MERRILL LYNCH
GLOBAL SMALLCAP
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 1998
<PAGE>
MERRILL LYNCH GLOBAL SMALLCAP FUND, INC.
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
Hubertus Aarts, Vice President
R. Elise Baum, Vice President
Donald C. Burke, Vice President
Kenneth Chiang, Vice President
James E. Russell, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
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
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
DEAR SHAREHOLDER
Global equity markets produced positive returns during the quarter ended June
30, 1998, with the majority of the returns coming in June. The total return (in
US dollar terms) of the benchmark unmanaged Salomon Smith Barney Extended Market
Index (SEMI) during the three months ended June 30, 1998 was -2.33%. During the
June quarter, small-capitalization stocks continued their underperformance
relative to large-capitalization stocks. The best-performing
small-capitalization stocks continued to come from the financial sector in the
United States and Europe, while emerging markets posted negative returns as a
result of the ongoing financial problems in Japan and the Pacific Rim.
For the three months ended June 30, 1998, total returns for Merrill Lynch Global
SmallCap Fund, Inc.'s Class A, Class B, Class C and Class D Shares were -3.08%,
- -3.23%, -3.34% and -3.09%, respectively. (Results shown do not reflect sales
charges and would be lower if sales charges were included. Complete performance
information can be found on pages 4-6 of this report to shareholders.) During
the June quarter, the Fund underperformed its benchmark.
Detrimental to performance were the Fund's overweighted positions in emerging
markets and Japan and stock selection in the emerging markets and the United
States. Beneficial to performance were the Fund's underweighted position in the
United States and overweighted position and stock selection in Continental
Europe. In the United States, Fund performance was hindered by overweighting
investments in the technology sector and underweighting investments in the
financial services sector. Technology stocks were weak during the June quarter
on continued concerns about slowing demand and competitive pricing from Asian
manufacturers. In Europe, the Fund was overweighted in the support-services and
software sectors in the earlier part of the quarter, which benefited performance
relative to the benchmark. In Japan, the Fund's overweighted position in
financially sound, cash-rich Japanese corporations buffered the Fund's
performance against continued declines in the market.
Portfolio Matters and Investment Strategy
We expect benign interest rate environments in the major economies to support
the valuations and performance of equity markets. The extent to which
small-capitalization stocks will benefit continues to be constrained by the risk
of earnings deceleration in the large-capitalization stocks and the premium
investors are willing to pay for liquidity in large-capitalization issues. We
believe these perceptions will linger as long as concerns of further fallout
from the Asian currency crisis continue to plague the global equity markets.
During the June quarter, we de-emphasized broad macroeconomic asset allocation
in favor of refocusing the Fund toward stock selection, stressing companies with
quality managements and above-average earnings growth and high barriers to entry
in defendable niches.
In the United States, we overweighted the technology and healthcare industries
and underweighted financial and cyclical industries. We believe this will help
insulate the Fund from a slowdown in the US economy. We will continue to search
for companies with high earnings growth potential in niche businesses which have
good long-term potential. A stock that benefited the Fund's quarterly investment
performance was Paxson Communications Corp., a broadcast television network.
Recent television station acquisitions have drawn attention to the value of the
company's broadcast properties and to the potential for increased cash flow from
the launch of family-oriented programming later this year.
Our European country exposure is in line with the SEMI, except for the United
Kingdom, where we are underweighted. We expect to maintain our exposure to the
software and support-services sectors where earnings have been robust. We will
avoid cyclicals because of continued earnings downgrades as a result of the
Asian crisis. However, since the valuation gap between cyclicals and growth
stocks is increasing, we will wait for second quarter earnings results to decide
on further allocation changes.
During the June quarter, we eliminated the majority of our exposure to Japan and
the emerging markets. We are likely to continue to avoid the Pacific Rim and
emerging markets because we believe earnings downgrades will persist and that
the economic recovery will be slower than expected. In addition, we believe
political and macroeconomic uncertainties will continue to dampen corporate
earnings growth and create currency volatility.
Fiscal Year in Review
For the year ended June 30, 1998, total returns for the Fund's Class A, Class B,
Class C and Class D Shares were -7.15%, -8.15%, -8.19% and -7.43%, respectively,
while the unmanaged SEMI total return was +10.83% over the same 12-month period
in US dollar terms. Detrimental to performance were the Fund's overweighted
positions in Japan and the emerging markets and its underweighted position in
the United States. Stock selection in Europe and the United States benefited
performance.
The Asian crisis, which started in Thailand in July 1997, spilled over to the
rest of Asia and culminated in a global stock market correction. This impacted
small-capitalization stocks severely by the fourth quarter of 1997 as investors
sought safety in large-capitalization stocks. Stocks in emerging markets, which
compete with the commodity and low value-added products of Asia, were impacted
severely. Problems in Japan added to the Southeast Asia crisis, which has
further dampened global market sentiment.
Despite these problems, we continue to find attractive companies within Europe
and the United States. In Europe, European Monetary Union (EMU) is creating
opportunities for companies to consolidate, thereby reducing costs and driving
earnings growth. EMU has also created new opportunities in technology services
to address the multi-currency functionality and year 2000 problems. In the
United States, advances in telecommunications, the Internet and healthcare, as
well as trends toward outsourcing, have fueled the growth of many small
companies.
In Conclusion
For investors with a long-term focus, we believe there are good opportunities in
small company stocks globally. While we believe European valuations may be
temporarily stretched, the earnings results and consolidation in a unified
Europe will provide continued impetus for earnings growth for many small
companies, in our view. In the US market, small stocks are the most attractive
sector in terms of valuation and earnings growth prospects.
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 report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Kenneth Chiang
Kenneth Chiang
Vice President and
Senior Portfolio Manager
/s/ Hubertus Aarts
Hubertus Aarts
Vice President and
Co-Portfolio Manager
/s/ R. Elise Baum
R. Elise Baum
Vice President and
Co-Portfolio Manager
/s/ James Russell
James Russell
Vice President and
Co-Portfolio Manager
August 13, 1998
2 & 3
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
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:
o 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.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o 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.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
Total Return Based on a $10,000 Investment
[A line graph depicting 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:]
Class A Shares and Class C Shares
10/21/94** 6/98
Merrill Lynch Global SmallCap Fund, Inc.+ --
Class A Shares* $9,475 $10,651
Merrill Lynch Global SmallCap Fund, Inc.+ --
Class C Shares* $10,000 $10,804
Salomon Brothers Extended Market Index++ $10,000 $15,266
Total Return Based on a $10,000 Investment
[A line graph depicting the growth of an investment in the Fund's Class B Shares
and Class D Shares compared to growth of an investment in the Salomon Brothers
Extended Market Index. Beginning and ending values are:]
Class B Shares and Class D Shares
8/05/94** 6/98
Merrill Lynch Global SmallCap Fund, Inc.+ --
Class B Shares* $10,000 $10,509
Merrill Lynch Global SmallCap Fund, Inc.+ --
Class D Shares* $9,475 $10,359
Salomon Brothers Extended Market Index++ $10,000 $15,287
* 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
diversified 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
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/98 -7.15% -12.02%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/98 +3.22 + 1.72
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/98 -8.15% -11.69%
- --------------------------------------------------------------------------------
Inception (8/5/94) through 6/30/98 +1.51 + 1.28
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
Year Ended 6/30/98 -8.19% -9.07%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/98 +2.12 +2.12
