MERRILL LYNCH
GLOBAL SMALLCAP
FUND, INC.
FUND LOGO
Annual Report
June 30, 1996
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Andrew John Bascand, Vice President
Donald C. Burke, Vice President
Kenneth Chiang, Vice President
Adrian Holmes, Vice President
Grace Pineda, Vice President
James Russell, Vice President
Daniel V. Szemis, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
<PAGE>
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or
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
Global SmallCap
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH GLOBAL SMALLCAP FUND, INC.
Merrill Lynch
Global SmallCap
Fund, Inc.
Management Team
<PAGE>
Andrew John Bascand--Senior Portfolio Manager/Asset Allocator. As
the Fund's Asset Allocator, Mr. Bascand is primarily responsible for
determining the allocation of the Fund's assets among equity markets
in the United States, Europe, the emerging markets and the Pacific
Basin.
Kenneth Chiang--Co-Portfolio Manager--Emerging Markets Investments.
Mr. Chiang is primarily responsible for the Fund's investments in
emerging markets in Asia.
Adrian Holmes--Co-Portfolio Manager--European Investments. Mr.
Holmes is primarily responsible for the Fund's European investments.
Grace Pineda--Co-Portfolio Manager--Emerging Markets Investments.
Ms. Pineda is primarily responsible for investments in emerging
markets in Europe and Latin America.
James Russell--Co-Portfolio Manager--Japanese Investments. Mr.
Russell is primarily responsible for the Fund's Japanese
investments.
Daniel Szemis--Co-Portfolio Manager--US Investments. Mr. Szemis is
primarily responsible for the Fund's investments in the United
States.
<TABLE>
Important Tax
Information
(unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Global SmallCap Fund, Inc. during its fiscal
year ended June 30, 1996:
Qualifying Non-Qualifying
Domestic Domestic
Record Payable Ordinary Ordinary Foreign Source Total Ordinary Foreign Taxes Long-Term
Date Date Income Income Income Income Paid or Withheld Capital Gains
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 12/12/95 12/20/95 $.003797 $.070911 $.030628 $.105336 $.005705 $.053281
Class B Shares 12/12/95 12/20/95 $.001892 $.035337 $.015263 $.052492 $.005705 $.053281
Class C Shares 12/12/95 12/20/95 $.001858 $.034696 $.014986 $.051540 $.005705 $.053281
Class D Shares 12/12/95 12/20/95 $.003341 $.062402 $.026952 $.092695 $.005705 $.053281
The qualifying domestic ordinary income qualifies for the dividends
received deduction for corporations.
<PAGE>
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 as foreign source 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>
DEAR SHAREHOLDER
Global equity markets produced positive returns during the June
quarter, despite increasing expectations of higher interest rates.
The US dollar total return of the unmanaged Salomon Brothers
Extended Market Index (SEMI), a specialist global small cap index,
during the three months ended June 30, 1996 was +4.1%. Small caps
outperformed large cap issues during the last three months. The US
dollar total return of the unmanaged Financial Times/S&P--Actuaries
World Index, an indicator of large cap performance, was +2.9% during
the June quarter.
The best-performing small cap equity markets were in Continental
Europe, with Italy and Ireland returning +14.1% and +9.1%,
respectively, in US dollar terms. The US small cap market
underperformed the SEMI, returning +3.3% during the second quarter
of 1996. According to the International Finance Corp., emerging
market equities rose 4.3% during the June quarter, with Latin
American markets increasing by 9.9%.
For the three-month period ended June 30, 1996, total returns for
Merrill Lynch Global SmallCap Fund, Inc.'s Class A, Class B, Class C
and Class D Shares were +7.42%, +7.10%, +7.21% and +7.44%,
respectively. (Results shown do not reflect sales charges and would
be lower if sales charges were included. Complete performance
information, including average annual total returns, can be found on
pages 4--6 of this report to shareholders.)
The Fund's outperformance of the SEMI during the quarter ended June
30, 1996 reflected positive contributions from stock selection and
overweighted positions in Continental European small caps and
emerging markets, together with an underweight position in the US
market. Currency management was also positive for Fund performance.
Portfolio Strategy
Our strategic investment stance became more defensive during the
June quarter. We increased the Fund's cash balances by reducing
exposure in the United States and Japan. Strategically, we continue
to favor Japanese small cap equities to those of the United States.
<PAGE>
We reduced the Fund's overweight positions in Continental Europe,
Japan and Pacific Basin small caps. We also increased our
underweight position in US small cap issues. Substantial purchases
included stocks such as our increased position in Sun International
(South Africa) Ltd., and our new positions in Walter AG in Germany;
Bure Investment AB in Sweden; and Disetronic Holdings AG in
Switzerland. Significant sales included Ace, Ltd., Applied
Bioscience International, Inc. and Oakwood Homes Corporation in the
United States; Ahrend Groep NV in the Netherlands; and London
International Group in the United Kingdom.
At June 30, 1996, the Fund had invested approximately 18% of net
assets in the United States; 25% in Japan; 23% in Continental
Europe; and 10% in the Pacific Basin (ex-Japan). It also had an
equity position of 8% in the United Kingdom, together with 6% in
other equity markets including Brazil, South Africa, Canada and
Poland. We increased the effective cash position to 8% of net asset
value. In relation to currency hedging, we reduced the Fund's
overweight US dollar stance partially through expiration of US
dollar call options relative to the Japanese yen.
Economic and Investment
Environment
US final demand, output and employment indicators continued to firm,
contributing to a sharp reversal in US interest rate expectations in
1996. The US ten-year Treasury yield increased to 7.1% during the
June quarter, from a low of 5.5% in January. We expect continued
strong economic growth in the United States as previously excessive
inventory levels are reduced. However, it is possible that both the
US housing and automobile sectors have reached peak expansion growth
rates. Additionally, it seems that the US Treasury market has
discounted the strengthening in growth and the potential
inflationary risks.
US profit margins remained at peak levels, and there appeared to be
little scope for further expansion in US earnings per share,
especially with the US dollar's recent strengthening. Therefore, US
equities may be exposed to a tightening in monetary policy, and as a
result a number of other equity markets may experience volatility.
Elsewhere, economic indicators continued to show a mixed picture in
Europe, while Japan recently showed a recovery in economic activity.
In the first quarter of 1996, European economies generally exhibited
weak activity, in response to fiscal consolidation plans, the 1995
slowdown in world trade growth, and uncompetitive pricing. However,
monetary easing continued and recently imparted a potentially strong
stimulus to growth. Specifically, interest rate reductions in both
core and peripheral European economies, combined with relative
weakness in currencies to both the US dollar and, to a lesser
extent, the Japanese yen, should improve both external and internal
demand conditions. Consequently, we expect a firming of economic
activity across Europe in the latter half of 1996 and through 1997.
<PAGE>
In Japan, the combination of an easy fiscal policy, low interest
rates and significant currency depreciation continued to result in
improved corporate profits. The banking system, while still
confronted by a large unrecoverable loan problem, is generating
significant operating profits, partly because of the Bank of Japan's
current money market operations. Japanese growth expectations rose
steadily. The firming in growth was associated with an anticipation
of higher interest rates and a rise in bond yields. If the yen stays
below 105 relative to the US dollar, we expect Japanese profits to
continue expanding even with only modest annual average gross
domestic product (GDP) growth.
Fiscal Year in Review
During the year ended June 30, 1996, total returns for the Fund's
Class A, Class B, Class C and Class D Shares were +23.87%, +22.57%,
+22.56% and +23.50%, respectively. The unmanaged SEMI's total return
was +19.6% over the year in US dollar terms.
The Fund's fiscal year was marked by a number of notable market
factors. The significant recovery in Japanese economic activity
culminated in real GDP growth rising by an annualized rate of 12.7%
in the first quarter of 1996. A significant correction in US
technology stocks continued into July 1996. In addition, the US
dollar gained against both the yen and the Deutschemark. Finally, a
recovery in economic activity in both the United States and Europe
combined with stronger Japanese activity led to significant
outperformance of small cap equities over large cap equities.
