MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
FUND LOGO
Annual Report
October 31, 1996
Officers and Trustees
Arthur Zeikel, President and Trustee
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Christine L. Pinto, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Consults
International Portfolio
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
Important Tax
Information
(unaudited)
<PAGE>
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Consults International Portfolio during its
fiscal year ended October 31, 1996.
<CAPTION>
Record Payable Domestic Ordinary Foreign Source Total Ordinary Foreign Taxes Long-Term
Date Date Income Income Income Paid or Withheld Capital Gains
<S> <S> <C> <C> <C> <C> <C>
12/19/95 12/29/95 $0.303094 $0.133485 $0.436579 $0.035560 $0.463659
</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.
Worldwide
Investments as of
October 31, 1996
Percent of
Ten Largest Industries Net Assets
Banking 8.3%
Oil & Related 7.1
Metals 6.7
Machinery 5.9
Telecommunications 5.8
Electronics 5.0
Chemicals 4.8
Apparel 4.2
Conglomerates 3.7
Beverage 3.1
Percent of
Ten Largest Holdings Country Net Assets
Elf Aquitaine S.A. France 2.8%
BASF AG Germany 2.7
Societa Finanziara
Telefonica S.p.A. (STET) Italy 2.5
Siebe PLC(Ordinary) United Kingdom 2.5
Sime Darby BHD Malaysia 2.4
Toray Industries, Inc. Japan 2.4
Boots Company PLC United Kingdom 2.3
HSBC Holdings PLC Hong Kong 2.3
Sun Hung Kai Properties Ltd. Hong Kong 2.3
Hitachi, Ltd. Japan 2.2
<PAGE>
DEAR SHAREHOLDER
The first half of the fiscal year ended October 31, 1996 coincided
with a substantial increase in international equity market activity,
thus providing a robust start to the Portfolio's 1996 fiscal year.
The Portfolio, which historically has pursued a fully invested
investment policy, participated in the strong international equity
market environment almost immediately and enjoyed its best
semi-annual return since inception.
However, the first-half upward bias of international stock markets
ended abruptly during the summer months, and gave way to a volatile
and largely correcting performance in the second half. This change
developed after a sharp decline in the Dow Jones Industrial Average
during July, caused by investor concerns over the course of US
interest rates. While the US equity market began to recover almost
immediately as US bond yields started to trend lower, many of our
emphasized markets in the Pacific Rim, such as Japan, continued to
experience extreme pressure. Toward fiscal year-end, the United
States remained solidly ahead; Europe was steadily recovering; and
the Pacific Rim region, outside of Hong Kong, continued its downward
bias. We underwent major investment strategy changes during this
period, including adding several new markets to the Portfolio to
seek to take advantage of this changing international investment
environment.
We began the fiscal year ended October 31, 1996 with a low cash
position of 1.1% of net assets. However, in January 1996 we had a
cash position of nearly 10% as a result of the proceeds from our yen
forward hedge contract which matured during the month. We hedged the
Portfolio's exposure to the Japanese yen during 1995, and
significant profits resulting from this strategy were used for
re-investment. Nevertheless, we remained fully invested in
international equities. The orientation of the equities purchased
for Merrill Lynch Consults International Portfolio is predominantly
value driven. The range of equity markets in which we invest
includes the unmanaged Morgan Stanley Europe, Australia and Far East
(EAFE) Index components, in addition to Canada and selected non-EAFE
emerging markets, such as Brazil, China and Korea.
Late in 1995, in light of the depressed conditions of most emerging
markets around the Pacific Rim and in Latin America, our investment
strategy steadily emphasized the values in those areas and built
selected investment positions. From a modest beginning exposure of
just 14% of net assets, positions in the emerging markets accounted
for nearly 22% of total net assets by October 31, 1996, a
substantial overweight to the Morgan Stanley EAFE Index. This is in
contrast to the steady reduction of our previously strong emphasis
on Japan which represented just over 40% of net assets, and which
was reduced to less than 30% by year-end, representing an
underweight position.
<PAGE>
We underweighted European markets substantially at the beginning of
the year as they showed few signs of sustainable recovery potential,
collectively selling below peak levels seen in the spring of 1994.
