MERRILL LYNCH
INTERNATIONAL
EQUITY FUND
FUND LOGO
Annual Report
May 31, 2000
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
A bar chart depicting total return in US dollars* of the fund's top
country positions for the six-month period ended May 31, 2000
United Kingdom -7.6%
Australia -7.5%
Japan -6.0%
Switzerland -2.1%
Netherlands 4.8%
Germany 8.7%
Italy 11.5%
France 13.8%
Sweden 31.9%
Finland 36.2%
Source: Morgan Stanley Capital International World (ex-US) Index.
*For the six-month period ended May 31, 2000, total investment
return in US dollars for the Morgan Stanley Capital International
World (Ex-US) Index was +1.58%.
Merrill Lynch International Equity Fund, May 31, 2000
DEAR SHAREHOLDER
Investment Environment
Once again we are looking back upon a year of high volatility in the
world's equity markets. Returns were much stronger for the fiscal
year ended May 31, 2000, as the unmanaged benchmark Morgan Stanley
Capital International (MSCI) World (Ex-US) Index returned +18.32%
(in US dollar terms) compared to +3.88% for the same period last
year. This was nearly double the return of the MSCI US Index for the
same period. (All references to markets are measured by Morgan
Stanley indexes for the 12-month period ended May 31, 2000 and are
in US dollar terms unless otherwise noted.)
High returns were concentrated in the period from November 1999 to
February 2000, when investor enthusiasm for "TMT" (technology, media
and telecommunications) stocks was at its height. Notwithstanding a
sharp decline since the peak in early March, the information
technology (IT) sector within the MSCI World (Ex-US) Index more than
doubled over the 12-month period. Within this, IT hardware took the
lead as investors positioned themselves for an expected surge in
technology spending in the world (Ex-US) to match that seen in the
United States in recent years.
By contrast, several other broad sector groupings saw negligible or
slightly negative returns. These included utilities and basic
industries. The latter was perhaps surprising against a backdrop of
stronger world economic growth and evidence of pricing power re-
emerging in many industries. Fears that the gradual tightening of
monetary policy by many central banks could lead to a sharp downturn
in global growth appeared to be a growing factor dampening sentiment
toward basic industries as the year progressed.
Japan was the strongest of the main regions, returning +29.7%.
However, much of this was because of the yen's strength. In local
currency terms, Japan actually lagged behind Europe. The weakest
region by some distance was the Pacific Basin (Ex-Japan) (-0.1%),
which suffered from a peak in some countries' economic growth rates,
the tightening of US monetary policy, and a relative lack of high-
profile TMT stocks relative to other regions.
Within those blocs, sharp differences in country index performance
had more to do with sector composition than country fundamentals.
For instance, the leaders in Europe were Finland (+138%) and Sweden
(+84%), as a result of strength in Nokia Oyj and LM Ericsson
Telephone Co., respectively, while markets such as Austria and
Belgium with little technology representation actually produced
negative returns.
Emerging markets in aggregate produced very similar returns (+17.7%)
to developed markets, with particular strength in the early weeks of
2000 when optimism about the world economy was at its peak. The
strongest returns came in Russia (which was aided by the rally in
oil prices) and Turkey, where an improvement in domestic
fundamentals helped to offset external pressures.
Fiscal Year in Review
We began the fiscal year with a distinct value bias. In the final
quarter of the calendar year, the value tilt was replaced by a more
growth-oriented style. This was well timed for the dramatic upsurge
in the TMT sectors through December 31, 1999. However, while the
Fund was overweighted in these sectors relative to the benchmark,
the Fund was not as concentrated in its exposure to TMT as some
competing funds and consequently lagged some of its key competitors.
Going into the year 2000, we again switched back to a more value
style as global economic growth continued to surprise on the upside.
In particular, the Fund was overweighted in oils and basic materials
(notably steel companies). At that time the US Federal Reserve Board
started to seriously raise interest rates in an attempt to rein in
what it viewed as excessive strength in the US economy. In addition,
an agreement among the members of the Organization of Petroleum
Exporting Countries pushed oil prices sharply higher. In the
prospect of higher interest rates in the United States and
elsewhere, the Fund was underweighted in financials. We continued to
hold wireless telecommunication companies and IT hardware stocks,
but reduced our fixed-line telecommunication, media and IT software
holdings on valuation concerns. This move proved to be a couple of
months too early but paid off as the TMT rally reversed sharply in
March and April.
Portfolio Matters
For the 12 months ended May 31, 2000, total returns for Merrill
Lynch International Equity Fund's Class A, Class B, Class C and
Class D Shares were +20.96%, +19.63%, +19.71% and +20.65%,
respectively. (Fund results shown 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.) This compares with the return for the MSCI World (Ex-
US) Index of +18.32% over the same period.
The Fund started and ended the fiscal year with broadly the same
country exposures, in so far as it was overweight relative to the
benchmark index in Japanese equities and underweight in the United
Kingdom and Continental European equities. In addition, the Fund had
some exposure to a broad spread of emerging markets. The Fund also
held a small amount of cash.
Notwithstanding a few brief periods, these broad regional exposures
have been in place for most of the fiscal year and have served the
Fund well as the United Kingdom (-3.9%) and Continental Europe
(+14.9%) both underperformed the benchmark (+18.32%), while Japan
(+29.7%) outperformed. The Fund's cash holdings were not beneficial
in the generally rising markets during the fiscal year. However, the
fiscal period has seen the portfolio change in a number of ways,
reflecting the fact that over the past 12 months all the global
equity markets have been driven by dominant sector themes, more so
than by country or regional economic activity.
In Conclusion
We continue to manage the Fund in a manner that provides a
relatively low volatility exposure to international equities,
seeking to avoid much of the extremes of performance seen in some
less diversified funds.
Looking ahead, we expect to see global economic growth continue at a
firm pace, albeit slightly below that seen over the last year. As
the growth rate eases, interest rates should start to peak in most
developed countries. The predicted shortage of government bond
issuance in the United States and Europe should underpin bonds. This
relatively benign economic backdrop, coupled with a continued effort
to restructure companies in many countries, should provide ample
opportunity for international equity investors.
