AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1995
SECURITIES ACT FILE NO. 33-49354
INVESTMENT COMPANY ACT FILE NO. 811-6725
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5 /X/
(Check appropriate box or boxes)
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MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800)
ARTHUR ZEIKEL
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPY TO:
COUNSEL FOR THE COMPANY:
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: JOEL H. GOLDBERG, ESQ.
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485, OR
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485, OR
/ / ON (DATE) PURSUANT TO PARAGRAPH (B) OF RULE 485, OR
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(ii)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(ii) 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.
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PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL
INTEREST, PAR VALUE $.10 PER SHARE. A RULE 24F-2 NOTICE WAS LAST FILED ON
DECEMBER 19, 1994.
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<PAGE>
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
POST-EFFECTIVE AMENDMENT NO. 3 ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<S> <C> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fee Table
Item 3. Condensed Financial Information...... Financial Highlights
Item 4. General Description of Registrant.... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund............... Fee Table; Investment Objective and
Policies; Portfolio Transactions;
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; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase............. Fee Table; Shareholder Services;
Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceeding............. 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........................... Dividends and Distributions; Taxes
Item 21. Underwriters......................... Purchase of Shares
Item 22. Calculation of Performance Data...... Performance Data
Item 23. Financial Statements................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 24, 1995
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
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Merrill Lynch Consults International Portfolio, a Massachusetts business
trust (the "Fund"), is a diversified, open-end management investment company
seeking the highest total investment return consistent with prudent risk through
investment in a diversified international portfolio of equity securities, other
than United States equity securities. Total investment return is the aggregate
of income and capital value changes. Distribution of shares of the Fund is
limited to current clients of the Merrill Lynch ConsultsSM Service. The Fund is
designed for ConsultsSM clients who seek to internationally diversify a portion
of their investment portfolio.
The Fund offers shares (the "shares") which may be purchased at a price
equal to the next determined net asset value per share. Shares of the Fund are
not subject to any sales charge, but are subject to an ongoing account
maintenance fee at an annual rate of 0.25% of average daily net assets and an
ongoing distribution fee at an annual rate of 0.75% of average daily net assets.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 ((609)
282-2800), which has entered into a dealer agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). Shareholders may redeem their
shares at any time at the next determined net asset value. The minimum initial
purchase is $5,000, and the minimum subsequent purchase is $1,000. Merrill Lynch
may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Such fee is presently waived for clients of the
Merrill Lynch ConsultsSM Service. Redemptions directly through the Fund's
transfer agent are not subject to processing fees. See "Purchase of Shares" and
"Redemption of Shares."
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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 24, 1995 (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.
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MERRILL LYNCH (SUISSE) INVESTMENT MANAGEMENT S.A.--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
The following table illustrates expenses and fees that you would incur as a
shareholder of the Fund.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchases........................................... None
Sales Load Imposed on Dividend Reinvestments.............................. None
Redemption Fees........................................................... None
Exchange Fees............................................................. Not Applicable
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) FOR THE YEAR ENDED OCTOBER 31, 1994:
Management Fees........................................................... .75%
Administrative Fee(a)..................................................... .25%
12b-1 Fees................................................................ 1.00%(b)
OTHER EXPENSES:
Custodian Fees............................................................ .12%
Shareholder Servicing Costs(c)............................................ .02%
Other(d).................................................................. .13%
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Total Other Expenses...................................................... 0.27%
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TOTAL FUND OPERATING EXPENSES............................................... 2.27%
--------------
--------------
</TABLE>
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(a) See "Management of the Fund--Administrator"--page 14.
(b) Includes both the 0.25% account maintenance fee and the 0.75% distribution
fee. See "Purchase of Shares--Distribution Plan"--page 16.
(c) See "Management of the Fund--Transfer Agency Services"--page 15.
(d) Each client of the Merrill Lynch ConsultsSM Service is charged an annual fee
of up to 3% (charged on a quarterly basis) of the value of such client's
portfolio. However, no such fee is imposed on the portion of the client's
assets maintained in the Fund. An investment made directly in the Fund will
not be subject to the 3% charge at any time while the assets remain in the
Fund.
<TABLE><CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD
OF:
----------------------------------------
<S> <C> <C> <C> <C>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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An investor would pay the following expenses on a $1,000
investment, whether or not the investor redeems his
investment at the end of the period, assuming (1) an
operating expense ratio of 2.27% and (2) a 5% annual
return throughout the periods: $ 23 $71 $ 122 $261
</TABLE>
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 regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN,
AND ACTUAL EXPENSES OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE. Shareholders who own their shares for an
extended period of time may pay more in account maintenance and distribution
fees than the economic equivalent of the maximum front-end sales charge
permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Such fee is
presently waived
2
<PAGE>
for clients of the Merrill Lynch ConsultsSM Service. Redemptions directly
through the Transfer Agent are not subject to the processing fee. See "Purchase
of Shares" and "Redemption of Shares."
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the audits of the financial statements of the Fund by Ernst & Young LLP,
independent auditors. Financial statements for the year ended October 31, 1994
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 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>
FOR THE FOR THE
YEAR YEAR FOR THE PERIOD
ENDED ENDED SEPT. 14,
OCT. 31, OCT. 31, 1992+ TO
INCREASE (DECREASE) IN NET ASSET VALUE: 1994* 1993* OCT. 31, 1992*
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<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 11.74 $ 9.60 $ 10.00
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Investment loss--net............................... (.12) (.08) (.02)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net............... 1.26 2.22 (.38)
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Total from investment operations..................... 1.14 2.14 (.40)
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Less distributions from realized gain (loss) on
investments--net..................................... (.05) -- --
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Net asset value, end of period....................... $ 12.83 $ 11.74 $ 9.60
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TOTAL INVESTMENT RETURN:
Based on net asset value per share................... 9.74% 22.29% (4.00%)++
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RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and excluding account
maintenance and distribution fees.................... 1.27% 1.76% 2.50%**
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Expenses, net of reimbursement....................... 2.27% 2.76% 3.50%**
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Expenses............................................. 2.27% 2.76% 4.45%**
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Investment loss--net................................. (.56%) (.86%) (2.77%)**
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SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............. $272,487 $175,756 $ 16,636
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Portfolio turnover................................... 24.64% 32.54% 0.00%
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</TABLE>
- ------------
* Based on average number of shares outstanding during the period.
** Annualized.
+ Commencement of Operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
3
<PAGE>
RISKS AND SPECIAL CONSIDERATIONS
Distribution of shares of the Fund is limited to clients of the Merrill
Lynch ConsultsSM Service, a customized full service approach to investment
management. Pursuant to the Merrill Lynch ConsultsSM Service, Merrill Lynch
offers to assist clients in selecting and retaining, from a roster of managers,
one or more professional portfolio managers generally emphasizing investment in
United States securities. Each client is charged an annual fee based upon the
value of such client's portfolio. The portion of a client's assets that is
maintained in the Fund is not subject to such a fee; however, investors in the
Fund incur various charges as described in this Prospectus. The Fund is intended
to complement the Merrill Lynch ConsultsSM Service by permitting clients of the
service to invest, by investing in shares of the Fund, in a diversified
international portfolio of equity securities, other than U.S. equity securities.
The Fund's investment objective is based on the investment philosophy that an
internationally diversified portfolio may offer the possibility of a higher
expected return than a portfolio comprised of securities from one securities
market. Historically, the securities markets of many countries generally have
moved relatively independently of one another due to different economic,
financial, political and social factors. When markets which are moving in
different directions are combined into a single portfolio, there is an
offsetting effect which may reduce total portfolio volatility (i.e., risk)
without reducing the total portfolio's expected rate of return over time.
However, there can be no assurance that, over any time period, non-United States
markets will provide higher investment returns, considering relative currency
fluctuations, than investment in United States markets or that an
internationally diversified portfolio will provide greater returns than a
non-diversified portfolio which invests in only certain securities markets.
Investments on an international basis involve certain risks not typically
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 or U.S. governmental laws or restrictions
applicable to such investments. Securities prices in different countries are
subject to different economic, financial, political and social factors. Since
the Fund will invest in securities denominated or quoted in currencies other
than the United States dollar, changes in foreign currency exchange rates will
affect the value of securities in the portfolio and the unrealized appreciation
or depreciation of investments so far as United States investors are concerned.
Changes in foreign currency exchange rates relative to the United States dollar
will affect the United States dollar value of the Fund's assets denominated in
that currency and the Fund's return on such assets. The rate of exchange between
the dollar and other currencies is determined by forces of supply and demand in
the foreign exchange markets. These forces are, in turn, affected by the
international balance of payments, the level of interest and inflation rates and
other economic and financial conditions, government intervention, speculation
and other factors. Moreover, individual foreign economies may differ favorably
or unfavorably from the United States economy in such respects as growth of
gross domestic product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Also, it is anticipated that
most of the securities held by the Fund will not be registered with the
Securities and Exchange Commission nor will the issuers thereof be subject to
the reporting requirements of such agency.
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
4
<PAGE>
investments in those countries. There may be less publicly available information
about a foreign company than about a United States company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States companies. In
addition, certain foreign investments may be subject to foreign withholding
taxes. See "Additional Information--Taxes."
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions. Delays
in settlement could result in periods when assets of the Fund are temporarily
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 either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to a purchaser. Brokerage commissions and other transaction costs on
foreign securities exchanges are generally higher than in the United States.
There is generally less governmental 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 United States securities
since the expenses of the Fund, such as custodial costs, are higher.
Transactions effected on behalf of the Fund by Merrill Lynch (Suisse) Investment
Management S.A. (the "Investment Adviser") may be subject to Swiss transactional
taxes. Certain foreign investments may be subject to foreign withholding taxes.
Shareholders of the Fund do not have an exchange privilege with any other
investment company.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek the highest total investment
return consistent with prudent risk through investment in a diversified
international portfolio of equity securities, other than United States equity
securities. Total investment return is the aggregate of income and capital value
changes. The investment objective of the Fund described in this paragraph is a
fundamental policy which may not be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. There can be no
assurance that the Fund will achieve its investment objective.
In pursuing the Fund's investment objective, its management will utilize a
fully-managed investment policy which permits the Fund to take a flexible
approach and vary its policies as to geographic and industry diversification
based upon its evaluation of international economic and market trends. This
evaluation could include such factors as the condition and growth potential of
various economies and securities markets, currency and taxation considerations,
and other pertinent financial, social, national, and political considerations.
Under normal circumstances, the Fund will invest in issuers domiciled in at
least three countries. It is expected that more than 50% of the Fund's assets
will be invested in equity securities
5
<PAGE>
of companies located in Western Europe and the Far East, although the Fund may
also invest in capital markets throughout the world. For purposes of the Fund's
objective, equity securities includes securities convertible into equity
securities and securities the values of which are indexed to the market values
of equity securities or indices of equity securities. A United States closed-end
investment company will be considered to be a non-United States investment if
it, in turn, primarily invests in non-United States securities. The Fund may
invest in foreign securities in the form of depository receipts, including
American Depository Receipts (ADRs) and European Depository Receipts (EDRs), or
other securities convertible into securities of foreign issuers. The Fund
reserves the right, as a temporary defensive measure and to provide for
redemptions, to hold cash or cash equivalents (in United States dollars or
foreign currencies) and short-term securities, including money market
securities. Transactions effected by the Fund may be subject to Swiss federal
transactional taxes of 0.15%. The Investment Adviser believes that such
transactional taxes will not materially affect the performance of the Fund.
The Fund may purchase securities that are not registered under the
Securities Act of 1933, as amended, but can be offered and sold to "qualified
institutional buyers," such as the Fund, under Rule 144A under that Act ("Rule
144A securities"). The Fund's Board of Trustees has determined to treat as
liquid investments any foreign Rule 144A securities that can be freely traded in
a meaningful foreign securities market, if the facts and circumstances support
such determination. The Board has delegated to the Investment Adviser the daily
functionings of determining and monitoring the liquidity of foreign Rule 144A
securities, but retains oversight and is ultimately responsible for such
determinations.
As part of the Merrill Lynch ConsultsSM Service, Merrill Lynch may provide
information to its clients regarding the possible change in risk posture of a
client's domestic Merrill Lynch ConsultsSM Service account due to an investment
in the Fund. Risk classes are assigned to each domestic Merrill Lynch ConsultsSM
Service investment manager based upon an approximation of its 10 year standard
deviation (which is used as a measure of volatility) as calculated by Merrill
Lynch ConsultsSM Service according to information provided by the manager. A
risk class is assigned to the Fund based upon an approximation of the 10 year
standard deviation of the Morgan Stanley Europe, Asia, Far East Index ("EAFE
Index"), a market weighted unmanaged index, as a general proxy for non-domestic
equity investments. Any change in risk will be estimated only as it relates to
the client's domestic Merrill Lynch ConsultsSM Service account and the Fund
shares held for that account, and not for assets held in other domestic Merrill
Lynch ConsultsSM Service accounts or outside of the Merrill Lynch ConsultsSM
Service. The Fund, which commenced operations in 1992, does not allocate its
assets proportionately to the weighting of the EAFE Index and may invest in
countries which are not included in the EAFE Index. As a consequence, the Fund's
performance may not correlate completely to the EAFE Index. Projections of risk
posture based on a measurement of past performance of an investment manager or
of an index may not accurately predict future risk posture or performance.
