MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Annual Report
May 31, 1997
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
International
Equity Fund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
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, 1997
South Africa - 2.1%
France - 1.8%
Italy + 4.0%
Mexico + 4.5%
Hong Kong + 6.6%
Germany + 6.9%
United Kingdom + 6.9%
Australia + 7.7%
Netherlands + 8.2%
Japan +11.3%
Source: Financial Times/S&P--Actuaries Index.
[FN]
*For the three-month period ended May 31, 1997, total investment
return in US dollars for the Financial Times/S&P--Actuaries World
(Ex-US) Index was +7.33%.
<PAGE>
DEAR SHAREHOLDER
International equity markets remained firm during the three months
ended May 31, 1997. The strongest equity returns were in Japan,
Latin America, Spain and Switzerland. Asian markets, particularly
Malaysia, the Philippines and Thailand, were very weak. The
unmanaged Financial Times/Standard & Poor's--Actuaries World (Ex-US)
Index total return was +7.33% in US dollar terms for the quarter
ended May 31, 1997.
Total returns for Merrill Lynch International Equity Fund's Class A,
Class B, Class C and Class D Shares were +7.98%, +7.81%, +7.73% and
+7.98%, respectively, for the three months ended May 31, 1997.
(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 reflected
overweighted positions in Japanese and Latin American equity markets
relative to Europe. Stock selection in Japan, Australia and Hong
Kong also contributed to performance.
Portfolio Matters
Overall, the Fund's effective equity exposure was approximately 90%
of net assets as of May 31, 1997, compared with 93% three months
earlier. We reduced our Continental European equity exposure
following the rise in equity markets and our increasing expectation
of the potential detrimental effect of interest rate increases on
equity valuations. In Continental Europe, the Fund's effective
exposure fell to approximately 16% from 19% with the sale of all
Spanish issues (following a significant period of outperformance)
and a reduction in German and Swiss positions. We significantly
increased our exposure to France at the end of the May quarter
following a sustained period of French equity underperformance.
Elsewhere, we reduced the Fund's exposure to Hong Kong via the
partial sale of HSBC Holdings PLC and Tingyi (Cayman Islands)
Holdings Co. and Brazil through the reduction of Telecomunicacoes
Brasileiras S.A.--Telebras (American Depositary Receipts).
Economic and Investment Environment
US final demand and output indicators have continued to be stronger
than were widely expected at the start of the year, with annual
gross domestic product (GDP) growth in the first quarter over 4% for
the first time since 1988. Nonetheless, US interest rate
expectations have fallen steadily since April, assisting the rally
in equities globally. There are two related aspects to investors'
optimistic outlook on interest rates. First, current inflation
indicators remain remarkably subdued (for example, the employment
cost index is still rising at an annual rate below 3%). Second, the
consensus expectation is for a slowdown in GDP growth over the
course of 1997 to trend, or below-trend, growth.
<PAGE>
While some signs of a US economic slowdown are apparent in interest
rate-sensitive areas of final demand, the income fundamentals
supporting personal consumption and corporate investment remain
strong. This suggests activity growth is more likely to surprise on
the upside than the down-side over coming quarters. We believe that
the US Federal Reserve Board is likely to tighten monetary policy by
more than the 25 basis points (0.25%) currently discounted by
financial markets over the course of 1997.
During the May quarter, Japanese markets priced in a more positive,
and in our view, realistic perspective of real economic growth
prospects as concerns of renewed recession after the April hike in
the consumption tax rate receded. Thus, the January 1997--April 1997
fall in the yen versus the US dollar and the decline in ten-year
Japanese government bond yields unwound, and the equity market rose
to new highs for the year. However, expectations for upside risks to
Japanese economic growth and interest rates should not be
overplayed, in our opinion. The banking sector remains fragile, and
fiscal policy is tightening. Any change in monetary policy during
the August quarter is expected to be limited to a move in the call
rate target above the official discount rate. A change in the latter
is unlikely at present. In any event, Japanese interest rate spreads
with the United States should remain at levels which prevent sharp
yen appreciation from early-June levels of 113 yen/dollar.
Economic activity continues to firm in almost all European
economies, reflecting past interest rate cuts and more competitive
currencies versus the dollar. Spare capacity built up over recent
years is beginning to be absorbed, but there is no reason to expect
German interest rates to rise significantly in the next six months.
Nonetheless, with the drive toward fiscal tightening on the wane,
there may be some upward revision to consensus 1998 interest rate
expectations over the next few months, which is unlikely to support
European equity valuations.
In Asian emerging markets, continued concerns regarding the pace of
credit expansion, domestic demand growth and deteriorating balance
of payments positions, together with a perceived overvaluation of
property sectors, led to poor investor sentiment in Thailand,
Malaysia and the Philippines. In sharp contrast, improving prospects
for economic growth, and a narrowing in sovereign credit risk
premiums on external debt, were associated with an improvement in
Latin American financial market prospects.
<PAGE>
Fiscal Year in Review
For the year ended May 31, 1997, total returns for Merrill Lynch
International Equity Fund's Class A, Class B, Class C and Class D
Shares were +10.76%, +9.70%, +9.71% and +10.50%, respectively.
During the Fund's fiscal year, the total return of the unmanaged
benchmark, the Financial Times/S&P--Actuaries World (Ex-US) Index,
was +7.91%. The Fund's outperformance over the period largely
reflected positive stock selection in Japan and Australia, together
with decisions to overweight emerging Latin American and emerging
European markets. The fiscal period was marked by a significant
recovery in economic activity in the United States and a continued
appreciation of the US dollar. Another development that impacted
international markets was the continued anticipation of convergence
in European monetary policy, which drove many European equity
markets to new highs early in 1997. However, toward the end of the
period European markets faced increasing uncertainty regarding the
monetary union timetable. This uncertainty contributed to market
volatility. The Japanese equity market performed poorly in the first
three quarters of the fiscal year. However, improving confidence in
the economic recovery and a stabilization in the yen encouraged
fresh money flows into Japanese equities toward the end of the
fiscal year.
In Conclusion
As mentioned in the Fund's last shareholder letter, our investment
process has increasingly focused on adding value through appropriate
asset allocation shifts between regions and countries. This
evolution in the investment process has led to a greater
diversification of exposure at a stock level but a sharper focus on
market exposures. We have invested in broader market-related
strategies in Australia, Hong Kong, Malaysia, Mexico and Argentina.
The shift in emphasis in the investment process toward asset
allocation has resulted in the Fund reducing exposure in markets we
believe are overvalued, and emphasizing markets which offer
intermediate-term potential to provide attractive returns.
Currently, many European markets appear overvalued relative to
prospects for earnings and bond yields. We are emphasizing
investments in Japan, Australia, the United Kingdom and several
smaller stock markets such as Argentina, India and Mexico. Looking
ahead, we expect the best returns to come from markets which are
generally more cyclical in their earnings exposure.
We thank you for your interest in Merrill Lynch International Equity
Fund, and we look forward to reviewing our strategy with you in our
upcoming quarterly shareholder report.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Andrew Bascand)
Andrew Bascand
Vice President and
Senior Portfolio Manager
July 1, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 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. However, in the
case of certain eligible investors, the shares 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. (There is no initial
sales charge for automatic share conversions.)
<PAGE>
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
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 Shared compared to growth of an
investment in Financial Times/S&P--Actuaries World (Ex-US) Index.
