MERRILL LYNCH
GLOBAL SMALLCAP
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
June 30, 1999
<PAGE>
MERRILL LYNCH GLOBAL SMALLCAP FUND, INC.
Officers and Directors
Terry K. Glenn, President and Director
Donald Cecil, Director
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Kenneth Chiang, Senior Vice President and Senior Portfolio Manager
Hubertus Aarts, Vice President
James E. Russell, Vice President
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
DEAR SHAREHOLDER
During the quarter ended June 30, 1999, the North American equity markets
produced strong returns as small-capitalization issues outperformed relative to
large-capitalization stocks. The total return provided by the unmanaged Russell
2000 Index of US small cap stocks was +15.55% for the June quarter compared to a
total return of +7.05% for the unmanaged Standard & Poor's 500 Composite Index.
The return of the US segment of the Morgan Stanley Capital International (MSCI)
Small Cap World Index was +18.07% for the same period.
Small-capitalization stocks in the major European markets had mixed returns
relative to large-capitalization issues. The best-performing markets were Norway
and France, which rose 18.98% and 9.88%, respectively, while the weakest markets
were Spain and Switzerland, which posted returns of -2.50% and +1.02%,
respectively. All small-capitalization markets in the Pacific Rim posted strong
gains. (References to securities markets of all countries in this letter to
shareholders correspond to those countries' market weightings in the MSCI Small
Cap World Index, unless otherwise noted and are for the three-month period ended
June 30, 1999.)
During the June quarter, the Fund outperformed the MSCI benchmark. For the three
months ended June 30, 1999, total returns for Merrill Lynch Global SmallCap
Fund, Inc.'s Class A, Class B, Class C and Class D Shares were +15.84%, +15.57%,
+15.47% and +15.74%, 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.) The price
performance of the unmanaged benchmark MSCI Small Cap World Index for the June
quarter was +12.16%.
Beneficial to the Fund's performance relative to the benchmark was stock
selection in Japan, Indonesia, the Netherlands and the United States. The Fund's
performance was hindered by underweighted positions in Singapore and by stock
selection in Norway and Germany. In the United States, our stock selection in
the finance sector improved Fund returns relative to the benchmark. However,
stock selection in the multi-industry and consumer goods sectors reduced returns
relative to the benchmark. Overall, our industry allocation and stock selection
among US sectors had a nominally positive effect on performance. In the
Continental European markets, stock selection in the services and finance
sectors in Ireland, France, the Netherlands and Switzerland enhanced
performance. Stock selection in Norway's service sector and stock selection and
sector selection in Germany's consumer goods and capital equipment sectors
reduced returns. In the United Kingdom, the Fund's overweighted position and
stock selection in the multi-industry sector as well as stock selection in the
service sector were beneficial to performance. However, stock selection in the
capital equipment and consumer goods sectors reduced returns relative to the
benchmark.
Portfolio Matters
During the June quarter, we reduced our weightings in the United States and
Europe in favor of investments in the Pacific Rim, reflecting our view of a
modest economic recovery in Asia. However, we continue to be marginally
underweighted in the Pacific Rim relative to the benchmark MSCI Small Cap World
Index in response to concerns over upcoming quarter-on-quarter comparisons for
economic activity and earnings. We believe that while Asia may have bottomed,
the prospects for growth may prove to be more elusive as the pace of genuine
corporate restructuring has been only gradual.
We reduced our overall exposure in Europe, consolidating our investments in a
smaller number of holdings. We are also guarded about the prospects for further
valuation upside potential and interest rate catalysts with the already low
interest rates across Europe. We continue to hold a substantial position in
United Pan-Europe Communications (UPC), a consolidator of cable, telephone and
Internet operations throughout Europe. UPC is ideally positioned to take
advantage of the broadband revolution in the communications industry. The
company leverages its cable television infrastructure to provide high speed
Internet access as well as telephone services through a single wire entering the
subscriber's home. We believe the management of this company is aggressive and
will be able to build one of Europe's leading cable-telecommunications assets.
In the United States, we were underweighted in technology stocks relative to the
benchmark while being somewhat neutral against other major sectors. We recently
reduced holdings in resource and commodity companies because we remain skeptical
about a genuine Asian recovery upon which much of the recent performance of
these stocks has been predicated. We continue to invest in high-quality
businesses with strong managements in the United States. For example, our
investment in SPX Corporation, a diverse industrial company that we have held
since 1998, continues to have strong performance coincident with strong
management restructuring moves. These moves have translated into substantial
earnings growth resulting from cost savings and pricing leverage. In addition,
we have continued to be aggressive in our investments in initial public
offerings in the technology area, since they have consistently provided positive
returns, albeit only in modest allocations.
In Asia, we continue to be modestly underweighted versus the benchmark, although
we have increased our holdings on a relative basis in response to our increasing
confidence in an economic bottoming in Asia. We added to our holdings in China
shares traded in Hong Kong, many of which are priced deeply below their book
values. We feel these valuation levels more than fully discount a potential
devaluation of the Chinese yuan.
We currently anticipate that we may continue with a modest underweighted stance
in Asia and a neutral stance across the United States and Europe. We are finding
value in the United Kingdom and are evaluating some quality long-term franchise
businesses there. We may look to add to our positions in Brazil and Malaysia,
since we believe equity values there are inexpensive relative to global
comparisons and stand to recover further as interest rates decline.
Fiscal Year in Review
For the year ended June 30, 1999, total returns for the Fund's Class A, Class B,
Class C and Class D Shares were +13.24%, 12.01%, +12.08% and +12.91%,
respectively, while the unmanaged MSCI Small Cap World Index price performance
was +1.40% for the same period. The Fund's exceptional performance relative to
the benchmark during the 12-month period was the result of a combination of
factors. These included stock selection in the United States, Japan, France and
Germany. In addition, asset allocation and a high cash level during the October
1998 correction buffered the Fund against benchmark declines. Detrimental to
performance was the Fund's underweighted position in Singapore and overweighted
position in Russia.
In our opinion, the global economies seem to have bottomed, given the
reflationary stance that worldwide central banks have taken. However, we
continue to be cautious toward equity prices, particularly among commodity and
deep cyclical companies that have rallied in anticipation of a full recovery in
Asia. A liquidity-led rally has fueled equity prices and provided stimulation to
many overseas economies, especially in Asia. While some progress has been made
toward restructuring there, our concern is that an early liquidity-led market
recovery will hinder further progress toward reducing overcapacity and
structural problems that still plague the emerging market and Asian economies.
In addition, second-half year results will face much more difficult comparisons
against a post-bottom, 1998 second half. The recent results by large global
corporate bonds suggest that true recovery in those markets may still be
pending. Against the backdrop of a slow Asian rebound and overvalued equities in
the developed markets, we believe the equity markets are vulnerable, especially
with the Federal Reserve Board's tightening bias.
While we have some modest positions in cyclicals and commodities, we plan to
stay slightly underweighted to neutral in these industries since we believe the
recovery in Asia will be vulnerable without true structural reform.
