UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04612
Name of Fund: Merrill Lynch EuroFund
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Merrill Lynch EuroFund, 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/05
Date of reporting period: 11/01/04 - 10/31/05
Item 1 - Report to Stockholders
Merrill Lynch
EuroFund
Annual Report
October 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results shown in this report
should not be considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863);
(2) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange
Commission's Web site at http://www.sec.gov. Information about how the
Fund voted proxies relating to securities held in the Fund's portfolio
during the most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Merrill Lynch EuroFund
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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To sign up today, go to www.icsdelivery.com/live.
Merrill Lynch EuroFund
Portfolio Information as of October 31, 2005
Percent of
Ten Largest Equity Holdings Net Assets
Total SA 4.5%
Barclays Plc 4.2
Allianz AG Registered Shares 3.9
Royal Bank of Scotland Group Plc 3.9
HBOS Plc 3.6
Credit Suisse Group 3.6
BP Plc 3.4
ENI SpA 3.3
Fortum Oyj 3.2
RWE AG 3.0
Percent of
Five Largest Industries Net Assets
Commercial Banks 25.8%
Oil, Gas & Consumable Fuels 17.8
Insurance 8.0
Electric Utilities 7.2
Diversified Financial Services 5.9
For Fund compliance purposes, the Fund's industry classifications
refer to any one or more of the industry sub-classifications used
by one or more widely recognized market indexes or ratings group
indexes, and/or as defined by Fund management. This definition may
not apply for purposes of this report, which may combine industry
sub-classifications for reporting ease. These industry classifications
are unaudited.
Geographic Allocation as a Percentage of Total Investments as of
October 31, 2005
Percent of
Total
Country Investments
Belgium 1.9%
Finland 3.1%
France 14.7%
Germany 17.7%
Hungary 1.3%
Italy 8.6%
Netherlands 3.6%
Norway 6.3%
Spain 2.6%
Sweden 1.8%
Switzerland 5.4%
United Kingdom 31.4%
Other* 1.6%
* Includes portfolio holdings in short-term investments.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the
Federal Reserve Board (the Fed) advanced its monetary tightening campaign full
steam ahead. The 12th consecutive interest rate hike since June 2004 came on
November 1, bringing the target federal funds rate to 4%. The central bank is
clearly more focused on inflationary figures than on economic growth, which
has shown some signs of moderating. Despite rising short-term interest rates
and record-high energy prices, the major market indexes managed to post
positive results for the current reporting period:
Total Returns as of October 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 5.27% + 8.72%
Small-cap U.S. equities (Russell 2000 Index) +12.25 +12.08
International equities (MSCI Europe Australasia Far East Index) + 8.63 +18.09
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.15 + 1.13
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.59 + 2.54
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.87 + 3.54
The headlines in recent months focused on Hurricanes Katrina and Rita and,
more recently, the nomination of Ben Bernanke to succeed Alan Greenspan as
Chairman of the Fed. While the hurricanes prompted a spike in energy prices
and short-term disruptions to production and spending, the longer-term
economic impact is likely to be tempered. In fact, the fiscal stimulus
associated with reconstruction efforts in the Gulf Coast region could add to
gross domestic product growth in 2006. Notably, the uncontroversial nomination
of Dr. Bernanke was well received by the markets.
The U.S. equity markets remained largely range bound in 2005. Up to this
point, strong corporate earnings reports and relatively low long-term
bond yields have worked in favor of equities. Looking ahead, high energy
prices, continued interest rate hikes, a potential consumer slowdown and/or
disappointing earnings pose the greatest risks to U.S. stocks. Internationally,
many markets have benefited from strong economic statistics, trade surpluses
and solid finances.
The bond market continued to be characterized by a flattening yield curve,
although long-term yields finally began to inch higher toward period end. The
10-year Treasury yield hit 4.57% on October 31, 2005, its highest level in
more than six months. Still, the difference between the two-year and 10-year
Treasury yield was just 17 basis points (.17%) at period end, compared to 149
basis points a year earlier.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank
you for trusting Merrill Lynch Investment Managers with your investment
assets.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Trustee
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund provided competitive returns for the fiscal year, benefiting
primarily from favorable stock selection among European equities.
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended October 31, 2005, Merrill Lynch EuroFund's Class
A, Class B, Class C, Class I and Class R Shares had total returns (in U.S.
dollar terms) of +16.20%, +15.28%, +15.33%, +16.52% and +16.01%, respectively.
(Fund results shown do not reflect sales charges and would be lower if sales
charges were included. Complete performance information can be found on pages
6 - 9 of this report to shareholders.) For the same period, the Fund's
unmanaged benchmark, the Morgan Stanley Capital International (MSCI) Europe
Index, returned +16.30% (net return in U.S. dollar terms), while the Fund's
comparable Lipper category of European Region Funds posted an average return
of +18.34%. (Funds in this Lipper category invest in equity securities whose
primary trading markets or operations are concentrated in the European region
or a single country within this region.)
Despite negative news surrounding European economic growth (for example,
German and French unemployment remains high and Italy is facing a recession),
European equity markets rallied during the past year as many companies,
operating in a global economic environment, benefited from strong growth
trends. In addition, many European companies are in the midst of significant
restructuring - an ongoing theme for the past five years - with companies
becoming increasingly focused on cost-cutting and corporate efficiency. In a
low-interest-rate environment, favorable financing conditions have enabled
many companies to re-leverage their balance sheets. The market has rewarded
companies that have returned cash to shareholders by paying out increased
dividends or buying back their own shares.
The past year saw important political events in both the United States and
Europe. In November 2004, the uneventful passing of the U.S. presidential
election proved to be a substantial relief for equity investors. "No" votes
from France and the Netherlands on the European Union constitution referendum
in May 2005 and forthcoming German elections proved to be positive catalysts,
rather than barriers, to market progress. In recent months, business
confidence improved but unemployment remained high. Low interest rates have
meant rising real estate prices in many European countries, with the exception
of Germany, where real estate prices have only just begun to rise.
Corporate earnings were consistently revised upward over the past 12 months,
providing considerable support to European stocks. The higher earnings,
combined with persistently low long-term interest rates, have created an ideal
environment for equities, particularly in mainland Europe, with its relatively
high dividend yields.
What factors influenced Fund performance during the period?
During the fiscal period, stock selection had a positive impact on
performance, with sector allocation being slightly negative. Favorable stock
picking in sectors such as capital goods, energy and diversified financials
benefited the Fund's relative results. Our stock picks in these sectors
provided better returns than the benchmark's stocks. The portfolio also
benefited from its underweight exposure to media and telecommunication stocks,
as both sectors underperformed the broader market during the period.
Conversely, sectors that detracted from Fund returns, primarily due to stock-
specific performance, were food and staples retailing and materials. Our
underweight position in the food, beverage and tobacco sector and overweight
exposure to banks also hampered relative results.
On an individual stock level, the Fund benefited from its positions in
Capitalia SpA, Deutsche Boerse AG and Statoil ASA. Italian retail bank
Capitalia SpA (with an absolute return of +59%) performed well after a
succession of strong quarterly earnings, which reflected the benefits of
management's restructuring program. Deutsche Boerse (+91%), a German trading
exchange, benefited after the company announced it was withdrawing its bid for
the London Stock Exchange in favor of returning cash to shareholders through
share buybacks. The exchange also benefited from high trading volumes in its
derivatives business. Finally, Norwegian oil producer Statoil (+59%) continued
to benefit from the high oil price. Other top performers included Dutch office
stationery supplier Burhmann NV (+70%), U.K. defense contractor BAE Systems
Plc (+39%) and German construction company Hochtief AG (+57%).