Beginning and ending values are:
10/21/94** 5/97
ML International Equity Fund++--
Class A Shares* $ 9,475 $11,396
ML International Equity Fund++--
Class C Shares* $10,000 $11,723
Financial Times/S&P--
Actuaries World (Ex-US) Index++++ $10,000 $12,510
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:
<PAGE>
7/30/93** 5/97
ML International Equity Fund++--
Class B Shares* $10,000 $13,527
ML International Equity Fund++--
Class D Shares* $ 9,475 $13,294
Financial Times/S&P--
Actuaries World (Ex-US) Index++ $10,000 $13,849
[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-weighed Index is comprised of over
1,800 companies in 24 countries, excluding the United States.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/97 +4.67% -0.82%
Inception (10/21/94) through 3/31/97 +4.37 +2.09
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/97 +3.60% -0.39%
Inception (7/30/93) through 3/31/97 +6.47 +6.24
[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>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/97 +3.61% +2.61%
Inception (10/21/94) through 3/31/97 +3.34 +3.34
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/97 +4.44% -1.04%
Inception (7/30/93) through 3/31/97 +7.30 +5.74
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
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
1996 11.13 11.33 0.288 0.286 + 7.01
1/1/97--5/31/97 11.33 12.58 -- -- +11.03
------ ------
Total $0.379 Total $0.885
Cumulative total return as of 5/31/97: +20.28%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
<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
1996 11.00 11.22 0.288 0.142 + 5.95
1/1/97--5/31/97 11.22 12.42 -- -- +10.70
------ ------
Total $0.379 Total $0.632
Cumulative total return as of 5/31/97: +36.27%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
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
1996 10.90 11.08 0.288 0.178 + 5.97
1/1/97--5/31/97 11.08 12.26 -- -- +10.65
------ ------
Total $0.379 Total $0.760
Cumulative total return as of 5/31/97: +17.23%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<PAGE>
<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
1996 11.13 11.35 0.288 0.250 + 6.87
1/1/97--5/31/97 11.35 12.59 -- -- +10.93
------ ------
Total $0.379 Total $0.816
Cumulative total return as of 5/31/97: +40.31%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
5/31/97 2/28/97 5/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML International Equity Fund Class A Shares* $12.58 $11.65 $11.94 + 8.07%(1) +7.98%
ML International Equity Fund Class B Shares* 12.42 11.52 11.76 + 8.35(1) +7.81
ML International Equity Fund Class C Shares* 12.26 11.38 11.65 + 8.00(1) +7.73
ML International Equity Fund Class D Shares* 12.59 11.66 11.94 + 8.15(1) +7.98
ML International Equity Fund Class A Shares--Total Return* +10.76(2) +7.98
ML International Equity Fund Class B Shares--Total Return* + 9.70(3) +7.81
ML International Equity Fund Class C Shares--Total Return* + 9.71(4) +7.73
ML International Equity Fund Class D Shares--Total Return* +10.50(5) +7.98
Financial Times/S&P--Actuaries World (Ex-US) Index**--Total Return + 7.91 +7.33
<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.
(1)Percent change includes reinvestment of $0.288 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.286 per share ordinary
income dividends and $0.288 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.142 per share ordinary
income dividends and $0.288 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.178 per share ordinary
income dividends and $0.288 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.250 per share ordinary
income dividends and $0.288 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Banking 526,940 Nedcor Ltd. (GDR) (c) (e) $ 5,620,874 $ 10,143,595 1.3%
Africa
Beverages 85,044 South African Breweries Ltd. 2,451,796 2,389,304 0.3
Entertainment 2,100,000 Sun International (South Africa), Ltd. 2,598,413 1,222,297 0.2
Mining 54,000 Anglo American Corp. of South
Africa, Ltd. 3,636,072 3,161,182 0.4
65,200 Anglo American Corp. of South Africa,
Ltd. (ADR) (a) 4,274,593 3,814,200 0.5
183,616 Evander Gold Mines Ltd. 1,861,029 1,017,349 0.1
------------ ------------ ------
9,771,694 7,992,731 1.0
Total Investments in South Africa 20,442,777 21,747,927 2.8
Zimbabwe Beverages 1,522,190 Delta Corporation Ltd. 856,251 2,294,081 0.3
Total Investments in Zimbabwe 856,251 2,294,081 0.3
Total Investments in Africa 21,299,028 24,042,008 3.1
EUROPE
Czech Broadcast--Media 42,500 ++Central European Media
Republic Enterprises Ltd. (Class A) 1,168,750 966,875 0.1
Total Investments in the Czech
Republic 1,168,750 966,875 0.1
Finland Diversified 109,783 Outokumpu OY 1,682,283 2,169,667 0.3
Machinery 4,262 Rauma OY 91,084 100,247 0.0
Paper & Forest 225,154 Enso OY (Class A) 1,782,881 2,038,565 0.3
Products 615,000 Metsa Serla OY (Class B) 4,764,160 4,789,906 0.6
153,071 UPM-Kymmene Corporation 2,961,125 3,513,975 0.4
------------ ------------ ------
9,508,166 10,342,446 1.3
Total Investments in Finland 11,281,533 12,612,360 1.6
<PAGE>
France Automobiles 26,176 Peugeot S.A. 3,858,416 2,590,650 0.3
Banking 32,200 Compagnie Financiere de Paribas 1,632,768 2,074,521 0.3
24,112 Societe Generale de Surveillance S.A.
(Class A) (Ordinary) 2,550,132 2,678,925 0.3
------------ ------------ ------
4,182,900 4,753,446 0.6
Communication 26,864 Alcatel Alsthom Cie Generale
Equipment d'Electricite S.A. 2,566,973 2,910,181 0.4
Engineering & 24,818 Bouygues S.A. 2,425,334 2,149,970 0.3
Construction
Financial Services 11,334 EuraFrance S.A. 3,545,896 4,661,764 0.6
Foods 13,236 Groupe Danone S.A. 2,102,752 1,993,636 0.3
Hotels 16,473 Accor S.A. 2,304,471 2,284,189 0.3
Insurance 76,238 Assurances Generales de France S.A.
(AGF) 2,485,003 2,319,092 0.3
Oil & Related 18,987 Elf Aquitaine S.A. 1,436,363 1,898,897 0.2
Retail 3,738 Castorama Dubois Investisse 582,407 515,081 0.1
Semiconductors 22,835 ++SGS-Thomson Microelectronics N.V. 1,061,477 1,857,070 0.2
Steel 184,481 Usinor Sacilor S.A. 2,581,233 2,769,102 0.4
Total Investments in France 29,133,225 30,703,078 4.0
Germany Airlines 70,005 Deutsche Lufthansa AG 987,685 1,115,244 0.1
Automobiles 5,856 Volkswagen AG 2,205,686 3,785,143 0.5
Chemicals 21,132 Henkel KGaA 907,822 1,106,089 0.1
56,142 Henkel KGaA (Preferred) 2,387,435 3,168,670 0.4
------------ ------------ ------
3,295,257 4,274,759 0.5
Diversified 27,222 Thyssen AG 5,473,650 6,183,920 0.8
Engineering & 8,315 ++Philipp Holzmann AG 3,181,247 2,458,475 0.3
Construction
Machinery & 58,605 ++Kloeckner Werke AG 3,175,843 4,323,320 0.6
Equipment
<PAGE>
Retail 6,101 Karstadt AG 2,380,878 2,153,924 0.3
Total Investments in Germany 20,700,246 24,294,785 3.1
Greece Banking 12,832 Ergo Bank S.A. (New Shares) 488,375 896,853 0.1
33,480 Ergo Bank S.A. (Registered) 1,288,196 2,362,067 0.3
------------ ------------ ------
1,776,571 3,258,920 0.4
Food & Household 77,292 Hellenic Bottling Co. S.A. 1,585,390 2,917,748 0.4
Products
Total Investments in Greece 3,361,961 6,176,668 0.8
Hungary Telecommuni- 10,000 Magyar TarKozlesi Reszvenytarsasag
cations (Ordinary) (e) 1,589,861 3,497,077 0.5
Total Investments in Hungary 1,589,861 3,497,077 0.5
Italy Building 391,380 Italcementi S.p.A. 2,177,473 2,277,561 0.3
Products
Chemicals 4,166,772 Montedison S.p.A. 4,239,042 2,546,566 0.3
Diversified 2,558,117 ++Compagnie Industrial Riunite
S.p.A. (CIR) 2,211,686 1,616,289 0.2
Insurance 117,555 Assicurazioni Generali S.p.A. 2,163,718 2,013,047 0.3
1,357,718 Istituto Nazionale delle Assicurazioni
S.p.A. (INA) 1,945,992 1,876,032 0.2
------------ ------------ ------
4,109,710 3,889,079 0.5
Oil & Related 38,778 Ente Nazionale Idrocarburi S.p.A.
