<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1997
SECURITIES ACT FILE NO. 33-49354
INVESTMENT COMPANY ACT FILE NO. 811-6725
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 7 /X/
(Check appropriate box or boxes)
------------------------
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MARK B. GOLDFUS, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
919 THIRD AVENUE, NEW YORK, NEW YORK 10022 P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
</TABLE>
------------------------
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.
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF
BENEFICIAL INTEREST UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2
UNDER THE INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR
THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON DECEMBER 27, 1996.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT OF SHARES OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED BEING REGISTERED PER UNIT OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
Shares of Beneficial Interest (par value
$.10 per share)....................... 5,505,750 11.82 $329,990.76 $100
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940 and was based upon an
offering price of $11.82 per share, equal to the net asset value as of the
close of business on February 18, 1997.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 6,567,697 Shares of Beneficial Interest.
(3) 1,089,865 of the Shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company Act
of 1940 in previous filings during Registrant's current fiscal year.
(4) 5,477,832 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
POST-EFFECTIVE AMENDMENT NO. 5 ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ---------------------------------------------------------------- -----------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page...................................... Cover Page
Item 2. Synopsis........................................ Fee Table
Item 3. Condensed Financial Information................. Financial Highlights
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 21, 1997
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
that seeks the highest total investment return that is 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 Consults(Registered)
Service and of the Merrill Lynch Strategic Portfolio Advisor(Service Mark)
Service. The Fund is designed for Merrill Lynch Consults(Registered) Service and
Merrill Lynch Strategic Portfolio Advisor(Service Mark) Service clients who seek
to internationally diversify a portion of their investment portfolio. For more
information on the Fund's investment objective and policies, please see
'Investment Objective and Policies' on page 5.
The Fund offers shares (the 'shares') that 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 9081, Princeton, New Jersey 08543-9081 ((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 Consults(Registered) Service and of the Merrill Lynch Strategic
Portfolio Advisor(Service Mark) Service. Redemptions directly through the
Fund's transfer agent are not subject to processing fees. See 'Purchase of
Shares' and 'Redemption of Shares.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 21, 1997 (the 'Statement of Additional
Information'), has been filed with the Securities and Exchange Commission and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH (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>
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, 1996:
Investment Adviser Fees(a).................................................................... 0.75%
Administrative Fees(b)........................................................................ 0.25%
12b-1 Fees(c):
Account Maintenance Fees.................................................................... 0.25%
Distribution Fees........................................................................... 0.75%
OTHER EXPENSES:
Custodian Fees................................................................................ 0.08%
Shareholder Servicing Costs(d)................................................................ 0.03%
Other(e)...................................................................................... 0.26%
--------------
Total Other Expenses.......................................................................... 0.37%
--------------
TOTAL FUND OPERATING EXPENSES................................................................... 2.37%
--------------
--------------
</TABLE>
---------------
(a) See 'Management of the Fund--Investment Adviser'--page 9.
(b) See 'Management of the Fund--Administrator'--page 9.
(c) See 'Purchase of Shares--Distribution Plan'--page 11.
(d) See 'Management of the Fund--Transfer Agency Services'--page 10.
(e) Each client of the Merrill Lynch Consults(Registered) Service and of the
Merrill Lynch Strategic Portfolio Advisor(Service Mark) 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:
----------------------------------------
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, whether or not the investor redeems his investment at the
end of the period, assuming (1) an operating expense ratio of 2.37%
and (2) a 5% annual return throughout the periods: $24 $74 $127 $271
</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 Conduct Rules 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 for clients
of the Merrill Lynch Consults(Registered) Service and of the Merrill Lynch
Strategic Portfolio Advisor(Service Mark) Service. Redemptions directly through
the transfer agent are not subject to the processing fee. See 'Purchase of
Shares' and 'Redemption of Shares.'
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Ernst & Young LLP, independent auditors. The Financial Highlights should be read
in conjunction with the financial statements for the fiscal year ended October
31, 1996 and the independent auditors' report thereon, which 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 Fund's audited financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPT. 14,
FOR THE YEAR ENDED OCTOBER 31, 1992+ TO
----------------------------------------------- OCT. 31,
INCREASE (DECREASE) IN NET ASSET VALUE: 1996++ 1995++ 1994++ 1993++ 1992++
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 12.28 $ 12.83 $ 11.74 $ 9.60 $ 10.00
-------- -------- -------- -------- --------------
Investment loss--net......................... (.05) (.05) (.12) (.08) (.02)
Realized and unrealized gain (loss) on
investments--net........................... .76 (.18) 1.26 2.22 (.38)
-------- -------- -------- -------- --------------
Total from investment operations............... .71 (.23) 1.14 2.14 (.40)
-------- -------- -------- -------- --------------
Less dividends and distributions:
In excess of investment income--net.......... (.44) -- -- -- --
Realized gain on investments--net............ (.46) (.32) (.05) -- --
-------- -------- -------- -------- --------------
Total dividends and distributions.............. (.90) (.32) (.05) -- --
-------- -------- -------- -------- --------------
Net asset value, end of period................. $ 12.09 $ 12.28 $ 12.83 $ 11.74 $ 9.60
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
TOTAL INVESTMENT RETURN:
Based on net asset value per share............. 5.93% (1.68%) 9.74% 22.29% (4.00%)#
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement................. 2.37% 2.35% 2.27% 2.76% 3.50%*
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
Expenses....................................... 2.37% 2.35% 2.27% 2.76% 4.45%*
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
Investment loss--net........................... (.42%) (.41%) (.56%) (.86%) (2.77%)*
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $174,921 $197,077 $272,487 $175,756 $ 16,636
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
Portfolio turnover............................. 38.16% 17.31% 24.64% 32.54% --
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
Average Commissions rate paid##................ $ .0010 -- -- -- --
-------- -------- -------- -------- --------------
-------- -------- -------- -------- --------------
</TABLE>
- ---------------
* Annualized.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The 'Average Commission Rate Paid' includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
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 Consults(Registered) Service and of the Merrill Lynch Strategic Portfolio
Advisor(Service Mark) Service, customized full service approaches to investment
management. Pursuant to the Merrill Lynch Consults(Registered) Service, Merrill
Lynch offers to assist clients in selecting and retaining, from a roster of
managers, one or more professional portfolio managers who generally emphasize
investment in United States securities. Merrill Lynch Strategic Portfolio
Advisor(Service Mark) Service is a service designed by Merrill Lynch to provide
business and individual clients with a comprehensive package of consulting,
investment and account services. Each client of Merrill Lynch
Consults(Registered) Service and Merrill Lynch Strategic Portfolio
Advisor(Service Mark) Service 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 related to the Fund as described in this Prospectus. The Fund is
intended to complement the Merrill Lynch Consults(Registered) Service and the
Merrill Lynch Strategic Portfolio Advisor(Service Mark) Service, by permitting
clients of the services 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 that
are moving in different directions are combined into a single portfolio, there
is an offsetting effect that 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 or lower
volatility than a non-diversified portfolio that invests only in 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 heavily 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. Currencies of certain foreign countries may be volatile and,
therefore, may affect the value of securities denominated in such currencies.
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 U.S. 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 that could affect investments in those
4
<PAGE>
countries. There may be less publicly available information about a foreign
company than about a United States company, and foreign companies and companies
in smaller, emerging capital markets in particular, may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States companies. As a result, traditional
investment measurements, such as price/earnings ratios, as used in the United
States, may not be applicable to certain smaller, emerging foreign capital
markets. In addition, certain foreign investments may be subject to foreign
withholding taxes. These risks often are heightened for investments in smaller,
emerging capital markets. 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 or the risk of
intermediary counter party failures 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. For example,
there may be no comparable provisions under certain foreign laws to insider
trading and similar investor protection securities laws that apply with respect
to securities transactions consummated 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 that is 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
from and capital value changes in the Fund's portfolio securities. The
investment objective of the Fund described in this paragraph is a fundamental
policy, that 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 that 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.
5
<PAGE>
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 of companies located in Western Europe and
the Far East, although the Fund may invest in capital markets throughout the
world (excluding the United States). 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 depositary receipts, including
American Depositary Receipts (ADRs) and European Depositary 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 (the 'Securities Act'), 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 of and is
ultimately responsible for such determinations.
As part of the Merrill Lynch Consults(Registered) Service, Merrill Lynch
may provide information to its clients regarding the possible change in risk
posture of a client's domestic Merrill Lynch Consults(Registered) Service
account due to an investment in the Fund. Risk classes are assigned to each
domestic Merrill Lynch Consults(Registered) 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 Consults(Registered)
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 Consults(Registered) Service account and the
Fund shares held for that account, and not for assets held in other domestic
Merrill Lynch Consults(Registered) Service accounts or outside of the Merrill
Lynch Consults(Registered) 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 that 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.
OTHER INVESTMENT PRACTICES
Portfolio Strategies Involving Indexed and Inverse Securities, Options,
Futures and Foreign Exchange Transactions. The Fund may use certain derivative
instruments, including indexed and inverse securities, options and futures,
and may purchase and sell foreign exchange. Transactions involving such
instruments expose the Fund to certain risks. The Fund's use of these
instruments and the associated risks are described in detail in the Appendix
attached to this Prospectus.
6
<PAGE>
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 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 Conduct Rules 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. The Fund's portfolio turnover rate for
the fiscal year ended October 31, 1996 was 38.16%.
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 could
experience delays and incur costs or possible losses in connection with
disposition of the collateral. 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.
Illiquid Securities. The Fund may not invest in securities that cannot be
readily resold because of legal or contractual restrictions or that 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 that the Fund has the right to put to the issuer or a
standby bank or broker and receive the principal amount of redemption price
thereof less transaction costs, on no more than seven days' notice, or
securities the Fund has the right to convert into readily marketable securities
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, Rule 144A securities, provided that the Fund's Board of
Trustees determines that such securities are liquid.
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 that 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
any such 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
7
<PAGE>
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.
--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 six individuals, five 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 of Merrill Lynch Asset Management, L.P., ('MLAM')
and its affiliate, Fund Asset Management, L.P. ('FAM'); President and
Director of Princeton Services, Inc.; Executive Vice President of
Merrill Lynch & Co., Inc. ('ML & Co.'); and Director of Merrill Lynch
Funds Distributor, Inc.
JAMES H. BODURTHA--Executive Vice President and Director, The China
Business Group, Inc.
HERBERT I. LONDON--John M. Olin Professor of Humanities, Gallatin Division
of New York University.
ROBERT R. MARTIN--Former Chairman, Kinnard Investments, Inc.
JOSEPH L. MAY--Attorney in private practice.
ANDRE F. PEROLD--Professor, Harvard Business School.
- ---------------
* Interested person, as defined by the Investment Company Act, of the Fund.
