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MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Quarterly Report
August 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.
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
Total Return in US
Dollars* of the Fund's
Top Ten Country Positions
For the Three-Month Period
Ended August 31, 1997
Bar Graph Depicting Total Return in US Dollars* of the Fund's Top Ten
Country Positions For the Three-Month Period Ended August 31, 1997
Japan -5.6%
Hong Kong -4.3%
Australia -3.5%
South Africa -3.2%
France +2.1%
Canada +3.4%
Germany +3.6%
United Kingdom +4.0%
Netherlands +5.2%
Mexico +17.1%
Source: Financial Times/S&P--
Actuaries Index.
[FN]
*For the three-month period
ended August 31, 1997,
total investment return in
US dollars for the Financial
Times/S&P--Actuaries World
(Ex-US) Index was -1.09%.
DEAR SHAREHOLDER
International equity markets proved volatile during the three months
ended August 31, 1997. Having continued to provide strong US dollar
returns in June, equity markets continued to rise in July. However,
returns in US dollar terms were offset by an appreciation of the US
dollar, particularly against the Deutschemark. In August, the
combination of stronger US economic data, higher US bond yields, a
reversal of the US dollar's rise against the Deutschemark, and a
collapse in Asian equity prices curtailed the bull market in
international equities.
The unmanaged Financial Times/Standard & Poor's (FT/S&P)--Actuaries
World (Ex-US) total return was -1.09% in US dollar terms for the
quarter ended August 31, 1997. The unmanaged International Finance
Corporation Investables Composite Index total return (a global
emerging equities benchmark) fell sharply, returning -8.1% in US
dollar terms over the same period. Once again, returns were
significantly weak in Malaysia, the Philippines and Thailand. The
Asian fallout also extended to Indonesia, Hong Kong and Singapore.
Previously, economic fundamentals in these countries were generally
perceived to be sufficiently positive to reduce the likelihood of
deterioration in equity market sentiment.
Total returns for Merrill Lynch International Equity Fund's Class A,
Class B, Class C and Class D Shares were -2.70%, -2.98%, -3.02% and
- -2.78%, respectively, for the three months ended August 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--6
of this report to shareholders.) The Fund's underperformance
reflected its strategic overweighting of emerging markets. Over the
August quarter, the Fund's average investment weighting in Malaysia,
Thailand, Singapore, Indonesia and the Philippines was 3.3%, the
same as the FT/S&P--Actuaries World (Ex-US) weighting. In contrast,
the Fund was more heavily weighted in Latin American markets, with
an average exposure of 7.6% (against the FT/S&P--Actuaries World (Ex-
US) weighting of 2.5%). In the cyclical Asian markets of Korea and
India, the Fund had an average 2.6% exposure.
Portfolio Matters
Overall, the Fund's effective equity exposure was about 90% as of
August 31, 1997, approximately the same as of May 31, 1997. By
region, the Fund's major exposure remained in Japan. Japanese equity
exposure was around 30% on August 31, 1997, down 3 percentage points
from three months earlier following the sale of a Nikkei 225 (N225)
lookback option and N225 futures. The Fund's European equity
holdings were up by about 2% to 28% at August 31, 1997, mainly
reflecting an increase in Italian exposure to approximately 5%
(including futures) from 2%. Elsewhere, we reduced exposure in Latin
America, principally Brazil and Chile, to 7% from 8%, and
transferred some exposure to Canada, where new positions were
established in commodity-related equities such as Noranda, Inc.,
Barrick Gold Corp. and Ranger Oil Ltd.
We also reduced specific stock concen-tration in the portfolio and
diversified investments within targeted countries. For example, we
reduced exposure in HSBC Holdings PLC, Telecomunicacoes Brasileiras
S.A.--Telebras (ADR), and Nedcor Ltd. (GDR)--previously among the
Fund's largest holdings--and purchased a diversified basket of
German equities.
Economic and Investment
Environment
The US economy is exhibiting late business cycle pressures. Delivery
lag and bottleneck indicators are significantly above thresholds
which often coincide with higher inflation. In previous cycles,
increased delivery lags were associated with higher wage inflation
which influenced the Federal Reserve Board's decision to raise
interest rates. Already, US profits growth has peaked and US
national account profit has reached a plateau, in our opinion. In
previous business cycles, the combination of these factors, at
current valuation levels, foreshadowed a major correction in equity
prices and a bear equity market cycle.
However, there are several countertrends which argue against a
global equity correction led by higher inflation/interest rates or a
global equity bear market. First, although general commodity price
inflation has trended up, gold, copper and lumber prices are either
flat or falling. Second, real global interest rates are already
relatively high. Third, global liquidity (as measured by the banking
system reserves in the Group of Seven nations) has weakened.
Several developments suggest that the global inventories are in
oversupply and that companies may face an increasingly intense
profit margin squeeze. Recent aggregate market earnings downgrades
in the United States, Japan, the United Kingdom and Southeast Asia
support the theme that strengthening demand growth in the United
States and Europe will not lead to further profits expansion.
Economists suggested that the Asian currency crisis will have a
deflationary impact on the world economy as current large trade
deficits for Southeast Asia are unwound by a cutback in imports from
developed economies.
Against this global background we reviewed our individual equity
market valuations and expected returns. Our main conclusions are:
* Despite the more than 10% fall in several Continental European
equity prices during August, intermediate-term expected returns
remain low in many countries relative to recent history and
prospective earnings potential. Intermediate-term returns in
Australia, the United Kingdom, Canada and Japan remain relatively
attractive. The Asian currency crisis reinforces our preference for
maintaining a low exposure to Southeast Asian markets.
* Our favored emerging markets are Mexico, India, Korea and South
Africa.
In Europe, our bond valuation model suggests yields are near
cyclical lows and that rising interest rates may reinforce the
potential for a further technical market setback. In Europe, equity
market valuations still appear stretched relative to bonds and
potential earnings growth. Stronger economic data in Germany also
led to expectations of a rise in interest rates, which contributed
to increased currency and equity market volatility. We estimate that
core Continental European equity markets are still 10%--15%
overvalued. In contrast, the UK market appears fairly valued with
valuations relative to bonds, and potential earnings growth, not
significantly different from long-term averages.
Among other major markets, equity sentiment in Japan was depressed
by the persistence of sluggish demand conditions following the April
consumption tax rise. Recently, however, economic output and demand
indicators had a firmer tone. Household spending rebounded in July,
and export growth (particularly cars and machine tools) continues to
expand rapidly.
Consensus forecasts of Japanese gross domestic product growth
increased slightly in the past three months from 1.7% for 1997/1998
to 2%. However, the Asian currency crisis may have pared back
1998/1999 growth prospects, and we expect a round of downward
revisions to growth expectations in the next few months. Japanese
national account profits growth in 1996/1997 was +18.8%, following a
25% expansion in 1995/1996. We expect that this rising economy-wide
profits expansion will eventually lift corporate earnings. Latest
consensus estimates for 1997/1998 are for reported Topix profits to
expand from 3.4 yen per share to around 22 yen and 40 yen in
1998/1999, consistent with our view of a gradual recovery in
underlying earnings. By 1999, we expect Japanese profits to return
to trend and on current prices, with Topix at 1,450, the market
offers reasonable value on an intermediate-term basis. Other markets
that appear relatively attractive from a valuation perspective are
Australia, India, Korea, Mexico and South Africa.
In Southeast Asia, the currency crisis created potential attractive
intermediate-term value, and we may actively look for opportunities
later in 1997. At this stage we prefer the outlook in Indonesia and
Singapore relative to Malaysia, Thailand and the Philippines, as the
extent of the banking and property overhang is less in the former
countries and equities appear more attractively priced.
