MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1999
<PAGE>
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
Worldwide
Investments as of
October 31, 1999
Ten Largest Industries Percent of
(Equity Investments) Net Assets
Electronics ......................................................... 8.6%
Oil & Related ....................................................... 8.3
Foods ............................................................... 7.9
Insurance ........................................................... 6.7
Pharmaceuticals ..................................................... 6.4
Banking ............................................................. 5.1
Chemicals ........................................................... 4.9
Tires & Rubber ...................................................... 4.4
Broadcasting & Publishing ........................................... 4.1
Merchandising ....................................................... 4.0
Percent of
Ten Largest Equity Holdings Net Assets
Nestle SA (Registered Shares) ........................................ 4.3%
BP Amoco PLC ......................................................... 4.2
Prudential Corporation PLC ........................................... 4.1
Total Fina SA 'B' .................................................... 4.1
Ito-Yokado Co., Ltd. ................................................. 4.0
Fujitsu Limited ...................................................... 4.0
Novartis AG (Registered Shares) ..................................... 4.0
Sanofi-Synthelabo SA ................................................. 3.7
Electrolux AB 'B' .................................................... 3.7
Groupe Danone ........................................................ 3.6
Officers and
Trustees
James H. Bodurtha, Trustee
Herbert I. London, Trustee
Robert R. Martin, Trustee
Joseph L. May, Trustee
Andre F. Perold, Trustee
Arthur Zeikel, Trustee
Terry K. Glenn, Executive Vice President
Robert C. Doll, Senior Vice President
Clive D. Lang, Vice President
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
DEAR SHAREHOLDER
Fiscal Year in Review
International equity markets experienced dramatic fluctuations over the 12
months ended October 31, 1999. The liquidity injected into financial markets by
central banks to avert a global collapse fueled a global economic recovery, and
an appreciation of share prices. The strong US economy continued to provide a
firm support on which global growth could resume. Apart from pockets of
depression in the emerging markets, the financial landscape has been radically
transformed since the worries of a year ago.
The sharp rise in interest rates has only temporarily affected the advance in
stock markets. Liquidity, profit growth and merger activity overrode the
negative affect of higher discount rates on valuations. Thus, there has been a
continued negative correlation between equities and bonds, and a reversal of the
relative performance between these asset classes during the third calendar
quarter of last year, when bonds were aggressively purchased as a safe haven.
Since then, the Asian markets have led the advance outside of the United States.
While the unmanaged benchmark Morgan Stanley Capital International (MSCI)
Europe, Asia, and Far East (EAFE) Index gained 23.0% over the fiscal year ended
October 31, 1999, the unmanaged MSCI Far East Index produced a total return of
+56.4% for the same period.
The Japanese stock market, after almost ten years of decline and stagnation,
finally came to life as major corporations started the process of restructuring
an antiquated and inefficient business model. The need for change has been taken
seriously. Entrepreneurs are emerging and succeeding. Seeing the significance of
the change in direction in one of the largest economies in the world,
international investors have been committing increasing amounts of funds to the
Japanese stock market. As a result, Japan was one of the best stock markets for
the fiscal year, with the MSCI Japan Index rising 58.4%.
European stock markets started the fiscal year with strong rallies in December
and January, anticipating a successful introduction of the euro. The initial
euphoria lost impulse when the new currency started a downward trend against the
US dollar, which only recently has given signs of stopping. The euro lost 10% of
its value against the US dollar during the fiscal year, depressing returns for
US investors. The European markets have revived in the last few months against a
background of intense corporate activity. The anticipated industry
consolidations are taking place at the national and intra-European level.
