MERRILL LYNCH
EUROFUND
FUND LOGO
Annual Report
October 31, 1996
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 representa-
tion 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 informa-
tion herein are as dated and are subject to change.
<PAGE>
Merrill Lynch
EuroFund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH EUROFUND
PORTFOLIO INFORMATION
As a Percentage of Stocks &
Convertible Warrants
As of October 31, 1996
United States 0.2%
Slovakia 0.5%
Denmark 0.6%
Portugal 0.7%
Ireland 1.1%
Spain 1.3%
Hungary 2.2%
Finland 5.2%
Switzerland 8.3%
Germany 10.5%
France 14.3%
Sweden 11.6%
Netherlands 8.6%
Italy 6.6%
Norway 2.2%
Poland 1.8%
Turkey 1.2%
Russia 0.9%
Czech Republic 0.7%
Croatia 0.5%
Greece 0.2%
United Kingdom 20.8%
<PAGE>
EUROPEAN STOCK MARKET PERFORMANCE
Total Return for the
Three-Month Period
Ended October 31, 1996
In US dollars*
Italy 0.2
Switzerland 1.8
Germany 4.9
France 6.0
Netherlands 6.3
Spain 7.9
Denmark 8.0
Norway 8.3
United Kingdom 12.8
Finland 13.5
Ireland 13.8
Sweden 15.0
Source: Financial Times/
Standard & Poor's--
Actuaries Index.
[FN]
*For the three-month period
ended October 31, 1996,
total investment return for
the Financial Times/
Standard & Poor's--
Actuaries Europe Index
was +8.13%.
<PAGE>
DEAR SHAREHOLDER
During the quarter ended October 31, 1996, the
unmanaged Financial Times/Standard & Poor's--
Actuaries Europe Index had a total return of
+8.13%, while the total return for the unmanaged
Morgan Stanley Capital International Europe Index
was +7.57%. For the same period, Merrill Lynch
EuroFund's Class A, Class B, Class C and Class D
Shares provided total returns of +5.98%, +5.67%,
+5.75% and +5.88%, 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--7 of this report
to shareholders.)
The Fund's underperformance relative to the Euro-
pean stock indexes during the October quarter was
caused principally by the Fund's underexposure to
the pound sterling resulting from our underweighted
position in the UK equity market. The pound rose
strongly as robust economic growth raised expecta-
tions of interest rate increases. The weak perform-
ance of the pulp and paper sector, where we have
high exposure, also negatively impacted performance.
A degree of relative stability returned to global
markets during the period, as the economic environ-
ment was supportive of US bond and equity markets.
The slowdown in US economic growth, and reduced
fears of inflation and interest rate rises, provided
a benign backdrop for global equity markets. Con-
tinued US dollar stability at higher levels also
encouraged the belief in stronger economic activity
in the rest of the world.
In Europe, the economic environment developed as
anticipated. Growth in the United Kingdom strength-
ened further, and monetary policy was tightened
following a long period of interest rate declines.
The Governor of the Bank of England and the Chancellor
of the Exchequer continue to disagree on the need
for further monetary tightening to check inflation.
The Chancellor holds the upper hand and therefore,
interest rates will probably rise more slowly than
we believe prudent, leading to inflationary risks in
late 1997 and 1998. In core Europe, growth continues
to recover aided by currency weakness, low interest
rates and a pick up in consumer spending. In periph-
eral Europe, strong currencies and tight fiscal policy
resulted in more subdued, but still reasonable,
economic growth.
<PAGE>
Prospects for the European Monetary Union (EMU)
became more complicated in the last few months as
Spain and Italy have pressed hard for entry in the
first stage in 1999. Tough fiscal policies were imple-
mented, and there is a slight chance that both coun-
tries may fulfill the necessary criteria, although
Germany, in particular, feels uncomfortable with the
prospect. The slim chance of early entry has not
hindered further appreciation of peripheral curren-
cies and further bond yield convergence. It is
possible that there is now too much confidence in
a successful start to EMU, and the risks are being
carefully monitored.
Further good news for Europe came in the form of
more announcements of a focus on shareholder value
by a number of major European companies. While it
will be a long, drawn-out process, the raising of
returns in Europe should allow the valuation gap
between the United States and Europe to gradually
close in favor of European equities.
Investment Strategy
As the economic and stock market environments are
still relatively benign, we maintained a nearly fully
invested position. We currently have no currency
hedging strategies in place. Following the failure of
the US Federal Reserve Board to raise interest rates
recently, we concluded that the US dollar's upside
potential was capped. Therefore, the forward foreign
exchange contracts were closed out. The US dollar
has been flat since that time.
At the geographic level there has been little change,
although the Fund's investments in the United
Kingdom have been cut back, as market performance
and currency strength made profit-taking attractive.
The Fund's principal deviations from the benchmark
are a very underweighted position in the United
Kingdom and overweighted positions in Scandinavia
and emerging Europe.
The sector preferences of the Fund also remain
little changed, with a strong bias toward value/
economically-sensitive stocks and away from the
highly-valued growth stock sector where valuations
are at levels which have not been seen since 1987.
<PAGE>
Fiscal Year in Review
For the fiscal year ended October 31, 1996, Merrill
Lynch EuroFund's Class A, Class B, Class C and
Class D Shares had total returns of +18.86%, +17.61%,
+17.55% and +18.57%, respectively, while the total
return for the Financial Times/Standard & Poor's--
Actuaries Europe Index was +18.72% and the total
return for the Morgan Stanley Capital International
Europe Index was +17.47%. The Fund, therefore,
performed in line with its benchmark. The Fund
modestly outperformed the average total return of
Lipper Analytical Services Inc.'s European Region
Funds, which was +17.03% in the 12 months ended
October 31, 1996.
Over the past year, the Fund's currency hedging
strategy was successful in partially protecting the
Fund against the fall in European currencies against
the US dollar. However, as already mentioned, the
Fund's underweighted position in the UK equity
market, and consequently the pound sterling, was
detrimental to returns.
The Fund's geographic allocation performance was
mixed. The significant benefit from a heavy weight-
ing in Sweden was counterbalanced by a heavy
exposure to Finland, which was a poor performer.
The Fund's long-term move toward strategic invest-
ment in emerging Europe, and especially Eastern
Europe, was highly beneficial. Not only did the
Eastern European markets perform extremely well,
but also the stock selection within those markets
was excellent. The Fund has made a small, initial
investment in Russia. The investment is in Gazprom,
which has the largest oil and gas reserves of any
quoted company worldwide. At the sector level, the
Fund's investments had little overall impact on rela-
tive performance. The Fund's overexposure to value/
economically-sensitive stocks and underexposure to
growth stocks were maintained throughout the year.
In Conclusion
With the recent rise in equity prices, the bond and
equity markets have come closer to fair value. While
increased focus on shareholder value and renewed
economic activity should benefit investors, the risk/
reward tradeoff regarding the EMU process and the
high level of the US market suggest an element of
caution. On balance, late 1996 and early 1997 may
see some further gains, but these are likely to be
more modest than in recent years.
