MERRILL LYNCH
EUROFUND
FUND LOGO
Annual Report
October 31, 1998
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
EuroFund
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH EUROFUND
PORTFOLIO INFORMATION
Pie graph depicting Portfolio Information As a Percentage of Stocks
at Value As of October 31, 1998
Emerging Europe* 1.1%
Finland 4.4%
Switzerland 9.1%
France 15.1%
United Kingdom 17.7%
Netherlands 9.6%
Italy 7.7%
Sweden 5.8%
Norway 1.2%
Ireland 1.6%
Germany 26.7%
[FN]
*Countries include Hungary, Poland and Slovakia.
EUROPEAN STOCK MARKET PERFORMANCE
Bar graph depicting European Stock Market Performance in terms of
Total Return for the Three-Month Period Ended October 31, 1998 In US
dollars*
Sweden -18.9%
Norway -18.3%
Germany -14.1%
Italy -13.1%
Netherlands -12.4%
Switzerland -11.1%
Spain -10.6%
France - 8.8%
Ireland - 8.1%
Denmark - 7.2%
Finland - 6.7%
United Kingdom - 4.2%
Source: Financial Times/Standard & Poor's--Actuaries Index.
[FN]
*For the three-month period ended October 31, 1998, total investment
return for the Financial Times/Standard & Poor's--Actuaries Europe
Index was -9.43%.
Merrill Lynch EuroFund
October 31, 1998
DEAR SHAREHOLDER
During the quarter ended October 31, 1998, the unmanaged Financial
Times/Standard & Poor's--Actuaries Europe Index had a total return
of -9.43%, while the total return for the unmanaged Morgan Stanley
Capital International Europe Index (MSCI Europe Index) was -9.36%.
For the same period, Merrill Lynch EuroFund's Class A, Class B,
Class C and Class D Shares had total returns of -9.22%, -9.46%,
- -9.43% and -9.29%, respectively, in line with these indexes. The
Fund's performance was significantly better than the Lipper European
Region Funds Average, which had a return of -13.53% for the same
three-month period. The Fund's performance benefited from a high
cash position during the market decline, but was negatively impacted
by poor performance of value stocks. (Fund results do not reflect
sales charges, and would be lower if sales charges were included.
Complete performance information can be found on pages 4--6 of this
report to shareholders.)
Throughout the quarter ended October 31, 1998, market sentiment
turned dramatically. The catalyst for the change was the Russian
currency devaluation and debt default, which proved to be
contagious. In addition, Japanese problems worsened, Latin America
and hedge funds came under intense pressure, and fear of a credit
crunch emerged. The belief in low inflation/disinflation turned into
fears of deflation and recession or even depression. Low bond yields
were no longer a reason to push stocks higher, but were viewed as a
reflection of the dire global environment. Investors' expectations
changed from a belief that corporate earnings were going to continue
rising indefinitely to a view that they were on the verge of
collapse. In this panic environment, European markets fell
approximately 25% in US dollar terms.
Following the decline, value was abundant, but required a catalyst
for a rebound. This came in the form of aggressive interest rate
cuts from the US Federal Reserve Board, a Brazilian support package,
new Group of Seven Industrialized Nations and International Monetary
Fund initiatives and reassuring statements from banks, which some
investors believed were on the verge of failure. These factors,
along with signs of global stabilization and high cash levels in
investment funds, caused a rapid 20% rally, leaving European equity
markets about 10% below the summer highs in US dollar terms.
At the economic level, visibility is still extremely poor. However,
the most likely outcome, in our view, is for moderate growth and low
inflation in both the United States and Europe. An added degree of
comfort comes from the fact that both regions have the scope to ease
both monetary and fiscal policy, if required, to stabilize or boost
economic growth. Indeed, recent Federal Reserve Board actions
indicate a willingness to support global growth, and attest to its
increased focus on growth rather than fears of inflation.
Additionally, there is some evidence that economic activity in Asia
may be bottoming out, which could have a major impact on confidence
levels.
In the United Kingdom, both domestic and external growth is
deteriorating. However, on a positive note, the pound sterling's
fall is easing competitiveness problems and the commencement of
monetary policy easing should begin to have a positive impact in
1999. In Continental Europe, the picture remains much brighter, with
solid domestic demand and exports still growing, although at a
slower rate in response to stronger currencies and weak demand in
export markets.
Much concern has been expressed recently about the impact of lower
levels of economic activity on corporate profits. It is important to
note that in Europe, corporate profits growth in 1999 is not totally
dependent on sales growth. As much as two-thirds of the increase in
profits is expected to come from continued corporate restructuring
measures, lower interest rate costs and lower taxes. Effectively,
European corporate profits should grow even in a weaker economic
environment.
Investment Strategy
In our last report to shareholders, we indicated that we believed
European equity markets were substantially overvalued. Following
sharp declines in equity values and a massive improvement in the
bond/equity yield ratio, equity markets became attractive again. We
took advantage of this excellent opportunity and invested virtually
all of the Fund's cash reserves. The bulk of the cash was invested
in the banking sector, where we previously had limited exposure.
Many banks had fallen as much as 60%, and were discounting a much
more negative scenario than was likely. We also took the opportunity
to invest in some attractively valued growth stocks, such as mobile
telephone equipment suppliers and network operators. Finally, we
switched most of the Fund's remaining defensive stocks into value
stocks when the markets were depressed.
