MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Annual Report
May 31, 1998
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
Clive D. Lang, Senior Vice President and 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
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
Bar Graph Depicting Total Return in US Dollars* of the Fund's Top
Ten Country Positions For the Three-Month Period Ended May 31, 1998
Japan -12.3%
Australia - 6.1%
United Kingdom + 2.8%
Switzerland + 6.4%
Canada + 6.5%
Sweden +14.0%
Netherlands +14.4%
Germany +17.9%
France +21.9%
Italy +22.3%
Source: Financial Times/S&P--Actuaries Index.
[FN]
*For the three-month period ended May 31, 1998, total investment
return in US dollars for the Financial Times/S&P--Actuaries World
(Ex-US) Index was +2.92%.
Merrill Lynch International Equity Fund, May 31, 1998
DEAR SHAREHOLDER
It has been a volatile and eventful year in the international equity
markets, given the broad contrast between strong returns in North
America and Europe and weak performance in Asia/Pacific Basin and
Latin America. By reducing global inflationary pressures, economic
weakness in Asia has boosted equity returns in North America and
Europe, although there were signs that the sustainability of
earnings growth was becoming a bigger focus, particularly in North
America, as the fiscal year drew to a close.
The crisis in Asia that started in the summer of 1997, initially
affecting the currencies of Thailand, Malaysia and the Philippines,
spread dramatically as the year progressed to engulf virtually all
Pacific Basin markets. In July 1997, pressures on the Thai baht
caused authorities to abandon the pegged exchange rate mechanism and
devalue their currency. This heralded the eventual collapse of asset
prices throughout the region. High levels of private sector
indebtedness, mounting current account deficits, overexpansion of
the banking sectors, and asset price inflation were the prime
sources of concern. During the year ended May 31, 1998, the
unmanaged International Finance Corporation's (IFC) Investables
Composite Index returned -28%, led by the collapse in Asian markets
that returned--58.9%.
For the year, the turmoil in Asia generally undermined confidence in
the emerging markets universe. Latin American growth prospects were
revised downward in light of pressure to tighten fiscal and monetary
policies as well as weak export prices and demand. South Africa
rallied early in 1998 as reduced inflationary pressures appeared to
pave the way for monetary easing.
For the quarter ended May 31, 1998, emerging equity markets remained
generally weak. The recovery in Asian markets in the early part of
1998 proved unsustainable in light of renewed concerns about the
Japanese economy and yen weakness, and with little prospect of
corporate earnings growth in the near term. Latin American markets
also displayed some weakness, as the full negative impact of
declining international commodity prices became evident. In May, a
deteriorating fiscal position and political uncertainty caused the
Russian equity market to fall 39.9%, according to the IFC
Investables Composite Index.
In Japan, the yen has been under considerable pressure. It opened
the year at a level of YEN 126 relative to the US dollar, and during
June and July 1997 strengthened by some 10%. However, by the middle
of the third calendar quarter of 1997, with the Nikkei 225 Index at
a level just over 20,000, Japan began to feel the impact of events
elsewhere in the region. This, coupled with forecasts of lower
growth and a deepening sense that the Japanese economy was extremely
weak, caused the yen to slide against the dollar, and the equity
market followed. By January 1998, the Japanese equity market had
shed some 25%, and the yen had dropped to a level of YEN 133
relative to the dollar. The bounce in Asian markets that occurred in
February offered some respite to the yen (which recovered to around
YEN 123), and the Japanese equity market climbed back from 14,600 to
around 17,000. This level held until April 1998, when the government
revealed the details of its 16 trillion yen economic recovery
package. Since then, the stock market has been in a steady state of
decline, reaching the 15,500 level by the end of May. Over this
latter period, the yen has fallen continuously against the dollar to
a level of YEN 137 by May 31, 1998.
European developed markets also had a volatile year, as many of the
leading economies prepared for economic and monetary union and the
launch of the new currency, the euro, in 1999. There was a great
deal of political effort to create economic convergence across the
11 or so countries that targeted early membership of the European
Monetary Union (EMU). This, together with firm projected earnings
growth, produced a wide range of investment opportunities. The
region has produced the strongest equity market returns over the
year, increasing 48.1% in US dollar terms as measured by the
unmanaged Morgan Stanley Capital International (MSCI) Europe Index.
The pattern of returns to US investors has nevertheless been
significantly influenced by the Deutschemark exchange rate. During
the three months prior to August 1997, strength in the European
markets was offset by dollar appreciation against the Deutschemark.
By contrast, in the following quarter, the European equity markets
were relatively weak, but the reversal of the dollar's appreciation
resulted in positive returns for US investors. Of the European
markets, Spain and Italy benefited most from the euro convergence
plays, returning +59.8% and +86.9%, respectively, over the 12-month
period as measured by the MSCI Europe Index. In the final quarter of
the fiscal year, leadership within Europe shifted from the periphery
to some of the core markets, notably France, which showed
surprisingly robust economic growth relative to Germany, and
Belgium, which benefited from merger and acquisition activity with
companies positioning themselves for EMU.
Fiscal Year in Review
Merrill Lynch International Equity Fund's unmanaged Composite Index
fell by 9.8%* during the fiscal year ended May 31, 1998. The Fund's
total returns for Class A, Class B, Class C and Class D Shares for
the fiscal year ended May 31, 1998 were -6.02%, -7.01%, -6.96% and
- -6.18%, respectively. Over the year, the Fund's underweighting in the
emerging markets, relative to the Fund's benchmark, particularly in
the Asia-Pacific region, was beneficial to performance. Also, our
overweighting in Australia contributed positively during the year,
despite its negative impact during the three months ended November
30, 1997. Negative factors included our underweighting in
Continental European equities for much of the year; however, we
adjusted our exposure there as the year progressed. Our relatively
high cash holding also contributed adversely to the Fund's overall
performance.
Throughout the fiscal year, the effective cash position in Merrill
Lynch International Equity Fund was held almost constant at around
10% of net assets, with the brief exception during the three months
ended November 30, 1997 when the Fund's cash level increased to 14%.
Japanese equities represented the Fund's major regional exposure at
the beginning of the year, opening the period at 33% of net assets
of the Fund. This was progressively reduced to a more neutral weight
over the first six months of the fiscal year, as Japanese equities
accounted for 25% of the Fund's net assets. However, during the
three months ended May 31, 1998, this level was decreased markedly
to 15% of net assets as the economic and financial prospects for
Japan worsened.
[FN]
*The Composite Index is comprised of the following unmanaged indexes
and customized weightings: FT/S&P Actuaries Europe (Ex-UK), 28.7%;
FT/S&P Actuaries Japan, 27.5%; FT/S&P Actuaries United Kingdom,
12.0%; FT/S&P Actuaries Pacific (Ex-Japan), 9.4%; FT/S&P Actuaries
Canada, 3.7%; FT/S&P Actuaries South Africa, 1.7%; IFC Investables
Asia, 8.0%; IFC Investables Latin America, 6.0%; and IFC Investables
Europe/Middle East, 3.0%.
Across Continental European markets (excluding the United Kingdom),
the Fund began the fiscal year significantly underweighted, with
only 16% of its net assets invested. Throughout the year, this
weight was progressively increased, notably by gaining exposure to
the peripheral EMU markets such as Italy and Spain, which performed
very well. After three fiscal quarters, the exposure had effectively
reached benchmark weight. In the final three months of the fiscal
year, the exposure to Continental Europe was increased markedly to
just over 50% of the Fund's net assets and at May 31, 1998
represents the major investment position in the portfolio.
Similarly, our position in the United Kingdom started the year
underweighted, and we have progressively increased its
representation in the Fund. By the end of the fiscal year, the
United Kingdom had a 4% overweighting. In a number of countries (for
example, Austria, Greece, Turkey and Switzerland), we have, from
time to time, achieved our targeted market exposure through the use
of index tracking instruments, known as OPALS. These instruments are
exchange quoted (in Luxembourg) and provide the owner with the
equivalent investment exposure to that of the specific MSCI country
index. These instruments provide an efficient and cost effective
means of gaining market exposure for asset allocation purposes. As a
consequence, holdings in these instruments tend to be among the
Fund's largest investment holdings.
With only a few exceptions, we reduced the Fund's exposure to
emerging markets globally throughout the fiscal year. The principal
exceptions were South Africa and, very recently, emerging Europe. We
steadily reduced the Fund's positions in Asian emerging markets
during the year. By fiscal year-end, the Fund's exposure to the
Pacific Basin (excluding Japan) was only 5.0% of net assets.
Additionally, the Latin American positions that were held earlier in
the period were cut back as the contagion spread from the Asian
markets.
During the May quarter, in addition to the key economic and market
events noted previously, the Fund has been slightly restructured to
emphasize asset allocation decisions. In particular, the progressive
reduction of the exposure to Japan and the emerging markets and the
move into the European markets have given rise to a significant
level of turnover in the Fund. Notwithstanding the number of
transactions undertaken, these were executed in the market in such a
way as to seek to ensure the minimum adverse impact from the trading
activity itself. We do not expect turnover of this significance to
recur often, as the key positions in the Fund are more likely to
evolve slowly. However, from time to time, events and market
conditions necessitate more radical investment decisions. Our
evaluation of the events of the past few months has resulted in the
structural changes to the Fund as we have described.