<PAGE>
We thank you for your investment in Merrill Lynch
EuroFund, and we look forward to reviewing our
outlook and strategy with you in the next report
to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Adrian C. Holmes)
Adrian C. Holmes
Vice President and Portfolio Manager
December 10, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund
through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales
charge (front-end load) of 5.25% and bear no ongoing
distribution or account maintenance fees. Class A
Shares are available only to eligible investors.
* 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 automati-
cally convert to Class D Shares after approximately
8 years. (There is no initial sales charge for automatic
share conversions.)
<PAGE>
* Class C Shares are subject to a distribution fee of
0.75% and an account maintenance fee of 0.25%. In
addition, Class C Shares are subject to a 1% contingent
deferred sales charge if redeemed within one year of
purchase.
* Class D Shares incur a maximum initial sales charge
of 5.25% and an account maintenance fee of 0.25%
(but no distribution fee).
None of the past results shown should be considered
a representation of future performance. Investment
return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each
class of shares will vary because of the different
levels of account maintenance, distribution and
transfer agency fees applicable to each class, which
are deducted from the income available to be paid
to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +14.75% + 8.72%
Five Years Ended 9/30/96 +11.79 +10.59
Inception (10/26/88)
through 9/30/96 +11.84 +11.08
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 +13.50% + 9.50%
Five Years Ended 9/30/96 +10.63 +10.63
Inception (1/30/87) through 9/30/96 + 8.42 + 8.42
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is
reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +13.44% +12.44%
Inception (10/21/94)
through 9/30/96 +11.76 +11.76
[FN]
*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 9/30/96 +14.45% +8.44%
Inception (10/21/94) through 9/30/96 +12.66 +9.58
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Class A Shares
<PAGE>
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Morgan
Stanley Capital International Europe Index. Beginning and ending
values are:
10/26/88** 10/96
ML EuroFund++--
Class A Shares $ 9,475 $23,217
Morgan Stanley Capital International
Europe Index++++ $10,000 $24,647
Class B Shares
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Morgan
Stanley Capital International Europe Index. Beginning and ending
values are:
1/30/88** 10/96
ML EuroFund++--
Class B Shares $10,000 $22,022
Morgan Stanley Capital International
Europe Index++++ $10,000 $27,844
Class C & Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C & Class D Shares compared to growth of an investment in
the Morgan Stanley Capital International Europe Index. Beginning
and ending values are:
10/21/94** 10/96
ML EuroFund++--
Class C Shares $10,000 $12,511
ML EuroFund++--
Class D Shares $ 9,475 $12,050
Morgan Stanley Capital International
Europe Index++++ $10,000 $13,299
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML EuroFund invests primarily in equities of corporations
domiciled in European countries. Under normal market conditions,
at least 80% of the Fund's net assets will be invested in
European corporate securities, primarily common stocks and
debt and preferred securities convertible into common stock/
++++This unmanaged capitalization-weighted Index is comprised of
615 stocks, including a representative sampling of large-, medium-,
and small-capitalization companies.
Past performance is not predictive of future performance.
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/26/88--12/31/88 $ 8.83 $ 8.83 $0.023 -- + 0.26%
1989 8.83 10.99 -- $0.087 +25.48
1990 10.99 10.53 -- 0.230 - 2.23
1991 10.53 11.75 -- 0.451 +16.20
1992 11.75 11.12 -- -- - 5.36
1993 11.12 14.67 -- -- +31.92
1994 14.67 13.62 0.737 0.889 + 4.29
1995 13.62 14.27 0.986 0.071 +12.72
1/1/96--10/31/96 14.27 16.67 -- -- +16.82
------ ------
Total $1.746 Total $1.728
Cumulative total return as of 10/31/96: +145.04%**
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change***
<C> <C> <C> <C> <C> <C>
1/30/87--12/31/87 $10.00 $ 8.61 $0.737 $0.055 - 5.98%
1988 8.61 8.80 0.023 0.126 + 3.98
1989 8.80 10.85 -- 0.071 +24.13
1990 10.85 10.38 -- 0.124 - 3.26
1991 10.38 11.59 -- 0.332 +15.08
1992 11.59 10.85 -- -- - 6.38
1993 10.85 14.17 -- -- +30.60
1994 14.17 12.95 0.737 0.889 + 3.24
1995 12.95 13.36 0.986 0.071 +11.52
1/1/96--10/31/96 13.36 15.47 -- -- +15.79
------ ------
Total $2.483 Total $1.668
Cumulative total return as of 10/31/96: +120.22%***
</TABLE>
<TABLE>
Performance Summary-- Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change***
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.08 $12.94 $0.737 $0.889 - 3.07
1995 12.94 13.35 0.986 0.071 +11.53
1/1/96--10/31/96 13.35 15.45 -- -- +15.73
------ ------
Total $1.723 Total $0.960
Cumulative total return as of 10/31/96: +25.11%***
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend
date, and do not include sales charge; results would be
lower if sales charge was included.
***Figures assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend
date, and do not reflect deduction of any sales charge;
results would be lower if sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $15.75 $13.61 $0.737 $0.889 - 2.93%
1995 13.61 14.22 0.986 0.071 +12.44
1/1/96--10/31/96 14.22 16.57 -- -- +16.53
------ ------
Total $1.723 Total $0.960
Cumulative total return as of 10/31/96: +27.18%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend
date, and do not include sales charge; results would be
lower if sales charge was included.
</TABLE>
<TABLE>
Recent Performance Results*
<CAPTION>
12 Month 3 Month
10/31/96 7/31/96 10/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML EuroFund Class A Shares $16.67 $15.73 $15.07 +18.44%(1) +5.98%
ML EuroFund Class B Shares 15.47 14.64 14.20 +17.17(1) +5.67
ML EuroFund Class C Shares 15.45 14.61 14.19 +17.11(1) +5.75
ML EuroFund Class D Shares 16.57 15.65 15.02 +18.15(1) +5.88
ML EuroFund Class A Shares--Total Return +18.86(2) +5.98
ML EuroFund Class B Shares--Total Return +17.61(2) +5.67
ML EuroFund Class C Shares--Total Return +17.55(2) +5.75
ML EuroFund Class D Shares--Total Return +18.57(2) +5.88
<FN>
*Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.986 per share capital gains
distributions.