Although there was anxiety produced by public sector strikes in
France and uncertainty over the European Monetary Union (EMU)
process, European bourses regained investor favor as interest rates
fell and bond markets rallied. We increased the Portfolio's exposure
to 39% of net assets, which is still underweight relative to the
Morgan Stanley EAFE Index, but we continue to invest aggressively to
close the gap. The Canadian and Australian markets remained largely
unchanged as a percentage of total net assets throughout the year.
The single largest positive country change during the year ended
October 31, 1996 was the sizeable buildup in Hong Kong and
China-related shares, which represented 7% of total net assets at
October 31, 1996, up from 3.5%.
Fiscal Year in Review
There was considerable activity in the Portfolio during the first
fiscal quarter as we invested the cash proceeds of our yen hedge.
The global markets were very robust, having shown signs of a buying
panic during the holiday period and into January 1996. Exceptional
returns were seen in the emerging markets and Japan. The Fund
benefited significantly during the first quarter as a result,
outperforming our benchmark, the unmanaged Morgan Stanley EAFE
Index.
At the outset of the second quarter, particularly during February,
international equity markets were in a consolidation phase, the
exception being Hong Kong, which was strongly ahead, and Latin
America, which experienced a more than 6% decline affecting roughly
6% of our assets. The Portfolio had a decisive underperformance
relative to the Morgan Stanley EAFE Index in February because of a
low representation in key outperforming markets such as Hong Kong
and core Europe and the retracement in Latin America. Europe
continued strongly ahead during March and a significant uptrend in
Japan resumed, both of which lasted until late April. In fact, in
March and April, all major regional components of the Morgan Stanley
EAFE Index produced positive results with Japan leading decisively
in US dollar terms. Our continuing yen hedge produced neither gains
nor losses as the yen remained in a narrow trading range between 104
and 109 for the period as a whole, but did affect our ability to
outperform in April because of a rather sudden strengthening in the
currency at month end producing an unfavorable monthly comparison.
One factor negatively affecting the Portfolio's performance was our
substantial underweighting in Europe and continuing emphasis in
Japan. Japan produced a negative return in two of the three months
of the third fiscal quarter of approximately 5% each. The negative
events seemed to be set in motion by the revelation that Sumitomo
Metal Industries, Ltd. had grossly mismanaged its copper position
which resulted in multibillion dollar losses. We had previously held
Sumitomo in our top ten holdings during the year, but fortunately
had sold half of the position before the announcement because of
exceptionally good performance over the holding period.
Nevertheless, with volatile expectations for the economy and renewed
concerns about corporate misbehavior, Japanese stocks declined.
<PAGE>
The quarter ended on a particularly negative trend, as markets
internationally reacted to the sudden downdraft in the US equity
market during July. No region escaped the sell-off, and all
components of the Index produced negative returns, but the worst was
Japan. The Portfolio declined over 5% compared to the Morgan Stanley
EAFE Index decline of 3.05%. During late July, we began to
significantly alter our investment strategy to seek to lessen our
reliance on Japan where exposure had peaked at 44.6% of total net
assets during the period.
The final quarter of the fiscal year was dominated by this
alteration of geographical weightings and the inclusion of markets
new to the Portfolio, such as Brazil and Korea. Japan currently
accounts for 11% less of the Fund's total net assets than during the
May 1996 peak. We substantially increased our exposure to
China-related investments and mainstream Hong Kong property and
banking issues, which include HSBC Holdings PLC and Sun Hung Kai
Properties Ltd. We allowed our exposure to the Asian Tiger markets
to drift lower with the underperformance of those markets. As those
markets decline, we are content to remain underexposed in most of
the Asian markets outside of Hong Kong. The questionable current
account practices and deteriorating trade performance of some of the
smaller Asian economies is not encouraging and they continue to
underperform. That's the reason that within the Asian portion of the
Portfolio (nearly 13% of net assets), Hong Kong and our listed "Red
Chip" shares comprise nearly half of the weighting with the
remaining markets of Thailand, Indonesia, and Singapore below the
Index weighting.
Sime Darby BHD of Malaysia is the sole emerging market equity among
our top ten holdings because of its relative performance of late and
the diversified strength of the Malaysian economy. We will continue
to increase China's infrastructure and transportation issues in the
Portfolio because of our belief that Hong Kong and China will be
successfully integrated in 1997 and the austerity program ended in
conjunction with lower inflation and interest rates.