We thank you for your interest in Merrill Lynch International Equity
Fund, and we look forward to reporting to you in our next
shareholder letter.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Clive D. Lang)
Clive D. Lang
Senior Vice President and
Portfolio Manager
July 6, 2000
Merrill Lynch International Equity Fund, May 31, 2000
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 total return based on a $10,000 Investment
For ML International Equity Fund's Class A and Class C Shares
compared to the Morgan Stanley Capital International World (Ex-US)
Index++++. Beginning and ending values are:
10/21/94** 5/00
ML International Equity Fund++--
Class A Shares* $ 9,600 $12,910
ML International Equity Fund++--
Class C Shares $10,000 $12,861
Morgan Stanley Capital International
World (Ex-US) Index++++ $10,000 $16,484
A line graph depicting total return based on a $10,000 Investment
For ML International Equity Fund's Class B and Class D Shares
compared to the Morgan Stanley Capital International World (Ex-US)
Index++++. Beginning and ending values are:
7/30/93** 5/00
ML International Equity Fund++--
Class B Shares* $10,000 $14,952
ML International Equity Fund++--
Class D Shares $ 9,600 $14,943
Morgan Stanley Capital International
World (Ex-US) Index++++ $10,000 $19,221
*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.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/00 +32.97% +25.99%
Five Years Ended 3/31/00 +10.50 + 9.32
Inception (10/21/94) through 3/31/00 + 7.57 + 6.51
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/00 +31.58% +27.58%
Five Years Ended 3/31/00 + 9.38 + 9.38
Inception (7/30/93) through 3/31/00 + 7.65 + 7.65
*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 3/31/00 +31.74% +30.74%
Five Years Ended 3/31/00 + 9.38 + 9.38
Inception (10/21/94) through 3/31/00 + 6.48 + 6.48
*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 3/31/00 +32.71% +27.75%
Five Years Ended 3/31/00 +10.25 + 9.07
Inception (7/30/93) through 3/31/00 + 8.50 + 7.63
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class D
Shares (formerly Class A Shares) were offered at a higher than
maximum sales charge. Thus, actual returns would have been somewhat
lower than noted for the five-year and ten-year periods.)
**Assuming maximum sales charge.
Merrill Lynch International Equity Fund, May 31, 2000
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results
<CAPTION>
6 Month 12 Month Since Inception
As of May 31, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML International Equity Fund Class A Shares* +0.27% +20.96% +36.25%
ML International Equity Fund Class B Shares* -0.27 +19.63 +49.52
ML International Equity Fund Class C Shares* -0.28 +19.71 +28.61
ML International Equity Fund Class D Shares* +0.18 +20.65 +57.72
Morgan Stanley Capital International World (Ex-US) Index** +1.58 +18.32 +64.84/+92.21
*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 from 10/21/94 for
Class A & Class C Shares and from 7/30/93 for Class B & Class D
Shares.
**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 and from 7/31/93, respectively.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
AFRICA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
South Africa Banks 225,400 FirstRand Limited $ 236,888 0.1%
Industrial Conglomerates 42,500 Barlow Limited 234,314 0.1
Metals & Mining 6,200 AngloGold Limited (ADR)(a) 121,288 0.0
10,300 De Beers 223,006 0.1
------------ ------
344,294 0.1
Total Investments in Africa (Cost--$1,075,504) 815,496 0.3
EUROPE
Austria Equity Basket 16,000 MSCI Austria OPALS 'B' (c)(f) 591,200 0.2
Total Investments in Austria 591,200 0.2
Denmark Marine 110 D/S 1912 'B' 1,195,578 0.5
Total Investments in Denmark 1,195,578 0.5
Finland Communications Equipment 154,000 Nokia Oyj 7,969,334 3.0
Paper & Forest Products 45,000 Stora Enso Oyj 'R' 421,503 0.2
Total Investments in Finland 8,390,837 3.2
France Banks 10,000 Banque Nationale de Paris (BNP) 897,260 0.3
18,000 Societe Generale 'A' 1,032,474 0.4
------------ ------
1,929,734 0.7
Building Products 3,200 Compagnie de Saint Gobain 443,668 0.2
Communications 7,500 Alcatel 408,983 0.2
Equipment
Diversified 10,000 France Telecom SA 1,451,381 0.6
Telecommunication
Services
Electrical Equipment 14,300 Schneider SA 946,894 0.4
Energy Equipment 4,500 Coflexip 523,332 0.2
& Services
Food & Drug Retailing 16,000 Carrefour SA 1,125,493 0.4
Food Products 4,300 Groupe Danone (ADR)(a) 1,001,342 0.4
Hotels/Restaurants 3,900 Sodexho Alliance 626,079 0.2
& Leisure
IT Consulting & Services 6,900 Cap Gemini SA 1,285,571 0.5
Insurance 8,900 Axa 1,304,110 0.5
8,900 Axa (Rights) 15,765 0.0
------------ ------
1,319,875 0.5
Media 7,000 Lagardere S.C.A. 486,885 0.2
Metals & Mining 116,000 Usinor SA 1,387,761 0.5
Multi-Utilities 7,200 Suez Lyonnaise des Eaux SA 1,201,910 0.5
15,000 Vivendi 1,599,765 0.6
------------ ------
2,801,675 1.1
Oil & Gas 20,500 Total Fina SA 'B' 3,211,076 1.2
Personal Products 1,300 L'Oreal SA 890,350 0.3
Pharmaceuticals 12,000 Aventis SA 775,677 0.3
17,000 ++Sanofi-Synthelabo SA 737,051 0.3
------------ ------
1,512,728 0.6
Semiconductor 10,800 STMicroelectronics NV 640,017 0.2
Equipment & Products
Total Investments in France 21,992,844 8.4
Germany Airlines 47,000 Deutsche Lufthansa AG (Registered Shares) 1,146,359 0.5
Automobiles 16,200 DaimlerChrysler AG 872,887 0.3
9,350 Volkswagen AG 377,197 0.2
------------ ------
1,250,084 0.5
Banks 11,500 Deutsche Bank AG (Registered Shares) 883,070 0.3
10,000 Dresdner Bank AG (Registered Shares) 405,274 0.2
13,900 HypoVereinsbank 898,493 0.4
