UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-4182
Name of Fund: Merrill Lynch International Value Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch International Value Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/03
Date of reporting period: 07/01/02 - 06/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
June 30, 2003
Merrill Lynch
International
Value Fund
of Mercury Funds II
www.mlim.ml.com
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.
Investment in foreign securities involves special risks including
fluctuating foreign exchange rates, foreign government regulations,
differing degrees of liquidity and the possibility of substantial
volatility due to adverse political, economic or other developments.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and
(3) on the Commission's website at http://www.sec.gov.
Merrill Lynch International Value Fund
of Mercury Funds II
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH INTERNATIONAL VALUE FUND
Important Tax
Information
(unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch International Value Fund during the year ended
June 30, 2003:
Foreign
Foreign Total Taxes
Source Ordinary Paid or
Record Date Payable Date Income Income Withheld
Class A Shares: 8/13/2002 8/19/2002 -- -- --
Class B Shares: 8/13/2002 8/19/2002 -- -- --
Class CShares: 8/13/2002 8/19/2002 -- -- --
Class I Shares: 8/13/2002 8/19/2002 $.045596 $.045596 $.059541
The foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends and/or interest received by the Fund from foreign
sources. Foreign taxes paid or withheld should be included as
foreign source in taxable income with an offsetting deduction from
gross income or as a credit for taxes paid to foreign governments.
You should consult your tax adviser regarding the appropriate
treatment of foreign taxes paid.
Please retain this information for your records.
Merrill Lynch International Value Fund, June 30, 2003
DEAR SHAREHOLDER
Fiscal Year in Review
For the 12 months ended June 30, 2003, Merrill Lynch International
Value Fund's Class I, Class A, Class B and Class C Shares had total
returns of -12.38%, -12.55%, -13.27% and -13.19%, respectively,
underperforming the unmanaged benchmark Morgan Stanley Capital
International Europe, Australasia, Far East (MSCI EAFE) Index, which
had a total return of -6.46%, and the MSCI EAFE Value Index, which
had a total return of -4.94%. (Fund 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.)
Value stocks and growth stocks returned broadly similar performance
during the 12-month period ended June 30, 2003, though value stocks
performed very poorly in the third quarter of 2002. The relative
performance of value and growth styles was very volatile, dominated
by the fortunes of the financial sector. Financial stocks such as
banks and insurance companies performed very poorly in the third
quarter of 2002 as investors became concerned that low levels of
equity markets would lead to major financial bankruptcies, or
further forced selling of equities by banks. As no major
bankruptcies occurred after the December 31, 2002 book close,
investors grew more confident in bank balance sheets. Easing of
bank capital adequacy requirements allayed fears of further forced
selling of equities from banks and insurance companies, and provided
a platform for a rebound in markets, in which financial shares
performed very strongly.
The Fund's underperformance of the benchmark was mainly attributable
to stock selection. Although the Fund had a strong performance
contribution from the banks, insurance and utilities sectors, the
media, materials, and information technology areas contributed
negatively to performance. From a country perspective, the leading
markets included Spain, Australia and Singapore, while the
Netherlands, Germany and France were among the weakest markets. On a
stock level the best contribution came from DePfa Bank PLC, Intesa
BCI SpA and Hongkong Electric Holdings Limited, while the worst
contributions were from Chubb PLC, Henderson Land Development
Company Limited, Saint Gobain, Hitachi Ltd. and Alstom.
Economic Environment
Global economic prospects have improved during recent months. First,
monetary conditions have become more expansionary. The recent fall
in bond yields is a boost to consumers, reflected in another
mortgage refinancing wave in the United States, and to companies
through a reduction in the cost of capital. Second, we have seen a
substantial easing of broader financial conditions, and fears of a
global credit crunch have so far proved unfounded. Third, prospects
for fiscal easing in Europe have improved. Germany will implement
tax cuts of 0.3% of gross domestic product (GDP) next year and a
further 0.8% of GDP in 2005. The end to the Iraq war has brought
additional economic benefits through a lift to the extreme risk
aversion that gripped the global economy earlier this year. This has
been reflected in a modest bounce in consumer and business
confidence surveys since March. The major headwinds that still face
the economy are from the excessive debt levels that were built up in
the "bubble years." This is likely to hold back consumer and
corporate spending for many years as balance sheets are repaired, in
our opinion. However, we are currently seeing the first encouraging
signs that corporate retrenchment is sufficiently advanced to allow
a modest rise in investment spending after two years of declines.
The relative outperformance of value compared to growth during the
last three years means that there is presently less of a stark
valuation discrepancy in favor of value stocks. At the moment, the
Fund is still overweight in the more economically sensitive sectors
such as hotels, restaurants and leisure, energy, capital goods and
diversified financials. This is at the expense of food, beverage and
tobacco, insurance and technology hardware and equipment.
While valuations of equity markets in early March were more
appealing than going into any of the previous bear market upturns,
the subsequent rally has taken global aggregates back into expensive
territory. On a price-to-normalized earnings basis, the world market
stands well above its long-run average, with an emphasis
concentrated in the United States. European and Asian equities both
trade at around 17 times normalized earnings, which are expected to
grow modestly in 2004. Global equities continue to look more
attractive relative to government bonds or cash, using metrics such
as implied earnings growth or a comparison of real bond yields
compared to dividend yields (again the United States looks less
attractive than the rest of the world). However, this comparison
says more about the high cost of bonds than any cheapness of
equities. On our models of "fair value" for 10-year bonds, the U.S.
bond market is expensive, although the Eurozone and U.K. markets are
less valued.
While we continue to look for a global earnings recovery, we
question whether the pace of growth will be sufficient to generate
sustained earnings upgrades in many cyclical sectors. The first
quarter earnings season in the United States did indeed produce some
genuine upward surprises, both in terms of the quantity and quality
of earnings. Although concerns over earnings quality have subsided,
there remains uncertainty, such as options expensing and health care
costs, that could have a negative impact at the stock level. While
the depth of Asian domestic economies is increasing, earnings will
continue to depend on the health of the U.S. consumer. European
earnings, which are more geared to global production growth, will be
held back by the appreciation of the euro, and are unlikely to
display rapid growth.