The gradual downward slide of valuations among growth stocks, particularly
Internet stocks, and the broadening of a rally across the value stocks gives us
some comfort that a wholesale speculative market collapse will be averted. While
we have invested selectively in some Internet companies that we believe have
solid business models and relatively attractive valuations, we expect to
continue to reduce our exposure to this sector as the liquidity-driven momentum
diminishes.
We continue to look for attractive companies globally with an emphasis on
quality management, leadership and high barriers to entry in rapidly growing
industries. We believe that advances in telecommunications and technology,
particularly the Internet, will be providing tremendous global opportunities for
companies willing to embark on new operating models.
In Conclusion
For investors with a long-term focus, we believe there are great opportunities
in small company stocks globally. In Europe, there are interesting new
innovative companies that are likely to benefit from global consolidation
trends. In North America, we continue to find dynamic management exploiting new
technology across almost every industry, especially with the advent of the
Internet. In Asia, we see a bottoming and strong growth numbers coming out of
countries like South Korea and improving results in Japan.
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/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kenneth Chiang
Kenneth Chiang
Senior Vice President and
Senior Portfolio Manager
August 12, 1999
2 & 3
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
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. However, in the case of certain eligible investors, the shares
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
Class A Shares and Class C Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class C Shares compared to growth of an investment in the Salomon Brothers
Extended Market Index and the MSCI Small Cap World Index. Beginning and ending
values are:
10/21/94** 6/99
Merrill Lynch Global SmallCap Fund, Inc.+--Class A Shares* $ 9,475 $12,061
Merrill Lynch Global SmallCap Fund, Inc.+--Class C Shares* $10,000 $12,109
Salomon Brothers Extended Market Index++ $10,000 $15,778
MSCI Small Cap World Index+++ $10,000 $11,934
Class B Shares and Class D Shares
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 and the MSCI Small Cap World Index. Beginning and ending
values are:
8/05/94** 6/99
Merrill Lynch Global SmallCap Fund, Inc.+--Class B Shares* $10,000 $11,876
Merrill Lynch Global SmallCap Fund, Inc.+--Class D Shares* $ 9,475 $11,696
Salomon Brothers Extended Market Index++ $10,000 $15,860
MSCI Small Cap World Index $10,000 $11,850
* 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.
+++ This unmanaged broad-based Index is comprised of small cap companies from
23 developed markets.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/99 +13.24% +7.30%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 + 5.28 +4.08
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 +12.01% +8.01%
- --------------------------------------------------------------------------------
Inception (8/05/94) through 6/30/99 + 3.57 +3.57
- --------------------------------------------------------------------------------
* 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 6/30/99 +12.08% +11.08%
- --------------------------------------------------------------------------------
Inception (10/21/94) through 6/30/99 + 4.16 + 4.16
- --------------------------------------------------------------------------------
* 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 6/30/99 +12.91% +6.99%
- --------------------------------------------------------------------------------
Inception (8/05/94) through 6/30/99 + 4.39 +3.25
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
4 & 5
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
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 +13.24% +15.84% +27.30%
- ---------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class B Shares +12.01 +15.57 +18.76
- ---------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class C Shares +12.08 +15.47 +21.09
- ---------------------------------------------------------------------------------------------
ML Global SmallCap Fund, Inc. Class D Shares +12.91 +15.74 +23.45
=============================================================================================
</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 since inception periods are from
10/21/94 for Class A & Class C Shares and from 8/05/94 for Class B & Class
D Shares.
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
Percent
Shares Value of Net
EUROPE Industries Held Investments Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Denmark Engineering & 1,994 Falck A/S $ 100,473 $ 163,229 0.3%
Construction
--------------------------------------------------------------------------------------------------------------------
Total Investments in Denmark 100,473 163,229 0.3
====================================================================================================================================
Finland Electronic Components 8,600 +Perlos Oyj 84,184 125,857 0.3
--------------------------------------------------------------------------------------------------------------------
Telephone Networks 4,433 +HPY Holding--HTF Holding Oyj Abp 99,391 95,942 0.2
--------------------------------------------------------------------------------------------------------------------
Total Investments in Finland 183,575 221,799 0.5
====================================================================================================================================
France Beverages 10,900 +Laurent-Perrier 377,469 403,284 0.8
--------------------------------------------------------------------------------------------------------------------
Commercial Services 920 Penauille Polyservices 209,544 258,846 0.5
--------------------------------------------------------------------------------------------------------------------
Financial Services 538 Societe Eurafrance SA 155,057 333,787 0.7
--------------------------------------------------------------------------------------------------------------------
Healthcare & Medical 20,370 LVL Medical SA 474,090 367,383 0.8
--------------------------------------------------------------------------------------------------------------------
Retail 1,895 Guilbert SA 296,818 263,653 0.6
--------------------------------------------------------------------------------------------------------------------
Retail--Apparel 13,090 Etam 405,848 578,745 1.2
--------------------------------------------------------------------------------------------------------------------
Total Investments in France 1,918,826 2,205,698 4.6
====================================================================================================================================
Germany Healthcare & Medical 1,958 Fresenius AG (Preferred) 387,399 346,072 0.7
2,920 Rhoen-Klinikum AG 271,722 290,402 0.6
----------- ----------- ------
659,121 636,474 1.3
--------------------------------------------------------------------------------------------------------------------
Internet Software 12,312 +FortuneCity.com, Inc. 380,888 236,011 0.5
--------------------------------------------------------------------------------------------------------------------
Machine Tools & Machinery 9,090 Walter AG 267,472 248,256 0.5
--------------------------------------------------------------------------------------------------------------------
Machinery & Equipment 10,070 Jungheinrich AG (Preferred) 204,236 165,946 0.3
--------------------------------------------------------------------------------------------------------------------
Media & Related 6,460 +Kinowelt Medien AG 400,671 469,366 1.0
14,900 +PrimaCom AG (ADR) (a) 242,125 329,663 0.7
----------- ----------- ------
642,796 799,029 1.7
--------------------------------------------------------------------------------------------------------------------
Steel 4,746 +Kloeckner-Werke AG 427,492 322,087 0.7
--------------------------------------------------------------------------------------------------------------------
Textiles & Apparel 1,424 Escada AG (Preferred) 238,074 190,785 0.4
--------------------------------------------------------------------------------------------------------------------
Transportation 21,215 Koegel Fahrzeugwerke AG (Preferred) 274,548 251,438 0.5
--------------------------------------------------------------------------------------------------------------------
Trucking 43,800 +Stinnes AG 662,536 681,618 1.4
--------------------------------------------------------------------------------------------------------------------
Total Investments in Germany 3,757,163 3,531,644 7.3
====================================================================================================================================
Ireland Airlines 7,300 +Ryanair Holdings PLC (ADR) (a) 315,068 385,075 0.8
--------------------------------------------------------------------------------------------------------------------
Total Investments in Ireland 315,068 385,075 0.8
====================================================================================================================================
Italy Banking & Finance 44,000 Banca Popolare di Milano (BPM) 399,136 339,645 0.7
--------------------------------------------------------------------------------------------------------------------
Publishing 40,000 Class Editori 418,743 319,486 0.6
--------------------------------------------------------------------------------------------------------------------
Textiles & Apparel 43,600 Simint SpA 392,709 321,729 0.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Italy 1,210,588 980,860 2.0
====================================================================================================================================
Netherlands Computer Software & 24,762 ICT Automatisering NV 239,889 630,337 1.3
Systems 28,880 +LCI Computer Group NV 415,048 380,976 0.8
----------- ----------- ------
654,937 1,011,313 2.1
--------------------------------------------------------------------------------------------------------------------
Financial Services 14,058 Internatio-Muller NV 322,243 309,323 0.6
--------------------------------------------------------------------------------------------------------------------