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Stocks that detracted from performance included U.K. banks Barclays Plc (+6%)
and Royal Bank of Scotland Group Plc (-3%), both of which underperformed on
concerns that an economic slowdown in the United Kingdom would lead to higher
loan provisions (defaults). In addition, Royal Bank of Scotland lagged on
investor concerns over its management's perceived acquisition strategy. The
Fund's returns were also hindered by a number of positions in the retail
sector, which has suffered from poor consumer demand and pricing pressure.
These included French "hypermarket" (a large combination grocery/department
store) Carrefour SA (-1%), Dutch food retailer Koninklijke Ahold NV (-5%) and,
in the United Kingdom, electrical retailer Kesa Electricals Plc (-11%) and
drugstore chain Boots Group Plc (-5%).
What changes were made to the portfolio during the period?
Our main transactions were the result of "bottom-up" stock picking, based on
our evaluation of companies' individual appreciation prospects. During the
period, the Fund increased its exposure to the banking sector, predominantly
by adding to our U.K. holdings. These included positions in Barclays, HBOS
Plc, Royal Bank of Scotland and Lloyds TSB. Other transactions in the
financials sector included the purchase of German and U.K. insurance companies
Allianz AG and Aviva Plc. In addition, the Fund added to its holdings in the
energy and utilities sectors. These transactions were partly funded by
reducing our cyclical stocks, which after strong performance, had reached our
price targets. These names included Swedish truck manufacturer Volvo AB, Dutch
office stationery provider Burhmann, U.K. industrial conglomerate Smiths Group
Plc and Finnish paper producer Stora Enso Oyj.
How would you characterize the Fund's position at the close of the period?
Relative to the MSCI Europe Index, the Fund ended the period overweight in
banks, energy and utilities. There were underweights at period-end in food,
beverage and tobacco, materials, telecommunications, and pharmaceuticals.
Within the energy and utilities sectors, we are favoring companies whose
performance is geared toward high oil prices, such as refiners, exploration
and production companies, and power utilities. Within the banking sector, we
have key overweightings in U.K. banks, which generally have performed poorly
based on fears of a slowdown in U.K. consumer spending. We feel the fears are
overdone, however, and find the banks to be trading at attractive valuations
and offering compelling dividend yields. We also hold domestically oriented
retail banks that offer strong growth prospects, a low risk profile and the
potential to realize merger-related synergies - such as Italy's UniCredito
Italiano SpA.
The outlook for European equity markets is promising on a number of grounds.
First, alternative assets, such as bonds and cash, offer less attractive
returns than stocks, which, at current valuations, provide a higher yield.
Other measures of valuation also point to the attractiveness of equities,
notably their price-to-earnings ratios, which are at the low end of their
historical range, and price-to-book ratios, which are moderate - especially
considering the high return on equity that many European companies are
currently generating. European corporations are now in good shape after years
of restructuring, and we expect capital investment and merger-and-acquisition
activity to be stronger forces in 2006 as companies look to boost their
businesses' sustainable growth rate. In the absence of an external market
shock, we believe that European equities should remain on an upward
trajectory.
James Macmillan
Vice President and Portfolio Manager
November 15, 2005
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after six years. In addition, Class B Shares are subject to
a distribution fee of 0.75% per year and an account maintenance fee of 0.25%
per year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.) All returns for periods greater than eight years reflect
this conversion.
* Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one year
of purchase.
* Class I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class I
Shares are available only to eligible investors.
* Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of 0.25%
per year and an account maintenance fee of 0.25% per year. Class R Shares are
available only to certain retirement plans. Prior to inception, Class R Share
performance results are those of Class I Shares (which have no distribution or
account management fees) restated for Class R Share fees.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. The Fund may charge a 2% redemption fee for sales or exchanges of
shares within 30 days of purchase. Performance data does not reflect this
potential fee. Figures shown in each of the following tables assume
reinvestment of all dividends and capital gain distributions, if any, at net
asset value on the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Dividends paid to each class of shares will vary
because of the different levels of account maintenance, distribution and
transfer agency fees applicable to each class, which are deducted from the
income available to be paid to shareholders.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Performance Data (continued)
Recent Performance Results
6-Month 12-Month 10-Year
As of October 31, 2005 Total Return Total Return Total Return
ML EuroFund Class A Shares* +4.40% +16.20% +195.29%
ML EuroFund Class B Shares* +4.03 +15.28 +177.21
ML EuroFund Class C Shares* +4.03 +15.33 +172.77
ML EuroFund Class I Shares* +4.53 +16.52 +202.61
ML EuroFund Class R Shares* +4.27 +16.01 +191.55
MSCI Europe Index** +6.16 +16.30 +141.91
* Investment results shown do not reflect sales charges; results shown would be lower if a
sales charge was included. Cumulative total investment returns are based on changes in net
asset values for the periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date.
** This unmanaged capitalization-weighted Index is comprised of a representative sampling of
large-, medium- and small-capitalization companies in developed European countries.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
A line graph illustrating the growth of a $10,000 investment in ML EuroFund++
Class A, Class B, Class C, Class I and Class R Shares* compared to a similar
investment in Morgan Stanley Capital International Europe Index++++. Values
illustrated are as follows:
ML EuroFund++
Class A Shares*
Date Value
October 1995 $ 9,475.00
October 1996 $11,235.00
October 1997 $14,812.00
October 1998 $16,810.00
October 1999 $20,657.00
October 2000 $20,929.00
October 2001 $18,170.00
October 2002 $16,547.00
October 2003 $20,236.00
October 2004 $24,077.00
October 2005 $27,979.00
ML EuroFund++
Class B Shares*
Date Value
October 1995 $10,000.00
October 1996 $11,761.00
October 1997 $15,388.00
October 1998 $17,323.00
October 1999 $21,127.00
October 2000 $21,227.00
October 2001 $18,282.00
October 2002 $16,544.00
October 2003 $20,049.00
October 2004 $23,855.00
October 2005 $27,721.00
ML EuroFund++
Class C Shares*
Date Value
October 1995 $10,000.00
October 1996 $11,755.00
October 1997 $15,376.00
October 1998 $17,308.00
October 1999 $21,110.00
October 2000 $21,213.00
October 2001 $18,268.00
October 2002 $16,517.00
October 2003 $20,033.00
October 2004 $23,651.00
October 2005 $27,277.00
ML EuroFund++
Class I Shares*
Date Value
October 1995 $ 9,475.00
October 1996 $11,262.00
October 1997 $14,881.00
October 1998 $16,925.00
October 1999 $20,859.00
October 2000 $21,176.00
October 2001 $18,434.00
October 2002 $16,835.00
October 2003 $20,634.00
October 2004 $24,608.00
October 2005 $28,672.00
ML EuroFund++
Class R Shares*
Date Value
October 1995 $10,000.00
October 1996 $11,827.00
October 1997 $15,550.00
October 1998 $17,598.00
October 1999 $21,582.00
October 2000 $21,800.00
October 2001 $18,883.00
October 2002 $17,159.00
October 2003 $21,081.00
October 2004 $25,132.00
October 2005 $29,155.00
Morgan Stanley Capital International Europe Index++++
Date Value
October 1995 $10,000.00
October 1996 $11,747.00
October 1997 $14,799.00
October 1998 $18,212.00
October 1999 $20,492.00
October 2000 $20,685.00
October 2001 $15,959.00
October 2002 $13,744.00
October 2003 $17,065.00
October 2004 $20,801.00
October 2005 $24,191.00
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
++ ML EuroFund invests primarily in equities of corporations domiciled in
European countries. Under normal market conditions, at least 80% of the
Fund's net assets will be invested in European corporate securities,
primarily common stocks and debt and preferred securities convertible
into common stock.