8
<PAGE>
INVESTMENT ADVISER
The Fund's investment adviser is Merrill Lynch (Suisse) Investment
Management S.A. 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 ML & Co., a financial services
holding company. Affiliates of the Investment Adviser serve as investment
adviser or investment manager to over 130 registered investment companies with
an aggregate of over $196.4 billion in assets as of January 31, 1997. As
compensation for its services to the Fund, the Investment Adviser receives a
monthly fee at the annual rate of 0.75% of the average daily net assets of the
Fund. For the fiscal year ended October 31, 1996, the fee paid by the Fund to
the Investment Adviser was $1,525,916 (based upon average net assets of
approximately $203.5 million).
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, 1996,
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 ML &
Co. ML & Co. 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.
Christine Pinto is primarily responsible for the day-to-day management of
the Fund's portfolio and has served in that capacity since 1996. She has served
as a Portfolio Manager and Deputy Manager of Merrill Lynch Bank (Suisse) S.A.
since 1993. From 1981 to 1983 she was a Senior Equity Marketing Specialist in
the Consumer Markets Group. From 1983 to 1993, she was Senior Investment
Strategist and First Vice President of the Global Research and Economics Group.
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, 1996, the ratio of total
expenses to average net assets was 2.37%.
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, 1996, the
total fee paid by the Fund to the Administrator was $508,639.
The principal address of the Administrator is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
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<PAGE>
TRANSFER AGENCY SERVICES
Merrill Lynch 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, 1996, the total fee paid by the Fund to the
Transfer Agent was $58,612.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that 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' that prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PURCHASE OF SHARES
Shares of the Fund are offered continuously for sale to clients of the
Merrill Lynch Consults(Registered) Service by Merrill Lynch Funds Distributor,
Inc., an indirect subsidiary of ML & Co., and Merrill Lynch. The minimum initial
purchase is $5,000, and the minimum subsequent purchase is $1,000. Shares of the
Fund are offered to clients of Merrill Lynch Strategic Portfolio Advisor(Service
Mark) Service on the same terms as offered to clients of Merrill Lynch
Consults(Registered) Service. Merrill Lynch Strategic Portfolio Advisor(Sercice
Mark) Service is a service designed by Merrill Lynch to provide business and
individual clients with a comprehensive package of consulting, investment and
account services.
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 ('NYSE') (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. The applicable
offering price for purchase orders is based upon the net asset value of the Fund
next 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,
10
<PAGE>
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
Consults(Registered) Service and of the Merrill Lynch Strategic Portfolio
Advisor(Service Mark) 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, 1996, the Fund paid the Distributor $2,034,555 pursuant
to the Distribution Plan, of which $1,525,916 was paid to Merrill Lynch for
providing distribution-related services and $508,639 was paid to Merrill Lynch
for providing account maintenance services to the Fund.
The payments made 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, 1996, the last
date at which such fully allocated accrual data is available, the fully
allocated accrual revenues incurred by the Distributor and Merrill Lynch since
the Fund commenced operations on September 14, 1992 exceeded expenses for such
period by approximately $998,000 (0.51% of net assets at that date). As of
October 31, 1996, direct cash revenues for the period since commencement of
operations exceeded direct cash expenses by approximately $4,600,050 (2.63% 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
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.
11
<PAGE>
The maximum sales charge rule in the National Association of Securities
Dealers, Inc. ('NASD') Conduct Rules 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. 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, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. 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 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. Normally this delay will not exceed 10 days.
REPURCHASE
The Fund 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 NYSE
(generally, 4:00 p.m., New York time), 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 NYSE, 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 NYSE 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 that 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 Consults(Registered) Service
and of Merrill Lynch Strategic Portfolio Advisor(Service Mark) Service.
Repurchases made 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.
12
<PAGE>
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 Consults(Registered) Service and
of Merrill Lynch Strategic Portfolio Advisor(Service Mark) Service. If a client
terminates the Merrill Lynch Consults(Registered) Service or the Merrill Lynch
Strategic Portfolio Advisor(Service Mark) 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 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.
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 Consults(Registered) Service and of Merrill Lynch Strategic
Portfolio Advisor(Service Mark) Service. If a client terminates the Merrill
Lynch Consults(Registered) Service or the Merrill Lynch Strategic Portfolio
Advisor(Service Mark) Service, the client's shares may be retained in the
client's Merrill Lynch brokerage account, subject to the consent of Merrill
Lynch.
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.
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 should contact
the Merrill Lynch Consults(Registered) Service or the Merrill Lynch Strategic
Portfolio Advisor(Service Mark) Service or their financial consultant, or
contact the Transfer Agent by telephone (1-800-MER-FUND) if their account is
maintained with the Transfer Agent, if they wish to elect 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.
Merrill Lynch Asset Information and Measurement(Registered) Service.
Clients of the Merrill Lynch Consults(Registered) Service and the Merrill Lynch
Strategic Portfolio Advisor(Service Mark) Service are currently provided,
without incremental charge, the Merrill Lynch Asset Information and
Measurement(Registered) Service ('AIM(Registered)'). AIM(Registered) currently
provides, through quarterly reports, the ability to monitor and evaluate
performance of a Merrill Lynch Consults(Registered) Service or Merrill Lynch
Strategic Portfolio Advisor(Service Mark) 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
13
<PAGE>
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return. Actual annual or annualized total return data
generally will be lower than average annual total return data since the average
annual rates of return reflect compounding; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over 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 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. 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. See 'Shareholder Services--Automatic Reinvestment of
Dividends and Capital Gains Distributions' for information as to how to elect
either dividend reinvestment or cash payments.
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.'
14
<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 shareholders as long-term capital gains, regardless of the length
of time a 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. If the Fund pays a dividend in January 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 Fund 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 generally 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.
Investment income 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 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, subject to certain
limitations, 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 entity 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
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
15
<PAGE>
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 gains 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.
Dividends and capital gains distributions and gains on the sale or exchange
of shares in the Fund may also be subject to state and local taxes.
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.
DETERMINATION OF NET ASSET VALUE
Net asset value per share is determined once daily 15 minutes after the
close of business on the NYSE (generally 4:00 p.m., New York time) on each day
during which the NYSE is open for trading. The net asset value per share is
computed by dividing the market 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
16
<PAGE>
Investment Adviser and the Administrator and the account maintenance fee and
distribution fee payable to the Distributor, are accrued daily.
Portfolio securities that 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 ('OTC') market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Securities that are traded both in the OTC market and on a stock
exchange will be valued according to the broadest and most representative
market. Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Securities and assets for which market quotations
are not readily available are valued at fair market value as determined in good
faith by or under the direction of the 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. 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 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.
17
<PAGE>
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:
Merrill Lynch Financial Data Services, Inc.
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 Merrill Lynch 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.
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<PAGE>
APPENDIX
PORTFOLIO STRATEGIES INVOLVING INDEXED AND INVERSE SECURITIES,
OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
The Fund is authorized to use certain derivative instruments, including
indexed and inverse securities, options and futures, and to purchase and sell
foreign exchange, as described below. Such instruments, which may be regarded as
derivatives, are referred to collectively herein as 'Strategic Instruments.'
Indexed and Inverse Securities
The Fund may invest in securities the potential return of which is based on
the change in particular measurements of value or rate (an 'index'). In
particular, the Fund may invest in securities the values of which are indexed to
the market values of equity securities, indices of equity securities, currencies
or currency units. As an illustration, the Fund may invest in a debt security
that pays interest and returns principal based on the change in the value of an
equity securities index or a basket of equity securities, or based on the
relative changes of two equity securities indices. In addition, the Fund may
invest in securities the potential return of which is based inversely on the
change in an index. For example, the Fund may invest in securities that pay a
higher rate of interest when a particular index decreases and pay a lower rate
of interest (or do not fully retain principal) when the value of the index
increases. If the Fund invests in such securities, it may be subject to
reduced or eliminated interest payments or loss of principal in the event of an
adverse movement in the relevant index or indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the changes in the
relevant index. As a consequence, the market value of such securities may be
substantially more volatile than the market values of other debt securities. The
Fund believes that indexed securities may provide portfolio management
flexibility that permits the Fund to seek enhanced returns, hedge other
portfolio positions or vary the degree of portfolio leverage with greater
efficiency than would otherwise be possible under certain market conditions.
Options on Securities and Securities Indices
Purchasing Options. For hedging purposes the Fund is authorized to
purchase put options on securities held in its portfolio or on securities
indices, the performance of which is substantially correlated with securities
held in its portfolio. When the Fund purchases a put option, in consideration
for an upfront payment (the 'option premium') the Fund acquires a right to sell
to another party specified securities owned by the Fund at a specified price
(the 'exercise price') on or before a specified date (the 'expiration date'), in
the case of an option on securities, or to receive from another party a payment
based on the amount a specified securities index declines below a specified
level on or before the expiration date, in the case of an option on a securities
index. The purchase of a put option limits the Fund's risk of loss in the event
of a decline in the market value of the portfolio holdings underlying the put
option prior to the option's expiration date. If the market value of the
portfolio holdings associated with the put option increases rather than
decreases, however, the Fund will lose the option premium and will consequently
realize a lower return on the portfolio holdings than would have been realized
without the purchase of the put.
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<PAGE>
For hedging purposes, the Fund is also authorized to purchase call options
on securities indices, the performance of which substantially correlates with
the performance of the types of securities it intends to purchase. When the Fund
purchases a call option on a securities index, in consideration for the option
premium the Fund acquires a right to receive from another party a payment based
on the amount a specified securities index increases beyond a specified level on
or before the expiration date. The purchase of a call option on an index may
protect the Fund from the risks associated with attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive (an
'anticipatory hedge').
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Options. The Fund is authorized to write (i.e., sell) call options
on securities held in its portfolio or securities indices, the performance of
which is substantially correlated with securities held in its portfolio. When
the Fund writes a call option, in return for an option premium the Fund gives
another party the right to buy specified securities owned by the Fund at the
exercise price on or before the expiration date, in the case of an option on
securities, or agrees to pay to another party an amount based on any gain in a
specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write call
options on securities to earn income, through the receipt of option premiums.
The Fund may write call options on securities for hedging purposes. In the event
the party to which the Fund has written an option fails to exercise its rights
under the option because the value of the underlying securities is less than the
exercise price, the Fund will partially offset any decline in the value of the
underlying securities through the receipt of the option premium. By writing a
call option, however, the Fund limits its ability to sell the underlying
securities, and gives up the opportunity to profit from any increase in the
value of the underlying securities beyond the exercise price, while the option
remains outstanding.
The Fund may also write put options on securities indices for hedging
purposes. When the Fund writes a put option on a securities index, in return for
an option premium the Fund agrees to pay to another party an amount based on any
decline in a specified securities index below a specified level on or before the
expiration date. In the event the party to which the Fund has written an option
fails to exercise its rights under the option because the value of the
securities index has not declined below the specified level on or before the
expiration date, the Fund will profit by the amount of the option premium.