Asset allocation and currency selection across equity markets added
to performance during the year. Stock selection also added to
performance, with particular contributors in Emerging Europe,
Pacific Basin (ex-Japan) and Europe.
In Conclusion
We continued to aggressively under-weight US small caps, while
holding an overweight stance toward Japanese, Continental European
and emerging market small caps. We adopted a more defensive
investment policy, retaining an effective 8% cash position for the
Fund. However, following a possible correction in equity markets, a
stronger global economic environment should assist outperformance of
small cap equities over large cap equities. In addition, we believe
a diversified global fund that emphasizes foreign small cap issues
should provide a good long-term investment vehicle.
We thank you for your continued interest in Merrill Lynch Global
SmallCap Fund, Inc., and we look forward to reviewing our strategy
with you in our upcoming quarterly shareholder letter.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Andrew Bascand)
Andrew Bascand
Senior Portfolio Manager/Asset Allocator
(Ken Chiang)
Ken Chiang
Co-Portfolio Manager
Emerging Markets Investments--Asia
(Adrian Holmes)
Adrian Holmes
Co-Portfolio Manager
European Investments
(Grace Pineda)
Grace Pineda
Co-Portfolio Manager
Emerging Markets Investments--
Europe and Latin America
(James Russell)
James Russell
Co-Portfolio Manager
Japanese Investments
(Daniel V. Szemis)
Daniel V. Szemis
Co-Portfolio Manager
US Investments
<PAGE>
August 7, 1996
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors, as detailed in the Fund's prospectus. If you were a Class
A shareholder prior to October 21, 1994, your Class A Shares were
redesignated to Class D Shares on October 21, 1994, which, in the
case of certain eligible investors, were simultaneously exchanged
for Class A Shares.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years.
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
Total Return
Based on a
$10,000
Investment--
Class A and
Class C Shares
A line graph depicting the growth of an investment in the Fund's Class A
Shares and Class C Shares compared to growth of an investment in the Salomon
Brothers Extended Market Index. Beginning and ending values are:
10/21/94** 6/96
Merrill Lynch Global SmallCap Fund, Inc.++--
Class A Shares* $ 9,475 $10,667
Merrill Lynch Global SmallCap Fund, Inc.++--
Class C Shares* $10,000 $11,062
Salomon Brothers Extended Market
Index++++ $10,000 $12,318
[FN]
*Assuming maxiumum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++Merrill Lynch Global SmallCap Fund, Inc. invests primarily in a
diversed portfolio of equity securities of issuers with relatively
small market capitalizations located in various foreign countries and
the United States.
++++This unmanaged broad-based global small cap Index provides returns from
stocks in 22 markets.
Average Annual
Total Return--
Class A and
Class C Shares
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +23.87% +17.37%
Inception (10/21/94) through 6/30/96 + 7.25 + 3.89
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +22.56% +21.56%
Inception (10/21/94) through 6/30/96 + 6.14 + 6.14
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
Total Return
Based on a
$10,000
Investment--
Class B and
Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares and Class C Shares compared to growth of an
investment in the Salomon Brothers Extended Market Index. Beginning
and ending values are:
8/5/94** 6/96
Merrill Lynch Global SmallCap Fund, Inc.++--
Class B Shares* $10,000 $10,542
Merrill Lynch Global SmallCap Fund, Inc++--
Class D Shares $ 9,475 $10,432
Salomon Brothers Extended Market
Index++++ $10,000 $12,442
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++Merrill Lynch Global SmallCap Fund, Inc. invests primarily in a
diversed portfolio of equity securities of issuers with relatively
small market capitalizations located in various foreign countries and
the United States.
++++This unmanaged broad-based global small cap Index provides
returns from stocks in 22 markets.
<PAGE>
Average Annual
Total Return--
Class B and
Class D Shares
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +22.57% +18.57%
Inception (8/5/94) through 6/30/96 + 4.34 + 2.81
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +23.50% +17.02%
Inception (8/5/94) through 6/30/96 + 5.18 + 2.25
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Performance
Summary--
Class A Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $9.82 $ 9.37 $0.005 -- - 4.53%
1995 9.37 9.27 0.053 $0.105 + 0.66
1/1/96--6/30/96 9.27 10.86 -- -- +17.15
------ ------
Total $0.058 Total $0.105
Cumulative total return as of 6/30/96: +12.58%**
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
8/5/94--12/31/94 $10.00 $ 9.34 $0.005 -- - 6.55%
1995 9.34 9.19 0.053 $0.052 - 0.45
1/1/96--6/30/96 9.19 10.71 -- -- +16.54
------ ------
Total $0.058 Total $0.052
Cumulative total return as of 6/30/96: +8.42%***
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
++As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change***
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $9.80 $ 9.34 $0.005 -- - 4.64%
1995 9.34 9.19 0.053 $0.052 - 0.46
1/1/96--6/30/96 9.19 10.71 -- -- +16.54
------ ------
Total $0.058 Total $0.052
Cumulative total return as of 6/30/96: +10.62%***
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class D Shares++
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
8/5/94--12/31/94 $10.00 $ 9.37 $0.005 -- - 6.25%
1995 9.37 9.25 0.053 $0.093 + 0.31
1/1/96--6/30/96 9.25 10.83 -- -- +17.08
------ ------
Total $0.058 Total $0.093
Cumulative total return as of 6/30/96: +10.10%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
***Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
++As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</TABLE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
6/30/96 3/31/96 6/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $10.86 $10.11 $8.92 +22.46% (1) +7.42%
Class B Shares 10.71 10.00 8.84 +21.87(1) +7.10
Class C Shares 10.71 9.99 8.84 +21.87(1) +7.21
Class D Shares 10.83 10.08 8.91 +22.26(1) +7.44
Class A Shares--Total Return +23.87(2) +7.42
Class B Shares--Total Return +22.57(3) +7.10
Class C Shares--Total Return +22.56(4) +7.21
Class D Shares--Total Return +23.50(5) +7.44
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.053 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.105 per share ordinary
income dividends and $0.053 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.052 per share ordinary
income dividends and $0.053 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.052 per share ordinary
income dividends and $0.053 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.093 per share ordinary
income dividends and $0.053 per share capital gains distributions.
</TABLE>
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended June 30, 1996
Additions
*Affinity Technology Group, Inc.
*Affymetrix Inc.
Air Express International Corp.
Altran Technologies S.A.
*Amdahl Corp.
Arbatax International Inc.
Arcadian Corp.
*Aspect Development, Inc.
BE Aerospace Inc.
Banco Ganadero S.A. (ADR)
Bearings, Inc.
Biomatrix, Inc.
*Blount Inc. (Class A)
Bure Investment AB
CHS Electronics Inc.
Canon Chemicals, Inc.
*Cardiogenesis Corp.
Carli Grey International A/S
CasTech Aluminum Group, Inc.
Celltech Group PLC
Chico's Fashions Inc.
Cincinnati Milacron, Inc.
Commonwealth Aluminum
Corp.
Compuware Corp.
*Control Data Systems, Inc.
<PAGE>
Dewhirst Group PLC
Disetronic Holding AG
*Donna Karan International Inc.
Eregli Demir Ve Celik
Fabrikalari A.S.
Expeditors International of
Washington, Inc.
Far East Bank & Trust
Company
*Garden Botanika Inc.
Giant Cement Holding, Inc.
Gibraltar Steel Corp.
Grupo Financiero Banorte,
S.A. de C.V.
*Harper Group Inc.
Healthdyne Technologies, Inc.
*Heartport Inc.
Hyperion Software Corp.
ITI Technologies Inc.
*Infoseek Corp.
Jurys Hotel Group PLC
Kondor Wessels Group NV
Levitz Furniture Inc.
*Lukens Inc.
Mercer International, Inc.
*Millennium Pharmaceuticals,
Inc.
Mississippi Chemical Corp.
Network Equipment
Technologies, Inc.
*Neurocrine Biosciences, Inc.
Nobel Biocare AB
*Open Market Inc.
*Outdoor Systems Inc.
