<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
Securities Act File No. 333-1663
Investment Company Act File No. 811-7561
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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. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [X]
(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)
Registrant's telephone number, including Area Code (609) 282-2800
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
(Name and Address of Agent for Service)
---------------
Copies to:
Counsel for the Fund Michael J. Hennewinkel, Esq.
BROWN & WOOD LLP MERRILL LYNCH
One World Trade Center ASSET MANAGEMENT
New York, New York 10048-0557 P.O. Box 9011
Attention: John A. MacKinnon, Esq. Princeton, New Jersey 08543-9011
---------------
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
---------------
Title of Securities Being Registered: Common Stock, par value $.10 per share.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not use this prospectus to sell securities until the registration statement +
+containing this prospectus, which has been filed with the Securities and +
+Exchange Commission, is effective. This prospectus is not an offer to sell +
+these securities and is not soliciting an offer to buy these securities in +
+any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[LOGO] Merrill Lynch
Subject to Completion
Preliminary Prospectus Dated February 26, 1999
Merrill Lynch Global Value Fund, Inc.
April , 1999
This Prospectus contains information you should know
before investing, including information about risks.
Please read it before you invest and keep it for
future reference.
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
Prospectus
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
[LOGO]
KEY FACTS
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The Merrill Lynch Global Value Fund at a Glance.............................. 3
Risk/Return Bar Chart........................................................ 6
Fees and Expenses............................................................ 7
[LOGO]
DETAILS ABOUT THE FUND
- -------------------------------------------------------------------------------
How the Fund Invests......................................................... 9
Investment Risks.............................................................10
[LOGO]
YOUR ACCOUNT
- -------------------------------------------------------------------------------
Merrill Lynch Select Pricing SM System...................................... 18
How to Buy, Sell, Transfer and Exchange Shares.............................. 23
Participation in Merrill Lynch Fee-Based Programs........................... 27
[LOGO]
MANAGEMENT OF THE FUND
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Merrill Lynch Asset Management.............................................. 30
Financial Highlights........................................................ 31
[LOGO]
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Shareholder Reports................................................. Back Cover
Statement of Additional Information................................. Back Cover
</TABLE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
<PAGE>
[LOGO] Key Facts
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined highlighted terms in this prospectus in
the sidebar.
Equity Securities -- common stock or securities whose price is linked to the
value of common stock.
Common Stock -- shares of ownership of a corporation.
THE MERRILL LYNCH GLOBAL VALUE FUND AT A GLANCE
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What is the Fund's investment objective?
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.
What are the Fund's main investment strategies?
The Fund's investment strategy is to search for stocks that, in the Manager's
opinion, are worth more than they are trading for. The Manager searches for
companies with depressed stock prices, as well as for companies whose future
prospects are not fully appreciated by the market. In the Manager's opinion,
the market may not be correctly valuing these companies, including their future
prospects, future earnings, earnings growth, cash flow and/or assets. In
searching for companies that are trading for less than they are worth, there
are three general categories of companies in which the Fund invests: (a)
companies that are classic "value" stocks meaning that they are trading at
lower multiples than those of comparable companies, but which the Manager
believes can appreciate towards the average valuation for these comparable
companies, (b) companies that can improve their profitability, return on
capital, cash flow or various other measures through restructuring efforts, and
(c) companies whose attractive position within their industry or future
prospects for growth in cash flow, earnings or some other measure are not fully
recognized by the market.
In selecting securities, the Manager uses a variety of valuation techniques,
economic measurements and ratios. The Manager searches for companies whose
stock prices are low compared to these valuations, and therefore represent
investment value. Additionally, the Manager typically focuses on companies that
have the potential to increase sales (both through volume growth and pricing
power), and also have some control over their expenses, enabling management to
have some influence over their operating margin.
The Fund will emphasize equity securities, primarily common stock. 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.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
3
<PAGE>
[LOGO] Key Facts
The Fund may seek to gain exposure to equity markets or to hedge all or a
portion of its portfolio against interest rate, market and currency risks
through the use of derivatives including swap agreements, indexed and inverse
securities, options, futures, options on futures and currency transactions.
Derivatives are financial instruments whose value is derived from another
security, a commodity (such as gold or oil) or an index such as the Standard &
Poor's Composite 500 Index. We cannot guarantee that the Fund will achieve its
goal.
What are the main risks of investing in the Fund?
As with any fund, the value of the Fund's investments -- and therefore the
value of the Fund's shares -- may go up or down. These changes may occur
because a particular stock market is rising or falling. At other times, there
are specific factors that may affect the value of a particular investment. If
the value of the Fund's investments goes down, you may lose money.
The Fund will invest most of its assets in non-U.S. securities. Foreign
investing involves special risks, including foreign currency risk and the
possibility of substantial volatility due to adverse political, economic or
other developments. Foreign securities may also be less liquid and harder to
value than U.S. securities. These risks are greater for investments in emerging
markets.
Derivatives may be volatile and subject to liquidity, leverage, credit and
other types of risks. There can be no assurance that the Fund's hedging
strategy will reduce risk or that hedging transactions will be either available
or cost effective.
The Fund is a non-diversified fund, which means that it may invest more of its
assets in fewer companies than if it were a diversified fund. By concentrating
in a smaller number of investments, the Fund's risk is increased because each
investment has a greater effect on the Fund's performance. This hurts the
Fund's performance when its investments are unsuccessful.
Who should invest?
You should purchase shares of the Fund for diversification and not as a
balanced investment program. Whether shares of the Fund are appropriate for you
depends upon, among other things, your investment objectives and
MERRILL LYNCH GLOBAL VALUE FUND, INC.
4
<PAGE>
whether you can accept the risks of investing in foreign markets. The Fund may
be an appropriate investment for you if you:
. Are looking for capital
appreciation for long term
goals, such as retirement or
funding a child's education.
. Want a professionally managed
portfolio.
. Are looking for exposure to a
variety of foreign markets.
. Are willing to accept the risks
of foreign investing in order to
seek potentially higher long
term returns.
. Are not looking for a
significant amount of current
income.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
5
<PAGE>
[LOGO] Key Facts
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance
for Class B shares for each complete calendar year since the Fund's inception.
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown. The table compares the
average annual total returns for each class of the Fund's shares for the
periods shown with those of the Morgan Stanley Capital International (MSCI)
World Index. How the Fund performed in the past is not necessarily an
indication of how the Fund will perform in the future.
[RISK/RETURN BAR CHART APPEARS HERE]
1997 1998
------ ------
22.80% 25.76%
During the period shown in the bar chart, the highest return for a quarter was
18.38% (quarter ended March 31, 1998) and the lowest return for a quarter was -
6.69% (quarter ended September 30, 1998.)
<TABLE>
<CAPTION>
Average Annual Total Returns (for
the
calendar year ended December 31, Past
1998) One Year Since Inception
- -------------------------------------------------------------
<S> <C> <C>
Merrill Lynch Global Value Fund*A 20.43% 21.37%+
- -------------------------------------------------------------
B 21.76% 22.44%+
- -------------------------------------------------------------
C 24.73% 23.16%+
- -------------------------------------------------------------
D 20.07% 21.04%+
- -------------------------------------------------------------
MSCI World Index** 24.34% 20.39%++
- -------------------------------------------------------------
</TABLE>
* Includes sales charge.
** This unmanaged market capitalization-weighted index is comprised of a
representative sampling of stocks of large, medium, and small-capitalization
companies in 22 countries, including the United States. Past performance is
not predictive of future performance.
+ Inception date is November 1, 1996.
++ Since October 31, 1996.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
6
<PAGE>
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
Expenses paid directly by the shareholder:
Shareholder fees -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating
the Fund.
Management Fee -- a fee paid to the Manager for managing the Fund.
Distribution Fees -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
Service (Account Maintenance) Fees -- fees used to compensate securities
dealers for account maintenance activities.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs. Your Merrill
Lynch Financial Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if you buy
and hold the different classes of shares of the Fund. Future expenses may be
greater or less than those indicated below.
<TABLE>
<CAPTION>
Shareholder Fees (fees
paid directly
from your investment): Class A Class B(a) Class C Class D
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge
(Load) imposed on
purchases (as a
percentage of offering
price) 5.25%(b) None None 5.25%(b)
- ---------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower) None(c) 4.0%(b) 1.0%(b) None(c)
- ---------------------------------------------------------------
Maximum Sales Charge
(Load) imposed on
Dividend Reinvestments None None None None
- ---------------------------------------------------------------
Redemption Fee None None None None
- ---------------------------------------------------------------
Exchange Fee None None None None
- ---------------------------------------------------------------
Maximum Account Fee None None None None
- ---------------------------------------------------------------
Annual Fund Operating
Expenses (expenses
that are deducted from
your investment):
- ---------------------------------------------------------------
Management Fee 0.75% 0.75% 0.75% 0.75%
- ---------------------------------------------------------------
Distribution and/or
Service (12b-1) Fees(d) None 1.00% 1.00% 0.25%
- ---------------------------------------------------------------
Other Expenses
(including transfer
agency fees)(e) 0.15% 0.17% 0.17% 0.15%
- ---------------------------------------------------------------
Total Annual Fund
Operating Expenses(f) 0.90% 1.92% 1.90% 1.15%
- ---------------------------------------------------------------
</TABLE>
(a) Class B shares automatically convert to Class D shares about eight years
after you buy them and will no longer be subject to distribution fees.
(b) Some investors may qualify for reductions in the sales charge (load).
(c) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(d) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used in this Prospectus and in all other Fund
materials. If you hold Class B or Class C shares for a long time, it may
cost you more in distribution (12b-1) fees than the maximum sales charge
that you would have paid if you had bought one of the other classes.
(e) The Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent's out-of-pocket expenses. The
Fund pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the account
is closed and ends at the end of the calendar year. For the fiscal year
ended December 31, 1998, the Fund paid the Transfer Agent fees totaling
MERRILL LYNCH GLOBAL VALUE FUND, INC.
7
<PAGE>
[LOGO] Key Facts
(Footnotes continued from previous page) $2,456,003. The Manager provides
accounting services to the Fund at its cost. For the fiscal year ended
December 31, 1998, the Fund reimbursed the Manager $114,224 for these
services.
(f) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or sells shares.
Examples:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate
you will receive a 5% annual rate of return. Your annual return may be more or
less than the 5% used in this example. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
---
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------
<S> <C> <C> <C> <C>
Class A $612 $797 $ 997 $ 1,575
- -------------------------------------------
Class B $595 $803 $1,037 $ 2,048*
- -------------------------------------------
Class C $295 $603 $1,037 $ 2,243
- -------------------------------------------
Class D $636 $871 $1,125 $ 1,849
- -------------------------------------------
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
-------
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------
<S> <C> <C> <C> <C>
Class A $612 $797 $ 997 $ 1,575
- -------------------------------------------
Class B $195 $603 $1,037 $2,048*
- -------------------------------------------
Class C $195 $603 $1,037 $2,243
- -------------------------------------------
Class D $636 $871 $1,125 $1,849
- -------------------------------------------
</TABLE>
* Assumes conversion to Class D shares approximately eight years after
purchase. See note (a) to the Fees and Expenses table above.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
8
<PAGE>
[LOGO] Details About the Fund
ABOUT THE PORTFOLIO MANAGER
Stephen I. Silverman is a Senior Vice President and portfolio manager of
the Fund. Mr. Silverman has been a First Vice President of Merrill Lynch
Asset Management since 1997 and has been a Portfolio Manager of Merrill
Lynch Asset Management since 1983. Mr. Silverman was also a Vice President
of Merrill Lynch Asset Management from 1983 to 1997.
ABOUT THE MANAGER
The Fund is managed by Merrill Lynch Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund will invest in a portfolio primarily consisting of equities of various
countries. The Fund will generally invest at least 65% of its assets in
equities of issuers from at least three different countries. The Fund may
invest in equities such as:
. common stock
. preferred stock
. securities convertible into
common stock
. rights to subscribe for common
stock
. warrants
. derivative securities, such as
indexed and inverse securities,
the value of which is based on a
security or a securities index,
options on portfolio positions or
currencies, financial and
currency futures, options on such
futures, forward foreign currency
transactions and swaps
The Fund will focus on investments in common stock.
Securities of foreign companies may be in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") or other securities convertible into equities of foreign
companies.
The Fund may invest in convertibles. Convertibles are generally debt securities
or preferred stocks that may be converted into common stock.
The Fund may invest in indexed securities. Indexed securities are securities
whose potential investment return is based on the change in some specified
value such as the change in interest rates or in the value of a stock index or
in some other particular measurement. The Fund may purchase indexed securities
to generate current income or for currency hedging purposes.
The Fund may borrow money from banks in amounts up to 33 1/3% of the Fund's
total assets temporarily for extraordinary or emergency purposes, including to
meet redemptions or to settle securities transactions.
The Fund may invest up to 15% of its assets in illiquid securities that it
cannot easily resell. These securities may include securities for which there
is no readily available market and certain asset backed and receivable backed
securities. Other possibly illiquid securities in which the Fund may invest are
securities that have contractual or legal restrictions on resale, known as
restricted securities, including Rule 144A securities that can be resold to
qualified institutional buyers but not to the general public.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
9
<PAGE>
[LOGO] Details About the Fund
The Fund may use derivatives to hedge its portfolio against interest rate and
currency risks. The derivatives which the Fund may use include indexed and
inverse securities, options on portfolio positions or currencies, financial and
currency futures, options on such futures, forward foreign currency
transactions and swaps.
The Fund may as a temporary defensive measure hold in excess of 35% of its
total assets in cash or cash equivalents and investment grade, short term
securities including money market instruments denominated in U.S. dollars or
foreign currencies. Normally a portion of the Fund's assets would be held in
these securities in anticipation of investment in equities or to meet
redemptions. Short term investments and temporary defensive positions can be
easily sold and have limited risk of loss but may limit the Fund's ability to
meet its investment objective.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing in
the Fund. As with any fund, there can be no guarantee that the Fund will meet
its goals or that the Fund's performance will be positive for any period of
time.
Market and Selection Risk -- Market risk is the risk that the securities market
in one or more countries in which the Fund invests will go down in value,
including the possibility that the market will go down sharply and
unpredictably. Selection risk is the risk that the investments that Fund
management selects will underperform the market or other funds with similar
investment objectives and investment strategies.
Foreign Market Risk -- Since the Fund invests in foreign securities, it offers
the potential for more diversification than an investment only in the United
States. This is because stocks traded on foreign markets have often (though not
always) performed differently than stocks in the United States. However, such
investments involve special risks not present in U.S. investments that can
increase the chances that the Fund will lose money. In particular, the Fund is
subject to the risk that because there are generally fewer investors on foreign
exchanges and a smaller number of shares traded each day, it may make it
difficult for the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may go up and down more than prices of
securities traded in the United States.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
10
<PAGE>
Foreign Economy Risk -- The economies of certain foreign markets often do not
compare favorably with the economy of the United States with respect to such
issues as growth of gross national product, reinvestment of capital, resources
and balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by governmental actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer the Fund's assets or income
back into the United States, or otherwise adversely affect the Fund's
operations. Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign courts, and
political and social instability. Legal remedies available to investors in
certain foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
Currency Risk -- Securities in which the Fund invests are usually denominated
or quoted in currencies other than the U.S. dollar. Changes in foreign currency
exchange rates affect the value of the Fund's portfolio. Generally, when the
U.S. dollar rises in value against a foreign currency, a security denominated
in that currency loses value because the currency is worth fewer U.S. dollars.
Conversely, when the U.S. dollar decreases in value against a foreign currency,
a security denominated in that currency gains value because the currency is
worth more U.S. dollars. This risk, generally known as "currency risk," means
that a stronger U.S. dollar will reduce returns for U.S. investors while a weak
U.S. dollar will increase those returns.
Governmental Supervision and Regulation/Accounting Standards -- Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Some countries may not have laws
to protect investors the way that the United States' securities laws do. For
example, some foreign countries may have no laws or rules against insider
trading. Insider trading occurs when a person buys or sells a company's
securities based on nonpublic information about
MERRILL LYNCH GLOBAL VALUE FUND, INC.
11
<PAGE>
[LOGO] Details About the Fund
that company. Accounting standards in other countries are not necessarily the
same as in the United States. If the accounting standards in another country do
not require as much detail as U.S. accounting standards, it may be harder for
Fund management to completely and accurately determine a company's financial
condition. Also, brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in the United
States. This reduces the amount the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States --The Fund
generally holds the foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's ability to recover its assets if
a foreign bank, depository or issuer of a security, or any of their agents,
goes bankrupt. In addition, it is often more expensive for the Fund to buy,
sell and hold securities in certain foreign markets than in the U.S. The
increased expense of investing in foreign markets reduces the amount the Fund
can earn on its investments and typically results in a higher operating expense
ratio for the Fund than investment companies invested only in the U.S.
Dividends or interest on, or proceeds from the sale of, foreign securities may
be subject to foreign withholding and other taxes. Shareholders may be able to
take a credit or a deduction for foreign taxes paid by the Fund, if certain
requirements are met.
Settlement Risk -- Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign
settlement and clearance procedures and trade regulations also may involve
certain risks (such as delays in payment or for delivery of securities) not
typically generated by the settlement of U.S. investments. Communications
between the United States and emerging market countries may be unreliable,
increasing the risk of delayed settlements or losses of security certificates.