Our currency views are largely unchanged from the May 31, 1997
quarter. The Fund remains largely unhedged, although we purchased US
dollar call options against a small portion of our yen and
Deutschemark exposure.
In Conclusion
International equity markets became increasingly volatile and more
highly correlated. Typically, toward the end of economic cycle,
higher volatility signals a likely correction in equity prices and
occasionally, the beginning of a period of low returns. It is our
view that the correction in Asia may bring forward a period of
margin contraction and poor profits growth, which could presage a
decline in the United States and some European equity markets.
Aside from our continued overweighting of Latin America, India and
South Africa, which we find attractive for the medium term, the Fund
is increasingly focusing on more defensive investments.
We thank you for your interest in Merrill Lynch International Equity
Fund, and we look forward to reporting to you in the next
shareholder letter.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Andrew Bascand)
Andrew Bascand
Vice President and
Senior Portfolio Manager
September 30, 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.)
* 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.
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--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--8/31/97 11.33 12.24 -- -- + 8.03
------ ------
Total $0.379 Total $0.885
Cumulative total return as of 8/31/97: +17.03%**
<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>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
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--8/31/97 11.22 12.05 -- -- + 7.40
------ ------
Total $0.379 Total $0.632
Cumulative total return as of 8/31/97: +32.21%**
<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**
<C> <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--8/31/97 11.08 11.89 -- -- + 7.31
------ ------
Total $0.379 Total $0.760
Cumulative total return as of 8/31/97: +13.70%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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--8/31/97 11.35 12.24 -- -- + 7.84
------ ------
Total $0.379 Total $0.816
Cumulative total return as of 8/31/97: +36.41%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
8/31/97 5/31/97 8/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML International Equity Fund Class A Shares* $12.24 $12.58 $11.61 + 8.14%(1) -2.70%
ML International Equity Fund Class B Shares* 12.05 12.42 11.40 + 8.45(1) -2.98
ML International Equity Fund Class C Shares* 11.89 12.26 11.29 + 8.08(1) -3.02
ML International Equity Fund Class D Shares* 12.24 12.59 11.59 + 8.32(1) -2.78
ML International Equity Fund Class A Shares--Total Return* +10.83(2) -2.70
ML International Equity Fund Class B Shares--Total Return* + 9.80(3) -2.98
ML International Equity Fund Class C Shares--Total Return* + 9.79(4) -3.02
ML International Equity Fund Class D Shares--Total Return* +10.68(5) -2.78
Financial Times/S&P--Actuaries World (Ex-US) Index**--Total Return + 9.11 -1.09
<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>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +15.36% +9.30%
Inception (10/21/94) through 6/30/97 + 9.00 +6.84
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 +14.24% +10.24%
Inception (7/30/93) through 6/30/97 + 9.51 + 9.31
[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 6/30/97 +14.21% +13.21%
Inception (10/21/94) through 6/30/97 + 7.93 + 7.93
<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 6/30/97 +15.18% +9.14%
Inception (7/30/93) through 6/30/97 +10.35 +8.85
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Percent of
AFRICA Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Africa Banking 228,050 Nedcor Ltd. (GDR) (c) $ 2,464,941 $ 4,472,015 0.6%
Beverages 86,493 South African Breweries
Ltd. 2,492,316 2,595,712 0.4
Insurance 88,600 Liberty Life Association
of Africa Ltd. 2,406,914 2,729,787 0.4
Mining 54,000 Anglo American Corp. of
South Africa, Ltd. 3,636,072 2,771,962 0.4
65,200 Anglo American Corp. of
South Africa, Ltd.
(ADR) (a) 4,274,593 3,341,500 0.4
183,616 Evander Gold Mines Ltd. 1,861,029 528,532 0.1
-------------- -------------- ------
9,771,694 6,641,994 0.9
Paper & Forest 125,000 Sappi Ltd. 1,195,769 1,156,716 0.2
Products
Total Investments in
South Africa 18,331,634 17,596,224 2.5
Zimbabwe Beverages 1,522,193 Delta Corporation Ltd. 856,251 2,335,454 0.3
Total Investments in Zimbabwe 856,251 2,335,454 0.3
Total Investments in Africa 19,187,885 19,931,678 2.8
EUROPE
Czech Republic Broadcast--Media 42,500 Central European Media
Enterprises Ltd. (Class A) 1,168,750 1,089,063 0.1
Total Investments in the
Czech Republic 1,168,750 1,089,063 0.1
Finland Diversified 109,783 Outokumpu OY 1,682,283 1,752,977 0.2
Paper & Forest 160,726 Enso OY (Class A) 1,245,642 1,406,338 0.2
Products 615,000 Metsa Serla OY (Class B) 4,764,160 5,108,728 0.7
102,831 UPM-Kymmene Corporation 1,959,088 2,441,126 0.4
-------------- -------------- ------
7,968,890 8,956,192 1.3
Total Investments
in Finland 9,651,173 10,709,169 1.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Held/ Percent of
(continued) Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
France Automobiles 26,176 Peugeot S.A. $ 3,858,416 $ 2,945,449 0.4%
Banking 32,200 Compagnie Financiere
de Paribas 1,632,768 2,226,120 0.3
24,112 Societe Generale de
Surveillance S.A.
(Class A) (Ordinary) 2,550,132 3,004,040 0.4
-------------- -------------- ------
4,182,900 5,230,160 0.7
Communication 26,864 Alcatel Alsthom Cie
Equipment Generale d'Electricite S.A. 2,566,973 3,302,514 0.5
Engineering & 24,818 Bouygues S.A. 2,425,334 1,992,986 0.3
Construction
Financial Services 11,334 EuraFrance S.A. 3,545,896 4,307,369 0.6
Foods 13,236 Groupe Danone S.A. 2,102,752 1,977,089 0.3
Hotels 16,473 Accor S.A. 2,304,471 2,476,938 0.3
Insurance 76,238 Assurances Generales de
France S.A. (AGF) 2,441,894 2,733,583 0.4
40,743 Axa-UAP 2,527,771 2,605,344 0.4
-------------- -------------- ------
4,969,665 5,338,927 0.8
Oil & Related 18,987 Elf Aquitaine S.A. 1,436,363 2,117,684 0.3
Retail 7,160 Castorama Dubois Investisse 997,526 843,536 0.1
Semiconductors 22,835 SGS-Thomson Microelectronics
N.V. 1,061,477 2,116,728 0.3
Steel 139,563 Usinor Sacilor S.A. 1,804,924 2,428,286 0.3
Total Investments in France 31,256,697 35,077,666 4.9
Germany Automobiles 555 Bayerische Motoren
Werke AG (BMW) 404,993 395,062 0.1
12,600 Daimler-Benz AG 1,011,703 945,946 0.1
3,856 Volkswagen AG 1,564,330 2,776,955 0.4
-------------- -------------- ------
2,981,026 4,117,963 0.6
Banking 5,600 BHF-Bank AG 177,165 156,490 0.0
9,600 Bayerische Hypotheken-und
Wechsel-Bank AG 380,310 352,352 0.0
8,500 Bayerische Vereinsbank AG 451,619 442,915 0.1
2,600 Commerzbank AG 92,860 90,513 0.0
12,900 Deutsche Bank AG 829,967 756,840 0.1
13,500 Dresdner Bank AG 598,345 538,288 0.1
-------------- -------------- ------
2,530,266 2,337,398 0.3
Chemicals 26,660 BASF AG 930,532 917,726 0.1
35,691 Bayer AG 1,413,026 1,318,118 0.2
21,132 Henkel KGaA 907,822 977,746 0.1
56,142 Henkel KGaA (Preferred) 2,387,435 2,844,253 0.4
15,200 Hoechst AG 696,765 603,960 0.1
-------------- -------------- ------