In Conclusion
We continue to believe that fundamental factors such as earnings
growth and cash flow generation will be increasingly important to
investors and believe that the Fund is well positioned for progress
in the future. We appreciate your support of Merrill Lynch
International Value Fund, and we look forward to serving your
investment needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(James Macmillan)
James Macmillan
Vice President and
Portfolio Manager
July 30, 2003
Merrill Lynch International Value Fund, June 30, 2003
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first two years, decreasing to
3% for each of the next two years and decreasing 1% each year
thereafter to 0% after the sixth 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 A Shares after approximately eight years.
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares may be
subject to a 1% contingent deferred sales charge if redeemed within
one year after purchase.
* Class I Shares incur a maximum initial sales charge of 5.25% and
bear no ongoing distribution and account maintenance fees. Class I
Shares are available only to eligible investors.
* Class R Shares do not incur a maximum sales charge (front-end
load) or deferred sales charge. These shares are subject to a
distribution fee of 0.25% and an account maintenance fee of
0.25%.Class R Shares are available only to certain retirement plans.
None of the past results shown should be considered a representation
of future performance. Performance results do not reflect the
deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Figures shown in
each of the following 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 the classes,
which are deducted from the income available to be paid to
shareholders. The Fund's investment adviser voluntarily paid annual
operating expenses in excess of 1.0% of average Class I net assets
until 3/1/99, when it removed/discontinued capping expenses. Without
such expense cap, the Fund's Class I performance would have been
lower.
Total Return
Based on a
$10,000
Investment
A line graph illustrating the growth of a $10,000 investment in
ML International Value Fund++ Class A Shares* compared to a similar
investment in MSCI EAFE Index++++. Values illustrated are as
follows:
ML International Value Fund++
Class A Shares*
Date Value
6/02/1999** $ 9,475.00
June 2000 $11,155.00
June 2001 $10,262.00
June 2002 $10,117.00
June 2003 $ 8,847.00
MSCI EAFE Index++++
Date Value
6/02/1999** $10,000.00
June 2000 $12,075.00
June 2001 $ 9,208.00
June 2002 $ 8,334.00
June 2003 $ 7,795.00
A line graph illustrating the growth of a $10,000 investment in
ML International Value Fund++ Class B and Class C Shares* compared
to a similar investment in MSCI EAFE Index++++. Values illustrated
are as follows:
ML International Value Fund++
Class B Shares*
Date Value
10/06/2000** $10,000.00
June 2001 $ 9,799.00
June 2002 $ 9,594.00
June 2003 $ 8,112.00
ML International Value Fund++
Class C Shares*
Date Value
10/06/2000** $10,000.00
June 2001 $ 9,789.00
June 2002 $ 9,583.00
June 2003 $ 8,319.00
MSCI EAFE Index++++
Date Value
10/06/2000** $10,000.00
June 2001 $ 8,324.00
June 2002 $ 7,534.00
June 2003 $ 7,047.00
A line graph illustrating the growth of a $10,000 investment in
ML International Value Fund++ Class I Shares* compared to a similar
investment in MSCI EAFE Index++++. Values illustrated are as
follows:
ML International Value Fund++
Class I Shares*
Date Value
June 1993 $ 9,475.00
June 1994 $11,058.00
June 1995 $12,283.00
June 1996 $14,569.00
June 1997 $17,714.00
June 1998 $19,091.00
June 1999 $19,896.00
June 2000 $23,001.00
June 2001 $21,210.00
June 2002 $20,968.00
June 2003 $18,372.00
MSCI EAFE Index++++
Date Value
June 1993 $10,000.00
June 1994 $11,700.00
June 1995 $11,894.00
June 1996 $13,473.00
June 1997 $15,203.00
June 1998 $10,359.00
June 1999 $11,194.00
June 2000 $20,374.00
June 2001 $15,537.00
June 2002 $14,061.00
June 2003 $13,153.00
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++The Fund invests primarily in stocks of companies located outside
of the United States.
++++This unmanaged Index measures the total returns of developed
foreign stock markets in Europe, Australasia and the Far East (in
U.S. dollars).
Past performance in not indicative of future results.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 6/30/03 -12.55% -17.14%
Inception (6/02/99) through 6/30/03 - 1.67 - 2.96
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class B Shares*
One Year Ended 6/30/03 -13.27% -16.74%
Inception (10/06/00) through 6/30/03 - 6.51 - 7.38
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 6 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class C Shares*
One Year Ended 6/30/03 -13.19% -14.06%
Inception (10/06/00) through 6/30/03 - 6.52 - 6.52
*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 I Shares*
One Year Ended 6/30/03 -12.38% -16.98%
Five Years Ended 6/30/03 - 0.76 - 1.83
Ten Years Ended 6/30/03 + 6.85 + 6.27
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch International Value Fund, June 30, 2003
PERFORMANCE DATA (concluded)
Aggregate
Total Return
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03) through 6/30/03 +7.09%
Recent
Performance
Results
6-Month 12-Month Since Inception
As of June 30, 2003 Total Return Total Return Total Return
ML International Value Fund Class A Shares* +8.51% -12.55% - 6.63%
ML International Value Fund Class B Shares* +8.12 -13.27 -16.80
ML International Value Fund Class C Shares* +8.19 -13.19 -16.81
ML International Value Fund Class I Shares* +8.68 -12.38 +93.90
ML International Value Fund Class R Shares* -- -- + 7.09
MSCI EAFE Index** +9.47 - 6.46 +31.53/-22.05/-29.53/+7.41
*Investment results shown do not reflect sales charges. Results
shown would be lower if sales charges were included. Total
investment returns are based on changes in the Fund's net asset
values for the periods shown, and assume reinvestment of all
dividends and capital gains at net asset value on the ex-dividend
date. The Fund's ten-year/since inception periods are ten years for
Class I Shares, from 6/02/99 for Class A Shares, from 10/06/00 for
Class B & Class C Shares, and from 1/03/03 for Class R Shares.
**An unmanaged Index measures the total returns of developed foreign
stock markets in Europe, Australasia and the Far East (in U.S.
dollars). Ten-year/since inception total returns for ten years, from
6/02/99, from 10/06/00 and from 1/03/03, respectively.