Settlements in certain foreign countries at times have not kept pace with the
number of securities transactions; these problems may make it difficult for the
Fund to carry out transactions. If the Fund cannot settle or is delayed in
settling a purchase of securities, it may miss attractive investment
opportunities and certain of its assets may be uninvested with no return earned
thereon for some period. If the Fund cannot settle or is delayed in settling a
sale of securities, it may lose money if the value of the security then
declines or, if it has contracted to sell the security to another party, the
Fund could be liable to that party for any losses incurred.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
12
<PAGE>
European Economic and Monetary Union ("EMU") -- Certain European countries have
entered into EMU in an effort to, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
countries. EMU established a single common European currency (the "euro") that
was introduced on January 1, 1999 and is expected to replace the existing
national currencies of all EMU participants by July 1, 2002. Certain securities
(beginning with government and corporate bonds) were redenominated in the euro,
and are listed, trade and make dividend and other payments only in euros.
Although EMU is generally expected to have a beneficial effect, it could
negatively affect the Fund in a number of situations, including as follows:
. If the transition to euro, or EMU
as a whole, does not proceed as
planned, the Fund's investments
could be adversely affected. For
example, sharp currency
fluctuations, exchange rate
volatility and other disruptions
of the markets could occur.
. Withdrawal from EMU by a
participating country could also
have a negative effect on the
Fund's investments, for example
if securities redenominated in
euros are transferred back into
that country's national currency.
. Computer, accounting, and trading
systems must be capable of
recognizing the euro as a
distinct currency. If not
properly addressed, this may
negatively affect the operations
of the Fund's service providers
and companies in which the Fund
invests.
Borrowing and Leverage Risk -- The Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate changes in the
net asset value of Fund shares and in the yield on the Fund's portfolio.
Borrowing will cost the Fund interest expense and other fees. The cost of
borrowing may reduce the Fund's return. Certain securities that the Fund buys
may create leverage including, for example, when issued securities, forward
commitments, options and warrants.
Concentration Risk -- The Fund is a non-diversified fund. By concentrating in a
smaller number of investments, the Fund's risk is increased because each
investment has a greater effect on the Fund's performance.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
13
<PAGE>
[LOGO] Details About the Fund
Risks associated with certain types of securities in which the Fund may invest
include:
Convertibles -- Convertibles are generally debt securities or preferred stocks
that may be converted into common stock. Convertibles typically pay current
income as either interest (debt security convertibles) or dividends (preferred
stocks). A convertible's value usually reflects both the stream of current
income payments and the value of the underlying common stock. The market value
of a convertible performs like a regular debt security, that is, if market
interest rates rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the same types of
market and issuer risk as the underlying common stock.
Illiquid Securities -- The Fund may invest up to 15% of its assets in illiquid
securities that it cannot easily resell within seven days at current value or
that have contractual or legal restrictions on resale. If the Fund buys
illiquid securities it may be unable to quickly resell them or may be able to
sell them only at a price below current value.
Restricted Securities -- Restricted securities have contractual or legal
restrictions on their resale. They may include private placement securities
that the Fund buys directly from the issuer. Private placement and other
restricted securities may not be listed on an exchange and may have no active
trading market.
Restricted securities may be illiquid. The Fund may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Fund may get only limited information about the issuer, so it may be less
able to predict a loss. In addition, if Fund management receives material
adverse nonpublic information about the issuer, the Fund will not be able to
sell the security.
Rule 144A Securities -- Rule 144A securities are restricted securities that can
be resold to qualified institutional buyers but not to the general public. Rule
144A securities may have an active trading market, but carry the risk that the
active trading market may not continue.
Derivatives -- The Fund may use derivative instruments including indexed and
inverse securities, options on portfolio positions or currencies, financial and
currency futures, options on such futures, forward foreign currency
transactions and swaps. Derivatives are financial instruments whose value is
derived from another security, a commodity (such as oil or gold), or an index
MERRILL LYNCH GLOBAL VALUE FUND, INC.
14
<PAGE>
such as the Standard & Poor's Composite 500 Index. Derivatives allow the Fund
to increase or decrease its risk exposure more quickly and efficiently than
other types of instruments. Derivatives are volatile and involve significant
risks, including:
Leverage risk -- the risk associ-
ated with certain types of in-
vestments or trading strategies
(such as borrowing money to in-
crease the amount of investments)
that relatively small market
movements may result in large
changes in the value of an in-
vestment. Certain investments or
trading strategies that involve
leverage can result in losses
that greatly exceed the amount
originally invested.
Credit risk -- the risk that the
counterparty (the party on the
other side of the transaction) on
a derivative transaction will be
unable to honor its financial ob-
ligation to the Fund.
Currency risk -- the risk that
changes in the exchange rate be-
tween currencies will adversely
affect the value (in U.S. dollar
terms) of an investment.
Liquidity risk -- the risk that
certain securities may be diffi-
cult or impossible to sell at the
time that the seller would like
or at the price that the seller
believes the security is cur-
rently worth.
The Fund may use derivatives for hedging purposes, including anticipatory
hedges and to seek to increase its return. Hedging is a strategy in which the
Fund uses a derivative to offset the risk that other Fund holdings may decrease
in value. While hedging can reduce losses, it can also reduce or eliminate
gains if the market moves in a different manner than anticipated by the Fund or
if the cost of the derivative outweighs the benefit of the hedge. Hedging also
involves the risk that changes in the value of the derivative will not match
those of the holdings being hedged as expected by the Fund, in which case any
losses on the holdings being hedged may not be reduced. There can be no
assurance that the Fund's hedging strategy will reduce risk or that hedging
transactions will be either available or cost effective. The Fund is not
required to use hedging and may choose not to do so.
Indexed and Inverse Floating Rate Securities -- The Fund may invest in
securities whose potential returns are directly related to changes in an
underlying index or interest rate, known as indexed securities. The return on
MERRILL LYNCH GLOBAL VALUE FUND, INC.
15
<PAGE>
[LOGO] Details About the Fund
indexed securities will rise when the underlying index or interest rate rises
and fall when the index or interest rate falls. The Fund may also invest in
securities whose return is inversely related to changes in an interest rate
(inverse floaters). In general, income on inverse floaters will decrease when
interest rates increase and increase when interest rates decrease. Investments
in inverse floaters may subject the Fund to the risks of reduced or eliminated
interest payments and losses of principal. In addition, certain indexed
securities and inverse floaters may increase or decrease in value at a greater
rate than the underlying interest rate, which effectively leverages the Fund's
investment. Indexed securities and inverse floaters are derivative securities
and can be considered speculative. Indexed and inverse securities involve
credit risk and certain indexed and inverse securities may involve currency
risk, leverage risk and liquidity risk.
Swap Agreements -- Swap agreements involve the risk that the party with whom
the Fund has entered into the swap will default on its obligation to pay the
Fund and the risk that the Fund will not be able to meet its obligations to pay
the other party to the agreement.
Securities Lending -- The Fund may lend securities to financial institutions
which provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, the Fund may lose money and there may be a delay in
recovering the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.
Standby Commitment Agreements -- Standby commitment agreements involve the risk
that the security will lose value prior to its delivery to the Fund. These
agreements also involve the risk that if the security goes up in value, the
counterparty will decide not to issue the security, in which case the Fund has
lost the investment opportunity for the assets it had set aside to pay for the
security and any gain in the security's price.
When Issued Securities, Delayed Delivery Securities and Forward Commitments --
When issued and delayed delivery securities and forward
commitments involve the risk that the security the Fund buys will lose value
prior to its delivery to the Fund. There also is the risk that the security
will not be issued or that the other party will not meet its obligation. If
this occurs, the Fund both loses the investment opportunity for the assets it
has set aside to pay for the security and any gain in the security's price.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
16
<PAGE>
Depositary Receipts -- The Fund may invest in securities of foreign issuers in
the form of Depositary Receipts or other securities that are convertible into
securities of foreign issuers. American Depositary Receipts are receipts
typically issued by an American bank or trust company that show evidence of
underlying securities issued by a foreign corporation. European Depositary
Receipts and Global Depositary Receipts each evidence a similar ownership
arrangement. The Fund may also invest in unsponsored Depositary Receipts. The
issuers of such 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.
Repurchase Agreements; Purchase and Sale Contracts -- The Fund may enter into
certain types of repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security (typically a
security issued or guaranteed by the U.S. Government) at a mutually agreed upon
time and price. This insulates the Fund from changes in the market value of the
security during the period, except for currency fluctuations. A purchase and
sale contract is similar to a repurchase agreement, but purchase and sale
contracts provide that the purchaser receives any interest on the security paid
during the period. If the seller fails to repurchase the security in either
situation and the market value declines, the Fund may lose money.
Warrants -- A warrant gives the Fund the right to buy a quantity of stock. The
warrant specifies the amount of underlying stock, the purchase (or "exercise")
price, and the date the warrant expires. The Fund has no obligation to exercise
the warrant and buy the stock. A warrant has value only if the Fund exercises
it before it expires. If the price of the underlying stock does not rise above
the exercise price before the warrant expires, the warrant generally expires
without any value and the Fund loses any amount it paid for the warrant. Thus,
investments in warrants may involve substantially more risk than investments in
common stock. Warrants may trade in the same markets as their underlying stock;
however, the price of the warrant does not necessarily move with the price of
the underlying stock.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
17
<PAGE>
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING SM SYSTEM
- --------------------------------------------------------------------------------
The Fund offers four share classes, each with its own sales charge and expense
structure, allowing you to invest in the way that best suits your needs. Each
share class represents an ownership interest in the same investment portfolio.
When you choose your class of shares you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill Lynch
Financial Consultant can help you determine which share class is best suited to
your personal financial goals.
For example, if you select Class A or D shares, you generally pay a sales
charge at the time of purchase. If you buy Class D shares, you also pay an
ongoing account maintenance fee of 0.25%. You may be eligible for a sales
charge waiver.
If you select Class B or C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. Because these fees are paid out of the Fund's
assets on an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B
or C shares.
The Fund's shares are distributed by Merrill Lynch Funds Distributor, a
division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
18
<PAGE>
The table below summarizes key features of the Merrill Lynch Select Pricing SM
System.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Availability Limited to certain Generally available Generally available Generally available
investors through Merrill through Merrill through Merrill
including: Lynch. Limited Lynch. Limited Lynch. Limited
. Current Class A availability through availability through availability
shareholders other securities other securities through other
. Certain dealers. dealers. securities dealers.
Retirement Plans
. Participants in
certain Merrill
Lynch-
sponsored programs
. Certain
affiliates of
Merrill Lynch.
- -------------------------------------------------------------------------------------------------------
Initial Sales Yes. Payable at No. Entire purchase No. Entire purchase Yes. Payable at
Charge? time of purchase. price is invested in price is invested in time of purchase.
Lower sales charges shares of the Fund. shares of the Fund. Lower sales charges
available for available for
larger investments. larger investments.
- -------------------------------------------------------------------------------------------------------
Deferred Sales No. (May be charged Yes. Payable if you Yes. Payable if you No. (May be charged
Charge? for purchases over redeem within four redeem within one for purchases over
$1 million that are years of purchase. year of purchase. $1 million that are
redeemed within redeemed within one
one year.) year.)
- -------------------------------------------------------------------------------------------------------
Account No. 0.25% Account 0.25% Account 0.25% Account
Maintenance and Maintenance Fee Maintenance Fee Maintenance Fee
Distribution Fees? 0.75% Distribution 0.75% Distribution No Distribution
Fee. Fee. Fee.
- -------------------------------------------------------------------------------------------------------
Conversion to No. Yes, automatically No. No.
Class D shares? after approximately
eight years.
- -------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
19
<PAGE>
[LOGO] Your Account
Right of Accumulation -- permits you to pay the sales charge that would apply
to the cost or value (whichever is higher) of all shares you own in the Merrill
Lynch mutual funds that offer Select Pricing options.
Letter of Intent -- permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select Pricing SM System
funds that you agree to buy within a 13 month period. Certain restrictions
apply.
Class A and Class D Shares -- Initial Sales Charge Options
If you select Class A or Class D shares, you will pay a sales charge at the
time of purchase.
<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* 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% 1.80%
- -------------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This charge
is 1% of the lesser of the original cost of the shares being redeemed or
your redemption proceeds. 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
employer- sponsored retirement or savings plans.
No initial sales charge applies to Class A or Class D shares that you buy
through reinvestment of dividends or distributions.
A reduced or waived sales charge on a purchase of Class A or Class D shares may
apply for:
. Purchases under a Right of Accumulation or Letter of Intent.
. TMA SM Managed Trusts.
. Certain Merrill Lynch investment
or central asset accounts.
. Certain employer-sponsored
retirement or savings plans.
. Purchases using proceeds from the
sale of certain Merrill Lynch
closed-end funds under certain
circumstances.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
20
<PAGE>
. Certain investors, including
directors or trustees of Merrill
Lynch mutual funds and Merrill
Lynch employees.
. Certain Merrill Lynch fee-based
programs.
Only certain investors are eligible to buy Class A shares. Your Merrill Lynch
Financial Consultant can help you determine whether you are eligible to buy
Class A shares or to participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you should buy Class A
since Class D shares are subject to a 0.25% account maintenance fee, while
Class A shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of
the same class, you will not pay a sales charge on the new purchase amount. The
amount eligible for this "Reinstatement Privilege" may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your Merrill Lynch
Financial Consultant or the Fund's Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares -- Deferred Sales Charge Options
If you select Class B or Class C shares, you do not pay an initial sales charge
at the time of purchase. However, if you redeem your Class B shares within four
years after purchase or your Class C shares within one year after purchase, you
may be required to pay a deferred sales charge. You will also pay distribution
fees of 0.75% and account maintenance fees of 0.25% each year under
distribution plans that the Fund has adopted under Rule 12b-1. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time these
fees increase the cost of your investment and may cost you more than paying an
initial sales charge. The Distributor uses the money that it receives from the
deferred sales charges and the distribution fees to cover the costs of
marketing, advertising and compensating the Merrill Lynch Financial Consultant
or other securities dealer who assists you in purchasing Fund shares.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
21
<PAGE>
[LOGO] Your Account
Class B Shares
If you redeem Class B shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases
as you hold your shares over time, according to the following schedule:
<TABLE>
<CAPTION>
Years Since
Purchase Sales Charge*
---------------------------------
<S> <C>
0 - 1 4.00%
---------------------------------
1 - 2 3.00%
---------------------------------
2 - 3 2.00%
---------------------------------
3 - 4 1.00%
---------------------------------
4 and thereafter 0.00%
---------------------------------
</TABLE>
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends or distributions are not subject to a
deferred sales charge. Not all Merrill Lynch funds have identical deferred
sales charge schedules. If you exchange your shares for shares of another
fund, the higher charge will apply.
The deferred sales charge relating to Class B shares may be reduced or waived
in certain circumstances, such as:
. Certain post-retirement
withdrawals from an IRA or other
retirement plan if you are over
59 1/2 years old.
. Redemption by certain eligible
401(a) and 401(k) plans, certain
related accounts and certain
retirement plan rollovers.
. Redemption in connection with
participation in certain Merrill
Lynch fee-based programs.
. Withdrawals resulting from
shareholder death or disability
as long as the waiver request is
made within one year of death or
disability or, if later,
reasonably promptly following
completion of probate, or in
connection with involuntary
termination of an account in
which Fund shares are held.
. Withdrawal through the Merrill
Lynch Systematic Withdrawal Plan
of up to 10% per year of your
Class B account value at the time
the plan is established.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
22
<PAGE>
Your Class B shares convert automatically into Class D shares approximately
eight years after purchase. Any Class B shares received through reinvestment of
dividends or distributions paid on converting shares will also convert at that
time. Class D shares are subject to lower annual expenses than Class B shares.
The conversion of Class B to Class D shares is not a taxable event for federal
income tax purposes.
Different conversion schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a fixed income fund convert
approximately ten years after purchase compared to approximately eight years
for equity funds. If you acquire your Class B shares in an exchange from
another fund with a shorter conversion schedule, the Fund's eight year
conversion schedule will apply. If you exchange your Class B shares in the Fund
for Class B shares of a fund with a longer conversion schedule, the other
fund's conversion schedule will apply. The length of time that you hold both
the original and exchanged Class B shares in both funds will count toward the
conversion schedule. The conversion schedule may be modified in certain other
cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply to the lesser of the
original cost of the shares being redeemed or the proceeds of your redemption.
You will not be charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends or distributions. The deferred
sales charge relative to Class C shares may be reduced or waived in connection
with participation in certain Merrill Lynch fee-based programs, involuntary
termination of an account in which Fund shares are held and withdrawals through
the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying shares through the
Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
23
<PAGE>
[LOGO] Your Account
<TABLE>
<CAPTION>
Information Important for You to
If You Want To Your Choices Know
- -------------------------------------------------------------------------------
<C> <C> <S>
Buy Shares First, select the share Refer to the Merrill Lynch Select
class appropriate for Pricing table on page 19. Be sure to
you read this Prospectus carefully.
--------------------------------------------------------------------
Next, determine the The minimum initial investment for
amount of your the Fund is $1,000 for all accounts
investment except:
.$250 for certain Merrill Lynch
fee-based programs
.$100 for retirement plans.
(The minimums for initial
investments may be waived under
certain circumstances.)
--------------------------------------------------------------------
Have your Merrill Lynch The price of your shares is based on
Financial Consultant or the next calculation of net asset
securities dealer submit value after your order is placed.
your purchase order Any purchase orders placed within
fifteen minutes after the close of
business on the New York Stock
Exchange (generally 4:00 p.m.
Eastern time) will be priced at the
net asset value determined that day.
Purchase orders placed after that
time will be priced at the net asset
value determined on the next
business day. The Fund may reject
any order to buy shares and may
suspend the sale of shares at any
time. Merrill Lynch may charge a
processing fee to confirm a
purchase. This fee is currently
$5.35.