6,335,580 6,661,803 0.9
Computer Software 1,500 SAP AG (Systeme,
Anwendungen, Produkte
in der Datenverarbeitung)
(Preferred) 370,797 344,511 0.1
Diversified 6,600 RWE AG 303,365 299,132 0.0
17,008 Thyssen AG 3,576,809 3,925,214 0.5
12,000 VEBA AG 724,504 653,987 0.1
900 Viag AG 385,008 375,125 0.1
-------------- -------------- ------
4,989,686 5,253,458 0.7
Electronics 13,300 Siemens AG 916,342 818,769 0.1
Engineering & 400 Linde AG 306,085 270,270 0.0
Construction 8,315 Philipp Holzmann AG 3,181,247 2,520,117 0.4
-------------- -------------- ------
3,487,332 2,790,387 0.4
Foreign DM 52,500,000 Bundes Obligations,
Government 6.625% due 1/20/1998 29,050,038 29,546,213 4.1
Bonds DM 30,600,000 Bundes Schatzanweisungen,
5.25% due 11/20/1997 16,424,015 17,085,085 2.4
-------------- -------------- ------
45,474,053 46,631,298 6.5
Insurance 5,400 Allianz AG 1,309,986 1,198,799 0.2
2,000 Munich Re Group 735,839 595,040 0.1
-------------- -------------- ------
2,045,825 1,793,839 0.3
Machinery & 58,605 Kloeckner Werke AG 3,175,843 3,813,138 0.5
Equipment 1,100 Mannesmann AG 518,771 511,400 0.1
-------------- -------------- ------
3,694,614 4,324,538 0.6
Retail 3,825 Karstadt AG 1,492,683 1,325,200 0.2
7,600 Metro AG 402,565 348,682 0.1
-------------- -------------- ------
1,895,248 1,673,882 0.3
Telecommunications 15,000 Deutsche Telekom AG 347,172 300,300 0.0
Total Investments in
Germany 75,067,941 77,048,146 10.8
Hungary Telecommunications 10,000 Magyar TarKozlesi
Reszvenytarsasag (Ordinary) 1,589,861 4,244,873 0.6
Total Investments in
Hungary 1,589,861 4,244,873 0.6
Ireland Building & 76,142 CRH PLC 826,936 817,585 0.1
Construction
Total Investments in
Ireland 826,936 817,585 0.1
Italy Building Products 391,380 Italcementi S.p.A 2,177,473 2,576,566 0.4
Chemicals 4,166,772 Montedison S.p.A. 4,239,042 2,534,648 0.4
Diversified 2,558,117 Compagnie Industrial
Riunite S.p.A. (CIR) 2,211,686 1,807,697 0.2
Insurance 129,243 Assicurazioni Generali S.p.A. 2,367,852 2,734,456 0.4
946,101 Istituto Nazionale delle
Assicurazioni S.p.A. (INA) 1,354,588 1,384,997 0.2
-------------- -------------- ------
3,722,440 4,119,453 0.6
Publishing 1,924,400 Seat S.p.A. 535,560 472,621 0.1
Telecommunications 909,821 Telecom Italia S.p.A. (e) 1,964,937 3,222,390 0.4
Total Investments in Italy 14,851,138 14,733,375 2.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Percent of
(concluded) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Netherlands Chemicals 22,661 Akzo Nobel N.V. $ 2,812,406 $ 3,527,805 0.5%
110,164 European Vinyls Corporation
International N.V. 4,431,516 2,530,067 0.3
-------------- -------------- ------
7,243,922 6,057,872 0.8
Diversified 567 Internatio-Muller N.V. 16,138 18,231 0.0
Electronics 37,941 Philips Electronics N.V. 1,369,591 2,711,544 0.4
Insurance 33,457 ING Groep N.V. 1,182,171 1,462,411 0.2
Packaging & 93,046 Koninklijke KNP BT N.V. 2,098,955 2,008,253 0.3
Containers
Steel 21,000 Ispat International N.V. 568,773 534,153 0.1
Telecommunications 58,692 Royal PTT Nederland N.V. 2,147,205 2,090,035 0.3
Transportation 14,285 Koninklijke Pakhoed N.V. 554,247 490,348 0.1
Total Investments in the
Netherlands 15,181,002 15,372,847 2.2
Norway Oil & Gas Producers 72,875 Saga Petroleum A.S.
(Class B) 801,866 1,409,688 0.2
Total Investments in Norway 801,866 1,409,688 0.2
Poland Automobiles & 97,200 T.C. Debica S.A. 1,310,106 2,700,000 0.4
Equipment
Total Investments in Poland 1,310,106 2,700,000 0.4
Portugal Building Products 7,500 Cimpor-Cimentos de
Portugal S.A. (SGPS) 193,436 180,802 0.0
Diversified 114,687 Sonae Investimentos--SGPS,
S.A. 2,803,713 4,285,368 0.6
Total Investments in Portugal 2,997,149 4,466,170 0.6
Russia Natural Gas 68,000 Gazprom (ADR) (a) 1,071,000 1,317,500 0.2
Total Investments in Russia 1,071,000 1,317,500 0.2
Sweden Electrical 33,238 Electrolux AB 1,403,537 2,372,811 0.3
Engineering & 21,889 SKF AB 383,923 559,475 0.1
Construction
Forest Products 44,636 Mo och Domsjo AB (Class B) 1,200,098 1,479,445 0.2
929,741 Rottneros Bruks AB 1,435,615 1,054,854 0.1
92,871 Stora Kopparbergs AB 1,238,849 1,479,893 0.2
-------------- -------------- ------
3,874,562 4,014,192 0.5
Insurance 72,396 Skandia Forsakrings AB 1,739,912 2,814,846 0.4
Metals & Mining 188,686 Avesta Sheffield AB 1,710,791 1,791,993 0.3
Total Investments in Sweden 9,112,725 11,553,317 1.6
Switzerland Banking 11,533 Credit Suisse Group
(Registered Shares) 1,159,251 1,389,167 0.2
Diversified 40,054 Oerlikon-Buehrle Holding AG 4,212,785 4,642,377 0.7
Food & Beverage 221 Nestle S.A. (Registered Shares) 257,809 257,635 0.0
Leisure 3,682 Fotolabo S.A. 1,529,233 1,029,670 0.1
Total Investments in
Switzerland 7,159,078 7,318,849 1.0
Turkey Beverages 8,860,000 Erciyas Biracilik Ve Malt
Sanayii A.S. 1,462,556 1,150,409 0.2
Brewery 1,947,100 Guney Biracilik Ve Malt
Sanayii A.S. 89,117 84,854 0.0
Financial 477,000 Koc Yatirim Ve Sanayi
Services Mamulleri Pazarlama A.S. 137,793 148,075 0.0
Investment 12,285,000 Haci Omer Sabanci Holding A.S. 399,631 410,698 0.1
Management
Steel 4,700,000 Eregli Demir Ve Celik
Fabrikalari T.A.S. 779,503 771,596 0.1
Total Investments in Turkey 2,868,600 2,565,632 0.4
United Kingdom Automobiles & 758,978 LucasVarity PLC 2,448,105 2,407,958 0.3
Equipment
Banking 161,802 National Westminister Bank
PLC (Ordinary) 1,770,515 2,070,674 0.3
Beverages 169,650 Matthew Clark PLC 1,745,135 660,414 0.1
Brewery 94,765 Bass PLC 1,209,528 1,268,098 0.2
72,439 Guinness PLC 730,924 645,053 0.1
-------------- -------------- ------
1,940,452 1,913,151 0.3
Chemicals 430,500 Inspec Group PLC 1,300,917 1,529,214 0.2
Computer Services 61,887 Misys PLC 763,251 1,604,084 0.2
Diversified 1,102,384 BTR PLC 4,112,899 3,897,986 0.5
Food & Beverage 262,963 Allied Domecq PLC
(Ordinary) 1,822,184 1,987,611 0.3
299,941 Cadbury Schweppes PLC 2,324,410 2,787,670 0.4
-------------- -------------- ------
4,146,594 4,775,281 0.7
Food Processing 1,506,708 ASDA Group PLC 2,779,309 3,519,188 0.5
185,336 Unilever PLC 3,552,974 5,137,510 0.7
-------------- -------------- ------
6,332,283 8,656,698 1.2
Glass 558,376 Pilkington PLC 1,125,025 1,317,773 0.2
Retail 404,939 Tesco PLC (Ordinary) 2,128,716 2,706,062 0.4
138,379 W.H. Smith Group PLC 845,618 850,668 0.1
-------------- -------------- ------
2,974,334 3,556,730 0.5
Telecommunications 446,600 British Telecommunications
PLC 2,883,645 2,883,053 0.4
207,516 Cable & Wireless PLC 1,406,963 1,817,591 0.3
-------------- -------------- ------
4,290,608 4,700,644 0.7
Tobacco 80,518 B.A.T. Industries PLC 676,566 674,550 0.1
53,280 Gallaher Group PLC 221,600 240,248 0.0
-------------- -------------- ------
898,166 914,798 0.1
Utilities--Water 189,700 Anglian Water PLC 1,638,380 2,392,316 0.4
58,545 Severn Trent PLC 557,650 830,896 0.1
182,000 Thames Water PLC 1,589,376 2,330,636 0.3
195,500 United Utilities PLC 1,794,982 2,184,826 0.3
-------------- -------------- ------
5,580,388 7,738,674 1.1
Total Investments in the
United Kingdom 39,428,672 45,744,079 6.4
Total Investments in Europe 214,342,694 236,167,959 33.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN Percent of
AMERICA Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 28,660 Banco de Galicia y Buenos
Aires S.A. de C.V.