(ENI) 188,920 193,489 0.0
Publishing 1,924,400 ++Seat S.p.A. 535,560 370,448 0.0
Telecommuni- 909,821 STET, Di Risp (Non-Convertible) 1,964,937 3,572,666 0.5
cations
Tire & Lit 3,373,149,000 Pirelli S.p.A., 5% due 12/31/1998
Rubber (Convertible) 2,377,432 2,768,631 0.4
Total Investments in Italy 17,804,760 17,234,729 2.2
</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>
Netherlands Chemicals 22,661 Akzo Nobel N.V. $ 2,812,406 $ 3,015,099 0.4%
110,164 European Vinyls Corporation
International N.V. 4,431,516 3,095,461 0.4
------------ ------------ ------
7,243,922 6,110,560 0.8
<PAGE>
Electronics 68,925 Philips Electronics N.V. 2,488,048 3,769,392 0.5
Insurance 72,765 Internationale Nederlanden Groep N.V. 2,571,081 3,214,564 0.4
Packaging & 93,046 Koninklijke KNP BT N.V. 2,098,955 1,917,276 0.3
Containers
Telecommunications 91,453 Royal PTT Nederland N.V. 3,345,200 3,197,857 0.4
Transportation 60,500 KLM Royal Dutch Airlines N.V. 1,656,767 1,747,190 0.2
Total Investments in the Netherlands 19,403,973 19,956,839 2.6
Norway Consumer Goods 18,744 Orkla A.S. (Class A) 1,035,043 1,634,835 0.2
Oil & Gas Producers 72,875 Saga Petroleum A.S. (Class B) 801,866 1,325,465 0.2
Total Investments in Norway 1,836,909 2,960,300 0.4
Poland Automobiles & 97,200 T.C. Debica S.A. 1,310,106 2,314,286 0.3
Equipment
Total Investments in Poland 1,310,106 2,314,286 0.3
Portugal Diversified 114,687 Sonae Investimentos--SGPS S.A. 2,803,713 4,302,172 0.6
Total Investments in Portugal 2,803,713 4,302,172 0.6
Russia Natural Gas 68,000 RAO Gazprom (ADR) (a) (e) 1,071,000 1,224,000 0.2
Total Investments in Russia 1,071,000 1,224,000 0.2
Sweden Electrical 33,238 Electrolux AB 1,403,537 1,987,980 0.3
Engineering & 29,306 SKF AB 514,013 644,972 0.1
Construction
Forest Products 59,740 Mooch Domsjo AB (Class B) 1,606,190 1,856,144 0.2
929,741 Rottneros Bruks AB 1,435,615 1,047,168 0.1
109,421 Stora Kopparbergs AB 1,462,357 1,621,965 0.2
------------ ------------ ------
4,504,162 4,525,277 0.5
Insurance 83,041 Skandia Forsakrings AB 1,982,699 2,940,256 0.4
Metals & Mining 188,686 Avesta Sheffield AB 1,710,791 2,064,104 0.3
Pharmaceuticals 31,568 Pharmacia & Upjohn, Inc. 963,448 1,074,826 0.1
Total Investments in Sweden 11,078,650 13,237,415 1.7
<PAGE>
Switzerland Banking 25,054 CS Holding AG (Registered Shares) 2,533,928 3,146,131 0.4
Diversified 48,325 Oerlikon-Buehrle Holding AG 5,104,591 5,598,940 0.7
Leisure 3,682 Fotolabo S.A. 1,529,233 1,196,552 0.2
Total Investments in Switzerland 9,167,752 9,941,623 1.3
Turkey Beverages 24,833,308 Erciyas Biracilik Ve Malt Sanayii A.S. 4,082,497 1,812,650 0.2
Total Investments in Turkey 4,082,497 1,812,650 0.2
United Automobile Rental 275,657 Thorn PLC 672,423 689,823 0.1
Kingdom
Automobiles & 758,978 LucasVarity PLC 2,448,105 2,392,148 0.3
Equipment
Banking 161,802 National Westminister Bank PLC
(Ordinary) 1,770,515 1,976,886 0.3
Beverages 295,176 Grand Metropolitan PLC (Ordinary) 1,800,600 2,742,246 0.3
169,650 Matthew Clark PLC 1,745,135 715,897 0.1
------------ ------------ ------
3,545,735 3,458,143 0.4
Chemicals 274,652 Imperial Chemical Industries PLC
(Ordinary) 3,373,053 3,647,673 0.5
430,500 Inspec Group PLC 1,300,917 1,464,582 0.2
------------ ------------ ------
4,673,970 5,112,255 0.7
Computer Services 106,074 Misys PLC 1,310,031 2,376,877 0.3
Diversified 884,970 BTR PLC 3,406,924 2,880,439 0.4
Food & Beverage 262,963 Allied Domecq PLC (Ordinary) 1,822,184 1,922,557 0.3
299,941 Cadbury Schweppes PLC 2,324,410 2,688,398 0.3
------------ ------------ ------
4,146,594 4,610,955 0.6
Food Processing 1,506,708 ASDA Group PLC 2,779,309 2,957,246 0.4
185,336 Unilever PLC 3,552,974 4,956,266 0.6
------------ ------------ ------
6,332,283 7,913,512 1.0
Glass 558,376 Pilkington PLC 1,125,025 1,141,600 0.1
Pharmaceuticals 173,412 Glaxo Wellcome PLC 2,567,925 3,465,991 0.4
<PAGE>
Retail 210,158 Tesco PLC (Ordinary) 901,164 1,289,004 0.2
Telecommunications 307,847 Cable & Wireless PLC 2,087,210 2,512,538 0.3
Utilities--Water 189,700 Anglian Water PLC 1,638,381 2,120,718 0.3
171,700 Severn Trent PLC 1,631,487 2,184,877 0.3
182,000 Thames Water PLC 1,589,376 2,044,312 0.2
195,500 United Utilities PLC 1,794,982 2,241,516 0.3
345,350 Yorkshire Water PLC 1,665,830 2,106,907 0.3
------------ ------------ ------
8,320,056 10,698,330 1.4
Total Investments in the United
Kingdom 43,307,960 50,518,501 6.5
Total Investments in Europe 179,102,896 201,753,358 26.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 32,300 Banco de Galicia y Buenos Aires S.A.
de C.V. (ADR) (a) $ 819,646 $ 843,838 0.1%
157,154 Banco Frances del Rio de la Plata
S.A. (ADR) (a) 3,518,686 5,166,438 0.6
------------ ------------ ------
4,338,332 6,010,276 0.7
Oil & Related 734,497 Companhia Naviera Perez Companc
S.A.C.F.I.M.F.A. (Class B) 4,060,515 5,621,723 0.7
40,900 Yacimientos Petroliferos Fiscales
S.A. (YPF) (ADR) (a) 1,213,749 1,227,000 0.2
------------ ------------ ------
5,274,264 6,848,723 0.9
Real Estate 10,700 IRSA Inversiones y Representaciones
S.A. (GDR) (c) 411,249 418,638 0.1
Telecommuni- 80,400 Telefonica de Argentina S.A. (Class B)
cations (ADR) (a) 2,349,702 2,914,500 0.4
Total Investments in Argentina 12,373,547 16,192,137 2.1
Brazil Banking 226,026,045 Banco Bradesco S.A. PN (Preferred) 1,770,451 1,801,794 0.2
<PAGE>
Beverages 4,038,960 Companhia Cervejaria Brahma S.A. PN
(Preferred) 1,972,801 2,929,405 0.4
Telecommuni- 67,225 Telecomunicacoes Brasileiras S.A.--
cations Telebras (ADR) (a) 3,509,070 9,235,034 1.2
Utilities 43,485 Companhia Energetica de Minas Gerais
S.A. (CEMIG) (ADR) (a) 1,125,579 1,962,261 0.3
Total Investments in Brazil 8,377,901 15,928,494 2.1
Chile Telecommuni- 224,506 Compania de Telecomunicaciones de
cations Chile S.A. (ADR) (a) 3,756,222 7,689,331 1.0
Total Investments in Chile 3,756,222 7,689,331 1.0
Mexico Beverages 296,700 Fomento Economico Mexicano, S.A. de
C.V. (Femsa) (Class B) 1,573,954 1,574,602 0.2
Building & 140,800 Empresas ICA Sociedad Controladora,
Construction S.A. de C.V. 2,046,065 2,029,982 0.3
Building Products 565,500 Cementos Mexicanos, S.A. de C.V.