Companies are organizing to compete in the new open Eurozone, which is comprised
of the 11 member countries of the European Monetary Union, and to reach the
scale necessary for the global marketplace. The merger and acquisition activity
has touched most major sectors of the economy: banking (Societe Generale-Paribas
SA-Banque Nationale de Paris SA, Banco Santander Central Hispano SA-Banco
Santander, Banco Bilbao Vizcaya SA-Caja Postal y Banco Hipotecario de Espana,
SA), insurance (Assicurazione Generali SpA-Istituto Nazionale delle
Assicurazione SpA), retailing (Carrefour SA-Promodes SA), oil (Total Fina SA-Elf
Aquitaine SA, Repsol SA-YPF Sociedad Anonima), and telecommunications (Olivetti
SpA-Telecom Italia SpA, Vodafone Group PLC-Mannesmann AG).
European companies are also going to the United States and Japan in search of
partners for global growth, as in the case of Deutsche Bank with Bankers Trust,
Renault SA and Nissan Motor Corp., and Vodafone with AirTouch Communications in
the United States. In addition, the larger European economies of France and
Germany have initiated recoveries, while growth in Spain, Portugal and the
United Kingdom shows no sign of slowing. In all, European markets reacted
positively to these developments, and produced a return in dollars of +12.5% for
the fiscal year, as per the MSCI Europe Index.
The Portfolio, which maintained a majority of its investments in Europe, had a
total return of +13.2% for the fiscal year ended October 31, 1999. The stronger
performance of the MSCI EAFE Index was primarily as a result of the Index's
higher weight of Japan and Asia. Our two main markets in Europe were France and
the United Kingdom, which together amounted to approximately 40% of the
Portfolio's net assets. We benefited from the strong performance of these two
markets and participated in many of the corporate activities mentioned above.
Throughout the fiscal year, we pursued a strategy of increasing our investments
in Japan and the rest of Asia, a move that paid off. At October 31, 1999, Japan
was approximately 20% of the Portfolio's net assets, while our investments in
Hong Kong, Singapore and Australia accounted for about 5%. We kept large
positions in companies such as Sony Corporation, Fujitsu Limited and Nippon
Telegraph & Telephone Corporation, whose share prices have seen outstanding
appreciation this year. In the currency area, we decided to hedge approximately
one-half of the Japa nese yen exposure, to seek to reduce the currency risk.
Although this has served the intended purpose, the strong appreciation of the
yen since August resulted in the Portfolio's underperformance compared to the
benchmark Index.
Investment Outlook
We have positioned the Portfolio to seek to benefit from the industry
consolidation and economic recovery in Europe, the restructuring in Japan and
economic growth in Asia. Economic growth in Europe has a firm base and corporate
management is aggressively pursuing value-enhancing projects. Although the
German market is becoming more interesting, the economic recovery is more
fragile and the cost structures there are less flexible than elsewhere.
We continue to search for and invest in companies that have consistent earnings
growth, have high-quality and focused managements, and are committed to
profitability. We are still finding more of these firms in Europe, but this
could likely change. As the number of attractive investment opportunities in
Japan and the rest of Asia increases, our regional allocation will follow suit.
As impressive as the performance of Asian markets has been this year, we could
be at the beginning of a new multi-year recovery period in the region, which may
propel markets and is likely to produce better relative performance.
As 1999 draws to a close, world equity markets are buoyant, putting aside all
worries. However, as investors consider the potential impact of rising interest
rates, the year 2000 computer dilemma, rising oil prices, and accelerating
economic growth around the world, equity investors could become increasingly
cautious. Although the underlying trend con tinues to be positive for European,
Japanese and Asian economies and stock markets, the next two months-three months
could prove difficult. We are positive on the euro and Europe, and continue to
slightly overweight the region in the short term.
In Conclusion
The Board of Trustees has approved an Agreement and Plan of Reorganization
pursuant to which your shares of Merrill Lynch Consults International Portfolio
would be exchanged for Class C Shares of Merrill Lynch International Equity
Fund. The proposal must be approved by Merrill Lynch Consults International
Portfolio shareholders. It is anticipated that proxy materials will be
distributed shortly. We appreciate your investment in Merrill Lynch Consults
International Portfolio.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
Executive Vice President
/s/ Clive D. Lang
Clive D. Lang
Vice President and Portfolio Manager
December 10, 1999
================================================================================
We are pleased to announce that effective September 28, 1999, Clive D. Lang
became responsible for the day-to-day management of Merrill Lynch Consults
International Port folio. Mr. Lang joined Merrill Lynch Asset Management U.K.
