<PAGE>
As filed with the Securities and Exchange Commission on March 12, 1996
Securities Act File No. 33-
Investment Company Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. / /
(Check appropriate box or boxes)
MERRILL LYNCH GLOBAL
VALUE FUND, INC.
(Exact name of registrant as specified in charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (609) 282-2000
Arthur Zeikel
Merrill Lynch Global Value Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
Copies to:
Counsel for the Fund: Philip L. Kirstein, Esq.
Brown & Wood Mark B. Goldfus, Esq.
One World Trade Center Merrill Lynch Asset Management
New York, New York 10048-0557 P.O. Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011
Frank P. Bruno, Esq.
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
An indefinite number of shares of common stock of the Registrant is
being registered by this Registration Statement under the Securities Act
of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
_____________ ________
<S> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . Fee Table
Item 3. Condensed Financial Information . . . . Not Applicable
Item 4. General Description of Registrant . . . Risk Factors and Special
Considerations; Investment
Objective and Policies;
Investment Restrictions;
Additional Information
Item 5. Management of the Fund . . . . . . . . . Fee Table; Management of
the Fund; Inside Back
Cover Page
Item 5A. Management's Discussion of Fund
Performance . . . . . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . Cover Page; Additional
Information
Item 7. Purchase of Securities Being Offered . . Cover Page; Merrill Lynch
Select Pricing/SM/ System;
Fee Table; Purchase of
Shares; Shareholder
Services; Additional
Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase . . . . . . . . Merrill Lynch Select
Pricing/SM/ System; Fee
Table; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings. . . . . . . . Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . Back Cover Page
Item 12. General Information and History . . . . Not Applicable
Item 13. Investment Objective and Policies . . . Investment Objective
and Policies; Investment
Restrictions
Item 14. Management of the Fund . . . . . . . . Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . Management of the Fund;
Additional Information
Item 16. Investment Advisory and Other
Services . . . . . . . . . . . . . . . Management of the Fund;
Purchase of Shares;
General Information
Item 17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities. . . General Information--
Description of Shares
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . Purchase of Shares;
Redemption of Shares;
Determination of Net Asset
Value; Shareholder
Services
Item 20. Tax Status . . . . . . . . . . . . . . Taxes
Item 21. Underwriters . . . . . . . . . . . . . Purchase of Shares
Item 22. Calculation of Performance Data . . . . Performance Data
Item 23. Financial Statements . . . . . . . . . Statement of Assets and
Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 12, 1996
PROSPECTUS
----------
, 1996
Merrill Lynch Global Value Fund, Inc.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
Merrill Lynch Global Value Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company seeking long-term capital<PAGE>
appreciation by
investing primarily in equity securities of issuers located in various
foreign countries and the United States that Merrill Lynch Asset Management,
L.P., the manager of the Fund (the "Manager"), believes represent investment
value. The Manager will seek to identify securities whose market prices are
low when compared to certain valuation measurements, and therefore represent
investment value. The Fund may employ a variety of derivative investments
and techniques to hedge against market and currency risk. Also, the Fund may
invest in certain derivative instruments, such as indexed and inverse
securities, to enhance its return. There can be no assurance that the
Fund's investment objective will be achieved. For more information on the
Fund's investment objective and policies, see "Investment Objective and
Policies"
on page 14.
Investments on an international basis in foreign securities markets
involve risks and special considerations not typically associated with
investments in securities of United States issuers. See "Risk Factors and
Special Considerations."
Pursuant to the Merrill Lynch Select Pricing/SM/ System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing/SM/ System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing/SM/ System" on page 4.
(Continued on next page)
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________
This Prospectus is a concise statement of information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should
be retained for future reference. A statement containing additional
information about the Fund, dated _______, 1996 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission and is available, without charge, by calling or by writing the
Fund at the above telephone number or address. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
_____________________
Merrill Lynch Asset Management--Manager
Merrill Lynch Funds Distributor, Inc.--Distributor
<PAGE>
(Continued from Cover Page)
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), P.O. Box
9081, Princeton, New Jersey 08543-9081 ((609) 282-2800), and other
securities dealers which have entered into selected dealer agreements with
the Distributor, including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), will solicit subscriptions for shares of the Fund
during a period expected to end on ___________, 1996, unless extended. On
the third business day after the conclusion of the subscription period, the
subscriptions will be payable, the shares will be issued and the Fund
will commence operations. The public offering price of the shares during
the subscription offering will be $10.00 per share in the case of Class B
and Class C shares and $10.00 per share plus a sales charge of $.554, subject
to reductions on purchases in single transactions of $25,000 or more, in the
case of Class A and Class D shares. After the completion of the initial
subscription offering, the Fund will engage in a continuous offering of its
shares at a price equal to the next determined net asset value per share in
the case of Class B and Class C shares and the next determined net asset
value per share, plus a sales charge subject to reductions as noted above,
in the case of Class A and Class D shares. Shareholders may redeem their
shares at any time at the next determined net asset value. The Class B
shares may be subject to a contingent deferred sales charge (a "CDSC") of up
to 4.00% if redeemed within four years of purchase and are subject to
ongoing account maintenance and distribution fees. The Class C shares may
be subject to a CDSC of 1.00% if redeemed within one year of purchase
and are subject to ongoing account maintenance and distribution fees.
The Class D shares are subject to an ongoing account maintenance fee.
The minimum initial purchase during the subscription and continuous offerings
is $1,000 and the minimum subsequent purchase in the continuous offering is
$50, except for retirement plans, where the minimum initial purchase is
$100 and the minimum subsequent purchase is $1. Merrill Lynch may charge
its customers a processing fee (presently $4.85) for confirming purchases
and repurchases. Purchases and redemptions directly through Merrill Lynch
Financial Data Services, Inc., the Fund's transfer agent (the "Transfer
Agent"), are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
2
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
Class A(a) Class B(b) Class C Class D
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering price) 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on
Dividend Reinvestments None None None None
Deferred Sales Charge (as
a percentage of original
purchase price or redemption
proceeds, whichever is lower) None(d) 4.0% during 1.0% for None(d)
the first year one year
decreasing to
1.0% annually
to 0.0% after
the fourth
year
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Management Fees(e) ____% ____% ____% ____%
Rule 12b-l Fees(f):
Account Maintenance Fees None 0.25% 0.25% 0.25%
Distribution Fees None 0.75% 0.75% None
(Class B shares
convert to Class
D shares after
approximately
eight years and
cease being
subject to
distribution
fees)
Other Expenses
Shareholder Servicing
Costs(e) 0.__% 0.__% 0.__% 0.__%
Custodial Fees 0.__% 0.__% 0.__% 0.__%
Miscellaneous 0.__% 0.__% 0.__% 0.__%
----- ----- ----- -----
Total Other Expenses 0.__% 0.__% 0.__% 0.__%
----- ----- ----- -----
Total Fund Operating Expenses ____% ____% ____% ____%
</TABLE>
(a) Class A shares are sold to a limited group of investors, including
existing Class A shareholders, certain retirement plans and investment
programs. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares" on page 25.
(b) Class B shares convert to Class D shares automatically approximately
eight years after initial purchase. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" on page 27.
(c) Reduced for purchases of $(25,000) and over. Class A or Class D
purchases of $(1,000,000) or more may not be subject to an initial
sales charge. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares" on page 25.
(d) Class A and Class D shares are not subject to a CDSC, except that
purchases of $1,000,000 or more which may not be subject to an
initial sales charge instead may be subject to a CDSC if redeemed
within the first year of purchase.
(e) See "Management of the Fund--Management and Advisory Arrangements" on
page 21.
(f) See "Purchase of Shares--Distribution Plans" on page 29.
(g) See "Management of the Fund--Transfer Agency Services" on page 22.
3
<PAGE>
<TABLE>
<CAPTION>
Cumulative Expenses Paid
for the Period of:
-------------------------
EXAMPLE: 1 Year 3 Years
------ -------
<S> <C> <C>
An investor would pay the following expenses on
a $1,000 investment including, the maximum $52.50
initial sales charge (Class A and Class D shares
only) and assuming (1) The Total Fund
Operating Expenses for each class set
forth above, (2) a 5% annual return throughout the
periods and (3) redemption at the end of the period:
Class A . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class B . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class C . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class D . . . . . . . . . . . . . . . . . . . . . . $________ $_________
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption
at the end of the period:
Class A . . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class B . . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class C . . . . . . . . . . . . . . . . . . . . . . $________ $_________
Class D . . . . . . . . . . . . . . . . . . . . . . $________ $_________
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly
or indirectly. The expenses set forth under "Other Expenses" are based on
estimated amounts through the end of the Fund's first fiscal year on an
annualized basis. The Example set forth above assumes reinvestment
of all dividends and distributions and utilizes a 5% annual rate of return as
mandated by Securities and Exchange Commission (the "Commission") regulations.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
Class B and Class C shareholders who hold their shares for an extended period
of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$4.85) for confirming purchases and repurchases. Purchases and redemptions
directly through the Transfer Agent are not subject to the processing fee.
See "Purchase of Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICING/SM/ SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing/SM/ System. The shares of each class may be purchased during the
subscription offering at $10.00 per share and during the continuous offering
at a price equal to the next determined net asset value per share, subject
during both the subscription offering and the continuous offering to the
sales charges and ongoing fee arrangements described below. Shares of Class
A and Class D are sold to investors choosing the initial sales charge
alternatives, and shares of Class B and Class C are sold to investors
choosing the deferred sales charge alternatives. The Merrill Lynch Select
Pricing/SM/ System is used by more than 50 mutual funds advised by the
Manager or its affiliate, Fund Asset Management, L.P. ("FAM"). Funds
advised by the Manager or FAM are referred to herein as "MLAM-advised mutual
funds".
Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund and has
the same rights, except that Class B, Class C and Class D shares bear
the expenses of the ongoing account maintenance fees and Class B and
Class C shares bear the expenses of the ongoing distribution fees and the
additional incremental transfer agency costs resulting from the deferred
sales charge arrangements. The deferred sales charges and account maintenance
fees that are imposed on Class B and
4
<PAGE>
Class C shares, as well as the account maintenance fees that are imposed
on the Class D shares, will be imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Fund for
each class of shares will be calculated in the same manner at the same time
and will differ only to the extent that account maintenance and distribution
fees and any incremental transfer agency costs relating to a particular class
are borne exclusively by that class. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same
as those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing/SM/ System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing System that the investor believes
is most beneficial under his or her particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
<CAPTION> Account
Maintenance Distribution Conversion
Class Sales Charge(1) Fee Fee Feature
----- --------------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/(2)//(3)/
B CDSC for periods of up to 4 years, 0.25% 0.75% B Shares convert to
at a rate of 4% D shares
during the first year, decreasing automatically after
1% annually to approximately eight
0.0% years/(4)/
C 1% CDSC for one year 0.25% 0.75% No
D Maximum 5.25% initial sales 0.25% No No
charge/(3)/
</TABLE>
__________________________
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. Contingent deferred sales charges ("CDSCs") are
imposed if the redemption occurs within the applicable CDSC time period.
The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares -- Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a CDSC if redeemed within one year.
See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans will be modified.
Class A: Class A shares incur an initial sales charge when they are
purchased and bear no ongoing distribution or account maintenance
fees. Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class
A shares of the Fund in a shareholder account are entitled to
purchase additional Class A shares of the Fund in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition,
Class A shares of the Fund will be offered to Merrill Lynch & Co.,
Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries",
when used herein with respect to ML & Co., includes the Manager,
FAM and certain other entities directly or indirectly wholly-
owned and controlled by ML & Co.) and to their directors and
employees and to members of the Boards of MLAM-advised mutual
funds. The maximum initial sales charge is 5.25%, which is
reduced for purchases of $25,000 and over and
5
<PAGE>
waived for purchases by certain retirement plans in connection
with certain investment programs. Purchases of $1,000,000 or more
may not be subject to an initial sales charge but instead may be
subject to a CDSC if the shares are redeemed within one year after
purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of
all classes of all MLAM-advised mutual funds. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares".
Class B: Class B shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25% of the Fund's average net assets attributable to
Class B shares, and an ongoing distribution fee of 0.75%, and a
CDSC if they are redeemed within four years of purchase.
Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Fund, which
are subject to the same account maintenance fee of 0.25% but no
distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class
D shares automatically after approximately 10 years. If Class
B shares of the Fund are exchanged for Class B shares of
another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will
apply, as will the Class D account maintenance fee of the
acquired fund upon the conversion and the holding period for
the shares exchanged will be tacked onto the holding period
for the shares acquired. Automatic conversion of Class B
shares into Class D shares will occur at least once a month on
the basis of the relative net asset values of the shares of the
two classes on the Conversion Date (as defined below), without
the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not
be deemed a purchase or sale of the shares for Federal income
tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to
Class D shares. The conversion period for dividend reinvestment
shares and for certain retirement plans will be modified
as described under "Purchase of Shares -- Deferred Sales
Charge Alternatives--Class B and Class C Shares--Conversion
of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25% of the Funds average net assets attributable to
Class C shares and an ongoing distribution fee of 0.75%. Class C
shares also are subject to a CDSC if they are redeemed within
one year of purchase. Although Class C shares are subject to a
1.0% CDSC for only one year (as compared to four years for Class
B), Class C shares have no conversion feature and, accordingly, an
investor that purchases Class C shares will be subject to
distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board
of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee
of 0.25% of average net assets attributable to Class D shares.
Class D shares are not subject to an ongoing distribution fee
or any CDSC when they are redeemed. The schedule of initial
sales charges and reductions for the Class D shares is the same
as the schedule for Class A shares. Class D shares also will
be issued upon conversion of Class B shares as described above
under "Class B". See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill
Lynch Select Pricing/SM/ System that the investor believes is most
beneficial under his or her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial
sales charge alternative may elect to purchase Class D shares or, if an
eligible investor, Class A shares. Investors choosing the initial sales
charge alternative who are eligible to purchase Class A shares should
purchase Class A shares rather than Class D shares
6
<PAGE>
because there is an account maintenance fee imposed on Class D shares.
Investors qualifying for significantly reduced initial sales charges may find
the initial sales charge alternative particularly attractive because similar
sales charge reductions are not available with respect to the deferred sales
charges imposed in connection with purchases of Class B or Class C shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time also may decide to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the
account maintenance fee. Although some investors that previously purchased
Class A shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges
on new initial sales charge purchases. In addition, the ongoing Class B and
Class C account maintenance and distribution fees will cause Class B and Class
C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a higher expense
ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges
are deducted at the time of purchase, Class B and Class C shares provide
the benefit of putting all of the investor's dollars to work from the
time the investment is made. The deferred sales charge alternatives may
be particularly appealing to investors who do not qualify for a reduction
in initial sales charges. Both Class B and Class C shares are subject to
ongoing account maintenance and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be offset to
the extent any return is realized on the additional funds initially
invested in Class B or Class C shares. In addition, Class B shares
will be converted into Class D shares of the Fund after a conversion
period of approximately eight years, and thereafter investors will be subject
to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine
it to be most advantageous to have all their funds invested initially and
intend to hold their shares for an extended period of time. Investors in
Class B shares should take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
invested until the end of the conversion period and thereby take advantage
of the reduction in ongoing fees resulting from the conversion into Class D
shares. Although Class C shareholders are subject to the same CDSC period
and rate as Class B shareholders, Class C shares have no conversion feature
and therefore are subject to account maintenance and distribution fees for an
indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited
under a voluntary waiver of asset-based sales charges. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges".
The Directors of the Fund have determined that currently no conflict of
interest exists between the Class A, Class B, Class C and Class D shares.
On an ongoing basis, the Directors of the Fund, pursuant to their fiduciary
duties under the Investment Company Act of 1940 and state laws, will seek to
assume that no such conflict arises.
7
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL
Because a substantial portion of the Fund's assets may be invested in
securities of non-U.S. issuers, an investor in the Fund should be aware of
certain risk factors and special considerations relating to international
investing, each of which may involve risks which are not typically associated
with investments in securities of U.S. issuers. Consequently, the Fund
should be considered as a means of diversifying an investment portfolio
and not in itself a balanced investment program.
INVESTING ON AN INTERNATIONAL BASIS
Specific Risks. Investing on an international basis involves certain
risks not involved in domestic investments, including fluctuations in foreign
exchange rates, future political and economic developments, different legal
systems and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Securities prices in different countries
are subject to different economic, financial, political and social factors.
Since the Fund invests heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities in the Fund and the unrealized
appreciation or depreciation of investments. Currencies of certain countries
may be volatile and therefore may affect the value of securities denominated in
such currencies. In addition, with respect to certain foreign countries, there
is the possibility of expropriation of assets, confiscatory taxation,
difficulty in obtaining or enforcing a court judgment, economic, political or
social instability or diplomatic developments which could affect investments in
those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rates of inflation, capital reinvestment, resources, self-
sufficiency and balance of payments position. Certain foreign investments also
may be subject to foreign withholding taxes. These risks often are heightened
for investments in smaller, emerging capital markets.
As a result, the Manager may determine that, notwithstanding otherwise
favorable investment criteria, it may not be practicable or appropriate to
invest in a particular country. The Fund may invest in countries in which
foreign investors, including the Manager, have had no or limited prior
experience.
Public Information. Many of the securities held by the Fund will not be
registered with the Commission, nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about a foreign issuer than about a U.S.
issuer and such foreign issuers may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those of U.S.
issuers. As a result, traditional investment measurements, such as price/
earnings ratios, as used in the United States, may not be applicable to
certain smaller, emerging foreign capital markets. Foreign issuers, and
issuers in smaller, emerging capital markets in particular, generally are not
subject to uniform accounting, auditing and financial reporting standards or to
practices and requirements comparable to those applicable to domestic issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets,
while often growing in trading volume, have, for the most part, substantially
less volume than U.S. markets, and securities of many foreign companies are
less liquid and their prices may be more volatile than securities of comparable
domestic companies. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further,
satisfactory custodial services for investment securities may not be available
in some countries having smaller, emerging capital markets, which may result in
the Fund incurring additional costs and delays in transporting and custodying
such securities outside such countries. Delays in settlement could result in
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems or the risk of intermediary counterparty failures could cause the Fund
to miss attractive investment opportunities. The inability to dispose of a
portfolio security due to settlement problems could result either in losses to
the Fund due to subsequent declines in the value of such
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portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
Government Supervision and Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers and issuers
in foreign countries than there is in the United States. For example,
there may be no comparable provisions under certain foreign laws
to insider trading and similar investor protection securities laws that apply
with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign
securities exchanges generally are higher than in the United States.
Depositary Receipts. The Fund may purchase sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs") (collectively, "Depositary
Receipts") or other securities convertible into securities of foreign issuers.
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the securities underlying unsponsored Depositary Receipts are not
obligated to disclose material information in the United States, and therefore,
there may be less information available regarding such issuers and there not be
a correlation between such information and the market value of the Depositary
Receipts. Depositary Receipts also involve the risks of other investments in
foreign securities, as discussed above.
Restrictions on Foreign Investment. Some countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Fund. As illustrations,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons in a company to only a
specific class of securities which may have less advantageous terms than
securities of the company available for purchase by nationals. Certain
countries may restrict investment opportunities in issuers or industries deemed
important to national interests.
A number of countries, such as Chile, Brazil, South Korea, Taiwan and
Thailand, have authorized the formation of closed-end investment companies
to facilitate indirect foreign investment in their capital markets. In
accordance with the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Fund may invest up to 10% of its total assets
in securities of closed-end investment companies, not more than 5% of which
may be invested in any one such company. This restriction on investments in
securities of closed-end investment companies may limit opportunities
for the Fund to invest indirectly in certain smaller capital markets.
Shares of certain closed-end investment companies may at times be acquired
only at market prices representing premiums to their net asset values.
If the Fund acquires shares in closed-end investment companies, shareholders
would bear both their proportionate share of expenses in the Fund (including
investment advisory fees) and, indirectly, the expenses of such closed-end
investment companies. The Fund also may seek, at its own cost, to create
its own investment entities under the laws of certain countries.
In some countries, banks or other financial institutions may constitute
a substantial number of the leading companies or companies with the most
actively traded securities. The Investment Company Act limits the Fund's
ability to invest in any equity security of an issuer which, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities", as defined by the rules thereunder. These provisions
may also restrict the fund's investments in certain foreign banks and
other financial institutions.
Foreign Sub-custodians and Securities Depositories. Rules adopted under
the Investment Company Act permit the Fund to maintain its foreign securities
and cash in the custody of certain eligible non-U.S. banks and securities
depositories. Certain banks in foreign countries may not be eligible
sub-custodians for the Fund, in which event the Fund may be precluded
from purchasing securities in certain foreign countries in which it otherwise
would invest or which may result in the Fund's incurring additional costs and
delays in providing transportation and custody services for such securities
outside of such countries. The Fund may encounter difficulties in effecting on
a timely basis portfolio transactions with respect to any securities of issuers
held outside their countries. Other banks that are eligible foreign sub-
custodians may be recently organized or otherwise lack extensive operating
experience. In addition, in certain countries there may be legal restrictions
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or limitations on the ability of the Fund to recover assets held in custody by
foreign sub-custodians in the event of the bankruptcy of the sub-custodian.
NO RATING CRITERIA FOR DEBT SECURITIES
The Fund has not established any rating criteria for the debt securities
in which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to low rating categories
of nationally recognized statistical rating organizations, such as Standard
& Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's"),
and unrated securities of comparable quality (such lower rated and unrated
securities are referred to herein as "high yield/high risk securities" or "junk
bonds") are speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security and generally involve a
greater volatility of price than securities in higher rating categories. See
Appendix to the Statement of Additional Information "Ratings of Debt Securities
and Preferred Stock". These securities commonly are referred to as "junk
bonds." In purchasing such securities, the Fund will rely on the Manager's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer of such securities. The Manager will take into consideration, among
other things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. The Fund will not invest in debt securities
which are in default at the time of investment.
The market values of high yield/high risk securities, or "junk bonds",
tend to reflect individual issuer developments to a greater extent than
do higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Issuers of high yield/high risk
securities may be highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the
case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high
yield/high risk securities may be more likely to experience financial stress
especially if such issuers are highly leveraged. During such periods, service
of debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of high
yield/high risk securities because such securities may be unsecured and may be
subordinated to other creditors of the issuer.
High yield/high risk securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Fund.
If a call were exercised by the issuer during a period of declining interest
rates, the Fund likely would have to replace such called securities with
lower yielding securities, thus decreasing the new investment income
to the Fund and dividends to shareholders.
The Fund may have difficulty disposing of certain high yield/high risk
securities, or "junk bonds", because there may be a thin trading market for
such securities. To the extent that a secondary trading market for high
yield/high risk securities does exist, it generally is not as liquid as
the secondary market for higher rated securities. Reduced secondary
market liquidity may have an adverse impact on market price and the Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain high yield/high risk securities also may make it
more difficult for the Fund to obtain accurate market quotations for purposes
of valuing the Fund's portfolio. Market quotations generally are available on
many high yield/high risk securities only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales. The Fund's Directors, or the Manager will consider carefully the
factors affecting the market for high yield/high risk, lower rated securities
in determining whether any particular security is liquid or illiquid and
whether current market quotations readily are available.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high
yield/high risk securities, particularly in a thinly traded market.
Factors adversely affecting the market value of high yield/high risk
securities are likely to affect adversely the Fund's net asset value. In
addition, the Fund
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may incur additional expenses to the extent it is required to seek recovery
upon a default on a portfolio holding or participate in the restructuring of
the obligations.
BORROWING
The Fund may borrow up to 33-1/3% of its total assets, taken at market
value, but only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions (so as not to force the
Fund to liquidate securities at a disadvantageous time) or to settle
securities transactions. The Fund will not purchase securities at any time
when borrowings exceed 5% of its total assets, except (a) to honor prior
commitments or (b) to exercise subscription rights when outstanding borrowings
have been obtained exclusively for settlements of other securities
transactions. The purchase of securities while borrowings are outstanding will
have the effect of leveraging the Fund. Such leveraging increases the Fund's
exposure to capital risk, and borrowed funds are subject to interest costs
which will reduce net income.
DERIVATIVE INVESTMENTS
In order to seek to hedge various portfolio positions or to enhance its
return, the Fund may invest in certain instruments which may be characterized
as derivatives. These investments include various types of options
transactions, futures and options thereon and currency transactions. Such
investments also may consist of swap agreements and indexed securities,
including inverse securities. The Fund has express limitations on the
percentage of its assets that may be committed to certain of such investments.
Other of such investments have no express quantitative limitations, although
they may be made solely for hedging purposes, not for speculation, and may in
some cases require limitations as to the type of permissible counterparty to
the transaction. Swap agreements entail the risk that a counterparty will
default on its payment obligations to the Fund thereunder. Investments in
indexed securities, including inverse securities, subject the Fund to the risks
associated with changes in the particular indices, which may include reduced or
eliminated interest payments and losses of invested principal. Options
transactions involve the potential loss of the opportunity to profit from any
price increase in the underlying security above the option exercise price or
the potential loss of the premium paid for an option. Similarly, utilization
of futures and options thereon and currency transactions involves the risk of
imperfect correlation in movements in the price of futures, options or currency
hedge and movements in the price of the securities or currency which are the
subject of the hedge. For a further discussion of the risks associated with
these investments, see "Investment Objective and Policies--Description of
Certain Investments-Swap Agreements" on page 16,"-Indexed and Inverse
Securities" on page 17, "Other Investment Policies and Practices--Portfolio
Strategies Involving Futures, Options and Forward Foreign Exchange
Transactions" on page 17 and the Appendix to this Prospectus, "Futures,
Options and Forward Foreign Exchange Transactions" on page 41.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its total assets in securities that
lack an established secondary trading market or otherwise are considered
illiquid. (However, under the law of certain states, the Fund presently is
limited with respect to such investments to 10% of its total assets.)
Liquidity of a security relates to the ability to dispose easily of the
security and the price to be obtained upon disposition of the security, which
may be less than a comparable more liquid security. Investment of the Fund's
assets in illiquid securities may restrict the ability of the Fund to dispose
of its investments in a timely fashion and for a fair price as well as its
ability to take advantage of market opportunities. The risks associated with
illiquidity will be particularly acute in situations in which the Fund's
operations require cash, such as when the Fund redeems shares or pays
dividends, and could result in the Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.
Further, issuers whose securities are not publicly traded are not subject to
the disclosure and other investor protection requirements which would be
applicable if their securities were publicly traded. Illiquid sovereign debt
securities and corporate fixed income and equity securities may trade at a
discount from comparable, more liquid investments. In making investments in
such securities, the Fund may obtain access to material nonpublic information
which may restrict the Fund's ability to conduct portfolio transactions in such
securities. In addition, the Fund may invest in privately placed securities
which may or may not be freely transferable under the laws of the applicable
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jurisdiction or due to contractual restrictions on resale. See "Investment
Objective and Policies Description of Certain Investments--Illiquid Securities"
on page 16.
WITHHOLDING AND OTHER TAXES
Income and capital gains on securities held by the Fund may be subject to
withholding and other taxes imposed by certain jurisdictions, which would
reduce the return to the Fund on those securities. The Fund intends, unless
ineligible, to elect to "pass-through" to the Fund's shareholders, as a
deduction or credit, the amount of foreign taxes paid by the Fund. The taxes
passed through to shareholders will be included in each shareholder's income.