HEDGING TECHNIQUES
The Fund may engage in various portfolio strategies to hedge its portfolio
against movements in the equity markets, interest rates and exchange rates
between currencies. These strategies include the use of options on portfolio
securities, stock index options, stock index futures, financial futures,
currency futures, options on such futures and forward foreign exchange
transactions and securities the values of
6
<PAGE>
which are indexed to the market values of equity securities, indices of equity
securities, currencies or currency units. The Fund may enter into such
transactions only in connection with its hedging strategies. While the Fund's
net asset value will continue to fluctuate and no assurance can be given that
the Fund's hedging transactions will be effective, the Investment Adviser
believes that the ability of the Fund to engage in these hedging transactions
may enhance the Fund's ability to reduce the volatility of the net asset value
of Fund shares. 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, interest rates or currency exchange rates
occur. Reference is made to the Statement of Additional Information for further
information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Fund will
engage in these 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. Because of the nature of options and futures transactions, there
are certain risks involved. These risks are described below under "Risk Factors
in Options, Futures and Currency Transactions."
Set forth below is a description of the hedging instruments the Fund may
utilize with respect to investment and currency risks.
Writing Covered Call 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. 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.
Purchasing Put 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 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.
Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures and related options on such futures.
7
<PAGE>
The Fund may purchase or write put and call options on stock indices to hedge
against the risks of market-wide stock price movements in the securities in
which the Fund invests. Options on indices are similar to options on securities
except that on exercise or assignment, the parties to the contract pay or
receive an amount of cash equal to the difference between the closing value of
the index and the exercise price of the option times a specified multiple. The
Fund may invest in stock index options based on a broad market index, e.g., the
Nikkei Index, or on a narrow index representing an industry or market segment.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract to
sell a particular commodity, which may be a security, for a set price on a
future date. Unlike most other futures contracts, a stock index futures contract
does not require actual delivery of a commodity, in this case securities, but
results in cash settlement based upon the difference in value of the stock index
between the time the contract was entered into and the time of its settlement.
The Fund may effect transactions in stock index futures contracts in connection
with equity securities in which it invests. Transactions by the Fund in stock
index futures and financial futures are subject to limitations as described
below under "Restrictions on the Use of Futures Transactions."
The Fund is authorized to sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
it will be able to purchase futures in order to gain rapid market exposure that
may in part or entirely offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, an equivalent amount of futures
contracts will be terminated by offsetting sales. The Fund does not consider
purchases of futures contracts to be a speculative practice under these
circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
long futures position, whether the long position is the purchase of a futures
contract or the purchase of a call option or the writing of a put option on a
future, but under unusual circumstances (e.g., if the Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund is also authorized to purchase and write call and put options on
futures contracts and stock indices in connection with its hedging activities.
Generally, these strategies would be utilized under the same market and market
sector conditions (i.e., conditions relating to specific types of investments)
in which the Fund enters into futures transactions. The Fund may purchase put
options or write call options on futures contracts and stock indices rather than
selling the underlying futures contract in anticipation of a decrease in the
market value of its securities. Similarly, the Fund can purchase call options,
or write put options on futures contracts and stock indices, as a substitute for
the purchase of such futures to hedge against the increased cost resulting from
an increase in the market value of securities which the Fund intends to
purchase.
The Fund is also authorized to engage in options and futures transactions on
United States and foreign exchanges and in options 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
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guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC options transactions are two-party contracts
with price and terms negotiated by the buyer and seller. See "Restrictions on
OTC Options" below for information as to restrictions on the use of OTC options.
The Fund is 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 could be effected with respect to
hedges on non-United States 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 United States dollars of an investment in a yen
denominated security. In such circumstances, for example, the Fund can purchase
a foreign currency put option enabling it to sell a specified amount of yen for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen 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 yen for
dollars at a specified price by a future date (a technique called a "straddle").
By selling such call option in this illustration, the Fund gives up the
opportunity to profit without limit from increases in the relative value of the
yen to the dollar. The Investment Adviser believes that "straddles" of the type
which may be utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the rights to
buy or sell a currency at a fixed price on a future date. 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 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.
Forward Foreign Exchange Transactions. The Fund has authority to deal in
forward foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) 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 will not attempt to hedge all of its foreign portfolio
positions.
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Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the futures trading activities
described herein will not result in the Fund being deemed to be a "commodity
pool," as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may (i) purchase and sell futures
contracts and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) the Fund may enter into
non-hedging transactions, provided that the Fund not enter into such
transactions for yield enhancement or risk management purposes if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums would exceed 5% of the market
value of its liquidating value, after taking into account unrealized profits and
unrealized losses on any such transactions.
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.
Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter stock index options, 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 United States 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 Securities and Exchange 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 futures contracts) if, as a result of such transactions, 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 exceed 15% of the net 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 United States Government securities
dealer recognized by the Federal Reserve Bank of New York and 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 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 Board of Trustees of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or modify
this policy prior to change or modification by the Securities and Exchange
Commission staff of its position.
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Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
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 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
subject of the hedge. The successful use of options and futures also depends on
the Investment Adviser's ability to predict correctly price movements in the
market involved in a particular options or futures transaction. To compensate
for imperfect correlations, the Fund may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Fund may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of over-the-counter
transactions, the Investment Adviser believes the Fund can receive on each
business day a bid or offer. 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 futures commission
merchant with whom the Fund has an open position in an option, a futures
contract or related option.
The exchanges on which options on portfolio securities and currency options
are traded 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 in 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
Investment Adviser does not believe that these trading and position limits will
have any adverse impact on the portfolio strategies for hedging the Fund's
portfolio.
Because the Fund will engage in the options and futures transactions
described above solely in connection with its hedging activities, the Investment
Adviser does not believe that such options and futures transactions necessarily
will have any significant effect on the Fund's portfolio turnover.
OTHER INVESTMENT PRACTICES
Portfolio Transactions. In executing portfolio transactions, the Investment
Adviser 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 Investment Adviser 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
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<PAGE>
in the execution of transactions in portfolio securities. Under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), persons
affiliated with the Fund and persons who are affiliated with such affiliated
persons, including Merrill Lynch, are prohibited from dealing with the Fund as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the Securities and Exchange
Commission. Such persons may serve as the Fund's broker in transactions
conducted on an exchange and in over-the-counter transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Fund 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. 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.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Under a repurchase agreement, 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 in a specified currency,
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
although it may be affected by currency fluctuations. If the bank or dealer were
to default on its obligation under a repurchase agreement, the Fund may
experience delay or difficulty in exercising its rights to realize upon the
security and might incur a loss if the value of the security has declined. The
Fund might also incur disposition costs in liquidating the security. The Fund
may not invest more than 15% of its net assets in repurchase agreements maturing
in more than seven days, together with all other illiquid securities. In all
instances, the Fund takes possession of the underlying securities when investing
in repurchase agreements.
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 United States
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
this loan, the Fund receives the income on both the loaned securities and the
collateral 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 the value of the collateral
falls below the market value of the borrowed securities.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
--Invest in the securities of any one issuer if, immediately after and as a
result of such investment the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the Fund's total assets, taken at
market value, except that such restriction shall not apply to securities
issued or guaranteed by the United States Government or any of its agencies
or instrumentalities.
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--Invest in the securities of any single issuer if, immediately after and as
a result of such investment, the Fund owns more than 10% of the outstanding
voting securities of such issuer.
--Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Fund from purchasing the securities of any issuer pursuant to the exercise
of subscription rights distributed to the Fund by the issuer, except that no
such purchase may be made if as a result the Fund will no longer be a
diversified investment company as defined in the Investment Company Act or fail
to meet the diversification requirements of the Internal Revenue Code of 1986,
as amended.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Trustees of the Fund consist of five individuals, four of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Trustees are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of investment
companies by the Investment Company Act.
THE TRUSTEES ARE:
ARTHUR ZEIKEL*--President and Chief Investment Officer of MLAM and FAM;
President and Director of Princeton Services, Inc.; Executive Vice
President of Merrill Lynch; Executive Vice President of Merrill Lynch &
Co., Inc. ("ML & Co."); Director of Merrill Lynch Funds Distributor, Inc.
HERBERT I. LONDON--John M. Olin Professor & Humanities, Gallatin Division
of New York University.
ROBERT R. MARTIN--Director, WTC Industries, Inc.
JOSEPH L. MAY--Attorney in private practice.
ANDRE F. PEROLD--Professor, Harvard Business School.
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* Interested person, as defined by the Investment Company Act, of the Fund.
INVESTMENT ADVISER
The Fund's investment adviser is Merrill Lynch (Suisse) Investment
Management S.A. (the "Investment Adviser"). The Investment Adviser, located at
18 Rue De Contamines, 1211 Geneva 3, Switzerland, is a subsidiary of Merrill
Lynch Bank (Suisse), S.A. which is, in turn, an indirect subsidiary of Merrill
Lynch & Co., Inc., a financial services holding company ("ML & Co."). Affiliates
of the Investment Adviser serve as investment adviser or investment manager to
over 130 registered investment companies with an aggregate of over $166.5
billion in assets as of January 31, 1995. As compensation for its services to
the Fund, the Investment Adviser receives monthly compensation at the annual
rate of 0.75% of the average daily net assets of the Fund. For the fiscal year
ended October 31,
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1994, the fee paid by the Fund to the Investment Adviser was $1,770,022 (based
upon average net assets of approximately $236.0 million and the effective rate
was 0.75%). At January 31, 1995, the net assets of the Fund aggregated
approximately $228.7 million. At this asset level, the annual management fee
would aggregate approximately $1.7 million at an effective annual rate of 0.75%.
Fund Asset Management, L.P. ("FAM") and Merrill Lynch Asset Management U.K.
Limited ("MLAM U.K.") have been retained as sub-advisers (the "Sub-Advisers") to
the Fund. Pursuant to separate sub-advisory agreements with the Investment
Adviser (the "Sub-Advisory Agreements"), the Sub-Advisers provide investment
advisory services with respect to the management of the Fund's cash position.
The Fund does not pay any incremental fee for this service. For the fiscal year
ended October 31, 1994, the Investment Adviser did not pay any fees to MLAM U.K.
and FAM for investment advisory services provided to the Fund. FAM is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and MLAM U.K. is located
at Ropemaker Place, 25 Ropemaker Street, London, England. FAM is a wholly-owned
subsidiary of Merrill Lynch & Co. Inc., a financial services holding company
("ML&Co."). Fund Asset Management, Inc. and Princeton Services, Inc. are
"controlling persons" of FAM as defined under the Investment Company Act
because of their power to exercise a controlling influence over its management
policies. MLAM U.K. is an indirect subsidiary of ML&Co.
Juerg Boller is primarily responsible for the day-to-day management of the
Fund's portfolio and has served in that capacity since inception of the Fund.
Mr. Boller has served as Director of the Investment Adviser and Deputy General
Manager of Merrill Lynch Bank (Suisse) S.A. since 1992. From 1988 to 1992, he
was Manager of Merrill Lynch Bank (Suisse) S.A. Mr. Boller has also been
responsible for the management and oversight of each of the Sub-Advisers since
inception of the Fund.
The Fund pays certain expenses incurred in its operations, including, among
other things, the investment advisory fees, legal and audit fees, unaffiliated
trustees' fees and expenses, registration fees, custodian and transfer agency
fees, accounting and pricing costs, and certain of the costs of printing
proxies, shareholder reports, prospectuses and statements of additional
information. For the fiscal year ended October 31, 1994, the annualized ratio of
total expenses, excluding account maintenance and distribution fees, to
average net assets was 1.27% for the shares.
ADMINISTRATOR
Princeton Administrators, LP (the "Administrator"), an indirect subsidiary
of ML & Co., acts as the Fund's administrator under the terms of the
administration agreement between the Administrator and the Fund (the
"Administration Agreement"). The Administrator performs or arranges for the
performance of certain administrative services (i.e., services other than
investment advice and related portfolio activities) necessary for the operation
of the Fund, including maintaining the books and records of the Fund, preparing
reports and other documents required by United States federal, state and other
applicable laws and regulations to maintain the registration of the Fund and its
shares and providing the Fund with administrative office facilities. For the
services rendered to the Fund and the facilities furnished, the Fund pays the
Administrator a monthly fee equal to 0.25% of the Fund's average daily net
assets. Also, accounting services are provided to the Fund by the Administrator,
and the Fund reimburses the Administrator for its costs in connection with such
services on a semi-annual basis. For the fiscal year ended October 31, 1994, the
total fee paid by the Fund to the Administrator was $590,008.
The principal address of the Administrator is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
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<PAGE>
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is an indirect
subsidiary of ML & Co., 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 a fee of $11.00 per
shareholder account 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, 1994, the total fee paid by the Fund to the Transfer Agent was
$47,910. At January 31, 1995, the Fund had 4,952 shareholder accounts. At
this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $54,472, plus miscellaneous and out-of-pocket expenses.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Act which incorporates the Code of Ethics of the Investment Adviser
(together, the "Codes"). The Codes significantly restrict the personal investing
activities of all employees of the Investment Adviser and, as described below,
impose additional, more onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Investment Adviser 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
Investment Adviser 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 Investment Adviser. 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 of 30
days depending upon the transaction).
PURCHASE OF SHARES
Shares of the Fund are offered continuously for sale to clients of the
Merrill Lynch ConsultsSM Service by Merrill Lynch Funds Distributor, Inc., an
indirect subsidiary of ML & Co. (the "Distributor") and Merrill Lynch. The
minimum initial purchase is $5,000, and the minimum subsequent purchase is
$1,000.
The Fund offers its shares at a public offering price equal to the next
determined net asset value per share. As to purchase orders received by
securities dealers, 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 (generally, 4:00 P.M. New York time), on the day the orders are
placed with the Distributor, provided the orders are received by the Distributor
prior to 12:00 P.M., New York time, on that day. Orders submitted after 12:00
P.M., New York time, will not be accepted until after 15 minutes after the close
of business on the New York Stock Exchange (generally, 4:00 P.M. New York time),
on that day. The applicable offering price for purchase orders is based upon the
net asset value of the Fund next
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<PAGE>
determined after receipt of the purchase order by the Distributor. If the
purchase orders are not received by the Distributor prior to 12:00 P.M., New
York time, such orders shall be deemed received on the next business day. Any
order may be rejected by the Distributor or the Fund. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares to the
general public at any time in response to conditions in the securities markets
or otherwise and may thereafter resume such offering from time to time. Merrill
Lynch may charge its customers a processing fee (presently $4.85) to confirm a
sale of shares to such customers. Such fee is presently waived for clients of
the Merrill Lynch ConsultsSM Service.