Oxford Molecular Group PLC
*Planet Hollywood
International, Inc.
*Planning Science Group (ADR)
Platinum Technology Inc.
Players International Inc.
Pope & Talbot, Inc.
*SS&C Technologies Inc.
*Saks Holdings Inc.
Shiloh Industries, Inc.
Siderar S.A. (ADR)
Sierra Health Services Inc.
Sommer Allibert S.A.
Symantec Corp.
Telxon Corporation
Tingyi (Cayman Islands)
Holdings Co., Inc.
*Transition Systems Inc.
*Twelve Technologies Inc.
VLSI Technology, Inc.
Walter AG
Zemex Corporation
<PAGE>
Deletions
Ace, Ltd.
*Affinity Technology Group, Inc.
*Affymetrix Inc.
Ahrend Groep NV
Aksigorta A.S.
Alarko Holdings A.S.
*Amdahl Corp.
American Water Works
Company, Inc.
Ampal-American Israel Corp.
*Aspect Development, Inc.
*Blount Inc. (Class A)
Brasmotor Group S.A.
(Preferred)
Burlington Industries, Inc.
Cafe de Coral Holdings Ltd.
*Cardiogenesis Corp.
Charming Shoppes, Inc.
Comptek Research, Inc.
*Control Data Systems, Inc.
Delta Dairy S.A. (Ordinary)
*Donna Karan International Inc.
Duff & Phelps Credit Rating
Company
Finnair OY
*Garden Botanika Inc.
Hancock Fabrics, Inc.
Harleysville Group, Inc.
*Harper Group Inc.
*Heartport Inc.
Hellaby Holdings Ltd.
Independent News Ltd.
Information Resources, Inc.
*Infoseek Corp.
London International Group
(Ordinary)
*Lukens Inc.
Manhattan Card Co. Ltd.
Marisa Christina, Inc.
Marufuji Sheet Piling Co., Ltd.
Maspro Denkoh Corp.
Merloni Elettrodomestici S.p.A.
*Millennium Pharmaceuticals,
Inc.
Movie Gallery, Inc.
*Neurocrine Biosciences, Inc.
Nissho Iwai Steel Leasing Co.
Oakwood Homes Corporation
*Open Market Inc.
Orient Overseas International
Ltd.
<PAGE>
*Outdoor Systems Inc.
PDL Industries Ltd.
PT Kabelmetal Indonesia
PT Tambang Timah (GDR)
Pharmacopeia, Inc.
Pier 1 Imports, Inc.
*Planet Hollywood
International, Inc.
*Planning Science Group (ADR)
Ports of Auckland Ltd.
Progress Software Corporation
Ramsay Managed Care, Inc.
Refrigeracao Parana S.A.
(Preferred)
*SS&C Technologies Inc.
*Saks Holdings Inc.
Samsung Electronics Co. (GDR)
Samsung Electronics Co.
(New Shares) (GDR)
Service Merchandise Co., Inc.
Sterling Commerce, Inc.
Tomoku Co., Ltd.
*Transition Systems Inc.
Trust Bank New Zealand Ltd.
*Twelve Technologies Inc.
Washington Homes, Inc.
Wo Kee Hong Holdings Ltd.
Zodiac S.A.
[FN]
*Added and deleted in the same quarter.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Value Percent of
EUROPE Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Denmark Textiles 21,674 ++Carli Grey International A/S $ 592,344 $ 709,896 0.4%
Total Investments in Denmark 592,344 709,896 0.4
Finland Holding Company 60,000 ++America Group Ltd. 1,079,450 1,008,338 0.6
19,300 Fiskars OY AB 989,408 1,081,163 0.7
Total Investments in Finland 2,068,858 2,089,501 1.3
<PAGE>
France Advertising 10,440 Havas Advertising S.A. (h) 946,224 1,176,910 0.7
Computer Software 2,157 ++Altran Technologies S.A. 561,773 667,852 0.4
Holding Company 2,978 Societe EuraFrance S.A. 901,134 1,151,841 0.7
Industrials 4,575 Ecco S.A. 884,235 1,151,531 0.7
Insurance 2,868 Cardif S.A. 282,878 400,795 0.3
Manufacturing 3,500 Sommer Allibert S.A. 1,037,025 889,796 0.5
Total Investments in France 4,613,269 5,438,725 3.3
Germany Machine Tools & 3,850 ++Walter AG 977,454 1,113,741 0.7
Machinery
Machinery & 39,100 ++Kloeckner Werke AG 3,734,471 1,375,312 0.8
Engineering
Retail Specialty 27,000 ++Moebel Walther AG 1,155,318 1,153,846 0.7
Total Investments in Germany 5,867,243 3,642,899 2.2
Greece Building & 7,990 Titan Cement Co. S.A. 302,811 394,933 0.2
Construction
Total Investments in Greece 302,811 394,933 0.2
Ireland Transportation 130,000 Irish Continental Group PLC 1,035,119 1,136,494 0.7
Total Investments in Ireland 1,035,119 1,136,494 0.7
Italy Building & 434,600 ++Fochi Filippo S.p.A. (Ordinary) 1,346,030 99,340 0.1
Construction
Diversified 1,850,000 ++Compagnie Industriali Riunite
S.p.A. (CIR) 2,071,370 1,171,957 0.7
Total Investments in Italy 3,417,400 1,271,297 0.8
Netherlands Electrical Equipment 25,109 Twentsche Kabel Holding NV 988,513 1,077,362 0.7
Electronics 46,200 Otra NV 979,112 1,064,279 0.7
Engineering & 20,806 ++Kondor Wessels Group NV 780,063 714,673 0.4
Construction
Holding Company 51,480 Internatio-Muller NV 1,026,843 1,134,612 0.7
Total Investments in the Netherlands 3,774,531 3,990,926 2.5
<PAGE>
Poland Engineering & 131,800 Elektrim Towarzystwo Handlowe S.A. 462,537 1,081,361 0.7
Construction
Tire & Rubber 30,000 ++T.C. Debica S.A. 399,679 728,477 0.4
Total Investments in Poland 862,216 1,809,838 1.1
Portugal Retail Sales 12,600 Establecimentos Jeronimo Martins
& Filho S.A. 644,835 1,135,208 0.7
Total Investments in Portugal 644,835 1,135,208 0.7
Spain Glass 15,835 ++Cristaleria Espanola S.A. 697,591 994,481 0.6
Real Estate 47,946 Vallehermoso S.A. 815,741 947,535 0.6
Steel 7,800 Acerinox S.A. 802,944 815,826 0.5
Textiles 115,000 ++Algodonera de San Antonio 1,269,666 929,738 0.6
Total Investments in Spain 3,585,942 3,687,580 2.3
Sweden Automotive Parts 76,800 Garphyttan Industrier AB 988,225 1,179,404 0.7
Engineering 60,000 Kalmar Industries AB 1,022,006 1,264,679 0.8
Engineering & 38,878 Svedala Industri AB 510,552 734,596 0.4
Construction
Forest Products 1,153,500 Rottneros Bruks AB Free 1,779,027 1,337,240 0.8
/Paper &
Packaging
Investment 133,620 ++Bure Investment AB 1,139,371 1,227,164 0.8
Management
Manufacturing 74,643 Getinge Industrier AB (B Shares) 995,805 1,404,754 0.9
Medical Supplies 30,000 ++Nobel Biocare AB 543,150 555,556 0.3
Total Investments in Sweden 6,978,136 7,703,393 4.7
Switzerland Engineering & 400 Daetwyler Holdings AG 679,000 713,030 0.4
Construction
Industrials 9,175 ++Oerlikon-Buehrle Holdings AG 989,278 953,437 0.6
Medical Supplies 507 ++Disetronic Holdings AG 942,645 948,345 0.6
Photography 3,082 Fotolabo S.A. 1,034,207 1,278,624 0.8
Retailing 1,560 Grands Magasins Jelmoli S.A. 959,600 885,372 0.5
Total Investments in Switzerland 4,604,730 4,778,808 2.9
<PAGE>