In Conclusion
International equity markets have offered a wide range of investment
opportunities during the fiscal year ended May 31, 1998 with western
developed markets providing sound positive returns. By contrast, all
emerging markets (excluding those in Europe) and the developed
markets in Asia generated negative returns. Throughout the majority
of the fiscal year, we maintained a relatively defensive investment
stance, not taking significant positions relative to the Fund's
benchmark. More recently, we have again started to take some
significant positions, primarily in the developed European markets,
as this area appears to have the most promise for the coming months.
Merrill Lynch International Equity Fund, May 31, 1998
We remain cautious toward the emerging markets for the near term
because of low liquidity, downward revisions to earnings growth
estimates and increased supply, as Asia recapitalizes and Latin
America and Eastern Europe accelerate their privatization programs.
We will need to see clear evidence in Asia of political will to
implement reform plans and signs of economic stability before we
reinvest in any significant manner. It is likely that the Latin
American markets will provide opportunities before any of the Asian
markets. However, the current weakness in commodity prices and
economic difficulties in Russia may have some intermediate-term
adverse effects on the Brazilian and South African stock markets.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Clive D. Lang)
Clive D. Lang
Senior Vice President and
Portfolio Manager
July 15, 1998
We are pleased to announce that effective April 20, 1998, Clive D.
Lang became responsible for the day-to-day management of Merrill
Lynch International Equity Fund. Mr. Lang joined Merrill Lynch Asset
Management U.K., Ltd., an affiliate of the Investment Adviser as
Senior Quantitative Analyst in 1997. Prior to that, he was employed
at Panagora Asset Management Limited as chief investment officer
from 1995 to 1997 and as senior investment officer from 1990 to
1995.
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 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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/98 +2.47% -2.91%
Inception (10/21/94) through 3/31/98 +3.81 +2.20
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/98 +1.53% -1.92%
Inception (7/30/93) through 3/31/98 +5.39 +5.39
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/98 +1.42% +0.56%
Inception (10/21/94) through 3/31/98 +2.77 +2.77
[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 3/31/98 +2.29% -3.08%
Inception (7/30/93) through 3/31/98 +6.21 +4.99
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class C Shares compared to growth of an
investment in the Composite Index and the Financial Times/S&P--
Actuaries World (Ex-US) Index. Beginning and ending values are:
10/21/94** 5/98
ML International Equity Fund++--
Class A Shares* $ 9,475 $10,710
ML International Equity Fund++--
Class C Shares* $10,000 $10,907
Composite Index++ $10,000 $11,407
Financial Times/S&P--
Actuaries World (Ex-US) Index++++++ $10,000 $13,026
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 the Composite Index and the Financial Times/S&P--
Actuaries World (Ex-US) Index. Beginning and ending values are:
7/30/93** 5/98
ML International Equity Fund++--
Class B Shares* $10,000 $12,671
ML International Equity Fund++--
Class D Shares* $ 9,475 $12,473
Composite Index $10,000 $14,315
Financial Times/S&P--
Actuaries World (Ex-US) Index++++ $10,000 $15,034
[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.
++++During the Fund's fiscal year ended May 31, 1998, the Fund's
primary performance benchmark was changed from the Financial
Times/Standard & Poor's (FT/S&P)--Actuaries World (Ex-US) Index to
the Composite Index. This Index is more consistent with our strategy
of seeking to add value over the intermediate term by conducting
strategic allocations between countries and generally maintaining an
overweighted stance in smaller and emerging markets. This unmanaged
Index is comprised of the following Indexes and customized
weightings: FT/S&P Actuaries Europe (Ex-UK), 28.7%; FT/S&P Actuaries
Japan, 27.5%; FT/S&P Actuaries United Kingdom, 12.0%; FT/S&P
Actuaries Pacific (Ex-Japan), 9.4%; FT/S&P Actuaries Canada, 3.7%;
FT/S&P Actuaries South Africa, 1.7%; IFC Investables Asia, 8.0%; IFC
Investables Latin America, 6.0%; and IFC Investables Europe/Middle
East, 3.0%.
++++++This unmanaged capitalization-weighted Index is comprised of
over 1,800 companies in 24 countries, excluding the United States.
Merrill Lynch International Equity Fund, May 31, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML International Equity Fund Class A Shares* -6.02% +1.70% +13.03%
ML International Equity Fund Class B Shares* -7.01 +1.48 +26.71
ML International Equity Fund Class C Shares* -6.96 +1.50 + 9.07
ML International Equity Fund Class D Shares* -6.18 +1.69 +31.65
Financial Times/S&P--Actuaries World (Ex-US) Index** +8.58 +2.92 +30.26/+50.34
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in the Fund's net asset
values for the periods shown, and assume reinvestment of all
dividends and capital gains distributions at net asset value on the
ex-dividend date. The Fund's inception dates are: Class A and Class
C Shares, 10/21/94; and Class B and Class D Shares, 7/30/93.
**An unmanaged capitalization-weighted index comprised of over 1,800
companies in 24 countries, excluding the United States. Since
inception total returns are for the periods from 10/21/94 to 5/31/98
and from 7/30/93 to 5/31/98, respectively.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
AFRICA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Beverages 37,100 South African Breweries Ltd. $ 1,056,692 $ 1,046,530 0.2%
Africa
Diversified 87,200 Sasol Ltd. 1,228,216 693,608 0.2
Index Instruments 31,500 MSCI South Africa OPALS (Class B)(g) 1,292,055 1,322,055 0.3
Insurance 25,400 Liberty Life Association of Africa Ltd. 689,381 700,724 0.2
Mining 14,100 Anglo American Corp. of South Africa,
Ltd. (ADR)(a) 940,050 671,513 0.2
Total Investments in Africa 5,206,394 4,434,430 1.1
EUROPE
Austria Index Instruments 87,800 MSCI Austria OPALS (Class B)(g) 4,911,296 5,442,722 1.3
Total Investments in Austria 4,911,296 5,442,722 1.3
Denmark Index Instruments 40,000 MSCI Denmark OPALS (Class B)(g) 5,663,867 6,410,000 1.5
Total Investments in Denmark 5,663,867 6,410,000 1.5
Finland Diversified 93,283 Outokumpu OY 1,430,243 1,310,595 0.3
Paper & Forest 98,753 Enso OY (Class A) 763,580 1,084,797 0.2
Products 198,250 Metsa Serla OY (Class B) 1,504,575 2,159,467 0.5
54,270 UPM-Kymmene Corporation 1,040,224 1,575,047 0.4
------------ ------------ ------
3,308,379 4,819,311 1.1
Total Investments in Finland 4,738,622 6,129,906 1.4
France Agricultural 3,000 Eridania Beghin-Say S.A. 444,024 657,631 0.2
Operations
Automobiles 12,792 Peugeot S.A. 1,886,087 2,502,317 0.6
16,000 ++Renault S.A. 484,924 838,019 0.2
------------ ------------ ------
2,371,011 3,340,336 0.8
Automobiles & 7,000 Valeo S.A. 470,093 660,643 0.1
Equipment
Banking 18,568 Banque Nationale de Paris 820,895 1,587,726 0.4
29,814 Compagnie Financiere de Paribas 2,131,528 3,043,263 0.7
8,512 Societe Generale de Surveillance
S.A. (Class A) (Ordinary) 1,575,333 1,687,872 0.4
------------ ------------ ------
4,527,756 6,318,861 1.5