(Cemex) (Class B) 2,335,334 2,315,163 0.3
Diversified 319,100 Alfa, S.A. de C.V. 1,893,345 1,880,972 0.2
Health & Personal 171,400 Kimberly-Clark de Mexico, S.A. de
C.V. (ADR) (a) 3,124,035 2,913,800 0.4
Multi-Industry 418,400 Grupo Carso, S.A. de C.V. 'A1' 2,184,120 2,379,075 0.3
Telecommuni- 713,600 Carso Global Telecom, S.A. de C.V.
cations 'A1' 2,574,267 2,542,775 0.3
2,360,000 Telefonos de Mexico, S.A. de C.V.
(Series L) 5,215,347 5,242,456 0.7
------------ ------------ ------
7,789,614 7,785,231 1.0
Total Investments in Mexico 20,946,467 20,878,825 2.7
Total Investments in Latin America 45,454,137 60,688,787 7.9
PACIFIC
BASIN
Australia Banking 256,000 Australia and New Zealand Banking
Group Ltd. 1,577,793 1,752,086 0.2
228,000 National Australia Bank Ltd. 2,921,091 3,259,765 0.4
311,000 Westpac Banking Corporation Ltd. 1,756,125 1,688,129 0.2
------------ ------------ ------
6,255,009 6,699,980 0.8
<PAGE>
Beverages 860,000 Foster's Brewing Group Ltd. 1,821,613 1,689,172 0.2
Building Products 468,000 Boral Ltd. 1,446,747 1,492,848 0.2
436,000 CSR Ltd. 1,682,973 1,599,887 0.2
------------ ------------ ------
3,129,720 3,092,735 0.4
Containers 191,000 Amcor Ltd. 1,269,600 1,265,052 0.2
Food & Beverage 117,001 Coca-Cola Amatil, Ltd. 710,460 1,353,907 0.2
Media 192,000 The News Corp., Ltd. (Preferred) 849,066 722,078 0.1
Merchandising 78,500 Amway Asia Pacific Ltd. 2,536,717 3,630,625 0.5
Metals & Mining 206,000 CRA Ltd. 3,114,944 3,376,659 0.5
276,000 WMC Ltd. 1,807,369 1,783,909 0.2
------------ ------------ ------
4,922,313 5,160,568 0.7
Oil & Gas 136,000 Woodside Petroleum Ltd. 989,076 1,147,705 0.2
Producers
Property 554,041 Lend Lease Corp. 7,600,241 10,975,013 1.4
Resources 434,248 Broken Hill Proprietary Co. 5,711,146 6,234,323 0.8
Transportation 63,000 Brambles Industries Ltd. 1,091,817 1,134,299 0.1
Total Investments in Australia 36,886,778 43,105,457 5.6
Hong Kong Airlines 900,000 Cathay Pacific Airways 1,390,384 1,353,252 0.2
Banking 196,000 Dao Heng Bank Group Ltd. 924,947 1,004,285 0.1
326,290 HSBC Holdings PLC 4,777,590 9,896,509 1.3
245,000 Hang Seng Bank Ltd. 2,714,528 2,940,759 0.4
------------ ------------ ------
8,417,065 13,841,553 1.8
Conglomerates 453,325 Hutchison Whampoa Ltd. 2,510,971 3,773,808 0.5
Diversified 304,000 Citic Pacific Ltd. 1,659,113 1,738,152 0.2
212,500 Jardine Strategic Holdings Ltd. 735,254 793,687 0.1
121,500 Swire Pacific Ltd. (Class A) 929,119 1,019,295 0.1
581,500 Swire Pacific Ltd. (Class B) 766,292 806,805 0.1
------------ ------------ ------
4,089,778 4,357,939 0.5
Foods 2,154,000 C.P. Pokphand Co. Ltd. 748,591 695,018 0.1
4,334,000 Tingyi (Cayman Islands) Holdings Co. 1,126,465 1,029,241 0.1
------------ ------------ ------
1,875,056 1,724,259 0.2
<PAGE>
Property 227,000 Cheung Kong (Holdings) Ltd. 1,628,621 2,321,857 0.3
18,166,000 China Overseas Land & Investment 5,085,987 12,543,637 1.6
242,000 Great Eagle Holdings Ltd. 717,303 855,808 0.1
586,000 Henderson Investment Ltd. 604,973 684,473 0.1
210,000 Henderson Land Development Co. Ltd. 1,734,865 2,046,335 0.2
499,000 Hong Kong Land Holdings Ltd. 1,069,908 1,347,300 0.2
183,000 New World Development Co. Ltd. 1,007,002 1,162,055 0.2
271,000 Sun Hung Kai Properties Ltd. 2,873,167 3,331,537 0.4
314,000 Wharf (Holdings) Ltd. 1,184,658 1,406,273 0.2
------------ ------------ ------
15,906,484 25,699,275 3.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Shares Value Percent of
(continued) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Hong Kong Telecommuni- 1,311,200 Hong Kong Telecommunications Ltd. $ 2,210,834 $ 2,902,308 0.4%
(concluded) cations
Utilities-- 359,000 China Light and Power Co. Ltd. 1,616,245 1,797,780 0.2
Electric 200,000 Hong Kong Electric Holdings Ltd. 700,617 720,186 0.1
------------ ------------ ------
2,316,862 2,517,966 0.3
Utilities--Gas 790,000 Hong Kong and China Gas Co. Ltd. 1,264,840 1,376,484 0.2
Total Investments in Hong Kong 39,982,274 57,546,844 7.4
Japan Automobiles 713,000 Mitsubishi Motors Corp. 5,276,942 5,283,752 0.7
169,000 Nissan Motor Co., Ltd. 977,817 1,121,630 0.1
129,000 Toyota Motor Corp. 3,521,234 3,704,092 0.5
------------ ------------ ------
9,775,993 10,109,474 1.3
Banking 485,000 Mitsubishi Trust and Banking 5,143,346 6,963,119 0.9
479,000 Sumitomo Bank 5,589,080 6,629,900 0.9
------------ ------------ ------
10,732,426 13,593,019 1.8
Broadcast--Media 27,000 Nippon Broadcasting System Inc. 2,037,206 2,483,666 0.3
Capital Goods 808,000 Mitsubishi Heavy Industries, Ltd. 6,649,674 5,821,045 0.8
Chemicals 620,000 Kaneka Corp. 3,166,916 3,597,834 0.5
266,000 Shin-Etsu Chemical Co., Ltd. 4,856,912 6,677,442 0.8
------------ ------------ ------
8,023,828 10,275,276 1.3
<PAGE>
Containers 3,500 Toyo Seikan Kaisha, Ltd. 109,231 66,799 0.0
Electric 220,000 Taihei Dengyo Kaisha, Ltd. 5,020,707 1,607,634 0.2
Construction
Electrical 347,000 Anritsu Corp. 4,003,623 4,773,040 0.6
Equipment 715,000 Fujikura Ltd. 5,548,773 6,269,773 0.8
92,000 Murata Manufacturing Co., Ltd. 3,154,267 3,646,149 0.5
438,000 NEC Corporation 5,453,990 6,100,069 0.8
69,000 Rohm Co., Ltd. 3,870,990 7,177,613 0.9
362,000 Sharp Corporation 5,603,967 4,668,157 0.6
------------ ------------ ------
27,635,610 32,634,801 4.2
Electronics 83,600 Advantest Corp. 4,329,672 5,692,160 0.7
559,000 Hitachi Ltd. 5,166,946 5,959,078 0.8
290,000 Pioneer Electronic Corp. 5,163,945 7,180,193 0.9
78,700 Sony Corp. 5,731,219 6,637,268 0.9
------------ ------------ ------
20,391,782 25,468,699 3.3
Financial Services 72,000 Japan Associated Finance Co. 4,066,033 5,601,788 0.7
Glass 508,000 Asahi Glass Co., Ltd. 4,506,452 4,935,007 0.6
Machinery 872,000 NSK Ltd. 5,040,389 5,712,380 0.7
Manufacturing 430,000 Dainippon Screen Manufacturing
Co., Ltd. 3,372,153 3,596,888 0.5
1,467,000 Ube Industries Ltd. 4,202,851 4,161,881 0.5
------------ ------------ ------
7,575,004 7,758,769 1.0
Office Equipment 375,000 Ricoh Co., Ltd. 4,503,306 4,932,514 0.6
Paper Products 571,000 Oji Paper Co., Ltd. 3,710,043 3,303,671 0.4
Pharmaceuticals 475,000 Fujisawa Pharmaceutical Co., Ltd. 4,367,310 4,491,919 0.6
225,000 Taisho Pharmaceutical Co., Ltd. 4,415,322 5,648,212 0.7
------------ ------------ ------
8,782,632 10,140,131 1.3
Property & Casualty 308,000 Tokio Marine & Fire Insurance Co., 3,366,378 3,627,579 0.5
Insurance Ltd.