In Europe, which dominated performance during the final quarter of
the fiscal year, along with Hong Kong, the common denominator was
perhaps the relative strength of the US dollar and a perception that
US economic activity was moderating and so would interest rate
pressures. The emergence of a shareholder value theme in core
European markets is bolstering performance. This may include moves
to repurchase shares, concentrate on enterprise value and spin off
non-core assets by large industrials in the near future.
<PAGE>
We appropriately increased our weighting in the United Kingdom,
which benefited from a late round of EMU enthusiasm from the
currency standpoint, but our real conviction lies in the core
markets of Europe, especially Germany, because of an emergence of
these shareholder value strategies. BASF AG is our key German
holding, and we are focused on the financials and bank restructuring
theme as well. We reduced our earlier overweighted position in Italy
as we await further news on corporate performance now that interest
rates and inflation are down. Nevertheless, Societa Finanziara
Telefonica S.p.A (STET) in Italy remains a top ten holding because
of its extreme undervaluation in the global telecommunication
universe. France continued to be a relative disappointment for
value-oriented investors as growth stock investing has clearly
dominated. Among our remaining European top ten holdings is Elf
Aquitaine S.A. which is likely to be a beneficiary of leverage to
higher energy prices, recent restructuring initiatives and its
growth-oriented investments. Nevertheless, our underweighted
position in Europe throughout the fiscal year negatively affected
performance, relative to the benchmark Morgan Stanley EAFE Index.
In Latin America we are encouraged by prospects for Brazil, now 2%
of total net assets, given the heavy privatization program intended
over the next several quarters. Accordingly, we are acquiring stocks
representative of this theme. We intend to eventually add private
sector industrials. Our target weighting for Brazil is 5% of net
assets for a total Latin American weighting of 10%--12%. Mexico was a
larger holding during the final quarter and was reduced heading into
a round of currency weakness during October. We remain confident
that lower interest rate expectations in the United States will
provide stability for Mexico and aid its efforts to promote domestic
demand to compliment its excellent export progress. Additional
investments in the region would raise our overall emerging markets
exposure to approximately 30% of net assets.
The Portfolio ended the fiscal year with substantial redemptions on
a daily basis which required careful cash management. The
underperformance compared to the Morgan Stanley EAFE Index was at
its greatest as we instituted significant weighting changes. Japan
had yet to recover even modestly, implying that some positive relief
may be coming from that market soon. Our yen hedge was recently
closed out for a modest profit, and we expect some modest weakening
of the US dollar over the next several months which will benefit our
US dollar valuation. Nevertheless, we hope that our many changes
will result in better tracking of international equity markets
investment opportunities and a reduction of volatility in upcoming
months. We are also anticipating a less robust post-election year
stock market in the United States which should promote increased
interest in international markets by US investors.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Christine L. Pinto)
Christine L. Pinto
Vice President and Portfolio Manager
December 9, 1996
PERFORMANCE DATA (unaudited)
None of the past results shown should 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.
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the Portfolio
compared to growth of an investment in the Morgan Stanley EAFE
Index. Beginning and ending values are:
9/14/92** 10/31/96
ML Consults International Portfolio*++ $10,000 $13,417
Morgan Stanley EAFE Index++++ $10,000 $15,783
[FN]
*Assuming transaction costs and other operating expenses, including
advisory fees.
**Commencement of Operations.
++ML Consults International Portfolio invests in a diversified
international portfolio of equity securities, other than US
securities.
++++This unmanaged Index measures the total returns of developed
foreign stock markets in Europe, Asia, and the Far East.
<PAGE>
<TABLE>
Average Annual
Total Return
<CAPTION>
Period Covered % Return
<S> <C>
Year Ended 9/30/96 +7.59%
Inception (9/14/92) through 9/30/96 +8.19
</TABLE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 3 Month
10/31/96 7/31/96 10/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Consults International Portfolio $12.09 $12.10 $12.28 +2.30%(1) -0.08%
ML Consults International Portfolio--Total Return +5.93(2) -0.08
<FN>
(1)Percent change includes reinvestment of $0.464 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.437 per share income
dividends and $0.464 per share capital gains distributions.
