<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1998
SECURITIES ACT FILE NO. 333-61277
INVESTMENT COMPANY ACT FILE NO. 811-8327
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
[X] PRE-EFFECTIVE AMENDMENT NO. 1 [ ] POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
------------------------
TITLE OF SECURITIES BEING REGISTERED: COMMON STOCK, PAR VALUE $.10 PER
SHARE.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
- --------- -------------------
<S> <C> <C>
PART A
- ---------
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of Prospectus Registration Statement Cover Page;
Proxy Statement and Prospectus Cover
Page
Item 2. Beginning and Outside Back Cover Page
of Prospectus Table of Contents
Item 3. Fee Table, Synopsis Information and
Risk Factors Summary; Risk Factors and Special
Considerations
Item 4. Information about the Transaction Summary; The Reorganization--Agreement
and Plan of Reorganization
Item 5. Information about the Registrant Proxy Statement and Prospectus Cover
Page; Summary; Comparison of the Funds;
Additional Information
Item 6. Information about the Company Being
Acquired Proxy Statement and Prospectus Cover
Page; Summary; Comparison of the Funds;
Additional Information
Item 7. Voting Information Notice of Special Meeting of
Stockholders; Introduction; Summary;
Comparison of the Funds; Information
Concerning the Special Meeting;
Additional Information
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters Not Applicable
PART B
- ---------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information about the
Registrant General Information
Item 13. Additional Information about the
Company Being Acquired General Information
Item 14. Financial Statements Financial Statements
PART C
- ---------
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 5, 1998
TO THE STOCKHOLDERS OF
MERRILL LYNCH GLOBAL HOLDINGS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Global Holdings, Inc. ("Global Holdings") will be
held at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders Mill
Road, Plainsboro, New Jersey on November 5, 1998 at 9:00 a.m., New York time,
for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") providing for the acquisition
of substantially all of the assets of Global Holdings by Merrill Lynch
Global Growth Fund, Inc. ("Global Growth Fund"), and the assumption of
substantially all of the liabilities of Global Holdings by Global Growth
Fund, in exchange solely for an equal aggregate value of newly-issued
shares of Global Growth Fund. The Agreement and Plan of Reorganization also
provides for distribution of such shares of Global Growth Fund to
stockholders of Global Holdings in liquidation of Global Holdings. A vote
in favor of this proposal will constitute a vote in favor of the
liquidation and dissolution of Global Holdings and the termination of its
registration under the Investment Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of Global Holdings has fixed the close of business
on September 15, 1998 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
A complete list of the stockholders of Global Holdings entitled to vote at
the Meeting will be available and open to the examination of any stockholders of
Global Holdings for any purpose germane to the Meeting during ordinary business
hours from and after October 22, 1998 at the offices of Global Holdings, 800
Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. Stockholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed form of proxy and return it promptly in the envelope provided for
that purpose. The enclosed proxy is being solicited on behalf of the Board of
Directors of Global Holdings.
By Order of the Board of Directors,
PHILIP M. MANDEL
Secretary
Plainsboro, New Jersey
Dated: September 22, 1998
<PAGE> 4
MERRILL LYNCH GLOBAL HOLDINGS, INC.
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH GLOBAL HOLDINGS, INC.
NOVEMBER 5, 1998
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Global Holdings, Inc., a Maryland corporation ("Global Holdings"), for use at
the Special Meeting of Stockholders of Global Holdings (the "Meeting") called to
approve or disapprove the proposed reorganization whereby Merrill Lynch Global
Growth Fund, Inc., a Maryland corporation ("Global Growth Fund"), will acquire
substantially all of the assets, and will assume substantially all of the
liabilities, of Global Holdings, in exchange solely for an equal aggregate value
of newly-issued shares of Global Growth Fund (the "Reorganization"). Immediately
upon the receipt by Global Growth Fund of the assets of Global Holdings and the
assumption by Global Growth Fund of the liabilities of Global Holdings, as
described in the preceding sentence, Global Holdings will distribute the shares
of Global Growth Fund received in the Reorganization to the stockholders of
Global Holdings. Thereafter, Global Holdings will terminate its registration
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and will dissolve in accordance with the laws of the State of Maryland.
Holders of shares in Global Holdings will receive that class of shares of
Global Growth Fund having the same letter designation (i.e., Class A, Class B,
Class C or Class D) and the same distribution fees, account maintenance fees and
sales charges (including contingent deferred sales charges ("CDSCs")), if any
(the "Corresponding Shares"), as the shares of Global Holdings held by them
immediately prior to the Reorganization. The aggregate net asset value of the
Corresponding Shares of Global Growth Fund to be issued to the stockholders of
Global Holdings will equal the aggregate net asset value of the outstanding
shares of Global Holdings as set forth in the Agreement and Plan of
Reorganization. Global Holdings and Global Growth Fund sometimes are referred to
herein collectively as the "Funds" and individually as a "Fund," as the context
requires. The fund resulting from the reorganization is sometimes referred to
herein as the "Combined Fund."
This Proxy Statement and Prospectus serves as a prospectus of Global Growth
Fund under the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of shares of Global Growth Fund to Global Holdings
pursuant to the terms of the Reorganization.
Both Global Holdings and Global Growth Fund are open-end management
investment companies with similar, though not identical, investment objectives.
Global Growth Fund seeks to provide stockholders with long-term growth of
capital by investing in a diversified portfolio of equity securities of issuers
in various foreign countries and the United States. Global Holdings seeks to
provide stockholders with the highest total return consistent with prudent risk
through worldwide investment in an internationally diversified portfolio of
securities. There can be no assurance that, after the Reorganization, Global
Growth Fund will achieve its investment objective.
The current prospectus relating to Global Growth Fund, dated March 6, 1998
(the "Global Growth Fund Prospectus"), accompanies this Proxy Statement and
Prospectus and is incorporated herein by reference. The Semi-Annual Report to
Stockholders of Global Growth Fund for the period ended February 28, 1998 also
accompanies this Proxy Statement and Prospectus. A statement of additional
information relating to Global Growth Fund, dated March 6, 1998 (the "Global
Growth Fund Statement"), a prospectus of Global Holdings dated March 5, 1998
(the "Global Holdings Prospectus") and a statement of additional information
relating to Global Holdings, dated March 5, 1998 (the "Global Holdings
Statement"), have been filed with the Securities and Exchange Commission (the
"Commission"). Such documents may be obtained, without charge, by writing either
Global Holdings or Global Growth Fund at the address above, or by calling
1-800-456-4587, ext. 123.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement and Prospectus sets forth concisely the information
about Global Growth Fund that stockholders of Global Holdings should know before
considering the Reorganization and should be retained for future reference.
Global Holdings has authorized the solicitation of proxies in connection with
the Reorganization solely on the basis of this Proxy Statement and Prospectus
and the accompanying documents.
A statement of additional information relating to the Reorganization (the
"Statement of Additional Information"), including pro forma financial statements
of Global Holdings and Global Growth Fund, is on file with the Commission. It is
available from Global Growth Fund without charge, upon oral request by calling
the toll free telephone number set forth above or upon written request by
writing Global Growth Fund at its principal executive offices. The Statement of
Additional Information, dated September 22, 1998 is incorporated by reference
into this Proxy Statement and Prospectus. The Commission maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information, the
Global Growth Fund Prospectus, the Global Holdings Prospectus, the Global Growth
Fund Statement, the Global Holdings Statement, other material incorporated by
reference and other information regarding the Funds.
The address of the principal executive offices of both Global Holdings and
Global Growth Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
the telephone number is (609) 282-2800.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS SEPTEMBER 22, 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION 3
SUMMARY 3
The Reorganization 3
Pro Forma Fee Table for Class A and Class B Stockholders
of Global Holdings, Global Growth Fund and the Combined
Fund as of June 30, 1998 (unaudited) 5
Pro Forma Fee Table for Class C and Class D Stockholders
of Global Holdings, Global Growth Fund and the Combined
Fund as of June 30, 1998 (unaudited) 6
RISK FACTORS AND SPECIAL CONSIDERATIONS 12
COMPARISON OF THE FUNDS 15
Financial Highlights 15
Investment Objectives and Policies 19
Other Investment Policies 21
Information Regarding Options, Futures and Foreign
Exchange Transactions 22
Investment Restrictions 22
Management 22
Purchase of Shares 24
Redemption of Shares 24
Performance 24
Stockholder Rights 25
Dividends and Distributions 25
Tax Information 26
Portfolio Transactions 26
Portfolio Turnover 26
Additional Information 26
THE REORGANIZATION 27
General 27
Procedure 27
Terms of the Agreement and Plan of Reorganization 28
Potential Benefits to Stockholders as a Result of the
Reorganization 29
Tax Consequences of the Reorganization 30
Capitalization 31
INFORMATION CONCERNING THE SPECIAL MEETING 31
Date, Time and Place of Meeting 31
Solicitation, Revocation and Use of Proxies 31
Record Date and Outstanding Shares 32
Security Ownership of Certain Beneficial Owners and
Management of Global Holdings and Global Growth Fund 32
Voting Rights and Required Vote 32
ADDITIONAL INFORMATION 33
LEGAL PROCEEDINGS 33
LEGAL OPINIONS 33
EXPERTS 34
STOCKHOLDER PROPOSALS 34
EXHIBIT I--AGREEMENT AND PLAN OF REORGANIZATION I-1
</TABLE>
2
<PAGE> 6
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Global Holdings
for use at the Meeting to be held at the offices of Merrill Lynch Asset
Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on
November 5, 1998, at 9:00 a.m., New York time. The mailing address for Global
Holdings is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate
mailing date of this Proxy Statement and Prospectus is September 25, 1998.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Global Holdings at the address indicated above or by voting in
person at the Meeting. All properly executed proxies received prior to the
Meeting will be voted at the Meeting in accordance with the instructions marked
thereon or otherwise as provided therein. Unless instructions to the contrary
are marked, properly executed proxies will be voted "FOR" the proposal to
approve the Agreement and Plan of Reorganization between Global Holdings and
Global Growth Fund (the "Agreement and Plan of Reorganization").
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of Global Holdings stockholders representing a majority of the
total number of votes entitled to be cast thereon. Stockholders will vote as a
single class on the proposal to approve the Agreement and Plan of
Reorganization. See "Information Concerning the Special Meeting."
The Board of Directors of Global Holdings knows of no business other than
that discussed above which will be presented for consideration at the Meeting.
If any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Global Holdings by Global
Growth Fund in exchange for the Corresponding Shares and the subsequent
distribution of Corresponding Shares of Global Growth Fund to the stockholders
of Global Holdings; and (ii) the subsequent deregistration and dissolution of
Global Holdings.
THE REORGANIZATION
At a meeting of the Board of Directors of Global Holdings held on April 15,
1998, the Board of Directors of Global Holdings approved a proposal that Global
Growth Fund acquire substantially all of the assets, and assume substantially
all of the liabilities, of Global Holdings in exchange solely for shares of
Global Growth Fund to be distributed to the stockholders of Global Holdings.
Based upon their evaluation of all relevant information, the Directors of
Global Holdings have determined that the Reorganization will potentially benefit
the stockholders of Global Holdings. Specifically, after the Reorganization,
Global Holdings stockholders will remain invested in an open-end fund that has
an investment objective similar though not identical to that of Global Holdings.
In addition, after the Reorganization, on a pro forma combined basis, Global
Growth Fund will pay an advisory fee to MLAM at a lower annual rate than that
currently paid by Global Holdings. Moreover, since the net assets of Global
Growth Fund as of June 30, 1998 were approximately $2.0 billion and will
increase by approximately $362.7 million (the net asset value of Global Holdings
as of June 30, 1998) as a result of the Reorganization, Global Holdings
stockholders are likely to experience certain additional benefits, including,
without limitation,
3
<PAGE> 7
lower expenses per share, economies of scale and greater flexibility in
portfolio management. See "The Reorganization--Potential Benefits to
Stockholders as a Result of the Reorganization."
The Board of Directors of Global Holdings, including a majority of the
Directors who are not "interested persons," as defined in the Investment Company
Act, has determined that the Reorganization is in the best interests of Global
Holdings and that the interests of existing Global Holdings stockholders will
not be diluted as a result of effecting the Reorganization.
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that Global Holdings and Global Growth Fund have obtained prior to that time a
favorable private letter ruling from the Internal Revenue Service (the "IRS")
concerning the tax consequences of the Reorganization as set forth in the
Agreement and Plan of Reorganization. The Agreement and Plan of Reorganization
may be terminated, and the Reorganization abandoned, whether before or after
approval by the stockholders of Global Holdings, at any time prior to the
Exchange Date (as defined below), (i) by mutual consent of the Board of
Directors of Global Holdings and the Board of Directors of Global Growth Fund;
(ii) by the Board of Directors of Global Holdings if any condition to Global
Holdings' obligations has not been fulfilled or waived by such Board; or (iii)
by the Board of Directors of Global Growth Fund if any condition to Global
Growth Fund's obligations has not been fulfilled or waived by such Board.
4
<PAGE> 8
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF GLOBAL HOLDINGS,
GLOBAL GROWTH FUND
AND THE COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A SHARES(a) CLASS B SHARES(b)
---------------------------------- -----------------------
ACTUAL ACTUAL
---------------------- -----------------------
GLOBAL GLOBAL PRO FORMA GLOBAL
HOLDINGS GROWTH FUND COMBINED HOLDINGS
-------- ----------- --------- -----------------------
<S> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) 5.25%(c) 5.25%(c) 5.25%(c) None
Sales Charge Imposed on Dividend Reinvestments None None None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower) None(d) None(d) None(d) 4.0% during the first
year, decreasing 1.0%
annually thereafter to
0.0% after the fourth
year(e)
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
TOTAL NET ASSETS):
Management Fees(f) 1.00% 0.74% 0.74% 1.00%
12b-1 Fees(g):
Account Maintenance Fees None None None 0.25%
Distribution Fees None None None 0.75%
Other Expenses:
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Stockholder Servicing Costs(h) 0.29% 0.09% 0.09% 0.29%
Other 0.19% 0.10% 0.09% 0.19%
----- ------- ------ ---
Total Other Expenses 0.48% 0.19% 0.18% 0.48%
----- ------- ------ ---
Total Fund Operating Expenses(i) 1.48% 0.93% 0.92% 2.48%
----- ------- ------ ---
----- ------- ------ ---
<CAPTION>
CLASS B SHARES(b)
------------------------------------------------
ACTUAL
-----------------------
GLOBAL PRO FORMA
GROWTH FUND COMBINED
----------------------- -----------------------
<S> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) None None
Sales Charge Imposed on Dividend Reinvestments None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower) 4.0% during the first 4.0% during the first
year, decreasing 1.0% year, decreasing 1.0%
annually thereafter to annually thereafter to
0.0% after the fourth 0.0% after the fourth
year(e) year(e)
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
TOTAL NET ASSETS):
Management Fees(f) 0.74% 0.74%
12b-1 Fees(g):
Account Maintenance Fees 0.25% 0.25%
Distribution Fees 0.75% 0.75%
Other Expenses:
(Class B shares convert (Class B shares convert
to Class D shares to Class D shares
automatically after automatically after
approximately eight approximately eight
years and cease being years and cease being
subject to distribution subject to distribution
fees) fees)
Stockholder Servicing Costs(h) 0.09% 0.09%
Other 0.10% 0.09%
--- ---
Total Other Expenses 0.19% 0.18%
--- ---
Total Fund Operating Expenses(i) 1.93% 1.92%
--- ---
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A stockholders, certain retirement plans and participants in certain
fee-based programs. See "Comparison of the Funds--Purchase of Shares."
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Comparison of the Funds--Purchase of
Shares."
(c) Reduced for Class A purchases of $25,000 and over, and waived for purchases
by certain retirement plans and in connection with certain fee-based
programs. Purchases of $1,000,000 or more may not be subject to an initial
sales charge. See "Comparison of the Funds--Purchase of Shares."
(d) Class A shares are not subject to a CDSC, except that certain purchases of
$1,000,000 or more that are not subject to an initial sales charge may
instead be subject to a CDSC of 1.0% of amounts redeemed within the first
year of purchase. Such CDSC may be waived in connection with certain
fee-based programs.
(e) The CDSC may be modified in connection with certain fee-based programs.
(f) See "Comparison of the Funds--Management."
(g) See "Comparison of the Funds--Purchase of Shares."
(h) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
(i) Pursuant to the Management Agreement between Global Growth Fund and MLAM,
Global Growth Fund pays MLAM a monthly fee at the annual rate of 0.75% of
the average daily net assets not exceeding $1.5 billion, and 0.725% of the
average daily net assets in excess of $1.5 billion. After the
Reorganization, the management fee paid by the Combined Fund will be at
Global Growth Fund's lower rate. Assuming the total net assets after the
Reorganization were approximately $2.4 billion, the effective management fee
rate paid by the Combined Fund would be 0.74%.
5
<PAGE> 9
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF GLOBAL HOLDINGS,
GLOBAL GROWTH FUND
AND THE COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
--------------------------------------------- ----------------------------------
ACTUAL ACTUAL
------------------------------ ----------------------
GLOBAL PRO FORMA GLOBAL GLOBAL PRO FORMA
GLOBAL HOLDINGS GROWTH FUND COMBINED HOLDINGS GROWTH FUND COMBINED
--------------- ------------ ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) None None None 5.25% (a) 5.25% (a) 5.25% (a)
Sales Charge Imposed on Dividend
Reinvestments None None None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) 1.0% for one 1.0% for one 1.0% for one None (c) None (c) None (c)
year(b) year(b) year(b)
Exchange Fee None None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF TOTAL NET ASSETS):
Management Fees(d) 1.00% 0.74% 0.74% 1.00% 0.74% 0.74%
12b-1 Fees(e):
Account Maintenance Fees 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution Fees 0.75% 0.75% 0.75% None None None
Other Expenses:
Stockholder Servicing Costs(f) 0.29% 0.09% 0.09% 0.29% 0.09% 0.09%
Other 0.19% 0.10% 0.09% 0.19% 0.10% 0.09%
----- --- --- ----- ------ -----
Total Other Expenses 0.48% 0.19% 0.18% 0.48% 0.19% 0.18%
----- --- --- ----- ------ -----
Total Fund Operating Expenses(g) 2.48% 1.93% 1.92% 1.73% 1.18% 1.17%
===== === === ===== ====== =====
</TABLE>
- ---------------
(a) Reduced for Class D purchases of $25,000 and over. Like Class A purchases,
certain Class D purchases of $1,000,000 or more may not be subject to an
initial sales charge. See "Comparison of the Funds--Purchase of Shares."
(b) The CDSC may be waived in connection with certain fee-based programs.
(c) Like Class A shares, Class D shares are not subject to a CDSC, except that
purchases of $1,000,000 or more that are not subject to an initial sales
charge may instead be subject to a CDSC of 1.0% of amounts redeemed within
the first year after purchase. Such CDSC may be waived in connection with
certain fee-based programs.
(d) See "Comparison of the Funds--Management."
(e) See "Comparison of the Funds--Purchase of Shares."
(f) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent."
(g) Pursuant to a Management Agreement between Global Growth Fund and MLAM,
Global Growth Fund pays MLAM a monthly fee at the annual rate of 0.75% of
average daily net assets not exceeding $1.5 billion and 0.725% of average
daily net assets in excess of $1.5 billion. After the Reorganization, the
management fee paid by the Combined Fund will be at Global Growth Fund's
lower rate. Assuming the total net assets after the Reorganization were
approximately $2.4 billion, the effective management fee rate paid by the
Combined Fund would be 0.74%.
6
<PAGE> 10
EXAMPLES:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIOD OF:
-----------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class A
shares only) and assuming (1) the Total
Fund Operating Expenses set forth on page
5 for the relevant Fund, (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period
(including any applicable
CDSC for Class B shares):
Global Holdings $67 $97 $129 $220 $65 $97 $132 $263*
Global Growth Fund 61 81 101 161 60 81 104 206*
Combined Fund+ 61 80 101 160 60 80 104 205*
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Global Holdings $67 $97 $129 $220 $25 $77 $132 $263*
Global Growth Fund 61 81 101 161 20 61 104 206*
Combined Fund+ 61 80 101 160 20 60 104 205*
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIOD OF:
-----------------------------------------------------------------------------
CLASS C SHARES CLASS D SHARES
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class D
shares only) and assuming (1) the Total
Fund Operating Expenses set forth on page
6 for the relevant Fund, (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period
(including any applicable
CDSC for Class C shares):
Global Holdings $35 $77 $132 $282 $69 $104 $141 $246
Global Growth Fund 30 61 104 225 64 88 114 188
Combined Fund+ 30 60 104 224 64 88 113 187
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Global Holdings $25 $77 $132 $282 $69 $104 $141 $246
Global Growth Fund 20 61 104 225 64 88 114 188
Combined Fund+ 20 60 104 224 64 88 113 187
</TABLE>
- ---------------
* Assumes conversion of Class B shares to Class D shares approximately eight
years after initial purchase.
+ Assuming the Reorganization had taken place on June 30, 1998.
7
<PAGE> 11
The foregoing Fee Tables are intended to assist investors in understanding
the costs and expenses that a Global Holdings or Global Growth Fund stockholder
bears directly or indirectly as compared to the costs and expenses that would be
borne by such investors taking into account the Reorganization. The Examples set
forth above assume reinvestment of all dividends and distributions and utilize a
5% annual rate of return as mandated by Commission regulations. THE EXAMPLES
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLES. See "Summary," "The
Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization" and "Comparison of the Funds--Management," "--Purchase of
Shares" and "--Redemption of Shares."
BUSINESS OF GLOBAL HOLDINGS Global Holdings was incorporated under the laws of
the State of Maryland on March 7, 1984 and
commenced operations on July 2, 1984. Global
Holdings is a diversified, open-end management
investment company.
As of June 30, 1998, Global Holdings had net assets
of $362,706,779.
BUSINESS OF GLOBAL GROWTH
FUND Global Growth Fund was incorporated under the laws
of the State of Maryland on August 4, 1997 and
commenced operations on October 31, 1997. Global
Growth Fund is a diversified, open-end management
investment company.
As of June 30, 1998, Global Growth Fund had net
assets of $1,996,561,044.
COMPARISON OF THE FUNDS Investment Objectives. The investment objectives
of Global Growth Fund and Global Holdings are
similar, but not identical. Global Growth Fund
seeks to provide stockholders with long-term growth
of capital, which it seeks to achieve by investing
in a diversified portfolio of equity securities of
issuers located in various foreign countries and
the United States, placing particular emphasis on
companies that have exhibited above average growth
rates in earnings.
Global Holdings seeks to provide stockholders with
the highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of
securities. Total investment return is the
aggregate of income and capital value changes. In
pursuing this objective, management of Global
Holdings will utilize a fully managed investment
policy which permits Global Holdings to take a
flexible investment approach and vary its policies
as to geographic diversification and types of
securities based upon its evaluation of economic
and market trends throughout the world.
Accordingly, investments may be shifted among the
various capital markets of the world and among
different types of equity, debt and convertible
securities depending upon management's outlook with
respect to prevailing trends and developments.