++++ This unmanaged capitalization-weighted Index is comprised of a
representative sampling of large-, medium- and small-capitalization
companies in developed European countries.
Past performance is not predictive of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 10/31/05 +16.20% +10.10%
Five Years Ended 10/31/05 + 5.98 + 4.84
Ten Years Ended 10/31/05 +11.44 +10.84
Return Return
Without CDSC With CDSC++++++
Class B Shares++
One Year Ended 10/31/05 +15.28% +11.28%
Five Years Ended 10/31/05 + 5.17 + 4.84
Ten Years Ended 10/31/05 +10.73 +10.73
Return Return
Without CDSC With CDSC++++++
Class C Shares++++
One Year Ended 10/31/05 +15.33% +14.33%
Five Years Ended 10/31/05 + 5.16 + 5.16
Ten Years Ended 10/31/05 +10.56 +10.56
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 10/31/05 +16.52% +10.40%
Five Years Ended 10/31/05 + 6.25 + 5.11
Ten Years Ended 10/31/05 +11.71 +11.11
Class R Shares Return
One Year Ended 10/31/05 +16.01%
Five Years Ended 10/31/05 + 5.99
Ten Years Ended 10/31/05 +11.29
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Performance Data (concluded)
MSCI COUNTRY INDEX PERFORMANCE
Total Return for the 12-Month Period Ended October 31, 2005
In U.S. dollars*
Country Total Return
Norway 37.7%
Denmark 27.7
Switzerland 23.5
Spain 19.2
Germany 17.0
Sweden 16.5
Finland 16.2
France 15.2
Netherlands 15.0
United Kingdom 14.2
Italy 10.9
Ireland 2.5
Source: MSCI Europe Index.
* For the 12-month period ended October 31, 2005, total investment
return for the MSCI Europe Index was +16.30%.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses
related to transactions, including sales charges, redemption fees and exchange
fees; and (b) operating expenses including advisory fees, distribution fees
including 12(b)-1 fees, and other Fund expenses. The following example (which
is based on a hypothetical investment of $1,000 invested on May 1, 2005 and
held through October 31, 2005) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales
charges, redemption fees or exchange fees. Therefore, the second table is
useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value May 1, 2005 to
May 1, October 31, October 31,
2005 2005 2005
Actual
Class A $1,000 $1,044.00 $ 6.42
Class B $1,000 $1,040.30 $10.39
Class C $1,000 $1,040.30 $10.44
Class I $1,000 $1,045.30 $ 5.13
Class R $1,000 $1,042.70 $ 7.71
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,019.06 $ 6.34
Class B $1,000 $1,015.15 $10.26
Class C $1,000 $1,015.10 $10.32
Class I $1,000 $1,020.32 $ 5.07
Class R $1,000 $1,017.79 $ 7.62
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.24% for Class A, 2.01% for Class B, 2.02% for Class C, .99% for Class I and 1.49% for Class R),
multiplied by the average account value over the period, multiplied by 185/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half-year divided by 365.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Schedule of Investments (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
Belgium--1.9%
Diversified Telecommunication
Services--1.6%
Belgacom SA 339,704 $ 11,376,361
Leisure Equipment & Products--0.3%
AGFA-Gevaert NV (f) 112,889 2,429,770
Total Common Stocks in Belgium 13,806,131
Finland--3.2%
Electric Utilities--3.2%
Fortum Oyj 1,301,650 23,027,153
Total Common Stocks in Finland 23,027,153
France--15.0%
Automobiles--1.3%
Peugeot SA 153,524 9,322,873
Commercial Banks--4.7%
BNP Paribas 278,599 21,105,985
Credit Agricole SA 452,934 13,264,147
--------------
34,370,132
Construction & Engineering--1.3%
Vinci SA 122,860 9,594,529
Food & Staples Retailing--2.3%
Carrefour SA (f) 371,341 16,501,079
Metals & Mining--0.9%
Arcelor 267,125 6,338,179
Oil, Gas & Consumable Fuels--4.5%
Total SA 127,960 32,093,453
Total Common Stocks in France 108,220,245
Germany--17.9%
Air Freight & Logistics--2.2%
Deutsche Post AG 709,099 15,797,391
Auto Components--0.9%
Continental AG 85,599 6,541,162
Commercial Banks--1.8%
Deutsche Postbank AG (f) 242,641 13,368,650
Construction & Engineering--1.0%
Hochtief AG 183,147 7,394,760
Diversified Financial Services--1.8%
Deutsche Boerse AG 135,140 12,706,300
Electric Utilities--2.3%
E.ON AG 182,074 16,486,758
Industrial Conglomerates--1.0%
Siemens AG 93,571 6,955,343
Insurance--3.9%
Allianz AG Registered Shares 202,284 28,548,477
Multi-Utilities--3.0%
RWE AG 343,248 21,904,723
Total Common Stocks in Germany 129,703,564
Shares
Country Industry Common Stocks Held Value
Hungary--1.3%
Oil, Gas & Consumable Fuels--1.3%
Mol Magyar Olaj-es Gazipari Rt. 102,595 $ 9,462,947
Total Common Stocks in Hungary 9,462,947
Italy--8.7%
Commercial Banks--3.7%
Capitalia SpA 1,986,778 10,351,520
UniCredito Italiano SpA 2,946,379 16,438,176
--------------
26,789,696
Electric Utilities--1.7%
Enel SpA 1,510,954 12,177,757
Oil, Gas & Consumable Fuels--3.3%
ENI SpA 888,232 23,788,319
Total Common Stocks in Italy 62,755,772
Netherlands--3.7%
Diversified Financial Services--2.3%
ING Groep NV CVA 566,518 16,319,030
Food & Staples Retailing--1.4%
Koninklijke Ahold NV (a) 1,053,552 7,344,200
Koninklijke Ahold NV (a)(b)(e) 439,668 2,915,439
--------------
10,259,639
Total Common Stocks in the Netherlands 26,578,669
Norway--6.4%
Commercial Banks--1.9%
DNB NOR ASA 1,375,710 14,073,597
Diversified Telecommunication
Services--1.8%
Telenor ASA 1,309,899 12,795,820
Oil, Gas & Consumable Fuels--2.7%
Statoil ASA 871,140 19,498,784
Total Common Stocks in Norway 46,368,201
Spain--2.6%
Oil, Gas & Consumable Fuels--2.6%
Repsol YPF SA 640,186 19,046,856
Total Common Stocks in Spain 19,046,856
Sweden--1.8%
Diversified Financial Services--1.8%
Investor AB 896,371 13,225,543
Total Common Stocks in Sweden 13,225,543
Switzerland--5.5%
Capital Markets--3.6%
Credit Suisse Group 581,954 25,669,801
Chemicals--1.0%
Clariant AG 567,554 7,560,939
Construction Materials--0.9%
Holcim Ltd. 107,699 6,690,000
Total Common Stocks in Switzerland 39,920,740
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Country Industry Common Stocks Held Value
United Kingdom--31.9%
Aerospace & Defense--2.0%
BAE Systems Plc 2,543,231 $ 14,879,673
Commercial Banks--13.7%
Barclays Plc 3,067,730 30,411,740
HBOS Plc 1,761,146 26,017,036
Lloyds TSB Group Plc 1,777,213 14,535,085
Royal Bank of Scotland Group Plc 1,013,957 28,073,231
--------------
99,037,092
Food & Staples Retailing--1.2%
Boots Group Plc 801,618 8,741,466
Food Products--1.3%
Cadbury Schweppes Plc 946,965 9,320,621
Insurance--4.1%
Aviva Plc 1,133,472 13,383,594
Prudential Plc 1,923,779 16,142,457
--------------
29,526,051
Oil, Gas & Consumable Fuels--3.4%
BP Plc 2,213,910 24,455,732
Pharmaceuticals--1.1%
GlaxoSmithKline Plc 313,369 8,149,181
Specialty Retail--1.5%
Kesa Electricals Plc 2,484,721 10,556,622
Shares
Country Industry Common Stocks Held Value
United Kingdom (concluded)
Transportation Infrastructure--1.6%
BAA Plc 1,057,432 $ 11,484,263
Wireless Telecommunication
Services--2.0%
Vodafone Group Plc 5,457,212 14,321,933
Total Common Stocks in the United Kingdom 230,472,634
Total Common Stocks
(Cost--$586,402,459)--99.9% 722,588,455
Beneficial
Short-Term Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (c) $ 3,608,438 3,608,438
Merrill Lynch Liquidity Series, LLC
Money Market Series (c)(d) 8,150,887 8,150,887
Total Short-Term Securities
(Cost--$11,759,325)--1.6% 11,759,325
Total Investments (Cost--$598,161,784*)--101.5% 734,347,780
Liabilities in Excess of Other Assets--(1.5%) (10,845,302)
--------------
Net Assets--100.0% $ 723,502,478
==============
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
* The cost and unrealized appreciation (depreciation) of investments as
of October 31, 2005, as computed for federal income tax purposes, were
as follows:
Aggregate cost $ 606,468,034
================
Gross unrealized appreciation $ 139,293,588
Gross unrealized depreciation (11,413,842)
----------------
Net unrealized appreciation $ 127,879,746
================
(a) Non-income producing security.
