<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1996
SECURITIES ACT FILE NO. 33-4026
INVESTMENT COMPANY ACT FILE NO. 811-4612
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 12 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 14 /X/
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
MERRILL LYNCH EUROFUND
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH EUROFUND
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
JOHN A. MACKINNON, ESQ.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
---------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON DECEMBER 26, 1995.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest (par
value $.10 per share)................. 8,347,006 $15.33 $289,998* $100
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 33,321,875 Shares of Beneficial Interest.
(3) 24,993,786 of the Shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during Registrant's current fiscal
year.
(4) 8,328,089 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH EUROFUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
- ---------- --------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fee Table
Item 3. Condensed Financial Information....... Financial Highlights; Performance Data
Item 4. General Description of Registrant..... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................ Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Cover Page; Additional Information
Item 7. Purchase of Securities Being
Offered............................. Cover Page; Fee Table; Merrill Lynch
Select Pricing(SM) System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase.............. Fee Table; Merrill Lynch Select
Pricing(SM) System; Shareholder
Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities....................... Management of the Fund
Item 16. Investment Advisory and Other
Services............................ Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services; General
Information
Item 20. Tax Status............................ Taxes
Item 21. Underwriters.......................... Purchase of Shares
Item 22. Calculation of Performance Data....... Performance Data
Item 23. Financial Statements.................. Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
FEBRUARY 27, 1996
MERRILL LYNCH EUROFUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch EuroFund (the "Fund") is a diversified, open-end management
investment company seeking to provide shareholders with capital appreciation
primarily through investment in equities of corporations domiciled in European
countries. Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. The Fund expects that 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 stocks. For more information on the Fund's
investment objective and policies, please see "Investment Objective and
Policies" on page 13. There can be no assurance that the investment objective of
the Fund will be realized.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
transfer agent are not subject to the processing fee. See "Purchase of Shares"
and "Redemption of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that
is relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated February 27, 1996 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C CLASS D
----- --------------------------------- -------- -----
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price).............. 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on
Dividend Reinvestments....... None None None None
Deferred Sales Charge (as a
percentage of original
purchase price or redemption
proceeds, whichever is
lower)....................... None(d) 4.0% during the first year, 1.0% for None(d)
decreasing 1.0% annually one year
thereafter to 0.0% after the
fourth year
Exchange Fee................... None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS):
Investment Advisory Fees(e).... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees(f):
Account Maintenance Fees..... None 0.25% 0.25% 0.25%
Distribution Fees............ None 0.75% 0.75% None
(Class B shares convert to Class
D shares automatically after
approximately eight years and
cease being subject to
distribution fees)
Other Expenses
Custodial Fees............... 0.10% 0.10% 0.10% 0.10%
Shareholder Servicing
Costs(g)................... 0.18% 0.21% 0.24% 0.19%
Other........................ 0.09% 0.09% 0.09% 0.09%
--- --- --- ---
Total Other Expenses.... 0.37% 0.40% 0.43% 0.38%
--- --- --- ---
TOTAL FUND OPERATING
EXPENSES..................... 1.12% 2.15% 2.18% 1.38%
=== === === ===
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 25.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 27.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A or Class D purchases of $1,000,000 or more are not subject
to an initial sales charge. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 25.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year of purchase.
(e) See "Management of the Fund -- Management and Advisory Arrangements" -- page
21.
(f) See "Purchase of Shares -- Distribution Plans" -- page 30.
(g) See "Management of the Fund -- Transfer Agency Services" -- page 22.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales
charge (Class A and Class D shares only) and assuming
(1) the Total Fund Operating Expenses for each class
set forth above, (2) a 5% annual return throughout the
periods and (3) redemption at the end of the period:
Class A............................................. $63 $86 $111 $182
Class B............................................. $62 $87 $115 $229*
Class C............................................. $32 $68 $117 $251
Class D............................................. $66 $94 $124 $210
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A............................................. $63 $86 $111 $182
Class B............................................. $22 $67 $115 $229*
Class C............................................. $22 $68 $117 $251
Class D............................................. $66 $94 $124 $210
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission (the "Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charges permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and repurchases. Purchases and redemptions directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager") or
3
<PAGE> 6
an affiliate of MLAM, Fund Asset Management, L.P. ("FAM"). Funds advised by MLAM
or FAM which utilize the Merrill Lynch Select Pricing(SM) System are referred to
herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, are imposed directly against those classes and not against all
assets of the Fund, and accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales No No No
charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% D shares automatically
during the first year, after approximately
decreasing 1.0% annually to eight years(4)
0.0%
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. Contingent deferred sales charges ("CDSCs") are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(footnotes continued on next page)
4
<PAGE> 7
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more will not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Fund are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account are entitled to purchase additional
Class A shares of the Fund in that account. Other eligible investors
include certain retirement plans and participants in certain
investment programs. In addition, Class A shares will be offered to
Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries (the term
"subsidiaries" when used herein with respect to ML & Co. includes
MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.) and to their directors and employees
and to members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 5.25%, which is reduced for purchases of
$25,000 and over, and waived for purchases by certain retirement plans
in connection with certain investment programs. Purchases of
$1,000,000 or more may not be subject to an initial sales charge but
if the initial sales charge is waived such purchases will be subject
to a CDSC of 1.0% if the shares are redeemed within one year after
purchase. Sales charges are also reduced under a right of accumulation
which takes into account the investor's holdings of all classes of all
MLAM-advised mutual funds. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%,
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to the Class B shares and a CDSC if they are
redeemed within four years of purchase. Approximately eight years
after issuance, Class B shares will convert automatically into Class D
shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also
will convert automatically to Class D shares. The conversion period
for dividend reinvestment shares, and the conversion and holding
periods for certain retirement plans is modified as described under
"Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B
and Class C Shares -- Conversion of Class B Shares to Class D Shares".
5
<PAGE> 8
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to Class C shares. Class C shares are also subject
to a CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
will be subject to distribution fees that will be imposed on Class C
shares for an indefinite period subject to annual approval by the
Fund's Board of Trustees and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for the Class D shares is the same as the
schedule for Class A shares, except that there is no waiver for
purchases by retirement plans in connection with certain investment
programs. Class D shares also will be issued upon conversion of Class
B shares as described above under "Class B". See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are
6
<PAGE> 9
subject to ongoing account maintenance fees and distribution fees; however, the
ongoing account maintenance and distribution fees potentially may be offset to
the extent any return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be converted into
Class D shares of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
October 31, 1995, and the independent auditors' report thereon are included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's most recent annual report to
shareholders which may be obtained, without charge, by calling or by writing the
Fund at the telephone number or address on the front cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------------------
1995++ 1994++ 1993 1992 1991 1990 1989 1988+
-------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) In Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of
period........................... $ 15.96 $ 13.87 $ 10.53 $ 11.62 $ 10.70 $ 9.84 $ 9.00 $ 8.83
-------- -------- -------- ------- ------- ------- ------- -------
Investment income -- net......... .19 .18 .26 .24 .25 .18 .09 .01
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions -- net............ .56 1.91 3.08 (1.02) .96 .85 .77 .16
-------- -------- -------- ------- ------- ------- ------- -------
Total from investment operations... .75 2.09 3.34 (.78) 1.21 1.03 .86 .17
-------- -------- -------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net......... -- -- -- (.31) (.29) (.17) -- --
Realized gain on
investments -- net............. (1.64) -- -- -- -- -- (.02) --
-------- -------- -------- ------- ------- ------- ------- -------
Total dividends and
distributions.................... (1.64) -- -- (.31) (.29) (.17) (.02) --
-------- -------- -------- ------- ------- ------- ------- -------
Net asset value, end of period..... $ 15.07 $ 15.96 $ 13.87 $ 10.53 $ 11.62 $ 10.70 $ 9.84 $ 9.00
========= ========= ========= ======== ======== ======== ======== ========
Total Investment Return:**
Based on net asset value per
share............................ 6.19% 15.07% 31.72% (6.90)% 11.54% 10.39% 9.62% 1.93%#
========= ========= ========= ======== ======== ======== ======== ========
Ratios To Average Net Assets:
Expenses........................... 1.12% 1.03% 1.04% 1.09% 1.14% 1.17% 1.34% 1.38%*
========= ========= ========= ======== ======== ======== ======== ========
Investment income (loss) -- net.... 1.32% 1.17% 1.50% (2.69)% 2.94% 2.62% 2.25% 10.08%*
========= ========= ========= ======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in
thousands)....................... $204,713 $236,288 $182,612 $87,865 $83,229 $85,798 $11,381 $ 21
========= ========= ========= ======== ======== ======== ======== ========
Portfolio turnover................. 72.16% 82.47% 115.10% 109.95% 124.64% 122.67% 106.29% 161.28%
========= ========= ========= ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A Shares commenced operations on October 26, 1988.
++ Based on average shares outstanding during the period.
# Aggregate total investment returns.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------------------
1995++ 1994++ 1993 1992 1991 1990 1989 1988 1987+
-------- ---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) In
Net Asset Value:
Per Share Operating
Performance:
Net asset value,
beginning
of period............ $ 15.28 $ 13.43 $ 10.30 $ 11.41 $ 10.51 $ 9.72 $ 9.00 $ 9.29 $ 10.00
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Investment
income -- net...... .04 .02 .16 .12 .13 .12 .08 .22 .05
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions -- net... .52 1.83 2.97 (.98) .94 .78 .66 .41 (.76)
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... .56 1.85 3.13 (.86) 1.07 .90 .74 .63 (.71)
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment
income -- net...... -- -- -- (.25) (.17) (.11) -- (.18) --
Realized gain on
investments --
net................ (1.64) -- -- -- -- -- (.02) (.74) --
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions........ (1.64) -- -- (.25) (.17) (.11) (.02) (.92) --
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 14.20 $ 15.28 $ 13.43 $ 10.30 $ 11.41 $ 10.51 $ 9.72 $ 9.00 $ 9.29
======== ========= ======== ======== ======== ======== ======== ======== ========
Total Investment
Return:**
Based on net asset
value
per share............ 5.12% 13.78% 30.39% (7.73)% 10.35% 9.19% 8.28% 7.35% (7.10)%#
======== ========= ======== ======== ======== ======== ======== ======== ========
Ratios To Average Net
Assets:
Expenses, net of
reimbursement,
excluding account
maintenance and
distribution fees.... 1.15% 1.06% 1.08% 1.12% 1.17% 1.20% 1.37% 1.08% 1.04%*
======== ========= ======== ======== ======== ======== ======== ======== ========
Expenses............... 2.15% 2.06% 2.08% 2.12% 2.17% 2.20% 2.37% 2.30% 2.13%*
======== ========= ======== ======== ======== ======== ======== ======== ========
Investment income
(loss) -- net........ .27% .14% .51% (3.37)% 1.94% 1.32% .83% 1.36% .68%*
======== ========= ======== ======== ======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of
period
(in thousands)....... $795,469 $1,086,480 $765,279 $447,104 $484,031 $498,600 $201,484 $261,178 $436,503
======== ========= ======== ======== ======== ======== ======== ======== ========
Portfolio turnover..... 72.16% 82.47% 115.10% 109.95% 124.64% 122.67% 106.29% 161.28% 157.47%
======== ========= ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class B Shares commenced operations on January 30, 1987.
++ Based on average shares outstanding during the period.
# Aggregate total investment returns.
9
<PAGE> 12
FINANCIAL HIGHLIGHTS -- (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
-------------------------------------------- --------------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 21, 1994+ FOR THE YEAR ENDED OCTOBER 21, 1994+
OCTOBER 31, 1995++ TO OCTOBER 31, 1994++ OCTOBER 31, 1995++ TO OCTOBER 31, 1994++
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Increase (Decrease) In Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning
of period................ $15.28 $ 15.08 $ 15.96 $ 15.75
------- ------- ---------- -------
Investment income
(loss) -- net.......... .01 (.01) .20 --
Realized and unrealized
gain on investments and
foreign currency
transactions -- net.... .54 .21 .50 .21
------- ------- ---------- -------
Total from investment
operations............... .55 .20 .70 .21
------- ------- ---------- -------
Less distributions from
realized gain on
investments -- net....... (1.64) -- (1.64) --
------- ------- ---------- -------
Net asset value, end of
period................... $14.19 $ 15.28 $ 15.02 $ 15.96
================= =================== ================= ===================
Total Investment Return:**
Based on net asset value
per share................ 5.04% 1.33%# 5.85% 1.33%#
================= =================== ================= ===================
Ratios To Average Net
Assets:
Expenses, net of
reimbursement, excluding
account maintenance and
distribution fees........ 1.18% 1.86%* 1.13% 1.86%*
================= =================== ================= ===================
Expenses................... 2.18% 2.86%* 1.38% 2.11%*
================= =================== ================= ===================
Investment income (loss) --
net...................... .11% (2.47)%* 1.37% (1.70)%*
================= =================== ================= ===================
Supplemental Data:
Net assets, end of period
(in thousands)........... $9,668 $ 462 $104,493 $ 340
================= =================== ================= ===================
Portfolio turnover......... 72.16% 82.47% 72.16% 82.47%
================= =================== ================= ===================
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class C Shares and Class D Shares commenced operations on October 21, 1994.
++ Based on average shares outstanding during the period.
# Aggregate total investment returns.
10
<PAGE> 13
SPECIAL AND RISK CONSIDERATIONS
GENERAL
Investments on an international basis involve certain risks not involved in
domestic investments, including fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Since the Fund will
invest heavily in securities denominated or quoted in currencies other than the
U.S. dollar, changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation of
investments insofar as U.S. investors are concerned. In addition, with respect
to certain foreign countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect investments in those countries.
Most of the securities held by the Fund will not be registered with the
Commission, nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies are
subject.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards or to practices and requirements comparable to
those applicable to domestic companies. Foreign securities markets, while
generally growing in volume, have, for the most part, substantially less volume
than U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable domestic companies.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. The foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Delays in settlement could
result in temporary periods when assets of the Fund are uninvested and no return
is earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of such portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States. There is generally
less government supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities since the
expenses of the Fund, such as custodial costs, are higher. Because of its
emphasis on the economies of European countries, the Fund should be considered
as a vehicle for diversification and not as a balanced investment program.
11
<PAGE> 14
INVESTMENT IN EASTERN EUROPEAN MARKETS
It is anticipated that a majority of the Fund's investments will be in
securities of issuers domiciled in Western European countries. However, the Fund
has the ability to invest in the securities of issuers domiciled in Eastern
European countries. Investment in the securities of issuers in Eastern European
markets involves certain additional risks not involved in investment in
securities of issuers in more developed capital markets, such as (i) low or
non-existent trading volume, resulting in a lack of liquidity and increased
volatility in prices for such securities, as compared to securities of
comparable issuers in more developed capital markets, (ii) uncertain national
policies and social, political and economic instability, increasing the
potential for expropriation of assets, confiscatory taxation, high rates of
inflation or unfavorable diplomatic developments, (iii) possible fluctuations in
exchange rates, differing legal systems and the existence or possible imposition
of exchange controls, custodial restrictions or other foreign or U.S.
governmental laws or restrictions applicable to such investments, (iv) national
policies which may limit the Fund's investment opportunities such as
restrictions on investment in issuers or industries deemed sensitive to national
interests, and (v) the lack of developed legal structures governing private and
foreign investments and private property.
Eastern European capital markets are emerging in a dynamic political and
economic environment brought about by the recent events there that have reshaped
political boundaries and traditional ideologies. In such a dynamic environment,
there can be no assurance that the Eastern European capital markets will
continue to present viable investment opportunities for the Fund. In the past,
Eastern European governments have expropriated substantial amounts of private
property, and most claims of the property owners have never been finally
settled. There is no assurance that such expropriations will not reoccur. In
such an event, it is possible that the Fund could lose the entire value of its
investments in the affected Eastern European markets.
Also, there may be less publicly available information about issuers in
Eastern Europe than would be available about issuers in more developed capital
markets, and such issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those to which U.S.
companies are subject. In certain Eastern European countries, no reporting
standards currently exist. As a result, traditional investment measurements used
in the U.S., such as price/earnings ratios, may not be applicable in certain
Eastern European markets. In addition, the currencies of Eastern European
countries are not, at present, freely convertible into other currencies. Also,
certain Eastern European authorities presently require that securities of
certain Eastern European issuers be held by custodians in Eastern Europe. At
this time, it is possible that certain Eastern European countries may not have
available institutions qualified under the Investment Company Act of 1940, as
amended (the "Investment Company Act") to hold Fund assets. Therefore, the Fund
may need to seek an exemptive order from the Commission prior to investing in
certain Eastern European countries. There is no assurance that the Commission
would issue such an order.
Reforms currently underway and anticipated throughout Eastern Europe are
directed at political and economic liberalization, with efforts to develop
increasingly market-oriented economies and to decentralize the economic and
political decision-making processes currently in the forefront. There can be no
assurance that these reforms will continue or, if continued, will achieve their
goals; in addition, there is the possibility that reforms may be reversed in the
future.
12
<PAGE> 15
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek capital appreciation primarily through
investment in equities of corporations domiciled in European countries. Current
income from dividends and interest will not be an important consideration in
selecting portfolio securities. The Fund anticipates that under normal market
conditions at least 80% of its net assets will consist of European corporate
securities, primarily common stocks and securities convertible into common
stock. The investment objective of the Fund described in this paragraph is a
fundamental policy of the Fund and may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities.
While there will be no prescribed limits on geographic asset distribution
within the European community, it is currently anticipated that a majority of
the Fund's assets will be invested in equity securities of issuers domiciled in
Western European countries such as the United Kingdom, Germany, the Netherlands,
Switzerland, Sweden, France, Italy, Belgium, Norway, Denmark, Finland, Portugal,
Austria and Spain. If political and economic conditions warrant, it is also
anticipated that the Fund will invest in issuers domiciled in Eastern European
countries such as Bulgaria, the Czech Republic, Hungary, Poland, Romania,
Slovakia, and the states which formerly comprised Yugoslavia and the Soviet
Union. Additional countries on the European continent may be added to this group
as circumstances dictate. In making the allocation of assets among the
securities markets, the Manager will consider such factors as the condition and
growth potential of the various economies and securities markets and the issuers
domiciled therein, currency and taxation investment considerations and other
pertinent financial, social, national and political factors which may have an
effect upon the climate for investing within such securities markets.
Although the changes taking place in Eastern Europe are in their early
stages and foreign investors do not yet have direct access to many of these
markets, the Manager intends to take advantage of the business opportunities
that may emerge from the changing political, economic and legal environment in
Eastern Europe. At present, no Eastern European country has a developed stock
market, although certain countries (e.g., Hungary and Poland) have small
securities markets that are operational. Certain Eastern European countries are
currently fostering political and economic liberalization through a variety of
reform measures, including attempts to develop increasingly market-oriented
economies, to encourage foreign investment and to create a political atmosphere
conducive to multi-party political systems. Recently, laws have been enacted in
certain Eastern European countries allowing private individuals to own and
operate businesses and protecting the property rights of investors, including
foreign interests.
The Fund reserves the right as a temporary defensive measure to hold other
types of securities, including non-convertible debt and preferred securities,
government and money market securities of U.S. and non-U.S. issuers, or cash
(foreign currencies or U.S. dollars), in such proportions as, in the opinion of
the Manager, prevailing market, economic or political conditions warrant.
Investments made for defensive purposes will be maintained only during periods
in which the Manager determines that economic or financial conditions are
adverse for holding or being fully invested in equity securities of European
corporate issuers. A portion of the portfolio normally will be held in U.S.
dollars or short-term interest bearing U.S. dollar-denominated securities to
provide for possible redemptions.
The Fund has established no rating criteria for the debt securities in
which it may invest, and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to lower rating
13
<PAGE> 16
categories of nationally recognized statistical rating organizations and unrated
securities of comparable quality are predominantly speculative with respect to
the capacity to pay interest and repay principal in accordance with the terms of
such securities and generally involve a greater volatility of price than
securities in higher rating categories. See "Investment Objective and Policies"
in the Statement of Additional Information for additional information regarding
ratings of debt securities. In purchasing such securities, the Fund will rely on
the Manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. The Manager will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. The Fund does not
intend to purchase debt securities that are in default or which the Manager
believes will be in default.
In addition to purchasing corporate securities of European issuers in
foreign markets, the Fund may invest in American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
securities convertible into securities of corporations domiciled in European
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
tradeable both in the U.S. and Europe and are designed for use throughout the
world.
CERTAIN OTHER INVESTMENT PRACTICES
Hedging Techniques. The Fund may engage in various portfolio strategies to
hedge its portfolio against investment and currency risks. These strategies
include the use of options on portfolio securities, currency options and
futures, options on such futures and forward foreign currency transactions. The
Fund may enter into such transactions only in connection with its hedging
strategies. While the Fund's use of hedging strategies is intended to reduce the
volatility of net asset value of its shares, the net asset value of the Fund's
shares will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets or currency exchange
rates occur. Reference is made to the Statement of Additional Information for
further information concerning these strategies.
Although there are certain risks involved in options and futures
transactions (as discussed below in "Risk Factors in Options, Futures and
Currency Transactions"), the Manager believes that, because the Fund will engage
in options and futures transactions only for hedging purposes, the options and
futures portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Fund's ability to engage in the
hedging transactions and strategies described below. See "Additional
Information -- Taxes".
The following is a description of the hedging instruments the Fund may
utilize with respect to investment and currency risks.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at or by a specified
future date and price set at the time of the
14
<PAGE> 17
contract. The principal reason for writing call options is to attempt to
realize, through the receipt of premiums, a greater return than would be
realized on the securities alone. By writing covered call options, the Fund
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Fund's ability to sell the underlying security will be limited
while the option is in effect unless the Fund effects a closing purchase
transaction. A closing purchase transaction cancels out the Fund's position as
the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. Covered call
options serve as a partial hedge against the price of the underlying security
declining. The Fund may not write covered call options on underlying securities
in an amount exceeding 15% of the market value of its assets.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options, which means that so
long as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies with a securities depository with a value equal
to or greater than the exercise price of the underlying securities. By writing a
put, the Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written.
Purchasing Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Fund has a right to sell the underlying security at the stated
exercise price, thus limiting the Fund's risk of loss through a decline in the
market value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out the Fund's
position as the purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities which it
intends to purchase. The Fund will not purchase options on securities if as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets. The Fund will engage in options transactions on exchanges and in
the over-the-counter markets ("OTC options"). In general, exchange traded
contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with terms negotiated by the buyer and seller. See
"Restrictions on OTC Options" below for information as to restrictions on the
use of OTC options.
Hedging Foreign Currency Risks. The Fund is authorized to deal in forward
foreign exchange among currencies of the different countries in which it will
invest and multinational currency units as a hedge against possible variations
in the foreign exchange rates among these currencies. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. The Fund's
dealings in forward foreign exchange will be limited to hedging involving
15
<PAGE> 18
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities, the sale and redemption of shares of the Fund,
or the payment of dividends and distributions by the Fund. Position hedging is
the sale of forward foreign currency with respect to portfolio security
positions denominated or quoted in such foreign currency. The Fund will not
speculate in forward foreign exchange. Hedging against a decline in the value of
a currency does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such transactions
also preclude the opportunity for gain if the value of the hedged currency
should rise. Moreover, it may not be possible for the Fund to hedge against a
devaluation that is so generally anticipated that the Fund is not able to
contract to sell the currency at a price above the devaluation level it
anticipates.
The Fund is also authorized to 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-U.S. 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.
As an illustration, the Fund may use such techniques to hedge the stated value
in U.S. dollars of an investment in a pound sterling denominated security. In
such circumstances, for example, the Fund may purchase a foreign currency put
option enabling it to sell a specified amount of pounds for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the pound relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset, in whole or in part, the
cost of acquiring such a put option, the Fund may also sell a call option which,
if exercised, requires it to sell a specified amount of pounds for dollars at a
specified price by a future date (a technique called a "straddle"). By selling
such a call option in this illustration, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the pound to the
dollar.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. Listed options are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which are issued by a
clearing corporation, traded on an exchange and have standardized strike prices
and expiration dates. OTC options are two-party contracts and have negotiated
strike prices and expiration dates. The Fund will engage in OTC options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million. A futures contract on a foreign currency
is an agreement between two parties to buy and sell a specified amount of a
currency for a set price on a future date. Futures contracts and options on
futures contracts are traded on boards of trade or futures exchanges. The Fund
will not speculate in foreign currency options, futures or related options.
Accordingly, the Fund will not hedge a currency substantially in excess of the
market value of the securities which it has committed or anticipates to purchase
which are denominated in such currency and, in the case of securities which have
been sold by the Fund but not yet delivered, the proceeds thereof in its
denominated currency. Further, the Fund will segregate at its custodian cash or
liquid debt securities having a market value substantially representing any
subsequent decrease in the market value of such hedged security, less any
initial or variation margin held in the account of its broker. The Fund may not
incur potential net liabilities of more than 33 1/3% of its total assets from
foreign currency options, futures or related options.
16
<PAGE> 19
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Fund provide
that the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool", as defined under such regulations if the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
futures contracts and options thereon (i) for bona fide hedging purposes, and
(ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed 5%
of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
These restrictions are in addition to other restrictions on the Fund's hedging
activities mentioned herein.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act in connection with transactions
involving futures contracts and options thereon.
Restrictions on OTC Options. The Fund will engage in OTC options,
including over-the-counter foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options (including OTC options on foreign
currency futures contracts) if, as a result of such transaction, the sum of the
market value of OTC options currently outstanding which are held by the Fund,
the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 15% (10% to the extent
required by certain state laws) of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., the current market value of the underlying security minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money". This policy
as to OTC options is not a fundamental policy of the Fund and may be amended by
the Trustees of the Fund without the approval of the Fund's shareholders.
However, the Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions involves the risk of imperfect correlation in
movements in the price of options and futures and
17
<PAGE> 20
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of the hedged securities or currencies, the Fund will experience a gain or
loss which will not be completely offset by movements in the price of the
securities or currencies which are the subject of the hedge. Transactions in
options on futures contracts involve similar risks.
The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures, or in the case of OTC transactions, the
Manager believes the Fund can receive on each business day at least two
independent bids or offers (one of which will be from an entity other than a
party to the option), unless there is only one dealer, in which case such
dealer's price will be used. However, there can be no assurance that a liquid
secondary market will exist at any specific time. Thus, it may not be possible
to close an options or futures position. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
hedge effectively its portfolio. There is also the risk of loss by the Fund of
margin deposits or collateral in the event of bankruptcy of a broker with whom
the Fund has an open position in an option, a futures contract or related
option.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
that may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio.
Portfolio Transactions. In executing portfolio transactions, the Manager
seeks to obtain the best net results for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While the Manager generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest commission or spread available. The
Fund contemplates that, consistent with its policy of obtaining the best net
results, it will place orders for transactions with a number of brokers and
dealers, including Merrill Lynch, an affiliate of the Manager. Subject to
obtaining the best price and execution, brokers who provide supplemental
investment research to the Fund may receive orders for transactions by the Fund.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by the Manager, and the expenses of the Manager will
not necessarily be reduced as a result of the receipt of such supplemental
information. See "Management of the Fund -- Management and Advisory
Arrangements". In addition, consistent with the Rules of Fair Practice of the
NASD, the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch.