Investment Policies. Global Growth Fund invests,
under normal circumstances, at least 65% of its
total assets in equity securities of issuers from
at least three different countries. To a lesser
extent, Global Growth Fund may invest in securities
convertible into common stock, preferred stock,
rights to subscribe for common stock and other
investments the return on which is determined by
the performance of a particular common stock or a
basket or index of common stocks.
Global Holdings utilizes a fully managed investment
policy which permits the management of Global
Holdings to vary its policies as to
8
<PAGE> 12
geographic diversification and types of securities;
it is expected, however, that its assets will be
invested in several countries, primarily the United
States, Japan and Western European nations. Global
Holdings' current emphasis is placed on equity
securities, but substantial portions of its assets
may be invested in debt, convertible securities or
non-convertible preferred stocks.
Both Global Growth Fund and Global Holdings may
invest heavily in securities denominated in
currencies other than the United States dollar.
Each Fund may engage in various portfolio
strategies to seek to increase its return through
the use of options on portfolio securities and to
hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between
currencies.
Global Growth Fund and Global Holdings are each
subject to a fundamental investment restriction,
which provides that the Fund may borrow from banks
in amounts up to 33 1/3% of its total assets taken
at market value and may borrow an additional 5% of
its total assets for temporary purposes. As a
non-fundamental restriction, Global Holdings is
further limited and may not borrow amounts in
excess of 20% of its total assets taken at market
value, and then only from banks as a temporary
measure for extraordinary or emergency purposes.
Advisory Fees. The investment adviser for both
Global Holdings and Global Growth Fund is MLAM.
MLAM is responsible for the management of each
Fund's investment portfolio and for providing
administrative services to each Fund.
Lawrence A. Fuller serves as portfolio manager for
both Funds. Mr. Fuller has served as Portfolio
Manager of Global Growth Fund since its inception
(October 31, 1997) and was appointed Portfolio
Manager of Global Holdings in March 1998.
Pursuant to a management agreement between Global
Growth Fund and MLAM, Global Growth Fund pays MLAM
a monthly fee at the annual rate of 0.75% of the
average daily net assets of the Fund not exceeding
$1.5 billion and 0.725% of the average daily net
assets in excess of $1.5 billion; pursuant to a
management agreement between Global Holdings and
MLAM, Global Holdings pays MLAM a monthly fee at
the annual rate of 1.00% of the average daily net
assets of the Fund. Global Growth Fund pays
advisory fees at a lower rate than does Global
Holdings. After the Reorganization, the advisory
fee paid by the Combined Fund would be at Global
Growth Fund's lower rate. See "Summary--Pro Forma
Fee Tables" and "Comparison of the
Funds--Management."
MLAM has retained Merrill Lynch Asset Management
U.K. Limited ("MLAM U.K.") as sub-adviser to each
of the Funds. Pursuant to a separate sub-advisory
agreement between MLAM and MLAM U.K. with respect
to each Fund, MLAM pays MLAM U.K. a fee for
providing investment advisory services to MLAM with
respect to each Fund, in an amount to be determined
from time to time by MLAM and MLAM U.K. but in no
event in excess of the amount MLAM actually
receives for providing services to each Fund
pursuant to each management agreement.
9
<PAGE> 13
Class Structure. Each Fund offers four classes of
shares under the Merrill Lynch Select Pricing(SM)
System. The Class A, Class B, Class C and Class D
shares issued by Global Growth Fund are identical
in all respects to the Class A, Class B, Class C
and Class D shares issued by Global Holdings,
except that they represent ownership interests in a
different investment portfolio. See "Comparison of
the Funds--Purchase of Shares."
Overall Expense Ratio. The overall operating
expense ratio for Class A shares as of June 30,
1998 was 1.48% for Global Holdings and 0.93% for
Global Growth Fund. If the Reorganization had taken
place on that date, the overall operating expense
ratio for Class A shares of the Combined Fund on a
pro forma basis would have been 0.92%.
The foregoing expense ratios are for Class A
shares. Such ratios would differ for Class B, Class
C and Class D shares as a result of class specific
distribution and account maintenance expenditures.
See "Summary--Pro Forma Fee Tables."
Purchase of Shares. Shares of Global Growth Fund
are offered continuously for sale to the public in
substantially the same manner as shares of Global
Holdings. See "Comparison of the Funds--Purchase of
Shares."
Redemption of Shares. The redemption procedures
for shares of Global Growth Fund are substantially
the same as the redemption procedures for shares of
Global Holdings. For purposes of computing any CDSC
that may be payable upon disposition of
Corresponding Shares of Global Growth Fund acquired
by Global Holdings stockholders in the
Reorganization, the holding period of Global
Holdings shares outstanding on the date the
Reorganization takes place will be "tacked" onto
the holding period of the Corresponding Shares of
Global Growth Fund acquired in the Reorganization.
See "Comparison of the Funds--Redemption of
Shares."
Dividends and Distributions. Global Holdings'
policies with respect to dividends and
distributions are substantially the same as those
of Global Growth Fund. See "Comparison of the
Funds--Dividends and Distributions."
Net Asset Value. Both Global Holdings and Global
Growth Fund determine net asset value of each class
of shares once daily 15 minutes after the close of
business on the New York Stock Exchange (the
"NYSE") (generally, 4:00 p.m. New York time), on
each day during which the NYSE is open for trading.
Both Funds compute net asset value per share in the
same manner. See "Comparison of the
Funds--Additional Information--Net Asset Value."
Voting Rights. The corresponding voting rights of
the holders of shares of common stock of each Fund
are substantially the same. See "The
Reorganization--Comparison of the Funds--Capital
Stock."
Other Significant Considerations. Stockholder
services, including exchange privileges, available
to Global Holdings and Global Growth Fund
stockholders are substantially the same. See
"Comparison of the Funds--Additional
Information--Stockholder Services." An automatic
dividend reinvestment plan is available to
stockholders of each Fund. The plans are identical.
See "Comparison of the Funds--Automatic
10
<PAGE> 14
Dividend Reinvestment Plan." Other stockholder
services, including the provision of annual and
semi-annual reports, are the same for both Funds.
See "Comparison of the Funds--Stockholder
Services."
TAX CONSIDERATIONS Global Holdings and Global Growth Fund jointly have
requested a private letter ruling from the IRS with
respect to the Reorganization to the effect that,
among other things, neither Global Holdings nor
Global Growth Fund will recognize gain or loss on
the transaction, and Global Holdings stockholders
will not recognize gain or loss on the exchange of
their shares of Global Holdings stock for
Corresponding Shares of Global Growth Fund. The
consummation of the Reorganization is subject to
the receipt of such ruling. The Reorganization will
not affect the status of Global Growth Fund as a
regulated investment company. See "The
Reorganization--Tax Consequences of the
Reorganization."
11
<PAGE> 15
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Global Growth
Fund are substantially the same as those of Global Holdings. Such risks include
investing in derivative instruments, illiquid securities and unrated debt
securities as well as investing on an international basis. As a result of the
Reorganization, the risk factors applicable to Global Holdings will be modified
by (i) the elimination of the additional restriction on borrowing currently
applicable to Global Holdings and (ii) the short operating history of Global
Growth Fund, which commenced operations on October 31, 1997.
Investing on an International Basis. Because a substantial portion of each
Fund's assets may be invested in securities of non-U.S. issuers, investors
should be aware of certain risk factors and special considerations relating to
international investing, which may involve risks that are not typically
associated with investments in securities of U.S. issuers, including
fluctuations in foreign exchange rates, future political and economic
developments, different legal systems and the possible imposition of economic
sanctions, exchange controls or other foreign governmental laws or restrictions.
Securities prices in different countries are subject to different economic,
financial, political and social factors. Since both Funds invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in each Fund and the unrealized appreciation or depreciation of investments.
Currencies of certain countries may be volatile and, therefore, may affect the
value of securities denominated in such currencies. In addition, with respect to
certain foreign countries, there is the possibility of expropriation of assets,
confiscatory taxation, difficulty in obtaining or enforcing a court judgment,
economic, political or social instability or diplomatic developments that could
affect investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Certain foreign
investments also may be subject to foreign withholding taxes. These risks often
are heightened for investments in smaller, emerging capital markets.
As a result of these potential risks, MLAM may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. Global Growth Fund
may invest in countries in which foreign investors, including MLAM, have had no
or limited prior experience.
Many of the foreign securities held by the Funds will not be registered
with the Commission, nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign issuer than about a U.S. issuer and such foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of U.S. issuers. As a result,
traditional investment measurements, such as price/earnings ratios, as used in
the United States, may not be applicable to certain smaller, emerging foreign
capital markets. Foreign issuers, and issuers in smaller, emerging capital
markets in particular, may not be subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to domestic issuers.
Foreign financial markets, while often growing in trading volume, have, for
the most part, substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices may be more volatile
than securities of comparable domestic companies. Foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have failed to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Further, satisfactory custodial services for investment securities may not be
available in some countries that have smaller, emerging capital markets, which
may result in the Funds incurring additional costs and delays in transporting
and custodying such securities outside such countries. Delays in settlement
could result in periods when assets of the Funds are uninvested and no return is
earned thereon. The inability of the Funds to make intended security purchases
due to settlement problems or the risk of intermediary counterparty failures
could cause the Funds to miss attractive investment opportunities. The inability
to dispose of a portfolio security due to settlement problems could result
either in losses to the Funds due to subsequent declines in the value of
12
<PAGE> 16
such portfolio security or, if a contract to sell the security has been entered,
could result in possible liability to the purchaser.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under certain foreign
laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States.
Further, brokerage commissions and other transaction costs on foreign securities
exchanges generally are higher than in the United States.
Some countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as Global Growth Fund. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a company to only a specific class of
securities that may have less advantageous terms than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
In some countries, banks or other financial institutions may constitute a
substantial number of the leading companies or companies with the most actively
traded securities. The Investment Company Act limits a Fund's ability to invest
in any equity security of an issuer which, in its most recent fiscal year,
derived more than 15% of its revenues from "securities related activities," as
defined by the rules thereunder. These provisions may also restrict a Fund's
investments in certain foreign banks and other financial institutions.
Borrowing. Global Growth Fund and Global Holdings are each subject to a
fundamental investment restriction, which provides that each Fund may borrow
from banks in amounts up to 33 1/3% of its total assets taken at market value
and may borrow an additional 5% of its total assets for temporary purposes. The
Funds may borrow only from banks as a temporary measure for extraordinary or
emergency purposes, including to meet redemptions (so as not to force the Funds
to liquidate securities at a disadvantageous time) or to settle securities
transactions. Global Holdings will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise subscription
rights. Global Growth Fund will not purchase securities at any time when
borrowings exceed 5% of its total assets except to honor prior commitments or to
exercise subscription rights. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Funds. Such leveraging
increases a Fund's exposure to capital risk, and borrowed funds are subject to
interest costs that will reduce net income. As a non-fundamental restriction,
Global Holdings is further limited and may not borrow amounts in excess of 20%
of its total assets taken at market value and then only from banks as a
temporary measure for extraordinary or emergency purposes such as the redemption
of the shares of Global Holdings. After the Reorganization, the Combined Fund
will be able to borrow from banks in amounts up to 33 1/3% of its total assets.
The 20% limitation on borrowings applicable to Global Holdings will be
eliminated.
Derivative Investments. Each Fund may engage in transactions in certain
instruments that may be characterized as derivatives. These instruments include
various types of options, futures and options thereon. The Funds may engage in
these transactions for hedging purposes to enhance total return or to gain
exposure to equity markets.
Transactions involving options, futures, options on futures or currencies
may involve the loss of an opportunity to profit from a price movement in the
underlying asset beyond certain levels or a price increase on other portfolio
assets (in the case of transactions for hedging purposes) or expose the Funds to
potential losses that exceed the amount originally invested by each respective
Fund in such instruments.
Illiquid Securities. Global Growth Fund may invest up to 15% of its net
assets and Global Holdings may invest up to 15% of its total 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. Investment of a Fund's assets in illiquid securities may restrict the
ability of a Fund to dispose of its investments in a timely fashion and for a
fair price as well as its ability to take advantage of market opportunities. The
risks associated with illiquidity will be particularly acute in situations
13
<PAGE> 17
in which a Fund's operations require cash, such as when a Fund redeems shares or
pays dividends, and could result in a Fund borrowing to meet short-term cash
requirements or incurring capital losses on the sale of illiquid investments.
Further, issuers whose securities are not publicly traded are not subject to the
disclosure and other investor protection requirements that would be applicable
if their securities were publicly traded. In making investments in such
securities, a Fund may obtain access to material nonpublic information which may
restrict the Fund's ability to conduct portfolio transactions in such
securities. In addition, each of the Funds may invest in privately placed
securities that may or may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale.
Withholding and Other Taxes. Income and capital gains on securities held
by the Funds may be subject to withholding and other taxes imposed by certain
jurisdictions, which would reduce the return to the respective Fund on those
securities. The Funds intend, unless ineligible, to elect to "pass-through" to
their respective shareholders the amount of foreign taxes paid by that Fund. The
taxes passed through to shareholders will be included in each shareholder's
income and could potentially be offset by either a deduction or a credit.
Certain shareholders, including non-U.S. shareholders, will not be entitled to
the benefit of a deduction or credit with respect to foreign taxes paid at the
Fund level. Non-U.S. shareholders may nevertheless be subject to withholding tax
on the foreign taxes included in their income. Other taxes, such as transfer
taxes, may be imposed on the Funds, but would not give rise to a credit or
deduction for shareholders.
14
<PAGE> 18
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
Global Growth Fund. The financial information in the table below is
unaudited and has been provided by MLAM. Financial information is not presented
prior to October 31, 1997 since no shares were publicly issued prior to that
date.
The following per share data and ratios have been derived from information
provided in Global Growth Fund's financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 31, 1997+ TO FEBRUARY 28, 1998
------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ---------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ---------- -------- --------
Investment income--net .03 .00++ .00++ .02
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.19 1.18 1.18 1.19
------- ---------- -------- --------
Total from investment operations 1.22 1.18 1.18 1.21
------- ---------- -------- --------
Net asset value, end of period $ 11.22 $ 11.18 $ 11.18 $ 11.21
======= ========== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share 12.20%(#) 11.80%(#) 11.80%(#) 12.10%(#)
======= ========== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses .95%** 1.97%** 1.98%** 1.20%**
======= ========== ======== ========
Investment income (loss)--net .96%** (.07)%** (.07)%** .70%**
======= ========== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $40,076 $1,084,580 $216,306 $196,406
======= ========== ======== ========
Portfolio turnover 14.61% 14.61% 14.61% 14.61%
======= ========== ======== ========
Average commission rate paid(##) $ .0257 $ .0257 $ .0257 $ .0257
======= ========== ======== ========
</TABLE>
- ---------------
<TABLE>
<C> <S>
+ Commencement of operations.
++ Amount is less than $(.01) per share.
* Total investment return excludes the effect of sales loads.
** Annualized.
# Aggregate total investment return.
## Includes commissions paid in foreign currencies, which have
been converted into U.S. dollars using the prevailing
exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
</TABLE>
Global Holdings. The financial information in the table below, except for
the six months ended May 31, 1998, which is unaudited, has been audited in
conjunction with the annual audits of the financial statements of Global
Holdings by Deloitte & Touche LLP, independent auditors.
15
<PAGE> 19
The following per share data and ratios have been derived from information
provided in Global Holdings' financial statements:
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED NOVEMBER 30,
MAY 31, --------------------------------------------------------------------------
1998 1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991
------------ -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 15.05 $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48
-------- -------- -------- -------- -------- -------- -------- --------
Investment income(loss)--net .03 (.02) .13 .05 .03 .04 .10 .16
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net 1.66 .86 1.87 1.52 .53 2.07 1.05 .53
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 1.69 .84 2.00 1.57 .56 2.11 1.15 .69
-------- -------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.02) -- (.01) (.01) -- (.10) (.21)
In excess of investment
income--net -- (.10) -- -- -- -- -- --
Realized gain on
investments--net (1.76) (.79) (.75) (.51) (.80) (.82) (.22) (.01)
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (1.76) (.91) (.75) (.52) (.81) (.82) (.32) (.22)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.98 $ 15.05 $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95
======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share 13.31%(#) 6.04% 15.20% 12.92% 4.39% 19.16% 10.67% 6.77%
======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.44%* 1.39% 1.37% 1.51% 1.44% 1.43% 1.49% 1.48%
======== ======== ======== ======== ======== ======== ======== ========
Investment income(loss)--net .39%* (.12)% .92% .41% .23% .32% (.19)% 1.31%
======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $343,859 $344,940 $398,310 $327,270 $330,132 $256,203 $166,947 $165,687
======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover 17.45% 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94%
======== ======== ======== ======== ======== ======== ======== ========
Average commission rate paid(##) $ .0227 $ .0013 $ .0063 -- -- -- -- --
======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
CLASS A
---------------------------------------------
FOR THE
SEVEN-MONTH
PERIOD ENDED FOR THE YEAR ENDED APRIL 30,
NOV. 30, ------------------------------
1990 1990 1989 1988
------------ -------- -------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 10.91 $ 11.79 $ 12.23 $ 16.90
-------- -------- -------- --------
Investment income(loss)--net .17 .20 .29 .43
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net (.30) .62 .88 (1.09)
-------- -------- -------- --------
Total from investment operations (.13) .82 1.17 (.66)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.13) (.21) (.34) (.37)
In excess of investment
income--net -- -- -- --
Realized gain on
investments--net (.17) (1.49) (1.27) (3.64)
-------- -------- -------- --------
Total dividends and distributions (.30) (1.70) (1.61) (4.01)
-------- -------- -------- --------
Net asset value, end of period $ 10.48 $ 10.91 $ 11.79 $ 12.23
======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share (1.45)%(#) 6.93% 10.99% (4.43)%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.59%* 1.49% 1.47% 1.31%
======== ======== ======== ========
Investment income(loss)--net 2.63%* 1.65% 2.04% 2.90%
======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $176,898 $187,843 $195,932 $249,736
======== ======== ======== ========
Portfolio turnover 34.44% 84.21% 102.77% 109.68%
======== ======== ======== ========
Average commission rate paid(##) -- -- -- --
======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
16
<PAGE> 20
GLOBAL HOLDINGS--FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------
FOR THE
SIX MONTHS
ENDED FOR THE YEAR ENDED NOVEMBER 30,
MAY 31, -------------------------------------------------------------------
1998 1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991
----------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.31 $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36
------- ------- ------- ------- ------- ------- ------- -------
Investment income (loss)--net (.04) (.17) (.02) (.08) (.10) (.08) (.03) .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.59 .84 1.79 1.47 .52 2.02 1.05 .54
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 1.55 .67 1.77 1.39 .42 1.94 1.02 .58
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- -- -- -- -- (.11)
Realized gain on investments--net (1.60) (.76) (.75) (.51) (.66) (.82) (.22) (.01)
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions (1.60) (.76) (.75) (.51) (.66) (.82) (.22) (.12)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 14.26 $ 14.31 $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 12.77%(#) 4.98% 13.97% 11.78% 3.32% 17.87% 9.58% 5.67%
======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.47%* 2.42% 2.40% 2.55% 2.48% 2.46% 2.52% 2.51%
======= ======= ======= ======= ======= ======= ======= =======
Investment income (loss)--net (.64)%* (1.11)% (.11)% (.63)% (.80)% (.72)% (1.19)% .25%
======= ======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $63,712 $66,791 $44,311 $44,387 $49,647 $34,241 $22,925 $24,960
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover 17.45% 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94%
======= ======= ======= ======= ======= ======= ======= =======
Average commission rate paid(##) $ .0227 $ .0103 $ .0063 -- -- -- -- --
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
CLASS B
----------------------------------------
FOR THE FOR THE
SEVEN-MONTH FOR THE PERIOD OCT.
PERIOD ENDED YEAR ENDED 21, 1988+ TO
NOV. 30, APRIL 30, APRIL 30,
1990 1990 1989
------------ ---------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.82 $ 11.74 $ 11.29
------- ------- -------
Investment income (loss)--net .10 .16 .06
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.30) .55 .93
------- ------- -------
Total from investment operations (.20) .71 .99
------- ------- -------
Less dividends and distributions:
Investment income--net (.09) (.14) (.15)
Realized gain on investments--net (.17) (1.49) (.39)
------- ------- -------
Total dividends and distributions (.26) (1.63) (.54)
------- ------- -------
Net asset value, end of period $ 10.36 $ 10.82 $ 11.74
======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share (2.08)%(#) 5.91% 9.10%(#)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.63%* 2.53% 2.50%*
======= ======= =======
Investment income (loss)--net 1.54%* .65% .10%*
======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $22,623 $16,342 $ 1,476
======= ======= =======
Portfolio turnover 34.44% 84.21% 102.77%
======= ======= =======
Average commission rate paid(##) -- -- --
======= ======= =======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on the average shares outstanding during the period.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
17
<PAGE> 21
GLOBAL HOLDINGS--FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
-------------------------------------------------------------------- -----------
FOR THE
FOR THE PERIOD OCT. FOR THE
SIX MONTHS FOR THE YEAR ENDED 21, SIX MONTHS
ENDED NOVEMBER 30, 1994+ TO ENDED
MAY 31, ------------------------------ NOV. 30, MAY 31,
1998 1997 1996 1995 1994 1998
----------- ------ ------ ------ --------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $14.28 $14.41 $13.38 $12.51 $13.08 $ 14.97
------ ------ ------ ------ ------ -------
Investment income (loss)--net (.04) (.17) (.01) (.08) (.02) .01
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net 1.59 .83 1.79 1.46 (.55) 1.66
------ ------ ------ ------ ------ -------
Total from investment operations 1.55 .66 1.78 1.38 (.57) 1.67
------ ------ ------ ------ ------ -------
Less dividends and distributions:
Investment income--net -- --+++ -- -- -- --
In excess of investment
income--net -- --+++ -- -- -- --
Realized gain on
investments--net (1.63) (.79) (.75) (.51) -- (1.73)
------ ------ ------ ------ ------ -------
Total dividends and distributions (1.63) (.79) (.75) (.51) -- (1.73)
------ ------ ------ ------ ------ -------
Net asset value, end of period $14.20 $14.28 $14.41 $13.38 $12.51 $ 14.91
====== ====== ====== ====== ====== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 12.75%(#) 4.96% 14.05% 11.69% (4.36)%(#) 13.17%(#)
====== ====== ====== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.48%* 2.43% 2.41% 2.55% 3.00%* 1.69%*
====== ====== ====== ====== ====== =======
Investment income (loss)--net (.63)%* (1.09)% (.09)% (.63)% (1.31)%* .16%*
====== ====== ====== ====== ====== =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $6,519 $5,964 $ 910 $ 376 $ 177 $10,382
====== ====== ====== ====== ====== =======
Portfolio turnover 17.45% 54.50% 41.14% 44.64% 40.18% 17.45%
====== ====== ====== ====== ====== =======
Average commission rate paid(##) $.0227 $.0103 $.0063 -- -- $ .0227
====== ====== ====== ====== ====== =======
<CAPTION>
CLASS D++
---------------------------------------------------
FOR THE
PERIOD OCT.