(ADR) (a) $ 727,831 $ 849,053 0.1%
139,404 Banco Frances del Rio de
la Plata S.A. (ADR) (a) 3,175,772 4,565,481 0.7
-------------- -------------- ------
3,903,603 5,414,534 0.8
Oil & Related 651,897 Perez Companc S.A. 3,598,614 5,203,179 0.7
36,280 Yacimientos Petroliferos
Fiscales S.A. (YPF)
(ADR) (a) 1,076,646 1,181,368 0.2
-------------- -------------- ------
4,675,260 6,384,547 0.9
Real Estate 9,500 IRSA Inversiones y
Representaciones S.A.
(GDR) (c) 365,991 422,156 0.1
Telecommunications 71,320 Telefonica de Argentina
S.A. (Class B) (ADR) (a) 2,129,630 2,473,913 0.3
Total Investments in
Argentina 11,074,484 14,695,150 2.1
Brazil Banking 226,026,045 Banco Bradesco S.A. PN
(Preferred) 1,770,450 2,235,627 0.3
Beverages 4,038,960 Companhia Cervejaria Brahma
S.A. PN (Preferred) 1,972,801 2,707,683 0.4
Oil & Gas 5,900,000 Petroleo Brasileiro S.A.--
Producers Petrobras (Preferred) 1,551,794 1,415,751 0.2
Telecommunications 40,225 Telecomunicacoes Brasileiras
S.A.--Telebras(ADR) (a) 2,219,856 4,746,550 0.6
Utilities 43,485 Companhia Energetica de
Minas Gerais S.A.(CEMIG)
(ADR) (a) 1,125,579 1,924,211 0.3
Total Investments in Brazil 8,640,480 13,029,822 1.8
Mexico Beverages 252,700 Fomento Economico Mexicano,
S.A. de C.V. (Femsa)
(Class B) 1,340,157 1,752,513 0.2
Building & 718,800 Empresas ICA Sociedad
Construction Controladora, S.A. de C.V. 1,741,871 1,919,081 0.3
Building Products 481,500 Cementos Mexicanos, S.A.
de C.V. (Cemex) (Class B) 1,984,683 2,670,181 0.4
Diversified 272,100 Alfa, S.A. de C.V. (Class A) 1,612,176 2,125,125 0.3
Health & Personal 145,920 Kimberly-Clark de Mexico,
S.A. de C.V. (ADR) (a) 2,657,432 3,228,480 0.4
Multi-Industry 356,400 Grupo Carso, S.A. de
C.V. 'A1' 1,843,597 2,485,445 0.3
Telecommunications 607,600 Carso Global Telecom, S.A.
de C.V. 'A1' 2,198,953 2,298,435 0.3
2,009,000 Telefonos de Mexico, S.A.
de C.V. (Series L) 4,445,130 4,627,007 0.7
-------------- -------------- ------
6,644,083 6,925,442 1.0
Total Investments in Mexico 17,823,999 21,106,267 2.9
Total Investments in
Latin America 37,538,963 48,831,239 6.8
NORTH
AMERICA
Canada Building Products 410,000 Noranda Forest, Inc. 3,010,830 2,776,657 0.4
Metals & Mining 89,200 Alcan Aluminium Ltd. 3,100,464 3,116,834 0.4
129,000 Barrick Gold Corp. 2,922,974 2,918,300 0.4
279,000 Noranda, Inc. 5,952,644 5,457,385 0.8
-------------- -------------- ------
11,976,082 11,492,519 1.6
Oil & Gas 255,700 Ranger Oil Ltd. 2,417,066 2,459,362 0.3
Producers
Transportation 139,800 Canadian Pacific Ltd. 4,294,873 4,079,241 0.6
Total Investments in
North America 21,698,851 20,807,779 2.9
PACIFIC
BASIN
Australia Auto--Related 306,200 Orbital Engine Corporation
Ltd. 202,196 182,222 0.0
Banking 256,000 Australia and New Zealand
Banking Group Ltd. 1,577,793 1,839,454 0.3
55,900 Bank of Melbourne Ltd. 399,709 399,896 0.0
288,000 National Australia Bank Ltd. 3,776,070 3,999,119 0.6
311,000 Westpac Banking
Corporation Ltd. 1,756,125 1,802,800 0.2
-------------- -------------- ------
7,509,697 8,041,269 1.1
Beverages 860,000 Foster's Brewing Group Ltd. 1,821,613 1,623,834 0.2
Building Products 468,000 Boral Ltd. 1,446,747 1,365,043 0.2
436,000 CSR Ltd. 1,682,973 1,543,987 0.2
-------------- -------------- ------
3,129,720 2,909,030 0.4
Commercial Services 74,000 Mayne Nickless Ltd. 421,833 422,981 0.1
Containers 332,500 Amcor Ltd. 2,187,396 2,012,931 0.3
Diversified 58,400 Email Ltd. 205,257 179,778 0.0
Food & Beverage 117,001 Coca-Cola Amatil, Ltd. 710,460 1,193,134 0.2
Foods 30,800 Arnotts Ltd. 200,840 186,687 0.0
112,400 Burns, Philp & Company Ltd. 205,483 197,367 0.0
143,200 National Foods Ltd. 201,993 202,001 0.1
-------------- -------------- ------
608,316 586,055 0.1
Hotels 321,000 AAPC Ltd. 204,570 183,954 0.0
Investment 108,700 Australian Foundation
Management Investment Company Ltd. 199,151 196,460 0.0
Media 192,000 The News Corp., Ltd.
