are non-income producing
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions 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 dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(f) 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.
(g) Dividends and distributions--Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $2,330,667 have been reclassified from accumulated net realized
capital losses to undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
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"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<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, pursuant
to which MLAM pays MLAM U.K. a fee in an amount to be determined
from time to time by MLAM and MLAM U.K. but in no event in excess of
the amount that MLAM actually receives. For the year ended May 31,
1996, MLAM paid MLAM U.K. a fee of $1,248,157 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 MLAM
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.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services
to the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
NOTES TO FINANCIAL STATEMENTS (concluded)
<PAGE>
For the year ended May 31, 1996, MLFD earned underwriting discounts
and commissions and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 1,706 $ 22,948
Class D $20,061 $297,783
For the year ended May 31, 1996, MLPF&S received contingent deferred
sales charges of $2,627,300 and $18,603 relating to transactions in
Class B and Class C Shares, respectively.
In addition, MLPF&S received $200,005 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended May 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 1996 were $791,816,151 and $861,776,976,
respectively.
Net realized and unrealized gains (losses) as of May 31, 1996 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ 32,815,774 $ 94,449,458
Short-term 608,644 (128,990)
Stock index futures
contracts 26,570,736 2,874,932
Options written (1,762,644) (643,611)
Options purchased 1,866,132 (97,861)
-------------- --------------
Total investments 60,098,642 96,453,928
Currency transactions:
Options written 4,935,919 --
Options purchased 10,660,838 (134,043)
Forward foreign exchange
contracts 21,188,388 52,261
Foreign currency
transactions (21,278,819) 10,195
-------------- --------------
Total currency transactions 15,506,326 (71,587)
-------------- --------------
Total $ 75,604,968 $ 96,382,341
============== ==============
<PAGE>
Transactions in call options written for the year ended May 31, 1996
were as follows:
Par Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning of year $208,000,000 $ 3,776,319
Options written 51,074,350 2,884,251
Options closed (118,041,800) (3,683,119)
Options expired (141,032,400) (2,527,451)
------------ --------------
Outstanding call options
written at end of year $ 150 $ 450,000
============ ==============
Transactions in put options written for the year ended May 31, 1996
were as follows:
Par Value
Covered by Premiums
Written Options Received
Outstanding put options
written at beginning of year $ 10,344,060 $ 824,584
Options written 3,655 85,749
Options closed (344,060) (714,584)
Options expired (10,000,000) (110,000)
------------ --------------
Outstanding put options
written at end of year $ 3,655 $ 85,749
============ ==============
As of May 31, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $90,973,886, of which $127,633,494 related
to appreciated securities and $36,659,608 related to depreciated
securities. At May 31, 1996, the aggregate cost of investments for
Federal income tax purposes was $1,181,523,647.
<PAGE>
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $(149,701,161) and $350,576,453 for the
years ended May 31,1996 and May 31, 1995, respectively.
Transactions in shares of beneficial interest for each class were
as follows:
Class A Shares for the Year Dollar
Ended May 31, 1996 Shares Amount
Shares sold 8,917,021 $ 98,608,956
Shares redeemed (6,414,907) (71,336,354)
------------- -------------
Net increase 2,502,114 $ 27,272,602
============= =============
Class A Shares for the Period Dollar
October 21, 1994++ to May 31, 1995 Shares Amount
Shares sold 8,250,116 $ 90,125,806
Shares issued to shareholders in
reinvestment of dividends and
distributions 214,636 2,215,037
------------- -------------
Total issued 8,464,752 92,340,843
Shares redeemed (1,197,443) (12,452,266)
------------- -------------
Net increase 7,267,309 $ 79,888,577
============= =============
[FN]
++Commencement of Operations.
Class B Shares for the Year Dollar
Ended May 31, 1996 Shares Amount
Shares sold 20,260,350 $ 222,170,714
Shares redeemed (33,910,956) (370,155,135)
Automatic conversion of shares (343,919) (4,169,385)
------------- -------------
Net decrease (13,994,525) $(152,153,806)
============= =============
<PAGE>
Class B Shares for the Year Dollar
Ended May 31, 1995 Shares Amount
Shares sold 39,671,147 $ 441,827,803
Shares issued to shareholders in
reinvestment of dividends and
distributions 4,695,329 48,408,841
------------- -------------
Total issued 44,366,476 490,236,644
Shares redeemed (23,278,562) (245,072,223)
Automatic conversion of shares (497,771) (5,021,412)
------------- -------------
Net increase 20,590,143 $ 240,143,009
============= =============
Class C Shares for the Year Dollar
Ended May 31, 1996 Shares Amount
Shares sold 3,578,857 $ 39,004,743
Shares redeemed (2,103,452) (22,986,000)
------------- -------------
Net increase 1,475,405 $ 16,018,743
============= =============
Class C Shares for the Period Dollar
October 21, 1994++ to May 31, 1995 Shares Amount
Shares sold 2,764,893 $ 28,810,393
Shares issued to shareholders in
reinvestment of dividends and
distributions 49,952 510,509
------------- -------------
Total issued 2,814,845 29,320,902
Shares redeemed (258,267) (2,631,066)
------------- -------------
Net increase 2,556,578 $ 26,689,836
============= =============
[FN]
++Commencement of Operations.