FOR THE YEAR ENDED 21,
NOVEMBER 30, 1994+ TO
------------------------------ NOV. 30,
1997 1996 1995 1994
------ ------ ------ ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $15.04 $13.84 $12.81 $13.39
------ ------ ------ ------
Investment income (loss)--net (.06) .09 .02 (.01)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net .87 1.86 1.52 (.57)
------ ------ ------ ------
Total from investment operations .81 1.95 1.54 (.58)
------ ------ ------ ------
Less dividends and distributions:
Investment income--net (.01) -- --+++ --
In excess of investment
income--net (.08) -- -- --
Realized gain on
investments--net (.79) (.75) (.51) --
------ ------ ------ ------
Total dividends and distributions (.88) (.75) (.51) --
------ ------ ------ ------
Net asset value, end of period $14.97 $15.04 $13.84 $12.81
====== ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share 5.80% 14.86% 12.73% (4.33)%(#)
====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.64% 1.63% 1.76% 2.23%*
====== ====== ====== ======
Investment income (loss)--net (.39)% .60% .18% (.67)%*
====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $8,486 $4,688 $3,459 $1,591
====== ====== ====== ======
Portfolio turnover 54.50% 41.14% 44.64% 40.18%
====== ====== ====== ======
Average commission rate paid(##) $.0103 $.0063 -- --
====== ====== ====== ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
18
<PAGE> 22
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives. The investment objectives of Global Growth Fund and
Global Holdings are similar, but not identical. Global Growth Fund seeks to
provide stockholders with long-term growth of capital, which it seeks to achieve
by investing in a diversified portfolio of equity securities of issuers located
in various foreign countries and the United States, placing particular emphasis
on companies that have exhibited above-average growth rates in earnings. Global
Holdings seeks to provide stockholders with the highest total investment return
consistent with prudent risk through worldwide investment in an internationally
diversified portfolio of securities. Total investment return is the aggregate of
income and capital value changes. In pursuing this objective, management of
Global Holdings will utilize a fully managed investment policy which permits
Global Holdings to take a flexible investment approach and vary its policies as
to geographic diversification and types of securities based upon its evaluation
of economic and market trends throughout the world. Accordingly, investments may
be shifted among the various capital markets of the world and among different
types of equity, debt and convertible securities depending upon management's
outlook with respect to prevailing trends and developments.
There can be no assurance that, after the Reorganization, Global Growth
Fund will achieve its investment objective.
Investment Policies Generally. Global Growth Fund invests, under normal
circumstances, at least 65% of its total assets in equity securities of issuers
from at least three different countries. To a lesser extent, Global Growth Fund
may invest in securities convertible into common stock, preferred stock, rights
to subscribe for common stock and other investments the return on which is
determined by the performance of a particular common stock or a basket or index
of common stocks. Global Holdings utilizes a fully managed investment policy
which permits the Fund's management to vary its policies as to geographic
diversification and types of securities, but it is expected that its assets will
be invested in several countries, primarily the United States, Japan and Western
European nations. Global Holdings' current emphasis is placed on equity
securities, but substantial portions of its assets may be invested in debt,
convertible securities or non-convertible preferred stocks. Both Global Growth
Fund and Global Holdings may invest heavily in securities denominated in
currencies other than the U.S. dollar.
In addition, each Fund may engage in various portfolio strategies to seek
to increase its return through the use of options on portfolio securities and to
hedge its portfolio against movements in the equity markets, interest rates and
exchange rates between currencies.
MLAM believes that the securities currently held in the Global Holdings
portfolio are consistent with the investment objectives and policies of Global
Growth Fund and are not prohibited by the investment restrictions of Global
Growth Fund. Global Growth Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Global Holdings acquired in the Reorganization,
except for dispositions made in the ordinary course of business.
A more specific comparison of the investment policies of Global Holdings
and Global Growth Fund follows.
Securities. Under normal market conditions, at least 65% of Global Growth
Fund's total assets will be invested in equity securities of issuers from at
least three different countries. Issuers may achieve above-average growth rates
in earnings from a variety of factors including, but not limited to,
above-average growth rates in sales, profit margin improvement, proprietary or
niche products or services, leading market shares and underlying strong industry
growth. Management of Global Growth Fund believes that companies which possess
above-average earnings growth frequently provide the prospect of above-average
stock market returns, although such companies tend to have higher relative stock
market valuations. Emphasis also will be given to companies having medium to
large stock market capitalizations ($2 billion or more). Investment in companies
with lower market capitalizations, especially those under $1 billion, may
involve special risks, including limited product lines, limited market or
financial resources or a limited management group. In addition, many smaller
company stocks trade less frequently and in smaller volume, and may be subject
to
19
<PAGE> 23
more abrupt or erratic price movements or may be more sensitive to market
fluctuations, than stocks of larger companies.
Global Growth Fund will emphasize investments in equity securities,
primarily common stock, and, to a lesser extent, securities convertible into
common stock, preferred stock, rights to subscribe for common stock and other
investments the return on which is determined by the performance of a common
stock or a basket or index of common stocks. Global Growth Fund reserves the
right, as a defensive measure and to provide for redemptions, to hold other
types of securities, including non-convertible preferred stocks and debt
securities rated investment grade by a nationally recognized statistical rating
organization, U.S. Government and money market securities, including repurchase
agreements, or cash, in such proportions as, in the opinion of MLAM, prevailing
market or economic conditions warrant.
Global Holdings invests in a diversified international portfolio of
companies located throughout the world. There are no prescribed limits on
geographic asset distribution and Global Holdings has the authority to invest in
any country in the world. Global Holdings' assets have been invested in several
countries, primarily the United States, Japan and Western European nations. The
allocation of Global Holdings' assets among the various securities markets of
the world is determined by MLAM. In making the allocation of assets among the
securities markets, MLAM considers such factors as the condition and growth
potential of the various economies and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Under certain adverse investment conditions, Global Holdings may
restrict the securities markets in which its assets will be invested and may
increase the proportion of assets invested in the U.S. securities markets. While
investment emphasis of Global Holdings has been placed on equity securities or
securities convertible into equities, substantial portions of Global Holdings'
assets may be invested in debt or convertible securities.
Temporary Investments. Global Growth 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, Global Growth 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 MLAM determines that economic or
financial conditions are adverse for holding or being fully invested in equity
securities. A portion of the Global Growth Fund normally would be held in
Temporary Investments in anticipation of investment in equity securities or to
provide for possible redemptions. Global Holdings also reserves the right, as a
temporary defensive measure and to provide for redemptions, to hold cash or cash
equivalents (in U.S. dollars or foreign currencies) and short-term securities
including money market securities. In the case of Global Holdings, no limit is
stated as to the percentage of assets which may be invested in such Temporary
Investments.
Depositary Receipts. Each of Global Growth Fund and Global Holdings 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 securities markets. GDRs are tradable both in the U.S. and in Europe
and are designed for use throughout the world. Global Growth 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.
20
<PAGE> 24
Warrants. Global Growth Fund may invest in warrants. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle their holders to purchase, and they do not represent any
rights in the assets of the issuer. In addition, warrants involve the risk that
the price of the security underlying the warrant may not exceed the exercise
price of the warrant and the warrant may expire without any value.
Convertible Securities. Each of the Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest generally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities have several unique investment
characteristics such as (i) higher yields than common stocks, but lower yields
than comparable nonconvertible securities, (ii) a lesser degree of fluctuation
in value than the underlying stock since they have fixed-income characteristics
and (iii) the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by one of the
Funds is called for redemption, the Fund may be required to permit the issuer to
redeem the security, convert it into the underlying common stock or sell it to a
third party.
Illiquid Securities. Global Growth Fund may invest up to 15% of its net
assets and Global Holdings may invest up to 15% of its total 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. Investment of a Fund's assets in illiquid securities may restrict the
ability of that 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
Fund may invest in securities of issuers that are sold in private placement
transactions between the issuers and their purchasers and that are neither
listed on an exchange nor traded in other established markets. In many cases,
privately placed securities will be subject to contractual or legal restrictions
on transfer.
No Rating Criteria for Debt Securities. Neither Fund has established any
rating criteria for the debt securities in which it may invest and such
securities may not be rated at all for creditworthiness. Securities rated in the
medium to low rating categories of nationally recognized statistical rating
organizations and unrated securities of comparable quality are speculative with
respect to the capacity to pay interest and repay principal in accordance with
the terms of the security and generally involve a greater volatility of price
than securities in higher rating categories. Neither Fund intends to purchase
debt securities that are in default.
OTHER INVESTMENT POLICIES
Both Global Holdings and Global Growth Fund have adopted certain other
investment policies as set forth below:
Borrowings. Global Growth Fund and Global Holdings are each subject to a
fundamental investment restriction, which provides that the Fund may borrow from
banks in amounts up to 33 1/3% of its total assets taken at market value and may
borrow an additional 5% of its total assets for temporary purposes. As a non-
fundamental restriction, Global Holdings is further limited and may not borrow
amounts in excess of 20% of its total assets taken at market value and then only
from banks as a temporary measure for extraordinary or emergency purposes. See
"Summary--Comparison of the Funds--Investment Policies."
Hedging Techniques; Investment Practices Involving the Use of Options,
Futures and Other Portfolio Strategies. Each of Global Growth Fund and Global
Holdings may engage in various portfolio strategies to hedge its portfolio
against investment, interest rate and currency risks. For a description of
hedging instruments and risks associated with investment therein, see
"Investment Objective and Policies--Other Investment Policies and Practices" in
the Global Holdings Prospectus and the Global Growth Fund Prospectus.
21
<PAGE> 25
Standby Commitment Agreements. Global Growth Fund may from time to time
enter into standby commitment agreements. For a description of standby
commitment agreements and the risks associated with investment therein, see
"Investment Objective and Policies--Other Investment Policies and Practices" in
the Global Growth Fund Prospectus.
Repurchase Agreements. Global Growth Fund may enter into repurchase
agreements. For a description of repurchase agreements and the risks associated
with investment therein, see "Investment Objective and Policies--Other
Investment Policies and Practices" in the Global Growth Fund Prospectus.
When-Issued Securities and Delayed Delivery Transactions. Global Growth
Fund may purchase or sell securities on a delayed delivery basis or on a
when-issued basis at fixed purchase or sale terms. For a description of
when-issued securities and delayed delivery transactions, including the risks
associated with investment therein, see "Investment Objective and
Policies--Other Investment Policies and Practices" in the Global Growth Fund
Prospectus.
Lending of Portfolio Securities. Each Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
INFORMATION REGARDING OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
Each Fund may engage in certain investment practices including the use of
options, futures and foreign exchange. Global Growth Fund may utilize these
strategies for hedging purposes, to enhance total return or to gain exposure to
equity markets. Global Holdings may engage in such transactions to hedge its
portfolio against investment, interest rate and currency risks. Each Fund has
authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put options on securities and engage in transactions in
stock index options, stock index futures and financial futures, and related
options on such futures. Each Fund may also deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures.
The investment policies of each Fund with respect to futures and options
transactions are not fundamental policies and may be modified by the Board of
Directors of each Fund without the approval of the Fund's stockholders. Each
Fund is subject to the restrictions of the Commodity Futures Trading Commission
with respect to its investments in futures and options thereon.
For a detailed discussion of the Funds' investment policies regarding
futures and options, including the risks associated therewith, see "Investment
Objective and Policies--Other Investment Policies and Practices--Portfolio
Strategies Involving Options and Futures" in the Global Holdings Prospectus and
"Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Strategies Involving Options and Futures" in the Global
Growth Fund Prospectus.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds--Investment
Objectives and Policies," Global Holdings and Global Growth Fund have identical
investment restrictions. See "Investment Objective and Policies--Investment
Restrictions" in the Global Growth Fund Statement and "Investment Objective and
Policies--Investment Restrictions" in the Global Holdings Statement.
MANAGEMENT
Directors. The Board of Directors of Global Growth Fund consists of seven
individuals, six of whom are not "interested persons" as defined in the
Investment Company Act. The Board of Directors of Global Holdings consists of
six individuals, five of whom are not "interested persons" as defined in the
Investment Company Act. Three individuals, Arthur Zeikel, Donald Cecil and
Edward H. Meyer, serve on both Boards. After the Reorganization, the Board of
Directors of Global Growth Fund will serve as the Board of Directors of the
Combined Fund. The Directors are responsible for the overall supervision of the
operation of each Fund
22
<PAGE> 26
and perform the various duties imposed on the directors of investment companies
by the Investment Company Act.
The Directors of Global Growth Fund are:
ARTHUR ZEIKEL*--Chairman of MLAM and its affiliate, Fund Asset Management,
L.P.; Chairman and Director of Princeton Services, Inc.; and Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.").
DONALD CECIL--Special Limited Partner of Cumberland Associates (an
investment partnership).
M. COLYER CRUM--James R. Williston Professor of Investment Management
Emeritus, Harvard Business School.
EDWARD H. MEYER--Chairman of the Board of Directors, President and Chief
Executive Officer of Grey Advertising Inc.
JACK B. SUNDERLAND--President and Director of American Independent Oil
Company, Inc. (an energy company).
J. THOMAS TOUCHTON--Managing Partner of the Witt-Touchton Company (a
private investment partnership).
FRED G. WEISS--Managing Director of FGW Associates; and Director of Noven
Corporation (a pharmaceutical company).
- ---------------
* Interested person, as defined by the Investment Company Act, of each of the
Funds.
Management and Advisory Arrangements. MLAM serves as the manager for both
Global Holdings and Global Growth Fund pursuant to separate management
agreements (each, a "Management Agreement") that, except for their fee
structures and certain minor differences, are identical.
Pursuant to the Management Agreement between Global Growth Fund and MLAM,
Global Growth Fund pays MLAM a monthly fee at the annual rate of 0.75% of the
average daily net assets of the Fund not exceeding $1.5 billion and 0.725% of
the average daily net assets in excess of $1.5 billion. After the
Reorganization, the Combined Fund will pay the management fee rate paid by
Global Growth Fund. Pursuant to the Management Agreement between Global Holdings
and MLAM, Global Holdings pays MLAM a monthly fee at the annual rate of 1.00% of
the average daily net assets of the Fund. Assuming the total net assets after
the Reorganization were $2.4 billion, the effective fee rate paid by the
Combined Fund would be 0.74%. The advisory fee paid by the Combined Fund would
be at a lower rate than the management fee rate paid by Global Holdings prior to
the Reorganization.
MLAM has retained MLAM U.K. as sub-adviser to each of Global Holdings and
Global Growth Fund. Pursuant to a separate sub-advisory agreement between MLAM
and MLAM U.K. with respect to each Fund, MLAM pays MLAM U.K. a fee for providing
investment advisory services to MLAM with respect to each Fund, in an amount to
be determined from time to time by MLAM and MLAM U.K. but in no event in excess
of the amount MLAM actually receives for providing services to each Fund
pursuant to each Management Agreement. The address of MLAM U.K. is Milton Gate,
1 Moor Lane, London EC2Y 9HA, England.
After the Reorganization, on a pro forma combined basis, the total
operating expenses of Global Growth Fund, as a percent of net assets, would be
less than the current operating expenses of Global Holdings. In addition,
certain fixed costs, such as costs of printing stockholder reports and proxy
statements, legal expenses, audit fees, registration fees, mailing costs and
other expenses would be spread across a larger asset base, thereby lowering the
expense ratio borne by Global Holdings stockholders. The Board of Directors of
each of the Funds has determined that the Reorganization would be potentially
beneficial to that Fund and the Fund's stockholders. See "The
Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization" and "Summary--Pro Forma Fee Tables."
23
<PAGE> 27
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares of
Global Holdings are substantially the same as those of Global Growth Fund. For a
complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto, see "Merrill Lynch Select Pricing(SM)
System" and "Purchase of Shares" in either the Global Growth Fund Prospectus or
the Global Holdings Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Global Growth Fund is substantially
the same as the procedure for redeeming shares of Global Holdings. For purposes
of computing any CDSC that may be payable upon disposition of Corresponding
Shares of Global Growth Fund acquired by Global Holdings stockholders in the
Reorganization, the holding period of Global Holdings shares outstanding on the
date the Reorganization takes place will be tacked onto the holding period of
the Corresponding Shares of Global Growth Fund acquired in the Reorganization.
PERFORMANCE
General. The following tables provide performance information for each
class of shares of Global Holdings and Global Growth Fund, including and
excluding maximum applicable sales charges, for the periods indicated. Past
performance is not indicative of future performance.
24
<PAGE> 28
GLOBAL GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8 months ended 6/30/98+ 25.00 18.44 24.20 20.20 24.20 23.20 24.80 18.25
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum contingent deferred sales
charge ("CDSC") on Class B shares is 4.0% and is reduced to 0% after four
years. Class C shares are subject to a 1.0% CDSC for one year.
+ Aggregate total returns. Figures are since inception (October 31, 1997).
GLOBAL HOLDINGS
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7 months ended 6/30/98+ 13.00 7.07 12.37 8.37 12.28 11.28 12.86 6.94
Year Ended 11/30/97 6.04 0.47 4.98 0.99 4.96 3.96 5.80 0.24
Five Years Ended 11/30/97 11.40 10.21 10.25 10.25 -- -- -- --
Inception** through 11/30/97 12.62 12.17 8.68 8.68 8.23 8.23 9.09 7.21
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum CDSC on Class B shares is
4.0% and is reduced to 0% after four years. Class C shares are subject to a
1.0% CDSC for one year.
** Class A shares commenced operations on July 2, 1984. Class B shares commenced
operations on October 21, 1988. Class C and Class D shares commenced
operations on October 21, 1994.
+ Aggregate total returns.
STOCKHOLDER RIGHTS
Stockholders of Global Growth Fund are entitled to one vote for each share
held and fractional votes for fractional shares held and will vote on the
election of Directors and any other matter submitted to a stockholder vote.
Global Growth Fund does not intend to hold meetings of stockholders in any year
in which the Investment Company Act does not require stockholders to act upon
any of the following matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of distribution arrangements; and
(iv) ratification of selection of independent accountants. Voting rights for
Directors are not cumulative. Shares of Global Growth Fund to be issued to
Global Holdings stockholders in the Reorganization will be fully paid and
non-assessable, will have no preemptive rights and will have the conversion
rights described in this Prospectus and Proxy Statement and in the Global Growth
Fund Prospectus. Each share of Global Growth Fund common stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities, except that Class B, Class C and Class D shares bear
certain additional expenses. Rights attributable to shares of Global Holdings
are identical to those described above.
DIVIDENDS AND DISTRIBUTIONS
The current policy of Global Holdings with respect to dividends and
distributions is substantially identical to the policy of Global Growth Fund. It
is each Fund's intention to distribute all of its net investment income, if any.
In addition, each Fund distributes all net realized capital gains, if any, to
stockholders at least annually.
25
<PAGE> 29
TAX INFORMATION
The tax consequences associated with investment in shares of Global
Holdings are substantially identical to the tax consequences associated with
investment in shares of Global Growth Fund.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the
same for both Global Holdings and Global Growth Fund. For a discussion of these
procedures, see "Investment Objective and Policies--Other Investment Policies
and Practices" in the Global Growth Fund Prospectus and "Portfolio Transactions
and Brokerage" in the Global Growth Fund Statement.
Each Fund may effect portfolio transactions on foreign securities exchanges
and may incur settlement delays on certain of such exchanges. In addition, costs
associated with transactions in foreign securities are generally higher than
such costs associated with transactions in U.S. securities.
PORTFOLIO TURNOVER
Generally, neither Global Holdings nor Global Growth Fund purchases
securities for short-term trading profits. However, either Fund may dispose of
securities without regard to the time that they have been held when such action,
for defensive or other reasons, appears advisable to MLAM. Neither Fund has any
limit on its rate of portfolio turnover. The portfolio turnover rates for Global
Holdings for its fiscal years ended November 30, 1996 and 1997 were 41.14% and
54.50%, respectively. The portfolio turnover rate for Global Growth Fund for the
period October 31, 1997 (commencement of operations) to February 28, 1998 was
14.61%. Higher portfolio turnover may contribute to higher transactional costs
and negative tax consequences, such as an increase in capital gain dividends or
in ordinary income dividends of accrued market discount.
ADDITIONAL INFORMATION
Net Asset Value. Both Global Holdings and Global Growth Fund determine net
asset value of each class of its shares once daily 15 minutes after the close of
business on the NYSE (generally, 4:00 p.m. New York time), on each day during
which the NYSE is open for trading. Net asset value is computed by dividing the
market value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time.
Stockholder Services. Global Growth Fund offers a number of stockholder
services and investment plans designed to facilitate investment in shares of the
Fund. In addition, U.S. stockholders of each class of shares of Global Growth
Fund have an exchange privilege with certain other MLAM-advised mutual funds.
Stockholder services, including exchange privileges, available to stockholders
of Global Holdings and Global Growth Fund are substantially identical. For a
description of these services, see "Stockholder Services" in the Global Growth
Fund Prospectus.
Independent Auditors. Currently Ernst & Young LLP serves as the
independent auditors of Global Growth Fund and Deloitte & Touche LLP serves as
the independent auditors of Global Holdings. If the Reorganization is approved,
it is anticipated that Ernst & Young LLP will serve as the independent auditors
of the Combined Fund.
Custodian. State Street Bank and Trust Company ("State Street") acts as
custodian of the cash and securities of Global Growth Fund. The principal
business address of State Street is P.O. Box 351, Boston, Massachusetts 02101.
The Chase Manhattan Bank ("Chase") acts as custodian for Global Holdings.
Chase's principal business address is 4 Chase MetroTech Center, Brooklyn, New
York 11245. It is presently anticipated that State Street will serve as the
custodian of the Combined Fund.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing
Agent. Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent with respect to each Fund (the "Transfer Agent"), at
the
26
<PAGE> 30
same fee schedule, pursuant to separate transfer agency, dividend disbursing and
service agreements with each of the Funds.
Capital Stock. Global Holdings has an authorized capital of 400,000,000
shares of common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D common stock, each of which
consists of 100,000,000 shares. Global Growth Fund has an authorized capital of
600,000,000 shares of common stock, par value $0.10 per share, divided into four
classes, also 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. The rights, preferences and expenses
attributable to the Class A, Class B, Class C and Class D shares of Global
Holdings are identical in all respects to those of the Class A, Class B, Class C
and Class D shares of Global Growth Fund.
Stockholder Inquiries. Stockholder inquiries with respect to Global
Holdings and Global Growth Fund may be addressed to either Fund by telephone at
(609) 282-2800 or at the address set forth on the cover page of this Proxy
Statement and Prospectus.
THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
I), Global Growth Fund will acquire substantially all of the assets, and will
assume substantially all of the liabilities, of Global Holdings, in exchange
solely for an equal aggregate value of shares to be issued by Global Growth
Fund. Upon receipt by Global Holdings of such shares, Global Holdings will
distribute the shares to the holders of shares of Global Holdings, as described
below.
Generally, the assets transferred by Global Holdings to Global Growth Fund
will equal all investments of Global Holdings held in its portfolio as of the
Valuation Time (as defined in the Agreement and Plan of Reorganization) and all
other assets of Global Holdings as of such time.