Real Estate 359,000 Mitsubishi Estate Co., Ltd. 4,103,953 4,907,239 0.6
441,000 Mitsui Fudosan Co., Ltd. 4,564,545 5,573,160 0.7
------------ ------------ ------
8,668,498 10,480,399 1.3
<PAGE>
Retail 250,000 Isetan Co., Ltd. 2,612,122 3,223,865 0.4
106,000 Ito-Yokado Co., Ltd. 5,887,086 6,050,894 0.8
565,000 Takashimaya Co. 5,844,033 7,383,081 1.0
120,000 Uny Co., Ltd. 1,991,583 2,362,448 0.3
------------ ------------ ------
16,334,824 19,020,288 2.5
Steel 1,561,000 Kawasaki Steel Corp. 4,179,147 4,589,598 0.6
1,981,000 Nippon Steel Co. 5,304,942 5,807,436 0.8
------------ ------------ ------
9,484,089 10,397,034 1.4
Telecommuni- 800 DDI Corp. 4,823,018 5,976,616 0.8
cations
Textiles 1,061,000 Teijin Ltd. 4,224,189 4,478,602 0.6
Tire & Rubber 260,000 Bridgestone Corporation 4,737,763 5,878,611 0.8
Tobacco 791 Japan Tobacco, Inc. 5,108,895 6,058,984 0.8
Trading 706,000 Mitsui & Co. 5,176,180 6,251,547 0.8
1,274,000 Nissho Iwai Corp. 4,454,051 5,301,032 0.7
------------ ------------ ------
9,630,231 11,552,579 1.5
Transportation 760,000 Nippon Express Co., Ltd. 4,490,727 5,912,999 0.8
500,000 Tobu Railway Co., Ltd. 2,416,593 2,243,810 0.3
800,000 Tokyu Corp. 4,912,056 4,580,468 0.6
------------ ------------ ------
11,819,376 12,737,277 1.7
Total Investments in Japan 206,757,577 234,652,642 30.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Malaysia Agricultural 313,000 IOI Corporation BHD $ 394,904 $ 418,629 0.1%
Operations
Airlines 134,000 Malaysian Airline System BHD 347,649 309,370 0.1
Automobiles 30,000 Edaran Otomobil Nasional BHD 286,253 261,524 0.0
76,000 Perusahaan Otomobil Nasional BHD 442,139 396,306 0.1
------------ ------------ ------
728,392 657,830 0.1
<PAGE>
Banking 76,000 Commerce Asset Holding BHD 232,337 225,683 0.0
15,200 Commerce Asset Holding BHD
(Rights) (b) 0 4,840 0.0
9,500 Commerce Asset Holding BHD
(Rights) (b) 0 0 0.0
69,000 Malayan Banking BHD 628,127 727,848 0.1
217,666 Public Bank (Malaysia) BHD 'Foreign' 430,743 341,376 0.1
------------ ------------ ------
1,291,207 1,299,747 0.2
Building 84,000 Hume Industries (Malaysia) BHD 549,146 448,054 0.1
Products 134,000 Kedah Cement Holdings BHD 209,633 197,357 0.0
------------ ------------ ------
758,779 645,411 0.1
Chemicals 30,000 Malaysian Oxygen BHD 152,864 156,437 0.0
Diversified 179,000 Berjaya Group BHD 208,673 236,558 0.0
253,000 Malayan United Industries BHD 185,611 185,304 0.0
174,000 Multi-Purpose Holdings BHD 285,669 275,663 0.1
112,000 Renong BHD 198,799 160,497 0.0
185,000 Sime Darby BHD 569,741 603,853 0.1
77,000 United Engineers (Malaysia) Ltd. 541,520 622,204 0.1
66,000 YTL Corporation BHD 261,830 235,133 0.0
------------ ------------ ------
2,251,843 2,319,212 0.3
Financial 35,000 Hong Leong Credit BHD 179,157 168,577 0.0
Services 205,000 ++Idris Hydraulic (Malaysia) BHD 233,818 241,541 0.1
35,000 Rashid Hussain BHD 234,730 224,305 0.0
------------ ------------ ------
647,705 634,423 0.1
Foods 24,000 Nestle (Malaysia) BHD 185,302 178,648 0.0
Forest Products 109,000 Lingui Development BHD 188,914 187,437 0.0
Leisure 38,000 Berjaya Sports Toto BHD 177,237 176,976 0.0
47,000 Genting BHD 256,024 245,084 0.1
102,000 Magnum Corporation BHD 166,277 169,716 0.0
62,000 Resorts World BHD 220,193 207,308 0.0
------------ ------------ ------
819,731 799,084 0.1
Telecommuni- 40,000 Telekom Malaysia BHD 276,999 296,155 0.0
cations
Utilities-- 67,000 Tenaga Nasional BHD 306,999 306,703 0.0
Electric
Total Investments in Malaysia 8,351,288 8,209,086 1.1
<PAGE>
New Zealand Chemicals 60,000 Fernz Corporation Ltd. 163,272 212,765 0.0
Electronics 69,000 PDL Holdings Ltd. 340,434 323,701 0.0
Finance 2,509,300 Wrightson Ltd. 1,911,453 1,558,049 0.2
Textiles 410,900 Lane Walker Rudkin Industries, Ltd. 478,891 436,559 0.1
Total Investments in New Zealand 2,894,050 2,531,074 0.3
South Telecommuni- 154,393 SK Telecom Co. Ltd. (ADR) (a) 2,561,162 1,428,135 0.2
Korea cations
Utilities 67,880 Korea Electric Power Corp. 2,753,162 2,098,595 0.3
Total Investments in South Korea 5,314,324 3,526,730 0.5
Total Investments in the Pacific
Basin 300,186,291 349,571,833 45.3
SOUTHEAST
ASIA
India Banking 285,000 State Bank of India 2,015,768 2,445,420 0.3
Chemicals 6,100 Reliance Industries Ltd. 39,340 51,829 0.0
Financial 426,400 Industrial Credit & Investment
Services Corporation of India Ltd. 1,386,341 793,164 0.1
Hotels 94,000 East India Hotels Ltd. (GDR) (c) (e) 1,776,304 1,480,500 0.2
Real Estate 44,280 Housing Development Finance Corp., Ltd. 3,461,023 3,922,341 0.5
Utilities-- 146,500 Bombay Suburban Electric Supply Co.
Electric Ltd. (Registered Shares) (GDR) (c) 2,711,447 3,662,500 0.5
Total Investments in India 11,390,223 12,355,754 1.6
Indonesia Telecommuni- 40,500 P.T. Telekomunikasi Indonesia
cations (ADR) (a) 1,313,769 1,346,625 0.2
Total Investments in Indonesia 1,313,769 1,346,625 0.2
Total Investments in Southeast Asia 12,703,992 13,702,379 1.8
SHORT-TERM Face
SECURITIES Amount
Commercial US$ 32,822,000 General Motors Acceptance Corp.,
Paper* 5.62% due 6/02/1997 32,811,752 32,811,752 4.3
<PAGE>
Total Investments in Commercial Paper 32,811,752 32,811,752 4.3
Foreign Skr 138,000,000 Sweden Treasury Bills, 4.015% due
Government 7/16/1997 17,849,902 17,779,711 2.3
Obligations*
Total Investments in Foreign
Government Obligations 17,849,902 17,779,711 2.3
US Government United States Treasury Bills (d):
& Agency US$ 1,000,000 4.88% due 7/03/1997 995,527 996,170 0.1
Obligations* 1,000,000 5.07% due 7/03/1997 995,352 996,170 0.1
3,500,000 5.18% due 7/03/1997 3,483,734 3,486,595 0.5
Total Investments in US Government &
Agency Obligations 5,474,613 5,478,935 0.7
Total Investments in Short-Term
Securities 56,136,267 56,070,398 7.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Nominal Value Covered Premiums Value Percent of
PURCHASED by Options Purchased Issue Paid (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Call Options 112,001 Nikkei Index, expiring January 1998
Purchased (3-month look back) $ 2,237,208 $ 3,047,694 0.4%
946 Nikkei Index, expiring October 1997
at YEN 257.6 243,727 275,646 0.0
3,469,627 Thailand Index, expiring April 1998
at ThB 1.983 (European Options) 520,444 145,724 0.0
------------ ------------ ------
3,001,379 3,469,064 0.4
Currency Put 14,000,000 German Deutschemark, expiring July
Options 1997 at DM1.55 162,120 1,208,200 0.2
Purchased 40,000,000 Japanese Yen, expiring July 1997 at
YEN 115.50 559,000 676,000 0.1
28,000,000 Japanese Yen, expiring February 1998
at YEN 120 418,600 296,800 0.0
10,000,000 Swiss Franc, expiring July 1997 at
Chf 1.285 135,000 841,000 0.1
------------ ------------ ------
1,274,720 3,022,000 0.4
Total Options Purchased 4,276,099 6,491,064 0.8
Total Investments 619,158,710 712,319,827 92.3
<PAGE>
OPTIONS Nominal Value Covered Premiums
WRITTEN by Options Written Received
Put Options 3,469,627 Thailand Index, expiring April 1998
Written at ThB 1.983 (European Options) (520,444) (1,051,991) (0.1)
Total Options Written (520,444) (1,051,991) (0.1)
Total Investments, Net of Options Written $618,638,266 711,267,836 92.2
============
Variation Margin on Financial Futures Contracts** 314,116 0.1
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (440,983) (0.1)
Other Assets Less Liabilities 60,494,284 7.8
------------ ------
Net Assets $771,635,253 100.0%
============ ======
<FN>
*Commercial Paper and certain Foreign 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.