--------------------------------------------------------------------
Or contact the Transfer To purchase shares directly, call
Agent the Transfer Agent at 1-800-MER-FUND
and request a purchase application.
Mail the completed purchase
application to the Transfer Agent at
the address on the inside back cover
of this Prospectus.
- -------------------------------------------------------------------------------
Add to Your Purchase additional The minimum investment for
Investment shares additional purchases is $50 for all
accounts except that retirement
plans have a minimum additional
purchase of $1.
(The minimum for additional
purchases may be waived under
certain circumstances.)
--------------------------------------------------------------------
Acquire additional All dividends and capital gains
shares through the distributions are automatically
automatic dividend reinvested without a sales charge.
reinvestment plan
--------------------------------------------------------------------
Participate in the You may invest a specific amount on
automatic investment a periodic basis through certain
plan Merrill Lynch investment or central
asset accounts.
- -------------------------------------------------------------------------------
Transfer Shares Transfer to a You may transfer your Fund shares
to Another participating securities only to another securities dealer
Securities dealer that has entered into an agreement
Dealer with Merrill Lynch. All shareholder
services will be available for the
transferred shares. You may only
purchase additional shares of funds
previously owned before the
transfer. All future trading of
these assets must be coordinated by
the receiving firm.
--------------------------------------------------------------------
Transfer to a non- You must either:
participating securities .Transfer your shares to an account
dealer with the Transfer Agent; or
.Sell your shares.
- -------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
24
<PAGE>
<TABLE>
<CAPTION>
Information Important for You to
If You Want To Your Choices Know
- -------------------------------------------------------------------------------
<C> <C> <S>
Sell Your Have your Merrill Lynch The price of your shares is based on
Shares Financial Consultant or the next calculation of net asset
securities dealer submit value after your order is placed.
your sales order For your redemption request to be
priced at the net asset value on the
day of your request, you must submit
your request to your dealer within
fifteen minutes after that day's
close of business on the New York
Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption
request placed after that time will
be priced at the net asset value at
the close of business on the next
business day. Dealers must submit
redemption requests to the Fund not
more than thirty minutes after the
close of business on the New York
Stock Exchange on the day the
request was received.
Securities dealers, including
Merrill Lynch, may charge a fee to
process a redemption of shares.
Merrill Lynch currently charges a
fee of $5.35. No processing fee is
charged if you redeem shares
directly through the Transfer Agent.
The Fund may reject an order to sell
shares under certain circumstances.
--------------------------------------------------------------------
Sell through the You may sell shares held at the
Transfer Agent Transfer Agent by writing to the
Transfer Agent at the address on the
inside back cover of this
prospectus. All shareholders on the
account must sign the letter and
signatures must be guaranteed. If
you hold stock certificates, return
the certificates with the letter.
The Transfer Agent will normally
mail redemption proceeds within
seven days following receipt of a
properly completed request. If you
make a redemption request before the
Fund has collected payment for the
purchase of shares, the Fund or the
Transfer Agent may delay mailing
your proceeds. This delay will
usually not exceed ten days.
If you hold share certificates, they
must be delivered to the Transfer
Agent before they can be converted.
Check with the Transfer Agent or
your Merrill Lynch Financial
Consultant for details.
- -------------------------------------------------------------------------------
Sell Shares Participate in the You can choose to receive systematic
Systematically Fund's Systematic payments from your Fund account
Withdrawal Plan either by check or through direct
deposit to your bank account on a
monthly or quarterly basis. If you
have a Merrill Lynch CMA(R), CBA(R)
or Retirement Account you can
arrange for systematic redemptions
of a fixed dollar amount on a
monthly, bi-monthly, quarterly,
semi-annual or annual basis, subject
to certain conditions. Under either
method you must have dividends and
other distributions automatically
reinvested. For Class B and C shares
your total annual withdrawals cannot
be more than 10% per year of the
value of your shares at the time
your plan is established. The
deferred sales charge is waived for
systematic redemptions. Ask your
Merrill Lynch Financial Consultant
for details.
- -------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
25
<PAGE>
[LOGO] Your Account
<TABLE>
<CAPTION>
Information Important for You to
If You Want To Your Choices Know
- -------------------------------------------------------------------------------
<C> <C> <S>
Exchange Your Select the fund into You can exchange your shares of the
Shares which you want to Fund for shares of many other
exchange. Be sure to Merrill Lynch mutual funds. You must
read that fund's have held the shares used in the
prospectus exchange for at least 15 calendar
days before you can exchange to
another fund.
Each class of Fund shares is
generally exchangeable for shares of
the same class of another fund. If
you own Class A shares and wish to
exchange into a fund in which you
have no Class A shares, you will
exchange into Class D shares.
Some of the Merrill Lynch mutual
funds impose a different initial or
deferred sales charge schedule. If
you exchange Class A or D shares for
shares of a fund with a higher
initial sales charge than you
originally paid, you will be charged
the difference at the time of
exchange. If you exchange Class B
shares for shares of a fund with a
different deferred sales charge
schedule, the higher schedule will
apply. The time you hold Class B or
C shares in both funds will count
when determining your holding period
for calculating a deferred sales
charge at redemption. If you
exchange Class A or D shares for
money market fund shares, you will
receive Class A shares of Summit
Cash Reserves Fund. Class B or C
shares of the Fund will be exchanged
for Class B shares of Summit.
Although there is currently no limit
on the number of exchanges that you
can make, the exchange privilege may
be modified or terminated at any
time in the future.
- -------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL VALUE FUND, INC.
26
<PAGE>
Net Asset Value -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the net asset value, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the New York Stock
Exchange is open, fifteen minutes after the close of business on the Exchange
(the Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
used in determining your price is the next one calculated after your purchase
or redemption order is placed. Foreign securities owned by the Fund may trade
on weekends or other days when the Fund does not price its shares. As a result,
the Fund's net asset value may change on days when you will not be able to
purchase or redeem the Fund's shares.
Generally, Class A shares will have the highest net asset value because that
class has the lowest expenses, and Class D shares will have a higher net asset
value than Class B or Class C shares. Also dividends paid on Class A and Class
D shares will generally be higher than dividends paid on Class B and Class C
shares because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Merrill Lynch, you
may be able to buy Class A shares at net asset value, including by exchanges
from other share classes. Sales charges on the shares being exchanged may be
reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.
If you leave one of these programs, your shares may be redeemed or
automatically exchanged into another class of Fund shares or into a money
market fund. The class you receive may be the class you originally owned when
you entered the program, or in certain cases, a different class. If the
MERRILL LYNCH GLOBAL VALUE FUND, INC.
27
<PAGE>
[LOGO] Your Account
Dividends -- Ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
exchange is into Class B shares, the period before conversion to Class D shares
may be modified. Any redemption or exchange will be at net asset value.
However, if you participate in the program for less than a specified period,
you may be charged a fee in accordance with the terms of the program.
Details about these features and the relevant charges are included in the
client agreement for each fee-based program and are available from your Merrill
Lynch Financial Consultant.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund will distribute at least annually any net investment income and any
net realized long-term capital gains. The Fund may also pay a special
distribution at the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would like to
receive dividends in cash, contact your Merrill Lynch Financial Consultant. If
your account is with the Transfer Agent and you would like to receive dividends
in cash, contact the Transfer Agent.
You will pay tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for shares of
another fund, any gain on the transaction may be subject to tax. The Fund
intends to make distributions that will either be taxed as ordinary income or
capital gains. Capital gain dividends are generally taxed at different rates
than ordinary income dividends.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
28
<PAGE>
"BUYING A DIVIDEND"
Unless your investment is in a tax deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend. The reason? If you buy
shares when a fund has realized but not yet distributed income or capital
gains, you will pay the full price for the shares and then receive a portion of
the price back in the form of a taxable dividend. Before investing you may want
to consult your tax adviser.
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. You may be
able to claim a credit or take a deduction for foreign taxes paid by the Fund
if certain requirements are met.
By law, the Fund must withhold 31% of your dividends and proceeds if you have
not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
29
<PAGE>
[LOGO] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Merrill Lynch Asset Management, the Fund's Manager, manages the Fund's
investments and its business operations under the overall supervision of the
Fund's Board of Directors. The Manager has the responsibility for making all
investment decisions for the Fund. The Manager has a sub-advisory agreement
with Merrill Lynch Asset Management U.K. Limited, an affiliate, under which the
Manager may pay a fee for services it receives. The Fund pays the Manager a fee
at the annual rate of 0.75% of the average daily net assets of the Fund.
Merrill Lynch Asset Management is part of the Merrill Lynch Asset Management
Group which had approximately $507 billion in investment company and other
portfolio assets under management as of January 1999. This amount includes
assets managed for Merrill Lynch affiliates.
A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they also
expect to resolve the Year 2000 Problem, and the Fund management will continue
to monitor the situation as the Year 2000 approaches. However, if the problem
has not been fully addressed, the Fund could be negatively affected. The Year
2000 Problem could also have a negative impact on the issuers of securities in
which the Fund invests, and this could hurt the Fund's investment returns.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
30
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the periods shown. Certain information reflects fi-
nancial results for a single Fund share. The total returns in the table repre-
sent the rate an investor would have earned on an investment in the Fund (as-
suming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the Fund's fi-
nancial statements, are included in the Fund's annual report to shareholders,
which is available upon request.
<TABLE>
<CAPTION>
Class A++ Class B++
------------------------------------ -------------------------------------
For the For the Period For the For the For the Period For the
Year Ended Nov. 1, 1997 Year Ended Year Ended Nov. 1, 1997 Year Ended
Increase (Decrease) in Dec. 31, to Dec. 31, Oct. 31, Dec. 31, to Dec. 31, Oct. 31,
Net Asset Value: 1998 1997 1997+ 1998 1997 1997+
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $ 11.83 $ 10.00 $ 11.72 $ 10.00
- -------------------------------------------------------------------------------------------------------
Investment income
(loss) -- net .01 .17 (.01) .09
- -------------------------------------------------------------------------------------------------------
Realized and unrealized
gain on investments and
foreign currency
transactions-- net .72 1.71 .73 1.67
- -------------------------------------------------------------------------------------------------------
Total from investment
operations .73 1.88 .72 1.76
- -------------------------------------------------------------------------------------------------------
Less dividends and
distributions:
Investment income --
net ( ) (.11) (.05) ( ) (.03) (.04)
In excess of investment
income -- net ( ) -- -- ( ) -- --
Realized gain on
investments -- net ( ) (.44) -- ( ) (.44) --
- -------------------------------------------------------------------------------------------------------
Total dividends and
distributions ( ) (.55) (.05) ( ) (.47) (.04)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 12.01 $ 11.83 $ 11.97 $ 11.72
- -------------------------------------------------------------------------------------------------------
Total Investment Return:**
- -------------------------------------------------------------------------------------------------------
Based on net asset value
per share 6.19%# 18.91% 6.14%# 17.62%
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -------------------------------------------------------------------------------------------------------
Expenses .96%* .97% 1.98%* 1.99%
- -------------------------------------------------------------------------------------------------------
Investment income
(loss) -- net .54%* 1.88% (.49%)* .84%
- -------------------------------------------------------------------------------------------------------
Supplemental Data:
- -------------------------------------------------------------------------------------------------------
Net assets, end of
period (in thousands) $63,075 $53,776 $1,251,956 $1,179,125
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 24.49% 77.65% 24.49% 77.65%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ The Fund commenced operations on November 1, 1996.
++ Based on average shares outstanding.
# Aggregate total investment return.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
31
<PAGE>
[LOGO] Management of the Fund
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C++ Class D++
------------------------------------ ------------------------------------
For the For the Period For the For the For the Period For the
Year Ended Nov. 1, 1997 Year Ended Year Ended Nov. 1, 1997 Year Ended
Increase(Decrease) in Dec. 31, to Dec. 31, Oct. 31, Dec. 31, to Dec. 31, Oct. 31,
Net Asset Value: 1998 1997 1997+ 1998 1997 1997+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $ 11.72 $ 10.00 $ 11.80 $ 10.00
- -----------------------------------------------------------------------------------------------------
Investment income
(loss) -- net (.01) .09 .01 .18
- -----------------------------------------------------------------------------------------------------
Realized and unrealized
gain on investments
and foreign currency
transactions-- net .73 1.67 .72 1.67
- -----------------------------------------------------------------------------------------------------
Total from investment
operations .72 1.76 .73 1.85
- -----------------------------------------------------------------------------------------------------
Less dividends and
distributions:
Investment income --
net ( ) (.03) (.04) ( ) (.09) (.05)
In excess of investment
income--net ( ) -- -- ( ) -- --
Realized gain on
investments -- net ( ) (.44) -- ( ) (.44) --
- -----------------------------------------------------------------------------------------------------
Total dividends and
distributions ( ) (.47) (.04) ( ) (.53) (.05)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.97 $ 11.72 $ 12.00 $ 11.80
- -----------------------------------------------------------------------------------------------------
Total Investment Return:**
- -----------------------------------------------------------------------------------------------------
Based on net asset value
per share 6.14%# 17.62% 6.20%# 18.56%
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------------
Expenses 1.98%* 1.99% 1.21%* 1.22%
- -----------------------------------------------------------------------------------------------------
Investment income
(loss) -- net (.49%)* .83% .28%* 1.62%
- -----------------------------------------------------------------------------------------------------
Supplemental Data:
- -----------------------------------------------------------------------------------------------------
Net assets, end of
period (in thousands) $229,601 $217,341 $258,868 $237,791
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 24.49% 77.65% 24.49% 77.65%
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ The Fund commenced operations on November 1, 1996.
++ Based on average shares outstanding.
# Aggregate total investment return.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
32
<PAGE>
[This page intentionally left blank]
MERRILL LYNCH GLOBAL VALUE FUND, INC.
<PAGE>
[This page intentionally left blank]
MERRILL LYNCH GLOBAL VALUE FUND, INC.
<PAGE>
------------------------------
POTENTIAL
_____________ INVESTORS ____________
| Open an account (two options). |
| ------------------------------ |
1 2
| |
- ----------------------- --------------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT FINANCIAL DATA SERVICES, INC.
OR SECURITIES DEALER P.O. Box 45289
Advises shareholders on Jacksonville, Florida 32232-5289
their Fund investments. Performs recordkeeping and
- ----------------------- reporting services.
| --------------------------------
| |
|_______________________________________________________|
|
|
----------------------------------------------
DISTRIBUTOR
MERRILL LYNCH FUNDS DISTRIBUTOR,
A DIVISION OF PRINCETON FUNDS DISTRIBUTOR, INC.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
----------------------------------------------
|
|
- ---------------------- | -----------------------------
COUNSEL --------------------- CUSTODIAN
BROWN & WOOD LLP ___ THE FUND ___ BROWN BROTHERS HARRIMAN & CO.
One World Trade Center The Board of Directors 40 Water Street
New York, New York oversees the Fund. Boston, Massachusetts
10048-0557 --------------------- 02109
Provides legal advice | | Holds the Fund's assets
to the Fund. | | for safekeeping.
- ----------------------- | | -----------------------------
| |
___________| |_________________
| |
- ---------------------------------- -----------------------------------------
INDEPENDENT AUDITORS MANAGER
DELOITTE & TOUCHE LLP MERRILL LYNCH
117 Campus Drive ASSET MANAGEMENT, L.P.
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
- ---------------------------------- P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
-----------------------------------------
MERRILL LYNCH GLOBAL VALUE FUND, INC.
MERRILL LYNCH GLOBAL VALUE FUND, INC.
<PAGE>
[LOGO] For More Information
Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch
Financial Consultant or write to the Transfer Agent at its mailing address.
Include your name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any questions, please call
your Merrill Lynch Financial Consultant or the Transfer Agent at 1-800-MER-
FUND.
Statement of Additional Information
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site
at http://www.sec.gov and copies may be obtained upon payment of a duplicating
fee by writing the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information contained in this Prospectus. No one is
authorized to provide you with information that is different from information
contained in this Prospectus.
Investment Company Act file #811-7561
Code #19001-04-99
(C)Merrill Lynch Asset Management, L.P.
Prospectus
[LOGO] MERRILL LYNCH
Merrill Lynch
Global Value Fund, Inc.
April , 1999
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this statement of additional information is not complete +
+and may be changed. This statement of additional information is not an offer +
+to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 26, 1999
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 that seeks 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 ("MLAM" or 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
techniques, including derivative investments, to hedge against market and
currency risk or gain exposure to equity markets. 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."
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
"Purchase of Shares."
-----------
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 April ,
1999 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
(800) MER-FUND or by writing the Fund at the above address. The Prospectus is
incorporated by reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by reference into the
Prospectus. The Fund's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
-----------
Merrill Lynch Asset Management -- Manager
Merrill Lynch Funds Distributor -- Distributor
-----------
The date of this Statement of Additional Information is April , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Policies.......................................... 2
Description of Certain Investments........................................ 2
Foreign Investment Risks.................................................. 5
Other Investment Policies and Practices................................... 10
Investment Restrictions................................................... 12
Portfolio Turnover........................................................ 15
Management of the Fund..................................................... 15
Directors and Officers.................................................... 15
Compensation of Directors................................................. 16
Management and Advisory Arrangements...................................... 17
Code of Ethics............................................................ 19
Purchase of Shares......................................................... 19
Initial Sales Charge Alternatives -- Class A and Class D Shares........... 20
Deferred Sales Charge Alternatives -- Class B and Class C Shares.......... 24
Distribution Plans........................................................ 26
Limitations on the Payment of Deferred Sales Charges...................... 28
Redemption of Shares....................................................... 29
Redemption................................................................ 29
Repurchase................................................................ 30
Reinstatement Privilege -- Class A and Class D Shares..................... 30
Pricing of Shares.......................................................... 31
Determination of Net Asset Value.......................................... 31
Computation of Offering Price Per Share................................... 32
Portfolio Transactions..................................................... 32
Shareholder Services....................................................... 34
Investment Account........................................................ 34
Exchange Privilege........................................................ 34
Fee-Based Programs........................................................ 36
Retirement Plans.......................................................... 37
Automatic Investment Plans................................................ 37
Automatic Dividend Reinvestment Plan...................................... 37
Systematic Withdrawal Plan................................................ 37
Dividends and Taxes........................................................ 38
Dividends................................................................. 38
Taxes..................................................................... 39
Tax Treatment of Options and Futures Transactions......................... 41
Special Rules for Certain Foreign Currency Transactions................... 41
Performance Data........................................................... 42
General Information........................................................ 44
Description of Shares..................................................... 44
Independent Auditors...................................................... 45
Custodian................................................................. 45
Transfer Agent............................................................ 45
Legal Counsel............................................................. 45
Reports to Shareholders................................................... 45
Shareholder Inquiries..................................................... 45
Additional Information.................................................... 45
Financial Statements....................................................... 45
</TABLE>
<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.
