MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Annual Report
May 31, 1999
Officers and Trustees
Terry K. Glenn, President and Trustee
Donald Cecil, Trustee
Roland M. Machold, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Edward D. Zinbarg, Trustee
Clive D. Lang, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and
Treasurer
Ira P. Shapiro, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
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
Country Positions For the Three-Month Period Ended May 31, 1999
Switzerland - 6.4%
Italy - 4.7%
Spain - 3.6%
Germany - 2.7%
United Kingdom + 1.2%
Netherlands + 1.3%
France + 2.1%
Sweden + 5.4%
Canada +11.5%
Japan +11.9%
Source: Morgan Stanley Capital International World (Ex-US) Index.
[FN]
*For the three-month period ended May 31, 1999, total investment
return in US dollars for the Morgan Stanley Capital International
World (Ex-US) Index was +3.15%.
Merrill Lynch International Equity Fund, May 31, 1999
DEAR SHAREHOLDER
Fiscal Year in Review
Once again we are looking back upon a year of remarkable events in
the world's equity markets. Over the 12 months ended May 31, 1999,
the unmanaged Morgan Stanley Capital International (MSCI) World (Ex-
US) Index returned +3.88% in US dollar terms. Over the same period,
the unmanaged MSCI Emerging Markets Index returned +3.46% in US
dollar terms.
However, these results mask wide divergences between some of the
world's equity markets. Within the developed market universe, the
Pacific Basin, excluding Japan, rose by +23.6%, while Japan itself
gained 20.8%. These advances were matched in the Asian emerging
markets, which collectively rose by 27.6%. (References to markets
are measured by Morgan Stanley indexes and are in US dollar terms).
Outside Japan, the gains marked the early stages of recovery from
the crises that had severely hit these markets over the previous 12
months. The economies in the region benefited from global monetary
easing, initiated in the United States with two interest rate cuts
in October 1998, and followed by similar cuts in nearly all other
major countries.
Within the Asian region, improving trade figures, greater currency
stability and falling interest rates formed a base for recovery. The
recovery was also assisted by International Monetary Fund (IMF)
funding and, in many countries, a clear political will to adhere to
the conditions set by the IMF for improving the domestic financial
systems. Most notable among the successes was South Korea where the
government's efforts were also rewarded with significant re-rating
of their sovereign debt. This market rose by 184.1% over the year to
May 31, 1999. Among the largest gains in the developed markets were
the +52.6% and +49.4% increases recorded by Singapore and Hong Kong,
respectively.
Notwithstanding the outperformance produced by Asian stock markets,
problems remain in that there is still too much production capacity
and the ever-present threat of deflation. These issues hang over the
whole region, including Japan. However, Japan has also been showing
some sporadic signs of recovery, such as in the housing sector,
triggered by the various stimulative packages implemented by the
government. In contrast, Japanese exports have not been helped by
the extreme volatility in the yen during the latter half of calendar
year 1998, reaching a trough of YEN 147/US$1 in mid-August 1998 and
appreciating by over 24% to YEN 111/US$1 in early January 1999. Much
of the early yen appreciation followed the narrowing of Japanese
government bond yields relative to US Treasury securities.
In contrast with Asia, equity markets in other major regions
performed poorly over the year as a whole. Continental European
developed markets actually fell by 4.2% over the year, while the
United Kingdom rose by 5.8%. Eastern European and Middle Eastern
emerging markets were just in positive territory, but Latin American
emerging markets fell by 4.8%. The Russian debt default in August
1998 overshadowed Eastern European equity markets for much of the
fiscal year.
In January 1999, Europe saw the introduction of the euro as a common
currency for 11 countries, including Germany, France, Italy, the
Netherlands and Spain. This region had performed particularly well
in the 12 months leading up to the launch of the new currency and
had reached extremely high valuation levels amid great optimism
regarding the benefits of the single currency. However, the collapse
of the Russian financial markets led to massive losses for more
European banks and sharp falls on European equity markets. The
region's stock markets have underperformed for much of the fiscal
year, a trend that has been exacerbated for US dollar-based
investors by a 12% depreciation of the euro since its launch through
May month-end.
The Latin American equity markets were strong relative performers
from June 1998 through August 1998. Subsequently, the current
account deficits in most of these countries and defaults on some
Brazilian local government bonds impacted both currencies (Brazil
was forced to float the real in January) and equity markets.
However, Latin American markets rallied sharply after the real's
devaluation, aided by signs that the recession in Brazil may be a
brief one.
Throughout all of these events, the US economy continued to grow and
prosper. The strength of the US equity market underpinned the US
consumer-spending boom--a boom so strong that for the first time in
over 20 years the US savings ratio became negative. Until recently,
the complete absence of tangible signs of inflation, combined with
the need for the US economic engine to power the rest of the world,
helped keep US bond yields on a flat to downward trend. However,
this downward bias was reversed by May month-end, with the US
central bank acknowledging that the next change in interest rates is
more likely to be upward.
Total returns for Merrill Lynch International Equity Fund's Class A,
Class B, Class C and Class D Shares for the 12 months ended May 31,
1999 were -0.35%, -1.36%, -1.50% and -0.70%, respectively. This
compares with the return for the unmanaged MSCI World (Ex-US) Index
of +3.88% over the same period. (Fund results do not reflect sales
charges, and would be lower if sales charges were included. Complete
performance information can be found on pages 4--6 of this report to
shareholders.)
For the first part of the fiscal year, Merrill Lynch International
Equity Fund maintained a significant emerging markets exposure. This
emerging markets exposure negatively impacted performance from mid-
July 1998 until early October 1998. However, at the end of July, we
moved to align the Fund's holdings more closely with a new
benchmark, the unmanaged MSCI World (Ex-US) Index. This US dollar-
based Index is comprised of developed markets around the world and
is commonly used as a benchmark by international equity funds. As a
result of this change in our benchmark, we began to reduce the
Fund's holdings in emerging markets.
For most of the year under review, the Fund was underweighted in
Continental Europe, which benefited performance. However, the bias
toward value stocks in our European investments in the second half
of 1998 was a significant drag on the Fund's performance. We became
more positive on the UK market in late 1998 and increased exposure
there, based on the belief that investors had underestimated both
the scope of interest rate cuts and the impact these would have on
ensuring that the UK economy would avoid recession. In May, we
reversed this position since it became clear that investors had
caught up with the reality of a stronger economy. Around the same
time, we increased exposure to Germany because we believed that the
general pessimism toward the German economy was overdone considering
the weaker currency, lower interest rates and easier fiscal policy
at a time of rising global demand expectations.
The Fund has been almost neutral in Japan for most of the period
(although it had a much higher weighting than most international
funds) and moved to an overweight position in March, just as the
market began a period of outperformance. We believed that investor
perception toward the Japanese market would begin to improve,
despite the many well-known pressures that are faced there. In
addition to an improving stock market, the yen proved the strongest
of the major currencies over this period, despite consensus
expectations to the contrary.
The change in Federal Reserve Board policy in October, followed by
virtually every other central bank, sparked a major rally in global
markets in late 1998, which has been extended in 1999 by consistent
upgrading of forecasts for the world economy. Our low cash position
throughout this period benefited the Fund's performance.
Portfolio Matters
During the quarter ended May 31, 1999, the Fund continued to
experience a sharp improvement in performance relative to its
benchmark, a trend that began in November 1998. For example, the
Fund's Class A Shares returned +7.89% for the six-month period ended
May 31, 1999, while the MSCI World (Ex-US) Index returned +4.43%. In
the first quarter of 1999, we became positive on the prospects for
the global economy. As a result, we began to raise exposure to
commodity stocks and commodity-linked economies. At the same time,
we focused on purchasing value stocks (as opposed to growth stocks)
as well as smaller-capitalization stocks around the world. All of
these decisions continued to enhance the Fund's performance during
the quarter ended May 31, 1999, as was the case during the prior
three-month period.
The improvement in the Fund's performance relative to its benchmark
also coincided with the completion of various changes in our
portfolio management strategy, which we initiated in April 1998.
These changes included the resetting of the benchmark and more
closely coordinating our bottom-up stock selection process with the
top-down asset allocation process. This approach has enabled us to
implement a more integrated investment strategy, which we are
pleased is beginning to result in improved absolute and relative
returns for the Fund.