**Financial futures contracts purchased as of May 31, 1997 were as
follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
<C> <S> <S> <S> <C>
196 All Ordinaries SFE June 1997 $ 9,820,748
88 CAC 40 CAC June 1997 7,881,239
108 FTSE 100 LIFFE June 1997 20,443,073
17 Tokyo Topix TFE June 1997 2,185,086
Total Financial Futures Contracts Purchased
(Total Contract Price--$38,925,353) $40,330,146
===========
Financial futures contracts sold as of May 31, 1997 were as follows:
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
<C> <S> <S> <S> <C>
52 DAX Index DTB June 1997 $10,919,142
Total Financial Futures Contracts Sold
(Total Contract Price--$10,681,754) $10,919,142
===========
<PAGE>
***Forward foreign exchange contracts as of May 31, 1997 were as
follows:
<CAPTION>
Foreign Unrealized
Currency Expiration Appreciation
Purchased Date (Depreciation)(Note 1c)
<S> <C> <S> <C>
Chf 6,425,000 July 1997 $ (91,940)
DM 10,517,857 July 1997 (392,380)
DM 95,083,865 August 1997 (188,741)
Pound Sterling 11,404,047 July 1997 42,024
YEN 2,310,000,000 July 1997 14,267
Total (US$ Commitment--$105,928,849) (616,770)
----------
Foreign Currency Sold
DM 32,079,605 August 1997 139,518
HK$ 232,508,312 July 1997 36,269
Total (US$ Commitment--$49,009,785) 175,787
----------
Total Unrealized Depreciation--Net on
Forward Foreign Exchange Contracts $ (440,983)
==========
(a)American Depositary Receipts (ADR).
(b)The rights may be exercised until 6/19/1997.
(c)Global Depositary Receipts (GDR).
(d)Securities held as collateral in connection with open financial
futures contracts.
(e)The security may be offered and sold to 'qualified institutional
buyers' under Rule 144A of the Securities Act of 1933.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments as of
May 31, 1997
<PAGE>
Percent of
Ten Largest Equity Holdings Net Assets
China Overseas Land &
Investment 1.6%
Lend Lease Corp. 1.4
Nedcor Ltd. (GDR) 1.3
HSBC Holdings PLC 1.3
Telecomunicacoes Brasileiras
S.A.--Telebras (ADR) 1.2
Compania de Telecomunicaciones
de Chile S.A. (ADR) 1.0
Takashimaya Co. 1.0
Pioneer Electronic Corp. 0.9
Rohm Co., Ltd. 0.9
Mitsubishi Trust and Banking 0.9
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 8.8%
Telecommunications 6.9
Property 4.7
Electrical Equipment 4.2
Diversified 4.0
Electronics 3.8
Chemicals 3.6
Retail 3.1
Automobiles 2.2
Beverages 2.0
Percent of
Ten Largest Countries Net Assets
Japan 30.4%
Hong Kong 7.4
United Kingdom 6.5
Australia 5.6
France 4.0
Germany 3.1
South Africa 2.8
Mexico 2.7
Netherlands 2.6
Italy 2.2
<PAGE>
Percent of
Geographical Asset Mix* Net Assets
Japan 30.4%
Europe (Ex-United Kingdom) 19.6
Pacific Basin (Ex-Japan) 14.9
Other Emerging Markets 12.8
Cash 7.3
United Kingdom 6.5
[FN]
*Percent of net assets may not equal 100%, and excludes the impact
of futures and options.
Financial Futures Contracts
Percent of
Country Issue Exchange Net Assets
United Kingdom FTSE 100 LIFFE 2.6%
Australia All Ordinaries SFE 1.3
France CAC 40 CAC 1.0
Japan Tokyo Topix TFE 0.3
Germany DAX Index DTB (1.4)
------
3.8%
======
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
As of May 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$614,882,611) (Note 1a) $ 705,828,763
Variation margin on stock index futures contracts (Note 1c) 487,173
Options purchased, at value (cost--$4,276,099) (Notes 1a & 1c) 6,491,064
Foreign cash (Note 1b) 47,553,212
Cash 708,797
Receivables:
Securities sold $ 14,251,753
Dividends 2,763,956
Beneficial interest sold 874,212
Interest 41,042 17,930,963
--------------
Deferred organization expenses (Note 1f) 29,541
Prepaid registration fees and other assets (Note 1f) 777,015
--------------
Total assets 779,806,528
--------------
<PAGE>
Liabilities: Options written, at value (premiums received--$520,444)
(Notes 1a & 1c) 1,051,991
Unrealized depreciation on forward exchange contracts (Note 1c) 440,983
Payables:
Securities purchased 2,972,384
Beneficial interest redeemed 1,962,144
Distributor (Note 2) 521,858
Investment adviser (Note 2) 473,130 5,929,516
--------------
Accrued expenses and other liabilities 748,785
--------------
Total liabilities 8,171,275
--------------
Net Assets: Net assets $ 771,635,253
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 354,609
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 4,696,282
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 202,051
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 945,125
Paid-in capital in excess of par 642,175,684
Undistributed realized capital gains on investments and
foreign currency transactions--net 30,286,510
Unrealized appreciation on investments and foreign currency
transactions--net 92,974,992
--------------
Net assets $ 771,635,253
==============
Net Asset Class A--Based on net assets of $44,623,965 and 3,546,090
Value: shares of beneficial interest outstanding $ 12.58
==============
Class B--Based on net assets of $583,213,628 and 46,962,821
shares of beneficial interest outstanding $ 12.42
==============
Class C--Based on net assets of $24,773,943 and 2,020,514
shares of beneficial interest outstanding $ 12.26
==============
Class D--Based on net assets of $119,023,717 and 9,451,252
shares of beneficial interest outstanding $ 12.59
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
For the Year Ended May 31, 1997
<S> <S> <C> <C>
Investment Income Dividends (net of $1,555,653 foreign withholding tax) $ 17,170,386
(Notes 1d & 1e): Interest and discount earned (net of $4,175 foreign
withholding tax) 5,825,762
Other 4,956
--------------
Total income 23,001,104
--------------
Expenses: Investment advisory fees (Note 2) 7,799,527
Account maintenance and distribution fees--Class B (Note 2) 7,683,509
Transfer agent fees--Class B (Note 2) 1,553,873
Custodian fees 1,139,496
Account maintenance and distribution fees--Class C (Note 2) 377,674
Account maintenance fees--Class D (Note 2) 367,308
Transfer agent fees--Class D (Note 2) 251,119
Accounting services (Note 2) 238,275
Printing and shareholder reports 218,985
Transfer agent fees--Class A (Note 2) 151,031
Registration fees (Note 1f) 95,987
Professional fees 89,852
Transfer agent fees--Class C (Note 2) 81,268
Trustees' fees and expenses 36,861
Amortization of organization expenses (Note 1f) 25,430
Pricing fees 22,461
Other 56,228
--------------
Total expenses 20,188,884
--------------
Investment income--net 2,812,220
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 73,773,675
(Loss) on Foreign currency transactions--net (3,215,404) 70,558,271
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (4,404,233)
(Notes 1b, 1c, Foreign currency transactions--net 996,884 (3,407,349)
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 67,150,922
--------------
Net Increase in Net Assets Resulting from Operations $ 69,963,142
==============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 2,812,220 $ 7,131,549
Realized gain on investments and foreign currency
transactions--net 70,558,271 75,604,968
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (3,407,349) 100,273,961
-------------- --------------
Net increase in net assets resulting from operations 69,963,142 183,010,478
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (2,005,712) --
Shareholders Class B (7,119,954) --
(Note 1g): Class C (484,716) --
Class D (2,664,054) --
In excess of investment income--net:
Class A (101,732) --
Class B (361,132) --
Class C (24,585) --
Class D (135,124) --
Realized gain on investment--net:
Class A (2,645,936) --
Class B (21,542,693) --
Class C (1,111,282) --
Class D (4,085,666) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (42,282,586) --
-------------- --------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (540,177,741) (149,701,161)
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (512,497,185) 33,309,317
Beginning of year 1,284,132,438 1,250,823,121
-------------- --------------
End of year* $ 771,635,253 $1,284,132,438
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ -- $ 9,462,216
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
The following per share data and ratios For the For the
have been derived from information Period Period
provided in the financial statements. Oct. 21, July 30,
For the Year 1994++ to For the Year 1993++ to
Increase (Decrease) in Ended May 31, May 31, Ended May 31, May 31,
Net Asset Value: 1997++++ 1996++++ 1995 1997++++ 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 11.94 $ 10.25 $ 11.73 $ 11.76 $ 10.19 $ 11.44 $ 10.00
Performance: -------- -------- -------- -------- -------- -------- --------
Investment income (loss)--net .12 .16 .26 .01 .04 .02 (.02)
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
--net 1.09 1.53 (1.05) 1.08 1.53 (.69) 1.46
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.21 1.69 (.79) 1.09 1.57 (.67) 1.44
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.24) -- (.15) (.10) -- (.04) --