(2)Percent change includes reinvestment of $0.053 ordinary income dividends and
$0.986 per share capital gains distributions.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION
Percent of
Ten Largest Equity Holdings Net Assets
Henkel KGaA (Preferred) 2.9%
Ciba-Geigy AG 2.2
Oerlikon-Buehrle Holding AG 1.9
EuraFrance S.A. 1.9
HSBC Holdings PLC 1.9
Unilever PLC 1.9
Societa Finanziaria Telefonica S.p.A. (STET) 1.8
UPM-Kymmene Corp. 1.8
Volkswagen AG 1.8
Grand Metropolitan PLC 1.5
Percent of
Ten Largest Industries Net Assets
Financial Services 9.0%
Paper & Forest Products 8.8
Pharmaceuticals 8.5
Chemicals 7.9
Diversified Holdings 5.2
Food & Beverage 4.4
Banking 4.1
Insurance 4.1
Telecommunications 3.5
Utilities--Electric, Gas & Water 3.2
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Croatia
Banking 90,000 ++Zagrebacka Banka (GDR)* $ 1,234,184 $ 1,743,750 0.2%
Pharmaceuticals 75,000 ++Pliva D.D. (GDR)* 2,255,760 3,693,750 0.3
<PAGE>
Total Investments in Croatia 3,489,944 5,437,500 0.5
Czech Republic
Banking 44,000 ++Komercni Banka A.S. 1,148,451 1,062,193 0.1
Investment Fund 25,520 ++Zivnobanka--Investicni Fond 424,345 467,038 0.0
Mining 36,660 ++Severoceske Doly 802,181 927,273 0.1
Telecommunications 27,500 ++SPT Telecom A.S. 2,535,302 2,944,967 0.3
Utility 55,000 Ceske Energeticke Zavody 1,659,778 1,616,203 0.1
Total Investments in the Czech Republic 6,570,057 7,017,674 0.6
Denmark
Textiles 137,502 ++Carli Gry International A/S 3,862,756 6,222,131 0.6
Total Investments in Denmark 3,862,756 6,222,131 0.6
Finland
Metals & Mining 405,100 Outokumpu OY 6,167,229 6,841,999 0.6
Paper & Forest 2,003,700 ++Enso-Gutzeit OY 'R' (Ordinary) (Registered) 14,186,087 15,704,365 1.4
Products 1,959,500 ++Metsa Serla OY (Class B) 14,945,500 13,627,467 1.3
956,252 ++UPM-Kymmene Corp. (c) 19,109,699 19,423,143 1.8
------------ -------------- ------
48,241,286 48,754,975 4.5
Total Investments in Finland 54,408,515 55,596,974 5.1
<PAGE>
France
Automobiles & 70,682 Peugeot S.A. 9,520,592 7,375,681 0.7
Equipment 96,600 Sommer Allibert S.A. 2,862,214 2,685,540 0.2
------------ -------------- ------
12,382,806 10,061,221 0.9
Banking 87,750 Societe Generale de France S.A. 9,244,244 9,465,964 0.9
Communication 115,350 Alcatel Alsthom Cie Generale d'Electricite S.A. 10,954,707 9,846,235 0.9
Equipment
Construction 108,150 Bouygues S.A. 10,968,837 10,607,923 1.0
Electronics 213,960 ++SGS-Thomson Microelectronics N.V. 10,037,342 11,347,696 1.0
Financial Services 201,300 Compagnie de Suez S.A. 7,592,048 8,674,210 0.8
150,200 Compagnie Financiere de Paribas S.A. 8,164,002 9,674,576 0.9
48,020 EuraFrance S.A. 13,909,651 21,011,923 1.9
------------ -------------- ------
29,665,701 39,360,709 3.6
Food Manufacturing 37,620 Groupe Danone S.A. 5,976,543 5,155,644 0.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
France (concluded)
Insurance 421,465 Assurances Generales de France S.A. (AGF) $ 11,424,808 $ 12,443,111 1.2%
Machinery 177,431 Compagnie de Fives-Lille S.A. 9,488,305 16,083,353 1.5
Metals & Steel 893,378 Usinor-Sacilor 13,251,879 13,266,518 1.2
<PAGE>
Oil--Related 169,290 Elf Aquitaine S.A. 12,219,543 13,549,033 1.2
Total Investments in France 135,614,715 151,187,407 13.9
Germany
Automobiles 49,131 Volkswagen AG 18,529,557 19,360,491 1.8
Banking 89,300 Commerzbank AG (Warrants) (a) 2,484,778 2,909,583 0.3
444,600 Deutsche Bank AG (Warrants) (a) 3,812,315 2,409,438 0.2
------------ -------------- ------
6,297,093 5,319,021 0.5
Chemicals 280,965 Bayer AG 8,702,101 10,625,086 1.0
77,016 ++Henkel KGaA 3,295,326 3,425,535 0.3
693,144 Henkel KGaA (Preferred) 28,354,282 31,127,576 2.9
------------ -------------- ------
40,351,709 45,178,197 4.2
Construction 30,480 ++Philipp Holzmann AG 11,661,385 7,554,028 0.7
Engineering 321,783 ++Kloeckner Werke AG 14,985,368 11,228,698 1.0
Metals 19,014 Degussa AG 6,577,431 7,464,355 0.7
Retail Trade 30,485 Karstadt AG 11,896,585 11,127,398 1.0
55,190 Moebel Walther AG (Preferred) 2,067,520 3,414,040 0.3
------------ -------------- ------
13,964,105 14,541,438 1.3
Total Investments in Germany 112,366,648 110,646,228 10.2
Greece
Beverages 55,000 Hellenic Bottling Co. 1,677,636 1,773,820 0.2
Total Investments in Greece 1,677,636 1,773,820 0.2
<PAGE>
Hungary
Chemicals 90,000 ++Tisza Vegyi Kombinat Reszvenytarsasag (GDR)* 792,900 778,500 0.1
Food/Grocery 27,500 Pick Szeged Reszvenytarsasag 1,236,392 1,240,095 0.1
Natural Gas 165,000 Mol Re Hung Oil & Gas 1,416,909 1,684,758 0.1
Packaging & Containers 29,500 ++Cofinec S.A. (GDR)* 1,066,831 864,350 0.1
Pharmaceuticals 104,551 Egis 2,206,693 6,455,720 0.6
220,000 Gedeon Richter (GDR)* 3,141,407 11,825,000 1.1
------------ -------------- ------
5,348,100 18,280,720 1.7
Total Investments in Hungary 9,861,132 22,848,423 2.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Ireland
Paper & Forest 4,279,417 Jefferson Smurfit Group PLC $ 12,726,781 $ 11,659,507 1.1%
Products
Total Investments in Ireland 12,726,781 11,659,507 1.1
Italy