However, by writing a put option on the index, the Fund will be obligated to
make a cash payment reflecting any decline in the index. Accordingly, when the
Fund writes a put option it is exposed to a risk of loss in the event the value
of the underlying index falls below the specified price, which loss potentially
may substantially exceed the amount of option premium received by the Fund for
writing the put option. The Fund will write a put option on a securities index
only if the Fund is writing the put in connection with trading strategies
involving combinations of options (for example the sale and purchase of options
with identical expiration dates on the same index but different exercise
prices--a technique called a 'spread').
The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are 'covered.' A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in 'Risk Factors in Options, Futures and Currency Instruments'
below. A call
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<PAGE>
option will also be considered covered if the Fund owns the securities it would
be required to deliver upon exercise of the option (or, in the case of an option
on a securities index, securities that substantially replicate the performance
of such index) or owns a call option, warrant or convertible instrument that is
immediately exercisable for, or convertible into, such security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
('OTC') markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater risk of counterparty default. See 'Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments' below.
Futures
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of a commodity at
a specified future date at a specified price. No price is paid upon entering
into a futures contract. Rather, upon purchasing or selling a futures contract
the Fund is required to deposit collateral ('margin') equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying commodity
is a currency or securities or interest rate index) purchased or sold for
hedging purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a 'commodity pool' under regulations of the
Commodity Futures Trading Commission.
21
<PAGE>
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions,
purchase and sell options on currencies and purchase and sell currency futures
and related options thereon (collectively, 'Currency Instruments') for purposes
of hedging against possible variations in foreign exchange rates. Such
transactions may be affected with respect to hedges on non-U.S. dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by
purchasing a currency in which the Fund anticipates acquiring a
portfolio position in the near future.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See 'Futures' above.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See 'Types of Options' above and 'Additional
Risk Factors of OTC Transactions; Limitations on the Use of OTC Strategic
Instruments' below.
The Fund will not speculate in Currency Instruments. Accordingly, the Fund
will not hedge a currency in excess of the aggregate market value of the
securities that it owns (including receivables for unsettled securities sales),
or has committed to or anticipates purchasing, that are denominated in such
currency.
Risk Factors in Hedging Foreign Currency Risks. While the Fund's use of
Currency Instruments to effect hedging strategies is intended to reduce the
volatility of the net asset value of the Fund's shares, the net asset value of
the Fund's shares will fluctuate. Moreover, although Currency Instruments will
be used with the intention of hedging against adverse currency movements,
transactions in Currency Instruments involve the risk that anticipated currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements that do not occur, the Fund may realize losses,
and decrease its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency
exchange rates occur. It may not be possible for the Fund to hedge against
currency exchange rate movements, even if correctly anticipated, in the event
that (i) the currency exchange rate movement is so generally anticipated that
the Fund is not able to enter into a hedging transaction at an effective price,
or (ii) the
22
<PAGE>
currency exchange rate movement relates to a market with respect to which
Currency Instruments are not available (such as certain developing markets) and
it is not possible to engage in effective foreign currency hedging.
Risk Factors in Options, Futures and Currency Instruments
Use of Strategic Instruments for hedging purposes involves the risk of
imperfect correlation in movements in the value of the Strategic Instruments and
the value of the instruments being hedged. If the value of the Strategic
Instruments moves more or less than the value of the hedged instruments, the
Fund will experience a gain or loss that will not be completely offset by
movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Strategic Instruments
only if there appears to be a liquid secondary market for such instruments or,
in the case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under 'Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Strategic Instruments.' However,
there can be no assurance that, at any specific time, either a liquid secondary
market will exist for a Strategic Instrument or the Fund will otherwise be able
to sell such instrument at an acceptable price. It may, therefore, not be
possible to close a position in a Strategic Instrument without incurring
substantial losses, if at all.
Certain transactions in Strategic Instruments (e.g., forward foreign
exchange transactions, futures transactions, sales of put options) may expose
the Fund to potential losses that exceed the amount originally invested by the
Fund in such instruments. When the Fund engages in such a transaction, the Fund
will deposit in a segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Securities and
Exchange Commission). Such segregation will ensure that the Fund has assets
available to satisfy its obligations with respect to the transaction, but will
not limit the Fund's exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Strategic Instruments
Certain Strategic Instruments traded in OTC markets, including indexed
securities and OTC options, may be substantially less liquid than other
instruments in which the Fund may invest. The absence of liquidity may make it
difficult or impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more difficult for
the Fund to ascertain a market value for such instruments. The Fund will
therefore acquire illiquid OTC instruments (i) if the agreement pursuant to
which the instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the Investment Adviser
anticipates the Fund can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.
The staff of the Securities and Exchange Commission has taken the position
that purchased OTC options and the assets underlying written OTC options are
illiquid securities. The Fund has therefore 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 that are held by the Fund,
the market value of the securities underlying OTC call options currently
outstanding that have been sold by the Fund and margin deposits on the Fund's
outstanding OTC options exceed 15% of the total assets of the Fund, taken at
market value, together with all other assets of the Fund that are deemed to be
illiquid or are otherwise not readily marketable.
23
<PAGE>
Because Strategic Instruments traded in OTC markets are not guaranteed by
an exchange or clearing corporation and generally do not require payment of
margin, to the extent that the Fund has unrealized gains in such instruments or
has deposited collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will become
bankrupt or otherwise fail to honor its obligations by engaging in transactions
in Strategic Instruments traded in OTC markets only with financial institutions
that have substantial capital or that have provided the Fund with a third-party
guaranty or other credit enhancement.
Additional Limitations on the Use of Strategic Instruments
The Fund may not use any Strategic Instrument to gain exposure to an asset
or class of assets that it would be prohibited by its investment restrictions
from purchasing directly.
24
<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 9081
Princeton, New Jersey 08536-9081
ADMINISTRATOR
Princeton Administrators, LP
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08536-9011
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32246-6484
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
202 Carnegie Center
Princeton, New Jersey 08543-5321
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table...................................... 2
Financial Highlights........................... 3
Risks and Special Considerations............... 4
Investment Objective and Policies.............. 5
Other Investment Practices................... 6
Investment Restrictions...................... 8
Management of the Fund......................... 8
Board of Trustees............................ 8
Investment Adviser........................... 9
Administrator................................ 9
Transfer Agency Services..................... 10
Code of Ethics............................... 10
Purchase of Shares............................. 10
Distribution Plan............................ 11
Redemption of Shares........................... 12
Redemption................................... 12
Repurchase................................... 12
Shareholder Services........................... 13
Performance Data............................... 13
Additional Information......................... 14
Dividends and Distributions.................. 14
Taxes........................................ 15
Determination of Net Asset Value............. 16
Organization of the Fund..................... 17
Shareholder Reports.......................... 18
Shareholder Inquiries........................ 18
Appendix--Options, Futures and Foreign Exchange
Transactions................................. 19
</TABLE>
Prospectus
[LOGO]
- ------------------------------------------------------
MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
INVESTMENT ADVISER:
MERRILL LYNCH (SUISSE) INVESTMENT MANAGEMENT S.A.
February 21, 1997
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 o PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Consults International Portfolio, a Massachusetts business
trust (the 'Fund'), is a diversified, open-end management investment company,
that seeks the highest total investment return that is 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 Consults(Registered)
Service and of the Merrill Lynch Strategic Portfolio Advisor(Service Mark)
Service. The Fund is designed for Merrill Lynch Consults(Registered) Service and
Merrill Lynch Strategic Portfolio Advisor(Service Mark) 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 21, 1997 (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 listed 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 21, 1997.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek the highest total
investment return that is 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, any effects of 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
depositary receipts, including American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), or other
securities convertible into securities of foreign issuers. Depositary 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 that evidence ownership of underlying securities issued by
a foreign corporation. EDRs are receipts issued in Europe that 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.
HEDGING TECHNIQUES
Reference is made to the Appendix to the Prospectus for information with
respect to various portfolio strategies involving indexed and inverse
securities, options, futures and foreign exchange transactions. 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
2
<PAGE>
futures transactions and forward foreign exchange transactions. Although certain
risks are involved in options and futures transactions (as discussed in the
Appendix to 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.
Options on Securities and Securities Indices. The Fund may write (i.e.,
sell) covered call options on the equity securities in which it may invest or on
securities indices, the performance of which is substantially correlated with
the securities held in the Fund's portfolio. In addition, the Fund may write put
options on securities indices. These transactions are described more fully in
the Appendix to the Prospectus. The following is further information regarding
covered call options. 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 on securities held in its portfolio
or securities indices the performance of which is substantially correlated with
securities held in its portfolio. The Fund may also purchase call options on
securities indices. These transactions are described more fully in the Appendix
to the Prospectus.
Futures. As described in the Appendix to the Prospectus, the Fund will
limit transactions in futures and options on futures to financial futures
contracts (i.e., contracts for which the underlying commodity is a currency, or
securities or interest rate index) purchased or sold for hedging purposes. See
the Appendix to the Prospectus. Set forth is further information concerning
futures transactions.
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 that 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 less than 10% 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 that
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
3
<PAGE>
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.
Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash, basis at the
spot rate then prevailing for purchasing or selling currency in the foreign
exchange market. Under normal market conditions, this rate 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 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 Appendix to 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
4
<PAGE>
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.
Risk Factors in Options, Futures and Currency 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 that
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
that will not be completely offset by movements in the price of the currency
that 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 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 held by the Fund
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) that may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). 'Trading limits' are imposed on the maximum number of contracts that
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found
5
<PAGE>
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.
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.
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.
6
<PAGE>
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.
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.
An additional investment restriction adopted by the Fund, which may be
changed by the Board of Trustees without the approval of shareholders, provides
that the Fund may not:
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.
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 that will be
maintained in an amount equal to at
7
<PAGE>
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.
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.
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 (64)--President and Trustee (1)(2)--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; President of Fund Asset Management, L.P. ('FAM') (which term as used
herein includes its corporate predecessors) since 1977; President and Director
of Princeton Services, Inc. ('Princeton Services') since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ('ML & Co.') since 1990; Director of
Merrill Lynch Funds Distributor, Inc. (the'Distributor') since 1977.
8
<PAGE>
JAMES H. BODURTHA (53)--Trustee (2)--36 Popponesset Road, Cotuit,
Massachusetts 02635. Director and Executive Vice President, The China Business
Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT I. LONDON (57)--Trustee (2)--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; Limited Partner, Hypertech, L.P., 1976.
ROBERT R. MARTIN (69)--Trustee (2)--513 Grand Hill, St. Paul, Minnesota
55102. 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; Chairman of the Board, WTC Industries,
Inc. in 1994; Trustee, Northland College since 1992.
JOSEPH L. MAY (67)--Trustee (2)--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 (44)--Trustee (2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School since 1989 and Associate
Professor from 1983 to 1989; Trustee, The Common Fund, since 1989; Director,
Quantec Limited since 1991, and TIBCO from 1994 to 1996.
TERRY K. GLENN (56)--Executive Vice President (1)(2)--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; President of Princeton Administrators, L.P. since 1988.