------------ ------
2,186,837 0.9
Chemicals 13,600 BASF AG 547,389 0.2
22,250 Bayer AG 853,243 0.3
------------ ------
1,400,632 0.5
Diversified 50,000 Deutsche Telekom AG (Registered Shares) 3,106,790 1.2
Telecommunication
Services
Electric Utilities 31,200 RWE AG 1,140,034 0.4
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Percent of
(continued) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Germany Equity Basket 4,700 MSCI German OPALS 'B' (c) $ 1,654,917 0.6%
(concluded)
Industrial Conglomerates 16,300 Siemens AG 2,400,519 0.9
Insurance 5,650 Allianz AG (Registered Shares) 2,030,426 0.8
2,000 Muenchener Rueckversicherungs-Gesellschaft
AG (Registered Shares) 584,262 0.2
------------ ------
2,614,688 1.0
Metals & Mining 50,000 Salzgitter AG 370,960 0.2
51,000 ++Thyssen Krupp AG 865,542 0.3
------------ ------
1,236,502 0.5
Multi-Utilities 14,850 Veba AG 757,454 0.3
Pharmaceuticals 3,900 Schering AG 582,134 0.2
Semiconductor 6,400 ++Infineon Technologies AG 416,069 0.2
Equipment & Products
Software 900 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung) 371,424 0.1
425 SAP AG (Systeme, Anwendungen, Produkte in der
Datenverarbeitung) (Preferred) 223,874 0.1
------------ ------
595,298 0.2
Total Investments in Germany 20,488,317 7.9
Italy Banks 90,000 San Paolo-IMI SpA 1,310,416 0.5
190,000 Unicredito Italiano SpA 835,217 0.3
------------ ------
2,145,633 0.8
Diversified 70,000 Telecom Italia SpA 960,786 0.4
Telecommunication
Services
Energy Equipment & 108,000 Saipem SpA 536,853 0.2
Services
Insurance 43,000 Assicurazioni Generali 1,288,066 0.5
Oil & Gas 530,000 ENI SpA 2,840,997 1.1
Wireless 240,000 Telecom Italia Mobile (TIM) SpA 2,486,174 0.9
Telecommunication
Services
Total Investments in Italy 10,258,509 3.9
Netherlands Banks 64,000 ABN AMRO Holding NV 1,454,163 0.6
Diversified Financials 22,500 ING Groep NV 1,337,751 0.5
Diversified 10,400 KPN NV 933,632 0.4
Telecommunication
Services
Electronic Equipment & 34,400 Koninklijke (Royal) Philips Electronics NV 1,526,857 0.6
Instruments
Food Products 11,700 Unilever NV 'A' 590,814 0.2
IT Consulting & Services 37,500 Getronics NV 624,256 0.2
Insurance 31,000 ++Aegon NV 1,111,452 0.4
Marine 23,000 ++Koninklijke Nedlloyd NV 522,590 0.2
Oil & Gas 63,900 Royal Dutch Petroleum Company 3,912,995 1.5
Total Investments in the Netherlands 12,014,510 4.6
Norway Equity Basket 7,500 MSCI Norway OPALS 'B' (c)(f) 713,850 0.3
Total Investments in Norway 713,850 0.3
Russia Closed End Investment Fund 20,000 ++Fleming Russia Securities Fund Limited 200,000 0.1
Total Investments in Russia 200,000 0.1
Spain Banks 135,000 Banco Santander Central Hispano, SA 1,315,841 0.5
Construction & 30,000 Grupo Dragados SA 220,350 0.1
Engineering
Diversified 91,000 ++Telefonica SA 1,856,655 0.7
Telecommunication
Services
Electric Utilities 14,000 Endesa SA 288,496 0.1
Metals & Mining 5,500 Acerinox SA 185,666 0.1
Oil & Gas 21,000 Repsol-YPF, SA 445,402 0.2
Total Investments in Spain 4,312,410 1.7
Sweden Banks 75,000 Skandinaviska Enskilda Banken (SEB) 'A' 815,489 0.3
97,000 Svenska Handelsbanken AB 1,366,804 0.5
------------ ------
2,182,293 0.8
Communications Equipment 255,000 Telefonaktiebolaget LM Ericsson AB 'B' 5,163,375 2.0
Diversified Financials 70,000 Investor AB 'B' 966,937 0.4
Paper & Forest Products 33,000 Svenska Cellulosa AB (SCA) 'B' 660,879 0.3
Tobacco 375,000 Swedish Match AB 1,160,823 0.4
Total Investments in Sweden 10,134,307 3.9
Switzerland Banks 16,500 Credit Suisse Group (Registered Shares) 3,066,372 1.2
Diversified 2,800 Swisscom AG (Registered Shares) 981,239 0.4
Telecommunication
Services
Equity Basket 6,100 MSCI Switzerland OPALS 'B' (c) 2,018,002 0.8
Food Products 1,400 Nestle SA (Registered Shares) 2,659,587 1.0
Insurance 2,300 Zurich Allied AG 1,126,254 0.4
Pharmaceuticals 925 Novartis AG (Registered Shares) 1,358,850 0.5
250 Roche Holding AG (Genuss) 2,625,369 1.0
------------ ------
3,984,219 1.5
Textiles & Apparel 6,750 ++Charles Voegele Holding AG 1,314,159 0.5
Total Investments in Switzerland 15,149,832 5.8
Turkey Equity Basket 6,100 MSCI Turkey OPALS 'B' (c)(f) 1,361,520 0.5
Total Investments in Turkey 1,361,520 0.5
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Percent of
(continued) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
United Aerospace & Defense 155,000 British Aerospace PLC $ 971,891 0.4%
Kingdom 210,000 Rolls-Royce PLC 772,162 0.3
------------ ------
1,744,053 0.7
Banks 34,000 Abbey National PLC 452,042 0.2
120,000 Bank of Scotland 1,129,993 0.4
50,000 Barclays PLC 1,299,642 0.5
100,000 HSBC Holdings PLC 1,103,089 0.4
57,000 Lloyds TSB Group PLC 616,833 0.2
------------ ------
4,601,599 1.7
Beverages 85,000 Diageo PLC 726,723 0.3
Commercial Services 265,000 Shanks & McEwan Group PLC 720,894 0.3
& Supplies
Communications Equipment 18,000 Marconi PLC 216,582 0.1
Construction Materials 55,000 RMC Group PLC 691,374 0.3
Containers & Packaging 200,000 Rexam PLC 702,509 0.3
Diversified 78,000 British Telecommunications PLC 1,129,724 0.4
Telecommunication Services 62,500 ++Cable & Wireless PLC 1,041,619 0.4
------------ ------
2,171,343 0.8
Electric Utilities 70,000 British Energy PLC (Deferred Shares) 1 0.0
Electronic Equipment 127,500 Williams PLC 724,182 0.3
& Instruments
Food & Drug Retailing 58,000 ++Boots Company PLC 482,878 0.2
210,000 Tesco PLC 634,052 0.2
------------ ------
1,116,930 0.4
Gas Utilities 60,000 ++BG Group PLC 359,625 0.1
225,000 Centrica PLC 813,864 0.3
------------ ------
1,173,489 0.4
Hotels/Restaurants & 125,000 Rank Group PLC 263,441 0.1
Leisure