Certain shareholders, including non-U.S. shareholders, will not be entitled to
the benefit of a deduction or credit with respect to foreign taxes paid by the
Fund. Non-U.S. shareholders may nevertheless be subject to withholding tax on
the foreign taxes included in their income. Other taxes, such as transfer
taxes, may be imposed on the Fund, but would not give rise to a credit, or be
eligible to be passed through to shareholders.
NON-DIVERSIFICATION
The Fund is classified as a non-diversified investment company under the
Investment Company Act, which means that the Fund is not limited by the
Investment Company Act in the proportion of its assets that may be invested in
the obligations of a single issuer. Thus, the Fund may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
as a result, will be subject to greater risk of loss with respect to its
portfolio securities. The Fund, however, intends to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. See
"Additional Information Taxes" on page 36 and "Investment Restrictions" on
page 21.
FEES AND EXPENSES
The management fee (at the annual rate of ____% of the Fund's average
daily net assets) and other operating expenses of the Fund may be higher
than the management fees and operating expenses of other mutual funds managed
by the Manager and other investment advisers or of investment companies
investing exclusively in the securities of U.S. issuers. The management
fees and operating expenses, however, are believed by the Manager to be
comparable to expenses of other open-end management investment companies
that invest on a global basis with investment objectives similar to the
investment objective of the Fund.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in equity securities of issuers located in
various foreign countries and the United States that the Manager believes
represent investment value. This investment objective is a fundamental policy
of the Fund and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act. There can be no assurance that the Fund's investment
objective will be achieved.
The premise of the Fund's investment policy is that securities may be more
likely to have investment value during those periods when their market prices
are depressed. This premise is often referred to as "contrarian" because it
searches for investment opportunities among securities that may be viewed
unfavorably by investors generally.
The Manager believes that the pricing mechanisms of the international
securities markets lack total efficiency and have a tendency to inflate prices
of securities in favorable market climates and depress prices in unfavorable
climates. Depressed market prices result when companies, industries,
currencies, or international securities markets are "out of favor" because of
widely-held negative investment expectations. As a result, disfavored
securities may be less susceptible to price volatility caused by unanticipated
adverse events, but they may especially benefit from advantageous events when
they are selling at prices below their inherent value.
Investors often try to calculate the inherent value of equity securities
by reference to a number of different measurements, including present or
anticipated book value, cash flow, earnings and yield, and such financial
ratios as price/earnings, price/sales, price/research and development
expenditures, price/capital expenditures, and enterprise value/earnings before
interest, taxes, depreciation and amortization (EBITDA). The Manager will seek
to identify securities whose market prices are low when compared to such
valuation measurements, and therefore represent investment value.
The Fund will emphasize investments in equity securities, primarily common
stock, and, to a lesser extent, securities convertible into common stock,
preferred stock, rights to subscribe for common stock and other investments
the return on which is determined by the performance of a common stock or a
basket or index of common stocks. Under normal market conditions, at least 65%
of the Fund's total assets will be invested in equity securities of issuers
from at least three different countries that the Manager believes represent
investment value.
Although the Fund currently expects to frequently hold no high yield/high
risk securities or "junk bonds", it may invest up to 35% of its total assets
in high yield/high risk securities or "junk bonds" when the Manager believes
that such securities may experience a return comparable to equity investments.
The Fund has established no rating criteria for the high yield/high risk
securities in which it may invest, and such securities may not be rated at all
for creditworthiness. See "Risk Factors and Special Considerations--No Rating
Criteria for Debt Securities".
The Fund is authorized to hedge various market and currency risk. See
"Other Investment Policies and Practices--Portfolio Strategies Involving
Futures, Options and Forward Foreign Exchange Transactions" below. The
Manager currently expects to frequently hedge all or a portion of the
investment exposure to those foreign currencies that are traded in highly
liquid and efficient markets, such as the Japanese yen and the British pound
sterling. The Fund may not have any opportunity to cost-effectively hedge
its exposure to the currencies of relatively smaller economies, such as many
Latin America and Southeast Asia currencies.
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DESCRIPTION OF CERTAIN INVESTMENTS
Temporary Investments. The Fund reserves the right, as a temporary
defensive measure, to hold in excess of 35% of its total assets in cash or
cash equivalents in U.S. dollars or foreign currencies and short-term
securities including money market securities denominated in U.S.
dollars or foreign currencies ("Temporary Investments"). Under certain adverse
investment conditions, the Fund may restrict the markets in which its assets
will be invested and may increase the proportion of assets invested in
Temporary Investments. Investments made for defensive purposes will be
maintained only during periods in which the Manager determines that economic
or financial conditions are adverse for holding or being fully invested in
equity securities. A portion of the Fund normally would be held in Temporary
Investments in anticipation of investment in equity securities or to provide
for possible redemptions.
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of Depositary Receipts or other securities convertible
into securities of foreign issuers. Depositary Receipts may not necessarily
be denominated in the same currency as the underlying securities into which
they may be converted. ADRs are receipts typically issued by an American bank
or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence
a similar ownership arrangement. GDRs are receipts issued throughout the
world which evidence a similar arrangement. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets, and EDRs, in
bearer form, are designed for use in European securities markets. GDRs
are tradeable both in the U.S. and in Europe and are designed for use
throughout the world. The Fund may invest in unsponsored Depositary Receipts.
The issuers of unsponsored Depositary Receipts are not obligated to disclose
material information in the United States, and therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts.
Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holders to purchase, and
they do not represent any rights in the assets of the issuer. As a result,
an investment in warrants may be considered more speculative than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (i) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (ii) a
lesser degree of fluctuation in value than the underlying stock since they have
fixed income characteristics, and (iii) the potential for capital appreciation
if the market price of the underlying common stock increases. A convertible
security might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund may be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
Illiquid Securities. The Fund may invest up to 15% of its total assets in
securities that lack an established secondary trading market or otherwise are
considered illiquid. (However, under the laws of certain states, the Fund
presently is limited with respect to such investments to 10% of its total
assets.) The Fund may invest in securities of issuers that are sold in private
placement transactions between the issuers and their purchasers and that are
neither listed on an exchange nor traded in other established markets. In many
cases, privately placed securities will be subject to contractual or legal
restrictions on transfer. As a result of the absence of a public trading
market, privately placed securities in turn may be less liquid or illiquid and
more difficult to value than publicly traded securities. To the extent that
privately placed securities may be resold in privately negotiated transactions,
the prices realized from the sales, due to illiquidity, could be less than
those originally paid by the Fund or less than their fair market value. In
addition, issuers whose securities are not publicly traded may not
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<PAGE>
be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product lines, markets or
financial resources, or they may be dependent on a limited management group.
In making investments in such securities, the Fund may obtain access to
material nonpublic information which may restrict the Fund's ability to conduct
portfolio transactions in such securities.
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under that Act. The Board of Directors has determined to treat as
liquid Rule 144A securities which are freely tradeable in their primary markets
offshore. The Board of Directors may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity of
restricted securities. The Board of Directors, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule 144A will develop,
the Board of Directors will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity
and availability of information. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.
Swap Agreements. The Fund is authorized to enter into equity swap
agreements, which are generally contracts in which one party agrees to make
periodic payments based on the change in market value of a specified equity
security, basket of equity securities or equity index in return for periodic
payments based on a fixed or variable interest rate or the change in market
value of a different equity security, basket of equity securities or equity
index. For example, swap agreements may be used to invest in a market without
owning or taking physical custody of securities in circumstances in which
direct investment is restricted for legal reasons or is otherwise impractical.
The swap agreement will be structured to provide for early termination in the
event, for example, that the Fund desires to lock in appreciation.
Swap agreements entail the risk that a party will default on its payment
obligations to the Fund thereunder. The Fund will seek to lessen the risk to
some extent by entering into a transaction only with financial institutions
which have capital of at least $50 million or whose obligations are guaranteed
by an entity having capital of at least $50 million. Swap agreements also
bear the risk that the Fund will not be able to meet its obligation to the
counterparty. The Fund, however, will deposit in a segregated account with its
custodian high quality liquid fixed income instruments or cash or cash
equivalents or other assets permitted to be so segregated by the Commission in
an amount equal to or greater than the market value of the liabilities under
the swap agreement or the amount it would have cost the Fund initially to make
an equivalent direct investment, plus or minus any amount the Fund is obligated
to pay or is to receive under the swap agreement. The Fund will enter into a
swap transaction only if, immediately following the time the Fund enters into
the transaction, the aggregate notional principal amount of swap transactions
to which the Fund is a party would not exceed 5% of the Fund's total assets.
Indexed and Inverse Securities. The Fund may invest in securities whose
potential return is based on the change in particular measurements of value or
rate (an "index"). As an illustration, the Fund may invest in a security that
pays interest and returns principal based on the change in the value of a
securities index or a basket of securities. Interest and principal payable on
a security also may be based on relative changes among particular indices. In
addition, the Fund may invest in securities whose potential investment return
is inversely based on the change in particular indices. For example, the Fund
may invest in securities that pay a higher rate of interest and principal when
a particular index decreases and pay a lower rate of interest and principal
when the value of the index increases. To the extent that the Fund invests in
such types of securities, it will be subject to the risks associated with
changes in the particular indices, which may include reduced or eliminated
interest payments and losses of invested principal. Examples of such types of
securities are indexed or inverse securities issued with respect to a stock
market index in a particular country.
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Certain indexed securities, including certain inverse securities, may have
the effect of providing a degree of investment leverage because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities generally
will be more volatile than the market values of fixed-rate securities.
Management of the Fund believes that indexed securities, including inverse
securities, represent flexible portfolio management instruments that may allow
the Fund to seek potential investment rewards, hedge other portfolio positions,
or vary the degree of portfolio leverage relatively efficiently under different
market conditions.
Investment in Other Investment Companies. The Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Fund. In accordance with the Investment Company Act, the
Fund may invest up to 10% of its total assets in securities of other investment
companies. In addition, under the Investment Company Act the Fund may not
own more than 3% of the total outstanding voting stock of any investment
company and not more than 5% of the value of the Fund's total assets may be
invested in the securities of any investment company. If the Fund acquires
shares in investment companies, shareholders would bear both their
proportionate share of expenses in the Fund (including management and advisory
fees) and, indirectly, the expenses of such investment companies (including
management and advisory fees).
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Futures, Options and Forward Foreign
Exchange Transactions. The Fund is authorized to engage in various
portfolio strategies to hedge its portfolio against adverse movements in the
equity, debt and currency markets.
The Fund has authority to write (i.e., sell) covered put and call options
on its portfolio securities, purchase put and call options on securities and
engage in transactions in stock index options, stock index futures and
financial futures, and related options on such futures. The Fund also may
engage in forward foreign exchange transactions and enter into foreign currency
futures and options, and related options on such futures. Although certain
risks are involved in futures and options transactions, the Manager believes
that, because the Fund will engage in such transactions only for hedging
(including anticipatory hedging) purposes, the futures, options and currency
portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of futures, options and currency
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of its shares, the net asset value of
Fund shares will fluctuate. Reference is made to the Appendix of this
Prospectus and the Statement of Additional Information for further information
concerning these strategies.
There can be no assurance that the Fund's hedging transactions will be
effective. Suitable hedging instruments may not be available with respect to
securities of certain foreign issuers on a timely basis and on acceptable
terms. Furthermore, the Fund may only engage in hedging activities from time
to time and may not necessarily engage in hedging transactions when movements
in the equity, debt or currency markets occur.
Portfolio Transactions. Subject to policies established by the Board of
Directors of the Fund, the Manager is primarily responsible for the execution
of the Fund's portfolio transactions. Since portfolio transactions may be
effected on foreign securities exchanges, the Fund may incur settlement delays
on certain of such exchanges. See "Risk Factors and Special Considerations".
In executing portfolio transactions, the Manager seeks to obtain the best net
results for the Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty
of execution and operational facilities of the firm involved and the firm's
risk in positioning a block of securities. While the Manager generally seeks
reasonably competitive fees, commissions or spreads, the Fund does not
necessarily pay the lowest fee, commission or spread available. The Fund may
invest in certain securities traded in the over-the-counter ("OTC") market and,
where possible, will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve either brokerage commissions or transfer
taxes. Securities firms may receive brokerage commissions on certain portfolio
transactions, including futures, options and options on futures transactions
and the purchase and sale of underlying securities upon exercise of options.
The Fund has no obligation to deal
16
<PAGE>
with any broker or group of brokers in the execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
securities firms which provide supplemental investment research to the Manager,
including Merrill Lynch, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Manager under the Management Agreement and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information.
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such affiliated persons, including Merrill
Lynch, are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as the Fund's broker in
transactions conducted on an exchange and in OTC transactions conducted on an
agency basis and may receive brokerage commissions from the Fund. In addition,
the Fund may not purchase securities during the existence of any underwriting
syndicate for such securities of which Merrill Lynch is a member except
pursuant to procedures approved by the Board of Directors of the Fund which
comply with rules adopted by the Commission. To the extent Merrill Lynch is
active in distributions of securities of issuers in certain foreign countries,
the Fund may be disadvantaged in that it may not purchase securities in such
distributions. In addition, consistent with the Rules of Fair Practice of the
NASD, the Fund may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch. Costs associated with transactions in foreign securities are
generally higher than in the U.S., although the Fund will endeavor to achieve
the best net results in effecting its portfolio transactions.
The Fund anticipates that its brokerage transactions involving securities
of issuers domiciled in countries other than the United States generally will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There generally is less governmental supervision and regulation
of foreign stock exchanges and brokers than in the United States. See "Risk
Factors and Special Considerations."
The Fund's ability and decisions to purchase and sell portfolio securities
may be affected by foreign laws and regulations relating to the convertibility
and repatriation of assets.
Lending of Portfolio Securities. The Fund, from time to time, may lend
securities from its portfolio, with a value not exceeding 33-1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined
in the Investment Company Act. During the period of such a loan, the Fund
typically receives the income on both the loaned securities and the collateral
and thereby increases its yield. In certain circumstances, the Fund may
receive a flat fee. Such loans are terminable at any time, and the borrower,
after notice, will be required to return borrowed securities within five
business days. In the event that the borrower defaults on its obligation to
return borrowed securities because of insolvency or otherwise, the Fund could
experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
Portfolio Turnover. Generally, the Fund does not purchase securities for
short-term trading profits. However, the Fund may dispose of securities
without regard to the time they have been held when such actions, for
defensive or other reasons, appear advisable to the Manager in light of a
change in circumstances in general market, economic or financial conditions.
As a result of its investment policies, the Fund may engage in a substantial
number of portfolio transactions. Accordingly, while the Fund anticipates
that its annual portfolio turnover rate should not exceed 100% under normal
conditions, it is impossible to predict portfolio turnover rates. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year. A high portfolio turnover rate involves certain tax consequences and
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Fund.
17
<PAGE>
When-Issued Securities and Forward Commitment Transactions. The Fund may
purchase or sell securities which it is entitled to receive on a when-issued
basis, and it may purchase or sell securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Fund at the time of entering into the
transaction. Although the Fund has not established any limit on the percentage
of its assets that may be committed in connection with such transactions, the
Fund will maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt
securities denominated in U.S. dollars or non-U.S. currencies in an aggregate
amount equal to the amount of its commitments in connection with such purchase
transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold for delayed delivery will be issued, and the value of the
security, if issued, on the delivery date may be more or less than its purchase
price. The Fund may bear the risk of a decline in the value of such security
and may not benefit from an appreciation in the value of the security during
the commitment period.
Standby Commitment Agreements. The Fund, from time to time, may enter
into standby commitment agreements. Such agreements commit the Fund, for a
stated period of time, to purchase a stated amount of a fixed income security
or a stated number of shares of equity securities which may be issued and sold
to the Fund at the option of the issuer. The price and coupon of the security
is fixed at the time of the commitment. At the time of entering into the
agreement the Fund is paid a commitment fee, regardless of whether or not the
security is ultimately issued, which is typically approximately 0.50% of the
aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and presently will limit
its investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its total assets taken at the time of
acquisition of such a commitment. The Fund at all times will maintain a
segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other high grade liquid debt securities denominated
in U.S. dollars or non-U.S. currencies in an aggregate amount equal to the
purchase price of the securities underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance
of the security underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the commitment
period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the
commitment fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities, or an
affiliate thereof. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Under such agreements, the other party agrees, upon entering into the contract
with the Fund, to repurchase the security at a mutually agreed upon time and
price in a specified currency, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by currency
fluctuations. In the case of repurchase agreements, the price at which the
trades are conducted do not reflect accrued interest on the underlying
obligation; whereas, in the case of purchase and sale contracts, the prices
take into account accrued interest. Such agreements usually cover short
periods, such as under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, as a
purchaser, the
18
<PAGE>
Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement; the Fund does not have the right to seek
additional collateral in the case of purchase and sale contracts. In the event
of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. A purchase and
sale contract differs from a repurchase agreement in that the contract
arrangements stipulate that the securities are owned by the Fund. In the event
of a default under such a repurchase agreement or under a purchase and sale
contract, instead of the contractual fixed rate, the rate of return to the Fund
would be dependent upon intervening fluctuations of the market values of such
securities and the accrued interest on the securities. In such event, the Fund
would have rights against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of the seller to
perform. Repurchase agreements and purchase and sale contracts maturing in
more than seven days are deemed to be illiquid by the Commission and are
therefore subject to the Fund's investment restriction limiting investments in
securities that are not readily marketable to 15% of the Fund's total assets.
(However, under the law of certain states, the Fund presently is limited with
respect to such investments to 10% of its total assets.) See "Investment
Restrictions" below.
19
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment activities are subject to further restrictions
that are described in the Statement of Additional Information. Investment
restrictions and policies which are fundamental policies may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company
Act means the lesser of (a) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or (b) more than 50% of
the outstanding shares). Among its fundamental policies, the Fund may not
invest more than 25% of its total assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities).
Investment restrictions and policies that are non-fundamental policies may be
changed by the Board of Directors without shareholder approval. As a non-
fundamental policy, the Fund may not borrow money or pledge its assets, except
that the Fund (a) may borrow from a bank as a temporary measure for
extraordinary or emergency purposes or to meet redemptions in amounts not
exceeding 33-1/3% (taken at market value) of its total assets and pledge its
assets to secure such borrowings, (b) may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and (c) may purchase securities on margin to the extent permitted by applicable
law. (However, at the present time, applicable law prohibits the Fund from
purchasing securities on margin.) (The deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts or
options transactions is not considered to be the purchase of a security on
margin.) The purchase of securities while borrowings are outstanding will have
the effect of leveraging the Fund. Such leveraging or borrowing increases the
Fund's exposure to capital risk, and borrowed funds are subject to interest
costs which will reduce net income.
As a non-fundamental policy, the Fund will not invest in securities which
cannot readily be resold because of legal or contractual restrictions or which
are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its total assets (or 10% of its total assets
as presently required by certain state laws) taken at market value would be
invested in such securities. Notwithstanding the foregoing, the Fund may
purchase without regard to this limitation securities that are not registered
under the Securities Act, but that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the Securities Act, provided that
the Fund's Board of Directors continuously determines, based on the trading
markets for the specific Rule 144A security, that it is liquid. The Board of
Directors may adopt guidelines and delegate to the Manager the daily function
of determining and monitoring liquidity of restricted securities. The Board
has determined that securities which are freely tradeable in their primary
market outside of the United States should be deemed liquid. The Board,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.
NON-DIVERSIFIED STATUS
The Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of its assets that it may invest in securities of a single
issuer. The Fund's investments will be limited, however, in order to qualify
as a "regulated investment company" for purposes of the Code. See "Additional
Information Taxes". To qualify, the Fund will comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single issuer and
(ii) with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the securities
of a single issuer, and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. A fund which elects to be classified as
"diversified" under the Investment Company Act must satisfy the foregoing 5%
and 10% requirements with respect to 75% of its total assets. To the extent
that the Fund assumes large positions in the securities of a small number of
issuers, the Fund's net asset value may fluctuate to a greater extent than that
of a diversified company as a result of changes in the financial condition or
in the market's assessment of the issuers, and the Fund may be more susceptible
to any single economic, political or regulatory occurrence than a diversified
company.
For purposes of the diversification requirements set forth above with
respect to regulated investment companies, and to the extent required by the
Commission, the Fund, as non-fundamental policy, will consider securities
issued or guaranteed by the government of any one foreign country as the
obligations of a single issuer.
20
<PAGE>
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons", as defined in the Investment Company Act,
of the Fund. The Board of Directors of the Fund is responsible for the
overall supervision of the operations of the Fund and performs the various
duties imposed on the directors of investment companies under Maryland law
and the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL (1)(2) -- President of the Manager and FAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co.; Director of the Distributor.
(OTHER DIRECTORS TO BE PROVIDED BY AMENDMENT)
__________________
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director is a director of one or more other investment companies for
which the Manager or FAM acts as investment adviser or manager.
MANAGEMENT AND ADVISORY ARRANGEMENTS
MLAM acts as the manager of the Fund and provides the Fund with
management and investment advisory services. The Manager is owned and
controlled by ML & Co., a financial services holding company and the parent
of Merrill Lynch. The Manager, or an affiliate of the Manager, FAM, acts as
the investment adviser to more than 130 other registered investment
companies and provides investment advisory services to individual and
institutional accounts. As of January 31, 1996, the Manager and FAM had a
total of approximately $202.8 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates
of the Manager. The principal business address of the Manager is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. As described in the Management Agreement, the
Manager will receive for its services to the Fund monthly compensation at
the annual rate of _______% of the average daily net assets of the Fund.
The Management Agreement provides that, subject to the direction of the Board
of Directors of the Fund, the Manager will be responsible for the actual
management of the Fund's portfolio and will constantly review the Fund's
holdings in light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security will rest with the Manager, subject to review by the
Board of Directors. The Manager will provide the portfolio managers for
the Fund, who consider analyses from various sources (including brokerage
firms with which the Fund does business), make the necessary investment
decisions and place orders for transactions accordingly. The Manager also
will be obligated to perform certain administrative and management services
for the Fund and is obligated to provide all of the office space, facilities,
equipment and personnel necessary to perform its duties under the Management
Agreement.
The Fund pays certain expenses incurred in its operations, including,
among other things, the management fees; legal and audit fees; unaffiliated
Directors' fees and expenses; registration fees; custodian and transfer agency
fees; accounting and pricing costs; and certain of the costs of printing
proxies, shareholder reports, prospectuses and statements of additional
information. Also, accounting services will be provided to the Fund by the
Manager, and the Fund will reimburse the Manager for its costs in connection
with such services on a semi-annual basis.
21
<PAGE>
_________________ is the Portfolio Manager for the Fund. _________________
has been a portfolio manager of the Manager and FAM since _______.
_________________ is responsible for day-to-day management for the Fund.
________________ has been employed by the Manager since _______.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the Investment Company Act which incorporates the Code of
Ethics of the Manager (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Manager
and, as described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of the Manager preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term trading
in securities. In addition, no employee may purchase or sell any security
which at the time is being purchased or sold (as the case may be), or to the
knowledge of the employee is being considered for purchase or sale, by any fund
advised by the Manager. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"),
which is a wholly-owned subsidiary of ML & Co., acts as the Fund's transfer
agent pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of
shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives an annual fee of $11.00 per Class A or Class D shareholder
account, $14.00 per Class B or Class C shareholder account and nominal
miscellaneous fees (e.g., account closing fees), and the Transfer Agent is
entitled to reimbursement for out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreement.
22
<PAGE>
PURCHASE OF SHARES
SUBSCRIPTION OFFERING
The Distributor, a subsidiary of the Manager and an affiliate of both FAM
and Merrill Lynch, will act as the distributor of the shares of the Fund.
The Distributor, Merrill Lynch and other securities dealers which have
entered into selected dealer agreements with the Distributor will solicit
subscriptions for shares of the Fund during a period expected to end on
__________, 1996. The subscription period may be extended upon agreement
between the Fund and the Distributor. On the third business day after the
conclusion of the subscription period, the subscriptions will be payable, the
Class A, Class B, Class C and Class D shares will be issued and the Fund
will commence operations. The subscription offering may be terminated by the
Fund or the Distributor at any time, in which event no Class A, Class B,
Class C or Class D shares will be issued (and, therefore, the Fund will not
commence operations and no amounts will be payable by subscribers, and no
sales charges will be assessed) or a limited number of shares will be issued.
The public offering price of the Class A and Class D shares during the
subscription offering is set forth in the table below:
<TABLE>
<CAPTION>
Subscription Period
---------------------------------------------
Securities Dealers'
Sales Charge Concession
-------------------- ---------------------
Percentage* Percentage*
of of
Public Public Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
-------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Less than $25,000 . . . . . . . . . . . . . $10.554 $.554 5.25% $.554 5.25%
$25,000 but less than $50,000 . . . . . . . 10.499 .499 4.75 .499 4.75
$50,000 but less than $100,000 . . . . . . 10.417 .417 4.00 .417 4.00
$100,000 but less than $250,000 . . . . . . 10.309 .309 3.00 .309 3.00
$250,000 but less than $1,000,000 . . . . . 10.204 .204 2.00 .204 2.00
$1,000,000 and over** . . . . . . . . . . . 10.000 .000 0.00 .000 0.00
</TABLE>
_______________
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases
of $1,000,000 or more. If the sales charge is waived, such purchases will
be subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. The charge will be assessed on an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being
redeemed. A sales charge of 0.75% will be charged on purchases
of $1,000,000 or more of Class A or Class D shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
The proceeds per share to the Fund from the sale of all Class A and Class D
shares sold during the subscription period will be $10.00.
The public offering price of the Class B and Class C shares during the
subscription offering will be $10.00 per share. However, the Class B and Class
C shares may be subject to the CDSCs described below under "Deferred Sales
Charge Alternatives--Class B and Class C Shares" if redeemed within four years
of purchase, in the case of Class B shares, or one year of purchase, in the
case of Class C shares, and are subject to ongoing account maintenance and
distribution fees as described below.
23
<PAGE>
The minimum initial purchase for Class A, Class B, Class C or Class D
shares during the subscription period is $1,000, except for retirement plans,
where the minimum initial purchase is $100.
CONTINUOUS OFFERING
Commencing immediately after completion of the subscription offering,
shares of the Fund will be offered continuously for sale by the Distributor
and other eligible securities dealers (including Merrill Lynch). During the
continuous offering, shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase during the continuous offering is $1,000. The
minimum subsequent purchase is $50, except for retirement plans, where the
minimum initial purchase is $100 and the minimum subsequent purchase is $1.
The Fund will offer its shares in four classes during the continuous
offering at a public offering price equal to the next determined net asset
value per share plus sales charges imposed either at the time of purchase
or on a deferred basis depending upon the class of shares selected by
the investor under the Merrill Lynch Select Pricing/SM/ System, as described
below. The applicable offering price for purchase orders is based upon the
net asset value of the Fund next determined after receipt of the purchase
orders by the Distributor. As to purchase orders received by securities
dealers prior to the close of business on the New York Stock Exchange
(generally, 4:00 P.M., New York time), which includes orders received after
the determination of net asset value on the previous day, the applicable
offering price will be based on the net asset value, as of 15 minutes after
the close of business on the New York Stock Exchange on the day the order
is placed with the Distributor, provided the orders are received by the
Distributor prior to 30 minutes after the close of business on the New York
Stock Exchange, on that day. If the purchase orders are not received prior
to 30 minutes after the close of business on the New York Stock Exchange such
orders shall be deemed received on the next business day. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor
the dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee
(presently $4.85) to confirm a sale of shares to such customers. Purchases
directly through the Transfer Agent are not subject to the processing fee.