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 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.
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. 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.
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 investment grade, 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. American Depositary Receipts ("ADRs") are receipts typically
issued by an American bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. European Depositary
Receipts ("EDRs") are receipts issued in Europe that evidence a similar
ownership arrangement. Global Depositary Receipts ("GDRs") are receipts issued
throughout the world that 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
2
<PAGE>
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. Buying a warrant does not make the Fund a shareholder of the
underlying stock. The warrant holder has no right to dividends on the
underlying stock or to vote the underlying common stock. A warrant does not
carry any right to the assets of the issuer, and for this reason investment in
warrants may be more speculative than other equity-based investments.
Convertible Securities. Convertible securities entitle the holder to receive
interest paid on corporate debt securities or the dividend preference on a
preferred stock until such time as the convertible security matures or is
redeemed or until the holder elects to exercise the conversion privilege.
In analyzing convertible securities, the Manager will consider both the
yield on the convertible security and the potential capital appreciation that
is offered by the underlying common stock.
Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the
United States, the Euromarket and Japan. Issuers during this period have
included major corporations domiciled in the United States, Japan, France,
Switzerland, Canada and the United Kingdom. Even in cases where a substantial
portion of the convertible securities held by the Fund are denominated in
United States dollars, the underlying equity securities may be quoted in the
currency of the country where the issuer is domiciled. With respect to
convertible securities denominated in a currency different from that of the
underlying equity securities, the conversion price may be based on a fixed
exchange rate established at the time the security is issued. As a result,
fluctuations in the exchange rate between the currency in which the debt
security is denominated and the currency in which the share price is quoted
will affect the value of the convertible security. As described herein, the
Fund is authorized to enter into foreign currency hedging transactions in
which it may seek to reduce the effect of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its
"investment value." To the extent interest rates change, the investment value
of the convertible security typically will fluctuate. However, at the same
time, the value of the convertible security will be influenced by its
"conversion value," which is the market value of the underlying common stock
that would be obtained if the convertible security were converted. Conversion
value fluctuates directly with the price of the underlying common stock. If,
because of a low price for the underlying common stock the conversion value is
substantially below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common
stock while holding a fixed-income security. The yield and conversion premium
of convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value.
Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is
called for redemption, the Fund will be required to redeem the security,
convert it into the underlying common stock or sell it to a third party.
Certain convertible debt securities may provide a put option to the holder
which entitles the holder to cause the security to be redeemed by the issuer
at a premium over the stated principal amount of the debt security under
certain circumstances.
3
<PAGE>
Illiquid and Restricted Securities. The Fund may invest up to 15% of its net
assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. 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 would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. 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 where 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.
The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid 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 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 restricted securities that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act. The
Board of Directors has determined to treat as liquid Rule 144A securities that
are either freely tradable in their primary markets offshore or have been
determined to be liquid in accordance with the policies and procedures adopted
by the Fund's Board. The Board of Directors has adopted guidelines and
delegated 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
continue to develop, the Board of Directors will carefully monitor the Fund's
investments in these securities. 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.
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). 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.
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Foreign Investment Risks
European Economic and Monetary Union ("EMU"). For a number of years, certain
European countries have been seeking economic unification that would, among
other things, reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") set out a framework for the European
Economic and Monetary Union ("EMU") among the countries that comprise the
European Union ("EU"). EMU established a single common European currency (the
"euro") that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. EMU took
effect for the initial EMU participants as of January 1, 1999. Certain
securities issued in participating EU countries (beginning with government and
corporate bonds) were redenominated in the euro, and are listed, traded and
make dividend and other payments only in euros.
No assurance can be given that EMU will take full effect, that all the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will not be completed, or will be completed
but then partially or completely unwound. Because any participating country
may opt out of EMU within the first three years, it is also possible that a
significant participant could choose to abandon EMU, which could diminish its
credibility and influence. Any of these occurrences could have adverse effects
on the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of participants' national
currencies and a significant increase in exchange rate volatility, a
resurgence in economic protectionism, an undermining of confidence in the
European markets, an undermining of European economic stability, the collapse
or slowdown of the drive toward European economic unity, and/or reversion of
the attempts to lower government debt and inflation rates that were introduced
in anticipation of EMU. Also, withdrawal from EMU by an initial participant
could cause disruption of the financial markets as securities redenominated in
euros are transferred back into that country's national currency, particularly
if the withdrawing country is a major economic power. Such developments could
have an adverse impact on the Fund's investments in Europe generally or in
specific countries participating in EMU. Gains or losses from euro conversions
may be taxable to Fund shareholders under foreign or, in certain limited
circumstances, U.S. tax laws. In addition, computer, accounting, and trading
systems must be capable of recognizing the euro as a distinct currency. If not
properly addressed, this may negatively affect the operations of the companies
in which the Fund invests.
Derivatives
The Fund may use instruments referred to as "Derivatives." Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index ( a measure of value or rates,
such as the Standard & Poor's Composite 500 Index or the prime lending rate).
Derivatives allow the Fund to increase or decrease the level of risk to which
the Fund is exposed more quickly and efficiently than transactions in other
types of instruments.
Hedging
The Fund may use Derivatives for hedging purposes. Hedging is a strategy in
which a Derivative is used to offset the risk that other Fund holdings may
decrease in value. Losses on the other investment may be substantially reduced
by gains on a Derivative that reacts in an opposite manner to market
movements. While hedging can reduce losses, it can also reduce or eliminate
gains if the market moves in a different manner than anticipated by the Fund
or if the cost of the Derivative outweighs the benefit of the hedge. Hedging
also involves the risk that changes in the value of the Derivative will not
match those of the holdings being hedged as expected by the Fund, in which
case any losses on the holdings being hedged may not be reduced. This risk is
known as "Correlation Risk."
The Fund may use the following types of Derivative instruments and trading
strategies:
Indexed and Inverse Securities. The Fund may invest in securities the
potential return of which is based on the change in particular measurements of
value or rate (an "index"). As an illustration, the Fund may invest in a debt
security that pays interest and returns principal based on the change in the
value of a securities index or a
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basket of securities, or based on the relative changes of two indices. In
addition, the Fund may invest in securities the potential return of which is
based inversely on the change in an index. For example, the Fund may invest in
securities that pay a higher rate of interest when a particular index
decreases and pay a lower rate of interest (or do not fully return principal)
when the value of the index increases. If the Fund invests in such securities,
it may be subject to reduced or eliminated interest payments or loss of
principal in the event of an adverse movement in the relevant index or
indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal
payable increases or decreases at a rate that is a multiple of the changes in
the relevant index. As a consequence, the market value of such securities may
be substantially more volatile than the market values of other debt
securities. The Fund believes that indexed and inverse securities may provide
portfolio management flexibility that permits the Fund to seek enhanced
returns, hedge other portfolio positions or vary the degree of portfolio
leverage with greater efficiency than would otherwise be possible under
certain market conditions.
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on securities held
in its portfolio or securities or interest rate indices which are correlated
with securities held in its portfolio. When the Fund purchases a put option,
in consideration for an upfront payment (the "option premium") the Fund
acquires a right to sell to another party specified securities owned by the
Fund at a specified price (the "exercise price") on or before a specified date
(the "expiration date"), in the case of an option on securities, or to receive
from another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put option prior to the option's expiration
date. If the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the option
premium and will consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put. Purchasing a
put option may involve correlation risk, and may also involve liquidity and
credit risk.
Purchasing Call Options. The Fund may also purchase call options on
securities it intends to purchase or securities or interest rate indices,
which are correlated with the types of securities it intends to purchase. When
the Fund purchases a call option, in consideration for the option premium the
Fund acquires a right to purchase from another party specified securities at
the exercise price on or before the expiration date, in the case of an option
on securities, or to receive from another party a payment based on the amount
a specified securities index increases beyond a specified level on or before
the expiration date, in the case of an option on a securities index. The
purchase of a call option may protect the Fund from having to pay more for a
security as a consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in the case of an
option on a security, or attempting to identify specific securities in which
to invest in a market the Fund believes to be attractive, in the case of an
option on an index (an "anticipatory hedge"). In the event the Fund determines
not to purchase a security underlying a call option, however, the Fund may
lose the entire option premium. Purchasing a call option involves correlation
risk, and may also involve liquidity and credit risk.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Call Options. The Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of
which correlates with securities held in its portfolio. When the Fund writes a
call option, in return for an option premium the Fund gives another party the
right to buy specified securities owned by the Fund at the exercise price on
or before the expiration date, in the case of an option on securities, or
agrees to pay to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the expiration date, in
the case of an option on a securities index. The Fund may write call options
to earn income, through the receipt of option premiums. In the event the party
to which the Fund has written an option fails to exercise its rights under the
option because the value of the underlying securities is less than the
exercise price, the Fund will partially offset any decline in the value of the
underlying securities through the receipt
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of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities, and gives up the opportunity to
profit from any increase in the value of the underlying securities beyond the
exercise price, while the option remains outstanding. Writing a call option
may involve correlation risk.
Writing Put Options. The Fund may also write put options on securities or
securities indices. When the Fund writes a put option, in return for an option
premium the Fund gives another party the right to sell to the Fund a specified
security at the exercise price on or before the expiration date, in the case
of an option on a security, or agrees to pay to another party an amount based
on any decline in a specified securities index below a specified level on or
before the expiration date, in the case of an option on a securities index.
The Fund may write put options to earn income, through the receipt of option
premiums. In the event the party to which the Fund has written an option fails
to exercise its rights under the option because the value of the underlying
securities is greater than the exercise price, the Fund will profit by the
amount of the option premium. By writing a put option, however, the Fund will
be obligated to purchase the underlying security at a price that may be higher
than the market value of the security at the time of exercise as long as the
put option is outstanding, in the case of an option on a security, or make a
cash payment reflecting any decline in the index, in the case of an option on
an index. Accordingly, when the Fund writes a put option it is exposed to a
risk of loss in the event the value of the underlying securities falls below
the exercise price, which loss potentially may substantially exceed the amount
of option premium received by the Fund for writing the put option. The Fund
will write a put option on a security or a securities index only if the Fund
would be willing to purchase the security at the exercise price for investment
purposes (in the case of an option on a security) or is writing the put in
connection with trading strategies involving combinations of options-- for
example, the sale and purchase of options with identical expiration dates on
the same security or index but different exercise prices (a technique called a
"spread"). Writing a put option may involve substantial leverage risk.
The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A call or put option will be
considered covered if the Fund has segregated assets with respect to such
option in the manner described in "Risk Factors in Derivatives" below. A call
option will also be considered covered if the Fund owns the securities it
would be required to deliver upon exercise of the option (or, in the case of
an option on a securities index, securities which substantially correlate with
the performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into, such
security.
The Fund may write put options on underlying securities exceeding 50% of its
net assets, taken at market value. The Fund will not purchase options on
securities (including stock index options) 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.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the OTC markets. In
general, exchange-traded options have standardized exercise prices and
expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection
with such options is guaranteed by the exchange or a related clearing
corporation. OTC options have more flexible terms negotiated between the buyer
and the seller, but generally do not require the parties to post margin and
are subject to greater credit risk. OTC options also involve greater liquidity
risk. See "Additional Risk Factors of OTC Transactions; Limitation on the Use
of OTC Derivatives" below.
Futures
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid upon entering
into a futures contract. Rather, upon purchasing or selling a futures contract
the Fund is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed,
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the Fund will pay additional margin representing any loss experienced as a
result of the futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures position the
prior day. Futures involve substantial leverage risk.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive.
In the event that such securities decline in value or the Fund determines not
to complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying asset is
a currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
Swap Agreements. The Fund is authorized to enter into equity swap
agreements, which are 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
that 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 liquid securities, 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.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange transactions
are OTC contracts to purchase or sell a specified amount of a specified
currency or multinational currency unit at a price and future date set at the
time of the contract. Spot foreign exchange transactions are similar but
require current, rather than future, settlement. The Fund will enter into
foreign exchange transactions only for purposes of hedging either a specific
transaction or a portfolio position. The Fund may enter into a foreign
exchange transaction for purposes
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of hedging a specific transaction by, for example, purchasing a currency
needed to settle a security transaction or selling a currency in which the
Fund has received or anticipates receiving a dividend or distribution. The
Fund may enter into a foreign exchange transaction for purposes of hedging a
portfolio position by selling forward a currency in which a portfolio position
of the Fund is denominated or by purchasing a currency in which the Fund
anticipates acquiring a portfolio position in the near future. The Fund may
also hedge portfolio positions through currency swaps, which are transactions
in which one currency is simultaneously bought for a second currency on a spot
basis and sold for the second currency on a forward basis. Forward foreign
exchange transactions involve substantial currency risk, and also involve
credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through use of currency futures or
options thereon. Currency futures are similar to forward foreign exchange
transactions except that futures are standardized, exchange-traded contracts.
See "Futures". Currency futures involve substantial currency risk, and also
involve leverage risk.
Currency Options. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration
for an option premium the writer of a currency option is obligated to sell (in
the case of a call option) or purchase (in the case of a put option) a
specified amount of a specified currency on or before the expiration date for
a specified amount of another currency. The Fund may engage in transactions in
options on currencies either on exchanges or OTC markets. See "Types of
Options" above and "Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives" below. Currency options involve substantial
currency risk, and may also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates
purchasing, which are denominated in such currency. The Fund may, however,
hedge a currency by entering into a transaction in a Currency Instrument
denominated in a currency other than the currency being hedged (a "cross-
hedge"). The Fund will only enter into a cross-hedge if the Manager believes
that (i) there is a demonstrable high correlation between the currency in
which the cross-hedge is denominated and the currency being hedged, and (ii)
executing a cross-hedge through the currency in which the cross-hedge is
denominated will be significantly more cost-effective or provide substantially
greater liquidity than executing a similar hedging transaction by means of the
currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including
correlation risk. While the Fund's use of Currency Instruments to effect
hedging strategies is intended to reduce the volatility of the net asset value
of the Fund's shares, the net asset value of the Fund's shares will fluctuate.
Moreover, although Currency Instruments will be used with the intention of
hedging against adverse currency movements, transactions in Currency
Instruments involve the risk that anticipated currency movements will not be
accurately predicted and that the Fund's hedging strategies will be
ineffective. To the extent that the Fund hedges against anticipated currency
movements which do not occur, the Fund may realize losses, and decreases its
total return, as the result of its hedging transactions. Furthermore, the Fund
will only engage in hedging activities from time to time and may not be
engaging in hedging activities when movements in currency exchange rates
occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able
to enter into a hedging transaction at an effective price, or (ii) the
currency exchange rate movement relates to a market with respect to which
Currency Instruments are not available and it is not possible to engage in
effective foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit Risk -- the risk that the counterparty on a Derivative transaction
will be unable to honor its financial obligation to the Fund.
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Currency Risk -- the risk that changes in the exchange rate between two
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Leverage Risk -- the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed the
amount originally invested.
Liquidity Risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the
value of the Derivative moves more or less than the value of the hedged
instruments the Fund will experience a gain or loss which will not be
completely offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Derivatives only if
there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives." However, there can
be no assurance that, at any specific time, either a liquid secondary market
will exist for a Derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose the Fund to
potential losses, which exceed the amount originally invested by the Fund.
When the Fund engages in such a transaction, the Fund will deposit in a
segregated account at its custodian liquid securities with a value at least
equal to the Fund's exposure, on a mark-to-market basis, to the transaction
(as calculated pursuant to requirements of the Commission). Such segregation
will ensure that the Fund has assets available to satisfy its obligations with
respect to the transaction, but will not limit the Fund's exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives
Certain Derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also
make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if
the agreement pursuant to which the instrument is purchased contains a formula
price at which the instrument may be terminated or sold, or (ii) for which the
Manager anticipates the Fund can receive on each business day at least two
independent bids or offers, unless a quotation from only one dealer is
available, in which case that dealer's quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed by an exchange
or clearing corporation and generally do not require payment of margin, to the
extent that the Fund has unrealized gains in such instruments or has deposited
collateral with its counterparty the Fund is at risk that its counterparty
will become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in transactions in
Strategic Instruments traded in OTC markets only with financial institutions
which have substantial capital or which have provided the Fund with a third-
party guaranty or other credit enhancement.