Household Products 40,000 Reckitt Benckiser PLC 438,246 0.2
IT Consulting & Services 37,500 Computacenter PLC 388,435 0.2
22,500 SEMA Group PLC 313,439 0.1
------------ ------
701,874 0.3
Industrial 170,000 Tomkins PLC 486,600 0.2
Conglomerates
Insurance 53,000 Allied Zurich PLC 594,143 0.2
30,000 CGU PLC 455,585 0.2
63,000 Prudential Corporation PLC 952,490 0.4
------------ ------
2,002,218 0.8
Marine 42,500 The Peninsular and Oriental Steam
Navigation Company 445,309 0.2
Media 50,000 EMI Group PLC 425,242 0.1
15,000 Pearson PLC 451,997 0.2
78,000 Reuters Group PLC 1,161,203 0.4
36,000 WPP Group PLC 437,469 0.2
------------ ------
2,475,911 0.9
Metals & Mining 120,000 Billiton PLC 407,156 0.2
27,000 Rio Tinto PLC (Registered Shares) 398,323 0.1
------------ ------
805,479 0.3
Multi-Utilities 85,000 United Utilities PLC 801,682 0.3
Multiline Retail 147,000 Kingfisher PLC 1,357,875 0.5
Oil & Gas 485,000 BP Amoco PLC 4,411,196 1.7
395,000 LASMO PLC 702,584 0.3
45,000 Shell Transport & Trading Company 372,124 0.2
------------ ------
5,485,904 2.2
Pharmaceuticals 67,500 AstraZeneca Group PLC 2,843,144 1.1
31,500 Glaxo Wellcome PLC 889,870 0.3
85,000 SmithKline Beecham PLC 1,085,003 0.4
------------ ------
4,818,017 1.8
Real Estate 335,000 The British Land Company PLC 2,002,898 0.7
90,000 ++Canary Wharf Finance PLC 480,247 0.2
2,483,145 0.9
Retailing 75,000 Dixons Group PLC 354,804 0.1
Semiconductor 35,000 ++ARM Holdings PLC 309,702 0.1
Equipment & Products
Specialty Retail 62,000 Wolseley PLC 314,619 0.1
Tobacco 62,000 British American Tobacco PLC 362,345 0.1
90,000 Imperial Tobacco Group PLC 790,323 0.3
------------ ------
1,152,668 0.4
Wireless 1,408,000 Vodafone AirTouch PLC 6,418,840 2.5
Telecommunication
Services
Total Investments in the United Kingdom 45,706,013 17.5
Total Investments in Europe (Cost--
$142,581,918) 152,509,727 58.5
LATIN
AMERICA
Brazil Equity Basket 13,600 MSCI Brazil OPALS (c) 655,928 0.2
Metals & Mining BRL 44,000 Companhia Vale do Rio Doce, 0%
due 12/31/2049 (d) 0 0.0
Total Investments in Brazil 655,928 0.2
Mexico Foreign Government 1,923,000 Mexican Par Bond (Rights)(g) 19 0.0
Obligations
Total Investments in Mexico 19 0.0
Total Investments in Latin America
(Cost--$788,932) 655,947 0.2
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH Shares Percent of
AMERICA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Canada Aerospace & Defense 18,710 Bombardier Inc. 'B' $ 489,081 0.2%
15,480 CAE, Inc. 134,366 0.0
------------ ------
623,447 0.2
Banks 6,730 Royal Bank of Canada 349,823 0.1
5,220 The Toronto-Dominion Bank 130,700 0.1
------------ ------
480,523 0.2
Communications Equipment 54,516 Nortel Networks Corporation 2,902,885 1.1
Diversified 6,730 BCE Inc. 157,275 0.1
Telecommunication
Services
Electronic Equipment & 3,610 ++C-MAC Industries Inc. 137,873 0.1
Instruments 2,580 ++Celestica Inc. 120,240 0.0
------------ ------
258,113 0.1
Health Insurance 13,180 ++Sun Life Financial Services of Canada 192,152 0.1
Media 11,210 ++Rogers Communications, Inc. 'B' 293,030 0.1
8,930 Seagram Company 417,373 0.2
------------ ------
710,403 0.3
Metals & Mining 3,820 Alcan Aluminum Ltd. 128,167 0.0
13,270 ++Inco Limited 212,646 0.1
------------ ------
340,813 0.1
Oil & Gas 16,040 ++Anderson Exploration Ltd. 296,125 0.1
10,020 ++Canadian Natural Resources Ltd. 317,787 0.1
19,170 Petro-Canada 366,069 0.2
------------ ------
979,981 0.4
Road & Rail 9,150 Canadian Pacific Limited 216,883 0.1
Software 19,995 Certicom Corporation 633,480 0.2
Total Investments in Canada 7,495,955 2.9
United Media US$ 2,900,000 MediaOne Group Inc., 3.041% due 11/15/2002 1,312,250 0.5
States
Total Investments in the United States 1,312,250 0.5
Total Investments in North America
(Cost--$8,480,497) 8,808,205 3.4
PACIFIC
BASIN/ASIA
Australia Banks 17,000 Macquarie Bank Limited 231,891 0.1
53,300 National Australia Bank Limited 793,609 0.3
53,500 Westpac Banking Corporation Limited 364,735 0.1
------------ ------
1,390,235 0.5
Diversified 112,100 Colonial Limited 601,734 0.2
Financials 38,500 Lend Lease Corporation Limited 437,089 0.2
50,000 Westfield Holdings Limited 313,775 0.1
------------ ------
1,352,598 0.5
Diversified 200,000 ++Telstra Corporation Limited 775,880 0.3
Telecommunication 42,000 ++Telstra Corporation Limited (e) 92,489 0.0
Services ------------ ------
868,369 0.3
Hotels/Restaurants & 140,000 Aristocrat Leisure Limited 359,415 0.1
Leisure
Industrial Conglomerates 21,900 Brambles Industries Limited 599,697 0.2
Insurance 42,700 ++AMP Limited 370,789 0.1
Media 40,000 The News Corporation Limited 452,041 0.2
123,200 The News Corporation Limited (Preferred) 1,182,907 0.5
------------ ------
1,634,948 0.7
Metals & Mining 69,000 Broken Hill Proprietary Company Limited 701,082 0.3
125,000 WMC Limited 512,523 0.2
------------ ------
1,213,605 0.5
Oil & Gas 147,800 Santos Limited 379,440 0.2
40,000 Woodside Petroleum Limited 302,137 0.1
------------ ------
681,577 0.3
Total Investments in Australia 8,471,233 3.2
Hong Kong Wireless 6,400 ++China Telecom (Hong Kong) Limited (ADR)(a) 940,800 0.4
Telecommunication
Services
Total Investments in Hong Kong 940,800 0.4
Japan Auto Components 76,000 Futaba Industrial Co., Ltd. 977,571 0.4
163,000 Sanden Corporation 961,272 0.3
------------ ------
1,938,843 0.7
Automobiles 219,000 Fuji Heavy Industries, Ltd. 1,627,119 0.6
21,000 Honda Motor Co., Ltd. 692,361 0.3
------------ ------
2,319,480 0.9
Banks 101,000 The 77 Bank, Ltd. 923,938 0.4
288,000 The Asahi Bank, Ltd. 1,281,189 0.5
104,000 The Gunma Bank Ltd. 566,965 0.2