Telecommunications 5,000 +United Pan-Europe Communications NV
(UPC) (ADR) (a) 160,000 275,625 0.6
--------------------------------------------------------------------------------------------------------------------
Total Investments in the Netherlands 1,137,180 1,596,261 3.3
====================================================================================================================================
Norway Computer Software & 47,653 Merkantildata ASA 294,082 460,474 0.9
Systems
--------------------------------------------------------------------------------------------------------------------
Computer Technology 108,500 +Agresso Group 487,587 315,912 0.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Norway 781,669 776,386 1.6
====================================================================================================================================
Spain Machinery 10,140 Azkoyen SA 260,051 261,257 0.5
--------------------------------------------------------------------------------------------------------------------
Telecommunications 2,400 +Telefonica Publicidad e Informacion, SA 37,123 47,861 0.1
--------------------------------------------------------------------------------------------------------------------
Total Investments in Spain 297,174 309,118 0.6
====================================================================================================================================
Sweden Diversified 37,000 Mandator AB 164,270 246,594 0.5
--------------------------------------------------------------------------------------------------------------------
Engineering & Construction 25,000 Svedala Industri AB 364,313 451,194 0.9
--------------------------------------------------------------------------------------------------------------------
Forest Products/ 472,500 Rottneros AB 729,456 314,907 0.7
Paper & Packaging
--------------------------------------------------------------------------------------------------------------------
Total Investments in Sweden 1,258,039 1,012,695 2.1
====================================================================================================================================
Switzerland Advertising 1,020 Edipresse SA (Bearer) 221,274 331,745 0.7
600 PubliGroupe SA 316,054 328,460 0.7
----------- ----------- ------
537,328 660,205 1.4
--------------------------------------------------------------------------------------------------------------------
Banking & Finance 1,715 Banque Cantonale de Geneve (BCG) 540,989 320,313 0.7
--------------------------------------------------------------------------------------------------------------------
</TABLE>
6 & 7
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
EUROPE Shares Value of Net
(concluded) Industries Held Investments Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Switzerland Electronics & 98 +Kudelski SA (Bearer) $ 78,474 $ 350,293 0.7%
(concluded) Electrical Equipment
--------------------------------------------------------------------------------------------------------------------
Manufacturing 1,656 +Gerberit International AG (Registered) 352,955 378,085 0.8
--------------------------------------------------------------------------------------------------------------------
Medical Equipment 2,300 Gretag Imaging Group (Registered) 232,528 222,564 0.5
--------------------------------------------------------------------------------------------------------------------
Retail 2,100 +Distefora Holding AG 257,850 216,397 0.4
1,505 The Selecta Group (Registered) 298,852 600,953 1.2
----------- ----------- ------
556,702 817,350 1.6
--------------------------------------------------------------------------------------------------------------------
Total Investments in Switzerland 2,298,976 2,748,810 5.7
====================================================================================================================================
United Kingdom Electronics 48,028 Johnson Matthey PLC 518,113 469,113 1.0
--------------------------------------------------------------------------------------------------------------------
Energy 57,553 Expro International Group PLC 476,994 306,461 0.6
--------------------------------------------------------------------------------------------------------------------
Engineering & Construction 59,350 Ashtead Group PLC 235,297 163,625 0.4
34,116 Jarvis PLC 253,918 158,552 0.3
48,000 WS Atkins PLC 397,104 392,464 0.8
----------- ----------- ------
886,319 714,641 1.5
--------------------------------------------------------------------------------------------------------------------
Insurance 66,000 Independent Insurance Group PLC 289,689 322,327 0.7
--------------------------------------------------------------------------------------------------------------------
Media & Related 30,000 Saatchi and Saatchi PLC 108,832 100,195 0.2
--------------------------------------------------------------------------------------------------------------------
Medical Supplies 22,900 Seton Scholl Healthcare Group PLC 291,772 262,277 0.5
--------------------------------------------------------------------------------------------------------------------
Total Investments in the United Kingdom 2,571,719 2,175,014 4.5
====================================================================================================================================
Total Investments in Europe 15,830,450 16,106,589 33.3
====================================================================================================================================
LATIN AMERICA
====================================================================================================================================
Brazil Banking 347,000 Banco Itau SA (Preferred) 197,004 178,200 0.4
8,400 Uniao de Bancos Brasileiros SA
(Unibanco) (GDR) (b) 216,736 202,125 0.4
----------- ----------- ------
413,740 380,325 0.8
--------------------------------------------------------------------------------------------------------------------
Metals & Mining 10,000 +Companhia Vale do Rio Doce 'A' (Preferred) 210,138 196,388 0.4
--------------------------------------------------------------------------------------------------------------------
Total Investments in Latin America 623,878 576,713 1.2
====================================================================================================================================
NORTH
AMERICA
====================================================================================================================================
Canada Hotels 27,384 Four Seasons Hotels Inc. 319,909 1,191,495 2.5
--------------------------------------------------------------------------------------------------------------------
Mining 6,600 Inco Limited 115,830 118,800 0.2
--------------------------------------------------------------------------------------------------------------------
Total Investments in Canada 435,739 1,310,295 2.7
====================================================================================================================================
United States Aerospace-- 10,500 HEICO Corporation (Class A) 240,294 254,625 0.5
Defense & Equipment
--------------------------------------------------------------------------------------------------------------------
Banking & Finance 18,900 Commercial Federal Corporation 421,659 438,244 0.9
20,000 Peoples Heritage Financial Group, Inc. 361,169 376,250 0.8
32,000 +Virginia Capital Bancshares, Inc. 410,500 486,000 1.0
----------- ----------- ------
1,193,328 1,300,494 2.7
--------------------------------------------------------------------------------------------------------------------
Biotechnology 18,000 +Guilford Pharmaceuticals Inc. 242,250 222,750 0.5
--------------------------------------------------------------------------------------------------------------------
Cement 9,800 +Giant Cement Holding, Inc. 138,238 221,112 0.5
--------------------------------------------------------------------------------------------------------------------
Chemicals 25,000 Crompton & Knowles Corporation 501,500 489,062 1.0
--------------------------------------------------------------------------------------------------------------------
Computer Equipment 20,000 +Cadence Design Systems, Inc. 501,182 255,000 0.5
8,000 +The Metzler Group, Inc. 233,000 220,500 0.5
----------- ----------- ------
734,182 475,500 1.0
--------------------------------------------------------------------------------------------------------------------
Computer Software & 16,000 +Iron Mountain Inc. 468,338 458,000 1.0
Systems 1,700 +Mercury Computer Systems, Inc. 39,100 54,825 0.1
6,963 +Sterling Commerce, Inc. 235,241 254,150 0.5
----------- ----------- ------
742,679 766,975 1.6
--------------------------------------------------------------------------------------------------------------------
Consulting Services 10,000 +The Corporate Executive Board Company 290,000 355,625 0.7
20,000 +Nextera Enterprises, Inc. (Class A) 200,000 128,750 0.3
----------- ----------- ------
490,000 484,375 1.0
--------------------------------------------------------------------------------------------------------------------
Distribution 20,000 +WESCO International, Inc. 360,000 410,000 0.9
--------------------------------------------------------------------------------------------------------------------
Educational Services 14,000 +Corinthian Colleges, Inc. 252,000 264,250 0.6
--------------------------------------------------------------------------------------------------------------------
Electrical Instruments & 500 +Sanmina Corporation 27,500 37,938 0.1
Controls
--------------------------------------------------------------------------------------------------------------------
Electronics 15,000 +Cymer, Inc. 280,938 375,000 0.8
7,500 +Gentex Corporation 97,500 210,000 0.4
25,000 Helix Technology Corporation 493,675 598,438 1.2
----------- ----------- ------
872,113 1,183,438 2.4
--------------------------------------------------------------------------------------------------------------------
Energy 1,000 +Louis Dreyfus Natural Gas Corporation 14,996 21,563 0.0
--------------------------------------------------------------------------------------------------------------------
Entertainment & Recreation 32,000 Dover Downs Entertainment, Inc. 429,559 566,000 1.2
6,000 +United International Holdings, Inc.