Over recent months some trends have started to emerge in global
equity markets. We expect a continuation for the time being of the
upswing in those asset classes that were out of favor for so long,
such as industrial cyclical sectors and value stocks, especially in
Continental Europe. The emerging markets of Asia have already
started their recoveries. There are also signs that commodity
markets are beginning to pick up. However, we currently do not
expect inflation to re-emerge as a major problem for global equity
markets.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Clive D. Lang)
Clive D. Lang
Senior Vice President and
Portfolio Manager
July 15, 1999
Merrill Lynch International Equity Fund, May 31, 1999
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 "Recent Performance
Results" and "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.
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 Morgan Stanley Capital International World (Ex-US)
Index and the Financial Times/S&P--Actuaries World (Ex-US) Index.
Beginning and Ending Values are:
10/21/94** 5/99
ML International Equity Fund++--
Class A Shares* $ 9,475 $10,673
ML International Equity Fund++--
Class C Shares* $10,000 $10,743
Morgan Stanley Capital International
World (Ex-US) Index++++ $10,000 $13,931
Financial Times/S&P--
Actuaries World (Ex-US) Index+++++ $10,000 $13,532
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 Morgan Stanley Capital International World (Ex-US)
Index and the Financial Times/S&P--Actuaries World (Ex-US) Index.
Beginning and ending values are:
7/30/93** 5/99
ML International Equity Fund++--
Class B Shares* $10,000 $12,499
ML International Equity Fund++--
Class D Shares* $ 9,475 $12,385
Morgan Stanley Capital International
World (Ex-US) Index++++ $10,000 $16,245
Financial Times/S&P--
Actuaries World (Ex-US) Index++++ $10,000 $15,618
[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, 1999, the Fund's
primary performance benchmark was changed from a Composite Index
(based on the Financial Times/Standard & Poor's (FT/S&P)--Actuaries
World (Ex-US) Index and the IFC Investables Index of emerging equity
markets) to the Morgan Stanley Capital International World (Ex-US)
Index, expressed in US dollar terms. This unmanaged market
capitalization-weighted Index is comprised of a representative
sampling of stocks in 21 countries (excluding the United States) and
is widely used as a benchmark by internationally invested equity
funds. The starting date for the Index in the Class A and Class C
Shares graph is from 10/31/94.
++++++This unmanaged capitalization-weighted Index is comprised of
over 1,632 companies in 28 countries, excluding the United States.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/99 -1.62% -6.78%
Inception (10/21/94) through 3/31/99 +2.56 +1.33
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/99 -2.71% -6.48%
Five Years Ended 3/31/99 +2.25 +2.25
Inception (7/30/93) through 3/31/99 +3.91 +3.91
[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 3/31/99 -2.77% -3.71%
Inception (10/21/94) through 3/31/99 +1.50 +1.50
[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 3/31/99 -1.96% -7.11%
Five Years Ended 3/31/99 +3.04 +1.94
Inception (7/30/93) through 3/31/99 +4.72 +3.73
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch International Equity Fund, May 31, 1999
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* -0.35% +6.64% +12.64%
ML International Equity Fund Class B Shares* -1.36 +6.38 +24.99
ML International Equity Fund Class C Shares* -1.50 +6.36 +7.43
ML International Equity Fund Class D Shares* -0.70 +6.60 +30.72
Morgan Stanley Capital International World (Ex-US) Index** +3.88 +3.15 +39.31/+62.45
<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 since inception periods are Class A &
Class C Shares, from 10/21/94 to 5/31/99 and Class B & Class D
Shares, from 7/30/93 to 5/31/99.
**An unmanaged capitalization-weighted index comprised of a
representative sampling of stocks in 21 countries, excluding the
United States. Since inception total returns are for the periods
from 10/31/94 to 5/31/99 and from 7/31/93 to 5/31/99, 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 Gold Mines 16,750 ++Anglo American PLC $ 554,329 $ 760,715 0.4%
Africa 22,500 AngloGold Limited (ADR)(a) 474,181 452,812 0.2
Total Investments in Africa 1,028,510 1,213,527 0.6
EUROPE
Austria Banking 8,000 Bank Austria AG 475,077 410,476 0.2
Building Materials 1,200 Wienerberger Baustoffindustrie AG 222,217 210,672 0.1
& Components
Total Investments in Austria 697,294 621,148 0.3
Belgium Equity Basket 26,200 MSCI Belgium OPALS 'B' (c) 2,108,576 2,052,508 1.0
Total Investments in Belgium 2,108,576 2,052,508 1.0
Denmark Equity Basket 5,900 MSCI Denmark OPALS 'B' (c)(d) 824,643 816,678 0.4
Total Investments in Denmark 824,643 816,678 0.4
Finland Equity Basket 6,000 MSCI Finland OPALS 'B' (c) 1,182,540 1,632,000 0.8
Total Investments in Finland 1,182,540 1,632,000 0.8
France Aerospace & Military 10,000 Thomson CSF 320,258 322,487 0.2
Technology
Automobiles 2,500 PSA Peugeot Citroen 471,467 370,975 0.2
Banking 7,000 Banque Nationale de Paris (BNP) 620,881 591,052 0.3
7,000 Compagnie Financiere de Paribas (CFP) 385,970 760,760 0.4
2,500 Societe Generale 'A' 473,888 455,097 0.2
------------ ------------ ------
1,480,739 1,806,909 0.9
Building Materials 4,900 Compagnie de Saint Gobain 798,256 770,635 0.4
& Components 5,600 Lafarge SA (Ordinary) 545,276 505,613 0.2
------------ ------------ ------
1,343,532 1,276,248 0.6
Business & Public 2,000 Cap Gemini SA 305,732 288,629 0.1
Services 6,900 Suez Lyonnaise des Eaux 1,294,400 1,145,748 0.6
17,100 Vivendi 1,285,332 1,268,735 0.6
17,100 Vivendi (Rights)(e) 0 17,691 0.0
------------ ------------ ------
2,885,464 2,720,803 1.3
Electrical & 8,800 Schneider SA 510,583 524,172 0.3
Electronics
Energy Equipment 6,000 Coflexip 468,504 490,314 0.2
& Services
Energy Sources 7,000 Elf Aquitaine SA 907,905 1,015,322 0.5
9,200 ++Total SA 'B' 1,018,195 1,120,031 0.5
------------ ------------ ------
1,926,100 2,135,353 1.0
Food & Household 3,100 Groupe Danone SA 775,231 855,228 0.4
Products
Health & Personal 800 L'Oreal 416,060 482,790 0.2
Care 7,500 Rhone-Poulenc SA 360,390 356,606 0.2
------------ ------------ ------
776,450 839,396 0.4
Industrial Components 6,500 Compagnie Generale des Etablissements
Michelin 'B' 303,446 287,187 0.1
Insurance 13,500 Axa 1,625,130 1,558,879 0.8
Manufacturing 31,600 ++Sanofi-Synthelabo SA 1,273,280 1,334,089 0.7
Merchandising 6,600 Carrefour SA 772,515 867,643 0.4
5,300 Pinault-Printemps-Redoute SA 839,432 904,437 0.4
850 Promodes 511,743 556,044 0.3
------------ ------------ ------
2,123,690 2,328,124 1.1
Metals--Steel 30,000 Usinor SA 375,250 409,431 0.2
Recreation/Other 1,500 LVMH (Louis Vuitton Moet Hennessy) 269,594 418,679 0.2
Consumer Goods
Telecommunications 18,282 France Telecom SA 1,222,342 1,404,195 0.7
Total Investments in France 18,151,060 19,082,469 9.3
Germany Automobiles 31,000 DaimlerChrysler AG 2,620,035 2,680,686 1.3
11,000 Volkswagen AG 853,181 682,803 0.3
------------ ------------ ------
3,473,216 3,363,489 1.6
Banking 25,461 Deutsche Bank AG 1,691,074 1,330,337 0.7
16,400 HypoVereinsbank AG 1,208,965 887,748 0.4
------------ ------------ ------
2,900,039 2,218,085 1.1
Chemicals 23,300 BASF AG 1,015,132 908,199 0.4
26,200 Bayer AG 1,063,036 1,021,237 0.5
9,000 Hoechst AG 401,392 401,593 0.2
------------ ------------ ------
2,479,560 2,331,029 1.1
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Value Percent of
(continued) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Germany Electrical & 23,500 Siemens AG $ 1,611,964 $ 1,583,959 0.8%
(concluded) Electronics
Equity Basket 12,000 MSCI European Auto Sector
Insurance OPALS 'B' (c) 1,086,120 990,000 0.5
6,650 Allianz AG (Registered Shares) 2,007,417 1,820,704 0.9
5,350 Axa Colonia Konzern AG 589,391 503,168 0.2
------------ ------------ ------
2,596,808 2,323,872 1.1
Merchandising 950 Karstadt AG 443,706 393,129 0.2
Metals--Steel 50,500 ++Thyssen Krupp AG 1,094,511 997,400 0.5
Telecommunications 44,400 Deutsche Telekom AG 1,447,242 1,774,724 0.9
12,750 Mannesmann AG 1,483,713 1,745,411 0.8
------------ ------------ ------
2,930,955 3,520,135 1.7
Transportation 25,000 Deutsche Lufthansa AG (Registered
--Airlines Shares) 594,697 538,175 0.3
Utilities-- 18,500 RWE AG 897,802 828,398 0.4
Electrical & Gas 10,400 RWE AG (Preferred) 312,319 305,391 0.1
17,500 Veba AG 1,116,987 1,000,326 0.5
------------ ------------ ------
2,327,108 2,134,115 1.0
Total Investments in Germany 21,538,684 20,393,388 9.9
Greece Telecommunications 10,500 Hellenic Telecommunication
Organization SA (OTE) 300,227 228,070 0.1
Total Investments in Greece 300,227 228,070 0.1
Hungary Banking 22,799 OTP Bank Rt. (GDR)(b) 1,090,598 986,057 0.5
Energy Sources 41,194 MOL Magyar Olaj-es Gazipari Rt.