DONALD C. BURKE (36)--Vice President (1)(2)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1981 to
1990.
CHRISTINE L. PINTO (37)--Vice President (1)--Portfolio Manager and Deputy
Manager of Merrill Lynch Bank (Suisse) S.A. since 1993; Senior Investment
Strategist and First Vice President of the Global Research and Economics Group,
from 1983 to 1993.
GERALD M. RICHARD (47)--Treasurer (1)(2)--Senior Vice President and
Treasurer of FAM and MLAM since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Treasurer of the Distributor since 1984, Vice
President since 1981 and employee of the Distributor since 1978.
MARK B. GOLDFUS (50)--Secretary (1)(2)--Vice President of MLAM since 1985.
- ------------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of other
investment companies for which MLAM or FAM acts as Investment Adviser.
9
<PAGE>
As of January 31, 1997, the officers and Trustees of the Fund as a group
(11 persons) owned an aggregate of less than 1% of the outstanding shares of
common stock of ML & Co. 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 (each
a 'non-interested Trustee') 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-interested Trustees, $500 per year
plus $125 for each meeting attended. For the fiscal year ended October 31, 1996,
fees and expenses paid to the non-interested Trustees aggregated $23,708.
COMPENSATION OF TRUSTEES
The following table sets forth, for the fiscal year ended October 31, 1996,
compensation paid by the Fund to the non-interested Trustees, and, for the
calendar year ended December 31, 1996, 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 OR 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>
James H. Bodurtha 4,500 None 148,500
Herbert I. London 4,500 None 148,500
Robert R. Martin 4,500 None 148,500
Joseph L. May 4,500 None 148,500
Andre F. Perold 4,500 None 148,500
</TABLE>
- ------------------
<TABLE>
<S> <C>
(1) The Trustees serve on the boards of FAM/MLAM Advised Funds as follows: Mr. Bodurtha (22 registered investment
companies consisting of 46 portfolios); Mr. London (22 registered investment companies consisting of 46
portfolios); Mr. Martin (22 registered investment companies consisting of 46 portfolios); Mr. May (22
registered investment companies consisting of 46 portfolios); and Mr. Perold (22 registered investment
companies consisting of 46 portfolios).
</TABLE>
10
<PAGE>
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.
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 years ended October 31, 1994, 1995 and 1996, the total
management fees paid by the Fund to the Investment Adviser were $1,770,022,
$1,644,757 and $1,525,916, respectively.
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 years ended October 31, 1994, 1995
and 1996, 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
ML & Co., a financial services holding company. ML & Co. 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.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services to the Fund 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 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.'
11
<PAGE>
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 60
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').
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,
12
<PAGE>
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, 1996, the Fund paid the Distributor $2,034,555 pursuant to the
Distribution Plan, of which $508,639 was paid to Merrill Lynch for providing
account maintenance services and $1,525,916 was paid to Merrill Lynch for
providing distribution-related services to the Fund.
The maximum sales charge rule in the National Association of Securities
Dealers, Inc. ('NASD') Conduct Rules 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.
The following table sets forth comparative information as of October 31,
1996 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, 1996.
DATA CALCULATED AS OF OCTOBER 31, 1996
(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....................... $360,599 $22,537 $ 5,025 $27,562 $5,341 $22,221 $1,312
Under Distributor's
Voluntary
Waiver........................... $360,599 $22,537 $ 1,803 $24,340 $5,341 $18,999 $1,312
</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.
13
<PAGE>
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.
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 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
14
<PAGE>
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 Conduct
Rules 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.
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 depositary
receipts, including ADRs or EDRs, or GDRs, or securities convertible into
foreign equity securities. Depositary 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 ('OTC')
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. For the fiscal year ended October 31, 1996, the Fund paid
total brokerage commissions of $528,752, of which $107,010 or approximately
20.2% was paid to Merrill Lynch for effecting transactions involving 20.1% of
the aggregate amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended October 31, 1995, the Fund paid total
brokerage of $471,006, of which $72,382, or approximately 15.5%, was paid to
Merrill Lynch for effecting transactions
15
<PAGE>
involving 15.1% of the aggregate amount of transactions in which the Fund paid
brokerage commissions. 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.
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, the Fund's 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, 1996 and 1995 the rates
of portfolio turnover were 38.16% and 17.31%, respectively.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily
Monday through Friday as of 15 minutes after the close of business on the New
York Stock Exchange ('NYSE') (generally, 4:00 p.m., New York time) on each day
during which the NYSE is open for trading. The NYSE 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 depositary receipts, that 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 OTC market
are valued at the last available bid price in the OTC market prior to the time
of valuation. Securities that are traded both in the OTC market and on a stock
exchange will be valued according to the broadest and most representative
market. Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price.
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 NYSE. 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 NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of the NYSE 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.
16
<PAGE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services, described below, that 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 Consults(Registered) Service and of the Merrill Lynch
Strategic Portfolio Advisor(Service Mark) Service. Shareholders will receive
statements of dividends and capital gains distributions.
If a client terminates the Merrill Lynch Consults(Registered) Service or
the Merrill Lynch Strategic Portfolio Advisor(Service Mark) 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
should contact the Merrill Lynch Consults(Registered) Service or the Merrill
Lynch Strategic Portfolio Advisor (Service Mark) Service or their financial
consultant, or the Transfer Agent by telephone (1-800-MER-FUND) if they
wish to elect 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.
MERRILL LYNCH ASSET INFORMATION AND MEASUREMENT(REGISTERED) SERVICE
Clients of the Merrill Lynch Consults(Registered) Service and of the
Merrill Lynch Strategic Portfolio Advisor(Service Mark) Service are currently
provided, without incremental charge, the Merrill Lynch Asset Information and
Measurement(Registered) Service ('AIM(Registered)'). AIM(Registered) currently
provides, through quarterly reports, the ability to monitor and evaluate
performance of their Merrill Lynch Consults(Registered) Service or Merrill Lynch
Strategic Portfolio Advisor(Service Mark) 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 that 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
even though reinvested in Fund shares. 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, and even though reinvested in 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. It is not expected that any portion of
the dividends paid by the Fund will be eligible for the corporate
dividends received deduction. If the Fund pays a dividend that was declared in
the previous October, November or December to shareholders of record in
17
<PAGE>
such a month, then such dividend or distribution will be treated for tax
purposes as being paid by the Fund and received by its shareholders on December
31 of the year in which the dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens generally 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.
Investment income 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 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, subject to certain
restrictions, 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 entity 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.
When you sell shares in the Fund, you may realize a gain or loss. A loss
realized on a sale of shares of the Fund will be disallowed if other Fund shares
are acquired (whether through the automatic reinvestment of dividends or
otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
The 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
18
<PAGE>
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 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. Similarly, Code Section 1091, which deals
with 'wash sales,' may cause the Fund to postpone recognition of certain losses
for tax purposes; and Code Section 1258, which deals with 'conversion
transactions,' may apply to recharacterize certain capital gains as ordinary
income for tax purposes.
One of the requirements for qualification as a RIC is that no more
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.
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
19
<PAGE>
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 and gains on the sale or exchange
of shares of the Fund 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.
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.
20
<PAGE>
Set forth is total return information for shares of the Fund for the period
indicated.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD
- ---------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
One Year Ended October 31, 1996....................................... 5.93% $ 1,059.30
Inception (September 14, 1992) to October 31, 1996.................... 7.38% $ 1,341.70
<CAPTION>
FOR YEAR ENDED OCTOBER 31, ANNUAL TOTAL RETURN
- ----------------------------------------------------------------------
<S> <C> <C>
1996.................................................................. 5.93% $ 1,059.30
1995.................................................................. (1.68)% $ 983.20
1994.................................................................. 9.74% $ 1,097.40
1993.................................................................. 22.29% $ 1,222.90
Inception (September 14, 1992) to October 31, 1992.................... (4.00)% $ 960.00
AGGREGATE TOTAL RETURN
Inception (September 14, 1992) to October 31, 1996.................... 34.17% $ 1,341.70
</TABLE>
21
<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. 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.
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, 1996, is calculated as follows:
<TABLE>
<S> <C>
Net Assets.................................................................... $174,920,721
------------
------------
Number of Shares Outstanding.................................................. 14,467,493
------------
------------
Net Asset Value Per Share (net assets divided by number of shares
outstanding)................................................................ $ 12.09
Sales Charge.................................................................. none
------------
Offering Price................................................................ $ 12.09
------------
------------
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP, 202 Carnegie Center, Princeton, New Jersey 08543-5321,
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
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32232-5289, acts as the Fund's 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.
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 February 1, 1997.