Global Holdings will distribute the shares of Global Growth Fund received
by it pro rata to its stockholders in exchange for such stockholders'
proportional interests in Global Holdings. The shares of Global Growth Fund
received by Global Holdings stockholders will be of the same class and have the
same aggregate net asset value as each such stockholder's interest in Global
Holdings as of the Valuation Time (previously defined as the "Corresponding
Shares"). (See "The Agreement and Plan of Reorganization--Valuation of Assets
and Liabilities" for information concerning the calculation of net asset value.)
The distribution will be accomplished by opening new accounts on the books of
Global Growth Fund in the names of all stockholders of Global Holdings,
including stockholders holding Global Holdings shares in certificate form, and
transferring to each stockholder's account the Corresponding Shares of Global
Growth Fund representing such stockholder's interest previously credited to the
account of Global Holdings. Stockholders holding Global Holdings shares in
certificate form may receive certificates representing the Corresponding Shares
of Global Growth Fund credited to their account in respect of such Global
Holdings shares by sending the certificates to the Transfer Agent accompanied by
a written request for such exchange.
Since the Corresponding Shares of Global Growth Fund would be issued at net
asset value in exchange for the net assets of Global Holdings having a value
equal to the aggregate net asset value of those shares of Global Holdings, the
net asset value per share of Global Growth Fund should remain virtually
unchanged solely as a result of the Reorganization. Thus, the Reorganization
should result in virtually no dilution of net asset value of Global Growth Fund
immediately following consummation of the Reorganization. However, as a result
of the Reorganization, a stockholder of Global Holdings likely would hold a
smaller percentage of ownership in Global Growth Fund than he or she did in
Global Holdings prior to the Reorganization.
PROCEDURE
On April 15, 1998, the Board of Directors of Global Holdings, including a
majority of the Directors who are not "interested persons," as defined by the
Investment Company Act, approved the Agreement and Plan of
27
<PAGE> 31
Reorganization and the submission of such Agreement and Plan to Global Holdings
stockholders for approval. The Board of Directors of Global Growth Fund,
including all of the Directors who are not interested persons, also approved the
Agreement and Plan of Reorganization on August 4, 1998.
If the stockholders of Global Holdings approve the Reorganization at the
Meeting, all required regulatory approvals are obtained and certain conditions
are either met or waived, it is presently anticipated that the Reorganization
will take place during the first calendar quarter of 1999.
THE BOARD OF DIRECTORS OF GLOBAL HOLDINGS RECOMMENDS THAT GLOBAL HOLDINGS
STOCKHOLDERS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Global
Holdings and Global Growth Fund will be valued as of the Valuation Time. The
assets in each Fund will be valued according to the procedures set forth under
"Additional Information--Determination of Net Asset Value" in the Global Growth
Fund Prospectus. Purchase orders for Global Holdings shares which have not been
confirmed as of the Valuation Time will be treated as assets of Global Holdings
for purposes of the Reorganization; redemption requests with respect to Global
Holdings shares which have not settled as of the Valuation Time will be treated
as liabilities of Global Holdings for purposes of the Reorganization.
Distribution of Global Growth Fund Shares. On the next full business day
following the Valuation Time (the "Exchange Date"), Global Growth Fund will
issue to Global Holdings a number of shares the aggregate net asset value of
which will equal the aggregate net asset value of shares of Global Holdings as
of the Valuation Time. Each holder of Global Holdings shares will receive, in
exchange for his or her proportionate interest in Global Holdings, Corresponding
Shares of Global Growth Fund of the same class and having the same aggregate net
asset value as the Global Holdings shares held by such stockholder as of the
Valuation Time.
Expenses. The expenses of the Reorganization that are directly
attributable to each Fund and the conduct of its business will be deducted from
the assets of that Fund as of the Valuation Time. These expenses are expected to
include the expenses incurred in preparing materials to be distributed to each
Fund's board, legal fees incurred in preparing each Fund's board materials,
attending each Fund's board meetings and preparing the minutes, and accounting
fees associated with each Fund's financial statements. The expenses of the
Reorganization that are attributable to the transaction itself, including
expenses in connection with obtaining the IRS private letter ruling, will be
borne pro rata by each Fund according to its net assets as of the Valuation
Time. These expenses are expected to include expenses incurred in connection
with the preparation of the Agreement and Plan of Reorganization and the
Registration Statement on Form N-14 (including the Prospectus and Proxy
Statement), Commission and other filing fees and legal and audit fees in
connection with the Reorganization.
Required Approvals. Under Global Holdings' Articles of Incorporation (as
amended to date) and relevant Maryland law, stockholder approval of the
Agreement and Plan of Reorganization requires the affirmative vote of Global
Holdings stockholders representing a majority of the total number of votes
entitled to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Global Holdings to Global Growth Fund and the distribution of
Corresponding Shares of Global Growth Fund to Global Holdings stockholders,
Global Holdings will terminate its registration under the Investment Company Act
and its incorporation under Maryland law and will withdraw its authority to do
business in any state where it is required to do so.
28
<PAGE> 32
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of Global Holdings and Global Growth Fund pursuant to
the Agreement and Plan of Reorganization are subject to various conditions,
including a registration statement on Form N-14 being declared effective by the
Commission, approval of the Reorganization by Global Holdings stockholders, a
favorable IRS private letter ruling being received as to tax matters, an opinion
of counsel being received as to securities matters and the continuing accuracy
of various representations and warranties of Global Holdings and Global Growth
Fund being confirmed by the respective parties.
Termination, Postponement and Waivers. The Agreement and Plan of
Reorganization may be terminated, and the Reorganization abandoned at any time,
whether before or after adoption thereof by the Global Holdings stockholders,
prior to the Exchange Date or the Exchange Date may be postponed: (i) by mutual
consent of the Boards of Directors of Global Holdings and Global Growth Fund;
(ii) by the Board of Directors of Global Holdings if any condition to Global
Holdings' obligations has not been fulfilled or waived by such Board; or (iii)
by the Board of Directors of Global Growth Fund if any condition to Global
Growth Fund's obligations has not been fulfilled or waived by such Board.
POTENTIAL BENEFITS TO STOCKHOLDERS AS A RESULT OF THE REORGANIZATION
MLAM and the Board of Directors of Global Holdings have identified certain
potential benefits to stockholders that are likely to result from the
Reorganization. First, following the Reorganization, Global Holdings
stockholders will remain invested in an open-end fund that has an investment
objective similar, although not identical, to that of Global Holdings. In
addition, Global Holdings stockholders are likely to experience certain
additional benefits, including lower expenses per share, economies of scale and
greater flexibility in portfolio management.
Specifically, as described above under "Comparison of the
Funds--Management--Management and Advisory Fees," after the Reorganization, on a
pro forma basis, Global Growth Fund will pay an advisory fee to MLAM at a lower
annual rate than that currently paid by Global Holdings and the total operating
expenses of Global Growth Fund after the Reorganization, as a percent of net
assets, would be less than the current operating expenses for Global Holdings.
See "Summary--Pro Forma Fee Tables." In addition, certain fixed costs, such as
costs of printing stockholder reports and proxy statements, legal expenses,
audit fees, registration fees, mailing costs and other expenses would be spread
across a larger asset base, thereby lowering the expense ratio borne by Global
Holdings stockholders. To illustrate the potential economies of scale for Global
Holdings, on June 30, 1998, the total operating expense ratio for Global
Holdings Class A shares was 1.48% (based on total fund net assets of
approximately $362.7 million) and the total operating expense ratio for Global
Growth Fund Class A shares was 0.93% (based on total fund net assets of
approximately $2.0 billion). If the Reorganization had taken place on that date,
the total operating expense ratio for Global Growth Fund Class A shares on a pro
forma basis would have been 0.92% (based on total fund net assets of
approximately $2.4 billion).
The following table sets forth (i) the net assets of Global Holdings for
the last three fiscal year ends and as of June 30, 1998 and (ii) the net assets
of Global Growth Fund as of October 31, 1997 and as of June 30, 1998.
<TABLE>
<CAPTION>
GLOBAL GROWTH FUND GLOBAL HOLDINGS
- ------------------------------- ----------------------------
PERIOD NET ASSETS PERIOD NET ASSETS
- --------------- -------------- -------------- ------------
<S> <C> <C> <C>
As of 10/31/97* $1,203,296,899 As of 11/30/95 $375,492,407
As of 6/30/98 $1,996,561,044 As of 11/30/96 $448,219,330
As of 11/30/97 $426,181,034
As of 6/30/98 $362,706,779
</TABLE>
- ---------------
* Global Growth Fund commenced operations on October 31, 1997.
The net assets of Global Holdings as of June 30, 1998 are below the level
reached at fiscal year end November 30, 1995 and have been steadily decreasing
since fiscal year end November 30, 1996. MLAM
29
<PAGE> 33
believes that the economies of scale that may be realized as a result of the
Reorganization would be beneficial to Global Holdings stockholders.
Based on the foregoing, the Board of Directors of Global Holdings concluded
that the Reorganization presents no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above. In approving the Reorganization, the Board of Directors of each Fund
determined that the interests of existing stockholders of that Fund would not be
diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Global Holdings and Global Growth Fund have
elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Global Growth Fund intends to continue
to so qualify after the Reorganization. Global Holdings and Global Growth Fund
have jointly requested a private letter ruling from the IRS to the effect that
for Federal income tax purposes: (i) the Reorganization, as described, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code and Global Holdings and Global Growth Fund will each be deemed a "party" to
the Reorganization within the meaning of Section 368(b); (ii) in accordance with
Section 354(a)(1) of the Code, no gain or loss will be recognized by the
stockholders of Global Holdings upon the receipt of Corresponding Shares of
Global Growth Fund in the Reorganization solely in exchange for their shares of
Global Holdings; (iii) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Corresponding Shares of Global
Growth Fund received by the stockholders of Global Holdings in the
Reorganization will be equal, in the aggregate, to the tax basis of the shares
of Global Holdings surrendered in exchange; (iv) in accordance with Section 1223
of the Code, the holding period of the Corresponding Shares of Global Growth
Fund received by stockholders of Global Holdings in the Reorganization will
include the holding period of the shares of Global Holdings immediately prior to
the liquidation of Global Holdings (provided that at the time of the
Reorganization the shares of Global Holdings were held as capital assets); (v)
in accordance with Section 361(a) of the Code, no gain or loss will be
recognized by Global Holdings on the asset transfer solely in exchange for
Global Growth Fund shares or on the distribution of Global Growth Fund shares to
Global Holdings stockholders under Section 361(c)(1); (vi) under Section 1032 of
the Code, no gain or loss will be recognized by Global Growth Fund on the
exchange of its shares for Global Holdings assets; (vii) in accordance with
Section 362(b) of the Code, the tax basis of the assets of Global Holdings in
the hands of Global Growth Fund will be the same as the tax basis of such assets
in the hands of Global Holdings immediately prior to the Reorganization; (viii)
in accordance with Section 1223 of the Code, the holding period of the
transferred assets in the hands of Global Growth Fund will include the holding
period of such assets in the hands of Global Holdings; and (ix) the taxable year
of Global Holdings will end on the effective date of the Reorganization and
pursuant to Section 381(a) of the Code and regulations thereunder, Global Growth
Fund will succeed to and take into account certain tax attributes of Global
Holdings, such as earnings and profits, capital loss carryovers and method of
accounting.
To the extent Global Growth Fund has unrealized capital gains at the time
of the Reorganization, Global Holdings stockholders may incur taxable gains in
the year that Global Growth Fund realizes and distributes those gains. This will
be true notwithstanding that the unrealized gains were reflected in the price of
Global Growth Fund shares at the time they were exchanged for assets of Global
Holdings in the Reorganization. Conversely, stockholders of Global Growth Fund
will share in unrealized capital gains of Global Holdings after the
Reorganization and bear a tax consequence on the subsequent realization of such
gains. Stockholders should consult their tax advisers regarding the effect of
the Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, stockholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Status as a Regulated Investment Company. Global Holdings has elected and
qualified and Global Growth Fund intends to elect and qualify to be taxed as a
regulated investment company under Sections 851-855 of the Code. After the
Reorganization, Global Growth Fund intends to continue to operate so as to
qualify
30
<PAGE> 34
as a regulated investment company. Following the liquidation and dissolution of
Global Holdings and distribution of shares of Global Growth Fund to Global
Holdings stockholders, Global Holdings will terminate its registration under the
Investment Company Act and its incorporation under Maryland law.
CAPITALIZATION
The following table sets forth as of June 30, 1998: (i) the capitalization
of Global Holdings, (ii) the capitalization of Global Growth Fund and (iii) the
pro forma capitalization of the Combined Fund as adjusted to give effect to the
Reorganization.
PRO FORMA CAPITALIZATION OF GLOBAL GROWTH FUND, GLOBAL HOLDINGS AND
COMBINED FUND AS OF JUNE 30, 1998 (UNAUDITED)
GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Total Net Assets: $ 83,241,993 $1,398,702,147 $279,052,833 $235,564,071
Shares Outstanding: 6,658,381 112,646,856 22,474,628 18,874,439
Net Asset Value Per Share: $ 12.50 $ 12.42 $ 12.42 $ 12.48
</TABLE>
GLOBAL HOLDINGS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Total Net Assets: $322,430,867 $ 29,947,957 $ 1,434,834 $ 8,893,121
Shares Outstanding: 21,580,528 2,108,039 101,462 598,038
Net Asset Value Per Share: $ 14.94 $ 14.21 $ 14.14 $ 14.87
</TABLE>
COMBINED FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Total Net Assets:* $372,510,922 $1,414,140,621 $278,050,214 $241,625,816
Shares Outstanding: 30,042,674 114,833,744 22,579,407 19,520,514
Net Asset Value Per Share:* $ 12.40 $ 12.31 $ 12.31 $ 12.38
</TABLE>
- ---------------
* Total Net Assets and Net Asset Value Per Share include the aggregate value of
Global Holdings' net assets which would have been transferred to Global Growth
Fund had the Reorganization been consummated on June 30, 1998. The data does
not take into account expenses incurred in connection with the Reorganization
or the actual number of shares that would have been issued. No assurance can
be given as to how many shares of Global Growth Fund the Global Holdings
stockholders will receive on the date the Reorganization takes place, and the
foregoing should not be relied upon to reflect the number of shares of Global
Growth Fund that actually will be received on or after such date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on November 5, 1998, at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at
9:00 a.m., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Secretary of Global Holdings. Although mere
attendance at the Meeting will not revoke a proxy, a stockholder present at the
Meeting may withdraw his proxy and vote in person.
31
<PAGE> 35
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies will
be voted in accordance with the judgment of the persons designated on such
proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Global Holdings at the close of
business on September 15, 1998 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were 21,457,974 shares of Global Holdings common stock issued and
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GLOBAL
HOLDINGS AND GLOBAL GROWTH FUND
To the knowledge of Global Holdings, as of the Record Date, no person or
entity owned beneficially or of record 5% or more of any class of shares of
Global Holdings or of all classes of Global Holdings shares in the aggregate.
At the Record Date, the Directors and officers of Global Holdings as a
group (12 persons) owned an aggregate of less than 1% of the outstanding shares
of Global Holdings and owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
To the knowledge of Global Growth Fund, as of September 17, 1998, no person
or entity owned beneficially or of record 5% or more of any class of shares of
Global Growth Fund or of all classes of Global Growth Fund shares in the
aggregate.
As of September 17, 1998, the Directors and officers of Global Growth Fund
as a group (13 persons) owned an aggregate of less than 1% of the outstanding
shares of Global Growth Fund and owned less than 1% of the outstanding shares of
common stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of Global Holdings is entitled to one vote. Approval of the Agreement and
Plan of Reorganization requires the affirmative vote of Global Holdings
stockholders representing a majority of the total votes entitled to be cast
thereon, with all shares voting as a single class.
Under Maryland law, stockholders of a registered open-end investment
company such as Global Holdings are not entitled to demand the fair value of
their shares upon a transfer of assets and will be bound by the terms of the
Reorganization if approved at the Meeting. However, any stockholder of Global
Holdings may redeem his or her Global Holdings shares prior to the
Reorganization.
A quorum for purposes of the Meeting consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for the Meeting, a quorum of Global Holdings' stockholders is not
present or if a quorum is present but sufficient votes in favor of the Agreement
and Plan of Reorganization are not received from the stockholders of Global
Holdings, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies from stockholders. Any
such adjournment will require the affirmative vote of a majority of the shares
of Global Holdings present in person or by proxy and entitled to vote at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that adjournment and
additional solicitation are reasonable and in the interests of the stockholders
of Global Holdings.
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<PAGE> 36
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Global Growth Fund and Global Holdings pro rata according to the
aggregate net assets of each Fund's portfolio on the date of Reorganization.
Such expenses are currently estimated to be $330,000.
Global Holdings will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of Global Holdings and will reimburse certain persons that
Global Holdings may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of Global
Holdings.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of Global Holdings. Global Holdings has retained D.F. King & Co., Inc.,
77 Water Street, New York, New York, 10005, to aid in the solicitation of
proxies, at a cost to be borne by Global Holdings of approximately $15,000, plus
out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding shares of Global
Holdings in "street name" for the benefit of their customers and clients will
request the instructions of such customers and clients on how to vote their
shares before the Meeting. Broker-dealer firms, including Merrill Lynch, will
not be permitted to vote without instructions with respect to the approval of
the Agreement and Plan of Reorganization. Properly executed proxies that are
returned but that are marked "abstain" or with respect to which a broker-dealer
has received no instructions and therefore has declined to vote on the proposal
("broker non-votes") will be counted as present for the purposes of determining
a quorum. However, abstentions and broker non-votes will have the same effect as
a vote against approval of the Agreement and Plan of Reorganization.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
Global Holdings and Global Growth Fund, respectively, have filed with the
Commission under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Global Holdings and Global Growth Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by Global Holdings and Global Growth Fund
can be inspected and copied at the public reference facilities of the Commission
in Washington, D.C. and at the New York Regional Office of the Commission at
Seven World Trade Center, New York, New York 10048. Copies of such materials
also can be obtained by mail from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information, the
Global Growth Fund Prospectus, the Global Holdings Prospectus, the Global Growth
Fund Statement, the Global Holdings Statement, other material incorporated by
reference and other information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Global Holdings or Global
Growth Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Global Holdings and Global Growth Fund by Brown & Wood LLP, One World
Trade Center, New York, New York 10048.
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EXPERTS
The financial highlights of Global Holdings included in this Proxy
Statement and Prospectus have been so included in reliance on the report of
Deloitte & Touche LLP, independent auditors, given on their authority as experts
in auditing and accounting. The principal business address of Deloitte & Touche
LLP is 117 Campus Drive, Princeton, New Jersey 08540. The independent auditors
for Global Growth Fund are Ernst & Young LLP. Ernst & Young LLP will serve as
the independent auditors for the Combined Fund after the Reorganization. The
principal business address of Ernst & Young LLP is P.O. Box 5321, 202 Carnegie
Center, Princeton, New Jersey 08543-5321.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent meeting
of stockholders of Global Holdings must be received by Global Holdings in a
reasonable time before Global Holdings begins to print and mail the proxy
solicitation materials to be utilized in connection with such meeting in order
to be considered in Global Holdings' proxy statement and form of proxy relating
to the meeting.
By Order of the Board of Directors,
Philip M. Mandel
Secretary, Merrill Lynch Global
Holdings, Inc.
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<PAGE> 38
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 21st day of September, 1998, by and between Merrill Lynch Global Growth
Fund, Inc., a Maryland corporation ("Global Growth"), and Merrill Lynch Global
Holdings, Inc., a Maryland corporation ("Global Holdings").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by Global Growth of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of Global Holdings in exchange solely for an equal aggregate value
of newly issued shares of Global Growth's common stock, with a par value of $.10
per share, and the subsequent distribution of Corresponding Shares (defined
below) of Global Growth to the stockholders of Global Holdings in exchange for
their shares of common stock of Global Holdings, each with a par value of $.10
per share, in liquidation of Global Holdings, all upon and subject to the terms
hereinafter set forth (the "Reorganization").
In the course of the Reorganization, shares of Global Growth will be
distributed to Global Holdings stockholders as follows: each holder of Global
Holdings shares will be entitled to receive that class of shares of Global
Growth having the same letter designation (e.g., Class A, Class B, Class C or
Class D), and the same distribution fees, account maintenance fees and sales
charges (including contingent deferred sales charges), if any ("Corresponding
Shares"), as the shares of Global Holdings owned by such stockholder on the
Exchange Date (as defined in Section 7 of this Agreement). The aggregate net
asset value of the Corresponding Shares of Global Growth to be received by each
stockholder of Global Holdings will equal the aggregate net asset value of the
Global Holdings shares owned by such stockholder on the Exchange Date. In
consideration therefor, on the Exchange Date, Global Growth shall acquire
substantially all of Global Holdings' assets and assume substantially all of
Global Holdings' obligations and liabilities then existing, whether absolute,
accrued, contingent or otherwise. It is intended that the Reorganization
described in this Plan shall be a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), and
any successor provision.
As promptly as practicable after the consummation of the Reorganization,
Global Holdings shall be dissolved in accordance with the laws of the State of
Maryland and will terminate its registration under the Investment Company Act of
1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Global Growth and Global Holdings hereby agree as follows:
1. Representations and Warranties of Global Growth.
Global Growth represents and warrants to, and agrees with, Global Holdings
that:
(a) Global Growth is a corporation duly organized, validly existing and in
good standing in conformity with the laws of the State of Maryland, and has the
power to own all of its assets and to carry out this Agreement. Global Growth
has all necessary Federal, state and local authorizations to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) Global Growth is duly registered under the 1940 Act as a diversified,
open-end management investment company (File No. 811-8327), and such
registration has not been revoked or rescinded and is in full force and effect.
Global Growth intends to elect and qualify for the special tax treatment
afforded regulated investment companies ("RICs") under Sections 851-855 of the
Code at all times since its inception and intends to continue to so qualify
until consummation of the Reorganization and thereafter.
<PAGE> 39
(c) Global Holdings has been furnished with an unaudited statement of
assets and liabilities and an unaudited schedule of investments of Global
Growth, each as of February 28, 1998. An unaudited statement of assets and
liabilities of Global Growth and an unaudited schedule of investments of Global
Growth, each as of the Valuation Time, will be furnished to Global Holdings at
or prior to the Exchange Date for the purpose of determining the number of
shares of Global Growth to be issued pursuant to Section 4 of this Agreement;
and each will fairly present the financial position of Global Growth as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) Global Holdings has been furnished with Global Growth's Semi-Annual
Report to Stockholders for the six months ended February 28, 1998, and the
unaudited financial statements appearing therein fairly present the financial
position of Global Growth as of the respective dates indicated in conformity
with generally accepted accounting principles.
(e) Global Holdings has been furnished with the prospectus and statement of
additional information of Global Growth, each dated March 6, 1998, and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(f) Global Growth has full power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Directors, and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Global Growth, threatened against it which
assert liability on the part of Global Growth or which materially affect its
financial condition or its ability to consummate the Reorganization. Global
Growth is not charged with or, to the best of its knowledge, threatened with any
violation or investigation of any possible violation of any provisions of any
Federal, state or local law or regulation or administrative ruling relating to
any aspect of its business.
(h) Global Growth is not a party to or obligated under any provision of its
Articles of Incorporation, or its by-laws, or any contract or other commitment
or obligation, and is not subject to any order or decree which would be violated
by its execution of or performance under this Agreement.