Construction/ 771,200 Italcementi S.p.A. 5,174,183 4,087,731 0.4
Building Materials
Diversified 13,030,335 ++Compagnie Industriali Riunite S.p.A. (CIR) 12,170,577 6,163,171 0.6
Holdings 22,853,050 ++Montedison S.p.A. 21,738,076 14,954,961 1.4
------------ -------------- ------
33,908,653 21,118,132 2.0
<PAGE>
Engineering 1,267,141 ++Filippo Fochi S.p.A. 3,977,851 93,621 0.0
Insurance 8,106,664 Istituto Nazionale delle Assicurazioni (INA) 11,436,541 11,203,550 1.0
US$ 1,755,000 Republic of Italy, INA Convertible,
5% due 6/28/2001 1,755,000 1,755,000 0.2
------------ -------------- ------
13,191,541 12,958,550 1.2
Oil & Gas Producers 2,294,656 Ente Nazionale Idrocarburi S.p.A. (ENI) 9,820,120 10,997,213 1.0
1,400,000 Ente Nazionale Idrocarburi S.p.A. (ENI)
(Warrants) (a) 784,864 1,025,134 0.1
------------ -------------- ------
10,604,984 12,022,347 1.1
Telecommunications 7,347,051 Societa Finanziaria Telefonica S.p.A. (STET) 17,586,684 19,580,504 1.8
Total Investments in Italy 84,443,896 69,860,885 6.5
Netherlands
Automobiles & 152,000 Vredestein Groep N.V. 1,513,329 1,854,861 0.2
Equipment
Chemicals 103,590 Akzo Nobel 12,803,628 13,056,383 1.2
310,870 European Vinyls Corporation International N.V. 11,599,987 8,595,062 0.8
------------ -------------- ------
24,403,615 21,651,445 2.0
Diversified Holdings 141,504 Internatio-Mueller N.V. 2,822,501 3,411,846 0.3
Electrical Equipment 439,875 Philips Electronics N.V. 15,878,566 15,507,000 1.4
112,592 Twentsche Kabel Holding N.V. 4,628,319 5,250,267 0.5
------------ -------------- ------
20,506,885 20,757,267 1.9
Engineering & 114,450 Kondor Wessels Groep N.V. 4,290,980 4,318,104 0.4
Construction
<PAGE>
Financial Services 223,135 Aegon N.V. 4,699,202 11,352,090 1.1
261,563 Fortis Amev N.V. 4,457,390 7,817,747 0.7
381,907 International Nederlanden Groep N.V. 6,632,497 11,909,969 1.1
------------ -------------- ------
15,789,089 31,079,806 2.9
Packaging & 160,100 Koninklijke KNP BT N.V. 3,741,528 3,529,883 0.3
Containers
Transportation 202,108 KLM Royal Dutch Airlines N.V. 6,051,185 4,813,514 0.4
Total Investments in the Netherlands 79,119,112 91,416,726 8.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Norway
Manufacturing 222,000 Orkla A.S. (Class A) $ 11,216,632 $ 14,204,435 1.3%
Oil & Gas 605,620 Saga Petroleum A.S. (Class B) 7,158,949 9,497,538 0.9
Producers
Total Investments in Norway 18,375,581 23,701,973 2.2
Poland
Automobile 23,926 ++Stomil Olsztyn S.A. 312,543 253,762 0.0
Components
Banking 200,000 Wielkopolsky Bank Kredytowy S.A. 997,075 1,245,685 0.1
Chemicals 387,805 Polifarb Wroclaw S.A. 991,199 1,725,295 0.2
<PAGE>
Electrical Equipment 600,000 ++Bydgoska Fabryka Kabli S.A. 1,790,810 4,185,500 0.4
73,203 Elektrobudowa S.A. 928,098 1,133,335 0.1
------------ -------------- ------
2,718,908 5,318,835 0.5
Engineering & 890,000 Elektrim S.A. 3,945,778 7,443,855 0.7
Construction 360,000 Mostostal Zabrze 1,713,606 1,473,467 0.1
------------ -------------- ------
5,659,384 8,917,322 0.8
Metals 110,000 ++Stalexport S.A. 1,887,541 1,378,083 0.1
Total Investments in Poland 12,566,650 18,838,982 1.7
Portugal
Construction/ 300,000 ++Cimpor-Cimentos de Portugal S.A. 6,108,685 6,309,080 0.6
Building Materials
Telecommunications 53,690 Portugal Telecom S.A. 1,227,704 1,396,916 0.1
Total Investments in Portugal 7,336,389 7,705,996 0.7
Russia
Natural Gas 525,000 ++Gazprom (ADR)** 8,268,750 9,843,750 0.9
Total Investments in Russia 8,268,750 9,843,750 0.9
Slovakia
Metals & Mining 27,500 VSZ 389,875 529,711 0.1
121,700 ++Zavod SNP 1,835,272 2,211,593 0.2
------------ -------------- ------
2,225,147 2,741,304 0.3
Pharmaceuticals 25,000 Slovakofarma 1,522,842 2,564,020 0.2
Total Investments in Slovakia 3,747,989 5,305,324 0.5
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Spain
Construction 64,300 Fomento de Construcciones y Contratas S.A. $ 5,323,781 $ 5,225,510 0.5%
Utilities--Electric 135,650 Empresa Nacional de Electricidad S.A. (Endesa) 8,204,809 8,310,531 0.7
Total Investments in Spain 13,528,590 13,536,041 1.2
Sweden
Appliances 285,800 Electrolux AB 13,761,199 15,929,765 1.4
Automobile 215,600 Garphyttan Industrier AB 2,774,235 2,495,332 0.2
Components
Banking 543,146 Sparbanken Sverige AB (Class A) 6,370,723 8,602,328 0.8
Engineering 445,350 SKF AB (Class A) 8,101,991 9,732,388 0.9
468,694 Svedala Industry AB 6,063,936 7,351,783 0.7
------------ -------------- ------
14,165,927 17,084,171 1.6
Financial Services 236,965 Stadshypotek AB 3,981,527 6,225,000 0.6
Insurance 411,950 Skandia Forsakrings AB 9,778,411 11,574,625 1.1
Medical Supplies 276,100 Getinge Industrier AB (Class B) 4,708,228 5,045,610 0.5
Metals & Steel 717,884 Avesta-Sheffield AB 6,417,381 7,215,464 0.7
<PAGE>
Paper & Forest 500,700 Mo och Domsjo AB (Class B) 11,769,975 13,801,371 1.3
Products 7,313,800 Rottneros Bruks AB 10,774,603 8,464,917 0.8
961,500 Stora Kopparbergs AB 11,893,653 12,592,553 1.1
------------ -------------- ------
34,438,231 34,858,841 3.2