(b) Depositary Receipts.
(c) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (8,690,044) $ 276,261
Merrill Lynch Liquidity Series, LLC
Money Market Series $ 6,536,457 $ 6,129
(d) Security was purchased with the cash proceeds from securities loans.
(e) Restricted securities as to resale, representing 0.4% of net assets
were as follows:
Acquisition
Issue Date Cost Value
Koninklijke Ahold NV* 12/11/2003 $2,612,154 $2,915,439
* Depositary Receipts.
(f) Security, or a portion of security, is on loan.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Statement of Assets and Liabilities
As of October 31, 2005
Assets
Investments in unaffiliated securities, at value (including securities loaned
of $7,744,424) (identified cost--$586,402,459) $ 722,588,455
Investments in affiliated securities, at value (identified cost--$11,759,325) 11,759,325
Cash 3,204
Foreign cash (cost--$40,916) 40,873
Receivables:
Securities sold $ 7,549,856
Dividends 1,734,316
Beneficial interest sold 303,308
Securities lending--net 4,094 9,591,574
---------------
Prepaid expenses 40,972
---------------
Total assets 744,024,403
---------------
Liabilities
Collateral on securities loaned, at value 8,150,887
Payables:
Securities purchased 8,251,616
Beneficial interest redeemed 3,006,146
Investment adviser 466,265
Distributor 196,073
Other affiliates 179,681 12,099,781
---------------
Accrued expenses and other liabilities 271,257
---------------
Total liabilities 20,521,925
---------------
Net Assets
Net assets $ 723,502,478
===============
Net Assets Consist of
Class A Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 1,803,602
Class B Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 692,637
Class C Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 310,264
Class I Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 1,489,727
Class R Shares of beneficial interest, $.10 par value, unlimited number of shares authorized 5,434
Paid-in capital in excess of par 629,860,345
Undistributed investment income--net $ 12,730,934
Accumulated realized capital losses--net (59,662,954)
Unrealized appreciation--net 136,272,489
---------------
Total accumulated earnings--net 89,340,469
---------------
Net Assets $ 723,502,478
===============
Net Asset Value
Class A--Based on net assets of $312,605,850 and 18,036,021 shares of beneficial
interest outstanding $ 17.33
===============
Class B--Based on net assets of $103,835,508 and 6,926,369 shares of beneficial
interest outstanding $ 14.99
===============
Class C--Based on net assets of $44,880,559 and 3,102,642 shares of beneficial
interest outstanding $ 14.47
===============
Class I--Based on net assets of $261,357,764 and 14,897,271 shares of beneficial
interest outstanding $ 17.54
===============
Class R--Based on net assets of $822,797 and 54,337 shares of beneficial interest outstanding $ 15.14
===============
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Statement of Operations
For the Year Ended October 31, 2005
Investment Income
Dividends (net of $2,457,003 foreign withholding tax) $ 23,386,930
Interest from affiliates 276,261
Securities lending--net 6,129
---------------
Total income 23,669,320
---------------
Expenses
Investment advisory fees $ 5,772,941
Account maintenance and distribution fees--Class B 1,246,795
Account maintenance fees--Class A 807,571
Account maintenance and distribution fees--Class C 465,426
Transfer agent fees--Class A 444,323
Transfer agent fees--Class I 378,272
Accounting services 313,325
Custodian fees 222,472
Transfer agent fees--Class B 203,402
Transfer agent fees--Class C 78,274
Professional fees 56,137
Trustees' fees and expenses 45,598
Registration fees 42,163
Printing and shareholder reports 37,937
Pricing fees 12,026
Account maintenance and distribution fees--Class R 2,336
Transfer agent fees--Class R 655
Other 42,660
---------------
Total expenses 10,172,313
---------------
Investment income--net 13,497,007
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 101,585,453
Foreign currency transactions--net (174,484) 101,410,969
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (103,739)
Foreign currency transactions--net (352,801) (456,540)
--------------- ---------------
Total realized and unrealized gain--net 100,954,429
---------------
Net Increase in Net Assets Resulting from Operations $ 114,451,436
===============
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 2005 2004
Operations
Investment income--net $ 13,497,007 $ 7,518,460
Realized gain--net 101,410,969 66,414,398
Change in unrealized appreciation/depreciation--net (456,540) 44,286,448
--------------- ---------------
Net increase in net assets resulting from operations 114,451,436 118,219,306
--------------- ---------------
Dividends to Shareholders
Investment income--net:
Class A (3,365,709) (4,465,133)
Class B (817,956) (965,539)
Class C (349,969) (308,166)
Class I (3,564,298) (4,042,258)
Class R (2,125) (2)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (8,100,057) (9,781,098)
--------------- ---------------
Beneficial Interest Transactions
Net decrease in net assets derived from beneficial interest transactions (109,193,086) (5,745,667)
--------------- ---------------
Redemption Fees
Redemption fees 11,227 635
--------------- ---------------
Net Assets
Total increase (decrease) in net assets (2,830,480) 102,693,176
Beginning of year 726,332,958 623,639,782
--------------- ---------------
End of year* $ 723,502,478 $ 726,332,958
=============== ===============
* Undistributed investment income--net $ 12,730,934 $ 7,492,018
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Financial Highlights
Class A
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.07 $ 12.86 $ 10.67 $ 11.89 $ 14.40
---------- ---------- ---------- ---------- ----------
Investment income--net** .31 .18 .20 .16 .18
Realized and unrealized gain (loss)--net 2.12++ 2.24++ 2.14 (1.20) (1.96)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.43 2.42 2.34 (1.04) (1.78)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.17) (.21) (.15) (.18) --
Realized gain--net -- -- -- -- (.50)
In excess of realized gain--net -- -- -- -- (.23)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.17) (.21) (.15) (.18) (.73)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 17.33 $ 15.07 $ 12.86 $ 10.67 $ 11.89
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 16.20% 18.98% 22.29% (8.93%) (13.18%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.24% 1.30% 1.33% 1.31% 1.31%
========== ========== ========== ========== ==========
Investment income--net 1.84% 1.24% 1.78% 1.35% 1.36%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 312,606 $ 296,757 $ 280,223 $ 265,602 $ 276,919
========== ========== ========== ========== ==========
Portfolio turnover 72.29% 78.02% 64.01% 39.98% 37.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Includes redemption fees, which are less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 13.08 $ 11.18 $ 9.25 $ 10.25 $ 12.48
---------- ---------- ---------- ---------- ----------
Investment income--net** .16 .03 .10 .03 .07
Realized and unrealized gain (loss)--net 1.84++ 1.99++ 1.85 (1.00) (1.70)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.00 2.02 1.95 (.97) (1.63)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.09) (.12) (.02) (.03) --
Realized gain--net -- -- -- -- (.41)
In excess of realized gain--net -- -- -- -- (.19)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.09) (.12) (.02) (.03) (.60)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.99 $ 13.08 $ 11.18 $ 9.25 $ 10.25
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 15.28% 18.14% 21.19% (9.51%) (13.87%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.01% 2.09% 2.12% 2.10% 2.08%
========== ========== ========== ========== ==========
Investment income--net 1.06% .23% .98% .30% .62%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 103,836 $ 132,725 $ 96,395 $ 108,337 $ 253,646
========== ========== ========== ========== ==========
Portfolio turnover 72.29% 78.02% 64.01% 39.98% 37.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Includes redemption fees, which are less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 12.64 $ 10.83 $ 9.00 $ 10.03 $ 12.25
---------- ---------- ---------- ---------- ----------
Investment income--net** .15 .02 .09 .05 .07
Realized and unrealized gain (loss)--net 1.78++ 1.92++ 1.81 (1.00) (1.67)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.93 1.94 1.90 (.95) (1.60)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.10) (.13) (.07) (.08) --
Realized gain--net -- -- -- -- (.42)
In excess of realized gain--net -- -- -- -- (.20)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.10) (.13) (.07) (.08) (.62)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.47 $ 12.64 $ 10.83 $ 9.00 $ 10.03
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 15.33% 18.06% 21.29% (9.59%) (13.88%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.02% 2.08% 2.12% 2.10% 2.10%
========== ========== ========== ========== ==========
Investment income--net 1.05% .20% .99% .48% .58%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 44,881 $ 44,166 $ 25,134 $ 24,153 $ 30,838