__________________________
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing/SM/ System, which permits each investor to choose the method of
purchasing shares that he or she believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or
to have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a CDSC and ongoing distribution
fees. A discussion of the factors that investors should consider in
determining the method of purchasing shares under the Merrill Lynch Select
Pricing/SM/ System is set forth under "Merrill Lynch Select Pricing/SM/
System" on page ___.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the
same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance and distribution fees, and Class
B and Class C shares bear the expenses of the ongoing distribution fees and
the additional incremental transfer agency costs resulting from the deferred
sales charge arrangements. The deferred sales charges and account maintenance
fees that are imposed on Class B and Class C shares, as well as the account
maintenance fees that are imposed on Class D shares, will be imposed directly
against those classes and not against all assets of the Fund and, accordingly,
such charges will not affect the net asset value of any other class or have any
impact on investors choosing another sales charge option. Dividends paid by
the Fund for each class of shares will be calculated in the same manner at the
same time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such
24
<PAGE>
class pursuant to which account maintenance and/or distribution fees are paid.
See "Distribution Plans" below. Each class has different exchange privileges.
See "Shareholder Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as
those of the deferred sales charges with respect to Class B and Class C shares
in that the sales charges applicable to each class provide for the financing
of the distribution of the shares of the Fund. The distribution-related
revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares. Investors are
advised that only Class A and Class D shares may be available for purchase
through securities dealers, other than Merrill Lynch, which are eligible to
sell shares.
The following table sets forth a summary of the distribution
arrangements for each class of shares under the Merrill Lynch Select
Pricing/SM/ System, followed by a more detailed description of each class.
<TABLE>
<CAPTION>
Account
Maintenance Distribution Conversion
Class Sales Charge/(1)/ Fee Fee Feature
----- ----------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/(2)//(3)/
B CDSC for a period of 4 years, at a 0.25% 0.75% B Shares convert to
rate of 4.0% during the first D shares
year, decreasing 1.0% annually automatically after
to 0.0% approximately eight
years/(4)/
C 1.0% CDSC for one year 0.25% 0.75% No
D Maximum 5.25% initial sales
charge/(3)/ 0.25% No No
</TABLE>
__________________________
(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price. CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a CDSC if redeemed within one year
after purchase.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten
year conversion period. If Class B shares of the Fund are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion
period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
25
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION> Discount to
Sales Charge as Selected
Sales Charge as Percentage/*/ Dealers
Percentage of of the Net As Percentage
the Offering Amount of the
Amount of Purchase Price Invested Offering Price
------------------ --------------- --------------- --------------
<S> <C> <C> <C>
Less than $25,000 . . . . . . . . . . . . . . . 5.25% 5.54% 5.00%
$25,000 but less than $50,000 . . . . . . . . . 4.75 4.99 4.50
$50,000 but less than $100,000 . . . . . . . . 4.00 4.17 3.75
$100,000 but less than $250,000 . . . . . . . . 3.00 3.09 2.75
$250,000 but less than $1,000,000 . . . . . . . 2.00 2.04 1.60
$1,000,000 and over/**/ . . . . . . . . . . . 0.00 0.00 0.00
</TABLE>
- -------------------------------------------------------------------------------
* Rounded to the nearest one-hundredth percent
** The initial sales charge may be waived on Class A and Class D purchases
of $1,000,000 or more, and on Class A share purchases by certain retirement
plan investors in connection with certain investment programs. If the
sales charge is waived in connection with a purchase of $1,000,000 or more,
such purchases will be subject to a CDSC of 1.0% if the shares are redeemed
within one year after purchase. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class A or Class D shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times, the Distributor may reallow the
entire sales charge to such dealers. Since securities dealers selling Class A
and Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of
the Fund in a shareholder account (, including participants in the Merrill
Lynch Blueprint/SM/ program,) are entitled to purchase additional Class A
shares of the Fund in that account. Certain employer sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class A shares at
net asset value provided that such plans meet the required minimum number of
eligible employees or required amount of assets advised by the Manager or any
of its affiliates. Class A shares are available at net asset value to
corporate warranty insurance reserve fund programs provided that the program
has $3 million or more initially invested in MLAM-advised mutual funds. Also
eligible to purchase Class A shares at net asset value are participants in
certain investment programs including TMA/SM/ Managed Trusts to which Merrill
Lynch Trust Company provides discretionary trustee services and certain
purchases made in connection with the Merrill Lynch Mutual Fund Adviser ("MFA")
program. In addition, Class A shares will be offered at net asset value to ML
& Co. and its subsidiaries and their directors and employees and to members of
the Boards of MLAM-advised mutual funds, including the Fund. Certain persons
who acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Fund also may purchase Class A
shares of the Fund if certain conditions set forth in the Statement of
Additional Information are met. In addition, Class A shares of the Fund and
certain other MLAM-advised mutual funds are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common
stock pursuant to a tender offer conducted by Merrill Lynch Senior Floating
Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends. Class A and Class D sales charges also may be reduced under a Right
of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class
A investors as set forth above under "Eligible Class A Investors".
26
<PAGE>
Class D shares are offered at net asset value to an investor who has a
business relationship with a Merrill Lynch financial consultant who joined
Merrill Lynch from another investment firm within six months prior to the date
of purchase if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares also are offered at net asset value, without charge, to an
investor who has a business relationship with a Merrill Lynch financial
consultant and who has (i) invested in a mutual fund sponsored by a non-Merrill
Lynch company for which Merrill Lynch has served as a selected dealer and
where Merrill Lynch has either received or given notice that such arrangement
will be terminated, or (ii) invested in a mutual fund sponsored by a non-
Merrill Lynch company for which Merrill Lynch has not served as a selected
dealer, if certain conditions set forth in the Statement of Additional
Information are met.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint /SM/ Program.
Class D shares of the Fund are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to tender offers conducted by
those Funds in shares of the Fund.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time after
they intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time
of purchase. As discussed below, Class B shares are subject to a four year
CDSC, while Class C shares are subject only to a one year 1.0% CDSC. On the
other hand, approximately eight years after Class B shares are issued, such
Class B shares, together with shares issued upon dividend reinvestment with
respect to those shares, automatically are converted into Class D shares
of the Fund and thereafter will be subject to lower continuing fees. See
"Conversion of Class B Shares to Class D Shares" below. Class B and Class C
shares are both subject to an account maintenance fee of 0.25% and a
distribution fee of 0.75% of net assets attributable to such class as
discussed below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so
that the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for
selling Class B and Class C shares, from the dealer's own funds. The
combination of the CDSC and the ongoing distribution fee facilitates the
ability of the Fund to sell the Class B and Class C shares without a sales
charge being deducted at the time of purchase. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares of the
Fund, which are subject to the same account maintenance fee but no distribution
fee.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations
on the Payment of Deferred Sales Charges" below. The proceeds from the
ongoing account maintenance fee are used to compensate Merrill Lynch for
providing continuing account maintenance activities. Class B shareholders
of the Fund exercising the exchange privilege described under "Shareholder
Services--Exchange
27
<PAGE>
Privilege" will continue to be subject to the Fund's CDSC schedule if such
schedule is higher than the CDSC schedule applying to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. Accordingly,
no CDSC will be imposed on increases in net asset value above the initial
purchase price. In addition, no CDSC will be assessed on shares derived
from reinvestment of dividends.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION> Class B CDSC as a Percentage of
Year Since Purchase Payment Made Dollar Amount Subject to Charge
-------------------------------- -------------------------------
<S> <C>
0-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00%
1-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00%
2-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.00%
3-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
4 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible applicable rate being charged. Therefore, it will be assumed that
the redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends and then of shares held longest during
the four-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
A transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as redemption.
To provide an example, assume an investor purchased 100 Class B shares
at $10 per share (at a cost of $1,000) and in the third year after purchase,
the net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares upon dividend reinvestment. If at such time
the investor makes his or her first redemption of 50 shares (proceeds of $600),
10 shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 shares, the CDSC is applied only to the
original cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 2.0% (the applicable rates in the third year after
purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Code) of a shareholder. The Class B CDSC also is waived
on redemptions of shares by certain eligible 401(a) and eligible 401(k)
plans and in connection with certain group plans. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible
401(a) plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such
account at the time of redemption. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information.
Contingent Deferred Sales Charges---Class C Shares. Class C shares
which are redeemed within one year of purchase may be subject to a 1.0%
CDSC charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. Accordingly, no
Class C CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no Class C CDSC will be assessed on
shares derived from reinvestment of dividends.
28
<PAGE>
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
The Class C CDSC is waived on redemptions of shares under the same
circumstances as is the case for Class B shares described above. Additional
information concerning the waiver of the Class C CDSC is set forth in the
Statement of Additional Information.
Conversion of Class B Shares to Class D Shares. After approximately
eight years (the "Conversion Period"), Class B shares of the Fund will be
converted automatically into Class D shares of the Fund. Class D shares are
subject to ongoing account maintenance fee of 0.25% of net assets but are not
subject to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at least once each
month (on the "Conversion Date") on the basis of the relative net asset values
of the shares of the two classes on the Conversion Date, without the imposition
of any sales load, fee or other charge. Conversion of Class B shares to Class
D shares will not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In addition, shares purchased through reinvestment of dividends on Class
B shares also will convert automatically to Class D shares. The Conversion
Date for dividend reinvestment shares will be calculated taking into account
the length of time the shares underlying such dividend reinvestment shares were
outstanding.
If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the
Fund held in the account on the Conversion Date will be converted to Class D
shares of the Fund.
Share certificates for Class B shares of the Fund to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event that such certificates are
not received by the Transfer Agent at least one week prior to the Conversion
Date, the related Class B shares will convert to Class D shares on the next
scheduled Conversion Date.
In general, Class B shares of equity MLAM-advised mutual funds will
convert approximately eight years after initial purchase, and Class B shares
of taxable and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa,
the Conversion Period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Plan was
established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that retirement plan will
be sold Class D shares of the appropriate funds at net asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act
(each a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to
such classes. The Class B and Class C Distribution Plans provide
29
<PAGE>
for the payment of account maintenance fees and distribution fees, and the
Class D Distribution Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each
provide that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at the
annual rate of 0.25% of the average daily net assets of the Fund attributable
to shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) in connection with account
maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that
the Fund also pays the Distributor a distribution fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.75% of the average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services, and bearing certain distribution-related expenses
of the Fund, including payments to financial consultants for selling Class
B and Class C shares of the Fund. The Distribution Plans related to Class B
and Class C shares are designed to permit an investor to purchase Class B
and Class C shares through dealers without the assessment of an initial sales
charge and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B and Class C shares. In
this regard, the purpose and function of the ongoing distribution fees and the
CDSC are the same as those of the initial sales charges with respect to the
Class A and Class D shares of the Fund in that the deferred sales charges
provide for the financing of the distribution of the Fund's Class B and Class C
shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount
of expenses incurred, and, accordingly, distribution-related revenues from
the Distribution Plans may be more or less than distribution-related
expenses. Information with respect to the distribution-related revenues
and expenses will be presented to the Directors for their consideration in
connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans. This information is presented annually as of
December 31 of each year on a "fully allocated accrual" basis and quarterly on
a "direct expense and revenue/cash" basis. On the fully allocated accrual
basis, revenues consist of the account maintenance fees, distribution fees,
the CDSCs and certain other related revenues, and expenses consist of
financial consultant compensation, branch office and regional operation
center selling and transaction processing expenses, advertising, sales
promotional and market expenses, corporate overhead and interest expense.
On the direct expense and revenue/cash basis, revenues consist of the
account maintenance fees, distribution fees and CDSCs, and the expenses
consist of financial consultant compensation.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the NASD imposes a limitation
on certain asset-based sales charges such as the distribution fee and the
CDSC, borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor voluntarily has agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In\
certain circumstances, the amount payable pursuant to the voluntary maximum
may exceed the amount payable under the NASD formula. In such circumstances,
payments in excess of the amount payable under the NASD formula will not be
made.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor
30
<PAGE>
intends to seek annual continuation of the Distribution Plans. In their review
of the Distribution Plans, the Directors will be asked to take into
consideration expenses incurred in connection with the account maintenance
and/or distribution of each class of shares separately. The initial sales
charges, the account maintenance fee, the distribution fee and/or the CDSCs
received with respect to one class will not be used to subsidize the sale of
shares of another class. Payments of the distribution fee on Class B shares
will terminate upon conversion of those Class B shares into Class D shares as
set forth under "Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares".
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on
receipt of a written request in proper form. The redemption price is the
net asset value per share next determined after the initial receipt of
proper notice of redemption. Except for any CDSC which may be applicable,
there will be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the date of
redemption. The value of shares at the time of redemption may be more or less
than the shareholder's cost, depending on the market value of the securities
held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares
deposited with the Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a written letter
as noted above accompanied by certificates for the shares to be redeemed. The
notice in either event requires the signatures of all persons in whose names
the shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s)
on the redemption request must be guaranteed by an "eligible guarantor
institution" (including, for example, Merrill Lynch branches and certain other
financial institutions) as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents, such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. The Fund may delay or cause to be delayed
the mailing of a redemption check until such time as "good payment" (e.g.,
cash or certified check drawn on a U.S. bank) has been collected for the
purchase of such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase
shares by wire or telephone from dealers for their customers at the net asset
value next computed after receipt of the order by the dealer, provided that
the request for repurchase is received by the dealer prior to the close of
business on the New York Stock Exchange (generally 4:00 P.M., New York
time) on the day received and that such request is received by the Fund from
such dealer not later than on the same day. Dealers have the responsibility
of submitting such repurchase requests to the Fund not later than 30 minutes
after the close of business on the New York Stock Exchange in order to obtain
that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC in the case of Class B or Class C shares). Securities firms which do not
have
31
<PAGE>
selected dealer agreements with the Distributor, however, may impose a
transaction charge on the shareholder for transmitting the notice of
repurchase to the Fund. Merrill Lynch may charge its customers a processing
fee (presently $4.85) to confirm a repurchase of shares to such customers.
Redemptions directly through the Transfer Agent are not subject to the
processing fee. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose
order for repurchase is rejected by the Fund may redeem shares as set forth
above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class
D shares, as the case may be, of the Fund at net asset value without a
sales charge up to the dollar amount redeemed. The reinstatement privilege
may be exercised by sending a notice of exercise along with a check for
the amount to be reinstated to the Transfer Agent within 30 days after the
date the request for redemption was accepted by the Transfer Agent or the
Distributor. The reinstatement will be made at the net asset value per share
next determined after the notice of reinstatement is received and cannot
exceed the amount of the redemption proceeds. The reinstatement privilege is
a one-time privilege and may be exercised by the Class A or Class D
shareholder only the first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Fund. Full details as to
each of such services, copies of the various plans described below and
instructions as to how to participate in the various services or plans,
or to change options with respect thereto, can be obtained from the Fund by
calling the telephone number on the cover page hereof or from the Distributor
or Merrill Lynch. Certain of these services are available only to U.S.
investors. Included in the Fund's shareholder services are the following:
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an "Investment Account" and will receive, at least
quarterly, statements from the Transfer Agent. The statements will serve as
transaction confirmations for automatic investment purchases and the
reinvestment of ordinary income dividends. The statements also will show
any other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment
of income dividends. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened automatically
without charge, at the Transfer Agent. Shareholders considering transferring
their Class A or Class D shares from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the Class A or
Class D shares are to be transferred will not take delivery of shares of the
Fund, a shareholder either must redeem the Class A or Class D shares (paying
any applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage
firm for the benefit of the shareholder at the Transfer Agent. Shareholders
considering transferring a tax deferred retirement account such as an IRA from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a shareholder must either redeem
the shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder must continue
to maintain a retirement account at Merrill Lynch for those shares.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect
to receive systematic withdrawal payments from his or her Investment Account
in the form of payments by check or through automatic payment by direct
deposit to his or her bank account on either a monthly or quarterly basis.
Alternatively, Class A or Class D shareholder
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whose shares are held within a CMA(Registered Trademark), CBA(Registered
Trademark) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(Registered Trademark)/CBA(Registered Trademark) Systematic Redemption
Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B,
Class C and Class D shares may be made to an investor's Investment Account
by pre-arranged charges of $50 or more to his or her regular bank account.
The Automatic Investment Program is not available to shareholders whose shares
are held in a brokerage account with Merrill Lynch other than a
CMA(Registered Trademark) account. Alternatively, investors who maintain
CMA(Registered Trademark) or CBA(Registered Trademark) accounts may arrange to
have periodic investments made in the Fund in their CMA(Registered
Trademark) or CBA(Registered Trademark) accounts or in certain related
accounts in amounts of $100 or more through the CMA(Registered Trademark)/
CBA(Registered Trademark) Automated Investment Program.
Automatic Reinvestment of Dividends. All dividends are automatically
reinvested in full and fractional shares of the Fund, without a sales charge,
at the net asset value per share next determined after the close of the New
York Stock Exchange on the ex-dividend date of such dividend. A shareholder,
at any time, by written notification to Merrill Lynch if the shareholder's
account is maintained with Merrill Lynch or by written notification or
telephone call (1-800-MER-FUND) to the Transfer Agent if the shareholder's
account is maintained with the Transfer Agent, may elect to have subsequent
dividends paid in cash, rather than reinvested, in which event payment will be
mailed on or about the payment date. No deferred sales charge will be imposed
on redemptions of shares issued as a result of the automatic reinvestment of
dividends.
Exchange Privilege. Shareholders of each class of shares of the Fund
have an exchange privilege with certain other MLAM-advised mutual funds. There
is currently no limitation on the number of times a shareholder may exercise
the exchange privilege. The exchange privilege may be modified or terminated
at any time in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing/SM/ System, Class A shareholders
may exchange Class A shares of the Fund for Class A shares of a second MLAM-
advised mutual fund if the shareholder holds any Class A shares of the second
fund in his or her account in which the exchange is made at the time of the
exchange or is otherwise eligible to purchase Class A shares of the second
fund. If the Class A shareholder wants to exchange Class A shares for shares
of a second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his or her account at the time of the exchange and
is not otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of the
second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus
an amount equal to the difference, if any, between the sales charge
previously paid on the Class A or Class D shares being exchanged and the sales
charge payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of
the same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC will be exchangeable on
the basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Fund. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other Fund.
Class A, Class B, Class C and Class D shares also will be exchangeable
for shares of certain MLAM-advised money market funds specifically designated
as available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares
are held in a money market fund, however, will not
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count toward satisfaction of the holding period requirement for reduction of
any CDSC imposed on such shares, if any, and, with respect to Class B shares,
toward satisfaction of the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition,
Class B shares of the Fund acquired through use of the exchange privilege will
be subject to the Fund's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the Class B shares of the MLAM-advised mutual
fund from which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes. For further information, see "Shareholder Services --
<PAGE>
Exchange Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is also modified with respect to purchases
of Class A and Class D shares by non-retirement plan investors under the
MFA program. First, the initial allocation of assets is made under the MFA
program. Then, any subsequent exchange under the MFA program of Class A or
Class D shares of a MLAM-advised mutual fund for Class A or Class D shares
of the Fund will be made solely on the basis of the relative net asset
values of the shares being exchanged. Therefore, there will not be a
charge for any difference between the sales charge previously paid on the
shares of the other MLAM-advised mutual fund and the sales charge payable on
the shares of the Fund being acquired in the exchange under the MFA program.
PERFORMANCE DATA
From time to time, the Fund may include its average annual total return
for various specified time periods in advertisements or information furnished
to present or prospective shareholders. Average annual total return is
computed separately for Class A, Class B, Class C and Class D shares in
accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based
on net investment income and any capital gains or losses on portfolio
investments over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each period. Average
annual total return will be computed assuming all dividends are reinvested
and taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B
and Class C shares and the maximum sales charge in the case of Class A and
Class D shares. Dividends paid by the Fund with respect to all shares, to
the extent any dividends are paid, will be calculated in the same manner at
the same time on the same day and will be in the same amount, except
that account maintenance and distribution fees and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of
the Fund in any advertisement or information including performance data of
the Fund.
The Fund also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return, and (2) the maximum
applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return
data generally will be lower than average annual total return data since the
average annual rates of return reflect compounding; aggregate total return
data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over longer periods of
time. In advertisements directed to investors whose purchases are subject
to reduced sales charges in the case of Class A and Class D shares or waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses may be
deducted. See "Purchase of Shares". The Fund's total return may be
expressed either as a percentage or as a dollar amount in order to
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<PAGE>
illustrate the effect of such total return on a hypothetical $1,000 investment
in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and
are not intended to indicate future performance. The Fund's total return
will vary depending on market conditions, the securities comprising the
Fund's portfolio, the Fund's operating expenses and the amount of realized
and unrealized net capital gains or losses during the period. The value of
an investment in the Fund will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare its performance to the Standard &
Poor's 500 Composite Stock Price Index, the FT/S&P Actuaries World Index,
the Morgan Stanley Capital International Index, the Dow Jones Industrial
Average, or to performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. In addition, from time to time
the Fund may include the Fund's risk adjusted performance ratings assigned
by Morningstar Publications, Inc. in advertising or supplemental sales
literature. As with other performance data, performance comparisons
should not be considered representative of the Fund's relative performance
for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income will
be paid at least annually. All net realized long- or short-term capital
gains, if any, will be distributed as dividends to the Fund's shareholders
at least annually. The per share dividends on each class of shares will
be reduced as a result of any account maintenance, distribution and transfer
agency fees applicable to that class. See "Additional Information--
Determination of Net Asset Value". Dividends may be reinvested automatically
in shares of the Fund at net asset value without a sales charge.
Shareholders may elect in writing to receive any such dividends in cash.
See "Shareholder Services". Dividends are taxable to shareholders as
discussed below whether they are reinvested in shares of the Fund or received
in cash. From time to time, the Fund may declare a special distribution at
or about the end of the calendar year in order to comply with a Federal income
tax requirement that certain percentages of its ordinary income and capital
gains be distributed during the calendar year.
Certain gains or losses attributable to foreign currency gains or losses
from certain forward contracts may increase or decrease the amount of the
Fund's income available for distribution to shareholders. If such losses
exceed other ordinary income during a taxable year, (a) the Fund would not be
able to make any ordinary income dividend distributions and (b) all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as returns of capital to shareholders,
rather than as ordinary income dividends, reducing each shareholder's tax basis
in his or her Fund shares for Federal income tax purposes, and resulting in a
capital gain for any shareholder who received a distribution greater than
the shareholder's tax basis in Fund shares (assuming that the shares were
held as a capital asset). See "Additional Information--Taxes".
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital
gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together the "shareholders"). The Fund intends to distribute
substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of
net long-term capital gains over net short-term capital losses (including
gains
35
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or losses from certain transactions in warrants, futures and options) ("capital
gain dividends") are taxable to shareholders as long-term capital gains,
regardless of the length of time the shareholder has owned Fund shares. Any
loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or capital
gain dividends. A portion of the Fund's ordinary income dividends may be
eligible for the dividends received deduction allowed to corporations under
the Code, if certain requirements are met. If the Fund pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% U.S. withholding
tax under existing provisions of the Code applicable to foreign individuals
and entities unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect
to such taxes, subject to certain conditions and limitations contained
in the Code. For example, certain retirement accounts cannot claim
foreign tax credits on investments in foreign securities held in the Fund.
If more than 50% in value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will
be eligible, and intends, to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
proportionate shares of such withholding taxes in their U.S. income tax
returns as gross income, treat such proportionate shares as taxes paid by
them, and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their
U.S. income taxes. No deductions for foreign taxes, however, may be
claimed by noncorporate shareholders who do not itemize deductions.
A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting
from the Fund's election described in this paragraph but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Fund or who, to
the Fund's knowledge, have furnished an incorrect number. When establishing
an account, an investor must certify under penalty of perjury that such
number is correct and that such investor is not otherwise subject to backup
withholding.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company
(or similar investment entity) organized under foreign law, the Fund will
be treated as owning shares in a passive foreign investment company ("PFIC")
for U.S. Federal income tax purposes. The Fund may be subject to U.S. Federal
income tax, and an additional tax in the nature of interest (the "interest
charge"), on a portion of the distributions from such a company and on gain
from the disposition of the shares of such a company (collectively referred
to as "excess distributions"), even if such excess distributions are paid by
the Fund as a dividend to its shareholders. The Fund may be eligible to make
an election with respect to certain PFICs in which it owns shares that will
allow it to avoid the taxes on excess distributions. However, such
election may cause the Fund to recognize income in a particular year in excess
of the distributions received from such PFICs. Alternatively, under
proposed regulations the Fund would be able to elect to "mark to market" at
the end of each taxable year all shares that it holds in PFICs. If it made
this election, the Fund would recognize as ordinary income any increase
in the value of such shares. Unrealized losses, however, would not be
36
<PAGE>
recognized. By making the mark-to-market election, the Fund could avoid
imposition of the interest charge with respect to its distributions from
PFICs, but in any particular year might be required to recognize income
in<PAGE>
excess of the distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.
Under Code Section 988, foreign currency gains or losses from certain
debt instruments, from certain forward contracts, from financial futures
contracts that are not "regulated futures contracts" and from unlisted options
will generally be treated as ordinary income or loss. Such Code Section 988
gains or losses will generally increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders
as ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not
be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Fund shares and resulting
in a capital gain for any shareholder who received a distribution greater
than the shareholder's tax basis in Fund shares (assuming that the shares
were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's
basis in the Class D shares acquired will be the same as such shareholder's
basis in the Class B shares converted, and the holding period for the acquired
Class D shares will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
_______________________________
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect.
For the complete provisions, reference should be made to the pertinent
Code sections and the Treasury regulations promulgated thereunder. The Code
and the Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends also may be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is
determined once daily as of 15 minutes after the close of business on the New
York Stock Exchange (generally 4:00 P.M. New York time), on each day during
which the New York Stock Exchange is open for trading. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The net asset value per
share is computed by dividing the value of the securities held by the Fund
plus any cash
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or other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of
shares outstanding at such time. Expenses, including the management fees
payable to the Manager and any account maintenance and/or distribution fees
payable to the Distributor, are accrued daily. The per share net asset value
of Class A shares generally will be higher than the per share net asset value
of shares of the other classes, reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares and the daily expense accruals
of the account maintenance fees applicable with respect to Class D shares;
moreover, the per share net asset value of Class D shares generally will be
higher than the per share net asset value of Class B and Class C shares,
reflecting the daily expense accruals of the distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge (although not necessarily meet) immediately after the payment of
dividends or distributions which will differ by approximately the amount of the
expense accrual differentials between the classes.
Portfolio securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price. In cases
where securities are traded on more than one exchange, the securities are
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the OTC market are
valued at the last available bid price in the OTC market prior to the
time of valuation. Securities that are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes a call option, the amount of
the premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability subsequently is valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
by the Fund are valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price. Other investments, including futures contracts and related
options, for which market quotations are readily available, are valued at
market value. Securities and assets for which market quotations are not
readily available are valued at fair market value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on March 8, 1996. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10
per share, divided into four classes, designated Class A, Class B, Class C
and Class D Common Stock, each of which consists of 100,000,000 shares.