</TABLE>
<TABLE>
Performance
Summary
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/14/92--12/31/92 $10.00 $ 9.79 -- -- - 2.10%
1993 9.79 11.93 -- $0.050 +22.37
1994 11.93 11.84 $0.178 0.139 + 1.94
1995 11.84 12.07 0.464 0.437 + 9.68
1/1/96--10/31/96 12.07 12.09 -- -- + 0.17
------ ------
Total $0.642 Total $0.626
Cumulative total return as of 10/31/96: +34.17%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. There are
no sales charges associated with the Portfolio.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 197,990 Banco de Galicia y Buenos Aires
S.A. de C.V. (ADR)* $ 3,179,597 $ 3,588,563 2.1%
Oil & Related 80,000 YPF S.A. (ADR)* 1,986,842 1,820,000 1.0
Total Investments in Argentinean Stocks 5,166,439 5,408,563 3.1
Brazil Electric 32,000,000 Companhia Energetica de Minas Gerais
Utilities (CEMIG) (Preferred) 949,891 1,018,592 0.6
Oil & Related 10,000,000 Petroleo Brasileiro S.A. (Petrobras)
(Preferred) 1,269,912 1,294,656 0.7
Steel 458,000,000 Usinas Siderurgicas de Minas Gerais
S.A.--USIMINAS (Preferred) 500,967 481,495 0.3
Total Investments in Brazilian Stocks 2,720,770 2,794,743 1.6
Mexico Building & 600,000 Cemex S.A. 2,320,739 2,158,058 1.2
Construction 175,000 ++Empresas ICA Sociedad Controladora,
S.A. de C.V. (ADR)* 2,646,374 2,275,000 1.3
------------ ------------ ------
4,967,113 4,433,058 2.5
Retail 1,000,000 ++Cifra, S.A. de C.V. (Series B) 1,409,966 1,279,403 0.7
Transportation 150,000 Transportacion Maritima Mexicana,
S.A. de C.V. (ADR)* 1,352,126 1,050,000 0.6
Total Investments in Mexican Stocks 7,729,205 6,762,461 3.8
Total Investments in Latin America 15,616,414 14,965,767 8.5
NORTH
AMERICA
Canada Metals 132,700 Noranda, Inc. 2,176,720 2,919,420 1.7
Oil & Related 56,000 Norcen Energy Resources Ltd. 978,027 1,198,598 0.7
Total Investments in North America 3,154,747 4,118,018 2.4
<PAGE>
PACIFIC
BASIN
Australia Metals 277,200 Broken Hill Proprietary, Ltd. 2,767,090 3,679,657 2.1
Publishing 560,000 News Corporation, Ltd. (Ordinary) 2,410,336 3,186,484 1.8
Total Investments in Australian Stocks 5,177,426 6,866,141 3.9
Hong Kong Banking 200,000 HSBC Holdings PLC 3,480,157 4,074,242 2.3
Building & 560,000 ++Road King Infrastructure Ltd. 481,566 409,235 0.2
Construction
Diversified 700,000 Guangdong Investments 498,152 502,490 0.3
Railroads 1,250,000 ++Guangshen Railway Co., Ltd. (Series H) 469,278 464,819 0.3
Real Estate 1,600,000 Guangzhou Investment Co., Ltd. 488,755 517,364 0.3
350,000 Sun Hung Kai Properties Ltd. 3,394,752 3,983,703 2.3
------------ ------------ ------
3,883,507 4,501,067 2.6
Telecommunications 1,100,000 Hong Kong Telecommunications, Ltd. 2,251,729 1,942,055 1.1
Total Investments in Hong Kong Stocks 11,064,389 11,893,908 6.8
Japan Apparel 200,000 Tokyo Style Co., Ltd. 3,475,066 3,041,758 1.8
700,000 Toray Industries, Inc. 5,212,767 4,227,692 2.4
------------ ------------ ------
8,687,833 7,269,450 4.2
Automobile & 33,000 Autobacs Seven Co., Ltd. 2,696,558 2,605,187 1.5
Equipment 200,000 Yamaha Motors Co., Ltd. 1,779,524 1,793,407 1.0
------------ ------------ ------
4,476,082 4,398,594 2.5
Banking 70,000 Sanwa Bank, Ltd. 1,375,997 1,193,846 0.7
Beverage 220,000 Kirin Brewery Co., Ltd. 2,688,369 2,262,857 1.3
Chemicals 460,000 Mitsui Petrochemical Industries, Ltd. 2,891,381 2,794,374 1.6
100,000 Nippon Shokubai K.K. Co. 1,032,405 833,407 0.5
------------ ------------ ------
3,923,786 3,627,781 2.1
Electrical 435,000 Hitachi, Ltd. 3,600,724 3,862,418 2.2
Equipment
Electronics 30,000 Advantest Corporation 1,405,160 1,134,066 0.7
200,000 Matsushita Electric Industrial
Co., Ltd. 3,029,307 3,200,000 1.8
90,000 Omron Corp. 1,821,396 1,606,154 0.9
------------ ------------ ------
6,255,863 5,940,220 3.4
<PAGE>
Financial Services 213,000 Nomura Securities Co., Ltd. 4,746,603 3,520,352 2.0
Household Products 200,000 Kao Corp. 2,272,637 2,356,044 1.4
Insurance 572,000 Nippon Fire & Marine Insurance Co., Ltd. 4,139,948 3,017,143 1.7
Machinery 195,000 Makita Corporation 3,008,235 2,674,286 1.5
300,000 Mitsubishi Heavy Industries, Ltd. 1,925,590 2,307,692 1.3
------------ ------------ ------
4,933,825 4,981,978 2.8