SCHEDULE OF INVESTMENTS (in U.S. dollars)
Shares Percent of
COUNTRY Industry++++ Held Common Stocks Value Net Assets
Australia Hotels, Restaurants 1,033,000 TABCORP Holdings Limited $ 7,461,255 1.4%
& Leisure
Oil & Gas 2,173,610 Santos Limited 8,600,614 1.7
Total Common Stocks in Australia 16,061,869 3.1
France Automobiles 197,790 PSA Peugeot Citroen 9,607,686 1.8
Consumer--Office 141,335 Societe BIC SA 5,502,037 1.1
Products
Hotels, Restaurants 209,814 Accor SA 7,589,604 1.5
& Leisure
Metals & Mining 394,471 Arcelor 4,593,325 0.8
168,715 Pechiney SA 'A' 6,056,431 1.2
------------- ------
10,649,756 2.0
Oil & Gas 126,573 TotalFinaElf SA 19,128,066 3.7
Regional Banks 232,442 BNP Paribas SA 11,811,416 2.3
Retailing 72,109 Pinault-Printemps-Redoute SA 5,432,096 1.0
Total Common Stocks in France 69,720,661 13.4
Germany Electric--Utilities 179,993 E.On AG 9,253,730 1.8
Financial Services 156,910 DePfa Bank PLC 12,207,705 2.3
Machinery 160,858 Linde AG 5,955,412 1.1
Total Common Stocks in Germany 27,416,847 5.2
Hong Kong Publishing 4,566,000 South China Morning Post Holdings Ltd. 1,800,485 0.4
Real Estate 2,042,000 Henderson Land Development Company Limited 5,865,596 1.1
Total Common Stocks in Hong Kong 7,666,081 1.5
Ireland Regional Banks 411,165 Allied Irish Banks PLC 6,241,970 1.2
Total Common Stocks in Ireland 6,241,970 1.2
Italy Building Products 654,994 Buzzi Unicem SpA 4,451,295 0.9
Oil & Gas 681,387 ENI SpA 10,306,701 2.0
Regional Banks 4,796,583 Intesa BCI SpA 15,340,208 2.9
Telecommunications 1,558,443 Telecom Italia SpA 14,107,711 2.7
Total Common Stocks in Italy 44,205,915 8.5
Japan Automobiles 364,000 Honda Motor Co., Ltd. 13,793,046 2.7
Beverages 1,309,000 Asahi Breweries Limited 7,903,602 1.5
Chemicals/ 842,000 Sumitomo Bakelite Company Limited 3,513,154 0.7
Pharmaceuticals
Diversified 1,980 Nippon Telegraph & Telephone Corporation (NTT) 7,766,646 1.5
Telecommunication
Services
Household Durables 1,246,000 Daiwa House Industry Co., Ltd. 8,571,276 1.6
1,037,000 Matsushita Electric Industrial Company, Ltd. 10,268,524 2.0
------------- ------
18,839,800 3.6
Leisure/Toys 594,000 Namco Ltd. 9,478,276 1.8
Machinery 1,077,000 Amada Co., Ltd. 3,462,186 0.7
Oil & Gas 956,000 Showa Shell Sekiyu K.K. 6,862,977 1.3
Pharmaceuticals 328,000 Yamanouchi Pharmaceutical Co., Ltd. 8,549,990 1.6
Small Loans & 208,100 Promise Co., Ltd. 7,781,545 1.5
Finance 261,000 Sanyo Shinpan Finance Co., Ltd. 7,716,427 1.5
134,500 Takefuji Corporation 6,978,430 1.3
------------- ------
22,476,402 4.3
Total Common Stocks in Japan 102,646,079 19.7
Merrill Lynch International Value Fund, June 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Shares Percent of
COUNTRY Industry++++ Held Common Stocks Value Net Assets
Netherlands Chemicals/ 196,062 Akzo Nobel NV $ 5,196,409 1.0%
Pharmaceuticals
Commercial Services 747,949 Vedior NV 'A' 6,776,775 1.3
& Supplies
Diversified 668,933 Fortis 11,522,533 2.2
Financials
Electronics 332,853 Koninklijke (Royal) Philips Electronics NV 6,329,755 1.2
Insurance--Multi-Line 564,031 ING Groep NV 9,799,773 1.9
Media 513,394 Wolters Kluwer NV 'A' 6,190,335 1.2
Total Common Stocks in the Netherlands 45,815,580 8.8
Portugal Electric--Utilities 2,945,007 Electricidade de Portugal, SA (EDP) 6,290,329 1.2
Total Common Stocks in Portugal 6,290,329 1.2
Singapore Publishing 20,621,000 ++Singapore Post Limited 7,962,680 1.5
Total Common Stocks in Singapore 7,962,680 1.5
Spain Telecommunications 594,961 ++Telefonica SA 6,907,386 1.3
Total Common Stocks in Spain 6,907,386 1.3
Sweden Regional Banks 1,922,841 Nordbanken Holding AB 9,271,971 1.8
Total Common Stocks in Sweden 9,271,971 1.8
Switzerland Building Materials 17,914 Geberit AG (Registered Shares) 5,514,848 1.1
208,395 Holcim Ltd. (Registered Shares) 7,700,099 1.5
------------- ------
13,214,947 2.6
Pharmaceuticals 346,629 Novartis AG (Registered Shares) 13,716,226 2.6
Regional Banks 337,669 Credit Suisse Group 8,887,010 1.7
Total Common Stocks in Switzerland 35,818,183 6.9
United Airports 958,472 BAA PLC 7,757,853 1.5
Kingdom
Diversified Companies 670,695 Smiths Industries PLC 7,780,428 1.5
722,540 Tomkins PLC 2,706,517 0.5
------------- ------
10,486,945 2.0
Diversified 1,900,491 BT Group PLC 6,389,789 1.2
Telecommunication
Services
Foods 1,801,134 J Sainsbury PLC 7,549,233 1.4
1,018,969 Unilever PLC 8,112,998 1.6
------------- ------
15,662,231 3.0
Insurance--Multi-Line 994,624 AVIVA PLC 6,905,675 1.3
Oil & Gas 2,889,076 Shell Transport & Trading Company 19,069,620 3.7
Pharmaceuticals 1,070,531 GlaxoSmithKline PLC 21,604,727 4.2
Regional Banks 2,225,009 Barclays PLC 16,522,180 3.2
430,873 Royal Bank of Scotland Group PLC 12,087,077 2.3
------------- ------
28,609,257 5.5
Security Services 3,682,236 Chubb PLC 4,587,559 0.9
Total Common Stocks in the United Kingdom 121,073,656 23.3
Total Investments in Common Stocks
(Cost--$485,363,958) 507,099,207 97.4
Preferred Stocks
Germany Chemicals/ 128,383 Henkel KGaA 7,947,873 1.6
Pharmaceuticals
Total Investments in Preferred Stocks
(Cost--$8,488,840) 7,947,873 1.6
Face
Amount Short-Term Investments
Time Deposits $ 904,309 Brown Brothers Harriman & Company, 0.61% due 7/01/2003 904,309 0.2
Shares Held/
Beneficial Interest
$38,889,986 Merrill Lynch Liquidity Series, LLC Money Market
Series (a)(b) 38,889,986 7.4
25,926,657 Merrill Lynch Premier Institutional Fund (a)(b) 25,926,657 5.0
------------- ------
64,816,643 12.4
Total Short-Term Investments (Cost--$65,720,952) 65,720,952 12.6
Total Investments (Cost--$559,573,750) 580,768,032 111.6
Liabilities in Excess of Other Assets (60,286,771) (11.6)
------------- ------
Net Assets $ 520,481,261 100.0%
============= ======
++Non-income producing security.