Beverages 9,000 Pernod Ricard 440,583 667,771 0.2
Broadcast & 5,000 Canal Plus 911,559 908,635 0.2
Publishing
Building & 6,000 Compagnie de Saint Gobain S.A. 1,057,219 1,184,739 0.3
Construction
Building Products 8,000 Lafarge S.A. 773,341 812,584 0.2
Chemicals 8,000 L'Air Liquide 1,419,320 1,578,313 0.4
Cosmetics & 3,000 L'OREAL 1,229,154 1,491,466 0.3
Toiletries
Electronics 1,000 Sagem S.A. 662,175 769,578 0.2
Engineering & 23,949 Bouygues S.A. 2,539,855 4,336,148 1.0
Construction
Financial Services 7,100 Credit National/Natexis 445,918 521,570 0.1
12,334 Societe EuraFrance S.A. (d) 4,096,362 7,285,646 1.7
------------ ------------ ------
4,542,280 7,807,216 1.8
Foods 1,000 Fromageries Bel S.A. 719,407 911,981 0.2
7,000 Groupe Danone S.A. 1,493,482 1,887,048 0.4
2,000 Promodes S.A. 966,677 975,234 0.2
------------ ------------ ------
3,179,566 3,774,263 0.8
Industrial 10,000 Compagnie Generale des Etablissements
Michelin (C.G.D.E.)(Class B) 632,580 619,478 0.1
Insurance 16,400 Assurances Generales de France
S.A. (AGF) 676,648 1,012,651 0.2
37,628 AXA-UAP 3,466,580 4,287,930 1.0
------------ ------------ ------
4,143,228 5,300,581 1.2
Metal Processing 1,000 Compagnie Generale d'Industrie et
Participations (CGIP) 520,649 522,088 0.1
Metals 14,000 Pechiney S.A. (Class A) 723,057 713,353 0.2
Oil & Related 39,764 Elf Aquitaine S.A. 4,886,410 5,529,432 1.3
14,000 Total S.A. (Class B) 1,564,339 1,740,629 0.4
------------ ------------ ------
6,450,749 7,270,061 1.7
Retail 1,000 Pinault-Printemps-Redoute S.A. 752,990 824,130 0.2
Steel 147,722 Usinor Sacilor S.A. 2,255,638 2,474,393 0.6
Telecommunication 9,125 Alcatel Alsthom Cie Generale
Equipment d'Electricite S.A. 1,228,971 1,954,485 0.5
Telecommunications 30,000 France Telecom S.A. 1,637,754 1,682,229 0.4
Transportation 410,000 ++Eurotunnel S.A. 392,861 528,280 0.1
Total Investments in France 43,306,413 56,197,262 13.1
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
EUROPE Shares Value Percent of
(continued) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Germany Apparel 300 Hugo Boss AG (Preferred) $ 419,479 $ 648,148 0.2%
Automobiles 120 Bayerische Motoren Werke AG (BMW) 83,292 126,880 0.0
19,700 Daimler-Benz AG 1,361,651 1,987,688 0.5
3,902 Volkswagen AG (d) 2,228,230 3,168,459 0.7
------------ ------------ ------
3,673,173 5,283,027 1.2
Banking 13,600 BHF-Bank AG 423,300 558,653 0.1
1,900 Bayerische Vereinsbank AG 119,162 159,400 0.0
2,600 Commerzbank AG 93,490 105,488 0.0
39,677 Deutsche Bank AG 3,193,659 3,419,970 0.8
31,413 Dresdner Bank AG 1,584,102 1,768,083 0.4
------------ ------------ ------
5,413,713 6,011,594 1.3
Batteries 1,100 Varta AG 171,525 216,049 0.1
Chemicals 33,653 BASF AG 1,216,427 1,561,786 0.4
75,876 Bayer AG 2,876,700 3,631,999 0.9
21,132 Henkel KGaA 907,822 1,657,830 0.4
20,980 Henkel KGaA (Preferred)(d) 1,058,948 1,883,726 0.4
77,972 Hoechst AG 2,949,941 3,894,225 0.9
------------ ------------ ------
9,009,838 12,629,566 3.0
Computer Software 2,300 SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung)
(Preferred) 710,523 1,277,778 0.3
Diversified 19,900 Metallgesellschaft AG 415,048 415,979 0.1
23,095 RWE AG 1,131,897 1,227,327 0.3
14,843 Thyssen AG (d) 3,379,527 3,873,173 0.9
8,800 VEBA AG 463,721 578,766 0.1
------------ ------------ ------
5,390,193 6,095,245 1.4
Electronics 21,499 Siemens AG 1,473,830 1,389,834 0.3
Engineering & 6,715 ++Philipp Holzmann AG 2,443,499 1,857,741 0.4
Construction
Footwear 3,600 Adidas AG 494,053 636,364 0.2
2,200 ++Salamander AG 351,974 400,617 0.1
------------ ------------ ------
846,027 1,036,981 0.3
Insurance 3,800 AMB Aachener und Muenchener
Beteiligungs AG 391,658 437,149 0.1
5,200 Allianz AG 1,224,258 1,645,791 0.4
------------ ------------ ------
1,615,916 2,082,940 0.5
Machinery & 16,800 ++AGIV-AG fuer Industrie und
Equipment Verkehrswesen 352,836 471,381 0.1
23,200 FAG Kugelfischer Georg Schaefer AG 367,124 389,922 0.1
1,209 Jungheinrich AG (Preferred) 245,204 244,242 0.1
40,605 ++Kloeckner Werke AG (d) 2,319,977 3,076,136 0.7
400 Mannesmann AG 187,173 391,695 0.1
------------ ------------ ------
3,472,314 4,573,376 1.1
Metals 9,700 Degussa AG 451,458 619,994 0.1
Pharmaceuticals 5,200 Schering AG 535,467 608,709 0.1
Retail 3,843 Karstadt AG 1,323,579 2,010,998 0.5
Telecommunications 2,800 Deutsche Telekom AG 55,358 75,185 0.0
Total Investments in Germany 37,005,892 46,417,165 10.8
Greece Index Instruments 65,000 MSCI Greece OPALS (Class B)(g) 5,212,745 4,846,400 1.1
Total Investments in Greece 5,212,745 4,846,400 1.1
Ireland Building & 76,142 CRH PLC 826,936 1,099,608 0.3
Construction
Total Investments in Ireland 826,936 1,099,608 0.3
Italy Chemicals 2,942,444 MontEdison S.p.A. (d) 2,447,998 4,071,833 0.9
Telecommunications 530,102 ++Telecom Italia S.p.A. 1,557,609 2,861,826 0.7
Total Investments in Italy 4,005,607 6,933,659 1.6
Netherlands Chemicals 11,761 Akzo Nobel N.V. 1,465,176 2,461,387 0.6
54,664 European Vinyls Corporation
International N.V. 2,077,567 1,034,581 0.2
------------ ------------ ------
3,542,743 3,495,968 0.8
Electronics 33,498 Philips Electronics N.V. (d) 2,173,824 3,188,300 0.7
Index Instruments 59,300 MSCI Dutch OPALS (Class B)(g) 15,697,095 15,330,829 3.6
Insurance 31,062 ING Groep N.V. 1,275,816 2,136,499 0.5
Packaging & 145,282 Koninklijke KNP BT N.V. (d) 3,275,603 4,232,990 1.0
Containers
Steel 21,000 ++Ispat International N.V. 568,773 518,777 0.1
20,783 ++Ispat International N.V. (NY
Registered Shares) 491,090 500,091 0.1
------------ ------------ ------
1,059,863 1,018,868 0.2
Telecommunications 19,342 Royal PTT Nederland N.V. 674,774 1,082,798 0.3
Total Investments in the Netherlands 27,699,718 30,486,252 7.1
Norway Index Instruments 48,000 MSCI Norway OPALS (Class B)(g) 5,781,119 5,423,040 1.3
Oil & Gas Producers 76,454 Saga Petroleum A.S. (Class B) 850,887 1,168,928 0.3
Total Investments in Norway 6,632,006 6,591,968 1.6
Poland Automobiles & 61,910 T.C. Debica S.A. 834,795 1,092,216 0.3
Equipment
Index Instruments 20,000 MSCI Poland OPALS (Class B)(g) 1,328,251 1,294,000 0.3
Total Investments in Poland 2,163,046 2,386,216 0.6
Portugal Index Instruments 74,300 MSCI Portugal OPALS (Class B)(g) 6,430,804 6,588,181 1.5
Total Investments in Portugal 6,430,804 6,588,181 1.5
Spain Utilities--Electric 39,958 Endesa S.A. 679,250 958,295 0.2
Total Investments in Spain 679,250 958,295 0.2
Sweden Automobiles & 21,683 Volvo AB (Class B) 702,814 694,177 0.2
Equipment
Electrical 21,504 Electrolux AB 958,413 2,143,667 0.5
Forest Products 44,636 Mo och Domsjo AB (Class B) 1,200,098 1,409,047 0.3
929,741 Rottneros Bruks AB 1,435,615 730,770 0.2
92,871 Stora Kopparbergs AB 1,238,849 1,507,396 0.4
------------ ------------ ------
3,874,562 3,647,213 0.9
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<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>
Sweden Index Instruments 21,100 MSCI Sweden OPALS (Class B)(g) $ 4,881,113 $ 4,813,754 1.1%
(concluded)
Insurance 139,230 Skandia Forsakrings AB 684,767 2,037,425 0.5
Metals & Mining 188,686 Avesta Sheffield AB 1,710,791 1,109,279 0.2
Total Investments in Sweden 12,812,460 14,445,515 3.4
Switzerland Diversified 4,159 Oerlikon-Buehrle Holding AG (d) 425,225 843,725 0.2
Index Instruments 32,200 MSCI Swiss OPALS (Class B)(g) 11,807,650 11,704,700 2.7
Medical--Drugs 356 Novartis AG (Registered Shares) 562,709 603,765 0.1
Total Investments in Switzerland 12,795,584 13,152,190 3.0