Ltd., an affiliate of the Investment Adviser, as Senior Quantitative Analyst in
1997. Prior to that, he was employed at Panagora Asset Management Limited as
chief investment officer from 1995 to 1997 and as senior investment officer from
1990 to 1995.
================================================================================
2 & 3
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Consults International Portfolio during its fiscal year ended October 31,
1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Record Payable Domestic Ordinary Foreign Source Total Ordinary Foreign Taxes
Date Date Income Income Income Paid or Withheld
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/10/98 12/18/98 $.045469 $.143016 $.188485 $.045987
- ----------------------------------------------------------------------------------------------
</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. Additionally, there were no capital gains distributions paid by the Fund
during the year.
Please retain this information for your records.
PERFORMANCE DATA
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 MSCI EAFE Index. Beginning and ending values are:
9/14/92** 10/99
ML Consults International Portfolio*+ $10,000 $16,135
MSCI EAFE Index++ $10,000 $22,276
* 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. The starting date for the Index
in the line graph is from September 30, 1992.
Average Annual
Total Return
Period Covered % Return
================================================================================
Year Ended 9/30/99 +19.11%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/99 + 4.30
- --------------------------------------------------------------------------------
Inception (9/14/92) through 9/30/99 + 6.72
- --------------------------------------------------------------------------------
Recent
Performance
Results*
<TABLE>
<CAPTION>
6 Month 12 Month Since Inception
As of October 31, 1999 Total Return Total Return Total Return
==========================================================================================
<S> <C> <C> <C>
ML Consults International Portfolio +5.20% +13.22% +61.35%
- ------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. The Fund
commenced operations on 9/14/92.
4 & 5
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent
LATIN Shares Held/ Value of Net
AMERICA Industries Face Amount Investments (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Brazil Mining US$ 44,000 Companhia Vale do Rio Doce SA, 0% due 12/31/2049 (a) $ 0 0.0%
---------------------------------------------------------------------------------------------------------------------
Total Investments in Latin America (Cost--$0) 0 0.0
===================================================================================================================================
PACIFIC
BASIN
===================================================================================================================================
Australia Telecommunications 100,000 Telstra Corporation Limited 507,975 1.4
--------------------------------------------------------------------------------------------------------------------
Total Investments in Australia 507,975 1.4
===================================================================================================================================
Hong Kong Multi-Industry 65,000 Hutchison Whampoa Limited 652,594 1.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Hong Kong 652,594 1.7
===================================================================================================================================
Japan Banking &
Financial 40,000 The Bank of Tokyo-Mitsubishi, Ltd. 662,958 1.8
--------------------------------------------------------------------------------------------------------------------
Chemicals 15,000 Shin-Etsu Chemical Co., Ltd. 618,646 1.7
--------------------------------------------------------------------------------------------------------------------
Electronics 50,000 Fujitsu Limited 1,505,851 4.0
8,000 Sony Corporation 1,247,650 3.3
---------- ----
2,753,501 7.3
--------------------------------------------------------------------------------------------------------------------
Merchandising 19,000 Ito-Yokado Co., Ltd. 1,519,854 4.0
--------------------------------------------------------------------------------------------------------------------
Telecommunications 55 Nippon Telegraph & Telephone Corporation (NTT) 844,044 2.2
--------------------------------------------------------------------------------------------------------------------
Tires & Rubber 40,000 Bridgestone Corp. 1,101,093 2.9
--------------------------------------------------------------------------------------------------------------------
Total Investments in Japan 7,500,096 19.9
===================================================================================================================================
Singapore Broadcasting &
Publishing 36,000 Singapore Press Holdings Ltd. 616,846 1.6
--------------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 616,846 1.6
===================================================================================================================================
Total Investments in the Pacific Basin
(Cost--$6,583,383) 9,277,511 24.6
===================================================================================================================================
WESTERN
EUROPE
===================================================================================================================================
France Consumer--Goods 4,000 LVMH (Louis Vuitton Moet Hennessy) 1,206,089 3.2
--------------------------------------------------------------------------------------------------------------------
Foods 5,300 Groupe Danone 1,350,284 3.6
--------------------------------------------------------------------------------------------------------------------
Information Processing 3,500 Cap Gemini SA 529,502 1.4
--------------------------------------------------------------------------------------------------------------------