Pharmaceuticals 303,100 Astra AB 'A' 13,118,109 13,939,877 1.3
Total Investments in Sweden 109,513,971 122,971,013 11.4
Switzerland
Banking 154,433 CS Holding AG (Registered) 15,844,746 15,481,313 1.4
Chemicals 20,248 Clariant AG (Registered) 6,645,306 7,090,176 0.7
Consumer Products 44,461 Societe Suisse pour la Microelectronique et
l'Horlogerie AG (Registered) 6,244,014 6,266,339 0.6
Diversified Holdings 212,567 ++Oerlikon-Buehrle Holding AG 22,632,161 21,055,847 1.9
Pharmaceuticals 19,505 Ciba-Geigy AG 13,001,098 24,114,090 2.2
7,340 Sandoz AG (Registered) 7,986,598 8,514,959 0.8
------------ -------------- ------
20,987,696 32,629,049 3.0
Retail 13,500 Fotolabo S.A. 5,606,913 5,295,379 0.5
Total Investments in Switzerland 77,960,836 87,818,103 8.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Turkey
<PAGE>
Automobiles 2,790,000 Otosan Otomobil Sanayii A.S. $ 822,460 $ 942,568 0.1%
Banking 37,799,000 Finans Bank A.S. 713,974 697,435 0.0
27,000,000 Yapi Ve Kredi Bankasi A.S. 621,321 701,663 0.1
------------ -------------- ------
1,335,295 1,399,098 0.1
Diversified 5,500,000 ++Alarko Holdings A.S. 1,052,794 971,933 0.1
Holdings 56,700,000 ++Dogan Sirketler Grubu Holding A.S. 905,183 1,075,650 0.1
16,200,000 Net Holding A.S. 510,467 547,297 0.0
------------ -------------- ------
2,468,444 2,594,880 0.2
Food Service 846,000 Usas Ucak Servisi A.S. 1,440,811 1,692,879 0.2
Investment Fund 5,154,000 Koc Yatirim Ve Sanayi Mamulleri Pazarlama S.A. 923,984 897,396 0.1
Machinery 24,206,000 ++Izmir Demir Celik Sanayii A.S. 221,366 196,265 0.0
Paper & Forest 3,693,000 Kartonsan Karton Sanayi Ve Ticaret A.S. 307,167 345,499 0.0
Products
Pharmaceuticals 22,085,000 ++Eczacibasi Ilac Sanayi Ve Ticaret A.S. 974,601 1,033,082 0.1
Printing & 26,160,000 Hurriyet Gazetecilik Ve Matbaacilik A.S. 1,088,850 1,332,474 0.1
Publishing
Textiles 3,931,000 Altinyildiz Mensucat Ve Konfeksiyon
Fabriklari A.S 570,622 602,726 0.1
Utilities--Electric 2,200,000 Cukurova Elektrik A.S. 1,857,082 1,760,915 0.2
Total Investments in Turkey 12,010,682 12,797,782 1.2
<PAGE>
United Kingdom
Beverages 617,140 Matthew Clark PLC 6,049,421 3,071,750 0.3
Chemicals 1,495,500 Inspec Group PLC 6,707,529 5,278,699 0.5
Computer/ 248,500 Misys PLC 2,693,600 3,668,207 0.3
Commercial/Office
Diversified Holdings 6,712,250 Hanson PLC (Ordinary) 11,603,340 8,843,698 0.8
Financial Services 997,000 HSBC Holdings PLC 15,115,875 20,920,191 1.9
Food & Beverage 1,240,800 Cadbury Schweppes PLC 10,423,624 10,313,438 1.0
2,222,960 Grand Metropolitan PLC 14,283,698 16,759,542 1.5
981,800 Unilever PLC 18,696,594 20,617,217 1.9
------------ -------------- ------
43,403,916 47,690,197 4.4
Industrials 1,910,200 Tomkins PLC 6,911,157 8,016,399 0.7
Insurance 1,193,300 Prudential Corp. PLC 5,739,834 9,006,341 0.8
Pharmaceuticals 1,968,900 British Biotech PLC 6,781,494 7,109,800 0.7
785,000 Glaxo Wellcome PLC (b) 10,033,870 12,283,595 1.1
------------ -------------- ------
16,815,364 19,393,395 1.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
United Kingdom
(concluded)
Real Estate 687,475 Land Securities PLC $ 6,551,222 $ 8,006,647 0.7%
Retail 6,387,680 Asda Group PLC 11,752,819 12,208,485 1.1
2,910,000 Tesco PLC 12,545,688 15,738,575 1.5
------------ -------------- ------
24,298,507 27,947,060 2.6
<PAGE>
Shipping & 708,300 Peninsular & Oriental Steam Navigation Co. 5,666,308 6,953,049 0.6
Construction
Telecommunications 1,695,000 Cable & Wireless PLC 11,441,733 13,482,155 1.3
Tobacco 671,225 ++Imperial Tobacco Group PLC 4,763,476 3,925,073 0.4
Utilities--Electric, 458,350 Anglian Water PLC 4,170,424 4,048,348 0.4
Gas & Water 517,175 Severn Trent PLC 5,282,947 5,182,019 0.5
831,000 South West Water PLC 6,526,211 7,853,404 0.7
687,000 Thames Water PLC 5,710,625 6,190,807 0.6
609,500 United Utilities PLC 5,559,936 5,641,138 0.5
529,650 Yorkshire Water PLC 5,154,410 5,324,247 0.5
------------ -------------- ------
32,404,553 34,239,963 3.2
Total Investments in the United Kingdom 200,165,835 220,442,824 20.3
United States
Chemicals 95,889 ++Millennium Chemicals Inc. 2,801,966 1,941,752 0.2
Total Investments in the United States 2,801,966 1,941,752 0.2
<CAPTION>
Face
Amount Short-Term Securities
<S> <S> <C> <S> <C> <C> <C>
Repurchase US$ 28,597,000 SBC Warburg Inc., purchased on 10/31/96
Agreement*** to yield 5.52% to 11/01/1996 28,597,000 28,597,000 2.6
Total Investments in Short-Term Securities 28,597,000 28,597,000 2.6
Total Investments $999,015,431 1,087,167,815 100.2
============
Liabilities in Excess of Other Assets (2,640,009) (0.2)
-------------- ------
Net Assets $1,084,527,806 100.0%
============== ======
<PAGE>
<FN>
(a)Warrants entitle the Fund to purchase a predetermined
number of shares of common stock. The purchase price and
number of shares are subject to adjustment under certain
conditions until the expiration date.
(b)Formerly Glaxo Holdings PLC.
(c)Created from merger of Kymmene Corporation and Repola
Ltd.
*Global Depositary Receipts (GDR).