(Class A) 294,213 405,750 0.8
----------- ----------- ------
723,772 971,750 2.0
--------------------------------------------------------------------------------------------------------------------
Healthcare-- 8,000 +Oxford Health Plans, Inc. 156,000 124,000 0.3
Products & Services 30,000 +PSS World Medical, Inc. 442,969 333,750 0.7
10,000 +SangStat Medical Corporation 210,000 168,125 0.3
1,500 +Superior Consultant Holdings Corporation 57,422 37,031 0.1
----------- ----------- ------
866,391 662,906 1.4
--------------------------------------------------------------------------------------------------------------------
Insurance 26,000 HCC Insurance Holdings, Inc. 448,016 589,875 1.2
58,750 +Provident American Corporation 1,490,195 1,633,984 3.4
----------- ----------- ------
1,938,211 2,223,859 4.6
--------------------------------------------------------------------------------------------------------------------
Internet Software 4,200 +Covad Communications Group, Inc. 50,400 223,650 0.4
1,500 +High Speed Access Corp. 19,500 38,438 0.1
----------- ----------- ------
69,900 262,088 0.5
--------------------------------------------------------------------------------------------------------------------
</TABLE>
8 & 9
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
NORTH AMERICA Shares Value of Net
(concluded) Industries Held Investments Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States Machine Tools & Machinery 10,000 +SPX Corporation $ 454,116 $ 835,000 1.7%
(concluded) --------------------------------------------------------------------------------------------------------------------
Mining 16,000 Cyprus Amax Minerals Company 231,050 243,000 0.5
--------------------------------------------------------------------------------------------------------------------
Oil & Gas Producers 10,000 Vintage Petroleum, Inc. 72,568 107,500 0.2
--------------------------------------------------------------------------------------------------------------------
Oil Field Services 30,000 +UTI Energy Corp. 253,058 496,875 1.0
--------------------------------------------------------------------------------------------------------------------
Petroleum Equipment & 30,000 +Ocean Energy Inc. 172,125 288,750 0.6
Services 45,000 +Santa Fe Snyder Corporation 311,603 343,125 0.7
----------- ----------- ------
483,728 631,875 1.3
--------------------------------------------------------------------------------------------------------------------
Real Estate 30,000 Arden Realty, Inc. 646,800 738,750 1.5
7,000 Boston Properties, Inc. 202,545 251,125 0.5
----------- ----------- ------
849,345 989,875 2.0
--------------------------------------------------------------------------------------------------------------------
Restaurants 15,000 +Outback Steakhouse, Inc. 320,000 586,875 1.2
--------------------------------------------------------------------------------------------------------------------
Retail 10,000 +Saucony, Inc. (Class B) 212,489 222,500 0.5
--------------------------------------------------------------------------------------------------------------------
Steel 50,000 The LTV Corporation 393,839 334,375 0.7
5,500 +Steel Dynamics, Inc. 114,125 85,250 0.2
----------- ----------- ------
507,964 419,625 0.9
--------------------------------------------------------------------------------------------------------------------
Total Investments in the United States 12,791,672 14,785,810 30.6
====================================================================================================================================
Total Investments in North America 13,227,411 16,096,105 33.3
====================================================================================================================================
PACIFIC
BASIN
====================================================================================================================================
Australia Insurance 132,000 QBE Insurance Group Limited 516,506 502,382 1.0
--------------------------------------------------------------------------------------------------------------------
Internet Software 660,000 +LibertyOne Limited 461,126 375,694 0.8
--------------------------------------------------------------------------------------------------------------------
Media & Related 300,000 John Fairfax Holdings Limited 526,772 893,565 1.8
--------------------------------------------------------------------------------------------------------------------
Telecommunications 225,000 +AAPT Limited 599,312 699,959 1.5
88,800 +Cable & Wireless Optus Limited 120,967 202,192 0.4
----------- ----------- ------
720,279 902,151 1.9
--------------------------------------------------------------------------------------------------------------------
Total Investments in Australia 2,224,683 2,673,792 5.5
====================================================================================================================================
Hong Kong Consumer Products 499,000 +Lerado Group (Holding) Co. 56,848 90,042 0.2
--------------------------------------------------------------------------------------------------------------------
Distribution--Wholesale 488,000 China Hong Kong Photo Products Holdings,
Ltd. 46,202 77,993 0.1
--------------------------------------------------------------------------------------------------------------------
Diversified 168,000 Beijing Enterprises Holdings Limited 225,576 346,454 0.7
--------------------------------------------------------------------------------------------------------------------
Electrical 500,000 +Shandong International Power Development
Company Limited 'H' 102,868 112,778 0.2
--------------------------------------------------------------------------------------------------------------------
Food 300,000 Cafe De Coral Holdings 95,614 131,467 0.3
--------------------------------------------------------------------------------------------------------------------
Insurance 97,100 +Pacific Century Insurance Holdings
Limited 79,390 78,595 0.2
--------------------------------------------------------------------------------------------------------------------
Oil & Gas Producers 1,050,000 +CNPC Hong Kong Limited 109,564 181,347 0.4
--------------------------------------------------------------------------------------------------------------------
Real Estate 133,000 Wheelock and Company, Limited 150,707 182,565 0.4
--------------------------------------------------------------------------------------------------------------------
Traffic Management Systems 1,350,000 Zhejiang Expressway Co. Ltd. 'H' 223,114 267,961 0.5
--------------------------------------------------------------------------------------------------------------------
Total Investments in Hong Kong 1,089,883 1,469,202 3.0
====================================================================================================================================
India Telecommunications 10,000 Mahanagar Telephone Nigam Ltd. (GDR) (b) 127,500 98,000 0.2
--------------------------------------------------------------------------------------------------------------------
Total Investments in India 127,500 98,000 0.2
====================================================================================================================================
Indonesia Tobacco 150,000 +PT Hanjaya Mandala Sampoerna 101,407 343,230 0.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Indonesia 101,407 343,230 0.7
====================================================================================================================================
Japan Beverages 33,800 Sanyo Coca-Cola Bottling Co., Ltd. 441,575 1,045,660 2.1
--------------------------------------------------------------------------------------------------------------------
Containers 2,000 Fuji Seal, Inc. 248,829 272,772 0.6
--------------------------------------------------------------------------------------------------------------------
Electronics 40,000 Ushio Inc. 448,606 512,481 1.0
--------------------------------------------------------------------------------------------------------------------
Entertainment & Recreation 28,000 Roland Corporation 605,338 902,629 1.9
--------------------------------------------------------------------------------------------------------------------
Financial Services 12,000 Jafco Co., Ltd. 305,142 803,439 1.7
--------------------------------------------------------------------------------------------------------------------
Machinery 13,000 Aruze Corporation 398,784 1,267,978 2.6
13,500 Union Tool Co. 513,306 1,004,298 2.1
----------- ----------- ------
912,090 2,272,276 4.7
--------------------------------------------------------------------------------------------------------------------
Manufacturing 45,000 Fujitec Co., Ltd. 311,039 426,641 0.9
23,000 Nichicon Corporation 299,238 335,551 0.7