Shares of Class A, Class B, Class C and Class D represent interests in the
same assets of the Fund and are identical in all respects except that Class
B, Class C and Class D shares bear certain expenses related to the account
maintenance fee associated with such shares, and Class B and Class C
shares bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters relating to
account maintenance and distribution expenditures, as applicable. See
"Purchase of Shares". The Fund may issue additional classes of stock if the
Board of Directors deems such issuance to be in the best interests of
the Fund. Shares issued by the Fund are fully paid, non-assessable and
have no preemptive or conversion rights.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matters submitted to a shareholder vote. The Fund does not
intend to hold an annual meeting of shareholders in any year in which the
Investment Company Act does not require shareholders to elect Directors. Also,
the by-laws of the Fund require that a special meeting of shareholders be held
upon the written request of at least 10% of the outstanding shares of the Fund
entitled to vote at such meeting, if they comply with applicable Maryland law.
The Fund will assist in shareholder communications in the manner described in
Section 16(c) of the Investment Company Act. Voting rights for Directors are
not cumulative. Each share of Common Stock is entitled to participate equally
in dividends declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution after satisfaction of outstanding liabilities,
except that, as noted above, the Class B, Class C and Class D shares bear
certain additional expenses.
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SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account
numbers. If you have any questions regarding this, please call your Merrill
Lynch financial consultant or Merrill Lynch Financial Data Services, Inc.
at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
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APPENDIX A
FUTURES, OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund is authorized to engage in various portfolio hedging
strategies. These strategies are described in more detail below:
The Fund may engage in various portfolio strategies to hedge its
portfolio against investment and currency risks. These strategies include
the use of options on portfolio securities, currency and stock index options
and futures, options on such futures and forward foreign exchange transactions.
The Fund may enter into such transactions only in connection with its
hedging strategies. While the Fund's use of hedging strategies is intended
to reduce the volatility of the net asset value of Fund shares, the net
asset value of the Fund's shares will fluctuate. There can be no assurance
that the Fund's hedging transactions will be effective. Furthermore, the Fund
may not necessarily be engaging in hedging activities when movements in the
equity markets or currency exchange rates occur. Reference is made to the
Statement of Additional Information for further information concerning these
strategies.
Although certain risks are involved in futures and options transactions
(as discussed below in "Risk Factors in Futures, Options and Currency
Transactions"), the Manager believes that, because the Fund only will engage
in these transactions for hedging purposes, the futures and options portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of futures and options transactions.
Tax requirements may limit the Fund's ability to engage in the hedging
transactions and strategies discussed below. See "Additional Information
Taxes".
Set forth below are descriptions of certain hedging strategies in which
the Fund is authorized to engage.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
A covered call option is an option where the Fund in return for a premium
gives another party a right to buy specified securities owned by the Fund
at a specified future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition,
the Fund's ability to sell the underlying security will be limited while
the option is in effect unless the Fund effects a closing purchase transaction.
A closing purchase transaction cancels out the Fund's position as the writer
of an option by means of an offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options
serve as a partial hedge against the price of the underlying security
declining.
The Fund also may write put options which give the holder of the option
the right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option which
increases the Fund's return. The Fund writes only covered put options, which
means that so long as the Fund is obligated as the writer of the option it
will, through its custodian, have deposited and maintained cash, cash
equivalents, U.S. Government securities or other high grade liquid debt
securities denominated in U.S. dollars or non-U.S. currencies with a securities
depository with a value equal to or greater than the exercise price of the
underlying securities. By writing a put, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the
market value of that security at the time of exercise for as long as the
option is outstanding. The Fund may engage in closing transactions in
order to terminate put options that it has written. The Fund will not write
put options if the aggregate value of the obligations underlying the put
options shall exceed 50% of the Fund's net assets.
Purchasing Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a
put option the Fund has a right to sell the underlying security at the
exercise price, thus limiting the Fund's risk of loss through a decline in
the market value of the security until the put option expires. The
amount of any profit on the sale in the value of the underlying security will
be partially offset by the amount of the premium paid for the put option and
any related transaction costs. Prior to its expiration, a put option may be
sold in a closing sale transaction and profit or loss from the sale will depend
on whether the amount received is more or less than the premium paid for the
A-1
<PAGE>
put option plus the related transaction costs. A closing sale transaction
cancels out the Fund's position as the purchaser of an option by means of any
offsetting sale of an identical option prior to the expiration of the option it
has purchased.
In certain circumstances, the Fund may purchase call options on
securities held in its portfolio on which it has written call options or
on securities which it intends to purchase. The Fund will not purchase
options on securities (including stock index options discussed below)
if, as a result of such purchase, the aggregate cost of all outstanding
options on securities held by the Fund would exceed 5% of the market value of
the Fund's total assets.
Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Fund may
purchase or write put and call options on stock indices to hedge against
the risks of marketwide stock price movements in the securities in which the
Fund invests. Options on indices are similar to options on securities except
that on exercise or assignment, the parties to the contract pay or receive
an amount of cash equal to the difference between the closing value of the
index and the exercise price of the option times a specified multiple. The
Fund may invest in stock index options based on a broad market index or based
on a narrow index representing an industry, country or market segment.
The Fund also may purchase and sell stock index financial futures
contracts and financial futures contracts ("financial futures contracts")
as a hedge against adverse changes in the market value of its portfolio
securities as described below. A financial futures contract is an agreement
between two parties which obligates the purchaser of the financial futures
contract to buy and the seller of a financial futures contract to sell a
security for a set price on a future date. Unlike most other financial
futures contracts, a stock index financial futures contract does not require
actual delivery of securities but results in cash settlement based upon the
difference in value of the index between the time the contract was entered
into and the time of its settlement. The Fund may effect transactions in
stock index financial futures contracts in connection with the equity
securities in which it invests and in financial futures contracts in
connection with the debt securities in which it invests. Transactions by
the Fund in stock index futures and financial futures are subject to
limitations as described below under "Restrictions on the Use of Futures
Transactions".
The Fund may sell financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value
of the Fund's securities portfolio that might otherwise result. When the
Fund is not fully invested in the securities markets and anticipates a
significant market advance, it may purchase futures in order to gain rapid
market exposure. This technique generally will allow the Fund to gain
exposure to a market in a manner which is more efficient than purchasing
individual securities, and may in part or entirely offset increases in the
cost of securities in such markets that the Fund ultimately purchases. As
such purchases are made, an equivalent amount of financial futures contracts
will be terminated by offsetting sales. The Manager does not consider
purchases of financial futures contracts to be a speculative practice under
these circumstances. It is anticipated that, in a substantial majority of
these transactions, the Fund will purchase such securities upon termination
of the long futures position, whether the long position is the purchase of a
financial futures contract or the purchase of a call option or the writing of
a put option on a future, but under unusual circumstances (e.g., the Fund
experiences a significant amount of redemptions), a long futures position may
be terminated without the corresponding purchase of securities.
The Fund also has authority to purchase and write call and put options
on financial futures contracts and stock indices in connection with its
hedging (including anticipatory hedging) activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in
which the Fund enters into futures transactions. The Fund may purchase put
options or write call options on financial futures contracts and stock
indices rather than selling the underlying financial futures contract in
anticipation of a decrease in the market value of its securities. Similarly,
the Fund may purchase call options, or write put options on financial futures
contracts and stock indices, as a substitute for the purchase of such futures
to hedge against the increased cost resulting from an increase in the market
value of securities which the Fund intends to purchase.
The Fund may engage in futures and options transactions on U.S. and
foreign exchanges and in options in the over-the-counter markets
("OTC options"). Exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) which, in general, have standardized strike prices
A-2
<PAGE>
and expiration dates. OTC options transactions are two-party contracts with
prices and terms negotiated by the buyer and seller. The Fund may engage in
OTC options to effect the same strategies as it would through exchange-traded
options. See "Restrictions on OTC Options" below for information as to
restrictions on the use of OTC options.
Foreign Currency Hedging. The Fund has authority to deal in forward
foreign exchange among currencies of the different countries in which it
will invest and multinational currency units as a hedge against possible
variations in the foreign exchange rates among these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date (up to one year) and price set at the
time of the contract. The Fund's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of
forward foreign currency with respect to specific receivables or payables
of the Fund accruing in connection with the purchase and sale of its
portfolio securities, the sale and redemption of shares of the Fund or the
payment of dividends by the Fund. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Fund has no limitation on transaction
hedging. The Fund will not speculate in forward foreign exchange. If
the Fund enters into a position hedging transaction, the Fund's custodian
will place cash or liquid debt securities in a separate account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. If the value of the securities placed
in the separate account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the
amount of the Fund's commitment with respect to such contracts. Hedging
against a decline in the value of a currency does not eliminate fluctuations
in the prices of portfolio securities or prevent losses if the prices of
such securities decline. Such transactions also preclude the opportunity
for gain if the value of the hedged currency should rise. Moreover, it
may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level the Manager anticipates.
Investors should be aware that U.S. dollar-denominated securities may not be
available in some or all developing countries, that the forward currency
market for the purchase of U.S. dollars in most, if not all, developing
countries is not highly developed and that in certain developing countries no
forward market for foreign currencies currently exists or such market may be
closed to investment by the Fund.
The Fund also is authorized to purchase or sell listed or OTC foreign
currency options, foreign currency futures and related options on foreign
currency futures, for example, as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. Dollar-denominated securities owned by the
Fund, sold by the Fund but not yet delivered, or committed or anticipated to
be purchased by the Fund. As an illustration, the Fund may use such
techniques to hedge the stated value in U.S. dollars of an investment in a
pound sterling denominated security. In such circumstances, for example,
the Fund may purchase a foreign currency put option enabling it to sell a
specified amount of pounds for dollars at a specified price by a future
date. To the extent the hedge is successful, a loss in the value of the pound
relative to the dollar will tend to be offset by an increase in the value
of the put option. To offset, in whole or in part, the cost of acquiring
such a put option, the Fund also may sell a call option which, if exercised,
requires it to sell a specified amount of pounds for dollars at a specified
price by a future date (a technique called a "straddle"). By selling
such a call option in this illustration, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the pound to
the dollar. The Manager believes that "straddles" of the type which may be
utilized by the Fund constitute hedging transactions and are consistent with
the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the
right to buy or sell a currency at a fixed price on a future date.
Listed options are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) which
are issued by a clearing corporation, traded on an exchange and have
standardized strike prices and expiration dates. OTC options are two-party
contracts and have negotiated strike prices and expiration dates. A financial
futures contract on a foreign currency is an agreement between two parties
to buy and sell a specified amount of a currency for a set price on a future
date. Financial futures contracts and options on financial futures
contracts are traded on boards of trade or futures exchanges. The Fund will
not speculate in foreign currency futures, options or related options.
Accordingly, the Fund will not hedge a currency substantially in excess of
the market value of securities which it has committed or anticipates to
purchase which are denominated in such currency and, in the case of
securities which have been sold by the Fund but not yet delivered, the proceeds
thereof in its denominated currency. Further, the Fund will segregate at
its custodian cash, liquid equity or debt securities having a market value
substantially representing any subsequent decrease in the market value of such
hedged
A-3
<PAGE>
security, less any initial or variation margin held in the account of
its broker. The Fund may not incur potential net liabilities of more than
33-1/3% of its total assets from foreign currency futures, options or related
options.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission applicable to the Fund provide that
the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool" under such regulations if the Fund adheres to
certain restrictions. In particular, the Fund may purchase and sell financial
futures contracts and options thereon (i) for bona fide hedging purposes,
and (ii) for non-hedging purposes, if the aggregate initial margin and
premiums required to establish positions in such contracts and options does not
exceed 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any such contracts and
options. (The Fund has undertaken to the State of California that the
aggregate margin deposits required on all stock index futures or options
thereon, or financial futures or options thereon, held at any time by the Fund
will not exceed 5% of the Fund's total assets.)
When the Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated, plus the amount of initial
and variation margin held in the account of its broker, equals the market
value of the financial futures contract, thereby ensuring that the use of
such financial futures contract is unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options,
including OTC stock index options, OTC foreign currency options and options
on foreign currency futures, only withmember banksof the Federal Reserve
System and primary dealers in U.S. Government securities or with affiliates
of such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50
million or any other bank or dealer having capital of at least $150 million
or whose obligations are guaranteed by an entity having capital of at least
$150 million.
The staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased OTC options and the assets used as cover
for written OTC options are illiquid securities. Therefore, the Fund has
adopted an investment policy pursuant to which it will not purchase or sell
OTC options (including OTC options on financial futures contracts) if, as a
result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC
options on financial futures contracts exceeds 15% of the total assets of
the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the
OTC option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Fund will treat as illiquid such amount
of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money', (i.e., current market value
of the underlying security minus the option's strike price). The repurchase
price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options
is not a fundamental policy of the Fund and may be amended by the Directors
of the Fund without the approval of the Fund's shareholders. However, the
Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Risk Factors in Futures, Options and Currency Transactions. Utilization
of futures and options transactions to hedge the portfolio, including to
affect the Fund's exposure in various markets, involves the risk of
imperfect correlation in movements in the price of futures and options and
movements in the price of the securities or currencies which are the subject
of the hedge. If the price of the options or futures moves more or less than
the price of the hedged securities or currencies, the Fund will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. The successful use of futures and options also
depends on the Manager's ability to predict correctly price movements in the
market involved in a particular options or futures transaction. In addition,
futures and options transactions in foreign markets are subject to the risk
factors associated with foreign investments generally. See "Risk Factors and
Special Considerations".
A-4
<PAGE>
The Fund intends to enter into futures and options transactions, on an
exchange or in the OTC market, only if there appears to be a liquid
secondary market for such options or futures or, in the case of OTC
transactions, the Manager believes the Fund can receive on each business day
at least two independent bids or offers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used, or
which can be sold at a formula price provided for in the OTC option
agreement. There can be no assurance, however, that a liquid secondary
market will exist at any specific time. Thus, it may not be possible to
close an options or futures position. The inability to close futures and
options positions also could have an adverse impact on the Fund's ability to
hedge effectively its portfolio. There also is the risk of loss by the
Fund of margin deposits or collateral in the event of the bankruptcy of a
broker with whom the Fund has an open position in an option, a financial
futures contract or related option.
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call
or put options on the same underlying security or currency (whether or not
covered) that may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written
on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers). "Trading limits" are imposed on the
maximum number of contracts that any person may trade on a particular trading
day. The Manager does not believe that these trading and position limits
will have any adverse impact on the portfolio strategies for hedging the
Fund's portfolio.
A-5
<PAGE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.--AUTHORIZATION FORM (PART 1)
- ------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SERVICE MARK) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH
BLUEPRINT(SERVICE MARK) PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -----------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, BEING OF LEGAL AGE, WISH TO PURCHASE: (CHOOSE ONE)
/ /CLASS A SHARES / /CLASS B SHARES / /CLASS C SHARES / /CLASS D SHARES
of Merrill Lynch Global Value Fund, Inc. and establish an Investment Account
as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $ .............payable to Merrill Lynch
Financial Data Services, Inc., as an initial investment (minimum $1,000).
I understand that this purchase will be executed at the applicable offering
price next to be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds
that would qualify for the Right of Accumulation as outlined in the
Statement of Additional Information:
Please list all funds. (Use a separate sheet of paper if necessary.)
1. . . . . . . . . . . . . . . . . . 4. . . . . . . . . . . . . . . . . . .
2. . . . . . . . . . . . . . . . . . 5. . . . . . . . . . . . . . . . . . .
3. . . . . . . . . . . . . . . . . . 6. . . . . . . . . . . . . . . . . . .
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Name Initial Last Name
Name of Co-Owner (if any) . . . . . . . . . . . . . . . . . . . . . . . . .
First Initial Last Name
Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . Date . . . . . . . . . .
(Zip Code)
Occupation. . . . . . . . .. . Name and Address of Employer . . . . . . . . .
. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-term Capital Gains
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
If no election is made, dividends and capital gains automatically will be
reinvested at net asset value without a sales charge.
If cash, specify how you would like your distributions paid to you:
/ / Check or / / Direct Deposit to bank account
If direct deposit to bank account is selected, please complete below:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with
the terms I have selected on the Merrill Lynch Global Value
Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) / / CHECKING / / SAVINGS
NAME ON YOUR ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BANK NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BANK NUMBER . . . . . . . . . . . ACCOUNT NUMBER . . . . . . . . . . . . . .
BANK ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
SIGNATURE OF DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURE OF DEPOSITOR DATE . . . . . . . . . . . . . . . . . . . .
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
- -----------------------------------------------------------------------------
B-1
<PAGE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.--AUTHORIZATION FORM (PART I)--
(CONTINUED)
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
/ /
Under penalty of perjury, I certify (1) that the number set forth above
is my correct Social Security No.or Taxpayer Identification No. and (2) that
I am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that
I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that
I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE
BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING
AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
. . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . .
Signature of Owner Signature of Co-Owner (if any)
- -----------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
. . . . . . . . . . . ., 19. . . .
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Global Value Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period
which will equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / /$250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price
applicable to the amount checked above, as described in the Fund's prospectus.
I agree to the terms and conditions of the Letter of Intention. I
hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor,
Inc., my attorney, with full power of substitution, to surrender for
redemption any or all shares of Merrill Lynch Global Value Fund, Inc. held
as security.
By:......................... ...........................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name...................... (2) Name.............................
Account Number................ Account Number...................
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch Funds
Distributor, Inc. to act as our
/ / agent in connection with transactions under
this authorization form and agree to notify
the Distributor of any purchases made under
a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the
shareholder's signature.
-------------------------------------------
Dealer Name and Address
By
-------------------------------------------
Authorized Signature of Dealer
This form when completed should / / / / / / / / / ---------
be mailed to: F/C Last Name
Merrill Lynch Global Value
Fund, Inc. Branch Code F/C No.
c/o Merrill Lynch Financial / / / / / / / / / /
-------------
Data Services, Inc. Dealer's Customer Account No.
P.O. Box 45289
Jacksonville, FL 32232-5289
B-2
<PAGE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.--AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner ............................. / /
Social Security Number
Name of Co-Owner (if any) ................. or Taxpayer Identification Number
Address ................................... .................................
Account Number
........................................... (if existing account)
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS
AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 in monthly disbursements, $5,000 for
quarter of / / Class A or / / Class D shares in Merrill Lynch Global Value
Fund, Inc., at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls
on a weekend or holiday, the next succeeding business day will be utilized.
Begin systematic withdrawals.......(month), or as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $____
or / / ____% of the current value of / / Class A or / / Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part 9a) or (b) below).
DRAW CHECKS PAYABLE (check one)
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK
/ / the address indicated in Item 1.
/ / to the order of ......................................................
MAIL TO (CHECK ONE)
/ / the address indicated in Item 1.
/ / Name (please print) ..................................................
Address .......................................................................
.......................................................................
Signature of Owner ............................. Date .................
Signature of Co-Owner (if any) ........................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND IF
NECESSARY DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I
PROVIDE WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
-------------
AMENDING OR TERMINATING THIS SERVICE.
SPECIFY TYPE OF ACCOUNT (check one) / / checking / / savings
NAME ON YOUR ACCOUNT ..........................................................
BANK NAME .....................................................................
BANK NUMBER ............................. ACCOUNT NUMBER ......................
BANK ADDRESS ..................................................................
...............................................................................
SIGNATURE OF DEPOSITOR ................................. DATE .................
SIGNATURE OF DEPOSITOR ........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
B-3
<PAGE>
- -------------------------------------------------------------------------------
APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
-------------
automated clearing house ("ACH") debit on my checking account described below
each month to purchase (choose one)
/ / Class A shares / / Class B shares
/ / Class C shares / / Class D shares
of Merrill Lynch Global Value Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
-------------
You are hereby authorized to draw an ACH debit each month on my bank account
for investment in Merrill Lynch Global Value Fund, Inc. as indicated below:
Amount of each ACH debit $.........................
Account Number ....................................
Please date and invest ACH debits on the 20th of each month beginning
...............................................................................
............................(month)
or as soon thereafter as possible.
I agree that you are drawing these debits voluntarily at my request and that
you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate
or suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroenous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund
and crediting my bank account. I further agree that if a debit is not honored
upon presentation, Merrill Lynch Financial Data services, Inc. is authorized to
-------------
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
returned dishonored debit.
............... ......................................................
Date Signature of Depositor
......................................................
Signature of Depositor
(If joint account, both must sign)
- -------------------------------------------------------------------------------
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA
-------------
SERVICES, INC.
To ....................................................................... Bank
(Investor's Bank)
Bank Address ..................................................................
City ........................ State ........................ Zip Code .........
As a conveience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed
personally by me. This authority is to remain in effect until revoked
personally by me in writing. Until you review such notice, you shall be fully
protected in honoring any such debit. I further agree that if any such debit
be dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability.
............... ......................................................
Date Signature of Depositor
............... ......................................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
B-4
<PAGE>
Manager
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
Custodian
____________________________
____________________________
____________________________
Independent Auditors
____________________________
____________________________
____________________________
Counsel
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO Prospectus
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED (PICTURE)
IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE FUND, THE MANAGER OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY
STATE IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE. -------------------------------------
---------- Global Value Fund, Inc.
TABLE OF CONTENTS
Page
----
Fee Table . . . . . . . . . . . . 3
Merrill Lynch Select Pricing/SM/
System . . . . . . . . . . . . 4
Risk Factors and Special
Considerations . . . . . . . . 8
Investment Objective and
Policies. . . . . . . . . . . . 13
Investment Restrictions . . . . . 20
Management of the Fund. . . . . . 21
Board of Directors . . . . . . 21
Management and Advisory
Arrangements . . . . . . . . 21
Code of Ethics . . . . . . . . 22
Transfer Agency Services . . . 22
Purchase of Shares . . . . . . . 23
Subscription Offering . . . . . 23
Continuous Offering . . . . . . 24
Initial Sales Charge
Alternatives--Class A and
Class D Shares . . . . . . . 25
Deferred Sales Charge
Alternatives--Class B and
Class C Shares . . . . . . . 27
Distribution Plans . . . . . . 29
Redemption of Shares . . . . . . 31
Redemption . . . . . . . . . . 31
Repurchase . . . . . . . . . . 31
Reinstatement Privilege--Class
A and Class D Shares . . . . 32
Shareholder Services . . . . . . 32
Performance Data . . . . . . . . 34
Additional Information . . . . . 35
Dividends and Distributions . . 35
Taxes . . . . . . . . . . . . . 35
Determination of Net Asset
Value . . . . . . . . . . . . 37
Organization of the Fund . . . 38
Shareholder Reports . . . . . . 39 ____________________, 1996
Shareholder Inquiries . . . . . 39
Appendix A . . . . . . . . . . . A-1 Distributor:
Authorization Form . . . . . . . B-1 Merrill Lynch
Funds Distributor, Inc.
Code #_______________
This Prospectus should be
retained for future reference.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
SUBJECT TO COMPLETION 2/22
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 12, 1996
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
Merrill Lynch Global Value Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (609) 282-2800
_______________________
Merrill Lynch Global Value Fund, Inc. (the "Fund") is a non-diversified,
open-end management investment company seeking long-term capital
appreciation by investing primarily in equity securities of issuers located in
various foreign countries and the United States that Merrill Lynch Asset
Management, L.P., the manager of the Fund (the "Manager"), believes represent
investment value. The Manager will seek to identify securities whose market
prices are low when compared to certain valuation measurements, and therefore
represent investment value. The Fund may employ in a variety of derivative
investments and techniques to hedge against market and currency risk. Also,
the Fund may invest in certain derivative instruments, such as indexed and
inverse securities, to enhance its return. There can be no assurance that the
Fund's investment objective will be achieved.
_______________________
Pursuant to the Merrill Lynch Select Pricing/SM/ System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing/SM/ System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
(Continued on next page)
_______________________
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the prospectus of the Fund, dated
____________, 1996 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing to the Fund at the above telephone number or address. This Statement
of Additional Information has been incorporated by reference into the
Prospectus. Capitalized terms used but not defined herein have the same
meanings as in the Prospectus.
_______________________
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
_______________________
The date of this Statement of Additional Information is ______________, 1996.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation by investing primarily in equity securities of issuers located
in various foreign countries and the United States that the Manager believes
represent investment value. Reference is made to "Investment Objective and
Policies" in the Prospectus for a discussion of the investment objective and
policies of the Fund.
For purposes of the Fund's investment objective, an issuer ordinarily
would be considered to be located in the country under the laws of which it
is organized or where the primary trading market of its securities is located.
The Fund, however, may consider an issuer to be located in a country, without
reference to its domicile or to the primary trading market of its securities,
when at least 50% of its non-current assets, capitalization, gross revenues or
profits in any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in such
country. The Fund also may consider a debt security that is denominated in a
particular country's currency to be a security of an issuer in such country
without reference to the principal trading market of the security or to the
location of its issuer. Additionally, the Fund may consider a derivative
product tied to securities or issuers located in a particular country to be the
security of an issuer in that country. The Fund also may consider investment
companies to be located in the country or countries in which they primarily
make their portfolio investments.
The securities markets of many countries at times in the past have moved
relatively independently of one another due to different economic, financial
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Fund's portfolio as a whole. This negative correlation also may
offset unrealized gains the Fund has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be
offset by changes in foreign currency exchange rates. Exchange rates
frequently move independently of securities markets in a particular country.
As a result, gains in a particular securities market may be affected by changes
in exchange rates.
While it is the policy of the Fund generally not to engage in trading
for short-term gains, the Manager will effect portfolio transactions without
regard to holding period if, in its judgment, such transactions are advisable
in light of a change in circumstances of a particular company or within a
particular industry or in general market, economic or financial conditions.
As a result of the investment policies described in the Prospectus, the Fund's
portfolio turnover rate may be higher than that of other investment companies.
Accordingly, while the Fund anticipates that its annual portfolio turnover
rate should not exceed 100% under normal conditions, it is impossible to
predict portfolio turnover rates. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. The Fund is subject to the
Federal income tax requirement that less than 30% of the Fund's gross income
must be derived from gains from the sale or other disposition of securities
held for less than three months.
The Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of the Fund are
redeemable on a daily basis on each day the Fund determines its net asset value
in U.S. dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain U.S. dollars to the extent
necessary to meet anticipated redemptions. See "Redemption of Shares". Under
present conditions, the Manager does not believe that these considerations will
have any significant effect on its portfolio strategy, although there can be no
assurance in this regard.
HEDGING TECHNIQUES
Reference is made to the discussion concerning hedging techniques under
the caption "Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Strategies Involving Futures, Options and Forward Foreign
Exchange Transactions" in the Prospectus.
The Fund may engage in various portfolio strategies to hedge its
portfolio against investment and currency risks. These strategies include the
use of options on portfolio securities, currency futures and options, stock
index futures and
2
<PAGE>
options, and options on such futures and forward foreign currency transactions.
While the Fund's use of hedging strategies is intended to reduce the volatility
of the net asset value of its shares, the net asset value of the Fund's shares
will fluctuate.
Although certain risks are involved in futures and options transactions
(as discussed in the Prospectus and below), the Manager believes that, because
the Fund will only engage in these transactions for hedging purposes, the
futures and options portfolio strategies of the Fund will not subject the Fund
to the risks frequently associated with the speculative use of futures and
options transactions.
The following information relates to the hedging instruments the Fund
may utilize with respect to currency risks.