DISTRIBUTION PLAN
Pursuant to a distribution plan adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act (the "Distribution Plan"), the Fund pays the
Distributor ongoing distribution and account maintenance fees, which are
accrued daily and paid monthly, at the annual rates of 0.75% and 0.25%,
respectively, of the average daily net assets of the Fund. Pursuant to a
sub-agreement with the Distributor, Merrill Lynch also provides account
maintenance activities and distribution services to the Fund. The ongoing
account maintenance fee compensates the Distributor and Merrill Lynch for
providing account maintenance activities to the Fund's shareholders. The ongoing
distribution fee compensates the Distributor and Merrill Lynch for providing
shareholder and distribution services and bearing distribution related expenses
of the Fund, including payments to financial consultants for selling shares of
the Fund. For the fiscal year ended October 31, 1994, the Fund paid the
Distributor $2,360,030 pursuant to the Distribution Plan, all of which was paid
to Merrill Lynch for providing distribution-related services to the Fund.
At January 31, 1995, the net assets of the Fund subject to the Distribution
Plan aggregated approximately $228.7 million. At this asset level, the annual
fee payable pursuant to the Distribution Plan would aggregate approximately
$2.36 million.
The payments under the Distribution Plan are based upon a percentage of
average daily net assets regardless of the amount of expenses incurred and,
accordingly, distribution-related revenues 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 Distribution Plan. 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 distribution fees 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 distribution fees and the expenses
consist of financial consultant compensation. As of December 31, 1993, the last
date for such fully allocated accrual data is available, the fully allocated
accrual expenses incurred by the Distributor and Merrill Lynch since the Fund
commenced operations on September 14, 1992 exceeded revenues for such period by
approximately $764,000 (0.28% of net assets at that date). As of October 31,
1994, direct cash revenues for the period since commencement of operations
exceeded direct cash expenses by approximately $1,722,610 (0.63% of net assets
at that date). As of December 31, 1994, direct cash revenues for the period
since commencement of operations exceeded direct cash expenses by approximately
$2,034,999 (0.81% of net assets at that date).
The Fund has no obligation with respect to distribution-related expenses
incurred by the Distributor and Merrill Lynch and there is no assurance that the
Board of Trustees of the Fund will approve the continuance of the Distribution
Plan from year to year. However, the Distributor intends to seek annual
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<PAGE>
continuation of the Distribution Plan. In their review of the Distribution Plan,
the Trustees will not be asked to take into consideration expenses incurred in
connection with the distribution of shares of other funds for which the
Distributor acts as distributor.
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 but not the account
maintenance fee. As applicable to the Fund, the maximum sales charge rule limits
the aggregate distribution fee payments payable by the Fund to (1) 6 1/4% of the
eligible gross sales of shares of the Fund (defined to exclude shares issued
pursuant to dividend reinvestments) plus (2) interest on the unpaid balance at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from payment of the distribution fee). To the extent
payments would exceed the maximum permitted by the NASD, the Fund will not make
further payments of the distribution fee; 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 on 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. 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 shareholder's cost, depending on the market value
of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Transfer Agent, Financial Data Services, Inc.,
Transfer Agency Mutual Fund Operations Department, P.O. Box 45289, Jacksonville,
Florida 32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations Department, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. 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. The notice in either event
requires the signatures of all persons in whose names the shares are registered,
signed exactly as their names appear on the Transfer Agent's register or on the
certificate, as the case may be. The signatures on the notice must be guaranteed
by an "eligible guarantor institution" 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. "Eligible guarantor institution(s)" include certain banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations. Notarized signatures are not sufficient. In
certain instances, the Transfer Agent may require additional
17
<PAGE>
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, payment
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 (e.g., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares, which will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will 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 on the day received and 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 (generally, 4:00 P.M. New York time), on the same day.
Dealers have the responsibility to submit such repurchase requests to the Fund
not later than 30 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 P.M. New York time), 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. Securities firms which do
not have selected dealer agreements with the Distributor, however, may impose a
transaction 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. Such fee is
presently waived for clients of the Merrill Lynch ConsultsSM Service.
Redemptions directly through the Fund's Transfer Agent are not subject to a
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 may redeem shares as set forth above.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in its shares. 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 to change options with
respect thereto, can be obtained from the Fund, the Distributor or Merrill
Lynch.
Investment Account. Distribution of shares of the Fund (other than
reinvestment of dividends and capital gains distributions of the Fund) is
limited to current clients of the Merrill Lynch ConsultsSM Service. If a client
terminates the Merrill Lynch ConsultsSM Service, the client's shares may be
retained in the client's Merrill Lynch brokerage account, subject to the consent
of 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
interested in transferring their shares from Merrill Lynch to another brokerage
firm may request their
18
<PAGE>
new brokerage firm to maintain such shares in an account registered in the name
of the brokerage firm for the benefit of the shareholder. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that the shareholder 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 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 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 Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are automatically reinvested in full
and fractional shares of the Fund 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 telephone (1-800-MER-FUND) or by written
notification to Merrill Lynch if the shareholder's account is maintained with
Merrill Lynch, or the Transfer Agent, if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends, or
both dividends and capital gains distributions, paid in cash rather than
reinvested, in which event payment will be mailed on or about the payment date.
Merrill Lynch Asset Information and Measurement(R) Service. Clients of the
Merrill Lynch ConsultsSM Service are currently provided, without incremental
charge, the Merrill Lynch Asset Information and Measurement(R) Service
("AIM(R)"). AIM(R) currently provides, through quarterly reports, the ability to
monitor and evaluate performance of a Merrill Lynch ConsultsSM Service account,
including any shares of the Fund held in the account, and analyzes the risk
taken to achieve the return. Shares of the Fund must be held in the account for
a full quarterly period to be subject to such evaluation.
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 quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any 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.
The Fund may also 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 the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return. 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
19
<PAGE>
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 a longer period of time. The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of 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 Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, the Morgan
Stanley Europe, Australia, Far East Index or performance data published by
Lipper Analytical Services, Inc., Money Magazine, U.S. News & World Report,
Business Week, Morningstar Publications, Inc., CDA Investment Technology, Inc.,
Ibbotson Associates, Forbes Magazine and Fortune Magazine or other industry
publications. From time to time, the Fund may include the Fund's Morningstar
risk-adjusted performance rating in advertisements 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 will be paid at least annually.
All net realized long- or short-term capital gains, if any, will be distributed
to the Fund's shareholders at least annually. Dividends will be reduced by
account maintenance, distribution and transfer agency fees payable by
shareholders of the Fund. See "Additional Information--Determination of Net
Asset Value." Dividends and distributions may be reinvested automatically in
shares of the Fund at net asset value. Shareholders may elect in writing to
receive any such dividends or distributions, or both, 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.
Certain gains or losses attributable to foreign currency gains or losses
from certain forward contracts may increase or decrease the amount of the Fund's
income available for distribution to shareholders. If such losses exceed other
income during a taxable year, (a) the Fund would not be able to make any
ordinary dividend distributions, and (b) distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's tax basis in
his Fund shares for Federal income tax purposes. See "Additional
Information--Taxes."
20
<PAGE>
TAXES
The Fund has qualified and 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 income and net realized capital gains which it
distributes to shareholders. The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains are
taxable to a shareholder as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares.
Dividends and distributions 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 dividends or capital gains distributions.
A portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. If the Fund pays a dividend in January which was declared
in the previous October, November or December to shareholders of record in such
a month, then such dividend or distribution will be treated for tax purposes as
being paid by the RIC and received by its shareholders on December 31 of the
year in which the dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens will be subject to a 30% United States 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. Non-resident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
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 United States may reduce or eliminate such taxes. Certain
shareholders may be able to claim United States foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. 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 to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding taxes in their United States income tax returns as gross
income, treat such proportionate share as taxes paid by them, and deduct such
proportionate share in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their United States income taxes. No
deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. Foreign tax credits cannot be
claimed by certain retirement accounts. A shareholder that is a non-resident
alien individual or a foreign corporation may be subject to United States
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
United States tax for the foreign taxes treated as having been paid by such
21
<PAGE>
shareholder. The Fund will report annually to its shareholders the amount per
share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not 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.
The Fund may invest in equity securities of investment companies (or similar
investment entities) organized under foreign law or of ownership interests in
special accounts, trusts or partnerships. If the Fund purchases shares of an
investment company (or similar investment entity) organized under foreign law,
the Fund will be treated as owning shares in a passive foreign investment
company ("PFIC") for United States Federal income tax purposes. The Fund may be
subject to United States Federal income tax, and an additional tax in the nature
of interest, on a portion of distributions from such company and on gain from
the disposition of such shares (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs.
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 United States
dollar). In general, foreign currency gains or losses from 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. 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
dividend distributions, and any 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 each shareholder's basis in his Fund
shares.
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 or administrative action either
prospectively or retroactively.
Shareholders are urged to consult their tax advisers as to whether any
portion of the dividends they receive from the Fund is exempt from state income
tax and as to any other 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.
22
<PAGE>
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily 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 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 Investment Adviser and the Administrator and the account
maintenance fee and distribution fee payable to the Distributor, are accrued
daily.
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. 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 Board of Trustees of the Fund.
ORGANIZATION OF THE FUND
The Fund is an unincorporated business trust organized on June 26, 1992
under the laws of Massachusetts. It is a diversified, open-end management
investment company comprised of separate classes. The Trustees are authorized to
issue an unlimited number of full and fractional shares of beneficial interest
of $.10 par value of different classes. Shareholder approval is not required for
the authorization of additional classes of shares of the Fund. The Fund has
received an order from the Securities and Exchange Commission permitting the
issuance and sale of multiple classes of shares.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Trustees and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Trustees; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Voting rights for Trustees are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive or conversion
rights. Each share is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution after satisfaction of outstanding liabilities.
Shareholders may cause a meeting of shareholders to be held for the purpose of
voting on the removal of Trustees at the request of 10% of the outstanding
shares of the Fund. A Trustee may be removed at a special meeting of
shareholders by a vote of a majority of the votes entitled to be cast for the
election of Trustees.
The Declaration of Trust of the Fund contemplates that the Fund may be
terminated, solely upon a vote of the Board of Trustees of the Fund, and without
a vote of shareholders, within five years after it
23
<PAGE>
commences operations if the Fund does not have net assets in excess of $100
million. Shareholders should be aware that their investment in the Fund may be
liquidated in such event. Among other consequences, this could result in a
taxable event for shareholders.
The Declaration of Trust establishing the Fund dated June 26, 1992 and
amended July 31, 1992, 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 Consults
International Portfolio" 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.
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:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, Florida 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 Financial Data Services, Inc. at 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.
24
<PAGE>
(This Page Intentionally Left Blank)
25
<PAGE>
(This Page Intentionally Left Blank)
26
<PAGE>
ADVISER
Merrill Lynch (Suisse) Investment Management S.A.
18 Rue De Contamines
1211 Geneva 3, Switzerland
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
ADMINISTRATOR
Princeton Administrators, LP
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations Department
4800 Deer Lake Drive East
Jacksonville, Florida
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE 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 INVESTMENT ADVISER, THE
ADMINISTRATOR 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
PAGE
----
Fee Table............................. 2
Financial Highlights.................. 3
Risks and Special Considerations...... 4
Investment Objective and Policies..... 5
Management of the Fund................ 13
Board of Trustees................... 13
Investment Adviser.................. 13
Administrator....................... 14
Transfer Agency Services............ 15
Code of Ethics...................... 15
Purchase of Shares.................... 15
Distribution Plan................... 16
Redemption of Shares.................. 17
Shareholder Services.................. 18
Performance Data...................... 19
Additional Information................ 20
Dividends and Distributions......... 20
Taxes............................... 21
Determination of Net Asset Value.... 23
Organization of the Fund............ 23
Shareholder Reports................. 24
Shareholder Inquiries............... 24
Code #16458-0295
Prospectus
[ART WORK]
MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
INVESTMENT ADVISER:
MERRILL LYNCH (SUISSE) INVESTMENT MANAGEMENT S.A.
February 24, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be
retained for future reference
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
-------------------
Merrill Lynch Consults International Portfolio, a Massachusetts business
trust (the "Fund"), is a diversified, open-end management investment company,
seeking the highest total investment return consistent with prudent risk through
investment in a diversified international portfolio of equity securities, other
than United States securities. Total investment return is the aggregate of
income and capital value changes. Distribution of shares of the Fund is limited
to current clients of the Merrill Lynch ConsultsSM Service. The Fund is designed
for Merrill Lynch ConsultsSM Service clients who seek to internationally
diversify a portion of their investment portfolio.
The Fund offers shares which may be purchased at a price equal to the next
determined net asset value per share. Shares of the Fund are not subject to any
sales charge, but are subject to an ongoing account maintenance fee at an annual
rate of 0.25% of average daily net assets and an ongoing distribution fee at an
annual rate of 0.75% of average daily net assets.
-------------------
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
24, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, by calling or 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 (SUISSE) INVESTMENT MANAGEMENT S.A.--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
-------------------
The date of this Statement of Additional Information is February 24, 1995.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek the highest total investment
return consistent with prudent risk through investment in a diversified
international portfolio of equity securities, other than United States
securities. Reference is made to "Investment Objective and Policies" in the
Prospectus for a discussion of the investment objective and policies of the
Fund.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce risk
for the Fund's portfolio as a whole. This negative correlation also may offset
unrealized gains the Fund has derived from movements in a particular market. To
the extent the various markets move independently, total portfolio volatility
may be reduced when the various markets are combined into a single portfolio. Of
course, movements in the various securities markets may be offset by changes in
foreign currency exchange rates. Exchange rates frequently move independently of
securities markets in a particular country. As a result, gains in a particular
securities market may be affected by changes in exchange rates.
