MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
STRATEGIC
Performance
Annual Report
October 31, 1997
<PAGE>
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
================================================================================
Important Tax The following information summarizes all per share
Information distributions paid by Merrill Lynch Consults
(unaudited) International Portfolio during its fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Record Payable Domestic Ordinary Foreign Source Total Ordinary Foreign Taxes Long-Term
Date Date Income Income Income Paid or Withheld Capital Gains
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/17/96 12/31/96 $.307443 $.134411 $.441854 $.038446 $.347697
------------------------------------------------------------------------------------------------------------
</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.
================================================================================
<TABLE>
<CAPTION>
Worldwide Percent of Percent of
Investments as of Ten Largest Industries Net Assets Ten Largest Holdings Country Net Assets
October 31, 1997
<S> <C> <C> <C> <C>
Electronics..................... 8.5% Telecom Italia S.p.A. .......... Italy 3.5%
Banking......................... 7.4 Elf Aquitaine S.A. ............. France 3.5
Oil & Related................... 6.7 Grand Metropolitan PLC
Insurance....................... 5.9 (Ordinary) ................... United Kingdom 3.4
Machinery....................... 5.6 Boots Company PLC .............. United Kingdom 3.3
Retail.......................... 5.3 BG PLC ......................... United Kingdom 3.2
Pharmaceuticals................. 4.8 Matsushita Electric Co., Ltd. .. Japan 3.1
Electric Utilities.............. 4.6 Philips Electronics N.V. ....... Netherlands 2.9
Beverage........................ 4.3 Novartis AG (Registered) ....... Switzerland 2.7
Natural Gas Utilities........... 4.0 Commercial Union PLC ........... United Kingdom 2.6
Makita Corporation ............. Japan 2.5
</TABLE>
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
DEAR SHAREHOLDER
Fiscal Year in Review
During the fiscal year ended October 31, 1997, Merrill Lynch Consults
International Portfolio had a total return of +9.26% as compared to +4.63% for
the unmanaged Morgan Stanley Europe, Australia, and Far East (EAFE) Index. We
are disappointed that the results for the year as a whole were significantly
below the highs recorded for the Portfolio during the year, primarily the result
of the significant pullback in most of the international equity markets toward
the Portfolio's year-end. However, the Portfolio outperformed the Morgan Stanley
EAFE Index throughout the year.
Contributing to our outperformance during the fiscal year was our investment
strategy of underweighting Japan and the Southeast Asian equity markets while
emphasizing Hong Kong and China and strongly overweighting Latin America. We
added to our positions in Europe and the United Kingdom to become more fully
exposed to these markets. Most rewarding was our decision to avoid most of the
emerging Asian markets in favor of Latin America.
A major investment challenge of the past year has been the significant rally of
the US dollar, which potentially undermined very strong local currency returns
in the European markets. The dollar also rallied slightly versus the Japanese
yen for the year as a whole, but we strived to maintain the correct currency
hedges as dollar volatility rose substantially.
Overall, the dominant theme of the international markets during the fiscal year
ended October 31, 1997 was the convergence of yields in the major European
economies in anticipation of monetary union leading to strong local equity
market performance. Continental European corporations also embarked on
restructuring and increased merger and acquisition activity in an unprecedented
fashion in an effort to restore competitiveness. Within Asia, China-related
shares and Hong Kong performed very strongly throughout most of the year as
confidence soared during the Hong Kong handover. There was a long-awaited upturn
in the Chinese economy after the recent period of austerity that reduced
inflation and allowed interest rates to fall.
The Asian market rallies ended as the pressure of currency devaluations in
several neighboring economies in the region impaired confidence in the Hong Kong
dollar and in China's competitiveness. The unprecedented decline of most of
emerging Asian markets stood in stark contrast to the resurgence of confidence
in Latin American markets, which were enjoying low interest rates, relatively
stable currencies, rising economic growth rates and in the case of Brazil,
privatization prospects. Japan remained an underperformer following the tax
hikes of last spring, and its stock market remained muted with the exception of
some globally oriented auto and electronics-related shares. Shareholder value
strategies remain an elusive theme in Japan, in contrast to many other major
international equity markets, and concerns about the financial system weighed on
investor confidence.