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
** Assuming payment of applicable contingent deferred sales charge.
================================================================================
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class D Shares*
================================================================================
Year Ended 6/30/98 -7.43% -12.29%
- --------------------------------------------------------------------------------
Inception (8/5/94) through 6/30/98 +2.31 + 0.91
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
4 & 5
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
PERFORMANCE DATA (concluded)
Recent Performance Results*
<TABLE>
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
============================================================================================
<S> <C> <C> <C>
ML Global SmallCap Fund, Inc. Class A Shares -7.15% -3.08% +12.41%
- --------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class B Shares -8.15 -3.23 + 6.02
- --------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class C Shares -8.19 -3.34 + 8.04
- --------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class D Shares -7.43 -3.09 + 9.33
============================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Total investment returns are
based on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's inception dates are: Class A
Shares and Class C Shares, 10/21/94; and Class B Shares and Class D
Shares, 8/05/94.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Investments Cost (Note 1a) Net Assets
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Denmark Security Services 7,800 Falck A/S $ 393,022 $ 482,322 0.6%
-----------------------------------------------------------------------------------------------------------------
Total Investments in Denmark 393,022 482,322 0.6
==================================================================================================================================
Finland Holding Company 2,066 Fiskars OY AB (Class A) 106,683 293,996 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in Finland 106,683 293,996 0.4
==================================================================================================================================
France Computer Software 2,626 Altran Technologies S.A. 219,288 596,591 0.8
-----------------------------------------------------------------------------------------------------------------
Distribution 2,558 Guilbert S.A. 400,280 404,641 0.5
-----------------------------------------------------------------------------------------------------------------
Electronics 4,814 Compagnie des Signaux S.A. 250,106 463,597 0.6
-----------------------------------------------------------------------------------------------------------------
Holding Company 862 Societe EuraFrance S.A. 260,859 542,004 0.7
-----------------------------------------------------------------------------------------------------------------
Plastics 3,832 Compagnie Plastic Omnium S.A. 489,696 566,858 0.7
-----------------------------------------------------------------------------------------------------------------
Restaurants 3,000 Leon de Bruxelles S.A. 238,620 307,769 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in France 1,858,849 2,881,460 3.7
==================================================================================================================================
Germany Broadcasting 1,010 EM.TV & Merchandising AG 313,202 497,950 0.7
-----------------------------------------------------------------------------------------------------------------
Insurance 3,340 AXA Colonia Konzern AG 371,040 414,447 0.5
-----------------------------------------------------------------------------------------------------------------
Machine Tools & 909 Walter AG 267,472 392,765 0.5
Machinery
-----------------------------------------------------------------------------------------------------------------
Machinery & 6,833 +Kloeckner Werke AG 615,477 491,694 0.6
Engineering
-----------------------------------------------------------------------------------------------------------------
Machinery & Equipment 1,007 Jungheinrich AG (Preferred) 204,236 186,874 0.2
-----------------------------------------------------------------------------------------------------------------
Manufacturing 3,157 Escada AG (Preferred) 524,402 498,418 0.7
-----------------------------------------------------------------------------------------------------------------
Retail Specialty 10,411 Moebel Walther AG 445,482 426,775 0.6
-----------------------------------------------------------------------------------------------------------------
Transportation 3,168 Koegel Fahrzeugwerke AG (Preferred) 409,978 605,451 0.8
-----------------------------------------------------------------------------------------------------------------
Total Investments in Germany 3,151,289 3,514,374 4.6
==================================================================================================================================
Ireland Foods 59,608 Greencore Group PLC 299,101 323,232 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in Ireland 299,101 323,232 0.4
==================================================================================================================================
Italy Banking & Finance 12,000 Banca Popolare di Bergamo Credito
Varesino S.p.A. 253,121 247,158 0.3
-----------------------------------------------------------------------------------------------------------------
Textiles & Apparel 32,000 +Societa Italiana Manufatti
(SIMINT) S.p.A. 244,585 312,437 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in Italy 497,706 559,595 0.7
==================================================================================================================================
Netherlands Computer Software 11,955 +DOCdata NV 174,393 343,338 0.5
29,384 ICT Automatisering NV 284,666 723,744 0.9
----------- ----------- -----
459,059 1,067,082 1.4
-----------------------------------------------------------------------------------------------------------------
Electrical Equipment 7,799 Twentsche Kabel Holding NV 309,938 299,666 0.4
-----------------------------------------------------------------------------------------------------------------
Engineering & 250 Volker Wessels Stevin NV 8,027 7,362 0.0
Construction
-----------------------------------------------------------------------------------------------------------------
Holding Company 12,626 Internatio-Mueller NV 291,895 423,562 0.5
-----------------------------------------------------------------------------------------------------------------
Human Resources 14,839 Unique International NV 435,753 504,380 0.7
-----------------------------------------------------------------------------------------------------------------
Industrial Services 10,857 Koninklijke Pakhoed NV 419,795 352,986 0.5
-----------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 1,924,467 2,655,038 3.5
==================================================================================================================================
Norway Computer Services 108,500 +Agresso Group ASA 487,587 481,373 0.6
-----------------------------------------------------------------------------------------------------------------
Computer Software 6,182 +Contextvision AB 93,624 102,448 0.1
38,306 Merkantildata ASA 186,689 484,854 0.6
-----------------------------------------------------------------------------------------------------------------
Newspaper/Publishing 16,244 Schibsted ASA 337,559 273,436 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in Norway 1,105,459 1,342,111 1.7
==================================================================================================================================
Russia Telecommunications 12,180 +Vimpel-Communications (ADR) (a) 377,431 545,055 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Russia 377,431 545,055 0.7
==================================================================================================================================
Spain Building & 5,900 Abengoa, S.A. 423,726 543,091 0.7
Construction
-----------------------------------------------------------------------------------------------------------------
Manufacturing 3,042 Azkoyen, S.A. 390,077 468,413 0.6
-----------------------------------------------------------------------------------------------------------------
Total Investments in Spain 813,803 1,011,504 1.3
==================================================================================================================================
Sweden Computer Services 16,000 Grupen Mandator AB (B Shares) 369,072 625,995 0.8
-----------------------------------------------------------------------------------------------------------------
Engineering & 17,546 Svedala Industri AB 230,417 407,049 0.5
Construction
-----------------------------------------------------------------------------------------------------------------
Forest Products/ 472,500 Rottneros Bruks AB Free 729,456 340,695 0.4