Merrill Lynch EuroFund
October 31, 1998
Since the market bottom, a strong rally has ensued, with impressive
price gains in certain banks and industrial stocks. However, many
stocks are still substantially below their peak levels and represent
good value, even if the fundamentals have deteriorated somewhat. For
example, many industrial stocks' valuations still reflect deep
recession expectations, whereas the most likely economic outcome is
for moderate growth. In recent weeks, we sold a few stocks that had
rallied aggressively and were no longer fairly valued, giving the
Fund more flexibility should the markets surrender some of their
recent gains.
Fiscal Year in Review
For the fiscal year ended October 31, 1998, Merrill Lynch EuroFund's
Class A, Class B, Class C and Class D Shares had total returns of
+13.73%, +12.58%, +12.56% and +13.49%, respectively, while the total
return for the unmanaged Financial Times/Standard & Poor's--
Actuaries Europe Index was +22.06% and the total return for the
unmanaged MSCI Europe Index was +23.06%. The Fund also
underperformed Lipper Analytical Services Inc.'s European Region
Funds Average return of +15.45%.
The main reason for the Fund's underperformance during the 12 months
ended October 31, 1998 was that the value style of investing has not
been in favor. Growth stocks have been driven up to levels that we
believe more than discount a very benign scenario going forward,
whereas value stocks are generally discounting a severe recession.
Cyclical issues are now more attractively valued, relative to growth
stocks, than they have been since the deep recession of the early
1980s.
At the geographic level, the Fund's results were mixed during the 12
months ended October 31, 1998. Our underweighting of the poorly
performing UK market and overweighting of the French and Italian
markets benefited Fund performance. However, the Fund's lack of
exposure to Spain and Belgium and heavy weighting in Sweden
negatively impacted returns.
Our concentration in value sectors caused the Fund's performance to
suffer. Insufficient holdings in the utility, pharmaceutical and
information technology sectors, coupled with high exposure to
industrial cyclicals, led to relatively weaker returns. The Fund's
limited exposure to the banking sector, which represents
approximately 20% of the Financial Times/ Standard & Poor's
Actuaries Index and the MSCI Europe Index, was very beneficial since
the sector performed poorly with the market decline in the late
summer and early autumn.
Overall, the Fund's performance was disappointing. We adopted a
cautious stance for most of the year, given the extended valuation
levels of the markets and the poor global economic environment. This
cautious approach reduced returns, but also provided lower risk
levels than most competitive funds.
In Conclusion
Looking ahead, we are still reasonably constructive on European
equity markets for the coming year, although the markets do need to
consolidate recent gains. We believe the Fund is now more balanced
than it has been for quite some time, although we continue to avoid
highly valued stocks. However, the outlook is far from clear, and a
number of events could negatively impact European markets, such as a
weaker US dollar, a slowdown in US consumer spending, a setback in
the US equity market, disappointing monetary policy moves from the
US Federal Reserve Board, or higher bond yields globally.
We thank you for your investment in Merrill Lynch EuroFund, and we
look forward to reviewing our outlook and strategy with you in our
next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Adrian C. Holmes)
Adrian C. Holmes
Senior Vice President and
Portfolio Manager
December 11, 1998
Merrill Lynch EuroFund
October 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/98 + 1.33% - 3.99%
Five Years Ended 9/30/98 +15.71 +14.47
Inception (10/26/88)
through 9/30/98 +12.91 +12.30
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/98 + 0.32% - 3.02%
Five Years Ended 9/30/98 +14.52 +14.52
Ten Years Ended 9/30/98 +12.28 +12.28
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/98 + 0.28% - 0.55%
Inception (10/21/94)
through 9/30/98 +13.90 +13.90
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/98 + 1.09% - 4.22%
Inception (10/21/94)
through 9/30/98 +14.82 +13.26
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch EuroFund
October 31, 1998
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's
Class A & Class B Shares compared to growth of an investment in the
Morgan Stanley Capital International Europe Index. Beginning and
ending values are:
10/88 10/98
ML EuroFund++--
Class A Shares* $ 9,475 $34,229
ML EuroFund++--
Class B Shares* $10,000 $32,524
Morgan Stanley Capital International
Europe Index++++ $10,000 $38,210
A line graph depicting the growth of an investment in the Fund's
Class C Shares & Class D Shares compared to growth of an investment
in the Morgan Stanley Capital International Europe Index. Beginning
and ending values are:
10/21/94** 10/98
ML EuroFund++--
Class C Shares* $10,000 $18,422
ML EuroFund++--
Class D Shares* $ 9,475 $18,030
Morgan Stanley Capital International
Europe Index++++ $10,000 $20,617
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML EuroFund invests primarily in equities of corporations
domiciled in European countries. Under normal market conditions, at
least 80% of the Fund's net assets will be invested in European
corporate securities, primarily common stocks and debt and preferred
securities convertible into common stock.
++++This unmanaged capitalization-weighted Index is comprised of 615
stocks, including a representative sampling of large-, medium-, and
small-capitalization companies. The starting date for the Index in
the Class C & Class D Shares graph is from 10/31/94.
Past performance is not predictive of future performance.