Portfolio Turnover. The Manager will effect portfolio transactions without
regard to holding period if, in its judgment, such transactions are advisable in
light of a change in circumstance of a particular company or within a particular
industry or due to general market, economic or financial conditions. As a result
of its investment policies, the Fund may engage in a substantial number of
portfolio transactions. Accordingly, while
18
<PAGE> 21
the Fund anticipates that its annual portfolio turnover rate should not exceed
150% under normal conditions, it is impossible to predict portfolio turnover
rates. The portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of U.S. Government securities and of all other securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads and brokerage commissions, which are borne directly by the Fund.
The Fund is subject to the Federal income tax requirement that less than 30% of
the Fund's gross income must be derived from gains from the sale or other
disposition of securities held for less than three months.
Repurchase Agreements. The Fund may invest in money market securities
pursuant to repurchase agreements. Repurchase agreements may be entered into
only with a member bank of the Federal Reserve System or a primary dealer in
U.S. Government securities or an affiliate thereof. Under such agreements, the
bank or primary dealer or an affiliate thereof agrees, upon entering into the
contract, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period.
The Fund may not invest more than 15% (10% to the extent required by certain
state laws) of its total assets in repurchase agreements maturing in more than
seven days, together with all other illiquid securities.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of such a loan,
the Fund receives the income on the loaned securities and receives either the
income on the collateral or other compensation, i.e., negotiated loan premium or
fee for entering into the loan, and thereby increases its yield. In the event
that the borrower defaults on its obligation to return borrowed securities,
because of insolvency or otherwise, the Fund could experience delays and costs
in gaining access to the collateral and could suffer a loss to the extent that
the value of the collateral falls below the market value of the borrowed
securities.
Warrants. The Fund may invest up to 10% of its total assets in warrants. A
warrant gives the holder thereof the right to subscribe by a specified date to a
stated number of shares of stock of the issuer at a fixed price. Warrants tend
to be more volatile than the underlying stock, and if at a warrant's expiration
date the stock is trading at a price below the price set in the warrant, the
warrant will expire worthless. Conversely, if at the expiration date the
underlying stock is trading at a price higher than the price set in the warrant,
the Fund can acquire the stock at a price below its market value.
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies which are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Fund may not invest
more than 25% of its assets, taken at market value, in the securities of issuers
in any particular industry (excluding the
19
<PAGE> 22
U.S. Government and its agencies and instrumentalities). In addition, the Fund
has adopted non-fundamental restrictions which may be changed by the Board of
Directors without shareholder approval. As a non-fundamental policy, the Fund
may not borrow amounts in excess of 20% of its total assets (taken at market
value) and then only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions or to settle securities
transactions and to exercise subscription rights. The purchase of securities
while borrowings are outstanding will have the effect of leveraging the Fund.
Such leveraging or borrowing increases the Fund's exposure to capital risk, and
borrowed funds are subject to interest costs which will reduce net income.
As a non-fundamental policy, the Fund will not invest in securities which
cannot readily be resold because of legal or contractual restrictions or which
cannot otherwise be marketed, redeemed or put to the issuer or a third party,
including repurchase agreements and purchase and sale contracts maturing in more
than seven days, if, regarding all such securities, more than 15% of its total
assets (or 10% of its total assets as presently required by certain state laws)
taken at market value would be invested in such securities. Notwithstanding the
foregoing, the Fund may purchase without regard to this limitation securities
that are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Fund's Board
of Directors continuously determines, based on the trading markets for the
specific Rule 144A security, that such security is liquid. The Board of
Directors may adopt guidelines and delegate to the Manager the daily function of
determining and monitoring liquidity or restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
offshore should be deemed liquid. The Board, however, will retain sufficient
oversight and be ultimately responsible for the redemptions.
The full text of the investment restrictions is set forth under "Investment
Objective and Policies -- Investment Restrictions" in the Statement of
Additional Information.
MANAGEMENT OF THE FUND
TRUSTEES
The Board of Trustees of the Fund consists of six individuals, five of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act. The Board of Trustees is responsible for the overall supervision of the
operations of the Fund and performs the various duties imposed on the directors
or trustees of investment companies by the Investment Company Act.
The Trustees are:
ARTHUR ZEIKEL* -- President of the Manager and FAM; President and Director
of Princeton Services, Inc.; Executive Vice President of ML & Co.; Director of
the Distributor.
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
20
<PAGE> 23
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration.
EDWARD D. ZINBARG -- Former Executive Vice President of The Prudential
Insurance Company of America.
- ---------------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager acts as the Fund's investment adviser. The Manager is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Manager provides the Fund with management and investment
advisory services. The Manager or its affiliate, FAM, acts as the investment
adviser to more than 130 other registered investment companies. The Manager also
offers portfolio management and portfolio analysis services to individual and
institutional accounts. As of January 31, 1996, the Manager and FAM had a total
of approximately $202.8 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Manager.
The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Trustees, the Manager is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund's holdings in light of its own research analysis and that from
other relevant sources. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager. Subject to the general
oversight of the Trustees, the Manager provides the administrative services
necessary for the operation of the Fund and provides all the office space,
facilities, equipment and necessary personnel for management of the Fund.
The Manager receives compensation at the annual rate of 0.75% of the
average daily net assets of the Fund. This fee is higher than that of most
mutual funds, but the Fund believes this fee, which is typical for an
international fund, is justified by the additional investment research and
analysis required in connection with investing internationally. For the fiscal
year ended October 31, 1995, the Manager received a fee of $8,514,893 (based on
average net assets of approximately $1,135.3 million). At January 31, 1996, the
net assets of the Fund aggregated approximately $1,072.1 million. At this asset
level, the annual management fee would aggregate approximately $8.0 million.
The Manager has also entered into a sub-advisory agreement with Merrill
Lynch Asset Management U.K. Limited ("MLAM U.K."), a wholly-owned, indirect
subsidiary of ML & Co. and an affiliate of the Manager, pursuant to which the
Manager 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 the Manager
with respect to the Fund. For the fiscal year ended October 31, 1995, the fee
paid by the Manager to MLAM U.K. pursuant to such arrangement aggregated
$1,702,979. At the Fund's January 31, 1996 asset level, the annual fee paid by
the Manager to MLAM U.K. would aggregate approximately $1.6 million. MLAM U.K.
has offices at Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Adrian Holmes, Vice President of the Fund, is the Fund's Portfolio Manager.
Mr. Holmes has been a Portfolio Manager of the Manager since November 1993 and a
Vice President of the Manager since 1990. Mr. Holmes has been primarily
responsible for the day-to-day management of the Fund portfolio since 1993.
21
<PAGE> 24
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations, including among other things, the management fee,
legal and audit fees, unaffiliated Trustees' fees and expenses, registration
fees, custodian and transfer agency fees, accounting and pricing costs, the cost
of printing proxies, and certain of the costs of printing shareholder reports,
prospectuses and statements of additional information distributed to
shareholders. Accounting services are provided to the Fund by the Manager, and
the Fund reimburses the Manager for its costs in connection with such services.
For the fiscal year ended October 31, 1995, the amount of such reimbursement was
$277,433. For the fiscal year ended October 31, 1995, the ratio of total
expenses to average net assets for each class of shares was as follows: Class A,
1.12%; Class B, 2.15%; Class C, 2.18%; and Class D, 1.38%.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Manager (together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Manager preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Manager include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security which at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading "blackout periods" which prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML & Co., Inc., acts as the Fund's transfer
agent pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
an annual fee of $11.00 per Class A or Class D shareholder account and $14.00
per Class B or Class C shareholder account, nominal miscellaneous fees (e.g.,
account closing fees) and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. For the fiscal year
ended October 31, 1995, $2,372,372 was paid to the Transfer Agent pursuant to
the Transfer Agency Agreement. At January 31, 1996, the Fund had 22,600 Class A
shareholder accounts, 86,230 Class B shareholder accounts, 1,818 Class C
shareholder accounts and 14,133 Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $1.6 million, plus miscellaneous and out-of-pocket expenses.
22
<PAGE> 25
PURCHASE OF SHARES
The Distributor, an affiliate of both the Manager and Merrill Lynch, acts
as the distributor of the shares of the Fund. Shares of the Fund are offered
continuously for sale by the Distributor and other eligible securities dealers
(including Merrill Lynch). Shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase is $1,000, and the minimum subsequent purchase is $50,
except that for retirement plans, the minimum initial purchase is $100, and the
minimum subsequent purchase is $1.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
PricingSM System, as described below. As to purchase orders received by
securities dealers prior to the close of business on the New York Stock Exchange
(generally, 4:00 p.m., New York time), which includes orders received after the
close of business on the previous day, the applicable offering price will be
based on the net asset value determined as of 15 minutes after the close of
business on the New York Stock Exchange on that day, provided the Distributor in
turn receives the order from the securities dealer prior to 30 minutes after the
close of business on the New York Stock Exchange on that day. If the purchase
orders are not received by the Distributor prior to 30 minutes after the close
of business on the New York Stock Exchange on that day, such orders shall be
deemed received on the next business day. The Fund or the Distributor may
suspend the continuous offering of the Fund's shares of any class at any time in
response to conditions in the securities markets or otherwise and may thereafter
resume such offering from time to time. Any order may be rejected by the
Distributor or the Fund. Neither the Distributor nor the dealers are permitted
to withhold placing orders to benefit themselves by a price change. Merrill
Lynch may charge its customers a processing fee (presently $4.85) to confirm a
sale of shares to such customers. Purchases directly through the Transfer Agent
are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a CDSC and ongoing distribution fees.
A discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing(SM) System
is set forth under "Merrill Lynch Select Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund, and accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing
23
<PAGE> 26
another sales charge option. Dividends paid by the Fund for each class of shares
will be calculated in the same manner at the same time and will differ only to
the extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
A Maximum 5.25% initial No No No
sales charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% D shares automatically
during after approximately
the first year, decreasing eight years(4)
1.0%
annually to 0.0%
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for 0.25% 0.75% No
one year
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more will not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
24
<PAGE> 27
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* SELECTED DEALERS
OFFERING OF THE NET AMOUNT AS A PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ---------------------------------------------- ------------- ----------------- ------------------
<S> <C> <C> <C>
Less than $25,000............................. 5.25% 5.54% 5.00%
$25,000 but less than $50,000................. 4.75 4.99 4.50
$50,000 but less than $100,000................ 4.00 4.17 3.75
$100,000 but less than $250,000............... 3.00 3.09 2.75
$250,000 but less than $1,000,000............. 2.00 2.04 1.80
$1,000,000 and over**......................... 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 and on Class A purchases
by certain retirement plan investors in connection with certain investment
programs. If the sales charge is waived in connection with a purchase of
$1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. Class A purchases made
prior to October 21, 1994 were subject to a CDSC if the shares were redeemed
within one year of purchase at the following rates: 1.00% on purchases of
$1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000;
0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of
more than $5,000,000 in lieu of paying an initial sales charge. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of 0.75%
will be charged on purchases of $1,000,000 or more of Class A or Class D
shares by certain employer sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
During the fiscal year ended October 31, 1995, the Fund sold 3,992,118 of
its Class A shares for aggregate net proceeds to the Fund of $59,286,758. The
gross sales charges for the sale of its Class A shares for that year were
$55,516, of which $3,461 and $52,055 were received by the Distributor and
Merrill Lynch, respectively. During such year, the Distributor received CDSCs of
$392 with respect to redemptions within one year after purchase of the Class A
shares purchased subject to front-end sales charge waivers.
During the fiscal year ended October 31, 1995, the Fund sold 2,264,532 of
its Class D shares for aggregate net proceeds to the Fund of $34,246,830. The
gross sales charges for the sale of its Class D shares for that year were
$144,287, of which $8,688 and $135,599 were received by the Distributor and
Merrill Lynch, respectively. During such year, the Distributor received no CDSCs
with respect to redemptions within one year after purchase of the Class D shares
purchased subject to front-end sales charge waivers.
25
<PAGE> 28
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain employer sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares of the Fund at net
asset value provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by MLAM or any of its affiliates.
Class A shares are available at net asset value to corporate warranty insurance
reserve fund programs provided that the program has $3 million or more initially
invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares
at net asset value are participants in certain investment programs including
TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services and certain purchases made in connection with the Merrill Lynch
Mutual Fund Adviser ("MFA") program. In addition, Class A shares are offered at
net asset value to ML & Co. and its subsidiaries and their directors and
employees and to members of the Boards of MLAM-advised investment companies,
including the Fund. Certain persons who acquired shares of certain MLAM-advised
closed-end funds in their initial offerings who wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in shares
of the Fund also may purchase Class A shares of the Fund if certain conditions
set forth in the Statement of Additional Information are met. In addition, Class
A shares of the Fund and certain other MLAM-advised mutual funds are offered at
net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
who wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by Merrill Lynch Senior
Floating Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors".
Class A and Class D shares are offered at net asset value to certain
employer sponsored retirement or savings plans and to Employee Access
Accounts(SM) available through employers which provide such plans.
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Class D shares of the Fund are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to tender offers conducted by
those funds in shares of the Fund.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
26
<PAGE> 29
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans". The proceeds
from the account maintenance fees are used to compensate Merrill Lynch for
providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. Payments by the Fund to the
Distributor of the distribution fee under the Distribution Plan relating to
Class B shares may be used in whole or in part by the Distributor for this
purpose. The combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase. Approximately
eight years after issuance, Class B shares will convert automatically into Class
D shares of the Fund, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual funds into
which exchanges may be made convert into Class D shares automatically after
approximately ten years. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable to
the Class B shares acquired in the exchange will apply, and the holding period
for the shares exchanged will be tacked onto the holding period for the shares
acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder
Services -- Exchange Privilege" will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
27
<PAGE> 30
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
YEAR SINCE AS A PERCENTAGE
PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
--------------------------------------------------------------------- -----------------
<S> <C>
0-1.................................................................. 4.00%
1-2.................................................................. 3.00
2-3.................................................................. 2.00
3-4.................................................................. 1.00
4 and thereafter..................................................... 0.00
</TABLE>
For the fiscal year ended October 31, 1995, the Distributor received CDSCs of
$2,352,273 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased after
October 21, 1994).
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the MFA program, the time
period that such Class A shares are held in the MFA program will be included in
determining the holding period of Class B shares reacquired upon termination of
participation in the MFA program (see "Shareholder Services -- Exchange
Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch Blueprint(SM) Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such
28
<PAGE> 31
account at the time of redemption and for any Class B shares that were acquired
and held at the time of the redemption in an Employee Access Account(SM)
available through employers providing eligible 401(k) plans. The Class B CDSC
also is waived for any Class B shares which are purchased by a Merrill Lynch
rollover IRA, that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group, and held in such account at the
time of redemption. Additional information concerning the waiver of the Class B
CDSC is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges -- Class C Shares. Class C shares which
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the fiscal year ended October 31,
1995, the Distributor received CDSCs of $2,495 with respect to redemptions of
Class C shares, all of which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual
29
<PAGE> 32
funds will convert approximately ten years after initial purchase. If, during
the Conversion Period, a shareholder exchanges Class B shares with an eight-year
Conversion Period for Class B shares with a ten-year Conversion Period, or vice
versa, the Conversion Period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
The Conversion Period is also modified for retirement plan investors who
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services -- Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period of Class B shares acquired upon termination of
participation in the MFA program.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the
30
<PAGE> 33
initial sales charge with respect to the Class A and Class D shares of the Fund
in that the deferred sales charges provide for the financing of the distribution
of the Fund's Class B and Class C shares.
For the fiscal year ended October 31, 1995, the Fund paid the Distributor
$8,713,065 pursuant to the Distribution Plan relating to Class B shares (based
on average net assets subject to the Class B Distribution Plan of approximately
$871.3 million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended October 31, 1995, the Fund paid the
Distributor $32,919 pursuant to the Distribution Plan relating to Class C shares
(based on average net assets subject to the Class C Distribution Plan of
approximately $3.3 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class C shares. For the fiscal year ended October 31, 1995,
the Fund paid the Distributor $148,608 pursuant to the Distribution Plan
relating to Class D shares (based on average net assets subject to the Class D
Distribution Plan of approximately $59.4 million), all of which was paid to
Merrill Lynch for providing account maintenance services in connection with
Class D shares. At January 31, 1996, the net assets of the Fund subject to the
Class B Distribution Plan aggregated approximately $756.2 million. At this asset
level, the annual fee payable pursuant to the Class B Distribution Plan would
aggregate $7.6 million. At January 31, 1996, the net assets of the Fund subject
to the Class C Distribution Plan aggregated approximately $10.8 million. At this
asset level, the annual fee payable pursuant to the Class C Distribution Plan
would aggregate $108,170. At January 31, 1996, the net assets of the Fund
subject to the Class D Distribution Plan aggregated approximately $107.1
million. At this asset level, the annual fee payable pursuant to the Class D
Distribution Plan would aggregate $267,640.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Trustees for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated" accrual basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs, and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, the distribution fees and
CDSCs, and the expenses consist of financial consultant compensation.
As of December 31, 1994, the last date for which fully allocated accrual
information is available, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch with respect to Class B shares for the period
since January 30, 1987 (commencement of operations) exceeded fully allocated
revenues by approximately $8,603,000 (0.90% of Class B net assets at that date).
As of October 31, 1995, direct cash revenues with respect to Class B shares for
the period since the commencement of operations exceeded direct cash expenses by
$37,731,080 (4.74% of Class B net assets at that date). Similar fully allocated
accrual data was not calculated with respect to Class C shares as of December
31, 1994 because the Fund commenced offering Class C shares to the public on
October 21, 1994. As of October 31, 1995, with respect to Class C shares, direct
cash revenues for the period since October 21, 1994 (commencement of operations)
exceeded direct cash expenses by $8,430 (.08% of Class C net assets at that
date).
31
<PAGE> 34
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Trustees of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In their review of the Distribution
Plans, the Trustees will be asked to take into consideration expenses incurred
in connection with the account maintenance and/or distribution of each class of
shares separately. The initial sales charges, the account maintenance fee, the
distribution fee and/or the CDSCs received with respect to one class will not be
used to subsidize the sale of shares of another class. Payments of the
distribution fee on Class B shares will terminate upon conversion of those Class
B shares into Class D shares as set forth under "Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B Shares to
Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSCs). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of
the Fund upon receipt of a written request in proper form. The redemption price
is the net asset value per share next determined after the initial receipt of
proper notice of redemption. Except for any CDSC which may be applicable to
Class B shares, there will be no charge for redemption if the redemption request
is sent directly to the Transfer Agent. Shareholders liquidating their holdings
will receive upon redemption all dividends reinvested through the date of
redemption. The value of shares at the time of redemption may be more or less
than the shareholders' cost, depending on the market value of the securities
held by the Fund at such time.
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<PAGE> 35
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Proper notice of redemption in
the case of shares deposited with the Transfer Agent may be accomplished by a
written letter requesting redemption. Proper notice of redemption in the case of
shares for which certificates have been issued may be accomplished by a written
letter as noted above accompanied by certificates for the shares to be redeemed.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Redemption requests should not be sent to the Fund. A
redemption request requires the signature(s) of all persons in whose name(s) the
shares are registered, signed exactly as the name(s) appear(s) on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the redemption request must be guaranteed by an "eligible guarantor institution"
(including, for example, Merrill Lynch branch offices and certain other
financial institutions) as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payments will be mailed within seven days of receipt of a
proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (i.e., cash or
certified check drawn on a U.S. bank) has been collected for the purchase of
such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Fund will also repurchase shares through a shareholder's listed
securities dealer. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the New
York Stock Exchange (generally, 4:00 p.m., New York time) on the day received
and that such request is received by the Fund from such dealer not later than 30
minutes after the close of business on the New York Stock Exchange on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the New York
Stock Exchange in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a charge on the shareholder for transmitting
the notice of repurchase to the Fund. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a repurchase of shares to such
customers. Repurchases directly through the Transfer Agent are not subject to
the processing fee. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders seeking
redemption through the repurchase procedure. A shareholder whose order for
repurchase is rejected by the Fund, however, may redeem shares as set forth
above.
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<PAGE> 36
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. Certain of such
services are not available to investors who place purchase orders for the Fund's
shares through the Merrill Lynch Blueprint(SM) Program. Full details as to each
of such services, copies of the various plans described below and instructions
as to how to participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Fund by calling the
telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened automatically, without charge, at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take delivery
of shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be
34
<PAGE> 37
transferred to the account at the new firm, or such shareholder must continue to
maintain a retirement account at Merrill Lynch for those shares.
Exchange Privilege. Shareholders of each class of shares of the Fund have
an exchange privilege with certain other MLAM-advised mutual funds. There is
currently no limitation on the number of times a shareholder may exercise the
exchange privilege. The exchange privilege may be modified or terminated in
accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period for the newly acquired shares of the
other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
35
<PAGE> 38
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be reexchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the Conversion Period for Class B
shares so reacquired, the holding period for the Class A shares will be "tacked"
to the holding period for the Class B or Class C shares originally held. The
Fund's exchange privilege is also modified with respect to purchases of Class A
and Class D shares by non-retirement plan investors under the MFA program.
First, the initial allocation of assets is made under the MFA program. Then, any
subsequent exchange under the MFA program of Class A or Class D shares of a
MLAM-advised mutual fund for Class A or Class D shares of the Fund will be made
solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund, without sales charge, at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification to Merrill
Lynch if the shareholder's account is maintained with Merrill Lynch or by
written notification or telephone call (1-800-MER-FUND) to the Transfer Agent if
the shareholder's account is maintained with the Transfer Agent, elect to have
subsequent dividends or capital gains distributions, or both, paid in cash,
rather than reinvested, in which event payment will be mailed on or about the
payment date. Cash payments can also be directly deposited to the shareholder's
bank account. No CDSC will be imposed upon redemption of shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA(R)/CBA(R) Systematic Redemption Program, subject to
certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
pre-arranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments made
in the Fund in their CMA(R) or CBA(R) accounts or in certain related accounts in
amounts of $100 or more through the CMA(R)/CBA(R) Automated Investment Program.
36
<PAGE> 39
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such as
in the case of Class B and Class C shares and the maximum sales charge in the
case of Class A and Class D shares. Dividends paid by the Fund with respect to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance and distribution fees and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over longer periods of time.
In advertisements distributed to investors whose purchases are subject to
reduced sales loads in the case of Class A and Class D shares or waiver of the
CDSC in the case of Class B shares (such as investors in certain retirement
plans), the performance data may take into account the reduced, and not the
maximum, sales charge or may not take into account the CDSC and therefore may
reflect greater total return since, due to the reduced sales charges or waiver
of the CDSC, a lower amount of expenses may be deducted. See "Purchase of
Shares". The Fund's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate such total return on a hypothetical $1,000
investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate, and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the Financial
Times -- Actuaries Europe Index, the Morgan Stanley Capital International Europe
Index, the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, or to performance data published by Lipper Analytical
Services,
37
<PAGE> 40
Inc., Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. In addition, from time to time the Fund
may include the Fund's risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
indicative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all its net investment income, if
any. Dividends from such net investment income are paid at least annually. All
net realized long- or short-term capital gains, if any, are declared and
distributed to the Fund's shareholders annually after the close of the Fund's
fiscal year. From time to time, the Fund may declare a special distribution at
or about the end of the calendar year in order to comply with a Federal income
tax requirement that certain percentages of its ordinary income and capital
gains be distributed during the calendar year. Dividends and distributions may
be reinvested automatically in shares of the Fund at net asset value without a
sales load. Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Capital gains distributions will be
automatically reinvested in shares unless the shareholder elects to receive such
distributions in cash. Dividends and distributions are taxable to shareholders
as discussed below whether they are reinvested in shares of the Fund or received
in cash.
The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and higher transfer
agency fees applicable with respect to that class. See "Additional
Information -- Determination of Net Asset Value".
Certain gains or losses attributable to foreign currency related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's ordinary income for tax purposes available for distribution
to shareholders. If such losses exceed other ordinary income during a taxable
year, (a) the Fund would not be able to make any ordinary income dividend
distributions, and (b) all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, rather than as an ordinary income dividend, reducing
each shareholder's tax basis in the Fund shares for Federal income tax purposes
and resulting in a capital gain for any shareholder who received such a
distribution greater than the shareholders' tax basis in fund shares (assuming
the shares were held as a capital asset). For a detailed discussion of the
Federal tax considerations relevant to foreign currency transactions, see
"Additional Information -- Taxes". If in any fiscal year, the Fund has net
income from certain foreign currency transactions, such income will be
distributed annually.
See "Shareholder Services -- Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary
38
<PAGE> 41
income and net realized capital gains which it distributes to Class A, Class B,
Class C and Class D shareholders (together, the "shareholders"). The Fund
intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or less, however,
will be treated as long-term capital loss to the extent of any capital gains
dividends received by the shareholder. Distributions in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes.
39
<PAGE> 42
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. In certain circumstances the Fund may elect
capital gain or loss treatment for such transactions. Such Code Section 988
gains or losses will generally increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
shareholder's tax basis in Fund shares (assuming the shares were held as a
capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of new shares in the absence of the
exchange privilege. Instead, such charge will be treated as an amount paid for
the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
40
<PAGE> 43
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 p.m., New York time) on each day during which the New
York Stock Exchange is open for trading or on such other day that there is
sufficient trading in portfolio securities that the net asset value of the
Fund's shares may be materially affected. Any assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or dealers on the day of
valuation. The net asset value per share is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at such
time, rounded to the nearest cent. Expenses, including the fees payable to the
Manager and any account maintenance and/or distribution fees payable to the
Distributor, are accrued daily.
The per share net asset value of the Class A shares will generally be
higher than the per share net asset value of the other classes, reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; moreover, the per share net asset value of the Class
D shares generally will be higher than the per share net asset value of the
Class B and Class C shares, reflecting the daily expense accruals of the
distribution and higher transfer agency fees applicable with respect to Class B
and Class C shares. It is expected, however, that the per share net asset value
of the classes will tend to converge (although not necessarily meet) immediately
after the payment of dividends or distributions which will differ by
approximately the amount of the expense accrual differentials between the
classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) 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. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon 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 by the
Fund are valued at their 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. Other investments, including futures contracts and related options, are
stated at market value.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Fund.
Since foreign securities exchanges may be open on certain U.S. holidays on
which the Fund will not determine its net asset value and accept share orders,
portfolio securities will trade and the net asset value of the Fund's shares may
be significantly affected on days when an investor has no access to the Fund.