(Preferred) 849,066 732,114 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Percent of
(continued) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Metals & Mining 71,000 Aberfoyle Ltd. $ 199,927 $ 177,357 0.1%
(concluded) 144,000 Ashton Mining Ltd. 200,569 169,275 0.0
81,700 Metal Manufactures Ltd. 199,358 168,070 0.0
79,500 Newcrest Mining Ltd. 200,819 154,199 0.0
62,200 Plutonic Resources Ltd. 198,444 177,310 0.0
163,400 QCT Resources Ltd. 199,493 190,879 0.1
53,300 RGC Ltd. 198,386 150,764 0.0
403,500 Rio Tinto Ltd. (f) 6,203,234 5,961,639 0.8
276,000 WMC Ltd. 1,807,369 1,399,163 0.2
-------------- -------------- ------
9,407,599 8,548,656 1.2
Oil & Gas 124,000 Australian Oil & Gas
Producers Corporation Ltd. 203,609 204,981 0.0
136,000 Woodside Petroleum Ltd. 989,076 1,089,119 0.2
-------------- -------------- ------
1,192,685 1,294,100 0.2
Property 104,041 Lend Lease Corp. 1,624,348 2,243,635 0.3
Publishing 71,500 PMP Communications Ltd. 166,993 171,777 0.0
Real Estate 110,100 Capital Property Trust 199,840 181,195 0.0
Investment 77,400 Stockland Trust Group 200,893 193,344 0.1
Trusts -------------- -------------- ------
400,733 374,539 0.1
Resources 703,548 Broken Hill Proprietary Co. 9,385,454 8,828,596 1.3
Steel 173,000 Australian National
Industries Ltd. 204,471 198,281 0.0
Television 49,300 Seven Network Ltd. 200,537 199,214 0.0
Transportation 120,100 Brambles Industries Ltd. 2,284,747 2,364,764 0.4
Total Investments in
Australia 42,916,842 42,487,324 6.0
Hong Kong Airlines 570,000 Cathay Pacific Airways 879,874 930,507 0.1
Banking 196,000 Dao Heng Bank Group Ltd. 924,947 834,688 0.1
112,200 HSBC Holdings PLC 1,724,207 3,417,112 0.5
245,000 Hang Seng Bank Ltd. 2,714,528 2,956,188 0.4
-------------- -------------- ------
5,363,682 7,207,988 1.0
Conglomerates 453,325 Hutchison Whampoa Ltd. 2,510,971 3,773,321 0.5
Diversified 304,000 Citic Pacific Ltd. 1,659,113 1,620,235 0.2
106,500 Jardine Strategic
Holdings Ltd. 368,492 388,725 0.1
187,500 Swire Pacific Ltd.
(Class A) 1,546,403 1,433,653 0.2
581,500 Swire Pacific Ltd.
(Class B) 766,292 836,718 0.1
-------------- -------------- ------
4,340,300 4,279,331 0.6
Foods 2,154,000 C.P. Pokphand Co. Ltd. 748,591 701,878 0.1
Property 227,000 Cheung Kong (Holdings) Ltd. 1,628,621 2,402,116 0.3
242,000 Great Eagle Holdings Ltd. 717,303 712,040 0.1
586,000 Henderson Investment Ltd. 604,973 620,106 0.1
210,000 Henderson Land Development
Co. Ltd. 1,734,865 1,741,192 0.2
249,000 Hong Kong Land Holdings Ltd. 533,882 723,345 0.1
183,000 New World Development
Co. Ltd. 1,007,002 1,140,650 0.2
271,000 Sun Hung Kai Properties Ltd. 2,873,167 3,077,558 0.4
314,000 Wharf (Holdings) Ltd. 1,184,658 1,136,624 0.2
-------------- -------------- ------
10,284,471 11,553,631 1.6
Telecommuni- 1,311,200 Hong Kong Telecommunications
cations Ltd. 2,210,834 2,758,106 0.4
Utilities-- 359,000 China Light and Power
Electric Co. Ltd. 1,616,245 1,663,195 0.3
200,000 Hong Kong Electric
Holdings Ltd. 700,617 699,445 0.1
-------------- -------------- ------
2,316,862 2,362,640 0.4
Utilities--Gas 790,000 Hong Kong and China
Gas Co. Ltd. 1,264,840 1,468,060 0.2
Total Investments in
Hong Kong 29,920,425 35,035,462 4.9
Japan Automobiles 813,000 Mitsubishi Motors Corp. 5,881,904 4,738,946 0.6
129,000 Toyota Motor Corp. 3,521,234 3,383,712 0.5
-------------- -------------- ------
9,403,138 8,122,658 1.1
Banking 7,500,000 Japanese Bank Knock Out
(Warrants) (b) 7,736,250 7,552,500 1.1
485,000 Mitsubishi Trust and
Banking Corp. 5,143,346 6,825,298 0.9
390,000 Sakura Bank Ltd. 2,790,344 2,305,771 0.3
-------------- -------------- ------
15,669,940 16,683,569 2.3
Broadcast--Media 27,000 Nippon Broadcasting
System Inc. 2,037,206 2,003,248 0.3
Capital Goods 808,000 Mitsubishi Heavy
Industries, Ltd. 6,649,674 5,375,901 0.8
Chemicals 620,000 Kaneka Corp. 3,166,916 3,861,770 0.5
266,000 Shin-Etsu Chemical
Co., Ltd. 4,856,912 6,822,217 1.0
-------------- -------------- ------
8,023,828 10,683,987 1.5
Containers 3,000 Toyo Seikan Kaisha, Ltd. 93,627 51,961 0.0
Electric 220,000 Taihei Dengyo Kaisha, Ltd. 5,020,707 1,227,413 0.2
Construction
Electrical 347,000 Anritsu Corp. 4,003,623 5,143,309 0.7
Equipment 715,000 Fujikura Ltd. 5,548,773 6,013,407 0.9
92,000 Murata Manufacturing
Co., Ltd. 3,154,267 3,761,512 0.5
438,000 NEC Corporation 5,453,990 4,923,807 0.7
69,000 Rohm Co., Ltd. 3,870,990 7,182,113 1.0
362,000 Sharp Corporation 5,603,967 3,647,431 0.5
-------------- -------------- ------
27,635,610 30,671,579 4.3
Electronics 83,600 Advantest Corp. 4,329,672 7,657,590 1.1
559,000 Hitachi Ltd. 5,166,946 5,166,875 0.7
290,000 Pioneer Electronic Corp. 5,163,945 5,795,653 0.8
78,700 Sony Corp. 5,731,219 6,881,089 1.0
-------------- -------------- ------
20,391,782 25,501,207 3.6
Financial Services 72,000 Jafco Co., Ltd. 4,066,033 3,885,086 0.5
Glass 508,000 Asahi Glass Co., Ltd. 4,506,452 3,879,057 0.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Percent of
(continued) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Machinery 375,000 Daifuku Co., Ltd. $ 4,945,520 $ 3,934,549 0.6%
(concluded) 872,000 NSK Ltd. 5,040,389 4,523,741 0.6
-------------- -------------- ------
9,985,909 8,458,290 1.2
Manufacturing 430,000 Dainippon Screen
Manufacturing Co., Ltd. 3,372,153 4,046,132 0.6
1,467,000 Ube Industries Ltd. 4,202,851 3,298,276 0.4
-------------- -------------- ------
7,575,004 7,344,408 1.0
Office Equipment 375,000 Ricoh Co., Ltd. 4,503,306 5,089,933 0.7
Paper Products 571,000 Oji Paper Co., Ltd. 3,710,043 2,900,408 0.4