++++For Fund compliance purposes, "Industry" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
(a)Investments in companies considered to be an affiliate of the
Portfolio (such companies are defined as "Affiliated Companies" in
Section 2 (a)(3) of the Investment Company Act of 1940) are as
follows:
Dividend/
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Money Market Series $30,136,254 $122,291
Merrill Lynch Premier Institutional Fund 8,756,913 $101,193
(b)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
Merrill Lynch International Value Fund, June 30, 2003
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 2003
Assets: Investments, at value (including securities loaned of $61,513,554)
(identified cost--$559,573,750) $ 580,768,032
Foreign cash (cost--$11) 11
Cash 9,376
Receivables:
Capital shares sold $ 9,361,891
Dividends 4,408,720
Interest 15 13,770,626
---------------
Prepaid registration fees and other assets 61,688
---------------
Total assets 594,609,733
---------------
Liabilities: Collateral on securities loaned, at value 64,816,643
Payables:
Capital shares redeemed 8,501,664
Other affiliates 357,718
Investment adviser 343,477
Distributor 18,380 9,221,239
---------------
Accrued expenses and other liabilities 90,590
---------------
Total liabilities 74,128,472
---------------
Net Assets: Net assets $ 520,481,261
===============
Net Assets Paid-in capital $ 581,382,132
Consist of: Undistributed investment income--net $ 8,191,889
Accumulated realized capital losses on investments and foreign
currency transactions--net (90,561,609)
Unrealized appreciation on investments and foreign currency
transactions--net 21,468,849
---------------
Total accumulated losses--net (60,900,871)
---------------
Net assets $ 520,481,261
===============
Net Asset Class A--Based on net assets of $49,395,145 and 2,747,776 shares
Value: of beneficial interest outstanding++ $ 17.98
===============
Class B--Based on net assets of $5,342,511 and 299,437 shares of
beneficial interest outstanding++ $ 17.84
===============
Class C--Based on net assets of $2,672,432 and 150,994 shares of
beneficial interest outstanding++ $ 17.70
===============
Class I--Based on net assets of $463,071,066 and 25,685,603 shares
of beneficial interest outstanding++ $ 18.03
===============
Class R--Based on net assets of $107 and 5.95 shares of beneficial
interest outstanding++ $ 17.98
===============
++Unlimited shares of no par value authorized.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended June 30, 2003
Investment Dividends (net of $2,064,011 foreign withholding tax) $ 14,774,396
Income: Securities lending--net 223,484
Interest 141,788
---------------
Total income 15,139,668
---------------
Expenses: Investment advisory fees $ 3,914,590
Transfer agent fees--Class I 835,924
Accounting services 224,368
Custodian fees 185,779
Registration fees 92,266
Account maintenance fees--Class A 83,757
Printing and shareholder reports 73,531
Professional fees 64,196
Transfer agent fees--Class A 59,652
Trustee's fees and expenses 56,147
Account maintenance and distribution fees--Class B 26,736
Account maintenance and distribution fees--Class C 22,496
Pricing fees 9,068
Transfer agent fees--Class B 4,566
Transfer agent fees--Class C 3,995
Other 40,490
---------------
Total expenses 5,697,561
---------------
Investment income--net 9,442,107
---------------
Realized & Realized gain (loss)from:
Unrealized Gain Investments--net (80,165,973)
(Loss) on Foreign currency transactions--net 261,932 (79,904,041)
Investments & ---------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net: Investments--net 9,985,865
Foreign currency transactions--net (4,829) 9,981,036
--------------- ---------------
Total realized and unrealized loss from investments and foreign
currency transactions--net (69,923,005)
---------------
Net Decrease in Net Assets Resulting from Operations $ (60,480,898)
===============
See Notes to Financial Statements.
Merrill Lynch International Value Fund, June 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended June 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment income--net $ 9,442,107 $ 9,794,395
Realized gain (loss) on investments and foreign currency
transactions--net (79,904,041) 12,395,756
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 9,981,036 (51,150,396)
--------------- ---------------
Net decrease in net assets resulting from operations (60,480,898) (28,960,245)
--------------- ---------------
Dividends & Investment income--net:
Distributions to Class A -- (556,121)
Shareholders: Class B -- (54,478)
Class C -- (43,476)
Class I (1,343,641) (21,781,579)
Realized gain on investments--net:
Class A -- (924,869)
Class B -- (86,370)
Class C -- (68,118)
Class I -- (33,183,961)
--------------- ---------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,343,641) (56,698,972)
--------------- ---------------
Capital Share Decrease in net assets derived from net capital share transactions (59,101,229) (351,814,962)
Transactions: --------------- ---------------
Net Assets: Total decrease in net assets (120,925,768) (437,474,179)
Beginning of year 641,407,029 1,078,881,208
--------------- ---------------
End of year* $ 520,481,261 $ 641,407,029
=============== ===============
*Undistributed (accumulated) investment income (loss)--net $ 8,191,889 $ (239,168)
=============== ===============
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
For the Period
The following per share data and ratios have been derived Class A++++ June 2,
from information provided in the financial statements. 1999++ to
For the Year Ended June 30, June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of period $ 20.55 $ 22.89 $ 27.27 $ 25.72 $ 25.20
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .39++++++ .23++++++ .31 .39 .05
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (2.96) (.70) (2.41) 3.41 .47
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.57) (.47) (2.10) 3.80 .52
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.70) (.47) (.74) --
Realized gain on investments--net -- (1.17) (1.81) (1.51) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions -- (1.87) (2.28) (2.25) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.98 $ 20.55 $ 22.89 $ 27.27 $ 25.72
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (12.55%) (1.42%) (8.00%) 15.36% 2.06%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Expenses 1.32% 1.38% 1.31% 1.31% 1.30%*
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 2.30% 1.19% 2.05% 1.37% 2.77%*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 49,395 $ 97,769 $ 52,110 $ 4,920 $ 1,150
Data: ========== ========== ========== ========== ==========
Portfolio turnover 89% 45% 26% 50% 41%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Prior to October 6, 2000, Class A Shares were redesignated as
Distributor Class Shares.