The fiscal year ended October 31, 1997 began with the Morgan Stanley EAFE Index
declining 1.0% in the first quarter, followed by a steep decline in Japan and
most Asian markets and a minor correction in Hong Kong. Despite the death of
Deng Xiaoping, Hong Kong proved resilient. While we were active sellers of Asia,
particularly Thailand and Malaysia, we were building up positions in Hong Kong
and China-related shares known as red chips. Latin America was performing
strongly, setting the leadership tone for the year to come, and our initiation
of investments in several key privatization stocks in Brazil proved rewarding.
The decline in Brazilian yield spreads relative to US Treasury securities
reduced risk premiums, and investor confidence was building. Europe was powering
ahead on the basis that efforts to achieve European Monetary Union (EMU) would
realign interest rates toward the lower rates that prevailed in Germany.
Overall, the equity market backdrop for Europe was good. There was a powerful
rally in the US dollar underway which was renewing global competitiveness for
Europe's key multinationals, shareholder value strategies were blossoming,
mergers were being announced, and some evidence of cyclical turning points for
the key economies were in evidence. European markets outperformed for the year
despite the occasional setback in EMU sentiment.
During most of the first half of the year, the Portfolio was partially currency
hedged given our increased European equity market exposure, which we believed
was necessitated by the strong performance of the US dollar. We also had hedged
the yen. In early May the currency markets began to suddenly reverse course,
albeit temporarily, and we quickly covered our hedges. This allowed the
Portfolio to gain from currency returns in what turned out to be a modest return
environment for the major international equity markets overall in the first half
of the year. Hedges were partially re-initiated during the summer months,
following a correction in the dollar's upward trend. At the end of the year, the
Portfolio was still substantially hedged to the Japanese yen. Overall, the
Portfolio benefited from hedging practices this year, and no substantial losses
on these transactions were taken.
The equity markets turned increasingly difficult during the second half of the
year with the Morgan Stanley EAFE Index recording its high point during mid-July
following an exceptionally strong move up from April lows, a move which had
carried the Morgan Stanley EAFE Index up nearly 20%. The US equity market also
witnessed its bull market peak in early August at 8259.21 on the Dow Jones
Industrial Average and failed to rally back to new highs despite a strong
advance between mid-September and mid-October.
We participated in two high profile surprise mergers in the German equity
market, one in the steel sector and the other in the financial area.
Additionally, within Europe, our top ten holdings focused on
large-capitalization, value-oriented shares with a restructuring theme. These
included Philips Electronics N.V. of the Netherlands and Elf Aquitaine S.A. in
France, which were very strong performers. We continue to find value in the
large European financial sector, which we believe is likely to consolidate
further.
During the first half of the fiscal year, our larger Hong Kong investments
contributed heavily as financials such as HSBC Holdings PLC appreciated
strongly, as did key property holding Sun Hung Kai Properties Ltd. Our best
absolute performers during the first three quarters often included the
relatively speculative Chinese red chip holdings and Brazilian privatization
candidates.
During the summer, we added investments in Turkey which performed very well and
were among our top five performers during the final quarter. Our significant
Japanese holdings generally outperformed the Nikkei Index because of their
strong orientation in electronics/technology shares such as Advantest
Corporation. However, UK holding Rank Group PLC continues to suffer from
management shortfalls, despite its valuation. Finally, while we exited most of
Southeast Asia well in advance of the major market turmoil and currency
devaluations, we did retain a small exposure to South Korea that has continued
to underperform.
Furthermore, there are newly emerging concerns for Latin America, and many
economists argue that these markets and currencies may succumb to contagion from
the Asian crisis. There were strong downward corrections occurring throughout
our favored markets of Brazil, Mexico and Argentina at fiscal year-end. The
unanswered question for equity investors in general is the degree to which
excess production capacity in Asia will undermine the global economic and trade
environment. It is presumed by many economists and strategists that the
influence will be potentially deflationary.
The possible negative implications of the Asian currency crisis appeared to be
dominating investment sentiment as the year ended, creating increased
volatility. Reflecting these concerns and opportunities, the Portfolio
2 & 3
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
ended the year with 31.5% of net assets in Japan and Asia, down from 36.5%. We
steadily increased our position in Europe by 11% of net assets to nearly 50%,
reflecting substantial overweights in France and Italy, a steep underweight in
Germany and a slight underweight in the United Kingdom among the major markets.