While it is the policy of the Fund generally not to engage in trading for
short-term gains, Merrill Lynch (Suisse) Investment Management S.A. (the
"Investment Adviser") 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 in general market, economic or financial conditions. As a result of
the investment policies described in the Prospectus, including changes in asset
allocation under certain market conditions, the Fund's portfolio turnover may be
higher than that of other investment companies. Accordingly, while the Fund
anticipates that its annual turnover rate should not exceed 100% 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 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. 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.
The Fund may invest in the securities of foreign issuers in the form of
depository receipts, including American Depository Receipts (ADRs) and European
Depository Receipts (EDRs), Global Depository Receipts ("GDRs"), or other
securities convertible into securities of foreign issuers. Depository receipts
may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are receipts typically issued by an American
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are designed
for use in the United States 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.
2
<PAGE>
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies-- Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The Fund
may seek to hedge its portfolio against movements in the equity markets and
exchange rates between currencies through the use of options and futures
transactions and forward foreign exchange transactions. The Fund has authority
to write (i.e., sell) covered call options on its portfolio securities, purchase
put options on securities and engage in transactions in stock index options,
stock index futures and financial futures, and related options on such futures.
The Fund may also deal in forward foreign exchange transactions and foreign
currency options and futures, including related options on such futures, and
securities the values of which are indexed to market values of equity
securities, indices of equity securities, currencies or currency units. The Fund
is authorized to enter into such options and futures transactions either on
exchanges or in the over-the-counter ("OTC") markets. Each of such portfolio
strategies is described in the Prospectus. Although certain risks are involved
in options and futures transactions (as discussed in the Prospectus and below),
the Investment Adviser believes that, because the Fund will engage in these
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 option and futures transactions. While
the Fund's use of hedging strategies is intended to reduce the volatility of the
net asset value of Fund shares, the Fund's net asset value will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective. The
following is further information relating to portfolio strategies involving
options and futures the Fund may utilize.
Hedging Investment Risks. The Fund may write (i.e., sell) covered call
options on the equity securities in which it may invest and may enter into
closing purchase transactions with respect to certain of such options. Covered
call options serve as a partial hedge against the decline in price of the
underlying security. 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. 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. 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 realizes 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 realizes a gain or loss from the sale
of the underlying security.
The Fund may also 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
3
<PAGE>
expiration, a put option may be sold in a closing sale transaction, and profit
or loss from the sale will depend or 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 an identical option prior to the
expiration of the option it has purchased.
The Fund also may engage in transactions in stock index options and futures.
A futures contract is an agreement between two parties to buy and sell a
security or, in the case of an index-based futures contract, to make and accept
a cash settlement for a set price on a future date. A majority of transactions
in futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin," are required to be made on a daily basis as
the price of the futures contracts fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"mark to the market." At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Fund has received an order from the Securities and Exchange Commission
exempting it from the provisions of Section 17(f) and Section 18(f) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Fund from issuing a "senior security" other than a borrowing from a bank.
The staff of the Securities and Exchange Commission has in the past indicated
that a futures contract may be a "senior security" under the Investment Company
Act.
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts and movements in the price of the currency which is
the subject of the hedge. If the price of the futures contract moves more or
less than the price of the currency, the Fund will experience a gain or loss
which will not be completely offset by movements in the price of the currency
which is 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
4
<PAGE>
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 options 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
a bid or offer. 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 currency underlying 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 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 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 Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange transactions
of the Fund will be conducted on a spot, i.e., cash, basis at the spot rate then
prevailing for purchasing or selling currency in the foreign exchange market.
This rate under normal market conditions differs from the prevailing exchange
rate in an amount generally less than 1/10 of 1% due to the costs of converting
from one currency to another. However, the Fund has authority to deal in forward
foreign exchange between currencies of various countries and the dollar as a
hedge against possible variations in the foreign exchange rate between these
currencies. This is accomplished through contractual agreements to purchase or
to 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 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 bank will place cash or liquid equity or debt 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
5
<PAGE>
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 attempt to hedge all of its portfolio positions and will enter
into such transactions only to the extent, if any, deemed appropriate by the
Investment Adviser of the Fund. The Fund will not enter into a forward contract
with a term of more than one year.
As discussed in the Prospectus, the Fund may also purchase or sell listed or
OTC 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.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price 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
currencies involved, the length of the contract period and the market conditions
then prevailing. Since transactions in foreign currency exchange usually are
conducted on a principal basis, no fees or commissions are involved.
The United States government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments by United
States 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 United States securities. In such event, the Fund would review its
investment objective and investment policies to determine whether changes are
appropriate.
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 in United States dollars, the Fund intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain United States
dollars to the extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
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 (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). The Fund may not:
1. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management.
6
<PAGE>
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5% of the Fund's total assets, taken
at market value, would be invested in any one such company, or (iii) 10% of
the Fund's total assets, taken at market value, would be invested in such
securities. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed an investment
in other investment companies.
3. Purchase or sell real estate (including real estate limited
partnerships), except that the Fund may invest in securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein.
4. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. The payment by the Fund of initial or
variation margin in connection with futures or related options transactions,
if applicable, shall not be considered the purchase of a security on margin.
5. Make short sales of securities or maintain a short position in
securities. This restriction does not apply to hedging transactions or
positions.
6. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements and purchase and sale contracts or
other securities shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities as set forth in (7)
below.
7. Lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value, provided that such loans may be made only in
accordance with the guidelines set forth below.
8. Issue senior securities, borrow money or pledge its assets in excess
of 20% of its total assets taken at market value (including the amount
borrowed) and then only from a bank as a temporary measure for extraordinary
or emergency purposes including to meet redemptions or to settle securities
transactions. Usually only "leveraged" investment companies may borrow in
excess of 5% of their assets; however, the Fund will not borrow to increase
income but only as a temporary measure for extraordinary or emergency
purposes including to meet redemptions or to settle securities transactions
which may otherwise require untimely dispositions of Fund securities. The
Fund will not purchase securities while borrowings exceed 5% of total assets
except (a) to honor prior commitments or (b) to exercise subscription rights
where outstanding borrowings have been obtained exclusively for settlements
of other securities transactions. For the purpose of this restriction,
collateral arrangements with respect to the writing of options, and, if
applicable, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or sale
of futures or related options are deemed to be the issuance of a senior
security.
7
<PAGE>
9. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are otherwise not readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if at the time of acquisition more than 15% of its net
assets would be invested in such securities. Securities which the Fund has
the right to put to the issuer or a stand-by bank or broker and receive the
principal amount of redemption price thereof less transaction costs, on no
more than seven days' notice or when the Fund has the right to convert such
securities into a readily marketable security in which it could otherwise
invest upon not less than seven days' notice, are not subject to this
restriction. The Fund may purchase, without regard to the foregoing
limitation, securities which are not registered under the Securities Act of
1933, as amended (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers," as defined under Rule 144A under the
Securities Act ("Rule 144A securities"), provided that the Fund's Board of
Trustees determines that such securities are liquid.
10. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter in selling portfolio securities.
11. Purchase or sell interests in oil, gas or other mineral 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.
Additional investment restrictions adopted by the Fund, which may be changed
by the Board of Trustees, provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's net assets; included within such limitation, but not to exceed 2%
of the Fund's net assets, are warrants which are not listed on the New York
or American Stock Exchange. For purposes of this restriction, warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest or such currencies and the United
States dollar and purchase and sell stock index and currency options and
warrants, stock index futures, financial futures and currency futures
contracts and related options on such futures.
(iii) Invest in securities of corporate issuers having a record,
together with predecessors, of less than three years of continuous
operation, if more than 5% of its total assets, taken at market value, would
be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent described in the Fund's
Prospectus or in this Statement of Additional Information, as amended from
time to time.
(v) Purchase puts, calls, straddles, spreads and any combination thereof
if its net position in such securities would exceed 5% of the Fund's total
assets.
Notwithstanding the provisions of investment restriction (9) above, the
securities laws of certain states in which the Fund's shares are registered for
sale currently limit investment in the types of
8
<PAGE>
securities described in such restriction (excluding 144A securities) to 10% of
the Fund's net assets. The Fund will comply with this 10% restriction for so
long as it remains applicable.
Subject to investment restriction (7) above, the Fund may from time to time
lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash or
securities issued or guaranteed by the United States government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Fund. Such loans will not be for
more than 30 days and will be terminable at any time. 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. The Fund may pay reasonable fees to persons
unaffiliated with the Fund for services in arranging 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.
The Board of Trustees has established the policy that the Fund will not
knowingly purchase or retain the securities of any issuer if those individual
officers and Trustees of the Fund, the Investment Adviser, or the Distributor
for the Fund each owning beneficially more than one-half of 1% of the securities
of such issuer own in the aggregate more than 5% of the securities of such
issuer.
Because of the affiliation of the Investment Adviser with the Fund, the Fund
is prohibited from engaging in certain transactions involving the firm 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 the Investment Adviser
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 set forth in the Prospectus 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. Far Eastern and
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. 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 in the
Prospectus 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.
9
<PAGE>
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 (62)--President and Trustee (1)--President of Merrill Lynch
Asset Management, L.P., doing business as Merrill Lynch Asset Management
("MLAM") (which term as used herein includes its corporate predecessors), since
1977 and Chief Investment Officer thereof since 1976; President and Chief
Investment Officer 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, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") since 1990 and Senior Vice President thereof from 1985 to 1990;
Executive Vice President of Merrill Lynch & Co., Inc. since 1990; Director of
Merrill Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor").
HERBERT I. LONDON (55)--Trustee--New York University--Gallatin Division,
113-115 University Place, New York, New York 10003. John M. Olin Professor of
Humanities, New York University since 1993 and Professor thereof since 1973;
Dean, Gallatin Division of New York University from 1978 to 1993 and Director
from 1975 to 1976; Distinguished Fellow, Herman Kahn Chair, Hudson Institute
from 1984 to 1985; Director, Damon Corporation since 1991; Overseer, Center for
Naval Analyses.
ROBERT R. MARTIN (67)--Trustee--513 Grand Hill, St. Paul, Minnesota
55102. Director, WTC Industries, Inc., since 1995 and Chairman thereof from 1994
to 1995; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from
1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in
1979; Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Trustee, Northland College since 1992.
JOSEPH L. MAY (65)--Trustee--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice
President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Company from 1972 to 1989.
ANDRE F. PEROLD (42)--Trustee--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School and Associate Professor
from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec
Limited since 1991 and Teknekron Software Systems since 1994.
TERRY K. GLENN (54)--Executive Vice President (1)--Executive Vice
President of MLAM and FAM since 1983; Executive Vice President and Director of
Princeton Services since 1993; President of MLFD since 1986 and Director thereof
since 1991.
BERNARD J. DURNIN (52)--Senior Vice President (1)--Senior Vice President
of MLAM and FAM since 1981 and Vice President from 1977 to 1981.
10
<PAGE>
DONALD C. BURKE (34)--Vice President (1)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1981 to
1990.
JUERG BOLLER (40)--Vice President (1)--Director of Merrill Lynch (Suisse)
Investment Management S.A.; Deputy General Manager of Merrill Lynch Bank
(Suisse) S.A. since 1992 and Manager thereof from 1988 to 1992.
GERALD M. RICHARD (45)--Treasurer (1)--Senior Vice President and
Treasurer of FAM and MLAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Treasurer of MLFD since 1984 and Vice President
since 1981; employee of MLFD since 1978.
MARK B. GOLDFUS (48)--Secretary (1)--Vice President of MLAM.
- ------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
As of January 31, 1995, the officers and Trustees of the Fund as a group (11
persons) owned an aggregate of less than 1/4 of 1% of the outstanding shares of
common stock of Merrill Lynch & Co., Inc. and owned an aggregate of less than 1%
of the outstanding shares of the Fund.
The Fund pays each Trustee not affiliated with the Investment Adviser a fee
of $2,500 per year plus $250 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 committee, which consists of all of the
non-affiliated Trustees, $500 per year plus $125 for each meeting attended. For
the fiscal year ended October 31, 1994, fees and expenses paid to the
unaffiliated Trustees aggregated $24,227.
COMPENSATION OF TRUSTEES
The following table sets forth for the fiscal year ended October 31, 1994,
compensation paid by the Fund to the non-interested Trustees and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies advised by FAM and its affiliate, MLAM ("FAM/MLAM Advised
Funds") to the non-interested Trustees.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OF FROM FUND AND
AGGREGATE RETIREMENT BENEFITS FAM/MLAM ADVISED
NAME OF COMPENSATION ACCRUED AS PART OF FUNDS PAID TO
TRUSTEE FROM FUND FUND EXPENSES TRUSTEES(1)
- -------------------------------------------- ------------ ------------------- ----------------
<S> <C> <C> <C>
Herbert I. London 4,750 None 168,250
Robert R. Martin 4,750 None 168,250
Joseph L. May 4,750 None 168,250
Andre F. Perold 4,750 None 168,250
</TABLE>
- ------------
(1) In addition to the Trust, the Trustees serve on the boards of other FAM/MLAM
Advised Funds as follows: Mr. London (23 boards); Mr. Martin (23 boards);
Mr. May (23 boards); and Mr. Perold (23 boards).
INVESTMENT ADVISER
Reference is made to "Management of the Fund--Investment Adviser" in the
Prospectus for certain information concerning the management and advisory
arrangements of the Fund.