Insurance 7,000 Axa 986,198 2.6
--------------------------------------------------------------------------------------------------------------------
Manufacturing 32,000 +Sanofi-Synthelabo SA 1,410,326 3.7
--------------------------------------------------------------------------------------------------------------------
Oil & Related 11,500 Total Fina SA 'B' 1,552,524 4.1
--------------------------------------------------------------------------------------------------------------------
Retail 4,000 Pinault-Printemps-Redoute SA 761,895 2.0
--------------------------------------------------------------------------------------------------------------------
Total Investments in France 7,796,818 20.6
===================================================================================================================================
Germany Machinery & Equipment 8,500 Mannesmann AG 1,335,050 3.5
--------------------------------------------------------------------------------------------------------------------
Total Investments in Germany 1,335,050 3.5
===================================================================================================================================
Italy Natural Gas Utilities 140,000 Italgas SpA 578,040 1.5
--------------------------------------------------------------------------------------------------------------------
Tires & Rubber 240,000 Pirelli SpA 549,674 1.5
--------------------------------------------------------------------------------------------------------------------
Total Investments in Italy 1,127,714 3.0
===================================================================================================================================
Netherlands Broadcasting &
Publishing 28,000 Kluwer NV 'A' 934,572 2.5
--------------------------------------------------------------------------------------------------------------------
Chemicals 28,400 Akzo Nobel NV 1,221,529 3.2
--------------------------------------------------------------------------------------------------------------------
Electronics 4,600 Koninklijke (Royal) Philips Electronics NV 471,194 1.3
--------------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 2,627,295 7.0
===================================================================================================================================
Spain Banking 95,000 Banco Santander Central Hispano, SA 985,095 2.6
--------------------------------------------------------------------------------------------------------------------
Total Investments in Spain 985,095 2.6
===================================================================================================================================
Sweden Household Appliances 70,000 Electrolux AB 'B' 1,393,035 3.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 1,393,035 3.7
===================================================================================================================================
Switzerland Banking 5,000 Credit Suisse Group (Registered Shares) 960,404 2.5
--------------------------------------------------------------------------------------------------------------------
Foods 850 Nestle SA (Registered Shares) 1,638,259 4.3
--------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,000 Novartis AG (Registered Shares) 1,494,690 4.0
--------------------------------------------------------------------------------------------------------------------
Total Investments in Switzerland 4,093,353 10.8
===================================================================================================================================
United
Kingdom Beverage 100,000 Diageo PLC 1,009,584 2.7
--------------------------------------------------------------------------------------------------------------------
Financial Services 75,000 Allied Zurich PLC 904,932 2.4
--------------------------------------------------------------------------------------------------------------------
Insurance 100,000 Prudential Corporation PLC 1,566,907 4.1
--------------------------------------------------------------------------------------------------------------------
Leisure/Entertainment 52,000 Granada Group PLC 410,597 1.1
--------------------------------------------------------------------------------------------------------------------
Natural Gas Utilities 160,058 BG PLC 887,442 2.4
--------------------------------------------------------------------------------------------------------------------
Oil & Related 164,000 BP Amoco PLC 1,589,758 4.2
--------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 31,000 Glaxo Wellcome PLC 913,977 2.4
--------------------------------------------------------------------------------------------------------------------
Total Investments in the United Kingdom 7,283,197 19.3
===================================================================================================================================
Total Investments in Western Europe (Cost--$20,867,803) 26,641,557 70.5
===================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Percent
SHORT-TERM Value of Net
SECURITIES Face Amount Issue (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C>
Commercial Paper* $ 1,000,000 General Electric Capital Corp., 5.31% due 11/01/1999 $ 999,705 2.6%
939,000 General Motors Acceptance Corp., 5.38% due 11/01/1999 938,719 2.5
--------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$1,938,424) 1,938,424 5.1
===================================================================================================================================
Total Investments (Cost--$29,389,610) 37,857,492 100.2
Unrealized Depreciation on Forward Foreign Exchange Contracts** (204,659) (0.6)
Other Assets Less Liabilities 136,499 0.4
------------ -----
Net Assets $ 37,789,332 100.0%
============ =====
===================================================================================================================================
</TABLE>
+ Non-income producing security.