(GDR)(b) 1,028,196 988,656 0.5
Health & Personal 3,500 EGIS Rt. 124,535 73,091 0.0
Care
Total Investments in Hungary 2,243,329 2,047,804 1.0
Ireland Banking 27,500 Bank of Ireland 599,634 517,427 0.2
Building Materials & 21,000 CRH PLC 229,577 362,732 0.2
Components
Total Investments in Ireland 829,211 880,159 0.4
Italy Banking 60,000 Istituto Bancario San Paolo di Torino 1,080,426 811,965 0.4
230,000 Unicredito Italiano SpA 1,283,688 1,083,978 0.5
------------ ------------ ------
2,364,114 1,895,943 0.9
Energy Sources 310,000 ENI SpA 2,109,005 1,940,461 0.9
Insurance 50,000 Assicurazioni Generali 2,155,175 1,781,725 0.9
Telecommunications 170,000 Telecom Italia SpA 1,808,038 1,755,182 0.9
272,230 Telecom Italia SpA--RNC 1,369,324 1,482,143 0.7
------------ ------------ ------
3,177,362 3,237,325 1.6
Total Investments in Italy 9,805,656 8,855,454 4.3
Netherlands Appliances & 20,300 ++Koninklijke (Royal) Philips
Household Electronics NV 1,321,586 1,744,810 0.8
Durables
Banking 64,000 ABN AMRO Holding NV 1,352,150 1,421,200 0.7
Business & 31,500 TNT Post Group NV 923,025 793,312 0.4
Public Services
Energy Sources 28,300 Royal Dutch Petroleum Company 1,267,201 1,579,225 0.8
Financial Services 38,000 ING Groep NV 1,906,054 2,035,138 1.0
Food & Household 9,821 Unilever NV 'A' 883,923 654,291 0.3
Products
Telecommunications 20,000 KPN NV 932,963 967,670 0.5
Total Investments in the Netherlands 8,586,902 9,195,646 4.5
Norway Equity Basket 10,500 MSCI Norway OPALS 'B' (c)(d) 907,305 926,730 0.4
Total Investments in Norway 907,305 926,730 0.4
Poland Banking 14,000 Bank Rozwoju Eksportu SA (BRE) 454,573 376,571 0.2
Multi-Industry 7,000 Elektrim Spolka Akcyjna SA 96,855 81,825 0.0
Total Investments in Poland 551,428 458,396 0.2
Portugal Equity Basket 23,200 MSCI Portugal OPALS 'B' (c)(d) 1,908,523 1,574,120 0.8
Total Investments in Portugal 1,908,523 1,574,120 0.8
Spain Banking 72,000 Banco Santander Central Hispano, SA 1,349,127 1,504,800 0.7
Construction & 8,400 ++Dragados & Construcciones, SA 273,191 290,991 0.2
Housing 4,650 Fomento de Construcciones y
Contratas, SA 285,018 267,745 0.1
------------ ------------ ------
558,209 558,736 0.3
Energy Sources 29,400 Repsol, SA 541,637 533,351 0.3
Equity Basket 8,800 MSCI Spain OPALS 'B' (c)(d) 1,035,760 1,033,736 0.5
Telecommunications 30,600 ++Telefonica, SA 1,372,142 1,470,302 0.7
612 ++Telefonica, SA (New Shares) 0 29,406 0.0
------------ ------------ ------
1,372,142 1,499,708 0.7
Utilities-- 64,000 Endesa, SA 1,534,158 1,365,021 0.7
Electrical & Gas
Total Investments in Spain 6,391,033 6,495,352 3.2
Sweden Appliances & 32,000 Electrolux AB 'B' 320,540 621,341 0.3
Household
Durables
Automobiles 13,000 Volvo AB 'B' 342,974 330,496 0.2
Banking 20,000 Skandinaviska Enskilda Banken (SEB) 'A' 256,142 242,566 0.1
19,000 Svenska Handelsbanken 'A' 799,284 687,988 0.4
------------ ------------ ------
1,055,426 930,554 0.5
Electrical & 63,000 Telefonaktiebolaget LM Ericsson 'B' 1,638,313 1,686,122 0.8
Electronics
Equity Basket 8,000 MSCI Sweden OPALS 'B' (c)(d) 1,620,141 1,722,000 0.8
Forest Products 10,000 Svenska Cellulosa AB (SCA) 'B' 260,930 233,236 0.1
& Paper
Merchandising 28,000 Hennes & Mauritz AB 'B' 621,203 630,204 0.3
Total Investments in Sweden 5,859,527 6,153,953 3.0
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<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>
Switzerland Banking 3,450 Credit Suisse Group (Registered
Shares) $ 391,197 $ 601,085 0.3%
3,000 UBS AG (Registered Shares) 679,122 871,795 0.4
------------ ------------ ------
1,070,319 1,472,880 0.7
Food & Household 550 Nestle SA (Registered Shares) 1,121,182 992,604 0.5
Products
Health & Personal 950 Novartis AG (Registered Shares) 1,819,986 1,384,089 0.7
Care 130 Roche Holding AG 1,531,761 1,381,197 0.6
------------ ------------ ------
3,351,747 2,765,286 1.3
Insurance 190 Schweizerische Rueckversicherungs-
Gesellschaft (SwissRe) (Registered
Shares) 475,839 361,887 0.2
600 Zurich Allied AG 388,861 354,241 0.2
------------ ------------ ------
864,700 716,128 0.4
Telecommunications 4,150 ++Swisscom AG (Registered Shares) 1,464,565 1,500,657 0.7
Total Investments in Switzerland 7,872,513 7,447,555 3.6
United Aerospace & 128,000 British Aerospace PLC 938,080 843,896 0.4
Kingdom Military
Technology
Banking 32,000 Abbey National PLC 727,686 660,975 0.3
40,000 Bank of Scotland 390,811 556,577 0.3
32,000 Barclays PLC 960,990 969,943 0.5
32,724 HSBC Holdings PLC 872,235 1,092,491 0.5
86,000 Lloyds TSB Group PLC 1,046,912 1,136,051 0.6
37,500 National Westminster Bank PLC 762,141 859,844 0.4
------------ ------------ ------
4,760,775 5,275,881 2.6
Beverages & 55,000 Cadbury Schwepps PLC 418,012 372,739 0.2
Tobacco 147,000 Diageo PLC 1,552,799 1,545,246 0.7
------------ ------------ ------
1,970,811 1,917,985 0.9
Broadcasting & 82,500 WPP Group PLC 691,724 665,779 0.3
Publishing
Building Materials 65,000 RMC Group PLC 650,705 866,970 0.4
& Components
Business & 80,000 Securicor PLC 731,416 717,338 0.3
Public Services 137,500 Shanks & McEwan Group PLC 439,604 512,984 0.3
------------ ------------ ------
1,171,020 1,230,322 0.6
Construction & 50,000 The Berkeley Group PLC 472,917 551,613 0.3
Housing
Data Processing & 82,500 Computacenter PLC 593,469 541,606 0.3
Reproduction
Energy 60,000 British Energy PLC 690,635 535,601 0.2
Energy Sources 227,500 BP Amoco PLC 3,442,237 4,068,929 2.0
Financial Services 52,000 ++Halifax 733,039 671,095 0.3
20,000 Schroders PLC 463,483 415,992 0.2
------------ ------------ ------
1,196,522 1,087,087 0.5
Food & Household 142,285 Unilever PLC 1,506,372 1,250,769 0.6
Products
Health & 35,000 AstraZeneca Group PLC 1,459,753 1,390,402 0.7
Personal Care 49,000 Glaxo Wellcome PLC 1,340,866 1,374,598 0.7
124,000 Nycomed Amersham PLC 847,113 882,549 0.4
101,100 SmithKline Beecham PLC 1,180,981 1,317,714 0.6
------------ ------------ ------
4,828,713 4,965,263 2.4
Industrial 110,000 BBA Group PLC 687,759 778,503 0.4
Components
Insurance 60,000 Prudential Corporation PLC 891,134 791,153 0.4
177,273 Royal & Sun Alliance Insurance
Group PLC 1,687,434 1,449,050 0.7
25,515 Sun Life and Provincial Holdings PLC 130,968 192,732 0.1
------------ ------------ ------
2,709,536 2,432,935 1.2
Leisure & Tourism 30,000 Bass PLC 430,432 442,412 0.2
90,000 Carlton Communications PLC 914,642 716,937 0.4
------------ ------------ ------