Pharmaceuticals 475,000 Fujisawa Pharmaceutical
Co., Ltd. 4,367,310 4,627,779 0.7
210,000 Taisho Pharmaceutical
Co., Ltd. 4,115,093 5,158,631 0.7
-------------- -------------- ------
8,482,403 9,786,410 1.4
Real Estate 359,000 Mitsubishi Estate Co., Ltd. 4,103,953 5,052,128 0.7
441,000 Mitsui Fudosan Co., Ltd. 4,564,545 5,141,144 0.7
-------------- -------------- ------
8,668,498 10,193,272 1.4
Retail 250,000 Isetan Co., Ltd. 2,612,122 2,456,491 0.4
106,000 Ito-Yokado Co., Ltd. 5,887,086 5,737,364 0.8
390,000 Takashimaya Co. 4,090,332 4,351,736 0.6
120,000 Uny Co., Ltd. 1,991,583 2,208,344 0.3
-------------- -------------- ------
14,581,123 14,753,935 2.1
Steel 1,561,000 Kawasaki Steel Corp. 4,179,147 3,886,577 0.6
1,981,000 Nippon Steel Co. 5,304,942 5,047,764 0.7
-------------- -------------- ------
9,484,089 8,934,341 1.3
Telecommunications 800 DDI Corp. 4,823,018 4,196,852 0.6
175,000 Uniden Corporation 2,438,638 2,462,736 0.3
-------------- -------------- ------
7,261,656 6,659,588 0.9
Textiles 1,061,000 Teijin Ltd. 4,224,189 4,320,335 0.6
Tire & Rubber 260,000 Bridgestone Corporation 4,737,763 5,780,665 0.8
Tobacco 791 Japan Tobacco, Inc. 5,108,895 6,382,538 0.9
Trading 706,000 Mitsui & Co. 5,176,180 5,784,861 0.8
1,274,000 Nissho Iwai Corp. 4,454,051 4,805,746 0.7
-------------- -------------- ------
9,630,231 10,590,607 1.5
Transportation 760,000 Nippon Express Co., Ltd. 4,490,727 5,024,898 0.7
500,000 Tobu Railway Co., Ltd. 2,416,593 2,035,973 0.3
800,000 Tokyu Corp. 4,912,056 4,230,161 0.6
-------------- -------------- ------
11,819,376 11,291,032 1.6
Total Investments in Japan 213,270,482 220,571,428 30.9
Malaysia Agricultural 313,000 IOI Corporation BHD 394,904 281,083 0.0
Operations
Airlines 341,900 Malaysian Airline System BHD 787,787 650,401 0.1
Automobiles 77,000 Edaran Otomobil Nasional BHD 543,478 277,121 0.0
194,000 Perusahaan Otomobil
Nasional BHD 780,641 565,210 0.1
-------------- -------------- ------
1,324,119 842,331 0.1
Banking 194,000 Commerce Asset Holding BHD 444,331 242,043 0.0
176,000 Malayan Banking BHD 1,477,871 1,170,317 0.2
555,966 Public Bank (Malaysia)
BHD 'Foreign' 845,820 522,141 0.1
-------------- -------------- ------
2,768,022 1,934,501 0.3
Building Products 84,000 Hume Industries
(Malaysia) BHD 549,146 178,509 0.0
134,000 Kedah Cement Holdings BHD 209,633 133,196 0.0
-------------- -------------- ------
758,779 311,705 0.0
Chemicals 30,000 Malaysian Oxygen BHD 152,864 115,167 0.0
Diversified 457,000 Berjaya Group BHD 467,652 264,723 0.0
253,000 Malayan United
Industries BHD 185,611 130,077 0.0
444,000 Multi-Purpose Holdings BHD 583,079 345,460 0.1
286,000 Renong BHD 405,185 294,087 0.0
185,000 Sime Darby BHD 569,741 437,532 0.1
77,000 United Engineers
(Malaysia) Ltd. 541,520 314,070 0.1
66,000 YTL Corporation BHD 261,830 105,419 0.0
-------------- -------------- ------
3,014,618 1,891,368 0.3
Financial Services 42,000 Hong Leong Credit BHD 179,157 92,853 0.0
205,000 Idris Hydraulic
(Malaysia) BHD 233,818 137,018 0.0
89,000 Rashid Hussain BHD 432,753 215,064 0.1
-------------- -------------- ------
845,728 444,935 0.1
Foods 24,000 Nestle (Malaysia) BHD 185,302 152,185 0.0
Forest Products 109,000 Lingui Development BHD 188,914 101,621 0.0
Leisure 97,000 Berjaya Sports Toto BHD 410,324 265,981 0.0
120,000 Genting BHD 530,968 411,311 0.1
261,000 Magnum Corporation BHD 352,732 242,437 0.0
158,000 Resorts World BHD 470,763 303,273 0.1
-------------- -------------- ------
1,764,787 1,223,002 0.2
Telecommunications 152,800 Telekom Malaysia BHD 562,591 466,125 0.1
Utilities-- 171,000 Tenaga Nasional BHD 654,774 509,923 0.1
Electric
Total Investments
in Malaysia 13,403,189 8,924,347 1.3
New Zealand Chemicals 72,900 Fernz Corporation Ltd. 207,719 230,586 0.0
Electronics 69,000 PDL Holdings Ltd. 340,434 388,001 0.1
Finance 2,619,700 Wrightson Ltd. 1,973,894 1,523,329 0.2
Forestry 2,140,000 Fletcher Challenge Forests 3,048,362 2,516,126 0.3
Textiles 499,100 Lane Walker Rudkin
Industries, Ltd. 566,616 475,198 0.1
Total Investments in
New Zealand 6,137,025 5,133,240 0.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Percent of
(concluded) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Singapore Airlines 140,000 Singapore Airlines
Ltd. 'Foreign' $ 1,202,318 $ 1,018,855 0.1%
Auto & Truck 120,800 Inchcape BHD 440,982 403,599 0.1
Banking 97,000 Development Bank of
Singapore Ltd. 'Foreign' 1,227,845 1,026,795 0.1
128,000 Overseas-Chinese Banking
Corporation Ltd. 'Foreign' 1,339,005 999,272 0.1
117,000 Overseas Union Bank
Ltd. 'Foreign' 717,123 530,235 0.1
151,000 United Overseas Bank
Ltd. 'Foreign' 1,591,632 1,168,839 0.2
-------------- -------------- ------
4,875,605 3,725,141 0.5
Beverages 98,000 Fraser & Neave Ltd.
(Ordinary) 709,035 518,690 0.1
Publishing 39,000 Singapore Press
Holdings Ltd. 'Foreign' 781,038 492,822 0.1
Real Estate 133,000 City Developments Ltd. 1,263,609 840,324 0.1
Investment 181,000 DBS Land Ltd. 595,297 464,625 0.1
Trusts 91,000 Singapore Land Ltd. 427,569 403,374 0.0
763,000 United Industrial
Corporation Ltd. 575,993 519,940 0.1
145,000 Wing Tai Holdings Ltd. 434,232 306,980 0.0
-------------- -------------- ------
3,296,700 2,535,243 0.3
Shipbuilding 342,000 Keppel Corporation Ltd. 1,483,483 1,221,833 0.2
Steel 343,000 NatSteel Ltd. 901,687 934,939 0.1
Total Investments in
Singapore 13,690,848 10,851,122 1.5
South Korea Banking 21,000 Kookmin Bank (GDR) (c) 509,250 304,500 0.0
Electronics 6,700 Samsung Electronics
(GDR) (c) 402,000 368,835 0.1
Telecommunications 154,393 SK Telecom Co. Ltd.