(i) There are no material contracts outstanding to which Global Growth is a
party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (l) below) or will not otherwise be disclosed to Global
Holdings prior to the Valuation Time.
(j) Global Growth has no known liabilities of a material amount, contingent
or otherwise, other than those shown on its statements of assets and liabilities
referred to above, those incurred in the ordinary course of its business as an
investment company since February 28, 1998; and those incurred in connection
with the Reorganization. As of the Valuation Time, Global Growth will advise
Global Holdings in writing of all known liabilities, contingent or otherwise,
whether or not incurred in the ordinary course of business, existing or accrued
as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Global Growth of the
Reorganization, except such as may be required under the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the 1940 Act or state securities laws (which term as used
herein shall include the laws of the District of Columbia and Puerto Rico).
(l) The registration statement filed by Global Growth on Form N-14 relating
to the shares of Global Growth to be issued pursuant to this Agreement which
includes the proxy statement of Global Holdings and the prospectus of Global
Growth with respect to the transaction contemplated herein, and any supplement
or amendment thereto or to the documents therein (as amended, the "N-14
Registration Statement"), on its
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effective date, at the time of the stockholders' meeting referred to in Section
6(a) of this Agreement and at the Exchange Date, insofar as it relates to Global
Growth (i) complied or will comply in all material respects with the provisions
of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and the prospectus
included therein did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection only shall apply to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by Global Growth for use in the N-14 Registration Statement as
provided in Section 6(e) of this Agreement.
(m) Global Growth is authorized to issue 600,000,000 shares of common
stock, par value $.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; each
outstanding share is fully paid and nonassessable and has full voting rights.
(n) Global Growth shares to be issued to Global Holdings pursuant to this
Agreement will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be fully paid and
nonassessable and will have full voting rights, and no stockholder of Global
Growth will have any preemptive right of subscription or purchase in respect
thereof.
(o) At or prior to the Exchange Date, Global Growth shares to be
transferred to Global Holdings for distribution to the stockholders of Global
Holdings on the Exchange Date will be duly qualified for offering to the public
in all states of the United States in which the sale of shares of Global Growth
presently are qualified, and there are a sufficient number of such shares
registered under the 1933 Act and, as may be necessary, with each pertinent
state securities commission to permit the transfers contemplated by this
Agreement to be consummated.
(p) At or prior to the Exchange Date, Global Growth will have obtained any
and all regulatory, Director and stockholder approvals necessary to issue the
shares of Global Growth to Global Holdings.
2. Representations and Warranties of Global Holdings.
Global Holdings represents and warrants to, and agrees with, Global Growth
that:
(a) Global Holdings is a corporation duly organized, validly existing and
in good standing in conformity with the laws of the State of Maryland, and has
the power to own all of its assets and to carry out this Agreement. Global
Holdings has all necessary Federal, state and local authorizations to carry on
its business as it is now being conducted and to carry out this Agreement.
(b) Global Holdings is duly registered under the 1940 Act as a diversified,
open-end management investment company (File No. 811-4351), and such
registration has not been revoked or rescinded and is in full force and effect.
Global Holdings has elected and qualified for the special tax treatment afforded
RICs under Sections 851-855 of the Code at all times since its inception, and
intends to continue to so qualify for its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "Investments" shall mean (i) the
investments of Global Holdings shown on the schedule of its investments as of
the Valuation Time (as defined in Section 3(c) of this Agreement) furnished to
Global Growth, with such additions thereto and deletions therefrom as may have
arisen in the course of Global Holdings' business up to the Valuation Time; and
(ii) all other assets owned by Global Holdings or liabilities incurred as of the
Valuation Time.
(d) Global Holdings has full power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Directors and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium,
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fraudulent conveyance and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto.
(e) Global Growth has been furnished with a statement of assets and
liabilities and a schedule of investments of Global Holdings, each as of
November 30, 1997, said financial statements having been examined by Deloitte &
Touche LLP, independent public accountants. An unaudited statement of assets and
liabilities of Global Holdings and an unaudited schedule of investments of
Global Holdings, each as of the Valuation Time, will be furnished to Global
Growth at or prior to the Exchange Date for the purpose of determining the
number of shares of Global Growth to be issued pursuant to Section 4 of this
Agreement; and each will fairly present the financial position of Global
Holdings as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(f) Global Growth has been furnished with Global Holdings' Annual Report to
Stockholders for the year ended November 30, 1997 and the Semi-Annual Report to
Stockholders for the six months ended May 31, 1998, and the financial statements
appearing therein fairly present the financial position of Global Holdings as of
the dates indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(g) Global Growth has been furnished with the prospectus and statement of
additional information of Global Holdings, each dated March 5, 1998, and said
prospectus and statement of additional information do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Global Holdings, threatened against it which
assert liability on the part of Global Holdings or which materially affect its
financial condition or its ability to consummate the Reorganization. Global
Holdings is not charged with or, to the best of its knowledge, threatened with
any violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business.
(i) There are no material contracts outstanding to which Global Holdings is
a party that have not been disclosed in the N-14 Registration Statement or will
not otherwise be disclosed to Global Growth prior to the Valuation Time.
(j) Global Holdings is not a party to or obligated under any provision of
its Articles of Incorporation, as amended, or its by-laws, as amended, or any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement.
(k) Global Holdings has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets and
liabilities referred to above, those incurred in the ordinary course of its
business as an investment company since May 31, 1998 and those incurred in
connection with the Reorganization. As of the Valuation Time, Global Holdings
will advise Global Growth in writing of all known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business, existing
or accrued as of such time.
(l) Global Holdings has filed, or has obtained extensions to file, all
Federal, state and local tax returns which are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the taxable year in which the Exchange Date occurs. All tax
liabilities of Global Holdings have been adequately provided for on its books,
and no tax deficiency or liability of Global Holdings has been asserted and no
question with respect thereto has been raised by the Internal Revenue Service or
by any state or local tax authority for taxes in excess of those already paid,
up to and including the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, Global Holdings will
have full right, power and authority to sell, assign, transfer and deliver the
Investments. At the Exchange Date, subject only to the delivery of the
Investments as contemplated by this Agreement, Global Holdings will have good
and
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marketable title to all of the Investments, and Global Growth will acquire all
of the Investments free and clear of any encumbrances, liens or security
interests and without any restrictions upon the transfer thereof (except those
imposed by the Federal or state securities laws and those imperfections of title
or encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Global Holdings of
the Reorganization, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act or state securities laws.
(o) The N-14 Registration Statement, on its effective date, at the time of
the stockholders' meeting referred to in Section 6(a) of this Agreement and on
the Exchange Date, insofar as it relates to Global Holdings (i) complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the prospectus included therein did not or will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall apply only to statements
in or omissions from the N-14 Registration Statement made in reliance upon and
in conformity with information furnished by Global Holdings for use in the N-14
Registration Statement as provided in Section 6(e) of this Agreement.
(p) Global Holdings is authorized to issue 400,000,000 shares of common
stock, par value $.10 per share, divided into four classes, designated Class A,
Class B, Class C and Class D Common Stock, each of which consists of 100,000,000
shares, each outstanding share of which is fully paid and nonassessable and has
full voting rights.
(q) The books and records of Global Holdings made available to Global
Growth and/or its counsel are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of Global
Holdings.
(r) Global Holdings will not sell or otherwise dispose of any of the shares
of Global Growth to be received in the Reorganization, except in distribution to
the stockholders of Global Holdings.
3. The Reorganization.
(a) Subject to receiving the requisite approval of the stockholders of
Global Holdings, and to the other terms and conditions contained herein, Global
Holdings agrees to convey, transfer and deliver to Global Growth and Global
Growth agrees to acquire from Global Holdings, on the Exchange Date, all of the
Investments (including interest accrued as of the Valuation Time on debt
instruments) of Global Holdings, and assume substantially all of the liabilities
of Global Holdings, in exchange solely for that number of shares of Global
Growth provided in Section 4 of this Agreement. Pursuant to this Agreement, as
soon as practicable Global Holdings will distribute all shares of Global Growth
received by it to its stockholders in exchange for their corresponding Global
Holdings shares. Such distribution shall be accomplished by the opening of
stockholder accounts on the stock ledger records of Global Growth in the amounts
due the stockholders of Global Holdings based on their respective holdings in
Global Holdings as of the Valuation Time.
(b) Global Holdings will pay or cause to be paid to Global Growth any
interest it receives on or after the Exchange Date with respect to the
Investments transferred to Global Holdings hereunder.
(c) The Valuation Time shall be 4:00 P.M., New York time, on February 19,
1999, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(d) Global Growth will acquire substantially all of the assets of, and
assume substantially all of the known liabilities of, Global Holdings, except
that recourse for such liabilities will be limited to the net assets of Global
Holdings acquired by Global Growth. The known liabilities of Global Holdings as
of the Valuation Time shall be confirmed in writing to Global Growth by Global
Holdings pursuant to Section 2(k) of this Agreement.
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(e) Global Growth and Global Holdings will jointly file Articles of
Transfer with the State Department of Assessments and Taxation of Maryland and
any other such instrument as may be required by the State of Maryland to effect
the transfer of the Investments of Global Holdings to Global Growth.
(f) Global Holdings will be dissolved following the Exchange Date by filing
Articles of Dissolution with the State Department of Assessments and Taxation of
Maryland.
4. Issuance and Valuation of Shares of Global Growth in the Reorganization.
Full shares of Global Growth, and to the extent necessary, fractional
shares of Global Growth, of an aggregate net asset value equal to the net asset
value of the assets of Global Holdings acquired, determined as hereinafter
provided, reduced by the amount of liabilities of Global Holdings assumed by
Global Growth, shall be issued by Global Growth in exchange for such assets of
Global Holdings. The net asset value of Global Holdings and Global Growth shall
be determined in accordance with the procedures described in the prospectus of
Global Growth as of the Valuation Time. Such valuation and determination shall
be made by Global Growth in cooperation with Global Holdings. Global Growth
shall issue its Class A, Class B, Class C and Class D shares to Global Holdings
in certificates or share deposit receipts (one in respect of each class)
registered in the name of Global Holdings. Global Holdings shall distribute
Corresponding Shares of Global Growth to its stockholders by redelivering such
certificates to Financial Data Services, Inc.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) Global Growth shall pay all expenses incurred which are
attributable solely to Global Growth and the conduct of its business, (ii)
Global Holdings shall pay all expenses incurred which are attributable solely to
Global Holdings and the conduct of its business and (iii) Global Growth and
Global Holdings shall pay, subsequent to the Exchange Date and pro rata
according to each Fund's net assets on the Exchange Date, all expenses incurred
in connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. Covenants of Global Growth and Global Holdings.
(a) Global Holdings agrees to call a special meeting of the stockholders of
Global Holdings as soon as is practicable after the effective date of the N-14
Registration Statement for the purpose of considering the Reorganization as
described in this Agreement, and it shall be a condition to the obligations of
each of the parties hereto that the holders of a majority of the shares of
Global Holdings issued and outstanding and entitled to vote thereon, shall have
approved this Agreement at such a meeting at or prior to the Valuation Time.
(b) Global Growth and Global Holdings each covenants to operate the
business of Global Growth and Global Holdings, respectively, as presently
conducted between the date hereof and the Exchange Date.
(c) Global Holdings agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of any
Global Growth shares other than to the stockholders of Global Holdings and
without first paying or adequately providing for the payment of all of Global
Holdings' liabilities not assumed by Global Growth, if any, and on and after the
Exchange Date it shall not conduct any business except in connection with its
dissolution.
(d) Global Holdings undertakes that if the Reorganization is consummated,
it will file an application pursuant to Section 8(f) of the 1940 Act for an
order declaring that Global Holdings has ceased to be a registered investment
company.
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(e) Global Growth will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Global Growth and Global Holdings agree to cooperate
fully with each other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration Statement as
required by the 1933 Act, the 1934 Act and the 1940 Act, and the rules and
regulations thereunder and the state securities laws.
(f) Global Growth has no plan or intention to sell or otherwise dispose of
the assets of Global Holdings to be acquired in the Reorganization, except for
dispositions made in the ordinary course of business.
(g) Global Holdings and Global Growth each agrees that by the Exchange Date
all of its Federal and other tax returns and reports required to be filed on or
before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been provided
for the payment of such taxes. In connection with this covenant, the funds agree
to cooperate with each other in filing any tax return, amended return or claim
for refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. Global Growth agrees to retain for a period of ten (10) years following
the Exchange Date all returns, schedules and work papers and all material
records or other documents relating to tax matters of Global Holdings for its
taxable period first ending after the Exchange Date and for all prior taxable
periods. Any information obtained under this subsection shall be kept
confidential except as otherwise may be necessary in connection with the filing
of returns or claims for refund or in conducting an audit or other proceeding.
After the Exchange Date, Global Holdings shall prepare, or cause its agents to
prepare, any Federal, state or local tax returns, including any Forms 1099,
required to be filed by Global Holdings with respect to Global Holdings' final
taxable year ending with its complete liquidation and for any prior periods or
taxable years and further shall cause such tax returns and Forms 1099 to be duly
filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by Global
Holdings (other than for payment of taxes) in connection with the preparation
and filing of said tax returns and Forms 1099 after the Exchange Date shall be
borne by Global Holdings to the extent such expenses have been accrued by Global
Holdings in the ordinary course without regard to the Reorganization; any excess
expenses shall be borne by Merrill Lynch Asset Management, L.P. ("MLAM") at the
time such tax returns and Forms 1099 are prepared.
(h) Global Holdings agrees to mail to its stockholders of record entitled
to vote at the special meeting of stockholders at which action is to be
considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, Global Growth expects
to stay in existence and continue its business as a diversified, open-end
management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of Global Holdings to be transferred, together
with any other Investments, and the Global Growth shares to be issued, shall be
made at the offices of Brown & Wood LLP, One World Trade Center, New York, New
York 10048, at 10:00 A.M. on the next full business day following the Valuation
Time, or at such other place, time and date agreed to by Global Holdings and
Global Growth, the date and time upon which such delivery is to take place being
referred to herein as the "Exchange Date." To the extent that any Investments,
for any reason, are not transferable on the Exchange Date, Global Holdings shall
cause such Investments to be transferred to Global Growth's account with State
Street Bank and Trust Company at the earliest practicable date thereafter.
(b) Global Holdings will deliver to Global Growth on the Exchange Date
confirmations or other adequate evidence as to the tax basis of each of the
Investments delivered to Global Growth hereunder, certified by Deloitte & Touche
LLP.
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(c) As soon as practicable after the close of business on the Exchange
Date, Global Holdings shall deliver to Global Growth a list of the names and
addresses of all of the stockholders of record of Global Holdings on the
Exchange Date and the number of shares of Global Holdings owned by each such
stockholder, certified to the best of their knowledge and belief by the transfer
agent for Global Holdings or by its President.
8. Global Holdings Conditions.
The obligations of Global Holdings hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of the holders of a majority
of the shares of Global Holdings, issued and outstanding and entitled to vote
thereon, voting together as a single class, and by the Board of Directors of
Global Growth; and that Global Growth shall have delivered to Global Holdings a
copy of the resolution approving this Agreement adopted by Global Growth's Board
of Directors, certified by the Secretary of Global Growth.
(b) That Global Growth shall have furnished to Global Holdings a statement
of Global Growth's assets and liabilities, with values determined as provided in
Section 4 of this Agreement, together with a schedule of its investments, all as
of the Valuation Time, certified on Global Growth's behalf by its President (or
any Vice President) and its Treasurer, and a certificate signed by Global
Growth's President (or any Vice President) and its Treasurer, dated as of the
Exchange Date, certifying that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial position of
Global Growth since February 28, 1998, other than changes in its portfolio
securities since that date or changes in the market value of its portfolio
securities.
(c) That Global Growth shall have furnished to Global Holdings a
certificate signed by Global Growth's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that, as of the Valuation
Time and as of the Exchange Date all representations and warranties of Global
Growth made in this Agreement are true and correct in all material respects with
the same effect as if made at and as of such dates, and that Global Growth has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to each of such dates.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That Global Holdings shall have received an opinion of Brown & Wood
LLP, as counsel to both Global Growth and Global Holdings, in form and substance
satisfactory to Global Holdings and dated the Exchange Date, to the effect that
(i) each of Global Growth and Global Holdings is a corporation duly organized,
validly existing and in good standing in conformity with the laws of the State
of Maryland; (ii) the Corresponding Shares of Global Growth to be issued
pursuant to this Agreement are duly authorized and, upon delivery, will be
validly issued and outstanding and fully paid and nonassessable by Global
Growth, and no stockholder of Global Growth has any preemptive right to
subscription or purchase in respect thereof (pursuant to the Articles of
Incorporation or the by-laws of Global Growth or, to the best of such counsel's
knowledge, otherwise); (iii) this Agreement has been duly authorized, executed
and delivered by each of Global Growth and Global Holdings, and represents a
valid and binding contract, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws pertaining to the enforcement of creditors' rights generally and
court decisions with respect thereto; provided, such counsel shall express no
opinion with respect to the application of equitable principles in any
proceeding, whether at law or in equity; (iv) the execution and delivery of this
Agreement does not, and the consummation of the Reorganization will not, violate
any material provisions of the Articles of Incorporation, as amended, the
by-laws, as amended, or any agreement (known to such counsel) to which either
Global Growth or Global Holdings is a party or by which either Global Growth or
Global Holdings is bound, except insofar as the parties have agreed to amend
such provision as a condition precedent to the Reorganization or Maryland law;
(v) Global Holdings has the power to sell, assign, transfer and deliver the
assets transferred by it hereunder and, upon consummation of the Reorganization
in accordance with the terms of this Agreement, Global Holdings will have duly
transferred such assets and liabilities in accordance
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with this Agreement; (vi) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any United States federal court, Maryland
state court or governmental authority is required for the consummation by Global
Growth and Global Holdings of the Reorganization, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder and under Maryland law and
such as may be required under state securities laws; (vii) the N-14 Registration
Statement has become effective under the 1933 Act, no stop order suspending the
effectiveness of the N-14 Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the 1933 Act, and the N-14 Registration Statement, and each amendment or
supplement thereto, as of their respective effective dates, appear on their face
to be appropriately responsive in all material respects to the requirements of
the 1933 Act, the 1934 Act and the 1940 Act and the published rules and
regulations of the Commission thereunder; (viii) the descriptions in the N-14
Registration Statement of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the information
required to be shown; (ix) such counsel does not know of any statutes, legal or
governmental proceedings or contracts or other documents related to the
Reorganization of a character required to be described in the N-14 Registration
Statement which are not described therein or, if required to be filed, filed as
required; (x) neither Global Growth nor Global Holdings, to the knowledge of
such counsel, is required to qualify to do business as a foreign corporation in
any jurisdiction except as may be required by state securities laws, and except
where each has so qualified or the failure so to qualify would not have a
material adverse effect on Global Growth, Global Holdings or their respective
stockholders; (xi) such counsel does not have actual knowledge of any material
suit, action or legal or administrative proceeding pending or threatened against
Global Growth or Global Holdings, the unfavorable outcome of which would
materially and adversely affect Global Growth or Global Holdings; (xii) all
corporate actions required to be taken by Global Growth and Global Holdings to
authorize this Agreement and to effect the Reorganization have been duly
authorized by all necessary corporate actions on the part of Global Growth and
Global Holdings; and (xiii) such opinion is solely for the benefit of Global
Growth and Global Holdings and their Directors and officers. Such opinion also
shall state that (x) while such counsel cannot make any representation as to the
accuracy or completeness of statements of fact in the N-14 Registration
Statement or any amendment or supplement thereto, nothing has come to their
attention that would lead them to believe that, on the respective effective
dates of the N-14 Registration Statement and any amendment or supplement
thereto, (1) the N-14 Registration Statement or any amendment or supplement
thereto contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and (2) the prospectus included in the N-14
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(y) such counsel does not express any opinion or belief as to the financial
statements or other financial or statistical data relating to Global Growth or
Global Holdings contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, Brown & Wood LLP may state
that it is relying on certificates of officers of Global Growth and Global
Holdings with regard to matters of fact and certain certificates and written
statements of governmental officials with respect to the good standing of Global
Growth and Global Holdings.
(f) That Global Holdings shall have received a private letter ruling from
the Internal Revenue Service to the effect that for Federal income tax purposes
(i) the transfer of substantially all of the Investments of Global Holdings to
Global Growth in exchange solely for shares of Global Growth as provided in this
Agreement will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and Global Holdings and Global Growth will each be
deemed to be a "party" to the Reorganization within the meaning of Section
368(b); (ii) in accordance with Section 361(a) of the Code, no gain or loss will
be recognized to Global Holdings as a result of the asset transfer solely in
exchange for Global Growth shares or on the distribution of the Global Growth
stock to Global Holdings stockholders under Section 361(c)(1); (iii) under
Section 1032 of the Code, no gain or loss will be recognized to Global Growth on
the receipt of assets of Global Holdings in exchange for Global Growth shares;
(iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized to the stockholders of Global Holdings on the receipt of
Corresponding Shares of Global Growth in exchange for their shares of Global
Holdings; (v) in accordance
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with Section 362(b) of the Code, the tax basis of the Global Holdings assets in
the hands of Global Growth will be the same as the tax basis of such assets in
the hands of Global Holdings immediately prior to the consummation of the
Reorganization; (vi) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Corresponding Shares of Global
Growth received by the stockholders of Global Holdings in the Reorganization
will be equal, in the aggregate, to the tax basis of the shares of Global
Holdings surrendered in exchange; (vii) in accordance with Section 1223 of the
Code, a stockholder's holding period for the Corresponding Shares of Global
Growth will be determined by including the period for which such stockholder
held the shares of Global Holdings exchanged therefor, provided, that such
Global Holdings shares were held as a capital asset; (viii) in accordance with
Section 1223 of the Code, Global Growth's holding period with respect to the
Global Holdings assets transferred will include the period for which such assets
were held by Global Holdings; and (ix) the taxable year of Global Holdings will
end on the effective date of the Reorganization and pursuant to Section 381(a)
of the Code and regulations thereunder, Global Growth will succeed to and take
into account certain tax attributes of Global Holdings, such as earnings and
profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by Global Growth and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to Global Holdings.
(h) That the N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Global Growth, be contemplated by the
Commission.
(i) That Global Holdings shall have received from Ernst & Young LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to Global Holdings, to the effect that (i) they are
independent public accountants with respect to Global Growth within the meaning
of the 1933 Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements and supplementary information of
Global Growth included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; and (iii) on the basis of limited procedures
agreed upon by Global Holdings and Global Growth and described in such letter
(but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited interim financial statements
and unaudited supplementary information of Global Growth included in the N-14
Registration Statement, and inquiries of certain officials of Global Growth
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by Global Holdings and Global Growth and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to Global Growth
appearing in the N-14 Registration Statement, which information is expressed in
dollars (or percentages derived from such dollars) (with the exception of
performance comparisons, if any), if any, has been obtained from the accounting
records of Global Growth or from schedules prepared by officials of Global
Growth having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations made
therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Global Growth or would prohibit the Reorganization.