------------------------
23
<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, 1996, 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 Fund'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, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1996, 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 financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Princeton, New Jersey
December 11, 1996
24
<PAGE>
[This page intentionally left blank]
25
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Banking 197,990 Banco de Galicia y Buenos Aires
S.A. de C.V. (ADR)* $ 3,179,597 $ 3,588,563 2.1%
Oil & Related 80,000 YPF S.A. (ADR)* 1,986,842 1,820,000 1.0
Total Investments in Argentinean Stocks 5,166,439 5,408,563 3.1
Brazil Electric 32,000,000 Companhia Energetica de Minas Gerais
Utilities (CEMIG) (Preferred) 949,891 1,018,592 0.6
Oil & Related 10,000,000 Petroleo Brasileiro S.A. (Petrobras)
(Preferred) 1,269,912 1,294,656 0.7
Steel 458,000,000 Usinas Siderurgicas de Minas Gerais
S.A.--USIMINAS (Preferred) 500,967 481,495 0.3
Total Investments in Brazilian Stocks 2,720,770 2,794,743 1.6
Mexico Building & 600,000 Cemex S.A. 2,320,739 2,158,058 1.2
Construction 175,000 ++Empresas ICA Sociedad Controladora,
S.A. de C.V. (ADR)* 2,646,374 2,275,000 1.3
------------ ------------ ------
4,967,113 4,433,058 2.5
Retail 1,000,000 ++Cifra, S.A. de C.V. (Series B) 1,409,966 1,279,403 0.7
Transportation 150,000 Transportacion Maritima Mexicana,
S.A. de C.V. (ADR)* 1,352,126 1,050,000 0.6
Total Investments in Mexican Stocks 7,729,205 6,762,461 3.8
Total Investments in Latin America 15,616,414 14,965,767 8.5
NORTH
AMERICA
Canada Metals 132,700 Noranda, Inc. 2,176,720 2,919,420 1.7
Oil & Related 56,000 Norcen Energy Resources Ltd. 978,027 1,198,598 0.7
Total Investments in North America 3,154,747 4,118,018 2.4
<PAGE>
PACIFIC
BASIN
Australia Metals 277,200 Broken Hill Proprietary, Ltd. 2,767,090 3,679,657 2.1
Publishing 560,000 News Corporation, Ltd. (Ordinary) 2,410,336 3,186,484 1.8
Total Investments in Australian Stocks 5,177,426 6,866,141 3.9
Hong Kong Banking 200,000 HSBC Holdings PLC 3,480,157 4,074,242 2.3
Building & 560,000 ++Road King Infrastructure Ltd. 481,566 409,235 0.2
Construction
Diversified 700,000 Guangdong Investments 498,152 502,490 0.3
Railroads 1,250,000 ++Guangshen Railway Co., Ltd. (Series H) 469,278 464,819 0.3
Real Estate 1,600,000 Guangzhou Investment Co., Ltd. 488,755 517,364 0.3
350,000 Sun Hung Kai Properties Ltd. 3,394,752 3,983,703 2.3
------------ ------------ ------
26
<PAGE>
3,883,507 4,501,067 2.6
Telecommunications 1,100,000 Hong Kong Telecommunications, Ltd. 2,251,729 1,942,055 1.1
Total Investments in Hong Kong Stocks 11,064,389 11,893,908 6.8
Japan Apparel 200,000 Tokyo Style Co., Ltd. 3,475,066 3,041,758 1.8
700,000 Toray Industries, Inc. 5,212,767 4,227,692 2.4
------------ ------------ ------
8,687,833 7,269,450 4.2
Automobile & 33,000 Autobacs Seven Co., Ltd. 2,696,558 2,605,187 1.5
Equipment 200,000 Yamaha Motors Co., Ltd. 1,779,524 1,793,407 1.0
------------ ------------ ------
4,476,082 4,398,594 2.5
Banking 70,000 Sanwa Bank, Ltd. 1,375,997 1,193,846 0.7
Beverage 220,000 Kirin Brewery Co., Ltd. 2,688,369 2,262,857 1.3
Chemicals 460,000 Mitsui Petrochemical Industries, Ltd. 2,891,381 2,794,374 1.6
100,000 Nippon Shokubai K.K. Co. 1,032,405 833,407 0.5
------------ ------------ ------
3,923,786 3,627,781 2.1
Electrical 435,000 Hitachi, Ltd. 3,600,724 3,862,418 2.2
Equipment
Electronics 30,000 Advantest Corporation 1,405,160 1,134,066 0.7
200,000 Matsushita Electric Industrial
Co., Ltd. 3,029,307 3,200,000 1.8
90,000 Omron Corp. 1,821,396 1,606,154 0.9
------------ ------------ ------
6,255,863 5,940,220 3.4
<PAGE>
Financial Services 213,000 Nomura Securities Co., Ltd. 4,746,603 3,520,352 2.0
Household Products 200,000 Kao Corp. 2,272,637 2,356,044 1.4
Insurance 572,000 Nippon Fire & Marine Insurance Co., Ltd. 4,139,948 3,017,143 1.7
Machinery 195,000 Makita Corporation 3,008,235 2,674,286 1.5
300,000 Mitsubishi Heavy Industries, Ltd. 1,925,590 2,307,692 1.3
------------ ------------ ------
4,933,825 4,981,978 2.8
Merchandising 50,000 Ito-Yokado Co., Ltd. 2,465,299 2,496,703 1.4
Metals 1,400,000 Sumitomo Metal Industries, Ltd. 4,064,328 3,852,308 2.2
Paper & Forest 200,000 Hokuetsu Paper Mills, Ltd. 1,869,114 1,403,077 0.8
Products
Printing 100,000 Dai Nippon Printing, Ltd. 1,786,645 1,687,912 1.0
Total Investments in Japanese Stocks 57,287,053 51,870,683 29.7
Malaysia Conglomerates 700,000 Land & General BHD 1,748,183 1,524,149 0.9
1,200,000 Sime Darby BHD 2,737,495 4,251,781 2.4
Total Investments in Malaysian Stocks 4,485,678 5,775,930 3.3
South Electric Utilities 15,000 Korea Electric Power Corp. 501,209 442,354 0.3
Korea
Natural Gas Utilities 15,000 ++Seoul City Gas Co., Ltd. 1,211,976 1,101,335 0.6
Total Investments in South Korean Stocks 1,713,185 1,543,689 0.9
</TABLE>
27
<PAGE>
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
PACIFIC BAISIN Shares Value Percent of
(concluded) Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Thailand Agriculture 333,000 Charoen Pokphand Feedmill Co., Ltd. $ 1,608,648 $ 1,293,432 0.7%
Banking 120,000 Bangkok Bank Co., Ltd. (Foreign) 1,380,245 1,280,603 0.7
Building Materials 40,000 Siam Cement PLC (Foreign) 2,114,965 1,368,487 0.8
Total Investments in Thai Stocks 5,103,858 3,942,522 2.2
Total Investments in the Pacific Basin 84,831,589 81,892,873 46.8
<PAGE>
WESTERN
EUROPE
France Advertising 52,000 Havas S.A. 4,140,514 3,418,615 1.9
Oil & Related 60,000 Elf Aquitaine S.A. (a) 4,473,191 4,802,067 2.8
Total Investments in French Stocks 8,613,705 8,220,682 4.7
Germany Banking 80,000 Bayerische Hypotheken-und
Wechsel-Bank AG 2,083,007 2,344,855 1.3
Chemicals 150,000 BASF AG 3,915,994 4,798,097 2.7
Conglomerates 2,500 Preussag AG 740,731 602,406 0.4
Utility 63,000 Veba AG 2,049,098 3,362,970 1.9
Total Investments in German Stocks 8,788,830 11,108,328 6.3
Italy Building 230,000 Italcementi S.p.A. 1,496,298 1,219,111 0.7
Materials
Office Equipment 2,000,000 ++Olivetti Group S.p.A. 1,258,718 581,832 0.3
Telecommunications 1,280,000 Societa Finanziara Telefonica
S.p.A. (STET) 3,430,286 4,424,566 2.5
Total Investments in Italian Stocks 6,185,302 6,225,509 3.5
Netherlands Electronics 80,000 Philips Electronics N.V. 3,142,684 2,820,256 1.6
Total Investments in Netherlands Stocks 3,142,684 2,820,256 1.6
Norway Medical Supplies 100,000 ++Nycomed ASA 'B' Shares 1,653,191 1,348,681 0.8
Shipbuilding 105,000 Kvaerner A.S. 'B' Shares 5,085,432 3,655,553 2.1
Total Investments in Norwegian Stocks 6,738,623 5,004,234 2.9
Spain Oil & Related 100,000 Repsol S.A. 3,109,463 3,267,179 1.9
Total Investments in Spanish Stocks 3,109,463 3,267,179 1.9
Sweden Household Appliances 50,000 Electrolux AB 2,397,099 2,786,873 1.6
Machinery 50,000 Atlas Copco AB (Class A) 919,997 1,035,559 0.6
Metals 55,000 SKF AB 1,072,657 1,218,686 0.7
<PAGE>
Total Investments in Swedish Stocks 4,389,753 5,041,118 2.9
Switzerland Banking 20,000 CS Holding AG (Registered) 2,102,399 2,004,923 1.2
28
<PAGE>
Foods 1,400 Nestle S.A. (Registered) 1,564,148 1,526,282 0.9
Pharmaceuticals 1,750 Ciba-Geigy AG (Registered) 997,359 2,163,530 1.2
Total Investments in Swiss Stocks 4,663,906 5,694,735 3.3
United Beverage 410,000 Grand Metropolitan PLC (Ordinary) 2,663,875 3,091,109 1.8
Kingdom
Consumer & 100,000 Williams Holdings PLC 520,578 590,456 0.3
Industrial
Products
Entertainment & 320,000 Rank Organisation PLC 2,323,790 2,126,291 1.2
Leisure
Machinery 280,000 Siebe PLC (Ordinary) 2,276,580 4,390,519 2.5
Natural Gas 790,000 British Gas PLC (Ordinary) 3,018,263 2,454,377 1.4
Utilities
Retail 400,000 Boots Company PLC 3,588,607 4,079,513 2.3
Telecommunications 650,000 British Telecommunications PLC 4,044,346 3,758,666 2.2
Total Investments in United Kingdom
Stocks 18,436,039 20,490,931 11.7
Total Investments in Western Europe 64,068,305 67,872,972 38.8
SHORT-TERM Face
SECURITIES Amount
United Commercial $ 8,222,000 General Electric Capital Corp., 5.56%
States Paper** due 11/01/1996 8,222,000 8,222,000 4.7
Total Investments in Short-Term
Securities 8,222,000 8,222,000 4.7
Total Investments $175,893,055 177,071,630 101.2
============
Liabilities in Excess of Other Assets (2,150,909) (1.2)
------------ ------
Net Assets $174,920,721 100.0%
============ ======
<FN>
++Non-income producing security.
*American Depositary Receipts (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.
(a)Name changed from Societe Nationale Elf Aquitaine (Ordinary).
See Notes to Financial Statements.
</FN>
</TABLE>
29
<PAGE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of October 31, 1996
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$175,893,055) (Note 1a) $177,071,630
Cash 754
Foreign cash (Note 1b) 203
Receivables:
Forward foreign exchange contracts (Note 1c) $ 3,290,832
Dividends 490,435
Beneficial interest sold 364,660 4,145,927
------------
Deferred organization expenses (Note 1f) 22,761
Prepaid registration fees and other assets (Note 1f) 7,386
------------
Total assets 181,248,661
------------
Liabilities: Payables:
Beneficial interest redeemed 3,266,564
Forward foreign exchange contracts (Note 1c) 2,108,106
Securities purchased 428,976
Distributor (Note 2) 156,197
Investment adviser (Note 2) 117,148
Administration fee (Note 2) 39,049
Commissions 33,533 6,149,573
------------
Accrued expenses and other liabilities 178,367
------------
Total liabilities 6,327,940
------------
Net Assets: Net assets $174,920,721
============
Net Assets Common shares of beneficial interest, $.10 par value, unlimited
Consist of: number of shares authorized $ 1,446,749
Paid-in capital in excess of par 162,691,515
Accumulated investment loss--net (8,950,726)
Accumulated distributions in excess of investment income--net (Note 1g) (6,862,242)
Undistributed realized capital gains on investments and foreign
currency transactions--net 25,418,173
Unrealized appreciation on investments and foreign currency
transactions--net 1,177,252
------------
Net assets--Equivalent to $12.09 per share based on 14,467,493
shares of beneficial interest outstanding $174,920,721
============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1996
<S> <C> <C> <C>
Investment Dividends (net of $510,102 foreign withholding tax) $ 3,523,394
Income Interest and discount earned 449,734
(Notes 1d & 1e): ------------
Total income 3,973,128
------------
Expenses: Account maintenance and distribution fees (Note 2) $ 2,034,555
30
<PAGE>
Investment advisory fees (Note 2) 1,525,916
Administration fees (Note 2) 508,639
Custodian fees 166,482
Professional fees 68,843
Accounting services (Note 2) 68,830
Registration fees (Note 1f) 65,765
Transfer agent fees (Note 2) 58,612
Printing and shareholder reports 28,245
Amortization of organization expenses (Note 1f) 26,606
Trustees' fees 23,708
Pricing fees 12,973
Other 245,589
------------
Total expenses 4,834,763
------------
Investment loss--net (861,635)
------------
Realized & Realized gain from:
Unrealized Gain Investments--net 5,997,007
(Loss) on Foreign currency transactions--net 19,432,739 25,429,746
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (202,476)
(Notes 1b, 1c, Foreign currency transactions--net (12,470,140) (12,672,616)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 12,757,130
------------
Net Increase in Net Assets Resulting from Operations $ 11,895,495
============
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <C> <C> <C>
Operations: Investment loss--net $ (861,635) $ (897,752)
Realized gain on investments and foreign currency
transactions--net 25,429,746 102,593
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (12,672,616) (8,175,491)
------------ ------------
Net increase (decrease) in net assets resulting from operations 11,895,495 (8,970,650)
------------ ------------
Dividends & In excess of investment income--net (6,862,242) --
Distributions to Realized gain on investments--net (7,287,890) (6,621,521)
Shareholders ------------ ------------
(Note 1g):
Beneficial Net decrease in net assets resulting from dividends and
Interest distributions to shareholders (14,150,132) (6,621,521)
Transactions ------------ ------------
(Note4): Net decrease in net assets derived from beneficial
interest transactions (19,901,777) (59,817,607)
------------ ------------
Net Assets: Total decrease in net assets (22,156,414) (75,409,778)
Beginning of year 197,077,135 272,486,913
------------ ------------
End of year $174,920,721 $197,077,135
============ ============
See Notes to Financial Statements.