========== ========== ========== ========== ==========
Portfolio turnover 72.29% 78.02% 64.01% 39.98% 37.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Includes redemption fees, which are less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Financial Highlights (continued)
Class I
The following per share data and ratios have been derived For the Year Ended October 31,
from information provided in the financial statements. 2005 2004 2003 2002 2001
Per Share Operating Performance
Net asset value, beginning of year $ 15.25 $ 13.01 $ 10.80 $ 12.03 $ 14.56
---------- ---------- ---------- ---------- ----------
Investment income--net** .36 .21 .23 .18 .22
Realized and unrealized gain (loss)--net 2.15++ 2.27++ 2.17 (1.20) (1.98)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.51 2.48 2.40 (1.02) (1.76)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.22) (.24) (.19) (.21) --
Realized gain--net -- -- -- -- (.52)
In excess of realized gain--net -- -- -- -- (.25)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.22) (.24) (.19) (.21) (.77)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 17.54 $ 15.25 $ 13.01 $ 10.80 $ 12.03
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 16.52% 19.26% 22.57% (8.68%) (12.95%)
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses .99% 1.05% 1.08% 1.06% 1.06%
========== ========== ========== ========== ==========
Investment income--net 2.09% 1.50% 2.00% 1.46% 1.59%
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 261,358 $ 252,580 $ 221,888 $ 189,899 $ 281,109
========== ========== ========== ========== ==========
Portfolio turnover 72.29% 78.02% 64.01% 39.98% 37.77%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Includes redemption fees, which are less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Financial Highlights (concluded)
Class R
For the Period
For the Year Ended January 3, 2003++
The following per share data and ratios have been derived October 31, to October 31,
from information provided in the financial statements. 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 13.23 $ 11.32 $ 9.67
------------ ------------ ------------
Investment income--net*** .18 .33 .25
Realized and unrealized gain--net 1.93+++++ 1.82+++++ 1.40
------------ ------------ ------------
Total from investment operations 2.11 2.15 1.65
------------ ------------ ------------
Less dividends from investment income--net (.20) (.24) --
------------ ------------ ------------
Net asset value, end of period $ 15.14 $ 13.23 $ 11.32
============ ============ ============
Total Investment Return**
Based on net asset value per share 16.01% 19.22% 17.06%+++
============ ============ ============
Ratios to Average Net Assets
Expenses 1.48% 1.35% 1.58%*
============ ============ ============
Investment income--net 1.10% 2.51% 1.50%*
============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 823 $ 104 $ --++++
============ ============ ============
Portfolio turnover 72.29% 78.02% 64.01%
============ ============ ============
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
++++ Amount is less than $1,000.
+++ Aggregate total investment return.
+++++ Includes redemption fees, which are less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch EuroFund (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Fund's financial statements are prepared in conformity with U.S.
generally accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from these
estimates. The Fund offers multiple classes of shares. Shares of Class A and
Class I are sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. Class R Shares are sold
only to certain retirement plans. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions,
except that Class A, Class B, Class C and Class R Shares bear certain expenses
related to the account maintenance of such shares, and Class B, Class C and
Class R Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures (except that
Class B shareholders may vote on certain changes to the Class A distribution
plan). Income, expenses (other than expenses attributable to a specific class)
and realized and unrealized gains and losses are allocated daily to each class
based on its relative net assets. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Fund. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Trustees of the Fund. Short positions traded
in the OTC market are valued at the last available asked price. Portfolio
securities that are traded both in the OTC 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 OTC market, the last
asked price. Options purchased are valued at their 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. Swap agreements are valued based upon fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
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, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the
Fund's Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Fund.
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the New York Stock Exchange
("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 also are generally determined prior to the close of business on
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 business on the NYSE that may not be reflected in the
computation of the Fund's net asset value. If events (for example, a company
announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities may be valued at their fair value as determined in good faith
by the Fund's Board of Trustees or by the Investment Adviser using a pricing
service and/or procedures approved by the Fund's Board of Trustees.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Notes to Financial Statements (continued)
(b) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are the
result of settling (realized) or valuing (unrealized) assets or liabilities
expressed in foreign currencies into U.S. dollars. Realized and unrealized
gains or losses from investments include the effects of foreign exchange rates
on investments. The Fund invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(c) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the
securities 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 may enter into forward foreign
exchange contracts as a hedge against either specific transactions or
portfolio positions. The contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value at the time it was opened and the value at the
time it was closed.
* Options--The Fund may write covered call options and put options and
purchase put and call options. When the Fund writes an option, an amount equal
to the premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium paid
(or received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Fund enters into a closing transaction), the
Fund realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the closing
transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. Such transactions may
be effected with respect to hedges on non-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.
(d) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed
are subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Prepaid registration fees--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 dates.
(h) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The market
value of the loaned securities is determined at the close of business of the
Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Fund receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and
the borrower, after notice, is required to return borrowed securities within
five business days. The Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience
delays and costs in gaining access to the collateral. The Fund also could
suffer a loss where the value of the collateral falls below the market value
of the borrowed securities, in the event of borrower default or in the event
of losses on investments made with cash collateral.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Notes to Financial Statements (continued)
(i) Reclassifications--U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the
current year, $16,450 has been reclassified between paid-in capital in excess
of par and undistributed net investment income and $174,484 has been
reclassified between undistributed net investment income and accumulated
realized net capital losses as a result of permanent differences attributable
to non-deductible expenses and foreign currency transactions. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch
& Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also
entered into a Distribution Agreement and Distribution Plan with FAM
Distributors, Inc. ("FAMD" or the"Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee of .75% on an annual basis of the average daily value of the
Fund's net assets. MLIM has entered into a Sub-Advisory Agreement with Merrill
Lynch Asset Management U.K., Limited ("MLAM U.K."), an affiliate of MLIM,
pursuant to which MLIM pays MLAM U.K. a fee computed at the rate of .15% of
the average daily net assets of the Fund for providing investment advisory
services to MLIM with respect to the Fund. There is no increase in the
aggregate fees paid by the Fund for these services.