1,345,074 1,159,349 0.6
Machinery & 30,000 GKN PLC 451,084 500,775 0.2
Engineering
Merchandising 220,000 ASDA Group PLC 516,140 623,507 0.3
14,000 Dixons Group PLC 287,876 251,292 0.1
130,000 The Great University Stores PLC 1,443,447 1,386,319 0.7
75,000 J Sainsbury PLC 473,055 455,742 0.2
625,000 Tesco PLC 1,834,371 1,818,863 0.9
------------ ------------ ------
4,554,889 4,535,723 2.2
Metals-- 24,000 Rio Tinto PLC (Registered Shares) 292,913 351,624 0.2
Nonferrous
Miscellaneous 137,500 Rexam PLC 454,432 543,808 0.3
Materials
& Commodities
Multi-Industry 126,321 BTR Siebe PLC 891,688 575,444 0.3
Telecommunications 165,000 British Telecommunications PLC 2,697,243 2,750,301 1.3
50,000 Cable & Wireless PLC 587,713 616,462 0.3
130,000 Vodafone Group PLC 2,297,366 2,474,975 1.2
------------ ------------ ------
5,582,322 5,841,738 2.8
Transportation 47,000 British Airways PLC 293,807 337,149 0.2
--Airlines
Utilities-- 130,000 BG PLC 748,224 714,495 0.3
Electrical & Gas 50,000 National Power PLC 402,782 389,292 0.2
50,000 Scottish Power PLC 490,957 430,723 0.2
------------ ------------ ------
1,641,963 1,534,510 0.7
Total Investments in the
United Kingdom 41,819,447 42,393,259 20.6
Total Investments in Europe 131,577,898 131,254,689 63.8
LATIN
AMERICA
Brazil Equity Basket 55,000 MSCI Brazil OPALS (c) 2,325,000 2,072,950 1.0
Total Investments in Brazil 2,325,000 2,072,950 1.0
Chile Financial Services 24,750 ++Genesis Chile Fund 657,113 730,125 0.4
Total Investments in Chile 657,113 730,125 0.4
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN
AMERICA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Mexico Foreign 1,923,000 Mexican Par Bond (Rights)(h) $ 0 $ 0 0.0%
Government US$ 1,250,000 United Mexican States, 'C', 5.87438%
Bonds due 12/31/2019 (i) 1,028,957 1,037,519 0.5
Total Investments in Mexico 1,028,957 1,037,519 0.5
Total Investments in Latin America 4,011,070 3,840,594 1.9
MIDDLE
EAST
Israel Multi-Industry 8,109 Koor Industries Limited (ADR)(a) 189,021 174,850 0.1
Total Investments in the Middle East 189,021 174,850 0.1
NORTH
AMERICA
Canada Aerospace & 27,760 Bombardier Inc. 'B' 414,903 432,305 0.2
Military
Technology
Banking 3,360 Bank of Montreal 152,087 128,985 0.1
7,210 Royal Bank of Canada 373,444 330,959 0.2
5,140 The Toronto-Dominion Bank 251,695 271,943 0.1
------------ ------------ ------
777,226 731,887 0.4
Beverages & 12,090 Seagram Company 546,887 633,070 0.3
Tobacco
Broadcasting & 17,980 ++Rogers Communications, Inc. 'B' 303,365 371,705 0.2
Publishing
Business & Public 34,890 Laidlaw Inc. 266,696 246,757 0.1
Services
Electrical & 6,470 ++Newbridge Networks Corporation 231,614 178,854 0.1
Electronics
Energy Sources 8,590 Alberta Energy Company Ltd. 250,523 248,266 0.1
22,520 ++Renaissance Energy Ltd. 249,931 286,382 0.1
9,120 Suncor Energy, Inc. 317,446 344,520 0.2
------------ ------------ ------
817,900 879,168 0.4
Forest Products 21,410 Abitibi-Consolidated Inc. 211,012 219,851 0.1
& Paper
Gold Mines 18,210 Placer Dome Inc. 232,730 203,090 0.1
Merchandising 6,510 Canadian Tire Corp. 'A' 182,127 194,348 0.1
Metals--Nonferrous 14,730 Inco Limited 192,638 210,357 0.1
Telecommunications 8,160 BCE Inc. 347,449 376,509 0.2
15,450 Nortel Networks Corporation 895,401 1,161,508 0.5
7,190 Teleglobe Inc. 225,453 218,071 0.1
------------ ------------ ------
1,468,303 1,756,088 0.8
Total Investments in North America 5,645,401 6,057,480 2.9
PACIFIC
BASIN/ASIA
Australia Banking 41,200 National Australia Bank Limited 636,110 668,759 0.3
45,000 Westpac Banking Corporation Limited 263,144 308,815 0.2
------------ ------------ ------
899,254 977,574 0.5
Beverages & Tobacco 44,000 Foster's Brewing Group Limited 128,992 124,926 0.1
Broadcasting & 93,800 The News Corporation Limited 622,921 776,868 0.4
Publishing 31,500 The News Corporation Limited
(Preferred) 176,160 240,941 0.1
19,500 Publishing & Broadcasting Limited 131,298 122,836 0.0
------------ ------------ ------
930,379 1,140,645 0.5
Building Materials 81,000 Pioneer International Limited 186,121 188,645 0.1
& Components
Business & Public 6,000 Brambles Industries Limited 126,371 160,423 0.1
Services
Chemicals 31,500 Orica Limited 172,256 174,544 0.1
Energy Sources 51,000 Broken Hill Proprietary Company
Limited 405,710 524,752 0.2
23,600 Woodside Petroleum Limited 132,030 147,444 0.1
------------ ------------ ------
537,740 672,196 0.3
Gold Mines 80,000 ++Newcrest Mining 128,357 149,158 0.1
93,000 Normandy Mining Limited 87,548 67,533 0.0
------------ ------------ ------
215,905 216,691 0.1
Insurance 23,500 ++AMP Limited 292,275 256,433 0.1
42,800 National Mutual Holdings Limited 77,827 70,839 0.0
33,800 QBE Insurance Group Limited 124,451 132,672 0.1
------------ ------------ ------
494,553 459,944 0.2
Merchandising 18,800 Coles Myer Limited 88,247 98,552 0.0
35,000 Woolworths Limited 121,337 117,004 0.1
------------ ------------ ------
209,584 215,556 0.1
Metals--Nonferrous 200,000 M.I.M. Holdings Limited 95,962 108,597 0.1
67,500 WMC Limited 258,654 250,820 0.1
------------ ------------ ------
354,616 359,417 0.2
Real Estate 24,700 Lend Lease Corporation Limited 310,759 313,609 0.1
18,700 Westfield Holdings Limited 88,767 110,714 0.1
------------ ------------ ------
399,526 424,323 0.2
Telecommunications 33,000 ++AAPT Limited 115,947 119,601 0.0
115,600 ++Telstra Corporation Limited 494,695 573,241 0.3
------------ ------------ ------
610,642 692,842 0.3
Total Investments in Australia 5,265,939 5,807,726 2.8
Japan Appliances & 10,100 Sony Corporation 905,955 950,588 0.5
Household
Durables
Automobiles 115,000 Fuji Heavy Industries, Ltd. 586,805 752,693 0.4
39,000 Toyota Motor Corporation 1,059,274 1,066,280 0.5
------------ ------------ ------
1,646,079 1,818,973 0.9
Banking 144,000 The Asahi Bank, Ltd. 656,226 685,998 0.3
Beverages & Tobacco 74 Japan Tobacco, Inc. 480,177 741,839 0.4
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Broadcasting & 16,000 Nippon Broadcasting System,
(concluded) Publishing Incorporated $ 780,977 $ 689,312 0.4%
1,350 Nippon Television Network Corp. 406,228 469,760 0.2
------------ ------------ ------
1,187,205 1,159,072 0.6
Building Materials 116,000 Sekisui Chemical Co., Ltd. 610,575 718,873 0.4
& Components
Business & 39,000 Ricoh Co., Ltd. 429,053 432,974 0.2
Public Services
Chemicals 94,000 Kaneka Corporation 484,904 822,403 0.4