(a) Received through a bonus issue from Companhia Vale do Rio Doce SA. As of
October 31, 1999, the bonds have not commenced trading and the coupon rate
has not been determined.
* Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
** Forward foreign exchange contracts as of October 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Foreign Expiration Depreciation
Currency Sold Date (Note 1c)
- --------------------------------------------------------------------------------
Yen 414,680,000 December 1999 $(204,659)
- --------------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts (US$ Commitment--$3,796,306) $(204,659)
=========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of October 31, 1999
===========================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$29,389,610) (Note 1a). $ 37,857,492
Cash........................................................... 735
Foreign cash (Note 1c)....................................... 392
Receivables:
Beneficial interest sold................................... $ 170,000
Dividends.................................................. 149,787 319,787
----------
Prepaid registration fees and other assets (Note 1g)......... 18,576
------------
Total assets................................................. 38,196,982
------------
===========================================================================================================================
Liabilities: Unrealized depreciation on forward foreign exchange contracts
(Note 1d) ..................................................... 204,659
Payables:
Beneficial interest redeemed............................... 31,287
Distributor (Note 2)....................................... 29,837
Investment adviser (Note 2)................................ 22,378
Administration fee (Note 2)................................ 7,459
Commissions................................................ 2,442 93,403
---------- ------------
Accrued expenses............................................. 109,588
------------
Total liabilities............................................ 407,650
------------
===========================================================================================================================
Net Assets: Net assets................................................... $ 37,789,332
============
===========================================================================================================================
Net Assets Common shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized........................ $ 301,065
Paid-in capital in excess of par.............................. 23,653,068
Undistributed investment income--net........................... 204,662
Undistributed realized capital gains on investments and
foreign currency transactions--net........................... 5,367,897
Unrealized appreciation on investments and foreign
currency transactions--net................................... 8,262,640
------------
Net assets--Equivalent to $12.55 per share based on
3,010,649 shares of beneficial interest outstanding........ $ 37,789,332
============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1999
===========================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $90,452 foreign withholding tax)............. $ 662,324
Income Interest and discount earned................................... 61,675
(Notes 1e & 1f): ------------
Total income................................................... 723,999
------------
===========================================================================================================================
Expenses: Account maintenance and distribution fees (Note 2)............. $ 466,473
Investment advisory fees (Note 2).............................. 349,854
Administration fees (Note 2)................................... 116,618
Stamp tax fee.................................................. 106,688
Professional fees.............................................. 99,060
Printing and shareholder reports............................... 40,478
Custodian fees................................................. 33,319
Registration fees (Note 1g).................................... 26,417
Trustees' fees................................................. 24,215
Accounting services (Note 2)................................... 19,796
Transfer agent fees (Note 2)................................... 11,319
Other.......................................................... 5,271
----------
Total expenses................................................. 1,299,508
------------
Investment loss--net........................................... (575,509)
------------
===========================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net............................................. 6,459,811
(Loss) On Foreign currency transactions--net......................... (748,976) 5,710,835
Investments & ----------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net............................................ 233,897
Transactions-- Foreign currency transactions--net.......................... 410,743 644,640
Net Net realized and unrealized gain on investments and foreign ---------- ------------
(Notes 1c, 1d, currency transactions....................................... 6,355,475
1f & 3): ------------
Net Increase in Net Assets Resulting from Operations........... $ 5,779,966
============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1999 1998
===========================================================================================================================