----------- ----------- ------
610,277 762,192 1.6
--------------------------------------------------------------------------------------------------------------------
Medical Supplies 17,000 Kawasumi Laboratories, Incorporated 295,001 254,340 0.5
--------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 19,000 Kissei Pharmaceutical Co., Ltd. 298,556 377,707 0.8
--------------------------------------------------------------------------------------------------------------------
Retail--Stores 25,000 Sangetsu Co., Ltd. 456,933 532,113 1.1
--------------------------------------------------------------------------------------------------------------------
Steel 80,000 Yodogawa Steel Works, Ltd. 311,996 330,633 0.7
--------------------------------------------------------------------------------------------------------------------
Total Investments in Japan 4,934,343 8,066,242 16.7
====================================================================================================================================
Malaysia Leisure 300,000 Sime Darby BHD 384,157 393,158 0.8
--------------------------------------------------------------------------------------------------------------------
Total Investments in Malaysia 384,157 393,158 0.8
====================================================================================================================================
New Zealand Entertainment & Recreation 75,000 Sky City Limited 258,964 293,928 0.6
--------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 75,000 Carter Holt Harvey Limited 67,095 89,767 0.2
--------------------------------------------------------------------------------------------------------------------
Restaurants 250,000 Restaurant Brands New Zealand Limited 179,276 178,740 0.4
--------------------------------------------------------------------------------------------------------------------
Total Investments in New Zealand 505,335 562,435 1.2
====================================================================================================================================
Singapore Beverages 40,000 Fraser & Neave Limited (Ordinary) 119,980 177,490 0.4
--------------------------------------------------------------------------------------------------------------------
Internetworking 1,500 +Pacific Internet Ltd. 82,482 71,062 0.1
--------------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 202,462 248,552 0.5
====================================================================================================================================
Total Investments in the Pacific Basin 9,569,770 13,854,611 28.6
====================================================================================================================================
</TABLE>
10 & 11
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
Percent
SHORT-TERM Face Value of Net
SECURITIES Amount Issue Cost (Note 1a) Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper* $1,212,000 General Electric Capital Corp., 5.75%
due 7/01/1999 $ 1,212,000 $ 1,212,000 2.5%
--------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term
Securities 1,212,000 1,212,000 2.5
====================================================================================================================================
Total Investments $40,463,509 47,846,018 98.9
===========
Unrealized Depreciation on Forward Foreign Exchange Contracts--Net** (32,386) (0.1)
Other Assets Less Liabilities 570,246 1.2
----------- ------
Net Assets $48,383,878 100.0%
=========== ======
====================================================================================================================================
</TABLE>
(a) American Depositary Receipts (ADR).
(b) Global Depositary Receipts (GDR).
+ Non-income producing security.
* Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
** Forward foreign exchange contracts as of June 30, 1999 were as follows:
--------------------------------------------------------------------------
Unrealized
Appreciation
Foreign Expiration (Depreciation)
Currency Sold Date (Note 1c)
--------------------------------------------------------------------------
(pound)862,988 July 1999 $ 40,349
(Y)419,898,500 August 1999 (72,735)
--------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign
Exchange Contracts--Net (US$ Commitment--$4,824,947) $(32,386)
========
--------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of June 30, 1999
================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$40,463,509) (Note 1a) ....................... $ 47,846,018
Foreign cash (Note 1d) ............................................................... 292,014
Receivables:
Securities sold .................................................................... $ 891,891
Forward foreign exchange contracts (Note 1c) ....................................... 94,080
Dividends .......................................................................... 86,864
Capital shares sold ................................................................ 56,660 1,129,495
----------
Deferred organization expenses (Note 1g) ............................................. 3,055
Prepaid registration fees and other assets (Note 1g) ................................. 29,564
------------
Total assets ......................................................................... 49,300,146
------------
================================================================================================================================
Liabilities: Unrealized depreciation on forward foreign exchange contracts (Note 1c) .............. 32,386
Payables:
Securities purchased ............................................................... 395,915
Capital shares redeemed ............................................................ 189,164
Investment adviser (Note 2) ........................................................ 36,001
Distributor (Note 2) ............................................................... 34,031 655,111
----------
Accrued expenses and other liabilities ............................................... 228,771
------------
Total liabilities .................................................................... 916,268
------------
================================================================================================================================
Net Assets: Net assets ........................................................................... $ 48,383,878
============
================================================================================================================================
Net Assets Class A Common Stock, $.10 par value, 100,000,000 shares authorized .................. $ 40,544
Consist of: Class B Common Stock, $.10 par value, 100,000,000 shares authorized .................. 330,370
Class C Common Stock, $.10 par value, 100,000,000 shares authorized .................. 25,469
Class D Common Stock, $.10 par value, 100,000,000 shares authorized .................. 68,990
Paid-in capital in excess of par ..................................................... 56,245,608
Accumulated realized capital losses on investments and foreign currency
transactions--net (Note 6) ........................................................... (15,639,304)
Accumulated distributions in excess of realized capital gains on investments and
foreign currency transactions--net (Note 1h) ......................................... (31,856)
Unrealized appreciation on investments and foreign currency transactions--net ........ 7,344,057
------------
Net assets ........................................................................... $ 48,383,878
============
================================================================================================================================
Net Asset Class A--Based on net assets of $4,239,079 and 405,440 shares outstanding ............ $ 10.46
Value: ============
Class B--Based on net assets of $34,319,606 and 3,303,701 shares outstanding ......... $ 10.39
============
Class C--Based on net assets of $2,623,185 and 254,689 shares outstanding ............ $ 10.30
============
Class D--Based on net assets of $7,202,008 and 689,897 shares outstanding ............ $ 10.44
============
================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 1999
=================================================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $57,142 foreign withholding tax) .......................... $ 414,779
Income Interest and discount earned ................................................ 338,831
(Notes 1e & 1f): -----------
Total income ................................................................ 753,610
-----------
=================================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................................... $ 449,835