Merrill Lynch EuroFund
October 31, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML EuroFund Class A Shares +13.73% -9.22% +261.29%
ML EuroFund Class B Shares +12.58 -9.46 +225.24
ML EuroFund Class C Shares +12.56 -9.43 + 84.22
ML EuroFund Class D Shares +13.49 -9.29 + 90.29
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's ten year/since inception periods are Class A & Class B
Shares, for the ten years ended 10/31/98 and Class C & Class D
Shares, from 10/21/94 to 10/31/98.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
Finland
<S> <C> <S> <C> <C> <C>
Metals & Mining 990,307 Outokumpu OY $ 14,892,711 $ 8,951,816 0.5%
Paper & Forest 1,642,749 Enso-Gutzeit OY 'R' (Ordinary)
Products (Registered) 14,186,731 12,728,163 0.7
2,266,341 Metsa Serla OY (Class B) 17,992,809 17,154,583 1.0
790,706 UPM-Kymmene Corp. 17,268,069 18,929,189 1.0
-------------- -------------- ------
49,447,609 48,811,935 2.7
Telecommunications 205,430 Nokia Oyj (Class A) 14,649,985 18,712,557 1.0
Total Investments in Finland 78,990,305 76,476,308 4.2
France
Automobiles & 64,451 Peugeot S.A. 7,767,416 10,753,434 0.6
Equipment
Banking 422,733 Banque Nationale de Paris 23,242,367 26,774,612 1.5
198,459 Societe Generale de France S.A. 27,368,088 26,254,025 1.4
-------------- -------------- ------
50,610,455 53,028,637 2.9
Communication 148,310 Alcatel Alsthom Cie Generale
Equipment d'Electricite S.A. 23,053,619 16,523,378 0.9
Electronics 192,667 ++STMicroelectronics N.V. 10,155,236 11,790,277 0.6
Energy 358,703 Elf Aquitaine S.A. 46,087,088 41,512,964 2.2
Financial Services 337,905 Compagnie Financiere de Paribas S.A. 19,493,914 24,838,085 1.3
90,648 Societe EuraFrance S.A. 31,783,947 46,025,559 2.5
-------------- -------------- ------
51,277,861 70,863,644 3.8
Insurance 225,635 AXA-UAP 15,710,937 25,503,740 1.4
Machinery 177,431 Compagnie de Fives-Lille S.A. 9,488,305 14,051,411 0.8
Metals & Steel 1,756,676 Usinor-Sacilor 27,910,057 20,077,200 1.1
Total Investments in France 242,060,974 264,104,685 14.3
Germany
Automobiles 324,599 Daimler-Benz AG 25,148,453 25,203,004 1.4
446,187 Volkswagen AG 25,021,850 33,565,125 1.8
-------------- -------------- ------
50,170,303 58,768,129 3.2
Banking 148,248 Commerzbank AG 5,388,529 4,460,876 0.2
687,028 Deutsche Bank AG 53,953,341 42,757,634 2.3
176,601 Dresdner Bank AG 10,238,267 6,882,637 0.4
159,725 HypoVereinsbank AG 11,601,109 12,691,141 0.7
-------------- -------------- ------
81,181,246 66,792,288 3.6
Chemicals 458,077 BASF AG 17,918,780 19,430,215 1.0
714,529 Bayer AG 28,825,006 29,056,074 1.6
77,016 Henkel KGaA 3,295,326 6,096,130 0.3
290,660 Henkel KGaA (Preferred) 13,952,609 24,850,991 1.3
856,278 Hoechst AG 32,514,009 35,803,286 1.9
-------------- -------------- ------
96,505,730 115,236,696 6.1
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
Germany (concluded)
<S> <C> <S> <C> <C> <C>
Construction 33,402 ++Philipp Holzmann AG $ 12,511,136 $ 3,390,656 0.2%
Electrical Equipment 604,525 Siemens AG 40,147,586 36,381,082 2.0
Engineering 321,783 Kloeckner Werke AG 14,985,368 16,234,973 0.9
Insurance 41,842 Muenchener Rueckversicherungs-
Gesellschaft AG 16,033,685 19,163,889 1.0
Machinery & 217,570 Jungheinrich AG (Preferred) 4,412,664 2,892,169 0.2
Equipment 378,945 Mannesmann AG 31,180,865 37,322,076 2.0
-------------- -------------- ------
35,593,529 40,214,245 2.2
Medical Equipment 43,086 Fresenius AG (Preferred) 8,524,834 7,393,610 0.4
Mining 242,321 Thyssen AG 51,243,419 43,632,422 2.4
Oil--International 428,666 RWE AG 21,107,621 23,259,339 1.3
Retail Trade 8,740 Moebel Walther AG (Preferred) 325,084 285,172 0.0
Utilities 625,206 Veba AG 41,690,089 34,943,538 1.9
Total Investments in Germany 470,019,630 465,696,039 25.2
Hungary
Banking 209,238 OTP Bank (GDR)* 11,066,477 7,584,877 0.4
Oil & Gas 429,475 Mol Magyar Olay-es Gazipari
Producers Reszvenytarsasag (GDR)* 11,571,345 9,770,556 0.5
Total Investments in Hungary 22,637,822 17,355,433 0.9
Ireland
Banking 861,461 Bank of Ireland 13,129,074 15,837,885 0.9
Building & 686,394 CRH PLC 7,454,519 9,998,894 0.5
Construction
Food 693,901 Greencore Group PLC 3,481,856 2,609,904 0.1
Total Investments in Ireland 24,065,449 28,446,683 1.5
Italy
Diversified Holdings 42,118,867 MontEdison S.p.A. 33,930,370 41,702,103 2.3
Telecommunications 18,332,698 Telecom Italia S.p.A. 83,173,608 92,492,112 5.0
Total Investments in Italy 117,103,978 134,194,215 7.3
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
Netherlands
<S> <C> <S> <C> <C> <C>
Chemicals 773,970 Akzo Nobel N.V. $ 26,309,988 $ 30,091,695 1.6%
310,870 European Vinyls Corporation
International N.V. 11,599,987 2,896,770 0.2
-------------- -------------- ------
37,909,975 32,988,465 1.8
Diversified Holdings 285,466 Internatio-Mueller N.V. 7,753,277 6,879,436 0.4
Electrical Equipment 663,841 Philips Electronics N.V. 32,538,665 35,337,544 1.9
113,948 Twentsche Kabel Holding N.V. 4,695,441 3,325,746 0.2
-------------- -------------- ------
37,234,106 38,663,290 2.1
Financial Services 490,169 ING Groep N.V. 19,776,242 23,730,133 1.3
Paper & Forest 2,108,845 Buhrmann N.V. 44,535,332 37,833,400 2.0
Products
Steel 174,270 Ispat International N.V. 4,720,005 1,231,920 0.1
1,161,001 Ispat International N.V. (NY
Registered Shares) 19,453,937 8,634,945 0.4
-------------- -------------- ------
24,173,942 9,866,865 0.5
Telecommunications 372,549 KPN N.V. 13,003,454 14,484,581 0.8
Transport Services 117,568 Koninklijke Pakhoed N.V. 4,561,548 2,896,229 0.2
Total Investments in the Netherlands 188,947,876 167,342,399 9.1