Paper & Packaging
-----------------------------------------------------------------------------------------------------------------
Holding Company 11,900 Kinnevik AB (B Shares) 269,196 387,241 0.5
11,900 Kinnevik AB (B Shares) (Rights) (b) 56,439 55,213 0.1
----------- ----------- -----
325,635 442,454 0.6
-----------------------------------------------------------------------------------------------------------------
Hotels 9,395 Scandic Hotels AB 170,526 341,658 0.5
-----------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 1,825,106 2,157,851 2.8
==================================================================================================================================
Switzerland Advertising 1,620 Edipresse S.A. (Bearer) 351,247 445,666 0.6
-----------------------------------------------------------------------------------------------------------------
Banking & Finance 1,715 Banque Cantonale de Geneve 540,989 542,514 0.7
-----------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
EUROPE Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Switzerland Distribution 2,925 +TEGE S.A. $ 224,891 $ 262,436 0.3%
(concluded) -----------------------------------------------------------------------------------------------------------------
Electronics 40 +Kudelski S.A. 186,667 368,122 0.5
-----------------------------------------------------------------------------------------------------------------
Food Merchandising 2,040 Selecta Group (The) 405,088 436,047 0.6
-----------------------------------------------------------------------------------------------------------------
Industrials 1,972 Oerlikon-Buehrle Holdings AG 212,627 360,367 0.4
-----------------------------------------------------------------------------------------------------------------
Retail Specialty 480 Grands Magasins Jelmoli S.A. 254,092 609,579 0.8
-----------------------------------------------------------------------------------------------------------------
Total Investments in Switzerland 2,175,601 3,024,731 3.9
==================================================================================================================================
United Kingdom Aerospace 17,700 DONCASTERS PLC (ADR) (a) 323,541 492,281 0.7
-----------------------------------------------------------------------------------------------------------------
Building & 45,934 Jarvis PLC 293,689 532,654 0.7
Construction
-----------------------------------------------------------------------------------------------------------------
Chemicals 157,578 Inspec Group PLC 522,360 686,218 0.9
-----------------------------------------------------------------------------------------------------------------
Computer Services 9,962 Misys PLC 98,501 565,965 0.7
116,364 Skillsgroup PLC 366,559 549,454 0.7
----------- ----------- -----
465,060 1,115,419 1.4
-----------------------------------------------------------------------------------------------------------------
Computer Software 73,000 +Micro Focus Group PLC 747,180 517,652 0.7
-----------------------------------------------------------------------------------------------------------------
Industrial Services 34,168 Select Appointments (Holdings) PLC 333,086 487,430 0.6
-----------------------------------------------------------------------------------------------------------------
Insurance 66,000 +Independent Insurance Group PLC 289,689 378,816 0.5
-----------------------------------------------------------------------------------------------------------------
Metals 48,028 Johnson Matthey PLC 518,113 431,125 0.6
-----------------------------------------------------------------------------------------------------------------
Oil Services 57,553 Expro International Group PLC 476,994 477,255 0.6
-----------------------------------------------------------------------------------------------------------------
Rental Services 81,400 Ashtead Group PLC 190,835 319,167 0.4
-----------------------------------------------------------------------------------------------------------------
Total Investments in the
United Kingdom 4,160,547 5,438,017 7.1
==================================================================================================================================
Total Investments in Europe 18,689,064 24,229,286 31.4
==================================================================================================================================
LATIN AMERICA
==================================================================================================================================
Mexico Engineering & 242,450 +Grupo Profesional Planeacion y
Construction Proyectos, S.A. de C.V. (Class B) 1,079,551 558,628 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Latin America 1,079,551 558,628 0.7
==================================================================================================================================
NORTH AMERICA
==================================================================================================================================
Canada Leisure 27,384 Four Seasons Hotels Ltd. 319,909 964,225 1.3
-----------------------------------------------------------------------------------------------------------------
Total Investments in Canada 319,909 964,225 1.3
==================================================================================================================================
United States Apparel 50,100 +Norton McNaughton, Inc. 538,399 325,650 0.4
-----------------------------------------------------------------------------------------------------------------
Application 31,600 +Rational Software Corporation 417,844 481,900 0.6
Development
Software
-----------------------------------------------------------------------------------------------------------------
Auto--Related 15,600 Meritor Automotive, Inc. 385,124 374,400 0.5
46,600 +Miller Industries, Inc. 411,791 361,150 0.5
27,000 Walbro Corp. 494,287 378,000 0.5
----------- ----------- -----
1,291,202 1,113,550 1.5
-----------------------------------------------------------------------------------------------------------------
Banking & Finance 14,174 Charter One Financial, Inc. 117,313 475,715 0.6
27,930 Civic Bancorp 330,916 499,249 0.7
----------- ----------- -----
448,229 974,964 1.3
-----------------------------------------------------------------------------------------------------------------
Biotechnology 4,800 +Biomatrix, Inc. 67,914 195,000 0.3
11,900 +COR Therapeutics, Inc. 132,024 165,113 0.2
14,400 +Genome Therapeutics Corporation 123,171 64,350 0.1
18,300 +Magainin Pharmaceuticals, Inc. 193,027 93,788 0.1
33,000 +NABI, Inc. 222,517 100,031 0.1
33,575 +NeoRx Corp. 227,194 161,580 0.2
6,100 +Neurogen Corporation 81,433 108,275 0.1
4,800 +Pharmacopeia, Inc. 86,502 68,400 0.1
8,800 +Scios, Inc. 64,850 77,825 0.1
-----------------------------------------------------------------------------------------------------------------
Broadcasting 84,300 +Paxson Communications Corp. 883,960 1,022,138 1.3
-----------------------------------------------------------------------------------------------------------------
Building &
Building Materials 9,800 +Giant Cement Holding, Inc. 138,237 279,300 0.4
6,300 Oakwood Homes Corporation 160,551 189,000 0.2
16,200 Ryland Group, Inc. 232,566 425,250 0.5
12,300 +Toll Brothers, Inc. 247,648 352,856 0.5
----------- ----------- -----
779,002 1,246,406 1.6
-----------------------------------------------------------------------------------------------------------------
Business Services 14,400 +Caribiner International, Inc. 338,674 252,000 0.3
-----------------------------------------------------------------------------------------------------------------
Computer Software 41,300 +Ardent Software, Inc. 289,905 567,875 0.7
8,800 +BISYS Group, Inc. (The) 292,260 360,800 0.5
18,825 +Boole & Babbage, Inc. 269,919 449,447 0.6
12,400 +Broderbund Software, Inc. 235,496 282,100 0.4
15,225 +Harbinger Corporation 211,075 368,255 0.5
19,400 +Information Resources, Inc. 349,924 358,900 0.4
5,000 +Learning Company, Inc. (The) 96,336 148,125 0.2
11,900 +Platinum Technology, Inc. 293,906 339,894 0.4
8,700 +Software Spectrum, Inc. 122,887 172,913 0.2
3,963 +Sterling Commerce, Inc. 56,142 192,206 0.3
34,000 +Structural Dynamics Research Corp. 701,823 782,000 1.0
----------- ----------- -----
2,919,673 4,022,515 5.2
-----------------------------------------------------------------------------------------------------------------
Computers & 38,400 +Mentor Graphics Corporation 395,585 405,600 0.5
Computer 29,800 +Phoenix Technologies Ltd. 396,580 376,225 0.5
Services 9,500 +Storage Technology Corporation 203,274 412,063 0.5
----------- ----------- -----
995,439 1,193,888 1.5
-----------------------------------------------------------------------------------------------------------------
Data Processing 4,300 National Data Corporation 151,861 188,125 0.3
12,600 +Primark Corporation 348,261 394,538 0.5
16,100 +Read-Rite Corporation 155,146 144,900 0.2
69,600 +Sybase, Inc. 1,106,807 482,850 0.6