Turkey Beverages 871,475 Erciyas Biracilik Ve Malt Sanayi A.S. 566,377 494,190 0.3
Metal Fabricating 5,100,000 Eregli Demir Ve Celik Fabrikalari A.S. 570,786 565,976 0.4
Total Investments in Turkey 1,137,163 1,060,166 0.7
United Beverages 95,000 Matthew Clark PLC 1,000,663 1,137,348 0.7
Kingdom
Broadcasting 78,000 ++Flextech PLC 630,757 608,014 0.4
Chemicals 260,000 Inspec Group PLC 1,478,306 1,031,525 0.7
Computer Services 124,500 Misys PLC 1,248,027 1,502,124 0.9
Computers 349,600 ++Acorn Computer Group PLC 499,614 1,357,147 0.8
Diversified 889,000 Howden Group PLC 1,262,630 1,021,525 0.6
Food & Beverage 667,000 Hazlewood Foods PLC 1,271,988 1,025,360 0.6
Hotels 188,000 Jurys Hotel Group PLC 830,317 831,990 0.5
Manufacturing 120,500 Low & Bonar PLC (Ordinary) 792,075 989,825 0.6
Media/Publishing 300,000 International Business Communications
PLC (Ordinary) 1,043,116 1,458,079 0.9
Pharmaceuticals 55,300 ++Celltech Group PLC 549,111 540,980 0.3
105,300 ++Oxford Molecular Group PLC 552,110 503,610 0.3
------------ ------------ ------
1,101,221 1,044,590 0.6
Textiles 310,500 Dewhirst Group PLC 865,987 930,539 0.6
Total Investments in the United
Kingdom 12,024,701 12,938,066 7.9
Total Investments in Europe 51,509,298 51,787,730 31.7
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Retail 24,889 Grimoldi S.A. $ 95,150 $ 138,196 0.1%
Steel 36,000 ++Siderar S.A. (ADR) (a) (f) 612,000 729,000 0.4
Total Investments in Argentina 707,150 867,196 0.5
Brazil Telecommunications 7,100,000 Telecomunicacoes de Minas Gerais
S.A.--TELEMIG (Class B) (Preferred) 512,690 731,993 0.4
Textiles 2,054,000 Companhia de Tecidos Norte de Minas
S.A. (Preferred) 652,560 808,098 0.5
Total Investments in Brazil 1,165,250 1,540,091 0.9
Colombia Banking 41,300 Banco Ganadero S.A. (ADR) (a) 811,698 805,350 0.5
Total Investments in Colombia 811,698 805,350 0.5
Mexico Banking 565,000 ++Grupo Financiero Banorte, S.A. de C.V. 616,420 545,352 0.3
Building Materials 70,000 ++Internacional de Ceramica S.A de C.V.
(ADR) (a) 516,474 385,000 0.2
Total Investments in Mexico 1,132,894 930,352 0.5
Peru Foods 356,300 ++Consorcio Alimentos Fabril Pacifico
S.A. (g) 383,299 477,500 0.3
Total Investments in Peru 383,299 477,500 0.3
Total Investments in Latin America 4,200,291 4,620,489 2.7
MIDDLE EAST/
AFRICA
South Entertainment 625,800 Sun International (South Africa) Ltd. 815,854 672,359 0.4
Africa
Mining 124,500 Elandsrand Gold Mining Company Ltd. 741,968 704,771 0.4
38,000 Kinross Mines Ltd. 407,226 403,882 0.3
------------ ------------ ------
1,149,194 1,108,653 0.7
Total Investments in South Africa 1,965,048 1,781,012 1.1
<PAGE>
Zimbabwe Beverages 249,000 Delta Corporation Ltd. 396,017 630,699 0.4
Total Investments in Zimbabwe 396,017 630,699 0.4
Total Investments in Middle
East/Africa 2,361,065 2,411,711 1.5
NORTH
AMERICA
Canada Data Processing 7,000 Cognos, Inc. 28,292 159,250 0.1
Insurance 6,500 Arbatax International Inc. 40,311 31,200 0.0
Leisure 42,384 Four Seasons Hotels Ltd. 495,789 667,489 0.4
Mining 32,925 Cambior Inc. 457,703 440,372 0.3
Natural Resources 30,000 Total Petroleum of North America Ltd. 295,925 292,500 0.2
Total Investments in Canada 1,318,020 1,590,811 1.0
United Aerospace 6,300 ++BE Aerospace Inc. 83,258 81,900 0.0
States 110,000 ++UNC, Inc. 637,625 921,250 0.6
------------ ------------ ------
720,883 1,003,150 0.6
Apparel 115,000 ++Farah, Inc. 1,148,408 848,125 0.5
70,100 ++Norton McNaughton, Inc. 850,711 473,175 0.3
------------ ------------ ------
1,999,119 1,321,300 0.8
Automotive 8,500 Smith (A.O.) Corporation 175,822 212,500 0.1
Banking & Finance 17,000 Charter One Financial, Inc. 327,995 590,750 0.4
15,000 Roosevelt Financial Group, Inc. 242,463 288,750 0.2
9,200 Walden Bancorp Inc. (c) 132,250 186,300 0.1
------------ ------------ ------
702,708 1,065,800 0.7
Biotechnology 15,000 ++COR Therapeutics, Inc. 168,375 170,625 0.1
4,400 ++Ostex International Inc. 63,900 46,200 0.0
15,000 ++Scios, Inc. (d) 74,025 98,438 0.1
------------ ------------ ------
306,300 315,263 0.2
Building & Building 22,000 ++Giant Cement Holding, Inc. 293,938 277,750 0.2
Materials 58,600 ++Redman Industries, Inc. 525,988 1,172,000 0.7
15,300 Ryland Group, Inc. 206,581 229,500 0.1
------------ ------------ ------
1,026,507 1,679,250 1.0
<PAGE>
Business Services 20,000 ++Applied Bioscience International, Inc. 126,189 207,500 0.1
Chemicals 8,000 Arcadian Corp. 161,443 158,000 0.1
Computer Software 54,900 ++Hyperion Software Corp. 599,419 672,525 0.4
16,600 ++Software Spectrum Inc. 337,768 373,500 0.2
28,000 ++VMARK Software, Inc. 439,368 255,500 0.2
------------ ------------ ------
1,376,555 1,301,525 0.8
Computers 17,000 ++Storage Technology Corporation 414,612 650,250 0.4
16,100 ++Stratus Computer, Inc. 462,891 466,900 0.3
24,700 Telxon Corporation 274,366 290,225 0.2
------------ ------------ ------
1,151,869 1,407,375 0.9
Data Processing 19,000 ++Compuware Corp. 554,040 745,750 0.5
40,000 ++Landmark Graphics Corp. 838,665 770,000 0.5
20,000 ++Platinum Technology Inc. 332,428 300,000 0.2
5,000 ++Sterling Software, Inc. 177,175 385,000 0.2
25,400 ++Symantec Corp. 312,641 317,500 0.2
------------ ------------ ------
2,214,949 2,518,250 1.6
Electronics 6,200 ++Alpha Industries, Inc. 60,166 55,025 0.0
10,900 ++BI, Inc. 108,175 144,425 0.1
25,000 ++CHS Electronics Inc. 351,514 337,500 0.2
3,300 ++ITI Technologies Inc. 90,113 107,663 0.1
31,900 ++VLSI Technology, Inc. 438,017 442,613 0.3
------------ ------------ ------
1,047,985 1,087,226 0.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
NORTH AMERICA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Environmental Control 25,740 BHA Group Inc. (Class A) $ 346,317 $ 341,055 0.2%
States 78,000 ++Envirosource Inc. 304,028 273,000 0.2
(concluded) ------------ ------------ ------
650,345 614,055 0.4
Fertilizer 10,900 Mississippi Chemical Corp. 235,242 215,275 0.1