11
<PAGE>
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser 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 Investment Adviser or an affiliate for the Fund or
other funds for which it may act as investment adviser or for its 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 Investment Adviser 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 with the Investment Adviser
(the "Investment Advisory Agreement"). As discussed in the Prospectus, the
Investment Adviser receives for its services to the Fund monthly compensation at
the annual rate of 0.75% of average daily net assets of the Fund. For the fiscal
year ended October 31, 1994, the total management fee paid by the Fund to the
Investment Adviser aggregated $1,770,022 (based on average net assets of
approximately $236.0 million). At January 31, 1995, the net assets of the
Fund aggregated approximately $228.7 million. At this asset level, the annual
management fee would aggregate approximately $1.7 million at an effective
annual rate of 0.75%.
FAM and Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") have been
retained as sub-advisers (the "Sub-Advisers") to the Fund. Pursuant to separate
sub-advisory agreements with the Investment Adviser (each, a "Sub-Advisory
Agreement" and collectively, the "Sub-Advisory Agreements"), the Sub-Advisers
provide investment advisory services to the Fund with respect to the management
of the Fund's cash position. For the fiscal year ended October 31, 1994, the
Investment Adviser did not pay any fees to MLAM U.K. and FAM for investment
advisory services provided to the Fund. FAM is located at 800 Scudders Mill
Road, Plainsboro, N.J. 08536. MLAM U.K. is located at Ropemaker Place, 25
Ropemaker Street, London, England. FAM is a wholly-owned subsidiary of Merrill
Lynch & Co. Inc., a financial services holding company ("ML&Co."). Fund Asset
Management, Inc. and Princeton Services, Inc. are "controlling persons" of FAM
as defined under the Investment Company Act because of their power to exercise a
controlling influence over its management policies. MLAM U.K. is an indirect
subsidiary of ML&Co.
California imposes limitations on the expenses of the Fund. These expense
limitations require that the Investment Adviser reimburse the Fund in an amount
necessary to prevent the ordinary operating expenses of the Fund (excluding
interest, taxes, account maintenance and 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 Investment Adviser's obligation to reimburse the Fund is
limited to the amount of the investment advisory fee. No fee payment will be
made to the Investment Adviser during any fiscal year which will cause such
expenses to exceed the most restrictive expense limitation applicable at the
time of such payment.
The Investment Advisory Agreement obligates the Investment Adviser 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
Investment Adviser. The Fund pays all other expenses incurred in the operation
of the Fund, including, among
12
<PAGE>
other things, taxes, expenses for legal and auditing services, costs of printing
proxies, share certificates, shareholder reports and prospectuses and statements
of additional information (except to the extent paid by the Fund's
underwriters), charges of the custodian, any sub-custodian and transfer agent,
fees of Princeton Administrators, L.P. (the "Administrator"), expenses of
redemption of shares, Securities and Exchange 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. As required by the Fund's distribution agreement,
its underwriters will pay certain of the promotional expenses of the Fund
incurred in connection with the offering of shares of the Fund. See "Purchase of
Shares."
Duration and Termination. Unless earlier terminated as described below, the
Investment Advisory Agreement and each Sub-Advisory Agreement will remain in
effect for two years from the date of its adoption. Thereafter each such
agreement will remain in effect from year to year if approved annually (a) by
the Board of Trustees of the Fund 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. The Investment Advisory Agreement is 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 a majority of the outstanding voting securities
of the Fund. Each Sub-Advisory Agreement also provides that it will terminate in
the event of its assignment or upon the termination of the Investment Advisory
Agreement, and further provides that such agreement may be terminated on sixty
days' written notice by the Investment Adviser, the respective Sub-Adviser or by
vote of the majority of the outstanding voting securities of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of shares of the Fund (the "shares").
The Fund has entered into a distribution agreement with Merrill Lynch Funds
Distributor, Inc. (the "Distributor") in connection with the continuous offering
of shares of the Fund (the "Distribution Agreement"). The Distribution Agreement
obligates the Distributor to pay certain expenses in connection with the
offering of the 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 Agreement is subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described under "Management of the Fund--Advisory and Management Arrangements."
DISTRIBUTION PLAN
Reference is made to "Purchase of Shares--Distribution Plan" in the
Prospectus for certain information with respect to the distribution plan of the
Fund (the "Distribution Plan").
13
<PAGE>
The payment of the distribution fee and account maintenance fee is subject
to the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, the Distribution Plan provides that the Distributor shall provide and
the Trustees shall review quarterly reports of the disbursement of the account
maintenance fees and distribution fees paid to the Distributor. In their
consideration of the 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 shareholders. The 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 the
Distribution Plan in accordance with Rule 12b-1, the Independent Trustees
concluded that there is a reasonable likelihood that the Distribution Plan will
benefit the Fund and its shareholders. The 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 voting
securities of the Fund. The Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without shareholder approval, and
all material amendments are required to be approved by the vote of Trustees,
including a majority of the Independent Trustees who have no direct or indirect
financial interest in the Distribution Plan, cast in person at a meeting called
for that purpose. Rule 12b-1 further requires that the Fund preserve copies of
the Distribution Plan and any report made pursuant to such plan for a period of
not less than six years from the date of the Distribution Plan or such report,
the first two years in an easily accessible place. For the fiscal year ended
October 31, 1994, the Fund paid the Distributor $2,360,030 pursuant to the
Distribution Plan, all of which was paid to Merrill Lynch, for providing account
maintenance and distribution-related services.
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 but not the account
maintenance fee. As applicable to the Fund, the maximum sales charge rule limits
the aggregate distribution fee payments payable by the Fund to (1) 6 1/4% of the
eligible gross sales of shares of the Fund (defined to exclude shares issued
pursuant to dividend reinvestments) plus (2) interest on the unpaid balance at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from payment of the distribution fee). To the extent
payments would exceed the maximum permitted by the NASD, the Fund will not make
further payments of the distribution fee; 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.
14
<PAGE>
The following table sets forth comparative information as of October 31,
1994 with respect to the shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum for the period September 14, 1992 (commencement
of operations of the Fund) to October 31, 1994.
DATA CALCULATED AS OF OCTOBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES 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>
Under NASD Rule
As Adopted...... $292,227 $18,264 $1,335 $19,599 $2,171 $17,429 $2,045
Under
Distributor's
Voluntary
Waiver........... $292,227 $18,264 $1,461 $19,725 $2,171 $17,555 $2,045
</TABLE>
- ------------
(1) Purchase price of all eligible shares sold since September 14, 1992
(commencement of operations of the Fund) other than shares acquired through
dividend reinvestment.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in the Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of distribution fee payments and accruals.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments is amortizing the unpaid balance. No assurance can be given
that payments of the distribution fee will reach either the voluntary
maximum or the NASD 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 redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Securities and Exchange Commission, as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of shareholders of the Fund.
15
<PAGE>
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.
Portfolio Turnover. The Fund has not placed any limit on its rate of
portfolio turnover and securities may be sold without regard to the time they
have been held when, in the opinion of the Investment Adviser, investment
considerations warrant such action. As a result, portfolio turnover rate may
vary greatly from year to year or during periods within a year. Also, the use of
covered call options at times when the underlying securities are appreciating in
value may result in higher portfolio turnover than would otherwise be the case.
The Fund pays brokerage commissions in connection with writing call options and
effecting closing purchase transactions, as well as in connection with purchases
and sales of portfolio securities. A high rate of portfolio turnover would
result in correspondingly greater brokerage commission expenses. Portfolio
turnover rate is calculated by dividing the lesser of the Fund's annual sales or
purchases of portfolio securities (exclusive of purchases and sales of
Government securities and of all other securities, including options, whose
maturity or expiration dates at the time of acquisition were one year or less)
by the monthly average value of the securities in the Fund during the fiscal
year. For the fiscal years ended October 31, 1994 and 1993, the rate of
portfolio turnover was 24.64% and 32.54%, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of the brokerage. In executing such
transactions, the Investment Adviser 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 Investment Adviser 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 execution of transactions in portfolio
securities. Subject to obtaining the best price and execution, brokers who
provide supplemental investment research to the Investment Adviser 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 Investment
Adviser under the Investment Advisory Agreement, and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. 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. In addition, consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. and
policies established by the Board of Trustees of the Fund, the Investment
Adviser 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.
For the fiscal year ended October 31, 1994, the Fund paid total brokerage of
$687,783, of which $41,123, or approximately 6.0%, was paid to Merrill Lynch for
effecting transactions involving 5.5% of the aggregate amount of transactions in
which the Fund paid brokerage commissions. For the fiscal
16
<PAGE>
year ended October 31, 1993, the Fund paid total brokerage of $790,205, of which
$154,632 or approximately 20.0% was paid to Merrill Lynch for effecting
transactions involving 18.9% of the aggregate amount of transactions in which
the Fund paid brokerage commissions. For the period September 14, 1992
(commencement of operations) to October 31, 1992, the Fund paid total brokerage
of $59,879, of which $26,153 or approximately 43.6% was paid to Merrill Lynch
for effecting transactions involving 18.9% of the aggregate amount of
transactions in which the Fund paid brokerage commissions.
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 government 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 depository
receipts, including ADRs or EDRs, or securities convertible into foreign equity
securities. Depository receipts may be listed on stock exchanges or traded in
over-the-counter markets in the United States or Europe or other countries, as
the case may be. ADRs, like other securities 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 principal in the purchase and sale of
securities unless a permissive order allowing such transactions is obtained from
the Securities and Exchange 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 its affiliates, in connection with such
transactions. However, affiliated persons of the Fund may serve as its broker in
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions. See "Investment Objective
and Policies--Investment Restrictions."
The Board of Trustees will consider 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. The Board
will reconsider this matter from time to time.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Fund on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Fund at
least annually setting forth the compensation it has received in connection with
such transactions. Pursuant to prior Section 11(a) and Rule 11a2-2T thereunder,
Merrill Lynch was not permitted to act
17
<PAGE>
as a broker of the Fund in any of its portfolio transactions executed on any
national securities exchange, but was allowed to effect such transactions
through transmitting orders for execution, providing for clearance and
settlement and arranging for the performance of such functions. Under prior
Section 11(a) and as permitted by the Rule, the Board of Trustees of the Fund
approved a written contract, among the Fund, Merrill Lynch and the Investment
Adviser, to permit Merrill Lynch to effect portfolio transactions on national
securities exchanges for the Fund and to retain compensation in connection with
such transactions. Because the recent amendments to Section 11(a) obviate the
need for this type of agreement, the agreement has been terminated. For the
fiscal years ended October 31, 1994 and 1993, and the period September 14, 1992
(commencement of operations) through October 31, 1992, Merrill Lynch effected
21, 210 and 39 of such transactions, respectively, and received $41,123,
$154,632 and $26,153, respectively, as compensation in connection with such
transactions.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
Monday through Friday 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 redeem shares. The 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 Investment Adviser and to the Administrator and the account maintenance
fee and distribution fee payable to the Distributor, are accrued daily.
Portfolio securities, including depository receipts, which are traded on the
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.
Securities and 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. Such valuations and procedures will be
reviewed periodically by the Board of Trustees.
Generally, trading in foreign securities, United States government
securities and money market instruments is substantially completed each day at
various times prior to the close of the New York Stock Exchange. The values of
such securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the New York Stock Exchange. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the
18
<PAGE>
close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the direction
of the Board of Trustees.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of such
services 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 United States investors.
INVESTMENT ACCOUNT
Distribution of shares of the Fund (other than reinvestment of dividends and
capital gains distributions of the Fund) is limited to current clients of the
Merrill Lynch ConsultsSM Service. Shareholders will receive statements of
dividends and capital gains distributions.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. 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.
If a client terminates the Merrill Lynch ConsultsSM Service, the client's
shares may be retained in the client's Merrill Lynch brokerage account, subject
to the consent of 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 interested in transferring their shares from Merrill Lynch 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.
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.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions 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 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 or by telephone (1-800-MER-FUND) to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing that
they no longer wish to have their dividends and/or 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.
19
<PAGE>
MERRILL LYNCH ASSET INFORMATION AND MEASUREMENT(R) SERVICE
Clients of the Merrill Lynch ConsultsSM Service are currently provided,
without incremental charge, the Merrill Lynch Asset Information and
Measurement(R) Service ("AIM(R)"). AIM(R) currently provides, through quarterly
reports, the ability to monitor and evaluate performance of their Merrill Lynch
ConsultsSM Service account, including shares of the Fund held in the account,
and analyzes the risk taken to achieve the return. Shares of the Fund must be
held in the account for a full quarterly period to be subject to such
evaluation.
TAXES
The Fund has qualified and intends to remain qualified 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 income and net realized capital gains which it
distributes to shareholders. The Fund intends to distribute substantially all
of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains are
taxable to a shareholder as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. A capital gains distribution with
respect to shares held for six months or less, however, will cause any loss on a
subsequent sale or exchange of such shares to be treated as long-term capital
loss to the extent of such long-term capital gains distribution.
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
dividends or capital gains distributions. A portion of the Fund's ordinary
income dividends may be eligible for the dividends received deduction allowed to
corporations under the Code, if certain requirements are met. If the Fund pays a
dividend that was declared in the previous October, November or December to
shareholders of record in such a month, then such dividend or distribution will
be treated for tax purposes as being paid by the RIC and received by its
shareholders on December 31 of the year in which the dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens will be subject to a 30% United States 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. Non-resident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
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 United States may reduce or eliminate such taxes. Certain
shareholders may be able to claim United States foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. 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 to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate share
of such withholding
20
<PAGE>
taxes in their United States income tax returns as gross income, treat such
proportionate share as taxes paid by them and deduct such proportionate share in
computing their taxable incomes or, alternatively, use them as foreign tax
credits against their United States income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate shareholders who do not itemize
deductions. Foreign tax credits cannot be claimed by certain retirement
accounts. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to United States 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 United States 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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not 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.