----------- ----------- -----
1,762,075 1,210,413 1.6
-----------------------------------------------------------------------------------------------------------------
Diversified 18,000 +ACX Technologies, Inc. 383,079 391,500 0.5
-----------------------------------------------------------------------------------------------------------------
Electronics 13,500 +CHS Electronics, Inc. 285,750 239,625 0.3
43,800 +C.P. Clare Corp. 362,400 416,100 0.5
12,500 +DII Group, Inc. 150,183 213,281 0.3
</TABLE>
8 & 9
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Electronics 18,200 +ESCO Electronics Corporation $ 316,504 $ 345,800 0.5%
(concluded) (concluded) 8,000 +Hadco Corporation 320,049 185,000 0.2
16,000 +TriQuint Semiconductor, Inc. 349,902 304,000 0.4
7,800 +Triumph Group, Inc. 225,918 327,600 0.4
----------- ----------- -----
2,010,706 2,031,406 2.6
-----------------------------------------------------------------------------------------------------------------
Entertainment 10,500 Dover Downs Entertainment, Inc. 309,904 325,500 0.4
-----------------------------------------------------------------------------------------------------------------
Environmental 15,525 BHA Group Inc. (Class A) 198,583 244,525 0.3
Control 3,943 +Envirosource, Inc. 100,919 69,000 0.1
----------- ----------- -----
299,502 313,525 0.4
-----------------------------------------------------------------------------------------------------------------
Finance 18,000 +DVI, Inc. 442,714 459,000 0.6
-----------------------------------------------------------------------------------------------------------------
Gaming 49,424 +Midway Games Inc. 719,842 772,250 1.0
15,800 +WMS Industries, Inc. 46,497 66,163 0.1
----------- ----------- -----
766,339 838,413 1.1
-----------------------------------------------------------------------------------------------------------------
Healthcare-- 38,100 +HCIA Inc. 475,085 492,919 0.6
Products/Services 16,700 +Magellan Health Services, Inc. 486,659 423,763 0.5
45,400 +MedPartners, Inc. 442,145 363,200 0.5
46,800 +Ramsay Health Care, Inc. 287,902 81,900 0.1
14,250 +Sierra Health Services, Inc. 300,093 358,922 0.5
----------- ----------- -----
1,991,884 1,720,704 2.2
-----------------------------------------------------------------------------------------------------------------
Industrial-- 39,500 +APAC TeleServices, Inc. 375,368 229,594 0.3
Outsourcing 53,000 +SITEL Corporation 474,29 351,125 0.5
----------- ----------- -----
849,66 580,719 0.8
-----------------------------------------------------------------------------------------------------------------
Insurance 6,600 American National Insurance Co. 570,555 690,112 0.9
5,000 AmerUs Life Holdings Inc. (Class A) 164,375 161,875 0.2
20,000 +Gryphon Holdings, Inc. 307,500 325,000 0.4
11,600 HCC Insurance Holdings, Inc. 202,496 255,200 0.3
14,500 PXRE Corp. 323,975 435,000 0.6
----------- ----------- -----
1,568,901 1,867,187 2.4
-----------------------------------------------------------------------------------------------------------------
Machinery 14,000 AGCO Corporation 328,730 287,875 0.4
17,100 Stewart & Stevenson Services, Inc. 397,651 303,525 0.4
----------- ----------- -----
726,381 591,400 0.8
-----------------------------------------------------------------------------------------------------------------
Manufacturing 18,000 Foamex International Inc. 256,500 312,750 0.4
-----------------------------------------------------------------------------------------------------------------
Metals 8,150 Applied Industrial Technologies, Inc. 155,388 167,584 0.2
15,800 Castle (A.M.) & Company 291,876 347,600 0.5
17,700 +Citation Corporation 238,490 352,894 0.5
17,400 Commonwealth Industries, Inc. 327,256 171,825 0.2
23,000 +Shiloh Industries, Inc. 307,437 465,750 0.6
6,700 +Wolverine Tube, Inc. 192,590 254,600 0.3
----------- ----------- -----
1,513,037 1,760,253 2.3
-----------------------------------------------------------------------------------------------------------------
Natural Resources 22,700 +Benton Oil and Gas Company 427,019 241,187 0.3
18,300 +Brown (Tom), Inc. 210,967 344,269 0.4
7,600 +Forcenergy Inc. 173,319 135,375 0.2
12,100 +Louis Dreyfus Natural Gas Corp. 213,955 229,144 0.3
12,900 Newpark Resources, Inc. 163,935 143,512 0.2
22,000 +Plains Resources, Inc. 137,500 394,625 0.5
15,500 +TransTexas Gas Corp. 170,500 137,562 0.2
40,263 +Zemex Corporation 344,670 352,301 0.5
----------- ----------- -----
1,841,865 1,977,975 2.6
-----------------------------------------------------------------------------------------------------------------
Office Equipment 31,400 Danka Business Systems PLC (ADR)(a)(c) 571,625 370,913 0.5
-----------------------------------------------------------------------------------------------------------------
Restaurants 43,100 +Au Bon Pain Company, Inc. (Class A) 349,835 471,406 0.6
-----------------------------------------------------------------------------------------------------------------
Retail Specialty 17,500 +Micro Warehouse, Inc. 301,787 269,062 0.4
-----------------------------------------------------------------------------------------------------------------
Steel 3,600 +Novamerican Steel Inc. 39,000 26,100 0.0
-----------------------------------------------------------------------------------------------------------------
Telecommunications 7,200 +Allen Telecom Inc. 127,512 83,700 0.1
& Equipment 90,000 +Applied Digital Access, Inc. 455,178 450,000 0.6
18,000 +DSP Communications, Inc. 250,754 247,500 0.3
15,200 +Harmonic Lightwaves, Inc. 233,891 233,700 0.3
44,200 +Metromedia International Group, Inc. 503,928 527,637 0.7
17,000 +Network Equipment Technologies, Inc. 246,576 266,687 0.4
----------- ----------- -----
1,817,839 1,809,224 2.4
-----------------------------------------------------------------------------------------------------------------
Transportation 11,550 Air Express International Corporation 210,495 308,962 0.4
14,000 Circle International Group, Inc. 355,349 392,000 0.5
----------- ----------- -----
565,844 700,962 0.9
-----------------------------------------------------------------------------------------------------------------
Wire & Cable 28,500 +Anixter International Inc. 462,092 543,281 0.7
Products 11,400 General Cable Corporation 159,600 329,175 0.4
----------- ----------- -----
621,692 872,456 1.1
-----------------------------------------------------------------------------------------------------------------
Total Investments in the United States 28,801,227 30,568,241 39.6
==================================================================================================================================
Total Investments in North America 29,121,136 31,532,466 40.9
==================================================================================================================================
PACIFIC BASIN
==================================================================================================================================
Australia Consulting Services 54,000 Atkins Carlyle Ltd. 491,472 531,584 0.7
-----------------------------------------------------------------------------------------------------------------
Total Investments in Australia 491,472 531,584 0.7
==================================================================================================================================
Japan Beverages 81,400 Sanyo Coca-Cola Bottling Co., Ltd. 1,118,168 876,444 1.2
-----------------------------------------------------------------------------------------------------------------
Consumer Electricals 49,000 Roland Corporation 1,175,635 802,699 1.1
-----------------------------------------------------------------------------------------------------------------
Machinery 11,000 Union Tool Co. 418,501 396,911 0.5
-----------------------------------------------------------------------------------------------------------------
Real Estate 680 TOC Company Ltd. 6,748 5,835 0.0
-----------------------------------------------------------------------------------------------------------------
Restaurants 34,000 Mos Food Services, Inc. 976,502 404,850 0.5
-----------------------------------------------------------------------------------------------------------------
Services 15,900 Ichinen Co., Ltd. 360,488 90,647 0.1
-----------------------------------------------------------------------------------------------------------------
Total Investments in Japan 4,056,042 2,577,386 3.4
==================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
PACIFIC BASIN Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
New Zealand Textiles & Apparel 49,350 Lane Walker Rudkin Industries, Ltd. $ 53,080 $ 24,560 0.0%
-----------------------------------------------------------------------------------------------------------------
Total Investments in New Zealand 53,080 24,560 0.0
==================================================================================================================================
Philippines Financial Services 15,428 Far East Bank & Trust Company 32,458 13,012 0.0