Gaming 38,000 ++Players International Inc. 381,481 370,500 0.2
<PAGE>
Healthcare-- 25,000 ++Beverly Enterprises, Inc. 339,390 300,000 0.2
Products/Services 49,000 ++Magellan Health Services, Inc. 884,348 1,053,500 0.6
53,800 ++Ramsay Health Care, Inc. 330,777 161,400 0.1
------------ ------------ ------
1,554,515 1,514,900 0.9
Home Furnishing 20,400 Crown Crafts, Inc. 303,212 209,100 0.1
Insurance 40,000 First Colony Corp. 841,337 1,240,000 0.7
60,000 PXRE Corp. 1,375,075 1,455,000 0.9
22,200 Security-Connecticut Corp. 493,582 604,950 0.4
------------ ------------ ------
2,709,994 3,299,950 2.0
Iron & Steel 15,800 ++Gibraltar Steel Corp. 284,997 312,050 0.2
12,200 ++Olympic Steel, Inc. 182,763 338,550 0.2
32,000 Quanex Corp. 677,636 756,000 0.5
------------ ------------ ------
1,145,396 1,406,600 0.9
Machinery 12,000 AGCO Corp. 266,610 333,000 0.2
15,800 Bearings, Inc. 455,964 426,600 0.3
19,800 Cincinnati Milacron, Inc. 483,025 475,200 0.3
------------ ------------ ------
1,205,599 1,234,800 0.8
Medical 10,000 Analogic Corporation 171,250 262,500 0.2
10,000 ++Biomatrix, Inc. 152,941 160,000 0.1
4,300 ++Healthdyne Technologies, Inc. 51,531 55,363 0.0
20,000 Medex, Inc. 214,677 257,500 0.2
8,700 Sierra Health Services Inc. 286,095 274,050 0.2
------------ ------------ ------
876,494 1,009,413 0.7
Metals 15,000 ++CasTech Aluminum Group, Inc. 246,037 221,250 0.1
15,500 Commonwealth Aluminum Corp. 259,735 242,188 0.1
19,200 ++Shiloh Industries, Inc. 270,331 300,000 0.2
------------ ------------ ------
776,103 763,438 0.4
Natural Resources 20,300 ++Brown (Tom), Inc. 236,050 340,025 0.2
17,000 ++Newpark Resources Inc. 277,262 624,750 0.4
35,000 ++Plains Resources, Inc. 218,750 455,000 0.3
55,000 ++TransTexas Gas Corp. 605,000 481,250 0.3
34,700 Zemex Corporation 315,450 264,588 0.2
------------ ------------ ------
1,652,512 2,165,613 1.4
Paper & Forest 15,000 Pope & Talbot, Inc. 247,088 226,875 0.1
Products 23,400 ++Mercer International, Inc. 404,544 310,050 0.2
------------ ------------ ------
651,632 536,925 0.3
<PAGE>
Pharmaceuticals 48,000 ++NeoRx Corp. 323,331 270,000 0.2
Restaurants 67,500 ++TPI Enterprises, Inc. 377,458 236,250 0.1
Retailing 85,000 Baker (J.), Inc. 1,231,429 637,500 0.4
27,300 CML Group, Inc. 83,265 116,025 0.1
25,000 ++Catherines Stores Corp. 202,020 243,750 0.1
27,700 ++Chico's Fashions Inc. 197,652 273,538 0.2
12,000 ++Department 56, Inc. 266,760 271,500 0.2
42,300 Levitz Furniture Inc. 213,948 195,637 0.1
7,500 ++Rex Stores Corp. 97,950 115,312 0.0
------------ ------------ ------
2,293,024 1,853,262 1.1
Telecommunication 15,400 ++Network Equipment Technologies, Inc. 398,149 327,250 0.2
Equipment
Transportation 10,300 Air Express International Corp. 278,291 285,825 0.2
2,400 Expeditors International of
Washington, Inc. 69,219 73,200 0.0
10,000 ++Kirby Corp. 154,306 168,750 0.1
------------ ------------ ------
501,816 527,775 0.3
Total Investments in the United
States 27,046,632 28,832,245 17.7
Total Investments in North America 28,364,652 30,423,056 18.7
PACIFIC
BASIN
Australia Insurance 154,261 QBE Insurance Group 599,026 916,246 0.6
Mining 559,351 QCT Resources Ltd. 650,305 739,270 0.5
Publishing 158,000 West Australian Newspaper Holdings Ltd. 557,621 596,633 0.4
Total Investments in Australia 1,806,952 2,252,149 1.5
Hong Kong Banking 1,432,333 JCG Holdings, Ltd. 1,085,879 1,165,777 0.7
Financial US$ 420,000 Goldlion Capital Corp.,
Services 4.875% due 2/01/1999 318,914 558,600 0.3
Foods/Food 2,234,000 ++Tingyi (Cayman Islands) Holdings Co. 576,463 613,300 0.4
Processing
Packaging 3,772,600 Sinocan Holdings Ltd. 1,254,878 1,657,107 1.0
Total Investments in Hong Kong 3,236,134 3,994,784 2.4
<PAGE>
Indonesia Banking-- 163,000 PT Bank Bali (Foreign) 337,016 350,236 0.2
International
Consumer--Goods 130,000 PT Wicaksana Overseas International 336,176 357,542 0.2
Textiles 2,224,000 PT Great River Industries 554,988 1,290,245 0.8
Total Investments in Indonesia 1,228,180 1,998,023 1.2
Japan Apparel 13,000 Goldwin Inc. 145,137 100,876 0.1
Automobile Parts 58,000 Murakami Corp. 1,148,025 916,012 0.6
41,000 Sanoh Industrial 542,817 378,035 0.2
110,000 Showa Corp. 1,098,685 1,104,619 0.7
85,000 Yamakawa Industrial Co. 1,040,181 737,174 0.4
------------ ------------ ------
3,829,708 3,135,840 1.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN Value Percent of
(continued) Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Banks 17,000 Bank of the Ryukyus, Ltd. $ 988,951 $ 608,362 0.4%
(concluded)
Beverages 79,000 Hokkaido Coca-Cola Bottling
Co., Ltd. 1,298,058 1,103,433 0.7
74,000 Sanyo Coca-Cola Bottling
Co., Ltd 1,118,168 1,114,661 0.7
------------ ------------ ------
2,416,226 2,218,094 1.4
Chemicals 37,000 Canon Chemicals, Inc. 824,918 854,574 0.5
25,000 Katakura Chikkarin Co., Ltd. 278,420 224,575 0.1
------------ ------------ ------
1,103,338 1,079,149 0.6
Computer Services 47,000 TKC Corp. 1,374,367 1,390,177 0.8
Construction 89,600 Japan Foundation Engineering
Co., Ltd. 1,735,016 1,717,729 1.1
80,000 Tsuchiya Home Co. 1,737,127 1,577,506 1.0
20,000 USK Corp. 337,371 281,176 0.2
157,000 Yondenko Corp. 1,518,456 1,633,924 1.0
------------ ------------ ------
5,327,970 5,210,335 3.3
<PAGE>
Consumer Electricals 59,000 Roland Corp. 1,429,975 1,098,777 0.7
Electrical Equipment 24,000 Energy Support Corp. 182,225 210,334 0.1
26,000 Shinmei Electric Co. 1,340,491 676,465 0.4
52,000 Sukegawa Electric Co. 682,343 460,471 0.3
------------ ------------ ------
2,205,059 1,347,270 0.8
Foods/Food Processing 43,000 Ariake Japan Co., Ltd. 1,525,975 1,625,160 1.0
Health Services 25,000 Kanto Biomedical Laboratory 528,125 390,268 0.2
26,000 SRL Inc. 557,018 531,678 0.3
------------ ------------ ------
1,085,143 921,946 0.5
Industrials 13,200 Nitto Kohki Company Limited 489,424 596,494 0.4
31,000 Roki Techno Co., Ltd. 868,533 741,464 0.4
------------ ------------ ------
1,357,957 1,337,958 0.8