Turkey Index Instruments 20,000 MSCI Turkey OPALS (Class B)(g) 2,649,088 2,391,400 0.6
Total Investments in Turkey 2,649,088 2,391,400 0.6
United Automobiles 256,264 LucasVarity PLC 806,847 1,128,856 0.3
Kingdom & Equipment
Banking 103,496 HSBC Holdings PLC 2,805,914 2,701,659 0.6
117,000 Lloyds TSB Group PLC 1,418,242 1,697,926 0.4
192,426 National Westminister Bank PLC
(Ordinary) 2,785,014 3,513,022 0.8
51,100 Royal Bank of Scotland Group PLC 778,453 862,042 0.2
------------ ------------ ------
7,787,623 8,774,649 2.0
Beverages 11,604 Bass PLC 193,076 212,984 0.0
Building & 167,800 Hanson PLC 860,209 986,241 0.2
Construction 11,844 Jarvis PLC 131,539 147,825 0.0
------------ ------------ ------
991,748 1,134,066 0.2
Chemicals 219,920 Inspec Group PLC 643,151 1,108,690 0.3
54,700 Laporte PLC 653,565 761,243 0.2
------------ ------------ ------
1,296,716 1,869,933 0.5
Computer Services 12,911 Misys PLC 158,243 778,536 0.2
Diversified 888,609 BTR PLC 3,541,727 2,924,903 0.7
Financial Services 39,900 Cattles PLC 333,712 402,949 0.1
81,800 Man (ED&F) Group PLC 348,863 333,642 0.1
------------ ------------ ------
682,575 736,591 0.2
Food & Beverage 299,063 Allied Domecq PLC (Ordinary) 2,272,299 2,978,759 0.7
Food Processing 207,353 Unilever PLC 1,710,504 2,275,043 0.5
Foods 35,900 Associated British Foods PLC 371,152 327,997 0.1
118,800 Tate & Lyle PLC 1,003,467 965,234 0.2
------------ ------------ ------
1,374,619 1,293,231 0.3
Insurance 144,800 Prudential Corporation PLC 2,150,603 1,923,003 0.5
53,863 Royal & Sun Alliance Insurance
Group PLC 580,936 570,764 0.1
------------ ------------ ------
2,731,539 2,493,767 0.6
Investment Trust 576,000 Fleming Japanese Investment Trust PLC 1,410,545 1,287,449 0.3
Leisure & Record 52,000 EMI Group PLC 462,527 439,461 0.1
Products
Manufacturing 257,800 FKI PLC 823,536 879,055 0.2
Merchandising 74,830 J Sainsbury PLC 551,343 591,502 0.1
Metals & Mining 73,963 Rio Tinto PLC 1,071,610 923,734 0.2
Oil & Related 91,400 British Petroleum Co. PLC 1,392,909 1,340,581 0.3
146,100 Shell Transport & Trading Co. PLC 1,150,856 1,078,589 0.3
------------ ------------ ------
2,543,765 2,419,170 0.6
Pharmaceuticals 110,300 Glaxo Wellcome PLC 2,772,860 2,965,649 0.7
190,560 SmithKline Beecham PLC 2,153,415 2,062,812 0.5
------------ ------------ ------
4,926,275 5,028,461 1.2
Property 169,333 Guardian Royal Exchange PLC 1,247,338 1,071,917 0.2
Publishing 61,700 EMAP PLC 1,117,577 1,303,593 0.3
Retail 298,315 Safeway PLC 1,826,652 1,811,744 0.4
Steel 289,305 ++British Steel PLC 595,418 715,082 0.2
Telecommunications 106,100 British Telecommunications PLC 887,919 1,106,123 0.3
107,516 Cable & Wireless PLC 751,154 1,215,607 0.3
208,400 ++Orange PLC 1,123,957 1,566,571 0.4
------------ ------------ ------
2,763,030 3,888,301 1.0
Tobacco 232,092 B.A.T. Industries PLC 1,985,578 2,088,299 0.5
140,600 Gallaher Group PLC 687,302 724,869 0.2
------------ ------------ ------
2,672,880 2,813,168 0.7
Utilities-- 128,900 ScottishPower PLC 1,102,682 1,162,961 0.3
Electric
Utilities--Water 59,647 Anglian Water PLC 515,153 844,200 0.2
86,900 Severn Trent PLC 1,282,220 1,400,760 0.3
91,000 Thames Water PLC 1,298,699 1,476,499 0.3
119,103 United Utilities PLC 1,349,824 1,612,827 0.4
------------ ------------ ------
4,445,896 5,334,286 1.2
Total Investments in the
United Kingdom 51,108,590 56,271,202 13.2
Total Investments in Europe 228,641,924 266,747,941 62.3
LATIN
AMERICA
Brazil Telecommunications 19,325 Telecomunicacoes Brasileiras S.A.
--Telebras (ADR)(a) 2,216,296 2,060,528 0.5
Utilities-- 34,248 Companhia Energetica de Minas
Electric Gerais S.A. (CEMIG)(ADR)(a) 727,189 1,125,904 0.3
43,443,835 Companhia Energetica de Minas
Gerais S.A. (CEMIG) (Preferred) 2,012,653 1,435,411 0.3
------------ ------------ ------
2,739,842 2,561,315 0.6
Total Investments in Brazil 4,956,138 4,621,843 1.1
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Mexico Beverages 33,980 Fomento Economico Mexicano, S.A.
de C.V. (Femsa) (Class B) $ 900,192 $ 1,129,325 0.2%
Building 324,600 ++Cementos Mexicanos, S.A. de C.V.
Products (Cemex)(Class B) 1,329,717 1,594,824 0.4
Health & Personal 49,150 Kimberly-Clark de Mexico, S.A. de
C.V. (ADR)(a) 891,987 1,001,431 0.2
Multi-Industry 239,800 Grupo Carso, S.A. de C.V. 'A1' 1,182,883 1,221,720 0.3
Telecommunications 676,000 Telefonos de Mexico, S.A. de
C.V. (Series L) 1,504,394 1,622,308 0.4
Total Investments in Mexico 5,809,173 6,569,608 1.5
Total Investments in Latin America 10,765,311 11,191,451 2.6
NORTH
AMERICA
Canada Banking 27,400 Bank of Nova Scotia (The) 636,333 734,736 0.2
Banking-- 14,700 Bank of Montreal 638,276 827,279 0.2
International
Building Products 373,700 Noranda Forest, Inc. 2,752,732 2,376,736 0.6
Metals & Mining 125,300 Noranda, Inc. 2,638,260 2,209,808 0.5
Telecommunications 68,000 BC Telecom, Inc. 1,805,550 2,538,779 0.6
Transportation 132,700 Canadian Pacific Ltd. 4,078,767 3,850,344 0.9
7,100 Canadian Pacific Ltd. (US
Registered Shares) 216,106 206,344 0.0
------------ ------------ ------
4,294,873 4,056,688 0.9
Total Investments in North America 12,766,024 12,744,026 3.0
PACIFIC
BASIN
Australia Airlines 213,400 Quantas Airways Limited 365,509 330,227 0.1
Banking 84,600 Commonwealth Bank of Australia 1,025,500 996,436 0.2
137,900 National Australia Bank Ltd. (d) 1,963,215 1,913,117 0.5
189,700 Westpac Banking Corporation Ltd. 1,251,319 1,253,836 0.3
------------ ------------ ------
4,240,034 4,163,389 1.0
Broadcast--Media 84,000 Seven Network Ltd. 328,859 286,812 0.1
Building & 30,000 Leighton Holdings Limited 123,401 101,493 0.0
Construction
Cement 178,000 Pioneer International Limited 497,101 474,505 0.1
Manufacturers
Diversified 114,100 Orica Limited 799,324 768,449 0.2
Insurance 86,200 GIO Australia Holdings Limited 260,402 243,019 0.1
105,300 QBE Insurance Group Limited 449,701 432,107 0.1
------------ ------------ ------
710,103 675,126 0.2
Metals-- 148,900 M.I.M. Holdings Limited 89,607 77,427 0.0
Diversified 224,700 North Limited 616,676 523,681 0.1
------------ ------------ ------
706,283 601,108 0.1
Metals & Mining 101,600 Comalco Ltd. 432,735 391,462 0.1
131,900 ++Newcrest Mining Ltd. 203,367 165,271 0.0
137,200 Rio Tinto Ltd. (d) 2,005,584 1,654,134 0.4
------------ ------------ ------
2,641,686 2,210,867 0.5
Multi-Industry 56,200 Pacific Dunlop Ltd. 108,447 101,755 0.0
Oil & Gas 189,300 Santos Limited 731,629 622,631 0.1
Producers
Real Estate 80,800 Schroders Property Fund 134,182 130,097 0.0
Investment Trusts
97,800 Stockland Trust Group 257,225 237,122 0.1
29,300 ++Westfield Holdings Ltd. 118,263 146,852 0.0
------------ ------------ ------
509,670 514,071 0.1
Retail 137,700 Woolworth Limited 513,121 473,617 0.1
Telecommunications 308,300 Telstra Corp. Ltd. 734,393 726,244 0.2
Tobacco 39,300 Rothmans Holdings Ltd. 263,934 278,419 0.1
Transportation 22,600 Brambles Industries Ltd. 475,997 458,748 0.1
Total Investments in Australia 13,749,491 12,787,461 3.0
China Telecommunications 85,300 ++China Telecom (Hong Kong)
Ltd. (ADR)(a) 2,706,682 3,038,813 0.7
Total Investments in China 2,706,682 3,038,813 0.7
Hong Kong Banking 112,200 HSBC Holdings PLC (d) 1,724,207 2,722,282 0.7
Conglomerates 325 Hutchison Whampoa Ltd. (d) 1,886 1,699 0.0
Property 48,400 Great Eagle Holdings Ltd. (Warrants)(b) 0 450 0.0
Utilities--Gas 700 Hong Kong and China Gas Co. Ltd. 1,084 917 0.0
62,350 Hong Kong and China Gas Co. Ltd.