-----------------------------------------------------------------------------------------------------------------
Total Investments in the Philippines 32,458 13,012 0.0
==================================================================================================================================
Total Investments in the Pacific Basin 4,633,052 3,146,542 4.1
==================================================================================================================================
SHORT-TERM Face
SECURITIES Amount
==================================================================================================================================
Commercial Paper* US$ 2,000,000 Atlantic Asset Securitization Corp.,
5.50% due 7/13/1998 1,996,300 1,996,300 2.6
Concord Minutemen Capital Corp.:
659,000 6.50% due 7/01/1998 659,000 659,000 0.8
1,000,000 6% due 7/07/1998 999,000 999,000 1.3
2,000,000 Corporate Asset Funding Co. Inc.,
5.53% due 7/10/1998 1,997,235 1,997,235 2.6
3,000,000 Finova Capital Corp., 5.90%
due 7/02/1998 2,999,508 2,999,508 3.9
3,531,000 General Motors Acceptance Corp.,
6.50% due 7/01/1998 3,531,000 3,531,000 4.6
1,000,000 International Securitization Corp.,
5.53% due 7/06/1998 999,232 999,232 1.3
3,000,000 Park Avenue Receivables Corp.,
5.55% due 7/02/1998 2,999,538 2,999,538 3.9
-----------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term
Securities 16,180,813 16,180,813 21.0
==================================================================================================================================
Total Investments $69,703,616 75,647,735 98.1
===========
Unrealized Appreciation on Forward Foreign Exchange Contracts** 136,282 0.2
Other Assets Less Liabilities 1,353,755 1.7
----------- -----
Net Assets $77,137,772 100.0%
=========== =====
====================================================================================================================================
</TABLE>
* Commercial Paper is traded on a discount basis; the interest
rates shown are the discount rates paid at the time of
purchase by the Fund.
** Forward foreign exchange contracts as of June 30, 1998 were
as follows:
- --------------------------------------------------------------------------------
Unrealized
Foreign Currency Expiration Appreciation
Sold Date (Note 1c)
- --------------------------------------------------------------------------------
(Yen) 225,425,700 July 1998 $136,282
- --------------------------------------------------------------------------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net
(US$ Commitment--$1,766,659) $136,282
========
- --------------------------------------------------------------------------------
(a) American Depositary Receipts (ADR).
(b) The rights may be exercised until 8/18/1998.
(c) Consistent with the general policy of the Securities and Exchange
Commission, the nationality or domicile of an issuer for determination of
foreign issuer status may be (i) the country under whose laws the issuer
is organized, (ii) the country in which the issuer's securities are
principally traded, or (iii) the country in which the issuer derives a
significant proportion (at least 50%) of its revenue or profits from goods
produced or sold, investments made, or services performed in the country,
or which at least 50% of the assets of the issuer are situated.
+ Non-income producing security.
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 1998
==================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$69,703,616) (Note 1a) ..................... $ 75,647,735
Unrealized appreciation on forward foreign exchange contracts--net (Note 1c) ....... 136,282
Foreign cash (Note 1d) ............................................................. 206,352
Cash ............................................................................... 933
Receivables:
Securities sold ................................................................. $ 1,880,933
Dividends ....................................................................... 217,464
Forward foreign exchange contracts (Note 1c) .................................... 102,744
Capital shares sold ............................................................. 15,468 2,216,609
------------
Deferred organization expenses (Note 1g) ........................................... 39,716
Prepaid registration fees and other assets (Note 1g) ............................... 40,861
------------
Total assets ....................................................................... 78,288,488
------------
==================================================================================================================================
Liabilities: Payables:
Securities purchased ............................................................ 526,255
Capital shares redeemed ......................................................... 307,549
Investment adviser (Note 2) ..................................................... 58,380
Distributor (Note 2) ............................................................ 57,601 949,785
Accrued expenses and other liabilities ............................................. 200,931
------------
Total liabilities .................................................................. 1,150,716
------------
==================================================================================================================================
Net Assets: Net assets ......................................................................... $ 77,137,772
============
==================================================================================================================================
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized ............... $ 46,315
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized ............... 618,923
Class C Common Stock, $0.10 par value, 100,000,000 shares authorized ............... 46,592
Class D Common Stock, $0.10 par value, 100,000,000 shares authorized ............... 117,187
Paid-in capital in excess of par ................................................... 87,958,593
Undistributed investment income--net ............................................... 2,013,949
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 6) ......................................................... (15,639,304)
Accumulated distributions in excess of realized capital gains--net (Note 1h) ....... (4,101,895)
Unrealized appreciation on investments and foreign currency transactions--net ...... 6,077,412
------------
Net assets ......................................................................... $ 77,137,772
============
==================================================================================================================================
Net Asset Class A--Based on net assets of $4,376,230 and 463,145 shares outstanding .......... $ 9.45
Value: ============
Class B--Based on net assets of $57,423,535 and 6,189,230 shares outstanding ....... $ 9.28
============
Class C--Based on net assets of $4,311,668 and 465,918 shares outstanding .......... $ 9.25
============
Class D--Based on net assets of $11,026,339 and 1,171,871 shares outstanding ....... $ 9.41
============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 1998
==================================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $114,009 foreign withholding tax) ............................ $ 1,225,146
Income Interest and discount earned ................................................... 274,359
(Notes 1e & 1f): ------------
Total income ................................................................... 1,499,505
------------
==================================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................................. $ 894,653
Account maintenance and distribution fees--Class B (Note 2) .................... 811,135
Transfer agent fees--Class B (Note 2) .......................................... 197,543
Custodian fees ................................................................. 143,010
Printing and shareholder reports ............................................... 123,110
Accounting services (Note 2) ................................................... 112,319
Registration fees (Note 1g) .................................................... 66,428
Professional fees .............................................................. 65,495
Account maintenance and distribution fees--Class C (Note 2) .................... 49,424
Account maintenance fees--Class D (Note 2) ..................................... 37,011
Amortization of organization expenses (Note 1g) ................................ 36,661
Directors' fees and expenses ................................................... 36,614
Transfer agent fees--Class D (Note 2) .......................................... 30,122
Pricing fees ................................................................... 17,610
Transfer agent fees--Class C (Note 2) .......................................... 12,639
Transfer agent fees--Class A (Note 2) .......................................... 8,926