277,000 The Tokai Bank Ltd. 1,350,592 0.5
190,000 The Toyo Trust & Banking Co., Ltd. 642,303 0.2
------------ ------
4,764,987 1.8
Building Products 88,000 Tostem Corporation 1,450,662 0.6
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Percent of
(concluded) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Japan Chemicals 194,000 Asahi Chemical Industry Co., Ltd. $ 1,207,151 0.5%
(concluded) 82,000 Kaneka Corporation 844,560 0.3
35,000 Shin-Etsu Chemical Co., Ltd. 1,716,276 0.6
------------ ------
3,767,987 1.4
Closed End 61,000 Atlantis Japan Growth Fund 649,650 0.2
Investment Fund
Commercial Services 17,000 Secom Co., Ltd. 1,152,542 0.4
& Supplies
Communications Equipment 9,000 Matsushita Communication Industrial Co., Ltd. 969,584 0.4
Computers & Peripherals 49,000 Fujitsu Limited 1,387,973 0.5
141,000 Toshiba Corporation 1,361,876 0.5
------------ ------
2,749,849 1.0
Diversified Financials 4,100 Acom Co., Ltd. 301,193 0.1
45,000 Kokusai Securities Co., Ltd. 575,900 0.2
13,400 Takefuji Corporation 1,418,714 0.6
------------ ------
2,295,807 0.9
Diversified 229 Nippon Telegraph & Telephone Corporation (NTT) 2,722,266 1.0
Telecommunication
Services
Electric Utilities 58,000 Tokyo Electric Power 1,448,990 0.6
Electrical Equipment 18,000 Honda Tsushin Kogyo Co., Ltd. 693,754 0.3
182,000 Mitsubishi Electric Corporation 1,788,307 0.7
------------ ------
2,482,061 1.0
Electronic Equipment 87,000 Ibiden Co., Ltd. 1,680,613 0.6
& Instruments 11,000 TDK Corporation 1,354,632 0.5
124,000 Toko, Inc. 916,684 0.4
------------ ------
3,951,929 1.5
Food & Drug Retailing 23,700 FamilyMart Co., Ltd. 944,258 0.4
Food Products 72,000 Katokichi Co., Ltd. 1,805,433 0.7
Household Durables 231,000 Sekisui Chemical Co., Ltd. 793,778 0.3
30,800 Sony Corporation 2,788,948 1.1
------------ ------
3,582,726 1.4
Internet Software & 500 ++Softbank Corp. 76,619 0.0
Services 1,000 Softbank Corp. (New) 149,988 0.1
------------ ------
226,607 0.1
Machinery 21,500 Fanuc Ltd. 1,874,948 0.7
97,000 Minebea Company Ltd. 1,146,794 0.4
97,000 Nippon Thompson Co., Ltd. 1,209,854 0.5
------------ ------
4,231,596 1.6
Media 50,700 Aoi Advertising Promotion Inc. 715,709 0.3
23,000 Nippon Broadcasting System, Incorporated 1,390,573 0.5
810 Nippon Television Network Corp. 555,923 0.2
810 ++Nippon Television Network Corp. (New Shares) 555,923 0.2
------------ ------
3,218,128 1.2
Metals & Mining 451,000 Nippon Steel Corporation 988,493 0.4
Multiline Retail 12,000 Ito-Yokado Co., Ltd. 712,143 0.3
Office Electronics 36,000 Canon, Inc. 1,658,324 0.6
67,000 Ricoh Co., Ltd. 1,400,046 0.6
------------ ------
3,058,370 1.2
Pharmaceuticals 107,000 Kissei Pharmaceutical Co., Ltd. 1,734,061 0.7
24,000 Takeda Chemical Industries, Ltd. 1,638,263 0.6
------------ ------
3,372,324 1.3
Real Estate 128,000 Mitsui Fudosan Co., Ltd. 1,320,715 0.5
Semiconductor 4,800 Rohm Company Ltd. 1,497,841 0.6
Equipment & Products
Software 37,310 Miroku Jyoho Service Co., Ltd. 319,132 0.1
36,650 Square Co., Ltd. 2,263,501 0.9
------------ ------
2,582,633 1.0
Textiles & Apparel 35,000 HIMIKO Co., Ltd. 432,319 0.2
Trading Companies & 165,000 Mitsubishi Corporation 1,369,956 0.5
Distributors
Wireless 100 ++NTT Mobile Communications Network, Inc. (f) 2,581,844 1.0
Telecommunication
Services
Total Investments in Japan 64,590,023 24.8
Malaysia Closed End Investment Fund 15,800 ++Genesis Malaysia Maju Fund Limited 371,300 0.2
7,000 ++Malaysia Fund 35,875 0.0
------------ ------
407,175 0.2
Equity Basket 81,252 ++iShares MSCI Malaysia 558,608 0.2
5,700 MSCI Malaysia OPALS 'B' (c) 335,787 0.1
------------ ------
894,395 0.3
Total Investments in Malaysia 1,301,570 0.5
Singapore Equity Basket 40,000 MSCI Singapore OPALS 'B' (c) 1,646,800 0.7
Media 36,000 Singapore Press Holdings Ltd. 542,119 0.2
Semiconductor 1,400 ++St Assembly Test Services Limited (ADR)(a) 43,050 0.0
Equipment & Products
Total Investments in Singapore 2,231,969 0.9
South Korea Semiconductor 1,900 Samsung Electronics 518,105 0.2
Equipment & Products
Total Investments in South Korea 518,105 0.2
Total Investments in the Pacific
Basin/Asia (Cost--$71,987,861) 78,053,700 30.0
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
SOUTHEAST Shares Percent of
ASIA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
India Chemicals 100 ++Reliance Industries Ltd. $ 771 0.0%
208 Reliance Industries Ltd. (Compulsory Demat
Shares) 1,604 0.0
------------ ------
2,375 0.0
Closed End Investment 32,000 ++India Fund 392,000 0.1
Fund
Household Products 200 ++Reckitt & Coleman of India Ltd. 952 0.0
Tobacco 200 ITC Ltd. 3,248 0.0
Total Investments in Southeast Asia
(Cost--$503,712) 398,575 0.1
SHORT-TERM Face
SECURITIES Amount Issue
Commercial Paper* US$ 10,502,000 Associates Corporation of North America, 6.80%
due 6/01/2000 10,502,000 4.0
Total Investments in Commercial Paper 10,502,000 4.0
US Government & 5,000,000 Federal Home Loan Banks, 6.335% due 6/23/2000 4,980,643 1.9
Agency Obligations* US Treasury Bills:
1,500,000 5.615% due 7/27/2000 (b) 1,488,000 0.6
600,000 5.78% due 8/24/2000 (b) 592,428 0.2
Total Investments in US Government & Agency
Obligations 7,061,071 2.7
Total Investments in Short-Term Securities
(Cost--$17,561,449) 17,563,071 6.7
Total Investments (Cost--$242,979,873) 258,804,721 99.2
Variation Margin on Financial Futures Contracts** (47,332) 0.0
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (8,242) 0.0
Other Assets Less Liabilities 2,013,869 0.8
------------ ------
Net Assets $260,763,016 100.0%
============ ======
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Fund.