Account maintenance and distribution fees--Class B (Note 2) ................. 388,313
Transfer agent fees--Class B (Note 2) ....................................... 145,190
Printing and shareholder reports ............................................ 103,568
Professional fees ........................................................... 82,525
Custodian fees .............................................................. 81,932
Accounting services (Note 2) ................................................ 72,269
Registration fees (Note 1g) ................................................. 60,143
Directors' fees and expenses ................................................ 43,101
Amortization of organization expenses (Note 1g) ............................. 36,661
Account maintenance and distribution fees--Class C (Note 2) ................. 31,538
Transfer agent fees--Class D (Note 2) ....................................... 23,638
Account maintenance fees--Class D (Note 2) .................................. 18,289
Transfer agent fees--Class C (Note 2) ....................................... 12,029
Transfer agent fees--Class A (Note 2) ....................................... 11,613
Pricing fees ................................................................ 10,829
Other ....................................................................... 5,465
-----------
Total expenses .............................................................. 1,576,938
-----------
Investment loss--net ........................................................ (823,328)
-----------
=================================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net .......................................................... 1,969,787
(Loss) on Foreign currency transactions--net ........................................ (81,478) 1,888,309
Investments & -----------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net .......................................................... 1,438,390
(Notes 1c, 1d, Foreign currency transactions--net ........................................ (171,745) 1,266,645
1f & 3): ----------- -----------
Net realized and unrealized gain on investments and foreign currency
transactions ................................................................ 3,154,954
-----------
Net Increase in Net Assets Resulting from Operations ........................ $ 2,331,626
===========
=================================================================================================================================
</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: 1999 1998
=================================================================================================================================
<S> <C> <C> <C>
Operations: Investment loss--net ........................................................ $ (823,328) $(1,152,917)
Realized gain (loss) on investments and foreign currency transactions--net .. 1,888,309 (13,369,173)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net .................................................. 1,266,645 2,345,451
----------- -----------
Net increase (decrease) in net assets resulting from operations ............. 2,331,626 (12,176,639)
----------- -----------
=================================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ................................................................... (79,308) --
Shareholders Class B ................................................................... (17,136) --
(Note 1h): Class C ................................................................... (20,214) --
Class D ................................................................... (123,411) --
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 ................................................................ (240,069) (4,101,895)
----------- -----------
=================================================================================================================================
Capital Share Net decrease in net assets derived from capital share transactions .......... (30,845,451) (48,755,903)
Transactions ----------- -----------
(Note 4):
=================================================================================================================================
Net Assets: Total decrease in net assets ................................................ (28,753,894) (65,034,437)
Beginning of year ........................................................... 77,137,772 142,172,209
----------- -----------
End of year* ................................................................ $48,383,878 $77,137,772
=========== ===========
=================================================================================================================================
* 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, 1999
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: 1999++ 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................... $ 9.45 $ 10.69 $ 10.86 $ 8.92 $ 9.82
Operating ------- ------- -------- -------- --------
Performance: Investment income (loss)--net .......................... (.06) (.01) .01 .13 .04
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ..................... 1.26 (.81) .72 1.97 (.93)
------- ------- -------- -------- --------
Total from investment operations ....................... 1.20 (.82) .73 2.10 (.89)
------- ------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................... (.19) -- (.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 ...................... (.19) (.42) (.90) (.16) (.01)
------- ------- -------- -------- --------
Net asset value, end of period ......................... $ 10.46 $ 9.45 $ 10.69 $ 10.86 $ 8.92
======= ======= ======== ======== ========
==============================================================================================================================
Total Investment Based on net asset value per share ..................... 13.24% (7.15%) 7.53% 23.87% (9.11%)++++
Return:** ======= ======= ======== ======== ========
==============================================================================================================================
Ratios to Expenses ............................................... 2.10% 1.63% 1.53% 1.55% 1.62%*
Average ======= ======= ======== ======== ========
Net Assets: Investment income (loss)--net .......................... (.68%) (.15%) .13% .46% 1.06%*
======= ======= ======== ======== ========
==============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............... $ 4,239 $ 4,376 $ 5,508 $ 3,083 $ 5,992
Data: ======= ======= ======== ======== ========
Portfolio turnover ..................................... 228.19% 52.73% 63.17% 60.33% 47.96%
======= ======= ======== ======== ========
==============================================================================================================================
</TABLE>
<TABLE>
<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: 1999++ 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................... $ 9.28 $ 10.54 $ 10.71 $ 8.84 $ 10.00
Operating ------- ------- -------- -------- --------
Performance: Investment income (loss)--net .......................... (.15) (.12) (.10) (.06) .01
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ..................... 1.26 (.78) .72 2.04 (1.16)
------- ------- -------- -------- --------
Total from investment operations ....................... 1.11 (.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 ......................... $ 10.39 $ 9.28 $ 10.54 $ 10.71 $ 8.84
======= ======= ======== ======== ========
==============================================================================================================================
Total Investment Based on net asset value per share ..................... 12.01% (8.15%) 6.47% 22.57% (11.55%)++++
Return:** ======= ======= ======== ======== ========
==============================================================================================================================
Ratios to Expenses ............................................... 3.16% 2.67% 2.58% 2.61% 2.56%*
Average ======= ======= ======== ======== ========
Net Assets: Investment income (loss)--net .......................... (1.74%) (1.25%) (1.00%) (.66%) .10%*
======= ======= ======== ======== ========
==============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............... $34,320 $57,424 $111,261 $131,656 $132,296
Data: ======= ======= ======== ======== ========
Portfolio turnover ..................................... 228.19% 52.73% 63.17% 60.33% 47.96%
======= ======= ======== ======== ========
==============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Amount is less than $.01 per share.
++++ Aggregate total investment return.
See Notes to Financial Statements.