In Latin America, the portfolio weighting was just over 14% of net assets,
nearly double the level of one year ago, but reduced from even higher levels
held during the year. The balance of the Portfolio was represented by cash and
receivables such as proceeds from forward currency hedges.
In Conclusion
We appreciate your continued interest in Merrill Lynch Consults International
Portfolio, and we look forward to reviewing our strategy with you again in our
upcoming semi-annual report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Christine L. Pinto
Christine L. Pinto
Vice President and Portfolio Manager
December 10, 1997
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee Custodian
James H. Bodurtha, Trustee Brown Brothers Harriman & Co.
Herbert I. London, Trustee 40 Water Street
Robert R. Martin, Trustee Boston, MA 02109
Joseph L. May, Trustee
Andre F. Perold, Trustee Transfer Agent
Terry K. Glenn, Executive Vice President Merrill Lynch Financial Data
Alan J. Albert, Senior Vice President Services, Inc.
Donald C. Burke, Vice President 4800 Deer Lake Drive East
Christine L. Pinto, Vice President Jacksonville, FL 32246-6484
Gerald M. Richard, Treasurer (800) 637-3863
Lawrence A. Rogers, Secretary
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
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** 10/97
ML Consults International Portfolio*+ $10,000 $14,659
Morgan Stanley EAFE Index++ $10,000 $16,512
* 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. Performance data is from August
31, 1992.
================================================================================
Average Annual Period Covered Return
Total Return ================================================================
Year Ended 9/30/97 +17.81%
----------------------------------------------------------------
Five Years Ended 9/30/97 +10.28
----------------------------------------------------------------
Inception (9/14/92) through 9/30/97 +10.04
----------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Recent 12 Month 3 Month
Performance 10/31/97 7/31/97 10/31/96 % Change % Change
Results =======================================================================================================
<S> <C> <C> <C> <C> <C>
ML Consults International Portfolio $12.37 $14.05 $12.09 +5.37%(1) -11.96%
-------------------------------------------------------------------------------------------------------
ML Consults International Portfolio--Totaal Return +9.26(2) -11.96
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percent change includes reinvestment of $0.348 per share capital
gains distributions.
(2) Percent change includes reinvestment of $0.442 per share income
dividends and $0.348 per share capital gains distributions.
================================================================================
<TABLE>
<CAPTION>
Performance Net Asset Value Capital Gains Dividends
Summary 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
------------------------------------------------------------------------------------
1996 12.07 11.87 0.348 0.442 + 5.01
------------------------------------------------------------------------------------
1/1/97--10/31/97 11.87 12.37 -- -- + 4.21
------------------------------------------------------------------------------------
Total $0.990 Total $1.068
------------------------------------------------------------------------------------
Cumulative total return as of 10/31/97: +46.59%**
------------------------------------------------------------------------------------
</TABLE>
* 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.
4 & 5
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
LATIN Shares Held/ Value Percent of
AMERICA Industries Face Amount Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking 100,989 Banco de Galicia y Buenos Aires S.A. (ADR)* $ 1,892,201 $ 2,448,983 2.3%
------------------------------------------------------------------------------------------------------------------------
Oil & Related 40,000 YPF S.A. (ADR)* 1,019,077 1,280,000 1.2
------------------------------------------------------------------------------------------------------------------------
Total Investments in Argentina 2,911,278 3,728,983 3.5
====================================================================================================================================
Brazil Electric Utilities 3,000,000 Centrais Eletricas Brasileiras S.A.--Eletrobras 'B'
(Preferred) 1,546,789 1,298,077 1.2
14,000,000 Companhia Energetica de Minas Gerais S.A. (CEMIG)
(Preferred) 418,580 558,781 0.5
3,500,000 Light-Servicios de Electricidade S.A. 1,369,142 1,162,010 1.1
------------ ------------ ------
3,334,511 3,018,868 2.8
------------------------------------------------------------------------------------------------------------------------
Mining 44,000 Companhia Vale do Rio Doce S.A. (Preferred) 1,037,298 850,145 0.8
US$ 44,000 Companhia Vale do Rio Doce S.A., 0.00%
due 12/31/2049 (b) 0 0 0.0
------------ ------------ ------
1,037,298 850,145 0.8
------------------------------------------------------------------------------------------------------------------------
Steel 45,800 Usinas Siderurgicas de Minas Gerais S.A.--Usiminas
(Preferred) 500,967 332,366 0.3
------------------------------------------------------------------------------------------------------------------------
Total Investments in Brazil 4,872,776 4,201,379 3.9
====================================================================================================================================
Chile Diversified Holdings 68,200 +Quinenco S.A. (ADR)* 1,227,600 997,425 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Chile 1,227,600 997,425 0.9
====================================================================================================================================
Mexico Building &
Construction 35,000 +Bufete Industrial, S.A. (ADR)* 761,162 516,250 0.5
600,000 Cemex, S.A. de C.V. 'B' 2,320,739 2,610,250 2.4
75,000 Empresas ICA Sociedad Controladora, S.A. de C.V.