24,000 Shin-Etsu Chemical Co., Ltd. 445,484 745,650 0.4
144,000 Toray Industries, Inc. 774,583 700,315 0.3
------------ ------------ ------
1,704,971 2,268,368 1.1
Construction & 161,000 Nishimatsu Construction Co., Ltd. 785,715 888,368 0.4
Housing
Convertible US$ 1,070,000 MBL International Finance (Bermuda),
Bonds 3% due 11/30/2002 1,305,400 1,182,350 0.6
Data Processing & 79,000 Fujitsu Limited 1,067,091 1,322,121 0.6
Reproduction
Electrical & 118,000 Hitachi Ltd. 1,097,970 869,113 0.4
Electronics 29,000 Square Co., Ltd. 1,056,789 915,410 0.5
------------ ------------ ------
2,154,759 1,784,523 0.9
Electronic 5,000 Keyence Corporation 558,407 724,938 0.4
Components & 15,000 Murata Manufacturing Co., Ltd. 503,007 828,915 0.4
Instrumentation 38 ++NTT Mobile Communication Network,
Inc. (d) 1,416,297 2,081,027 1.0
7,000 Rohm Company Ltd. 391,282 918,061 0.4
------------ ------------ ------
2,868,993 4,552,941 2.2
Financial 13,000 Jafco Co., Ltd. 730,187 523,447 0.3
Investment
Company
Financial 123,000 Daiwa Securities Group Inc. 564,717 650,157 0.3
Services 120,000,000 ++Sanwa International Finance Ltd.
(Convertible Preferred) 1,054,922 1,028,998 0.6
130 Shohkoh Fund & Co., Ltd. 77,649 72,809 0.0
12,700 Takefuji Corporation 935,797 1,120,588 0.5
------------ ------------ ------
2,633,085 2,872,552 1.4
Health & 48,000 Fujisawa Pharmacturical Co., Ltd. 433,172 755,195 0.4
Personal Care 29,000 Sankyo Company, Ltd. 674,883 683,554 0.3
9,000 Taisho Pharmaceutical Company, Ltd. 175,974 288,567 0.1
19,000 Takeda Chemical Industries 642,885 845,319 0.4
------------ ------------ ------
1,926,914 2,572,635 1.2
Industrial 28,000 Bridgestone Corp. 506,856 735,377 0.4
Components 131,000 NSK Limited 775,673 628,409 0.3
------------ ------------ ------
1,282,529 1,363,786 0.7
Insurance 136,000 Mitsui Marine and Fire Insurance
Company, Ltd. 728,750 685,070 0.3
Machinery & 118,000 Komatsu Ltd. 677,422 701,939 0.4
Engineering 4,400 THK Co., Ltd. 75,388 81,657 0.0
------------ ------------ ------
752,810 783,596 0.4
Merchandising 2,000 Art Vivant Co., Ltd. 51,315 51,367 0.0
12,000 Ito-Yokado Co., Ltd. 704,348 716,819 0.4
46,000 Uny Co., Ltd. 772,655 691,715 0.3
------------ ------------ ------
1,528,318 1,459,901 0.7
Metals--Steel 324,000 Nippon Steel Corporation 891,751 681,823 0.3
Multi-Industry 54,000 Ibiden Co., Ltd. 750,040 876,885 0.4
Non Index 660,099 Nikkei (Warrants)(g) 521,969 280,009 0.1
Real Estate 85,000 Mitsui Fudosan Co., Ltd. 899,272 710,563 0.3
Telecommunications 85 Nippon Telegraph & Telephone
Corporation (NTT) 699,606 830,986 0.4
Transportation-- 134 East Japan Railway Company 627,606 777,133 0.4
Road & Rail 116,000 Nippon Express Co., Ltd. 684,211 663,132 0.3
------------ ------------ ------
1,311,817 1,440,265 0.7
Wholesale & 81,000 Mitsui & Co., Ltd. 594,130 518,749 0.2
International Trade 6,400 Softbank Corporation 863,586 737,034 0.4
------------ ------------ ------
1,457,716 1,255,783 0.6
Total Investments in Japan 31,916,963 34,844,289 16.9
New Broadcasting 127,270 ++Sky Network Television Limited 242,815 200,220 0.1
Zealand & Publishing
Energy Sources 90,270 Fletcher Challenge Energy 216,512 216,883 0.1
Forest Products 321,410 Fletcher Challenge Paper 307,541 273,459 0.1
& Paper
Telecommunications 81,970 Telecom Corporation of New Zealand
Limited 418,870 353,529 0.2
Total Investments in New Zealand 1,185,738 1,044,091 0.5
Philippines Equity Basket 15,000 MSCI Philippines OPALS 'B' (c)(d) 679,350 716,400 0.4
Total Investments in the
Philippines 679,350 716,400 0.4
Singapore Equity Basket 64,000 MSCI Singapore OPALS 'B' (c) 2,566,120 2,956,160 1.5
Telecommunications 151,000 Singapore Telecommunications, Ltd. 220,962 254,804 0.1
Total Investments in Singapore 2,787,082 3,210,964 1.6
South Appliances & 568 ++Samsung Electronics (GDR)(b)(d) 12,680 20,959 0.0
Korea Household Durables
Telecommunications 946 SK Telecom Co. Ltd. (ADR)(a)(d) 14,546 13,474 0.0
Total Investments in South Korea 27,226 34,433 0.0
Thailand Equity Basket 11,000 MSCI Thailand OPALS (c) 1,182,775 1,084,820 0.5
Total Investments in Thailand 1,182,775 1,084,820 0.5
Total Investments in the Pacific
Basin/Asia 43,045,073 46,742,723 22.7
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SOUTHEAST Shares Value Percent of
ASIA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
India Beverages & Tobacco 200 ITC Ltd. $ 2,905 $ 4,735 0.0%
Chemicals 308 Reliance Industries Ltd. 1,595 1,114 0.0
Health & Personal Care 200 ++Reckitt & Coleman of India Ltd. 1,712 2,132 0.0
Total Investments in Southeast Asia 6,212 7,981 0.0
<CAPTION>
SHORT-TERM Face
SECURITIES Amount Issue
<S> <C> <S> <C> <C> <C>
US Government US$ 10,150,000 Federal Home Loan Banks, 4.68%
& Agency due 6/01/1999 10,146,042 10,146,042 5.0
Obligations* 1,500,000 US Treasury Bills, 4.22% due
7/22/1999 (f) 1,490,505 1,490,625 0.7
Total Investments in Short-Term
Securities 11,636,547 11,636,667 5.7
OPTIONS Nominal Value Covered Premiums
PURCHASED by Options Purchased Paid
<S> <C> <S> <C> <C> <C>
Call Options 47,000 OCBC, expiring March 2000 at USD 0.01 222,280 298,779 0.1
Purchased 40,000 DBS, expiring March 2000 at USD 0.01 221,090 321,280 0.2
50,000 UOB, expiring March 2000 at USD 0.01 219,443 286,050 0.1
50,000 SIA, expiring March 2000 at USD 0.01 221,375 355,400 0.2
Currency Put 12,000,000 Japanese Yen, expiring October 1999
Options at YEN 150 107,400 1,200 0.0
Purchased
Put Options 1,935 CAC 40, expiring June 1999 at USD
Purchased 37.73 73,633 50,552 0.0
Total Options Purchased 1,065,221 1,313,261 0.6
Total Investments 198,204,953 202,241,772 98.3
OPTIONS Nominal Value Covered Premiums
WRITTEN by Options Written Received
Currency Call 12,000,000 Japanese Yen, expiring October
Options 1999 at YEN 96.45 (107,400) (21,600) (0.0)
Written
Total Options Written (107,400) (21,600) (0.0)
Total Investments, Net of Options Written $198,097,553 202,220,172 98.3
============
Interest Rate Swaps (138,566) (0.1)
Variation Margin on Financial Futures Contracts** (81,578) 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 27,246 0.0
Other Assets Less Liabilities 3,731,266 1.8
------------ ------
Net Assets $205,758,540 100.0%
============ ======
<FN>
*US Government & Agency Obligations are traded on a discount basis;
the interest rates shown reflect the discount rate paid at the time
of purchase by the Fund.