Norway
Computer Software 1,006,619 Merkantildata ASA 6,172,754 10,105,520 0.6
Oil & Gas Producers 786,098 Saga Petroleum ASA (Class B) 10,970,845 9,917,939 0.5
Publishing 76,392 Schibsted ASA 1,579,347 797,995 0.0
Total Investments in Norway 18,722,946 20,821,454 1.1
Poland
Electrical Equipment 298,839 ++Bydgoska Fabryka Kabli S.A. 893,400 963,717 0.1
Total Investments in Poland 893,400 963,717 0.1
Slovakia
Metals & Mining 94,112 ++Zavod SNP 1,514,872 188,213 0.0
Total Investments in Slovakia 1,514,872 188,213 0.0
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
Sweden
<S> <C> <S> <C> <C> <C>
Appliances 1,581,170 Electrolux AB $ 16,817,344 $ 23,771,364 1.3%
Automobiles & 549,126 Volvo AB (B Shares) 17,376,361 11,838,852 0.6
Equipment
Engineering 189,250 Svedala Industry AB 2,485,262 2,978,370 0.1
Insurance 1,402,756 Skandia Forsakrings AB 10,488,842 17,858,414 1.0
Metals & Steel 1,258,445 Avesta-Sheffield AB 10,665,001 3,526,274 0.2
Paper & Forest 510,201 Mo och Domsjo AB (Class B) 12,808,027 11,880,928 0.6
Products 6,095,550 Rottneros Bruks AB 8,904,861 2,885,707 0.2
1,005,923 Stora Kopparbergs AB 12,861,379 11,068,808 0.6
-------------- -------------- ------
34,574,267 25,835,443 1.4
Pharmaceutical-- 904,293 Astra AB (Class A) 13,878,125 14,636,504 0.8
Prescription
Total Investments in Sweden 106,285,202 100,445,221 5.4
Switzerland
Banking 27,803 Banque Cantonale de Geneve (BCG) 9,263,273 6,664,821 0.4
205,288 Credit Suisse Group (Registered) 35,266,140 31,630,087 1.7
-------------- -------------- ------
44,529,413 38,294,908 2.1
Banking & Financial 173,024 UBS AG (Registered) 49,021,513 47,557,277 2.6
Consumer Products 5,200 Societe Suisse pour la Microelectronique
et l'Horlogerie AG (Registered) 730,278 712,711 0.0
Drugs 24,882 Novartis AG (Registered) 37,778,081 44,918,674 2.4
Food & Beverage 12,946 Nestle S.A. (Registered) 23,942,287 27,585,439 1.5
Total Investments in Switzerland 156,001,572 159,069,009 8.6
United Kingdom
Automobiles & 4,695,205 LucasVarity PLC 15,057,063 16,037,769 0.9
Equipment
Banking 1,644,018 Barclays PLC 35,767,910 35,427,812 1.9
932,381 HSBC Holdings PLC 28,260,928 21,856,502 1.2
2,833,866 National Westminster Bank PLC 45,796,968 47,877,305 2.6
-------------- -------------- ------
109,825,806 105,161,619 5.7
Beverages 2,036,419 Allied Domecq PLC 15,293,731 18,753,790 1.0
925,199 Bass PLC (Ordinary) 13,596,207 11,231,361 0.6
-------------- -------------- ------
28,889,938 29,985,151 1.6
Building & 955,533 Jarvis PLC 11,336,396 10,079,650 0.5
Construction
Chemicals 3,018,927 Imperial Chemical Industries PLC 26,845,938 27,119,492 1.5
Computer/ 398,875 Misys PLC 1,566,749 2,798,402 0.2
Commercial/Office
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
United Kingdom (concluded)
<S> <C> <S> <C> <C> <C>
Diversified Holdings 10,877,952 BTR PLC $ 42,850,167 $ 19,033,675 1.0%
Financial Services 1,488,319 ++Allied Zurich AG 20,345,700 17,793,175 1.0
Food 1,825,174 Safeway PLC 10,383,035 9,168,214 0.5
Insurance 2,088,705 Guardian Royal Exchange PLC 8,977,732 10,124,764 0.5
2,396,773 Royal & Sun Alliance Insurance
Group PLC 23,899,312 21,951,967 1.2
-------------- -------------- ------
32,877,044 32,076,731 1.7
Metals 1,000,326 Johnson Matthey PLC 9,572,778 5,644,568 0.3
Metals & Mining 402,400 Rio Tinto PLC (Registered) 6,406,828 4,884,895 0.3
Oil-Related 649,357 Expro International Group PLC 5,177,253 3,555,417 0.2
Steel 4,364,523 British Steel PLC 9,051,465 7,490,656 0.4
Telecommunications 797,631 Cable & Wireless PLC 6,266,983 8,948,207 0.5
925,376 ++Orange PLC 6,722,941 8,607,192 0.4
-------------- -------------- ------
12,989,924 17,555,399 0.9
Total Investments in the
United Kingdom 343,176,084 308,384,813 16.7
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C> <C>
Repurchase US$ 22,725,000 HSBC Holdings Inc., purchased on
Agreements** 10/30/1998 to yield 5.30% to
11/02/1998 22,725,000 22,725,000 1.2
Total Investments in Short-Term
Securities 22,725,000 22,725,000 1.2
Total Investments 1,793,145,110 1,766,213,189 95.6
Nominal Value Covered Premiums
By Options Written Issue Received
Options Written 822,009 Barclays PLC, expiring January 1999
at Pound Sterling 1425.6 (1,178,638) (1,040,537) (0.0)
932,381 HSBC Holdings PLC, expiring January
1999 at Pound Sterling 15.3 (1,490,705) (1,452,677) (0.1)
8,678 Nestle S.A., expiring December 1998
at CHF 2817.15 (946,508) (1,237,687) (0.1)
Total Options Written (3,615,851) (3,730,901) (0.2)
Total Investments, Net of Options Written $1,789,529,259 1,762,482,288 95.4
==============
Foreign Time Deposits++++ 42,320,815 2.3
Other Assets Less Liabilities 41,946,883 2.3
-------------- ------
Net Assets $1,846,749,986 100.0%
============== ======
<FN>
*Global Depositary Receipts (GDR).
**Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
++Non-income producing security.
++++Foreign time deposits bear interest at 3.50% maturing on
11/02/1998.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of October 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,793,145,110) (Note 1a) $1,766,213,189
Cash 18,011
Foreign cash (Note 1b) 45,335,528
Foreign time deposits (Note 1b) 42,320,815
Receivables:
Securities sold $ 26,509,616
Dividends 4,701,956
Options written 2,669,343
Beneficial interest sold 1,884,190
Interest 7,436 35,772,541
--------------
Prepaid registration fees and other assets (Note 1f) 69,882
--------------
Total assets 1,889,729,966
--------------
Liabilities: Options written, at value (premiums received--$3,615,851)