Merchandising 50,000 Ito-Yokado Co., Ltd. 2,465,299 2,496,703 1.4
Metals 1,400,000 Sumitomo Metal Industries, Ltd. 4,064,328 3,852,308 2.2
Paper & Forest 200,000 Hokuetsu Paper Mills, Ltd. 1,869,114 1,403,077 0.8
Products
Printing 100,000 Dai Nippon Printing, Ltd. 1,786,645 1,687,912 1.0
Total Investments in Japanese Stocks 57,287,053 51,870,683 29.7
Malaysia Conglomerates 700,000 Land & General BHD 1,748,183 1,524,149 0.9
1,200,000 Sime Darby BHD 2,737,495 4,251,781 2.4
Total Investments in Malaysian Stocks 4,485,678 5,775,930 3.3
South Electric Utilities 15,000 Korea Electric Power Corp. 501,209 442,354 0.3
Korea
Natural Gas Utilities 15,000 ++Seoul City Gas Co., Ltd. 1,211,976 1,101,335 0.6
Total Investments in South Korean Stocks 1,713,185 1,543,689 0.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
PACIFIC BAISIN Shares Value Percent of
(concluded) Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Thailand Agriculture 333,000 Charoen Pokphand Feedmill Co., Ltd. $ 1,608,648 $ 1,293,432 0.7%
Banking 120,000 Bangkok Bank Co., Ltd. (Foreign) 1,380,245 1,280,603 0.7
Building Materials 40,000 Siam Cement PLC (Foreign) 2,114,965 1,368,487 0.8
Total Investments in Thai Stocks 5,103,858 3,942,522 2.2
Total Investments in the Pacific Basin 84,831,589 81,892,873 46.8
<PAGE>
WESTERN
EUROPE
France Advertising 52,000 Havas S.A. 4,140,514 3,418,615 1.9
Oil & Related 60,000 Elf Aquitaine S.A. (a) 4,473,191 4,802,067 2.8
Total Investments in French Stocks 8,613,705 8,220,682 4.7
Germany Banking 80,000 Bayerische Hypotheken-und
Wechsel-Bank AG 2,083,007 2,344,855 1.3
Chemicals 150,000 BASF AG 3,915,994 4,798,097 2.7
Conglomerates 2,500 Preussag AG 740,731 602,406 0.4
Utility 63,000 Veba AG 2,049,098 3,362,970 1.9
Total Investments in German Stocks 8,788,830 11,108,328 6.3
Italy Building 230,000 Italcementi S.p.A. 1,496,298 1,219,111 0.7
Materials
Office Equipment 2,000,000 ++Olivetti Group S.p.A. 1,258,718 581,832 0.3
Telecommunications 1,280,000 Societa Finanziara Telefonica
S.p.A. (STET) 3,430,286 4,424,566 2.5
Total Investments in Italian Stocks 6,185,302 6,225,509 3.5
Netherlands Electronics 80,000 Philips Electronics N.V. 3,142,684 2,820,256 1.6
Total Investments in Netherlands Stocks 3,142,684 2,820,256 1.6
Norway Medical Supplies 100,000 ++Nycomed ASA 'B' Shares 1,653,191 1,348,681 0.8
Shipbuilding 105,000 Kvaerner A.S. 'B' Shares 5,085,432 3,655,553 2.1
Total Investments in Norwegian Stocks 6,738,623 5,004,234 2.9
Spain Oil & Related 100,000 Repsol S.A. 3,109,463 3,267,179 1.9
Total Investments in Spanish Stocks 3,109,463 3,267,179 1.9
Sweden Household Appliances 50,000 Electrolux AB 2,397,099 2,786,873 1.6
Machinery 50,000 Atlas Copco AB (Class A) 919,997 1,035,559 0.6
Metals 55,000 SKF AB 1,072,657 1,218,686 0.7
<PAGE>
Total Investments in Swedish Stocks 4,389,753 5,041,118 2.9
Switzerland Banking 20,000 CS Holding AG (Registered) 2,102,399 2,004,923 1.2
Foods 1,400 Nestle S.A. (Registered) 1,564,148 1,526,282 0.9
Pharmaceuticals 1,750 Ciba-Geigy AG (Registered) 997,359 2,163,530 1.2
Total Investments in Swiss Stocks 4,663,906 5,694,735 3.3
United Beverage 410,000 Grand Metropolitan PLC (Ordinary) 2,663,875 3,091,109 1.8
Kingdom
Consumer & 100,000 Williams Holdings PLC 520,578 590,456 0.3
Industrial
Products
Entertainment & 320,000 Rank Organisation PLC 2,323,790 2,126,291 1.2
Leisure
Machinery 280,000 Siebe PLC (Ordinary) 2,276,580 4,390,519 2.5
Natural Gas 790,000 British Gas PLC (Ordinary) 3,018,263 2,454,377 1.4
Utilities
Retail 400,000 Boots Company PLC 3,588,607 4,079,513 2.3
Telecommunications 650,000 British Telecommunications PLC 4,044,346 3,758,666 2.2
Total Investments in United Kingdom
Stocks 18,436,039 20,490,931 11.7
Total Investments in Western Europe 64,068,305 67,872,972 38.8
SHORT-TERM Face
SECURITIES Amount
United Commercial $ 8,222,000 General Electric Capital Corp., 5.56%
States Paper** due 11/01/1996 8,222,000 8,222,000 4.7
Total Investments in Short-Term
Securities 8,222,000 8,222,000 4.7
Total Investments $175,893,055 177,071,630 101.2
============
Liabilities in Excess of Other Assets (2,150,909) (1.2)