Iron & Steel 218,000 Nippon Chutetsukan K.K. 1,367,147 1,213,986 0.7
Machinery 44,000 Giken Seisakusho Co. Inc. 1,182,453 964,031 0.6
27,000 Miura Co., Ltd. 449,645 458,463 0.3
------------ ------------ ------
1,632,098 1,422,494 0.9
Metal Fabrication 124,000 Toyo Kohan Co., Ltd 1,057,406 911,265 0.6
Packaging 45,000 Chuo Kagaku Co. Ltd. 1,894,958 1,027,022 0.6
Pharmaceuticals 12,000 Towa Pharmaceutical Co. 709,641 377,944 0.2
Pollution Control 168,000 Organo Corp. 1,844,463 1,809,750 1.1
Real Estate 53,000 Keihanshin Real Estate Co. Ltd. 525,507 460,617 0.3
56,000 TOC Corp. 596,958 664,597 0.4
------------ ------------ ------
1,122,465 1,125,214 0.7
Restaurants 47,000 Aim Services Co., Ltd. 1,405,610 1,227,132 0.8
45,000 Mos Food Services, Inc. 1,446,914 1,105,076 0.7
83,000 Ohsho Food Service Corp. 2,244,318 1,553,314 0.9
------------ ------------ ------
5,096,842 3,885,522 2.4
Retail Specialty 60,000 ADO Electric Industrial Co., Ltd. 1,956,905 1,813,036 1.1
60,000 Arcland Sakamoto 964,197 942,122 0.6
71,000 Daika Corporation 1,109,857 609,275 0.4
48,000 Home Wide Corp. 847,706 723,024 0.4
30,000 Nitori Co. 906,611 670,988 0.4
------------ ------------ ------
5,785,276 4,758,445 2.9
<PAGE>
Retail Stores 106,000 Sotetsu Rosen Co., Ltd. 992,634 841,884 0.5
Services 63,000 Ichinen Co., Ltd. 1,667,714 1,236,535 0.8
Trading 31,000 Japan CBM Corp. 1,200,936 1,117,856 0.7
Trucking 108,000 Nippon Konpo Unyu Soko 1,045,185 981,011 0.6
70,000 Tonami Transportation Co., Ltd. 548,070 469,691 0.3
------------ ------------ ------
1,593,255 1,450,702 0.9
Total Investments in Japan 48,754,641 41,252,563 25.3
Malaysia Advertising 122,000 Seni Jaya Corporation BHD 328,696 349,759 0.2
Broadcasting 135,000 Sistem Televisyen Malaysia BHD 207,258 276,062 0.2
135,000 Sistem Televisyen Malaysia BHD
(Class A Shares) 201,389 254,411 0.1
------------ ------------ ------
408,647 530,473 0.3
Engineering & 130,000 Asas Dunia BHD 401,214 516,038 0.3
Construction
Newspaper/Publishing 132,000 New Straits Times Press BHD 541,189 688,051 0.4
Total Investments in Malaysia 1,679,746 2,084,321 1.2
New Zealand Agriculture 1,090,500 Wrightson Ltd. 808,404 798,699 0.5
Chemicals 146,000 Fernz Corporation Limited 439,021 434,726 0.3
Food Merchandising 1,170,000 Affco Holdings Limited 474,738 440,476 0.3
Real Estate 135,000 Kiwi Income Property Trust 94,514 90,559 0.1
Textiles 88,500 Lane Walker Rudkin Industries, Ltd. 101,374 98,137 0.1
Total Investments in New Zealand 1,918,051 1,862,597 1.3
Philippines Banking 65,400 Security Bank Corporation 114,553 176,317 0.1
Financial Services 25,625 Far East Bank & Trust Company 718,315 901,530 0.5
Total Investments in the Philippines 832,868 1,077,847 0.6
South Korea Utilities--Electric 22,700 ++Korea Electric Power Corp. (ADR) (a) 500,762 550,475 0.3
Wireless 96,600 ++Korea Mobile Telecommunications
Communications Corp. (GDR) (b) (f) 1,160,125 1,634,955 1.0
Total Investments in South Korea 1,660,887 2,185,430 1.3
Total Investments in the Pacific
Basin 61,117,459 56,707,714 34.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SOUTHEAST Shares Held/ Value Percent of
ASIA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
India Hotels 39,600 East India Hotels Ltd. (GDR) (b) (f) $ 576,350 $ 1,094,148 0.7%
Recreation & 250,000 ++Su-Raj Diamonds Ltd. 346,583 304,025 0.2
Consumer Goods
Total Investments in India 922,933 1,398,173 0.9
Total Investments in Southeast Asia 922,933 1,398,173 0.9
SHORT-TERM
SECURITIES Issue
Commercial US$ 5,000,000 Caterpillar, Inc., 5.34% due 7/09/1996 4,992,583 4,992,583 3.1
Paper* 5,195,000 General Electric Capital Corp.,
5.56% due 7/01/1996 5,193,395 5,193,395 3.2
Total Investments in Commercial Paper 10,185,978 10,185,978 6.3
US Government United States Treasury Bills (e):
Obligations* 60,000 4.90% due 7/25/1996 59,788 59,812 0.0
10,000 4.95% due 7/25/1996 9,964 9,969 0.0
50,000 4.96% due 7/25/1996 49,821 49,844 0.0
3,100,000 4.97% due 7/25/1996 3,088,873 3,090,297 1.9
90,000 4.98% due 7/25/1996 89,676 89,718 0.1
Total Investments in US Government
Obligations 3,298,122 3,299,640 2.0
Total Investments in Short-Term
Securities 13,484,100 13,485,618 8.3
OPTIONS Face Premiums
PURCHASED Amount Paid
Currency Call C$ 3,200,000 Canadian Dollar, expiring August
Options Purchased 1996 at C$1.34 4,800 2,720 0.0
Currency Put YEN 5,000,000 Japanese Yen, expiring September
Options Purchased 1996 at YEN 105 117,500 184,000 0.1
Total Investments in Currency
Options Purchased 122,300 186,720 0.1
<PAGE>
Put Options US$ 10,000 S&P 500 Index Option, expiring
Purchased September 1996 at US$650.50 137,500 75,000 0.1
Total Investments in Put Options
Purchased 137,500 75,000 0.1
Total Investments in Options Purchased 259,800 261,720 0.2
Total Investments $162,219,598 161,096,211 98.8
============
Variation Margin on Stock Index Futures Contracts** (20,625) 0.0
Unrealized Appreciation on Forward Foreign Exchange Contracts*** 445,667 0.3
Other Assets Less Liabilities 1,563,824 0.9
------------ ------
Net Assets $163,085,077 100.0%
============ ======
<FN>
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)Formerly The Co-Operative Bank of Concord.
(d)Formerly Scios Nova, Inc.
(e)Security held as collateral in connection with open stock index
futures contracts.
(f)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $3,458,000,
representing 2.1% of net assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
East India Hotels 3/13/1995-
Ltd. (GDR) 3/17/1995 $ 576,350 $1,094,148
Korea Mobile
Telecommunications 7/06/1995-
Corp. (GDR) 4/16/1996 1,160,125 1,634,955
Siderar S.A. (ADR) 4/30/1996 612,000 729,000
Total $2,348,475 $3,458,103
========== ==========
(g)Formerly Compania Industrial Peru Pacifico S.A.
(h)Formerly Euro RSCG Worldwide S.A.
++Non-income producing security.
*Commercial Paper and certain US Government Obligations are traded
on a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund.