**Financial futures contracts sold as of May 31, 1999 were as
follows:
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
37 FT-SE 100 LIFFE June 1999 $ 3,698,628
11 All Ordinaries Index Sydney FE June 1999 515,968
4 TSE--35 Index Toronto SE June 1999 526,352
-----------
Total Financial Futures Contracts Sold
(Total Contract Price--$4,784,944) $ 4,740,948
===========
Financial futures contracts purchased as of May 31, 1999 were as
follows:
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
20 Taiwan MSCI Index SIMEX June 1999 $ 630,600
68 Nikkei 225 Index SIMEX June 1999 4,491,549
57 OMX Index OML June 1999 513,000
24 CAC 40 MATIF June 1999 1,075,180
-----------
Total Financial Futures Contracts Purchased
(Total Contract Price--$6,997,339) $ 6,710,329
===========
***Forward foreign exchange contracts as of May 31, 1999 were as
follows:
Foreign Unrealized
Currency Expiration Appreciation
Sold Date (Note 1c)
PHP 24,610,000 June 1999 $ 649
SG$ 1,400,000 June 1999 3,933
YEN 738,664,000 July 1999 22,664
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$7,642,931) $ 27,246
==========
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)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/sector index.
(d)The security may be offered and sold to 'qualified institutional
buyers' under Rule 144A of the Securities Act of 1933.
(e)The rights may be exercised until 6/25/1999.
(f)Security held as collateral in connection with open financial
futures contracts.
(g)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(h)The rights may be exercised until 6/30/2003.
(i)Brady Bonds are securities that have been issued to refinance
commercial bank loans and other debt. The risk associated with these
instruments is the amount of any uncollateralized principal or
interest payments since there is a high default rate of commercial
bank loans by countries issuing these securities.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$197,139,732) (Note 1a) $ 200,928,511
Options purchased, at value (cost--$1,065,221) (Notes 1a & 1c) 1,313,261
Unrealized appreciation on forward foreign exchange contracts
(Note 1c) 27,246
Foreign cash (Note 1b) 416,308
Cash 1,084,017
Receivables:
Securities sold $ 6,158,342
Dividends 1,527,061
Beneficial interest sold 94,140
Forward foreign exchange contracts (Note 1c) 54,745
Interest 18,890 7,853,178
--------------
Prepaid registration fees and other assets (Note 1f) 584,106
--------------
Total assets 212,206,627
--------------
Liabilities: Options written, at value (premiums received--$107,400)
(Notes 1a & 1c) 21,600
Interest rate swaps, at value (Notes 1c & 3) 138,566
Payables:
Securities purchased 4,642,154
Beneficial interest redeemed 832,537
Distributor (Note 2) 129,562
Investment adviser (Note 2) 124,698
Forward foreign exchange contracts (Note 1c) 102,773
Variation margin (Note 1c) 81,578
Interest rate swap contracts (Notes 1c & 3) 5,929 5,919,231
--------------
Accrued expenses and other liabilities 368,690
--------------
Total liabilities 6,448,087
--------------
Net Assets: Net assets $ 205,758,540
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 213,300
Class B Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 1,578,379
Class C Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 70,049
Class D Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 382,734
Paid-in capital in excess of par 259,340,650
Accumulated realized capital losses on investments and foreign
currency transactions--net (3,000,383)
Accumulated distributions in excess of realized capital gains
on investments and foreign currency transactions--net (Note 1g) (56,646,573)
Unrealized appreciation on investments and foreign currency
transactions--net 3,820,384
--------------
Net assets $ 205,758,540
==============
Net Asset Class A--Based on net assets of $19,539,653 and 2,133,003
Value: shares of beneficial interest outstanding $ 9.16
==============
Class B--Based on net assets of $144,680,835 and 15,783,791
shares of beneficial interest outstanding $ 9.17
==============
Class C--Based on net assets of $6,327,941 and 700,487 shares
of beneficial interest outstanding $ 9.03
==============
Class D--Based on net assets of $35,210,111 and 3,827,337
shares of beneficial interest outstanding $ 9.20
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 1999
<S> <S> <C> <C>
Investment Income Dividends (net of $558,607 foreign withholding tax) $ 5,963,622
(Notes 1d & 1e): Interest and discount earned 1,934,055
--------------
Total income 7,897,677
--------------
Expenses: Investment advisory fees (Note 2) $ 2,109,287
Account maintenance and distribution fees--Class B (Note 2) 2,041,156
Transfer agent fees--Class B (Note 2) 683,550
Custodian fees 292,910
Accounting services (Note 2) 192,999
Transfer agent fees--Class D (Note 2) 134,308
Printing and shareholder reports 131,445
Account maintenance fees--Class D (Note 2) 114,287
Professional fees 104,485
Account maintenance and distribution fees--Class C (Note 2) 94,029
Transfer agent fees--Class A (Note 2) 63,169
Trustees' fees and expenses 40,336
Registration fees (Note 1f) 35,419
Transfer agent fees--Class C (Note 2) 32,995
Pricing fees 26,785
Organization expenses (Note 1f) 4,110
Other 14,159
--------------
Total expenses 6,115,429
--------------
Investment income--net 1,782,248
--------------
Realized & Realized loss from:
Unrealized Loss on Investments--net (5,085,323)
Investments & Foreign currency transactions--net (820,717) (5,906,040)
Foreign Currency --------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments--net (12,338,951)
1e & 3): Foreign currency transactions--net (2,052,133) (14,391,084)
-------------- --------------
Net realized and unrealized loss on investments and foreign
currency transactions (20,297,124)
--------------
Net Decrease in Net Assets Resulting from Operations $ (18,514,876)
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 1,782,248 $ 1,123,347
Realized gain (loss) on investments and foreign currency
transactions--net (5,906,040) 19,117,687
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (14,391,084) (74,763,524)
-------------- --------------
Net decrease in net assets resulting from operations (18,514,876) (54,522,490)
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders Class A -- (3,212,433)
(Note 1g): Class B -- (35,928,520)
Class C -- (1,650,362)
Class D -- (8,612,883)
In excess of realized gain on investments--net:
Class A (938,942) (2,887,423)
Class B (8,734,187) (32,293,544)
Class C (406,931) (1,483,391)
Class D (2,160,659) (7,741,497)
-------------- --------------
Net decrease in net assets resulting from distributions
to shareholders (12,240,719) (93,810,053)
-------------- --------------
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions (191,371,781) (195,416,794)
Transactions -------------- --------------
(Note 4):
Net Assets: Total decrease in net assets (222,127,376) (343,749,337)
Beginning of year 427,885,916 771,635,253
-------------- --------------
End of year* $ 205,758,540 $ 427,885,916
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ -- $ 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 Oct. 21,
the financial statements. 1994++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1999++++ 1998++++ 1997++++ 1996++++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.57 $ 12.58 $ 11.94 $ 10.25 $ 11.73
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .13 .12 .12 .16 .26
Realized and unrealized gain (loss) on
investments and foreign
currency transactions--net (.18) (1.08) 1.09 1.53 (1.05)
-------- -------- -------- -------- --------
Total from investment operations (.05) (.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 (.36) (.97) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.36) (2.05) (.57) -- (.69)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.16 $ 9.57 $ 12.58 $ 11.94 $ 10.25
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.35%) (6.02%) 10.76% 16.49% (6.78%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.33% 1.16% 1.11% 1.06% 1.23%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.54% 1.08% 1.04% 1.47% 4.64%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 19,540 $ 33,960 $ 44,624 $116,628 $ 74,478
Data: ======== ======== ======== ======== ========
Portfolio turnover 132.43% 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. Class B
For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.62 $ 12.42 $ 11.76 $ 10.19 $ 11.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .04 --+++ .01 .04 .02
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.19) (1.04) 1.08 1.53 (.69)
-------- -------- -------- -------- --------
Total from investment operations (.15) (1.04) 1.09 1.57 (.67)
-------- -------- -------- -------- --------
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 (.30) (.83) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.30) (1.76) (.43) -- (.58)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.17 $ 9.62 $ 12.42 $ 11.76 $ 10.19
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.36%) (7.01%) 9.70% 15.41% (5.91%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.39% 2.20% 2.14% 2.09% 2.13%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .41% (.01%) .08% .37% .23%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $144,681 $311,520 $583,213 $945,368 $961,941
Data: ======== ======== ======== ======== ========