</TABLE>
31
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
Period
The following per share data and ratios have been derived Sept. 14,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995++++ 1994++++ 1993++++ 1992++++
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.28 $ 12.83 $ 11.74 $ 9.60 $ 10.00
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.05) (.12) (.08) (.02)
<PAGE>
Realized and unrealized gain (loss) on
investments--net .76 (.18) 1.26 2.22 (.38)
-------- -------- -------- -------- --------
Total from investment operations .71 (.23) 1.14 2.14 (.40)
-------- -------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.44) -- -- -- --
Realized gain on investments--net (.46) (.32) (.05) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.90) (.32) (.05) -- --
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.09 $ 12.28 $ 12.83 $ 11.74 $ 9.60
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.93% (1.68%) 9.74% 22.29% (4.00%)+++
Return: ======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement 2.37% 2.35% 2.27% 2.76% 3.50%*
Net Assets: ======== ======== ======== ======== ========
Expenses 2.37% 2.35% 2.27% 2.76% 4.45%*
======== ======== ======== ======== ========
Investment loss--net (.42%) (.41%) (.56%) (.86%) (2.77%)*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $174,921 $197,077 $272,487 $175,756 $ 16,636
Data: ======== ======== ======== ======== ========
Portfolio turnover 38.16% 17.31% 24.64% 32.54% --
======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0010 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
</FN>
See Notes to Financial Statements.
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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 management investment company. The following
is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments--Portfolio securities, including
depositary receipts, which are traded on stock exchanges are valued
at the last sale price on the exchange on which such securities are
traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market are valued at the
last available bid price prior to the time of valuation. In cases
where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the
authority of the Board of Trustees as the primary market. Securities
which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative
market. Options written are valued at the last sale price in the
case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the last asked price. Options
purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the- counter market, the last bid price. Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not available are valued at fair value as determined
in good faith by or under the direction of the Fund's Board of
Trustees.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Realized
and unrealized gains/losses on foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets or
liabilities expressed in foreign currencies into US dollars.
Realized and unrealized gains or losses from investments include the
effects of foreign exchange rates on investments.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contract.
<PAGE>
* Foreign currency options and futures--The Fund may purchase or
sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Written and purchased options are non-income producing investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
<PAGE>
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the
ex-dividend dates, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transections are
determined on the identified cost basis.
(f) 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.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend date. Distributions in
excess of net investment income are due primarily to differing tax
treatments for foreign currency transactions.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$7,191,339 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss. These
reclassifications have no effect on net assets or net asset value
per share.
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 been retained as sub-advisers (the "SubAdvisers") 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.
<PAGE>
The Fund has an Administrative Agreement with Princeton Administrators,
L.P. (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,
Pierce, Fenner, & Smith ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance activities and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance activities
to the Fund's shareholders. The ongoing distribution fee compensates
the Distributor and MLPF&S 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 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, 1996, MLFD earned $2,034,555 under the Plan,
all of which was paid to MLPF&S pursuant to the agreement.
34
<PAGE>
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a
wholly-owned subsidiary of ML & Co., acts as the Fund's transfer
agent.
In addition, MLPF&S received $107,010 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended October 31, 1996.
<PAGE>
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, the Investment Adviser (including their affiliated
companies), MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1996 were $72,934,030 and
$88,898,151, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996,
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 5,996,999 $ 1,178,575
Short-term investments 8 --
Foreign currency transactions (104,013) (1,323)
Forward foreign exchange
contracts 19,536,752 --
----------- -----------
Total $25,429,746 $ 1,177,252
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $1,178,575, of which $15,686,038
related to appreciated securities and $14,507,463 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $175,893,055.
4. Beneficial Interest Transactions:
Transactions in shares of beneficial interest were as follows:
For the Year Ended October 31, 1996 Shares Dollar Amount
Shares sold 3,894,853 $ 48,570,265
Shares issued to shareholders
in reinvestments of dividends
and distributions 1,089,865 12,925,796
------------ ------------
Total issued 4,984,718 61,496,061
Shares redeemed (6,567,697) (81,397,838)
------------ ------------
Net decrease (1,582,979) $(19,901,777)
============ ============
<PAGE>
For the Year Ended October 31, 1995 Shares Dollar Amount
Shares sold 1,857,251 $ 21,980,972
Shares issued to shareholders
in reinvestments of
distributions 501,369 5,855,982
------------ ------------
Total issued 2,358,620 27,836,954
Shares redeemed (7,550,747) (87,654,561)
------------ ------------
Net decrease (5,192,127) $(59,817,607)
============ ============
35
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Investment Objective and Policies.............. 2
Hedging Techniques........................... 2
Investment Restrictions...................... 6
Management of the Fund......................... 8
Trustees and Officers........................ 8
Compensation of Trustees..................... 10
Investment Adviser........................... 11
Purchase of Shares............................. 12
Distribution Plan.............................. 12
Redemption of Shares........................... 14
Portfolio Transactions and Brokerage........... 14
Determination of Net Asset Value............... 16
Shareholder Services........................... 17
Automatic Reinvestment of Dividends
and Capital Gains Distributions............ 17
Merrill Lynch Asset Information and
Measurement Services....................... 17
Taxes.......................................... 17
Tax Treatment of Forward Foreign
Exchange Transactions...................... 19
Special Rules for Options, Futures and
Foreign Currency Transactions................ 20
Performance Data............................... 20
General Information............................ 22
Description of Shares........................ 22
Computation of Offering Price
Per Share................................. 22
Independent Auditors......................... 23
Custodian.................................... 23
Transfer Agent............................... 23
Administrator................................ 23
Legal Counsel................................ 23
Reports to Shareholders...................... 23
Additional Information....................... 23
Report of Independent Auditors................. 24
Financial Statements........................... 26
</TABLE>
Code #16459-0297
Statement of
Additional Information
(Art Work)
- ------------------------------------------------------
MERRILL LYNCH
CONSULTS
INTERNATIONAL
PORTFOLIO
Investment Adviser:
Merrill Lynch (Suisse) Investment Management S.A.
February 21, 1997
Distributor:
Merrill Lynch
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 for each of the years in the four-year period ended
October 31, 1996, and for the period September 14, 1992 (commencement of
operations) to October 31, 1992.
Contained in Part B, the Statement of Additional Information:
Schedule of Investments as of October 31, 1996.
Statement of Assets and Liabilities as of October 31, 1996.
Statement of Operations for the year ended October 31, 1996.
Statements of Changes in Net Assets for each of the years in the two-year
period ended October 31, 1996.
Financial Highlights for each of the years in the four-year period ended
October 31, 1996, and for the period September 14, 1992 (commencement of
operations) to October 31, 1992.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C> <C>
1 -- Amended and Restated Declaration of Trust of Registrant.*
2 -- By-Laws of Registrant.
3 -- None.
4 -- Instruments Defining Rights of Shareholders (Incorporated by reference to Exhibits 1 and 2 hereof).
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, Inc.**
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 -- 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 Registrant and Princeton Administrators, Inc.**
9 (c) -- License Agreement Relating to Use of Name between Merrill Lynch & Co., Inc. and the Registrant.**
10 -- Opinion and Consent 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 -- Not applicable.
15 -- Distribution Plan of Registrant.**
16 -- Schedule for computation of each performance quotation provided in the Registration Statement in
response to Item 22o
17 (a) -- Financial Data Schedule.
17 (b) -- Other Exhibits.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C> <C>
-- Powers of Attorney for Officers and Trustees.
Arthur Zeikel**
Herbert I. London**
Joseph L. May**
Andre F. Perold+++
Gerald M. Richard+++
Robert R. Martin.o
17 (c) -- Power of Attorney for James H. Bodurthaoo
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Incorporated by reference to same numbered exhibit to Pre-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 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).
o 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).
oo Incorporated by reference to same numbered exhibit to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A (File No. 33-49354).
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1997
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Shares of beneficial interest, par value $0.10 per share.............................. 3,281
</TABLE>
Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Article V and Article XI of Registrant's Declaration
of Trust, Section 9 of the Distribution Agreement, Article IV of the Investment
Advisory Agreement and Article IV of the Sub-Advisory Agreements.
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.
5.5 No Duty or Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees or
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
C-3
<PAGE>
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.
(c) Investment Advisory Agreement; Sub-Advisory Agreements
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
Article IV of the Investment Advisory Agreement between Registrant and
Merrill Lynch (Suisse) Investment Management S.A. (the 'Investment Adviser')
(Exhibit 5(a) to Registrant's Registration Statement on Form N-1A) limits the
liability of the Investment Adviser to liabilities arising from willful
misfeasance, bad
C-4
<PAGE>
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its duties under the Investment Advisory Agreement.
Article IV of the Subadvisory Agreements between the Investment Adviser,
Registrant, and Fund Asset Management Inc. (now called Fund Asset Management,
L.P.) ('FAM') and between the Investment Adviser, Registrant, and Merrill Lynch
Asset Management U.K. Limited ('MLAM U.K.') (Exhibits 5(b) and 5(c),
respectively, to Registrant's Registration Statement on Form N-1A) limits the
liability of FAM and MLAM U.K. to liabilities arising from willful misfeasance,
bad faith or gross negligence in the performance of their respective duties, or
by reason of reckless disregard of their respective obligations and duties under
the Subadvisory Agreements.
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 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.