++++++Based on average shares outstanding
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch International Value Fund, June 30, 2003
FINANCIAL HIGHLIGHTS (continued)
Class B
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 6, 2000++
For the Year Ended June 30, to June 30,
Increase (Decrease) in Net Asset Value 2003 2002 2001
Per Share Net asset value, beginning of period $ 20.57 $ 23.09 $ 25.65
Operating ---------- ---------- ----------
Performance: Investment income--net .29++++ .10++++ .39
Realized and unrealized loss on investments and foreign
currency transactions--net (3.02) (.71) (.82)
---------- ---------- ----------
Total from investment operations (2.73) (.61) (.43)
---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.74) (.32)
Realized gain on investments--net -- (1.17) (1.81)
---------- ---------- ----------
Total dividends and distributions -- (1.91) (2.13)
---------- ---------- ----------
Net asset value, end of period $ 17.84 $ 20.57 $ 23.09
========== ========== ==========
Total Investment Based on net asset value per share (13.27%) (2.10%) (2.01%)+++
Return:** ========== ========== ==========
Ratios to Expenses 2.06% 2.12% 2.18%*
Average ========== ========== ==========
Net Assets: Investment income--net 1.74% .48% 1.49%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 5,343 $ 2,064 $ 1,016
Data: ========== ========== ==========
Portfolio turnover 89% 45% 26%
========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding
+++Aggregate total investment return.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (continued)
Class C
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 6, 2000++
For the Year Ended June 30, to June 30,
Increase (Decrease) in Net Asset Value 2003 2002 2001
Per Share Net asset value, beginning of period $ 20.39 $ 22.91 $ 25.65
Operating ---------- ---------- ----------
Performance: Investment income--net .17++++ .09++++ .60
Realized and unrealized loss on investments and foreign
currency transactions--net (2.86) (.70) (1.05)
---------- ---------- ----------
Total from investment operations (2.69) (.61) (.45)
---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.74) (.48)
Realized gain on investments--net -- (1.17) (1.81)
---------- ---------- ----------
Total dividends and distributions -- (1.91) (2.29)
---------- ---------- ----------
Net asset value, end of period $ 17.70 $ 20.39 $ 22.91
========== ========== ==========
Total Investment Based on net asset value per share (13.19%) (2.10%) (2.11%)+++
Return:** ========== ========== ==========
Ratios to Expenses 2.07% 2.06% 1.70%*
Average ========== ========== ==========
Net Assets: Investment income--net 1.02% .47% 1.76%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 2,672 $ 2,285 $ 762
Data: ========== ========== ==========
Portfolio turnover 89% 45% 26%
========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding
+++Aggregate total investment return.
See Notes to Financial Statements.
Merrill Lynch International Value Fund, June 30, 2003
FINANCIAL HIGHLIGHTS (continued)
The following per share data and ratios have been derived
from information provided in the financial statements. Class I++
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of year $ 20.63 $ 22.97 $ 27.33 $ 25.73 $ 25.33
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .30++++ .29++++ .48 .43 .59
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (2.85) (.70) (2.53) 3.43 .40
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.55) (.41) (2.05) 3.86 .99
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.05) (.76) (.50) (.76) (.25)
Realized gain on investments--net -- (1.17) (1.81) (1.50) (.34)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.05) (1.93) (2.31) (2.26) (.59)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 18.03 $ 20.63 $ 22.97 $ 27.33 $ 25.73
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share (12.38%) (1.14%) (7.79%) 15.60% 4.22%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses 1.07% 1.14% 1.06% 1.06% .95%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 1.78% 1.42% 1.78% 1.62% 1.98%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 463,071 $ 617,289 $1,024,993 $1,393,910 $1,378,900
Data: ========== ========== ========== ========== ==========
Portfolio turnover 89% 45% 26% 50% 41%
========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges. The
Fund's investment adviser paid annual operating expenses in excess
of 1.0% of the Fund's Class I net assets until 3/01/1999, when it
removed/discontinued the expense cap. Without such expense cap, the
Fund's performance would have been lower.
++Prior to October 6, 2000, Class I Shares were redesignated as
Investor Class Shares.
++++Based on average shares outstanding
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (concluded)
Class R
For the
Period
The following per share data and ratios have been derived from January 3,
information provided in the financial statements. 2003++ to
June 30,
Increase in Net Asset Value: 2003
Per Share Net asset value, beginning of period $ 16.79
Operating ----------
Performance: Investment income--net++++ .32
Realized and unrealized gain on investments and foreign currency transactions--net .87
----------
Total from investment operations 1.19
----------
Net asset value, end of period $ 17.98
==========
Total Investment Based on net asset value per share 7.09%+++
Return:** ==========
Ratios to Expenses 1.55%*
Average ==========
Net Assets: Investment income--net 3.04%*
==========
Supplemental Net assets, end of period (in thousands) $ --+++++
Data: ==========
Portfolio turnover 89%
==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $1,000.
See Notes to Financial Statements.
Merrill Lynch International Value Fund, June 30, 2003
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch International Value Fund (the "Fund") (formerly
Mercury International Value Fund), is a fund of Mercury Funds II
(the "Trust"). The Trust is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management
investment company, which is organized as a Massachusetts business
trust. The Fund's financial statements are prepared in conformity
with accounting principles generally accepted in the United States
of America, which may require the use of management accruals and
estimates. The Fund offers multiple classes of shares. Class A and
Class I Shares are sold with a front-end sales charge. Class B and
Class C Shares may be subject to a contingent deferred sales charge.