Other .......................................................................... 9,722
------------
Total expenses ................................................................. 2,652,422
------------
Investment loss--net ........................................................... (1,152,917)
------------
==================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net ............................................................ (14,461,525)
(Loss) on Foreign currency transactions--net .......................................... 1,092,352 (13,369,173)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net ............................................................ 2,230,762
(Notes 1c, 1d, Foreign currency transactions--net .......................................... 114,689 2,345,451
1f & 3): ------------ ------------
Net realized and unrealized loss on investments and foreign
currency transactions .......................................................... (11,023,722)
------------
Net Decrease in Net Assets Resulting from Operations ........................... $(12,176,639)
============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
June 30,
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment loss--net ........................................................... $ (1,152,917) $ (1,273,307)
Realized gain (loss) on investments and foreign currency transactions--net ..... (13,369,173) 5,253,606
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net ..................................................... 2,345,451 4,475,472
------------ ------------
Net increase (decrease) in net assets resulting from operations ................ (12,176,639) 8,455,771
------------ ------------
==================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ..................................................................... -- (27,732)
Shareholders Class B ..................................................................... -- (680,759)
(Note 1h): Class C ..................................................................... -- (34,097)
Class D ..................................................................... -- (163,840)
In excess of investment income--net:
Class A ..................................................................... -- (66,906)
Class B ..................................................................... -- (1,642,412)
Class C ..................................................................... -- (82,264)
Class D ..................................................................... -- (395,284)
Realized gain on investments--net:
Class A ..................................................................... -- (179,170)
Class B ..................................................................... -- (6,808,450)
Class C ..................................................................... -- (324,707)
Class D ..................................................................... -- (1,160,558)
In excess of realized gain on investments--net:
Class A ..................................................................... (179,237) --
Class B ..................................................................... (3,120,853) --
Class C ..................................................................... (186,701) --
Class D ..................................................................... (615,104) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ................................................................ (4,101,895) (11,566,179)
------------ ------------
==================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions ............. (48,755,903) (17,802,460)
Transactions ------------ ------------
(Note 4):
==================================================================================================================================
Net Assets: Total decrease in net assets ................................................... (65,034,437) (20,912,868)
Beginning of year .............................................................. 142,172,209 163,085,077
------------ ------------
End of year* ................................................................... $ 77,137,772 $142,172,209
============ ============
==================================================================================================================================
*Undistributed investment income--net (Note 1i) ................................ $ 2,013,949 $ --
============ ============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 & 15
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended June 30, 1994+ to
------------------------------------ June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 10.69 $ 10.86 $ 8.92 $ 9.82
Operating -------- --------- --------- ---------
Performance: Investment income (loss)--net ....................... (.01) .01 .13 .04
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .............. (.81) .72 1.97 (.93)
-------- --------- --------- ---------
Total from investment operations .................... (.82) .73 2.10 (.89)
-------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ............................ -- (.09) (.10) --
In excess of investment income--net ............... -- (.22) -- --
Realized gain on investments--net ................. -- (.59) (.06) --
In excess of realized gain on investments--net .... (.42) -- -- (.01)
-------- --------- --------- ---------
Total dividends and distributions ................... (.42) (.90) (.16) (.01)
-------- --------- --------- ---------
Net asset value, end of period ...................... $ 9.45 $ 10.69 $ 10.86 $ 8.92
======== ========= ========= =========
==============================================================================================================================
Total Investment Based on net asset value per share .................. (7.15%) 7.53% 23.87% (9.11%)@
Return:** ======== ========= ========= =========
==============================================================================================================================
Ratios to Expenses ............................................ 1.63% 1.53% 1.55% 1.62%*
Average ======== ========= ========= =========
Net Assets: Investment income (loss)--net ....................... (.15%) .13% .46% 1.06%*
======== ========= ========= =========
==============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $ 4,376 $ 5,508 $ 3,083 $ 5,992
Data: ======== ========= ========= =========
Portfolio turnover .................................. 52.73% 63.17% 60.33% 47.96%
======== ========= ========= =========
==============================================================================================================================
<CAPTION>
Class B
--------------------------------------------------
For the
Period
The following per share data and ratios have been derived Aug. 5,
from information provided in the financial statements. For the Year Ended June 30, 1994+ to
------------------------------------ June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 10.54 $ 10.71 $ 8.84 $ 10.00
Operating -------- --------- --------- ---------
Performance: Investment income (loss)--net ....................... (.12) (.10) (.06) .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .............. (.78) .72 2.04 (1.16)
-------- --------- --------- ---------
Total from investment operations .................... (.90) .62 1.98 (1.15)
-------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ............................ -- (.06) (.05) --
In excess of investment income--net ............... -- (.14) -- --
Realized gain on investments--net ................. -- (.59) (.06) --
In excess of realized gain on investments--net .... (.36) -- -- (.01)
-------- --------- --------- ---------
Total dividends and distributions ................... (.36) (.79) (.11) (.01)
-------- --------- --------- ---------
Net asset value, end of period ...................... $ 9.28 $ 10.54 $ 10.71 $ 8.84
======== ========= ========= =========
==============================================================================================================================
Total Investment Based on net asset value per share .................. (8.15%) 6.47% 22.57% (11.55%)@
Return:** ======== ========= ========= =========
==============================================================================================================================
Ratios to Expenses ............................................ 2.67% 2.58% 2.61% 2.56%*
Average ======== ========= ========= =========
Net Assets: Investment income (loss)--net ....................... (1.25%) (1.00%) (.66%) .10%*
======== ========= ========= =========
==============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $ 57,424 $ 111,261 $ 131,656 $ 132,296
Data: ======== ========= ========= =========
Portfolio turnover .................................. 52.73% 63.17% 60.33% 47.96%
======== ========= ========= =========
==============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
@ Aggregate total investment return.
+ Commencement of operations.