Pursuant to the Distribution Plan adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of
the shares as follows:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
Class R .25% .25%
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of MLIM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders.
The ongoing distribution fee compensates the Distributor and MLPF&S for
providing shareholder and distribution-related services to Class B, Class C
and Class R shareholders. The Fund did not accrue Class R distribution fees
because of regulatory fee limits for a portion of the year ended October 31,
2005.
For the year ended October 31, 2005, FAMD earned underwriting discounts and
MLPF&S earned dealer concessions on sales of the Fund's Class A and Class I
Shares as follows:
FAMD MLPF&S
Class A $ 2,272 $ 27,467
Class I $ 324 $ 4,254
For the year ended October 31, 2005, MLPF&S received contingent deferred sales
charges of $55,387 and $1,112 relating to transactions in Class B and Class C
Shares, respectively.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. As of October 31, 2005, the Fund lent securities with a value of
$82,430 to MLPF&S or its affiliates. Pursuant to that order, the Fund also has
retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of
MLIM, as the securities lending agent for a fee based on a share of the
returns on investment of cash collateral. MLIM, LLC may, on behalf of the
Fund, invest cash collateral received by the Fund for such loans, among other
things, in a private investment company managed by MLIM, LLC or in registered
money market funds advised by MLIM or its affiliates. For the year ended
October 31, 2005, MLIM, LLC received $4,518 in securities lending agent fees.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Notes to Financial Statements (continued)
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co.,
is the Fund's transfer agent.
For the year ended October 31, 2005, the Fund reimbursed MLIM $22,215 for
certain accounting services.
Certain officers and/or trustees of the Fund are officers and/or directors of
MLIM, PSI, MLAM U.K., FDS, FAMD, ML & Co, and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2005 were $541,793,256 and $621,110,216, respectively.
4. Shares of Beneficial Interest:
Net decrease in net assets derived from beneficial interest transactions was
$109,193,086 and $5,745,667 for the years ended October 31, 2005 and October
31, 2004, respectively.
Transactions in shares of beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
Shares sold 730,850 $ 12,402,263
Automatic conversion of shares 884,567 15,092,810
Shares issued to shareholders in
reinvestment of dividends 170,169 2,814,591
--------------- ---------------
Total issued 1,785,586 30,309,664
Shares redeemed (3,444,337) (58,496,300)
--------------- ---------------
Net decrease (1,658,751) $ (28,186,636)
=============== ===============
Class A Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
Shares sold 694,486 $ 9,796,831
Automatic conversion of shares 853,461 12,235,452
Shares issued to shareholders in
reinvestment of dividends 277,998 3,775,211
Shares issued resulting from
reorganization 471,734 6,615,501
--------------- ---------------
Total issued 2,297,679 32,422,995
Shares redeemed (4,399,923) (62,434,629)
--------------- ---------------
Net decrease (2,102,244) $ (30,011,634)
=============== ===============
Class B Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
Shares sold 621,825 $ 9,113,250
Shares issued to shareholders in
reinvestment of dividends 46,466 669,568
--------------- ---------------
Total issued 668,291 9,782,818
--------------- ---------------
Shares redeemed (2,873,266) (42,086,236)
Automatic conversion of shares (1,019,330) (15,092,810)
--------------- ---------------
Total redeemed (3,892,596) (57,179,046)
--------------- ---------------
Net decrease (3,224,305) $ (47,396,228)
--------------- ===============
Class B Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
Shares sold 695,607 $ 8,646,065
Shares issued to shareholders in
reinvestment of dividends 69,927 830,038
Shares issued resulting from
reorganization 4,337,313 52,862,876
--------------- ---------------
Total issued 5,102,847 62,338,979
--------------- ---------------
Shares redeemed (2,593,448) (32,155,835)
Automatic conversion of shares (980,237) (12,235,452)
--------------- ---------------
Total redeemed (3,573,685) (44,391,287)
--------------- ---------------
Net increase 1,529,162 $ 17,947,692
=============== ===============
Class C Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
Shares sold 272,704 $ 3,909,716
Shares issued to shareholders in
reinvestment of dividends 21,164 294,186
--------------- ---------------
Total issued 293,868 4,203,902
Shares redeemed (686,493) (9,693,026)
--------------- ---------------
Net decrease (392,625) $ (5,489,124)
=============== ===============
Class C Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
Shares sold 259,859 $ 3,111,916
Shares issued to shareholders in
reinvestment of dividends 24,054 275,895
Shares issued resulting from
reorganization 1,584,595 18,663,787
--------------- ---------------
Total issued 1,868,508 22,051,598
Shares redeemed (695,064) (8,368,312)
--------------- ---------------
Net increase 1,173,444 $ 13,683,286
=============== ===============
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Notes to Financial Statements (continued)
Class I Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
Shares sold 2,353,688 $ 40,343,208
Shares issued to shareholders in
reinvestment of dividends 181,926 3,039,982
--------------- ---------------
Total issued 2,535,614 43,383,190
Shares redeemed (4,199,346) (72,200,408)
--------------- ---------------
Net decrease (1,663,732) $ (28,817,218)
================ ===============
Class I Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
Shares sold 2,504,179 $ 36,220,817
Shares issued to shareholders in
reinvestment of dividends 259,805 3,564,504
Shares issued resulting from
reorganization 583,702 8,281,601
--------------- ---------------
Total issued 3,347,686 48,066,922
Shares redeemed (3,846,083) (55,535,220)
--------------- ---------------
Net decrease (498,397) $ (7,468,298)
=============== ===============
Class R Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
Shares sold 83,995 $ 1,255,856
Shares issued to shareholders in
reinvestment of dividends 147 2,125
--------------- ---------------
Total issued 84,142 1,257,981
Shares redeemed (37,702) (561,861)
--------------- ---------------
Net increase 46,440 $ 696,120
=============== ===============
Class R Shares for the Year Dollar
Ended October 31, 2004 Shares Amount
Shares sold 11,127 $ 142,930
Shares issued to shareholders in
reinvestment of dividends -- 2
--------------- ---------------
Total issued 11,127 142,932
Shares redeemed (3,240) (39,645)
--------------- ---------------
Net increase 7,887 $ 103,287
=============== ===============
The Fund charges a 2% redemption fee on the proceeds (calculated at market
value) of a redemption (either by sale or exchange) of Fund shares made within
30 days of purchase. The redemption fee is paid to the Fund and is intended to
offset the trading costs, market impact and other costs associated with short-
term trading into and out of the Fund.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates,
is a party to a $500,000,000 credit agreement with a group of lenders which
expires November 2005 and was subsequently renewed for one year under
substantially the same terms. The Fund may borrow under the credit agreement
to fund shareholder redemptions and for other lawful purposes other than for
leverage. The Fund may borrow up to the maximum amount allowable under the
Fund's current prospectus and statement of additional information, subject to
various other legal, regulatory or contractual limits. The Fund pays a
commitment fee of .07% per annum based on the Fund's pro rata share of the
unused portion of the credit agreement. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each Fund's election, the
federal funds rate plus .50% or a base rate as defined in the credit
agreement. The Fund did not borrow under the credit agreement during the year
ended October 31, 2005.
6. Commitments:
At October 31, 2005, the Fund had outstanding foreign exchange contracts under
which it had agreed to purchase and sell various foreign currencies with
approximate values of $3,174,000 and $2,480,000, respectively.
7. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended October
31, 2005 and October 31, 2004 was as follows:
10/31/2005 10/31/2004
Distributions paid from:
Ordinary income $ 8,100,057 $ 9,781,098
--------------- ---------------
Total taxable distributions $ 8,100,057 $ 9,781,098
=============== ===============
As of October 31, 2005, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ 14,440,952
Undistributed long-term capital gains--net --
---------------
Total undistributed earnings--net 14,440,952
Capital loss carryforward (53,074,584)*
Unrealized gains--net 127,974,101**
---------------
Total accumulated earnings--net $ 89,340,469
===============
* On October 31, 2005, the Fund had a net capital loss carryforward
of $53,074,584, of which $6,606,462 expires in 2008, $11,183,902
expires in 2009, and $35,284,220 expires in 2011. This amount will
be available to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on wash
sales, and the realization for tax purposes of unrealized gains
on certain foreign currency contracts and investments in passive
foreign investment companies.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
of Merrill Lynch EuroFund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch EuroFund as of October 31, 2005,
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 the financial highlights for each of the five years in the period then
ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2005,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. 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 EuroFund as of October 31, 2005, 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 its financial highlights for each of the
five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2005
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by Merrill Lynch Eurofund to shareholders of record on
December 14, 2004:
Qualified Dividend Income for Individuals 100%
Foreign Source Income 98.06%*
Foreign Taxes Paid Per Share $.056610
* Expressed as a percentage of the cash distributions grossed-up for
foreign taxes. The Fund hereby designates the percentage indicated
above or the maximum allowable by law..
The foreign taxes paid represent taxes incurred by the Fund on income received
by the Fund from foreign sources. Foreign taxes paid are included in taxable
income and may be either deducted from gross income or taken as a credit for
taxes paid to foreign governments. You should consult your tax adviser
regarding the appropriate treatment of foreign taxes paid.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Disclosure of Investment Advisory Agreement
Activities of and Composition of the Board of Trustees
All but one member of the Board of Trustees is an independent trustee whose
only affiliation with Merrill Lynch Investment Managers, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a trustee of the Fund and
certain other funds advised by the Investment Adviser or its affiliates. The
Chairman of the Board is also an independent trustee. New trustee nominees are
chosen as nominees by a Nominating Committee comprised of independent
Trustees. All independent Trustees also are members of the Board's Audit
Committee and the independent Trustees meet in executive session at each in-
person Board meeting. The Board and the Audit Committee meet in person for
at least two days each quarter and conduct other in-person and telephone
meetings throughout the year, some of which are formal board meetings, and
some of which are informational meetings. The independent counsel to the
independent Trustees attends all in-person Board and Audit Committee meetings
and other meetings at the independent Trustees' request.
Investment Advisory Agreement--Matters Considered by the Board
Every year, the Board considers approval of the Fund's investment advisory
agreement (the "Investment Advisory Agreement"). The Board also annually
reviews and considers approval of the sub-advisory agreement on behalf of the
Fund between the Investment Adviser and an affiliate. The Board assesses the
nature, scope and quality of the services provided to the Fund by the
personnel of the Investment Adviser, the sub-adviser and their affiliates,
including administrative services, shareholder services, oversight of fund
accounting, marketing services and assistance in meeting legal and regulatory
requirements. The Board also receives and assesses information regarding the
services provided to the Fund by certain unaffiliated service providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
Investment Adviser and its affiliates, including the sub-adviser. Among the
matters considered are: (a) fees (in addition to management fees) paid to the
Investment Adviser and its affiliates by the Fund, such as transfer agency
fees and fees for marketing and distribution; (b) Fund operating expenses paid
to third parties; (c) the resources devoted to and compliance reports relating
to the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and the Investment Adviser's compliance
policies and procedures; and (d) the nature, cost and character of non-
investment management services provided by the Investment Adviser and its
affiliates.
The Board believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by
the Investment Adviser to be generally of high quality. The Board also
believes that the Investment Adviser is financially sound and well managed and
notes that the Investment Adviser is affiliated with one of America's largest
financial firms. The Board works closely with the Investment Adviser in
overseeing the Investment Adviser's efforts to achieve good performance. As
part of this effort, the Board discusses portfolio manager effectiveness and,
when performance is not satisfactory, discusses with the Investment Adviser
taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Trustees
In the period prior to the Board meeting to consider renewal of the Investment
Advisory Agreement and the sub-advisory agreement, the Board requests and
receives materials specifically relating to the Fund's Investment Advisory
Agreement and/or the sub-advisory agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses and
the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) sales and redemption data for the Fund; (c)
a discussion by the Fund's portfolio management team of investment strategies
used by the Fund during its most recent fiscal year; (d) information on the
profitability to the Investment Adviser and its affiliates of the Investment
Advisory Agreement, the sub-advisory agreement and other relationships with
the Fund; and (e) information provided by the Investment Adviser concerning
investment advisory fees charged to other clients, such as offshore funds,
under similar investment mandates. The Board also considers other matters it
deems important to the approval process such as payments made to the
Investment Adviser or its affiliates relating to the distribution of Fund
shares, services related to the valuation and pricing of Fund portfolio
holdings, allocation of Fund brokerage fees (including the related benefits to
the Investment Adviser of "soft dollars"), the Fund's portfolio turnover
statistics, and direct and indirect benefits to the Investment Adviser and the
sub-adviser and their affiliates from their relationship with the Fund.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Disclosure of Investment Advisory Agreement (continued)
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's Investment Advisory
Agreement and the sub-advisory agreement in May 2005, the independent
Trustees' and Board's review included the following:
Services Provided by the Investment Adviser--The Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including
the investment advisory services and the resulting performance of the Fund,
and the sub-adviser. The Board focused primarily on the Investment Adviser's
investment advisory services and the Fund's investment performance, having
concluded that the other services provided to the Fund by the Investment
Adviser were satisfactory. The Board compared Fund performance - both
including and excluding the effects of the Fund's fees and expenses - to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. While the Board reviews performance
data at least quarterly, consistent with the Investment Adviser's investment
goals, the Board attaches more importance to performance over relatively long
periods of time, typically three to five years. The Fund's performance after
fees and expenses ranked in the second quintile for the one and three year
periods ended February 28, 2005 and in the first quintile for the five-year
periods ended February 28, 2005. The Board concluded that the Fund's
performance supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process--The Board reviews
at least annually the Fund's investment objectives and strategies. The Board
discusses with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
equity investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considers the size, education and
experience of the Investment Adviser's investment staff, its use of
technology, and the Investment Adviser's approach to training and retaining
portfolio managers and other research, advisory and management personnel. The
Board also reviews the Investment Adviser's compensation policies and
practices with respect to the Fund's portfolio managers. The Board also
considered the experience of the Fund's portfolio managers and noted that Mr.
Macmillan has more than ten years experience in portfolio management;
moreover, the Investment Adviser and its investment staff have extensive
experience in analyzing and managing the types of investments used by the
Fund. The Board concluded that the Fund benefits from that expertise.
Management Fees and Other Expenses--The Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory and
administrative service fees and the effects of any fee waivers - compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. The Board considered the services
provided to and the fees charged by the Investment Adviser to other types of
clients with similar investment mandates, including offshore funds. The Board
noted that the fees charged to offshore clients exceeded those being charged
to the Fund. The Fund's contractual management fee rate, actual management fee
rate, and total expenses were below the median fees and expenses charged by
comparable funds, as determined by Lipper. The Board has concluded that the
Fund's management fee rate and overall expense ratio are reasonable compared
to those of other comparable funds.