**Financial futures contracts sold as of May 31, 2000 were as
follows:
Number of Expiration
Contracts Issue Exchange Date Value
60 All Ordinaries Index Sydney FE June 2000 $ 2,643,412
8 DAX Index DTB June 2000 1,322,472
6 FIB 30 Index MIB June 2000 1,279,534
264 OMX Index OML June 2000 4,060,102
18 TSE - 35 Index Toronto SE June 2000 1,350,631
-----------
Total Financial Futures Contracts Sold
(Total Contract Price--$10,539,022) $10,656,151
===========
Financial futures contracts purchased as of May 31, 2000 were as
follows:
Number of Expiration
Contracts Issue Exchange Date Value
31 Taiwan MSCI Index SIMEX June 2000 $ 1,230,390
16 Nikkei 225 Index SIMEX June 2000 1,301,600
20 CAC 40 MATIF June 2000 1,187,999
-----------
Total Financial Futures Contracts Purchased
(Total Contract Price--$3,619,920) $ 3,719,989
===========
***Forward foreign exchange contracts as of May 31, 2000 were as follows:
Foreign Unrealized
Currency Expiration Appreciation
Purchased Date (Depreciation)
CHF 12,843,750 July 2000 $ 117,815
----------
Total (US$ Commitment--$7,500,000) $ 117,815
==========
Foreign
Currency Sold
Pound 11,100,947 July 2000 $ (126,057)
Sterling ----------
Total (US$ Commitment--$16,483,179) $ (126,057)
==========
Total Unrealized Depreciation on
Forward Foreign Exchange Contracts--Net $ (8,242)
==========
(a)American Depositary Receipts (ADR).
(b)All or a portion of security held as collateral in connection
with open financial futures contracts.
(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 index.
(d)Received through a bonus issue from Companhia Vale do Rio Doce.
As of May 31, 2000, the bonds have not commenced trading and the
coupon rate has not been determined.
(e)Receipts evidence payment by the Fund of 61% of the purchase
price of common stock of Telstra Corporation Limited. The Fund is
committed to pay the remaining 39%, approximately $77,000 over the
next year.
(f)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(g)The rights may be exercised until 6/30/2003.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of May 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$242,979,873) $ 258,804,721
Cash 560,213
Receivables:
Securities sold $ 11,635,695
Dividends 1,023,388
Beneficial interest sold 753,260
Forward foreign exchange contracts 18,387
Interest 6,671 13,437,401
--------------
Prepaid registration fees and other assets 102,646
--------------
Total assets 272,904,981
--------------
Liabilities: Unrealized depreciation on forward foreign exchange contracts 8,242
Payables:
Securities purchased 8,450,894
Beneficial interest redeemed 1,480,166
Custodian bank 1,341,074
Distributor 179,674
Investment adviser 140,414
Reorganization costs 126,533
Variation margin 47,332 11,766,087
--------------
Accrued expenses and other liabilities 367,636
--------------
Total liabilities 12,141,965
--------------
Net Assets: Net assets $ 260,763,016
==============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 312,995
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 1,368,059
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 314,391
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 377,673
Paid-in capital in excess of par 268,157,883
Undistributed investment income--net 1,263,977
Accumulated distributions in excess of realized capital
gains on investments and foreign currency transactions--net (26,803,620)
Unrealized appreciation on investments and foreign currency
transactions--net 15,771,658
--------------
Net assets $ 260,763,016
==============
Net Asset Class A--Based on net assets of $34,692,448 and 3,129,949
Value: shares of beneficial interest outstanding $ 11.08
==============
Class B--Based on net assets of $150,139,956 and 13,680,587
shares of beneficial interest outstanding $ 10.97
==============
Class C--Based on net assets of $33,999,331 and 3,143,912
shares of beneficial interest outstanding $ 10.81
==============
Class D--Based on net assets of $41,931,281 and 3,776,726
shares of beneficial interest outstanding $ 11.10
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 2000
<S> <S> <C> <C>
Investment Income: Dividends (net of $420,664 foreign withholding tax) $ 4,233,032
Interest and discount earned 1,352,596
--------------
Total income 5,585,628
--------------
Expenses: Investment advisory fees $ 1,862,907
Account maintenance and distribution fees--Class B 1,605,998
Transfer agent fees--Class B 430,750
Custodian fees 287,423
Reorganization expenses 215,823
Account maintenance and distribution fees--Class C 154,477
Professional fees 124,029
Account maintenance fees--Class D 101,799
Accounting services 100,376
Registration fees 97,620
Transfer agent fees--Class D 96,013
Interest rate swap expense 80,447
Printing and shareholder reports 74,913
Transfer agent fees--Class A 74,400
Transfer agent fees--Class C 44,788
Trustees' fees and expenses 40,093
Pricing fees 27,729
Other 15,474
--------------
Total expenses 5,435,059
--------------
Investment income--net 150,569
--------------
Realized & Realized gain (loss) from:
Unrealized Investments--net 33,728,934
Gain (Loss) on Foreign currency transactions--net (885,598) 32,843,336
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net 6,539,089
--Net: Foreign currency transactions--net (95,238) 6,443,851
-------------- --------------
Net Increase in Net Assets Resulting from Operations $ 39,437,756
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 150,569 $ 1,782,248
Realized gain (loss) on investments and foreign currency
transactions--net 32,843,336 (5,906,040)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 6,443,851 (14,391,084)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 39,437,756 (18,514,876)
-------------- --------------
Distributions to In excess of realized gain on investments--net:
Shareholders: Class A -- (938,942)
Class B -- (8,734,187)
Class C -- (406,931)
Class D -- (2,160,659)
-------------- --------------
Net decrease in net assets resulting from distributions to
shareholders -- (12,240,719)
-------------- --------------
Beneficial Net increase (decrease) in net assets derived from beneficial
Interest interest transactions 15,566,720 (191,371,781)
Transactions: -------------- --------------
Net Assets: Total increase (decrease) in net assets 55,004,476 (222,127,376)
Beginning of year 205,758,540 427,885,916
-------------- --------------
End of year* $ 260,763,016 $ 205,758,540
============== ==============
*Undistributed investment income--net $ 1,263,977 $ --
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.16 $ 9.57 $ 12.58 $ 11.94 $ 10.25
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .09 .13 .12 .12 .16
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net 1.83 (.18) (1.08) 1.09 1.53
-------- -------- -------- -------- --------
Total from investment operations 1.92 (.05) (.96) 1.21 1.69