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
A covered call option is an option where the Fund, in return for a premium,
gives another party a right to buy specified securities owned by the Fund at
a specified future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize, through
the receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, the
Fund's ability to sell the underlying security will be limited while the option
is in effect unless the Fund effects a closing purchase transaction. A closing
purchase transaction cancels out the Fund's position as the writer of an option
by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. Covered call options serve as a
partial hedge against a decline in the price of the underlying security.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer would realize a gain in the amount of the
premium. Such a gain, of course, may be offset by a decline in the market
value of the underlying security during the option period. If a call option
is exercised, the writer would realize a gain or loss from the sale of the
underlying security.
The Fund also may write put options which give the holder of the option
the right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option which
increases the Fund's return. The Fund writes only covered put options which
means that so long as the Fund is obligated as the writer of the option, it
will, through its custodian, have deposited and maintained cash, cash
equivalents, U.S. Government securities or other high grade liquid debt
securities denominated in U.S. dollars or non-U.S. currencies with a securities
depository with a value equal to or greater than the exercise price of the
underlying securities. By writing a put, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the market
value of that security at the time of exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to terminate
put options that it has written. The Fund will not write a put option if the
aggregate value of the obligations underlying the put shall exceed 50% of the
Fund's net assets.
Options referred to herein and in the Prospectus may be options traded
on foreign securities exchanges. An option position may be closed only on an
exchange which provides a secondary market for an option of the same series.
If a secondary market does not exist, it might not be possible to effect
closing transactions in particular options, with the result, in the case of a
covered call option, that the Fund will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation (the "Clearing
Corporation") may not, at all times, be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Clearing Corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
3
<PAGE>
The Fund also may enter into over-the-counter options transactions ("OTC
options"), which are two party contracts with prices and terms negotiated
between the buyer and seller. The Fund will only enter into OTC options
transactions with respect to portfolio securities for which management believes
the Fund can receive on each business day at least two independent bids or
offers (one of which will be from an entity other than a party to the option).
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that OTC options and the assets used as cover for written
OTC options are illiquid securities.
Purchasing Options. The Fund may purchase put options to hedge against
a decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus
limiting the Fund's risk of loss through a decline in the market value of the
security until the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior to
its expiration, a put option may be sold in a closing sale transaction; profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related transaction
cost. A closing sale transaction cancels out the Fund's position as the
purchaser of an option by means of an offsetting sale of an identical option
prior to the expiration of the option it has purchased. In certain
circumstances, the Fund may purchase call options on securities held in its
portfolio on which it has written call options or on securities which it
intends to purchase. The Fund may purchase either exchange-traded options or
OTC options. The Fund will not purchase options on securities (including stock
index options discussed below) if as a result of such purchase, the aggregate
cost of all outstanding options on securities held by the Fund would exceed 5%
of the market value of the Fund's total assets.
Stock Index Futures and Options and Financial Futures. As described in
the Prospectus, the Fund is authorized to engage in transactions in stock index
futures and options and financial futures, and related options on such futures.
Set forth below is further information concerning futures transactions.
A financial futures contract is an agreement between two parties to buy
and sell a security, or, in the case of an index-based financial futures
contract, to make and accept a cash settlement for a set price on a future
date. A majority of transactions in financial futures contracts, however, do
not result in the actual delivery of the underlying instrument or cash
settlement, but are settled through liquidation, i.e., by entering into an
offsetting transaction.
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker and the
relevant contract market, which varies, but is generally about 5% of the
contract amount, must be deposited with the broker. This amount is known as
"initial margin" and represents a "good faith" deposit assuring the performance
of both the purchaser and seller under the financial futures contract.
Subsequent payments to and from the broker, called "variation margin", are
required to be made on a daily basis as the price of the financial futures
contract fluctuates, making the long and short positions in the financial
futures contract more or less valuable, a process known as "mark to the
market". At any time prior to the settlement date of the financial futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the financial futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid to or released by the broker, and the purchaser realizes a
loss or gain. In addition, a nominal commission is paid on each completed sale
transaction.
An order has been obtained from the Commission exempting the Fund from
the provisions of Section 17(f) and Section 18(f) of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), in connection with its
strategy of investing in financial futures contracts. Section 17(f) relates to
the custody of securities and other assets of an investment company and may be
deemed to prohibit certain arrangements between the Fund and commodities
brokers with respect to initial and variation margin. Section 18(f) of the
Investment Company Act prohibits an open-end investment company such as the
Fund from issuing a "senior security" other than a borrowing from a bank. The
staff of the Commission has in the past indicated that a financial futures
contract may be a "senior security" under the Investment Company Act.
Risk Factors in Futures and Options Transactions. Utilization of
futures and options transactions involves the risk of imperfect correlation in
movements in the prices of futures and options contracts and movements in the
prices of the securities and currencies which are the subject of the hedge. If
the prices of the futures and options contract move more or less than the
prices of the hedged securities and currencies, the Fund will experience a gain
or loss which will not be
4
<PAGE>
completely offset by movements in the prices of the securities and currencies
which are the subject of the hedge. The successful use of futures and options
also depends on the Manager's ability to predict correctly price movements in
the market involved in a particular options or futures transaction.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction.
This requires a secondary market on an exchange for call or put options of the
same series. The Fund will enter into an option or futures transaction on an
exchange only if there appears to be a liquid secondary market for such option
or future. However, there can be no assurance that a liquid secondary market
will exist for any particular call or put option or financial futures contract
at any specific time. Thus, it may not be possible to close an option or
futures position. The Fund will acquire only over-the-counter options for
which management believes (i) the Fund can receive on each business day at
least two independent bids or offers (one of which will be from an entity other
than a party to the option) unless there is only one dealer, in which case such
dealer's price will be used, or (ii) can be sold at a formula price provided
for in the over-the-counter option agreement. In the case of a futures
position or an option on a futures position written by the Fund, in the event
of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin. In such situations, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to take or make delivery of the
security or currency underlying the financial futures contracts it holds. The
inability to close futures and options positions also could have an adverse
impact on the Fund's ability to hedge effectively its portfolio. There also
is the risk of loss by the Fund of margin deposits in the event of bankruptcy
of a broker with whom the Fund has an open position in a financial futures
contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not
covered) which may be written by a single investor, whether acting alone or in
concert with others (regardless of whether such options are written on the same
or different exchanges or are held or written on one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts which any person may trade on a particular trading day. An
exchange may order the liquidation of positions found to be in violation of
these limits, and it may impose other sanctions or restrictions. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio.
Forward Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash, basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 1/10 of 1% due to the costs of
converting from one currency to another. However, the Fund has authority to
deal in forward foreign exchange between currencies of the different countries
in whose securities it will invest as a hedge against possible variations in
the foreign exchange rates between these currencies. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. The Fund's
dealings in forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is
the purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Fund accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of shares of the
Fund or the payment of dividends by the Fund. Position hedging is the sale of
forward foreign currency with respect to portfolio security positions
denominated or quoted in such foreign currency. The Fund will not speculate in
forward foreign exchange. The Fund may not position hedge with respect to
the currency of a particular country to an extent greater than the aggregate
market value (at the time of making such sale) of the securities held in its
portfolio denominated or quoted in that particular foreign currency. If the
Fund enters into a position hedging transaction, its custodian will place cash
or liquid debt securities in a separate account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of such
forward contract. If the value of the securities placed in the separate
account declines, additional cash or securities will be placed in the account
so that the value of the account will equal the amount of the Fund's commitment
with respect to such contracts. The Fund will not enter into a position
hedging commitment if, as a result thereof, the Fund would have more than 15%
of the value of its total assets committed to such contracts. The Fund will
not enter into a forward contract with a term of more than one year.
5
<PAGE>
The Fund also is authorized to purchase or sell listed or over-the-
counter foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. Dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund. As an illustration, the Fund may use such techniques
to hedge the stated value in U.S. dollars of an investment in a pound
denominated security. In such circumstances, for example, the Fund may
purchase a foreign currency put option enabling it to sell a specified amount
of pounds for dollars at a specified price by a future date. To the extent the
hedge is successful, a loss in the value of the pound relative to the dollar
will tend to be offset by an increase in the value of the put option. To
offset, in whole or part, the cost of acquiring such a put option, the Fund
also may sell a call option which, if exercised, requires it to sell a
specified amount of pounds for dollars at a specified price by a future date
(a technique called a "straddle"). By selling such call option in this
illustration, the Fund gives up the opportunity to profit without limit from
increases in the relative value of the pound to the dollar. The Manager
believes that "straddles" of the type which may be utilized by the Fund
constitute hedging transactions and are consistent with the policies described
above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to sell
the currency at a price above the devaluation level it anticipates. The cost
to the Fund of engaging in foreign currency transactions varies with such
factors as the currencies involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Fund is classified as non-diversified
within the meaning of the Investment Company Act, which means that the Fund is
not limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Fund's investments are limited, however, in
order to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes". To
qualify, the Fund complies with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of the Fund's total assets will be invested
in the securities of a single issuer and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer. A fund which
elects to be classified as "diversified" under the Investment Company Act must
satisfy the foregoing 5% and 10% requirements with respect to 75% of its
total assets. To the extent that the Fund assumes large positions in the
securities of a small number of issuers, the Fund's net asset value may
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers, and the Fund may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.
The purchase of a security subject to a standby agreement and the related
commitment fee will be recorded on the date which the security can reasonably
be expected to be issued, and the value of the security will thereafter be
reflected in the calculation of the Fund's net asset value. The cost basis of
the security will be adjusted by the amount of the commitment fee. In the
event the security is not issued, the commitment fee will be recorded as income
on the expiration date of the standby commitment.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
There can be no assurance that a security purchased on a when-issued basis
or purchased or sold through a forward commitment will be issued, and the value
of the security, if issued, on the delivery date may be more or less than its
6
<PAGE>
purchase price. The Fund may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the security
during the commitment period.
Standby Commitment Agreements. The Fund, from time to time, may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security or a
stated number of shares of equity securities which may be issued and sold to
the Fund at the option of the issuer. The price and coupon of the security is
fixed at the time of the commitment. At the time of entering into the
agreement the Fund is paid a commitment fee, regardless of whether or not the
security is ultimately issued, which is typically approximately 0.50% of the
aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price
which is considered advantageous to the Fund. The Fund will not enter into a
standby commitment with a remaining term in excess of 45 days and presently
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the
value of portfolio securities subject to legal restrictions on resale that
affect their marketability, will not exceed 15% of its total assets taken at
the time of acquisition of such a commitment. The Fund at all times will
maintain a segregated account with its custodian of cash, cash equivalents,
U.S. Government securities or other high grade liquid debt securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount
equal to the purchase price of the securities underlying a commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance
of the security underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the commitment
period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
can reasonably be expected to be issued, and the value of the security
thereafter will be reflected in the calculation of the Fund's net asset value.
The cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities, or an
affiliate thereof. Purchase and sale contracts may be entered into only with
financial institutions which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50
million. Under such agreements, the other party agrees, upon entering into
the contract with the Fund, to repurchase the security at a mutually agreed
upon time and price in a specified currency, thereby determining the yield
during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period although it may
be affected by currency fluctuations. In the case of repurchase agreements,
the price at which the trades are conducted do not reflect accrued interest on
the underlying obligation; whereas, in the case of purchase and sale contracts,
the prices take into account accrued interest. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, the Fund will require the seller to provide
additional collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase agreement; the
Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate, the rate of return to the Fund would be dependent
upon intervening fluctuations of the market values of such securities and the
accrued interest on the securities. In such event, the Fund would have rights
against the seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to perform.
Repurchase agreements and purchase and sale contracts maturing in more than
seven days are deemed to be illiquid by the Commission and are therefore
subject to the Fund's investment restriction limiting investments in securities
that are not readily marketable to 15% of the Fund's total
7
<PAGE>
assets. (However, under the law of certain states, the Fund presently is
limited with respect to such investments to 10% of its total assets.) See
"Investment Restrictions" below.
Lending of Portfolio Securities. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may lend securities from its
portfolio to approved borrowers and receive collateral in cash or securities
issued or guaranteed by the U.S. Government which are maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrowers to use such
securities for delivery to purchasers when such borrowers have sold short. If
cash collateral is received by the Fund, it is invested in short-term money
market securities, and a portion of the yield received in respect of such
investment is retained by the Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a rate for the
loan premium to be received by the Fund for lending its portfolio securities.
In either event, the total return on the Fund's portfolio is increased by loans
of its portfolio securities. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other
distributions. Such loans are terminable at any time, and the borrower, after
notice, will be required to return borrowed securities within five business
days. The Fund may pay reasonable finder's, administrative and custodial fees
in connection with such loans. With respect to the lending of portfolio
securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which, for this purpose and under the Investment
Company Act, means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:
1. Invest more than 25% of its total assets, taken at market value
at the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities).
2. Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed to be the
making of investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of
bonds, debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances and repurchase agreements and
purchase and sale contracts and any similar instruments shall not be deemed
to be the making of a loan, and except further that the Fund may lend its
portfolio securities, provided that the lending of portfolio securities may
be made only in accordance with applicable law and the guidelines set forth
in the Prospectus and this Statement of Additional Information, as they may
be amended from time to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that the Fund (i) may borrow from banks (as
defined in the Investment Company Act) in amounts up to 331/3% of its total
assets (including the amount borrowed), (ii) may borrow up to an additional
5% of its total assets for temporary purposes, (iii) may obtain such short-
term credit as may be necessary for the clearance of purchases and sales of
portfolio securities and (iv) may purchase securities on margin to the
extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the
Fund's investment policies as set forth in the Prospectus and this
Statement of Additional
8
<PAGE>
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
7. Underwrite securities of other issuers, except insofar as the
Fund technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except
to the extent the Fund may do so in accordance with applicable law and the
Fund's Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without the Fund registering as a commodity
pool operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable law
currently allows the Fund to purchase the securities of other investment
companies if immediately thereafter not more than (i) 3% of the total
outstanding voting stock of such company is owned by the Fund, (ii) 5% of
the Fund's total assets, taken at market value, would be invested in such
securities, and (iv) the Fund, together with other investment companies
having the same investment adviser and companies controlled by such
companies, owns not more than 10% of the total outstanding stock of any one
closed-end investment company. Investments by the Fund in wholly-owned
investment entities created under the laws of certain countries will not be
deemed an investment in other investment companies.
b. Make short sales of securities or maintain a short position
except to the extent permitted by applicable law. The Fund does not,
however, currently intend to engage in short sales, except short sales
"against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions, or which cannot otherwise be marketed,
redeemed, put to the issuer or to a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent that the laws of
any state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As
of the date hereof, therefore, the Fund will not invest more than 10% of
its total assets in securities which are subject to this investment
restriction (c). Securities purchased in accordance with Rule 144A under
the Securities Act and determined to be liquid by the Board of Directors
are not subject to the limitations set forth in this investment restriction
(c).
d. Invest in warrants if, at the time of acquisition, its
investments in warrants, valued at the lower of cost or market value, would
exceed 5% of the Fund's net assets; included within such limitation, but
not to exceed 2% of the Fund's net assets, are warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange or a
major foreign exchange. For purposes of this restriction, warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities, asset-
backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Manager, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
9
<PAGE>
g. Invest in real estate limited partnership interests or interests
in oil, gas or other mineral leases or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Prospectus and
this Statement of Additional Information, as amended from time to time.
i. Notwithstanding fundamental investment restriction (6) above,
borrow money or pledge its assets, except that the Fund (a) may borrow
from a bank as a temporary measure for extraordinary or emergency purposes
or to meet redemptions in amounts not exceeding 33-1/3% (taken at market
value) of its total assets and pledge its assets to secure such borrowings,
(b) may obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities and (c) may purchase
securities on margin to the extent permitted by applicable law. However,
at the present time, applicable law prohibits the Fund from purchasing
securities on margin. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or
options transactions is not considered to be the purchase of a security on
margin. The purchase of securities while borrowings are outstanding will
have the effect of leveraging the Fund. Such leveraging or borrowing
increases the Fund's exposure to capital risk, and borrowed funds are
subject to interest costs which will reduce net income. The Fund will not
purchase securities while borrowings exceed 5% of its total assets.
Portfolio securities of the Fund generally may not be purchased from,
sold or loaned to the Manager or its affiliates or any of their directors,
officers or employees, acting as principal, unless pursuant to a rule or
exemptive order under the Investment Company Act.
The staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased over-the-counter ("OTC") options and the
assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options if, as a result of any such transaction, the
sum of the market value of OTC options currently outstanding which are held
by the Fund, the market value of the underlying securities covered by OTC
call options currently outstanding which were sold by the Fund and margin
deposits on the Fund's existing OTC options on financial futures contracts
exceeds 15% of the total assets of the Fund, taken at market value, together
with all other assets of the Fund which are illiquid or are not otherwise
readily marketable. (Under the law of certain states, the Fund presently is
limited with respect to such investments to 10% of its net assets.) However,
if the OTC option is sold by the Fund to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money" (i.e., current market value
of the underlying securities minus the option's strike price). The repurchase
price with the primary dealers is typically a formula price which is generally
based on a multiple of the premium received for the option, plus the amount by
which the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Board of Directors of
the Fund without the approval of the Fund's shareholders. However, the Fund
will not change or modify this policy prior to the change or modification by
the Commission staff of its position.
In addition, as a non-fundamental policy which may be changed by the Board
of Directors and to the extent required by the Commission or its staff, the
Fund will, for purposes of investment restriction (1), treat securities issued
or guaranteed by the government of any one foreign country as the obligations
of a single issuer.
As another non-fundamental policy, the Fund will not invest in securities
which are (a) subject to material legal restrictions on repatriation of assets
or (b) cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its total assets, taken at market value would
be invested in such securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving such firm or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions
10
<PAGE>
pursuant to an exemptive order under the Investment Company Act. See
"Portfolio Transactions and Brokerage". Without such an exemptive order, the
Fund would be prohibited from engaging in portfolio transactions with Merrill
Lynch or its affiliates acting as principal and from purchasing securities in
public offerings which are not registered under the Securities Act in which
such firms or any of their affiliates participate as an underwriter or dealer.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL(63)-President and Director(1)(2)-President of the Manager
(which term, as used herein, includes its corporate predecessors) since 1976;
President of Fund Asset Management, L.P. ("FAM"; which term, as used herein,
includes its corporate predecessors) since 1977; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of
Merrill Lynch Funds Distributor, Inc. (the "Distributor").
(OTHER DIRECTORS TO BE PROVIDED BY AMENDMENT)
TERRY K. GLENN(55)-Executive Vice President(1)(2)-Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of the Distributor since
1986 and Director thereof since 1991.
DONALD C. BURKE(35)-Vice President(1)(2)-Vice President and Director of
Taxation of the Manager and FAM since 1990.
GERALD M. RICHARD(46)-Treasurer(1)(2)-Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer thereof since 1984.
MARK B. GOLDFUS(48)-Secretary(1)(2)-Vice President of the Manager and FAM
since 1985.
______________________
(1) Interested person, as defined in the Investment Company Act, of the
Fund.
(2) Such Director or officer is a director, trustee or officer of certain
other investment companies for which the Manager, or an affiliate, FAM,
acts as investment adviser or manager.
At ____________, 1996, the Directors and officers of the Fund as a group
(__ persons) owned an aggregate of less than 1% of the outstanding shares of
the Fund. At such date, Mr. Zeikel, a Director and Officer of the Fund, and
the other officers of the Fund, owned less than 1% of the outstanding shares
of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each Director who is not affiliated with the Manager (each,
a "non-affiliated Director") a fee of $_____ per year plus $___ per Board
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Fund also compensates members of its
Audit and Nominating Committee, which consists of all of the non-affiliated
Directors, at a rate of $___ per meeting attended. The Chairman of the Audit
and Nominating Committee receives an additional fee of $___ per meeting
attended.
11
<PAGE>
The following table sets forth the estimated compensation to be paid by the
Fund to the non-affiliated Directors, projected through the end of the Fund's
first fiscal year, and the aggregate compensation paid by all registered
investment companies advised by the Manager and an affiliate, FAM ("MLAM/FAM-
Advised Funds"), to the non-affiliated Directors for the year ended December
31, 1995.
<TABLE>
<CAPTION> Aggregate Compensation
Pension or Retirement from Fund and
Benefits Accrued as Other MLAM/FAM-
Compensation Part of Fund Advised Funds Paid
Name of Director from Fund(2) Expenses to Directors(1)
---------------- ------------ --------------------- -----------------------
<S> <C> <C> <C>
____________ . . . . . . . . . . . $____ None $____
____________ . . . . . . . . . . . $____ None $____
____________ . . . . . . . . . . . $____ None $____
____________ . . . . . . . . . . . $____ None $____
____________ . . . . . . . . . . . $____ None $____
</TABLE>
________________________
(1) In addition to the Fund, the Directors serve on the boards of other
MLAM/FAM-Advised Funds as follows: ________ (__ funds and portfolios);
_______ (__ funds and portfolios); ________ (__ funds and portfolios); and
________ (funds and portfolios); ________ (__ funds and portfolios).
(2) Amount includes 1996 annual retainers.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities held by the Fund also may be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives
or other factors, a particular security may be bought for one or more clients
when one or more clients are selling the same security. If purchases or sales
of securities by the Manager for the Fund or other funds for which they act as
investment adviser or for other advisory clients arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
The Fund has entered into a management agreement (the "Management
Agreement") with the Manager. As described in the Prospectus, the Manager
receives for its services to the Fund monthly compensation at the annual rate
of (_____)% of the average daily net assets of the Fund.
The State of California imposes limitations on the expenses of the Fund.
These expense limitations require that the Manager reimburse the Fund in an
amount necessary to prevent the ordinary operating expenses of the Fund
(excluding interest, taxes, distribution fees, brokerage fees and commissions
and extraordinary charges such as litigation costs) from exceeding in any
fiscal year 2.5% of the Fund's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. The Manager's obligation to reimburse the
Fund is limited to the amount of the management fee. No fee payment will be
made to the Manager during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment.
The Fund intends to apply for an order from the State of California
partially waiving the expense limitation described above. Pursuant to the
terms of such waiver, the expense limitations that otherwise would apply would
be waived to the
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<PAGE>
extent that the Fund's expenses for management and auditing fees exceed the
average of such fees of a group of mutual funds managed by the Manger or an
affiliate, FAM, which primarily invests domestically.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of the Manager or its
affiliates. The Fund pays all other expenses incurred in the operation of the
Fund, including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports
and prospectuses and statements of additional information (except to the extent
paid by the Distributor); charges of the custodian, any sub-custodian and
transfer agent; expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal, state or foreign laws; fees and expenses
of unaffiliated Directors; accounting and pricing costs (including the daily
calculation of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other
expenses properly payable by the Fund. Accounting services are provided to the
Fund by the Manager, and the Fund reimburses the Manager for its costs in
connection with such services on a semi-annual basis. The Distributor will pay
certain promotional expenses of the Fund incurred in connection with the
offering of its shares. Certain expenses will be financed by the Fund pursuant
to distribution plans in compliance with Rule 12b-1 under the Investment
Company Act. See "Purchase of Shares--Distribution Plans".
The Manager is a limited partnership, the partners of which are ML & Co.
and Princeton Services.
Duration and Termination. Unless earlier terminated as described below,
the Management Agreement will continue in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors of the Fund or by a majority
of the outstanding shares of the Fund and (b) by a majority of the Directors
who are not parties to such contracts or "interested persons" (as defined in
the Investment Company Act) of any such party. Such contracts are not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of a majority of the
shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing/SM/ System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives, and shares of Class B and Class
C are sold to investors choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C and Class D share represents an identical interest in
the investment portfolio of the Fund, and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid. Each class has different
exchange privileges. See "Shareholder Services--Exchange Privilege".
The Merrill Lynch Select Pricing/SM/ System is used by more than 50 mutual
funds advised by the Manager or an affiliate, FAM. Funds advised by the
Manager or FAM which use the Merrill Lynch Select Pricing/SM/ System are
referred to herein as "MLAM-advised mutual funds".
The Fund has entered into separate distribution agreements with the
Distributor in connection with the subscription and continuous offering of each
class of shares of the Fund (the "Distribution Agreements"). The Distribution
Agreements obligate the Distributor to pay certain expenses in connection with
the offering of each class of shares of the Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The
13
<PAGE>
Distribution Agreements are subject to the same renewal requirements and
termination provisions as the Management Agreement described under "Management
of the Fund--Management and Advisory Arrangements".
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The term "purchase", as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his or her or their own account
and single purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount;
provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment
adviser.
Closed-End Fund Investment Option. Class A shares of the Fund and of other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or its
affiliate, FAM, who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. First, the sale of the closed-end
fund shares must be made through Merrill Lynch, and the net proceeds therefrom
must be reinvested immediately in Eligible Class A Shares or Class D shares.
Second, the closed-end fund shares must either have been acquired in the
initial public offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end fund shares must
have been maintained continuously in a Merrill Lynch securities account.
Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value
or cost, whichever is higher, of the purchaser's combined holdings of all
classes of shares of the Fund and of other MLAM-advised mutual funds. For any
such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension,
profit-sharing, or other employee benefit plans may not be combined with other
shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at Merrill Lynch Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides plan-
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant
to a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A or
Class D shares of the Fund and of other MLAM-advised mutual funds presently
held, at cost or maximum offering price (whichever is higher), on the date of
the first purchase under the Letter of Intention, may be included as a credit
toward the completion of such Letter, but the reduced sales charge applicable
to the amount covered by such Letter will be applied only to new purchases. If
the total amount of shares does not equal the amount stated in the Letter of
Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days
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of the expiration of such Letter, the difference between the sales charge on
the Class A or Class D shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
or Class D shares equal to five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of
the purchaser) for this purpose. The first purchase under the Letter of
Intention must be at least five percent of the dollar amount of such Letter.
If a purchase during the term of such Letter otherwise would be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to the reduced
percentage sales charge which would be applicable to a single purchase equal
to the total dollar value of the Class A or Class D shares then being purchased
under such Letter, but there will be no retroactive reduction of the sales
charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-
advised money market Fund into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch Blueprint/SM/ Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint/SM/ Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares
of the Fund may purchase additional Class A shares of the Fund through
Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $5,000 at 3.50% and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund are being
offered at net asset value plus a sales charge of 1/2 of 1% for corporate or
group IRA programs placing orders to purchase their Class A or Class D shares
through Blueprint. Services, including the exchange privilege, available to
Class A and Class D investors through Blueprint, however, may differ from those
available to other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services,
a business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(as defined below) whose Trustee and/or Plan Sponsor has entered into a
Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of
an automatic investment plan. Additional information concerning purchases
through Blueprint, including any annual fees and transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint/SM/ Program, P.O. Box 30441, New Brusnwick, New Jersey 08989-0441.
TMA/SM/ Managed Trusts. Class A shares are offered to TMA/SM/ Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Purchase Privilege of Certain Persons. Directors of the Fund, directors
and trustees of other MLAM-advised mutual funds, ML & Co. and its subsidiaries
(the term "subsidiaries", when used herein with respect to ML & Co., includes
the Manager, FAM and certain other entities directly or indirectly wholly-owned
and controlled by ML & Co.) and their directors and employees and any trust,
pension, profit-sharing or other benefit plan for such persons may purchase
Class A shares of the Fund at net asset value.
Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption of
a mutual fund that was sponsored
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by the financial consultant's previous firm and was subject to a sales charge
either at the time of purchase or on a deferred basis; and second, the investor
also must establish that such redemption had been made within 60 days prior to
the investment in the Fund, and the proceeds from the redemption had been
maintained in the interim in cash or a money market fund.
Class D shares of the Fund also are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, such purchase of Class D shares must be made within 90 days
after such notice.
Class D shares of the Fund will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer, if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from a redemption of shares
of such other mutual fund and that such shares have been outstanding for a
period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price
of Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a public or private investment company. The value of the assets or
company acquired in a tax-free transaction may be adjusted in appropriate cases
to reduce possible adverse tax consequences to the Fund which might result from
an acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations,
statutory mergers or other acquisitions of portfolio securities which (i) meet
the investment objectives and policies of the Fund; (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Fund's portfolio securities at all times shall remain within
its control); and (iii) are liquid securities, the value of which is readily
ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Fund may acquire through such transactions
restricted or illiquid securities to the extent the Fund does not exceed the
applicable limits on acquisition of such securities set forth under "Investment
Objectives and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D Shares
approximately ten years after the plan purchases the first share of any MLAM-
advised mutual fund. Minimum purchase requirements may be waived or varied for
such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements are available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
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Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor shall
provide and the Directors shall review quarterly reports of the disbursement of
the account maintenance fees and/or distribution fees paid to the Distributor.
In their consideration of each Distribution Plan, the Directors must consider
all factors that they deem relevant, including information as to the benefits
of the Distribution Plan to the Fund and its related class of shareholders.
Each Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons", as defined in the Investment Company Act, of the Fund
(the "Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is a
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan may be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors
or by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to
increase materially the amount to be spent by the Fund without the approval of
the related class of shareholders, and all material amendments are required to
be approved by the vote of the Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in such
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of each Distribution Plan
and any report made pursuant to such plan for a period of not less than six
years from the date of such Distribution Plan or such report, the first two
years in an easily accessible place.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the NASD imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC,
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor voluntarily has agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances, the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances,
payments in excess of the amount payable under the NASD formula will not
be made.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for periods during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists, as defined by the Commission, as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission by order may permit for the protection of
shareholders of the Fund.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an
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<PAGE>
Individual Retirement Account ("IRA") or other retirement plan or following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies are: (a) any partial or complete redemption in connection with a tax-
free distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) or any redemption resulting from the tax-free
return of an excess contribution to an IRA; or (b) any partial or complete
redemption following the death or disability (as defined in the Code) of a
Class B shareholder (including one who owns the Class B shares as joint tenant
with his or her spouse), provided that the redemption is requested within one
year of the death or initial determination of disability.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing such transactions,
the Manager seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Manager generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commission or
spread available. The Fund has no obligation to deal with any broker or group
of brokers in execution of transactions in portfolio securities. Subject to
obtaining the best price and execution, brokers who provide supplemental
investment research to the Manager may receive orders for transactions by the
Fund. Information so received will be in addition to and not in lieu of the
services required to be performed by the Manager under the Management Agreement
and the expenses of the Manager will not necessarily be reduced as a result of
the receipt of such supplemental information. It is possible that certain
supplementary investment research so received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies. In addition,
consistent with the Rules of Fair Practice of the NASD and policies established
by the Board of Directors of the Fund, the Manager may consider sales of shares
of the Fund as a factor in the selection of brokers or dealers to execute
portfolio transactions for the Fund.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the Fund
will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation
of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Fund in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other securities convertible into foreign
equity securities. ADRs, EDRs and GDRs may be listed on stock exchanges or
traded in over-the-counter markets in the United States or Europe, as the case
may be. ADRs, like other securities traded in the United States, as well as
GDRs traded in the United States, will be subject to negotiated commission
rates.
The Fund may invest in securities traded in the OTC markets and intends
to deal directly with the dealers who make markets in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated with the Fund
and persons who are affiliated with such affiliated persons are prohibited from
dealing with the Fund as principal in the purchase and sale of securities
unless a permissive order allowing such transactions is obtained from the
Commission. Since transactions in the OTC market usually involve transactions
with dealers acting as principal for their own account, the Fund will not deal
with affiliated persons, including Merrill Lynch and its affiliates, in
connection with such transactions. However, affiliated persons of the Fund may
serve as its broker in OTC transactions conducted on an agency basis provided
that, among other things, the fee or commission received by such affiliated
broker is reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions. See
"Investment Objective and Policies--Investment Restrictions".
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The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a
daily basis in U.S. dollars, the Fund intends to manage its portfolio so as to
give reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. Under present conditions, it
is not believed that these considerations will have any significant effect on
its portfolio strategies.
The Board of Directors has considered the possibilities of seeking to
recapture for the benefit of the Fund brokerage commissions and other expenses
of possible portfolio transactions by conducting portfolio transactions
through affiliated entities. For example, brokerage commissions received by
affiliated brokers could be offset against the advisory fee paid by the Fund.
After considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this
matter from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions for their affiliates
and institutional accounts which they manage unless the member (i) has obtained
prior express authorization from the account to effect such transactions, (ii)
at least annually furnishes the account with the aggregate compensation
received by the member in effecting such transactions, and (iii) complies with
any rules the Commission has prescribed with respect to the requirements of
clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill Lynch
acting as a broker for the Fund in any of its portfolio transactions executed
on any such securities exchange of which it is a member, appropriate consents
have been obtained from the Fund and annual statements as to aggregate
compensation will be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund will be determined by the
Manager once daily Monday through Friday, as of 15 minutes after the close of
business on the New York Stock Exchange (generally, 4:00 P.M., New York time),
on each day during which the New York Stock Exchange is open for trading. The
New York Stock Exchange is not open on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Any assets or liabilities initially expressed in terms of non-
U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The Fund also will determine its net asset value on any day in which there is
sufficient trading in its portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to
sell or redeem shares. Net asset value is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at such
time. Expenses, including the investment advisory fees and any account
maintenance and/or distribution fees, are accrued daily. The per share net
asset value of Class B, Class C and Class D shares generally will be lower than
the per share net asset value of Class A shares, reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
Class D shares; moreover, the per share net asset value of Class B and Class C
shares generally will be lower than the per share net asset value of Class D
shares, reflecting the daily expense accruals of the distribution fees and
higher transfer agency fees applicable with respect to Class B and Class C
shares of the Fund. It is expected, however, that the per share net asset
value of the four classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions, which will differ
by approximately the amount of the expense accrual differentials between the
classes.
Portfolio securities which are traded on stock exchanges are valued at
the last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. When
the Fund writes a call option, the amount of the premium received is recorded
on the books of the Fund as an asset and an equivalent liability. The amount
of the liability is subsequently valued to reflect the current market value of
the option written, based upon the last asked price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the average
of the last asked price as obtained from one or more dealers. Options
purchased by the Fund are valued
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at their last bid price in the case of exchange-traded options or, in the case
of options traded in the OTC market, the average of the last bid price as
obtained from two or more dealers unless there is only one dealer, in which
case that dealer's price is used. Other investments, including financial
futures contracts and related options, are stated at market value.
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 Directors of the Fund. Such valuations and procedures will be
reviewed periodically by the Board of Directors.
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 the New York Stock Exchange. The values of
such securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close
of the New York Stock Exchange which will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be valued
at their fair value as determined in good faith by the Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has
an "Investment Account" and will receive, at least quarterly, statements from
the Transfer Agent. The statements will serve as transaction confirmations
for automatic investment purchases and the reinvestment of income dividends.
The statements also will show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of income dividends.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing
all or only part of the full shares in an Investment Account may be requested
by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should
be aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must
continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their
Class B or Class C shares from Merrill Lynch and who do not wish to have an
Investment Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he or she be
issued certificates for the shares and then must turn the certificates over to
the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such
as an individual retirement account from Merrill Lynch to another brokerage
firm or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Fund, a shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares. A shareholder may make additions to his or her
Investment Account at any time by mailing a check directly to the Transfer
Agent.
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AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if an eligible Class A investor as described
in the Prospectus) or Class B, Class C or Class D shares at the applicable
public offering price either through the shareholder's securities dealer or by
mail directly to the Transfer Agent, acting as agent for such securities
dealer. Voluntary accumulation also can be made through a service known as
the Fund's Automatic Investment Plan whereby the Fund is authorized
through pre-authorized checks or automated clearing house debits of $50 or
more to charge the regular bank account of the shareholder on a regular basis
to provide systematic additions to the Investment Account of such
shareholder. An investor whose shares of the Fund are held within a
CMA(Registered Trademark) or CBA(Registered Trademark) account may arrange to
have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(Registered Trademark)/CBA(Registered
Trademark) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of the shares of the
Fund, without a sales charge, as of the close of business on the ex-dividend
date of the dividend or distribution. Shareholders may elect in writing to
receive their dividends or capital gains distributions, or both, in cash, in
which event payment will be mailed on or about the payment date. Cash
payments also can be directly deposited to the shareholder's bank account.
Shareholders, at any time, may notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after receipt by the Transfer Agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based upon cost or the
current offering price, of $5,000 or more, and monthly withdrawals are
available for shareholders with Class A or Class D shares with such a value
of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder
may specify either a dollar amount or a percentage of the value of his or her
Class A or Class D shares. Redemptions will be made at net asset value as
determined at the close of business of the New York Stock Exchange (currently
4:00 P.M., New York City time) on the 24th day of each month or the 24th day
of the last month of each quarter, whichever is applicable. If the New
York Stock Exchange is not open for business on such date, the Class A or
Class D shares will be redeemed at the close of business on the following
business day. The check for the withdrawal payment will be mailed or the
direct deposit of the withdrawal payment will be made on the next business day
following redemption. When a shareholder is making systematic withdrawals,
dividends on all Class A or Class D shares in his or her Investment Account
automatically are reinvested in Fund Class A or Class D shares, respectively.
A shareholder's Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Fund, the Transfer Agent or
the Distributor.
Withdrawal payments should not be considered as dividends, yield or
income. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's original
investment may be reduced correspondingly. Purchases of additional
Class A or Class D shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for Class A
or Class D shares of the Fund from investors who maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. Periodic investments may not be
made into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
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Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(Registered Trademark), CBA(Registered Trademark) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA(Registered
Trademark)/CBA(Registered Trademark) Systematic Redemption Program. The
minimum fixed dollar amount redeemable is $25. The proceeds of systematic
redemptions will be posted to the shareholder's account five business days
after the date the shares are redeemed. Monthly systematic redemptions will be
made at net asset value on the first Monday of each month; bimonthly
systematic redemptions will be made at net asset value on the first Monday
of every other month; and quarterly, semiannual or annual redemptions are made
at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day.
The Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program.
For more information on the CMA(Registered Trademark)/CBA(Registered Trademark)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch financial consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select Pricing/SM/ System, Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his or her account in which the exchange is made at the time of the exchange
or is otherwise eligible to purchase Class A shares of the second fund.
If the Class A shareholder wants to exchange Class A shares for shares of a
second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his or her account at the time of the exchange
and is not otherwise eligible to acquire Class A shares of the second fund,
the shareholder will receive Class D shares of the second fund as a result of
the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of
the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class B, Class C and Class D shares
will be exchangeable with shares of the same class of other MLAM-advised
mutual funds. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for the
previously owned shares of the Fund is "tacked" to the holding period of the
newly acquired shares of the other fund as more fully described below. Class
A, Class B, Class C and Class D shares also will be exchangeable for shares
of certain MLAM-advised money market funds specifically designated below as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to
qualify for the exchange privilege, and any shares utilized in an exchange
must have been held by the shareholder for 15 days. It is contemplated that
the exchange privilege may be applicable to other new mutual funds whose
shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the sales charge
payable at the time of the exchange on the new Class A or Class D shares.
With respect to outstanding Class A or Class D shares as to which previous
exchanges have taken place, the "sales charge previously paid" shall include
the aggregate of the sales charges paid with respect to such Class A or Class
D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes
of the exchange privilege, Class A and Class D shares acquired through
dividend reinvestment shall be deemed to have been sold with a sales charge
equal to the sales charge previously paid on the Class A or Class D shares on
which the dividend was paid. Based on this formula, Class A and Class D shares
of the Fund generally may be exchanged into Class A or Class D shares of the
other funds or into shares of the Class A or Class D money market funds
with a reduced or without a sales charge.
In addition, each of the funds with Class B or Class C shares
outstanding ("outstanding Class B or Class C shares") offers to exchange its
Class B or Class C shares for Class B or Class C shares, respectively, of
another MLAM-advised mutual fund ("new Class B or Class C shares") on the basis
of relative net asset value per Class B or Class C share, without the
payment of any CDSC that might otherwise be due on redemption of the
outstanding Class B or Class C shares. Class B or Class C shareholders of the
Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the new Class B or Class C shares acquired through
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<PAGE>
use of the exchange privilege. In addition, Class B or Class C shares of the
Fund acquired through use of the exchange privilege will be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the Class B or Class C shares of the fund from which the exchange has been
made. For purposes of computing the sales charge that may be payable on a
disposition of the new Class B or Class C shares, the holding period for the
outstanding Class B or Class C shares is "tacked" to the holding period of
the new Class B or Class C shares. For example, an investor may exchange
Class B shares of the Fund for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Fund's Class B shares for two and
a half years. The 2% CDSC that generally would apply to a redemption would
not apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There
will be no CDSC due on this redemption, since by "tacking" the two and a half
year holding period of Fund Class B shares to the three year holding period for
the Special Value Fund Class B shares, the investor will be deemed to have
held the new Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC, or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of the Fund,
in turn, may be exchanged back into Class B or Class C shares, respectively,
of any fund offering such shares, in which event the holding period for
Class B or Class C shares of the Fund will be aggregated with previous
holding periods for purposes of reducing the CDSC. Thus, for example, an
investor may exchange Class B shares of the Fund for shares of Merrill Lynch
Institutional Fund after having held the Fund Class B shares for two and a
half years and three years later decide to redeem the shares of Merrill Lynch
Institutional Fund for cash. At the time of this redemption, the 2.0% CDSC
that would have been due had the Class B shares of the Fund been redeemed for
cash rather than exchanged for shares of Merrill Lynch Institutional Fund
will be payable. If instead of such redemption the shareholder exchanged
such shares for Class B shares of a fund which the shareholder continues to
hold for an additional two and a half years, any subsequent redemption will
not incur a CDSC.
Set forth below is a description of the investment objectives of the
other funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. . . . . . High current income consistent with
a policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio of
adjustable rate securities, consisting
principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS
INCOME FUND, INC. . . . . . . . A high level of current income,
consistent with prudent investment
risk, by investing primarily in debt
securities denominated in a currency
of a country located in the Western
Hemisphere (i.e., North and South
America and the surrounding waters).
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MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose investment objective is
to provide investors with as high a
level of income exempt from Federal
and Arizona income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-
term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND . . . . . . A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
investment objective is to provide
investors with as high a level of
income exempt from Federal and
Arizona income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND . . . . . . A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide investors
with as high a level of income
exempt from Federal and Arkansas
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ASSET GROWTH
FUND, INC. . . . . . . . . . . . High total investment return,
consistent with prudent risk,
from investment in United States
and foreign equity, debt and
money market securities the
combination of which will be
varied both with respect to types
of securities and markets in
response to changing market and
economic trends.
MERRILL LYNCH ASSET INCOME
FUND, INC. . . . . . . . . . . . A high level of current income
through investment primarily in
United States fixed income
securities.
MERRILL LYNCH BASIC
VALUE FUND, INC. . . . . . . . . Capital appreciation and,
secondarily, income through
investment in securities,
primarily equities, that are
undervalued and therefore
represent basic investment value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND FUND. . . A portfolio of Merrill Lynch
California Municipal Series Trust,
a series fund, whose objective is
to provide as high a level of
income exempt from Federal and
California income taxes as is
consistent with prudent investment
management through investment in
a portfolio consisting primarily
of insured California Municipal
Bonds.
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MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to
provide as high a level of income
exempt from Federal and California
income taxes as is consistent with
prudent investment management
through investment in a portfolio
primarily of intermediate-term
investment grade California
Municipal Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND . . . . . . A portfolio of Merrill Lynch
California Municipal Series Trust,
a series fund, whose objective is
to provide as high a level of
income exempt from Federal and
California income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH
CAPITAL FUND, INC. . . . . . . The highest total investment return
consistent with prudent risk
through a fully managed investment
policy utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND. . . . . . . A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high
a level of income exempt from
Federal and Colorado income
taxes as is consistent with
prudent investment management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND . . . . . . A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high
a level of income exempt from
Federal and Connecticut income
taxes as is consistent with
prudent investment management.
MERRILL LYNCH CORPORATE
BOND FUND, INC. . . . . . . . . Current income from three separate
diversified portfolios of fixed
income securities.
MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND, INC. . . . Long-term capital appreciation
through investment in securities,
principally equities, of issuers
in countries having smaller
capital markets.
MERRILL LYNCH DRAGON
FUND, INC. . . . . . . . . . . Capital appreciation primarily
through investment in equity and
debt securities of issuers
domiciled in developing countries
located in Asia and the Pacific
Basin other than Japan, Australia
and New Zealand.
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MERRILL LYNCH EUROFUND . . . . . . . Capital appreciation primarily
through investment in equity
securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST . . . . . . . . High current return through
investment in U.S. Government
and Government agency securities,
including GNMA mortgage-backed
certificates and other mortgage-
backed Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a
series fund, whose objective is
to provide as high a level of
income exempt from Federal income
taxes as is consistent with
prudent investment management
while serving to offer investors
the opportunity to own securities
exempt from Florida intangible
personal property taxes through
investment in a portfolio
primarily of intermediate-term
investment grade Florida Municipal
Bonds.
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND . . . . . . A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high
a level of income exempt from
Federal income taxes as is
consistent with prudent investment
management while seeking to offer
investors the opportunity to own
securities exempt from Florida
intangible personal property
taxes.
MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. . . . . . . . Long-term growth of capital through
investment in a portfolio of
equity securities placing
particular emphasis on companies
that have exhibited an above-
average growth rate in earnings.
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as custodian
and by certain CBA(Registered
Trademark) Accounts and
CMA(Registered Trademark)
Sub-Accounts). . . . . . . . . . A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to
provide capital appreciation and
income by investing in securities,
with at least 65% of the
portfolio's assets being invested
in equities.
MERRILL LYNCH FUND
FOR TOMORROW, INC. . . . . . . Long-term growth through investment
in a portfolio of good quality
securities, primarily common
stock, potentially positioned to
benefit from demographic and
cultural changes as they affect
consumer markets.
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MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC. . . . . . High total return consistent with
prudent risk, through a fully
managed investment policy
utilizing U.S. and foreign equity,
debt and money market securities,
the combination of which will be
varied from time to time both
with respect to the types of
securities and markets in response
to changing market and economic
trends.
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND RETIREMENT. . . . High total investment return from
investment in a global portfolio
of debt investments denominated
in various currencies and
multi-national currency units.
MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC. . . . . High total return from investment
primarily in an internationally
diversified portfolio of
convertible debt securities,
convertible preferred stock and
"synthetic" convertible
securities consisting of a
combination of debt securities
or preferred stock and warrants
or options.
MERRILL LYNCH GLOBAL HOLDINGS
(residents of Arizona must meet
investor suitability standards). The highest total investment return
consistent with prudent risk
through worldwide investment in
an internationally diversified
portfolio of securities.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as custodian
and by certain CBA(Registered
Trademark) Accounts and
CMA(Registered Trademark)
Sub-Accounts). . . . . . . . . . A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to seek
long-term growth of capital by
investing in a portfolio of equity
securities placing particular
emphasis on companies that have
exhibited above-average growth
rates in earnings.
MERRILL LYNCH GLOBAL RESOURCES
TRUST. . . . . . . . . . . . . . Long-term growth and protection
of capital from investment in
securities of domestic and foreign
companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. . . . . . . . . . . Long-term growth of capital by
investing primarily in equity
securities of companies with
relatively small market
capitalizations located in various
foreign countries and in the
United States.
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MERRILL LYNCH GLOBAL UTILITY
FUND, INC. . . . . . . . . . . Capital appreciation and current
income through investment of at
least 65% of its total assets in
equity and debt securities issued
by domestic and foreign companies
which are primarily engaged in the
ownership or operation of
facilities used to generate,
transmit or distribute
electricity, telecommunications,
gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT . . . Growth of capital and, secondarily,
income from investment in a
diversified portfolio of equity
securities placing a principal
emphasis on those securities which
management of the fund believes to
be undervalued.
MERRILL LYNCH GROWTH OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as custodian
and by certain CBA(Registered
Trademark) accounts and
CMA(Registered Trademark)
Sub-Accounts) . . . . . . . . . A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to seek
long-term growth of capital by
investing in a portfolio of equity
securities placing particular
emphasis on companies that have
exhibited above-average growth
rates in earnings.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor suitability standards). . . . Capital appreciation through
worldwide investment in equity
securities of companies that
derive or are expected to derive
a substantial portion of their
sales from products and services
in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND . . .. . . . . . . . . . . .Capital appreciation and,
secondarily, income by investing
in a diversified portfolio of
equity securities of issuers
located in countries other than
the United States.
MERRILL LYNCH LATIN
AMERICA FUND, INC. . . . . . . . . . . .Capital appreciation by investing
primarily in Latin American equity
and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and Maryland
income taxes as is consistent with
prudent investment management.
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MERRILL LYNCH MASSACHUSETTS LIMITED
MATURITY MUNICIPAL BOND FUND. . . . . . A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
investment objective is to provide
investors with as high a level of
income exempt from Federal and
Massachusetts income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and
Massachusetts income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND. . . . . .A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
investment objective is to provide
investors with as high a level of
income exempt from Federal and
Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and Michigan
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide
investors with as high a level
of income exempt from Federal
and Minnesota income taxes as
is consistent with prudent
investment management.
MERRILL LYNCH MUNICIPAL
BOND FUND, INC . . . . . . . . . . . . .Tax-exempt income from three
separate diversified portfolios
of municipal bonds.
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MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND. . . . . . . . . Currently the only portfolio of
Merrill Lynch Municipal Series
Trust, a series fund, whose
investment objective is to provide
investors with as high a level as
possible of income exempt from
Federal income taxes by investing
in investment grade obligations
with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND. . . . . . A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and New Jersey
income taxes as is consistent with
prudent investment management
through a portfolio primarily of
intermediate-term investment
grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and New Jersey
income taxes as is consistent
with prudent investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND. . . . . . . . . . A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide
investors with as high a level
of income exempt from Federal
and New Mexico income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND. . . . . . A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose investment objective
is to provide investors with as
high a level of income exempt
from Federal, New York State
and New York City income taxes
as is consistent with prudent
investment management through
investment in a portfolio
primarily of intermediate-term
investment grade New York
Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal, New York
State and New York City income
taxes as is consistent with
prudent investment management.
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MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and North
Carolina income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH OHIO
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and Ohio
income taxes as is consistent
with prudent investment management.
MERRILL LYNCH OREGON
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and Oregon
income taxes as is consistent
with prudent investment
management.
MERRILL LYNCH PACIFIC FUND, INC.. . . . . . Capital appreciation by investing
in equity securities of
corporations domiciled in Far
Eastern and Western Pacific
countries, including Japan,
Australia, Hong Kong, Singapore
and the Philippines.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND. . . . . . . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
investment objective is to provide
investors with as high a level of
income exempt from Federal and
Pennsylvania income taxes as is
consistent with prudent investment
management through investment in
a portfolio of intermediate-term
investment grade Pennsylvania
Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal and
Pennsylvania income taxes as is
consistent with prudent investment
management.
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MERRILL LYNCH PHOENIX
FUND, INC. . . . . . . . . . . . . . . .Long-term growth of capital by
investing in equity and fixed
income securities, including tax-
exempt securities, of issuers in
weak financial condition or
experiencing poor operating
results believed to be undervalued
relative to the current or
prospective condition of such
issuer.
MERRILL LYNCH QUALITY BOND
PORTFOLIO(only available for exchanges
by certain individual retirement accounts
for which Merrill Lynch acts as custodian and
by certain CBA(Registered Trademark)
Accounts and CMA(Registered Trademark)
Sub-Accounts). . . . . . . . . . . . . .A portfolio of Merrill Lynch
Retirement Asset Builder Program,
Inc., a series fund, whose
objective is to provide a high
level of current income through
investment in a diversified
portfolio of debt obligations,
such as corporate bonds and
notes, convertible securities,
preferred stocks and governmental
obligations.
MERRILL LYNCH SHORT-TERM
GLOBAL INCOME FUND, INC. . . . . . . . .As high a level of current income
as is consistent with prudent
investment management from a
global portfolio of high quality
debt securities denominated in
various currencies and
multinational currency units and
having remaining maturities not
exceeding three years.
MERRILL LYNCH SPECIAL
VALUE FUND, INC. . . . . . . . . . . . .Long-term growth of capital from
investments in securities,
primarily common stocks, of
relatively small companies
believed to have special
investment value and emerging
growth companies regardless of
size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND. . . . . . . . . . . . . .Long-term total return from
investment in dividend paying
common stocks which yield more
than Standard & Poor's 500
Composite Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND, INC. . . . . Capital appreciation through
worldwide investment in equity
securities of companies that
derive or are expected to
derive a substantial portion
of their sales from products and
services in technology.
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MERRILL LYNCH TEXAS
MUNICIPAL BOND FUND. . . . . . . . . . .A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose investment
objective is to provide investors
with as high a level of income
exempt from Federal income taxes
as is consistent with prudent
investment management by investing
primarily in a portfolio of long-
term, investment grade obligations
issued by the State of Texas, its
political subdivisions, agencies
and instrumentalities.
MERRILL LYNCH UTILITY
INCOME FUND, INC.. . . . . . . . . . . .High current income through
investment in equity and debt
securities issued by companies
which are primarily engaged in
the ownership or operation of
facilities used to generate,
transmit or distribute
electricity, telecommunications,
gas or water.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO (available only
for exchanges by certain individual
retirement accounts for which Merrill
Lynch acts as custodian and by certain
CBA(Registered Trademark) Accounts
and CMA(Registered Trademark) Sub-
Accounts). . . . . . . . . . . . . . . .A portfolio of Merrill Lynch
Retirement Asset Builder Program,
Inc., a series fund, whose
objective is to provide a high
current return through investments
in U.S. Government and government
agency securities, including GNMA
mortgage-backed certificates and
other mortgage-backed government
securities.
MERRILL LYNCH WORLD INCOME FUND, INC. . . . High current income by investing
in a global portfolio of fixed
income securities denominated in
various currencies, including
multi-national currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS TRUST. . . . . . Preservation of capital, liquidity
and the highest possible current
income consistent with the
foregoing investment objectives
from the short-term money market
securities in which the fund
invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for
exchanges within certain retirement
plans). . . . . . . . . . . . . . . . . Currently the only portfolio of
Merrill Lynch Retirement Series
Trust, a series fund, whose
investment objectives are current
income, preservation of capital
and liquidity available from
investment in a diversified
portfolio of short-term money
market securities.
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MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES. . . . . . . . . . . . . . . . Preservation of capital, liquidity
and current income available from
investment in direct obligations
of the U.S. Government and
repurchase agreements relating
to such securities.