(Notes 1a & 1c) 3,730,901
Payables:
Securities purchased 27,808,842
Beneficial interest redeemed 5,520,451
Variation margin (Note 1c) 1,217,170
Investment adviser (Note 2) 1,082,107
Distributor (Note 2) 702,790 36,331,360
--------------
Accrued expenses and other liabilities 2,917,719
--------------
Total liabilities 42,979,980
--------------
Net Assets: Net assets $1,846,749,986
==============
Net Assets Class A Shares of beneficial interest, $.10 par value,
Consist of: unlimited number of shares authorized $ 3,944,068
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 4,988,012
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 329,998
Class D Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized 1,818,937
Paid-in capital in excess of par 1,513,272,199
Undistributed investment income--net 39,235,732
Undistributed realized capital gains on investments and foreign
currency transactions--net 310,054,156
Unrealized depreciation on investments and foreign currency
transactions--net (26,893,116)
--------------
Net assets $1,846,749,986
==============
Net Asset Value: Class A--Based on net assets of $691,196,755 and 39,440,676 shares
of beneficial interest outstanding $ 17.52
==============
Class B--Based on net assets of $787,595,352 and 49,880,123 shares
of beneficial interest outstanding $ 15.79
==============
Class C--Based on net assets of $51,671,416 and 3,299,981 shares
of beneficial interest outstanding $ 15.66
==============
Class D--Based on net assets of $316,286,463 and 18,189,371 shares
of beneficial interest outstanding $ 17.39
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended October 31, 1998
<S> <S> <C> <C>
Investment Dividends (net of $4,772,565 foreign withholding tax) $ 48,056,186
Income Interest 10,839,552
(Notes 1d & 1e): --------------
Total income 58,895,738
--------------
Expenses: Investment advisory fees (Note 2) $ 13,960,120
Account maintenance and distribution fees--Class B (Note 2) 8,374,767
Custodian fees 1,389,257
Transfer agent fees--Class B (Note 2) 1,281,147
Transfer agent fees--Class A (Note 2) 949,034
Account maintenance fees--Class D (Note 2) 641,957
Account maintenance and distribution fees--Class C (Note 2) 388,873
Transfer agent fees--Class D (Note 2) 334,925
Registration fees (Note 1f) 322,570
Printing and shareholder reports 196,258
Accounting services (Note 2) 194,598
Professional fees 93,032
Transfer agent fees--Class C (Note 2) 63,726
Trustees' fees and expenses 36,629
Pricing fees 19,714
Other 22,624
--------------
Total expenses 28,269,231
--------------
Investment income--net 30,626,507
--------------
Realized & Realized gain from:
Unrealized Gain Investments--net 313,955,870
(Loss) on Foreign currency transactions--net 17,716,606 331,672,476
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (214,541,875)
(Notes 1b, 1c, Foreign currency transactions--net 66,655 (214,475,220)
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 117,197,256
--------------
Net Increase in Net Assets Resulting from Operations $ 147,823,763
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 30,626,507 $ 11,429,733
Realized gain on investments and foreign currency trans-
actions--net 331,672,476 249,446,581
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (214,475,220) 99,450,956
-------------- --------------
Net increase in net assets resulting from operations 147,823,763 360,327,270
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (3,661,941) (6,021,879)
Shareholders Class B -- (15,309,051)
(Note 1h): Class C -- (416,944)
Class D (687,312) (2,740,402)
In excess of investment income--net:
Class A -- (2,089,129)
Class B -- (5,311,063)
Class C -- (144,648)
Class D -- (950,709)
Realized gain on investments--net:
Class A (90,342,323) (29,824,108)
Class B (135,005,638) (104,006,961)
Class C (3,894,837) (2,515,859)
Class D (25,058,924) (14,571,787)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (258,650,975) (183,902,540)
-------------- --------------
Beneficial Net increase in net assets derived from beneficial
Interest interest transactions 409,885,874 286,738,788
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 299,058,662 463,163,518
Beginning of year 1,547,691,324 1,084,527,806
-------------- --------------
End of year* $1,846,749,986 $1,547,691,324
-------------- --------------
<FN>
*Undistributed (accumulated distributions in excess of)
investment income--net (Note 1i) $ 39,235,732 $ (10,162,843)
-------------- --------------
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
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: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 18.47 $ 16.67 $ 15.07 $ 15.96 $ 13.87
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .40 .26 .32 .19 .18
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.73 4.31 2.32 .56 1.91
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.13 4.57 2.64 .75 2.09
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.12) (.44) -- -- --
In excess of investment income--net -- (.15) -- -- --
Realized gain on investments--net (2.96) (2.18) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (3.08) (2.77) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 17.52 $ 18.47 $ 16.67 $ 15.07 $ 15.96
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 13.73% 32.13% 18.86% 6.19% 15.07%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.00% 1.03% 1.10% 1.12% 1.03%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 2.21% 1.53% 2.04% 1.32% 1.17%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 691,197 $ 563,098 $ 216,056 $ 204,713 $ 236,288