ORGANIZATION OF THE FUND
The Fund was organized on March 11, 1986, under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust". The Fund is authorized to issue an
41
<PAGE> 44
unlimited number of shares of beneficial interest of $.10 par value of different
classes. The shares of the Fund are divided into Class A, Class B, Class C and
Class D shares. Class A, Class B, Class C and Class D shares represent interests
in the assets of the Fund and 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
associated with such shares, and Class B and Class C shares bear certain
expenses related to the distribution of such shares and that each class has
exclusive voting rights with respect to matters relating to account maintenance
and distribution expenditures, as applicable. See "Purchase of Shares". Shares
issued are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in this Prospectus. The Trustees of the
Fund may classify and reclassify the shares of the Fund into additional classes
at a future date.
The Declaration of Trust of the Fund, as amended (the "Declaration"), does
not require that the Fund hold an annual meeting of shareholders. However, the
Fund will be required to call special meetings of shareholders in accordance
with the requirements of the Investment Company Act to seek approval of new
management and advisory arrangements, a material increase in distribution fees
or a change in the fundamental policies, objective or restrictions of the Fund.
The Fund also would be required to hold a special shareholders' meeting to elect
new Trustees at such time as less than a majority of the Trustees holding office
have been elected by shareholders. The Declaration provides that a shareholders'
meeting may be called for any reason at the request of 10% of the outstanding
shares of the Fund or by a majority of the Trustees.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this, please call your Merrill Lynch
financial consultant or Merrill Lynch Financial Data Services, Inc. at
1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
------------------------
The Declaration, dated March 11, 1986, and subsequently amended, a copy of
which is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "Merrill Lynch EuroFund" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Fund shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of said Fund,
but the "Trust Property" only shall be liable.
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<PAGE> 45
MERRILL LYNCH EUROFUND -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch EuroFund and establish an Investment Account as described in
the Prospectus. In the event that I am not eligible to purchase Class A shares,
I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. ........................... 4. ...........................
2. ........................... 5. ...........................
3. ........................... 6. ...........................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................. Date....
(Zip Code)
<TABLE>
<CAPTION>
<S> <C>
Occupation ......................................... Name and Address of Employer.................................................
.............................................................................
.............................................................................
................................................... .............................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<CAPTION>
Ordinary Income Dividends Long-term Capital Gains
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch EuroFund Authorization Form.
Specify type of account (check one): / / checking / / savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ................................................... Account
Number..........................................................................
Bank Address....................................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor..........................................................
Signature of Depositor ......................................................
Date............................................................................
(if joint account, both must sign)
NOTE: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
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<PAGE> 46
MERRILL LYNCH EUROFUND -- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
--------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information -- Taxes") either because I have not been notified that
I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH-SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
..................., 19 ..
Date of initial purchase
</TABLE>
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch EuroFund or any other investment company with an initial sales charge or
deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as
distributor over the next 13 month period which will equal or exceed:
<TABLE>
<S> <C> <C> <C> <C>
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
</TABLE>
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch EuroFund Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch EuroFund held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch EuroFund
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the shareholder's signature.
...............................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C>
..............................
/ / / / / / / / / / / / / /
Branch-Code F/C No. F/C Last Name
/ / / / / / / / / / / / / / / /
</TABLE>
Dealer's Customer Account No.
44
<PAGE> 47
MERRILL LYNCH EUROFUND -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
(PLEASE PRINT) ------------------------------------
Name of Owner.......................................................................
------------------------------------
First Name Initial Last Name Social Security No.
or Taxpayer Identification No.
Address.............................................................................
.................................................................................... Account Number...........................
(Zip Code) (if existing account)
Name of Co-Owner (if any)...........................................................
Address.............................................................................
....................................................................................
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch EuroFund at
cost or current offering price. Withdrawals to be made either (check one) / /
Monthly on the 24th day of each month, or / / Quarterly on the 24th day of
March, June, September and December. If the 24th falls on a weekend or holiday,
the next succeeding business day will be utilized. Begin systematic withdrawal
on or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $
or / / % of the current value of / / Class A or / / Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK
/ / as indicated in Item 1.
/ / to the order of..........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)......................................................
Address.........................................................................
...........................................................................
Signature of Owner
..............................................................................
Date............................................................................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .............................................................
Account Number..................................................................
Bank Address....................................................................
......................................................................
Signature of Depositor
..............................................................................
Date............................................................................
Signature of Depositor..........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
45
<PAGE> 48
MERRILL LYNCH EUROFUND -- AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
<TABLE>
<S> <C> <C> <C>
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
</TABLE>
of Merrill Lynch EuroFund, subject to the terms set forth below. In the event
that I am not eligible to purchase Class A shares, I understand that Class D
shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch EuroFund as indicated below:
Amount of each check or ACH debit $..........................................
Account No...................................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon as possible thereafter.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
credit my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip Code.......................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
46
<PAGE> 49
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................... 2
Merrill Lynch Select Pricing(SM) System...... 3
Financial Highlights......................... 8
Special and Risk Considerations.............. 11
General.................................... 11
Investment in Eastern European Markets..... 12
Investment Objective and Policies............ 13
Certain Other Investment Practices......... 14
Investment Restrictions.................... 19
Management of the Fund....................... 20
Trustees................................... 20
Management and Advisory Arrangements....... 21
Code of Ethics............................. 22
Transfer Agency Services................... 22
Purchase of Shares........................... 23
Initial Sales Charge Alternatives -- Class
A and Class D Shares..................... 25
Deferred Sales Charge Alternatives -- Class
B and Class C Shares..................... 27
Distribution Plans......................... 30
Limitations on the Payment of Deferred
Sales Charges............................ 32
Redemption of Shares......................... 32
Redemption................................. 33
Repurchase................................. 33
Reinstatement Privilege -- Class A and
Class D Shares........................... 34
Shareholder Services......................... 34
Performance Data............................. 37
Additional Information....................... 38
Dividends and Distributions................ 38
Taxes...................................... 38
Determination of Net Asset Value........... 41
Organization of the Fund................... 41
Shareholder Reports........................ 42
Shareholder Inquiries...................... 42
Authorization Form........................... 43
Code # 10475-0296
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
EUROFUND
PROSPECTUS
February 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be
retained for future reference.
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH EUROFUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch EuroFund (the "Fund") is a mutual fund seeking to provide
shareholders with capital appreciation primarily through investment in equities
of corporations domiciled in European countries. Current income from dividends
and interest will not be an important consideration in selecting portfolio
securities. The Fund expects that 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 stocks. There can be no assurance that the investment objective of the
Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances.
-------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
February 27, 1996 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
-------------------------
The date of this Statement of Additional Information is February 27, 1996.
<PAGE> 52
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation
primarily through investment in equities of corporations domiciled in European
countries. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P. (the "Manager"), will
effect portfolio transactions without regard to holding period if, in its
judgment, such transactions are advisable in light of a change in circumstances
of a particular company or within a particular industry or due to general
market, economic or financial conditions. Accordingly, while the Fund
anticipates that its annual portfolio turnover rate should not exceed 150% under
normal conditions, it is impossible to predict portfolio turnover rates. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of U.S. Government securities and of all other securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year. For the fiscal years ended
October 31, 1994 and 1995, the Fund's portfolio turnover rate was 82.47% and
72.16%, respectively. The Fund is subject to the Federal income tax requirement
that less than 30% of the Fund's gross income be derived from gains from the
sale or other disposition of securities held for less than three months.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate. Any changes in
the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority of
the Fund's outstanding voting securities.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis on each day the Fund determines its net asset value in U.S. dollars, the
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. See "Redemption of Shares". Under present conditions, the Manager
does not believe that these considerations will have any significant effect on
its portfolio strategy, although there can be no assurance in this regard.
OTHER INVESTMENT POLICIES AND PRACTICES
Hedging Techniques. Reference is made to the discussion concerning hedging
techniques under the caption "Investment Objective and Policies -- Certain Other
Investment Practices -- Hedging Techniques" in the Prospectus.
The Fund may engage in various portfolio strategies to hedge its portfolio
against investment and currency risks. These strategies include the use of
options on portfolio securities, currency options and futures, and options on
such futures and forward foreign currency transactions. While the Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Fund's shares will fluctuate.
2
<PAGE> 53
Although certain risks are involved in options and futures transactions (as
discussed below), the Manager believes that, because the Fund will only engage
in these transactions for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions.
The following information relates to the hedging instruments the Fund may
utilize with respect to currency risks.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase of
an identical option prior to the expiration of the option it has written.
Covered call options serve as a partial hedge against a decline in the price of
the underlying security.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer would realize a gain in the amount of the
premium. Such a gain, of course, may be offset by a decline in the market value
of the underlying security during the option period. If a call option is
exercised, the writer would realize a gain or loss from the sale of the
underlying security.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies, with a securities depository with a value equal
to or greater than the exercise price of the underlying securities. By writing a
put, the Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written.
Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus limiting
the Fund's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of the
underlying security will be offset partially by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction; profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction cost. A closing sale
transaction cancels out the Fund's position as the purchaser of an option by
means of an offsetting sale of
3
<PAGE> 54
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities which it
intends to purchase. The Fund will not purchase options on securities if as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions involves the risk of imperfect correlation in movements
in the prices of options and futures contracts and movements in the price of the
securities and currencies which are the subject of the hedge. If the price of
the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Fund will experience a gain or loss which
will not be completely offset by movements in the prices of the securities and
currencies which are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Fund will enter into an option or futures transaction on an exchange
only if there appears to be a liquid secondary market for such option or
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular call or put option or futures contract at any specific
time. Thus, it may not be possible to close an option or futures position. The
Fund will acquire only over-the-counter options for which management believes
the Fund can receive on each business day at least two independent bids or
offers (one of which will be from an entity other than a party to the option),
unless there is only one dealer, in which case such dealer's price will be used.
In the case of a futures position or an option on a futures position written by
the Fund, in the event of adverse price movements, the Fund would continue to be
required to make daily cash payments of variation margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Fund may be required to take or make delivery of the
security or currency underlying the futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in the futures contract or related option.
The risk of loss from investing in futures transactions is theoretically
unlimited.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these limits,
and it may impose other sanctions or restrictions. The Manager does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
Forward Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to
4
<PAGE> 55
another. However, the Fund has authority to deal in forward foreign exchange
between currencies of the different countries in whose securities it will invest
as a hedge against possible variations in the foreign exchange rates between
these currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. The Fund's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward foreign exchange.
The Fund may not position hedge with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian will place cash or liquid securities in a separate
account of the Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of such forward contract. If the value of the
securities placed in the separate account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to such contracts. The
Fund will not enter into a forward contract with a term of more than one year.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in foreign currency transactions varies with such factors as the
currency involved, the length of the contract period and the market conditions
then prevailing. Since transactions in foreign currency exchange are usually
conducted on a principal basis, no fees or commissions are involved.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period. Repurchase
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. As a purchaser,
the Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but constitute only collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a repurchase
agreement, instead of the contractual fixed rate of return, the rate of return
to the Fund shall be dependent upon intervening fluctuations of the market value
of such securities and the accrued interest on the securities. In such event,
the
5
<PAGE> 56
Fund would have rights against the seller for breach of contract with respect to
any losses arising from market fluctuations following the failure of the seller
to perform.
Lending of Portfolio Securities. Subject to the investment restrictions
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive collateral in cash or securities issued or guaranteed by
the U.S. Government which are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The purpose of
such loans is to permit the borrowers to use such securities for delivery to
purchasers when such borrowers have sold short. If cash collateral is received
by the Fund, it is invested in short-term money market securities, and a portion
of the yield received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as collateral, the Fund
and the borrower negotiate a rate for the loan premium to be received by the
Fund for lending its portfolio securities. In either event, the total yield on
the Fund's portfolio is increased by loans of its portfolio securities. The Fund
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are terminable at any
time. The Fund may pay reasonable finder's, administrative and custodial fees in
connection with such loans. With respect to the lending of portfolio securities,
there is the risk of failure by the borrower to return the securities involved
in such transactions.
Debt Securities. The Fund may hold convertible debt securities and, from
time to time as a temporary defensive measure, may also hold non-convertible
debt securities and preferred securities. The Fund has established no rating
criteria for the debt securities in which it may invest. Therefore, the Fund may
invest in debt securities either (a) rated in one of the top four rating
categories by a nationally recognized rating organization or which, in the
Manager's judgment, possess similar credit characteristics ("investment grade
securities") or (b) rated below the top four rating categories or which, in the
Manager's judgment, possess similar credit characteristics ("high yield
securities"). The Manager considers ratings as one of several factors in its
independent credit analysis of issuers.
Issuers of high yield securities may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. In addition, the market for high yield securities
is relatively new and has not weathered a major economic recession, and it is
unknown what effect such a recession might have on such securities. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments or the issuer's
inability to meet specific projected business forecasts or the unavailability of
additional financing. The risk of loss due to default by the issuer is
significantly greater for the holder of high yield securities because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
High yield securities frequently have call or redemption features which
would permit issuers to repurchase such securities from the Fund. If a call were
exercised by an issuer during a period of declining interest rates, the Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends to
shareholders.
6
<PAGE> 57
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield securities, there is no established
retail secondary market for many of these securities, and the Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. To the extent that a secondary trading market for high
yield securities does exist, it is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
securities also may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many high yield securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
securities, particularly in a thinly traded market. To the extent the Fund holds
high yield securities, factors adversely affecting the market value of high
yield securities are likely to adversely affect the Fund's net asset value. In
addition, the Fund may incur additional expenses to the extent it is required to
seek recovery upon a default on a portfolio holding or participate in the
restructuring of the obligation.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities (which for
this purpose and under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities,
7
<PAGE> 58
provided that the lending of portfolio securities may be made only in
accordance with applicable law and the guidelines set forth in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions which
may be changed by the Board of Trustees. Under the non-fundamental
investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Trustees of the Fund has
otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act and determined to be liquid by the Fund's Board of Trustees are not
subject to the limitations set forth in this investment restriction (c).
8
<PAGE> 59
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 10%
of the Fund's total assets.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (7) above,
borrow amounts in excess of 20% of its total assets, taken at market value,
and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Fund shares. In addition, the
Fund will not purchase securities while borrowings are outstanding except
to exercise prior commitments and to exercise subscription rights.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased over-the-counter options ("OTC options") and
the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of such transaction, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceeds 15% (10% to the extent
required by certain state laws) of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money". This policy as to
OTC options is not a fundamental policy of the Fund and may be amended by the
Trustees of the Fund without the approval of the Fund's shareholders. However,
the Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
9
<PAGE> 60
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Manager or its affiliates or any of their directors, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act. Because of the affiliation
of the Manager with the Fund, the Fund is prohibited from engaging in certain
transactions involving the Manager's affiliate, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") or its affiliates except for brokerage
transactions permitted under the Investment Company Act involving only usual and
customary commissions or transactions pursuant to an exemptive order under the
Investment Company Act. See "Portfolio Transactions and Brokerage". Without such
an exemptive order, the Fund would be prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act, in which such firm or any of its affiliates participate as an
underwriter or dealer.
The investment restrictions contain an exception that permits the Fund to
purchase securities pursuant to the exercise of subscription rights, subject to
the condition that such purchase will not result in the Fund ceasing to be a
diversified investment company. European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in the Fund's interest in the
issuing company being diluted and may cause the Fund to forego a favorable
investment opportunity. The market for such rights is not well developed, and
accordingly, the Fund may not always realize full value on the sale of rights.
Therefore, the exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising rights or have
already been exceeded as a result of fluctuations in the market value of the
Fund's portfolio securities with the result that the Fund would otherwise be
forced either to sell securities at a time when it might not otherwise have done
so or to forego exercising the rights.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Trustee is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (63) -- President and Trustee(1)(2) -- President of the
Manager (which term as used herein includes its corporate predecessors) since
1977; President of Fund Asset Management, L.P. ("FAM") (which term as used
herein includes its corporate predecessors) since 1977; President and Director
of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of
Merrill Lynch Funds Distributor, Inc. (the "Distributor".)
DONALD CECIL (69) -- Trustee(2) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (69) -- Trustee(2) -- 777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of
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<PAGE> 61
Directors since 1972; Director of The May Department Stores Company, Bowne &
Co., Inc. (financial printers), Ethan Allen Interiors Inc. and Harman
International Industries, Inc.
CHARLES C. REILLY (64) -- Trustee(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; former
Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990;
Adjunct Professor, Columbia University Graduate School of Business, 1990;
Adjunct Professor, Wharton School, University of Pennsylvania, 1990; Partner,
Small Cities Cablevision, Inc.
RICHARD R. WEST (58) -- Trustee(2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, New York University
Leonard N. Stern School of Business Administration; Director of Bowne & Co.,
Inc. (financial printers), Vornado, Inc. (real estate holding company), Smith-
Corona Corporation (manufacturer of typewriters and word processors) and
Alexander's, Inc. (real estate company).
EDWARD D. ZINBARG (61) -- Trustee(2) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
TERRY K. GLENN (55) -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
NORMAN R. HARVEY (62) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
ALAN J. ALBERT (48) -- Vice President(1) -- Senior Managing Director of
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") since 1993; Vice
President of the Manager since 1986.
ADRIAN HOLMES (34) -- Vice President(1)(2) -- Managing Director of European
Equities for MLAM U.K. since 1993; Vice President of the Manager since 1990 and
associated therewith since 1987.
DONALD C. BURKE (35) -- Vice President(1)(2) -- Vice President and Director
of Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from
1982 to 1990.
GERALD M. RICHARD (46) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984.
ROBERT HARRIS (44) -- Secretary(1)(2) -- Vice President of the Manager
since 1984 and attorney associated with the Manager since 1980; Secretary of the
Distributor since 1982.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of one or more
additional investment companies for which the Manager, or its affiliate,
FAM, acts as investment adviser or manager.
At January 31, 1996, the officers and Trustees of the Fund as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Trustee and officer of the Fund, and the other
officers of the Fund, owned less than 1% of the outstanding shares of common
stock of ML & Co.
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<PAGE> 62
COMPENSATION OF TRUSTEES
The Fund pays each Trustee not affiliated with the Manager a fee of $3,500
per year plus $500 per meeting attended, together with such Trustee's actual
out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit and Nominating Committee (the "Committee"),
which consists of all of the non-affiliated Trustees, at a rate of $500 per
meeting attended. The Chairman of the Committee receives an additional fee of
$250 per meeting attended. Fees and expenses paid to the unaffiliated Trustees
aggregated $38,811 for the fiscal year ended October 31, 1995.
The following table sets forth for the fiscal year ended October 31, 1995,
compensation paid by the Fund to the non-interested Trustees and for the
calendar year ending December 31, 1995, the aggregate compensation paid by all
registered investment companies advised by the Manager and its affiliate, FAM
("MLAM/FAM Advised Funds") to the non-interested Trustees.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT BENEFITS MLAM/FAM ADVISED
COMPENSATION ACCRUED AS PART FUNDS PAID
NAME OF TRUSTEE FROM FUND OF FUND EXPENSES TO TRUSTEES(1)
- ------------------------------------------ ---------------- ------------------- ----------------------
<S> <C> <C> <C>
Donald Cecil.............................. $8,500 None $271,850
Edward H. Meyer........................... $7,500 None $239,225
Charles C. Reilly......................... $7,500 None $269,600
Richard R. West........................... $7,500 None $294,600
Edward D. Zinbarg......................... $7,500 None $155,063
</TABLE>
- ---------------
(1) In addition to the Fund, the Trustees serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Cecil (35 funds and portfolios); Mr. Meyer (35
funds and portfolios); Mr. Reilly (54 funds and portfolios); Mr. West (54
funds and portfolios); and Mr. Zinbarg (17 funds and portfolios).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities by the Manager for the Fund or other funds for which it acts as
investment adviser or for its other advisory clients arise for consideration at
or about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. As discussed in the Prospectus, the Manager
receives for its services to the Fund monthly
12
<PAGE> 63
compensation at the annual rate of 0.75% of the average daily net assets of the
Fund. For the fiscal years ended October 31, 1993, 1994 and 1995, the total
management fees paid by the Fund to the Manager aggregated $4,484,339,
$10,148,764 and $8,514,893, respectively.
The Manager has also entered into a sub-advisory agreement with MLAM U.K.,
a wholly-owned, indirect subsidiary of ML & Co. and an affiliate of the Manager,
pursuant to which MLAM pays MLAM U.K. a fee computed at the annual 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 fiscal years ended October
31, 1993, 1994 and 1995, the fees paid by MLAM to MLAM U.K. pursuant to such
arrangement aggregated $896,864, $2,006,345 and $1,702,979, respectively.
California imposes limitations on the expenses of the Fund. These expense
limitations require that the Manager reimburse the Fund in an amount necessary
to prevent the aggregate ordinary operating expenses of the Fund (excluding
taxes, distribution fees, brokerage fees and commissions and extraordinary
charges such as litigation costs) from exceeding 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the remaining average daily net assets. The
Manager's obligation to reimburse the Fund is limited to the amount of the
management fee. No fee payment will be made to the Manager during any fiscal
year which will cause such expenses to exceed the most restrictive expense
limitation at the time of such payment.
The Fund has received an order from the State of California partially
waiving the expense limitations described above. Pursuant to the terms of such
order, the expense limitations that would otherwise apply are waived to the
extent the Fund's expense for custodial services, management and auditing fees
exceeds the average of such fees of a group of funds managed by the Manager or
its subsidiary which primarily invest domestically. Since the commencement of
operations of the Fund, no reimbursement of expenses has been required pursuant
to the applicable expense limitation provisions discussed above.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Trustees of the Fund who are affiliated persons of the Manager or any of its
affiliates. The Fund pays all other expenses incurred in its operation,
including, among other things, taxes; expenses for legal and auditing services;
costs of printing proxies, stock certificates, shareholder reports, prospectuses
and statements of additional information (except to the extent paid by the
Distributor); charges of the custodian, any sub-custodian and transfer agent;
expenses of redemption of shares; Commission fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of unaffiliated
Trustees; accounting and pricing costs (including the daily calculation of net
asset value); insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses properly payable by
the Fund. Accounting services are provided to the Fund by the Manager, and the
Fund reimburses the Manager for its costs in connection with such services. For
the fiscal years ended October 31, 1993, 1994 and 1995, the amounts of such
reimbursement were $60,042, $97,681 and $277,433, respectively. As required by
the Fund's distribution agreements, its underwriters will pay certain
promotional expenses of the Fund incurred in connection with the offering of its
shares. Certain expenses in connection with the account maintenance and/or
distribution of Class B, Class C and Class D shares will be financed by the Fund
pursuant to distribution plans in compliance with Rule 12b-1 under the
Investment Company Act. See "Purchase of Shares -- Distribution Plans".
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<PAGE> 64
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Manager as defined under the Investment Company Act because of
their ownership of its voting securities or their power to exercise a
controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement and the sub-advisory agreement will remain in effect
from year to year if approved annually (a) by the Board of Trustees or by a
majority of the outstanding shares of the Fund and (b) by a majority of the
Trustees who are not parties to such contract or interested persons (as defined
in the Investment Company Act) of any such party. Such contracts are not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents identical interests in
the investment portfolio of the Fund and has the same rights, except that Class
B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangement. Class B, Class C and Class
D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid. Each class has different exchange
privileges. See "Shareholder Services -- Exchange Privilege".
The Merrill Lynch Select Pricing(SM) System is used by more than 50 mutual
funds advised by the Manager or its affiliate, FAM. Funds advised by the Manager
or FAM which utilize the Merrill Lynch Select Pricing(SM) System are referred to
herein as "MLAM-advised mutual funds".
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement and the
sub-advisory agreement described above.
14
<PAGE> 65
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended October 31, 1993, 1994 and 1995, the Fund sold
its Class A shares through the Distributor and Merrill Lynch, as a dealer. For
the fiscal year ended October 31, 1993, the Fund sold 8,144,065 Class A shares
for aggregate net proceeds to the Fund of $105,277,574. The gross sales charges
for the sale of Class A shares for the fiscal year ended October 31, 1993, were
$1,566,988, of which the Distributor received $101,049 and Merrill Lynch
received $1,465,939. For the fiscal year ended October 31, 1994, the Fund sold
12,530,353 Class A shares for aggregate net proceeds to the Fund of
$190,014,197. The gross sales charges for the sale of Class A shares for the
fiscal year ended October 31, 1994, were $3,058,065, of which the Distributor
received $93,139 and Merrill Lynch received $2,964,926. For the fiscal year
ended October 31, 1995, the Fund sold 3,992,118 Class A shares for aggregate net
proceeds to the Fund of $59,286,758. The gross sales charges for the sale of
Class A shares for the fiscal year ended October 31, 1995, were $55,516, of
which the Distributor received $3,461 and Merrill Lynch received $52,055.
For the period October 21, 1994 (commencement of operations) to October 31,
1995, the Fund sold its Class D shares through the Distributor and Merrill
Lynch, as a dealer. For the period October 21, 1994 (commencement of operations)
to October 31, 1994, the Fund sold 24,171 Class D shares for aggregate net
proceeds to the Fund of $381,029. The gross sales charges for the sale of Class
D shares for the period October 21, 1994 (commencement of operations) to October
31, 1994, were $10,279, of which the Distributor received $679 and Merrill Lynch
received $9,600. For the fiscal year ended October 31, 1995, the Fund sold
2,264,532 Class D shares for aggregate net proceeds to the Fund of $34,246,830.
The gross sales charges for the sale of Class D shares for the fiscal year ended
October 31, 1995, were $144,287, of which the Distributor received $8,688 and
Merrill Lynch received $135,599.
For the fiscal year ended October 31, 1995, the Distributor received no
CDSCs with respect to redemptions within one year after purchase of Class A
shares purchased subject to front-end sales charge waivers. For the fiscal year
ended October 31, 1995, the Distributor received CDSCs of $392, all of which
were paid to Merrill Lynch, with respect to redemptions within one year after
purchase of Class D shares purchased subject to front-end sales charge waivers.
The term "purchase", as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code")) although more than
one beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount;
provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The term "purchase" also includes purchases by employee benefit plans not
qualified under Section 401 of the Code, including purchases by employees or by
employers on behalf of employees, by means of a payroll deduction plan or
otherwise, of
15
<PAGE> 66
shares of the Fund. Purchases by such a company or non-qualified employee
benefit plan will qualify for quantity discounts only if the Fund and the
Distributor are able to realize economies of scale in sales effort and sales
related expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan bearing
the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or its
affiliate, FAM, who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing(SM) System commenced operations)
and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares, if the conditions set forth
below are satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994, and wish to reinvest the net proceeds
from a sale of their closed-end fund shares are offered Class A shares (if
eligible to buy Class A shares) or Class D shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class D Shares"), if the following
conditions are met. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock acquired in such
offering. Third, the closed-end fund shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth, there must be a
minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the fund in
connection with a tender offer conducted by the eligible fund and reinvest the
proceeds immediately in the designated class of shares of the Fund. This
investment option is available only with respect to eligible shares as to which
no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
REDUCED INITIAL SALES CHARGES -- CLASS A AND CLASS D SHARES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of
16
<PAGE> 67
qualification. Acceptance of the purchase order is subject to such confirmation.