The Fund may invest in equity securities of investment companies (or similar
investment entities) organized under foreign law or of ownership interests in
special accounts, trusts or partnerships. If the Fund purchases shares of an
investment company (or similar investment entity) organized under foreign law,
the Fund will be treated as owning shares in a passive foreign investment
company ("PFIC") for United States Federal income tax purposes. The Fund may be
subject to United States Federal income tax, and an additional tax in the nature
of interest, on a portion of distributions from such company and on gain from
the disposition of such shares (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year,an amount equal to at
least 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 avoid
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.
TAX TREATMENT OF FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures or forward foreign
exchange contracts. Unless the Fund is eligible to make and makes a special
election, such options, futures or forward foreign exchange 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 option, futures
or forward foreign exchange contract will be treated as sold for its fair market
value on the last day of the taxable year. In
21
<PAGE>
general, unless the special election referred to in the previous sentence is
made, gain or loss from transactions in options, futures or forward foreign
exchange contracts will be 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 transactions in options, futures or forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may 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, futures or forward foreign exchange contract.
SPECIAL RULES FOR OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from 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 forward foreign exchange
contracts will be valued for purposes of the RIC diversification requirements
applicable to the Fund. The Fund may request a private letter ruling from the
Internal Revenue Service on some or all of these issues.
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 United States
dollar). In general, foreign currency gains or losses from forward contracts
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. 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 dividend
distributions, and any 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 each shareholder's basis in his Fund shares.
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 or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
22
<PAGE>
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 figures are based on the Fund's
historical performance and are not intended to indicate future performance.
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.
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 a longer period of time.
Set forth is total return information for shares of the Fund for the period
indicated.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A
HYPOTHETICAL
EXPRESSED AS A $1,000
PERCENTAGE BASED INVESTMENT
ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD
- -------------------------------------------------------- ----------------- ----------------
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C>
One Year Ended October 31, 1994......................... 9.74% $ 1,097.40
September 14, 1992
(Commencement of Operations) to
October 31, 1994...................................... 12.64% $ 1,288.30
<CAPTION>
FOR YEAR ENDED OCTOBER 31, ANNUAL TOTAL RETURN
- --------------------------------------------------------
<S> <C> <C>
1994.................................................... 9.74% $ 1,097.40
1993.................................................... 22.29% $ 1,222.90
September 14, 1992 (Commencement of Operations) to
October 31, 1992........................................ (4.00)% $ 960.00
<CAPTION>
AGGREGATE TOTAL RETURN
<S> <C> <C>
September 14, 1992
(Commencement of Operations) to
October 31, 1994...................................... 28.83% $ 1,288.30
</TABLE>
23
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is an unincorporated business trust organized on June 26, 1992
under the laws of Massachusetts. It is a diversified, open-end management
investment company comprised of separate classes. The Trustees are authorized to
issue an unlimited number of full and fractional shares of beneficial interest
of $.10 par value of different classes. Shareholder approval is not required for
the authorization of additional classes of shares of the Trust. The Trust has
received an order from the Commission permitting the issuance and sale of two
classes of shares.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Trustees and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Trustees; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Voting rights for Trustees are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive or conversion
rights. Redemption rights are discussed elsewhere herein and in the Prospectus.
Each share is entitled to participate equally in dividends and distributions
declared by the Fund and in the net assets of the Fund upon liquidation or
dissolution after satisfaction of outstanding liabilities. Share certificates
are issued by the transfer agent only on specific request. Certificates for
fractional shares are not issued in any case. Shareholders may cause a meeting
of shareholders to be held for the purpose of voting on the removal of Trustees
at the request of 10% of the outstanding shares of the Fund. A Trustee may be
removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Trustees.
The Declaration of Trust of the Fund contemplates that the Fund may be
terminated, solely upon a vote of the Board of Trustees of the Fund, and without
a vote of shareholders, within five years after it commences operations if the
Fund does not have net assets in excess of $100 million. Shareholders should be
aware that their investment in the Fund may be liquidated in such event. Among
other consequences, this could result in a taxable event for shareholders.
The Declaration of Trust establishing the Fund, dated June 26, 1992 and
amended on July 31, 1992, 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 Consults
International Portfolio" 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.
24
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for shares of the Fund, based on the value of the Fund's
net assets as of October 31, 1994, is calculated as follows:
Net Assets.................................................. $272,486,913
------------
------------
Number of Shares Outstanding................................ 21,242,599
------------
------------
Net Asset Value Per Share (net assets divided by number of
shares outstanding)......................................... $ 12.83
Sales Charge................................................ none
------------
Offering Price.............................................. $ 12.83
------------
------------
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
selected as the independent auditors of the Fund. The selection of independent
auditors is subject to ratification by the shareholders 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,
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 United States 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
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations
Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32232-5289, 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.
ADMINISTRATOR
Princeton Administrators, LP, 800 Scudders Mill Road, Plainsboro, New Jersey
08536, acts as the Fund's administrator. See "Management of the
Fund--Administrator" in the Prospectus.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, 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.
25
<PAGE>
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 Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 31, 1995.
-------------------
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees,
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Consults International Portfolio, including the schedule of investments,
as of October 31, 1994, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and 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 as of
October 31, 1994 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Consults International Portfolio at October 31, 1994, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
December 9, 1994
27
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE><CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 107,850 Banco de Galicia y Buenos Aires
S.A. (ADR)* $ 2,750,532 $ 2,911,950 1.1%
Oil & Related 127,000 YPF S.A. (ADR)* 2,978,847 3,063,875 1.1
Total Investments in
Argentinean Stocks 5,729,379 5,975,825 2.2
Chile Glass Packaging 40,000 Cristalerias de Chile S.A. (ADR)* 825,491 860,000 0.3
Total Investments in Chilean Stocks 825,491 860,000 0.3
Mexico Banking 130,000 Grupo Financiero Bancomer,
S.A. de C.V. (ADR)* 3,813,032 2,973,750 1.1
Beverage 417,000 Fomento Economico Mexicano,
S.A. de C.V. 'B' (Femsa) 1,802,298 1,833,100 0.7
Building & 90,000 Empresas ICA Sociedad Controladora,
Construction S.A. de C.V. (ADR)* 1,975,312 2,666,250 1.0
Telecommunications 55,000 Telefonos de Mexico, S.A.
de C.V. (ADR)* 2,896,991 3,031,875 1.1
Total Investments in Mexican Stocks 10,487,633 10,504,975 3.9
Total Investments in Latin America 17,042,503 17,340,800 6.4
NORTH
AMERICA
Canada Metals 132,700 Noranda, Inc. 2,176,720 2,600,422 0.9
Natural Gas 145,000 Westcoast Energy, Inc. (ADR)* 2,366,385 2,374,375 0.9
Utilities
Total Investments in North America 4,543,105 4,974,797 1.8
</TABLE>
28
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
PACIFIC Shares Value Percent of
BASIN Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Metals 252,000 Broken Hill Proprietary, Ltd. $ 2,767,090 $ 3,862,048 1.4%
Publishing 650,000 News Corporation, Ltd. 4,199,667 3,997,189 1.5
Total Investments in
Australian Stocks 6,966,757 7,859,237 2.9
Hong Kong Foods 2,000,000 Dairy Farms International
Holdings, Ltd. 3,172,753 2,601,336 0.9
Machinery 1,130,000 Johnson Electric Holdings, Ltd. 2,788,395 3,144,251 1.2
Multi-Industry 1,000,000 Hutchison Whampoa, Ltd. 3,748,040 4,620,283 1.7
200,000 Swire Pacific Ltd. (Class A) 1,547,267 1,527,152 0.6
------------ ------------ -----
5,295,307 6,147,435 2.3
Total Investments in
Hong Kong Stocks 11,256,455 11,893,022 4.4
Indonesia Telecommunications 5,610 P.T. Indonesia Satellite (ADR)* 180,097 220,193 0.1
Total Investments in
Indonesian Stocks 180,097 220,193 0.1
Japan Apparel 250,000 Tokyo Style 4,308,540 4,335,708 1.6
600,000 Toray Industries, Inc. 4,569,260 4,738,309 1.7
------------ ------------ -----
8,877,800 9,074,017 3.3
Automobile & 240,000 Honda Motor Co., Ltd. 3,143,878 4,187,055 1.5
Equipment 225,000 Nippon Denso Co., Ltd. 3,509,953 4,807,990 1.8
502,000 Yamaha Motors Co., Ltd. 4,309,498 4,617,343 1.7
------------ ------------ -----
10,963,329 13,612,388 5.0
Building & 291,000 Daiwa House Industry Co., Ltd. 4,340,056 4,025,394 1.5
Construction 461,000 Okumura Corp. 3,764,902 3,773,852 1.4
------------ ------------ -----
8,104,958 7,799,246 2.9
Chemicals 576,000 Mitsui Petrochemical Industries 3,687,068 5,434,747 2.0
425,000 Sekisui Chemical Co., Ltd. 4,004,274 4,365,387 1.6
------------ ------------ -----
7,691,342 9,800,134 3.6
Electric Utilities 125,000 Kansai Electric Power Co., Inc. 3,455,059 3,148,550 1.2
Electrical 478,000 Hitachi, Ltd. 3,874,488 4,983,793 1.8
Equipment
Electronic 500,000 Hitachi Cable, Ltd. 3,871,452 4,377,000 1.6
Components 17,000 Keyence Corp. 1,376,891 2,053,267 0.8
------------ ------------ -----
5,248,343 6,430,267 2.4
Electronics 257,000 Matsushita Electric Industrial
Co., Ltd. 3,522,654 4,271,395 1.6
Financial Services 178,000 Nomura Securities Co., Ltd. 4,060,021 3,730,154 1.4
Household Products 350,000 Kao Corp. 3,913,740 4,155,053 1.5
Insurance 572,000 Nippon Fire & Marine Insurance
Co., Ltd. 4,139,948 4,239,661 1.5
International Trade 500,000 Sumitomo Corp. 4,473,925 5,161,557 1.9
Leisure 58,800 Nintendo Co., Ltd. 4,554,286 3,302,075 1.2
Machinery 645,000 Mitsubishi Heavy Industries, Ltd. 4,003,984 5,253,484 1.9
</TABLE>
29
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE><CAPTION>
PACIFIC Shares Value Percent of
BASIN Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Merchandising 79,000 Ito-Yokado Co., Ltd. 3,630,720 4,314,132 1.6
Office Equipment 256,000 Canon, Inc. 3,522,859 4,756,891 1.7
Pharmaceuticals 203,000 Yamanouchi Pharmaceutical Co., Ltd. 4,268,779 4,002,581 1.5
Printing 243,000 Dai Nippon Printing, Ltd. 4,041,639 4,515,330 1.6
100,000 Komori Corp. 1,963,465 2,673,686 1.0
------------ ------------ -----
6,005,104 7,189,016 2.6
Steel 945,000 Nisshin Steel Company, Ltd. 3,712,594 4,965,469 1.8
Transportation 370,000 Kamigumi Co., Ltd. 4,278,946 4,048,725 1.5
Total Investments in
Japanese Stocks 102,302,879 114,238,588 41.9
Malaysia Conglomerates 1,840,000 Sime Darby BHD 4,415,735 5,077,104 1.9
Total Investments in
Malaysian Stocks 4,415,735 5,077,104 1.9
Singapore Shipbuilding 550,000 Jurong Shipyard, Ltd. 4,403,226 4,945,504 1.8
Total Investments in
Singaporean Stocks 4,403,226 4,945,504 1.8
Thailand Agriculture 333,000 Charoen Pokphand Feedmill Co., Ltd. 1,608,648 2,419,339 0.9
Real Estate 297,300 MDX Co., Ltd.--Foreign 1,961,787 1,670,694 0.6
Total Investments in Thai Stocks 3,570,435 4,090,033 1.5
Total Investments in the
Pacific Basin 133,095,584 148,323,681 54.5
WESTERN
EUROPE
France Automobile & 114,000 Michelin (C.G.D.E.) (Class B) 3,835,751 4,767,514 1.7
Equipment
Leisure 30,000 Accor S.A. 3,557,660 3,557,151 1.3
Oil & Related 47,000 Societe Nationale Elf Aquitaine
(Ordinary) 3,500,155 3,470,503 1.3
Total Investments in French Stocks 10,893,566 11,795,168 4.3
Germany Conglomerates 15,000 Preussag AG 3,885,955 4,388,907 1.6
Utility 16,100 Veba AG 4,504,979 5,389,837 2.0
Total Investments in German Stocks 8,390,934 9,778,744 3.6
Italy Telecommunications 1,750,000 Societa Finanziara Telefonica
S.p.A. (STET) 4,550,716 5,289,930 1.9
Total Investments in Italian Stocks 4,550,716 5,289,930 1.9
Netherlands Conglomerates 27,000 Unilever Capital Corp. 2,920,835 3,253,764 1.2
Food Chains 200,000 Koninklijke Ahold N.V. 5,053,609 5,880,261 2.2
Total Investments in
Netherlands Stocks 7,974,444 9,134,025 3.4
Norway Pharmaceuticals 220,000 Hafslund Nycomed 'B' Fria 3,997,046 3,951,089 1.4
Shipbuilding 85,000 Kvaerner A.S. 'B' Shares 4,252,335 3,520,825 1.3
Total Investments in
Norwegian Stocks 8,249,381 7,471,914 2.7
Spain Oil & Related 165,000 Repsol S.A. 4,770,772 5,275,206 1.9
Utility 70,000 Empresa Nacional de
Electricidad S.A. 2,724,152 3,207,472 1.2
Total Investments in
Spanish Stocks 7,494,924 8,482,678 3.1
</TABLE>
30
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
WESTERN EUROPE Shares Value Percent of
(concluded) Industries Held Stocks Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Switzerland Machinery 4,000 Sulzer Gebruder AG (Registered) $ 2,922,103 $ 2,821,656 1.0%
Pharmaceuticals 9,000 Ciba-Geigy AG (Registered) 4,597,311 5,245,223 2.0
Restaurants 9,200 Moevenpick Holdings AG (Bearer) 2,372,851 2,856,688 1.0
Total Investments in Swiss Stocks 9,892,265 10,923,567 4.0
United Automobile & 459,200 GKN PLC 3,470,808 4,565,052 1.7
Kingdom Equipment
Beverage 500,000 Grand Metropolitan PLC (Ordinary) 3,277,060 3,387,230 1.3
Building & 355,000 Hepworth PLC 2,113,370 1,703,736 0.6
Construction
Conglomerates 900,000 BTR PLC 5,084,833 4,517,667 1.7
600,000 Hanson PLC (Ordinary) 2,261,242 2,257,609 0.8
------------ ------------ -----
7,346,075 6,775,276 2.5
Electrical 550,000 General Electric Co., Ltd.