<PAGE>
Class D Shares for the Year Dollar
Ended May 31, 1996 Shares Amount
Shares sold 5,012,975 $ 55,718,753
Automatic conversion of shares 340,392 4,169,385
Shares redeemed (9,050,483) (100,726,838)
------------- -------------
Net decrease (3,697,116) $ (40,838,700)
============= =============
Class D Shares for the Year Dollar
Ended May 31, 1995 Shares Amount
Shares sold 8,565,081 $ 95,498,843
Automatic conversion of shares 494,928 5,021,412
Shares issued to shareholders in
reinvestment of dividends and
distributions 979,800 10,140,928
------------- -------------
Total issued 10,039,809 110,661,183
Shares redeemed (9,738,345) (106,806,152)
------------- -------------
Net increase 301,464 $ 3,855,031
============= =============
As a result of the Merrill Lynch Select Pricing SM System, Class A
Shares of the Fund outstanding prior to October 21, 1994 were
redesignated to Class D Shares. There were 20,292,011 shares
redesignated amounting to $219,466,427.
5. Commitments:
At May 31, 1996, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to sell foreign currency with
an approximate value of $7,489,000.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors 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, 1996, the related statements
of operations for the year then ended and changes in net assets for
the two-year period then ended and the financial highlights for the
two-year period then ended and for the period from July 30, 1993
(commencement 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 audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
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, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at May 31,
1996 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 audits provide
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, 1996, the
results of its operations, the changes in its net assets, and the
financial highlights for the periods presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 12, 1996
</AUDIT-REPORT>
PORTFOLIO CHANGES (unaudited)
Additions
Anglo American Corp. of South Africa, Ltd.
Anglo American Corp. of South Africa, Ltd.
(ADR)
Apasco, S.A. de C.V.
Bombay Suburban Electric Supply Co. Ltd.
(GDR)
Bouygues
Bridgestone Corporation
Cheung Kong (Holdings) Ltd.
Clariant AG
Companhia Cervejaria Brahma S.A. PN
(Warrants)
Companhia Energetica de Minas Gerais S.A.
(CEMIG) (ADR)
<PAGE>
Companhia Naviera Perez Companc
S.A.C.F.I.M.F.A. (Class B)
East India Hotels Ltd. (GDR)
Ente Nazionale Idrocarburi S.p.A. (ENI)
Eregli Demir Ve Celik Fabrikalari T.A.S.
Fotolabo S.A.
Hanson PLC (Ordinary)
Hellenic Telecommunication Organization
S.A.
Henkel KGaA (Preferred)
Industrial Credit & Investment Corporation
of India
Karstadt AG
Kimberly-Clark de Mexico, S.A. de C.V.
(ADR)
Koninlkijke KNP BT N.V.
Matthew Clark PLC
New Straits Times Press (Malaysia) BHD
Oerlikon-Buehrle Holding AG
Orkla A.S. (Class A)
Panamerican Beverages, Inc. (Class A)
Philipp Holzmann AG
SMH AG (Societe Suisse pour la
Microelectronique et l'Horlogerie)
Sandoz AG
Skandia Forsakrings AB
South African Breweries, Ltd.
Sparbanken Sverige AB (Class A)
Sun International (South Africa), Ltd.
Tesco PLC (Ordinary)
Tingyi (Cayman Islands) Holdings Co.
Unilever PLC
Usinas Siderurgicas de Minas Gerais-
Usiminas S.A. (Preferred)
Deletions
ABN AMRO Bank (Ordinary)
Aksigorta A.S.
Alarko Holdings A.S.
BBC Brown Boveri & Cie
Banco Comercial Portugues S.A. (Registered)
Beatrix Mines Ltd.
British Petroleum Co., Ltd.
CRH PLC (Ordinary)
Cimentas Izmir Cimento Fabrikasi T.A.S.
City Developments Ltd.
Companhia Cervejaria Brahma S.A. PN
(Rights)
<PAGE>
Dardanel Onentas Gida A.S.
Development Bank of Singapore Ltd.
General Electric Co. PLC (Ordinary)
Hoechst AG
Izmir Demir Celik Sanayii A.S.
JCT Ltd. (GDR)
Malbak Ltd. (GDR)
Merita Bank Ltd. (Class A)
Metropolitan Bank and Trust Company
Nokia AB
P.T. Hanjaya Mandala Sampoerna
P.T. Indonesian Satellite Corp. (ADR)
P.T. Telekumunikasi Indonesia (ADR)
Philips Industries Inc.
Racal Electronics PLC
Rauma OY
Raymond Woolen Mills Ltd. (GDR)
Repola OY S
Resorts World BHD
Singapore Press Holdings Ltd.
T & N PLC
Telecom Argentina Stet--France Telecom
S.A. (GDS)
TelecomAsia Corp. Public Co., Ltd.
Teva Pharmaceutical Industries Ltd. (ADR)
Thai Military Bank Public Co., Ltd.
V.A.Technologie AG
Vaal Reefs Exploration & Mining Company,
Ltd.
Vereinigte Elektrizitaets & Bergwerks AG
(Veba) (Warrants)
Western Areas Gold Mining Company, Ltd.
(ADR)
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
<PAGE>
Andrew John Bascand, Vice President
Donald C. Burke, Vice President
Adrian Holmes, Vice President
Grace Pineda, Vice President
Stephen I. Silverman, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
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
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.