MERRILL LYNCH U.S. TREASURY
MONEY FUND. . . . . . . . . . . . . . . Preservation of capital, liquidity
and current income through
investment exclusively in a
diversified portfolio of
short-term marketable securities
which are direct obligations of
the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND. . . . . . . .A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose investment objective
is to provide investors with
current income consistent with
liquidity and security of
principal from investment in
securities issued or guaranteed
by the U.S. Government, its
agencies and instrumentalities
and in repurchase agreements
secured by such obligations.
MERRILL LYNCH INSTITUTIONAL FUND. . . . . . A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose investment objective
is to provide investors with
maximum current income consistent
with liquidity and the maintenance
of a high quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND. . . . . . . . . . . . .A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose investment objectives
are to provide investors with
current income exempt from Federal
income taxes, preservation of
capital and liquidity available
from investment in a diversified
portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY FUND. . . . . . . . .A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose investment objective
is to provide investors with
current income consistent with
liquidity and security of
principal from investment in
direct obligations of the U.S.
Treasury and up to 10% of its
total assets in repurchase
agreements secured by such
obligations.
Before effecting an exchange, shareholders of the Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund
reserves the right to require a properly completed Exchange Application.
This exchange privilege may be
34
<PAGE>
modified or terminated in accordance with the rules of the Securities and
Exchange Commission. The Fund reserves the right to limit the number of
times an investor may exercise the exchange privilege. Certain funds may
suspend the continuous offering of their shares to the general public at
any time and thereafter may resume such offering from time to time. The
exchange privilege is available only to U.S. shareholders in states where the
exchange legally may be made.
TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its shareholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital
gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in warrants, futures and options)
("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned
Fund shares. Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Fund's ordinary income dividends may be
eligible for the dividends received deduction allowed to corporations under
the Code, if certain requirements are met. For this purpose, the Fund will
allocate dividends eligible for the dividends received deduction among the
Class A, Class B, Class C and Class D shareholders according to a method (which
it believes is consistent with the Securities and Exchange Commission rule
permitting the issuance and sale of multiple classes of stock) that is based
on the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe. If the Fund pays a dividend in January that
was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will
be treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% U.S. withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends,
and redemption payments ("backup withholding"). Generally, shareholders
subject to backup withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that
such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code.
For example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. If more than 50% in
value of the Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate
shares of such withholding taxes in their U.S. income tax returns as gross
income, treat such proportionate shares as taxes paid by them
35
<PAGE>
and deduct such proportionate shares in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject
to U.S. withholding tax on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes. For this purpose, the Fund
will allocate foreign taxes and foreign source income among the Class A, Class
B, Class C and Class D shareholders according to a method similar to that
described above for the allocation of dividends eligible for the dividends
received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's
basis in the Class D shares acquired will be the same as such shareholder's
basis in the Class B shares converted, and the holding period for the acquired
Class D shares will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales
charge paid to the Fund on the exchanged shares reduces any sales charge
the shareholder would have owed upon purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61 day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income determined on a calendar year basis and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be distributed to
avoid entirely the imposition of the tax. In such event, the Fund will be
liable for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield/high risk securities"), as described in the
Prospectus. Some of these high yield/high risk securities may be purchased
at a discount and may therefore cause the Fund to accrue income before
amounts due under the obligations are paid. In addition, a portion of the
interest payments on such high yield/high risk securities may be treated
as dividends for federal income tax purposes; in such case, if the issuer of
such high yield/high risk securities is a domestic corporation, dividend
payments by the Fund will be eligible for the dividends received deduction
to the extent of the deemed dividend portion of such interest payments.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company
(or similar investment entity) organized under foreign law, the Fund will be
treated as owning shares in a passive foreign investment company ("PFIC")
for U.S. Federal income tax purposes. The Fund may be subject to U.S. Federal
income tax, and an additional tax in the nature of interest (the "interest
charge"), on a portion of the distributions from such a company and on gain
from the disposition of the shares of such a company (collectively referred
to as "excess distributions"), even if such excess distributions are paid by
the Fund as a dividend to its shareholders. The Fund may be eligible to make
an election with respect to certain PFICs in which it owns shares that will
allow it to avoid the taxes on excess distributions. However, such election
may cause the Fund to recognize income in a particular year in excess of the
distributions received from such PFICs. Alternatively, under proposed
regulations the Fund would be able to elect to "mark to market" at the end
of each taxable year all shares that it holds in PFICs. If it made this
election, the Fund would recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, would not be recognized.
By making the mark-to-market election, the Fund could avoid imposition of the
interest
36
<PAGE>
charge with respect to its distributions from PFICs, but in any particular
year might be required to recognize income in excess of the distributions it
received from PFICs and its proceeds from dispositions of PFIC stock.
TAX TREATMENT OF FUTURES, OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell futures, options or forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or financial futures
contract will be treated as sold for its fair market value on the last day
of the taxable year. Unless such contract is a non-equity option or a
regulated futures contract for a non-U.S. currency for which the Fund elects
to have gain or loss treated as ordinary gain or loss under Code Section 988
(as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Fund may alter the timing
and character of distributions to shareholders. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price or interest
or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will
be marked to market, as described above. However, the character of gain or
loss from such a contract will generally be ordinary under Code Section 988.
The Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or loss
realized in connection with a forward foreign exchange contract that is a
Section 1256 contract will be characterized as 60% long-term and 40%
short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's sales of securities and transactions in futures,
options and forward foreign exchange contracts and its short sales of
securities. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in futures, options and
forward foreign exchange contracts and short sales of securities.
One of the requirements for qualification as a RIC is that less than 30%
of the Fund's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting certain short sales and closing
transactions within three months after entering into an option or futures
contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as
a RIC. It is currently unclear, however, who will be treated as the issuer
of a foreign currency instrument or how foreign currency options, foreign
currency futures and forward foreign exchange contracts will be valued for
purposes of the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. Dollar). In
general, foreign currency gains or losses from certain debt instruments,
from certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary
income or loss under Code Section 988. In certain circumstances, the Fund
may elect capital gain or loss treatment for such transactions. Regulated
futures contracts, as described above, will be taxed under Code Section 1256
unless application of Section 988 is elected by the Fund. In general, however,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988 losses
exceed other investment company taxable income during a taxable year, the
Fund would not be able to make any ordinary income dividend distributions,
and all or a portion of distributions made before the losses were realized
but in the same taxable year would be recharacterized as a return of capital
to shareholders, thereby reducing the basis of each shareholder's Fund shares,
and resulting in a capital gain for any shareholder who received a distribution
greater than the shareholder's tax basis in Fund shares (assuming the shares
were held as a capital asset). These rules and the mark-to-market rules
described above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of currency fluctuations with
respect to its investments.
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The Treasury Department has the authority to issue regulations concerning
the recharacterization of principal repayments and interest payments with
respect to debt obligations issued in hyperinflationary currencies, which
may include the currencies of certain countries in which the Fund intends
to invest. To date, no such regulations have been issued.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code
and the Treasury regulations are subject to change by legislative or
administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends also may be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of
an investment in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return
and other total return data in advertisements or information furnished to
present or prospective shareholders. Total return figures are based on the
Fund's historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for
Class A, Class B, Class C and Class D shares in accordance with a formula
specified by the Securities and Exchange Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based
on net investment income and any realized and unrealized capital gains or
losses on portfolio investments over such periods) that would equate the
initial amount invested to the redeemable value of such investment at the
end of each period. Average annual total return is computed assuming all
dividends are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case
of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and
as a dollar amount based on a hypothetical $1,000 investment, for various
periods other than those noted below. Such data will be computed as described
above, except that (1) as required by the periods of the quotations, actual
annual, annualized or aggregate data, rather than average annual data, may be
quoted, and (2) the maximum applicable sales charges will not be included
with respect to annual or annualized rates of return calculations. Aside
from the impact on the performance data calculations of including or excluding
the maximum applicable sales charges, actual annual or annualized total
return data generally will be lower than average annual total return data
since the average rates of return reflect compounding of return; aggregate
total return data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding over a longer
period of time.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares", respectively, the total return data
quoted by the Fund in advertisements directed to such investors may take into
account reduced, and not the maximum, sales charge or may not take into account
the CDSC and therefore may reflect greater total return since, due to the
reduced sales charges or the waiver of sales charges, a lower amount of
expenses may be deducted.
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GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on Marc 8, 1996. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and
Class D Common Stock, each of which consists of 100,000,000 shares. Shares
of Class A, Class B, Class C and Class D Common Stock represent interests
in the same assets of the Fund and have identical voting, dividend, liquidation
and other rights and the same terms and conditions except that the Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and have exclusive voting rights
with respect to matters relating to such account maintenance and/or
distribution expenditures. The Fund may issue additional classes of shares
if the Board of Directors deems such issuance to be in the best interest of
the Fund. Upon liquidation of the Fund, shareholders of each class are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders, except for any expenses which may be attributable
only to one class. Shares have no preemptive or conversion rights. The
rights of redemption and exchange are described elsewhere herein and in the
Prospectus. Shares are fully paid and nonassessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors (to
the extent hereafter provided) and on other matters submitted to a vote of
shareholders, except that shareholders of a class bearing account maintenance
and/or distribution expenses as provided above shall have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Fund does not intend to hold annual meetings
of shareholders in any year in which the Investment Company Act does not
require shareholders to elect Directors. Also, the by-laws of the Fund
require that a special meeting of shareholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled
to vote at such meeting, if they comply with applicable Maryland law. Voting
rights for Directors are not cumulative. Shares issued are fully paid and non-
assessable and have no preemptive or conversion rights. Redemption rights are
discussed elsewhere herein and in the Prospectus. Each share of Class A,
Class B, Class C and Class D Common Stock is entitled to participate equally in
dividends declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution after satisfaction of outstanding liabilities,
except that, as noted above, expenses related to the account maintenance
and/or distribution of the Class B, Class C and Class D shares will be borne
solely by such class. Stock certificates are issued by the Transfer Agent
only on specific request. Certificates for fractional shares are not issued
in any case.
The Manager provided the initial capital for the Fund by purchasing
10,000 shares of common stock of the Fund for $100,000. Such shares were
acquired for investment and can only be disposed of by redemption. The
organizational expenses of the Fund (estimated at approximately $________)
will be paid by the Fund and will be amortized over a period not exceeding
five years. The proceeds realized by the Manager upon the redemption of
any of the shares initially purchased by it will be reduced by the proportional
amount of the unamortized organizational expenses which the number of such
initial shares being redeemed bears to the number of shares initially
purchased. As of the date of this Statement of Additional Information, the
Manager owned 100% of the outstanding shares of Common Stock of the Fund.
The Manager may be deemed to control the Fund until such time as it owns
less than 25% of the outstanding shares of the Fund.
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<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A,
Class B, Class C and Class D shares of the Fund based on the projected value
of the Fund's estimated net assets and projected number of shares outstanding
on the date its shares first are offered for sale to public investors is as
follows:
CLASS A CLASS B CLASS C Class D
----- ----- ----- -----
Net Assets $25,000 $25,000 $25,000 $25,000
Number of Shares Outstanding 2,500 2,500 2,500 2,500
Net Asset Value Per Share (net
assets divided by number of
shares outstanding) $10.00 $10.00 $10.00 $10.00
Sales Charge (for Class A and
Class D Shares: 5.25% of
offering price (5.54% of
net amount invested*) $ .55 ** ** $ .55
----- ----- ----- ------
Offering Price $10.55 $10.00 $10.00 $10.55
____________________
* Rounded to the nearest one-hundredth percent; assumes maximum sales
charge is applicable.
** Class B and Class C shares are not subject to an initial sales charge
but may be subject to a CDSC on redemption. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
Prospectus and "Redemption of Shares--Deferred Sales Charges--Class B and
Class C Shares" herein.
INDEPENDENT AUDITORS
__________________________________________, has been selected as the
independent auditors of the Fund. The selection of independent auditors is
subject to ratification by the shareholders of the Fund. In addition, the
employment of such auditors may be terminated without penalty by a vote of a
majority of the outstanding shares of the Fund at a meeting called for the
purpose of terminating such employment. The independent auditors are
responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
_________________________________________, (the "Custodian"), acts as
the custodian of the Fund's assets. Under its contract with the Fund,
the Custodian is authorized, among other things, to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside of the United States and with certain
foreign banks and securities depositories. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening, maintenance and servicing
of shareholder accounts. See "Management of the Fund--Transfer Agency
Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
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<PAGE>
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on ___________ of each year. The Fund
sends to its shareholders, at least semi-annually, reports showing the
Fund's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year shareholders will receive Federal
income tax information regarding dividends.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Registration Statement and the
exhibits relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act, and the
Investment Company Act, to which reference is hereby made.
Under a separate agreement, ML & Co. has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such
name to any other company, and the Fund has granted ML & Co. under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by ML & Co.
41
<PAGE>
APPENDIX
RATINGS OF DEBT SECURITIES AND PREFERRED STOCK
DESCRIPTION OF CORPORATE DEBT RATINGS 'S INVESTORS SERVICES, INC. ("MOODY'S")
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged". Interest payments are protected by
a larger or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than the Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest payments and principal repayments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investments. Assurance of interest payments and principal repayments
or of maintenance of other terms of the contract over any long position
characterizes bonds in this class.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representations as to whether such commercial paper is by any other
definition "commercial paper" or is exempt from registration under the
Securities Act of 1933, as amended.
42
<PAGE>
Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity
in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933,
nor does it represent that any specific note is a valid obligation
of a rated issuer or issued in conformity with any applicable law. Moody's
employs the following three designations, all judged to be investment grade,
to indicate the relative repayment capacity of rated issuers.
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of short-term promissory obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effect of
industry characteristics and market compositions may e more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, in assigning ratings
to such issuers, Moody's evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment.
Moody's makes no representation and gives no opinion on the legal validity
or enforceability of any support arrangement.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and
bonds, a variation of the bond rating symbols is being used in the quality
ranking of preferred stocks. The symbols presented below are designed to
avoid comparison with bond quality in absolute terms. It should always be
borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated
within the universe of preferred stocks.
Preferred stock rating symbols and their definitions are as follows:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classifications, earnings and asset
protection are, nevertheless, expected to be maintained at adequate
levels.
43
<PAGE>
"baa" An issue which is rated "baa" is considered to be medium grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may
be questionable over any great length of time.
"ba" An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. uncertainty of position
characterizes preferred stocks in this class.
"b" An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of time
may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
"c" This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
DESCRIPTION OF CORPORATE DEBT RATINGS OF STANDARD & POOR'S RATINGS GROUP
("STANDARD & POOR'S")
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation; (2) nature of and provisions
of the obligation; and (3) protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
44
<PAGE>
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal from debt in this category than in higher
rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest payments
and principal repayments. The BB rating category also is used for
debt subordinated to senior debt that is assigned an actual or
implied BBB-rating.
B Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category also is used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB-- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions,
it is not likely to have the capacity to pay interest and repay
principal. The CCC rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied B or
B-- rating.
CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal repayments are not made on the date
due even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The D rating also will e used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-):
The ratings from AA to CCC may be modified by the addition of a plus or
minus sing to show relative standing within the major rating categories.
c The letter c indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions
enumerated in the tender option documents.
L The letter L indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized. In the case
of certificates of deposit, the letter L indicates that the deposit,
combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
45
<PAGE>
P The letter p indicate that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed
by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with respect
to such likelihood and risk.
* Continuance of the rating is contingent upon Standard & Poor's receipt
for an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
N.R. Not rated
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but
do not take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA', "A", "BBB", commonly known as "Investment Grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal repayments are not made on the date
due, even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained by
Standard & Poor's from other sources it considers reliable. Standard &
Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
46
<PAGE>
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore,
to reflect this difference, the preferred stock rating symbol will normally
not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated "A"" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA".
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
"A" category.
BB Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with
B respect to the issuer's capacity to pay portions. "BB" indicates the
lowest degree of
CCC speculation and "CCC" the highest degree of speculation. While such
issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does
not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor.
47
<PAGE>
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources
it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result
of changes in, or unavailability of, such information, or based on other
circumstances.
48
<PAGE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
_______________, 1996
Assets:
Cash in Bank $100,000
Prepaid registration fees (Note 3)
Deferred organization expenses (Note 4)
------
Total Assets
Liabilities--accrued expenses
-------
Net Assets (equivalent to $0.10 per share
on 2,500 Class A shares of Common Stock
(par value $0.10), 2,500 Class B shares
of Common Stock (par value $0.10),
2,500 Class C shares of Common Stock
(par value $0.10) and 2,500 Class D
shares of Common Stock (par value $0.10)
outstanding with 400,000,000 shares authorized)
(Note 1) $100,000
_______________
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Global Value Fund, Inc. (the "Fund") was organized as a
Maryland corporation on ______________, 1996. The Fund is registered
under the Investment Company Act of 1940 as an open-end management
investment company. To date, the Fund has not had any transactions other
than those relating to organizational matters and the sale of 2,000 Class
A shares, 2,000 Class B shares, 2,000 Class C shares and 2,000 Class D
shares of Common Stock to Merrill Lynch Asset Management, L.P. (the
"Manager").
(2) The Fund has entered into a management agreement (the "Management
Agreement") with the Manager, and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information.)
Certain officers and/or directors of the Fund are officers and/or
directors of the Manager and the Distributor.
(3) Prepaid registration fees are charged to income as the related
shares are issued.
(4) Deferred organization expenses will be amortized over a period
from the date the Fund commences operations not exceeding five years.
In the event that the Manager (or any subsequent holder) redeems any
of its original shares prior to the end of the five-year period, the
proceeds of the redemption payable in respect of such shares shall
be reduced by the pro rata share (based on the proportionate share of
the original shares redeemed to the total number of original shares
outstanding at the time of redemption) of the unamortized deferred
organization expenses as of the date of such redemption. In the event
that the Fund is liquidated prior to the end of the five-year period,
the Manager (or any subsequent holder) shall bear the unamortized
deferred organization expenses.
49
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF
ADDITIONAL INFORMATION
________________ (PICTURE)
TABLE OF CONTENTS
Page
<S> <C> <S>
Investment Objective and Policies . . . . . . 2
Hedging Techniques . . . . . . . . . . . . 2
Other Investment Policies and Practices . 6
Investment Restrictions . . . . . . . . . . . 8
Management of the Fund . . . . . . . . . . . 11 MERRILL LYNCH
Directors and Officers . . . . . . . . . . 11 GLOBAL
Compensation of Directors . . . . . . . . . 11 VALUE
Management and Advisory Arrangements . . . 12 FUND, INC.
Purchase of Shares . . . . . . . . . . . . . 13
Initial Sales Charge Alternatives-Class A
and Class D Shares . . . . . . . . . . . 14
Reduced Initial Sales Charges . . . . . . 14
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements . . . 16
Distribution Plans . . . . . . . . . . . . 16
Redemption of Shares . . . . . . . . . . . . 17
Deferred Sales Charges--Class B and
Class C Shares . . . . . . . . . . . . . . 17
Portfolio Transactions and Brokerage . . . . 18
Determination of Net Asset Value . . . . . . 19 , 1996
Shareholder Services . . . . . . . . . . . . 20
Investment Account . . . . . . . . . . . . 20 Distributor:
Automatic Investment Plans . . . . . . . . 21 Merrill Lynch
Automatic Reinvestment of Dividends Funds Distributor, Inc.
and Capital Gains Distributions . . . . . 21
Systematic Withdrawal Plans--Class A and
Class D Shares . . . . . . . . . . . . . 21
Exchange Privilege . . . . . . . . . . . . . 22
Taxes . . . . . . . . . . . . . . . . . . . . 35
Tax Treatment of Futures, Options and
Forward Foreign Exchange Transactions . . 37
Special Rules for Certain Foreign Currency
Transactions . . . . . . . . . . . . . . . 37
Performance Data . . . . . . . . . . . . . . 38
General information . . . . . . . . . . . . . 39
Description of Shares . . . . . . . . . . . 39
Computation of Offering Price Per Share . . 40
Independent Auditors . . . . . . . . . . . 40
Custodian . . . . . . . . . . . . . . . . . 40
Transfer Agent . . . . . . . . . . . . . . 40
Legal Counsel . . . . . . . . . . . . . . . 40
Reports to Shareholders . . . . . . . . . 41
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Contained in Part B:
Independent Auditors' Report
Statement of Assets and Liabilities as of ________, 1996.
(B) EXHIBITS
Exhibit
Number
- -----
1 -- Articles of Incorporation of the Registrant.
2 -- By-Laws of the Registrant.
3 -- None.
4(a) -- Portions of the Articles of Incorporation and the By-Laws of
the Registrant defining the rights of shareholders.(a)
5 -- Form of Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P. (the "Manager").(b)
6(a) -- Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. (the
"Distributor").(b)
(b) -- Form of Class B Shares Distribution Agreement between the Registrant
and the Distributor.(b)
(c) -- Form of Class C Shares Distribution Agreement between the Registrant
and the Distributor.(b)
(d) -- Form of Class D Shares Distribution Agreement between the Registrant
and the Distributor.(b)
7 -- None.
8 -- Form of Custody Agreement between the Registrant and ___________.(b)
9 -- Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent").(b)
10 -- Opinion of Brown & Wood, counsel for the Registrant.(b).
11 -- Consent of ____________, independent auditors for the Registrant.(b)
12 -- None.
13 -- Certificate of the Manager.(b)
14 -- None.
15(a) -- Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
(b) -- Form of Class C Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
(c) -- Form of Class D Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(b)
16 -- None.
17(a) -- Financial Data Schedule for Class A Shares.(b)
(b) -- Financial Data Schedule for Class B Shares.(b)
(c) -- Financial Data Schedule for Class C Shares.(b)
(d) -- Financial Data Schedule for Class D Shares.(b)
18 -- Merrill Lynch Select Pricing/SM/ System Plan pursuant to Rule 18f-
3.(c)
___________________
(Footnotes on next page)
C-1
<PAGE>
(a) Reference is made to Article IV, Article V (Sections 3, 5, 6 and 7) and
Articles VI, VII and IX of the Registrant's Articles of Incorporation,
filed herewith as Exhibit 1 to the Registration Statement on Form N-1A
and to Article II, Article III (Sections 1, 3, 5 and 6) and Articles
VI, VII, XIII and XIV of the Registrant's By-Laws, filed herewith as
Exhibit 2 to the Registration Statement on Form N-1A.
(b) To be filed by amendment.
(c) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal
Bond Fund or Merrill Lynch Multi-State Municipal Series Trust, filed on
January 25, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
Prior to the effective date of this Registration Statement, the Fund
will sell 2,500 Class A shares of its Common Stock, 2,500 Class B shares of
its Common Stock, 2,500 Class C shares of its Common Stock and 2,500 Class D
shares of its Common Stock to the Manager for an aggregate of $100,000.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF HOLDERS
AT
TITLE OF CLASS , 1996
----------- ----------
Class A Shares of Common Stock, par value $0.10 per share 1
Class B Shares of Common Stock, par value $0.10 per share 1
Class C Shares of Common Stock, par value $0.10 per share 1
Class D Shares of Common Stock, par value $0.10 per share 1
- -------------
Note: The number of holder shown above included holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418
of the Maryland General Corporation Law and Section 9 of each of the
Class A, Class B, Class C and Class D Shares Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for
actions based on the Investment Company Act of 1940, as amended (the "1940
Act") may be concerned, Article VI of the Registrant's By-Laws provides that
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only on receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount to which it is ultimately determined that he
is entitled to receive from the Registrant by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assumes that any repayments
may be obtained by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient of the
advance and (b) a majority of a quorum of the Registrant's disinterested
non-party Directors, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient
of the advance ultimately will be found entitled to indemnification.
In Section 9 of each of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby,
the Registrant agrees to indemnify the Distributor and each person, if any,
who controls the Distributor within the meaning of the Securities Act of 1933,
as amended (the "1933 Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or the Prospectus and
Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to Directors, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
Director, officer, or controlling person
C-2
<PAGE>
of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE MANAGER
Merrill Lynch Asset Management, LP. (the "Manager") acts as manager for
the following open-end investment companies:-Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill
Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc.,
Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth
Fund, Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund' Inc., Merrill
Lynch Puerto Rico Tax-Exempt Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Me
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc.; and the following
closed-end investment companies: Convertible Holdings, Inc., Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts
as the investment adviser for the following open-end investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., Financial Institutions
Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch MultiState Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc.; and The Municipal
Fund Accumulation Program, Inc.; and the following closed-end investment
companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAsset Fund, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York
Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund,
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield
New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
New York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality
Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio 11, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia
Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and WorldWide DollarVest
Fund, Inc.
The address of each of these investment companies is P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds for Institutions
Series and Merrill Lynch Institutional Intermediate Fund is One Financial
Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Manager, FAM, Princeton Services, Inc. ("Princeton Services"), and
Princeton Administrators, L.P. is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch Funds Distributor, Inc. ("MLFD")
is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill
Lynch and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vacation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1994 for his,
C-3
<PAGE>
her or its own account or in the capacity of director, officer, partner or
trustee. In addition, Mr. Zeikel is President and Director or Trustee, Mr.
Richard is Treasurer and Mr. Glenn is Executive Vice President of substantially
all of the investment companies described in the first two paragraphs of this
Item and also hold the same positions with all or substantially all of the
investment companies advised by FAM as they do with those advised by the
Manager. Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION> OTHER SUBSTANTIAL BUSINESS,
PROFESSION,
NAME POSITION(S) WITH THE MANAGER VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------
<S> <C> <C>
ML & CO. . . . . . . . . . . . . Limited Partner Financial Services Holding
Company; Limited
Partner of FAM
PRINCETON SERVICES, INC. . . . . General Partner General Partner of MLAM
ARTHUR ZEIKEL . . . . . . . . . . President President of FAM; President and
Director of
Princeton Services; Director of
MLFD; Executive
Vice President of ML & Co.
TERRY K. GLENN . . . . . . . . . Executive Vice President Executive Vice President of FAM;
Executive Vice
President and Director of
Princeton Services;
President and Director of MLFD;
Director of MLFDs;
President of Princeton
Administrators, L.P.
VINCENT R. GIORDANO . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
ELIZABETH GRIFFIN Senior Vice President Senior Vice President of FAM
NORMAN R. HARVEY . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
N. JOHN HEWITT . . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
PHILIP L. KIRSTEIN . . . . . . . Senior Vice President, Senior Vice President, General
General Counsel and Secretary Counsel and
Secretary of FAM; Senior Vice
President, General
Counsel, Director and Secretary
of Princeton
Services; Director of MLFD
RONALD M. KLOSS . . . . . . . . . Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior
Vice President of Princeton
Services
STEPHEN M.M. MILLER . . . . . . . Senior Vice President Executive Vice President of
Princeton
Administrators, L.P.
JOSEPH T. MONAGLE, JR. . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
C-4
<PAGE>
OTHER SUBSTANTIAL BUSINESS,
PROFESSION,
NAME POSITION(S) WITH THE MANAGER VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------
GERALD M. RICHARD . . . . . . . . Senior Vice President and Senior Vice President and
Treasurer Treasurer of FAM; Senior
Vice President and Treasurer of
Princeton Services;
Vice President and Treasurer of
MLFD
RICHARD L. RUFENER . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services; Vice
President of MLFD
RONALD L. WELBURN . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
ANTHONY WISEMAN . . . . . . . . . Senior Vice President Senior Vice President of FAM;
Senior Vice President
of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) MLFD acts as the principal underwriter for the Registrant and for
each of the open-end investment companies referred to in the first two
paragraphs of Item 28 except CAB Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
and The Municipal Fund Accumulation Program, Inc., and MLFD also acts as
the principal underwriter for the following closed-end investment companies:
Merrill Lynch High Income Municipal Bond Program, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund,
Inc.