========== ========== ========== ========== ==========
Portfolio turnover 78.75% 92.65% 92.34% 72.16% 82.47%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<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: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.92 $ 15.47 $ 14.20 $ 15.28 $ 13.43
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .17 .07 .14 .04 .02
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.60 3.99 2.17 .52 1.83
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.77 4.06 2.31 .56 1.85
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.32) -- -- --
In excess of investment income--net -- (.11) -- -- --
Realized gain on investments--net (2.90) (2.18) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.90) (2.61) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.79 $ 16.92 $ 15.47 $ 14.20 $ 15.28
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 12.58% 30.84% 17.61% 5.12% 13.78%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.03% 2.06% 2.13% 2.15% 2.06%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net 1.07% .45% 1.00% .27% .14%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in
Data: thousands) $ 787,595 $ 811,859 $ 738,535 $ 795,469 $1,086,480
========== ========== ========== ========== ==========
Portfolio turnover 78.75% 92.65% 92.34% 72.16% 82.47%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.82 $ 15.45 $ 14.19 $ 15.28 $ 15.08
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income(loss)--net .19 .07 .15 .01 (.01)
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.56 3.97 2.15 .54 .21
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.75 4.04 2.30 .55 .20
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.36) -- -- --
In excess of investment income--net -- (.13) -- -- --
Realized gain on investments--net (2.91) (2.18) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (2.91) (2.67) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 15.66 $ 16.82 $ 15.45 $ 14.19 $ 15.28
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 12.56% 30.81% 17.55% 5.04% 1.33%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.04% 2.08% 2.15% 2.18% 2.86%*
Net Assets: ========== ========== ========== ========== ==========
Investment income(loss)--net 1.18% .43% 1.04% .11% (2.47%)*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 51,671 $ 22,260 $ 15,917 $ 9,668 $ 462
========== ========== ========== ========== ==========
Portfolio turnover 78.75% 92.65% 92.34% 72.16% 82.47%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 18.35 $ 16.57 $ 15.02 $ 15.96 $ 15.75
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .36 .20 .28 .20 --++++++
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.72 4.31 2.31 .50 .21
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.08 4.51 2.59 .70 .21
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.08) (.41) -- -- --
In excess of investment income--net -- (.14) -- -- --
Realized gain on investments--net (2.96) (2.18) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (3.04) (2.73) (1.04) (1.64) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.39 $ 18.35 $ 16.57 $ 15.02 $ 15.96
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 13.49% 31.84% 18.57% 5.85% 1.33%+++
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.25% 1.28% 1.34% 1.38% 2.11%*
Net Assets: ========== ========== ========== ========== ==========
Investment income(loss)--net 2.01% 1.21% 1.83% 1.37% (1.70%)*
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $ 316,287 $ 150,474 $ 114,020 $ 104,493 $ 340
========== ========== ========== ========== ==========
Portfolio turnover 78.75% 92.65% 92.34% 72.16% 82.47%
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
++++++Amount is less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch EuroFund
October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch EuroFund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class D
are sold with a front-end sales charge. Shares of Class B and Class
C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class B, Class
C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has 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 market and on a stock exchange are valued according to the
broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not available are valued at fair value as determined
in good faith by or under the direction of the 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 movements in the equity, debt, and
currency markets. Losses may arise due to changes in the value of
the contract or if the counterparty does not perform under the
contract.
* 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
put options and purchase put and call options. When the Fund writes
an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current
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.
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 denomi-nated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
Merrill Lynch EuroFund
October 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision 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. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income is
recognized on the accrual basis. 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) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities and, if necessary, receives additional
securities daily to ensure that the contract is fully
collateralized.