Profitability--The Board considers the cost of the services provided to the
Fund by the Investment Adviser, and the Investment Adviser's and its
affiliates' profits in relation to the management and distribution of the Fund
and the MLIM/ FAM-advised funds. As part of its analysis, the Board reviewed
the Investment Adviser's methodology in allocating its costs to the management
of the Fund and concluded that there was a reasonable basis for the
allocation. The Board also considered the federal court decisions discussing
an investment adviser's profitability and profitability levels considered to
be reasonable in those decisions. The Board believes that the profits of the
Investment Adviser and its affiliates are acceptable in relation to the nature
and quality of services provided and given the level of fees and expenses
overall.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Disclosure of Investment Advisory Agreement (concluded)
Economies of Scale--The Board considered the extent to which economies of
scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable
the Fund to participate in these economies of scale. The Board discussed with
the Investment Adviser the implementation of breakpoints as the Fund's assets
reach a level where such economies are effectively available and the Board
will continue to seek information relating to economies of scale.
Conclusion
After the independent Trustees deliberated in executive session, the entire
Board, including all of the independent Trustees, approved the renewal of the
existing Investment Advisory Agreement and sub-advisory agreement, concluding
that the advisory fee was reasonable in relation to the services provided and
that a contract renewal was in the best interests of the shareholders.
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Trustee
Robert C. Doll, Jr.* President 2005 to President of the MLIM/FAM-advised funds since 131 Funds None
P.O. Box 9011 and present 2005; President of MLIM and FAM since 2001; 177 Portfolios
Princeton, Trustee Co-Head (Americas Region) thereof from 2000
NJ 08543-9011 to 2001 and Senior Vice President from 1999
Age: 51 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since
2001; President of Princeton Administrators, L.P.
("Princeton Administrators") since 2001; Chief
Investment Officer of OppenheimerFunds, Inc. in
1999 and Executive Vice President thereof from
1991 to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which MLIM or FAM acts as investment adviser. Mr. Doll is an
"interested person," as described in the Investment Company Act, of the Fund based on
his current positions with MLIM, FAM, Princeton Services and Princeton Administrators.
Trustees serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72. As Fund President, Mr. Doll serves at the pleasure
of the Board of Trustees.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Officers and Trustees (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Independent Trustees*
Ronald W. Forbes** Trustee 2000 to Professor Emeritus of Finance, School of 49 Funds None
P.O. Box 9095 present Business, State University of New York at 50 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant,
Age: 65 Urban Institute, Washington, D.C. from 1995
to 1999.
Cynthia A. Montgomery Trustee 2000 to Professor, Harvard Business School since 1989; 49 Funds Newell
P.O. Box 9095 present Associate Professor, J.L. Kellogg Graduate 50 Portfolios Rubbermaid,
Princeton, School of Management, Northwestern University Inc.
NJ 08543-9095 from 1985 to 1989; Associate Professor, Graduate (manufacturing)
Age: 53 School of Business Administration, University of
Michigan from 1979 to 1985; Director, Harvard
Business School of Publishing since 2005.
Jean Margo Reid Trustee 2004 to Self-employed consultant since 2001; Counsel 49 Funds None
P.O. Box 9095 present of Alliance Capital Management (investment 50 Portfolios
Princeton, adviser) in 2000; General Counsel, Director and
NJ 08543-9095 Secretary of Sanford C. Bernstein & Co., Inc.
Age: 60 (investment adviser/broker-dealer) from 1997
to 2000; Secretary, Sanford C. Bernstein Fund,
Inc. from 1994 to 2000; Director and Secretary
of SCB, Inc. since 1998; Director and Secretary
of SCB Partners, Inc. since 2000; and Director of
Covenant House from 2001 to 2004.
Roscoe S. Suddarth Trustee 2000 to President, Middle East Institute, from 1995 to 49 Funds None
P.O. Box 9095 present 2001; Foreign Service Officer, United States 50 Portfolios
Princeton, Foreign Service, from 1961 to 1995 and Career
NJ 08543-9095 Minister from 1989 to 1995; Deputy Inspector
Age: 70 General, U.S. Department of State, from 1991
to 1994; U.S. Ambassador to the Hashemite
Kingdom of Jordan from 1987 to 1990.
Richard R. West Trustee 1988 to Professor of Finance from 1984 to 1995, Dean 49 Funds Bowne & Co.,
P.O. Box 9095 present from 1984 to 1993 and since 1995 Dean 50 Portfolios Inc.; (financial
Princeton, Emeritus of New York University's Leonard N. printers);
NJ 08543-9095 Stern School of Business Administration. Vornado Realty
Age: 67 Trust (real estate
company);
Alexander's, Inc.
(real estate
company)
Edward D. Zinbarg Trustee 1994 to Self-employed financial consultant since 1994; 49 Funds None
P.O. Box 9095 present Executive Vice President of the Prudential 50 Portfolios
Princeton, Insurance Company of America from 1988 to
NJ 08543-9095 1994; Former Director of Prudential Reinsurance
Age: 71 Company and former Trustee of the Prudential
Foundation.
* Trustees serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Board and the Audit Committee.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Officers and Trustees (concluded)
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
P.O. Box 9011 President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
Princeton, and and Since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
NJ 08543-9011 Treasurer 1999 to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
Age: 45 present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
James A. Macmillan Vice 2005 to Managing Director of MLIM since 2000; Director (Equity Fund Management) of an
P.O. Box 9011 President present affiliate of MLIM from 1993 to 2000.
Princeton,
NJ 08543-9011
Age: 40
Jeffrey Hiller Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
P.O. Box 9011 Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
Princeton, Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
NJ 08543-9011 Investment Management from 2002 to 2004; Managing Director and Global Director
Age: 54 of Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
P.O. Box 9011 present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD
Princeton, and Princeton Services since 2004.
NJ 08543-9011
Age: 45
* Officers of the Fund serve at the pleasure of the Board of Trustees.
Further information about the Fund's Officers and Trustees is available in the
Fund's Statement of Additional Information, which can be obtained without
charge by calling 1-800-MER-FUND.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH EUROFUND OCTOBER 31, 2005
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as
of the end of the period covered by this report, that applies to
the registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge upon request by calling toll-free 1-800-MER-FUND
(1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee
and (ii) each audit committee financial expert is independent: (1)
Ronald W. Forbes, (2) Richard R. West, and (3) Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2005 - $34,000
Fiscal Year Ending October 31, 2004 - $31,000
(b) Audit-Related Fees -
Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(c) Tax Fees - Fiscal Year Ending October 31, 2005 - $5,700
Fiscal Year Ending October 31, 2004 - $5,800
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services
provided to the registrant on an annual basis require specific pre-
approval by the Committee. The Committee also must approve other
non-audit services provided to the registrant and those non-audit
services provided to the registrant's affiliated service providers
that relate directly to the operations and the financial reporting
of the registrant. Certain of these non-audit services that the
Committee believes are a) consistent with the SEC's auditor
independence rules and b) routine and recurring services that will
not impair the independence of the independent accountants may be
approved by the Committee without consideration on a specific case-
by-case basis ("general pre-approval"). However, such services
will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any
proposed services exceeding the pre-approved cost levels will
require specific pre-approval by the Committee, as will any other
services not subject to general pre-approval (e.g., unanticipated
but permissible services). The Committee is informed of each
service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2005 - $6,277,749
Fiscal Year Ending October 31, 2004 - $13,270,096
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal
accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined
that the registrant's disclosure controls and procedures are
effective based on our evaluation of these controls and procedures
as of a date within 90 days prior to the filing date of this
report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch EuroFund
By: /s/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch EuroFund
Date: December 16, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch EuroFund
Date: December 16, 2005
By: /s/ Donald C. Burke
----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch EuroFund
Date: December 16, 2005