Equipment (Ordinary) 2,722,709 2,477,983 0.9
Leisure 173,600 Thorn EMI PLC (Ordinary) 2,552,714 2,754,499 1.0
Machinery 380,000 Siebe PLC (Ordinary) 3,076,015 3,349,685 1.2
Natural Gas 390,000 British Gas PLC 1,848,273 1,852,611 0.7
Utilities
Publishing 175,000 Reed International PLC (Ordinary) 1,773,302 2,148,238 0.8
Telecommunications 343,000 British Telecommunications PLC 2,224,660 2,208,858 0.8
Total Investments in
United Kingdom Stocks 30,404,986 31,223,168 11.5
Total Investments in Western Europe 87,851,216 94,099,194 34.5
Face Amount Short-Term Securities
<S> <S> <C> <S> <C> <C> <C>
United Commercial $8,619,000 Associates Corp. of North America,
States Paper** 4.72% due 11/01/1994 8,619,000 8,619,000 3.1
Total Investments in
Short-Term Securities 8,619,000 8,619,000 3.1
Total Investments $251,151,408 273,357,472 100.3
============
Unrealized Depreciation on Forward Foreign Exchange Contracts*** (217,228) (0.1)
Liabilities in Excess of Other Assets (653,331) (0.2)
------------ ------
Net Assets $272,486,913 100.0%
============ ======
</TABLE>
[FN]
*American Depositary Receipt (ADR).
**Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the fund.
***Forward foreign exchange contract as of October 31, 1994 is as follows:
Foreign Currency Expiration Unrealized
Sold Date Depreciation
YEN 3,920,000,000 July 1995 $(217,228)
Total (US Commitment--$41,476,043) $(217,228)
==========
See Notes to Financial Statements.
31
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1994
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$251,151,408) (Note 1a) $273,357,472
Cash 59
Receivables:
Beneficial interest sold $ 1,227,403
Dividends 822,614
Securities sold 310,905 2,360,922
------------
Deferred organization expenses (Note 1e) 75,974
Prepaid registration fees and other assets (Note 1e) 28,496
------------
Total assets 275,822,923
------------
Liabilities: Unrealized depreciation on forward foreign exchange
contracts (Note 1b) 217,228
Payables:
Beneficial interest purchased 1,680,063
Securities purchased 380,528
Investment adviser (Note 2) 337,766
Distributor (Note 2) 229,012
Administration fee (Note 2) 57,253 2,684,622
------------
Accrued expenses and other liabilities 434,160
------------
Total liabilities 3,336,010
------------
Net Assets: Net assets $272,486,913
============
Net Assets Common shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 2,124,260
Paid-in capital in excess of par 241,733,388
Undistributed realized capital gains on investments and foreign
currency transactions--net 6,603,906
Unrealized appreciation on investments and foreign currency
transactions--net 22,025,359
------------
Net assets--Equivalent to $12.83 per share based on 21,242,599
shares of beneficial interest outstanding $272,486,913
============
See Notes to Financial Statements.
</TABLE>
32
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1994
<S> <S> <C>
Investment Dividends (net of $533,342 foreign withholding tax) $ 3,791,457
Income Interest and discount earned 228,159
(Notes 1c & 1d): ------------
Total income 4,019,616
------------
Expenses: Distribution fees (Note 2) 1,770,022
Investment advisory fees (Note 2) 1,770,022
Account maintenance fees (Note 2) 590,008
Administration fees (Note 2) 590,008
Custodian fees 284,607
Professional fees 82,077
Registration fees (Note 1e) 67,014
Printing and shareholder reports 59,168
Transfer agent fees (Note 2) 47,910
Amortization of organization expenses (Note 1e) 31,186
Trustees' fees 24,227
Other 30,057
------------
Total expenses 5,346,306
------------
Investment loss--net (1,326,690)
------------
Realized & Realized gain from:
Unrealized Investments--net $ 7,903,696
Gain (Loss) on Foreign currency transactions 68,840 7,972,536
Investments and ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 13,282,169
(Notes 1b, 1d & 3): Foreign currency transactions (186,558) 13,095,611
------------ -------------
Net realized and unrealized gain on investments and foreign
currency transactions 21,068,147
-------------
Net Increase in Net Assets Resulting from Operations $ 19,741,457
=============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,326,690) $ (440,958)
Realized gain on investments and foreign currency
transactions--net 7,972,536 1,225,028
Change in unrealized appreciation on investments and foreign
currency transactions--net 13,095,611 9,543,086
------------ ------------
Net increase in net assets resulting from operations 19,741,457 10,327,156
------------ ------------
</TABLE>
33
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Distributions to Realized gain on investments--net (834,656) --
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from distributions
to shareholders (834,656) --
------------ ------------
Beneficial Interest Net increase in net assets derived from beneficial
Transactions interest transactions 77,824,155 148,792,595
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 96,730,956 159,119,751
Beginning of year 175,755,957 16,636,206
------------ ------------
End of year $272,486,913 $175,755,957
============ ============
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived from For the Period
information provided in the financial statements. For the Year Ended Sept. 14,
October 31, 1992++++ to
Increase (Decrease) in Net Asset Value: 1994++ 1993++ Oct. 31, 1992++
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.74 $ 9.60 $ 10.00
----------- ----------- -----------
Operating Investment loss--net (.12) (.08) (.02)
Performance: Realized and unrealized gain (loss) on investments--net 1.26 2.22 (.38)
----------- ----------- -----------
Total from investment operations 1.14 2.14 (.40)
----------- ----------- -----------
Less distributions from realized gain on investments--net (.05) -- --
----------- ----------- -----------
Net asset value, end of period $ 12.83 $ 11.74 $ 9.60
=========== =========== ===========
Total Investment Based on net asset value per share 9.74% 22.29% (4.00%)+++
Return: =========== =========== ===========
Ratios to Expenses, net of reimbursement and excluding account
Average maintenance and distribution fees 1.27% 1.76% 2.50%*
Net Assets: =========== =========== ===========
Expenses 2.27% 2.76% 3.50%*
=========== =========== ===========
Expenses, net of reimbursement 2.27% 2.76% 4.45%*
=========== =========== ===========
Investment loss--net (.56%) (.86%) (2.77%)*
=========== =========== ===========
Supplemental Net assets, end of period (in thousands) $ 272,487 $ 175,756 $ 16,636
Data: =========== =========== ===========
Portfolio turnover 24.64% 32.54% 0.00%
=========== =========== ===========
</TABLE>
+++Aggregate total investment return.
++Based on average number of shares outstanding during the period.
++++Commencement of Operations.
*Annualized.
See Notes to Financial Statements.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Consults International Portfolio (the "Fund") is
registered under the Investment Company Act of 1940 as a
diversified, open-end investment company. 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. 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. Short-term investments are
valued at amortized cost, which approximates market value.
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 Board of Trustees of the
Fund.
(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. Realized
and unrealized gains/losses on foreign currency transactions are the
result of settling (realized) or valuing (unrealized) receivables or
payables expressed in foreign currencies into US dollars. Realized
and unrealized gains or losses from investments include the effects
of foreign exchange rates on investments.
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 contract.
(c) 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.
(d) 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
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--
Costs related to the organization of the Fund are charged to expense
over a five-year period. Prepaid registration fees are charged to
expense as the related shares are issued.
(f) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend date.
(g) Reclassification--Accumulated investment loss--net, in the
amount of $1,326,690, has been reclassified to undistributed
realized capital gains--net.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch (Suisse) Investment Management S.A. (the "Investment
Adviser"). The Investment Adviser is a subsidiary of Merrill Lynch
Bank (Suisse) S.A. which is, in turn, an indirect subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."). Fund Asset Management, L.P.
("FAM") and Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") have
35
<PAGE>
been retained as sub-advisers (the "Sub-Advisers") to
the Fund. Pursuant to sub-advisory agreements, the Sub-Advisers will
provide investment advisory services with respect to the management
of the Fund's cash position.
As compensation for its services to the Fund, the Investment Adviser
receives monthly compensation at the annual rate of 0.75% of the
average daily net assets of the Fund. The Fund will not pay any
incremental fee to the Sub-Advisers for their services.
Certain states in which shares of the Fund qualify for sale impose
limitations on the expenses of the Fund. The most restrictive annual
expense limitation requires that the Investment Adviser reimburse
the Fund to the extent that expenses (excluding interest, taxes,
distribution 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 Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
The Investment Adviser's obligation to reimburse the Fund is limited
to the amount of the investment advisory fee. No fee payment will be
made to the Investment Adviser during any fiscal year which will
cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment.
The Fund has an Administrative Agreement with Princeton
Administrators, Inc. (the "Administrator"), an indirect subsidiary
of ML & Co. The Administrator performs or arranges for the
performance of certain administrative services (i.e., services other
than investment advice and related portfolio activities) necessary
for the operation of the Fund, including maintaining the books and
records of the Fund, preparing reports and other documents required
by United States Federal, state and other applicable laws and
regulations to maintain the registration of the Fund and its shares
and providing the Fund with administrative office facilities. For
the services rendered to the Fund and the facilities furnished, the
Fund pays the Administrator a monthly fee equal to 0.25% of the
Fund's average daily net assets. Also, accounting services are
provided to the Fund by the Administrator, and the Fund reimburses
the Administrator for its costs in connection with such services on
a semi-annual basis.
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 pursuant to
which Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), which is an indirect subsidiary of ML & Co., receives
ongoing distribution and account maintenance fees, which are accrued
daily and paid monthly at the annual rates of 0.75% and 0.25%,
respectively, of the average daily net assets of the Fund. Pursuant
to a sub-agreement with the Distributor, Merrill Lynch also provides
account maintenance activities and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and Merrill Lynch for providing account maintenance
activities to the Fund's shareholders. The ongoing distribution fee
compensates the Distributor and Merrill Lynch for providing
shareholder and distribution services and bearing distribution-
related expenses of the Fund, including payments to financial
consultants for selling shares of the Fund.
As authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), an affiliate of the Investment Adviser, which provides
for the compensation of MLPF&S for providing account maintenance and
distribution-related services to the Fund. For the year ended
October 31, 1994, MLFD earned $2,360,030 under the Plan, all of
which was paid to MLPF&S pursuant to the agreement.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., acts as the Fund's transfer agent.
Certain officers and/or trustees of the Fund are officers and/or
trustees of FAM, the Investment Adviser (including their affiliated
companies), MLPF&S, FDS, MLFD, and/or ML & Co.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1994 were $128,575,780 and
$56,280,432.
Net realized and unrealized gains (losses) as of October 31, 1994
were as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $ 7,903,696 $22,206,064
Foreign currency transactions 68,840 36,523
Forward foreign exchange contracts -- (217,228)
------------ -----------
Total $ 7,972,536 $22,025,359
As of October 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $22,188,469, of which $28,961,556
related to appreciated securities and $6,773,087 related to
depreciated securities. The aggregate cost of investments at October
31, 1994 for Federal income tax purposes was $251,169,003.
4. Beneficial Interest Transactions:
Transactions in shares of beneficial interest were as follows:
For the Year Ended Dollar
October 31, 1994 Shares Amount
Shares sold 10,276,710 $128,040,343
Shares redeemed (4,065,998) (50,896,310)
Reinvestments 56,819 680,122
----------- ------------
Net increase 6,267,531 $ 77,824,155
=========== ============
For the Year Ended Dollar
October 31, 1993 Shares Amount
Shares sold 13,877,188 $155,757,887
Shares redeemed (635,871) (6,965,292)
----------- ------------
Net increase 13,241,317 $148,792,595
=========== ============
5. Commitments:
At October 31, 1994, the Fund had forward foreign exchange
contracts under which it had agreed to sell various foreign
currencies with a value of approximately $199,622.
37
<PAGE>
TABLE OF CONTENTS
PAGE
----
Investment Objective and Policies..... 2
Hedging Techniques.................. 3
Investment Restrictions............. 6
Management of the Fund................ 10
Trustees and Officers............... 10
Compensation of Trustees............ 11
Investment Adviser.................. 11
Purchase of Shares.................... 13
Redemption of Shares.................. 15
Portfolio Transactions and
Brokerage............................. 16
Determination of Net Asset Value...... 18
Shareholder Services.................. 19
Taxes................................. 20
Performance Data...................... 23
General Information................... 24
Description of Shares............... 24
Computation of Offering Price Per
Share................................. 25
Independent Auditors................ 25
Custodian........................... 25
Transfer Agent...................... 25
Administrator....................... 25
Legal Counsel....................... 25
Reports to Shareholders............. 25
Additional Information.............. 26
Report of Independent Auditors........ 27
Financial Statements.................. 28
Statement of
Additional Information
[ART WORK]
------------------------
MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
Investment Adviser:
Merrill Lynch (Suisse) Investment Management S.A.