(h) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates. Distributions in
excess of net investment income are due primarily to differing tax
treatments for foreign currency transactions.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$23,121,321 have been reclassified between undistributed net
realized capital gains and undistributed net investment income.
These reclassifications have no effect on net assets or net asset
values per share.
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 subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.75% on an annual basis of
the average daily value of the Fund's net assets. MLAM has entered
into a Sub-Advisory Agreement with Merrill Lynch Asset Management
U.K., Ltd. ("MLAM U.K."), an affiliate of MLAM, pursuant to which
MLAM pays MLAM U.K. a fee computed at the rate of 0.15% of the
average daily net assets of the Fund for providing investment
advisory services to MLAM with respect to the Fund. For the year
ended October 31, 1998, MLAM paid MLAM U.K. a fee of $2,799,466
pursuant to such agreement.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Merrill Lynch EuroFund
October 31, 1998
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended October 31, 1998, MLFD earned underwriting
discounts and commissions and MLPF&S earned dealer concessions on
sales of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 4,516 $ 49,798
Class D $27,769 $398,749
For the year ended October 31, 1998, MLPF&S received contingent
deferred sales charges of $1,079,765 and $27,998 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$10,340 and $9,433 relating to transactions subject to front-end
sales charge waivers in Class A Shares and Class D Shares,
respectively.
In addition, MLPF&S received $215,841 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended October 31, 1998.
For the year ended October 31, 1998, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $20 for security
price quotations to compute the net asset value of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1998 were $1,469,753,762 and
$1,230,461,711, respectively.
Net realized gains (losses) for the year ended October 31, 1998 and
net unrealized gains (losses) as of October 31, 1998 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 320,533,240 $ (26,931,921)
Financial futures contracts (7,710,805) --
Options written 1,133,435 (115,050)
Foreign currency transactions 17,716,606 153,855
------------- -------------
Total $ 331,672,476 $ (26,893,116)
============= =============
Transactions in call options written for the year ended October 31,
1998 were as follows:
Premiums
Par Value Received
Outstanding call options
written at beginning of year -- --
Options written $ 15,601,958 $ 5,064,934
Options exercised (3,158,603) (315,648)
Options expired (10,680,287) (1,133,435)
------------- -------------
Outstanding call options
written at end of year $ 1,763,068 $ 3,615,851
============= =============
As of October 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $42,449,733, of which $153,525,954
related to appreciated securities and $195,975,687 related to
depreciated securities. At October 31, 1998, the aggregate cost of
investments, net of options written, for Federal income tax purposes
was $1,804,932,021.
4. Shares of Beneficial Interest:
Net increase in net assets derived from beneficial interest
transactions was $409,885,874 and $286,738,788 for the years ended
October 31, 1998 and October 31, 1997, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 31,832,178 $ 572,990,851
Shares issued to shareholders
in reinvestment of dividends
and distributions 5,764,313 89,116,286
------------- -------------
Total issued 37,596,491 662,107,137
Shares redeemed (28,637,448) (491,035,443)
------------- -------------
Net increase 8,959,043 $ 171,071,694
============= =============
Merrill Lynch EuroFund
October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 26,338,718 $ 430,396,173
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,393,410 34,465,523
------------- -------------
Total issued 28,732,128 464,861,696
Shares redeemed (11,210,660) (185,967,493)
------------- -------------
Net increase 17,521,468 $ 278,894,203
============= =============
Class B Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 20,637,674 $ 346,740,573
Shares issued to shareholders in
reinvestment of distributions 8,377,046 117,781,272
------------- -------------
Total issued 29,014,720 464,521,845
Shares redeemed (17,716,020) (282,471,179)
Automatic conversion of
shares (9,405,997) (150,820,513)
------------- -------------
Net increase 1,892,703 $ 31,230,153
============= =============
Class B Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 12,478,198 $ 191,822,144
Shares issued to shareholders in
reinvestment of dividends and
distributions 8,168,942 108,729,884
------------- -------------
Total issued 20,647,140 300,552,028
Shares redeemed (19,835,758) (306,830,535)
Automatic conversion of
shares (554,263) (8,320,978)
------------- -------------
Net increase (decrease) 257,119 $ (14,599,485)
============= =============
Class C Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 6,966,258 $ 114,030,342
Shares issued to shareholders
in reinvestment of distributions 247,386 3,448,559
------------- -------------
Total issued 7,213,644 117,478,901
Shares redeemed (5,237,487) (84,231,413)
------------- -------------
Net increase 1,976,157 $ 33,247,488
============= =============
Class C Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 5,368,818 $ 83,195,165
Shares issued to shareholders
in reinvestment of dividends
and distributions 210,334 2,782,759
------------- -------------
Total issued 5,579,152 85,977,924
Shares redeemed (5,285,585) (82,227,446)
------------- -------------
Net increase 293,567 $ 3,750,478
============= =============
Class D Shares for the Year Dollar
Ended October 31, 1998 Shares Amount
Shares sold 9,981,419 $ 164,257,372
Automatic conversion of
shares 7,844,570 150,820,513
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,382,415 21,261,544
------------- -------------
Total issued 19,208,404 336,339,429
Shares redeemed (9,217,837) (162,002,890)
------------- -------------
Net increase 9,990,567 $ 174,336,539
============= =============
Class D Shares for the Year Dollar
Ended October 31, 1997 Shares Amount
Shares sold 9,883,349 $ 166,073,878
Automatic conversion of
shares 513,600 8,320,978
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,058,039 15,172,446
------------- -------------
Total issued 11,454,988 189,567,302
Shares redeemed (10,135,898) (170,873,710)
------------- -------------
Net increase 1,319,090 $ 18,693,592
============= =============
5. Commitments:
At October 31, 1998, the Fund had outstanding foreign exchange
contracts under which it had agreed to purchase and sell foreign
currency aggregating approximately $19,888,000 and $21,666,000,
respectively.