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(k) That Global Holdings shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Global Holdings,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
9. Global Growth Conditions.
The obligations of Global Growth hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Directors of Global Holdings and by
the affirmative vote of the holders of a majority of the shares of common stock
of Global Holdings issued and outstanding and entitled to vote thereon, voting
together as a single class; and that Global Holdings shall have delivered to
Global Growth a copy of the resolution approving this Agreement adopted by
Global Holdings' Board of Directors, and a certificate setting forth the vote
Global Holdings stockholders obtained, each certified by the Secretary of Global
Holdings.
(b) That Global Holdings shall have furnished to Global Growth a statement
of Global Holdings' assets and liabilities, with values determined as provided
in Section 4 of this Agreement, together with a schedule of investments with
their respective dates of acquisition and tax costs, all as of the Valuation
Time, certified on Global Holdings' behalf by its President (or any Vice
President) and its Treasurer, and a certificate signed by Global Holdings'
President (or any Vice President) and its Treasurer, dated as of the Exchange
Date, certifying that as of the Valuation Time and as of the Exchange Date there
has been no material adverse change in the financial position of Global Holdings
since May 31, 1998, other than changes in the Investments since that date or
changes in the market value of the Investments.
(c) That Global Holdings shall have furnished to Global Growth a
certificate signed by Global Holdings' President (or any Vice President) and its
Treasurer, dated the Exchange Date, certifying that as of the Valuation Time and
as of the Exchange Date all representations and warranties of Global Holdings
made in this Agreement are true and correct in all material respects with the
same effect as if made at and as of such dates and Global Holdings has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such dates.
(d) That Global Holdings shall have delivered to Global Growth a letter
from Deloitte & Touche LLP, dated the Exchange Date, stating that such firm has
performed a limited review of the Federal, state and local income tax returns of
Global Holdings for the period ended November 30, 1997 (which returns originally
were prepared and filed by Global Holdings), and that based on such limited
review, nothing came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the Federal, state
and local income taxes of Global Holdings for the period covered thereby; and
that for the period from December 1, 1997, to and including the Exchange Date
and for any taxable year of Global Holdings ending upon the liquidation of
Global Holdings, such firm has performed a limited review to ascertain the
amount of applicable Federal, state and local taxes, and has determined that
either such amount has been paid or reserves have been established for payment
of such taxes, this review to be based on unaudited financial data; and that
based on such limited review, nothing has come to their attention which caused
them to believe that the taxes paid or reserves set aside for payment of such
taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from December 1, 1997, to and
including the Exchange Date and for any taxable year of Global Holdings ending
upon the liquidation of Global Holdings or that Global Holdings would not
continue to qualify as a regulated investment company for Federal income tax
purposes for the tax years in question.
(e) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) That Global Growth shall have received an opinion of Brown & Wood LLP,
as counsel to both Global Growth and Global Holdings, in form and substance
satisfactory to Global Growth and dated the Exchange Date, with respect to the
matters specified in Section 8(e) of this Agreement and such other matters as
Global Growth reasonably may deem necessary or desirable.
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(g) That Global Growth shall have received a private letter ruling from the
Internal Revenue Service with respect to the matters specified in Section 8(f)
of this Agreement.
(h) That Global Growth shall have received from Deloitte & Touche LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to Global Growth, to the effect that (i) they are
independent public accountants with respect to Global Holdings within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the financial statements and supplementary
information of Global Holdings included or incorporated by reference in the N-14
Registration Statement and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder; (iii) on the basis of limited
procedures agreed upon by Global Holdings and Global Growth and described in
such letter (but not an examination in accordance with generally accepted
auditing standards) consisting of a reading of any unaudited interim financial
statements and unaudited supplementary information of Global Holdings included
in the N-14 Registration Statement, and inquiries of certain officials of Global
Holdings responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by Global Growth and Global Holdings and
described in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to Global Holdings
appearing in the N-14 Registration Statement, which information is expressed in
dollars (or percentages derived from such dollars) (with the exception of
performance comparisons, if any), if any, has been obtained from the accounting
records of Global Holdings or from schedules prepared by officials of Global
Holdings having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations made
therefrom.
(i) That the Investments to be transferred to Global Growth shall not
include any assets or liabilities which Global Growth, by reason of charter
limitations or otherwise, may not properly acquire or assume.
(j) That the N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Global Holdings, be contemplated by the
Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Global Holdings or would prohibit the Reorganization.
(l) That Global Growth shall have received from the Commission such orders
or interpretations as Brown & Wood LLP, as counsel to Global Growth, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(m) That all proceedings taken by Global Holdings and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to Global Growth.
(n) That prior to the Exchange Date, Global Holdings shall have declared a
dividend or dividends which, together with all such previous dividends, shall
have the effect of distributing to its stockholders all of its investment
company taxable income for the period from December 1, 1997 to and including the
Exchange Date, if any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized for the period from
December 1, 1997 to and including the Exchange Date.
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10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the stockholders of Global
Holdings) prior to the Exchange Date, or the Exchange Date may be postponed, (i)
by mutual consent of the Boards of Directors of Global Holdings and Global
Growth; (ii) by the Board of Directors of Global Holdings if any condition of
Global Holdings' obligations set forth in Section 8 of this Agreement has not
been fulfilled or waived by such Board; or (iii) by the Board of Directors of
Global Growth if any condition of Global Growth's obligations set forth in
Section 9 of this Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by July 1, 1999, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Directors
of Global Holdings and Global Growth.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Global Holdings or Global
Growth or persons who are their directors, trustees, officers, agents or
stockholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either Global
Holdings or Global Growth, respectively (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation with its counsel,
such action or waiver will not have a material adverse effect on the benefits
intended under this Agreement to the stockholders of their respective fund, on
behalf of which such action is taken. In addition, the Boards of Directors of
Global Holdings and Global Growth have delegated to MLAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of Global Holdings and Global Growth to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Global Holdings nor Global
Growth nor any of their officers, directors or trustees, agents or stockholders
shall have any liability with respect to such representations or warranties
after the Exchange Date. This provision shall not protect any officer, director
or trustee, agent or stockholder of Global Holdings or Global Growth against any
liability to the entity for which that officer, director or trustee, agent or
stockholder so acts or to its stockholders, to which that officer, director or
trustee, agent or stockholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of Global
Holdings and Global Growth to be acceptable, such terms and conditions shall be
binding as if a part of this Agreement without further vote or approval of the
stockholders of Global Holdings unless such terms and conditions shall result in
a change in the method of computing the number of shares of Global Growth to be
issued to Global Holdings in which event, unless such terms and conditions shall
have been included in the proxy solicitation materials furnished to the
stockholders of Global Holdings prior to the meeting at which the Reorganization
shall have been approved, this Agreement shall not be consummated and shall
terminate unless Global Holdings promptly shall call a special meeting of
stockholders at which such conditions so imposed shall be submitted for
approval.
11. Indemnification.
(a) Global Holdings hereby agrees to indemnify and hold Global Growth
harmless from all loss, liability and expense (including reasonable counsel fees
and expenses in connection with the contest of any claim) which Global Growth
may incur or sustain by reason of the fact that (i) Global Growth shall be
required to pay any corporate obligation of Global Holdings, whether consisting
of tax deficiencies or otherwise, based upon a claim or claims against Global
Holdings which were omitted or not fairly reflected in the financial statements
to be delivered to Global Growth in connection with the Reorganization; (ii) any
representations
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or warranties made by Global Holdings in this Agreement should prove to be false
or erroneous in any material respect; (iii) any covenant of Global Holdings has
been breached in any material respect; or (iv) any claim is made alleging that
(a) the N-14 Registration Statement included any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (b) the Proxy
Statement and Prospectus delivered to the stockholders of Global Holdings and
forming a part of the N-14 Registration Statement included any untrue statement
of a material fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such claim is based on written
information furnished to Global Holdings by Global Growth.
(b) Global Growth hereby agrees to indemnify and hold Global Holdings
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which Global
Holdings may incur or sustain by reason of the fact that (i) any representations
or warranties made by Global Growth in this Agreement should prove false or
erroneous in any material respect, (ii) any covenant of Global Growth has been
breached in any material respect, or (iii) any claim is made alleging that (a)
the N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading or (b) the Proxy Statement and
Prospectus delivered to stockholders of Global Holdings and forming a part of
the N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to Global
Growth by Global Holdings.
(c) In the event that any claim is made against Global Growth in respect of
which indemnity may be sought by Global Growth from Global Holdings under
Section 11(a) of this Agreement, or in the event that any claim is made against
Global Holdings in respect of which indemnity may be sought by Global Holdings
from Global Growth under Section 11(b) of this Agreement, then the party seeking
indemnification (the "Indemnified Party"), with reasonable promptness and before
payment of such claim, shall give written notice of such claim to the other
party (the "Indemnifying Party"). If no objection as to the validity of the
claim is made in writing to the Indemnified Party by the Indemnifying Party
within thirty (30) days after the giving of notice hereunder, then the
Indemnified Party may pay such claim and shall be entitled to reimbursement
therefor, pursuant to this Agreement. If, prior to the termination of such
thirty-day period, objection in writing as to the validity of such claim is made
to the Indemnified Party, the Indemnified Party shall withhold payment thereof
until the validity of such claim is established (i) to the satisfaction of the
Indemnifying Party, or (ii) by a final determination of a court of competent
jurisdiction, whereupon the Indemnified Party may pay such claim and shall be
entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with
respect to any tax claims, within seven (7) calendar days following the earlier
of (A) an agreement between Global Holdings and Global Growth that an indemnity
amount is payable, (B) an assessment of a tax by a taxing authority, or (C) a
"determination" as defined in Section 1313(a) of the Code. For purposes of this
Section 11, the term "assessment" shall have the same meaning as used in Chapter
63 of the Code and Treasury Regulations thereunder, or any comparable provision
under the laws of the appropriate taxing authority. In the event of any
objection by the Indemnifying Party, the Indemnifying Party promptly shall
investigate the claim, and if it is not satisfied with the validity thereof, the
Indemnifying Party shall conduct the defense against such claim. All costs and
expenses incurred by the Indemnifying Party in connection with such
investigation and defense of such claim shall be borne by it. These
indemnification provisions are in addition to, and not in limitation of, any
other rights the parties may have under applicable law.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization
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pursuant to Rule 145(c), Global Growth will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO MERRILL LYNCH GLOBAL GROWTH FUND, INC. (OR ITS STATUTORY
SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT
OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Global Growth's
transfer agent with respect to such shares. Global Holdings will provide Global
Growth on the Exchange Date with the name of any Global Holdings stockholder who
is to the knowledge of Global Holdings an affiliate of Global Holdings on such
date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to Global Holdings or Global
Growth, in either case at 800 Scudders Mill Road, Plainsboro, New Jersey 08536,
Attn: Arthur Zeikel, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, of Global Holdings
and Global Growth are on file with the Department of Assessments and Taxation of
the State of Maryland and notice is hereby given that this instrument is
executed on behalf of the Directors of each fund.
I-15
<PAGE> 53
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH GLOBAL GROWTH FUND,
INC.
By: /s/ ARTHUR ZEIKEL
----------------------------------
Arthur Zeikel, President
Attest:
/s/ PHILIP M. MANDEL
- ------------------------------------
Philip M. Mandel, Secretary
MERRILL LYNCH GLOBAL HOLDINGS, INC.
By: /s/ ARTHUR ZEIKEL
----------------------------------
Arthur Zeikel, President
Attest:
/s/ PHILIP M. MANDEL
- ----------------------------------------
Philip M. Mandel, Secretary
I-16
<PAGE> 54
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus of Merrill Lynch
Global Holdings, Inc. ("Global Holdings") and Merrill Lynch Global Growth Fund,
Inc. ("Global Growth Fund") dated September 22, 1998 (the "Proxy Statement and
Prospectus"), which has been filed with the Securities and Exchange Commission
and can be obtained, without charge, by calling Global Growth Fund at
1-800-456-4587, ext. 123, or by writing to Global Growth Fund at the above
address. This Statement of Additional Information has been incorporated by
reference into the Proxy Statement and Prospectus.
Further information about Global Growth Fund is contained in and
incorporated by reference to its Prospectus, dated March 6, 1998, and its
Statement of Additional Information, dated March 6, 1998, which are incorporated
by reference into this Statement of Additional Information. Global Growth Fund's
Statement of Additional Information accompanies this Statement of Additional
Information.
Further information about Global Holdings is contained in and incorporated
by reference to its Prospectus, dated March 5, 1998, and its Statement of
Additional Information, dated March 5, 1998, which are incorporated by reference
into this Statement of Additional Information. Global Holdings Statement of
Additional Information accompanies this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains the
prospectus and statement of additional information of each of Global Holdings
and Global Growth Fund, other material incorporated by reference and other
information regarding Global Holdings and Global Growth Fund.
The date of this Statement of Additional Information is September 22, 1998.
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information 2
Financial Statements 2
Pro Forma Combined Schedule of Investments for Global
Growth Fund and Global Holdings as of June 30, 1998
(unaudited) F-1
Pro Forma Combined Statement of Assets and Liabilities for
Global Growth Fund and Global Holdings as of June 30,
1998 (unaudited) F-9
Pro Forma Combined Statement of Operations for Global
Growth Fund and Global Holdings as of June 30, 1998
(unaudited) F-11
</TABLE>
GENERAL INFORMATION
The stockholders of Global Holdings are being asked to approve the
acquisition of substantially all of the assets of Global Holdings, and the
assumption of substantially all of the liabilities of Global Holdings, by Global
Growth Fund in exchange solely for an equal aggregate value of shares of Global
Growth Fund (the "Reorganization"). Global Growth Fund is an open-end management
investment company organized as a Maryland corporation. A Special Meeting of
Stockholders of Global Holdings to consider the Reorganization will be held at
800 Scudders Mill Road, Plainsboro, New Jersey, on November 5, 1998, at 9:00
a.m., New York time.
For detailed information about the Reorganization, stockholders of Global
Holdings should refer to the Proxy Statement and Prospectus. For further
information about Global Growth Fund, Global Holdings stockholders should refer
to Global Growth Fund's Statement of Additional Information, dated March 6,
1998, which accompanies this Statement of Additional Information and is
incorporated by reference herein. For further information about Global Holdings,
stockholders should refer to Global Holdings' Statement of Additional
Information, dated March 5, 1998, which accompanies this Statement of Additional
Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
GLOBAL GROWTH FUND
An audited statement of assets and liabilities and accompanying notes as of
September 5, 1997, and report of independent auditors thereon, dated September
8, 1997, of Global Growth Fund are incorporated by reference from Global Growth
Fund's Statement of Additional Information, dated March 6, 1998. Unaudited
financial statements and accompanying notes for the period October 31, 1997
(commencement of operations) through February 28, 1998 of Global Growth Fund are
incorporated by reference from Global Growth Fund's Semi-Annual Report to
Stockholders.
GLOBAL HOLDINGS
Audited financial statements and accompanying notes for the fiscal year
ended November 30, 1997, and the independent auditor's report thereon, dated
January 14, 1998, of Global Holdings are incorporated by reference from Global
Holdings' Statement of Additional Information, dated March 5, 1998. Unaudited
financial statements and accompanying notes for the six months ended May 31,
1998 of Global Holdings are incorporated by reference from Global Holdings'
Semi-Annual Report to Stockholders.
2
<PAGE> 56
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
LATIN AMERICA
ARGENTINA
Banking 146,875 Banco de Galicia y Buenos
Aires S.A. (ADR)* $ -- $ 2,662,109 $ 2,662,109
- -----------------------------------------------------------------------------------------------------------------------------
Multi-Industry 278,810 Compania Naviera Perez
Companc S.A.C.F.I.M.F.A. -- 1,399,836 1,399,836
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
ARGENTINA -- 4,061,945 4,061,945
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
BRAZIL
Telecommunications 30,000,000 Telecommunicacoes Brasileiras
S.A.--Telebras PN (Preferred) -- 3,263,294 3,263,294
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BRAZIL -- 3,263,294 3,263,294
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
MEXICO
Chemicals 150,000 DESC, Sociedad de Fomento
Industrial, S.A. de C.V.
(ADR)* -- 2,981,250 2,981,250
- -----------------------------------------------------------------------------------------------------------------------------
Financial Services 2,000,000 Grupo Financiero Banorte,
S.A. de C.V. (Class B) -- 2,226,180 2,226,180
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO -- 5,207,430 5,207,430
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PANAMA
Banking--International 75,000 Bladex Banco LatinAmerica de
Export -- 2,306,250 2,306,250
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PANAMA -- 2,306,250 2,306,250
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN LATIN
AMERICA -- 14,838,919 14,838,919
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA
CANADA
Banking & Financial 380,000 Bank of Montreal 20,943,050 -- 20,943,050
575,000 Canadian Imperial Bank of
Commerce 18,505,477 -- 18,505,477
500,000 National Bank of Canada 9,780,908 -- 9,780,908
300,000 Royal Bank of Canada 18,064,911 -- 18,064,911
-------------- ------------ --------------
67,294,346 -- 67,294,346
- -----------------------------------------------------------------------------------------------------------------------------
Beverages 50,000 Seagram Co., Ltd. (The) 2,046,875 -- 2,046,875
- -----------------------------------------------------------------------------------------------------------------------------
Communications Equipment 350,000 +Newbridge Networks Corp. 8,370,756 -- 8,370,756
90,000 Northern Telecom Ltd. 3,972,239 1,135,000 5,107,239
-------------- ------------ --------------
12,342,995 1,135,000 13,477,995
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CANADA 81,684,216 1,135,000 82,819,216
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
UNITED STATES
Advertising 85,000 Interpublic Group of
Companies, Inc. 5,158,437 -- 5,158,437
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE> 57
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Banking 120,000 Bank of New York Co., Inc.
(The) $ -- $ 7,282,500 $ 7,282,500
95,000 Northern Trust Corporation -- 7,237,812 7,237,812
65,000 Wachovia Corporation -- 5,492,500 5,492,500
-------------- ------------ --------------
-- 20,012,812 20,012,812
- -----------------------------------------------------------------------------------------------------------------------------
Banking & Financial 154,000 Banc One Corp. 8,595,125 -- 8,595,125
50,000 BankAmerica Corp. 4,321,875 -- 4,321,875
30,000 Citicorp 4,477,500 -- 4,477,500
145,000 Mellon Bank Corp. 10,095,625 -- 10,095,625
180,000 State Street Corp. 12,510,000 -- 12,510,000
-------------- ------------ --------------
40,000,125 -- 40,000,125
- -----------------------------------------------------------------------------------------------------------------------------
Beverages 275,000 Coca-Cola Co. (The) 23,512,500 -- 23,512,500
- -----------------------------------------------------------------------------------------------------------------------------
Broadcast 120,000 Chancellor Media Corp. (Class
A) 5,955,000 -- 5,955,000
- -----------------------------------------------------------------------------------------------------------------------------
Broadcasting Radio & Television 45,000 +Clear Channel
Communications, Inc. 4,910,625 -- 4,910,625
- -----------------------------------------------------------------------------------------------------------------------------
Chemicals 110,000 duPont (E.I.) de Nemours &
Co. 8,208,750 -- 8,208,750
- -----------------------------------------------------------------------------------------------------------------------------
Communications Equipment 567,500 +Cisco Systems, Inc. 43,269,375 8,976,094 52,245,469
440,000 +FORE Systems, Inc. 11,632,500 -- 11,632,500
80,000 Lucent Technologies, Inc. 6,655,000 -- 6,655,000
-------------- ------------ --------------
61,556,875 8,976,094 70,532,969
- -----------------------------------------------------------------------------------------------------------------------------
Computer Services 40,000 America Online, Inc. 4,240,000 -- 4,240,000
- -----------------------------------------------------------------------------------------------------------------------------
Computers 700,000 Compaq Computer Corp. 19,862,500 -- 19,862,500
125,000 +Dell Computer Corporation 8,811,250 2,782,500 11,593,750
45,000 Hewlett-Packard Co. 2,694,375 -- 2,694,375
-------------- ------------ --------------
31,368,125 2,782,500 34,150,625
- -----------------------------------------------------------------------------------------------------------------------------
Cosmetics 220,000 Gillette Co. (The) 12,471,250 -- 12,471,250
20,000 International Flavors &
Fragrances Inc. 868,750 -- 868,750
-------------- ------------ --------------
13,340,000 -- 13,340,000
- -----------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 35,000 Emerson Electric Co. 2,113,125 -- 2,113,125
375,000 General Electric Co. 34,125,000 -- 34,125,000
10,000 Honeywell, Inc. 835,625 -- 835,625
-------------- ------------ --------------
37,073,750 -- 37,073,750
- -----------------------------------------------------------------------------------------------------------------------------
Electronics 235,000 Intel Corp. 11,109,375 6,295,312 17,404,687
125,000 Texas Instruments, Inc. 2,040,937 5,248,125 7,289,062
-------------- ------------ --------------
13,150,312 11,543,437 24,693,749
- -----------------------------------------------------------------------------------------------------------------------------
Energy 110,000 El Paso Natural Gas Co. 4,207,500 -- 4,207,500
50,000 Enron Corp. 2,703,125 -- 2,703,125
-------------- ------------ --------------
6,910,625 -- 6,910,625
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE> 58
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Entertainment 35,000 +Viacom, Inc. (Class B) $ 2,038,750 $ -- $ 2,038,750
150,000 Walt Disney Co. (The) 15,759,375 -- 15,759,375
-------------- ------------ --------------
17,798,125 -- 17,798,125
- -----------------------------------------------------------------------------------------------------------------------------
Environmental Control 200,000 US Filter Corp. -- 5,612,500 5,612,500
- -----------------------------------------------------------------------------------------------------------------------------
Financial Services 40,000 American Express Co. 4,560,000 -- 4,560,000
70,000 Federal National Mortgage
Association 4,252,500 -- 4,252,500
100,000 Franklin Resources 5,400,000 -- 5,400,000
100,000 Morgan Stanley, Dean Witter,
Discover & Co. 9,137,500 -- 9,137,500
90,000 Travelers Group, Inc. 5,456,250 -- 5,456,250
-------------- ------------ --------------
28,806,250 -- 28,806,250
- -----------------------------------------------------------------------------------------------------------------------------
Food Merchandising 50,000 Albertsons, Inc. 2,590,625 -- 2,590,625
105,000 +Meyer (Fred), Inc. 4,462,500 -- 4,462,500
-------------- ------------ --------------
7,053,125 -- 7,053,125
- -----------------------------------------------------------------------------------------------------------------------------
Foods 40,000 ConAgra, Inc. 1,267,500 -- 1,267,500
35,000 Wrigley (Wm.) Jr. Co. (Class
B) Shares 3,430,000 -- 3,430,000
-------------- ------------ --------------
4,697,500 -- 4,697,500
- -----------------------------------------------------------------------------------------------------------------------------
Home Furnishings 175,000 Ethan Allen Interiors, Inc. 8,739,062 -- 8,739,062
- -----------------------------------------------------------------------------------------------------------------------------
Hotels 125,000 Marriott International, Inc.