**Stock index futures contracts sold as of June 30, 1996 were as
follows:
<PAGE>
<CAPTION>
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1c)
<S> <S> <S> <S> <C>
4 FTSE100 LIFFE September 1996 $ 574,381
11 S&P Index NASDAQ September 1996 3,722,400
Total Stock Index Futures Contracts Sold
(Total Contract Price--$4,243,981) $4,296,781
==========
***Forward foreign exchange contracts as of June 30, 1996 were as follows:
<CAPTION>
Unrealized
Appreciation
Foreign Currency Expiration (Depreciation)
Purchased Date (Note 1b)
<S> <C> <S> <C>
YEN 711,571,550 August 1996 $ (243,093)
Total (US$ Commitment--$6,784,670) $ (243,093)
----------
Foreign Currency Sold
DM 2,619,352 July 1996 $ 4,118
DM 2,439,415 August 1996 11,111
FMK 11,420,700 August 1996 (62,832)
Frf 5,932,684 August 1996 5,938
Nlg 1,650,180 August 1996 10,260
NZ$ 2,392,079 August 1996 (5,915)
YEN 2,302,271,310 August 1996 726,080
Total (US$ Commitment--$31,406,989) $ 688,760
----------
Total Unrealized Appreciation--Net on Forward
Foreign Exchange Contracts $ 445,667
----------
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION (UNAUDITED)
Worldwide
Investments
As of 6/30/96
Country of Percent of
Ten Largest Equity Holdings Origin Net Assets
<PAGE>
ADO Electric Industrial
Co., Ltd. Japan 1.1%
Organo Corp. Japan 1.1
Japan Foundation Engineering
Co., Ltd. Japan 1.1
Sinocan Holdings Ltd. Hong Kong 1.0
Korea Mobile Telecommunications
Corp. (GDR) South Korea 1.0
Yondenko Corp. Japan 1.0
Ariake Japan Co., Ltd. Japan 1.0
Tsuchiya Home Co. Japan 1.0
Ohsho Food Service Corp. Japan 0.9
Misys PLC United Kingdom 0.9
Percent of
Ten Largest Industries Net Assets
Retail Specialty 3.6%
Construction 3.3
Textiles 3.0
Insurance 2.9
Holding Company 2.7
Restaurants 2.6
Beverages 2.5
Industrials 2.2
Engineering & Construction 2.2
Manufacturing 2.1
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$161,959,798) (Note 1a) $160,834,491
Unrealized appreciation on forward foreign exchange
contracts (Note 1c) 445,667
Options purchased, at value (premiums paid--$259,800) (Notes 1a & 1c) 261,720
Foreign cash (Note 1d) 313,407
Cash 96,593
Receivables:
Securities sold $ 4,467,299
Dividends 501,569
Capital shares sold 275,426
Interest 8,381
Forward foreign exchange contracts (Note 1c) 586 5,253,261
------------
Deferred organization expenses (Note 1g) 113,039
Prepaid registration fees and other assets (Note 1g) 50,486
------------
Total assets 167,368,664
------------
<PAGE>
Liabilities: Payables:
Securities purchased 3,537,973
Capital shares redeemed 254,815
Distributor (Note 2) 108,503
Investment adviser (Note 2) 105,300
Variation margin on stock index futures contracts (Notes 1a & 1c) 20,625 4,027,216
------------
Accrued expenses and other liabilities 256,371
------------
Total liabilities 4,283,587
------------
Net Assets: Net assets $163,085,077
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 28,384
Class B Common Stock, $0.10 par value, 100,000,000 shares
authorized 1,229,038
Class C Common Stock, $0.10 par value, 100,000,000 shares
authorized 53,719
Class D Common Stock, $0.10 par value, 100,000,000 shares
authorized 208,657
Paid-in capital in excess of par 153,826,175
Undistributed investment income--net 2,179,735
Undistributed realized capital gains on investments and foreign
currency transactions--net 6,302,880
Unrealized depreciation on investments and foreign currency
transactions--net (743,511)
------------
Net assets $163,085,077
============
Net Asset Class A--Based on net assets of $3,083,348 and 283,838 shares
Value: outstanding $ 10.86
============
Class B--Based on net assets of $131,655,570 and 12,290,380 shares
outstanding $ 10.71
============
Class C--Based on net assets of $5,752,849 and 537,194 shares
outstanding $ 10.71
============
Class D--Based on net assets of $22,593,310 and 2,086,565 shares
outstanding $ 10.83
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 1996
<S> <S> <C> <C>
Investment Dividends (net of $270,579 foreign withholding tax) $ 2,354,510
Income Interest and discount earned 609,298
(Notes 1e & 1f): ------------
Total income 2,963,808
------------
Expenses: Investment advisory fees (Note 2) $ 1,285,653
Account maintenance and distribution fees--Class B (Note 2) 1,213,070
Transfer agent fees--Class B (Note 2) 332,824
Printing and shareholder reports 208,345
Custodian fees 171,292
Accounting services (Note 2) 105,306
Registration fees (Note 1g) 83,263
Professional fees 79,827
Account maintenance fees--Class D (Note 2) 56,605
Transfer agent fees--Class D (Note 2) 52,894
Account maintenance and distribution fees--Class C (Note 2) 45,789
Directors' fees and expenses 38,828
Amortization of organization expenses (Note 1g) 36,661
Pricing fees 10,573
Transfer agent fees--Class C (Note 2) 13,387
Transfer agent fees--Class A (Note 2) 6,132
Other 18,383
------------
Total expenses 3,758,832
------------
Investment loss--net (795,024)
------------
Realized & Realized gain from:
Unrealized Gain on Investments--net 9,493,066
Investments & Foreign currency transactions--net 7,078,212 16,571,278
Foreign Currency ------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1c, 1d, Investments--net 15,080,396
1f & 3): Foreign currency transactions--net 340,766 15,421,162
------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 31,992,440
------------
Net Increase in Net Assets Resulting from Operations $ 31,197,416
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION> For the
Period
For the August 5,
Year Ended 1994++ to
June 30, June 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (795,024) $ 387,027
Realized gain (loss) on investments and foreign currency
transactions--net 16,571,278 (5,854,788)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 15,421,162 (16,164,673)
------------ ------------
Net increase (decrease) in net assets resulting from operations 31,197,416 (21,632,434)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (19,859) --
Shareholders Class B (619,675) --
(Note 1h): Class C (22,117) --
Class D (214,561) --
Realized gain on investments--net:
Class A (10,675) --
Class B (682,938) --
Class C (24,845) --
Class D (131,445) --
In excess of realized gain on investments--net:
Class A -- (1,696)
Class B -- (81,949)
Class C -- (1,158)
Class D -- (14,960)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,726,115) (99,763)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (33,525,896) 188,771,869
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (4,054,595) 167,039,672
Beginning of period 167,139,672 100,000
------------ ------------
End of period* $163,085,077 $167,139,672
============ ============
<FN>
*Undistributed investment income--net (Note 1i) $ 2,179,735 $ 387,027
============ ============
<PAGE>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Aug. 5,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
June 30, June 30, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.92 $ 9.82 $ 8.84 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net .13 .04 (.06) .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.97 (.93) 2.04 (1.16)
-------- -------- -------- --------
Total from investment operations 2.10 (.89) 1.98 (1.15)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.10) -- (.05) --
Realized gain on investments--net (.06) -- (.06) --
In excess of realized gain on investments--net -- (.01) -- (.01)
-------- -------- -------- --------
Total dividends and distributions (.16) (.01) (.11) (.01)
-------- -------- -------- --------
Net asset value, end of period $ 10.86 $ 8.92 $ 10.71 $ 8.84
======== ======== ======== ========
Total Investment Based on net asset value per share 23.87% (9.11%)+++ 22.57% (11.55%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.55% 1.62%* 2.61% .83%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .46% 1.06%* (.66%) .10%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 3,083 $ 5,992 $131,656 $132,296
Data: ======== ======== ======== ========
<PAGE> Portfolio turnover 60.33% 47.96% 60.33% 47.96%
======== ======== ======== ========
Average commission rate paid+++++ $ .0011 -- $ .0011 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios have For the Period For the Period
been derived from information provided in the Year Oct. 21, Year Aug. 5,
financial statements. Ended 1994++ to Ended 1994++ to
June 30, June 30, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.84 $ 9.80 $ 8.91 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net (.05) .01 .02 .08
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.03 (.96) 2.05 (1.16)
-------- -------- -------- --------
Total from investment operations 1.98 (.95) 2.07 (1.08)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.05) -- (.09) --
Realized gain on investments--net (.06) -- (.06) --
In excess of realized gain on investments--net -- (.01) -- (.01)
-------- -------- -------- --------
Total dividends and distributions (.11) (.01) (.15) (.01)
-------- -------- -------- --------
Net asset value, end of period $ 10.71 $ 8.84 $ 10.83 $ 8.91
======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 22.56% (9.75%)+++ 23.50% (10.85%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.63% 2.66%* 1.83% 1.77%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net (.64%) .20%* .10% .90%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 5,753 $ 4,924 $ 22,593 $ 23,928
Data: ======== ======== ======== ========
Portfolio turnover 60.33% 47.96% 60.33% 47.96%
======== ======== ======== ========
Average commission rate paid+++++ $ .0011 -- $ .0011 --
======== ======== ======== ========
<FN>
* Annualized.