(ADR) (a) 2,561,162 1,389,537 0.2
Utilities 67,880 Korea Electric Power Corp. 2,753,162 1,779,964 0.2
Total Investments in
South Korea 6,225,574 3,842,836 0.5
Total Investments in the
Pacific Basin 325,564,385 326,845,759 45.8
SOUTHEAST
ASIA
India Auto & Truck 32,500 Mahindra & Mahindra Ltd. 400,126 359,173 0.1
82,400 Tata Engineering &
Locomotive Co. Ltd. 1,057,491 759,813 0.1
-------------- -------------- ------
1,457,617 1,118,986 0.2
Banking 169,100 State Bank of India 1,213,200 1,326,548 0.2
Chemicals 100,300 Indian Petrochemicals
Corporation Ltd. 397,090 331,987 0.0
139,500 Reliance Industries Ltd. 1,420,687 1,265,215 0.2
225,700 Tata Chemicals Ltd. 1,144,588 987,787 0.1
-------------- -------------- ------
2,962,365 2,584,989 0.3
Cosmetics 55,800 Reckitt & Coleman of
India Ltd. 479,729 475,367 0.1
Diversified 47,600 Hindustan Lever Ltd. 1,845,442 1,769,441 0.2
Electrical 67,900 Bharat Heavy Electricals
Equipment Ltd. (BHEL) 739,463 719,557 0.1
Financial Services 1,359 Industrial Credit &
Investment Corporation of
India Ltd. 4,205 3,367 0.0
Hotels 30,700 East India Hotels Ltd.
(GDR) (c) 588,417 426,730 0.1
Metals & Mining 25,600 Hindalco Industries Ltd. 673,996 680,341 0.1
Oil & Related 77,500 Hindustan Petroleum
Corporation Ltd. 981,054 1,018,081 0.1
Pharmaceuticals 22,200 Ranbaxy Laboratories Ltd. 405,992 418,732 0.0
Real Estate 311 Housing Development
Finance Corp., Ltd. 25,978 29,628 0.0
Steel 1,432,400 Steel Authority of
India Ltd. 830,064 798,406 0.1
126,000 Tata Iron and Steel Co.
Ltd. 675,065 626,879 0.1
-------------- -------------- ------
1,505,129 1,425,285 0.2
Telecommunications 199,900 Mahanagar Telephone
Nigam Ltd. 1,638,364 1,317,810 0.2
Tobacco 89,400 ITC Ltd. 1,298,486 1,210,702 0.2
Utilities-- 12,900 Bombay Suburban Electric
Electric Supply Co. Ltd (GDR) (c) 263,890 220,590 0.0
Total Investments in India 16,083,327 14,746,154 2.0
Indonesia Auto & Truck 203,000 P.T. Astra International Inc. 893,271 446,116 0.1
Banking 3,047,000 P.T. Bank Internasional
Indonesia 2,461,248 856,482 0.1
Foods 546,000 P.T. Indofood Sukses Makmur 1,277,715 674,361 0.1
Telecommuni- 1,469,000 P.T. Telekomunikasi
cations Indonesia 2,514,069 1,338,867 0.2
40,500 P.T. Telekomunikasi
Indonesia (ADR) (a) 1,313,769 794,813 0.1
-------------- -------------- ------
3,827,838 2,133,680 0.3
Total Investments in
Indonesia 8,460,072 4,110,639 0.6
Total Investments in
Southeast Asia 24,543,399 18,856,793 2.6
SHORT-TERM Face
SECURITIES Amount
<S> <C> <S> <C> <C> <C>
Foreign DM 41,000,000 German Treasury Bills,
Government 2.91% due 10/17/1997 23,551,773 22,713,936 3.2
Obligations*
Total Investments in Foreign
Government Obligations 23,551,773 22,713,936 3.2
US United States Treasury
Government Bills (d):
Obligations* US$ 1,000,000 4.92% due 9/18/1997 997,403 997,610 0.1
500,000 4.98% due 9/18/1997 498,686 498,805 0.1
1,000,000 5.09% due 9/18/1997 997,314 997,610 0.1
1,500,000 5.09% due 9/18/1997 1,495,970 1,496,415 0.2
1,000,000 5.33% due 9/18/1997 997,187 997,610 0.2
Total Investments in
US Government Obligations 4,986,560 4,988,050 0.7
Total Investments in
Short-Term Securities 28,538,333 27,701,986 3.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
OPTIONS Nominal Value Covered Premiums Percent of
PURCHASED by Options Purchased Issue Paid Value Net Assets
<S> <C> <S> <C> <C> <C>
Call Options 946 Nikkei Index, expiring
Purchased October 1997 at
YEN 22,000 $ 243,727 $ 1,485 0.0%
3,469,627 Thailand Index, expiring
April 1998 at US$ 1.983
(European Options) 520,444 4,511 0.0
-------------- -------------- ------
764,171 5,996 0.0
Currency Put 21,900,000 German Deutschemark,
Options expiring October 1997 at
Purchased DM1.88 124,830 81,030 0.0
38,900,000 Japanese Yen, expiring
October 1997 at YEN 122 268,410 346,210 0.1
28,000,000 Japanese Yen, expiring
February 1998 at YEN 120 418,600 753,200 0.1
-------------- -------------- ------
811,840 1,180,440 0.2
Total Options Purchased 1,576,011 1,186,436 0.2
Total Investments 672,990,521 700,329,629 98.1
OPTIONS Nominal Value Covered Premiums
WRITTEN by Options Written Received
Call Options 16,298 AEX, expiring October
Written 1997 at NLG 1,038.56 (248,268) (71,883) 0.0
Put Options 3,469,627 Thailand Index, expiring
Written April 1998 at US$ 1.983
(European Options) (520,444) (2,905,119) (0.4)
Total Options Written (768,712) (2,977,002) (0.4)
Total Investments, Net of Options Written $ 672,221,809 697,352,627 97.7
==============
Variation Margin on Financial Futures Contracts** (747,320) (0.1)
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 1,119,113 0.1
Other Assets Less Liabilities 16,226,698 2.3
-------------- ------
Net Assets $ 713,951,118 100.0%
============== ======
Net Asset Class A--Based on net assets of $43,653,194 and
Value: 3,567,151 shares of beneficial interest outstanding $ 12.24
==============
Class B--Based on net assets of $535,096,795 and
44,421,748 shares of beneficial interest outstanding $ 12.05
==============
Class C--Based on net assets of $23,484,158 and
1,974,722 shares of beneficial interest outstanding $ 11.89
==============
Class D--Based on net assets of $111,716,971 and
9,127,762 shares of beneficial interest outstanding $ 12.24
==============
<FN>
*Certain Foreign and US Government Obligations are traded on a
discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
**Financial futures contracts purchased as of August 31, 1997 were
as follows:
Number of Expiration
Contracts Issue Exchange Date Value
149 All Ordinaries SFE September 1997 $ 7,025,257
111 FTSE 100 LIFFE September 1997 21,713,065
141 MIB 30 MSE September 1997 17,086,731
Total Financial Futures Contracts Purchased
(Total Contract Price--$48,040,127) $45,825,053
===========
Financial futures contracts sold as of August 31, 1997 were as follows:
Number of Expiration
Contracts Issue Exchange Date Value
57 DAX Index DTB September 1997 $12,441,608
Total Financial Futures Contracts Sold
(Total Contract Price--$13,143,282) $12,441,608
===========
***Forward foreign exchange contracts as of August 31, 1997 were as follows:
Foreign Currency Expiration Unrealized
Purchased Date Appreciation
DM 26,460,000 November 1997 $ 285,242
Total (US$ Commitment--$14,490,690) $ 285,242
-----------
Foreign Currency Sold
YEN 5,303,045,500 October 1997 $ 833,871
Total (US$ Commitment--$45,319,398) $ 833,871
-----------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net $ 1,119,113
===========
(a)American Depositary Receipts (ADR).