The right of accumulation may be amended or terminated at any time. Shares held
in the name of a nominee or custodian under pension, profit-sharing, or other
employee benefit plans may not be combined with other shares to qualify for the
right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares purchased does not equal the amount stated in the Letter of
Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
Class A or Class D shares equal to five percent of the intended amount will be
held in escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the Letter of
Intention must be at least five percent of the dollar amount of such Letter. If
a purchase during the term of such Letter would otherwise be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to that further
reduced percentage sales charge, but there will be no retroactive reduction of
the sales charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares
of the Fund may purchase additional Class A shares of the Fund through
Blueprint. The Blueprint program is directed to small investors, group IRAs
and participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from
$300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at the standard
sales charge rates disclosed in the Prospectus). In addition, Class A or
Class D shares of the Fund are being offered at net asset value plus a sales
charge of 1/2 of 1% for corporate or group IRA programs placing orders to
purchase their Class A or Class D shares through
17
<PAGE> 68
Blueprint. Services, including the exchange privilege, available to Class A and
Class D investors through Blueprint, however, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer sponsored retirement or savings plans
(see "Employer Sponsored Retirement or Savings Plans and Certain Other
Arrangements" below) whose Trustee and/or Plan Sponsor has entered into a
Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are also offered at net asset value
to TMASM Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
Employee Access AccountsSM. Class A or Class D shares are offered at net
asset value to Employee Access AccountsSM available through employers that
provide employer-sponsored retirement or savings plans that are eligible to
purchase such shares at net asset value. The minimum initial purchase for such
accounts is $500, except that the initial minimum for shares purchased for such
accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Trustees of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML&Co. and its subsidiaries (the term "subsidiaries" when used herein with
respect to ML&Co. includes MLAM, FAM and certain other entities directly or
indirectly wholly owned and controlled by ML&Co.) and any trust, pension,
profit-sharing or other benefit plan for such persons may purchase Class A
shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Fund, and the proceeds
from the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated, if the following
18
<PAGE> 69
conditions are satisfied: first, the investor must purchase Class D shares of
the Fund with proceeds from a redemption of shares of such other mutual fund and
the shares of such other fund were subject to a sales charge either at the time
of purchase or on a deferred basis; and second, such purchase of Class D shares
must be made within 90 days after such notice of termination.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of such shares of
the other mutual fund and that such shares have been outstanding for a period of
no less that six months; and second, such purchase of Class D shares must be
made within 60 days after the redemption and the proceeds from the redemption
must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Fund which might result from an
acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule
19
<PAGE> 70
12b-1 under the Investment Company Act (each a "Distribution Plan") with respect
to the account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Trustees shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Trustees must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Trustees who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Trustees"), shall be committed to the discretion of the Independent
Trustees then in office. In approving each Distribution Plan in accordance with
Rule 12b-1, the Independent Trustees concluded that there is reasonable
likelihood that such Distribution Plan will benefit the Fund and its related
class of shareholders. Each Distribution Plan can be terminated at any time,
without penalty, by the vote of a majority of the Independent Trustees or by the
vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of the Trustees, including a majority of the Independent
Trustees who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
20
<PAGE> 71
The following table sets forth comparative information as of October 31,
1995, indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule with respect to Class B and Class C shares and the
Distributor's voluntary maximum with respect to Class B shares for the periods
indicated.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF OCTOBER 31, 1995
-----------------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- --------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares, for the period
January 30, 1987 (commencement
of operations) to October 31,
1995:
Under NASD Rule as Adopted........ $1,820,149 $113,759 $42,482 $156,241 $ 55,218 $101,023 $ 5,966
Under Distributor's Voluntary
Waiver.......................... $1,820,149 $113,759 $ 9,101 $122,860 $ 55,218 $ 67,642 $ 5,966
Class C Shares, for the period
October 21, 1994 (commencement
of operations) to October 31,
1995:
Under NASD Rule as Adopted........ $ 5,451 $ 341 $ 16 $ 357 $ 27 $ 330 $ 73
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B or Class C shares sold during the
period indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 1.0%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to receive payment with respect to any redemption of shares may
be suspended by the Fund for a period of up to seven days. Suspensions of more
than seven days may not be made except (1) for any period (a) during which the
New York Stock Exchange is closed other than customary weekend and holiday
closings or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) for such other periods as the
Commission may by order permit for the protection of security holders of the
Fund. The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an emergency
shall be deemed to exist within the meaning of clause (2) above.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Fund at such time.
21
<PAGE> 72
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or on redemptions of Class B
shares following the death or disability of a Class B shareholder. Redemptions
for which the waiver applies are: (a) any partial or complete redemption in
connection with a tax-free distribution following retirement under a
tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA, or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the fiscal years ended October 31, 1993, 1994 and 1995, with
respect to redemptions of Class B shares, the Distributor received CDSCs of
$927,070, $1,866,124 and $2,352,273, respectively, all of which was paid to
Merrill Lynch. For the fiscal period October 21, 1994 to October 31, 1994, the
Distributor received no CDSCs, with respect to redemptions of C shares. For the
fiscal year ended October 31, 1995, with respect to redemptions of Class C
shares, the Distributor received CDSCs of $2,495, all of which was paid to
Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Fund are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Fund will be grouped for execution
purposes which, in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The minimum initial
purchase order is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Employee Access AccountsSM. The CDSC is also waived for any Class B shares
that were acquired and held at the time of redemption by Employee Access
AccountsSM available through employers that provide eligible 401(k) plans. The
minimum initial purchase for such accounts is $500, except that the initial
minimum for shares purchased for such accounts pursuant to the Automatic
Investment Program is $50.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies -- Other Investment
Policies and Practices" in the Prospectus.
Subject to policies established by the Trustees of the Fund, the Manager is
primarily responsible for the execution of the Fund's portfolio transactions and
the allocation of the brokerage. In executing such
22
<PAGE> 73
transactions, the Manager seeks to obtain the best net results for the Fund,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Manager generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commission or
spread available. The Fund has no obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. The Fund
contemplates that, consistent with the above policy of obtaining the best net
results, a portion of its brokerage transactions with respect to equities may be
conducted through Merrill Lynch and its affiliates. For the fiscal year ended
October 31, 1993, the Fund paid total brokerage commissions of $2,301,225, of
which $164,219 or 7.14% was paid to Merrill Lynch for effecting 6.82% of the
aggregate dollar amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended October 31, 1994, the Fund paid total
brokerage commissions of $2,510,229, of which $272,400 or 10.9% was paid to
Merrill Lynch for effecting 10.2% of the aggregate dollar amount of transactions
in which the Fund paid brokerage commissions. For the fiscal year ended October
31, 1995, the Fund paid total brokerage commissions of $2,266,109, of which
$169,311, or 7.5%, was paid to Merrill Lynch for effecting 8.9% of the aggregate
dollar amount of transactions in which the Fund paid brokerage commissions.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research to the Manager may receive orders for
transactions by the Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Manager under the
Management Agreement, and the expenses of the Manager will not necessarily be
reduced as a result of the receipt of such supplemental information. In
addition, consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and policies established by the Trustees of the
Fund, the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
It is possible that certain of the supplementary investment research so received
will primarily benefit one or more other investment companies or other accounts
for which investment discretion is exercised. Conversely, the Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other accounts or investment companies.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less governmental supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges or traded in
over-the-counter markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, as well as GDRs traded
in the United States, will be subject to negotiated commission rates.
The Fund may invest in securities traded in the over-the-counter markets
and intends to deal directly with the dealers who make markets in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Fund and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Fund as
23
<PAGE> 74
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission. Since transactions
in the over-the-counter market usually involve transactions with dealers acting
as principal for their own account, the Fund will not deal with affiliated
persons, including Merrill Lynch and any of its affiliates, in connection with
such transactions. See "Investment Objective and Policies -- Investment
Restrictions".
The Trustees have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fee paid by the Fund. After considering all
factors deemed relevant, the Trustees made a determination not to seek such
recapture. The Trustees will reconsider this matter from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the United States national securities exchanges from
executing exchange transactions for their affiliates and institutional accounts
which they manage unless the member (i) has obtained prior express authorization
from the account to effect such transactions, (ii) at least annually furnishes
the account with a statement disclosing the aggregate compensation received by
the member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate compensation will
be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information -- Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 15 minutes after the close of business on the New York
Stock Exchange (generally, 4:00 p.m., New York time), on each day during which
the New York Stock Exchange is open for trading. The New York Stock Exchange is
not open on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Fund also
will determine its net asset value on any day in which there is sufficient
trading in its portfolio securities that the net asset value might be affected
materially, but only if on any such day the Fund is required to sell or
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<PAGE> 75
redeem shares. Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates
quoted by one or more banks or dealers on the day of valuation.
Net asset value is computed by dividing the value of the securities held by
the Fund plus any cash or other assets (including interest and dividends accrued
but not yet received) minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time. Expenses, including the fees
payable to the Manager and any account maintenance and/or distribution fees, are
accrued daily. The per share net asset value of the Class B, Class C and Class D
shares generally will be lower than the per share net asset value of the Class A
shares reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares; moreover, the
per share net asset value of Class B and Class C shares generally will be lower
than the per share net asset value of Class D shares reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of the four classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) 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. 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 traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. When the Fund writes a call option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon 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 by the Fund are
valued at their 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.
Securities and assets for which market quotations are not readily available
are valued at fair market value as determined in good faith by or under the
direction of the Trustees of the Fund. Such valuations and procedures will be
reviewed periodically by the Trustees.
Since foreign securities exchanges may be open on certain U.S. holidays on
which the Fund will not determine its net asset value and accept share orders,
portfolio securities will trade and the net asset value of the Fund's shares may
be significantly affected on days when an investor has no access to the Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Fund's shares through the
Merrill Lynch Blueprint(SM) Program. Full details as to each such service and
copies of the various plans described below can be obtained from the Fund, the
Distributor or Merrill Lynch. Certain of these services are available only to
U.S. investors.
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<PAGE> 76
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestments of ordinary
income dividends and long-term capital gain distributions.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the transfer agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the transfer agent. If
the new brokerage firm is willing to accommodate the shareholder in this manner,
the shareholder must request that he be issued certificates for his shares, and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence. Shareholders considering transferring a
tax-deferred retirement account such as an IRA from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at
the new firm, or such shareholder must continue to maintain a retirement account
at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Fund's Automatic Investment Plan whereby the Fund is authorized
through pre-authorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Blueprint, no minimum charge to the
investor's bank account is required. An investor whose shares of the Fund are
held within a CMA(R) or CBA(R) account may arrange to have periodic investments
made in the Fund in amounts of $100 or more ($1 for retirement accounts) through
the CMA(R)/CBA(R) Automated Investment Program.
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<PAGE> 77
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the Fund.
Such reinvestment will be at the net asset value of the shares of the Fund, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Fund or vice
versa, and commencing ten days after receipt by the transfer agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make withdrawals from an
Investment Account on either a monthly or quarterly basis as provided below.
Quarterly withdrawals are available for shareholders who have acquired Class A
or Class D shares of the Fund having a value, based on cost or the current
offering price, of $5,000 or more and monthly withdrawals are available for
shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value determined as of 15
minutes after the close of business of the New York Stock Exchange (generally,
4:00 p.m., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If the Exchange is not open
for business on such date, the Class A or Class D shares will be redeemed at the
net asset value next determined after the close of the New York Stock Exchange
on the preceding business day. The check for the withdrawal payment will be
mailed, or the direct deposit of the withdrawal payment will be made, on the
next business day following redemption. When a shareholder is making systematic
withdrawals, dividends and distributions on all Class A or Class D shares in the
Investment Account are reinvested automatically in Class A or Class D shares of
the Fund, respectively. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the Fund,
the Fund's transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends and capital gains distributions, the shareholder's original
investment may be reduced correspondingly. Purchases of additional Class A or
Class D shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for Class A or Class D shares of the Fund from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed
on a monthly, bimonthly, quarterly, semiannual or
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<PAGE> 78
annual basis through the CMA(R)/CBA(R) Systematic Redemption Program. The
minimum fixed dollar amount redeemable is $25. The proceeds of systematic
redemptions will be posted to the shareholder's account five business days after
the date the shares are redeemed. Monthly systematic redemptions will be made at
net asset value on the first Monday of each month, bimonthly systematic
redemptions will be made at net asset value on the first Monday of every other
month, and quarterly, semiannual or annual redemptions are made at net asset
value on the first Monday of months selected at the shareholder's option. If the
first Monday of the month is a holiday, the redemption will be processed at net
asset value on the next business day. The Systematic Redemption Program is not
available if Fund shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA(R)/CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch financial consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing(SM) System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares are exchangeable
with shares of the same class of other MLAM-advised mutual funds. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period for the newly acquired shares of the
other fund as more fully described below. Class A, Class B, Class C and Class D
shares are also exchangeable for shares of certain MLAM-advised money market
funds specifically designated below as available for exchange by holders of
Class A, Class B, Class C or Class D shares. Shares with a net asset value of at
least $100 are required to qualify for the exchange privilege, and any shares
utilized in an exchange must have been held by the shareholder for at least 15
days. It is contemplated that the exchange privilege may be applicable to other
new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A or Class D shares acquired through dividend reinvestment
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<PAGE> 79
shall be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A or Class D shares of the Fund generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A or Class D money market funds with a reduced or without a sales
charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Fund exercising the exchange privilege will continue
to be subject to the Fund's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through use
of the exchange privilege will be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares of the
fund from which the exchange has been made. For purposes of computing the sales
charge that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or Class C shares is
"tacked" to the holding period for the new Class B or Class C shares. For
example, an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Fund Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of Fund Class B shares to the three year
holding period for the Special Value Fund Class B shares, the investor will be
deemed to have held the new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program. Such
retirement plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the basis of
relative net asset values in connection with the commencement of participation
in the MFA program, i.e., no CDSC will apply. The one year holding period does
not apply to shares acquired through reinvestment of dividends. Upon termination
of participation in the MFA program, Class A shares will be reexchanged for the
class of shares originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so reacquired or the
conversion period for Class B shares so reacquired, the holding period for the
Class A shares will be "tacked" to the holding period for the Class B or Class C
shares originally held.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Fund may, in turn,
be exchanged back into Class B or Class C shares, respectively, of any fund
offering such shares, in which event the holding period for Class B or Class C
shares received in such exchange will be aggregated with previous holding
periods for purposes of reducing the CDSC, or with respect to Class B shares,
towards satisfaction of the conversion period. Thus, for example, an investor
may exchange Class B shares of the Fund for shares of Merrill Lynch
Institutional Fund ("Institutional Fund") after having held the Fund Class B
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shares for two and a half years and three years later decide to redeem the
shares of Institutional Fund for cash. At the time of this redemption, the 2%
CDSC that would have been due had the Class B shares of the Fund been redeemed
for cash rather than exchanged for shares of Institutional Fund will be payable.
If instead of such redemption the shareholder exchanged such shares for Class B
shares of a fund which the shareholder continued to hold for an additional two
and a half years, any subsequent redemption would not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ........ High current income, consistent with a policy
of limiting the degree of fluctuation in
net asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed
and asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC. ................... A high level of current income, consistent
with prudent investment risk, by investing
primarily in debt securities denominated in
a currency of a country located in the
Western Hemisphere (i.e., North and South
America and the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arizona income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent with
prudent investment management.
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MERRILL LYNCH ASSET GROWTH FUND,
INC. ......................... High total investment return, consistent with
prudent risk, from investment in United
States and foreign equity, debt and money
market securities the combination of which
will be varied both with respect to types
of securities and markets in response to
changing market and economic trends.
MERRILL LYNCH ASSET INCOME FUND,
INC. ......................... A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BASIC VALUE FUND,
INC. ......................... Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and
therefore represent basic investment value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management through
investment in a portfolio consisting
primarily of insured California Municipal
Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and California income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade California Municipal
Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
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MERRILL LYNCH CAPITAL FUND,
INC. ........................... The highest total investment return
consistent with prudent risk through a
fully managed investment policy utilizing
equity, debt and convertible securities.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Connecticut income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. ................... Current income from three separate
diversified portfolios of fixed income
securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. ........... Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON FUND,
INC. ........................... Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin.
MERRILL LYNCH FEDERAL SECURITIES
TRUST......................... High current return through investments in
U.S. Government and Government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal income taxes as is consistent with
prudent investment management while serving
to offer shareholders the opportunity to
own securities exempt from Florida
intangible personal property taxes through
investment in a portfolio primarily of
intermediate-term investment grade Florida
Municipal Bonds.
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<PAGE> 83
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management, while seeking to
offer shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. ............... Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC. ................... Long-term growth of capital through
investment in a diversified portfolio of
equity securities placing particular
emphasis on companies that have exhibited
an above-average growth rate in earnings.
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide capital
appreciation and income by investing in
securities, with at least 65% of the
portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC. ................... High total return, consistent with prudent
risk, through a fully managed investment
policy utilizing United States and foreign
equity, debt and money market securities,
the combination of which will be varied
from time to time both with respect to the
types of securities and markets in response
to changing market and economic trends.
MERRILL LYNCH GLOBAL BOND
FUND FOR INVESTMENT AND
RETIREMENT.................... High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
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<PAGE> 84
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. ................... High total return from investment primarily
in an internationally diversified portfolio
of convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS,
INC. (residents of Arizona
must meet investor suitability
standards).................... The highest total investment return
consistent with prudent risk through
worldwide investment in an internationally
diversified portfolio of securities.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high total
investment return through an investment
policy utilizing United States and foreign
equity, debt and money market securities,
the combination of which will vary
depending upon changing market and economic
trends.
MERRILL LYNCH GLOBAL RESOURCES
TRUST......................... Long-term growth and protection of capital
from investment in securities of domestic
and foreign companies that possess
substantial natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. ................... Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market
capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC..................... Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
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MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT..... Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal
emphasis on those securities which
management of the fund believes to be
undervalued.
MERRILL LYNCH GROWTH OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to seek long-term growth of
capital by investing in a portfolio of
equity securities placing particular
emphasis on companies that have exhibited
above-average growth rates in earnings.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin
must meet investor suitability
standards).................... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected to
derive a substantial portion of their sales
from products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND................... Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. ................... Capital appreciation by investing primarily
in Latin American equity and debt
securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Maryland income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Massachusetts income taxes as
is consistent with prudent investment
management through investment in a
portfolio
35
<PAGE> 86
primarily of intermediate-term investment
grade Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Minnesota income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. ................... Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND........ Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level as possible of income exempt from
Federal income taxes by investing in
investment grade obligations with a dollar
weighted average maturity of five to twelve
years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and New Jersey income taxes as is
consistent with prudent invest-
36
<PAGE> 87
ment management through a portfolio
primarily of intermediate-term investment
grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and New
Jersey income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and New
Mexico income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal, New York State and New York City
income taxes as is consistent with prudent
investment management through investment in
a portfolio primarily of intermediate-term
investment grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income taxes
as is consistent with prudent investment
management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH OHIO MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Ohio income taxes as is consistent with
prudent investment management.
37
<PAGE> 88
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent with
prudent investment management.
MERRILL LYNCH PACIFIC FUND,
INC. ........................... Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a
portfolio of intermediate-term investment
grade Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Pennsylvania income taxes as is consistent
with prudent investment management.
MERRILL LYNCH PHOENIX
FUND, INC. ................... Long-term growth of capital by investing in
equity and fixed income securities,
including tax-exempt securities, of issuers
in weak financial condition or experiencing
poor operating results believed to be
undervalued relative to the current or
prospective condition of such issuer.
MERRILL LYNCH QUALITY BOND
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high level of
current income through investment in a
diversified portfolio of debt obligations,
such as corporate bonds and notes,
convertible securities, preferred stocks
and governmental obligations.
38
<PAGE> 89
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC. ............ As high a level of current income as is
consistent with prudent investment
management from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining
maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE
FUND, INC. ................... Long-term growth of capital from investments
in securities, primarily common stocks, of
relatively small companies believed to have
special investment value and emerging
growth companies regardless of size.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND.......................... Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
MERRILL LYNCH TECHNOLOGY
FUND, INC. ................... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected to
derive a substantial portion of their sales
from products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management by investing
primarily in a portfolio of long-term,
investment grade obligations issued by the
State of Texas, its political subdivisions,
agencies and instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for exchanges
by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high current
return through investments in U.S.
Government and government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
government securities.
39
<PAGE> 90
MERRILL LYNCH UTILITY INCOME
FUND, INC. ................... High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
MERRILL LYNCH WORLD INCOME FUND,
INC. ......................... High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies,
including multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY
ASSETS TRUST.................. Preservation of capital, liquidity and the
highest possible current income consistent
with the foregoing objectives from the
short-term money market securities in which
the Trust invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND (available
only for exchanges within
certain
retirement plans)............. Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund,
whose objectives are current income,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term money market
securities.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES...................... Preservation of capital, current income and
liquidity available from investing in
direct obligations of the U.S. Government
and repurchase agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND.................... Preservation of capital, liquidity and
current income through investment
exclusively in a diversified portfolio of
short-term marketable securities which are
direct obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities
issued or guaranteed by the U.S.
Government, its agencies and
instrumentalities and in repurchase
agreements secured by such obligations.
40
<PAGE> 91
MERRILL LYNCH INSTITUTIONAL
FUND.......................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND............... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term, high quality
municipal bonds.
MERRILL LYNCH TREASURY FUND..... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct
obligations of the U.S. Treasury and up to
10% of its total assets in repurchase
agreements secured by such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Commission. The Fund reserves the right to limit the number of times an investor
may exercise the exchange privilege. Certain funds may suspend the continuous
offering of their shares at any time and thereafter may resume such offering
from time to time. The exchange privilege is available only to U.S. shareholders
in states where the exchange legally may be made.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
which it distributes to Class A, Class B, Class C and Class D shareholders
(together, the "shareholders"). The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of
41
<PAGE> 92
time the shareholder has owned Fund shares. Any loss upon the sale or exchange
of Fund shares held for six months or less, however, will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. Distributions by the Fund, whether from ordinary income or capital
gains, generally will not be eligible for the dividends received deduction
allowed to corporations under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. If more than 50% in value of the Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Fund's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Fund will report annually to its shareholders the amount per share of such
withholding taxes. For this purpose, the Fund will allocate foreign taxes and
foreign source income among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Commission rule permitting the issuance and sale of multiple classes of stock)
42
<PAGE> 93
that is based on the gross income allocable to Class A, Class B, Class C and
Class D shareholders during the taxable year, or such other method as the
Internal Revenue Service may prescribe.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as previously described. Some of these
high yield securities may be purchased at a discount and may therefore cause the
Fund to accrue income before amounts due under the obligations are paid. In
addition, a portion of the interest payments on such high yield securities may
be treated as dividends for Federal income tax purposes and may be eligible for
the dividends received deduction allowed to domestic corporations under the
Code.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered
43
<PAGE> 94
into by the Fund solely to reduce the risk of changes in price or interest or
currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Fund may be
restricted in effecting closing transactions within three months after entering
into an option or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
shareholder's tax basis in Fund shares (assuming the shares were held as a
capital asset). These rules and the mark-to-market rules described above,
however, will not apply to certain transactions entered into by the Fund solely
to reduce the risk of currency fluctuations with respect to its investments.
44
<PAGE> 95
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, in advertisements or information furnished to present
or prospective shareholders. Total return data are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that, (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
45
<PAGE> 96
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A* CLASS B CLASS C** CLASS D**
--------------------------- --------------------------- --------------------------- ---------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF $1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- -------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended
October 31,
1995........ 0.62% $1,006.20 1.34% $1,013.40 4.10% $1,041.00 0.29% $1,002.90
Five Years
Ended
October 31,
1995........ 9.63% $1,583.70 9.69% $1,587.90
Inception
(October 26,
1988) to
October 31,
1995........ 10.04% $1,953.30
Inception
(January 30,
1987) to
October 31,
1995........ 7.43% $1,872.40
Inception
(October 21,
1994) to
October 31,
1995........ 6.26% $1,064.40 1.59% $1,016.30
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended
October 31,
1995........ 6.19% $1,061.90 5.12% $1,051.20 5.04% $1,050.40 5.85% $1,058.50
Year Ended
October 31,
1994........ 15.07% $1,150.70 13.78% $1,137.80
Year Ended
October 31,
1993........ 31.72% $1,317.20 30.39% $1,303.90
Year Ended
October 31,
1992........ (6.90)% $ 931.00 (7.73)% $ 922.70
Year Ended
October 31,
1991........ 11.54% $1,115.40 10.35% $1,103.50
Year Ended
October 31,
1990........ 10.39% $1,103.90 9.19% $1,091.90
Year Ended
October 31,
1989........ 9.62% $1,096.20 8.28% $1,082.80
Year Ended
October 31,
1988........ 7.35% $1,073.50
Inception
(October 26,
1988) to
October 31,
1988........ 1.93% $1,019.30
Inception
(January 30,
1987) to
October 31,
1987........ (7.10)% $ 929.00
Inception
(October 21,
1994) to
October 31,
1994........ 1.33% $1,013.30 1.33% $1,013.30
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception
(October 26,
1988) to
October 31,
1995........ 95.33% $1,953.30
Inception
(January 30,
1987) to
October 31,
1995........ 87.24% $1,872.40
Inception
(October 21,
1994) to
October 31,
1995........ 6.44% $1,064.40 1.63% $1,016.30
</TABLE>
- ---------------
* Information as to Class A shares is presented only for the period October 26,
1988 to October 31, 1995. Prior to October 26, 1988, no Class A shares were
publicly issued.
** Information as to Class C and Class D shares is presented for the period
October 21, 1994 to October 31, 1995. Prior to October 21, 1994, no Class C
or Class D shares were publicly issued.
46
<PAGE> 97
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC, in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may take into account the waiver
of the CDSC and therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower amount of expenses
is deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par value
$0.10 per share, of different classes and to divide or combine the shares of
each class into a greater or lesser number of shares without thereby changing
the proportionate beneficial interest in the Fund. At the date of this Statement
of Additional Information, the shares of the Fund are divided into four classes
of shares, designated Class A, Class B, Class C and Class D. Under the
Declaration of Trust, the Trustees have the authority to issue separate classes
of shares which would represent interests in the assets of the Fund and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions except that (i) expenses related to the distribution of the shares of
a class may be borne solely by such class, (ii) a class may have exclusive
voting rights with respect to matters relating to the expenses being borne only
by such class and (iii) classes may have different conversion rights. Upon
liquidation of the Fund, shareholders of each class are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders,
except for any expenses which may be attributable only to one class. Shares have
no preemptive rights. The rights of redemption, exchange and conversion are
described elsewhere herein and in the Prospectus. Shares are fully paid and
non-assessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to a vote of
shareholders, except that shareholders of a class bearing account maintenance
and/or distribution expenses as provided above shall have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in the election of Trustees can, if they
choose to do so, elect all the Trustees of the Fund, in which event the holders
of the remaining shares are unable to elect any person as a Trustee. Except in
limited circumstances, no amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
Fund.