(Class A) 4,046,875 -- 4,046,875
- -----------------------------------------------------------------------------------------------------------------------------
Household Products 35,000 Colgate-Palmolive Co. 3,080,000 -- 3,080,000
20,000 Kimberly-Clark Corp. 917,500 -- 917,500
60,000 Procter & Gamble Company 5,463,750 -- 5,463,750
-------------- ------------ --------------
9,461,250 -- 9,461,250
- -----------------------------------------------------------------------------------------------------------------------------
Information Processing 155,000 First Data Corp. 5,163,437 -- 5,163,437
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 10,000 Aetna, Inc. 761,250 -- 761,250
150,000 American International Group,
Inc. 21,900,000 -- 21,900,000
150,000 Mercury General Corp. -- 9,646,875 9,646,875
80,000 The PMI Group, Inc. -- 5,870,000 5,870,000
-------------- ------------ --------------
22,661,250 15,516,875 38,178,125
- -----------------------------------------------------------------------------------------------------------------------------
Medical Technology 200,000 +Boston Scientific Corp. 10,743,750 3,581,250 14,325,000
90,000 Guidant Corporation 6,418,125 -- 6,418,125
125,000 Johnson & Johnson 1,843,750 7,375,000 9,218,750
-------------- ------------ --------------
19,005,625 10,956,250 29,961,875
- -----------------------------------------------------------------------------------------------------------------------------
Oil Services 190,000 Baker Hughes, Inc. 6,566,875 -- 6,566,875
175,000 Diamond Offshore Drilling,
Inc. 7,000,000 -- 7,000,000
55,000 Schlumberger Ltd., Inc. 3,757,187 -- 3,757,187
-------------- ------------ --------------
17,324,062 -- 17,324,062
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE> 59
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Pharmaceuticals 25,000 Amgen, Inc. $ 1,634,375 $ -- $ 1,634,375
155,000 Bristol-Myers Squibb Co. 14,941,875 2,873,437 17,815,312
140,000 Merck & Co., Inc. 18,725,000 -- 18,725,000
490,000 Pfizer, Inc. 43,475,000 9,781,875 53,256,875
-------------- ------------ --------------
78,776,250 12,655,312 91,431,562
- -----------------------------------------------------------------------------------------------------------------------------
Photography 30,000 Eastman Kodak Co. 2,191,875 -- 2,191,875
- -----------------------------------------------------------------------------------------------------------------------------
Pollution Control 20,000 Waste Management, Inc. 700,000 -- 700,000
- -----------------------------------------------------------------------------------------------------------------------------
Publishing 32,000 Gannett Co., Inc. 2,274,000 -- 2,274,000
- -----------------------------------------------------------------------------------------------------------------------------
Restaurants 70,000 McDonald's Corporation 3,450,000 1,380,000 4,830,000
- -----------------------------------------------------------------------------------------------------------------------------
Retail 250,000 Federated Department Stores,
Inc. 5,381,250 8,071,875 13,453,125
420,000 Wal-Mart Stores, Inc. 25,515,000 -- 25,515,000
-------------- ------------ --------------
30,896,250 8,071,875 38,968,125
- -----------------------------------------------------------------------------------------------------------------------------
Retail Specialty 450,000 CVS Corporation 8,955,625 8,566,250 17,521,875
100,000 Gap, Inc. (The) 6,162,500 -- 6,162,500
200,000 OfficeMax, Inc. -- 3,300,000 3,300,000
450,000 PETsMART, Inc. -- 4,485,937 4,485,937
435,000 +Staples, Inc. 12,587,812 -- 12,587,812
165,000 Walgreen Co. 6,816,562 -- 6,816,562
-------------- ------------ --------------
34,522,499 16,352,187 50,874,686
- -----------------------------------------------------------------------------------------------------------------------------
Semiconductor 160,000 +Applied Materials, Inc. 3,687,500 1,032,500 4,720,000
70,000 ST Microelectronics -- 4,891,250 4,891,250
-------------- ------------ --------------
3,687,500 5,923,750 9,611,250
- -----------------------------------------------------------------------------------------------------------------------------
Software--Computer 205,000 +Microsoft Corp. 19,507,500 2,709,375 22,216,875
210,000 +PeopleSoft, Inc. 9,856,875 -- 9,856,875
-------------- ------------ --------------
29,364,375 2,709,375 32,073,750
- -----------------------------------------------------------------------------------------------------------------------------
Telecommunications 290,000 Sprint Corp. 16,215,000 4,230,000 20,445,000
225,000 World Communications, Inc. 10,870,312 -- 10,870,312
-------------- ------------ --------------
27,085,312 4,230,000 31,315,312
- -----------------------------------------------------------------------------------------------------------------------------
Toys 200,000 Mattel, Inc. 8,462,500 -- 8,462,500
- -----------------------------------------------------------------------------------------------------------------------------
Travel & Lodging 240,000 Carnival Corp. (Class A) 9,510,000 -- 9,510,000
- -----------------------------------------------------------------------------------------------------------------------------
Utilities--Communication 160,000 AT&T Corp. 9,140,000 -- 9,140,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED STATES 640,202,246 126,722,967 766,925,213
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH
AMERICA 721,886,462 127,857,967 849,744,429
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PACIFIC BASIN/ASIA
AUSTRALIA
Broadcasting & Publishing 351,883 News Corp. Ltd. (The)
(Ordinary) -- 2,873,128 2,873,128
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
AUSTRALIA -- 2,873,128 2,873,128
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE> 60
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
HONG KONG
Multi-Industry 400,000 Hutchison Whampoa, Ltd. $ -- $ 2,111,485 $ 2,111,485
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG
KONG -- 2,111,485 2,111,485
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
JAPAN
Automobile 480,000 Honda Motor Co., Ltd. 17,111,929 -- 17,111,929
500,000 Toyota Motor Corp. 12,953,742 -- 12,953,742
-------------- ------------ --------------
30,065,671 -- 30,065,671
- -----------------------------------------------------------------------------------------------------------------------------
Broadcasting & Publishing 300,000 Tokyo Broadcasting System,
Inc. -- 3,355,705 3,355,705
- -----------------------------------------------------------------------------------------------------------------------------
Computers 700,000 Fujitsu Ltd. 7,375,334 -- 7,375,334
1,000,000 NEC Corporation 6,531,717 2,799,307 9,331,024
60,000 Tokyo Electron Ltd. -- 1,840,225 1,840,225
-------------- ------------ --------------
13,907,051 4,639,532 18,546,583
- -----------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 200,000 Matsushita Electric
Industrial Co., Ltd. -- 3,218,590 3,218,590
250,000 Sumitomo Electric Industry,
Ltd. -- 2,531,212 2,531,212
-------------- ------------ --------------
-- 5,749,802 5,749,802
- -----------------------------------------------------------------------------------------------------------------------------
Electronics 30,000 Keyence Corp. -- 3,269,106 3,269,106
90,000 Murata Manufacturing Co.,
Ltd. -- 2,922,711 2,922,711
-------------- ------------ --------------
-- 6,191,817 6,191,817
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 200,000 Tokio Marine & Fire Insurance
Co., Ltd. -- 2,058,166 2,058,166
- -----------------------------------------------------------------------------------------------------------------------------
Leisure 170,000 Sony Corp. 12,073,320 2,587,140 14,660,460
- -----------------------------------------------------------------------------------------------------------------------------
Machine Tools & Machinery 350,000 Minebea Co. Ltd. -- 3,488,129 3,488,129
- -----------------------------------------------------------------------------------------------------------------------------
Machinery & Equipment 500,000 Mitsubishi Heavy Industries,
Ltd. -- 1,890,741 1,890,741
- -----------------------------------------------------------------------------------------------------------------------------
Merchandising 150,000 Marui Co. Ltd. -- 2,240,745 2,240,745
- -----------------------------------------------------------------------------------------------------------------------------
Office Equipment 300,000 Canon, Inc. 4,546,439 2,273,219 6,819,658
- -----------------------------------------------------------------------------------------------------------------------------
Photography 400,000 Fuji Photo Film Co., Ltd. 13,942,412 -- 13,942,412
- -----------------------------------------------------------------------------------------------------------------------------
Retail--Stores 290,000 Ito-Yokado Co., Ltd. 11,781,049 1,884,968 13,666,017
- -----------------------------------------------------------------------------------------------------------------------------
Telecommunications 3,400 Nippon Telegraph & Telephone
Corp. 24,897,164 3,319,622 28,216,786
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 111,213,106 39,679,586 150,892,692
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SINGAPORE
Banking 380,000 Overseas Chinese Banking
Corp. -- 1,294,048 1,294,048
- -----------------------------------------------------------------------------------------------------------------------------
Construction & Housing 330,000 City Development Ltd. -- 922,476 922,476
- -----------------------------------------------------------------------------------------------------------------------------
Newspaper/Publishing 242,440 Singapore Press Holdings Ltd. -- 1,622,489 1,622,489
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SINGAPORE -- 3,839,013 3,839,013
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
PACIFIC BASIN/ASIA 111,213,106 48,503,212 159,716,318
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 61
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
WESTERN EUROPE
DENMARK
Telecommunications 150,000 Tele-Denmark A.S. (Class B) $ 14,404,190 $ -- $ 14,404,190
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN DENMARK 14,404,190 -- 14,404,190
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FINLAND
Communications Equipment 350,000 Nokia OY AS 'A' 18,426,286 7,370,514 25,796,800
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 18,426,286 7,370,514 25,796,800
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FRANCE
Communications Equipment 120,000 Alcatel Alsthom Cie Generale
d'Electricite S.A. 22,405,891 2,036,899 24,442,790
- -----------------------------------------------------------------------------------------------------------------------------
Computer Services 50,000 Cap Gemini S.A. -- 7,859,684 7,859,684
- -----------------------------------------------------------------------------------------------------------------------------
Computer Software 120,000 Dassault Systems S.A. -- 5,658,972 5,658,972
- -----------------------------------------------------------------------------------------------------------------------------
Cosmetics 10,000 L'OREAL S.A. 5,564,656 -- 5,564,656
- -----------------------------------------------------------------------------------------------------------------------------
Education 15,000 Groupe Danone S.A. -- 4,137,503 4,137,503
- -----------------------------------------------------------------------------------------------------------------------------
Electronics 300,000 +SGS-Thomson Microelectronics
N.V. 21,270,787 -- 21,270,787
- -----------------------------------------------------------------------------------------------------------------------------
Foods 40,000 Groupe Danone S.A. 11,033,342 -- 11,033,342
15,000 Promodes S.A. 8,314,718 -- 8,314,718
-------------- ------------ --------------
19,348,060 -- 19,348,060
- -----------------------------------------------------------------------------------------------------------------------------
Information Processing 200,000 Cap Gemini S.A. 31,438,736 -- 31,438,736
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 165,000 Axa-UAP 18,565,401 -- 18,565,401
- -----------------------------------------------------------------------------------------------------------------------------
Machinery & Equipment 240,000 Alstom 6,585,588 1,317,118 7,902,706
- -----------------------------------------------------------------------------------------------------------------------------
Oil-Related 25,000 Societe Nationale Elf
Equitaine S.A. -- 3,516,174 3,516,174
- -----------------------------------------------------------------------------------------------------------------------------
Retail--Stores 20,000 Carrefour S.A. (Ordinary) 12,658,228 -- 12,658,228
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 137,837,347 24,526,350 162,363,697
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
GERMANY
Apparel 100,000 Adidas AG 17,421,892 -- 17,421,892
- -----------------------------------------------------------------------------------------------------------------------------
Automobile 160,000 Daimler-Benz AG 15,732,329 -- 15,732,329
160,000 Daimler-Benz AG (Rights) 177,266 -- 177,266
-------------- ------------ --------------
15,909,595 -- 15,909,595
- -----------------------------------------------------------------------------------------------------------------------------
Banking & Financial 600,000 Commerzbank AG 22,834,035 -- 22,834,035
420,000 Deutche Bank AG (Ordinary) 29,586,749 5,917,350 35,504,099
525,000 Dresdner Bank AG 28,355,584 -- 28,355,584
-------------- ------------ --------------
80,776,368 5,917,350 86,693,718
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE> 62
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Chemicals 150,000 BASF AG $ 7,125,249 $ -- $ 7,125,249
150,000 Bayer AG 7,760,913 -- 7,760,913
140,000 Hoechst AG 7,038,001 -- 7,038,001
100,000 SKW Trostberg AG -- 3,600,709 3,600,709
-------------- ------------ --------------
21,924,163 3,600,709 25,524,872
- -----------------------------------------------------------------------------------------------------------------------------
Electronics 200,000 Siemens AG 12,203,634 -- 12,203,634
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 65,000 Allianz AG 21,658,265 -- 21,658,265
1,911 Allianz AG (New) 631,460 -- 631,460
-------------- ------------ --------------
22,289,725 -- 22,289,725
- -----------------------------------------------------------------------------------------------------------------------------
Machinery & Equipment 13,300 Heidelberger Druckmaschinen
AG -- 1,101,457 1,101,457
60,000 Mannesman AG 5,137,935 1,027,587 6,165,522
-------------- ------------ --------------
5,137,935 2,129,044 7,266,979
- -----------------------------------------------------------------------------------------------------------------------------
Multi-Industry 285,000 Veba Vereinigte Elektriz 11,763,932 7,394,472 19,158,404
- -----------------------------------------------------------------------------------------------------------------------------
Retail--Stores 250,000 Metro AG 15,095,280 -- 15,095,280
250,000 Metro AG (Rights) 9,694 -- 9,694
-------------- ------------ --------------
15,104,974 -- 15,104,974
- -----------------------------------------------------------------------------------------------------------------------------
Software--Computer 140,000 SAP AG--Vorzug (Preferred) 74,645,469 20,357,855 95,003,324
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 277,177,687 39,399,430 316,577,117
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
IRELAND
Banking & Financial 1,300,000 Allied Irish Banks PLC 18,794,818 -- 18,794,818
- -----------------------------------------------------------------------------------------------------------------------------
Telecommunications 100,000 ESAT Telecom Group PLC (ADR)* 3,775,000 -- 3,775,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN IRELAND 22,569,818 -- 22,569,818
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ITALY
Insurance 500,000 Assicurazioni Generali S.p.A. 16,263,365 -- 16,263,365
3,750,000 Instituto Nazionale delle
Assicurazioni S.p.A. (INA) 10,657,006 -- 10,657,006
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 26,920,371 -- 26,920,371
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NETHERLANDS
Household Products 120,000 Unilever N.V. (NY Registered
Shares) 9,472,500 -- 9,472,500
200,000 Unilever N.V. 15,901,478 -- 15,901,478
-------------- ------------ --------------
25,373,978 -- 25,373,978
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 400,000 AEGON N.V. 34,876,847 -- 34,876,847
235,000 ING Groep N.V. 15,419,704 -- 15,419,704
-------------- ------------ --------------
50,296,551 -- 50,296,551
- -----------------------------------------------------------------------------------------------------------------------------
Leisure 140,000 Philips Electronics N.V. 5,896,552 5,896,552 11,793,104
150,000 Polygram N.V. 7,669,951 -- 7,669,951
-------------- ------------ --------------
13,566,503 5,896,552 19,463,055
- -----------------------------------------------------------------------------------------------------------------------------
Retail--Stores 600,000 Koninklijke Ahold N.V. 19,300,493 -- 19,300,493
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 63
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Software--Computer 190,000 Baan Company N.V. $ 5,761,576 $ 1,080,296 $ 6,841,872
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 114,299,101 6,976,848 121,275,949
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PORTUGAL
Building Products 200,000 Cimpor Cimentos de Portugal
S.A. -- 7,030,277 7,030,277
- -----------------------------------------------------------------------------------------------------------------------------
Finance 170,000 BPI SGPS S.A. (Registered
Shares) -- 5,488,653 5,488,653
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PORTUGAL -- 12,518,930 12,518,930
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SPAIN
Banking & Financial 400,000 Banco Bilbao Vizcaya, S.A. 20,565,754 -- 20,565,754
550,000 Banco Santander, S.A. 14,103,025 -- 14,103,025
-------------- ------------ --------------
34,668,779 -- 34,668,779
- -----------------------------------------------------------------------------------------------------------------------------
Business & Public Services 400,000 Prosegur Compania de
Seguridad S.A. -- 4,808,258 4,808,258
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 34,668,779 4,808,258 39,477,037
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SWEDEN
Communication Equipment 250,000 Telefonaktiebolaget LM
Ericsson (Class B) 7,304,533 -- 7,304,533
- -----------------------------------------------------------------------------------------------------------------------------
Environmental Control 325,000 Munters AB -- 3,545,677 3,545,677
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN 7,304,533 3,545,677 10,850,210
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SWITZERLAND
Foods 10,000 Nestle S.A. (Registered) 21,414,435 -- 21,414,435
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 20,000 Zurich
Versicherungs-Gesallschaft
(Registered Shares) 12,772,134 -- 12,772,134
- -----------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 17,000 Novartis AG (Registered
Shares) 28,307,165 -- 28,307,165
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN
SWITZERLAND 62,493,734 -- 62,493,734
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
Banking & Financial 875,000 Barclays PLC 25,227,720 -- 25,227,720
500,000 HSBC Holdings PLC 12,688,943 -- 12,688,943
1,800,000 Lloyds TSB Group PLC 25,182,671 -- 25,182,671
1,885,000 National Westminster Bank PLC 26,804,453 6,879,809 33,684,262
500,000 Royal Bank of Scotland GRP -- 8,676,200 8,676,200
-------------- ------------ --------------
89,903,787 15,556,009 105,459,796
- -----------------------------------------------------------------------------------------------------------------------------
Broadcast--Media 1,000,000 British Sky Broadcasting
Group PLC 7,182,892 -- 7,182,892
- -----------------------------------------------------------------------------------------------------------------------------
Building 300,000 Berkeley Group PLC -- 3,123,432 3,123,432
- -----------------------------------------------------------------------------------------------------------------------------
Chemicals 365,000 Imperial Chemical Industries
PLC (Ordinary) 5,858,604 -- 5,858,604
- -----------------------------------------------------------------------------------------------------------------------------
Computer Services 1,100,000 Capital Group PLC -- 9,493,348 9,493,348
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 64
COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
JUNE 30, 1998 (UNAUDITED)--(CONCLUDED)
<TABLE>
<CAPTION>
PRO FORMA FOR
GLOBAL GLOBAL COMBINED
INDUSTRIES SHARES HELD INVESTMENTS GROWTH FUND++ HOLDINGS++ FUND++
---------- ----------- ----------------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Electrical Equipment 1,149,999 Siebe PLC (Ordinary) $ 14,978,959 $ 7,988,758 $ 22,967,717
- -----------------------------------------------------------------------------------------------------------------------------
Electronics 2,100,000 Astec (BSR) PLC -- 2,838,118 2,838,118
- -----------------------------------------------------------------------------------------------------------------------------
Household Products 750,000 Unilever PLC 7,983,773 -- 7,983,773
- -----------------------------------------------------------------------------------------------------------------------------
Information Processing 1,040,000 Reuters Group PLC New 11,886,394 -- 11,886,394
- -----------------------------------------------------------------------------------------------------------------------------
Insurance 1,000,000 Commercial Union PLC 18,653,830 -- 18,653,830
2,500,000 Guardian Royal Exchange PLC 14,641,087 -- 14,641,087
2,500,000 Sun Alliance Insurance Group
PLC 20,672,715 5,168,179 25,840,894
-------------- ------------ --------------
53,967,632 5,168,179 59,135,811
- -----------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 265,000 Glaxo Wellcome PLC 7,954,323 -- 7,954,323
575,000 SmithKline Beecham PLC 7,017,920 -- 7,017,920
400,000 Zeneca Group PLC 17,165,528 -- 17,165,528
-------------- ------------ --------------
32,137,771 -- 32,137,771
- -----------------------------------------------------------------------------------------------------------------------------
Publishing 750,000 Pearson PLC 13,740,098 -- 13,740,098
- -----------------------------------------------------------------------------------------------------------------------------
Retail--Stores 750,000 Boots Company PLC 12,426,154 -- 12,426,154
2,000,000 J. Sainsbury PLC 17,819,580 -- 17,819,580
1,400,000 Tesco PLC (Ordinary) 13,665,015 -- 13,665,015
-------------- ------------ --------------
43,910,749 -- 43,910,749
- -----------------------------------------------------------------------------------------------------------------------------
Telecommunications 700,000 +COLT Telecom Group PLC 28,381,185 -- 28,381,185
2,000,000 Vodafone Group PLC 25,377,885 -- 25,377,885
-------------- ------------ --------------
53,759,070 -- 53,759,070
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
UNITED KINGDOM 335,309,729 44,167,844 379,477,573
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN
EUROPE 1,051,411,575 143,313,851 1,194,725,426
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FACE
SHORT-TERM SECURITIES AMOUNT ISSUE
- ------------------------------- ----------- -----------------------------
Commercial Paper** $32,341,000 Concord Minuteman Capital,
6.50% due 7/01/1998 32,341,000 -- 32,341,000
53,000,000 Newell Company, 6.25% due
7/01/1998 53,000,000 -- 53,000,000
31,991,000 Variable Funding Capital
Corp., 6.30% due 7/01/1998 31,991,000 -- 31,991,000
-------------- ------------ --------------
TOTAL INVESTMENTS IN SHORT-
TERM SECURITIES 117,332,000 -- 117,332,000
-------------- ------------ --------------
TOTAL INVESTMENTS
(COST -- $1,923,880,378) $2,001,843,143 $334,513,949 $2,336,357,092
============== ============ ==============
</TABLE>
- ---------------
* American Depositary Receipt (ADR).
** Commercial Paper is traded on a discount basis; the interest rate shown is
the discount rate paid at the time of purchase by the Fund.
+ Non-income producing security.
++ Value as discussed in the Combined Notes to Financial Statements.
F-9
<PAGE> 65
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
FOR MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
AS OF JUNE 30, 1998 (UNAUDITED)
The following unaudited Pro Forma Combined Statement of Assets and
Liabilities for Merrill Lynch Global Growth Fund, Inc. ("Global Growth Fund")
and Merrill Lynch Global Holdings, Inc. ("Global Holdings") has been derived
from the Statements of Assets and Liabilities of Global Growth Fund and Global
Holdings as of June 30, 1998, and such information has been adjusted to give
effect to the Reorganization as if the Reorganization had occurred on June 30,
1998. The Pro Forma Statement of Assets and Liabilities is presented for
informational purposes only and does not purport to be indicative of the
financial condition that would have resulted if the Reorganization had been
consummated on June 30, 1998. The Pro Forma Combined Statement of Assets and
Liabilities should be read in conjunction with the financial statements and
related notes from the unaudited semi-annual financial statements for the period
October 31, 1997 (commencement of operations) to February 28, 1998 of Global
Growth Fund included in its Semi-Annual Report to Stockholders and from the
Global Holdings audited financial statements and related notes included in its
Statement of Additional Information dated March 5, 1998.