(b)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(c)Global Depositary Receipts (GDR).
(d)Securities held as collateral in connection with open futures
contracts.
(e)Formerly STET, Di Risp (Non-Convertible).
(f)Formerly CRA Ltd.
</TABLE>
PORTFOLIO INFORMATION
Worldwide
Investments as of
August 31, 1997
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Banking 8.7%
Telecommunications 6.0
Electrical Equipment 4.4
Diversified 4.3
Electronics 4.3
Chemicals 4.1
Metals & Mining 3.2
Retail 3.0
Insurance 2.7
Transportation 2.7
Percent of
Ten Largest Countries Net Assets
Japan 30.9%
Germany 10.8
United Kingdom 6.4
Australia 6.0
France 4.9
Hong Kong 4.9
Mexico 2.9
Canada 2.9
South Africa 2.5
Netherlands 2.2
Percent of
Ten Largest Equity Holdings Net Assets
Broken Hill Proprietary Co. 1.3%
Advantest Corp. 1.1
Japanese Bank Knock Out
(Warrants) 1.1
Rohm Co., Ltd. 1.0
Sony Corp. 1.0
Shin-Etsu Chemical Co., Ltd. 1.0
Mitsubishi Trust and Banking Corp. 0.9
Japan Tobacco, Inc. 0.9
Fujikura Ltd. 0.9
Rio Tinto Ltd. 0.8
Percent of
Geographical Asset Mix* Net Assets
Japan 30.9%
Europe (Ex-United Kingdom and
Ireland) 26.6
Pacific Basin (Ex-Japan) 14.9
Other Emerging Markets 12.2
United Kingdom and Ireland 6.5
Cash 3.9
North America 2.9
[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 3.0%
Italy MIB 30 MSE 2.4
Australia All Ordinaries SFE 1.0
Germany DAX Index DTB (1.7)
------
4.7%
======
EQUITY PORTFOLIO CHANGES
For the Quarter Ended August 31, 1997
Additions
AAPC Ltd.
Aberfoyle Ltd.
Alcan Aluminium Ltd.
Allianz AG
Arnotts Ltd.
Ashton Mining Ltd.
Australian Foundation Investment
Company Ltd.
Australian National Industries Ltd.
Australian Oil & Gas Corporation Ltd.
Axa-UAP
BASF AG
B.A.T. Industries PLC
BHF-Bank AG
Bank of Melbourne Ltd.
*Banque Nationale de Paris
Barrick Gold Corp.
Bass PLC
Bayer AG
Bayerische Hypotheken-und
Wechsel-Bank AG
Bayerische Motoren Werke AG (BMW)
Bayerische Vereinsbank AG
Bharat Heavy Electricals Ltd. (BHEL)
British Telecommunications PLC
Burns, Philp & Company Ltd.
CRH PLC
Canadian Pacific Ltd.
Capital Property Trust
Cimpor-Cimentos de Portugal-SGPS S.A.
City Developments Ltd.
Commerzbank AG
DBS Land Ltd.
Daifuku Co., Ltd.
Daimler-Benz AG
Deutsche Bank AG
Deutsche Telekom AG
Development Bank of Singapore Ltd.
'Foreign'
Dresdner Bank AG
*Electridade de Portugal S.A.
Email Ltd.
Eregli Demir Ve Celik Fabrikalari T.A.S.
Fletcher Challenge Forests
Fraser & Neave Ltd. (Ordinary)
Gallaher Group PLC
Guinness PLC
Guney Biracilik Ve Malt Sanayii A.S.
Haci Omer Sabanci Holding A.S.
Hindalco Industries Ltd.
Hindustan Lever Ltd.
Hindustan Petroleum Corporation Ltd.
Hoechst AG
ITC Ltd.
Inchcape BHD
Indian Petrochemicals Corporation Ltd.
Internatio-Muller N.V.
Ispat International N.V.
Keppel Corporation Ltd.
Koc Yatirim Ve Sanayi Mamulleri
Pazarlama A.S.
Koninklijke Pakhoed N.V.
Kookmin Bank (GDR)
Liberty Life Association of Africa Ltd.
Linde AG
Mahanagar Telephone Nigam Ltd.
Mahindra & Mahindra Ltd.
Mannesmann AG
Mayne Nickless Ltd.
Metal Manufactures Ltd.
Metro AG
Munich Re Group
National Foods Ltd.
NatSteel Ltd.
Nestle S.A. (Registered Shares)
Newcrest Mining Ltd.
Noranda Forest, Inc.
Noranda, Inc.
Orbital Engine Corporation Ltd.
Overseas-Chinese Banking Corporation
Ltd. 'Foreign'
Overseas Union Bank Ltd. 'Foreign'
PMP Communications Ltd.
P.T. Astra International Inc.
P.T. Bank Internasional Indonesia
P.T. Indofood Sukses Makmur
P.T. Telekomunikasi Indonesia
Petroleo Brasileiro S.A.--Petrobras
(Preferred)
Plutonic Resources Ltd.
QCT Resources Ltd.
RGC Ltd.
RWE AG
Ranbaxy Laboratories Ltd.
Ranger Oil Ltd.
Reckitt & Coleman of India Ltd.
SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung)
(Preferred)
Sakura Bank Ltd.
Samsung Electronics (GDR)
Sappi Ltd.
Seven Network Ltd.
*Severn Trent PLC (Class B)
Siemens AG
Singapore Airlines Ltd. 'Foreign'
Singapore Land Ltd.
Singapore Press Holdings Ltd. 'Foreign'
Steel Authority of India Ltd.
Stockland Trust Group
Tata Chemicals Ltd.
Tata Engineering & Locomotive Co. Ltd.
Tata Iron & Steel Co. Ltd.
*Thorn PLC (Class B)
Uniden Corporation
United Industrial Corporation Ltd.
United Overseas Bank Ltd. 'Foreign'
VEBA AG
Viag AG
W.H. Smith Group PLC
Wing Tai Holdings Ltd.
Deletions
Amway Asia Pacific Ltd.
*Banque Nationale de Paris
China Overseas Land & Investment
Compania de Telecomunicaciones de
Chile S.A. (ADR)
Deutsche Lufthansa AG
*Electridade de Portugal S.A.
Ente Nazionale Idrocarburi S.p.A. (ENI)
Ergo Bank S.A. (New Shares)
Ergo Bank S.A. (Registered)
Glaxo Wellcome PLC
Grand Metropolitan PLC (Ordinary)
Hellenic Bottling Co. S.A.
Imperial Chemical Industries PLC
(Ordinary)
KLM Royal Dutch Airlines N.V.
Nissan Motor Co., Ltd.
Orkla A.S. (Class A)
Pharmacia & Upjohn, Inc.
Rauma OY
*Severn Trent PLC (Class B)
Sumitomo Bank
Sun International (South Africa), Ltd.
Thorn PLC
*Thorn PLC (Class B)
Tingyi (Cayman Islands) Holdings Co.
Tokio Marine & Fire Insurance Co., Ltd.
Yorkshire Water PLC
[FN]
*Added and deleted in the same quarter.
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
Andrew John Bascand, Vice President
and Senior Portfolio Manager
Donald C. Burke, 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
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