Portfolio turnover 132.43% 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ======== ========
<CAPTION>
Class C
For the
The following per share data and ratios have Period
been derived from information provided in Oct. 21,
the financial statements. 1994++++ to
For the Year Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.49 $ 12.26 $ 11.65 $ 10.10 $ 11.62
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .03 --+++ --+++ .05 .24
Realized and unrealized gain (loss) on
investments and foreign currency transactions
--net (.19) (1.02) 1.08 1.50 (1.09)
-------- -------- -------- -------- --------
Total from investment operations (.16) (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 (.30) (.83) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.30) (1.75) (.47) -- (.67)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.03 $ 9.49 $ 12.26 $ 11.65 $ 10.10
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.50%) (6.96%) 9.71% 15.35% (7.36%)+++++
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.40% 2.21% 2.15% 2.09% 2.30%**
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .40% (.01%) .04% .45% 4.26%**
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 6,328 $ 14,717 $ 24,774 $ 46,985 $ 25,822
Data: ======== ======== ======== ======== ========
Portfolio turnover 132.43% 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have
been derived from information provided in
the financial statements. Class D
For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.63 $ 12.59 $ 11.94 $ 10.27 $ 11.51
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .11 .09 .10 .13 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.20) (1.07) 1.09 1.54 (.68)
-------- -------- -------- -------- --------
Total from investment operations (.09) (.98) 1.19 1.67 (.58)
-------- -------- -------- -------- --------
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 invest-
ments--net (.34) (.94) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.34) (1.98) (.54) -- (.66)
-------- -------- -------- -------- --------
Net asset value, end of year $ 9.20 $ 9.63 $ 12.59 $ 11.94 $ 10.27
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.70%) (6.18%) 10.50% 16.26% (5.11%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.59% 1.42% 1.36% 1.31% 1.34%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.23% .77% .86% 1.13% .85%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 35,210 $ 67,689 $119,024 $175,151 $188,583
Data: ======== ======== ======== ======== ========
Portfolio turnover 132.43% 107.50% 60.56% 71.86% 63.95%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
**Annualized.
++Based on average shares outstanding.
++++Commencement of operations.
+++Amount is less than $.01 per share.
+++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 1999
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's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates. 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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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 contacts 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.
* Interest rate swaps--The Fund is authorized to enter into equity
swap agreements, which are over-the-counter contracts in which one
party agrees to make periodic payments based on the change in market
value of a specified equity security, basket of equity securities or
equity index in return for periodic payments based on a fixed or
variable interest rate of the change in market value of a different
equity security, basket of equity securities or equity index. Swap
agreements may be used to obtain exposure to an equity or market
without owning or taking physical custody of securities in
circumstances in which direct investment is restricted by local law
or is otherwise impractical.
* 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 realized capital gains are due primarily to differing tax
treatments for post-October losses.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$2,905,595 have been reclassified between accumulated net realized
capital losses and undistributed net investment income and $62 has
been reclassified between paid-in capital in excess of par and
undistributed net investment income. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is 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,
1999, MLAM paid MLAM U.K. a fee of $97,386 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% --
Merrill Lynch International Equity Fund, May 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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, 1999, 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 $ 67 $1,234
Class D $635 $8,967
For the year ended May 31, 1999, MLPF&S received contingent deferred
sales charges of $11,000 and $2,037 relating to transactions in
Class B and Class C Shares, respectively.
In addition, MLPF&S received $30,307 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
May 31, 1999.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
the year ended May 31, 1999 were $359,205,813 and $541,857,262,
respectively.
Net realized gains (losses) the year ended May 31, 1999 and
unrealized gains (losses) as of May 31, 1999 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 4,403,791 $ 3,788,659
Short-term 8,623 120
Financial futures contracts (9,064,247) (243,014)
Interest rate swaps -- (138,566)
Options written 117,532 --
Options purchased (551,022) 354,240
------------ -------------
Total investments (5,085,323) 3,761,439
------------ -------------
Currency transactions:
Options purchased 755,300 (106,200)
Options written -- 85,800
Forward foreign exchange contracts (1,714,900) 27,246
Foreign currency transactions 138,883 52,099
------------ -------------
Total currency transactions (820,717) 58,945
------------ -------------
Total $ (5,906,040) $ 3,820,384
============ =============
The Fund has entered into the following equity swaps as of May 31,
1999:
Interest Paid
Notional Current Expiration
Amount Return Received Rate Type Date
$ 600,000 Price return++ 6.495% Variable* 10/28/1999
E 3,748,384 Price return plus
net dividends++++ 3.081% Variable** 11/22/1999
[FN]
++The Fund receives the price return of the Hang Seng China
Affiliated Corporations Index.
++++The Fund receives the price return plus net dividends of the
European ex UK Small--Cap Basket.
*3-month US$ LIBOR plus 1.50% at reset date.
**3-month 1 Euribor plus 0.50% at reset date.
Transactions in call options written for the year ended May 31, 1999
were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options written at
beginning of year $ 862,711 $ 55,794
Options written 12,027,675 169,138
Options expired (890,386) (117,532)
----------- -------------
Outstanding call options
written at end of year $12,000,000 $ 107,400
=========== =============
As of May 31, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $2,868,209, of which $14,327,007 related to
appreciated securities and $11,458,798 related to depreciated
securities. At May 31, 1999, the aggregate cost of investments, net
of written options, for Federal income tax purposes was
$199,372,362.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $191,371,781 and $195,416,794 for the years ended
May 31, 1999 and May 31, 1998, respectively.
Transactions in shares of beneficial interest for each class were
as follows:
Class A Shares for the Year Dollar
Ended May 31, 1999 Shares Amount
Shares sold 2,821,668 $ 24,743,753
Shares issued to shareholders in
reinvestment of distributions 89,014 770,857
------------ --------------
Total issued 2,910,682 25,514,610
Shares redeemed (4,324,572) (38,209,253)
------------ --------------
Net decrease (1,413,890) $ (12,694,643)
============ ==============
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)
============ ==============
Class B Shares for the Year Dollar
Ended May 31, 1999 Shares Amount
Shares sold 1,609,034 $ 14,026,196
Shares issued to shareholders in
reinvestment of distributions 865,770 7,566,829
------------ --------------
Total issued 2,474,804 21,593,025
Shares redeemed (18,505,828) (160,465,559)
Automatic conversion of shares (557,225) (4,801,584)
------------ --------------
Net decrease (16,588,249) $ (143,674,118)
============ ==============
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 C Shares for the Year Dollar
Ended May 31, 1999 Shares Amount
Shares sold 1,353,123 $ 11,684,660
Shares issued to shareholders in
reinvestment of distributions 42,444 365,869
------------ --------------
Total issued 1,395,567 12,050,529
Shares redeemed (2,246,127) (19,457,861)
------------ --------------
Net decrease (850,560) $ (7,407,332)
============ ==============
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 D Shares for the Year Dollar
Ended May 31, 1999 Shares Amount
Shares sold 519,404 $ 4,483,336
Automatic conversion of shares 557,482 4,801,584
Shares issued to shareholders in
reinvestment of distributions 217,407 1,895,784
------------ --------------
Total issued 1,294,293 11,180,704
Shares redeemed (4,499,271) (38,776,392)
------------ --------------
Net decrease (3,204,978) $ (27,595,688)
============ ==============
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)
============ ==============
5. Commitments:
At May 31, 1999, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to sell foreign currency with
an approximate value of $4,775,000.