Other Investment Policies and Practices
When-Issued Securities, Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or sell securities that it is entitled to
receive on a when-issued basis. The Fund may also purchase or sell securities
on a delayed delivery basis or through a forward commitment. These
transactions involve the purchase or sale of securities by the Fund at an
established price with payment and delivery taking place in the future. The
Fund enters
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into these transactions to obtain what is considered an advantageous price to
the Fund at the time of entering into the transaction. The Fund has not
established any limit on the percentage of its assets that may be committed in
connection with these transactions. When the Fund purchases securities in
these transactions, the Fund will maintain a segregated account of cash, cash
equivalents, U.S. Government securities or other liquid 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
will be issued or that a security purchased or sold through a forward
commitment will be delivered. The value of securities in these transactions on
the delivery date may be more or less than the Fund's purchase price. The Fund
may bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the value of the
security during the commitment period.
Standby Commitment Agreements. The Fund may enter into standby commitment
agreements. These agreements commit the Fund, for a stated period of time, to
purchase a stated amount of securities which may be issued and sold to the
Fund at the option of the issuer. The price 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. The Fund will enter into such agreements for the purpose of investing
in the security underlying the commitment at a price that 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 will limit its investment in
such commitments so that the aggregate purchase price of 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 net assets taken at the time of the commitment. The Fund segregates
liquid assets in an aggregate amount equal to the purchase price of the
securities underlying the 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 and purchase and sale contracts may be
entered into only with financial institutions which (i) have, in the opinion
of the Manager, substantial capital relative to the Fund's exposure, or (ii)
have provided the Fund with a third-party guaranty or other credit
enhancement. Under a repurchase agreement or a purchase and sale contract, the
seller 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
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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 shall be dependent upon intervening fluctuations of the market
value 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. While the substance of purchase and sale
contracts is similar to repurchase agreements, because of the different
treatment with respect to accrued interest and additional collateral,
management believes that purchase and sale contracts are not repurchase
agreements as such term is understood in the banking and brokerage community.
The Fund may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days
together with all other illiquid investments.
Lending of Portfolio Securities. The Fund may lend securities with a value
not exceeding 33 1/3% of its total assets. In return, the Fund receives
collateral in an amount equal to at least 100% of the current market value of
the loaned securities in cash or securities issued or guaranteed by the U.S.
Government. The Fund receives securities as collateral for the loaned
securities and the Fund and the borrower negotiate a rate for the loan premium
to be received by the Fund for the loaned securities, which increases the
Fund's yield. The Fund may receive a flat fee for its loans. The loans are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Fund may pay reasonable
finder's, administrative and custodial fees in connection with its loans. In
the event that the borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason, the Fund could
experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
Investment Restrictions
The Fund has adopted a number of fundamental and non-fundamental investment
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
of 1940, as amended (the "Investment Company Act") means the lesser of (i) 67%
of the Fund's shares present at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (ii) more than 50% of the
Fund's outstanding shares). The Fund may not:
(1) Invest more than 25% of its 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 which
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 or 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.
12
<PAGE>
(6) Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
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 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, in
selling portfolio securities.
(8) Purchase or sell commodities or contracts on commodities, except to
the extent that 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 registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, which may be changed by
the Board of Directors without shareholder approval, the Fund may not:
(a) Purchase securities of other investment companies, except to the
extent 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 any
one such company, (iii) 10% 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. As a matter of policy, however, the Fund will not purchase
shares of any registered open-end investment company or registered unit
investment trust, in reliance on Section 12(d)(1)(F) or (G) (the "fund of
funds" provisions) of the Investment Company Act at any time the Fund's
shares are owned by another investment company that is part of the same
group of investment companies as the Fund.
(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 that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed
or put to the issuer or to a third party, if at the time of acquisition
more than 15% of its net assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities that the Board of Directors of the Fund has otherwise determined
to be liquid pursuant to applicable law. 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.
(d) 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
13
<PAGE>
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 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 if, as a result of any such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the Fund
and margin deposits on the Fund's existing OTC options on financial futures
contracts exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund that 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 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
that are 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 net assets, taken at
market value, would be invested in such securities.
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 allow the Fund to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). See "Distribution
and Taxes -- 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 that 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.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Manager, the Fund is prohibited from
engaging in certain transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the Investment Company Act
involving only usual and
14
<PAGE>
customary commissions or transactions permitted pursuant to an exemptive order
under the Investment Company Act. See "Portfolio Transactions." Without such
an exemptive order, the Fund is prohibited from engaging in portfolio
transactions with Merrill Lynch or its affiliates acting as principal.
Portfolio Turnover
The Manager will effect portfolio transactions without regard to the time
they have been held, 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 its investment policies, the Fund may engage in a substantial
number of portfolio transactions. 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
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.
MANAGEMENT OF THE FUND
Directors and Officers
The Directors of the Fund consist of seven individuals, six of whom are not
"interested persons" of the Fund as defined in the Investment Company Act (the
"non-interested Directors"). The Directors are responsible for the overall
supervision of the operations of the Fund and perform the various duties
imposed on the directors of investment companies by the Investment Company
Act. Information about the Directors, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations for
at least the last five years, is set forth below. Unless otherwise noted, the
address of each Director, executive officer and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (66) -- President and Director(1)(2) -- Chairman of the
Manager and Fund Asset Management, L.P. ("FAM") (which terms as used herein
include their corporate predecessors) since 1997; President of the Manager and
FAM from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton
Services") since 1997 and Director thereof since 1993; President of Princeton
Services from 1993 to 1997; Executive Vice President of Merrill Lynch & Co.,
Inc. ("ML & Co.") since 1990.
Donald Cecil (72) -- Director(2)(3) -- 1114 Avenue of the Americas, New
York, New York 10036. Special Limited Partner of Cumberland Associates (an
investment partnership) since 1982; Member of Institute of Chartered Financial
Analysts; Member and Chairman of Westchester County (N.Y.) Board of
Transportation.
Roland M. Machold (62) -- Director(2)(3) -- 1091 Princeton-Kingston Road,
Princeton, New Jersey 08540. Director of the State of New Jersey Division of
Investment from 1977 to 1988; Trustee of Bryn Mawr College since 1990 and of
Teacher's College, Columbia University since 1985; Co-Chair Emeritus and
Founding Director of the Council of Institutional Investors; Member of the
Capital Formation and Regulatory Processes Advisory Committee of the
Securities and Exchange Commission from 1995 to 1996; Member of the
Institutional Investor Advisory Committee of the New York Stock Exchange from
1992 to 1995.
Edward H. Meyer (72) -- Director(2)(3) -- 777 Third Avenue, New York, New
York 10017. President of Grey Advertising Inc. since 1968, Chief Executive
Officer since 1970 and Chairman of the Board of Directors since 1972; Director
of The May Department Stores Company, Bowne & Co., Inc. (financial printers),
Harman International Industries, Inc. and Ethan Allen Interiors, Inc.
Charles C. Reilly (67) -- Director(2)(3) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
15
<PAGE>
Richard R. West (61) -- Director(2)(3) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993 and currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado,
Inc. (real estate holding company) and Alexander's, Inc. (real estate
company).
Edward D. Zinbarg (64) -- Director(2)(3) -- 5 Hardwell Road, Short Hills,
New Jersey 07078-2117. Executive Vice President of The Prudential Insurance
Company of America from 1988 to 1994; Former Director of Prudential
Reinsurance Company and former Trustee of the Prudential Foundation.
Terry K. Glenn (58) -- Executive Vice President(1)(2) -- Executive Vice
President of the Manager and FAM since 1983; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991;
Executive Vice President and Director of Princeton Services since 1993;
President of Princeton Administrators, L.P. since 1988.
Norman R. Harvey (65) -- Senior Vice President(1)(2) -- Senior Vice
President of the Manager and FAM since 1982; Senior Vice President of
Princeton Services since 1993.
Stephen I. Silverman (48) -- Senior Vice President and Portfolio
Manager(1)(2) -- First Vice President of the Manager since 1997; Vice
President of the Manager from 1983 to 1997; Portfolio Manager of the Manager
since 1983.
Donald C. Burke (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Manager and FAM since 1999; Senior Vice
President and Treasurer of Princeton Services since 1999; First Vice President
of the Manager from 1997 to 1999; Vice President of the Manager from 1990 to
1997; Director of Taxation of the Manager since 1990; Vice President of PFD
since 1999.
Barbara G. Fraser (54) -- Secretary(1)(2) -- Senior Vice President and
Treasurer of the Manager since 1999; First Vice President of the Manager since
1996; Vice President of the Manager from 1994 to 1996; Attorney in private
practice from 1991 to 1994.
- ----------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a trustee, director or officer of certain
other investment companies for which the Manager or FAM acts as the
investment adviser or manager.
(3) Member of the Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.
As of February 1, 1999, the Directors and officers of the Fund as a group
(12 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 an aggregate of less than 1% of the
outstanding shares of common stock of ML & Co.
Compensation of Directors
The Fund pays each non-interested Director a fee of $3,500 per year plus
$500 per Board meeting attended. The Fund also compensates each member of the
Audit and Nominating Committee (the "Committee"), which consists of the non-
interested Directors at a rate of $500 per Committee meeting attended. The
Fund pays the Chairman of the Committee an additional fee of $250 per
Committee meeting attended. The Fund reimburses each non-interested Director
for his out-of-pocket expenses relating to attendance at Board and Committee
meetings.
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<PAGE>
The following table shows the compensation earned by the non-interested
Directors for the fiscal year ended December 31, 1998 and the aggregate
compensation paid to them from all registered investment companies advised by
the Manager and its affiliate, FAM ("MLAM/FAM-advised funds"), for the
calendar year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Compensation from
Retirement Benefits Annual Fund and Other
Position with Compensation Accrued as Part of Benefits upon MLAM/FAM-
Name Fund From Fund Fund Expense Retirement Advised Funds(1)
- ---- ------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Donald Cecil............ Director $5,583 None None $277,808
Roland M. Machold....... Director $1,083 None None $ 39,208(2)
Edward H. Meyer......... Director $2,583 None None $214,558
Charles C. Reilly....... Director $4,583 None None $362,558
Richard R. West......... Director $4,583 None None $334,125
Edward D. Zinbarg....... Director $4,583 None None $133,959
</TABLE>
- ----------
(1) The Directors serve on the boards of MLAM/FAM-advised funds as follows:
Mr. Cecil (34 registered investment companies consisting of 34
portfolios); Mr. Machold (19 registered investment companies consisting of
19 portfolios); Mr. Meyer (34 registered investment companies consisting
of 34 portfolios); Mr. Reilly (56 registered investment companies
consisting of 69 portfolios); Mr. West (58 registered investment companies
consisting of 83 portfolios); and Mr. Zinbarg (19 registered investment
companies consisting of 19 portfolios).
(2) Mr. Machold was elected a Director of the Fund and director or trustee of
certain other MLAM/FAM-advised funds on October 20, 1998.
Directors of the Fund may purchase Class A shares of the Fund at net asset
value. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares--Reduced Initial Sales Charges--Purchase Privilege of Certain
Persons."
Management and Advisory Arrangements
Management Services. The Manager provides the Fund with investment advisory
and management services. Subject to the supervision of the Directors, the
Manager is responsible for the actual management of the Fund's portfolio and
constantly reviews 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 rests with the Manager. The Manager
performs certain of the other administrative services and provides all the
office space, facilities, equipment and necessary personnel for management of
the Fund.
Management Fee. The Fund has entered into a management agreement with the
Manager (the "Management Agreement"), pursuant to which the Manager receives
for its services to the Fund monthly compensation at the annual rate of 0.75%
of the average daily net assets of the Fund. The table below sets forth
information about the total management fees paid by the Fund to the Manager
for the periods indicated.
<TABLE>
<CAPTION>
Management
Period Fee
------ ----------
<S> <C>
Fiscal year ended December 31, 1998............................. $
Period from November 1, 1997 to December 31, 1997............... $
Fiscal year ended October 31, 1997.............................. $
</TABLE>
The Manager has entered into a sub-advisory agreement with Merrill Lynch
Asset Management U.K. Limited ("MLAM U.K.") pursuant to which MLAM U.K.
provides investment advisory services to the Manager with respect to the Fund.
The Manager paid no fees to MLAM U.K. in the fiscal year ended December 31,
1998, the period November 1, 1997 to December 31, 1997 or the fiscal year
ended October 31, 1997.
Payment of Fund Expenses. 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. The Fund pays all other expenses incurred in the
operation of the Fund, including among other things: taxes, expenses for legal
and auditing
17
<PAGE>
services, costs of printing proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information, except to the extent
paid by Merrill Lynch Funds Distributor, a division of PFD (the
"Distributor"); charges of the custodian and sub-custodian, and the transfer
agent; expenses of redemption of shares; SEC fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of non-
interested Directors; accounting and pricing costs (including the daily
calculations 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 for
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 shares of the Fund. 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."
Organization of the Manager. The Manager is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the
parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton
Services are "controlling persons" of the Manager as defined under the
Investment Company Act because of their ownership of its voting securities or
their power to exercise a controlling influence over its management or
policies.
The following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., a subsidiary of Merrill Lynch International,
Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein, 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 if approved
annually (a) by the 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 contract 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 or by vote of the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant
to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent
receives a fee of $11.00 per Class A or Class D account and $14.00 per Class B
or Class C account and is entitled to reimbursement for certain transaction
charges and out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed account charge
will be assessed on all accounts which close during the calendar year.
Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will be
due. For purposes of the Transfer Agency Agreement, the term "account"
includes a shareholder account maintained directly by the Transfer Agent and
any other account representing the beneficial interest of a person in the
relevant share class on a recordkeeping system, provided the recordkeeping
system is maintained by a subsidiary of ML & Co.
Distribution Expenses. The Fund has entered into four separate distribution
agreements with the Distributor in connection with the 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 Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
18
<PAGE>
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of Ethics of
the 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 pre-clear any personal
securities investment (with limited exceptions, such as government
securities). The pre-clearance 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 that
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).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
The Fund offers 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 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 (also known as service 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 contingent deferred sales charges ("CDSCs"),
distribution fees 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, are imposed directly against those classes and not against all
assets of the Fund and, accordingly, such charges do 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 are
calculated in the same manner at the same time and 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 CDSCs and distribution fees with respect to the Class B and Class
C shares in that the sales charges and distribution fees 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 Merrill Lynch Select Pricing SM System is used by more than 50
registered investment companies advised by the Manager or FAM. Funds advised
by the Manager or FAM that utilize the Merrill Lynch Select Pricing SM System
are referred to herein as "Select Pricing Funds."
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. 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 $5.35) to confirm a sale
of shares to such customers. Purchases made directly through the Transfer
Agent are not subject to the processing fee.
19
<PAGE>
Initial Sales Charge Alternatives -- Class A and Class D Shares
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
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 elect 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 charges and, in the case of Class D shares, the
account maintenance fee. Although some investors who previously purchased
Class A shares may no longer be eligible to purchase Class A shares of other
Select Pricing 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 a reduced initial sales charge
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.
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, her or their own account
and to 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 that 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.
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
who currently own Class A shares are entitled to purchase additional Class A
shares of the Fund in that account. Certain employee-sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class A shares at
net asset value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by MLAM or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs and U.S. branches of foreign banking
institutions provided that the program has $3 million or more initially
invested in Select Pricing 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, collective investment trusts for which Merrill
Lynch Trust Company serves as trustee and certain purchases made in connection
with certain fee-based programs. In addition, Class A shares are 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 investment companies.
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 are met. In
addition, Class A shares of the Fund and certain other Select Pricing Funds
are offered at net asset value to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. and, if certain conditions are met, 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 a tender offer conducted
by such funds in shares of the Fund and certain other Select Pricing Funds.
20
<PAGE>
Investors are advised that only Class A and Class D shares may be available
for purchase through securities dealers, other than Merrill Lynch, that are
eligible to sell shares.
Class A and Class D Sales Charge Information
<TABLE>
<CAPTION>
Class A Shares
------------------------------------------------------------------------------------
Gross Sales Sales Charges Sales Charges CDSCs Received on
Charges Retained by Paid to Redemption of
For the Period Collected Distributor Merrill Lynch Load-Waived Shares
----------------------- ----------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Year Ended December 31,
1998 $ 7,485 $ 456 $ 7,029 $ 0
Year Ended December 31,
1997 $ 1,050 $ 51 $ 999 $ 0
November 1, 1996+ to
December 31, 1996 $ 5 $ 0 $ 5 $ 0
<CAPTION>
Class D Shares
------------------------------------------------------------------------------------
Gross Sales Sales Charges Sales Charges CDSCs Received on
Charges Retained by Paid to Redemption of
For the Period Collected Distributor Merrill Lynch Load-Waived Shares
----------------------- ----------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Year Ended December 31,
1998 $1,013,254 $66,544 $ 946,710 $ 0
Year Ended December 31,
1997 $ 958,764 $64,926 $ 893,838 $10,000
November 1, 1996+ to
December 31, 1996 $4,365,483 $36,808 $4,328,675 $ 0
</TABLE>
- ----------
+ Commencement of operations
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.
Reduced Initial Sales Charges
Reinvested Dividends and Capital Gains. No initial sales charges are imposed
upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
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 any other Select Pricing 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 Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or
any Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available
only to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit
plans for which Merrill Lynch provides plan participant recordkeeping
services. The Letter of Intent 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 Intent may be
included under a subsequent Letter of Intent 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 and Class D shares of the Fund and of
other Select Pricing Funds presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intent, may be included as a credit toward the completion of such Letter, but
the reduced sales charge applicable to the amount covered by
21
<PAGE>
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 Intent (minimum of
$25,000), the investor will be notified and must pay, within 20 days 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 at least 5.0% 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 Intent
must be at least 5.0% of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise 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 further reduced
percentage sales charge that 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
charge 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 Intent will be deducted
from the total purchases made under such Letter. An exchange from the Summit
Cash Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.