<S> <C> <C> <C>
Operations: Investment income (loss)--net.................................. $ (575,509) $ 351,802
Realized gain on investments and foreign currency
transactions--net ........................................... 5,710,835 1,396,964
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net........... 644,640 (2,602,101)
---------- ------------
Net increase (decrease) in net assets resulting from
operations .................................................. 5,779,966 (853,335)
---------- ------------
===========================================================================================================================
Dividends & Investment income--net......................................... (929,175) (1,584,173)
Distributions In excess of investment income--net............................ -- (931,508)
to Shareholders Realized gain on investments--net.............................. -- (3,930,011)
(Note 1h): ---------- ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ............................... (929,175) (6,445,692)
---------- ------------
===========================================================================================================================
Beneficial Net decrease in net assets derived from beneficial interest
Interest transactions ................................................ (27,503,256) (40,209,743)
Transactions ------------- ------------
(Note 4):
===========================================================================================================================
Net Assets: Total decrease in net assets................................... (22,652,465) (47,508,770)
Beginning of year.............................................. 60,441,797 107,950,567
------------- ------------
End of year*................................................... $ 37,789,332 $ 60,441,797
============= ============
===========================================================================================================================
*Undistributed investment income--net (Note 1i)................. $ 204,662 $ 1,557,351
============= ============
===========================================================================================================================
</TABLE>
See Notes to Financial Statements.
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: 1999+ 1998+ 1997+ 1996+ 1995+
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year............................. $ 11.27 $ 12.37 $ 12.09 $ 12.28 $ 12.83
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net................................ (.14) .05 .10 (.05) (.05)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net..................... 1.61 (.40) .97 .76 (.18)
-------- -------- -------- -------- --------
Total from investment operations............................ 1.47 (.35) 1.07 .71 (.23)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net.................................... (.19) (.18) -- -- --
In excess of investment income--net....................... -- (.11) (.44) (.44) --
Realized gain on investments--net......................... -- (.46) (.35) (.46) (.32)
-------- -------- -------- -------- --------
Total dividends and distributions........................... (.19) (.75) (.79) (.90) (.32)
-------- -------- -------- -------- --------
Net asset value, end of year................................ $ 12.55 $ 11.27 $ 12.37 $ 12.09 $ 12.28
======== ======== ======== ======== ========
====================================================================================================================================
Total Based on net asset value per share............................. 13.22% (2.79%) 9.26% 5.93% (1.68%)
Investment ======== ======== ======== ======== ========
Return:
====================================================================================================================================
Ratios to Expenses....................................................... 2.79% 2.70% 2.44% 2.37% 2.35%
Average ======== ======== ======== ======== ========
Net Assets: Investment income (loss)--net.................................. (1.23%) .39% .84% (.42%) (.41%)
======== ======== ======== ======== ========
====================================================================================================================================
Supplemental Net assets, end of year (in thousands)......................... $ 37,789 $ 60,442 $107,951 $174,921 $ 197,077
Data: ======== ======== ======== ======== ========
Portfolio turnover............................................. 48.93% 48.78% 28.62% 38.16% 17.31%
======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
+ Based on average shares outstanding.
See Notes to Financial Statements.
10 & 11
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
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 Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities, including depositary
receipts, that are traded on stock exchanges are valued at the last sale price
on the exchange on which such securities are traded, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price. Securities traded in the over-the-counter market are valued
at the last available bid price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Trustees as
the primary market. Securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Options written or purchased are valued at the last sale
price in the case of exchange-traded options. In the case of options traded in
the over-the-counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Trustees.