Class R Shares are sold only to certain retirement plans. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class A,
Class B, Class C and Class R Shares bear certain expenses related to
the account maintenance of such shares, and Class B, Class C and
Class R 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 (except that Class B Shares have certain
voting rights with respect to Class A distribution expenditures).
Income, expenses (other than expenses attributable to a specific
class) and realized and unrealized gains and losses on investments
and foreign currency transactions are allocated daily to each class
based on its relative net assets. 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 or the Nasdaq National Market are valued at the
last sale price or official closing 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 for long positions, and at the last available
ask price for short positions. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not available are valued at fair value as determined
in good faith by or under the direction of the Trust's Board of
Trustees. Occasionally, events affecting the values of securities
and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the market on
which such securities trade) and the close of business on the NYSE.
If events (for example, company announcement, natural disasters,
market volatility) occur during such periods that are expected to
materially affect the value for such securities, those securities
may be valued at their fair market value as determined in good faith
by the Trust's Board of Trustees or by the investment adviser using
a pricing service and/or procedures approved by the Board of
Trustees of the Trust.
(b) Derivative financial instruments--The Fund may engage in various
portfolio investment strategies both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movement and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. The contract is
marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference
between the value at the time it was opened and the value at the
time it was closed.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into U.S. dollars. Realized and unrealized gains or
losses from investments include the effects of foreign exchange
rates on investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law,
withholding taxes may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Realized gains and losses on security
transactions are determined on the identified cost basis. 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 is recognized on the accrual basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Expenses--Common expenses incurred by the Trust are allocated
among the funds based upon: (i) relative net assets; (ii) as
incurred on a specific identification basis; or (iii) evenly among
the funds, depending on the nature of the expenditure.
(i) Securities lending--The Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Fund and
any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral
for the loaned securities, it collects a fee from the borrower. The
Fund typically receives the income on the loaned securities but does
not receive the income on the collateral. Where the Fund receives
cash collateral, it may invest such collateral and retain the amount
earned on such investment, net of any amount rebated to the
borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities
within five business days. The Fund may pay reasonable finder's,
lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation
to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access
to the collateral. The Fund also could suffer a loss where the value
of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of
losses on investments made with cash collateral.
(j) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of net
assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax differences of $2 have been reclassified between
paid-in capital in excess of par and undistributed net investment
income and $332,589 has been reclassified between accumulated net
realized capital losses and undistributed net investment income.
These reclassifications have no effect on net assets or net asset
values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement for the
Fund with Fund Asset Management L.P. ("FAM"). The general partner of
FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. FAM is responsible for the management of the Fund's
investments 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 at an
annual rate of .75% of the average daily value of the Fund's net
assets.
FAM has entered into subadvisory agreements for the Fund with
Merrill Lynch Investment Managers International Limited and Merrill
Lynch Asset Management U.K. Limited ("MLAM U.K."), affiliated
investment advisers that are indirect subsidiaries of ML & Co.
The subadvisory arrangements are for investment research,
recommendations, and other investment-related services to be
provided to the Fund. There is no increase in aggregate fees paid by
the Fund for these services.
The Trust on behalf of the Fund has also entered into a Distribution
Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD"
or the "Distributor"), an indirect, wholly-owned subsidiary of
Merrill Lynch Group, Inc. 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 the annual rates based upon the average daily net
assets of the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Class R .25% .25%
Merrill Lynch International Value Fund, June 30, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
Pursuant to a sub-agreement with the Distributor, selected dealers
also provide account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and selected dealers for providing account maintenance
services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and selected
dealers for providing shareholder and distribution-related services
to Class B, Class C and Class R shareholders.
For the year ended June 30, 2003, FAMD earned underwriting discounts
and direct commissions and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), a subsidiary of ML & Co., earned dealer
concessions on sales of the Fund's Class A and Class I Shares as
follows:
FAMD MLPF&S
Class A $21,617 $164,785
Class I $ 1,050 $ 5,328
For the year ended June 30, 2003, MLPF&S received contingent
deferred sales charges of $9,352 and $8,072 relating to transactions
in Class B and Class C shares, respectively.
In addition, MLPF&S received $12,236 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
June 30, 2003.
Financial Data Services, Inc. ("FDS"), an indirect, wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
The Fund has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
MLPF&S or its affiliates. Pursuant to that order, the Fund also has
retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an
affiliate of FAM, as the securities lending agent for a fee based on
a share of the returns on investment of cash collateral. MLIM, LLC
may, on behalf of the Fund, invest cash collateral received by the
Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds
advised by MLIM or its affiliates. For the year ended June 30, 2003,
MLIM, LLC received $95,696 in securities lending agent fees.
Certain officers and/or trustees of the Trust are officers and/or
directors of FAM, PSI, MLAM U.K., FAMD, FDS, and/or ML & Co.
Certain authorized agents of the Fund charge a fee for accounting
and shareholder services that they provide to the Fund on behalf of
certain shareholders; the portion of this fee paid by the Fund is
included within Transfer agent fees in the Statement of Operations.
For the year ended June 30, 2003, the Fund reimbursed FAM $10,375
for certain accounting services.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 2003 were $451,587,147 and $486,383,285,
respectively.