(ADR)* 593,368 998,438 0.9
------------ ------------ ------
3,675,269 4,124,938 3.8
------------------------------------------------------------------------------------------------------------------------
Retail 122,307 Cifra, S.A. de C.V. 'A' 140,043 221,581 0.2
1,000,000 Cifra, S.A. de C.V. 'B' 1,269,922 1,966,627 1.8
------------ ------------ ------
1,409,965 2,188,208 2.0
------------------------------------------------------------------------------------------------------------------------
Total Investments in Mexico 5,085,234 6,313,146 5.8
====================================================================================================================================
Total Investments in Latin America 14,096,888 15,240,933 14.1
====================================================================================================================================
PACIFIC
BASIN
====================================================================================================================================
Australia Publishing 560,000 News Corporation, Ltd. (Ordinary) 2,410,336 2,688,969 2.5
------------------------------------------------------------------------------------------------------------------------
Total Investments in Australia 2,410,336 2,688,969 2.5
====================================================================================================================================
Hong Kong Banking 75,200 HSBC Holdings PLC 1,419,674 1,702,458 1.6
------------------------------------------------------------------------------------------------------------------------
Diversified Holdings 80,000 Hutchison Whampoa Ltd. 771,884 553,687 0.5
200,000 Shanghai Industrial Holdings Ltd. 1,068,267 890,039 0.8
------------ ------------ ------
1,840,151 1,443,726 1.3
------------------------------------------------------------------------------------------------------------------------
Financial Services 1,584,000 Min Xin Holdings 701,372 476,430 0.4
------------------------------------------------------------------------------------------------------------------------
Railroads 1,250,000 Guangshen Railway Co., Ltd. (Series H) 469,278 388,098 0.4
------------------------------------------------------------------------------------------------------------------------
Real Estate 1,600,000 Guangzhou Investment Co., Ltd. 643,224 382,924 0.3
200,000 Sun Hung Kai Properties Ltd. 2,003,438 1,474,774 1.4
------------ ------------ ------
2,646,662 1,857,698 1.7
------------------------------------------------------------------------------------------------------------------------
Transportation 33,187 GZI Transportation Ltd. 13,111 10,733 0.0
6,636 GZI Transportation Ltd. (Warrants) (a) 880 180 0.0
------------ ------------ ------
13,991 10,913 0.0
------------------------------------------------------------------------------------------------------------------------
Total Investments in Hong Kong 7,091,128 5,879,323 5.4
====================================================================================================================================
Japan Apparel 450,000 Toray Industries, Inc. 3,029,824 2,508,111 2.3
------------------------------------------------------------------------------------------------------------------------
Banking 140,000 Sanwa Bank, Ltd. 2,285,590 1,409,201 1.3
------------------------------------------------------------------------------------------------------------------------
Beverage 110,000 Kirin Brewery Co., Ltd. 1,358,110 924,216 0.9
------------------------------------------------------------------------------------------------------------------------
Chemicals 400,000 Mitsui Chemicals Inc. 2,237,119 1,480,742 1.4
------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 200,000 Furukawa Electric Co., Ltd. 1,066,892 1,031,528 1.0
200,000 Hitachi, Ltd. 1,733,261 1,538,973 1.4
------------ ------------ ------
2,800,153 2,570,501 2.4
------------------------------------------------------------------------------------------------------------------------
Electronics 50,000 Fujitsu Ltd. 739,195 549,039 0.5
200,000 Matsushita Electric Co., Ltd. 3,029,307 3,360,785 3.1
16,000 Murata Manufacturing Co., Ltd. 760,140 649,530 0.6
90,000 Omron Corp. 1,821,396 1,527,327 1.4
------------ ------------ ------
6,350,038 6,086,681 5.6
------------------------------------------------------------------------------------------------------------------------
Insurance 300,000 Nippon Fire & Marine Insurance Co., Ltd. 2,150,386 1,157,974 1.1
------------------------------------------------------------------------------------------------------------------------
Machinery 195,000 Makita Corporation 3,008,235 2,741,452 2.5
------------------------------------------------------------------------------------------------------------------------
Merchandising 50,000 Ito--Yokado Co., Ltd. 2,465,299 2,487,314 2.3
------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 50,000 Banyu Pharmaceutical Co., Ltd. 742,065 727,893 0.7
60,000 Yamanouchi Pharmaceutical Co., Ltd. 1,399,475 1,477,415 1.4