(b) Set forth below is information concerning each director and officer
of MLFD. The principal business address of each such person is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas, and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
C-5
<PAGE>
<TABLE>
<CAPTION> (2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
Name WITH MLFD WITH THE REGISTRANT
- ---- -------------------------- --------------------------
<S> <C> <C>
TERRY K. GLENN . . . . . . . . . President and Director Executive Vice President
ARTHUR ZEIKEL . . . . . . . . . . Director President and Director
PHILIP L. KIRSTEIN . . . . . . . Director None
WILLIAM E. ALDRICH . . . . . . . Senior Vice President None
KEVIN BOMAN . . . . . . . . . . . Vice President None
ROBERT W. CROOK . . . . . . . . . Senior Vice President None
MICHAEL J. BRADY . . . . . . . . Vice President None
WILLIAM M. BREEN . . . . . . . . Vice President None
SHARON CREVELING . . . . . . . . Vice President and Assistant None
Treasurer
MARK A. DESARIO . . . . . . . . . Vice President None
JAMES T. FATSEAS . . . . . . . . Vice President None
MICHELLE T. LAU . . . . . . . . . Vice President None
GERALD M. RICHARD . . . . . . . . Vice President and Treasurer Treasurer
RICHARD L. RUFENER . . . . . . . Vice President None
SALVATORE VENEZIA . . . . . . . . Vice President None
WILLIAM WASEL . . . . . . . . . . Vice President None
ROBERT HARRIS . . . . . . . . . . Secretary Secretary
(c) Not applicable.
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536) and the Transfer Agent (4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484).
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the Fund--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS
(a) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months
from the effective date of the Registrant's registration statement under the
1933 Act.
C-6
<PAGE>
(b) The Fund, if requested to do so by the holders of at least 10% of
the Fund's outstanding shares, will call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or directors
and will assist communications with other shareholders as required by Section
16(c) of the 1940 Act.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro and the State of
New Jersey, on the 11th day of March 1996.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
(Registrant)
By: /s/ Philip L. Kirstein
--------------------------
(Philip L. Kirstein, President)
Each person whose signature appears below hereby authorizes Philip L.
Kirstein, Robert Harris, Jerry Weiss or Mark B. Goldfus, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ------- -----
/s/ Philip l. Kirstein President (Principal
- ------------------------- Executive Officer)
(Philip L. Kirstein) and Director
/s/ Robert Harris Treasurer (Principal Financial
- ------------------------ and Accounting Officer)
(Robert Harris) and Director
/s/ Jerry Weiss
- ------------------------- Director
(Jerry Weiss)
C-8
ARTICLES OF INCORPORATION
OF
MERRILL LYNCH GLOBAL VALUE FUND, INC.
THE UNDERSIGNED, BARTHOLOMEW A. SHEEHAN, III whose post office
address is One World Trade Center, New York, New York 10048-0557, being
at least eighteen years of age, does hereby act as an incorporator, under
and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
ARTICLE I
NAME
----
The name of the corporation is MERRILL LYNCH GLOBAL VALUE FUND, INC.
(the "Corporation").
ARTICLE II
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed, the
powers, rights and privileges that the Corporation shall be authorized to
exercise and enjoy, and the business or objects to be transacted, carried
on and promoted by it are as follows:
<PAGE>
(1) To conduct and carry on the business of an investment company of
the management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration now or hereafter permitted by the General
Laws of the State of Maryland and by these Articles of Incorporation, as
its Board of Directors may determine.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of
the stockholders of the Corporation) shares of its issued or unissued
capital stock, in any manner and to the extent now or hereafter permitted
by the General Laws of the State of Maryland and by these Articles of
Incorporation.
(5) To do any and all such further acts or things and to exercise
any and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out or attainment of all or any of the foregoing purposes or
objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force,
and the enumeration of the foregoing shall not be deemed to exclude any
powers, rights or privileges so granted or conferred.
2
<PAGE>
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident
agent is 32 South Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Four Hundred Million
(400,000,000) shares, of the par value of Ten Cents ($.10) per share, and
of the aggregate par value of Forty Million Dollars ($40,000,000). The
capital stock initially is classified into four classes, consisting of One
Hundred Million (100,000,000) shares of Class A Common Stock, One Hundred
Million (100,000,000) shares of Class B Common Stock, One Hundred Million
(100,000,000) shares of Class C Common Stock and One Hundred Million
(100,000,000) shares of Class D Common Stock.
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or
series as may be established from time to time by setting or changing in
any one or more respects the designations, preferences, conversion or
other rights, voting powers, restrictions, limitations as to
3
<PAGE>
dividends, qualifications or terms or conditions of redemption of such
shares of stock and pursuant to such classification or reclassification to
increase or decrease the number of authorized shares of any existing class
or series.
(3) The Board of Directors may classify and reclassify any issued
shares of capital stock into one or more additional or other classes or
series as may be established from time to time by setting or changing in
any one or more respects the designations, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of
stock and pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class or
series; provided, however, that any such classification or
reclassification shall not substantially adversely affect the rights of
holders of such issued shares. The Board's authority pursuant to this
paragraph shall include, but not be limited to, the power to vary among
all of the holders of a particular class or series (a) the length of time
shares must be held prior to reclassification to shares of another class
or series (the "Holding Period(s)"), (b) the manner in which the time for
such Holding Period(s) is determined and (c) the class or series into
which the particular class or series is being reclassified; provided,
however, that, subject to the first sentence of this section, with respect
to holders of the Corporation's shares issued on or after the date of the
Corporation's first effective prospectus which sets forth Holding
Period(s), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's
4
<PAGE>
prospectus or statement of additional information in effect at the time
such shares, which are the subject of the reclassification, were issued.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class or series of capital
stock shall be entitled to dividends and distributions in such amounts and
at such times as may be determined by the Board of Directors, and the
dividends and distributions paid with respect to the various classes or
series of capital stock may vary among such classes and series. Dividends
on a class or series may be declared or paid only out of the net assets of
that class or series. Expenses related to the distribution of, and other
identified expenses that should properly be allocated to, the shares of a
particular class or series of capital stock may be charged to and borne
solely by such class or series and the bearing of expenses solely by a
class or series of capital stock may be appropriately reflected (in a
manner determined by the Board of Directors) and cause differences in the
net asset value attributable to, and the dividend, redemption and
liquidation rights of, the shares of each class or series of capital
stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Section (4)
hereof and including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each share standing in such holder's
name on the books of the Corporation, irrespective of the class or series
thereof, and all shares of all classes and series shall vote together as a
single class; provided, however, that (a) as to any matter with respect
5
<PAGE>
to which a separate vote of any class or series is required by the
Investment Company Act of 1940, as amended, and in effect from time to
time, or any rules, regulations or orders issued thereunder, or by the
Maryland General Corporation Law, such requirement as to a separate vote
by that class or series shall apply in lieu of a general vote of all
classes and series as described above, (b) in the event that the separate
vote requirements referred to in (a) above apply with respect to one or
more classes or series, then, subject to paragraph (c) below, the shares
of all other classes and series not entitled to a separate class vote
shall vote as a single class and (c) as to any matter which does not
affect the interest of a particular class or series, such class or series
shall not be entitled to any vote and only the holders of shares of the
affected classes and series, if any, shall be entitled to vote.
(6) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the
votes of all classes or series of capital stock of the Corporation (or of
any class or series entitled to vote thereon as a separate class or
series) to take or authorize any action, the Corporation is hereby
authorized (subject to the requirements of the Investment Company Act of
1940, as amended, and in effect from time to time, and any rules,
regulations and orders issued thereunder) to take such action upon the
concurrence of a majority of the votes entitled to be cast by holders of
capital stock of the Corporation (or a majority of the votes entitled to
be cast by holders of a class or series entitled to vote thereon as a
separate class or series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary,
6
<PAGE>
the holders of each class or series of capital stock of the Corporation
shall be entitled, after payment or provision for payment of the debts and
other liabilities of the Corporation, to share ratably in the remaining
net assets of the Corporation applicable to that class or series.
(8) Any fractional shares shall carry proportionately all of the
rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation, the
right to vote and the right to receive dividends.
(9) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of stockholders, except with respect to
any matter which requires approval by a separate vote of one or more
classes or series of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast one-third of the votes
entitled to be cast by each class or series entitled to vote as a separate
class shall constitute a quorum.
(10) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the charter and the By-Laws
of the Corporation. As used in the charter of the Corporation, the terms
"charter" and "Articles of Incorporation" shall mean and include the
Articles of Incorporation of the Corporation as amended, supplemented and
restated from time to time by Articles of Amendment, Articles
Supplementary, Articles of Restatement or otherwise.
7
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
(1) The initial number of directors of the Corporation shall be
three, which number may be increased or decreased pursuant to the By-Laws
of the Corporation but shall never be less than the minimum number
permitted by the General Laws of the State of Maryland. The names of the
directors who shall act until their successors are duly elected and
qualify are:
Philip L. Kirstein
Robert Harris
Jerry Weiss
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any
class or series, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable, subject to
such limitations as may be set forth in these Articles of Incorporation or
in the By-Laws of the Corporation or in the General Laws of the State of
Maryland.
(3) No holder of stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for any shares of the capital
stock of the Corporation or any other security of the Corporation which it
may issue or sell (whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of the capital stock of
the Corporation acquired by it after the issue thereof, or otherwise)
other than such right, if any, as the Board of Directors, in its
discretion, may determine.
8
<PAGE>
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended. No
amendment of these Articles of Incorporation or repeal of any provision
hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
(5) To the fullest extent permitted by the General Laws of the State
of Maryland, subject to the requirements of the Investment Company Act of
1940, as amended, no director or officer of the Corporation shall be
personally liable to the Corporation or its security holders for money
damages. No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided to
directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the
sole power, to the exclusion of the stockholders, to make, alter or repeal
from time to time any of the By-Laws of the Corporation except any
particular By-Law which is specified as not subject to alteration or
repeal by the Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, without the vote or consent of the
stockholders of the Corporation, in
9
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any manner and to the extent now or hereafter permitted by the General
Laws of the State of Maryland and by these Articles of Incorporation.
ARTICLE VI
REDEMPTION
----------
(1) Each holder of shares of capital stock of the Corporation shall
be entitled to require the Corporation to redeem all or any part of the
shares of capital stock of the Corporation standing in the name of such
holder on the books of the Corporation, and all shares of capital stock
issued by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of such shares as in effect from time
to time as may be determined by the Board of Directors of the Corporation
in accordance with the provisions hereof, subject to the right of the
Board of Directors of the Corporation to suspend the right of redemption
of shares of capital stock of the Corporation or postpone the date of
payment of such redemption price in accordance with provisions of
applicable law. The redemption price of shares of capital stock of the
Corporation shall be the net asset value thereof as determined by the
Board of Directors of the Corporation from time to time in accordance with
the provisions of applicable law, less such redemption fee or liquidation
fee, contingent deferred sales charge or other charge or fee (which fees
and charges may vary within and among the classes and series of capital
stock), if any, as may be approved by the Board of Directors of the
Corporation. Payment of the redemption price shall be made by the
Corporation at such time and in such manner as may be determined from time
to time by the Board of Directors of the Corporation.
10
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(2) The Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any holder
of capital stock of the Corporation (i) if the redemption is, in the
opinion of the Board of Directors, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the
meaning of the Internal Revenue Code of 1986, as amended, or (ii) if the
value of the shares in the account maintained by the Corporation or its
transfer agent for any class of stock for the stockholder is below an
amount determined from time to time by the Board of Directors (the
"Minimum Account Balance") and the stockholder has been given written
notice of the redemption as required by the General Laws of the State of
Maryland and has failed to make additional purchases of shares in an
amount sufficient to bring the value in his account to at least the
Minimum Account Balance before the redemption is effected by the
Corporation.
(3) Payment of the redemption price by the Corporation may be made
either in cash or in securities or other assets at the time owned by the
Corporation or partly in cash and partly in securities or other assets at
the time owned by the Corporation.
ARTICLE VII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters
are involved, in accordance with accepted accounting practice by or
pursuant to the direction of the Board of Directors, as to the amount of
assets, obligations or liabilities of the Corporation, as to the amount of
net income of the Corporation from dividends and interest for any period
or amounts at any time legally available for the payment of dividends, as
to the amount of any
11
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reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or liability for
which such reserves or charges shall have been created, shall have been
paid or discharged or shall be then or thereafter required to be paid or
discharged), as to the price of any security owned by the Corporation or
as to any other matters relating to the issuance, sale, redemption or
other acquisition or disposition of securities or shares of capital stock
of the Corporation, and any reasonable determination made in good faith by
the Board of Directors as to whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting or the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and
future, and shares of the capital stock of the Corporation are issued and
sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and
all such determinations shall be binding as aforesaid. No provision in
this charter shall be effective to (a) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the Investment
Company Act of 1940, as amended, or of any valid rule, regulation or order
of the Securities and Exchange Commission thereunder or (b) protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
12
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ARTICLE VIII
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in its charter, in any manner now or hereafter
prescribed by statute, including any amendment which alters the contract
rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholder's rights, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the undersigned incorporator of Merrill Lynch
Global Value Fund, Inc. hereby executes the following Articles of
Incorporation and acknowledges the same to be his act.
Dated this 7th day of March, 1996.
/s/ Bartholomew A. Sheehan, III
-------------------------------
Bartholomew A. Sheehan, III
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BY-LAWS
OF
MERRILL LYNCH GLOBAL VALUE FUND, INC.
ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of Merrill Lynch
----------------
Global Value Fund, Inc. (the "Corporation") shall be in the City of
Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
--------------------------
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
-------------
in such places as the Board of Directors from time to time may determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. The Corporation shall not be required to
--------------
hold an annual meeting of its stockholders in any year in which the election
of directors is not required to be acted upon under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). In the event that
the Corporation shall be required to hold an annual meeting of stockholders
to elect directors by the Investment Company Act, such meeting
1
<PAGE>
shall be held no later than 120 days after the occurrence of the event
requiring the meeting. Any stockholders' meeting held in accordance with
this Section for all purposes shall constitute the annual meeting of
stockholders for the year in which the meeting is held.
Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes
by a majority of the Board of Directors, the President, or upon the written
request of the holders of at least 10% of the outstanding shares of capital
stock of the Corporation entitled to vote at such meeting if they comply with
Section 2-502(b) or (c) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Meetings of the stockholders shall be
-----------------
held at such place within the United States as the Board of Directors from
time to time may determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
------------------------------------
date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail, not less than 10 nor more than 90 days
before the date of such meeting, to each stockholder entitled to vote at such
meeting and to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the stockholder at his or her address as it appears
on the records of the Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who,
either before or after the meeting, shall submit a signed waiver of notice
which is filed with the records of the
2
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meeting. When a meeting is adjourned to another time and place, unless the
Board of Directors, after the adjournment, shall fix a new record date for an
adjourned meeting, or the adjournment is for more than 120 days after the
original record date, notice of such adjourned meeting need not be given if
the time and place to which the meeting shall be adjourned were announced at
the meeting at which the adjournment is taken.
Section 5. Quorum. The presence in person or by proxy of the holders
------
of shares entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of stockholders, except with respect to
any matter which requires approval by a separate vote of one or more classes
or series of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast
by each class or series entitled to vote as a separate class or series shall
constitute a quorum. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite
amount of shares of stock shall be so present. At any such adjourned meeting
at which a quorum may be present any business may be transacted which might
have been transacted at the meeting as originally called. The absence from
any meeting, in person or by proxy, of holders of the number of shares of
stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act, or
other applicable statute, the Articles of Incorporation, or these By-Laws,
for action upon any given
3
<PAGE>
matter shall not prevent action at such meeting upon any other matter or
matters which properly may come before the meeting, if there shall be present
thereat, in person or by proxy, holders of the number of shares of stock of
the Corporation required for action in respect of such other matter or
matters.
Section 6. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or by the
------
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his or her
name on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed
by such stockholder or his
4
<PAGE>
or her attorney-in-fact. No proxy shall be valid after the expiration of
eleven months from the date thereof, unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the stockholder executing
it, except in those cases where such proxy states that it is irrevocable and
where an irrevocable proxy is permitted by law. Except as otherwise provided
by statute, the Articles of Incorporation or these By-Laws, any corporate
action to be taken by vote of the stockholders (other than the election of
directors, which shall be by plurality vote) may be authorized by a majority
of the total votes cast at a meeting of stockholders by the holders of shares
present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or by these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than 90 days nor less than 10 days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.
5
<PAGE>
Section 10. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or
any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may
appoint inspectors. Each inspector, before entering upon the discharge of
his or her duties, may be required to take and sign an oath to execute
faithfully the duties of inspector at such meeting with strict impartiality
and according to the best of his or her ability. The inspectors may be
empowered to determine the number of shares outstanding and the voting powers
of each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the
chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or by the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may
be taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the
6
<PAGE>
following are filed with the records of stockholders meetings: (i) a
unanimous written consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. Except as otherwise provided in the
--------------
Articles of Incorporation, the business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law or by the
Articles of Incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
-------------------
from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no
event shall the number of directors be less than the minimum permitted by the
General Law of the State of Maryland nor more than fifteen. Any vacancy
created by an increase in Directors may be filled in accordance with Section
6 of this Article III. No reduction in the number of directors shall have
the effect of removing any director from office prior to the expiration of
his or her term unless such director is specifically removed pursuant to
Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
7
<PAGE>
Section 3. Election and Term of Directors. Directors shall be elected
------------------------------
annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is
required to be held in a particular year pursuant to Section 1 of Article II
of these By-Laws, directors shall be elected at the next meeting held. The
term of office of each director shall be from the time of his or her election
and qualification until the election of directors next succeeding his or her
election and until his or her successor shall have been elected and shall
have qualified, or until his or her death, or until he or she shall have
resigned or until December 31 of the year in which he or she shall have
reached 72 years of age, or until he or she shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
by the Charter.
Section 4. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his or her resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may
--------------------
be removed (with or without cause) by the stockholders by a vote of a
majority of the votes entitled to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
---------
death, resignation, removal, an increase in the number of directors or any
other cause, may be
8
<PAGE>
filled by a vote of the majority of the Board of Directors then in office
even though such majority is less than a quorum, provided that no vacancies
shall be filled by action of the remaining directors, if after the filling of
said vacancy or vacancies, less than two-thirds of the directors then holding
office shall have been elected by the stockholders of the Corporation. In
the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special
meeting of the stockholders shall be held as promptly as possible and in any
event within 60 days, for the purpose of filling said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board from time to time may determine or as shall be
specified in the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
----------------
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or
------------------
of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject
to the provisions of the Investment Company Act participation in a meeting by
these means constitutes presence in person at the meeting.
9
<PAGE>
Section 11. Notice of Special Meetings. Notice of each special meeting
--------------------------
of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of
each such meeting shall be delivered to each director, either personally or
by telephone or any standard form of telecommunication, at least 24 hours
before the time at which such meeting is to be held, or by first-class mail,
postage prepaid, addressed to him or her at his or her residence or usual
place of business, at least three days before the day on which such meeting
is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two
-----------------
(unless there is only one Director), of the members of the entire Board shall
be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and except as
otherwise expressly required by statute, the Articles of Incorporation, these
By-Laws, the Investment Company Act, or other applicable statute, the act of
a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board. In the absence of a quorum at any
meeting of the Board, a majority of the directors present thereat may adjourn
such meeting to another time and place until a quorum shall be present
thereat. Notice of the time and place of any such adjourned meeting shall be
10
<PAGE>
given to the directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at
which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally called.
Section 14. Organization. The Board, by resolution adopted by a
------------
majority of the entire Board, may designate a Chairman of the Board, who
shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to preside at a meeting, the President or, in his
or her absence or inability to act, another director chosen by a majority of
the directors present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his or her absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
-------------------------------------------------
to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the
writings or writing are filed with the minutes of the proceedings of the
Board or committee.
Section 16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the
Board.
11
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Section 17. Investment Policies. It shall be the duty of the Board of
-------------------
Directors to direct that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation at
all times are consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as
recited in the Prospectus of the Corporation included in the Registration
Statement of the Corporation, as recited in the current Prospectus and
Statement of Additional Information of the Corporation, as filed from time to
time with the Securities and Exchange Commission, and as required by the
Investment Company Act. The Board however, may delegate the duty of
management of the assets and the administration of its day-to-day operations
to an individual or corporate management company and/or investment adviser
pursuant to a written contract or contracts which have obtained the requisite
approvals, including the requisite approvals of renewals thereof, of the
Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act.
ARTICLE IV
COMMITTEES
----------
Section 1. Executive Committee. The Board, by resolution adopted by
-------------------
a majority of the entire board, may designate an Executive Committee
consisting of two or more of the directors of the corporation, which
committee shall have and may exercise all of the powers and authority of the
Board with respect to all matters other than:
12
<PAGE>
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the
Board of Directors by the Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of new By-
Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
13
<PAGE>
Section 2. Other Committees of the Board. The Board of Directors from
-----------------------------
time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the
Board of Directors, by resolution, may prescribe.
Section 3. General. One-third, but not less than two, of the members
-------
of any committee shall be present in person at any meeting of such committee
in order to constitute a quorum for the transaction of business at such
meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, unanimously may appoint another
member of the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member, or
to dissolve any such committee. Nothing herein shall be deemed to prevent
the Board from appointing one or more committees consisting in whole or in
part of persons who are not directors of the Corporation; provided, however,
that no such committee shall have or may exercise any authority or power of
the Board in the management of the business or affairs of the Corporation.
14
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ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
Section 1. Number and Qualifications. The officers of the Corporation
-------------------------
shall be a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and also may appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more
offices may be held by the same person, except the offices of President and
Vice President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be elected by the
Board of Directors each year at a meeting of the Board of Directors, each to
hold office for the ensuing year and until his or her successor shall have
been duly elected and shall have qualified, or until his or her death, or
until he or she shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board from time to time may elect such
officers (including one or more Assistant Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries) and such agents,
as may be necessary or desirable for the business of the Corporation. The
President also shall have the power to appoint such assistant officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
appropriate to facilitate the management of the Corporation's affairs. Such
officers and agents shall have such duties and shall hold their offices for
such terms as may be prescribed by the Board or by the appointing authority.
15
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Section 2. Resignations. Any officer of the Corporation may resign at
------------
any time by giving written notice of resignation to the Board, the Chairman
of the Board, President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Corporation may be removed by the Board of Directors with
or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's
contract rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create contract
rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.
Section 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her
control.
Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance
16
<PAGE>
of his or her duties, in such amount and with such surety or sureties as the
Board may require.
Section 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or
if there be none), he or she shall preside at all meetings of the
stockholders and of the Board Directors. He or she shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation. He or she may employ and discharge employees
and agents of the Corporation, except such as shall be appointed by the
Board, and he or she may delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers
--------------
and perform such duties as the Board of Directors or the President from time
to time may prescribe.
Section 9. Treasurer. The Treasurer shall:
---------
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act
of 1934, as amended) pursuant to a written agreement designating such bank or
trust company or member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
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(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 10. Secretary. The Secretary shall:
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
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(e) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE VI
INDEMNIFICATION
---------------
Section 1. General Indemnification. Each officer and director of the
-----------------------
Corporation shall be indemnified by the Corporation to the full extent
permitted under the Maryland General Corporation Law, except that such
indemnity shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, the decision by the Corporation
to indemnify such person must be based upon the reasonable determination of
independent legal counsel or the vote of a majority of a quorum of the
directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment Company Act, nor parties to the
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proceeding ("non-party independent directors"), after review of the facts,
that such officer or director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and
to the full extent permitted under the Maryland General Corporation Law
without a preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the
person seeking indemnification shall provide to the Corporation a written
affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his or her undertaking; (b) the Corporation
is insured against losses arising by reason of the advance; (c) a majority of
a quorum of non-party independent directors, or independent legal counsel in
a written opinion, shall determine, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
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The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his or her
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of
the Corporation that protects or purports to protect such person from
liability to the Corporation or to its stockholders to which such officer or
director would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who
is not an officer or director of the Corporation.
Section 2. Other Rights. The indemnification provided by this Article
------------
VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his or her official capacity and as to action
by such person in another capacity while holding such office or position, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.
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ARTICLE VII
CAPITAL STOCK
-------------
Section 1. Stock Certificates. Each holder of stock of the Corporation
------------------
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him or her, provided, however, that
certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name
of the Corporation by the Chairman, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile sig-
nature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all of the business and transactions
of the Corporation.
Section 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with
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the Secretary or with a transfer agent or transfer clerk, and on surrender of
the certificate or certificates, if issued, for such shares properly endorsed
or accompanied by a duly executed stock transfer power and the payment of
all taxes thereon. Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person in whose name
any share or shares stand on the record of stockholders as the owner of such
share or shares for all purposes, including, without limitation, the rights
to receive dividends or other distributions, and to vote as such owner, and
the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares
of stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board, in its discretion, may require such owner or his or
her legal representatives to
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give to the Corporation a bond in such sum, limited or unlimited, and in such
form and with such surety or sureties, as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss or destruction of
any such certificate, or issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions.
-------------------------------------------------------
The Board may fix, in advance, a date not more than 90 days preceding the
date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out
of any change, conversion or exchange of common stock or other securities, as
the record date for the determination of the stockholders entitled to receive
any such dividend, distribution, allotment, rights or interests, and in such
case only the stockholders of record at the time so fixed shall be entitled
to receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
--------------------------------------
the Corporation or his or her agent may inspect and copy during usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements
on file at its principal office.
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ARTICLE VIII
SEAL
----
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
FISCAL YEAR
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.
ARTICLE X
DEPOSITORIES AND CUSTODIANS
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of
the Corporation from time to time may determine.
Section 2. Custodians. All securities and other investments shall be
----------
deposited in the safe keeping of such banks or other companies as the Board
of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other
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company for the safe keeping of the securities and investments of the
Corporation shall contain provisions complying with the Investment Company
Act, and the general rules and regulations thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors from time to time shall designate by
resolution.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds
------------------------------
or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation
or sold, transferred or otherwise disposed of, may be transferred from the
name of the Corporation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
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ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and, if required by the provisions of the Investment Company Act,
ratified by the stockholders.
ARTICLE XIII
ANNUAL STATEMENT
----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed
to each stockholder of the Corporation of record on such date with respect to
each report as may be determined by the Board, at his or her address as the
same appears on the books of the Corporation. Such annual statement shall
also be available at any annual meeting of stockholders and shall be placed
on file at the Corporation's principal office in the State of Maryland, and
if no annual meeting is held pursuant to Article II, Section 1, such annual
statement of affairs shall be placed on file at the Corporation's principal
office within 120 days after the end of the Corporation's fiscal year. Each
such report shall show the assets and liabilities of the Corporation as of
the close of the annual or quarterly period covered by the report and the
securities in which the funds of the
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Corporation were then invested. Such report also shall show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act, and shall set forth such other matters as the Board
or such firm of independent public accountants shall determine.
ARTICLE XIV
AMENDMENTS
----------
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders
shall have no power to make, amend, alter or repeal By-Laws.
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