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.24) --
In excess of investment income--net -- -- -- (.01) --
Realized gain on investments--net -- -- (1.08) (.32) --
In excess of realized gain on
investments--net -- (.36) (.97) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.36) (2.05) (.57) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.08 $ 9.16 $ 9.57 $ 12.58 $ 11.94
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 20.96% (.35%) (6.02%) 10.76% 16.49%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding reorganization expenses 1.32% 1.33% 1.16% 1.11% 1.06%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.41% 1.33% 1.16% 1.11% 1.06%
======== ======== ======== ======== ========
Investment income--net .83% 1.54% 1.08% 1.04% 1.47%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 34,693 $ 19,540 $ 33,960 $ 44,624 $116,628
Data: ======== ======== ======== ======== ========
Portfolio turnover 149.78% 132.43% 107.50% 60.56% 71.86%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B++
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.17 $ 9.62 $ 12.42 $ 11.76 $ 10.19
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) .04 --+++ .01 .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.83 (.19) (1.04) 1.08 1.53
-------- -------- -------- -------- --------
Total from investment operations 1.80 (.15) (1.04) 1.09 1.57
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.10) --
In excess of investment income--net -- -- -- (.01) --
Realized gain on investments--net -- -- (.93) (.32) --
In excess of realized gain on
investments--net -- (.30) (.83) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.30) (1.76) (.43) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.97 $ 9.17 $ 9.62 $ 12.42 $ 11.76
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 19.63% (1.36%) (7.01%) 9.70% 15.41%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding reorganization expenses 2.35% 2.39% 2.20% 2.14% 2.09%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.44% 2.39% 2.20% 2.14% 2.09%
======== ======== ======== ======== ========
Investment income (loss)--net (.26%) .41% (.01%) .08% .37%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $150,140 $144,681 $311,520 $583,213 $945,368
Data: ======== ======== ======== ======== ========
Portfolio turnover 149.78% 132.43% 107.50% 60.56% 71.86%
======== ======== ======== ======== ========
<CAPTION>
Class C++
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.03 $ 9.49 $ 12.26 $ 11.65 $ 10.10
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.02) .03 --+++ --+++ .05
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.80 (.19) (1.02) 1.08 1.50
-------- -------- -------- -------- --------
Total from investment operations 1.78 (.16) (1.02) 1.08 1.55
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.14) --
In excess of investment income--net -- -- -- (.01) --
Realized gain on investments--net -- -- (.92) (.32) --
In excess of realized gain on
investments--net -- (.30) (.83) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.30) (1.75) (.47) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.81 $ 9.03 $ 9.49 $ 12.26 $ 11.65
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 19.71% (1.50%) (6.96%) 9.71% 15.35%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding reorganization expenses 2.41% 2.40% 2.21% 2.15% 2.09%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.51% 2.40% 2.21% 2.15% 2.09%
======== ======== ======== ======== ========
Investment income (loss)--net .54% .40% (.01%) .04% .45%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 33,999 $ 6,328 $ 14,717 $ 24,774 $ 46,985
Data: ======== ======== ======== ======== ========
Portfolio turnover 149.78% 132.43% 107.50% 60.56% 71.86%
======== ======== ======== ======== ========
<CAPTION>
Class D++
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended May 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 9.20 $ 9.63 $ 12.59 $ 11.94 $ 10.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .06 .11 .09 .10 .13
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.84 (.20) (1.07) 1.09 1.54
-------- -------- -------- -------- --------
Total from investment operations 1.90 (.09) (.98) 1.19 1.67
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.21) --
In excess of investment income--net -- -- -- (.01) --
Realized gain on investments--net -- -- (1.04) (.32) --
In excess of realized gain on
investments--net -- (.34) (.94) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.34) (1.98) (.54) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.10 $ 9.20 $ 9.63 $ 12.59 $ 11.94
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 20.65% (.70%) (6.18%) 10.50% 16.26%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding reorganization
Net Assets: expenses 1.57% 1.59% 1.42% 1.36% 1.31%
======== ======== ======== ======== ========
Expenses 1.66% 1.59% 1.42% 1.36% 1.31%
======== ======== ======== ======== ========
Investment income--net .55% 1.23% .77% .86% 1.13%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 41,931 $ 35,210 $ 67,689 $119,024 $175,151
Data: ======== ======== ======== ======== ========
Portfolio turnover 149.78% 132.43% 107.50% 60.56% 71.86%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch International Equity Fund, May 31, 2000
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 accounting principles generally accepted
in the United States of America, 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 that 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 that 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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.
* Equity 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) Prepaid registration fees--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) Custodian bank--The Fund recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
a failed trade which settled the next day.
(i) 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
$1,113,408 have 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 .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,
2000, MLAM paid MLAM U.K. a fee of $260,271 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
Maintenance Distribution
Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .25% --
Merrill Lynch International Equity Fund, May 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
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, 2000, 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 $ 28 $ 417
Class D $1,838 $23,804
For the year ended May 31, 2000, MLPF&S received contingent deferred
sales charges of $94,838 and $1,847 relating to transactions in
Class B and Class C Shares, respectively. Furthermore, MLPF&S
received contingent deferred sales charges of $8,082 and $50
relating to transactions subject to front-end sales charge waivers
in Class A and Class D Shares, respectively.