**Total investment returns exclude the effects of sales loads.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global SmallCap Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors 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 value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
(b) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer 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 additions to such
securities daily to ensure that the contract is fully
collateralized.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
<PAGE>
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to purchase and write call and 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 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 transactions exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (continued)
* 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.
(d) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
<PAGE>
(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 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.
(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 date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(g) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(h) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $3,463,944 have been reclassified from undistributed net realized
capital gains to 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 Merrill
Lynch Asset Management, L.P. ("MLAM"). The general partner of MLAM
is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.85%, on an annual basis,
of the average daily net assets of the Fund. MLAM has entered into a
Sub-Advisory Agreement with Merrill Lynch Asset Management U.K.,
Ltd. ("MLAM U.K."), an affiliate of MLAM, pursuant to which MLAM
pays MLAM U.K. a fee in an amount to be determined from time to time
by MLAM and MLAM U.K. but in no event in excess of the amount that
MLAM actually receives. For the year ended June 30, 1996, MLAM paid
MLAM U.K. a fee of $150,719 pursuant to such Agreement. Certain of
the states in which the shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The most restrictive
annual expense limitation requires that MLAM reimburse the Fund to
the extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of
the management fee. No fee payment will be made to MLAM during any
fiscal year which will cause such expenses to exceed the most
restrictive expense limitation at the time of such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
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 and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
<PAGE>
For the year ended June 30, 1996, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $ 46 $ 530
Class D $4,093 $57,042
For the year ended June 30, 1996, MLPF&S received contingent
deferred sales charges of $492,135 and $2,470 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $42,982 in commissions on the execution
of portfolio security transactions for the year ended June 30, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLAM U.K., MLPF&S, MLFD, MLFDS, and/or ML &
Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended June 30, 1996 were $85,801,261
and $114,982,626, respectively.
Net realized and unrealized gains (losses) as of June 30, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $ 8,968,274 $ (1,126,825)
Short-term 1,454 1,518
Stock index futures contracts 868,759 (52,800)
Options purchased (331,431) (62,500)
Options written (13,990) --
------------ ------------
Total investments 9,493,066 (1,240,607)
Currency transactions:
Options purchased (44,442) 64,420
Options written 428,806 --
Foreign currency transactions 4,554,398 (12,991)
Forward foreign exchange 2,139,450 445,667
contracts ------------ ------------
Total currency transactions 7,078,212 497,096
------------ ------------
Total $ 16,571,278 $ (743,511)
============ ============
<PAGE>
As of June 30, 1996, net unrealized depreciation for Federal income
tax purposes aggregated $1,440,581, of which $16,546,995 related to
appreciated securities and $17,987,576 related to depreciated
securities. The aggregate cost of investments, including options
purchased, at June 30, 1996 for Federal income tax purposes was
$162,350,072.
Transactions in call options written for the year ended June 30,
1996 were as follows:
Nominal Value
Covered by Premiums
Written Options Received
Outstanding call options
written at beginning of year 19,000,000 $ 285,706
Options written 5,003,000 125,963
Options closed (2,003,000) (84,169)
Options expired (22,000,000) (327,500)
------------ ------------
Outstanding call options
written at end of year -- --
============ ============
Transactions in put options written for the year ended June 30, 1996
were as follows:
Nominal Value
Covered by Premiums
Written Options Paid
Outstanding put options
written at beginning of year -- --
Options written 5,000,000 $ 35,750
Options expired (5,000,000) (35,750)
------------ ------------
Outstanding put options
written at end of year -- --
============ ============
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(33,525,896) and $188,771,869 for the year ended
June 30, 1996 and for the period ended June 30, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 296,811 $ 2,900,817
Shares issued to shareholders
in reinvestment of dividends and
distributions 3,060 27,820
------------ ------------
Total issued 299,871 2,928,637
Shares redeemed (687,569) (6,547,134)
------------ ------------
Net decrease (387,698) $ (3,618,497)
============ ============
Class A Shares for the Period Dollar
October 21, 1994++ to June 30, 1995 Shares Amount
Shares sold 940,965 $ 8,735,463
Shares issued to shareholders
in reinvestment of distributions 173 1,602
------------ ------------
Total issued 941,138 8,737,065
Shares redeemed (269,602) (2,410,041)
------------ ------------
Net increase 671,536 $ 6,327,024
============ ============
[FN]
++Commencement of Operations.
<PAGE>
Class B Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 3,191,120 $ 31,771,205
Shares issued to shareholders
in reinvestment of dividends and
distributions 69,565 627,475
------------ ------------
Total issued 3,260,685 32,398,680
Automatic conversion of shares (38,752) (370,604)
Shares redeemed (5,891,101) (56,152,670)
------------ ------------
Net decrease (2,669,168) $(24,124,594)
============ ============
Class B Shares for the Period Dollar
August 5, 1994++ to June 30, 1995 Shares Amount
Shares sold 19,401,309 $190,346,473
Shares issued to shareholders
in reinvestment of distributions 3,965 36,674
------------ ------------
Total issued 19,405,274 190,383,147
Automatic conversion of shares (120,766) (1,112,657)
Shares redeemed (4,329,960) (39,053,042)
------------ ------------
Net increase 14,954,548 $150,217,448
============ ============
[FN]
++Prior to August 5, 1994 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
Class C Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 368,083 $ 3,622,074
Shares issued to shareholders
in reinvestment of dividends and
distributions 4,696 42,310
------------ ------------
Total issued 372,779 3,664,384
Shares redeemed (392,451) (3,747,857)
------------ ------------
Net decrease (19,672) $ (83,473)
============ ============
<PAGE>
Class C Shares for the Period Dollar
October 21, 1994++ to June 30, 1995 Shares Amount
Shares sold 688,727 $ 6,332,720
Shares issued to shareholders
in reinvestment of distributions 118 1,096
------------ ------------
Total issued 688,845 6,333,816
Shares redeemed (131,979) (1,171,764)
------------ ------------
Net increase 556,866 $ 5,162,052
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 1,341,253 $ 13,808,237
Automatic conversion of shares 38,393 370,604
Shares issued to shareholders
in reinvestment of dividends and
distributions 17,279 156,896
------------ ------------
Total issued 1,396,925 14,335,737
Shares redeemed (1,996,494) (20,035,069)
------------ ------------
Net decrease (599,569) $ (5,699,332)
============ ============
Class D Shares for the Period Dollar
August 5, 1994++ to June 30, 1995 Shares Amount
Shares sold 3,959,595 $ 39,101,204
Automatic conversion of shares 120,315 1,112,657
Shares issued to shareholders
in reinvestment of distributions 573 5,319
------------ ------------
Total issued 4,080,483 40,219,180
Shares redeemed (1,399,349) (13,153,835)
------------ ------------
Net increase 2,681,134 $ 27,065,345
============ ============
<PAGE>
[FN]
++Prior to August 5, 1994 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated Class D Shares. There were
2,992,993 shares redesignated amounting to $29,891,279.
5. Commitments:
On June 30, 1996, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to purchase and sell various
foreign currencies with approximate values of $837,000 and
$1,303,000, respectively.
<AUDIT REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
Merrill Lynch Global SmallCap Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Global SmallCap Fund, Inc. as of June 30, 1996, the related
statements of operations and changes in net assets for the year then
ended, and the financial highlights for the year then ended and for
the period August 5, 1994 (commencement of operations) to June 30,
1995. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at June 30,
1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
<PAGE>
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Global SmallCap Fund, Inc. as of June 30, 1996, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated period in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 20, 1996
</AUDIT REPORT>