In excess of investment
income--net (.01) -- -- (.01) -- -- --
Realized gain on
investments--net (.32) -- (.54) (.32) -- (.54) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions (.57) -- (.69) (.43) -- (.58) --
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 12.58 $ 11.94 $ 10.25 $ 12.42 $ 11.76 $ 10.19 $ 11.44
======== ======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share 10.76% 16.49% (6.78%)+++ 9.70% 15.41% (5.91%) 14.40%+++
======== ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.11% 1.06% 1.23%* 2.14% 2.09% 2.13% 2.07%*
Net Assets: ======== ======== ======== ======== ======== ======== ========
Investment income (loss)--net 1.04% 1.47% 4.64%* .08% .37% .23% (.19%)*
======== ======== ======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in
Data: thousands) $ 44,624 $116,628 $ 74,478 $583,213 $945,368 $961,941 $844,295
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 60.56% 71.86% 63.95% 60.56% 71.86% 63.95% 50.63%
======== ======== ======== ======== ======== ======== ========
Average commission rate
paid++++++ $ .0004 $ .0005 -- $ .0004 $ .0005 -- --
======== ======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
++++Based on average shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
The following per share data and ratios For the For the
have been derived from information Period Period
provided in the financial statements. Oct. 21, July 30,
For the Year 1994++ to For the Year 1993++ to
Increase (Decrease) in Ended May 31, May 31, Ended May 31, May 31,
Net Asset Value: 1997++++ 1996++++ 1995 1997++++ 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 11.65 $ 10.10 $ 11.62 $ 11.94 $ 10.27 $ 11.51 $ 10.00
Performance: -------- -------- -------- -------- -------- -------- --------
Investment income--net --+++++ .05 .24 .10 .13 .10 .04
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
--net 1.08 1.50 (1.09) 1.09 1.54 (.68) 1.47
-------- -------- -------- -------- -------- -------- --------
<PAGE> Total from investment
operations 1.08 1.55 (.85) 1.19 1.67 (.58) 1.51
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.14) -- (.13) (.21) -- (.12) --
In excess of investment
income--net (.01) -- -- (.01) -- -- --
Realized gain on investments
--net (.32) -- (.54) (.32) -- (.54) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions (.47) -- (.67) (.54) -- (.66) --
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 12.26 $ 11.65 $ 10.10 $ 12.59 $ 11.94 $ 10.27 $ 11.51
======== ======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share 9.71% 15.35% (7.36%)+++10.50% 16.26% (5.11%) 15.10%+++
======== ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.15% 2.09% 2.30%* 1.36% 1.31% 1.34% 1.31%*
Net Assets: ======== ======== ======== ======== ======== ======== ========
Investment income--net .04% .45% 4.26%* .86% 1.13% .85% .55%*
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 24,774 $ 46,985 $ 25,822 $119,024 $175,151 $188,583 $208,007
======== ======== ======== ======== ======== ======== ========
Portfolio turnover 60.56% 71.86% 63.95% 60.56% 71.86% 63.95% 50.63%
======== ======== ======== ======== ======== ======== ========
Average commission rate
paid++++++ $ .0004 $ .0005 -- $ .0004 $ .0005 -- --
======== ======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
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
urrencies 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 stock
index 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>
NOTES TO FINANCIAL STATEMENTS (continued)
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. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined 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. Distributions in
excess of net investment income are due primarily to differing tax
treatments for foreign currency transactions.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$622,573 have been reclassified between undistributed net realized
capital gains and 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,
1997, MLAM paid MLAM U.K. a fee of $1,042,511 pursuant to such
Agreement.
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.
For the year ended May 31, 1997, 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 $ 439 $ 6,114
Class D $5,823 $92,339
For the year ended May 31, 1997, MLPF&S received contingent deferred
sales charges of $3,245,523 and $19,009 relating to transactions in
Class B and Class C Shares, respectively.
<PAGE>
In addition, MLPF&S received $81,635 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
May 31, 1997.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 1997 were $579,746,667 and $1,155,037,166,
respectively.
Net realized and unrealized gains (losses) as of May 31, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 78,491,953 $ 91,012,021
Short-term (747) (65,869)
Stock index futures contracts (157,684) 1,167,405
Options written (484,700) (531,547)
Options purchased (4,075,147) 467,685
------------- -------------
Total investments 73,773,675 92,049,695
Currency transactions:
Options purchased (394,747) 1,747,280
Forward foreign exchange
contracts (3,203,676) (440,983)
Foreign currency transactions 383,019 (381,000)
------------- -------------
Total currency transactions (3,215,404) 925,297
------------- -------------
Total $ 70,558,271 $ 92,974,992
============= =============
Transactions in call options written for the year ended May 31, 1997
were as follows:
Nominal Value
Covered by Premiums
Written Options Received
<PAGE>
Outstanding call options written
at beginning of year $ 150 $ 450,000
Options written 288 1,240,523
Options expired (438) (1,690,523)
------------ ------------
Outstanding call options
written at end of year $ -- $ --
============ ============
Transactions in put options written for the year ended May 31, 1997
were as follows:
Nominal Value
Covered By Premiums
Written Options Received
Outstanding put options written
at beginning of year $ 3,655 $ 85,749
Options written 3,469,627 520,444
Options expired (3,655) (85,749)
------------ ------------
Outstanding put options written
at end of year $ 3,469,627 $ 520,444
============ ============
As of May 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $88,843,859, of which $115,709,201 related
to appreciated securities and $26,865,342 related to depreciated
securities. At May 31, 1997, the aggregate cost of investments, net
of investment options for Federal income tax purposes was
$619,401,977.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest trans-
actions was $540,177,741 and $149,701,161 for the years ended May
31, 1997 and May 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended May 31, 1997 Shares Amount
Shares sold 5,010,009 $ 58,060,092
Shares issued to shareholders
in reinvestment of dividends
and distributions 282,319 3,161,968
------------- -------------
Total issued 5,292,328 61,222,060
Shares redeemed (11,515,661) (133,217,324)
------------- -------------
Net decrease (6,223,333) $ (71,995,264)
============= =============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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 B Shares for the Year Dollar
Ended May 31, 1997 Shares Amount
Shares sold 8,217,094 $ 94,876,821
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,266,047 25,175,777
------------- -------------
Total issued 10,483,141 120,052,598
Shares redeemed (43,718,602) (502,263,658)
Automatic conversion of shares (196,392) (2,257,596)
------------- -------------
Net decrease (33,431,853) $(384,468,656)
============= =============
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)
============= =============
Class C Shares for the Year Dollar
Ended May 31, 1997 Shares Amount
Shares sold 2,069,688 $ 23,614,446
Shares issued to shareholders
in reinvestment of dividends
and distributions 131,890 1,446,828
------------- -------------
Total issued 2,201,578 25,061,274
Shares redeemed (4,213,047) (47,925,938)
------------- -------------
Net decrease (2,011,469) $ (22,864,664)
============= =============
<PAGE>
Class C Shares for the Dollar
Year 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 D Shares for the Year Dollar
Ended May 31, 1997 Shares Amount
Shares sold 2,948,566 $ 34,763,784
Automatic conversion of shares 193,325 2,257,596
Shares issued to shareholders
in reinvestment of dividends
and distributions 526,815 5,910,863
------------- -------------
Total issued 3,668,706 42,932,243
Shares redeemed (8,890,251) (103,781,400)
------------- -------------
Net decrease (5,221,545) $ (60,849,157)
============= =============
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)
============= =============
5. Commitments:
At May 31, 1997, 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 purchase and sell foreign
currency with an approximate value of $1,089,000 and $33,898,000,
respectively.