------------ ------
Net Assets $174,920,721 100.0%
============ ======
<FN>
++Non-income producing security.
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
(a)Name changed from Societe Nationale Elf Aquitaine (Ordinary).
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$175,893,055) (Note 1a) $177,071,630
Cash 754
Foreign cash (Note 1b) 203
Receivables:
Forward foreign exchange contracts (Note 1c) $ 3,290,832
Dividends 490,435
Beneficial interest sold 364,660 4,145,927
------------
Deferred organization expenses (Note 1f) 22,761
Prepaid registration fees and other assets (Note 1f) 7,386
------------
Total assets 181,248,661
------------
Liabilities: Payables:
Beneficial interest redeemed 3,266,564
Forward foreign exchange contracts (Note 1c) 2,108,106
Securities purchased 428,976
Distributor (Note 2) 156,197
Investment adviser (Note 2) 117,148
Administration fee (Note 2) 39,049
Commissions 33,533 6,149,573
------------
Accrued expenses and other liabilities 178,367
------------
Total liabilities 6,327,940
------------
Net Assets: Net assets $174,920,721
============
Net Assets Common shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 1,446,749
Paid-in capital in excess of par 162,691,515
Accumulated investment loss--net (8,950,726)
Accumulated distributions in excess of investment income--net (Note 1g) (6,862,242)
Undistributed realized capital gains on investments and foreign
currency transactions--net 25,418,173
Unrealized appreciation on investments and foreign currency
transactions--net 1,177,252
------------
Net assets--Equivalent to $12.09 per share based on 14,467,493
shares of beneficial interest outstanding $174,920,721
============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Dividends (net of $510,102 foreign withholding tax) $ 3,523,394
Income Interest and discount earned 449,734
(Notes 1d & 1e): ------------
Total income 3,973,128
------------
Expenses: Account maintenance and distribution fees (Note 2) $ 2,034,555
Investment advisory fees (Note 2) 1,525,916
Administration fees (Note 2) 508,639
Custodian fees 166,482
Professional fees 68,843
Accounting services (Note 2) 68,830
Registration fees (Note 1f) 65,765
Transfer agent fees (Note 2) 58,612
Printing and shareholder reports 28,245
Amortization of organization expenses (Note 1f) 26,606
Trustees' fees 23,708
Pricing fees 12,973
Other 245,589
------------
Total expenses 4,834,763
------------
Investment loss--net (861,635)
------------
Realized & Realized gain from:
Unrealized Gain Investments--net 5,997,007
(Loss) on Foreign currency transactions--net 19,432,739 25,429,74
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (202,476)
(Notes 1b, 1c, Foreign currency transactions--net (12,470,140) (12,672,616)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 12,757,130
------------
Net Increase in Net Assets Resulting from Operations $ 11,895,495
============
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (861,635) $ (897,752)
Realized gain on investments and foreign currency
transactions--net 25,429,746 102,593
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (12,672,616) (8,175,491)
------------ ------------
Net increase (decrease) in net assets resulting from operations 11,895,495 (8,970,650)
------------ ------------
Dividends & In excess of investment income--net (6,862,242) --
Distributions to Realized gain on investments--net (7,287,890) (6,621,521)
Shareholders ------------ ------------
(Note 1g):
Beneficial Net decrease in net assets resulting from dividends and
Interest distributions to shareholders (14,150,132) (6,621,521)
Transactions ------------ ------------
(Note4): Net decrease in net assets derived from beneficial
interest transactions (19,901,777) (59,817,607)
------------ ------------
Net Assets: Total decrease in net assets (22,156,414) (75,409,778)
Beginning of year 197,077,135 272,486,913
------------ ------------
End of year $174,920,721 $197,077,135
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived Sept. 14,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995++++ 1994++++ 1993++++ 1992++++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.28 $ 12.83 $ 11.74 $ 9.60 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.05) (.12) (.08) (.02)