------------ ------------ ------
2,141,540 2,205,308 2.1
------------------------------------------------------------------------------------------------------------------------
Printing 50,000 Dai Nippon Printing Co., Ltd. 913,065 998,253 0.9
------------------------------------------------------------------------------------------------------------------------
Total Investments in Japan 28,739,359 24,569,7532 2.8
====================================================================================================================================
South
Korea Electric Utilities 35,000 Korea Electric Power Corp. 1,136,044 499,479 0.5
------------------------------------------------------------------------------------------------------------------------
Natural Gas Utilities 15,000 Seoul City Gas Co., Ltd. 1,211,976 359,375 0.3
------------------------------------------------------------------------------------------------------------------------
Total Investments in South Korea 2,348,020 858,854 0.8
====================================================================================================================================
Total Investments in the Pacific Basin 40,588,843 33,996,8993 1.5
====================================================================================================================================
WESTERN
EUROPE
====================================================================================================================================
France Foods 15,000 Groupe Danone S.A. 2,320,416 2,294,883 2.1
------------------------------------------------------------------------------------------------------------------------
Health/Personal Care 8,000 Sanofi S.A. 690,834 760,451 0.7
------------------------------------------------------------------------------------------------------------------------
Insurance 35,000 Axa-UAP 2,302,026 2,398,092 2.2
------------------------------------------------------------------------------------------------------------------------
Oil & Related 30,000 Elf Aquitaine S.A. 2,278,742 3,715,525 3.5
------------------------------------------------------------------------------------------------------------------------
Total Investments in France 7,592,018 9,168,951 8.5
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
WESTERN
EUROPE Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Germany Chemicals 50,000 BASF AG $ 1,415,399 $ 1,700,483 1.6%
------------------------------------------------------------------------------------------------------------------------
Total Investments in Germany 1,415,399 1,700,483 1.6
====================================================================================================================================
Italy Banking 100,000 Credito Italiano S.p.A. 140,795 267,191 0.2
------------------------------------------------------------------------------------------------------------------------
Broadcasting--Media 250,000 Mediaset S.p.A. 1,105,533 1,136,229 1.0
------------------------------------------------------------------------------------------------------------------------
Natural Gas Utilities 140,000 Italgas S.p.A. 476,677 499,171 0.5
------------------------------------------------------------------------------------------------------------------------
Telecommunications 600,000 Telecom Italia S.p.A. 1,879,458 3,767,310 3.5
------------------------------------------------------------------------------------------------------------------------
Tires & Rubber 460,000 Pirelli S.p.A. 1,019,656 1,166,469 1.1
------------------------------------------------------------------------------------------------------------------------
Total Investments in Italy 4,622,119 6,836,370 6.3
====================================================================================================================================
Netherlands Electronics 40,000 Philips Electronics N.V. 1,581,743 3,133,698 2.9
------------------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 1,581,743 3,133,698 2.9
====================================================================================================================================
Portugal Electric Utilities 80,120 +EDP-Electricidade de Portugal, S.A. 1,413,465 1,409,054 1.3
------------------------------------------------------------------------------------------------------------------------
Total Investments in Portugal 1,413,465 1,409,054 1.3
====================================================================================================================================
Spain Oil & Related 50,000 Repsol S.A. 1,567,118 2,099,828 2.0
------------------------------------------------------------------------------------------------------------------------
Total Investments in Spain 1,567,118 2,099,828 2.0
====================================================================================================================================
Sweden Household Appliances 30,000 Electrolux AB 1,365,221 2,486,066 2.3
------------------------------------------------------------------------------------------------------------------------