++ Based on average shares outstanding.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C
-----------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended June 30, 1994+ to
------------------------------------ June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 10.52 $ 10.71 $ 8.84 $ 9.80
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net ....................... (.12) (.10) (.05) .01
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .............. (.79) .71 2.03 (.96)
-------- -------- -------- --------
Total from investment operations .................... (.91) .61 1.98 (.95)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................ -- (.06) (.05) --
In excess of investment income--net ............... -- (.15) -- --
Realized gain on investments--net ................. -- (.59) (.06) --
In excess of realized gain on investments--net .... (.36) -- -- (.01)
-------- -------- -------- --------
Total dividends and distributions ................... (.36) (.80) (.11) (.01)
-------- -------- -------- --------
Net asset value, end of period ...................... $ 9.25 $ 10.52 $ 10.71 $ 8.84
======== ======== ======== ========
===========================================================================================================================
Total Investment Based on net asset value per share .................. (8.19%) 6.38% 22.56% (9.75%)@
Return:** ======== ======== ======== ========
===========================================================================================================================
Ratios to Expenses ............................................ 2.69% 2.60% 2.63% 2.66%*
Average ======== ======== ======== ========
Net Assets: Investment income (loss)--net ....................... (1.23%) (1.00%) (.64%) .20%*
======== ======== ======== ========
===========================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $ 4,312 $ 5,962 $ 5,753 $ 4,924
Data: ======== ======== ======== ========
Portfolio turnover .................................. 52.73% 63.17% 60.33% 47.96%
======== ======== ======== ========
===========================================================================================================================
<CAPTION>
Class D
-----------------------------------------------
For the
Period
The following per share data and ratios have been derived Aug. 5,
from information provided in the financial statements. For the Year Ended June 30, 1994+ to
------------------------------------ June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................ $ 10.66 $ 10.83 $ 8.91 $ 10.00
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net ....................... (.05) (.02) .02 .08
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .............. (.79) .72 2.05 (1.16)
-------- -------- -------- --------
Total from investment operations .................... (.84) .70 2.07 (1.08)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................ -- (.08) (.09) --
In excess of investment income--net ............... -- (.20) -- --
Realized gain on investments--net ................. -- (.59) (.06) --
In excess of realized gain on investments--net .... (.41) -- -- (.01)
-------- -------- -------- --------
Total dividends and distributions ................... (.41) (.87) (.15) (.01)
-------- -------- -------- --------
Net asset value, end of period ...................... $ 9.41 $ 10.66 $ 10.83 $ 8.91
======== ======== ======== ========
===========================================================================================================================
Total Investment Based on net asset value per share .................. (7.43%) 7.27% 23.50% (10.85%)@
Return:** ======== ======== ======== ========
===========================================================================================================================
Ratios to Expenses ............................................ 1.88% 1.80% 1.83% 1.77%*
Average ======== ======== ======== ========
Net Assets: Investment income (loss)--net ....................... (.46%) (.21%) .10% .90%*
======== ======== ======== ========
===========================================================================================================================
Supplemental Net assets, end of period (in thousands) ............ $ 11,026 $ 19,441 $ 22,593 $ 23,928
Data: ======== ======== ======== ========
Portfolio turnover .................................. 52.73% 63.17% 60.33% 47.96%
======== ======== ======== ========
===========================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
@ Aggregate total investment return.
+ Commencement of operations.
++ Based on average shares outstanding.
See Notes to Financial Statements.
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
18 & 19
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities 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. Under such agreements, the counterparty agrees to
repurchase the security at a mutually agreed upon time and price. The Fund takes
posses sion 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.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts. Premium or discount is amortized over the life
of the contracts.
o 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.
o 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.
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 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.
(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 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) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over a
period not exceeding five years. 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. Distributions in excess of investment
income and realized capital gains are due primarily to differing tax treatments
for foreign currency transactions.
(i) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $3,166,866 have been reclassified between accumulated
net realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM" or "Investment Adviser"). The general partner of
MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund
has also entered into a Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor ("MLFD" or "Distributor"), a division of
Princeton Funds Distributor, Inc. ("PFD"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain ohter services necessary
to the operations of tahe Fund. For such services, the Fund pays a monthly fee
of
20 & 21
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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, 1998, MLAM paid MLAM U.K. a fee of $104,922 pursuant to such
Agreement.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account 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.
For the year ended June 30, 1998, 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 ............................................. $ 1 $ 16
Class D ............................................. $1,389 $18,661
- --------------------------------------------------------------------------------
For the year ended June 30, 1998, MLPF&S received contingent deferred sales
charges of $303,045 and $904 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $52,087 in commissions on the execution of
portfolio security transactions for the year ended June 30, 1998.
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., PFD, MLFDS and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 1998 were $52,817,634 and $125,952,531, respectively.
Net realized gains (losses) for the year ended June 30, 1998 and net unrealized
gains (losses) as of June 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Investments:
Long-term ............................. $(14,051,563) $ 5,944,119
Short-term ............................ 1 --
Financial futures contracts ........... (409,963) --
------------ ------------
Total investments ........................ (14,461,525) 5,944,119
------------ ------------
Currency transactions:
Options purchased ..................... 318,593 --
Foreign currency transactions ......... (69,399) (2,989)
Forward foreign exchange
contracts ............................. 843,158 136,282
------------ ------------
Total currency transactions .............. 1,092,352 133,293
------------ ------------
Total .................................... $(13,369,173) $ 6,077,412
============ ============
- --------------------------------------------------------------------------------
As of June 30, 1998, net unrealized appreciation for Federal income tax purposes
aggregated $5,472,609, of which $11,973,919 related to appreciated securities
and $6,501,310 related to depreciated securities. The aggregate cost of
investments at June 30, 1998 for Federal income tax purposes was $70,175,126.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$48,755,903 and $17,802,460 for the years ended June 30, 1998 and June 30, 1997,
respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 249,406 $ 2,387,315
Shares issued to shareholders
in reinvestment of distributions ......... 20,207 169,132
----------- -----------
Total issued ............................. 269,613 2,556,447
Shares redeemed .......................... (321,602) (3,143,854)
----------- -----------
Net decrease ............................. (51,989) $ (587,407)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 640,103 $ 6,302,473
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 25,500 247,091
----------- -----------
Total issued ............................. 665,603 6,549,564
Shares redeemed .......................... (434,307) (4,334,013)
----------- -----------
Net increase ............................. 231,296 $ 2,215,551
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 806,805 $ 7,993,861
Shares issued to shareholders
in reinvestment of distributions ......... 232,743 1,922,455
----------- ------------
Total issued ............................. 1,039,548 9,916,316
Automatic conversion of shares ........... (67,577) (647,295)
Shares redeemed .......................... (5,341,218) (50,176,950)
----------- ------------
Net decrease ............................. (4,369,247) $(40,907,929)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 2,372,220 $ 24,001,485
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 555,932 5,336,945
----------- ------------
Total issued ............................. 2,928,152 29,338,430
Automatic conversion of shares ........... (31,361) (318,122)
Shares redeemed .......................... (4,628,694) (46,586,988)
----------- ------------
Net decrease ............................. (1,731,903) $(17,566,680)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 130,137 $ 1,244,803
Shares issued to shareholders
in reinvestment of distributions ......... 20,457 168,573
----------- -----------
Total issued ............................. 150,594 1,413,376
Shares redeemed .......................... (251,350) (2,376,441)
----------- -----------
Net decrease ............................. (100,756) $ (963,065)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 251,158 $ 2,498,757
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 41,482 397,810
----------- -----------
Total issued ............................. 292,640 2,896,567
Shares redeemed .......................... (263,160) (2,632,858)
----------- -----------
Net increase ............................. 29,480 $ 263,709
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 900,213 $ 8,509,284
tomatic conversion of shares ............. 66,777 647,295
Shares issued to shareholders
in reinvestment of distributions ......... 46,481 387,646
----------- -----------
Total issued ............................. 1,013,471 9,544,225
Shares redeemed .......................... (1,665,808) (15,841,727)
----------- -----------
Net decrease ............................. (652,337) $(6,297,502)
=========== ===========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended June 30, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 599,650 $ 6,180,271
Automatic conversion of shares ........... 31,011 318,122
Shares issued to shareholders
in reinvestment of dividends
and distributions ........................ 99,660 963,719
----------- -----------
Total issued ............................. 730,321 7,462,112
Shares redeemed .......................... (992,678) (10,177,152)
----------- -----------
Net decrease ............................. (262,357) $(2,715,040)
=========== ===========
- --------------------------------------------------------------------------------
5. Commitments:
At June 30, 1998, 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 sell various foreign currencies with an approximate value of
$796,000.