47
<PAGE> 98
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets on October 31, 1995, and its shares outstanding on that date is as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net Assets........................ $204,712,539 $795,469,321 $9,668,362 $104,492,456
=========== =========== ========= ===========
Number of Shares Outstanding...... 13,585,427 56,019,004 681,358 6,955,175
=========== =========== ========= ===========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............. $ 15.07 $ 14.20 $ 14.19 $ 15.02
Sales Charge (for Class A and
Class D shares: 5.25% of
offering price (5.54% of net
asset value per share))*........ .83 ** ** .83
------------ ------------ ---------- ------------
Offering Price.................... $ 15.90 $ 14.20 $ 14.19 $ 15.85
=========== =========== ========= ===========
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" in the Prospectus.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the independent Trustees of the
Fund. The independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109
(the "Custodian") acts as the custodian of the Fund's assets. Under its contract
with the Fund, the Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the Fund to be held
in its offices outside the U.S. and with certain foreign banks and securities
depositories. The Custodian is responsible for safeguarding and controlling the
Fund's cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and servicing of
shareholder accounts. See "Management of the Fund -- Transfer Agency Services"
in the Prospectus.
48
<PAGE> 99
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on October 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by independent auditors is sent to shareholders each year. After the end of each
year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Under a separate agreement, Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 31, 1996.
------------------------
The Declaration of Trust establishing the Fund, dated March 11, 1986, a
copy of which, together with all amendments thereto (the "Declaration"), is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Merrill Lynch EuroFund" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim of said Fund but the "Trust
Property" only shall be liable.
49
<PAGE> 100
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, 1995,
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 financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1995 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, 1995, 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 8, 1995
50
<PAGE> 101
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Austria
Engineering 21,800 ++V.A. Technologie AG $ 2,383,280 $ 2,527,409 0.2%
Total Investments in Austria 2,383,280 2,527,409 0.2
Belgium
Banking 29,350 Generale de Banque S.A. 7,163,490 9,583,466 0.9
Total Investments in Belgium 7,163,490 9,583,466 0.9
Czech Republic
Building & 14,667 ++Metrostav AS 1,167,050 1,266,135 0.1
Construction
Chemicals 30,797 ++Slovakofarma 1,875,976 1,886,814 0.2
Telecommuni- 27,500 ++SPT Telecom AS 2,684,119 2,704,832 0.2
cations
Total Investments in the Czech Republic 5,727,145 5,857,781 0.5
Finland
Banking 9,921,672 ++Kansallis-Osake-Pankki 17,104,769 7,962,067 0.7
2,116,800 ++Unitas Bank Ltd. (Class A) 5,714,168 5,146,110 0.5
-------------- -------------- ------
22,818,937 13,108,177 1.2
Machinery-- 195,000 ++Rauma OY 3,519,206 4,261,943 0.4
Diversified
Metals & Mining 687,700 Outokumpu OY 9,764,165 10,956,323 1.0
Paper & Forest 1,743,700 Enso-Gutzeit OY 'R' (Ordinary) (Registered) 12,175,093 13,704,968 1.2
Products 406,660 ++Kymmene OY 12,225,146 11,134,007 1.0
391,900 Metsa Serla OY (Class B) 14,945,500 14,614,851 1.3
801,925 ++++Repola OY 'S' 12,642,630 15,558,496 1.4
-------------- -------------- ------
51,988,369 55,012,322 4.9
Total Investments in Finland 88,090,677 83,338,765 7.5
France
Automobiles & 141,315 Peugeot S.A. 17,468,422 18,429,247 1.6
Equipment
Banking 122,000 ++Societe Generale 12,844,185 13,962,125 1.3
Building & 97,000 Compagnie de Saint-Gobain S.A. 11,606,838 11,577,644 1.0
Construction
Communication 116,550 Alcatel Alsthom Cie Generale d'Electricite S.A. 11,228,641 9,964,434 0.9
Equipment
</TABLE>
51
<PAGE> 102
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
France (concluded)
Financial 134,600 Compagnie de Suez S.A. $ 5,295,872 $ 5,086,940 0.5%
Services 110,800 Compagnie Financiere de Paribas 5,604,913 6,101,996 0.5
45,734 EuraFrance S.A. 13,909,651 15,308,648 1.4
-------------- -------------- ------
24,810,436 26,497,584 2.4
Industrial 177,431 Compagnie de Fives-Lille 9,488,305 14,348,499 1.3
Materials
Insurance 352,600 ++Assurances Generales de France S.A. (AGF) 9,486,945 10,178,442 0.9
Metal & Steel 626,500 ++Usinor-Sacilor 11,334,702 9,363,190 0.8
Oil & Related 74,050 Societe Nationale Elf Aquitaine 5,209,575 5,048,347 0.5
Total Investments in France 113,478,049 119,369,512 10.7
Germany
Chemicals 62,110 BASF AG 11,228,370 13,661,724 1.2
54,000 Bayer AG 10,934,945 14,391,800 1.3
-------------- -------------- ------
22,163,315 28,053,524 2.5
Diverified 85,000 Veba AG (Warrants) (a) 3,659,373 5,022,067 0.4
Companies
Electronics 34,000 ++Siemens AG 17,077,978 17,861,617 1.6
Engineering 321,783 ++Kloeckner Werke AG 14,985,368 14,384,946 1.3
47,654 Mannesmann AG 12,941,208 15,716,186 1.4
-------------- -------------- ------
27,926,576 30,101,132 2.7
Total Investments in Germany 70,827,242 81,038,340 7.2
Greece
Engineering & 80,666 ++AEGEK 945,100 852,253 0.1
Construction
Tobacco 60,000 ++Papastratos Cigarette Co. 1,825,929 2,151,932 0.2
Total Investments in Greece 2,771,029 3,004,185 0.3
Hungary
Natural Gas 44,000 ++Mol Re Hung Oil & Gas 3,778,425 3,964,190 0.4
Pharmaceuticals 131,001 ++Egis 2,764,956 3,273,777 0.3
251,167 ++Gedeon Richter 3,567,148 3,861,693 0.3
-------------- -------------- ------
6,332,104 7,135,470 0.6
Total Investments in Hungary 10,110,529 11,099,660 1.0
</TABLE>
52
<PAGE> 103
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Ireland
Building 1,592,400 CRH PLC $ 9,477,830 $ 10,536,822 1.0%
Materials
Paper & Forest 4,279,417 Jefferson Smurfit Group PLC 12,726,781 11,520,995 1.0
Products
Total Investments in Ireland 22,204,611 22,057,817 2.0
Italy
Diversified 13,030,335 ++Compagnie Industriali Riunite S.p.A. (CIR) 12,170,577 8,213,050 0.7
Companies 18,730,000 ++Montedison S.p.A. 14,319,765 12,923,735 1.2
-------------- -------------- ------
26,490,342 21,136,785 1.9
Engineering 2,571,700 ++Filippo Fochi S.p.A. 8,169,638 808,050 0.0
Utilities 9,033,151 Societa Finanziaria Telefonica S.p.A. 20,800,422 19,726,136 1.8
Total Investments in Italy 55,460,402 41,670,971 3.7
Netherlands
Automobiles & 352,000 Vredestein Groep N.V. 3,504,552 3,776,536 0.3
Equipment
Banking 405,850 ABN AMRO Holding N.V. 14,543,240 17,082,183 1.5
Capital Goods 459,000 Ahrend Groep N.V. 6,522,706 16,259,650 1.5
Chemicals 57,050 Akzo N.V. 6,319,474 6,508,307 0.6
298,628 ++++European Vinyls Corporation International N.V. 12,750,475 9,384,260 0.8
-------------- -------------- ------
19,069,949 15,892,567 1.4
Electrical 838,700 Philips Electronics N.V. 25,902,391 32,478,860 2.9
Equipment
Insurance 781,125 Aegon N.V. 13,638,817 29,703,776 2.7
428,100 ++Amev N.V. 14,838,504 26,932,904 2.4
423,528 International Nederlanden Groep N.V. 15,831,917 25,300,905 2.3
-------------- -------------- ------
44,309,238 81,937,585 7.4
Paper & Forest 434,530 KNP BT (Koninklijke) (Warrants) (a) 1,500,004 129,653 0.0
Products
Transportation 385,908 ++KLM Royal Dutch Airlines N.V. 9,890,072 12,763,971 1.2
Total Investments in the Netherlands 125,242,152 180,321,005 16.2
Norway
Oil & Gas 218,000 Saga Petroleum A.S. (Class A) 2,577,113 2,735,521 0.2
Producers 1,102,400 Saga Petroleum A.S. (Class B) 12,575,675 13,301,158 1.2
-------------- -------------- ------
15,152,788 16,036,679 1.4
Oil & Related 265,600 Norsk Hydro AS 11,124,622 10,596,654 1.0
Total Investments in Norway 26,277,410 26,633,333 2.4
</TABLE>
53
<PAGE> 104
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Poland
Electrical 15,504 ++Bydgoska Fabryka Kabli S.A. $ 202,022 $ 220,673 0.0%
Equipment
Engineering & 112,163 ++Elektrim S.A. 374,243 375,096 0.0
Construction
Wholesale 264,464 ++Polifarb Wroclaw S.A. 663,262 690,281 0.1
Total Investments in Poland 1,239,527 1,286,050 0.1
Spain
Banking 86,553 Banco Popular Espanol S.A. 9,630,077 13,761,892 1.2
Petroleum 766,268 Repsol S.A. 21,422,573 22,903,213 2.1
Utilities- 240,000 Empresa Nacional de Electricidad S.A. 9,119,821 11,945,879 1.1
Electric
Total Investments in Spain 40,172,471 48,610,984 4.4
Sweden
Appliances 320,800 Electrolux AB 15,488,929 13,732,753 1.2
Automobiles & 729,900 Volvo AB (Class B) 13,808,866 16,447,862 1.5
Equipment
Engineering 565,600 SKF AB (Class A) 10,412,644 10,528,858 0.9
277,800 SKF AB (Class B) 5,353,782 5,276,035 0.5
189,000 ++++Svedala Industry AB 3,602,704 4,800,280 0.4
-------------- -------------- ------
19,369,130 20,605,173 1.8
Financial 472,300 Stadshypotek AB 6,965,920 8,578,471 0.8
Services
Metals & Mining 543,500 Avesta-Sheffield AB 4,750,742 5,365,939 0.5
Paper & Forest 224,200 Mo och Domsjo AB (Class B) 10,674,791 11,422,396 1.0
6,310,300 ++Rottneros Bruks AB 9,732,457 8,370,233 0.8
826,300 Stora Kopparbergs AB 10,348,305 10,026,250 0.9
-------------- -------------- ------
30,755,553 29,818,879 2.7
Total Investments in Sweden 91,139,140 94,549,077 8.5
Switzerland
Banking 140,700 ++CS Holdings AG (Registered) 13,360,741 14,400,212 1.3
Electrical 13,460 BBC Brown Boveri & Cie (Bearer) 10,355,594 15,640,392 1.4
Equipment
Pharmaceuticals 28,855 Ciba-Geigy AG 16,473,100 25,025,997 2.2
3,310 Roche Holdings AG 18,033,362 24,093,436 2.2
-------------- -------------- ------
34,506,462 49,119,433 4.4
Total Investments in Switzerland 58,222,797 79,160,037 7.1
</TABLE>
54
<PAGE> 105
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industry Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Turkey
Beverages 550,000 ++Erciyas Biracilik Ve Malt Sanayii A.S. $ 366,993 $ 348,508 0.0%
Engineering & 161,538 ++Enka Holding Yatirim AS 129,911 133,854 0.0
Construction
Total Investments in Turkey 496,904 482,362 0.0
United Kingdom
Beverages 1,501,800 Cadbury Schweppes PLC 12,907,676 12,409,880 1.1
Commercial 5,084,300 BET PLC 9,048,427 10,131,434 0.9
Services
Engineering 3,795,200 T & N PLC 10,154,703 8,613,026 0.8
Financial 1,035,000 ++HSBC Holdings PLC 15,208,147 15,402,782 1.4
Services 615,000 National Westminster Bank PLC 5,611,738 6,142,111 0.5
-------------- -------------- ------
20,819,885 21,544,893 1.9
Food & Beverage 2,004,900 Grand Metropolitan PLC 13,021,249 13,887,882 1.2
897,400 Tate & Lyle PLC 5,868,055 6,372,379 0.6
904,800 Unilever PLC 14,464,573 17,586,267 1.6
-------------- -------------- ------
33,353,877 37,846,528 3.4
Industrials 3,942,200 Tomkins PLC 14,155,374 15,555,300 1.4
Insurance 1,193,300 Prudential Corp. PLC 5,739,834 7,463,892 0.7
Multi-Industry 2,161,200 BTR PLC (Ordinary) 11,953,505 11,484,271 1.0
Oil & Related 2,701,300 The British Petroleum Co. PLC 19,726,742 19,886,653 1.8
Pharmaceuticals 1,459,800 Glaxo Holdings PLC 17,625,687 19,704,530 1.8
Retail Trade 7,485,000 Asda Group PLC 7,856,805 12,133,466 1.1
634,500 ++J Sainsbury PLC 4,170,184 4,249,660 0.4
-------------- -------------- ------
12,026,989 16,383,126 1.5
Telecommuni- 2,169,400 Racal Electronics PLC 8,446,944 8,663,038 0.8
cations 3,126,700 Vodafone Group PLC 11,501,793 12,906,126 1.1
-------------- -------------- ------
19,948,737 21,569,164 1.9
Total Investments in the United Kingdom 187,461,436 202,592,697 18.2
</TABLE>
55
<PAGE> 106
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Repurchase $ 54,909,000 PaineWebber Group, Inc., purchased on
Agreements* 10/31/1995 to yield 5.83% to 11/01/1995 $ 54,909,000 $ 54,909,000 4.9%
40,000,000 UBS Securities Funding, Inc., purchased on
10/26/1995 to yield 5.72% to 11/02/1995 40,000,000 40,000,000 3.6
Total Investments in Short-Term Securities 94,909,000 94,909,000 8.5
Number of Contracts/ Premiums
Face Amount Issue Paid
Currency Put 90,000,000 Finnish Mark, expiring December 1995 at Fim 4.235 2,949,750 1,515,690 0.1
Options 121,000,000 French Franc, expiring December 1995 at Frf 4.861 3,734,350 2,066,680 0.2
Purchased 100,000,000 German Deutschemark, expiring December 1995 at
DM 1.400 3,270,000 2,010,000 0.2
180,000,000 Netherlands Guilder, expiring December 1995 at
Nlg 1.568 5,859,000 3,708,000 0.3
69,000,000 Swiss Franc, expiring December 1995 at Chf 1.145 1,749,150 1,035,000 0.1
Total Options Purchased 17,562,250 10,335,370 0.9
Total Investments 1,020,939,541 1,118,427,821 100.3
Premiums
Received
Currency Put 90,000,000 Finnish Mark, expiring December 1995 at Fim 4.463 (879,750) (189,540) (0.0)
Options 121,000,000 French Franc, expiring December 1995 at Frf 5.124 (993,150) (193,842) (0.0)
Written 100,000,000 German Deutschemark, expiring December 1995
at DM 1.475 (1,080,000) (350,000) (0.0)
180,000,000 Netherlands Guilder, expiring December 1995
at Nlg 1.652 (1,935,000) (648,000) (0.1)
69,000,000 Swiss Franc, expiring December 1995 at Chf 1.202 (610,650) (207,000) (0.0)
Total Options Written (5,498,550) (1,588,382) (0.1)
Total Investments, Net of Options Written $1,015,440,991 1,116,839,439 100.2
==============
Liabilities in Excess of Other Assets (2,496,761) (0.2)
-------------- ------
Net Assets $1,114,342,678 100.0%
============== ======
<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.
*Repurchase Agreements are fully collateralized by US
Government & Agency Obligations.
See Notes to Financial Statements.
++Non-income producing security.
++++Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $29,743,000, representing 2.7% of
net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
European Vinyls
Corporation International N.V. 11/18/1994 $12,750,475 $ 9,384,260
Repola OY 'S' 5/18/1993
to 12/13/1994 12,642,630 15,558,496
Svedala Industry AB 6/17/1993 3,602,704 4,800,280
Total $28,995,809 $29,743,036
=========== ===========
See Notes to Financial Statements.
</TABLE>
56
<PAGE> 107
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,003,377,291) (Note 1a) $1,108,092,451
Options purchased (cost--$17,562,250) (Notes 1a & 1c) 10,335,370
Cash 31,800
Foreign cash (Note 1b) 28,920,100
Receivables:
Securities sold $ 6,808,481
Dividends 2,843,172
Beneficial interest sold 1,072,305
Interest 47,025 10,770,983
--------------
Prepaid registration fees and other assets (Note 1f) 72,662
--------------
Total assets 1,158,223,366
--------------
Liabilities: Options written, at value (premiums received--$5,498,550)
(Notes 1a & 1c) 1,588,382
Payables:
Securities purchased 36,352,892
Beneficial interest redeemed 3,146,025
Investment adviser (Note 2) 744,017
Distributor (Note 2) 741,429 40,984,363
--------------
Accrued expenses and other liabilities 1,307,943
--------------
Total liabilities 43,880,688
--------------
Net Assets: Net assets $1,114,342,678
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 1,358,543
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 5,601,900
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 68,136
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 695,518
Paid-in capital in excess of par 947,810,609
Undistributed realized capital gains on investments and foreign
currency transactions--net 57,569,335
Unrealized appreciation on investments and foreign currency
transactions--net 101,238,637
--------------
Net assets $1,114,342,678
==============
Net Asset Value: Class A--Based on net assets of $204,712,539 and 13,585,427
shares of beneficial interest outstanding $ 15.07
==============
Class B--Based on net assets of $795,469,321 and 56,019,004
shares of beneficial interest outstanding $ 14.20
==============
Class C--Based on net assets of $9,668,362 and 681,358
shares of beneficial interest outstanding $ 14.19
==============
Class D--Based on net assets of $104,492,456 and 6,955,175
shares of beneficial interest outstanding $ 15.02
==============
See Notes to Financial Statements.
</TABLE>
57
<PAGE> 108
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Income Dividends (net of $4,349,992 foreign withholding tax) $ 25,982,820
(Notes 1d & 1e): Interest 1,737,185
--------------
Total income 27,720,005
--------------
Expenses: Account maintenance & distribution fees--Class B (Note 2) $ 8,713,065
Investment advisory fees (Note 2) 8,514,893
Transfer agent fees--Class B (Note 2) 1,885,539
Custodian fees 1,133,852
Transfer agent fees--Class A (Note 2) 367,010
Printing and shareholder reports 330,764
Accounting services (Note 2) 277,433
Registration fees (Note 1f) 200,481
Account maintenance fees--Class D (Note 2) 148,608
Transfer agent fees--Class D (Note 2) 112,159
Professional fees 105,163
Trustees' fees and expenses 38,811
Account maintenance & distribution fees--Class C (Note 2) 32,919
Transfer agent fees--Class C (Note 2) 7,664
Pricing fees 6,727
Other 22,953
--------------
Total expenses 21,898,041
--------------
Investment income--net 5,821,964
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 82,394,935
(Loss) on Foreign currency transactions--net (8,386,320) 74,008,615
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (42,923,551)
1e & 3): Foreign currency transactions--net 9,440,757 (33,482,794)
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 40,525,821
--------------
Net Increase in Net Assets Resulting from Operations $ 46,347,785
==============
See Notes to Financial Statements.
</TABLE>
58
<PAGE> 109
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 5,821,964 $ 4,476,269
Realized gain on investments and foreign currency
transactions--net 74,008,615 145,799,258
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (33,482,794) 5,122,748
-------------- --------------
Net increase in net assets resulting from operations 46,347,785 155,398,275
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders Class A (22,844,949) --
(Note 1g): Class B (110,166,564) --
Class C (139,938) --
Class D (1,841,772) --
-------------- --------------
Net decrease in net assets resulting from
distributions to shareholders (134,993,223) --
-------------- --------------
Beneficial Interest Net increase (decrease) in net assets derived
Transactions from beneficial interest transactions (120,582,541) 220,281,320
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets (209,227,979) 375,679,595
Beginning of year 1,323,570,657 947,891,062
-------------- --------------
End of year $1,114,342,678 $1,323,570,657
============== ==============
See Notes to Financial Statements.
</TABLE>
59
<PAGE> 110
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Operating Net asset value, beginning of year $ 15.96 $ 13.87 $ 10.53 $ 11.62 $ 10.70
Performance: -------- -------- -------- -------- --------
Investment income--net .19 .18 .26 .24 .25
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .56 1.91 3.08 (1.02) .96
-------- -------- -------- -------- --------
Total from investment operations .75 2.09 3.34 (.78) 1.21
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.31) (.29)
Realized gain on investments--net (1.64) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.64) -- -- (.31) (.29)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.07 $ 15.96 $ 13.87 $ 10.53 $ 11.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 6.19% 15.07% 31.72% (6.90%) 11.54%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses 1.12% 1.03% 1.04% 1.09% 1.14%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net 1.32% 1.17% 1.50% (2.69%) 2.94%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $204,713 $236,288 $182,612 $ 87,865 $ 83,229
Data: ======== ======== ======== ======== ========
Portfolio turnover 72.16% 82.47% 115.10% 109.95% 124.64%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Operating Net asset value, beginning of year $ 15.28 $ 13.43 $ 10.30 $ 11.41 $ 10.51
Performance: -------- ---------- -------- -------- --------
Investment income--net .04 .02 .16 .12 .13
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .52 1.83 2.97 (.98) .94
-------- ---------- -------- -------- --------
Total from investment operations .56 1.85 3.13 (.86) 1.07
-------- ---------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.25) (.17)
Realized gain on investments--net (1.64) -- -- -- --
-------- ---------- -------- -------- --------
Total dividends and distributions (1.64) -- -- (.25) (.17)
-------- ---------- -------- -------- --------
Net asset value, end of year $ 14.20 $ 15.28 $ 13.43 $ 10.30 $ 11.41
======== ========== ======== ======== ========
Total Investment Based on net asset value per share 5.12% 13.78% 30.39% (7.73%) 10.35%
Return:* ======== ========== ======== ======== ========
Ratios to Expenses, excluding account maintenance
Average and distribution fees 1.15% 1.06% 1.08% 1.12% 1.17%
Net Assets: ======== ========== ======== ======== ========
Expenses 2.15% 2.06% 2.08% 2.12% 2.17%
======== ========== ======== ======== ========
Investment income--net .27% .14% .51% (3.37%) 1.94%
======== ========== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $795,469 $1,086,480 $765,279 $447,104 $484,031
Data: ======== ========== ======== ======== ========
Portfolio turnover 72.16% 82.47% 115.10% 109.95% 124.64%
======== ========== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
60
<PAGE> 111
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ Ended 1994++
Oct. 31, to Oct. 31, Oct. 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Operating Net asset value, beginning of period $ 15.28 $ 15.08 $ 15.96 $ 15.75
Performance: ------- ------- -------- -------
Investment income (loss)--net .01 (.01) .20 --
Realized and unrealized gain on
investments and foreign
currency transactions--net .54 .21 .50 .21
------- ------- -------- -------
Total from investment operations .55 .20 .70 .21
------- ------- -------- -------
Less distributions from realized gain
on investments--net (1.64) -- (1.64) --
------- ------- -------- -------
Net asset value, end of period $ 14.19 $ 15.28 $ 15.02 $ 15.96
======= ======= ======== =======
Total Investment Based on net asset value per share 5.04% 1.33%+++ 5.85% 1.33%+++
Return:** ======= ======= ======== =======
Ratios to Expenses, excluding account maintenance
Average and distribution fees 1.18% 1.86%* 1.13% 1.86%*
Net Assets: ======= ======= ======== =======
Expenses 2.18% 2.86%* 1.38% 2.11%*
======= ======= ======== =======
Investment income--net .11% (2.47%)* 1.37% (1.70%)*
======= ======= ======== =======
Supplemental Net assets, end of period (in thousands) $ 9,668 $ 462 $104,493 $ 340
Data: ======= ======= ======== =======
Portfolio turnover 72.16% 82.47% 72.16% 82.47%
======= ======= ======== =======
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
61
<PAGE> 112
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.
(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).
Written and purchased options are non-income
producing investments.
62
<PAGE> 113
(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
principals require that certain components of net assets
be reclassified to reflect permanent differences between
financial reporting and tax purposes. Accordingly, cur-
rent year's permanent book/tax differences of $5,821,964
and $450 have been reclassified from undistributed net
investment income and paid-in capital in excess of par,
respectively, to undistributed net realized capital gains.
These reclassifications have no effect on net assets or
net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Merrill Lynch Asset Management, L.P.
("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidi-
ary 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.
Certain states in which the shares of the Fund are
qualified for sale impose limitations on the expenses of
the Fund. The most restrictive annual expense limitation
requires that MLAM reimburse the Fund to the extent
the Fund's expenses (excluding interest, taxes, distri-
bution fees, brokerage fees and commissions, and
extraordinary items) exceed 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the next
$70 million of average daily net assets and 1.5% of the
average daily net assets in excess thereof. MLAM's obli-
gation to reimburse the Fund is limited to the amount of
the management fee. No fee payment will be made to
MLAM during any fiscal year which will cause such
expenses to exceed the most restrictive expense limita-
tion at the time of such payment.
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor ongoing account 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.
For the year ended October 31, 1995, MLFD earned
underwriting discounts and commissions and MLPF&S
63
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS (concluded)
earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $3,461 $ 52,055
Class D $8,688 $135,599
For the year ended October 31, 1995, MLPF&S received
contingent deferred sales charges of $2,352,273 and
$2,495 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $169,311 in commissions
on the execution of portfolio security transactions for
the Fund for the year ended October 31, 1995.
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, 1995
were $782,756,897 and $1,092,539,127, respectively.
Net realized and unrealized gains (losses) as of October
31, 1995 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Investments:
Long-term $82,527,897 $104,715,160
Options written (132,962) --
----------- ------------
Total investments 82,394,935 104,715,160
Currency transactions:
Options purchased (16,036,100) (7,226,880)
Options written 6,603,800 3,910,168
Foreign currency transactions 1,045,980 (159,811)
----------- ------------
Total currency transactions (8,386,320) (3,476,523)
----------- ------------
Total $74,008,615 $101,238,637
=========== ============
Transactions in call options written for the year ended
October 31, 1995 were as follows:
Premiums
Par Value Received
Outstanding call options
written at beginning of year -- --
Options written $ 2,972,700 $ 1,045,324
Options exercised (2,229,500) (783,792)
Options closed (743,200) (261,532)
----------- ------------
Outstanding call options
written at end of year $ -- $ --
=========== ============
Transactions in put options written for the year ended
October 31, 1995 were as follows:
Premiums
Par Value Received
Outstanding put options
written at beginning of year -- --
Options written $1,081,000,000 $ 9,139,350
Options closed (521,000,000) (3,640,800)
-------------- ------------
Outstanding put options
written at end of year $ 560,000,000 $ 5,498,550
============== ============
As of October 31, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $98,415,716, of
which $143,032,361 related to appreciated securities
and $44,616,645 related to depreciated securities. The
aggregate cost of investments at October 31, 1995 for
Federal income tax purposes was $1,009,676,735.