**American Depositary Receipts (ADR).
***Repurchase Agreements are fully collateralized by US
Government & Agency Obligations.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$999,015,431) (Note 1a) $ 1,087,167,815
Cash 1,308
Foreign cash (Note 1b) 12,098,442
Receivables:
Securities sold $ 6,931,948
Dividends 2,904,876
Beneficial interest sold 1,385,142
Interest 34,594 11,256,560
--------------
Prepaid registration fees and other assets (Note 1f) 110,942
---------------
Total assets 1,110,635,067
---------------
Liabilities: Payables:
Securities purchased 22,379,595
Beneficial interest redeemed 1,472,070
Investment adviser (Note 2) 683,515
Distributor (Note 2) 659,538 25,194,718
--------------
Accrued expenses and other liabilities 912,543
---------------
Total liabilities 26,107,261
---------------
<PAGE>
Net Assets: Net assets $ 1,084,527,806
===============
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited number
Consist of: of shares authorized $ 1,296,016
Class B Shares of beneficial interest, $0.10 par value, unlimited number
of shares authorized 4,773,030
Class C Shares of beneficial interest, $0.10 par value, unlimited number
of shares authorized 103,026
Class D Shares of beneficial interest, $0.10 par value, unlimited number
of shares authorized 687,971
Paid-in capital in excess of par 820,868,509
Undistributed investment income--net 13,058,543
Undistributed realized capital gains on investments and foreign
currency transactions--net 155,609,563
Unrealized appreciation on investments and foreign currency
transactions--net 88,131,148
---------------
Net assets $ 1,084,527,806
===============
Net Asset Value: Class A--Based on net assets of $216,055,527 and 12,960,165 shares of
beneficial interest outstanding $ 16.67
===============
Class B--Based on net assets of $738,535,164 and 47,730,301 shares of
beneficial interest outstanding $ 15.47
===============
Class C--Based on net assets of $15,916,602 and 1,030,257 shares of
beneficial interest outstanding $ 15.45
===============
Class D--Based on net assets of $114,020,513 and 6,879,714 shares of
beneficial interest outstanding $ 16.57
===============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statement of Operations for the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Income Dividends (net of $4,946,431 foreign withholding tax) $ 31,528,605
(Notes 1d & 1e): Interest 1,890,557
---------------
Total income 33,419,162
---------------
Expenses: Investment advisory fees (Note 2) $ 7,971,953
Account maintenance & distribution fees--Class B (Note 2) 7,419,497
Transfer agent fees--Class B (Note 2) 1,538,128
Custodian fees 1,178,609
Transfer agent fees--Class A (Note 2) 348,943
Account maintenance fees--Class D (Note 2) 272,012
Printing and shareholder reports 241,535
Transfer agent fees--Class D (Note 2) 189,470
Accounting services (Note 2) 161,152
Account maintenance & distribution fees--Class C (Note 2) 116,324
Registration fees (Note 1f) 108,387
Professional fees 94,383
Trustees' fees and expenses 37,812
Transfer agent fees--Class C (Note 2) 26,579
Pricing fees 10,146
Other 20,799
--------------
Total expenses 19,735,729
---------------
Investment income--net 13,683,433
---------------
Realized & Realized gain from:
Unrealized Gain Investments--net 153,272,806
(Loss) on Foreign currency transactions--net 21,489,985 174,762,791
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (16,562,776)
(Notes 1b, 1c, Foreign currency transactions--net 3,455,287 (13,107,489)
1e & 3): -------------- ---------------
Net realized and unrealized gain on investments and
foreign currency transactions 161,655,302
---------------
Net Increase in Net Assets Resulting from Operations $ 175,338,735
===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
1996 1995
Increase (Decrease) in Net Assets:
<S> <S> <C> <C>
Operations: Investment income--net $ 13,683,433 $ 5,821,964
Realized gain on investments and foreign currency transactions--net 174,762,791 74,008,615
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (13,107,489) (33,482,794)
-------------- ---------------
Net increase in net assets resulting from operations 175,338,735 46,347,785
-------------- ---------------
Distributions to Realized gain on investments--net:
Shareholders Class A (13,622,154) (22,844,949)
(Note 1g): Class B (56,048,905) (110,166,564)
Class C (685,313) (139,938)
Class D (6,991,081) (1,841,772)
-------------- ---------------
Net decrease in net assets resulting from distributions to shareholders (77,347,453) (134,993,223)
-------------- ---------------
Beneficial Net decrease in net assets derived from beneficial interest transactions (127,806,154) (120,582,541)
Interest -------------- ---------------
Transactions
(Note 4):
Net Assets: Total decrease in net assets (29,814,872) (209,227,979)
Beginning of year 1,114,342,678 1,323,570,657
-------------- ---------------
End of year* $1,084,527,806 $ 1,114,342,678
============== ===============
<FN>
*Undistributed investment income--net (Note 1h) $ 13,058,543 $ --
============== ===============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.07 $ 15.96 $ 13.87 $ 10.53 $ 11.62
Operating -------- -------- ---------- -------- --------
Performance: Investment income--net .32 .19 .18 .26 .24
Realized and unrealized gain (loss) on invest-
ments and foreign currency transactions--net 2.32 .56 1.91 3.08 (1.02)
-------- -------- ---------- -------- --------
Total from investment operations 2.64 .75 2.09 3.34 (.78)
-------- -------- ---------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.31)
Realized gain on investments--net (1.04) (1.64) -- -- --
-------- -------- ---------- -------- --------
Total dividends and distributions (1.04) (1.64) -- -- (.31)
-------- -------- ---------- -------- --------
Net asset value, end of year $ 16.67 $ 15.07 $ 15.96 $ 13.87 $ 10.53
======== ======== ========== ======== ========
Total Investment Based on net asset value per share 18.86% 6.19% 15.07% 31.72% (6.90%)
Return:* ======== ======== ========== ======== ========
Ratios to Expenses 1.10% 1.12% 1.03% 1.04% 1.09%
Average ======== ======== ========== ======== ========
Net Assets: Investment income (loss)--net 2.04% 1.32% 1.17% 1.50% (2.69%)
======== ======== ========== ======== ========
Supplemental Net assets, end of year (in thousands) $216,056 $204,713 $ 236,288 $182,612 $ 87,865
Data: ======== ======== ========== ======== ========
Portfolio turnover 92.34% 72.16% 82.47% 115.10% 109.95%
======== ======== ========== ======== ========
Average commission paid+++ $ .0046 -- -- -- --
======== ======== ========== ======== ========
<PAGE>
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per
share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 14.20 $ 15.28 $ 13.43 $ 10.30 $ 11.41
Operating -------- -------- ---------- -------- --------
Performance: Investment income--net .14 .04 .02 .16 .12
Realized and unrealized gain (loss) on invest-
ments and foreign currency transactions--net 2.17 .52 1.83 2.97 (.98)
-------- -------- ---------- -------- --------
Total from investment operations 2.31 .56 1.85 3.13 (.86)
-------- -------- ---------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.25)
Realized gain on investments--net (1.04) (1.64) -- -- --
-------- -------- ---------- -------- --------
Total dividends and distributions (1.04) (1.64) -- -- (.25)
-------- -------- ---------- -------- --------
Net asset value, end of year $ 15.47 $ 14.20 $ 15.28 $ 13.43 $ 10.30
======== ======== ========== ======== ========
Total Investment Based on net asset value per share 17.61% 5.12% 13.78% 30.39% (7.73%)
Return:* ======== ======== ========== ======== ========
<PAGE>
Ratios to Expenses 2.13% 2.15% 2.06% 2.08% 2.12%
Average ======== ======== ========== ======== ========
Net Assets: Investment income (loss)--net 1.00% .27% .14% .51% (3.37%)
======== ======== ========== ======== ========
Supplemental Net assets, end of year (in thousands) $738,535 $795,469 $1,086,480 $765,279 $447,104
Data: ======== ======== ========== ======== ========
Portfolio turnover 92.34% 72.16% 82.47% 115.10% 109.95%
======== ======== ========== ======== ========
Average commission paid+++ $ .0046 -- -- -- --
======== ======== ========== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per
share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
Period Period
The following per share data and ratios have been derived Oct. 21, Oct. 21,
from information provided in the financial statements. For the Year 1994++ to For the Year 1994++ to
Ended October 31, Oct. 31, Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995++++ 1994++++ 1996++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.19 $ 15.28 $ 15.08 $ 15.02 $ 15.96 $ 15.75
Operating -------- -------- ------- ---------- -------- --------