(Warrants)(b) 0 4,667 0.0
------------ ------------ ------
1,084 5,584 0.0
Total Investments in Hong Kong 1,727,177 2,730,015 0.7
Japan Automobiles 77,000 Toyota Motor Corp. 2,091,386 1,907,758 0.5
Banking 150,000 Mitsubishi Trust and Banking Corp. (d) 1,623,375 1,332,707 0.3
295,000 Sakura Bank Ltd. 2,109,796 875,795 0.2
------------ ------------ ------
3,733,171 2,208,502 0.5
Broadcast--Media 31,000 Nippon Broadcasting System Inc. 1,740,635 1,303,236 0.3
Building & 223,000 Nishimatsu Construction Co. Ltd. 1,125,863 1,006,754 0.2
Construction
Chemicals 271,000 Kaneka Corp. 1,408,288 1,458,358 0.4
102,000 Shin-Etsu Chemical Co., Ltd. (d) 1,876,777 1,897,212 0.4
------------ ------------ ------
3,285,065 3,355,570 0.8
Circuit Board 88,000 Ibiden Co., Ltd. 1,222,287 1,296,735 0.3
Computer Software 55 NTT Data Corporation 2,570,426 2,208,899 0.5
Electric 142,000 Taihei Dengyo Kaisha, Ltd. 3,447,740 512,858 0.1
Construction
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<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>
Japan Electrical 126,000 Anritsu Corp. $ 1,457,622 $ 1,255,995 0.3%
(concluded) Equipment 322,000 Fujikura Ltd. 2,426,030 1,469,980 0.4
42,000 Murata Manufacturing Co., Ltd. 1,411,027 1,216,556 0.3
122,000 NEC Corporation (d) 1,531,345 1,242,560 0.3
18,000 Rohm Co., Ltd. (d) 1,006,155 1,872,291 0.4
------------ ------------ ------
7,832,179 7,057,382 1.7
Electronics 165,000 Fujitsu Limited 1,782,668 1,895,045 0.4
272,000 Hitachi Ltd. 2,529,531 1,793,817 0.4
86,000 Pioneer Electronic Corp. (d) 1,543,510 1,677,261 0.4
28,200 Sony Corp. 2,281,223 2,383,271 0.6
------------ ------------ ------
8,136,932 7,749,394 1.8
Financial Services 260,000 Daiwa Securities Co., Ltd. 1,228,556 989,743 0.2
36,000 Jafco Co., Ltd. 2,046,897 1,081,768 0.3
------------ ------------ ------
3,275,453 2,071,511 0.5
Machinery 468,000 NSK Ltd. 2,735,595 1,690,263 0.4
Manufacturing 235,000 Dainippon Screen Manufacturing
Co., Ltd. 1,827,755 916,643 0.2
Office Equipment 166,000 Ricoh Co., Ltd. 1,946,004 1,793,817 0.4
Packaging & 3,000 Toyo Seikan Kaisha, Ltd. 93,627 35,561 0.0
Containers
Paper & Forest 241,000 Oji Paper Co., Ltd. 1,578,844 1,018,383 0.2
Products
Pharmaceuticals 172,000 Fujisawa Pharmaceutical Co., Ltd. 1,558,352 1,615,140 0.4
67,000 Sankyo Co., Ltd. 1,683,045 1,616,440 0.4
67,000 Taisho Pharmaceutical Co., Ltd. 1,310,026 1,289,765 0.3
------------ ------------ ------
4,551,423 4,521,345 1.1
Real Estate 239,000 Mitsui Fudosan Co., Ltd. 2,508,483 1,935,272 0.5
Retail 37,000 Ito-Yokado Co., Ltd. 2,168,164 1,844,120 0.4
170,000 Takashimaya Co. (d) 1,810,424 1,200,954 0.3
116,000 Uny Co., Ltd. 1,934,412 1,751,228 0.4
------------ ------------ ------
5,913,000 4,796,302 1.1
Steel 610,000 Nippon Steel Corp. 1,678,915 1,035,467 0.3
Telecommunications 240 ++Nippon Telegraph & Telephone
Corporation 2,167,488 1,976,308 0.4
128,000 Uniden Corporation 1,784,679 1,331,407 0.3
------------ ------------ ------
3,952,167 3,307,715 0.7
Television 4,350 Nippon Television Network Corp. 1,318,852 1,310,279 0.3
Tire & Rubber 89,000 Bridgestone Corporation 1,611,794 2,031,494 0.5
Tobacco 272 Japan Tobacco, Inc. 1,766,057 1,886,160 0.4
Trading 274,000 Mitsui & Co. 2,009,772 1,405,230 0.3
628,000 Nissho Iwai Corp. 2,213,680 1,224,791 0.3
------------ ------------ ------
4,223,452 2,630,021 0.6
Transport 315 East Japan Railway Company 1,475,343 1,497,183 0.4
Services
Transportation 238,000 Nippon Express Co., Ltd. 1,403,813 1,308,278 0.3
215,000 Tobu Railway Co., Ltd. 1,039,135 610,337 0.1
370,000 Tokyu Corp. 2,290,186 1,216,050 0.3
------------ ------------ ------
4,733,134 3,134,665 0.7
Total Investments in Japan 80,375,582 64,219,169 15.0
New Electronics 41,150 PDL Holdings Ltd. 186,926 140,845 0.0
Zealand
Finance 1,794,840 Wrightson Ltd. 1,312,339 489,539 0.1
Textiles 252,300 Lane Walker Rudkin Industries, Ltd. 244,081 151,122 0.0
Total Investments in New Zealand 1,743,346 781,506 0.1
South Electronics 6,700 Samsung Electronics (GDR)(c)(e) 402,000 129,143 0.0
Korea 559 Samsung Electronics (Rights)(f) 0 1,677 0.0
------------ ------------ ------
402,000 130,820 0.0
Telecommunications 159,025 SK Telecom Co. Ltd. (ADR)(a) 2,561,162 1,013,783 0.3
Utilities-- 67,880 Korea Electric Power Corp. 2,753,162 680,731 0.2
Electric
Total Investments in South Korea 5,716,324 1,825,334 0.5
Total Investments in the
Pacific Basin 106,018,602 85,382,298 20.0
SOUTHEAST
ASIA
India Banking 85,300 State Bank of India 609,690 497,412 0.1
Chemicals 100 Indian Petrochemicals Corporation Ltd. 396 157 0.0
140,900 Reliance Industries Ltd. 729,505 566,932 0.1
147 Tata Chemicals Ltd. 741 520 0.0
------------ ------------ ------
730,642 567,609 0.1
Cosmetics & 225 Reckitt & Coleman of India Ltd. 1,926 1,762 0.0
Toiletries
Diversified 24,000 Hindustan Lever Ltd. 930,475 921,253 0.2
Electrical 34,300 Bharat Heavy Electricals Ltd. (BHEL) 373,543 297,956 0.1
Equipment
Hotels 15,500 East India Hotels Ltd. (GDR)(c)(e) 297,083 126,325 0.0
Oil & Related 39,100 Hindustan Petroleum Corporation Ltd. 494,958 345,776 0.1
Pharmaceuticals 11,200 Ranbaxy Laboratories Ltd. 209,323 158,217 0.0
Steel 100 Steel Authority of India Ltd. 68 31 0.0
Telecommunications 100,900 Mahanagar Telephone Nigam Ltd. 826,968 556,287 0.1
Tobacco 45,100 ITC Ltd. 655,053 747,682 0.2
Total Investments in Southeast Asia 5,129,729 4,220,310 0.9
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Issue Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Commercial US$ 19,196,000 General Motors Acceptance Corp.,
Paper* 5.69% due 6/01/1998 $ 19,189,932 $ 19,189,932 4.5%
Total Investments in Commercial
Paper 19,189,932 19,189,932 4.5
US Government United States Treasury Bills:
Obligations* 1,500,000 4.925% due 7/02/1998 (d) 1,493,228 1,494,120 0.3
2,500,000 4.97% due 7/23/1998 (d) 2,481,363 2,482,800 0.6
20,000,000 5.07% due 8/20/1998 19,769,033 19,783,200 4.6
Total Investments in US Government
Obligations 23,743,624 23,760,120 5.5
Total Investments in Short-Term
Securities 42,933,556 42,950,052 10.0
<CAPTION>
OPTIONS Nominal Value Covered Premiums
PURCHASED by Options Purchased Paid
<S> <C> <S> <C> <C> <C>
Currency Put 14,000,000 Japanese Yen, expiring August 1998
Options at YEN 130 195,300 800,800 0.2
Purchased
Put Options 1,230 FTSE 100 Index, expiring June 1998
Purchased at Pound Sterling 5,325 345,199 34,115 0.0
Total Options Purchased 540,499 834,915 0.2
Total Investments 412,002,039 428,505,423 100.1
OPTIONS Nominal Value Covered Premiums
WRITTEN by Options Written Received
<S> <C> <S> <C> <C> <C>
Call 6,483 KNP (Netherlands Guilder), expiring
Options June 1998 at NLG116.34 (8,752) (5,909) (0.0)
Written 48,377 Mont Edison (Italian Lira), expiring
June 1998 at Lit 2,420.25 (2,807) (2,223) (0.0)
807,851 Mont Edison (Italian Lira), expiring
June 1998 at Lit 2,392.25 (44,235) (38,547) (0.0)
Total Options Written (55,794) (46,679) (0.0)
Total Investments, Net of Options Written $411,946,245 428,458,744 100.1
============
Time Deposit++++ 15,697,000 3.7
Variation Margin on Financial Futures Contracts** 68,689 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 1,584,465 0.4
Liabilities in Excess of Other Assets (17,922,982) (4.2)
------------ ------
Net Assets $427,885,916 100.0%
============ ======
<FN>
*Commercial Paper and certain US Government Obligations are traded
on a discount basis; the interest rates shown are the discount
rates paid at the time of purchase by the Fund.