Net realized gains (losses) for the year ended June 30, 2003 and net
unrealized gains as of June 30, 2003 were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ (80,165,973) $ 21,194,282
Foreign currency transactions 261,932 274,567
-------------- --------------
Total $ (79,904,041) $ 21,468,849
============== ==============
As of June 30, 2003, net unrealized depreciation for Federal income
tax purposes aggregated $4,789,316, of which $51,657,692 related to
appreciated securities and $56,447,008 related to depreciated
securities. At June 30, 2003, the aggregate cost of investments for
Federal income tax purposes was $585,557,348.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $59,101,229 and $351,814,962 for the years ended June 30, 2003
and June 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 2003 Shares Amount
Shares sold 50,175,623 $ 826,346,971
Shares redeemed (48,389,657) (805,874,151)
-------------- --------------
Net increase 1,785,966 $ 20,472,820
============== ==============
Class A Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 12,261,739 $ 251,671,628
Shares issued to shareholders
in reinvestment of dividends and
distributions 76,320 1,460,003
-------------- --------------
Total issued 12,338,059 253,131,631
Shares redeemed (13,652,931) (284,487,401)
-------------- --------------
Net decrease (1,314,872) $ (31,355,770)
============== ==============
Class B Shares for the Year Dollar
Ended June 30, 2003 Shares Amount
Shares sold 250,163 $ 4,117,534
Shares redeemed (51,072) (838,821)
-------------- --------------
Net increase 199,091 $ 3,278,713
============== ==============
Class B Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 71,026 $ 1,470,908
Shares issued to shareholders
in reinvestment of dividends and
distributions 6,514 125,151
-------------- --------------
Total issued 77,540 1,596,059
Shares redeemed (21,178) (420,375)
-------------- --------------
Net increase 56,362 $ 1,175,684
============== ==============
Class C Shares for the Year Dollar
Ended June 30, 2003 Shares Amount
Shares sold 1,292,556 $ 21,275,561
Shares redeemed (1,253,624) (20,927,952)
-------------- --------------
Net increase 38,932 $ 347,609
============== ==============
Class C Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 231,981 $ 4,681,307
Shares issued to shareholders
in reinvestment of dividends and
distributions 5,135 98,078
-------------- --------------
Total issued 237,116 4,779,385
Shares redeemed (158,336) (3,181,393)
-------------- --------------
Net increase 78,780 $ 1,597,992
============== ==============
Class I Shares for the Year Dollar
Ended June 30, 2003 Shares Amount
Shares sold 85,706,445 $1,421,840,060
Shares issued to shareholders
in reinvestment of dividends and
distributions 72,331 1,308,467
-------------- --------------
Total issued 85,778,776 1,423,148,527
Shares redeemed (90,020,609) (1,506,348,998)
-------------- --------------
Net decrease (4,241,833) $ (83,200,471)
============== ==============
Class I Shares for the Year Dollar
Ended June 30, 2002 Shares Amount
Shares sold 32,384,713 $ 658,610,281
Shares issued to shareholders
in reinvestment of dividends and
distributions 2,801,852 53,683,496
-------------- --------------
Total issued 35,186,565 712,293,777
Shares redeemed (49,881,367) (1,035,526,645)
-------------- --------------
Net decrease (14,694,802) $(323,232,868)
============== ==============
Class R Shares for the Period Dollar
January 3, 2003++ to June 30, 2003 Shares Amount
Shares sold 5.95 $ 100
-------------- --------------
Net increase 5.95 $ 100
============== ==============
++Commencement of operations.
Merrill Lynch International Value Fund, June 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Short-Term Borrowings:
The Trust, along with certain other funds managed by Mercury
Advisors and its affiliates, is a party to a $500,000,000 credit
agreement with Bank One, N.A. and certain other lenders. The Fund
may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage.
The Fund may borrow up to the maximum amount allowable under the
Fund's current prospectus and statement of additional information,
subject to various other legal, regulatory or contractual limits.
The Fund pays a commitment fee of .09% per annum based on the Fund's
pro rata share of the unused portion of the credit agreement.
Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50%
or a base rate as determined by Bank One, N.A. On November 29, 2002,
the credit agreement was renewed for one year under the same terms,
except that the commitment was reduced from $1,000,000,000 to
$500,000,000. The Fund did not borrow under the credit agreement
during the year ended June 30, 2003.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended June 30, 2003 and June 30, 2002 was as follows:
6/30/2003 6/30/2002
Distributions paid from:
Ordinary income $ 1,343,641 $ 34,817,139
Net long-term capital gains -- 21,881,833
-------------- --------------
Total taxable distributions $ 1,343,641 $ 56,698,972
============== ==============
As of June 30, 2003, the components of accumulated losses on a tax
basis were as follows:
Undistributed ordinary income--net $ 10,586,088
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net $ 10,586,088
Capital loss carryforward (33,409,373)*
Unrealized gains--net (38,077,586)**
--------------
Total accumulated losses--net $ (60,900,871)
==============
*On June 30, 2003, the Fund had a net capital loss carryforward of
$33,409,373, all of which expires in 2011. This amount will be
available to offset like amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains (losses) is attributable primarily to the tax deferral of
losses on wash sales, the realization for tax purposes of unrealized
gains on investments in passive foreign investment companies and the
deferral of post-October capital losses of $33,562,836 for tax
purposes.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Mercury Funds II and
Shareholders of Merrill Lynch International Value Fund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
International Value Fund (formerly Mercury International Value Fund)
(one of the portfolios comprising Mercury Funds II) as of June 30,
2003, the related statement of operations for the year then ended
and, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for
each of the periods indicated therein. 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.
The financial highlights for each of the two years in the period
ended June 30, 2000 were audited by other auditors, whose report
dated August 17, 2000 expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements and financial highlights. Our procedures
included confirmation of securities owned as of June 30, 2003, by
correspondence with the custodian and others. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch International Value Fund at June
30, 2003, the results of its operations, for the year then ended,
the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the
indicated periods in conformity with accounting principles generally
accepted in the United States.
(Ernst & Young LLP)
MetroPark, New Jersey
August 13, 2003
Merrill Lynch International Value Fund, June 30, 2003
OFFICERS AND TRUSTEES (unaudited)
Number of Other Public
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Trustee
Terry K. Glenn* President 2000 to President and Chairman of Merrill Lynch 114 Funds None
P.O. Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 159 Portfolios
Princeton, Trustee Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 Funds since 1999; Chairman (Americas
Age: 62 Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and
FAM (which terms as used herein include
their corporate predecessors) from 1983
to 2002; President of FAM Distributors,
Inc. ("FAMD") from 1986 to 2002 and
Director thereof from 1991 to 2002;
Executive Vice President and Director of
Princeton Services, Inc. ("Princeton
Services") from 1993 to 2002; President
of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data
Services, Inc. from 1985 to 2002.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM acts as
investment adviser. Mr. Glenn is an "interested person," as
described in the Investment Company Act, of the Fund based on his
former positions with MLIM, FAM, FAMD, Princeton Services and
Princeton Administrators, L.P. The Trustee's term is unlimited.
Trustees serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72. As Fund President,
Mr. Glenn serves at the pleasure of the Board of Trustees.