16 & 17
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
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: 1999++ 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................... $ 9.25 $ 10.52 $ 10.71 $ 8.84 $ 9.80
Operating ------- ------- -------- -------- --------
Performance: Investment income (loss)--net .......................... (.15) (.12) (.10) (.05) .01
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ..................... 1.25 (.79) .71 2.03 (.96)
------- ------- -------- -------- --------
Total from investment operations ....................... 1.10 (.91) .61 1.98 (.95)
------- ------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................... (.05) -- (.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 ...................... (.05) (.36) (.80) (.11) (.01)
------- ------- -------- -------- --------
Net asset value, end of period ......................... $ 10.30 $ 9.25 $ 10.52 $ 10.71 $ 8.84
======= ======= ======== ======== ========
==============================================================================================================================
Total Investment Based on net asset value per share ..................... 12.08% (8.19%) 6.38% 22.56% (9.75%)++++
Return:** ======= ======= ======== ======== ========
==============================================================================================================================
Ratios to Expenses ............................................... 3.17% 2.69% 2.60% 2.63% 2.66%*
Average ======= ======= ======== ======== ========
Net Assets: Investment income (loss)--net .......................... (1.76%) (1.23%) (1.00%) (.64%) .20%*
======= ======= ======== ======== ========
==============================================================================================================================
Supplemental Net assets, end of period (in thousands) ............... $ 2,623 $ 4,312 $ 5,962 $ 5,753 $ 4,924
Data: ======= ======= ======== ======== ========
Portfolio turnover ..................................... 228.19% 52.73% 63.17% 60.33% 47.96%
======= ======= ======== ======== ========
==============================================================================================================================
</TABLE>
<TABLE>
<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: 1999++ 1998++ 1997++ 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................... $ 9.41 $ 10.66 $ 10.83 $ 8.91 $ 10.00
Operating ------- ------- -------- -------- --------
Performance: Investment income (loss)--net .......................... (.08) (.05) (.02) .02 .08
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net ..................... 1.25 (.79) .72 2.05 (1.16)
------- ------- -------- -------- --------
Total from investment operations ....................... 1.17 (.84) .70 2.07 (1.08)
------- ------- -------- -------- --------
Less dividends and distributions:
Investment income--net ............................... (.14) -- (.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 ...................... (.14) (.41) (.87) (.15) (.01)
------- ------- -------- -------- --------
Net asset value, end of period ......................... $ 10.44 $ 9.41 $ 10.66 $ 10.83 $ 8.91
======= ======= ======== ======== ========
================================================================================================================================
Total Investment Based on net asset value per share ..................... 12.91% (7.43%) 7.27% 23.50% (10.85%)++++
Return:** ======= ======= ======== ======== ========
================================================================================================================================
Ratios to Expenses ............................................... 2.36% 1.88% 1.80% 1.83% 1.77%*
Average ======= ======= ======== ======== ========
Net Assets: Investment income (loss)--net .......................... (.92%) (.46%) (.21%) .10% .90%*
======= ======= ======== ======== ========
================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............... $ 7,202 $11,026 $ 19,441 $ 22,593 $ 23,928
Data: ======= ======= ======== ======== ========
Portfolio turnover ..................................... 228.19% 52.73% 63.17% 60.33% 47.96%
======= ======= ======== ======== ========
===============================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++++ Aggregate total investment return.
See Notes to Financial Statements.
18 & 19
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
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's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use of
management accruals and estimates. The Fund offers four classes of shares under
the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are
sold with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities that are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets for which
market 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
possession of the underlying securities, marks to market such securities and, if
necessary, receives additions to such securities daily to ensure that the
contract is fully collateralized.
(c) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
o Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Fund's records. However, the effect on operations is recorded from the date the
Fund enters into such contracts.
o Foreign currency options and futures--The Fund may 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 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 $2,181,730 have been reclassified between undistributed net
investment income and accumulated distributions in excess of net realized
capital gains and $1,231,178 has been reclassified between paid-in capital in
excess of par and undistributed net investment income. These reclassifications
have no effect on net assets or net asset 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 the "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 Distri-bution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor ("MLFD" or the "Distributor"), a division of
Princeton Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee of
0.85%, on an annual basis, of the average daily net assets of the Fund. MLAM has
entered into a Sub-Advisory Agreement with Merrill Lynch Asset Management U.K.,
Ltd. ("MLAM U.K."), an affiliate of MLAM, pursuant to which MLAM pays MLAM U.K.
a fee in an amount to be determined from time to time by MLAM and MLAM U.K. but
in no
20 & 21
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
event in excess of the amount that MLAM actually receives. For the year ended
June 30, 1999, MLAM paid MLAM U.K. a fee of $10,654 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 Incorporated ("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, 1999, MLFD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of the Fund's Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class D .......................................... $232 $4,190
- --------------------------------------------------------------------------------
For the year ended June 30, 1999, MLPF&S received contingent deferred sales
charges of $97,417 and $1,132 relating to transactions in Class B and Class C
Shares, respectively.
Financial Data Services, Inc. ("FDS"), 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, FDS and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 1999 were $107,458,410 and $123,773,921, respectively.
Net realized gains (losses) for the year ended June 30, 1999 and net unrealized
gains (losses) as of June 30, 1999 were as follows:
- -------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- -------------------------------------------------------------------------------
Investments:
Long-term .................................... $ 2,067,438 $ 7,382,509
Short-term ................................... 225 --
Options purchased ............................ (112,670) --
Financial futures contracts .................. 14,794 --
----------- -----------
Total investments .............................. 1,969,787 7,382,509
----------- -----------
Currency transactions:
Foreign currency transactions ................ (295,240) (6,066)
Forward foreign exchange
contracts .................................... 213,762 (32,386)
----------- -----------
Total currency transactions .................... (81,478) (38,452)
----------- -----------
Total .......................................... $ 1,888,309 $ 7,344,057
=========== ===========
- -------------------------------------------------------------------------------
As of June 30, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $6,578,930, of which $9,639,056 related to appreciated securities and
$3,060,126 related to depreciated securities. The aggregate cost of investments
at June 30, 1999 for Federal income tax purposes was $41,267,088.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$30,845,451 and $48,755,903 for the years ended June 30, 1999 and June 30, 1998,
respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 211,490 $ 1,930,637
Shares issued to shareholders
in reinvestment of dividends ................... 8,957 72,467
----------- -----------
Total issued ................................... 220,447 2,003,104
Shares redeemed ................................ (278,152) (2,412,017)
----------- -----------
Net decrease ................................... (57,705) $ (408,913)
=========== ===========
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 234,132 $ 2,087,549
Shares issued to shareholders
in reinvestment of dividends ................... 1,311 10,610
----------- ------------
Total issued ................................... 235,443 2,098,159
Automatic conversion of shares ................. (57,666) (521,618)
Shares redeemed ................................ (3,063,306) (26,023,769)
----------- ------------
Net decrease ................................... (2,885,529) $(24,447,228)
=========== ============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 C Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 83,999 $ 712,386
Shares issued to shareholders
in reinvestment of dividends ................... 2,118 16,983
----------- -----------
Total issued ................................... 86,117 729,369
Shares redeemed ................................ (297,346) (2,489,968)
----------- -----------
Net decrease ................................... (211,229) $(1,760,599)
=========== ===========
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 D Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 72,797 $ 609,995
Automatic conversion of shares ................. 55,825 521,618
Shares issued to shareholders
in reinvestment of dividends ................... 9,020 72,971
----------- -----------
Total issued ................................... 137,642 1,204,584
Shares redeemed ................................ (619,616) (5,433,295)
----------- -----------
Net decrease ................................... (481,974) $(4,228,711)
=========== ===========
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .................................... 900,213 $ 8,509,284
Automatic 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)
=========== ===========
- -------------------------------------------------------------------------------
5. Commitments:
At June 30, 1999, the Fund had entered into foreign exchange contracts, in
addition to the contracts listed on the Schedule of Investments, under which it
had agreed to purchase and sell various foreign currencies with approximate
values of $259,000 and $552,000, respectively.