4. Shares of Beneficial Interest:
Net increase (decrease) in net assets derived from
beneficial interest transactions was $(120,582,541) and
$220,281,320 for the years ended October 31, 1995 and
October 31, 1994, respectively.
Transactions in shares of beneficial interest for each
class were as follows:
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 A Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 12,530,353 $ 190,014,197
Shares redeemed (10,887,820) (167,629,564)
----------- -------------
Net increase 1,642,533 $ 22,384,633
=========== =============
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)
=========== =============
64
<PAGE> 115
Class B Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 41,040,817 $ 596,780,681
Shares redeemed (26,955,193) (399,676,122)
----------- -------------
Net increase 14,085,624 $ 197,104,559
=========== =============
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
=========== =============
Class C Shares for the Period Dollar
October 21, 1994++++ to October 31, 1994 Shares Amount
Shares sold 30,249 $ 456,068
Shares redeemed (1) (15)
----------- -------------
Net increase 30,248 $ 456,053
=========== =============
[FN]
++Commencement of Operations.
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
=========== =============
Class D Shares for the Period Dollar
October 21, 1994++++ to October 31, 1994 Shares Amount
Shares sold 24,171 $ 381,029
Shares redeemed (2,868) (44,954)
----------- -------------
Net increase 21,303 $ 336,075
=========== =============
[FN]
++Commencement of Operations.
5. Commitments:
At October 31, 1995, the Fund had outstanding foreign
exchange contracts under which it had agreed to
purchase and sell foreign currency aggregating approxi-
mately $1,865,000 and $1,976,000, respectively.
65
<PAGE> 116
[This page is intentionally left blank.]
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies............ 2
Other Investment Policies and Practices.... 2
Investment Restrictions.................... 7
Management of the Fund....................... 10
Trustees and Officers...................... 10
Compensation of Trustees................... 12
Management and Advisory Arrangements....... 12
Purchase of Shares........................... 14
Initial Sales Charge Alternatives -- Class
A and Class D Shares..................... 15
Reduced Initial Sales Charges -- Class A
and Class D Shares....................... 16
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements..... 19
Distribution Plans......................... 19
Limitations on the Payment of Deferred
Sales Charges............................ 20
Redemption of Shares......................... 21
Deferred Sales Charges -- Class B and Class
C Shares................................. 22
Portfolio Transactions and Brokerage......... 22
Determination of Net Asset Value............. 24
Shareholder Services......................... 25
Investment Account......................... 26
Automatic Investment Plans................. 26
Automatic Reinvestment of Dividends and
Capital Gains Distributions.............. 27
Systematic Withdrawal Plans -- Class A and
Class D Shares........................... 27
Exchange Privilege......................... 28
Taxes........................................ 41
Tax Treatment of Options, Futures and Forward
Foreign Exchange Transactions.............. 43
Special Rules for Certain Foreign Currency
Transactions............................... 44
Performance Data............................. 45
General Information.......................... 47
Description of Shares...................... 47
Computation of Offering Price Per
Share.................................... 48
Independent Auditors....................... 48
Custodian.................................. 48
Transfer Agent............................. 48
Legal Counsel.............................. 49
Reports to Shareholders.................... 49
Additional Information..................... 49
Security Ownership of Certain Beneficial
Owners................................... 49
Independent Auditors' Report................. 50
Financial Statements......................... C-1
Code # 10476-0296
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
EUROFUND
STATEMENT OF
ADDITIONAL
INFORMATION
February 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 118
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair
and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------------- -----------------------------
Compass plates, circular graph Back cover of Prospectus and
paper and Merrill Lynch Logo back cover of Statement of
including stylized market bull. Additional information.
<PAGE> 119
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the eight-year period
ended October 31, 1995, and the period January 30, 1987 (commencement of
operations) to October 31, 1987.
Contained in Part B:
Financial Statements:
Schedule of Investments as of October 31, 1995.
Statement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statements of Changes in Net Assets for the years ended October 31,
1995 and 1994.
Financial Highlights for each of the years in the five-year period
ended October 31, 1995.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<C> <S>
1(a)--Declaration of Trust of the Registrant, dated March 11, 1986.(e)
(b)--Amendment to Declaration of Trust of the Registrant, dated May 19, 1986.(e)
(c)--Amendment to Declaration of Trust of the Registrant, dated December 15, 1986.(e)
(d)--Instrument establishing Class A shares and Class B shares of the Registrant, dated
October 3, 1988.(e)
(e)--Certification of Amendment to Declaration of Trust and Establishment and Designation
of Classes, dated October 17, 1994.(e)
2 --By-Laws of the Registrant.(e)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including the relevant
portions of the Declaration of Trust, as amended, and By-Laws of the Registrant.(b)
5(a)--Management Agreement between Registrant and Merrill Lynch Asset Management, Inc.(a)
(b)--Sub-Advisory Agreement between Merrill Lynch Asset Management, Inc. and Merrill Lynch
Asset Management U.K. Limited.(a)
6(a)--Class A Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(b)--Class B Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
(c)--Class C Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
(d)--Class D Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(d)
7 --None.
8 --Custody Agreement between Registrant and Brown Brothers Harriman & Co.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.(a)
10 -- Opinion of Brown & Wood, counsel for the Registrant.
</TABLE>
C-1
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<C> <S>
11 --Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15(a)--Class B Shares Distribution Plan and Class B Shares Distribution Plan Sub-Agreement
of the Registrant.(c)
(b)--Class C Shares Distribution Plan and Class C Shares Distribution Plan Sub-Agreement
of the Registrant.(d)
(c)--Class D Shares Distribution Plan and Class D Shares Distribution Plan Sub-Agreement
of the Registrant.(d)
16(a)--Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class A shares.(a)
(b)--Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class B shares.(a)
(c)--Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class C shares.(e)
(d)--Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 relating to Class D shares.(e)
17(a)--Financial Data Schedule for Class A Shares.
(b)--Financial Data Schedule for Class B Shares.
(c)--Financial Data Schedule for Class C Shares.
(d)--Financial Data Schedule for Class D Shares.
18 -- Merrill Lynch Select PricingSM System Plan pursuant to Rule 18f-3.(f)
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
(b) Reference is made to Article I, Article II (Sections 2.2, 2.3, 2.4 and
2.7), Article III (Sections 3.1 and 3.4), Article IV (Sections 4.1, 4.3
and 4.4), Article V (Sections 5.1, 5.2, 5.3 and 5.5), Article VI (Sections
6.2, 6.3, 6.4, 6.5, 6.7 and 6.8), Article VII (Section 7.1), Article VIII
(Sections 8.2 and 8.3), Article X (Sections 10.3, 10.4, 10.5, 10.6, 10.7
and 10.8), Article XI (Sections 11.3, 11.4 and 11.5) and Article XII
(Section 12.6) of the Registrant's Declaration of Trust, as amended, filed
as Exhibits 1(a), 1(b), 1(c), 1(d) and 1(e) to this Registration Statement
on Form N-1A; and Article I, Article V and Article VI of the Registrant's
By-Laws filed as Exhibit 2 to this Registration Statement on Form N-1A.
(c) Filed on February 25, 1994 as an Exhibit to Post-Effective Amendment No. 9
to the Registrant's Registration Statement on Form N-1A under the
Securities Act of 1933.
(d) Filed on October 17, 1994 as an Exhibit to Post-Effective Amendment No. 10
to the Registrant's Registration Statement on Form N-1A under the
Securities Act of 1933.
(e) Filed on February 27, 1995 as an Exhibit to Post-Effective Amendment No.
11 to the Registrant's Registration Statement on Form N-1A under the
Securities Act of 1933.
(f) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust (File No.
2-99473), filed on January 25, 1996.
C-2
<PAGE> 121
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1996
- ---------------------------------------------------------------------------- -------------------
<S> <C>
Class A shares of beneficial interest, par value $0.10 per share............ 22,600
Class B shares of beneficial interest, par value $0.10 per share............ 86,230
Class C shares of beneficial interest, par value $0.10 per share............ 1,818
Class D shares of beneficial interest, par value $0.10 per share............ 14,133
</TABLE>
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees,
and agents (including persons who serve at its request as directors,
officers or trustees of another organization in which it has any interest
as a shareholder, creditor or otherwise) against all liabilities and
expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while in office or
thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall
have been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties; provided, however,
that as to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless the Trust
shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter of willful
misfeasance, gross negligence or reckless disregard of duty, or the matter
of good faith and reasonable belief as to the best interests of the Trust,
had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any Person under these provisions shall not
exclude any other right to which he may be lawfully entitled; provided that
no Person may satisfy any right of indemnity or reimbursement granted
herein or in Section 5.1 or to which he may be otherwise entitled except
out of the property of the Trust, and no Shareholder shall be personally
liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the
Trust in the event it is subsequently determined that he is not entitled to
such indemnification".
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds the
amount which it is ultimately determined he is entitled to receive from the
Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees,
C-3
<PAGE> 122
or an independent legal counsel in a written opinion, shall determine, based
upon a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933,
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), acts as
investment adviser for the following open-end investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund,
Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc.; and for the following closed-end investment companies:
Convertible Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of MLAM, acts as the
investment adviser for the following open-end investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
and The Municipal Fund Accumulation Program, Inc.; and for the following
closed-end investment companies: Apex Municipal Fund, Inc., Corporate High Yield
C-4
<PAGE> 123
Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced
Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured
Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser, FAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The address of Merrill Lynch Financial Data Services, Inc.
("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
November 1, 1993 for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard
is Treasurer and Mr. Glenn is Executive Vice President of substantially all of
the investment companies listed in the first two paragraphs of this Item and
Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are directors, trustees
or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH PROFESSION, VOCATION OR
NAME THE MANAGER EMPLOYMENT
- --------------------------------- ------------------------------- ------------------------------
<S> <C> <C>
ML & Co. ........................ Limited Partner Financial Services Holding
Company; Limited Partner of
FAM
Princeton Services............... General Partner General Partner of FAM
Arthur Zeikel.................... President President of FAM; President
and Director of Princeton
Services; Director of MLFD;
Executive Vice President of
ML & Co.
Terry K. Glenn................... Executive Vice President Executive Vice President of
FAM; Executive Vice President
and Director of Princeton
Services; President and
Director of MLFD; Director
of MLFDS; President of
Princeton Administrators,
L.P.
</TABLE>
C-5
<PAGE> 124
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH PROFESSION, VOCATION OR
NAME THE MANAGER EMPLOYMENT
- --------------------------------- ------------------------------- ------------------------------
<S> <C> <C>
Vincent R. Giordano.............. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Elizabeth Griffin................ Senior Vice President Senior Vice President of FAM
Norman R. Harvey................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
N. John Hewitt................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein............... Senior Vice President, General Senior Vice President, General
Counsel and Secretary Counsel and Secretary of
FAM; Senior Vice President,
General Counsel, Director
and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss.................. Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior
Vice President and
Controller of Princeton
Services
Stephen M.M. Miller.............. Senior Vice President Executive Vice President of
Princeton Administrators,
L.P.
Joseph T. Monagle, Jr............ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Richard L. Reller................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Gerald M. Richard................ Senior Vice President and Senior Vice President and
Treasurer Treasurer of FAM; Senior
Vice President and Treasurer
of Princeton Services; Vice
President and Treasurer of
MLFD
Ronald L. Welburn................ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Anthony Wiseman.................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund and Merrill Lynch
Short-Term Global Income Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
C-6
<PAGE> 125
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since November 1,
1993, for his own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Zeikel, Albert, Glenn, Harvey, Richard and Yardley
are officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION OR
NAME MLAM U.K. EMPLOYMENT
- --------------------------------- ---------------------------- --------------------------------
<S> <C> <C>
Arthur Zeikel.................... Chairman President of the Manager and
FAM; President and Director of
Princeton Services; Director
of MLFD; Executive Vice
President of ML & Co.
Alan J. Albert................... Senior Managing Director Vice President of the Manager
Norman R. Harvey................. Senior Vice President Senior Vice President of the
Manager and FAM; Senior Vice
President of Princeton
Services
Gerald M. Richard................ Senior Vice President Senior Vice President and
Treasurer of the Manager and
FAM; Senior Vice President and
Treasurer of Princeton
Services; Vice President and
Treasurer of MLFD
Nicholas C. D. Hall.............. Director Counsel of Merrill Lynch Europe
PLC
Adrian C. Holmes................. Managing Director Vice President of the Manager
Steven J. Yardley................ Vice President None
Carol Ann Langham................ Company Secretary Company Secretary of Merrill
Lynch Europe PLC
Debra Anne Searle................ Assistant Company Secretary Assistant Company Secretary of
Merrill Lynch Europe PLC
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc. and the Municipal Fund
Accumulation Program, Inc., and MLFD also acts as the principal underwriter for
the following closed-end investment companies: Merrill Lynch High Income
Municipal Bond Program, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ------------------------------- --------------------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn................. President and Director Executive Vice President
Arthur Zeikel.................. Director President and Trustee
</TABLE>
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<PAGE> 126
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ------------------------------- --------------------------------------- -------------------------
<S> <C> <C>
Philip L. Kirstein............. Director None
William E. Aldrich............. Senior Vice President None
Robert W. Crook................ Senior Vice President None
Kevin P. Boman................. Vice President None
Michael J. Brady............... Vice President None
William M. Breen............... Vice President None
Sharon Creveling............... Vice President and Assistant Treasurer None
Mark A. DeSario................ Vice President None
James T. Fatseas............... Vice President None
Michelle T. Lau................ Vice President None
Debra W. Landsman-Yaros........ Vice President None
Gerald M. Richard.............. Vice President and Treasurer Treasurer
Salvatore Venezia.............. Vice President None
William Wasel.................. Vice President None
Robert Harris.................. Secretary Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its transfer agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund -- Management and Advisory Arrangements" in the Prospectus constituting
Part A of the Registration Statement and under "Management of the
Fund -- Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, Registrant is not
a party to any management related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
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<PAGE> 127
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND
THE STATE OF NEW JERSEY, ON THE 23RD DAY OF FEBRUARY 1996.
MERRILL LYNCH EUROFUND
(Registrant)
By: /s/ TERRY K. GLENN
------------------------------------
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
ARTHUR ZEIKEL* President and Trustee (Principal
- ----------------------------------- Executive Officer)
(ARTHUR ZEIKEL)
GERALD M. RICHARD* Treasurer (Principal Financial and
- ----------------------------------- Accounting Officer)
(GERALD M. RICHARD)
DONALD CECIL* Trustee
- -----------------------------------
(DONALD CECIL)
EDWARD H. MEYER* Trustee
- -----------------------------------
(EDWARD H. MEYER)
CHARLES C. REILLY* Trustee
- -----------------------------------
(CHARLES C. REILLY)
RICHARD R. WEST* Trustee
- -----------------------------------
(RICHARD R. WEST)
EDWARD D. ZINBARG* Trustee
- -----------------------------------
(EDWARD D. ZINBARG)
*By: /s/ TERRY K. GLENN February 23, 1996
- -----------------------------------
(TERRY K. GLENN, ATTORNEY-IN-FACT)
</TABLE>
C-9
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------ ----
<S> <C> <C>
5(a)-- Management Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(a)
(b)-- Sub-Advisory Agreement between Merrill Lynch Asset Management, Inc. and
Merrill Lynch Asset Management U.K. Limited.(a)
6(b)-- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
8 -- Custody Agreement between Registrant and Brown Brothers Harriman & Co.(a)
9 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc.(a)
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
16(a)-- Schedule for computation of each performance quotation for Class A shares
provided in the Registration Statement in response to Item 22.(a)
(b)-- Schedule for computation of each performance quotation for Class B shares
provided in the Registration Statement in response to Item 22.(a)
17(a)-- Financial Data Schedule for Class A Shares.
(b)-- Financial Data Schedule for Class B Shares.
(c)-- Financial Data Schedule for Class C Shares.
(d)-- Financial Data Schedule for Class D Shares.
</TABLE>
- ---------------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) phase-in requirements.
<PAGE> 1
Ex-99.5(a)
MANAGEMENT AGREEMENT
AGREEMENT made this 19th day of December, 1986, by and
between MERRILL LYNCH EUROFUND, a Massachusetts business trust
(hereinafter referred to as the "Fund"), and MERRILL LYNCH ASSET
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to
as the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a diversified
open-end investment company registered under the Investment
Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering
management and investment advisory services and is registered as
an investment adviser under the investment Adviser's Act of 1940;
and
WHEREAS, the Fund's assets will be invested primarily in
equity securities of companies located in Western European
countries; and
WHEREAS, the Fund desires to retain the Manager to provide
management and investment advisory services to the Fund in the
manner and on the terms hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and
investment advisory services to the Fund on the terms and
conditions hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, the Fund and the Manager hereby
agree as follows:
ARTICLE I
Duties of the Manager
The Fund hereby employs the Manager to act as a manager and
investment adviser of the Fund and to furnish, or arrange for
affiliates to furnish, the management and investment advisory
services described below, subject to the polices of, review by
and overall control of the Board of Trustees of the Fund, for the
period and on the terms and conditions set forth in this
Agreement. The Manager hereby accepts such employment and agrees
during such period, at its own expense, to render, or arrange for
the rendering of, such services and to assume the obligations
herein set forth for the compensation provided for herein. The
Manager and its affiliates shall for all purposes herein be
deemed to be independent contractors and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed agents of
the Fund.
(a) Management Services. The Manager shall perform (or
arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund
including administering shareholder accounts and handling
shareholder relations. The Manager shall provide the Fund with
office space, facilities, equipment and necessary personnel and
-2-
<PAGE> 3
such other services as the Managers subject to review by the
Trustees, shall from time to time determine to be necessary or
useful to perform its obligations under this Agreement. The
Manager shall also, on behalf of the Fund, conduct relations with
custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such
other capacity deemed to be necessary or desirable. The Manager
shall generally monitor the Fund's compliance with investment
policies and restrictions as set forth in the currently effective
prospectus and statement of additional information relating to
the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional
information", respectively). The Manager shall make reports to
the Trustees of its performance of obligations hereunder and
furnish advice and recommendations with respect to such other
aspects of the business and affairs of the Fund as it shall
determine to be desirable.
(b) Investment Advisory Services. The Manager shall
provide the Fund with such investment research, advice and
supervision as the latter may from time to time consider
necessary for the proper supervision of the assets of the Fund,
shall furnish continuously an investment program for the Fund and
shall determine from time to time which securities shall be
purchased, sold or exchanged and what portion of the assets of
-3-
<PAGE> 4
the Fund shall be held in the various securities in which the
Fund invests or cash, subject always to the restrictions of the
Declaration of Trust and By-Laws of the Fund, as amended from
time to time, the provisions of the Investment Company Act and
the statements relating to the Fund's investment objectives,
investment policies and investment restrictions as the same are
set forth in the Prospectus and Statement of Additional
Information. The Manager shall make decisions for the Fund as to
foreign currency matters and make determinations as to foreign
exchange contracts. The Manager shall make decisions for the
Fund as to the manner in which voting rights, rights to consent.
to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Trustees at
any time, however, make any definite determination as to
investment policy and notify the Manager thereof in writing, the
Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that
such determination has been revoked. The Manager shall take, on
behalf of the Fund, all actions which it deems necessary to
implement the investment policies determined as provided above,
and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Manager is
authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to deliveries of securities and payments
of cash for the account of the Fund. in connection with the
-4-
<PAGE> 5
selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Manager is
directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the Trustees and set
forth in the Prospectus and Statement of Additional Information.
Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Manager may select
brokers or dealers with which it or the Fund is affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for
maintaining the staff and personnel necessary to perform its
obligations under this Agreement, and shall at its own expense,
provide the office space, facilities, equipment and necessary,
personnel which it is obligated to provide under Article I
hereof, and shall pay all compensation of officers of the Fund
and all trustees of the Fund who are affiliated persons of the
Manager.
(b) The Fund. The Fund assumes and shall pay or cause to
be paid all other expenses of the Fund (except for the expenses
paid by the Distributor), including, without limitation: taxes,
expenses for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports, prospectuses
and statements of additional information, charges of the
Custodian, any Sub-Custodian and Transfer Agent, expenses of
-5-
<PAGE> 6
portfolio transactions expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering
the shares under Federal, state and foreign laws, fees and actual
out-of-pocket expenses of trustees who are not affiliated persons
of the Manager, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-
recurring expenses, and other expenses properly payable by the
Fund. It is also understood that the Fund will reimburse the
Manager for its costs in providing accounting services to the
Fund. The Distributor will pay certain of the expenses of the
Fund incurred in connection with the continuous offering of
beneficial shares of interest in the Fund.
ARTICLE III
Compensation of the Manager
(a) Management and Investment Advisory Fee. For the
services rendered, the facilities furnished and expenses assumed
by the Manager, the Fund shall pay to the Manager at the end of
each calendar month a fee based upon the average daily value of
the net assets of the Fund, as determined and computed in
accordance with the description of the determination of net asset
value contained in the Prospectus and Statement of Additional
Information, at the annual rate of .75 of 1.0% (.75%) of the
average daily net assets of the Fund, commencing on the day
following effectiveness hereof. If this Agreement becomes
-6-
<PAGE> 7
effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated
in a manner consistent with the calculation of the fee as set
forth above. Subject to the provisions of subsection (b) hereof,
payment of the Manager's compensation for the preceding month
shall be made as promptly as possible after completion of the
computations contemplated by subsection (b) hereof. During any
period when the determination of net asset value is suspended by
the Trustees, the net asset value of a share as of the last
business day prior to such suspension shall for this purpose be
deemed to be the net asset value at the close of each succeeding
business day until it is again determined.
(b) Expense Limitations. In the event the operating
expenses of the Fund, including amounts payable to the Manager
pursuant to subsection (a) hereof, for any fiscal year ending on
a date on which this Agreement is in effect exceed the expense
limitations applicable to the Fund imposed by applicable state
securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Manager shall
reduce its management fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse
the Fund in the amount of such excess; provided, however, to the
extent permitted by law, there shall be excluded from such
expenses the amount of any interest, taxes, brokerage commissions
and extraordinary expenses (including but not limited to legal
-7-
<PAGE> 8
claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund.
Whenever the expenses of the Fund exceed a pro rata portion of
the applicable annual expense limitations, the estimated amount
of reimbursement under such limitations shall be applicable as an
offset against the monthly payment of the fee due to the Manager.
Should two or more such expenses limitations be applicable as at
the end of the last business day of the month, that expense
limitation which results in the largest reduction in the
Manager's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or
for any act or omission in the management, of the Fund, except for
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of
its obligations and duties hereunder. As used in this Article
IV, the term "Manager" shall include any affiliates of the
Manager performing services for the Fund contemplated hereby and
directors, officers and employees of the Manager and such
affiliates.
ARTICLE V
Activities of the Manager
The services of the Manager to the Fund are not to be deemed
to be exclusive, the Manager and any person controlled by or
-8-
<PAGE> 9
under common control with the Manager (for purposes of the
Article V referred to as "affiliates") is free to render services
to others. It is understood that Trustees, officers, employees
and shareholders of the Fund are or may become interested in the
Manager and its affiliates, as directors, officers, employees,
partners, and shareholders or otherwise and that directors,
officers, employees, partners, and shareholders of the Manager
and its affiliates are or may become similarly interested in the
Fund, and that the Manager and directors, officers, employees,
partners, and shareholders of its affiliates may become
interested in the Fund as shareholder or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force until March 31, 1988 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees, or by the vote of
a majority of the outstanding voting securities of the Fund, and
(ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Trustees or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Manager, on sixty days' written notice to the other party. This
-9-
<PAGE> 10
Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the vote of a majority
of outstanding voting securities of the Fund, and (ii) a majority
of those Trustees who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the investment Company Act of 1940 and the
Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of
the state of New York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws
of the State of New York, or any of the provisions herein,
-10-
<PAGE> 11
conflict with the applicable provisions of the Investment Company
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH EUROFUND
By /S/ Norman R. Harvey
--------------------------
MERRIL LYNCH ASSET MANAGEMENT, INC.
By /s/ Terry K. Glenn
--------------------------
<PAGE> 1
Ex-99.5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT mad* as of the 29th day of April 1988, by and
between MERRILL LYNCH ASSET MANAGEMENT, INC., a Delaware
corporation (hereinafter referred to as "MLAM"), and MERRILL LYNCH
ASSET MANAGEMENT U.K., LTD., a corporation organized under the
laws of England and Wales (hereinafter referred to as "MLAM U.K.")
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MERRILL LYNCH EUROFUND (the "Fund")is a
Massachusetts business trust engaged in business as a diversified
open-end investment company registered under the Investment
Company Act of 1940, as amended (hereinafter referred to as the
"Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in
rendering investment advisory services and are registered as
investment advisers under the Investment Advisers Act of 1940;
and
WHEREAS, MLAM has entered into a management agreement with
the Fund (the "Management Agreement"), dated December 19, 1986,
pursuant to which MLAM will provide management and investment and
advisory services to the Fund; and
<PAGE> 2
WHEREAS, MLAM U.K. is willing to provide investment advisory
services to MLAM in connection with the Fund's operations on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, MLAM U.K. and MLAM hereby agree
as follows..
ARTICLE I
Duties of MLAM U.K.
MLAM hereby employs MLAM U.K. to act as investment adviser
to MLAM and to furnish, or arrange for affiliates to furnish, the
investment advisory services described below, subject to the
broad supervision of MLAM and the Fund, for the period and on the
terms and conditions set forth in this Agreement. MLAM U.K.
hereby accepts such employment and agrees during such period, at
its own expense, to render, or arrange for the rendering of, such
services and to assume the obligations herein set forth for the
compensation provided for herein. MLAM U.K. and its affiliates
shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed and agent of the Fund.
MLAM U.K. shall provide MLAM with such investment research,
advice and supervision as the latter may from tine to time
consider necessary for the proper supervision of the assets of
2.
<PAGE> 3
the Fund, shall furnish continuously an investment program for
the Fund and shall make recommendations from time to time as to
which securities shall be purchased, sold or exchanged and what
portion of the assets of the Fund shall be held in the various
securities in which the Fund invests or cash, subject always to
the restrictions of the Declaration of Trust and By-Laws of the
Fund, as amended from time to time, the provisions of the
Investment Company Act and the statements relating to the Fund's
investment objectives, investment policies and investment
restrictions as the same are set forth in the currently effective
prospectus and statement of additional information relating to
the shares of the Fund under the Securities Act of 1933, as
amended (the "Prospectus" and "Statement of Additional
Information" respectively). MLAM U.K. shall make
recommendations as to foreign currency matters and the
advisability of entering into currency options and futures,
options on such futures and forward foreign currency
transactions. MLAM U.K. shall also make recommendations as to
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's portfolio
securities shall be exercised.
3.
<PAGE> 4
ARTICLE II
Allocation of Charges and Expenses
MLAM U.K. assumes and shall pay for maintaining the staff
and personnel necessary to perform its obligations under this
Agreement, and shall at its own expense, provide the office
space, equipment and facilities which it is obligated to provide
under Article I hereof, and shall pay all compensation of
officers of the Fund and all Trustees of the Fund who are
affiliated persons of MLAM U.K.