(b) Repurchase agreements--The Fund invests in securities pursuant to
repurchase agreements. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund takes
possession of the underlying securities, marks to market such securities and, if
necessary, receives additional securities daily to ensure that the contract is
fully collateralized.
(c) 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.
(d) 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.
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 financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of secu rities 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.
(e) 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 sub stantially 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.
(f) 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.
(g) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(h) 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.
(i) Reclassification--Generally accepted accounting prin ciples 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 $748,972 have been reclassified between undistributed
net investment income and undis tributed net realized capital gains and $900,967
has been reclassified between paid-in capital in excess of par and undistributed
net investment income. These reclassifications have no effect on net assets or
net asset 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.
MLAM U.K. now provides advice to Merrill Lynch Consults International Portfolio
on a day-to-day basis covering all of its investments.
As compensation for its services to the Fund, the Investment Adviser receives
monthly compensation at the annual rate of .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.
12 & 13
<PAGE>
Merrill Lynch Consults International Portfolio, October 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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
.25% of the Fund's average daily net assets. Also, accounting services are
provided to the Fund by the Admin istrator, 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 ("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc., receives ongoing distribution and account maintenance fees, which
are accrued daily and paid monthly at the annual rates of .75% and .25%,
respectively, of the average daily net assets of the Fund. Pursuant to a
sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance 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. For the year ended October 31, 1999, MLFD earned $466,473 under the
Plan, all of which was paid to MLPF&S pursuant to the agreement.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
acts as the Fund's transfer agent.
In addition, MLPF&S received $20,396 in commissions on the execution of
portfolio security transactions for the Fund for the year ended October 31,
1999.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, the Investment Adviser (including their affiliated companies), FDS, PFD,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1999 were $22,242,848 and $49,960,427, respectively.
Net realized gains (losses) for the year ended October 31, 1999 and net
unrealized gains (losses) as of October 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments. .................. $ 6,459,811 $ 8,467,882
Foreign currency transactions ............ (31,753) (583)
Forward foreign exchange
contracts ................................ (717,223) (204,659)
----------- -----------
Total .................................... $ 5,710,835 $ 8,262,640
=========== ===========
- --------------------------------------------------------------------------------
As of October 31, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $8,467,882, of which $9,429,649 related to appreciated
securities and $961,767 related to depreciated securities. The aggregate cost of
investments at October 31, 1999 for Federal income tax purposes was $29,389,610.
4. Beneficial Interest Transactions:
Transactions in shares of beneficial interest were as follows:
For the Year Ended Dollar
October 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 204,559 $ 2,362,788
Shares issued to shareholders
in reinvestments of dividends ............... 76,975 865,198
---------- -----------
Total issued ................................ 281,534 3,227,986
Shares redeemed ............................. (2,631,625) (30,731,242)
---------- -----------
Net decrease ................................ (2,350,091) $(27,503,256)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the Year Ended Dollar
October 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .................................. 856,874 $ 10,569,673
Shares issued to shareholders
in reinvestments of dividends
and distributions ............................ 537,886 6,056,591
---------- -----------
Total issued ................................. 1,394,760 16,626,264
Shares redeemed .............................. (4,761,563) (56,836,007)
---------- -----------
Net decrease ................................. (3,366,803) $(40,209,743)
========== ============
- --------------------------------------------------------------------------------
5. Reorganization Plan:
On October 20, 1999, the Fund's Board of Trustees approved a Plan of
Reorganization, subject to shareholder approval and certain other conditions,
whereby Merrill Lynch International Equity Fund would acquire substantially all
of the assets and liabilities of the Fund in exchange for newly issued shares of
Merrill Lynch International Equity Fund. These Funds are registered,
diversified, open-end management investment companies. Both entities have a
similar investment objective. Merrill Lynch International Equity Fund is managed
by Merrill Lynch Asset Management, L.P., which is an affiliate of the Fund's
Investment Adviser.
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, 1999, 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, 1999, by correspondence with the custodian.
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, 1999, 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 the financial highlights for
each of the indicated years, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
December 15, 1999
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--10/99
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