The Investment Adviser does not act as investment adviser for any other
investment companies registered under the Investment Company Act. 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').
Merrill Lynch Asset Management, L.P. ('MLAM') acts as investment adviser
for the following open-end investment companies: Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill
Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch Eurofund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
for Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Holdings, Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Midde East/Africa Fund, Inc., Merrill Lynch Municipal Series
Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc.; and the following
closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch High
Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ('FAM'), an affiliate of MLAM, acts as the
investment adviser for the following open-end investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch
C-5
<PAGE>
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.
and The Municipal Fund Accumulation Program, Inc.; and the following closed-end
investment companies: Apex Municipal Fund, 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., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey
Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield 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
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc.,
Taurus MuniNew York Holdings, Inc., and Worldwide Dollar Vest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Manager, FAM, Princeton Services, Inc. ('Princeton Services') and Princeton
Administrators, L.P. ('Princeton Administrators') is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ('MLFD') is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ('Merrill
Lynch') and Merrill Lynch & Co., Inc. ('ML & Co.') is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281. The address of Merrill
Lynch Financial Data Services ('MLFDS') 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, 1994 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................ General Partner General Partner of MLAM
Arthur Zeikel..................... President President of MLAM; President and Director of
Princeton Services; Director of MLFD; Executive
Vice President of ML & Co.
Terry K. Glenn.................... Executive Vice Executive Vice President of MLAM; Executive Vice
President President and Director of Princeton Services;
President and Director of MLFD; President of
Princeton Administrators, L.P.; Director of FDS
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; Senior Vice
President of Princeton Services
Norman R. Harvey.................. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel............ 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
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME FAM VOCATION OR EMPLOYMENT
- ---------------------------------- --------------------- ---------------------------------------------------
<S> <C> <C>
Philip L. Kirstein................ Senior Vice Senior Vice President, General Counsel and
President, General Secretary of MLAM; Senior Vice President, General
Counsel and Counsel, Director and Secretary of Princeton
Secretary Services; Director of MLFD
Ronald M. Kloss................... Senior Vice President Senior Vice President and Controller of MLAM;
and Controller Senior Vice President and Controller of Princeton
Services
Stephen M.M. Miller............... Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr............. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services
Michael L. Quinn.................. Senior Vice President Senior Vice President of MLAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of Merrill
Lynch, Pierce, Fenner & Smith Incorporated from
1989 to 1995.
Gerald M. Richard................. Senior Vice President Senior Vice President and Treasurer of MLAM; Senior
and Treasurer 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>
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.
(b) Merrill Lynch Asset Management U.K. Limited ('MLAM U.K.') acts as
sub-adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield
Fund II, Inc., Convertible Holdings, Inc., Merrill Lynch Consults International
Portfolio, Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Global
Holdings, Merrill Lynch Growth Fund, Merrill Lynch Global Resources Trust,
Merrill Lynch Healthcare Fund, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc., Worldwide
DollarVest Fund, Inc., and Merrill Lynch Short-Term Global Income Fund, Inc. The
address of each of these investment companies is P.O. Box 9011, Princeton, New
Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London
EC2Y 9HA, England.
C-7
<PAGE>
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July 1,
1994, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert, Bascand, Glenn, Richard
and Yardley are officers of one or more of the registered investment companies
listed in the first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ---------------------------------- --------------------- ---------------------------------------------------
<S> <C> <C>
Arthur Zeikel..................... Director and Chairman President of the Manager and FAM; President and
Director of Princeton Services, Director of MLFD;
Executive Vice President of ML & Co.
Alan J. Albert.................... Senior Managing Vice President of the Manager
Director
Terry K. Glenn.................... Director Executive Vice President of the Manager and FAM;
Executive Vice President and Director of
Princeton Services; President and Director of
MLFD; Director of MLFDS; President of Princeton
Administrators, L.P.
Adrian Holmes..................... Managing Director Director of Merrill Lynch Global Asset Management
Andrew John Bascand............... Director Director of Merrill Lynch Global Asset Management
Edward Gobora..................... Director Director of Merrill Lynch Global Asset Management
Richard Kilbride.................. Director Managing Director of Merrill Lynch Global Asset
Management
Robert M. Ryan.................... Director Vice President, Institutional Marketing, Debt and
Equity Group, Merrill Lynch Capital Markets from
1989 to 1994
Gerald M. Richard................. Senior Vice President Senior Vice President and Treasurer of the Manager
and FAM; Senior Vice President and Treasurer of
Princeton Services; Vice President and Treasurer
of MLFD
Stephen J. Yardley................ Director Director of Merrill Lynch Global Asset Management
Carol Ann Langham................. Company Secretary None
Debra Anne Searle................. Assistant Company None
Secretary
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the second paragraph of Item
28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., The Municipal Fund Accumulation
Program, Inc., and also acts as principal underwriter for the following
closed-end funds: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Municipal Strategy Fund,
Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of officers Crook,
Aldrich, Breen, Fatseas and Wasel is One Financial Center, Boston, Massachusetts
02111-2646.
C-8
<PAGE>
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- ----------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn.................................... President and Director Executive Vice President
Arthur Zeikel..................................... Director President and Trustee
Philip L. Kirstein................................ Director None
William E. Aldrich................................ Senior Vice President None
Robert W. Crook................................... Senior Vice President None
Kevin P. Boman.................................... Vice President None
Michael J. Brady.................................. Vice President None
William M. Breen.................................. Vice President None
Michael G. Clarke................................. Vice President None
Mark A. DeSario................................... Vice President None
James T. Fatseas.................................. 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
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 08536-9011, Merrill Lynch 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-9
<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 21st day of February 1997.
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 21, 1997
- ------------------------------------------ Executive Officer)
(Arthur Zeikel)
* Treasurer (Principal Financial and Accounting
- ------------------------------------------ Officer)
(Gerald M. Richard)
* Trustee
- ------------------------------------------
(James H. Bodurtha)
* Trustee
- ------------------------------------------
(Herbert I. London)
* Trustee
- ------------------------------------------
(Robert R. Martin)
* Trustee
- ------------------------------------------
(Joseph L. May)
* Trustee
- ------------------------------------------
(Andre F. Perold)
*By /s/ARTHUR ZEIKEL February 21, 1997
- ------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------------------------
<S> <C>
2 --By-Laws of Registrant, as amended.
10 --Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for Registrant.
11 --Consent of Ernst & Young LLP, independent auditors for the Registrant.
17(a) --Financial Data Schedule.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
BY-LAWS
OF
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
BY LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing MERRILL LYNCH CONSULTS INTERNATIONAL
PORTFOLIO, dated June 26, 1992, as from time to time amended (hereinafter called
the "Declaration"). All words and terms capitalized in these By-Laws shall have
the meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1 Chairman. The Chairman, if any, shall act as chairman at
all meetings of the Shareholders; in his absence, the President shall act as
chairman; and in the absence of the Chairman and President, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the meeting,
who may be one of themselves.
Section 1.2 Proxies; Voting. Shareholders may vote either in person or
by duly executed proxy and each full share represented at the meeting shall have
one vote, all as provided in Article X of the Declaration. No proxy shall be
valid after eleven (11) months from the date of its execution, unless a longer
period is expressly stated in such proxy.
Section 1.3 Closing of Transfer Books and Fixing Record Dates. For the
purpose of determining the Shareholders who are entitled to notice of or to vote
or act at any meeting, including any adjournment thereof, or who are entitled to
participate in any dividends, or for any
2
<PAGE>
other proper purpose, the Trustees may from time to time close the transfer
books or fix a record date in the manner provided in Section 10.4 of the
Declaration. If the Trustees do not prior to any meeting of Shareholders so fix
a record date or close the transfer books, then the date of mailing notice of
the meeting or the date upon which the dividend resolution is adopted, as the
case may be, shall be the record date.
Section 1.4 Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election of
the meeting. The number of Inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a majority
of Shares present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Shareholders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as chairman. The
Inspectors of Election shall determine the number of Shares outstanding, the
Shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in connection
with the right to vote, shall count and tabulate all votes or consents,
determine the results, and do such other acts as may be proper to conduct the
election or vote with fairness to all Shareholders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in
3
<PAGE>
all respects as the decision, act or certificate of all. On request of the
Chairman, if any, of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
Section 1.5 Records at Shareholder Meetings. At each meeting of the
Shareholders there shall be open for inspection the minutes of the last previous
Shareholder Meeting of the Trust and a list of the Shareholders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting or the date of closing of transfer
books, as the case may be. Such list of Shareholders shall contain the name of
each Shareholder in alphabetical order and the address and number of Shares
owned by such Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted to
shareholders of a Massachusetts business corporation.
ARTICLE II
Trustees
Section 2.1 Annual and Regular Meetings. The Trustees shall hold an
annual meeting for the election of officers and the transaction of other
business which may come before such meeting, on such date as shall be fixed by
the Trustees from time to time. Regular meetings of the Trustees may be held
without call or notice at such place or places and times as the Trustees may by
resolution provide from time to time.
4
<PAGE>
Section 2.2 Special Meetings. Special Meetings of the Trustees shall be
held upon the call of the Chairman, if any, the President, the Secretary or any
two Trustees, at such time, on such day, and at such place, as shall be
designated in the notice of the meeting.
Section 2.3 Notice. Notice of a meeting shall be given by mail or by
telegram (which term shall include a cablegram) or delivered personally. If
notice is given by mail, it shall be mailed not later than 48 hours preceding
the meeting and if given by telegram or personally, such telegram shall be sent
or delivery made not later than 48 hours preceding the meeting. Notice by
telephone shall constitute personal delivery for these purposes. Notice of a
meeting of Trustees may be waived before or after any meeting by signed written
waiver. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Trustees need be stated in the notice or waiver of
notice of such meeting, and no notice need be given of action proposed to be
taken by unanimous written consent. The attendance of a Trustee at a meeting
shall constitute a waiver of notice of such meeting except where a Trustee
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened.
Section 2.4 Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the President shall act
as chairman; and, in the absence of the Chairman and the President, the Trustee
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 Retirement Policy. Each Trustee shall serve as a Trustee of
the Trust as provided for by the Declaration and these By-Laws, except that a
Trustee shall only serve as a
5
<PAGE>
Trustee of the Trust until December 31 of the year in which he shall have
reached seventy-two years of age.
ARTICLE III
Officers
Section 3.1 Officers of the Trust. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice-Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person, except that the same person may not be both President and Secretary. The
Trustees may designate a Vice-President as an Executive Vice-President and may
designate the order in which the other Vice-Presidents may act. The Chairman and
the President shall be Trustees, but no other officer of the Trust need be a
Trustee.
Section 3.2 Election and Tenure. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman, if any, President, Secretary, Treasurer and such other officers as
the Trustee shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next annual
meeting of the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any additional
officers at any time.
Section 3.3 Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any such officer may resign at any time by notice in writing signed
by
6
<PAGE>
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President or Secretary, or at a later date according to
the terms of such notice in writing.