6. Capital Loss Carryforward:
At May 31, 1999, the Fund had a net capital loss carryforward of
approximately $54,741,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
Merrill Lynch International Equity Fund, May 31, 1999
<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, 1999, 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 five-year period
then ended. 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,
1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch International Equity Fund as of May 31, 1999, 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, 1999
</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, 1999:
<TABLE>
<CAPTION>
Non-Qualifying Total Foreign Taxes
Record Payable Ordinary Foreign Ordinary Paid or Long-Term
Date Date Income Source Income Income Withheld Capital Gains*
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
8/05/98 8/13/98 $.246136 $.109231 $.355367 $.011337 $.000726
Class B Shares
8/05/98 8/13/98 $.209948 $.093172 $.303120 $.011337 $.000726
Class C Shares
8/05/98 8/13/98 $.209362 $.092911 $.302273 $.011337 $.000726
Class D Shares
8/05/98 8/13/98 $.237544 $.105418 $.342962 $.011337 $.000726
</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.
Please retain this information for your records.
[FN]
*All of the long-term capital gains distributions are subject to the
20% tax rate.
Merrill Lynch International Equity Fund, May 31, 1999
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended May 31, 1999
Additions
AAPT Limited
*ABB AG (Bearer) (New)
ASDA Group PLC
Abbey National PLC
Alberta Energy Company Ltd.
Anglo American PLC
Art Vivant Co., Ltd.
BG PLC
Bank Austria AG
*The Bank of Tokyo-Mitsubishi, Ltd.
Barclays PLC
Bass PLC
The Berkeley Group PLC
Cap Gemini SA
Compagnie Generale des Etablissements
Michelin 'B'
Computacenter PLC
*Contact Energy Ltd.
*FirstRand Limited
Fletcher Challenge Energy
Fletcher Challenge Paper
GKN PLC
Genesis Chile Fund
Halifax
Hoechst AG
*Imperial Oil
KPN NV
Komatsu Ltd.
*Korea Electric Power Corporation (ADR)
Laidlaw Inc.
MSCI Belgium OPALS 'B'
MSCI Brazil OPALS
MSCI Denmark OPALS 'B'
MSCI European OPALS 'B'
*MSCI German OPALS 'B'
MSCI Norway OPALS 'B'
MSCI Philippines OPALS 'B'
*MSCI South Korea OPALS 'B'
MSCI Thailand OPALS
Mitsui Marine and Fire Insurance
Company, Ltd.
National Power PLC
*Nedcor Limited
Nortel Networks Corporation
Pioneer International Limited
Publishing & Broadcasting Limited
*Railtrack Group PLC
Renaissance Energy Ltd.
Rexam PLC
Sankyo Company, Ltd.
Sanofi-Synthelabo SA
Schroders PLC
Shohkoh Fund & Co., Ltd.
*Siam Commercial Bank Public Company
Limited 'Foreign'
Singapore Telecommunications, Ltd.
Skandinaviska Enskilda Banken (SEB) 'A'
Societe Generale 'A'
Softbank Corporation
Square Co., Ltd.
Sun Life and Provincial Holdings PLC
Svenska Cellulosa AB (SCA) 'B'
THK Co., Ltd.
TNT Post Group NV
Telefonica, SA (New Shares)
*Thomson Travel Group PLC
Toray Industries, Inc.
The Toronto-Dominion Bank
Usinor SA
Volvo AB 'B'
WPP Group PLC
Wienerberger Baustoffindustrie AG
Woolworths Limited
Deletions
*ABB AG (Bearer) (New)
Adidas-Salomon AG
Alcatel
Alpha Credit Bank
Anritsu Corp.
Australia and New Zealand Banking
Group Ltd.
BIG Bank Gdanski SA (GDR)
Banco Central Hispanoamericano (BCH)
*The Bank of Tokyo-Mitsubishi, Ltd.
Banyu Pharmaceutical Co., Ltd.
British American Tobacco PLC
The British Land Company PLC
Cable & Wireless Optus Limited
Canal Plus
Carter Holt Harvey Limited
Cominco Ltd.
*Contact Energy Ltd.
Enbridge Inc.
Enterprise Oil PLC
*FirstRand Limited
Fleming Japanese Investment Trust PLC
Fujikura Ltd.
Guardian Royal Exchange PLC
Heineken NV
Hellenic Bottling Co.
Hindustan Petroleum Corporation Ltd.
Hong Kong and China Gas Company Ltd.
Hutchison Whampoa Limited
*Imperial Oil
Imasco Limited
Imperial Tobacco Group PLC
Indian Petrochemicals Corp. Ltd.
Irish Permanent PLC
Kingfisher PLC
*Korea Electric Power Corporation (ADR)
Lagardere S.C.A.
MSCI France OPALS 'B'
*MSCI German OPALS 'B'
MSCI Hong Kong OPALS 'B'
MSCI Italy OPALS 'B'
*MSCI South Korea OPALS 'B'
Merkantildata ASA
Metro AG
Metro AG
Minorco SA (Minerals & Resources
Corporation Limited)
Mitsubishi Trust & Banking Corp.
NTT Data Corporation
National Bank Of Greece SA (GDR)
*Nedcor Limited
Next PLC
Noranda
Northern Telecom Ltd.
Pearson PLC
The Peninsular and Oriental Steam Navigation Company
Pernod Ricard
Pioneer Electronic Corporation
Power Corporation of Canada
Provident Financial PLC
*Railtrack Group PLC
Ranbaxy Laboratories Limited
Rolls-Royce PLC
Rothmans Holdings, Ltd.
SAP AG (Systeme, Anwendungen,
Produkte in der Datenverarbeitung)
Saga Petroleum ASA
Shell Transport & Trading Co. PLC
*Siam Commercial Bank Public Company
Limited 'Foreign'
State Bank of India
Steel Authority Of India
TABCORP Holdings Limited
TDK Corporation
Tata Chemicals Limited
*Thomson Travel Group PLC
Tokyu Corporation
Toyo Seikan Kaisha, Ltd.
TransCanada PipeLines Limited
Uniden Corp.
United Dominion Industries Limited
United Utilities PLC
Videsh Sanchar Nigam Ltd. (GDR)
Wolters Kluwer NV 'A'
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments as of
May 31, 1999
Percent of
Ten Largest Equity Holdings Net Assets
BP Amoco PLC 2.0%
MSCI Singapore OPALS 'B' 1.5
British Telecommunications PLC 1.3
DaimlerChrysler AG 1.3
Vodafone Group PLC 1.2
NTT Mobile Communication
Network, Inc. 1.0
MSCI Brazil OPALS 1.0
MSCI Belgium OPALS 'B' 1.0
ING Groep NV 1.0
ENI SpA 0.9
Percent of
Ten Largest Countries Net Assets
United Kingdom 20.6%
Japan 16.9
Germany 9.9
France 9.3
Netherlands 4.5
Italy 4.3
Switzerland 3.6
Spain 3.2
Sweden 3.0
Canada 2.9
Percent of
Geographical Asset Mix* Net Assets
Europe (Ex-United Kingdom and
Ireland) 42.8%
United Kingdom and Ireland 21.0
Japan 16.9
Pacific Basin (Ex-Japan) 5.8
North America 2.9
Other Emerging Markets 2.6
[FN]
*Percent of net assets may not equal 100% and
excludes the impact of futures and options.
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Telecommunications 10.6%
Banking 10.6
Energy Sources 6.3
Health & Personal Care 5.3
Insurance 4.9
Merchandising 4.7
Financial Services 3.3
Automobiles 2.9
Electrical & Electronics 2.9
Business & Public Services 2.7
Financial Futures Contracts
Percent of
Country Issue Exchange Net Assets
Australia All Ordinaries Index Sydney FE (0.3)%
Canada TSE--35 Index Toronto SE (0.3)
Euro CAC 40 MATIF 0.5
Japan Nikkei 225 Index SIMEX 2.2
Sweden OMX Index OML 0.2
United Kingdom FT-SE 100 LIFFE (1.8)
-----
0.5%
=====