ARTICLE III
Compensation of MLAM U.K.
For the services rendered, the facilities furnished and
expenses assumed by MLAM U.K., MLAM shall pay to MLAM U.K. at the
end of each calendar month a fee based upon the average daily
value of the net assets of the Fund, as determined and computed
in accordance with the description of the determination of net
asset value contained in the Prospectus and Statement of
Additional Information, at the annual rate of .15 of 1.0% (.15%)
of the average daily net assets of the Fund, commencing on the
day following effectiveness hereof. During any period when the
determination of net asset value is suspended by the Trustees of
the Fund, the net asset value of a share as of the last business
4.
<PAGE> 5
day prior to such suspension shall for this purpose be deemed to
be the net asset value at the close of each succeeding business
day until it is again determined.
ARTICLE IV
Limitation of Liability of MLAM U.K.
MLAM U.K. shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or
for any act of omission it the performance of sub-advisory
services rendered with respect to the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of
its duties, or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article IV, MLAM U.K.
shall include any affiliates of MLAM U.K. performing services for
MLAM contemplated hereby and directors, officers and employees of
MLAM U.K. and such affiliates.
ARTICLE V
Activities of MLAM U.K.
The services of MLAM U.K. to the Fund are not to be deemed
to be exclusive,. MLAM U.K. and any person controlled by or under
common control with MLAM U.K. (for purpose of this Article V
referred to as "affiliates") being free to render services to
others. It is understood that Trustees, officers, employees and
shareholders of the Fund are or may become interested in MLAM
U.K. and its affiliates, as directors, officers, employees and
shareholders of MLAM U.K. and its affiliates are or may become
5.
<PAGE> 6
similarly interested in the Fund, and that MLAM U.K. and
directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or
otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first
above written and shall remain in force until March 31, 1989 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees of the Fund, or by
the vote of a majority of the outstanding voting securities of
the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement ray be terminated at any time, without the
payment of any penalty, by MLAM or by vote of a majority of the
outstanding voting securities of the Fund, or by MLAM U.K., on
sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment or
in the event of the termination of the Management Agreement.
6.
<PAGE> 7
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such
amendment is specifically approved by (i) the Trustees of the
Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Trustees who
are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote; of a majority of the outstanding voting
securities", "assignment" "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act and the rules
and regulations thereunder, subject, however, to such exemptions
as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
Governing law
This Agreement shall be construed in accordance with laws of
the State of Now York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws
7.
<PAGE> 8
of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company
Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
ILL LYNCH ASSET MANAGEMENT, INC.
By /s/ Arthur Zeikel
--------------------------------------
MERRILL LYNCH ASSET MANAGEMENT U.K., LTD.
By /s/ Terry K. Glenn
---------------------------------------
<PAGE> 1
Ex-99.6(b)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 19th day of December, 1986 between
MERRILL LYNCH EUROFUND, a Massachusetts business trust (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended to date (the "Investment Company Act"),
as an open-end investment company and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
OIL the Fund's shares in order to promote the growth of the Fund
and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares of beneficial interest of
the Fund (sometimes herein referred to as "shares") to the public
<PAGE> 2
and hereby, agrees during the term of this Agreement to sell
shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell shares in the areas so designated shall
terminate this Agreement shall remain otherwise in full
effect until terminated in accordance with the other Provisions
hereof.
(b) The exclusive rights granted to the Distributor to
purchase shares from the Fund shall not apply to shares of the
Fund issued in connection with the merger or consolidation of any
other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
(c) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
2.
<PAGE> 3
(d) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to the reinstatement privilege
afforded redeeming shareholders.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares,
commencing on a date agreed upon by the Fund and the Distributor,
it is contemplated that the Distributor will solicit
subscriptions for shares during a subscription period which shall
last for such period as may be agreed upon by the parties hereto.
The subscriptions will be payable within six business days after
the termination of the subscription period, at which time the
Fund will commence operations.
(b) After the Fund commences operations, the Fund will
commence an offering of its shares and thereafter the Distributor
shall have the right to buy from the Fund the shares needed, but
not more than the shares needed (except for clerical errors in
transmission) to fall unconditional orders for shares of the Fund
placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(e) hereof.
(c) The shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(e)
hereof , or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7
hereof.
3.
<PAGE> 4
(d) The net asset value of shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus and statement of
additional information of the Fund and guidelines established by
the Trustees.
(e) The Fund shall have the right to suspend the sale of
its shares at times when redemption is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of its shares if trading on
the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New
York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its
agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such
4.
<PAGE> 5
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption Shares by the Fund.
(a) Any of the outstanding shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or
redeem the shares so tendered in accordance with its obligations
as set forth in Article VIII of its Declaration of Trust, as
amended from time to time, and in accordance with the applicable
provisions set forth in the prospectus and statement of
additional information of the Fund. The price to be paid to
redeem or repurchase the shares shall be equal to the net asset
value calculated in accordance with the provisions of Section
3(e) hereof, less the redemption fee or other charge, if any, set
forth in the prospectus and statement of additional information
of the Fund. All payments by the Fund hereunder shall be made in
the manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable contingent deferred sales
charge shall be paid to the Distributor and (ii) the balance
shall be paid to or for the account of the shareholder, in each
case in accordance with the applicable provisions of the
prospectus and statement of additional information.
5.
<PAGE> 6
(b) Redemption of shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on
said Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by
order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of shares of the Fund, and this shall include, upon
request by the Distributor, one certified copy of all financial
statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, but subjects to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act of 1933,
as amended (the "Securities Act"), to the end that there will be
6.
<PAGE> 7
available for sale such number of shares as the Distributor
reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relation to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of shares of the Fund, but shall not be obligated
to sell any specific number of shares. The services of the
Distributor to the Fund hereunder are not to be deemed exclusive
and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not
impaired thereby.
(b) In selling the shares of the Fund, the Distributor
shall use its best efforts in all respects duly to conform with
7.
<PAGE> 8
the requirements of all Federal and state laws relating to the
sale of such, securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to
give any information or to make any representations, other than
those contained in the registration statement or related
prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of shares; provided, the
Fund shall approve the forms of agreements with dealers. Shares
sold to selected dealers shall be for resale by such dealers only
at net asset value determined as set forth in Section 3(d)
hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the initial form of agreement
8.
<PAGE> 9
with selected dealers to be used in the continuous offering of
the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer
and sell shares only to such selected dealers as are members in
good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to shareholders including but not limited to the
expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial
consultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of shares to
selected dealers or investors pursuant to this Agreement. The
9.
<PAGE> 10
Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in
connection with the offering of the shares for sale to the public
and any expenses of advertising incurred by the Distributor in
connection with such offering. It is understood and agreed that,
so long as the Fund's Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of
qualification of the shares for sale pursuant to this Agreement,
and, if necessary or advisable in connection therewith, of
qualification the Fund as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5(c) hereof and the
cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), arising by reason of any
10.
<PAGE> 11
person acquiring any shares which may be based upon the
Securities Act, or on any other statute or at Common law, on the
ground that the registration statement or related prospectus and
statement of additional information, as from time to time amended
and supplemented, or an annual or interim report to shareholders
of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and
in conformity with information furnished to the Fund in
connection therewith by or on behalf of the Distributor;
provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons
to be deemed to protect such Distributor or any such controlling
persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons
would otherwise be subject by reason of willful misfeasance, bad
faith or cross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling
persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
11.
<PAGE> 12
have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any
of its officers or trustees in connection with the issuance or
sale of any of the shares.
12.
<PAGE> 13
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its trustees and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim. reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until March 31, 1988 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Trustees, or by the vote of
a majority of the outstanding voting securities of the Fund, and
(ii) by the vote of a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party
13.
<PAGE> 14
cast in person at a meeting called for the purpose or voting on
such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Trustees or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", assignment, "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 11. Amendments of this Agreement. This Agreement,
may be amended by the parties only if such amendment is
specifically approved by (i) the Trustees, or by the vote of a
majority of outstanding voting securities of the Fund, and (ii)
by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of
voting on such approval.
Section 12. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with
the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
14.
<PAGE> 15
of the provisions herein, conflict with the applicable provisions
of the investment Company Act, the latter shall control.
Section 13. Personal Liability. The Declaration of Trust
establishing Merrill Lynch EuroFund, dated March 11, 1986, a copy
of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name "Merrill
Lynch EuroFund" refers to the trustees under the Declaration
collectively as trustees, but not as individuals or personally;
and no Trustee, shareholder, officer, employee or agent of the
Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs
OIL the Fund, but the "Trust Property" only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH EUROFUND
By /S/ Norman R. Harvey
---------------------
MERRILL LYNCH FUND DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
----------------------
<PAGE> 16
EXHIBIT A
MERRILL LYNCH EUROFUND
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch EuroFund, a Massachusetts
business trust (the "Fund"), pursuant to which it acts as the
distributor for the sale of shares of beneficial interest, par
value $0.10 per share, of the Fund, and as such has the right to
distribute shares of the Fund for resale. The Fund is an open-
end investment company registered under the Investment Company
Act of 1940, as amended, and its shares being offered to the
public are registered under the Securities Act of 1933, as
amended. Such shares and certain of the terms on which they are
being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a
copy of the Distribution Agreement between ourselves and the Fund
and reference is made herein to certain provisions of such
Distribution Agreement. This Agreement relates solely to the
subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal,
we offer to sell to you, as a member of the Selected Dealers
Group, shares of the Fund upon the following terms and
conditions:
1. The subscription period referred to in Section 3(a) of
the Distribution Agreement will continue through January 23,
1987. The subscription period may be extended upon agreement
between the Fund and the Distributor. Subject to the provisions
of such Section and the conditions contained herein, we will sell
to you on the fifth business day following the termination of the
subscription period, or such other date as we may advise (the
"Closing Date"), such number of shares as to which you have
placed orders with us not later than 5:00 P.M. on the second full
business day preceding the Closing Date.
2. In all sales of these shares to the public you shall act
as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the Fund, for us or for
any other member of the Selected Dealers Group.
3. You shall not place orders for any of the shares unless
you have already received purchase orders for such shares at the
applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. All orders are subject to
<PAGE> 17
acceptance by the Distributor or the Fund in the sole discretion
of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from
time to time. You agree that you will not offer or sell any of
the shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws
and that in connection with sales and offers to sell shares you
will furnish to each person to whom any such sale or offer is
made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the shares
of the Fund which is inconsistent in any respect with the
information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the Fund.
4. Payment for shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch
Funds Distributor, Inc., Box 9011, Princeton, New Jersey 08543-
9011, on such date as we may advise, in New York Clearing House
funds payable to the order of Merrill Lynch Funds Distributor,
Inc. against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by , as shareholder
servicing agent, acknowledging the deposit with it of the shares
so purchased by you. You agree that as promptly as practicable
after the delivery of such shares you will issue appropriate
written transfer instructions to the Fund or to the shareholder
servicing agent as to the purchasers to whom you sold the shares.
5. No person is authorized to make any representations
concerning shares of the Fund except those contained in the
current Prospectus and Statement of Additional information of the
Fund and in such printed information subsequently issued by us or
the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing shares
through us you shall rely solely on the representations contained
in the Prospectus and Statement of Additional information and
supplemental information above mentioned. Any printed informa-
tion which we furnish you other than the Fund's Prospectus and
Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
6. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
2.
<PAGE> 18
endeavor to obtain Proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon
request.
7. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to cancel this Agreement upon
notice to the other party.
8. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
10. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for
sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell shares in
any jurisdiction. We will file with the Department of State in
New York a Further State Notice with respect to the shares, if
necessary.
11. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
12. You agree that you will not sell any shares of the Fund
to any account over which you exercise discretionary authority.
3.
<PAGE> 19
13. This Agreement shall terminate at the close of business
on the Closing Date, unless earlier terminated, provided,
however, this Agreement shall continue after termination for the
purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
------------------------
By:
-------------------------------
Address:
--------------------------
----------------------------------
Date:
-----------------------------
4.
<PAGE> 20
EXHIBIT B
MERRILL LYNCH EUROFUND
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch EuroFund, a Massachusetts
business trust (the "Fund"), pursuant to which it acts as the
distributor for the sale of shares of beneficial interest, par
value $0.10 per share, of the Fund, and as such has the right to
distribute shares of the Fund for resale. The Fund is an open-
end investment company registered under the Investment Company
Act of 1940, as amended, and its shares being offered to the
public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Distribution Agreement
between ourselves and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" as used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. As principal, we offer to sell to you, as a member of
the Selected Dealers Group, shares of the Fund upon the following
terms and conditions:
1. In all sales of these shares to the public you shall act
as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the Fund, for us or for
any other member of the Selected Dealers Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions,
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in
the current Prospectus and Statement of Additional Information of
the Fund.
3. You shall not place orders for any of the shares unless
you have already received purchase orders for such shares at the
applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. You agree that you will not
<PAGE> 21
offer or sell any of the shares except under circumstances that
will result in compliance with the applicable Federal and state
securities laws and that in connection with sales and offers to
sell shares you will furnish to each person to whom any such sale
or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supple-
mented) and will not furnish to any person any information
relating to the shares of the Fund, which is inconsistent in any
respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supple-
mented) or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and
the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for shares of the Fund to be
resold by us to you subject to the applicable terms and condi-
tions governing the placement of orders by us set forth in
Section 3 of the Distribution Agreement, and (ii) to tender
shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of
the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such
withholding: e.g., by a change in the "net asset value" from
that used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning shares of the Fund except those contained in the
current Prospectus and Statement of Additional information of the
Fund and in such printed information subsequently issued by us or
the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing shares
through us you shall rely solely on the representations contained
in the Prospectus and Statement of Additional Information and
supplemental information above mentioned. Any printed informa-
tion which we furnish you other than the Fund's Prospectus,
Statement of Additional Information, periodic reports and proxy
solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
2.
<PAGE> 22
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon
request.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to cancel this Agreement upon
notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the shares have been qualified for
sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell shares in
any jurisdiction. We will file with the Department of State in
New York a Further State Notice with respect to the shares, if
necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
3.
<PAGE> 23
13. Your first order placed pursuant to this Agreement for
the purchase of shares of the Fund will represent your acceptance-
of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
-------------------------
By:
--------------------------------
Address:
---------------------------
-----------------------------------
Date:
------------------------------
4.
<PAGE> 1
EX-99.8
CUSTODIAN AGREEMENT
AGREEMENT make this 19th day of December
1986, between MERRILL LYNCH EUROFUND (the "Fund") and Brown
Brothers Harriman & Co. (the "Custodian") .
WITNESSETH: That in consideration of the mutual covenants
and agreements herein contained, the parties hereto agree as
follows:
1. The Fund hereby employs and appoints the Custodian as a
custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or
obligation to require the Fund to deliver to it any securities or
funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so
delivered. The Fund will deposit will the Custodian copies of
the certificate of Incorporation and By-Laws (or comparable
documents) of the Fund and all amendments thereto, and copies of
such votes and other proceedings of the Fund as may be necessary
for or convenient to the Custodian the performance of its
duties.
2. Except for securities and funds held by subcustodians
appointed pursuant to the provisions of Section 3 hereof, the
Custodian shall have and perform the following powers and duties:
A. Safekeeping - To keep safely the securities of the Fund
that have been delivered to the Custodian and from time to time
to receive delivery of securities for safekeeping.
1
<PAGE> 2
B. Manner of Holding Securities - To hold securities of the
Funds (1) by physical possession of the share certificates or
other instruments representing such securities in registered or
bearer form, or (2) in book-entry form by a securities System (as
said term is defined in Section 2T).
C. Registered Name; Nominee - To hold registered securities
of the Fund; (1) in the name or any nominee name of the Custodian
or the Fund, or in the name or any nominee name of any agent
appointed pursuant to Section 6E, or (2) in street certificate
form, so-called, and in any case with or without any indication
of Fiduciary capacity.
D. Purchases - Upon receipt of proper instructions, and
insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of the Fund, payment
being made only upon receipt of the securities (1) by the
Custodian or (2) by a clearing corporation of a national
securities exchange of which the Custodian is a member, or (3) by
a Securities System. However, (i) in the case of repurchase
agreements entered into by the Fund, the Custodian (as well as a
Subcustodian or an Agent, as defined in Section 2G)may release
funds to a Securities System prior to the receipt of advice from
the Securities System that the securities underlying such
repurchase agreement have boon transferred by book entry into this
Account (as defined in Section 2T) of the Custodian (or such
Subcustodian or Agent) maintain with such Securities System.
2
<PAGE> 3
and (ii) in the case of time deposits, call account deposits,
currency deposits, and other deposits, contracts or options
pursuant to Sections 2K, 2L and 2M, the Custodian may make
payment therefore without receiving an instrument evidencing
E. Exchanges - Upon receipt of proper instructions, to
exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization,
re capitalization, split-up of shares, chance of par value,
conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective
plan. Without such instructions, the Custodian may surrender
securities in temporary form for definitive securities, may
surrender securities for transfer into a name nominee name as
permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the
same number of shares or same principal amount of indebtedness,
provided the securities to be issued are to be delivered to the
Custodian.
F. Sales of Securities - Upon receipt of proper
instructions, to make delivery of securities which have been sold
for the account of the Fund, but only against payment therefor
(1) in cash, by a certified check, bank cashier's check, bank
credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national
3
<PAGE> 4
securities exchange of which the Custodian is a member, or (3) by
credit to the account of the Custodian or an Agent of the
Custodian with a Securities System.
G. Depository Receipts - Upon receipt of proper
instructions to instruct a subcustodian appointed pursuant to
Section 2 hereof (a "Subcustodian") or an agent of the Custodian
appointed pursuant to Section 6E hereof (an "Agent") to surrender
securities to the depository used by an issuer of American
Depository Receipts or International Depository Receipts
(hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the Subcustodian or Agent that the depository has acknowledge
receipt of instructions to issue with respect to such securities
ADRs in the name of the Custodian, or a nominee of the Custodian,
for delivery to the Custodian in Boston, Massachusetts or at
such other place as the Custodian may from time to time
designate.
Upon receipt of proper instructions to surrender
ADRs to the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to a Subcustodian or
an Agent.
4
<PAGE> 5
H. Exercise of Rights: Tender Offers - Upon timely receipt
of proper instructions, to deliver to the issuer or trustee
thereof, or to the agent of either, warrants, puts, calls, rights
or similar securities for the purpose of being Exercise or sold,
provided that the new securities and cash, it any, acquire by
such action are to be delivered to the Custodian, and, upon
receipt of proper instructions, to deposit securities upon
invitations for terms of securities, provided that the
consideration is to he paid or delivered or the tendered
securities are to be returned to the Custodian.
I. Stock Dividends, Rights, Etc. To receive and collect
all stock dividend, rights and other items of like nature; and
to deal with the same pursuant to proper instructions relative
thereto.
J. Borrowings - Upon receipt of proper instructions, to
deliver securities of the Fund to lenders or their agents as
collateral for borrowings effected by the Fund, provided that
such borrowed money is payable to or upon the Custodian's order
as Custodian for the Fund.
K. Demand Deposit Bank Accounts - To open and operate an
account or accounts in the name of the Fund on the Custodian's
books subject only to draft order by the Custodian. All funds
received by the Custodian from or for the account of the Fund
shall be deposited in said accounts(s). The responsibilities of
the Custodian to the Fund for Deposits accepted on the
5
<PAGE> 6
Custodian books shall be that of a U. S. bank for a similar deposit.
If and when authorized by proper instructions, the Custodian
may open and operate an additional account,(s)in such other banks
or trust companies as may he designated by the Fund in such
instructions (any such bank or trust company so designated by the
Fund being referred to hereafter as a "Banking Institution"),
provided that such account(s) shall be in the name of the
Custodian for account of the Fund and subject only to the
Custodian's draft or order. Such accounts may to opened with
Banking Institutions in the United States and in other countries
and may be denominated in either U. S. Dollars or other
currencies as the Fund may determine. All such deposits shall be
deemed to be portfolio securities of the Fund and accordingly the
responsibility of the Custodian therefore shall be the same as
and no greater than the Custodian's responsibility in respect of
other portfolio securities of the Fund.
L. Interest Bearing Call or Time Deposits - To place
interest bearing fixed term and call deposits with such banks and
in such amounts as the Fund may authorize pursuant to proper
instructions. Such deposits may be placed with the Custodian or
with Custodians or other Banking Institutions as the Fund may
determine. Deposit may be denominated in U. S. dollars or other
currencies and need not be evidenced by the issuance or delivery
of a certificate to the Custodian, provided that the Custodian
6
<PAGE> 7
shall include in its records with respect to the assets of the
Fund, appropriate notation as to the amount and currency of each
such deposit, the accepting Banking Institution, and other
appropriate details. Such deposits, other than those place with
the Custodian, shall be deemed portfolio securities of the Fund
and the responsibilities of the Custodian therefor shall be the
same as those for demand deposit batik accounts placed with other
banks, as described in Section K of this agreement. The
responsibility of the Custodian for such deposits accepted on the
Custodian's books shall be that of a U. S. bank for a similar
M. Foreign Exchange Transactions - Pursuant to proper
instructions, to enter into foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future
delivery on behalf and for the account of the Fund. Such
transactions may be undertaken by the Custodian with such Banking
Institutions, including the Custodian and Subcustodian(s) as
principals, as approved and authorized by the Fund. Foreign
exchange contracts and options other than those executed with the
Custodian, shall be deemed to be portfolio securities of the Fund
and responsibilities of the Custodian therefore shall be the
same as those for demand deposit bank accounts placed with other
banks as described in Section K of this agreement.
N. Stock Loans - Upon receipt of proper instructions, to
deliver securities of the Fund, in connection with loans of
7
<PAGE> 8
securities by the Fund, to the borrower thereof prior to receipt
of the collateral, if any, for such borrowing.
0. Collections - To collect, receive and deposit in said
account or accounts all income and other payments with respect to
the securities held thereunder, and to execute ownership and other
certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments
with respect to securities of the Fund or in connection with
transfer of securities, and pursuant to proper instructions to
take such other actions with respect to collection or receipt of
funds or transfer of securities which involve an investment
decision.
P. Dividends, Distributions and Redemption - Upon receipt
of proper instructions from the Fund, or upon receipt of
instructions from the Fund's shareholder servicing agent or agent
with comparable duties (the "shareholder Servicing Agent")
by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorize),
the Custodian shall release funds or securities to the
Shareholder Servicing Agent or otherwise apply funds or
securities, insofar as available, for the payment of dividends or
other distributions to Fund shareholders. Upon receipt of instructions
from instructions from Fund, or upon receipt of instructions from
the Shareholder Servicing Agent (given by such person or persons
and in such manner on behalf of the Shareholder Servicing Agent
8
<PAGE> 9
as the Fund shall have authorized), the Custodian shall release
funds or securities, insofar as available, to the Shareholder
Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a
request for repurchase or redemption of their shares of capital
stock of the Fund.
Q. Proxies, Notices, Etc. - Promptly to deliver or mail to
the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to
securities owned by the Fund that are received by the Custodian,
and yon receipt of proper instructions, to execute and deliver
or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor is
nominee shall vote upon any of such securities or execute any
proxy to vote thereon or give any consent or take any other
action with respect thereto(expect as otherwise herein provided)
unless ordered to do so by proper instructions.
R. Bills - Upon receipt or proper instructions, to pay or
cause to be paid, insofar as funds are available for the purpose,
bills, statements, or other obligations of the Fund.
S. Non discretionary Details - Without the necessity of
express authorization from the Fund, (1) to attend to all
non discretionary details connection with the sale, exchange,
substitution, purchase, transfer or other dealings with
securities, funds or other property of the Fund held by the
-9-
<PAGE> 10
Custodian except as otherwise directed from time to time by the
directors of the Fund and (2) to make payments to itself or
others for minor expenses of handling securities or other similar
items relating to the Custodian's duties under this Agreement,
provided that all such payments shall be accounted for to the
Fund.
T. Deposit of Fund Assets in Securities System. - The
Custodian may deposit and/or maintain securities owned by the
Fund in (i) The Depository Trust Company, (ii) any book-entry
system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of
Subpart C. or (iii) any other domestic clearing agency registered
with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this
Agreement as a "Securities System"). Utilization of a Securities
System shall be in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provision:
The Custodian may deposit and/or maintain Fund Securities, either
directly or through one or more Agents appointed by the Custodian
(provided that any such agent shall be qualified to act as a
custodian of the Fund pursuant to the Investment Company Act of
-10-
<PAGE> 11
1940 and the rules and regulations thereunder), in a Securities
System provided that such securities are represented in an account
"Account") of the Custodian or such Agent in the securities System
which shall not include any assets of the Custodian or Agent other
than assets held as a fiduciary, custodian, or otherwise for
customers:
2) The records of the Custodian with respect to securities of
the fund which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The
Custodian shall Transfer securities sold for the account of the
Fund upon (i) receipt of advice form the Securities System that
payment for such securities has been transferred tot he Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all advises form the Securities System of transfers of
securities for the account of the Fund shall identify the Fund, be
maintained for the Fund b y the Custodian or an Agent as referred to
above, and be provided to the Fund at its request. The Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
-12-
<PAGE> 12
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the
accounts of the Fund on the next business day;
4)The Custodian shall provide the Fund with any report
obtained by the Custodian or any Agent as referred to above on the
Securities System's accounting system, internal accounting control
and procedures for safeguarding securities deposited in the
Securities System; and the Custodian and such Agents shall send to
the Fund such reports on their own systems of internal accounting
control as the Fund may reasonably request from time to time.
5) At the written request of the Fund, the Custodian will
terminate the use of any such Securities System on behalf of the
Fund as promptly as practicable.
U. Other Transfer - To deliver securities, funds and other
property of the Fund to a Subcustodian or another custodian of the
Fund; and, upon receipt of proper instructions, to make such other
disposition of securities, funds or other property of the Fund in a
manner other than or for purposes other than as enumerated
elsewhere in this Agreement, provided that the instructions
relating to such disposition shall include a statement of the
purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons to
whom delivery is to be made.
V. Investment Limitations - In performing its duties
generally, and more particularly in connection with the purchase,
-12-
<PAGE> 13
sale and exchange of securities made by or for the Fund, the
Custodian may assume unless and until notified in writing to the
contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the
Fund's Certificate of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or Directors
of the Fund. The Custodian shall in no event be liable to the Fund
and shall be indemnified by the Fund for any violation of any
investment limitations to which the Fund is subject or other
limitations with respect to the Fund's powers to make expenditures,
encumber securities, borrow or take similar actions affecting its
portfolio.
W. Proper Instructions - Proper instructions shall mean a tested
telex from the Fund or a written request, direction,
instruction or certification signed or initialed on behalf of the
Fund by one or more person or persons as the Board of Directors of
the Fund shall have from time to time authorized, provided,
however, that no such instructions directing the delivery of
securities or the payment of funds to an authorized signatory of
the Fund shall be signed by such person. Those persons authorized
to give proper instructions may be identified by the Board of
Directors by name, title or position and will include at least one
officer empowered by the Board to name other individuals who are
authorized to give proper instructions on behalf of the Fund.