Number of Other Public
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Trustee Trustee
Independent Trustees
James H. Bodurtha Trustee 2002 to Director and Executive Vice President, 40 Funds None
P.O. Box 9095 present The China Business Group, Inc. since 59 Portfolios
Princeton, 1995. Chairman, Berkshire Holding
NJ 08543-9095 Corporation since 1982.
Age: 59
Joe Grills Trustee 1996 to Member of the Committee of Investment 40 Funds Kimco
P.O. Box 9095 present of Employee Benefit Assets of the 59 Portfolios Realty
Princeton, Association of Financial Professionals Corpora-
NJ 08543-9095 ("CIEBA") since 1986 and its Chairman tion
Age: 68 from 1991 to 1992. Member of the Investment
Advisory Committees of the State of New York
Common Retirement Fund since 1989; Member
of the Investment Advisory Committee of the
Howard Hughes Medical Institute from 1997
to 2000; Director, Duke Management Company
since 1992 and Vice Chairman thereof since
1998; Director, LaSalle Street Fund from 1995
to 2001; Director, Kimco Realty Corporation
since 1997; Member of the Investment Advisory
Committee of the Virginia Retirement System
since 1998 and Vice Chairman thereof since
2002; Director, Montpelier Foundation since
1998 and Vice Chairman thereof since 2000;
Member of the Investment Committee of the
Woodberry Forest School since 2000; Member
of the Investment Committee of the National
Trust for Historic Preservation since 2000.
Herbert I. London Trustee 2002 to John M. Olin Professor of Humanities, 40 Funds None
P.O. Box 9095 present New York University since 1993 and 59 Portfolios
Princeton, Professor thereof since 1980; President
NJ 08543-9095 of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
Andre F. Perold Trustee 2002 to George Gund Professor of Finance and 40 Funds None
P.O. Box 9095 present Banking, Harvard Business School since 59 Portfolios
Princeton, 2000 and a member of the faculty since
NJ 08543-9095 1979; Director and Chairman of the
Age: 51 Board, UNX, Inc. since 2003; Director,
Stockback.com from 2002 to 2002; Director,
Sanlam Limited and Sanlam Life since
2001; Director, Genbel Securities and
Gensec Bank since1999; Director,
Bulldogresearch.com from 2000 to 2001;
Director, Sanlam Investment Management
from 1999 to 2001; Director, Quantec
Limited from 1991 to 1999.
Roberta Cooper Ramo Trustee 2002 to Shareholder, Modrall, Sperling, Roehl, 40 Funds None
P.O. Box 9095 present Harris & Sisk, PA since 1993; Director 59 Portfolios
Princeton, of Cooper's, Inc. since 1999 and Chairman
NJ 08543-9095 of the Board since 2000; Director of
Age: 60 ECMC, Inc. since 2001.
Robert S. Salomon, Jr. Trustee 2002 to Principal of STI Management since 1994; 40 Funds None
P.O. Box 9095 present Trustee of Commonfund from 1980 to 2001; 59 Portfolios
Princeton, Director of Rye Country Day School since
NJ 08543-9095 2001.
Age: 66
Stephen B. Swensrud Trustee 2002 to Chairman, Fernwood Advisors (investment 40 Funds None
P.O. Box 9095 present adviser) since 1996; Principal of Fernwood 59 Portfolios
Princeton, Associates (financial consultant) since
NJ 08543-9095 1975; Chairman of RPP Corporation since
Age: 70 1978; Director, International Mobile
Communications, Inc. since 1998.
*The Trustee's term is unlimited. Trustees serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Merrill Lynch International Value Fund, June 30, 2003
OFFICERS AND TRUSTEES (unaudited)(concluded)
Position(s) Length
Held of Timeby
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund Officers
Donald C. Burke Vice 2002 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services since
Princeton, and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation since
NJ 08543-9011 Treasurer 1990.
Age: 43
Robert C. Doll, Jr. Senior Vice 2002 to President of MLIM and member of the Executive Management Committee of
P.O. Box 9011 President present ML & Co., Inc. since 2001; Global Chief Investment Officer and Senior
Princeton, Portfolio Manager of MLIM since 1999; Chief Investment Officer of Equities
NJ 08543-9011 at Oppenheimer Funds, Inc. from 1990 to 1999 and Chief Investment
Age: 48 Officer thereof from 1998 to 1999; Executive Vice President of Oppenheimer
Funds, Inc. from 1991 to 1999.
James A. Macmillan Vice 2002 to Managing Director of MLIM since 2000; Director (Equities) of MLIM
P.O. Box 9011 President present from 1999 to 2000.
Princeton,
NJ 08543-9011
Age: 38
Phillip S. Gillespie Secretary 2002 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM
P.O. Box 9011 present from 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney
Princeton, associated with MLIM since 1998; Assistant General Counsel of Chancellor
NJ 08543-9011 LGT Asset Management, Inc. from 1997 to 1998.
Age: 39
*Officers of the Fund serve at the pleasure of the Board of
Trustees.
Further information about the Fund's Officers and Trustees is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments
As of 6/30/03
Percent of
Ten Largest Equity Holdings Net Assets
GlaxoSmithKline PLC 4.2%
TotalFinaElf SA 3.7
Shell Transport & Trading Company 3.7
Barclays PLC 3.2
Intesa BCI SpA 2.9
Telecom Italia SpA 2.7
Honda Motor Co., Ltd. 2.7
Novartis AG (Registered Shares) 2.6
DePfa Bank PLC 2.3
Royal Bank of Scotland Group PLC 2.3
Five Largest Industries* Percent of
(Equity Investments) Net Assets
Regional Banks 15.4%
Oil & Gas 12.4
Pharmaceuticals 8.4
Automobiles 4.5
Small Loans & Finance 4.3
*For Fund compliance purposes, "Industries" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease.
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (annual requirement
only and not required to be answered until the registrant's fiscal
year-end on or after July 15, 2003)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose name/
independence of more than one financial expert) If no, explain why
not. -N/A (annual requirement only and not required to be answered
until the registrant's fiscal year-end on or after July 15, 2003)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch International Value Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch International Value Fund, Inc.
Date: August 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch International Value Fund, Inc.
Date: August 21, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch International Value Fund, Inc.
Date: August 21, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.