Performance: Investment income (loss)--net .15 .01 (.01) .28 .20 .00++++++
Realized and unrealized gain on
investments and foreign currency
<PAGE> transactions--net 2.15 .54 .21 2.31 .50 .21
-------- -------- ------- ---------- -------- --------
Total from investment operations 2.30 .55 .20 2.59 .70 .21
-------- -------- ------- ---------- -------- --------
Less distributions from realized gain
on investments--net (1.04) (1.64) -- (1.04) (1.64) --
-------- -------- ------- ---------- -------- --------
Net asset value, end of period $ 15.45 $ 14.19 $ 15.28 $ 16.57 $ 15.02 $ 15.96
======== ======== ======= ========== ======== ========
Total Investment Based on net asset value per share 17.55% 5.04% 1.33%++++ 18.57% 5.85% 1.33%+++
Return:** ======== ======== ======= ========== ======== ========
Ratios to Expenses 2.15% 2.18% 2.86%* 1.34% 1.38% 2.11%*
Average ======== ======== ======= ========== ======== ========
Net Assets: Investment income (loss)--net 1.04% .11% (2.47%)* 1.83% 1.37% (1.70%)*
======== ======== ======= ========== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 15,917 $ 9,668 $ 462 $ 114,020 $104,493 $ 340
======== ======== ======= ========== ======== ========
Portfolio turnover 92.34% 72.16% 82.47% 92.34% 72.16% 82.47%
======== ======== ======= ========== ======== ========
Average commission paid+++++++ $ .0046 -- -- $ .0046 -- --
======== ======== ======= ========== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
+++++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may affect the rate shown.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
++++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch EuroFund (the "Fund") is registered
under the Investment Company Act of 1940 as a diver-
sified, open-end management investment company.
The Fund offers four classes of shares under the Merrill
Lynch Select Pricing SM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C
and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B
and Class C Shares also bear certain expenses related to
the distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its
account maintenance and distribution expenditures.
The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price on the exchange on which such securities are
traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-
the-counter market are valued at the last available bid
price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the
securities are valued on the exchange designated by or
under the authority of the Board of Trustees as the
primary market. Securities which are traded both in
the over-the-counter and on a stock exchange are valued
according to the broadest and most representative
market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market,
the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter
market, the last bid price. Short-term securities are
valued at amortized cost, which approximates market
value. Other investments, including futures contracts
and related options, are stated at market value. Securi-
ties and assets for which market quotations are not
available are valued at fair value as determined in good
faith by or under the direction of the Fund's Board
of Trustees.
<PAGE>
(b) 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.
(c) Derivative financial instruments--The Fund may
engage in various portfolio strategies to seek to increase
its return by hedging its portfolio against adverse move-
ments 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.
* 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.
* Forward foreign exchange contracts--The Fund is
authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions
or portfolio positions. Such contracts are not entered
on the Fund's records. However, the effect on operations
is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the
life of the contracts.
* Options--The Fund is authorized to write covered
call options and purchase put options. When the Fund
writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is sub-
sequently marked to market to reflect the current
market value of the option written. When a security is
purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security
sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on
the option to the extent of the premiums received or
paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
<PAGE>
Written and purchased options are non-income
producing investments.
NOTES TO FINANCIAL STATEMENTS (continued)
(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 provi-
sion is required. Under the applicable foreign tax law, a
withholding tax 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). Dividend
income is recorded on the ex-dividend dates, except that
if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the Fund
is informed of the ex-dividend date. Interest income
is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the
identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees
are charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distri-
butions paid by the Fund are recorded on the ex-dividend
dates.
(h) Reclassification--Generally accepted accounting
principles require that certain components of net assets
be reclassified to reflect permanent differences between
financial and tax reporting. Accordingly, current year's
permanent book/tax differences of $624,890 have been
reclassified between undistributed net realized capital
gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset
values per share.
<PAGE>
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"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned sub-
sidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which
is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, the Fund
pays a monthly fee of 0.75% on an annual basis of the
average daily value of the Fund's net assets. 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 computed at the rate of 0.15% of the average
daily net assets of the Fund for providing investment
advisory services to MLAM with respect to the Fund. For
the year ended October 31, 1996, MLAM paid MLAM UK
a fee of $1,584,850 pursuant to such Agreement.
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor ongoing account mainte-
nance 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
Maintenance Fee Distribution Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account main-
tenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account main-
tenance services to Class B, Class C and Class D share-
holders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C
shareholders.
<PAGE>
For the year ended October 31, 1996, MLFD earned
underwriting discounts and commissions and MLPF&S
earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $4,552 $ 52,792
Class D $7,829 $104,130
For the year ended October 31, 1996, MLPF&S received
contingent deferred sales charges of $1,494,280 and
$5,421 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $178,182 in commissions
on the execution of portfolio security transactions for
the Fund for the year ended October 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"),
a wholly-owned subsidiary of ML & Co., is the Fund's
transfer agent.
Accounting services are provided to the Fund by MLAM
at cost.
Certain officers and/or trustees of the Fund are officers
and/or directors of MLAM, PSI, MLPF&S, MLFDS,
MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended October 31, 1996
were $942,483,642 and $1,033,819,663, respectively.
Net realized and unrealized gains (losses) as of October
31, 1996, were as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $153,272,806 $ 88,152,384
------------ -------------
Currency transactions:
Options purchased (1,120,982) --
Options written 5,423,750 --
Foreign currency transactions 13,489,647 (21,236)
Forward foreign
exchange contracts 3,697,570 --
------------ -------------
Total currency transactions 21,489,985 (21,236)
------------ -------------
Total $174,762,791 $ 88,131,148
============ =============
Transactions in put options written for the year ended
October 31, 1996 were as follows:
Premiums
Par Value Received
Outstanding put options
written at beginning of year $560,000,000 $ 5,498,550
Options expired (474,000,000) (4,650,200)
Options closed (86,000,000) (848,350)
------------ -------------
Outstanding put options
written at end of year $ -- $ --
============ =============
As of October 31, 1996, net unrealized appreciation for
Federal income tax purposes aggregated $74,877,236, of
which $134,069,273 related to appreciated securities
and $59,192,037 related to depreciated securities. The
aggregate cost of investments at October 31, 1996 for
Federal income tax purposes was $1,012,290,579.