TMA SM Managed Trusts. Class A shares are offered at net asset value to
TMA SM Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
Employee Access SM Accounts. Provided applicable threshold requirements are
met, either Class A or Class D shares are offered at net asset value to
Employee Access SM Accounts available through authorized employers. The
initial minimum investment for such accounts is $500, except that the initial
minimum investment for shares purchased for such accounts pursuant to the
Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Fund, members of the
Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries," when used herein with respect to
ML & Co., includes MLAM, 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. The Fund realizes
economies of scale and reduction of sales-related expenses by virtue of the
familiarity of these persons with the Fund. Employees and directors or
trustees wishing to purchase shares of the Fund must satisfy the Fund's
suitability standards.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that 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
shares of a mutual fund that was sponsored 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 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 are also offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that 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 the shares
of such other fund were 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 are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill Lynch
Financial Consultant and that 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
22
<PAGE>
advise Merrill Lynch that it will purchase Class D shares of the Fund with
proceeds from the 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.
Closed-End Fund Investment Option. Class A shares of the Fund and certain
other Select Pricing Funds ("Eligible Class A Shares") are offered at net
asset value to shareholders of certain closed-end funds advised by FAM or MLAM
who purchased such closed-end fund shares prior to October 21, 1994 (the date
the Merrill Lynch Select Pricing SM System commenced operations) and 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. Alternatively, closed-end fund shareholders who purchased such
shares on or after October 21, 1994 and wish to reinvest the net proceeds from
a sale of their closed-end fund shares are offered Class A shares (if eligible
to buy Class A shares) or Class D shares of the Fund and other Select Pricing
Funds ("Eligible Class D Shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch, and the
net proceeds therefrom must be immediately reinvested in Eligible Class A or
Eligible 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 continuously maintained in a Merrill
Lynch securities account. Fourth, there must be a minimum purchase of $250 to
be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc. will receive Class D shares of the Fund, except that shareholders
already owning Class A shares of the Fund will be eligible to purchase
additional Class A shares pursuant to this option, if such additional Class A
shares will be held in the same account as the existing Class A shares and the
other requirements pertaining to the reinvestment privilege are met. In order
to exercise this investment option, a shareholder of one of the above-
referenced continuously offered closed-end funds (an "eligible fund") must
sell his or her shares of common stock of the eligible fund (the "eligible
shares") back to the eligible fund in connection with a tender offer conducted
by the eligible fund and reinvest the proceeds immediately in the designated
class of shares of the Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal Charge or CDSC
(each as defined in the eligible fund's prospectus) is applicable. Purchase
orders from eligible fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related tender offer
terminates and will be effected at the net asset value of the designated class
of the Fund on such day.
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 personal holding company or 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 that might result from an acquisition of assets having net unrealized
appreciation that 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 that (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 shall at
all times 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 Objective 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.
23
<PAGE>
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 they
intend to hold their assets in Select Pricing Funds.
Because no initial sales charges are deducted at the time of the 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 that do
not qualify for the reduction in initial sales charges. Both Class B and Class
C shares are subject to ongoing account maintenance fees 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.
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. See "Pricing of Shares -- Determination of Net Asset Value" below.
Contingent Deferred Sales Charges -- Class B Shares
Class B shares that 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. In determining whether a CDSC is applicable to
a redemption, the calculation will be determined in the manner that results in
the lowest applicable rate being charged. 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 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 or capital gains
distributions. It will be assumed that the redemption is first of shares held
for over four years or shares acquired pursuant to reinvestment of dividends
or distributions and then of shares held longest during the four-year period.
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 following table sets forth the Class B CDSC:
<TABLE>
<CAPTION>
CDSC as a Percentage
of Dollar Amount
Year Since Purchase Payment Made Subject to Charge
-------------------------------- --------------------
<S> <C>
0-1............................................... 4.0%
1-2............................................... 3.0%
2-3............................................... 2.0%
3-4............................................... 1.0%
4 and thereafter.................................. None
</TABLE>
To provide an example, assume an investor purchased 100 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 a CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the charge 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 rate in the third year after purchase).
The Class B CDSC may be 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 Internal Revenue Code of 1986, as amended) of a shareholder
(including one who owns the Class B shares as joint tenant with his or her
spouse), provided the redemption is requested within one year of the death or
initial determination of disability or, if later, reasonably promptly
following completion of
24
<PAGE>
probate. The Class B CDSC also may be waived on redemptions of shares by
certain eligible 401(a) and 401(k) plans. The CDSC may also be waived for any
Class B shares that are purchased by eligible 401(k) or eligible 401(a) plans
that 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 may be waived for any Class B shares that were acquired and held at the
time of the redemption in an Employee AccessSM Account available through
employers providing eligible 401(k) plans. The Class B CDSC may also be waived
for any Class B shares that 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.
The Class B CDSC may also be waived or its terms may be modified in connection
with certain fee-based programs. The Class B CDSC may also be waived in
connection with involuntary termination of an account in which Fund shares are
held or for withdrawals through the Merrill Lynch Systematic Withdrawal Plan.
See "Shareholder Services -- Fee Based Programs" and "-- Systematic Withdrawal
Plan."
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares with a waiver of the
CDSC upon redemption, 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. Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing 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 is available toll-free from
Merrill Lynch Business Financial Services at (800) 237-7777.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are subject to
an 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 value 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 the 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.
In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing 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 on
to the holding period for the shares acquired. The Conversion Period also may
be modified for investors that participate in certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs."
Class B shareholders of the Fund exercising the exchange privilege described
under "Shareholder Services --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 Class B shares acquired as a result of the exchange.
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 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 after such certificates are delivered.
25
<PAGE>
Contingent Deferred Sales Charges -- Class C Shares
Class C shares that 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.
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. 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 or capital
gains distributions. It will be assumed that the redemption is first of shares
held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. 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
may be waived in connection with certain fee-based programs, involuntary
termination of an account in which Fund shares are held and withdrawals
through the Merrill Lynch Systematic Withdrawal Plans. See "Shareholder
Services -- Fee-Based Programs" and "-- Systematic Withdrawal Plans."
Class B and Class C Sales Charge Information
<TABLE>
<CAPTION>
Class B Shares*
-------------------------------------------------------------------
CDSCs Received CDSCs Paid to
For the Period by Distributor Merrill Lynch
------------------------------------- -------------- -------------
<S> <C> <C>
Fiscal Year Ended December 31, 1998 $3,036,541 $3,036,541
November 1, 1997 to December 31, 1997 $ 295,557 $ 295,557
Fiscal Year Ended October 31, 1997 $1,162,975 $1,162,975
* Additional Class B CDSCs payable to the Distributor
may have been waived or converted to a contingent
obligation in connection with a shareholder's
participation in certain fee-based programs.
<CAPTION>
Class C Shares
-------------------------------------------------------------------
CDSCs Received CDSCs Paid to
For the Period by Distributor Merrill Lynch
------------------------------------- -------------- -------------
<S> <C> <C>
Fiscal Year Ended December 31, 1998 $ 73,895 $ 73,895
November 1, 1997 to December 31, 1997 $ 9,766 $ 9,766
Fiscal Year Ended October 31, 1997 $ 122,657 $ 122,657
</TABLE>
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. 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. See "Distribution Plans" below. 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.
Distribution Plans
Reference is made to "Fees and Expenses" 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.
26
<PAGE>
The Distribution Plans for Class B, Class C and Class D shares each provides
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 with respect to Class B, Class C and Class D shares.
Each of those classes has exclusive voting rights with respect to the
Distribution Plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan).
The Distribution Plans for Class B and Class C shares each provides 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 relating 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.
The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each Distribution
Plan, the Directors must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to the Fund and each
related class of shareholders. Each Distribution Plan further provides that,
so long as the Distribution Plan remains in effect, the selection and
nomination of non-interested Directors shall be committed to the discretion of
the non-interested Directors then in office. In approving each Distribution
Plan in accordance with Rule 12b-1, the non-interested Directors concluded
that there is reasonable likelihood that each Distribution Plan will benefit
the Fund and its related class of shareholders. Each Distribution Plan can be
terminated at any time, without penalty, by the vote of a majority of the non-
interested 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 Directors,
including a majority of the non-interested Directors who have no direct or
indirect financial interest in the Distribution Plan, cast in person at a
meeting called for that purpose. Rule 12b-1 further requires that the Fund
preserve copies of the Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of the Distribution
Plan or such report, the first two years in an easily accessible place.
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 and/or distribution fees paid to the
Distributor. 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 is 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 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 promotion and marketing 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.
As of December 31, 1998, the fully allocated accrual expenses incurred by
the Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated accrual revenues by
approximately $ ( % of Class B net assets at that date). As of
December 31, 1998, direct
27
<PAGE>
cash expenses for the period since the commencement of operations of Class B
shares exceeded direct cash revenues by $ ( % of Class B net assets
at that date). As of December 31, 1998, the fully allocated accrual expenses
incurred by the Distributor and Merrill Lynch for the period since the
commencement of operations of Class C shares exceeded the fully allocated
accrual revenues by approximately $ ( % of Class C net assets at that
date). As of December 31, 1998, direct cash revenues for the period since the
commencement of operations of Class C shares exceeded direct cash expenses by
$ ( % of Class C net assets at that date).
For the fiscal year ended December 31, 1998, the Fund paid the Distributor
$ pursuant to the Class B Distribution Plan (based on average daily
net assets subject to such Class B Distribution Plan of approximately $ ),
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class B
shares. For the fiscal year ended December 31, 1998, the Fund paid the
Distributor $ pursuant to the Class C Distribution Plan (based on
average daily net assets subject to such Class C Distribution Plan of
approximately $ ), all of which was paid to Merrill Lynch for providing
account maintenance and distribution-related activities and services in
connection with Class C shares. For the fiscal year ended December 31, 1998,
the Fund paid the Distributor $ pursuant to the Class D Distribution
Plan (based on average daily net assets subject to such Class D Distribution
Plan of approximately $ million), all of which was paid to Merrill Lynch
for providing account maintenance activities in connection with Class D
shares.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules 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 has voluntarily 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 payment in excess of the amount payable under the NASD
formula will not be made.
28
<PAGE>
The following table sets forth comparative information as of December 31,
1998 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales
charge rule and, with respect to the Class B shares, the Distributor's
voluntary maximum.
<TABLE>
<CAPTION>
Data Calculated as of December 31, 1998
------------------------------------------------------------------------------------
(in thousands)
Annual
Distribution
Allowable Amounts Fee at
Eligible Allowable Interest on Maximum Previously Aggregate Current Net
Gross Aggregate Unpaid Amount Paid to Unpaid Asset
Sales(1) Sales Charge(2) Balance(3) Payable Distributor(4) Balance Level(5)
---------- --------------- ----------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares for the
period November 1, 1996
(commencement of
operations) to December
31, 1998
Under NASD Rule as
Adopted................ $1,263,482 $79,104 $10,656 $89,760 $26,168 $63,592 $14,914
Under Distributor's
Voluntary Waiver....... $1,263,482 $79,104 $ 6,181 $85,285 $26,168 $59,117 $14,914
Class C Shares, for the
period November 1, 1996
(commencement of
operations) to December
31, 1998
Under NASD Rule as
Adopted................ $ 293,978 $18,520 $ 2,392 $20,912 $ 4,073 $16,839 $ 2,723
</TABLE>
- ----------
(1) Purchase price of all eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Includes amounts attributable to exchanges from Summit Cash Reserves Fund
("Summit") which are not reflected in Eligible Gross Sales. Shares of
Summit can only be purchased by exchange from another fund (the "redeemed
fund"). Upon such an exchange, the maximum allowable sales charge payment
to the redeemed fund is reduced in accordance with the amount of the
redemption. This amount is then added to the maximum allowable sales
charge payment with respect to Summit. Upon an exchange out of Summit, the
remaining balance of this amount is deducted from the maximum allowable
sales charge payment to Summit and added to the maximum allowable sales
charge payment to the fund into which the exchange is made.
(3) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the
NASD Rule.
(4) Consists of CDSC payments, distribution fee payments and accruals. See
"What are the Fund's fees and expenses?" in the Prospectus. This figure
may include CDSCs that were deferred when a shareholder redeemed shares
prior to the expiration of the applicable CDSC period and invested the
proceeds, without the imposition of a sales charge, in Class A shares in
conjunction with the shareholder's participation in the Merrill Lynch
Mutual Fund Advisor (Merrill Lynch MFA SM) Program (the "MFA Program").
The CDSC is booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA Program.
(5) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum (with respect to
Class B shares) or the NASD maximum (with respect to Class B and Class C
shares).
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon 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 that 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 right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period
during which trading on the New York Stock Exchange (the "NYSE") is restricted
as determined by the Commission or the NYSE 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 may by
order permit for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the market value of the securities
held by the Fund at such time.
Redemption
A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-
5289. Redemption requests delivered other than by mail should be delivered to
Financial Data Services,
29
<PAGE>
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. Redemption requests should not be
sent to the Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as such name(s) appear(s) on the Transfer Agent's register. The
signature(s) on the redemption requests must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), 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, payments 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 (e.g., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that
good payment (e.g., cash, Federal funds or certified check drawn on a United
States bank) has been collected for the purchase of such Fund shares, which
will not exceed 10 days.
Repurchase
The Fund also will repurchase Fund shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase Fund
shares by wire or telephone from dealers for their customers at the net asset
value next computed after the order is placed. Shares will be priced at the
net asset value calculated on the day the request is received, provided that
the request for repurchase is submitted to the dealer prior to fifteen minutes
after the regular close of business on the NYSE (generally, the NYSE closes at
4:00 p.m., Eastern time) and such request is received by the Fund from such
dealer not later than 30 minutes after the close of business on the NYSE on
the same day. Dealers have the responsibility of submitting such repurchase
requests to the Fund not later than 30 minutes after the close of business on
the NYSE, in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that do not have selected dealer agreements
with the Distributor, however, may impose a transaction charge on the
shareholder for transmitting the notice of repurchase to the Fund. Merrill
Lynch may charge its customers a processing fee (presently $5.35) to confirm a
repurchase of shares to such customers. Repurchases made directly through the
Transfer Agent on accounts held at 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. However, a shareholder
whose order for repurchase is rejected by the Fund may redeem Fund shares as
set forth above.
Reinstatement Privilege -- Class A and Class D Shares
Shareholders who have redeemed their Class A or Class D shares of the Fund
have a 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.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant 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.
30
<PAGE>
PRICING OF SHARES
Determination of Net Asset Value
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined
once daily Monday through Friday as of 15 minutes after the close of business
on the NYSE on each day the NYSE is open for trading. The NYSE generally
closes at 4:00 p.m., Eastern time. 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 NYSE is not open for trading on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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, rounded to
the nearest cent. Expenses, including the fees payable to the Manager and
Distributor 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 the Class D shares; moreover, the per share net
asset value of the 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 that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. 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 Directors as the primary
market. Long positions in securities traded in the OTC market are valued at
the last available bid price in the OTC market prior to the time of valuation.
Short positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation.
Portfolio securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative market.
When the Fund writes an 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 sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased 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 OTC market, the last bid price. 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 stated at
fair value as determined in good faith by or under the direction of the
Directors of the Fund. Such valuations and procedures will be reviewed
periodically by the Directors.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day
at various times prior to the close of business on the NYSE. The values of
such securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of business
on the NYSE that may not be reflected in the computation of the Fund's net
asset value.
31
<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 value of the Fund's net
assets and number of shares outstanding on December 31, 1998 is set forth
below.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Assets..................................... $ -- $ -- $ -- $ --
===== ===== ===== =====
Number of Shares Outstanding................... -- -- -- --
===== ===== ===== =====
Net Asset Value Per Share (net assets divided
by number of shares outstanding).............. $ -- $ -- $ -- $ --
Sales Charge (for Class A and Class D shares:
5.25% of offering price; 5.54% of net asset
value per share)* ............................ -- ** ** --
----- ----- ----- -----
Offering Price................................. $ -- $ -- $ -- $ --
===== ===== ===== =====
</TABLE>
- ----------
* 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 of shares. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C Shares"
herein.
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 and the allocation of brokerage. The Fund has no obligation to
deal with any broker or group of brokers in the execution of transactions in
portfolio securities and does not use any particular broker or dealer. In
executing transactions with brokers and dealers, 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 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 spread or commission available. In addition, consistent with
the Conduct Rules 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; however, whether or not a particular broker or
dealer sells shares of the Fund neither qualifies nor disqualifies such broker
or dealer to execute transactions for the Fund.
Subject to obtaining the best price and execution, brokers who provide
supplemental investment research services to the Manager may receive orders
for transactions by the Fund. Such supplemental research services ordinarily
consist of assessments and analyses of the business or prospects of a company,
industry or economic sector. 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. If in
the judgment of the Manager the Fund will benefit from supplemental research
services, the Manager is authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions that another broker
may have charged for effecting the same transaction. Certain supplemental
research services may primarily benefit one or more other investment companies
or other accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the supplemental
research services received as a result of portfolio transactions effected for
such other accounts or investment companies.
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 government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
32
<PAGE>
Foreign equity securities may be held by the Fund in the form of ADRs, EDRs,
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, will be subject to negotiated
commission rates. The Fund's ability and decisions to purchase or sell
portfolio securities of foreign issuers may be affected by laws or regulations
relating to the convertibility and repatriation of assets. Because the shares
of the Fund are redeemable on a daily basis in United States dollars, the Fund
intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain United States dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, it is not believed that
these considerations will have any significant effect on its portfolio
strategy.