6. Subsequent Event:
On December 1, 1998, the Fund's Board of Trustees declared an
ordinary income dividend and a long-term capital gains distribution
payable per share on December 15, 1998 to shareholders of record as
of December 14, 1998 as follows:
Ordinary Long-Term
Income Capital Gains
Class A $1.570510 $2.103160
Class B $1.394127 2.103160
Class C $1.447025 2.103160
Class D $1.534386 2.103160
Merrill Lynch EuroFund
October 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch EuroFund:
We have audited the accompanying statement of assets and
liabilities, including the schedule of invest-ments, of Merrill
Lynch EuroFund as of October 31, 1998, the related statements of
operations for the year then ended, and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the 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, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch EuroFund as of October 31, 1998, the results of its
operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 16, 1998
</AUDIT-REPORT>
Merrill Lynch EuroFund
October 31, 1998
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch EuroFund during its taxable year ended October
31, 1998:
<TABLE>
<CAPTION>
Foreign Non-Qualifying Total Foreign Taxes Long-Term
Record Payable Source Domestic Ordinary Paid or Capital
Date Date Income Income Income Withheld Gains*
<S> <C> <C> <C> <C> <C> <C> <C>
Class A 12/15/97 12/23/97 $.328026 $.914999 $1.243025 $.045020 $1.833752
Class B 12/15/97 12/23/97 $.281618 $.785546 $1.067116 $.045020 $1.833752
Class C 12/15/97 12/23/97 $.284981 $.794930 $1.079911 $.045020 $1.833752
Class D 12/15/97 12/23/97 $.317799 $.886472 $1.204271 $.045020 $1.833752
</TABLE>
[FN]
*Of this distribution, 35.93% is subject to the 28% tax rate and
64.07% is subject to the 20% tax rate.
All of the foreign taxes paid or withheld represent taxes incurred
by the Fund on dividends received by the Fund from foreign sources.
Foreign taxes paid or withheld should be included in taxable income
with an offsetting deduction from gross income or as a credit for
taxes paid to foreign governments. You should consult your tax
adviser regarding the appropriate treatment of foreign taxes paid.
Please retain this information for your records.
Merrill Lynch EuroFund
October 31, 1998
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended October 31, 1998
Additions
Allied Zurich AG
Astra AB (Class A)
Bank of Ireland
Barclays PLC
*British American Tobacco
Buhrmann N.V.
Credit Suisse Group (Registered)
*Ericcson LM (Class B)
Guardian Royal Exchange PLC
HypoVereinsbank AG
Imperial Chemical Industries PLC
KPN N.V.
Mannesmann AG
Muenchener Rueckversicherungs-Gesellschaft AG
Nestle S.A. (Registered)
Nokia Oyj (Class A)
OTP Bank (GDR)
Orange PLC
*Royal Dutch Petroleum Company (ADR)
UBS AG (Registered)
*Yapi ve Kredi Bankasi (GDR)
Deletions
Anglian Water PLC
Ardem Pisirici Ve Isitici Cihazlar Sanayii A.S.
B.A.T. Industries PLC
Bouygues S.A.
*British American Tobacco
Endesa S.A.
*Ericcson LM (Class B)
Inspec Group PLC
J. Sainsbury PLC
Karstadt AG
Koninklijke KNP BT N.V.
Roche Holding AG
Royal Dutch Petroleum Company
*Royal Dutch Petroleum Company (ADR)
SKF AB (Class A)
Shell Transport & Trading Company (The)
Slovakofarma
SmithKline Beecham PLC
Softbank S.A. (GDR)
United Utilities PLC
*Yapi ve Kredi Bankasi (GDR)
Zaklady Lentex S.A.
[FN]
*Added and deleted in the same quarter.
Merrill Lynch EuroFund
October 31, 1998
PORTFOLIO INFORMATION (unaudited)
As of October 31, 1998
Percent of
Ten Largest Equity Holdings Net Assets
Telecom Italia S.p.A. 5.0 %
National Westminster Bank PLC 2.6
UBS AG (Registered) 2.6
Societe EuraFrance S.A. 2.5
Novartis AG (Registered) 2.4
Thyssen AG 2.4
Deutsche Bank AG 2.3
MontEdison S.p.A. 2.3
Elf Aquitaine S.A. 2.2
Buhrmann N.V. 2.0
Percent of
Ten Largest Industries Net Assets
Banking 15.6 %
Chemicals 9.4
Telecommunications 7.7
Paper & Forest Products 6.1
Financial Services 6.1
Insurance 5.1
Electrical Equipment 4.2
Diversified Holdings 3.7
Automobiles 3.2
Banking & Financial 2.6
Merrill Lynch EuroFund
October 31, 1998
OFFICERS AND TRUSTEES
Arthur Zeikel, President and Trustee
Donald Cecil, Trustee
Edward H. Meyer, Trustee
Charles C. Reilly, Trustee
Richard R. West, Trustee
Edward D. Zinbarg, Trustee
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Adrian C. Holmes, Senior Vice President
and Portfolio Manager
Alan J. Albert, Vice President
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