Machinery 50,000 Atlas Copco AB (Class A) 919,997 1,470,254 1.3
------------------------------------------------------------------------------------------------------------------------
Metals 25,000 +Granges AB 225,034 409,332 0.4
------------------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 2,510,252 4,365,652 4.0
====================================================================================================================================
Switzerland Banking 15,000 Credit Suisse Group (Registered) 1,554,232 2,120,208 2.0
------------------------------------------------------------------------------------------------------------------------
Foods 1,400 Nestle S.A. (Registered) 1,564,148 1,979,362 1.8
------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,866 Novartis AG (Registered) 997,359 2,932,381 2.7
------------------------------------------------------------------------------------------------------------------------
Total Investments in Switzerland 4,115,739 7,031,951 6.5
====================================================================================================================================
Turkey Automobiles 2,000,000 +Tofas Oto Ticaret A.S. 335,413 479,930 0.5
------------------------------------------------------------------------------------------------------------------------
Household Appliances 3,000,000 Arcelik A.S. 395,969 335,406 0.3
------------------------------------------------------------------------------------------------------------------------
Total Investments in Turkey 731,382 815,336 0.8
====================================================================================================================================
United
Kingdom Beverage 410,000 Grand Metropolitan PLC (Ordinary) 2,663,875 3,700,450 3.4
------------------------------------------------------------------------------------------------------------------------
Entertainment & Leisure 320,000 Rank Group PLC 2,323,790 1,787,651 1.7
------------------------------------------------------------------------------------------------------------------------
Insurance 200,000 Commercial Union PLC 2,432,662 2,818,368 2.6
------------------------------------------------------------------------------------------------------------------------
Machinery 100,000 Siebe PLC (Ordinary) 805,619 1,920,852 1.8
------------------------------------------------------------------------------------------------------------------------
Natural Gas Utilities 790,000 BG PLC 3,018,263 3,472,296 3.2
------------------------------------------------------------------------------------------------------------------------
Retail 250,000 Boots Company PLC 2,214,174 3,581,676 3.3
------------------------------------------------------------------------------------------------------------------------
Total Investments in the United Kingdom 13,458,383 17,281,293 16.0
====================================================================================================================================
Total Investments in Western Europe 39,007,618 53,842,616 49.9
====================================================================================================================================
Face
Amount Short-Term Securities
====================================================================================================================================
Commercial Paper** US$2,643,000 General Motors Acceptance Corp., 5.75% due
11/03/1997 2,642,156 2,642,156 2.4
------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities 2,642,156 2,642,156 2.4
====================================================================================================================================
Total Investments $ 96,335,505 105,722,604 97.9
============
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 848,046 0.8
Other Assets Less Liabilities 1,379,917 1.3
------------ ------
Net Assets $107,950,567 100.0%
============ ======
====================================================================================================================================
</TABLE>
+ Non-income producing security.
(a) Warrants entitle the Fund to purchase a predetermined number
of shares of common stock. The purchase price and the number
of shares are subject to adjustment under certain conditions
until the expiration date.
(b) Received through a bonus issue from Companhia Vale do Rio Doce
S.A. As of October 31, 1997, the bonds have not commenced
trading and the coupon rate has not been determined.
* 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.
*** Forward foreign exchange contracts sold as of October 31, 1997
were as follows:
Unrealized
Foreign Expiration Appreciation
Currency Sold Date (Note 1c)
-------------------------------------------------------------
Y1,919,300,000 January 1998 $848,046
-------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign
Exchange Contracts (US$ Commitment--$17,000,000) $848,046
==========
-------------------------------------------------------------
See Notes to Financial Statements.