4. Shares of Beneficial Interest:
Net decrease in net assets derived from beneficial
interest transactions was $127,806,154 and $120,582,541
for the years ended October 31, 1996 and October 31,
1995, respectively.
Transactions in shares of beneficial interest for each
class were as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 3,553,169 $ 55,452,673
Shares issued to shareholders
in reinvestment of
distributions 885,595 12,345,189
------------ -------------
Total issued 4,438,764 67,797,862
Shares redeemed (5,064,026) (77,283,493)
------------ -------------
Net decrease (625,262) $ (9,485,631)
============ =============
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 3,992,118 $ 59,286,758
Shares issued to shareholders
in reinvestment of
distributions 1,491,120 19,695,986
------------ -------------
Total issued 5,483,238 78,982,744
Shares redeemed (6,703,037) (97,147,606)
------------ -------------
Net decrease (1,219,799) $ (18,164,862)
============ =============
Class B Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 6,274,132 $ 90,913,954
Shares issued to shareholders
in reinvestment of
distributions 3,757,600 49,074,253
------------ -------------
Total issued 10,031,732 139,988,207
Shares redeemed (17,727,472) (252,558,644)
Automatic conversion of
shares (592,963) (8,462,694)
------------ -------------
Net decrease (8,288,703) $(121,033,131)
============ =============
<PAGE>
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 8,300,407 $ 118,574,899
Shares issued to shareholders
in reinvestment of
distributions 7,573,598 95,092,943
------------ -------------
Total issued 15,874,005 213,667,842
Shares redeemed (23,991,158) (330,882,601)
Automatic conversion of
shares (6,951,752) (95,508,046)
------------ -------------
Net decrease (15,068,905) $(212,722,805)
============ =============
Class C Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 2,608,151 $ 37,883,986
Shares issued to shareholders
in reinvestment of
distributions 48,252 629,693
------------ -------------
Total issued 2,656,403 38,513,679
Shares redeemed (2,307,504) (33,480,305)
------------ -------------
Net increase 348,899 $ 5,033,374
============ =============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 1,234,402 $ 17,745,431
Shares issued to shareholders
in reinvestment of
distributions 10,171 128,000
------------ -------------
Total issued 1,244,573 17,873,431
Shares redeemed (593,463) (8,515,458)
------------ -------------
Net increase 651,110 $ 9,357,973
============ =============
<PAGE>
Class D Shares for the Year Dollar
Ended October 31, 1996 Shares Amount
Shares sold 10,577,168 $ 162,480,079
Automatic conversion of
shares 557,082 8,462,694
Shares issued to shareholders
in reinvestment of
distributions 421,472 5,854,244
------------ -------------
Total issued 11,555,722 176,797,017
Shares redeemed (11,631,183) (179,117,783)
------------ -------------
Net decrease (75,461) $ (2,320,766)
============ =============
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 2,264,532 $ 34,246,830
Automatic conversion of
shares 6,576,119 95,508,046
Shares issued to shareholders
in reinvestment of
distributions 127,438 1,690,498
------------ -------------
Total issued 8,968,089 131,445,374
Shares redeemed (2,034,217) (30,498,221)
------------ -------------
Net increase 6,933,872 $ 100,947,153
============ =============
5. Commitments:
At October 31, 1996, the Fund had outstanding foreign
exchange contracts under which it had agreed to
purchase and sell foreign currency aggregating approxi-
mately $17,657,000 and $15,321,000, respectively.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch EuroFund:
We have audited the accompanying statement of assets
and liabilities, including the schedule of investments,
of Merrill Lynch EuroFund as of October 31, 1996, 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 five-year period
then ended. These financial statements and the finan-
cial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and the financial high-
lights based on our audits.
<PAGE>
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 misstate-
ment. 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 October 31, 1996
by correspondence with the custodian and brokers.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Merrill Lynch EuroFund as of
October 31, 1996, 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
December 10, 1996
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions paid by
Merrill Lynch EuroFund during its taxable year ended October 31, 1996:
Foreign Total Foreign Taxes Long-Term
Payable Source Ordinary Paid or Capital
Record Date Date Income Income Withheld Gains
<S> <C> <C> <C> <C> <C>
Class A Shares:
12/12/95 12/20/95 $.052772 $.052772 $.058430 $.986174
Class B Shares:
12/12/95 12/20/95 $.052772 $.052772 $.058430 $.986174
<PAGE>
Class C Shares:
12/12/95 12/20/95 $.052772 $.052772 $.058430 $.986174
Class D Shares:
12/12/95 12/20/95 $.052772 $.052772 $.058430 $.986174
All of the foreign taxes paid or withheld represent taxes incurred by the Fund
on dividends received by the Fund from foreign sources. Foreign taxes paid or
withheld should be included in taxable income with an offsetting deduction
from gross income or as a credit for taxes paid to foreign governments. You
should consult your tax adviser regarding the appropriate treatment of foreign
taxes paid.
Please retain this information for your records.
</TABLE>
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended October 31, 1996
Additions
Akzo Nobel
Altinyildiz Mensucat Ve Konfeksiyon Fabriklari A.S.
Asda Group PLC
Astra AB 'A'
British Biotech PLC
Cimpor-Cimentos de Portugal S.A.
Cofinec S.A. (GDR)
Dogan Sirketler Grubu Holding A.S.
Eczacibasi Ilac Sanayi Ve Ticaret A.S.
Elf Aquitaine S.A.
Empresa Nacional de Electricidad S.A. (Endesa)
Finans Bank A.S.
Gazprom (ADR)
Imperial Tobacco Group PLC
Izmir Demir Celik Sanayii A.S.
Kartonsan Karton Sanayi Ve Ticaret A.S.
Koc Yatirim Ve Sanayi Mamulleri Pazarlama S.A.
Millennium Chemicals Inc.
Net Holding A.S.
Otosan Otomobil Sanayii A.S.
Philips Electronics N.V.
SGS-Thomson Microelectronics N.V.
Usas Ucak Servisi A.S.
Volkswagen AG
Yapi Ve Kredi Bankasi A.S.
<PAGE>
Deletions
AEGEK S.A.
Arcelik A.S.
Banco Totta & Acores, S.A.
Barclays PLC
British Gas PLC (Ordinary)
British Telecommunications PLC
Ecco S.A.
Eczacibasi Yatirim Holding Ortakligi A.S.
Erciyas Biracilik Ve Malt Sanayii A.S.
Eregli Demir Ve Celik Fabrikalari T.A.S.
Fiat S.p.A. (Ordinary)
Guney Biracilik Ve Malt Sanayii A.S.
Hellenic Tellecommunication Organization S.A.
Lloyds TSB Group PLC
National Westminster Bank PLC
Papastratos Cigarette S.A.
SKF AB (Class B)
Turkiye Is Bankasi A.S.
Volvo AB (Class B)
Zeneca Group PLC
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Alan J. Albert, Vice President
Donald C. Burke, Vice President
Adrian C. Holmes, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
<PAGE>
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