Information about the brokerage commissions paid by the Fund, including
commissions paid to Merrill Lynch, is set forth in the following table:
<TABLE>
<CAPTION>
Aggregate Brokerage Commissions Paid
Period Commissions Paid to Merrill Lynch
------ ------------------- ----------------
<S> <C> <C> <C>
Fiscal year ended December 31,
1998.............................
November 1, 1997 to December 31,
1997.............................
Fiscal year ended October 31,
1997............................. $6,527,182 $396,160
</TABLE>
For the fiscal year ended December 31, 1998, the brokerage commissions paid
to Merrill Lynch represented % of the aggregate brokerage commissions paid
and involved % of the Fund's dollar amount of transactions involving payment
of brokerage commissions.
The Fund may invest in certain securities traded in the OTC market and
intends to deal directly with the dealers who make a market in securities
involved, except in those circumstances in which 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 the dealers acting as principal for their own accounts, the
Fund will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated
person 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. 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 or in a private placement in which Merrill Lynch serves as
placement agent except pursuant to procedures approved by the Board of
Directors of the Fund that either comply with rules adopted by the Commission
or with interpretations of the Commission staff. See "Investment Objective and
Policies--Investment Restrictions."
Section 11(a) of the Exchange Act generally prohibits members of the United
States national securities exchanges from executing exchange transactions for
their affiliates and institutional accounts that 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.
The Board of Directors of the Fund has considered the possibility 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 to the Manager. 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.
33
<PAGE>
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Manager or an affiliate when one or
more clients of the Manager or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration at or about the same
time that would involve the Fund or other clients or funds for which the
Manager or an affiliate acts as manager 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 an affiliate 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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans
and instructions as to how to participate in the various services or plans, or
how 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.
Investment Account
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will also receive separate confirmations for each purchase or
sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gains
distributions. A shareholder with an account held at the Transfer Agent may
make additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. A shareholder may also maintain an account
through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch
brokerage account, an Investment Account in the transferring shareholder's
name may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. 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 (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or
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 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.
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
his or her shares and then must turn the certificates over to the new firm for
re-registration in the new brokerage firm's name.
Exchange Privilege
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves
Fund ("Summit"), a series of Financial Institutions Series Trust, which is a
Merrill Lynch-sponsored money market fund specifically designated for exchange
by holders of Class A, Class B, Class C and Class D shares of Select Pricing
Funds. 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 at least 15 days. Before effecting an
exchange, shareholders should obtain a currently effective
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prospectus of the fund into which the exchange is to be made. Exercise of the
exchange privilege is treated as a sale of the exchanged shares and a purchase
of the acquired shares for Federal income tax purposes.
Exchanges of Class A and Class D Shares. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund
if the shareholder holds any Class A shares of the second fund in the 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 Select
Pricing Fund, but 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 Select Pricing 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 D
shares are exchangeable with shares of the same class of other Select Pricing
Funds.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of other Select Pricing Funds
or for Class A shares of Summit, ("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 or 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
generally may be exchanged into the Class A or Class D shares, respectively,
of the other funds with a reduced sales charge or without a sales charge.
Exchanges of Class B and Class C Shares. Each Select Pricing Fund 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 Select Pricing Fund or for Class B shares of
Summit ("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 shares. 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 acquired through use of the exchange
privilege. 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 fund from which the exchange has been made. For purposes of computing the
CDSC 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 Special Value Fund Class
B shares for more than five years.
Exchanges for Shares of a Money Market Fund. Class A and Class D shares are
exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing
Funds; Class B shares of Summit have an exchange privilege back into Class B
or Class C shares of Select Pricing Funds and, in the event of such an
exchange, the period of time that Class B shares of Summit are held will count
toward satisfaction of the holding period requirement for purposes of reducing
any CDSC and toward satisfaction of any Conversion
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Period with respect to Class B shares. Class B shares of Summit will be
subject to a distribution fee at an annual rate of 0.75% of average daily net
assets of such Class B shares. This exchange privilege does not apply with
respect to certain Merrill Lynch fee-based programs for which alternative
exchange arrangements may exist. Please see your Merrill Lynch Financial
Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other Select Pricing
Funds into a money market fund were directed to certain Merrill Lynch-
sponsored money market funds other than Summit. Shareholders who exchanged
Select Pricing Fund shares for shares of such other money market funds and
subsequently wish to exchange those money market fund shares for shares of the
Fund will be subject to the CDSC schedule applicable to such Fund shares, if
any. The holding period for the money market fund shares will not count toward
satisfaction of the holding period requirement for reduction of the CDSC
imposed on such shares, if any, and, with respect to Class B shares, toward
satisfaction of the Conversion Period.
Exchanges by Participants in the MFA Program. The exchange privilege is
modified with respect to certain retirement plans which participate in the MFA
Program. Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same fund
on the basis of relative net asset values in connection with the commencement
of participation in the MFA Program, i.e., no CDSC will apply. The one year
holding period does not apply to shares acquired through reinvestment of
dividends. Upon termination of participation in the MFA Program, Class A
shares will be re-exchanged for the class of shares originally held. For
purposes of computing any CDSC that may be payable upon redemption of Class B
or Class C shares so reacquired, or the Conversion Period for Class B shares
so reacquired, the holding period for the Class A shares will be "tacked" to
the holding period for the Class B or Class C shares originally held. 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 Select Pricing 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 Select Pricing
Fund and the sales charge payable on the shares of the Fund being acquired in
the exchange under the MFA Program.
Exercise of the Exchange Privilege. To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial Consultant, who
will advise the Fund of the exchange. Shareholders of the Fund, and
shareholders of the other Select Pricing Funds 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
modified or terminated in accordance with the rules of the 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 may thereafter 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. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
Fee-Based Programs
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another class at net
asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be
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redeemed and another class of shares purchased (which may involve the
imposition of initial or deferred sales charges and distribution and account
maintenance fees) in order for the investment not to be subject to Program
fees. Additional information regarding a specific Program (including charges
and limitations on transferability applicable to shares that may be held in
such Program) is available in such Program's client agreement and from the
Transfer Agent at 1-800-MER-FUND or 1-800-637-3863.
Retirement Plans
Individual retirement accounts and other retirement plans are available from
Merrill Lynch. Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as well as in
other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.
Automatic Investment Plans
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor) or
Class B, Class C or Class D shares at the applicable public offering price.
These purchases may be made 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. The Fund would be authorized,
on a regular basis, to provide systematic additions to the Investment Account
of such shareholder through charges of $50 or more to the regular bank account
of the shareholder by either pre-authorized checks or automated clearing house
debits. Alternatively, an investor that maintains a CMA(R) or CBA(R) account
may arrange to have periodic investments made in the Fund in amounts of $100
($1 for retirement accounts) or more through the CMA(R) or CBA(R) Automated
Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the method of payment,
dividends will be automatically reinvested, without sales charge, in
additional full and fractional shares of the Fund. Such reinvestment will be
at the net asset value of shares of the Fund as of the close of business on
the NYSE on the monthly payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.
Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or
by telephone (1-800-MER-FUND) to the Transfer Agent, if their account is
maintained with the Transfer Agent elect to have subsequent dividends paid in
cash, rather than reinvested in shares of the Fund or vice versa (provided
that, in the event that a payment on an account maintained at the Transfer
Agent would amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be reinvested in
additional shares). Commencing ten days after the receipt by the Transfer
Agent of such notice, those instructions will be effected. The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the shareholder's bank
account.
Systematic Withdrawal Plan
A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have acquired
shares of the Fund having a value, based on cost or the current offering
price, of $5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or more.
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At the time of each withdrawal payment, sufficient 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 the dollar
amount and the class of shares to be redeemed. Redemptions will be made at net
asset value as determined 15 minutes after the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of
each month or the 24th day of the last month of each quarter, whichever is
applicable. If the NYSE is not open for business on such date, the shares will
be redeemed at the close of business on the following business day. The check
for the withdrawal payment will be made, on the next business day following
redemption. When a shareholder is making systematic withdrawals, dividends and
distributions on all shares in the Investment Account are reinvested
automatically in Fund shares. 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.
With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares
that can be redeemed from an account annually shall not exceed 10% of the
value of shares of such class in that account at the time the election to join
the systematic withdrawal plan was made. Any CDSC that otherwise might be due
on such redemption of Class B or Class C shares will be waived. Shares
redeemed pursuant to a systematic withdrawal plan will be redeemed in the same
order as Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C Shares."
Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will be applied thereafter to Class D shares if the
shareholder so elects. If an investor wishes to change the amount being
withdrawn in a systematic withdrawal plan the investor should contact his or
her Merrill Lynch Financial Consultant.
Withdrawal payments should not be considered as dividends. 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 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 shares
of the Fund from investors that maintain a Systematic Withdrawal Plan unless
such purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Automatic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA(R) or CBA(R)
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the CMA(R) or CBA(R) Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to the shareholder's account three
business days after the date the shares are redeemed. All redemptions are made
at net asset value. A shareholder may elect to have his or her shares redeemed
on the first, second, third or fourth Monday of each month, in the case of
monthly redemptions, or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the shareholder
may select the month in which the shares are to be redeemed and may designate
whether the redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA(R) or CBA(R) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automated Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
Dividends
The Fund intends 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 capital gains, if any, will be distributed to
the Fund's shareholders at least annually. 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 Federal tax requirements that certain percentages of its
ordinary income and capital gains be distributed during the year. If in any
fiscal year, the Fund has net income from certain foreign currency
transactions, such income will be distributed at least annually.
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See "Shareholder Services--Automatic Dividend Reinvestment Plan" for
information concerning the manner in which dividends and distributions may be
reinvested automatically in shares of the Fund. A shareholder whose account is
maintained at the Transfer Agent or whose account is maintained through
Merrill Lynch may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders, as discussed below, whether they are reinvested in shares of the
Fund or received in cash. The per share dividends on Class B and Class C
shares will be lower than the per share dividends on Class A and Class D
shares as a result of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C
shares; similarly, the per share dividends on Class D shares will be lower
than the per share dividends on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See "Pricing
of Shares--Determination of Net Asset Value."
Taxes
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As long as it so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains that it
distributes to 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. Certain
categories of capital gains are taxable at different rates. Any loss upon the
sale or exchange of Fund shares held for six months or less 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). Generally not later
than 60 days after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amount of any capital gain
dividends as well as any amount of capital gain dividends in the different
categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. 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 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.
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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 United States 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. In addition,
recent legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. The Fund also must meet these holding period
requirements, and if the Fund fails to do so, it will not be able to "pass
through" to shareholders the ability to claim a credit or a deduction for the
related foreign taxes paid by the Fund. If the Fund satisfies the holding
period requirements and if more than 50% in the value of its 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 United
States 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 United States income taxes. No deductions for foreign taxes, moreover,
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 United States withholding tax on the income resulting from
the Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such United States tax for the foreign taxes
treated as having been paid by such shareholder. The Fund will report annually
to its shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit. For this purpose, the Fund
will allocate 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 of 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 the 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 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
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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 recent legislation, the Fund could 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 over their adjusted basis and as ordinary
loss any decrease in such value to the extent it did not exceed prior
increases included in income. 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 excess of the distributions it received from PFICs and its
proceeds from dispositions of PFIC stock.
Tax Treatment of Options and Futures Transactions
The Fund may write, purchase or sell options, futures and 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 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 forward foreign exchange contract, or 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 options,
futures and forward foreign exchange contracts. 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 options,
futures and forward foreign contracts.
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 stocks, 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, futures, or
forward foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the 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
41
<PAGE>
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 such
shareholder's 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.
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 may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs that
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 formulas specified by the
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 and
distributions 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 as in the case
of Class B and Class C shares and the maximum sales charge in the case of
Class A and 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 charges 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 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
advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans) or to reduced sales loads in the case of Class A and
Class D shares, the performance data may take into account the reduced, and
not the maximum, sales charge or may not take into account the CDSC and
42
<PAGE>
therefore may reflect greater total return since, due to the reduced sales
charges or waiver of the CDSC, a lower amount of expenses is 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 illustrate such total return on a
hypothetical $1,000 investment in the Fund at the beginning of each specified
period.
Set forth below is total return information for the Class A, Class B, Class C
and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------- -----------------------------------
Expressed as Redeemable value Expressed as Redeemable value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
- ------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Average Annual Total Return
(including maximum applicable sales charges)
One Year Ended December
31, 1998...............
Inception (November 1,
1996) to
December 31, 1998...... -- % $ -- -- % $ --
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended December 31,
1998..................
1997.................. 24.01% $1,240.00 22.80% $1,228.00
Inception (November 1,
1996) to
December 31, 1996...... 1.82% $1,018.20 1.66% $1,016.60
Aggregate Total Return
(including maximum applicable sales charges)
Inception (November 1,
1996) to
December 31, 1998...... -- % $ -- -- % $ --
</TABLE>
<TABLE>
<CAPTION>
Class C Shares Class D Shares
----------------------------------- -----------------------------------
Expressed as Redeemable value Expressed as Redeemable value
a percentage of a hypothetical a percentage of a hypothetical
based on a $1,000 investment based on a $1,000 investment
hypothetical at the end of hypothetical at the end of
Period $1,000 investment the period $1,000 investment the period
- ------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Average Annual Total Return
(including maximum applicable sales charges)
One Year Ended December
31, 1998...............
Inception (November 1,
1996) to
December 31, 1998...... -- % $ -- -- % $ --
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended December 31,
1998..................
1997.................. 22.80% $1,228.00 23.71% $1,237.10
Inception (November 1,
1996) to
December 31, 1996...... 1.66% $1,016.60 1.78% $1,017.80
Aggregate Total Return
(including maximum applicable sales charges)
Inception (November 1,
1996) to
December 31, 1998...... -- % $ -- -- % $ --
</TABLE>
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," the
total return data quoted by the Fund in advertisements directed to such
investors may take into
43
<PAGE>
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 the waiver of CDSCs, a lower amount of expenses
may be deducted.
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 various indices
including the MSCI World Index, the Standard & Poor's Composite 500 Index, the
Dow Jones Industrial Average, or to performance data published by Lipper
Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"), CDA
Investment Technology, Inc., Money Magazine, U.S. News & World Report,
Business Week, Forbes Magazine, Fortune Magazine or other industry
publications. When comparing its performance to a market index, the Fund may
refer to various statistical measures derived from the historic performance of
the Fund and the index, such as standard deviation and beta. In addition, from
time to time, the Fund may include the Fund's Morningstar risk-adjusted
performance ratings in advertisements or supplemental sales literature. As
with other performance data, performance comparisons should not be considered
indicative of the Fund's relative performance for any future period.
GENERAL INFORMATION
Description of Shares
The Fund was incorporated under Maryland law on March 8, 1996. As of the
date of this Statement of Additional Information, the Fund has an authorized
capital of 600,000,000 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. Class A, Class C and Class D each consists of 100,000,000 shares
and Class B consists of 300,000,000 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 Board of
Directors of the Fund may classify and reclassify the shares of the Fund into
additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Directors and
any other matter submitted to a shareholder vote. 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 act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent accountants. Also, the by-laws of the Fund require
that a special meeting of shareholders be held upon the written request of at
least 25% 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 rights. Each share of Class A, Class B, Class C and
Class D Common Stock is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution after satisfaction of outstanding liabilities.
Stock certificates will be 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 (2,500 shares each of Class A, Class B, Class C and
Class D) 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 were 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 that the number of such
initial shares being redeemed bears to the number of shares initially
purchased.
44
<PAGE>
Independent Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540 has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Directors of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
Custodian
Brown Brothers Harriman & Co. (the "Custodian"), 40 Water Street, Boston,
Massachusetts 02109, acts as the custodian of the Fund's assets. Under its
contract with the Fund, the Custodian is authorized, 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
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "How to Buy,
Sell, Transfer and Exchange Shares--Through the Transfer Agent" in the
Prospectus.
Legal Counsel
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
Reports to Shareholders
The fiscal year of the Fund ends on December 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
Additional Information
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
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.
To the knowledge of the Fund, no individual or entity owned beneficially 5%
or more of a class of the Fund's shares as of April , 1999.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any
business day.
45
<PAGE>
CODE #: 19002-04-99
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1(a) --Articles of Incorporation of the Registrant, dated March 7, 1996.(a)
(b) --Articles Supplementary to the Articles of Incorporation of the
Registrant, dated February 19, 1997.(b)
2 --Amended and Restated By-Laws of the Registrant.(c)
3 --Portions of the Articles of Incorporation and the By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant.(d)
4(a) --Form of Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P. (the "Manager").(e)
(b) --Sub-Advisory Agreement between the Manager and Merrill Lynch Asset
Management U.K. Limited.(b)
5(a) --Form of Class A Shares Distribution Agreement between the Registrant
and Merrill Lynch Funds Distributor, Inc. (now known as Princeton
Funds Distributor, Inc.) (the "Distributor") (including Form of
Selected Dealers Agreement).(e)
(b) --Form of Class B Shares Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(e)
(c) --Form of Class C Shares Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(e)
(d) --Form of Class D Shares Distribution Agreement between the Registrant
and the Distributor (including Form of Selected Dealers
Agreement).(e)
6 --None.
7 --Form of Custody Agreement between the Registrant and Brown Brothers
Harriman & Co., Inc.(e)
8(a) --Form of Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and Merrill Lynch
Financial Data Services, Inc. (now known as Financial Data Services,
Inc.) (the "Transfer Agent").(e)
(b) --Agreement relating to use of name between the Registrant and Merrill
Lynch & Co., Inc. ("ML & Co").(e)
9 --Opinion of Brown & Wood LLP, counsel to the Registrant.(e)
10 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
11 --None.