**Financial futures contracts sold as of May 31, 1998 were as
follows:
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
6 DAX Index DTB June 1998 $ 1,872,391
Total Financial Futures Contracts Sold
(Total Contract Price--$1,676,263) $ 1,872,391
============
Financial futures contracts purchased as of May 31, 1998 were as
follows:
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
65 MIB FIB June 1998 $12,929,670
116 FTSE 100 LIFFE June 1998 11,183,019
172 IBEX 135 IBEX June 1998 11,406,250
38 Nikkei Index SIMEX June 1998 2,151,979
Total Financial Futures Contracts Purchased
(Total Contract Price--$37,281,399) $37,670,918
===========
***Forward foreign exchange contracts as of May 31, 1998 were as
follows:
Foreign Unrealized
Currency Expiration Appreciation
Sold Date (Note 1c)
A$ 3,843,345 July 1998 $ 90,838
YEN 2,638,139,600 July 1998 1,493,627
Total Unrealized Appreciation--Net on
Forward Foreign Exchange Contracts (US$
Commitment--$23,175,075) $ 1,584,465
===========
(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 and are non-income producing.
(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.
(f)The rights may be exercised until 6/17/1998.
(g)Optimized Portfolio As Listed Securities (OPALS) are investments
that are exchange quoted and provide an equivalent investment
exposure to that of the specific Morgan Stanley Capital
International (MSCI) country index.
++Non-income producing security.
++++Time deposit bears interest at 5.437% and matures on 6/01/1998.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
Worldwide
Investments as of
May 31, 1998
Percent of
Ten Largest Equity Holdings Net Assets
MSCI Dutch OPALS (Class B) 3.6%
MSCI Swiss OPALS (Class B) 2.7
Societe EuraFrance S.A. 1.7
MSCI Portugal OPALS (Class B) 1.5
MSCI Denmark OPALS (Class B) 1.5
Elf Aquitaine S.A. 1.3
MSCI Austria OPALS (Class B) 1.3
MSCI Norway OPALS (Class B) 1.3
MSCI Greece OPALS (Class B) 1.1
MSCI Sweden OPALS (Class B) 1.1
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Index Instruments 15.3%
Banking 7.3
Chemicals 6.5
Telecommunications 5.9
Insurance 3.7
Diversified 3.2
Electronics 3.0
Financial Services 2.5
Automobiles 2.5
Pharmaceuticals 2.4
Percent of
Ten Largest Countries Net Assets
Japan 15.0%
United Kingdom 13.2
France 13.1
Germany 10.8
Netherlands 7.1
Sweden 3.4
Switzerland 3.0
Australia 3.0
Canada 3.0
Italy 1.6
Percent of
Geographical Asset Mix* Net Assets
Europe (Ex-United Kingdom
and Ireland) 48.8%
Japan 15.0
United Kingdom and Ireland 13.5
Pacific Basin (Ex-Japan) 5.0
Other Emerging Markets 4.6
North America 3.0
[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
Germany DAX Index DTB (0.4)%
Italy MIB30 FIB 3.0
Japan Nikkei Index SIMEX 0.5
Spain IBEX 35 Inex IBEX 2.7
United Kingdom FTSE 100 LIFFE 2.6
-----
8.4%
=====
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$411,461,540)
(Note 1a) $ 427,670,508
Unrealized appreciation on forward foreign exchange
contracts (Note 1c) 1,584,465
Options purchased, at value (cost--$540,499) (Notes 1a & 1c) 834,915
Foreign cash (Note 1b) 268,735
Foreign time deposits (Note 1b) 15,697,000
Cash 2,594,084
Receivables:
Securities sold $ 14,407,627
Dividends 2,031,323
Forward foreign exchange contracts (Note 1c) 301,706
Beneficial interest sold 223,558
Variation margin (Note 1c) 68,689
Interest 2,371 17,035,274
--------------
Deferred organization expenses (Note 1f) 4,111
Prepaid registration fees and other assets (Note 1f) 39,356
--------------
Total assets 465,728,448
--------------
Liabilities: Options written, at value (premiums received--$55,794)
(Notes 1a & 1c) 46,679
Payables:
Securities purchased 33,491,861
Beneficial interest redeemed 3,218,940
Distributor (Note 2) 287,605
Investment adviser (Note 2) 267,975 37,266,381
--------------
Accrued expenses and other liabilities 529,472
--------------
Total liabilities 37,842,532
--------------
Net Assets: Net assets $ 427,885,916
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 354,689
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 3,237,204
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 155,105
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 703,232
Paid-in capital in excess of par 448,506,726
Undistributed investment income--net 1,123,347
Accumulated distributions in excess of realized capital
gains on investments and foreign currency
transactions--net (Note 1g) (44,405,855)
Unrealized appreciation on investments and foreign currency
transactions--net 18,211,468
--------------
Net assets $ 427,885,916
==============
Net Asset Class A--Based on net assets of $33,959,608 and 3,546,893
Value: shares of beneficial interest outstanding $ 9.57
==============
Class B--Based on net assets of $311,519,929 and 32,372,040
shares of beneficial interest outstanding $ 9.62
==============
Class C--Based on net assets of $14,716,930 and 1,551,047
shares of beneficial interest outstanding $ 9.49
==============
Class D--Based on net assets of $67,689,449 and 7,032,315
shares of beneficial interest outstanding $ 9.63
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 1998
<S> <S> <C> <C>
Investment Income Dividends (net of $944,572 foreign withholding tax) $ 11,479,166
(Notes 1d & 1e): Interest and discount earned 1,975,913
--------------
Total income 13,455,079
--------------
Expenses: Investment advisory fees (Note 2) $ 4,596,696
Account maintenance and distribution fees--Class B (Note 2) 4,565,655
Transfer agent fees--Class B (Note 2) 983,667
Custodian fees 768,697
Account maintenance fees--Class D (Note 2) 242,039
Account maintenance and distribution fees--Class C (Note 2) 205,028
Transfer agent fees--Class D (Note 2) 179,555
Accounting services (Note 2) 149,179
Printing and shareholder reports 145,288
Professional fees 85,883
Registration fees (Note 1f) 74,970
Transfer agent fees--Class A (Note 2) 71,095
Transfer agent fees--Class C (Note 2) 45,903
Trustees' fees and expenses 36,601
Amortization of organization expenses (Note 1f) 25,430
Pricing fees 21,677
Other 134,369
--------------
Total expenses 12,331,732
--------------
Investment income--net 1,123,347
--------------
Realized & Realized gain from:
Unrealized Gain Investments--net 17,024,041
(Loss) on Foreign currency transactions--net 2,093,646 19,117,687
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (75,949,305)
(Notes 1b, 1c, Foreign currency transactions--net 1,185,781 (74,763,524)
1e & 3): -------------- --------------
Net realized and unrealized loss on investments and
foreign currency transactions (55,645,837)
--------------
Net Decrease in Net Assets Resulting from Operations $ (54,522,490)
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 1,123,347 $ 2,812,220
Realized gain on investments and foreign currency
transactions--net 19,117,687 70,558,271
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (74,763,524) (3,407,349)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (54,522,490) 69,963,142
-------------- --------------
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 investments--net:
Class A (3,212,433) (2,645,936)
Class B (35,928,520) (21,542,693)
Class C (1,650,362) (1,111,282)
Class D (8,612,883) (4,085,666)
In excess of realized gain on investments--net:
Class A (2,887,423) --
Class B (32,293,544) --
Class C (1,483,391) --
Class D (7,741,497) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (93,810,053) (42,282,586)
-------------- --------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions (195,416,794) (540,177,741)
Transactions -------------- --------------
(Note 4):
Net Assets: Total decrease in net assets (343,749,337) (512,497,185)
Beginning of year 771,635,253 1,284,132,438
-------------- --------------
End of year* $ 427,885,916 $ 771,635,253
============== ==============
<FN>
*Undistributed investment income--net $ 1,123,347 $ --
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
The following per share data and ratios have Period
been derived from information provided in the Oct. 21,
financial statements. 1994++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1998++++ 1997++++ 1996++++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.58 $ 11.94 $ 10.25 $ 11.73
Operating -------- -------- -------- --------
Performance: Investment income--net .12 .12 .16 .26
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (1.08) 1.09 1.53 (1.05)
-------- -------- -------- --------
Total from investment operations (.96) 1.21 1.69 (.79)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.24) -- (.15)
In excess of investment income--net -- (.01) -- --
Realized gain on investments--net (1.08) (.32) -- (.54)
In excess of realized gain on investments--net (.97) -- -- --
-------- -------- -------- --------
Total dividends and distributions (2.05) (.57) -- (.69)
-------- -------- -------- --------
Net asset value, end of period $ 9.57 $ 12.58 $ 11.94 $ 10.25
======== ======== ======== ========
Total Investment Based on net asset value per share (6.02%) 10.76% 16.49% (6.78%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.16% 1.11% 1.06% 1.23%*
Net Assets: ======== ======== ======== ========
Investment income--net 1.08% 1.04% 1.47% 4.64%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 33,960 $ 44,624 $116,628 $ 74,478
Data: ======== ======== ======== ========
Portfolio turnover 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ========
Average commission rate paid++++++ $ .0046 $ .0004 $ .0005 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
++++++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.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B
For the
The following per share data and ratios have Period
been derived from information provided in July 30,
the financial statements. 1993++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1998++++ 1997++++ 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.42 $ 11.76 $ 10.19 $ 11.44 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net --+++++ .01 .04 .02 (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.04) 1.08 1.53 (.69) 1.46
-------- -------- -------- -------- --------
Total from investment operations (1.04) 1.09 1.57 (.67) 1.44
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.10) -- (.04) --
In excess of investment income--net -- (.01) -- -- --
Realized gain on investments--net (.93) (.32) -- (.54) --
In excess of realized gain on
investments--net (.83) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.76) (.43) -- (.58) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.62 $ 12.42 $ 11.76 $ 10.19 $ 11.44