Section 3.4 Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
Section 3.5 Chairman, President and Vice-Presidents. The Chairman, if
any, shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustees to the Chairman, if any, the
President shall be the chief executive officer of the Trust and, subject to the
control of the Trustees, shall have general supervision, direction and control
of the business of the Trust and of its employees and shall exercise such
general powers of management as are usually vested in the office of President of
a corporation. In the absence of the Chairman, if any, the President shall at
all meetings of the Shareholders and of the Trustees. The President shall be,
ex-officio, a member of all standing committees, except as otherwise provided in
the resolutions or instruments creating any such committees. Subject to
direction of the Trustees, the Chairman, if any, and the President shall each
have power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the Chairman, if any, and the President
shall each have full authority and power, on behalf of all of the Trustees, to
attend and to act and to vote, on behalf of
7
<PAGE>
the Trust at any meetings of business organizations in which the Trust holds an
interest, or to confer such powers upon any other persons, by executing any
proxies duly authorizing such persons. The Chairman, if any, and the President
shall have such further authorities and duties as the Trustees shall from time
to time determine. In the absence or disability of the President, the
Vice-Presidents in order of their rank as fixed by the Trustees or, if more than
one and not ranked, the Vice-President designated by the Trustees, shall perform
all of the duties of the President, and when so acting shall have all the powers
of and be subject to all of the restrictions upon the President. Subject to the
direction of the Trustees, and of the President, each Vice- President shall have
the power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages and other instruments in
writing, and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 3.6 Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any other person so authorized by the Trustees) shall affix the seal or,
if permitted, a facsimile thereof, to any instrument executed by the Trust which
would be sealed by a Massachusetts corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a Massachusetts business corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
8
<PAGE>
Section 3.7 Treasurer. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustees shall designate. He shall be responsible for
such disbursement of the funds of the Trust as may be ordered by the Trustees or
the President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of the Trust.
Section 3.8 Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust. The
President also shall have the power to appoint such assistant officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
appropriate to facilitate the management of the Trust's affairs. Assistant
officers shall act generally in the absence of the
9
<PAGE>
officer whom they assist and shall assist that officer in the duties of his
office. Each officer, employee and agent of the Trust shall have such other
duties and authority as may be conferred upon him by the Trustees or delegated
to him by the President.
ARTICLE IV
Miscellaneous
Section 4.1 Custodians. In accordance with Section 7.1 of the
Declaration, the funds of the Trust shall be deposited with such custodian or
custodians as the Trustees shall designate and shall be drawn out on checks,
drafts or other orders signed by such officer, officers, agent or agents
(including any adviser, administrator or manager), as the Trustees may from time
to time authorize.
Section 4.2 Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
provide.
Section 4.3 Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation.
ARTICLE V
Share Certificates and Share Transfers
Section 5.1 Share Certificates. Each holder of Shares of the Trust
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Trustees, representing the number of Shares
owned by him, provided, however, that certificates
10
<PAGE>
for fractional Shares shall not be delivered in any case. The certificates
representing Shares shall be signed by or in the name of the Trust by the
President or a Vice-President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the seal of the Trust.
Any or all of the signatures or the seal on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Trust with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
Section 5.2. Transfer Agents, Registrars and the Like. As provided in
Section 6.6 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
Trust as the Trustees shall deem necessary or desirable and may require all
certificates for Shares to bear the signature or signatures of any of them. In
addition, the Trustees shall have power to employ and compensate such dividend
disbursing agents, warrant agents and agents for the reinvestment of dividends
as they shall deem necessary or desirable. Any of such agents shall have such
power and authority as is delegated to any of them by the Trustees.
Section 5.3 Transfer of Shares. The Shares of the Trust shall be
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section 6.7
of the Declaration, and on surrender of the certificate or certificates, if
issued, for such Shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. The Trust, or its
transfer agents, shall
11
<PAGE>
be authorized to refuse any transfer unless and until presentation of such
evidence as may be reasonably required to show that the requested transfer is
proper.
Section 5.4 Registered Shareholders. The Trust may deem and treat the
holder of record of any Share as the absolute owner thereof for all purposes and
shall not be required to take any notice of any right or claim of right of any
other person.
Section 5.5 Regulations. The Trustees may make such additional rules
and regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for Shares of
the Trust.
Section 5.6 Lost, Destroyed or Mutilated Certificates. The holder of
any certificate representing Shares of the Trust shall immediately notify the
Trust of any loss, destruction or mutilation of such certificate, and the Trust
may issue a new certificate in the place of any certificate theretofore issued
by it which the owner thereof shall allege to have been lost or destroyed or
which shall have been mutilated, and the Trustees may, in their discretion,
require such owner or his legal representatives to give the Trust a bond in such
sum, limited or unlimited, and in such form and with such surety or sureties, as
the Trustees in their absolute discretion, shall determine, to indemnify the
Trust against any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Trustees in their absolute
discretion, may refuse to issue any such new certificates, except pursuant to
legal proceedings under the laws of the Commonwealth of Massachusetts.
ARTICLE VI
12
<PAGE>
Amendment of By-Laws
Section 6.1 Amendment and Repeal of By-Laws. In accordance with Section
2.7 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. Action by the Trustees with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
the Trustees. The Trustees shall in no event adopt By-Laws which are in conflict
with the Declaration, and any apparent inconsistency shall be construed in favor
of the related provisions in the Declaration.
The Declaration establishing Merrill Lynch Consults International
Portfolio, a copy of which, together with all amendments thereto, 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 Merrill
Lynch Consults International Portfolio shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of said Merrill
Lynch Consults International Portfolio but the Trust Property only shall be
liable.
13
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-9998
(212) 891-9396
February 21, 1997
Merrill Lynch Consults International Portfolio
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
Merrill Lynch Consults International Portfolio, a Massachusetts
business trust (the "Trust"), is filing with the Securities and Exchange
Commission (the "Commission") Post-Effective Amendment No. 5 to its Registration
Statement under the Securities Act of 1933 (the "Act") on Form N-1A (Securities
Act File No. 33-49354) relating, among other things, to the registration under
the Act of 5,505,750 additional shares of beneficial interest, par value $.10
per share (the "additional shares"), which are to be offered and sold by the
Trust in the manner and on the terms set forth in the Prospectus current and
effective under the Act at the time of sale. All of the additional shares are
previously outstanding shares of beneficial interest, par value $.10 per share,
of the Trust which were redeemed by the Trust during the fiscal year ended
October 31, 1996 but have not previously been used by the Trust for a reduction
pursuant to paragraph (a) of Rule 24e-2 under the Investment Company Act of 1940
(the "1940 Act") during the current year or pursuant to paragraph (c) of Rule
24f-2 under the 1940 Act in all previous filings during the current fiscal year.
We have, as counsel, participated in various corporate and other
proceedings relating to the Trust and to the proposed issuance of the additional
shares. We have examined copies, either certified or otherwise proven to our
satisfaction to be genuine, of its Charter and By-Laws, as currently in effect,
and a certificate of recent date issued by the Secretary of State of the
Commonwealth of Massachusetts, certifying the existence and good standing of the
Trust. We are generally familiar with the corporate affairs of the Trust.
Based upon the foregoing, it is our opinion that:
1. The Trust has been duly organized and is legally existing
under the laws of the Commonwealth of Massachusetts.
2. The Trust is authorized to issue an unlimited number of
shares of beneficial interest.
<PAGE>
Merrill Lynch Consults International Portfolio
February 21, 1997
Page -2-
3. Subject to the effectiveness under the Act of the above-
mentioned Post-Effective Amendment No. 5, upon the
issuance of the additional shares within the limits
prescribed by the Charter of the Trust for a
consideration of not less than the par value thereof,
and not less than the net asset value thereof, the
additional shares will be legally issued and outstanding
and fully paid and non-assessable. However, we note that,
as set forth in the Registration statement shareholders
of the Trust might, under certain circumstances, be
liable for transactions effected by the Trust.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as part of the above-mentioned Post-Effective
Amendment to the Registration Statement, and with any state securities
commission where such filing is required. We also consent to the reference to
our firm as counsel in the prospectus and Statement of Additional Information
of the Trust. In giving this consent we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Act.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the Commonwealth of Massachusetts,
and to the extent that any opinion herein involves the law of Massachusetts,
such opinion should be understood to be based solely upon our review of the
documents referred to above, the published statutes of the Commonwealth of
Massachusetts and, where applicable, published cases, rules or regulations of
regulatory bodies of that State.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
SFH&G:JHG:JLS:PSF
<PAGE>
EXHIBIT 11
<PAGE>
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 11, 1996, in this Registration Statement on Form N-1A
under the Securities Act of 1933 (File No. 33-49354) and under the Investment
Company Act of 1940 (File No. 811-6725) of Merrill Lynch Consults International
Portfolio.
ERNST & YOUNG LLP
Princeton, New Jersey
February 19, 1997
[ARTICLE] 6
[CIK] 0000889301
[NAME] MERRILL LYNCH CONSULTS INTERNATIONAL PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1996
[PERIOD-START] NOV-01-1995
[PERIOD-END] OCT-31-1996
[INVESTMENTS-AT-COST] 175893055
[INVESTMENTS-AT-VALUE] 177071630
[RECEIVABLES] 4145927
[ASSETS-OTHER] 31104
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 181248661
[PAYABLE-FOR-SECURITIES] 428976
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 5898964
[TOTAL-LIABILITIES] 6327940
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 164138264
[SHARES-COMMON-STOCK] 14467493
[SHARES-COMMON-PRIOR] 16050472
[ACCUMULATED-NII-CURRENT] (8950726)
[OVERDISTRIBUTION-NII] (6862242)
[ACCUMULATED-NET-GAINS] 25418173
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1177252
[NET-ASSETS] 174920721
[DIVIDEND-INCOME] 3523394
[INTEREST-INCOME] 449734
[OTHER-INCOME] 0
[EXPENSES-NET] (4834763)
[NET-INVESTMENT-INCOME] (861635)
[REALIZED-GAINS-CURRENT] 25429746
[APPREC-INCREASE-CURRENT] (12672616)
[NET-CHANGE-FROM-OPS] 11895495
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (6862242)
[DISTRIBUTIONS-OF-GAINS] (7287890)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3894853
[NUMBER-OF-SHARES-REDEEMED] (6567697)
[SHARES-REINVESTED] 1089865
[NET-CHANGE-IN-ASSETS] (22156414)
[ACCUMULATED-NII-PRIOR] (897752)
[ACCUMULATED-GAINS-PRIOR] 84978
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1525916
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4834763
[AVERAGE-NET-ASSETS] 203455518
[PER-SHARE-NAV-BEGIN] 12.28
[PER-SHARE-NII] (.05)
[PER-SHARE-GAIN-APPREC] .76
[PER-SHARE-DIVIDEND] (.44)
[PER-SHARE-DISTRIBUTIONS] (.46)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.09
[EXPENSE-RATIO] 2.37
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