8 & 9
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of October 31, 1997
====================================================================================================================================
<S> <C> <C>
Assets: Investments, at value (identified cost--$96,335,505) (Note 1a). ................. $105,722,604
Unrealized appreciation on forward foreign exchange contracts (Note 1c) ......... 848,046
Cash............................................................................. 564
Foreign cash (Note 1b)........................................................... 1,237,264
Receivables:
Securities sold................................................................. $ 1,696,690
Dividends....................................................................... 227,543
Beneficial interest sold........................................................ 98,171 2,022,404
------------
Prepaid registration fees and other assets (Note 1f)............................. 18,691
------------
Total assets..................................................................... 109,849,573
------------
==================================================================================================================================
Liabilities: Payables:
Securities purchased............................................................ 1,248,755
Beneficial interest redeemed.................................................... 269,037
Distributor (Note 2)............................................................ 101,565
Investment adviser (Note 2)..................................................... 76,174
Administration fee (Note 2)..................................................... 25,391
Commissions..................................................................... 19,487 1,740,409
------------
Accrued expenses and other liabilities........................................... 158,597
------------
Total liabilities................................................................ 1,899,006
------------
==================================================================================================================================
Net Assets: Net assets....................................................................... $107,950,567
============
==================================================================================================================================
Net Assets Common shares of beneficial interest, $.10 par value, unlimited
number of shares authorized $ 872,754
Consist of: Paid-in capital in excess of par................................................. 91,695,345
Undistributed net investment income--net (Note 1h)............................... 1,232,371
Undistributed realized capital gains on investments and foreign
currency transactions--net .................................................... 3,929,996
Unrealized appreciation on investments and foreign currency
transactions--net ............................................................. 10,220,101
------------
Net assets--Equivalent to $12.37 per share based on 8,727,544
shares of beneficial interest outstanding ..................................... $107,950,567
============
==================================================================================================================================
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1997
==================================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $388,839 foreign withholding tax).............................. $ 4,539,809
Income Interest and discount earned..................................................... 117,220
(Notes 1d & 1e): ------------
Total income..................................................................... 4,657,029
------------
==================================================================================================================================
Expenses: Account maintenance and distribution fees (Note 2)............................... $ 1,415,661
Investment advisory fees (Note 2)................................................ 1,061,746
Administration fees (Note 2)..................................................... 353,915
Stamp tax fee.................................................................... 232,951
Custodian fees................................................................... 136,798
Accounting services (Note 2)..................................................... 73,649
Professional fees................................................................ 60,239
Transfer agent fees (Note 2)..................................................... 32,850
Amortization of organization expenses (Note 1f).................................. 22,761
Trustees' fees .................................................................. 21,679
Registration fees (Note 1f)...................................................... 19,504
Pricing fees..................................................................... 8,379
Printing and shareholder reports................................................. 4,294
Other............................................................................ 11,138
------------
Total expenses................................................................... 3,455,564
------------
Investment income--net........................................................... 1,201,465
============
==================================================================================================================================
Realized & Realized gain from:
Unrealized Gain Investments--net................................................................ 3,930,008
on Investments Foreign currency transactions--net.............................................. 901,521 4,831,529
& Foreign ------------
Currency Change in unrealized appreciation/depreciation on:
Transactions -- Investments--net................................................................ 8,208,524
Net (Notes 1b, Foreign currency transactions--net.............................................. 834,325 9,042,849
1c, 1e & 3): ------------
Net realized and unrealized gain on investments and foreign currency
transactions ................................................................... 13,874,378
------------
Net Increase in Net Assets Resulting from Operations............................. $ 15,075,843
============
==================================================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1997 1996
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income (loss)--net.................................................... $ 1,201,465 $ (861,635)
Realized gain on investments and foreign currency transactions--net ............. 4,831,529 25,429,746
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net .................................................... 9,042,849 (12,672,616)
------------ ------------
Net increase in net assets resulting from operations............................. 15,075,843 11,895,495
------------ ------------
==================================================================================================================================
Dividends & In excess of investment income--net.............................................. (5,862,557) (6,862,242)
Distributions to Realized gain on investments--net................................................ (4,613,274) (7,287,890)
Shareholders ------------ ------------
(Note 1g): Net decrease in net assets resulting from dividends and distributions
to shareholders ............................................................... (10,475,831) (14,150,132)
------------ ------------
==================================================================================================================================
Beneficial
Interest Net decrease in net assets derived from beneficial interest transactions ........ (71,570,166) (19,901,777)