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (7.01%) 9.70% 15.41% (5.91%) 14.40%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.20% 2.14% 2.09% 2.13% 2.07%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.01%) .08% .37% .23% (.19%)*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $311,520 $583,213 $945,368 $961,941 $844,295
Data: ======== ======== ======== ======== ========
Portfolio turnover 107.50% 60.56% 71.86% 63.95% 50.63%
======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0046 $ .0004 $ .0005 -- --
======== ======== ======== ======== ========
<CAPTION>
Class C
For the
The following per share data and ratios have Period
been derived from information provided in the Oct. 21,
financial statements. 1994++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1998++++ 1997++++ 1996++++ 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.26 $ 11.65 $ 10.10 $ 11.62
Operating -------- -------- -------- --------
Performance: Investment income--net --+++++ --+++++ .05 .24
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net (1.02) 1.08 1.50 (1.09)
-------- -------- -------- --------
Total from investment operations (1.02) 1.08 1.55 (.85)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.14) -- (.13)
In excess of investment income--net -- (.01) -- --
Realized gain on investments--net (.92) (.32) -- (.54)
In excess of realized gain on investments--net (.83) -- -- --
-------- -------- -------- --------
Total dividends and distributions (1.75) (.47) -- (.67)
-------- -------- -------- --------
Net asset value, end of period $ 9.49 $ 12.26 $ 11.65 $ 10.10
======== ======== ======== ========
Total Investment Based on net asset value per share (6.96%) 9.71% 15.35% (7.36%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.21% 2.15% 2.09% 2.30%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net (.01%) .04% .45% 4.26%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 14,717 $ 24,774 $ 46,985 $ 25,822
Data: ======== ======== ======== ========
Portfolio turnover 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ========
Average commission rate paid++++++ $ .0046 $ .0004 $ .0005 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
++++++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.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
For the
The following per share data and ratios have Period
been derived from information provided in July 30,
the financial statements. 1993++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1998++++ 1997++++ 1996++++ 1995 1994++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.59 $ 11.94 $ 10.27 $ 11.51 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .09 .10 .13 .10 .04
Realized and unrealized gain (loss) on
investments and foreign currency transactions (1.07) 1.09 1.54 (.68) 1.47
-------- -------- -------- -------- --------
Total from investment operations (.98) 1.19 1.67 (.58) 1.51
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.21) -- (.12) --
In excess of investment income--net -- (.01) -- -- --
Realized gain on investments--net (1.04) (.32) -- (.54) --
In excess of realized gain on
investments--net (.94) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.98) (.54) -- (.66) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.63 $ 12.59 $ 11.94 $ 10.27 $ 11.51
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (6.18%) 10.50% 16.26% (5.11%) 15.10%+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.42% 1.36% 1.31% 1.34% 1.31%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net .77% .86% 1.13% .85% .55%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 67,689 $119,024 $175,151 $188,583 $208,007
Data: ======== ======== ======== ======== ========
Portfolio turnover 107.50% 60.56% 71.86% 63.95% 50.63%
======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0046 $ .0004 $ .0005 -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
++++++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.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch International Equity Fund (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Trustees.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(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 financial
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.
Merrill Lynch International Equity Fund, May 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
* 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).
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. Distributions in
excess of realized capital gains are due primarily to differing tax
treatments for post-October losses.
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.
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,
1998, MLAM paid MLAM U.K. a fee of $612,740 pursuant to such
Agreement.
Pursuant to 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, 1998, MLFD earned underwriting discounts
and direct 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 $ 117 $ 1,352
Class D $1,851 $27,531
For the year ended May 31, 1998, MLPF&S received contingent deferred
sales charges of $1,078,850 and $3,787 relating to transactions in
Class B and Class C Shares, respectively.
In addition, MLPF&S received $56,208 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
May 31, 1998.
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, 1998 were $607,065,211 and $822,306,490,
respectively.
Net realized gains (losses) for the year ended May 31, 1998 and net
unrealized gains (losses) as of May 31, 1998 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 22,344,458 $ 16,192,472
Short-term (168) 16,496
Financial futures contracts 2,415,983 193,391
Options written (5,892,740) 9,115
Options purchased (1,843,492) (311,084)
------------- -------------
Total investments 17,024,041 16,100,390
Currency transactions:
Options purchased 4,870,537 605,500
Forward foreign exchange
contracts 1,876,462 1,584,465
Foreign currency transactions (4,653,353) (78,887)
------------- -------------
Total currency transactions 2,093,646 2,111,078
------------- -------------
Total $ 19,117,687 $ 18,211,468
============= =============
Transactions in call options written for the year ended May 31, 1998
were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning of year -- --
Options written $ 879,009 $ 304,062
Options expired (16,298) (248,268)
------------- -------------
Outstanding call options
written at end of year $ 862,711 $ 55,794
============= =============
Transactions in put options written for the year ended May 31, 1998
were as follows:
Nominal Value
Covered By Premiums
Written Options Received
Outstanding put options
written at beginning of year $ 3,469,627 $ 520,444
Options written 102,736,697 1,027,367
Options closed (106,206,324) (1,547,811)
------------- -------------
Outstanding put options written
at end of year $ -- $ --
============= =============
As of May 31, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $11,193,672, of which $46,706,966 related to
appreciated securities and $35,513,294 related to depreciated
securities. At May 31, 1998, the aggregate cost of investments, net
of written options, for Federal income tax purposes was
$416,464,272.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $195,416,794 and $540,177,741 for the years ended
May 31, 1998 and May 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended May 31, 1998 Shares Amount
Shares sold 2,078,080 $ 21,677,428
Shares issued to shareholders in
reinvestment of distributions 633,646 5,506,383
------------- -------------
Total issued 2,711,726 27,183,811
Shares redeemed (2,710,923) (28,909,949)
------------- -------------
Net increase (decrease) 803 $ (1,726,138)
============= =============
Merrill Lynch International Equity Fund, May 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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)
============= =============
Class B Shares for the Year Dollar
Ended May 31, 1998 Shares Amount
Shares sold 5,510,516 $ 60,695,234
Shares issued to shareholders in
reinvestment of distributions 6,679,391 58,578,259
------------- -------------
Total issued 12,189,907 119,273,493
Shares redeemed (26,306,021) (275,682,157)
Automatic conversion of shares (474,667) (5,290,768)
------------- -------------
Net decrease (14,590,781) $(161,699,432)
============= =============
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 C Shares for the Year Dollar
Ended May 31, 1998 Shares Amount
Shares sold 1,734,570 $ 19,355,604
Shares issued to shareholders in
reinvestment of distributions 320,806 2,774,977
------------- -------------
Total issued 2,055,376 22,130,581
Shares redeemed (2,524,843) (27,261,896)
------------- -------------
Net decrease (469,467) $ (5,131,315)
============= =============
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)
============= =============
Class D Shares for the Year Dollar
Ended May 31, 1998 Shares Amount
Shares sold 3,449,207 $ 39,786,340
Automatic conversion of shares 470,693 5,290,768
Shares issued to shareholders in
reinvestment of distributions 1,613,654 14,103,337
------------- -------------
Total issued 5,533,554 59,180,445
Shares redeemed (7,952,491) (86,040,354)
------------- -------------
Net decrease (2,418,937) $ (26,859,909)
============= =============
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)
============= =============
5. Commitments:
At May 31, 1998, 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 $88,000 and $8,634,000,
respectively.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch International Equity Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
International Equity Fund as of May 31, 1998, 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 four-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,
1998, by correspondence with the custodians and brokers or other
alternative procedures. 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, 1998, 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 16, 1998
</AUDIT-REPORT>
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, 1998:
<TABLE>
<CAPTION>
Non-Qualifying Total Foreign Taxes
Record Payable Domestic Foreign Ordinary Paid or Long-Term
Date Date Ordinary Income Source Income Income Withheld Capital Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
12/15/97 12/23/97 $.375515 $.248841 $.624356 $.039789 $1.420848*
Class B Shares
12/15/97 12/23/97 $.203072 $.134569 $.337641 $.039789 $1.420848*
Class C Shares
12/15/97 12/23/97 $.196050 $.129916 $.325966 $.039789 $1.420848*
Class D Shares
12/15/97 12/23/97 $.336808 $.223191 $.559999 $.039789 $1.420848*
</TABLE>
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.