For the year ended May 31, 2000, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $93 for security
price quotations to compute the net asset value of the Fund.
In addition, MLPF&S received $51,275 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
May 31, 2000.
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, PFD, PSI, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 2000 were $346,951,279 and $393,826,935,
respectively.
Net realized gains (losses) for the year ended May 31, 2000 and net
unrealized gains (losses) as of May 31, 2000 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 32,854,697 $ 15,823,226
Short-term (601) 1,622
Financial futures contracts (118,009) (17,060)
Options written 263,851 --
Options purchased 728,996 --
------------ -------------
Total investments 33,728,934 15,807,788
------------ -------------
Currency transactions:
Options written 107,400 --
Options purchased (107,400) --
Forward foreign exchange
contracts (418,383) (8,242)
Foreign currency transactions (467,215) (27,888)
------------ -------------
Total currency transactions (885,598) (36,130)
------------ -------------
Total $ 32,843,336 $ 15,771,658
============ =============
Transactions in call options written for the year ended May 31, 2000
were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning
of year $ 12,000,000 $ 107,400
Options written 477,338 386,546
Options expired (12,476,318) (365,492)
Options closed (1,020) (128,454)
------------ -------------
Outstanding call options
written at end of year $ -- $ --
============ =============
Transactions in put options written for the year ended May 31, 2000
were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding put options
written at beginning
of year -- --
Options written $ 477,338 $ 367,542
Options closed (477,338) (367,542)
------------ -------------
Outstanding put options
written at end of year $ -- $ --
============ =============
As of May 31, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $13,957,771, of which $32,310,048 related to
appreciated securities and $18,352,277 related to depreciated
securities. At May 31, 2000, the aggregate cost of investments for
Federal income tax purposes was $244,846,950.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial
interest transactions was $15,566,720 and $(191,371,781) for the
years ended May 31, 2000 and May 31, 1999, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended May 31, 2000 Shares Amount
Shares sold 3,275,372 $ 35,732,966
Shares redeemed (2,278,426) (25,698,688)
------------- -------------
Net increase 996,946 $ 10,034,278
============= =============
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 B Shares for the Year Dollar
Ended May 31, 2000 Shares Amount
Shares sold 4,047,049 $ 43,756,102
Shares redeemed (5,533,663) (59,526,019)
Automatic conversion of shares (616,590) (6,649,194)
------------- -------------
Net decrease (2,103,204) $ (22,419,111)
============= =============
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 C Shares for the Year Dollar
Ended May 31, 2000 Shares Amount
Shares sold 698,193 $ 7,505,601
Shares issued resulting from
reorganization 2,673,292 31,042,590
------------- -------------
Total issued 3,371,485 38,548,191
Shares redeemed (928,060) (10,260,712)
------------- -------------
Net increase 2,443,425 $ 28,287,479
============= =============
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 D Shares for the Year Dollar
Ended May 31, 2000 Shares Amount
Shares sold 771,607 $ 8,527,858
Automatic conversion of shares 611,671 6,649,194
------------- -------------
Total issued 1,383,278 15,177,052
Shares redeemed (1,433,889) (15,512,978)
------------- -------------
Net decrease (50,611) $ (335,926)
============= =============
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)
============= =============
5. Commitments:
At May 31, 2000, 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 various
foreign currencies with approximate values of $17,000 and $210,000,
respectively.
Merrill Lynch International Equity Fund, May 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
6. Capital Loss Carryforward:
At May 31, 2000, the Fund had a net capital loss carryforward of
approximately $25,175,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains, except for future taxable gains on securities acquired from
Merrill Lynch Consults International Portfolio.
7. Reorganization Plan:
On March 6, 2000, the Fund acquired all of the net assets of Merrill
Lynch Consults International Portfolio pursuant to a plan of
reorganization. The acquisition was accomplished by a tax-free
exchange of 3,233,191 shares of common stock of Merrill Lynch
Consults International Portfolio for 2,673,292 shares of common
stock of the Fund. Merrill Lynch Consults International Portfolio's
net assets on that date of $31,042,590, including $5,507,423 of
unrealized appreciation and $30,522 of accumulated net realized
capital losses, were combined with those of the Fund. The aggregate
net assets immediately after the acquisition amounted to
$296,810,426.
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, 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2000, 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, 2000, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in accordance
with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 19, 2000
Merrill Lynch International Equity Fund, May 31, 2000
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments as of
May 31, 2000
Percent of
Ten Largest Equity Holdings Net Assets
Nokia Oyj 3.0%
Vodafone AirTouch PLC 2.5
Telefonaktiebolaget
LM Ericsson AB 'B' 2.0
BP Amoco PLC 1.7
Royal Dutch Petroleum Company 1.5
Total Fina SA 'B' 1.2
Deutsche Telekom AG (Registered
Shares) 1.2
Credit Suisse Group (Registered
Shares) 1.2
Nortel Networks Corporation 1.1
AstraZeneca Group PLC 1.1
Percent of
Ten Largest Countries Net Assets
Japan 24.8%
United Kingdom 17.5
France 8.4
Germany 7.9
Switzerland 5.8
Netherlands 4.6
Italy 3.9
Sweden 3.9
Australia 3.2
Finland 3.2
Percent of
Geographical Asset Mix* Net Assets
Europe (Ex United Kingdom
and Ireland) 41.0%
United Kingdom and Ireland 17.5
Japan 24.8
Pacific Basin (Ex Japan) 5.3
North America 3.4
Latin America 0.2
Other Emerging Markets 0.3
*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
Banks 9.8%
Oil & Gas 6.9
Communications Equipment 6.8
Diversified Telecommunication
Services 5.9
Pharmaceuticals 5.4
Wireless Telecommunication
Services 4.8
Media 4.0
Insurance 3.7
Metals & Mining 2.5
Electronic Equipment
Instruments 2.5
Financial Futures Contracts
Percent of
Country Issue Exchange Net Assets
Australia All Ordinaries Index Sydney FE (1.0)%
Canada TSE--35 Index Toronto SE (0.5)
Euro CAC 40 MATIF 0.5
Germany DAX Index DTB (0.5)
Italy FIB 30 Index MIB (0.5)
Japan Taiwan MSCI Index SIMEX 0.5
Japan Nikkei 225 Index SIMEX 0.5
Sweden OMX Index OML (1.6)
-------
(2.6)%
=======
OFFICERS AND TRUSTEES
Terry K. Glenn, President and Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Arthur Zeikel, Trustee
Edward D. Zinbarg, Trustee
Robert C. Doll, Jr., Senior Vice President
Clive D. Lang, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Robert Harris, 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