<PAGE> Realized and unrealized gain (loss) on
investments--net .76 (.18) 1.26 2.22 (.38)
-------- -------- -------- -------- --------
Total from investment operations .71 (.23) 1.14 2.14 (.40)
-------- -------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.44) -- -- -- --
Realized gain on investments--net (.46) (.32) (.05) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.90) (.32) (.05) -- --
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.09 $ 12.28 $ 12.83 $ 11.74 $ 9.60
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.93% (1.68%) 9.74% 22.29% (4.00%)+++
Return: ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.37% 2.35% 2.27% 2.76% 3.50%*
Net Assets: ======== ======== ======== ======== ========
Expenses 2.37% 2.35% 2.27% 2.76% 4.45%*
======== ======== ======== ======== ========
Investment loss--net (.42%) (.41%) (.56%) (.86%) (2.77%)*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $174,921 $197,077 $272,487 $175,756 $ 16,636
Data: ======== ======== ======== ======== ========
Portfolio turnover 38.16% 17.31% 24.64% 32.54% --
======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0010 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may materially affect the rate shown.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
1. Significant Accounting Policies:
Merrill Lynch Consults International Portfolio (the "Fund") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The following
is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Portfolio securities, including
depositary receipts, which are traded on stock exchanges are valued
at the last sale price on the exchange on which such securities are
traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market are valued at the
last available bid price prior to the time of valuation. In cases
where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the
authority of the Board of Trustees as the primary market. Securities
which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative
market. Options written are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the last asked price. Options
purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the- counter market, the last bid price. Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not available are valued at fair value as determined
in good faith by or under the direction of the Fund's Board of
Trustees.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Realized
and unrealized gains/losses on 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.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contract.
<PAGE>
* Foreign currency options and futures--The Fund may 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.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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.
* Options--The Fund is authorized to write covered call options and
purchase put 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).
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
<PAGE>
(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, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transections are
determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--
Costs related to the organization of the Fund are charged to expense
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 date. Distributions in
excess of net investment income are due primarily to differing tax
treatments for foreign currency transactions.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$7,191,339 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss. These
reclassifications have no effect on net assets or net asset value
per share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch (Suisse) Investment Management S.A. (the "Investment
Adviser"). The Investment Adviser is a subsidiary of Merrill Lynch
Bank (Suisse) S.A. which is, in turn, an indirect subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."). Fund Asset Management, L.P.