6. Capital Loss Carryforward:
At June 30, 1999, the Fund had a net capital loss carryforward of approximately
$14,993,000, of which $1,631,000 expires in 2006 and $13,362,000 expires in
2007. 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, 1999
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, 1999, 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 four-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,
1999 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, 1999, 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 17, 1999
IMPORTANT TAX INFORMATION (unaudited)
Of the ordinary income distributions paid by Merrill Lynch Global SmallCap Fund,
Inc. to shareholders of record on December 11, 1998, 45.69% qualifies for the
dividends received deduction for corporations. Additionally, there were no
long-term capital gains distributions paid by the Fund during the fiscal year.
Please retain this information for your records.
24 & 25
<PAGE>
Merrill Lynch Global SmallCap Fund, Inc., June 30, 1999
PORTFOLIO INFORMATION (unaudited)
Worldwide Investments As of 6/30/99
Country of Percent of
Ten Largest Equity Holdings Origin Net Assets
Provident American Corporation ................. United States 3.4%
Aruze Corporation .............................. Japan 2.6
Four Seasons Hotels Inc. ....................... Canada 2.5
Sanyo Coca-Cola Bottling Co., Ltd. ............. Japan 2.1
Union Tool Co. ................................. Japan 2.1
Roland Corporation ............................. Japan 1.9
John Fairfax Holdings Limited .................. Australia 1.8
SPX Corporation ................................ United States 1.7
Jafco Co., Ltd. ................................ Japan 1.7
Arden Realty, Inc. ............................. United States 1.5
Percent of
Ten Largest Industries Net Assets
Insurance ....................................................... 6.5%
Machinery ....................................................... 5.2
Computer Software & Systems ..................................... 4.6
Entertainment & Recreation ...................................... 4.5
Electronics ..................................................... 4.4
Banking & Finance ............................................... 4.1
Media & Related ................................................. 3.7
Beverages ....................................................... 3.3
Financial Services .............................................. 3.0
Telecommunications .............................................. 2.8
EQUITY PORTFOLIO CHANGES
For the Quarter Ended June 30, 1999
Additions
* AdForce, Inc.
* AppliedTheory Corporation
Banco Itau SA (Preferred)
* Barnes & Noble, Inc.
* Brocade Communications Systems, Inc.
* Careerbuilder, Inc.
Class Editori
Companhia Vale do Rio Doce 'A' (Preferred)
* Contact Energy Limited
* Copper Mountain Networks, Inc.
Cyprus Amax Minerals Company
* DLJDirect, Inc.
Distefora Holding AG
* Endemann Internet AG
FortuneCity.com, Inc.
* Framtidsfabriken AB
Fuji Seal, Inc.
* The Future Network PLC
* GFT Technologies AG
Gerberit International AG (Registered)
Gretag Imaging Group (Registered)
* Grupo Ferrovial, SA
* H. Lundbeck AS
HPY Holding--HTF Holding Oyj Abp
* Helsingin Puhelin Oyj
High Speed Access Corp.
Inco Limited
* Informatica Corporation
* JB Oxford Holdings, Inc.
* Juno Online Services, Inc.
* Knight/Trimark Group, Inc.
* Launch Media, Inc.
Laurent-Perrier
LibertyOne Limited
* Maker Communications, Inc.
* Marimba, Inc.
* Media Metrix, Inc.
Mercury Computer Systems, Inc.
The Metzler Group, Inc.
* Monte dei Paschi di Siena
Nextera Enterprises, Inc. (Class A)
* North Fork Bancorporation, Inc.
Oxford Health Plans, Inc.
* PSINet Inc.
Pacific Century Insurance Holdings Limited
Perlos Oyj
* Phone.com Inc.
* Platinum Technology International, inc.
* Portal Software, Inc.
PubliGroupe SA
* Radio One, Inc.
* Razorfish Inc.
Restaurant Brands New Zealand Limited
* Rubio's Restaurants, Inc.
Ryanair Holdings PLC (ADR)
Saatchi and Saatchi PLC
Sangetsu Co., Ltd.
Saucony, Inc. (Class B)
Shandong International Power Development Company Limited 'H'
* Siam Commercial Bank Public Company Limited 'Foreign'
* Silknet Software, Inc.
Sime Darby BHD
* Software.com, Inc.
* StarMedia Network, Inc.
Steel Dynamics, Inc.
Stinnes AG
* TD Waterhouse Group, Inc.
Telefonica Publicidad e Informacion, SA
* Telegate AG
* TenFold Corporation
* Time Warner Telecom Inc.
* USinternetworking, Inc.
Uniao de Bancos Brasileiros SA (Unibanco) (GDR)
Ushio Inc.
* Value America, Inc.
WESCO International, Inc.
Wheelock and Company, Limited
* WorldGate Communications, Inc.
Deletions
AS Eesti Telekom (Registered Shares)(GDR)
* AdForce, Inc.
* AppliedTheory Corporation
Aurora Food, Inc.
Autobytel.com, Inc.
Autoweb.com, Inc.
Banca Popolare di Bergamo Credito Varesino SpA
* Barnes & Noble, Inc.
Biomatrix, Inc.
Bowater Inc.
* Brocade Communications Systems, Inc.
COR Therapeutics, Inc.
Cabot Oil & Gas Corporation (Class A)
* Careerbuilder, Inc.
China Overseas Land & Investment
China Resources Enterprise Limited
Cie des Signaux SA
* Contact Energy Limited
* Copper Mountain Networks, Inc.
Critical Path, Inc.
* DLJDirect, Inc.
DOCdata NV
Department 56, Inc.
EM.TV & Merchandising AG
* Endemann Internet AG
Fore Systems, Inc.
* Framtidsfabriken AB
* The Future Network PLC
GFI Informatique SA
* GFT Technologies AG
* Grupo Ferrovial, SA
* H. Lundbeck AS
Hanjin Heavy Industries
* Helsingin Puhelin Oyj
* Informatica Corporation
* JB Oxford Holdings, Inc.
* Juno Online Services, Inc.
Kamps AG
* Knight/Trimark Group, Inc.
* Launch Media, Inc.
The Learning Company, Inc.
* Maker Communications, Inc.
* Marimba, Inc.
* Media Metrix, Inc.
Medical Manager Corporation
MiningCo.com, Inc.
* Monte dei Paschi di Siena
* North Fork Bancorporation, Inc.
* PSINet Inc.
* Phone.com Inc.
* Platinum Technology International, inc.
* Portal Software, Inc.
* Radio One, Inc.
* Razorfish Inc.
* Rubio's Restaurants, Inc.
Shanghai Industrial Holdings Limited
* Siam Commercial Bank Public Company Limited 'Foreign'
* Silknet Software, Inc.
* Software.com, Inc.
* StarMedia Network, Inc.
Stillwater Mining Company
* TD Waterhouse Group, Inc.
* Telegate AG
Teleste Oyj
* TenFold Corporation
* Time Warner Telecom Inc.
Tranz Rail Holdings Limited
U.S. Home Corporation
* USinternetworking, Inc.
* Value America, Inc.
Van Der Moolen Holding NV
Vedior NV 'A'
Vertex Pharmaceuticals, Inc.
Visio Corporation
* WorldGate Communications, Inc.
Ziff-Davis Inc.--ZDNet
* 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--6/99
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