<PAGE>
<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, 1997, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the three-year period
then ended and the period 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.
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,
1997, 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, 1997, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 10, 1997
</AUDIT-REPORT>
<PAGE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch International Equity Fund during the fiscal
year ended May 31, 1997:
<CAPTION>
Qualifying Non-Qualifying
Domestic Interest from Domestic Total Foreign Taxes
Record Payable Ordinary Federal Ordinary Foreign Ordinary Paid or Long-Term
Date Date Income Obligations Income Source Income Income Withheld Capital Gains
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
12/11/96 12/19/96 $.000774 $.032101 $.071415 $.181289 $.285579 $.026187 $.288428
Class B Shares:
12/11/96 12/19/96 $.000385 $.015967 $.035522 $.090173 $.142047 $.026187 $.288428
Class C Shares:
12/11/96 12/19/96 $.000481 $.019955 $.044394 $.112694 $.177524 $.026187 $.288428
Class D Shares:
12/11/96 12/19/96 $.000678 $.028101 $.062517 $.158701 $.249997 $.026187 $.288428
The qualifying domestic ordinary income qualifies for the dividends-
received deduction for corporations.
The foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends received by the Fund from foreign sources. Foreign
taxes paid or withheld should be included in taxable income with an
offsetting deduction from gross income or as a credit for taxes paid
to foreign governments. You should consult your tax adviser
regarding the appropriate treatment of foreign taxes paid.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal obligations is exempt from
state income tax. We recommend that you consult your tax adviser to
determine if any portion of the dividends you received is exempt
from state income tax.
Please retain this information for your records.
EQUITY PORTFOLIO CHANGES (unaudited)
<PAGE>
For the Quarter Ended May 31, 1997
Additions
Alfa, S.A. de C.V.
Amcor Ltd.
Assicurazioni Generali S.p.A.
Assurances Generales de France S.A. (AGF)
Australia and New Zealand Banking
Group Ltd.
BTR PLC
Banco de Galicia y Buenos Aires S.A. de
C.V. (ADR)
Berjaya Group BHD
Berjaya Sports Toto BHD
Boral Ltd.
Brambles Industries Ltd.
CRA Ltd.
CSR Ltd.
Carso Global Telecom, S.A. de C.V. 'A1'
Castorama Dubois Investisse
Cathay Pacific Airways
Cementos Mexicanos, S.A. de C.V. (Cemex)
(Class B)
China Light and Power Co. Ltd.
Citic Pacific Ltd.
Commerce Asset Holding BHD
Dainippon Screen Manufacturing Co., Ltd.
Dao Heng Bank Group Ltd.
Edaran Otomobil Nasional BHD
Empresas ICA Sociedad Controladora,
S.A. de C.V.
Ente Nazionale Idrocarburi S.p.A. (ENI)
Ergo Bank S.A. (New Shares)
Fomento Economico Mexicano, S.A. de C.V.
(Femsa) (Class B)
Foster's Brewing Group Ltd.
Fujisawa Pharmaceuticals Co., Ltd.
Genting BHD
*Granges AB
Great Eagle Holdings Ltd.
Hang Seng Bank Ltd.
Henderson Investment Ltd.
Henderson Land Development Co. Ltd.
Hong Kong and China Gas Co. Ltd.
Hong Kong Electric Holdings Ltd.
Hong Kong Land Holdings Ltd.
Hong Kong Telecommunications Ltd.
Hong Leong Credit BHD
IOI Corporation BHD
<PAGE>
IRSA Inversiones y Representaciones
S.A. (GDR)
Idris Hydraulic (Malaysia) BHD
Isetan Co., Ltd.
Jardine Strategic Holdings Ltd.
Kedah Cement Holdings BHD
*Lane Walker Rudkin Industries Ltd.
Lingui Development BHD
LucasVarsity PLC
Magnum Corporation BHD
Malayan United Industries BHD
Malaysian Oxygen BHD
Multi-Purpose Holdings BHD
National Australia Bank Ltd.
National Westminister Bank PLC (Ordinary)
Nestle (Malaysia) BHD
New World Development Co. Ltd.
Nippon Broadcasting System Inc.
Nissan Motor Co., Ltd.
Oji Paper Co., Ltd.
Perusahaan Otomobil Nasional BHD
Pharmacia & Upjohn, Inc.
Pilkington PLC
Rashid Hussain BHD
Rauma OY
Resorts World BHD
Ricoh Co., Ltd.
Royal PTT Nederland N.V.
Sime Darby BHD
Sun Hung Kai Properties Ltd.
Swire Pacific Ltd. (Class A)
Swire Pacific Ltd. (Class B)
Telefonos de Mexico, S.A. de C.V.
(Series L)
Telekom Malaysia BHD
Thorn PLC
Tobu Railway Co., Ltd.
Tokyu Corp.
United Engineers (Malaysia) Ltd.
Uny Co., Ltd.
WMC Ltd.
Westpac Banking Corporation Ltd.
Wharf (Holdings) Ltd.
Woodside Petroleum Ltd.
YTL Corporation BHD
Yacimientos Petroliferos Fiscales S.A.
(YPF) (ADR)
*Yorkshire Water PLC (Class B)
<PAGE>
Deletions
Allianz AG Holding (Ordinary)
Apasco, S.A. de C.V. 'A'
Arab-Malaysian Merchant Bank Holding BHD
Astra AB (Class A)
Canon Inc.
Clariant AG (Registered Shares)
Commerzbank AG
Corporacion Bancaria de Espana S.A.
(Argentina)
Degussa AG
Deutsche Bank AG (Ordinary)
Finance One Public Co., Ltd. 'Foreign'
Fomento de Construcciones Y Contratas S.A.
*Granges AB
Internatio-Muller N.V.
Irish Life PLC
J.C.G. Holdings Ltd.
Jefferson Smurfit Group PLC (Ordinary)
Krung Thai Bank Public Co., Ltd.
*Lane Walker Rudkin Industries Ltd.
Mostostal-Export S.A.
National Mutual Asia Ltd.
New Straits Times Press (Malaysia) BHD
Nomura Securities Co., Ltd.
Panamerican Beverages, Inc. (Class A)
Phatra Thanakit Public Co., Ltd. 'Foreign'
Promise Co., Ltd.
Prudential Corp. PLC
Sankyo Co., Ltd.
Saurer AG (Registered Shares)
Sekisui Chemical Co.
Svedala Industry
Telecom Corporation of New Zealand
*Yorkshire Water PLC (Class B)
<FN>
*Added and deleted in the same quarter.
OFFICERS AND TRUSTEES
<PAGE>
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior
Vice President
Andrew John Bascand, Vice President
and Senior Portfolio Manager
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, MA 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
</TABLE>