12 --Certificate of the Manager.(e)
13(a) --Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(e)
14(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
15 --Merrill Lynch Select Pricing SM System Plan Pursuant to Rule 18f-
3.(f)
</TABLE>
- ----------
(a) Filed on March 12, 1996 as an Exhibit to the Registrant's Registration
Statement on Form N-1A (File No. 333-1663) under the Securities Act of
1933, as amended (the "Registration Statement").
(b) Filed on February 28, 1997 as an Exhibit to Post-Effective Amendment No. 1
to the Registration Statement.
(c) Filed on February 27, 1998 as an Exhibit to Post-Effective Amendment No. 2
to the Registration Statement.
(d) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII and
IX of the Registrant's Articles of Incorporation, as supplemented, filed
as Exhibit 1(a) and Exhibit 1(b) to the Registration Statement and to
Articles II, III (Sections 1, 3, 5 and 6), VI, VII, XIII and XIV of the
Registrant's Amended and Restated By-Laws, filed as Exhibit 2 to the
Registration Statement.
(e) Filed on September 3, 1996 as an Exhibit to Pre-Effective Amendment No. 1
to the Registration Statement.
(f) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996 relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
C-1
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant.
The Registrant is not controlled by or under common control with any other
person.
Item 25. Indemnification.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A, Class B, Class C and Class D
Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant 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 office. Absent a court
determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeaseance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or 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 office.
Each officer and director of the Registrant claiming indemnification within
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to
the Registrant a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Registrant 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 Registrant for his undertaking; (b) the
Registrant 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 Registrant 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.
The Registrant 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 activities as officer or
director of the Registrant. The Registrant, however, may not purchase
insurance on behalf of any officer or director of the Registrant that protects
or purports to protect such person from liability to the Registrant 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 office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D 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 (the "1933 Act"),
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 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 of the Registrant and the principal underwriter in
C-2
<PAGE>
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 26. Business and Other Connections of Investment Adviser.
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), acts as the
investment adviser for the following open-end registered 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 Convertible 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 Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa
Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM);
and for the following closed-end registered investment companies: Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager acts as the
investment adviser for the following open-end registered 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
Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions
Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc.,
Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund,
Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II,
Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings California
Insured Fund II, Inc., MuniHoldings California Insured Fund III, Inc.,
MuniHoldings California Insured Fund IV, Inc., MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund
III, MuniHoldings Florida Insured Fund IV, MuniHoldings Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New Jersey Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund III, Inc., MuniHoldings New York Fund, Inc., MuniHoldings
New York Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc.,
MuniHoldings New York Insured Fund III, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured
C-3
<PAGE>
Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund,
Inc., MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government
Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-
2665. The address of the Manager, FAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. ("Princeton Administrators") is
also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Princeton
Funds Distributor, Inc., ("PFD") and of Merrill Lynch Funds Distributor
("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and ML &
Co. is World Financial Center, North Tower, 250 Vesey Street, New York, New
York 10281-1201. The address of the Fund's transfer agent, Financial Data
Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1997 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President,
Mr. Glenn is Executive Vice President and Mr. Burke is Vice President and
Treasurer of all or substantially all of the investment companies described in
the first two paragraphs of this Item 26, and Messrs. Giordano, Harvey and
Monagle are officers of one or more of such companies.
<TABLE>
<CAPTION>
Other Substantial Business,
Position(s) with the Profession, Vocation or
Name Manager Employment
---- ------------------------ --------------------------------
<C> <C> <S>
ML & Co............. Limited Partner Financial Services Holding
Company;
Limited Partner of FAM
Princeton Services.. General Partner General Partner of FAM
Arthur Zeikel....... Chairman Chairman of FAM; President of
the Manager and FAM from 1977 to
1997; Chairman and Director of
Princeton Services; President of
Princeton Services from 1993 to
1997; Executive Vice President
of ML & Co.
Jeffrey M. Peek..... President President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-
Head of the Investment Banking
Division of Merrill Lynch in
1997; Senior Vice President and
Director of the Global
Securities in Economics Division
of Merrill Lynch from 1995 to
1997
Terry K. Glenn...... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators
Donald C. Burke..... Senior Vice President, Senior Vice President and
Treasurer and Director Treasurer of FAM; Senior Vice
of Taxation President and Treasurer of
Princeton Services; Vice
President of PFD; First Vice
President of the Manager from
1997 to 1999; Vice President of
the Manager from 1990 to 1997
Michael G. Clark.... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Treasurer
and Director of PFD; First Vice
President of the Manager from
1997 to 1999; Vice President of
the Manager from 1996 to 1997
Mark A. Desario..... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Linda L. Federici... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business,
Profession, Vocation or
Name Position(s) with the Manager Employment
---- ---------------------------- ------------------------
<C> <C> <S>
Vincent R. Giordano...... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Elizabeth A. Griffin..... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Norman R. Harvey......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Michael J. Hennewinkel... Senior Vice President, Senior Vice President,
Secretary and General Secretary and General
Counsel Counsel of FAM; Senior
Vice President of
Princeton Services
Philip L. Kirstein....... Senior Vice President Senior Vice President of
FAM; Senior Vice
President, Secretary and
Director of Princeton
Services
Ronald M. Kloss.......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Debra W. Landsman-Yaros.. Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services; Vice President
of PFD
Stephen M. M. Miller..... Senior Vice President Executive Vice President
of Princeton
Administrators; Senior
Vice President of
Princeton Services
Joseph T. Monagle, Jr. .. Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Brian A. Murdock......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Gregory D. Upah.......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: The Corporate Fund
Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, 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 Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Consults International Portfolio, Merrill Lynch Convertible
Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate
High Yield Fund, Inc. Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special
Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.
C-5
<PAGE>
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1997, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel and Albert are officers of one
or more of the registered investment companies listed in the first two
paragraphs of this Item 26.
<TABLE>
<CAPTION>
Other Substantial Business,
Position with Profession, Vocation or
Name MLAM U.K. Employment
---- --------------------------- -----------------------------
<C> <C> <S>
Arthur Zeikel....... Director and Chairman Chairman of the Manager and
FAM; Chairman and Director of
Princeton Services; President
of Princeton Services from
1993 to 1997; President of
the Manager and FAM from 1977
to 1997; Executive Vice
President of ML & Co.
Alan J. Albert...... Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall.. Director Director of Merrill Lynch
Europe PLC.; General Counsel
of Merrill Lynch
International Private Banking
Group
Carol Ann Langham... Company Secretary None
Debra Anne Searle... Assistant Company Secretary None
</TABLE>
Item 27. Principal Underwriters.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies
referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc. and The Municipal Fund Accumulation Program, Inc. MLFD also acts
as the principal underwriter for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc. A separate division of PFD acts as the principal underwriter
of a number of other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
Position(s) and Position(s) and Office(s)
Name Office(s) with PFD with Registrant
- ---- ---------------------- ----------------------------
<S> <C> <C>
Terry K. Glenn............. President and Director Executive Vice President
Michael G. Clark........... Treasurer and Director None
Thomas J. Verage........... Director None
Robert W. Crook............ Senior Vice President None
Michael J. Brady........... Vice President None
William M. Breen........... Vice President None
Donald C. Burke............ Vice President Vice President and Treasurer
James T. Fatseas........... Vice President None
Debra W. Landsman-Yaros.... Vice President None
Michelle T. Lau............ Vice President None
Salvatore Venezia.......... Vice President None
William Wasel.............. Vice President None
Robert Harris.............. Secretary None
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended (the "1940 Act") and
the rules thereunder are maintained at the offices of the Registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its transfer agent,
Financial Data Services, Inc. (4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484).
C-6
<PAGE>
Item 29. Management Services.
Other than as set forth under the caption "Management of the Fund -- Merrill
Lynch Asset Management" 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 30. Undertakings.
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 26th day of February, 1999.
Merrill Lynch Global Value Fund, Inc.
(Registrant)
/s/ Terry K. Glenn
By: ____________________________________
Terry K. Glenn, Executive Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Arthur Zeikel* President (Principal
______________________________________ Executive Officer and
(Arthur Zeikel) Director)
Donald C. Burke* Vice President and
______________________________________ Treasurer (Principal
(Donald C. Burke) Financial
and Accounting Officer)
Donald Cecil* Director
______________________________________
(Donald Cecil)
Roland M. Machold* Director
______________________________________
(Roland M. Machold)
Edward H. Meyer* Director
______________________________________
(Edward H. Meyer)
Charles C. Reilly* Director
______________________________________
(Charles C. Reilly)
Richard R. West* Director
______________________________________
(Richard R. West)
Edward D. Zinbarg* Director
______________________________________
(Edward D. Zinbarg)
/s/ Terry K. Glenn February 26, 1999
*By: _________________________________
(Terry K. Glenn, Attorney-in-Fact)
</TABLE>
C-8
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of each of the Maryland corporations listed
below and a trustee of each of the Massachusetts business trusts listed below,
hereby authorizes Arthur Zeikel, Terry K. Glenn, Donald C. Burke, Barbara G.
Fraser, Phillip S. Gillespie, Robert Harris, Philip M. Mandel, Ira P. Shapiro
or Michael J. Hennewinkel, or any of them, as attorney-in-fact, to sign on his
behalf any amendments to the Registration Statement for each of the following
registered investment companies and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission: Merrill Lynch Americas
Income Fund, Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.;
Merrill Lynch Dragon Fund, Inc.; Merrill Lynch Emerging Tigers Fund, Inc.;
Merrill Lynch EuroFund; Merrill Lynch Global Allocation Fund, Inc.; Merrill
Lynch Global Bond Fund for Investment and Retirement; Merrill Lynch Global
Holdings, Inc.; Merrill Lynch Global SmallCap Fund, Inc.; Merrill Lynch Global
Technology Fund, Inc.; Merrill Lynch Global Value Fund, Inc.; Merrill Lynch
Healthcare Fund, Inc.; 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 Short-Term Global Income Fund, Inc.;
Merrill Lynch Technology Fund, Inc.; and Worldwide DollarVest Fund, Inc.
Dated: January 21, 1999
/s/ Donald Cecil
______________________________________
(Donald Cecil)
/s/ Roland M. Machold
______________________________________
(Roland M. Machold)
/s/ Edward H. Meyer
______________________________________
(Edward H. Meyer)
/s/ Charles C. Reilly
______________________________________
(Charles C. Reilly)
/s/ Richard B. West
______________________________________
(Richard B. West)
/s/ Arthur Zeikel
______________________________________
(Arthur Zeikel)
/s/ Edward D. Zinbarg
______________________________________
(Edward D. Zinbarg)
C-9
<PAGE>
POWER OF ATTORNEY
The undersigned, the Vice President and Treasurer of each of the registered
investment companies listed below, hereby authorizes Arthur Zeikel, Terry K.
Glenn, Barbara G. Fraser, Phillip S. Gillespie, Robert Harris, Philip M.
Mandel, Ira P. Shapiro or Michael J. Hennewinkel, or any of them, as attorney-
in-fact, to sign on his behalf any amendments to the Registration Statement
for each of the following registered investment companies and to file the
same, with all exhibits thereto, with the Securities and Exchange Commission:
Merrill Lynch Americas Income Fund, Inc.; Merrill Lynch Developing Capital
Markets Fund, Inc.; Merrill Lynch Dragon Fund, Inc.; Merrill Lynch Emerging
Tigers Fund, Inc.; Merrill Lynch EuroFund; Merrill Lynch Global Allocation
Fund, Inc.; Merrill Lynch Global Bond Fund for Investment and Retirement;
Merrill Lynch Global Holdings, Inc.; Merrill Lynch Global SmallCap Fund, Inc.;
Merrill Lynch Global Technology Fund, Inc.; Merrill Lynch Global Value Fund,
Inc.; Merrill Lynch Healthcare Fund, Inc.; 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 Short-Term Global
Income Fund, Inc.; Merrill Lynch Technology Fund, Inc.; and Worldwide
DollarVest Fund, Inc.
Dated: January 22, 1999
/s/ Donald C. Burke
______________________________________
(Donald C. Burke)
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10 Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
14(a) Financial Data Schedule for Class A shares.
(b) Financial Data Schedule for Class B shares.
(c) Financial Data Schedule for Class C shares.
(d) Financial Data Schedule for Class D shares.
</TABLE>
<PAGE>
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Value Fund, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to Registration Statement No. 333-1663 of our report dated February 22,
1999 appearing in the annual report to shareholders of Merrill Lynch Global
Value Fund, Inc. for the year ended December 31, 1998, and to the reference to
us under the caption "Financial Highlights" in the Prospectus, which is a part
of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
February 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> M/L GLOBAL VALUE FUND, INC. CLASS A SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2555721171
<INVESTMENTS-AT-VALUE> 2960407601
<RECEIVABLES> 29440948
<ASSETS-OTHER> 3899532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2993748081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11940785
<TOTAL-LIABILITIES> 11940785
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2503314218
<SHARES-COMMON-STOCK> 14849041
<SHARES-COMMON-PRIOR> 5251108
<ACCUMULATED-NII-CURRENT> 11760176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65400469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 401332433
<NET-ASSETS> 202979606
<DIVIDEND-INCOME> 50714661
<INTEREST-INCOME> 7125942
<OTHER-INCOME> 0
<EXPENSES-NET> (43177959)
<NET-INVESTMENT-INCOME> 14662644
<REALIZED-GAINS-CURRENT> 273114836
<APPREC-INCREASE-CURRENT> 224291590
<NET-CHANGE-FROM-OPS> 512069070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4031587)
<DISTRIBUTIONS-OF-GAINS> (15004582)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11594216
<NUMBER-OF-SHARES-REDEEMED> (2696436)
<SHARES-REINVESTED> 700153
<NET-CHANGE-IN-ASSETS> 1178306876
<ACCUMULATED-NII-PRIOR> 1800224
<ACCUMULATED-GAINS-PRIOR> 59267361
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18489427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43177959
<AVERAGE-NET-ASSETS> 144711302
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 3.00
<PER-SHARE-DIVIDEND> (.34)
<PER-SHARE-DISTRIBUTIONS> (1.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.67
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> M/L GLOBAL VALUE FUND, INC. CLASS B SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2555721171
<INVESTMENTS-AT-VALUE> 2960407601
<RECEIVABLES> 29440948
<ASSETS-OTHER> 3899532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2993748081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11940785
<TOTAL-LIABILITIES> 11940785
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2503314218
<SHARES-COMMON-STOCK> 146115764
<SHARES-COMMON-PRIOR> 104624133
<ACCUMULATED-NII-CURRENT> 11760176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65400469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 401332433
<NET-ASSETS> 1988580348
<DIVIDEND-INCOME> 50714661
<INTEREST-INCOME> 7125942
<OTHER-INCOME> 0
<EXPENSES-NET> (43177959)
<NET-INVESTMENT-INCOME> 14662644
<REALIZED-GAINS-CURRENT> 273114836
<APPREC-INCREASE-CURRENT> 224291590
<NET-CHANGE-FROM-OPS> 512069070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24477182)
<DISTRIBUTIONS-OF-GAINS> (154619783)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52086564
<NUMBER-OF-SHARES-REDEEMED> (22209184)
<SHARES-REINVESTED> 11614251
<NET-CHANGE-IN-ASSETS> 1178306876
<ACCUMULATED-NII-PRIOR> 1800224
<ACCUMULATED-GAINS-PRIOR> 59267361
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18489427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43177959
<AVERAGE-NET-ASSETS> 1661766678
<PER-SHARE-NAV-BEGIN> 11.97
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (1.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> M/L GLOBAL VALUE FUND, INC. CLASS C SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2555721171
<INVESTMENTS-AT-VALUE> 2960407601
<RECEIVABLES> 29440948
<ASSETS-OTHER> 3899532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2993748081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11940785
<TOTAL-LIABILITIES> 11940785
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2503314218
<SHARES-COMMON-STOCK> 26680958
<SHARES-COMMON-PRIOR> 19189181
<ACCUMULATED-NII-CURRENT> 11760176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65400469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 401332433
<NET-ASSETS> 363133765
<DIVIDEND-INCOME> 50714661
<INTEREST-INCOME> 7125942
<OTHER-INCOME> 0
<EXPENSES-NET> (43177959)
<NET-INVESTMENT-INCOME> 14662644
<REALIZED-GAINS-CURRENT> 273114836
<APPREC-INCREASE-CURRENT> 224291590
<NET-CHANGE-FROM-OPS> 512069070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4471324)
<DISTRIBUTIONS-OF-GAINS> (28383994)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10104124
<NUMBER-OF-SHARES-REDEEMED> (4761365)
<SHARES-REINVESTED> 2149018
<NET-CHANGE-IN-ASSETS> 1178306876
<ACCUMULATED-NII-PRIOR> 1800224
<ACCUMULATED-GAINS-PRIOR> 59267361
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18489427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43177959
<AVERAGE-NET-ASSETS> 308612900
<PER-SHARE-NAV-BEGIN> 11.97
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (1.18)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> M/L GLOBAL VALUE FUND, INC. CLASS D SHARES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2555721171
<INVESTMENTS-AT-VALUE> 2960407601
<RECEIVABLES> 29440948
<ASSETS-OTHER> 3899532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2993748081
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11940785
<TOTAL-LIABILITIES> 11940785
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2503314218
<SHARES-COMMON-STOCK> 31279014
<SHARES-COMMON-PRIOR> 21570616
<ACCUMULATED-NII-CURRENT> 11760176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65400469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 401332433
<NET-ASSETS> 427113577
<DIVIDEND-INCOME> 50714661
<INTEREST-INCOME> 7125942
<OTHER-INCOME> 0
<EXPENSES-NET> (43177959)
<NET-INVESTMENT-INCOME> 14662644
<REALIZED-GAINS-CURRENT> 273114836
<APPREC-INCREASE-CURRENT> 224291590
<NET-CHANGE-FROM-OPS> 512069070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8144298)
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