[FN]
*Of this long-term capital gain distribution, 42.03% is subject to
the 28% tax rate and 57.97% is subject to the 20% tax rate.
Merrill Lynch International Equity Fund, May 31, 1998
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended May 31, 1998
Additions
Associated British Foods PLC
*Bank of West Australia
Bass PLC
*Booker (Ordinary)
*British Airport Authority (Ordinary)
Canal Plus
Cattle's PLC
Compagnie Generale d'Industrie et
Participations (CGIP)
Compagnie Generale des Etablissements
Michelin (C.G.D.E)(Class B)
EMAP PLC
EMI Group PLC
Eurotunnel S.A.
FKI PLC
France Telecom S.A.
Fujitsu Limited
GIO Australia Holdings, Limited
*Gold Fields Limited
Guardian Royal Exchange PLC
Ibiden Co., Ltd.
*Icici Ltd.
Jarvis PLC
Jungheinrich AG (Preferred)
Lafarge S.A.
Laporte PLC
Leighton Holdings Limited
*Lloyds TSB Group PLC
M.I.M. Holdings Limited
MSCI Austria OPALS (Class B)
MSCI Dutch OPALS (Class B)
MSCI Greece OPALS (Class B)
MSCI Sweden OPALS (Class B)
MSCI Swiss OPALS (Class B)
Man (ED&F) Group PLC
*News Corp. Ltd. (The)(Ordinary)
North Limited
Novartis AG (Registered Shares)
Orange PLC
Orica Limited
Pacific Dunlop Ltd.
*Pasminco Limited
Pinault-Printemps Redoute S.A.
Pioneer International Limited
Promodes S.A.
Prudential Corp. PLC
Quantas Airways Limited
Rothmans Holding Ltd.
Royal Bank of Scotland Group PLC
Royal & Sun Alliance Insurance Group PLC
Sagem S.A.
Santos Limited
Schroders Property Fund
ScottishPower PLC
*Tabcorp Holdings
Tate & Lyle PLC
Thames Water PLC
Volvo AB (Class B)
Woolworth Limited
Deletions
Aberfoyle Ltd.
Accor S.A.
Alcan Aluminium Ltd.
Alcan Aluminium Ltd. (US Registered Shares)
Alliance Trust PLC
Amcor Limited
Anglo American Corp. of South Africia, Ltd.
Ashton Mining Ltd.
Australia and New Zealand Banking
Group Ltd.
Australian Foundation Investment
Company Ltd .
Australian Gas Light Co., Ltd.
Australian National Industries Ltd.
Australian Oil & Gas Corporation Ltd.
BAA PLC
BG PLC
Banco de Galicia y Buenos Aires S.A. (ADR)
*Bank of West Australia
Barrick Gold Corp.
Berjaya Sports Toto BHD
Bombay Suburban Electric Supply
Co. Ltd. (GDR)
Bongrain S.A.
*Booker (Ordinary)
Booker PLC
Boral Ltd.
Brierley Investments Ltd.
*British Airport Authority (Ordinary)
British Sky Broadcasting Group PLC
Broken Hill Proprietary Co.
Burns, Philp & Company Ltd.
CSR Ltd.
Capital Property Trust
Carlton Communications PLC
Carrefour S.A.
Castorama Dubois Investisse
Cathay Pacific Airways
Cheung Kong (Holdings) Ltd.
China Light and Power Co. Ltd.
Christian Dior S.A.
Citic Pacific Ltd.
Club Mediterranee S.A.
Coca-Cola Amatil, Ltd.
Coles Myer Ltd.
Colonial Limited
Compagnie Generale des Eaux S.A.
Compass Group PLC
Credit Commercial de France
DB Group Ltd.
DDI Corp.
Daifuku Co., Ltd.
Dao Heng Bank Group Ltd.
Email Ltd.
Empresas ICA Sociedad Controladora,
S.A. de C.V.
Energy Group PLC
Etablissements Economiques du Casino
Guichard-Perachon S.A. (Preferred)
Evander Gold Mines Ltd.
F.H. Faulding & Co. Ltd.
Fernz Corporation Ltd.
Fletcher Challenge Forests
Foodland Associated Ltd.
Foster's Brewing Group Ltd.
Fotolabo S.A.
Franked Income Fund (Units)
Fraser & Neave Ltd. (Ordinary)
*Gold Fields Limited
Goodman Fielder Ltd.
Hallenstein Glasson Holdings Ltd.
Hang Seng Bank Ltd.
Henderson Investment Ltd.
Hindalco Industries Ltd.
Hong Kong Electric Holdings Ltd.
Hong Kong Telecommunications Ltd.
Housing Development Finance Corp., Ltd.
IRSA Inversiones y Representaciones S.A.
(GDR)
*Icici Ltd.
Imperial Oil Limited
Imperial Tobacco Group PLC
Inchcape BHD
Inchcape Marketing Services Ltd.
Independent Newspapers Ltd.
Industrial Credit & Investment
Corporation of India Ltd.
Infrastructure & Utilities Ltd.
Italcementi S.p.A.
James Hardie Industries Ltd.
Keppel Corporation Ltd.
LVMH (Moet-Hennessy Louis Vuitton)
Labinal S.A.
Ladbroke Group PLC
Lend Lease Corp.
*Lloyds TSB Group PLC
London International Group PLC
MEPC PLC
MSCI Canada OPALS (Class B)
MSCI Spain OPALS (Class B)
Mahindra & Mahindra Ltd.
Malaysian Oxygen BHD
Mayne Nickless Ltd.
Metal Manufactures Ltd.
Mitsubishi Estate Co., Ltd.
Mitsubishi Motors Corp.
National Foods Ltd.
National Grid Group PLC
National Mutual Holdings Ltd.
NatSteel Ltd.
Nedcor Ltd. (GDR)
Nestle (Malaysia) BHD
Newbridge Networks Corporation
*News Corp. Ltd. (The)(Ordinary)
News Corp., Ltd. (The) (Preferred)
Nissan Motor Co., Ltd.
Normandy Mining Ltd.
Orbital Engine Corporation Ltd.
PMP Communications Ltd.
P.T. Telekomunikasi Indonesia
P.T. Telekomunikasi Indonesia (ADR)
*Pasminco Limited
Pearson PLC
Perez Companc S.A.
Petroleo Brasileiro S.A.--Petrobras
(Preferred)
Plutonic Resources Ltd.
Publishing & Broadcasting Limited
QCT Resources Ltd.
RGC Ltd.
Ranger Oil Ltd.
Restaurant Brands New Zealand Ltd.
Rhone-Poulenc (Class A)
Saatchi & Saatchi PLC
Sappi Ltd.
Schneider S.A.
Scottish Invest Trust PLC
Scottish Mortgage & Trust PLC
The Seagram Co. Ltd.
Singapore Airlines Ltd. `Foreign'
Singapore Press Holdings Ltd. `Foreign'
Slough Estates PLC
Smith (Howard) Ltd.
Sommer-Allibert S.A.
Southcorp. Ltd.
St. George Bank Ltd.
Swire Pacific Ltd. (Class B)
*Tabcorp Holdings
Tarmac PLC
Tata Engineering & Locomotive Co. Ltd.
Tata Iron and Steel Co. Ltd.
Teijin Ltd.
Telecom Corporation of New Zealand Ltd.
Telecomunicacoes de Sao Paulo S.A.
(Preferred)
Telefonica de Argentina S.A. (Class B)(ADR)
Telekom Malaysia BHD
Templeton Russia Fund, Inc.
Thomson CSF
Thorn PLC
Tourism Holdings Ltd.
Viag AG
W.H. Smith Group PLC
WMC Ltd.
Wesfarmers Ltd.
Wharf (Holdings) Ltd.
Woodside Petroleum Ltd.
YTL Corporation BHD (Class A)
Yacimientos Petroliferos Fiscales S.A.
(YPF)(ADR)
Zeneca Group PLC
[FN]
*Added and deleted in the same quarter.