Telephone or other oral instructions given by any one of the above
-13-
<PAGE> 14
persons will be considered proper instructions if the Custodian
reasonably believes them to have been given by a person authorized
to given such instructions with respect to the transaction involved
oral instructions will be confirmed by tested telex or in writing
in the manner set forth above but the lack of such confirmation
shall in no way affect any action taken by the Custodian in
reliance upon such oral instructions. The Fund authorizes the
Custodian to tape record any and, all telephonic or other oral
instructions given to the Custodian by or on behalf of the Fund
(including any of its officers, Directors, employees or agents) and
will deliver to the Custodian a similar authorization from any
investment Manager or adviser or person or entity with similar
responsibilities which is authorized to give proper instructions on
behalf of the Fund to the Custodian. Proper instructions may
related to specific transactions or to types or classes of
Transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected
directly between electromechanical or electronic devices or
systems, in addition to tested telex, provided that the Fund and
the Custodian agree to the use of such device or system.
3. Securities, funds and other property of the Fund may be
hold by subcustodians appointed pursuant to the provisions of this
Section 3 (a "Subcustodian"). The Custodian may, at any time and
from time to time, appoint any bank or trust company (meeting the
requirements of a custodian or a foreign custodian under the
14 -
<PAGE> 15
Investment Company Act of 1940 and the rules and regulations
thereunder) to act as a Subcustodian for the Fund, provided that
the Fund shall have approved in writing (1) any such bank or trust,
company and the subcustodian agreement to be entered into between
such bank or trust company and the custodian, and (2) the
subcustodian's offices or branches at which the Subcustodian is
authorized to hold securities, cash and other property of the Fund.
Upon such approval by the Fund, the Custodian is authorized on
behalf of the Fund to notify each Subcustodian of its appointment
as such. The Custodian may, at any time in its discretion, remove
any bank or trust company that has been appointed as a
Subcustodian.
Those Subcustodians, their offices or branches which the Fund
has approve to date are set forth on Appendix A hereto. Such
Appendix shall be amended from time to time as Subcustodians,
branches or offices are changed, added or deleted. The Fund shall
be responsible for informing the Custodian sufficiently in advance
of a proposed investment which is to be held at a location not
listed on Appendix A, in order that there shall be sufficient time
for the Fund to give the approval required by the preceding
paragraph and for the Custodian to put the appropriate arrangements
in place with such Subcustodian pursuant to such subcustodian
agreements.
If the Fund shall have invested in a security to be held in a
location before the foregoing procedures have been completed, such
- 15 -
<PAGE> 16
security shall be held by such agent as the Custodian may appoint.
in any event, the Custodian shall be liable to the Fund for the
actions of such agent if and only to the extent the Custodian shall
have recovered from such agent for any damages caused the Fund by
With respect to the securities and funds held by a
Subcustodian, either directly or indirectly, including demand and
interest bearing deposits, currencies or other deposits and foreign
exchange contracts as referred to in Sections 2K, 2L, or 2X, the
Custodian shall be liable to the Fund if and only to the extent
that such Subcustodian is liable to the Custodian and the Custodian
recovers under the applicable subcustodian agreement. The
Custodian shall nevertheless be liable to the Fund for its own
negligence in transmitting any instructions received by it from the
Fund and for its own negligence in connection with the delivery of
any securities or funds held by it to any such Subcustodian.
In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its
obligations under the terms and conditions of the applicable
subcustodian agreement, the Custodian shall use its best efforts to
cause such Subcustodian to perform such obligations. In the event
that the Custodian is unable to cause such Subcustodian shall forthwith
fully its obligation thereunder, the Custodian shall forthwith
upon the Fund's request terminate such Subcustodian and, if
necessary or desirable, appoint another subcustodian in accordance
- 16 -
<PAGE> 17
with the provisions of this Section 3. At the election of the
Fund, it shall have the right to enforce, to the extent permitted
by the subcustodian agreement and applicable law, the Custodian's
rights against any such subcustodian for loss or damage caused the
Fund by such Subcustodian.
At the written request of the Fund, the Custodian will
terminate any subcustodian appointed pursuant to the provisions of
this section 3 in accordance with the termination provisions under
the applicable subcustodian agreement. The Custodian will not
amend any subcustodian agreement or agree to change or permit any
change thereunder except upon the prior written approval of the
Fund.
In the event the Custodian makes any payment to a Subcustodian
under the indemnification provisions of any subcustodian agreement
no more than thirty days after written notice, to Fund of the
Custodian's intention to make such payment, the Fund will reimburse
the Custodian the amount of such payment except in respect of any
negligence or misconduct of the Custodian.
4. The custodian may assist generally in the preparation of
reports to Fund shareholders and others, audits of accounts, and
other ministerial matters of like nature.
5. The Fund hereby also appoints the Custodian as its
financial agent. With respect to the appointment as financial
agent, the Custodian shall have and perform the following powers
and duties:
17
<PAGE> 18
A. Records - To create maintain and retain such records
relating to its activities and obligations under this Agreement as
are required under the Investment Company Act of 1940 and the rules
and regulation thereunder (including Section 31 thereof and Rules
31a-1 and 31a-2 thereunder) and under applicable Federal and State
tax laws. All such records will be the property of the Fund and in
he event of termination of this Agreement shall be delivered to
he successor custodian.
B. Accounts - To keep books of account and render statements,
including interim monthly and complete quarterly financial
Statements, or copies thereof, from time to time as reasonably
requested by proper instructions.
C. Access to Records - Subject to security requirements of
the Custodian applicable to its own employees having access to
similar records within the Custodian and such regulations as may be
reasonably imposed by the Custodian, the books and records
maintained by the Custodian pursuant to Sections 5A and 5B shall be
open to inspection and audit at reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
D. Disbursements - Upon receipt of proper instructions, to
pay or cause to be paid, insofar as funds are available for the
purpose, bills, statements and other obligation of the Fund
(including but not limited to interest charges, taxes, management
fees, compensation to Fund officers and employees, and other
operating expenses of the Fund).
- 18 -
<PAGE> 19
6 A. The Custodian shall not be liable for any action taken
or omitted in reliance upon proper instructions believed by it to
be genuine or upon any other written notion, request, direction,
instruction, certificate or other instrument believed by it to be
genuine and signed by the proper party or parties.
The Secretary or Assistant Secretary of the Fund still certify
to the Custodian the names, signatures and scope of authority of
a11 persons authorized to give proper instructions or any other
such notice, request ,direction, instruction, certificate or
instrument on behalf of the Fund, the names and signatures of the
officers of the Fund, the name and address of the Shareholder
Servicing Agent, and any resolutions, votes, instructions or
directions of Funds Board of Directors or shareholders. Such
certificates may be accepted and relied upon by the Custodian as
conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar
certificate to the contrary.
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of title
thereto received by it or delivered by it pursuant to this
Agreement.
The Custodian shall be entitled, at the expense of the Fund,
to receive and act upon advice of counsel (who may be counsel for
Fund)on all matters, and the Custodian shall be without
- 19 -
<PAGE> 20
liability for any action reasonably taken or omitted pursuant to
such advice.
B. With respect to the portfolio securities, cash and other
property of the Fund held by a Securities System, the Custodian
shall be liable to the Fund only for any loss or damage to the Fund
resulting from use of the Securities System if caused by any
negligence, misfeasance or misconduct of the Custodian or any of
its agents or of any of its or their employees or from any failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System.
C. Except as may otherwise be set forth in this Agreement
with respect to particular matters, the Custodian shall be held
only to the exercise of reasonable care and diligence in carrying
out the provisions of this Agreement, provided that the Custodian
shall not thereby be required to take any action which is in
contravention of any applicable law. The Fund agrees to indemnify
and hold harmless the Custodian and its nominees from all claims
and liabilities (including counsel fees) incurred or assessed
against it or its nominees in connection with the performance of
this Agreement, except such as may arise from its or its nominee's
breach of the relevant standard of conduct set forth in this
Agreement. Without limiting the foregoing indemnification
obligation of the Fund, the Fund agrees to indemnify the Custodian
and its nominees against any liability the Custodian or such
nominees may incur by reason of taxes assessed to the Custodian or
20
<PAGE> 21
such nominee or other costs, liability or expense incurred by the
custodian or such nominee resulting directly or indirectly from the
fact that portfolio securities or other property of the Fund is
registered in the name of the Custodian or such nominee.
It is also understood that the Custodian shall not be liable
for any loss involving any securities, currencies, deposits or
other property of the Fund,, whether maintained by it, a
Subcustodian, an agent of the Custodian or a Subcustodian, a
Securities System, or a Banking Institution, or a loss arising from
a foreign currency transaction or contract, resulting from
Sovereign Risk. A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other
charges affecting the Funds property; or acts of war, terrorism,
insurrection or revolution; or any other similar act or event
beyond the Custodian's control.
D. The Custodian shall be entitled to receive reimbursement
from the Fund on demand, in the manner provided in Section 7, for
its cash disbursements, expenses and charges including the fees
and expenses of Subcustodian or any Agent) in connection with
this Agreement, but excluding salaries and usual overhead expenses.
E. The Custodian may at any time or times in its discretion
21
<PAGE> 22
appoint (any may at any time remove) any other bank or trust
company as its agent (an "Agent") to carry out such of the
provisions of this Agreement as the Custodian may from time to time
direct, provided, however, that the appointment of such Agent
(other than an Agent appointed pursuant to the third paragraph of
Section 3) shall not relieve the Custodian of any of its
responsibilities under this agreement.
F. Upon request, the Fund shall deliver to the Custodian such
proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their
respective obligations under this Agreement or any applicable
subcustodian agreement.
7. The Fund shall pay the Custodian a custody fee based on
such fee schedule as may from time to title be agreed upon in
writing by talk Custodian and the Fund. Such fee, together with all
amounts for which the Custodian is to be reimbursed in accordance
with Section 6D, shall be billed to the Fund in such a manner as to
permit payment either by a direct cash payment to the Custodian or
by placing Fund portfolio transactions with the Custodian resulting
in an agreed-upon amount of commissions being paid to the Custodian
within an agreed-upon period of time.
8. This Agreement shall continue in full force and effect
until terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such
22
<PAGE> 23
termination to take effect not sooner than seventy five (75) days
after the date of such delivery or mailing in the event of
termination the Custodian shall be entitled to receive prior to
delivery of the securities, funds and other property held by it all
accrued fees and unreimbursed expenses the payment of which is
contemplated by Sections 6D and 7, upon receipt by the Fund of a
statement setting forth such fees and expenses.
In the event or the appointment of a successor custodian it
is agreed that the funs and securities owned by the Fund and held
by the Custodian or any Subcustodian shall be delivered to the
successor custodian, and the Custodian agrees to cooperate with the
Fund in execution of documents and performance of other actions
necessary or desirable in order to substitute the successor
custodian for the Custodian under this Agreement.
9. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter
hereof. No provision of this Agreement may be a amended or
terminated except by a statement in writing signed by time party
against which enforcement of the amendment or termination is
sought.
In connection with the operation of this Agreement, the
Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions
of this Agreement as may in their joint opinion be consistent with
the general tenor of this Agreement. No interpretative or
23
<PAGE> 24
additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
10. This instrument is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and
construed according to the laws of said Commonwealth.
11. Notices and other writings delivered or mailed postage
prepaid to the Fund addressed to the Fund at Merrill Lynch Assets
Management, Inc., 800 Scudders Mill Road, Plainsboro, New Jersey
08536, Attention: Mr. Gerald M. Richard, Senior Vice
President/Treasurer, or to such other address as the Fund may have
designated to the Custodian in writing, or to the Custodian at 40
Water Street, Boston, Massachusetts 02109, Attention: Manager,
Securities Department, or to such other address as the Custodian
may have designated to the Fund in writing, shall be deemed to have
been properly delivered or given thereunder to the respective
addressee.
12. This Agreement shall be binding on and shall insure to the
benefit of the Fund and the Custodian and their respective
successor and assigns, provided that neither party hereto may
assign this Agreement or any of its rights or obligations thereunder
without the prior written consent of the other party.
13. This Agreement may be executed in any number of
Counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have
been signed and delivered by each of the parties.
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<PAGE> 25
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf on the day and year
first above write.
MERRILL LYNCH EUROFUND BROWN BROTHERS HARRIMAN & CO.
BY PER PRO
-------------------------- -----------------------
<PAGE> 26
APPENDIX A
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORY
<S> <C> <C>
AUSTRIA MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
BELGIUM MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS C. 1. K.
DENMARK MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
FINLAND MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
FRANCE MORGAN GUARANTY TRUST COMPANY OF NEW YORK, PARIS SICOVAM
GERMANY MORGAN GUARANTY TRUST COMPANY OF NEW YORK, FRANKFURT KASSENVEREIN
ITALY BANCA COMMERCIALE ITALIANA SUBCUSTODIAN FOR
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
NETHERLANDS MORGAN BANK NEDERLAND NECIGEF
NORWAY MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
SPAIN BANCO DE SANTANDER, SUBCUSTODIAN FOR
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS NONE
SWEDEN MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS EUROCLEAR
SWITZERLAND MORGAN GUARANTY TRUST COMPANY OF NEW YORK, ZURICH SEGA
UNITED KINGDOM MORGAN GUARANTY TRUST COMPANY OF NEW YORK, LONDON TALISMAN
TRANSNATIONAL OPERATED BY MORGAN GUARANTY TRUST COMPANY OF NEW YORK, EUROCLEAR
BRUSSELS
</TABLE>
APPROVED:
---------------------------------------------------
25
<PAGE> 1
Exhibit 99.9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 5th day of October, 1987 by and between
Merrill Lynch EuroFund (the "Fund") and Merrill Lynch Financial Data Services,
Inc. ("MLFDS"), a New Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject to,
the terms and provisions of this Agreement, and MLFDS is desirous of accepting
such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and subject
to, the terms and provisions of this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and agrees to
act as such upon, and subject to, the terms and provisions of the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of 1940 as
amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a Shareholder, or, if the
shares are held in an account in the name of MLPF&S for benefit of an
identified customer, such account, including a Plan Account, any account under
a plan (by whatever name referred to in the Prospectus) pursuant to the
Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan") and any
plan (by whatever name referred to in the Prospectus) in conjunction with
Section 401 of the Internal Revenue Code ("Corporation Master Plan");
<PAGE> 2
(III) The term "application" means an application made by a
Shareholder or prospective Shareholder respecting the opening of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an instruction in writing
given on behalf of the Fund to MLFDS, and signed on behalf of the Fund by the
President, any Vice President, the Secretary or the Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and the Statement of
Additional Information of the Fund as from time to time in effect;
(VIII) The term "Shares" means shares of stock or beneficial interest,
as the case may be, of the Fund, irrespective of class or series;
(IX) The term "Shareholder" means the holder of record of Shares;
(X) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other Plan if and
when provision is made for such plan in the Prospectus.
3. Duties of MLFDS as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the Agreement, MLFDS
hereby agrees to perform the following functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing Accounts;
- 2 -
<PAGE> 3
(III) Acting as agent for the Fund Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the terms and subject to the
conditions contained in the Prospectus and application relating to the specific
Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S, maintaining such
records as may permit the imposition of such contingent deferred sales charges
as may be described in the Prospectus, including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be subject
to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a contingent
deferred sales charge, calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
MLFDS shall pay, on behalf of MLFD, to MLPF&S such deducted contingent deferred
sales charges imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer account of
MLPF&S. Sales charges imposed upon any other Shares shall be paid by MLFDS to
MLFD.
(VI) Exchanging the investment of an investor into, or from the shares
of other open-end investment companies or other series portfolios of the Fund,
if any, if and to the extent permitted by the Prospectus at the direction of
such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted
by the Fund;
(X) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with additional
enclosures, including appropriate income tax information and income tax forms
duly completed, as required by applicable law;
(XII) Acting as agent for the Fund and/or MLPF&S, mailing annual,
semi-annual and quarterly reports prepared by or on behalf of the Fund, and
mailing new Prospectuses upon their issue to Shareholders as required by
applicable law;
(XIII) Furnishing such periodic statements of transactions effected by
MLFDS, reconciliations, balances and summaries as the Fund may reasonably
request;
- 3 -
<PAGE> 4
(XIV) Maintaining such books and records relating to transactions
effected by MLFDS as are required by the Act, or by any other applicable
provision of law, rule or regulation, to be maintained by the Fund or its
transfer agent with respect to such transactions, and preserving, or causing to
be preserved any such books and records for such periods as may be required by
any such law, rule or regulation and as may be agreed upon from time to time
between MLFDS and the Fund. In addition, MLFDS agrees to maintain and preserve
master files and historical computer tapes on a daily basis in multiple
separate locations a sufficient distance apart to insure preservation of at
least one copy of such information;
(XV) Withholding taxes on non-resident alien Accounts, preparing and
filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection with the holding
of annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation accompanied by
appropriate certifications, and preparing and furnishing to the Fund certified
lists of Shareholders as of such date, in such form and containing such
information as may be required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities.
- 4 -
<PAGE> 5
(e) MLFDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between MLFDS's records and the account books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of this
paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.
4. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronical information storage media and print-outs) of any and all of
its books and records which relate to any transaction or function performed by
MLFDS under or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold MLFDS harmless from any loss, costs,
damage and reasonable expenses, including reasonable attorney's fees (provided
that such attorney is appointed with the Fund's consent, which consent shall
not be unreasonably withheld), incurred by it resulting from any claim, demand,
action, or suit in connection with the performance of its duties hereunder,
-5-
<PAGE> 6
provided that this indemnification shall not apply to actions or omissions of
MLFDS in cases of willful misconduct, failure to act in good faith or negligence
by MLFDS, its officers, employees or agents, and further provided, that prior to
confessing any claim against it which may be subject to this indemnification,
MLFDS shall give the Fund reasonable opportunity to defend against said claim in
its own name or in the name of MLFDS. An action taken by MLFDS upon any
Officer's Instruction reasonably believed by it to have been properly executed
shall not constitute willful misconduct, failure to act in good faith or
negligence under this Agreement.
8. Regarding MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as may be reasonably determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS warrants and
represents that its officers and supervisory personnel charged with carrying out
its functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all times exercise due care and
diligence in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund. MLFDS agrees
that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that it is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent, and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Fund of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or MLFDS (without penalty to the Fund or MLFDS) provided
that the terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately upon written notice to MLFDS if the
authority or permission of MLFDS to act as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation
has been commenced.
-6-
<PAGE> 7
(b) Upon termination of this Agreement, MLFDS shall deliver all
unissued and canceled stock certificates representing Shares remaining in its
possession, and all Shareholder records, books, stock ledgers, instruments and
other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent, Disbursing Agent and Shareholder Servicing Agent for the Fund along with
a certified locator document clearly indicating the complete contents therein,
to such successor as may be specified in a notice of termination or Officer's
Instruction; and the Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or its
functions under this Agreement may from time to time be modified by an
Officer's Instruction, this Agreement may be amended or modified only by
further written Agreement between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of
New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year
above written.
MERRILL LYNCH EUROFUND
By: /s/
-----------------------------------
Title: EXECUTIVE VICE PRESIDENT
--------------------------------
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
By: /s/
---------------------------------
Title: PRESIDENT
-------------------------------
- 7 -
<PAGE> 8
SCHEDULE OF FEES
The Fund will pay to FDS an annual fee of $11.00 per Class A and Class
D Shareholder Account and $14.00 per Class B and Class C Shareholder Account in
addition to reimbursement for the out-of-pocket expenses incurred by FDS
pursuant to this Agreement.
9
<PAGE> 1
Ex-99.13
CERTIFICATE OF SOLE SHAREHOLDER
Merrill Lynch Asset Management, Inc., the holder of 10,000
shares of beneficial interest, par value $0.10 per share, of
Merrill Lynch EuroFund, a Massachusetts business trust (the
"Fund"), does hereby confirm to the Fund its representation that
it purchased such shares for investment purposes, with no present
intention of redeeming or reselling any portion thereof, and does
further agree that if it redeems any portion of such shares prior
to the amortization of the Fund's organizational expenses, the
proceeds thereof will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of
shares being redeemed bears to the number of shares initially
purchased.
MERRILL LYNCH ASSET MANAGEMENT, INC.
By: /s/ Robert Harris
----------------------------------
Dated: December 17, 1986
<PAGE> 1
Ex-99.16(a)
Merrill Lynch EuroFund
Class A
Total Return
<TABLE>
<CAPTION>
Period from
10/26/88 Annual
(inception) Total
to 10/31/89 Return*
------------ ----------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by
Maximum Offering Price 9.44
----------
Divided by Net Asset Value 8.83
----------
Equals Shares Purchased 105.93 113.25
Plus Shares Acquired through
Dividend Reinvestment 0.24 0.30
---------- ----------
Equals Shares Held
at 10/31/89 106.17 113.55
Multiplied by Net Asset
Value at 10/31/89 9.84 9.84
---------- ----------
Equals Ending Redeemable
Value at $1,000
Investment (ERV) at 10/31/89 $1,044.70 $1,117.30
Divided by $1,000 (P) 1.0447 1.1173
Subtract 1 0.0447 0.1173
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 4.47%
========
Expressed as a percentage
equals the Aggregate Total
Return for the Period 11.73%
========
ERV divided by P 1.0447
Raise to the power of 1
Equals 1.0447
Subtract 1 0.0447
Expressed as a percentage
equals the Average
Annualized Total Return 4.47%
=======
</TABLE>
*Does not include sales charge for the period.
<PAGE> 1
Exhibit 99.16(b)
EUROFUND
TOTAL RETURN
<TABLE>
<CAPTION>
Inception
01-30-87
---------
<S> <C>
Initial Investment $1,000.00
Divided by Maximum Offering Price 10.00
---------
Equals Shares Purchased 100.00
Plus Shares Acquired Through Dividend Reinvestment -0-
---------
Equals Shares Held at 10/31/87 100.00
Multiplied by Net Asset Value at 10/31/87 9.29
---------
Equals Ending Value before deduction for contingent
deferred sales charge $ 929.00
Deduction for deferred sales charge 37.16
---------
Equals Ending Redeemable Value of a $1,000
Investment (ERV) $ 891.84
Divided by $1,000 (P) .8918
Subtract 1 (.1082)
Expressed as a percentage equals the Aggregate Total
Return for the Period (10.82)%
---------
ERV divided by P .8918
Raise to the power of 1/.751
Equals .8559
Subtract 1 (.1441)
Expressed as a percentage equals the Average (14.41)%
=========
</TABLE>
<PAGE> 1
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
February 27, 1996
Merrill Lynch EuroFund
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by
Merrill Lynch EuroFund, a Massachusetts business trust (the "Trust"), of shares
of beneficial interest, par value $0.10 per share, of the Trust (the "Shares"),
under the Securities Act of 1933, as amended, pursuant to the Trust's
registration statement on Form N-1A (File No. 33-4026), as amended (the
"Registration Statement"), in the amount set forth under "Amount Being
Registered" on the facing page of the Registration Statement.
As counsel for the Trust, we are familiar with the proceedings taken
by it in connection with the authorization, issuance and sale of the Shares.
In addition, we have examined and are familiar with the Declaration of Trust of
the Trust, as amended, the By-Laws of the Trust and such other documents as we
have deemed relevant to the matters referred to in this opinion.
<PAGE> 2
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued,
fully paid and non-assessable shares of beneficial interest.
In rendering this opinion, we have relied as to matters of
Massachusetts law upon an opinion of Bingham, Dana & Gould rendered to the
Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD
2
<PAGE> 1
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH EUROFUND:
We consent to the use in Post-Effective Amendment No. 12 to Registration
Statement No. 33-4026 of our report dated December 8, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790525
<NAME> MERRILL LYNCH EUROFUND
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,015,440,991
<INVESTMENTS-AT-VALUE> 1,116,839,439
<RECEIVABLES> 10,770,983
<ASSETS-OTHER> 29,024,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,156,634,984
<PAYABLE-FOR-SECURITIES> 36,352,892
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,939,414
<TOTAL-LIABILITIES> 42,292,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 955,534,706
<SHARES-COMMON-STOCK> 13,585,427
<SHARES-COMMON-PRIOR> 14,805,226
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 57,569,335
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 101,238,637
<NET-ASSETS> 204,712,539
<DIVIDEND-INCOME> 25,982,820
<INTEREST-INCOME> 1,737,185
<OTHER-INCOME> 0
<EXPENSES-NET> 21,898,041
<NET-INVESTMENT-INCOME> 5,821,964
<REALIZED-GAINS-CURRENT> 74,008,615
<APPREC-INCREASE-CURRENT> (33,482,794)
<NET-CHANGE-FROM-OPS> 46,347,785
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 22,844,949
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,992,118
<NUMBER-OF-SHARES-REDEEMED> 6,703,037
<SHARES-REINVESTED> 1,491,120
<NET-CHANGE-IN-ASSETS> (209,227,979)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 112,731,529
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,514,893
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,898,041
<AVERAGE-NET-ASSETS> 201,277,552
<PER-SHARE-NAV-BEGIN> 15.96
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .56
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.07
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790525
<NAME> MERRILL LYNCH EUROFUND
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,015,440,991
<INVESTMENTS-AT-VALUE> 1,116,839,439
<RECEIVABLES> 10,770,983
<ASSETS-OTHER> 29,024,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,156,634,984
<PAYABLE-FOR-SECURITIES> 36,352,892
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,939,414
<TOTAL-LIABILITIES> 42,292,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 955,534,706
<SHARES-COMMON-STOCK> 56,019,004
<SHARES-COMMON-PRIOR> 71,087,909
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 57,569,335
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 101,238,637
<NET-ASSETS> 795,469,321
<DIVIDEND-INCOME> 25,982,820
<INTEREST-INCOME> 1,737,185
<OTHER-INCOME> 0
<EXPENSES-NET> 21,898,041
<NET-INVESTMENT-INCOME> 5,821,964
<REALIZED-GAINS-CURRENT> 74,008,615
<APPREC-INCREASE-CURRENT> (33,482,794)
<NET-CHANGE-FROM-OPS> 46,347,785
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 110,166,564
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,300,407
<NUMBER-OF-SHARES-REDEEMED> 30,942,910
<SHARES-REINVESTED> 7,573,598
<NET-CHANGE-IN-ASSETS> (209,227,979)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 112,731,529
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,514,893
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,898,041
<AVERAGE-NET-ASSETS> 871,306,451
<PER-SHARE-NAV-BEGIN> 15.28
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.20
<EXPENSE-RATIO> 2.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790525
<NAME> MERRILL LYNCH EUROFUND
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,015,440,991
<INVESTMENTS-AT-VALUE> 1,116,839,439
<RECEIVABLES> 10,770,983
<ASSETS-OTHER> 29,024,562
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,156,634,984
<PAYABLE-FOR-SECURITIES> 36,352,892
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,939,414
<TOTAL-LIABILITIES> 42,292,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 955,534,706
<SHARES-COMMON-STOCK> 681,358
<SHARES-COMMON-PRIOR> 30,248
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