Transactions ------------ ------------
(Note 4):
==================================================================================================================================
Net Assets: Total decrease in net assets..................................................... (66,970,154) (22,156,414)
Beginning of year................................................................ 174,920,721 197,077,135
------------ ------------
End of year*..................................................................... $107,950,567 $174,920,721
============ ============
==================================================================================================================================
*Undistributed (accumulated) investment income (loss)--net (Note 1h) ............. $ 1,232,371 $ (8,950,726)
============ ============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived from
information provided in the financial statements. For the Year Ended October 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1997+ 1996+ 1995+ 1994+ 1993+
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .............. $ 12.09 $ 12.28 $ 12.83 $ 11.74 $ 9.60
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net................... .10 (.05) (.05) (.12) (.08)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net.......... .97 .76 (.18) 1.26 2.22
-------- -------- -------- -------- --------
Total from investment operations ................ 1.07 .71 (.23) 1.14 2.14
-------- -------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net............. (.44) (.44) -- -- --
Realized gain on investments--net............... (.35) (.46) (.32) (.05) --
-------- -------- -------- -------- --------
Total dividends and distributions................ (.79) (.90) (.32) (.05) --
-------- -------- -------- -------- --------
Net asset value, end of year..................... $ 12.37 $ 12.09 $ 12.28 $ 12.83 $ 11.74
======== ======== ======== ======== ========
==================================================================================================================================
Total Investment Based on net asset value per share............... 9.26% 5.93% (1.68%) 9.74% 22.29%
Return: ======== ======== ======== ======== ========
==================================================================================================================================
Ratios to
Average Expenses......................................... 2.44% 2.37% 2.35% 2.27% 2.76%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net.................... .84% (.42%) (.41%) (.56%) (.86%)
======== ======== ======== ======== ========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) .......... $107,951 $174,921 $197,077 $272,487 $175,756
Data: ======== ======== ======== ======== ========
Portfolio turnover............................... 28.62% 38.16% 17.31% 24.64% 32.54%
======== ======== ======== ======== ========
Average commission rate paid++................... $ .0076 $ .0010 -- -- --
======== ======== ======== ======== ========
==================================================================================================================================
</TABLE>
+ Based on average shares outstanding during the year.
++ For fiscal years beginning on or after September 1,
1995, the Fund is required to disclose its average
commission rate per share for purchases and sales of
equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which
have been converted into US dollars using the prevailing
exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
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.
o 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.
o 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.
o 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.
o 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).
Written and purchased options are non-income producing investments.
(d) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--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.
12 & 13
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $21,706,431 have been reclassified between undistributed
net realized capital gains and undistributed net investment income. 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 "Sub-Advisers") 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.
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 Inc.
("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, 1997,
MLFD earned $1,415,661 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 $59,811 in commissions on the execution of
portfolio security transactions for the Fund for the year ended October 31,
1997.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, the Investment Adviser (including their affiliated companies), MLFDS, MLFD,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1997 were $39,399,336 and $117,464,868, respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were as
follows:
- ------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- ------------------------------------------------------------------------------
Long-term investments ........................ $3,930,008 $ 9,387,099
Foreign currency transactions ................ (128,636) (15,044)
Forward foreign exchange contracts ........... 1,030,157 848,046
---------- -----------
Total ....................................... $4,831,529 $10,220,101
========== ===========
- ------------------------------------------------------------------------------
As of October 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $9,387,099, of which $18,970,416 related to appreciated
securities and $9,583,317 related to depreciated securities. The aggregate cost
of investments at October 31, 1997 for Federal income tax purposes was
$96,335,505.
4. Beneficial Interest Transactions:
Transactions in shares of beneficial interest were as follows:
- -----------------------------------------------------------------------------
For the Year Ended Dollar
October 31, 1997 Shares Amount
- -----------------------------------------------------------------------------
Shares sold.................................... 1,189,803 $ 15,058,939
Shares issued to shareholders
in reinvestment of dividends
and distributions.............................. 829,254 9,652,518
----------- ------------
Total issued................................... 2,019,057 24,711,457
Shares redeemed................................ (7,759,006) (96,281,623)
----------- ------------
Net decrease................................... (5,739,949) $(71,570,166)
=========== ============
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
For the Year Ended Dollar
October 31, 1996 Shares Amount
- -----------------------------------------------------------------------------
Shares sold................................... 3,894,853 $ 48,570,265
Shares issued to shareholders in
reinvestment 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)
=========== ============
- -----------------------------------------------------------------------------
5. Commitments:
At October 31, 1997, the Fund entered into forward exchange contracts, in
addition to the contracts listed on the Schedule of Investments, under which it
had agreed to purchase various foreign currencies with an approximate value of
$1,250,000.
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, 1997, 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 years 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, 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, 1997, 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 years, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
December 5, 1997
14 & 15
<PAGE>
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 #16566--10/97
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