("FAM") and Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") have been retained as sub-advisers (the "SubAdvisers") to the
Fund. Pursuant to sub-advisory agreements, the Sub-Advisers will
provide investment advisory services with respect to the management
of the Fund's cash position.
As compensation for its services to the Fund, the Investment Adviser
receives monthly compensation at the annual rate of 0.75% of the
average daily net assets of the Fund. The Fund will not pay any
incremental fee to the Sub-Advisers for their services.
<PAGE>
The Fund has an Administrative Agreement with Princeton Administrators,
L.P. (the "Administrator"), an indirect subsidiary of ML & Co. The
Administrator performs or arranges for the performance of certain
administrative services (i.e., services other than investment advice
and related portfolio activities) necessary for the operation of the
Fund, including maintaining the books and records of the Fund,
preparing reports and other documents required by United States
Federal, state and other applicable laws and regulations to maintain
the registration of the Fund and its shares and providing the Fund
with administrative office facilities. For the services rendered
to the Fund and the facilities furnished, the Fund pays the
Administrator a monthly fee equal to 0.25% of the Fund's average
daily net assets. Also, accounting services are provided to the
Fund by the Administrator, and the Fund reimburses the Administrator
for its costs in connection with such services on a semi-annual basis.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 pursuant to
which Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), which is an indirect subsidiary of ML & Co.,
receives ongoing distribution and account maintenance fees, which
are accrued daily and paid monthly at the annual rates of 0.75% and
0.25%, respectively, of the average daily net assets of the Fund.
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner, & Smith ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance activities and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance activities
to the Fund's shareholders. The ongoing distribution fee compensates
the Distributor and MLPF&S for providing shareholder and distribution
services and bearing distribution-related expenses of the Fund,
including payments to financial consultants for selling shares
of the Fund.
As authorized by the Plan, the Distributor has entered into an
agreement with MLPF&S, an affiliate of the Investment Adviser, which
provides for the compensation of MLPF&S for providing account
maintenance and distribution-related services to the Fund. For the
year ended October 31, 1996, MLFD earned $2,034,555 under the Plan,
all of which was paid to MLPF&S pursuant to the agreement.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a
wholly-owned subsidiary of ML & Co., acts as the Fund's transfer
agent.
In addition, MLPF&S received $107,010 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended October 31, 1996.
<PAGE>
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, the Investment Adviser (including their affiliated
companies), MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1996 were $72,934,030 and
$88,898,151, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996,
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 5,996,999 $ 1,178,575
Short-term investments 8 --
Foreign currency transactions (104,013) (1,323)
Forward foreign exchange
contracts 19,536,752 --
----------- -----------
Total $25,429,746 $ 1,177,252
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $1,178,575, of which $15,686,038
related to appreciated securities and $14,507,463 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $175,893,055.
4. Beneficial Interest Transactions:
Transactions in shares of beneficial interest were as follows:
For the Year Ended October 31, 1996 Shares Dollar Amount
Shares sold 3,894,853 $ 48,570,265
Shares issued to shareholders
in reinvestments of dividends
and distributions 1,089,865 12,925,796
------------ ------------
Total issued 4,984,718 61,496,061
Shares redeemed (6,567,697) (81,397,838)
------------ ------------
Net decrease (1,582,979) $(19,901,777)
============ ============
<PAGE>
For the Year Ended October 31, 1995 Shares Dollar Amount
Shares sold 1,857,251 $ 21,980,972
Shares issued to shareholders
in reinvestments of
distributions 501,369 5,855,982
------------ ------------
Total issued 2,358,620 27,836,954
Shares redeemed (7,550,747) (87,654,561)
------------ ------------
Net decrease (5,192,127) $(59,817,607)
============ ============
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees,
Merrill Lynch Consults International Portfolio
We have audited the accompanying statement of assets and liabilities
of Merrill Lynch Consults International Portfolio, including the
schedule of investments, as of October 31, 1996, and the related
statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then
ended and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and 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 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 as of October 31, 1996, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Consults International Portfolio
at October 31, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and financial highlights for each of the
indicated periods, in conformity with generally accepted accounting
principles.
<PAGE>
(Ernst & Young LLP)
Princeton, New Jersey
December 11, 1996