February 24, 1995
Distributor:
Merrill Lynch
Code #16459-0295 Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Contained in Part A, the Prospectus:
Financial Highlights (selected per share data and ratios) for the years
ended October 31, 1994 and 1993 and the period September 14, 1992
(commencement of operations) to October 31, 1992.
Contained in Part B, the Statement of Additional Information:
Schedule of Investments, October 31, 1994.
Statement of Assets and Liabilities as of October 31, 1994.
Statement of Operations for the year ended October 31, 1994.
Statements of Changes in Net Assets for the years ended October 31, 1994 and
1993.
Financial Highlights for the years ended October 31, 1994 and 1993 and the
period September 14, 1992 (commencement of operations) to October 31, 1992.
Report of Independent Auditors, dated December 9, 1994.
(b) Exhibits:
<TABLE><CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------------------
<S> <C>
1 --Amended and Restated Declaration of Trust of Registrant.*
2 --By-Laws of Registrant.**
3 --None.
4(a) --Specimen certificate for shares of Registrant.***
4(b) --Instruments Defining Rights of Shareholders..
5(a) --Investment Advisory Agreement between Registrant and Merrill Lynch (Suisse)
Investment Management S.A.***
5(b) --Sub-Advisory Agreement between Merrill Lynch (Suisse) Investment Management
S.A., Registrant and Fund Asset Management, L.P.***
5(c) --Sub-Advisory Agreement between Merrill Lynch (Suisse) Investment Management
S.A., Registrant and Merrill Lynch Asset Management U.K. Limited.***
6 --Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.***
7 --None.
8 --Form of Custody Agreement between Registrant and Brown Brothers Harriman &
Co.***
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Financial Data Services, Inc.***
9(b) --Administration Agreement between the Fund and Princeton Administrators,
Inc.***
9(c) --License Agreement Relating to Use of Name between Merrill Lynch & Co., Inc.
and the Registrant.***
10 --Opinion of Shereff, Friedman, Hoffman & Goodman, LLP counsel for
Registrant.***
11 --Consent of Ernst & Young LLP, independent auditors for the Registrant.
12 --None.
13 --Certificate of Merrill Lynch (Suisse) Investment Management S.A.***
14(a) --Prototype Individual Retirement Account Plan available from Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
(b) --Prototype Merrill Lynch Tax-Deferred Basic TM Retirement Plan available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
15 --Distribution Plan of Registrant.***
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
16 --Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22..
17(a) --Financial Data Schedule.
17(b) --Other Exhibits.
--Powers of Attorney for Officers and Trustees.
Arthur Zeikel***
Herbert I. London***
Joseph L. May***
Andre F. Perold+++
Gerald M. Richard+++
Robert R. Martin.
</TABLE>
- ------------
* Incorporated by reference to Exhibit 1 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 33-49354).
** Incorporated by reference to Exhibit 2 to Registrant's initial Registration
Statement on Form N-1A (File No. 33-49354).
*** Incorporated by reference to same numbered exhibit to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A (File
No. 33-49354)
+ Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
January 26, 1982.
++ Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to
the Registration Statement under the Securities Act of 1933 on Form N-1A
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed December
29, 1983.
+++ Incorporated by reference to Exhibit 17 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A. (File No. 33-49354)
. Incorporated by reference to same numbered exhibit to Post-Effective
Amendment No. 2 to the Registrant's Registration Statement on Form N-1A
(File No. 33-49354).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE><CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1995
- -------------------------------------------------------------------- ----------------
<S> <C>
Shares of beneficial interest, par value $0.10 per share............ 4,952
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article V and Article XI of Registrant's Declaration of
Trust and Section 9 of the Distribution Agreement.
C-2
<PAGE>
(a) Declaration of Trust
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
5.1 No Personal Liability of Shareholders, Trustees, etc. No Shareholder
shall be subject to any personal liability whatsoever to any Person in
connection with Trust Property or the acts, obligations or affairs of the Trust.
No Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from his bad faith, willful misfeasance, gross negligence
or reckless disregard of his duty to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Trust, is made a party to
any suit or proceeding to enforce any such liability, he shall not on account
thereof, be held to any personal liability. The Trust shall indemnify and hold
each Shareholder harmless from and against all claims and liabilities, to which
such Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
5.2 Non-Liability of Trustees, etc. No Trustee, officer, employee or agent
of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, will misfeasance, gross-negligence or reckless disregard of his
duties.
5.3 Mandatory Indemnification.
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, has 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.
5.4 No Bond Required of Trustees. No Trustee shall, as such, be obligated to
give any bond or surety or other security for the performance of any of his
duties hereunder.
C-3
<PAGE>
5.5 No Duty or Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trusteesor
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees under this Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees or by any officers, employees or agents of the Trust,
in their capacity as such, shall contain an appropriate recital to the effect
that the Shareholders, Trustees, officers, employees and agents of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be had
to their private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made herein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust. The
Trustees may maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
5.6 Reliance on Experts, etc. Each Trustee and officer or employee of the
Trust shall, in the performance of his duties, be fully and completely justified
and protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books or account or other records of the Trust,
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any investment adviser, distributor, selected
dealers, accountants, appraisers or other experts or consultants elected with
reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert may also be a Trustee.
ARTICLE XI
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
11.3. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by the affirmative vote of the holders
of not less than a majority of the Shares at any meeting of Shareholders or by
an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of such
Shares. The Trustees may also amend this Declaration without the vote or consent
of Shareholders if they deem it necessary to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code, but
the Trustees shall not be liable for failing so to do.
(b) Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessment
upon Shareholders.
(b) Distribution Agreement
In Section 9 of the Distribution Agreement 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 (the "Act"), 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 Act 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
C-4
<PAGE>
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 INVESTMENT ADVISER.
Merrill Lynch (Suisse) Investment Management S.A. (the "Investment Adviser")
does not act as investment adviser for any other registered investment
companies. The address of the Investment Adviser and Merrill Lynch Bank (Suisse)
S.A. is 7 Rue Munier-Romilly, 1206 Geneva, Switzerland. For information as to
the Investment Adviser's business, profession, vocation or employment of a
substantial nature, reference is made to the Form ADV, as amended to date, filed
by the Investment Adviser (File No. 801-42073) pursuant to the Investment
Advisers Act of 1940, as amended (the "Advisers Act").
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment Adviser,
acts as the investment adviser for the following registered investment
companies: Apex Municipal Fund, Inc., 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.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., 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 Municipal Series Trust, Merrill
Lynch Multi-State Limited Maturity 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., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program,
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 Arizona Fund II, 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., Emerging Tigers
Fund, 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
FAM, Princeton Services, Inc. ("Princeton Services"), Merrill Lynch Funds
Distributor, Inc. and Princeton Administrators, L.P. is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. 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
C-5
<PAGE>
Street, New York, New York 10281. The address of Financial Data Services, Inc.
("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and director of FAM
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since January 1, 1993 for his
own account or in the capacity of director, officer, partner or trustee.
<TABLE><CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS PROFESSION,
NAME FAM VOCATION OR EMPLOYMENT
- ---------------------- ---------------------- --------------------------------------------
<S> <C> <C>
ML & Co............... Limited Partner Financial Services Holding Company
Fund Asset Management,
Inc................... Limited Partner Investment Advisory Services
Princeton Services,
Inc.
("Princeton
Services")............ General Partner General Partner of Merrill Lynch Asset
Management, L.P., doing business as
Merrill Lynch Asset Management ("MLAM")
Arthur Zeikel......... President President and Director of MLAM; President
and Director of Princeton Services;
Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD"); Executive Vice
President of Merrill Lynch & Co., Inc.;
Executive Vice President of Merrill Lynch
Terry K. Glenn........ Executive Vice Executive Vice President of MLAM; Executive
President Vice President and Director of Princeton
Services; President and Director of MLFD;
President of Princeton Administrators
Bernard J. Durnin..... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Vincent R. Giordano... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Elizabeth Griffin..... Senior Vice President Senior Vice President of MLAM
Norman R. Harvey...... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
N. John Hewitt........ Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Philip L. Kirstein.... Senior Vice President, Senior Vice President, General Counsel,
General Counsel and Secretary and Director of MLAM; Senior
Secretary Vice President, General Counsel, Director
and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss....... Senior Vice President Senior Vice President and Controller of
and Controller MLAM; 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..... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Gerald M. Richard..... Senior Vice President Senior Vice President and Treasurer of MLAM;
and Treasurer Senior Vice President and Treasurer of
Princeton Services; Vice President and
Treasurer of MLFD
Ronald L. Welburn..... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Anthony Wiseman....... Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), serves as
sub-adviser for Merrill Lynch Eurofund. For information as to MLAM U.K.'s
business, profession, vocation or employment of a substantial nature, reference
is made to the Form ADV, as amended to date, filed by MLAM U.K. (File No.
801-31780) pursuant to the Advisers Act.
C-6
<PAGE>
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 second paragraph of Item
28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund
Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, 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 Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II,
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, 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., The Municipal Fund Allocation
Program, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc., and Worldwide DollarVest, Inc. In addition, MLFD acts as
principal underwriter to each of the following registered investment companies
advised by MLAM: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Balanced Fund for Investment
and Retirement, 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 Bond Fund for Investment and Retirement,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Institutional
Intermediate Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific
Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series
Trust, Merrill Lynch Senior Floating Rate Fund, 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.
C-7
<PAGE>
(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 officers Crook,
Aldrich, Breen, Graczyk, Fatseas, Wasel, Maguire and Schera is One Financial
Center, Boston, Massachusetts 02111-2646.
<TABLE><CAPTION>
(2) (3)
(1) POSITIONS AND OFFICERS 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
Philip L. Kirstein........... Director None
William E. Aldrich........... Senior Vice President None
Robert W. Crook.............. Senior Vice President None
Kevin T. Boman............... Vice President None
Michael J. Brady............. Vice President None
William M. Breen............. Vice President None
Sharon Creveling............. Vice President and Assistant None
Treasurer
Mark A. DeSario.............. Vice President None
James T. Fatseas............. Vice President None
Stanley Graczyk.............. Vice President None
Debra W. Landsman-Yaros...... Vice President None
Michelle T. Lau.............. Vice President None
Gerald M. Richard............ Vice President and Treasurer Treasurer
Salvatore Venezia............ Vice President None
William Wasel................ Vice President None
Lisa Gobora.................. Assistant Vice President None
Susan Kibler................. Assistant Vice President None
Mark E. Maguire.............. Assistant Vice President None
Richard Romm................. Assistant Vice President None
Patricia A. Schera........... Assistant Vice President None
Robert Harris................ Secretary None
</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 and the rules thereunder will be
maintained at the offices of the Registrant, 800 Scudders Mill Road, Plainsboro,
New Jersey 08543-9011, Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida and Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund" in the
Prospectus constituting Part A of the Registration Statement and under
"Management of the Fund" 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. If requested to do so by the holders of at least 10% of the Fund's
outstanding shares, the Fund will call a meeting of shareholders for the purpose
of voting upon the removal of a trustee or trustees and the Fund will assist
communications with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
b. The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of Registrant's latest annual report to shareholders, upon request
and without charge.
C-8
<PAGE>
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 Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and that it has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Plainsboro, and State
of New Jersey, on the 23rd day of February 1995.
MERRILL LYNCH CONSULTS
INTERNATIONAL PORTFOLIO
(REGISTRANT)
By /s/ Arthur Zeikel
---------------------------------------
(Arthur Zeikel, President)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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>
/s/ Arthur Zeikel President and Trustee (Principal February 23, 1995
- ----------------------------------- Executive Officer)
(Arthur Zeikel)
/s/ Gerald M. Richard Treasurer (Principal Financial and February 23, 1995
- ----------------------------------- Accounting Officer
(Gerald M. Richard)
* Trustee
- -----------------------------------
(Herbert I. London)
* Trustee
- -----------------------------------
(Robert R. Martin)
* Trustee
- -----------------------------------
(Joseph L. May)
* Trustee
- -----------------------------------
(Andre F. Perold)
*By /s/ Arthur Zeikel February 23, 1995
- -----------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
11 --Consent of Ernst & Young LLP, independent auditors for the Registrant.
17(a) --Financial Data Schedule.
</TABLE>
<PAGE>
GRAPHIC APPENDIX
Prospectus Back Cover
- ---------------------
The caption [ART WORK] depicts a world globe.
Statement of Addition Information Back Cover
- --------------------------------------------
The caption [ART WORK] depicts a world globe.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "General Information--Independent Auditors" and to the use of
our report dated December 9, 1994, in Post-Effective Amendment No. 3 to the
Registration Statement (Form N-1A No. 33-49354) of Merrill Lynch Consults
International Portfolio.
ERNST & YOUNG LLP
New York, New York
February 24, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 251151408
<INVESTMENTS-AT-VALUE> 273357472
<RECEIVABLES> 2360922
<ASSETS-OTHER> 104529
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 275822923
<PAYABLE-FOR-SECURITIES> 380528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2955482
<TOTAL-LIABILITIES> 3336010
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 243857648
<SHARES-COMMON-STOCK> 21242599
<SHARES-COMMON-PRIOR> 14975068
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6603906
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22025359
<NET-ASSETS> 272486913
<DIVIDEND-INCOME> 3791457
<INTEREST-INCOME> 228159
<OTHER-INCOME> 0
<EXPENSES-NET> 5346306
<NET-INVESTMENT-INCOME> (1326690)
<REALIZED-GAINS-CURRENT> 7972536
<APPREC-INCREASE-CURRENT> 13095611
<NET-CHANGE-FROM-OPS> 19741457
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 834656
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10276710
<NUMBER-OF-SHARES-REDEEMED> 4065998
<SHARES-REINVESTED> 56819
<NET-CHANGE-IN-ASSETS> 96730956
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 792716
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1770022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5346306
<AVERAGE-NET-ASSETS> 236003063
<PER-SHARE-NAV-BEGIN> 11.74
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.83
<EXPENSE-RATIO> 2.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