6. Capital Loss Carryforward:
At June 30, 1998, the Fund had a net capital loss carryforward of approximately
$1,632,000, all of which expires in 2006. This amount will be available to
offset like amounts of any future taxable gains.
22 & 23
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
INDEPENDENT AUDITORS' REPORT
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, 1998, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the three-year period 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 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 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,
1998 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
SmallCap Fund, Inc. as of June 30, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 15, 1998
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Global SmallCap Fund, Inc. during its fiscal year ended June 30, 1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Qualifying Non-Qualifying
Domestic Domestic Foreign Total Foreign Taxes
Record Payable Ordinary Ordinary Source Ordinary Paid or
Date Date Income Income Income Income Withheld
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 12/12/97 12/22/97 $.010791 $.342829 $.067879 $.421499 $.010042
- -----------------------------------------------------------------------------------------------------
Class B Shares 12/12/97 12/22/97 $.009128 $.289971 $.057413 $.356512 $.010042
- -----------------------------------------------------------------------------------------------------
Class C Shares 12/12/97 12/22/97 $.009323 $.296172 $.058641 $.364136 $.010042
- -----------------------------------------------------------------------------------------------------
Class D Shares 12/12/97 12/22/97 $.010390 $.330073 $.065353 $.405816 $.010042
- -----------------------------------------------------------------------------------------------------
</TABLE>
The qualifying domestic ordinary income qualifies for the dividends received
deduction for corporations.
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.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received is exempt from state income tax.
Please retain this information for your records.
24 & 25
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1998
PORTFOLIO INFORMATION (unaudited)
Worldwide Investments As of 6/30/98
Country of Percent of
Ten Largest Equity Holdings Origin Net Assets
Paxson Communications Corp. ...................... United States 1.3%
Four Seasons Hotels Ltd. ......................... Canada 1.3
Sanyo Coca-Cola Bottling
Co., Ltd. ..................................... Japan 1.2
Roland Corporation ............................... Japan 1.1
Structural Dynamics Research
Corp. ......................................... United States 1.0
Midway Games Inc. ................................ United States 1.0
ICT Automatisering NV ............................ Netherlands 0.9
American National Insurance Co. .................. United States 0.9
Inspec Group PLC ................................. United Kingdom 0.9
Grupen Mandator AB (B Shares) .................... Sweden 0.8
Percent of
Ten Largest Industries Net Assets
Computer Software ................................................. 8.8%
Electronics ....................................................... 3.7
Insurance ......................................................... 3.4
Metals ............................................................ 2.9
Computer Services ................................................. 2.8
Natural Resources ................................................. 2.6
Telecommunications & Equipment .................................... 2.4
Banking & Finance ................................................. 2.3
Healthcare--Products/Services ..................................... 2.2
Holding Company ................................................... 2.2
EQUITY PORTFOLIO CHANGES
For the Quarter Ended June 30, 1998
Additions
Agresso Group ASA
Atkins Carlyle Ltd.
* Aurora Foods Inc.
Broderbund Software, Inc.
* CIPE France S.A.
Caribiner International, Inc.
Compagnie des Signaux S.A.
DVI, Inc.
Dover Downs Entertainment, Inc.
EM.TV & Merchandising AG
* Federated Investors, Inc.
* Gerber Childrenswear, Inc.
Information Resources, Inc.
Jungheinrich AG (Preferred)
Micro Focus Group PLC
Midway Games Inc.
Newpark Resources, Inc.
Pharmacopeia, Inc.
Platinum Technology, Inc.
Rational Software Corporation
Read-Rite Corporation
* Restoration Hardware, Inc.
* STET Hellas Telecommunications S.A.
Selecta Group (The)
TEGE S.A.
TriQuint Semiconductor, Inc.
Union Tool Co.
Unique International NV
Deletions
ADO Electric Industrial Co., Ltd.
Acorn Group PLC
Anhui Conch Cement Co. Ltd. (Class H)
Ariake Japan Co., Ltd.
* Aurora Foods Inc.
Axiom, Inc.
Baker (J.), Inc.
Bang & Olufsen Holding A/S (Class B)
Business Objects S.A. (ADR)
* CIPE France S.A.
Callaway Golf Company
Cambior Inc.
Canon Chemicals, Inc.
Centrais Eletricas de Santa Catarina S.A.
(CELESC) 'B' (Preferred)
Cephalon, Inc.
Chiyoda Integre Co., Ltd.
Cofidur S.A.
Comdial Corporation
Corporate Services Group PLC
Cylink Corporation
Department 56, Inc.
Dewhirst Group PLC
Disetronic Holding AG
Elektrim Towarzystwo Handlowe S.A.
Establecimentos Jeronimo Martins & Filho S.A.
Fairey Group PLC
* Federated Investors, Inc.
Fernz Corporation Ltd.
Fingerhut Companies, Inc.
* Gerber Childrenswear, Inc.
Grimoldi S.A.
Grupo Financiero Banorte, S.A. de C.V.
(Class B)
Grupo Radio Centro, S.A. de C.V. (ADR)
Guangdong Kelon Electrical Holdings
Company Ltd. (Class H)
Harbin Power Equipment Company Ltd.
Hokkaido Coca-Cola Bottling Co., Ltd.
Ikos Systems, Inc.
Industrial Credit & Investment
Corporation of India Ltd. (ICICI) (GDR)
Industrial Finance Corporation of
Thailand
International Business Systems AB
Japan CBM Corp.
Japan Foundation Engineering Co., Ltd.
KSB AG (Preferred)
Keihanshin Real Estate Co. Ltd.
Mas Tec, Inc.
Matthew Clark PLC
Mercer International, Inc.
Metro Cash & Carry Ltd.
Murakami Corporation
NBM-Amstelland NV
Nasionale Pers Beperk
New Straits Times Press BHD
Nippon Chutetsukan K.K.
Nippon Konpo Unyu Soko Co.
Nitto Kohki Company Ltd.
Nizhnovenergo
Ohsho Food Service Corp.
Organo Corporation
Oxford Molecular Group PLC
PT Bank Bali (Foreign)
PT Wicaksana Overseas International
Paints & Chemicals Industries Co.
S.A.E. (GDR)
QPL International Holdings Ltd.
* Restoration Hardware, Inc.
SAI Automotive AG
* STET Hellas Telecommunications S.A.
Seni Jaya Corporation BHD
Shin-Etsu Polymer Co., Ltd.
Shinmei Electric Co.
Sinocan Holdings Ltd.
Smartone Telecommunications
Smith (W.H.) Group PLC
Sudamtex de Venezuela S.A.C.A. (ADR)
Sumisho Computer Systems Corp.
Southern Energy Homes, Inc.
TKC Corporation
Tingyi (Cayman Islands) Holdings Co.
Toyo Kohan Co., Ltd.
Trenwick Group, Inc.
Vivus, Inc.
Waddell & Reed Financial, Inc. (Class A)
Wrightson Ltd.
Yondenko Corp.
* Added and deleted in the same quarter.
26 & 27
<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
Global SmallCap
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #18177--6/98
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