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA FOR
GROWTH FUND HOLDINGS ADJUSTMENTS COMBINED FUND
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a) $2,001,843,143 $334,513,949 $2,336,357,092
Cash -- 940 940
Foreign cash (Note 1b) 11,877,014 -- 11,877,014
Receivables:
Capital shares sold 57,554,277 390,166 57,944,443
Securities sold 69,044,000 83,309,031 152,353,031
Dividends 4,030,730 655,874 4,686,604
Deferred organization expenses
(Note 1f) 161,500 -- 161,500
Prepaid registration fees and
other assets (Note 1f) 400,000 3,257 403,257
-------------- ------------ ------------ --------------
Total assets 2,144,910,664 418,873,217 0 2,563,783,881
-------------- ------------ ------------ --------------
LIABILITIES:
Payables:
Securities purchased 141,647,233 2,059,195 143,706,428
Dividends to Shareholders -- -- $ 53,526,768(1) 53,526,768
Capital shares redeemed 2,716,391 53,282,375 55,998,766
Distributor (Note 2) 1,439,137 60,975 1,500,112
Investment adviser (Note 2) 1,223,222 361,775 1,584,997
Accrued expenses and other
liabilities 1,323,637 402,118 (586,518)(2) 1,139,237
-------------- ------------ ------------ --------------
Total liabilities 148,349,620 56,166,438 52,940,250 257,456,308
-------------- ------------ ------------ --------------
NET ASSETS:
Net Assets $1,996,561,044 $362,706,779 $(52,940,250) $2,306,327,573
============== ============ ============ ==============
</TABLE>
F-10
<PAGE> 66
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
FOR MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
AS OF JUNE 30, 1998 (UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA FOR
GROWTH FUND HOLDINGS ADJUSTMENTS COMBINED FUND
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Class A Common Stock, $0.10 par
value, 100,000,000 shares
authorized $ 665,838 $ 2,158,053 $ 180,376 $ 3,004,267
Class B Common Stock, $0.10 par
value, 300,000,000 shares
authorized 11,264,686 210,804 7,884 11,483,374
Class C Common Stock, $0.10 par
value, 100,000,000 shares
authorized 2,247,463 10,146 332 2,257,941
Class D Common Stock, $0.10 par
value, 100,000,000 shares
authorized 1,887,444 59,804 4,803 1,952,051
Paid-in capital in excess of par 1,638,092,780 236,641,607 393,123 1,875,127,510
Undistributed investment income--
net 2,218,731 -- (2,218,731) 0
Accumulated distributions in
excess of investment
income--net (Note 1g) -- (2,167,863) 2,167,863 0
Undistributed realized capital
gains on investments and
foreign currency
transactions--net 14,682,984 38,792,916 (53,475,900) 0
Unrealized appreciation on
investments and foreign
currency transactions--net 325,501,118 87,001,312 -- 412,502,430
-------------- ------------ ------------ --------------
Net assets $1,996,561,044 $362,706,779 $(52,940,250) $2,306,327,573
============== ============ ============ ==============
NET ASSET VALUE:
Class A:
Net assets $ 83,241,993 $322,430,867 (33,161,938) $ 372,510,922
============== ============ ==============
Shares outstanding 6,658,381 21,580,528 1,803,765 30,042,674
============== ============ ==============
Net Asset Value $ 12.50 $ 14.94 -- $ 12.40
============== ============ ==============
Class B:
Net $1,398,702,147 $ 29,947,957 (14,509,483) $1,414,140,621
============== ============ ==============
Shares outstanding 112,646,856 2,108,039 78,849 114,833,744
============== ============ ==============
Net Asset Value $ 12.42 $ 14.21 -- $ 12.31
============== ============ ==============
Class C:
Net Assets $ 279,052,833 $ 1,434,834 (2,437,453) $ 278,050,214
============== ============ ==============
Shares outstanding 22,474,628 101,462 3,317 22,579,407
============== ============ ==============
Net Asset Value $ 12.42 $ 14.14 -- $ 12.31
============== ============ ==============
</TABLE>
F-11
<PAGE> 67
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
FOR MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
AS OF JUNE 30, 1998 (UNAUDITED)--(CONCLUDED)
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA FOR
GROWTH FUND HOLDINGS ADJUSTMENTS COMBINED FUND
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Class D:
Net Assets $ 235,564,071 $ 8,893,121 (2,831,376) $ 241,625,816
============== ============ ==============
Shares outstanding 18,874,439 598,038 48,037 19,520,514
============== ============ ==============
Net Asset Value $ 12.48 $ 14.87 -- $ 12.38
============== ============ ==============
- ---------------
* identified cost $1,676,441,139 $247,439,239 -- $1,923,880,378
============== ============ ==============
</TABLE>
(1) Reflects the payment of undistributed net investment income and
undistributed realized capital gains.
(2) Reflects the charge for estimated Reorganization expenses of $330,000 and
anticipated savings of the Reorganization.
See Notes to Financial Statements.
F-12
<PAGE> 68
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
FOR THE PERIOD OCTOBER 31, 1997* TO JUNE 30, 1998
(UNAUDITED)
The following unaudited Pro Forma Combined Statement of Operations for
Global Growth Fund and Global Holdings has been derived from the Statements of
Operations of Global Growth Fund and Global Holdings for the period ended June
30, 1998, and such information has been adjusted to give effect to the
Reorganization as if the Reorganization had occurred on October 31, 1997. The
Pro Forma Statement of Operations is presented for informational purposes only
and does not purport to be indicative of the financial condition that would have
resulted if the Reorganization had been consummated on October 31, 1997. The Pro
Forma Combined Statement of Operations should be read in conjunction with the
financial statements and related notes from the unaudited semi-annual financial
statements for the period October 31, 1997 (commencement of operations) to
February 28, 1998 of Global Growth Fund included in its Semi-Annual Report to
Stockholders and from the Global Holdings audited financial statements and
related notes included in its Statement of Additional Information dated March 5,
1998.
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA FOR
GROWTH FUND HOLDINGS ADJUSTMENTS COMBINED FUND
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTES 1d & 1e):
Dividends** $18,491,451 $ 2,878,664 $ 21,370,115
Interest and discount earned 4,595,284 955,981 5,551,265
------------ ----------- ------------
Total income 23,086,735 3,834,645 26,921,380
------------ ----------- ------------
EXPENSES:
Investment advisory fees 7,765,263 2,821,860 $(705,465)(3) 9,881,658
Account maintenance and distribution fees--Class B (Note
2) 7,234,587 438,398 7,672,985
Account maintenance and distribution fees--Class C (Note
2) 1,448,979 41,485 1,490,464
Transfer agent fees--Class B 736,014 123,562 859,576
Registration fees (Note 1f) 705,408 49,245 754,653
Account maintenance fees--Class D (Note 2) 323,171 15,079 338,250
Custodian fees 218,618 194,621 413,239
Transfer agent fees--Class C 153,946 12,183 166,129
Transfer agent fees--Class D 107,156 15,318 122,474
Printing and shareholder reports 134,519 101,847 (89,475)(2) 146,891
Accounting services (Note 2) 119,671 60,571 (71,508)(2) 108,734
Directors' fees and expenses 34,502 25,940 (29,675)(2) 30,767
Transfer agent fees--Class A (Note 2) 23,836 586,151 609,987
Professional fees 20,164 47,636 (20,395)(2) 47,405
Amortization of organization expenses 13,817 -- 13,817
Pricing fees 3,286 10,575 13,861
Other 4,175 8,652 330,000(1) 342,827
------------ ----------- --------- ------------
Total expenses before reimbursement 19,047,112 4,553,123 (586,518) 23,013,717
------------ ----------- --------- ------------
Reimbursement of expenses (Note 2) (79,576) -- -- (79,576)
------------ ----------- --------- ------------
Total expenses after reimbursement 18,967,536 4,553,123 (586,518) 22,934,141
------------ ----------- --------- ------------
Investment income (loss)--net 4,119,199 (718,478) 586,518 3,987,239
------------ ----------- --------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS & FOREIGN
CURRENCY TRANSACTIONS--NET (NOTES 1b, 1c, 1e & 3):
Realized gain (loss) from:
Investments--net 14,682,984 41,612,561 56,295,545
Foreign currency transactions--net (1,900,467) (399,031) (2,299,498)
Change in unrealized appreciation/depreciation on:
Investments--net 325,402,004 1,698,512 327,100,516
Foreign currency transactions--net 99,114 (67,318) 31,796
------------ ----------- --------- ------------
Net realized and unrealized gain on investments and
foreign currency transactions 338,283,635 42,844,724 381,128,359
------------ ----------- --------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 342,402,834 42,126,246 586,518 385,115,598
------------ ----------- --------- ------------
$ 1,765,013 $ 287,418 -- $ 2,052,431
============ =========== ========= ============
</TABLE>
- ---------------
* The Global Growth Fund commenced operations on October 31, 1997.
** Net of foreign withholding tax on dividends.
(1) Reflects the charge for estimated Reorganization expenses of $330,000.
(2) Reflects the anticipated savings of the Reorganization.
(3) Pursuant to the Management Agreement between Global Growth Fund and MLAM,
Global Growth Fund pays MLAM a monthly fee at the annual rate of 0.75% of
average daily net assets not exceeding $1.5 billion, and 0.725% of average
daily net assets in excess of $1.5 billion. After the Reorganization, the
management fee paid by the Combined Fund will be at Global Growth Fund's
lower rate. Assuming the total net assets after the Reorganization were
approximately $2.4 billion, the effective management fee rate paid by the
Combined Fund would be 0.74%.
See Notes to Financial Statements.
F-13
<PAGE> 69
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Global Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Prior to commencement of operations on October 31, 1997, the Fund had
no operations other than those relating to organizational matters and the issue
of 10,000 capital shares of the Fund to Merrill Lynch Asset Management, L.P.
("MLAM") for $100,000. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. The Fund offers four
classes of shares under the Merrill Lynch Select Pricing(SM) System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares of Class B
and Class C may be subject to a contingent deferred sales charge. All classes of
shares have identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D shares bear
certain expenses related to the account maintenance of such shares, and Class B
and Class C shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures. The following
is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities,
which are traded both in the over-the-counter market and on a stock exchange,
are valued according to the broadest and most representative market. Options
written are valued at the last sale price in the case of exchange-traded options
or, in the case of options traded in the over-the-counter market, the last asked
price. Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the over-the-
counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
(b) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the equity and currency markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.
- Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market
to reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters
into a closing
F-14
<PAGE> 70
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent
the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
- Forward foreign exchange contracts--The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on
the Fund's records. However, the effect on operations is recorded from
the date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
- Foreign currency options and futures--The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or
long hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
- Financial futures contracts--The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific price
or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
(d) Income taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over a
five-year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with MLAM. The
general partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into Distribution Agreements
F-15
<PAGE> 71
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)--(CONTINUED)
and Distribution Plans with Merrill Lynch Funds Distributor, a division of
Princeton Funds Distributor, Inc. ("MLFD" or the "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. Pursuant to the Investment Advisory
Agreement between the Fund and MLAM, the management fee payable by the Fund is
equal to 0.75% of average daily net assets not exceeding $1.5 billion and 0.725%
of average daily net assets in excess of $1.5 billion. After the Reorganization,
the management fee paid by the Combined Fund will be at the Fund's lower rate of
0.74%. For the period October 31, 1997 (commencement of operations) to June 30,
1998, MLAM earned fees of $7,765,263 from the Fund and $2,821,860 from Merrill
Lynch Global Holdings, Inc.
Pursuant to the Distribution Plans adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
<TABLE>
<CAPTION>
ACCOUNT MAINTENANCE FEE DISTRIBUTION FEE
----------------------- ----------------
<S> <C> <C>
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the period October 31, 1997 (commencement of operations) to June 30,
1998, MLFD earned underwriting discounts and direct commissions and MLPF&S
earned dealer concessions on sales of the Fund's Class A and Class D shares as
follows:
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH
GLOBAL GROWTH FUND, INC. GLOBAL HOLDINGS, INC.
------------------------ ---------------------
<S> <C> <C>
Class A:
MLFD $ 57 $ 460
MLPF&S $ 1,166 $6,516
Class D:
MLFD $ 55,103 $ 173
MLPF&S $5,765,620 $1,943
</TABLE>
For the period October 31, 1997 (commencement of operations) to June 30,
1998, MLPF&S received contingent deferred sales charges relating to transactions
subject to front-end sales charge waivers in Class A and Class D shares, as
follows:
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH
GLOBAL GROWTH FUND, INC. GLOBAL HOLDINGS, INC.
------------------------ ---------------------
<S> <C> <C>
Class A -- --
Class D $8,473 --
</TABLE>
F-16
<PAGE> 72
MERRILL LYNCH GLOBAL GROWTH FUND, INC. AND
MERRILL LYNCH GLOBAL HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)--(CONCLUDED)
For the period October 31, 1997 to June 30, 1998, MLPF&S received
contingent deferred sales charges relating to transactions in Class B and Class
C shares, as follows:
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH
GLOBAL GROWTH FUND, INC. GLOBAL HOLDINGS, INC.
------------------------ ---------------------
<S> <C> <C>
Class B $1,245,043* $113,394*
Class C $ 121,497 $ 488
</TABLE>
- ---------------
* Additional contingent deferred sales charges 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.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML &
Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors
of MLAM, PSI, FDS, MLFD and/or ML & Co.
F-17
<PAGE> 73
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn
and Philip M. Mandel as proxies, each of them with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all of the shares of common stock of Merrill Lynch Global Holdings, Inc.
(the "Fund") held of record by the undersigned on September 15, 1998, at the
Special Meeting of Stockholders of the Fund to be held on November 5, 1998, or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1.
By signing and dating this card, you authorize the proxies to
vote each proposal as marked, or if not marked, to vote "FOR" each proposal,
and to use their discretion to vote for any other matter as may properly come
before the meeting or any adjournment thereof. If you do not intend to
personally attend the meeting, please complete and return this card at once in
the enclosed envelope.
TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION
FOR YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN
THIS PORTION ONLY
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
persons.
Vote On Proposal
1. To approve the Agreement and Plan of Reorganization between
Merrill Lynch Global Holdings, Inc. and Merrill Lynch Global
Growth Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
- ------------------------------ ---------------------------------
| |
- ------------------------------ ---------------------------------
Signature (PLEASE DATE Signature (Joint Owners) DATE
SIGN WITHIN BOX)
<PAGE> 74
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Reference is made to Article V of Registrant's Amended and Restated
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 misfeasance, 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 or her activities as an
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 or her 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
C-1
<PAGE> 75
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 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 16. EXHIBITS.
<TABLE>
<S> <C> <C>
(1)(a) -- Articles of Incorporation of the Registrant, dated August 4,
1997.(a)
(1)(b) -- Articles Supplementary to Articles of Incorporation of the
Registrant, dated November 3, 1997.(b)
(2) -- By-Laws of the Registrant.(c)
(3) -- Not applicable.
(4) -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Global Holdings, Inc.(d)
(5) -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation, and the By-Laws of the Registrant.(e)
(6)(a) -- Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P. ("MLAM"), as amended.
(6)(b) -- Sub-Advisory Agreement between MLAM and Merrill Lynch Asset
Management U.K. Limited.(c)
(7)(a) -- Class A Shares Distribution Agreement between the Registrant
and Merrill Lynch Funds Distributor, Inc. (now known as
Princeton Funds Distributor, Inc.) (the "Distributor").(c)
(7)(b) -- Class B Shares Distribution Agreement between the Registrant
and the Distributor.(c)
(7)(c) -- Class C Shares Distribution Agreement between the Registrant
and the Distributor.(c)
(7)(d) -- Class D Shares Distribution Agreement between the Registrant
and the Distributor.(c)
(8) -- None.
(9) -- Custody Agreement between the Registrant and State Street
Bank and Trust Company.(c)
(10)(a) -- Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(c)
(10)(b) -- Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(c)
(10)(c) -- Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(c)
(10)(d) -- Merrill Lynch Select Pricing(SM) System Plan pursuant to
Rule 18f-3.(f)
(11) -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.
(12) -- Private Letter Ruling from the Internal Revenue Service.(g)
(13) -- Not applicable.
(14)(a) -- Consent of Ernst & Young LLP, independent auditors for the
Registrant.
(14)(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Global Holdings, Inc.
(15) -- Not applicable.
(16) -- Power of Attorney.(h)
(17)(a) -- Prospectus dated March 6, 1998, and Statement of Additional
Information dated March 6, 1998, of the Registrant.(i)
(17)(b) -- Semi-Annual Report to Stockholders of the Registrant for the
period October 31, 1997 to February 28, 1998.(i)
</TABLE>
C-2
<PAGE> 76
<TABLE>
<S> <C> <C>
(17)(c) -- Prospectus dated March 5, 1998, and Statement of Additional
Information dated March 5, 1998, of Merrill Lynch Global
Holdings, Inc.
(17)(d) -- Semi-annual Report to Stockholders of Merrill Lynch Global
Holdings, Inc. for the six months ended May 31, 1998.(i)
</TABLE>
- ---------------
(a) Filed on August 5, 1997, as an Exhibit to the Registrant's Registration
Statement on Form N-1A (File No. 333-32899) under the Securities Act of
1933 (the "Registration Statement").
(b) Filed on March 6, 1998 as an Exhibit to Post-Effective Amendment No. 1 to
the Registration Statement.
(c) Filed on September 10, 1997 as an Exhibit to Pre-Effective Amendment No. 1
to the Registration Statement.
(d) Included as Exhibit I to the Proxy Statement and Prospectus contained in
this Registration Statement.
(e) 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
Exhibits 1(a) and 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
By-Laws, filed as Exhibit 2 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).
(g) To be filed by post-effective amendment.
(h) Included on the signature page of the Registrant's Registration Statement on
Form N-14 (File No. 333-61277) under the Securities Act of 1933 (the
"Registration Statement on Form N-14") filed on August 12, 1998 and
incorporated by reference herein.
(i) Filed on August 12, 1998, as an Exhibit to the Registration Statement on
Form N-14.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, a copy
of the Internal Revenue Service private letter ruling applied for, within a
reasonable time after receipt of such ruling.
C-3
<PAGE> 77
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 22nd day of September, 1998.
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
(Registrant)
By: /s/ ARTHUR ZEIKEL
------------------------------------
(ARTHUR ZEIKEL, PRESIDENT)
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ARTHUR ZEIKEL* President (Principal Executive
- ----------------------------------------------------- Officer) and Director
(ARTHUR ZEIKEL)
GERALD M. RICHARD* Treasurer (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
(GERALD M. RICHARD)
DONALD CECIL* Director
- -----------------------------------------------------
(DONALD CECIL)
M. COLYER CRUM* Director
- -----------------------------------------------------
(M. COLYER CRUM)
EDWARD H. MEYER* Director
- -----------------------------------------------------
(EDWARD H. MEYER)
JACK B. SUNDERLAND* Director
- -----------------------------------------------------
(JACK B. SUNDERLAND)
J. THOMAS TOUCHTON* Director
- -----------------------------------------------------
(J. THOMAS TOUCHTON)
FRED G. WEISS* Director
- -----------------------------------------------------
(FRED G. WEISS)
*By: /s/ ARTHUR ZEIKEL September 22, 1998
------------------------------------------------
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
</TABLE>
C-4
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
6(a) -- Management Agreement between the Registrant and Merrill
Lynch Asset Management, L.P., as amended.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.
14(a) -- Consent of Ernst & Young LLP, independent auditors for the
Registrant.
14(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Global Holdings, Inc.
17(c) -- Prospectus dated March 5, 1998, and Statement of Additional
Information dated March 5, 1998, of Merrill Lynch Global
Holdings, Inc.
</TABLE>
<PAGE> 1
Exhibit 6(a)
MANAGEMENT AGREEMENT
AGREEMENT made this 9th day of September, 1997, as amended the 8th day
of May, 1998, by and between MERRILL LYNCH GLOBAL GROWTH FUND, INC., a Maryland
corporation (hereinafter referred to as the "Fund"), and MERRILL LYNCH ASSET
MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as the
"Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Manager to render management
and investment advisory services to the Fund in the manner and on the terms
hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:
<PAGE> 2
ARTICLE I
Duties of the Manager
The Fund hereby employs the Manager to act as a manager and investment
adviser of the Fund and to furnish or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to policies
of, review by and overall control of the Board of Directors of the Fund (the
"Directors"), for the period and on the terms and conditions set forth in this
Agreement. The Manager hereby accepts such employment and agrees during such
period, at its own expense, to render, or arrange for the rendering of, such
services and to assume the obligations herein set forth for the compensation
provided for herein. The Manager and its affiliates shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
(a) Management and Administrative Services. The Manager shall perform
(or arrange for the performance by affiliates of) the management and
administrative services necessary for the operation of the Fund including
administering shareholder accounts and handling shareholder relations. The
Manager shall provide the Fund with office space, equipment and facilities and
such other services as the Manager, subject to review by the Directors, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Manager shall also, on behalf of the Fund, conduct
relations with custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder service agents, accountants, attorneys, underwriters,
brokers and dealers, corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or desirable. The
Manager shall generally monitor the Fund's compliance with investment policies
and
2
<PAGE> 3
restrictions as set forth in the currently effective prospectus and statement of
additional information relating to the shares of the Fund under the Securities
Act of 1933, as amended (the "Prospectus" and "Statement of Additional
Information", respectively). The Manager shall make reports to the Directors of
its performance of obligations hereunder and furnish advice and recommendations
with respect to such other aspects of the business and affairs of the Fund as it
shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide (or arrange
for affiliates to provide) the Fund with such investment research, advice and
supervision as the latter may from time to time consider necessary for the
proper supervision of the assets of the Fund, shall furnish continuously an
investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
set forth in the Articles of Incorporation and By-Laws of the Fund, as amended
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objectives, investment policies and
investment restrictions as the same are set forth in the Prospectus and
Statement of Additional Information. The Manager shall also make decisions for
the Fund as to the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the Fund's portfolio securities shall
be exercised. Should the Directors at any time, however, make any definite
determination as to investment policy and notify the Manager thereof in writing,
the Manager shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked. The Manager shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies
3
<PAGE> 4
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Manager is authorized as the agent
of the Fund to give instructions to the Custodian of the Fund as to deliveries
of securities and payments of cash for the account of the Fund. In connection
with the selection of such brokers or dealers and the placing of such orders
with respect to assets of the Fund, the Manager is directed at all times to seek
to obtain execution and price within the policy guidelines determined by the
Directors as set forth in the Prospectus and Statement of Additional
Information. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Manager may select brokers or dealers with
which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Manager. The Manager is a limited
partnership and its limited partner is Merrill Lynch & Co., Inc. and its general
partner is Princeton Services, Inc. The Manager will notify the Fund of any
change in the membership of the partnership within a reasonable time after such
change.
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and shall at its own expense, provide the office space, equipment and facilities
which it is obligated to provide under Article I hereof, and shall pay all
compensation of officers of the Fund and all Directors who are affiliated
persons of the Manager.
4
<PAGE> 5
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund (except for the expenses paid by the Distributor),
including, without limitation: redemption expenses, expenses of portfolio
transactions, expenses of registering shares under federal and state securities
laws, pricing costs (including the daily calculation of net asset value),
expenses of printing shareholder reports, stock certificates, prospectuses and
statements of additional information, Securities and Exchange Commission fees,
interest, taxes, custodian and transfer agency fees, fees and actual
out-of-pocket expenses of Directors who are not affiliated persons of the
Manager, fees for legal and auditing services, litigation expenses, costs of
printing proxies and other expenses related to shareholder meetings, and other
expenses properly payable by the Fund. It is also understood that the Fund will
reimburse the Manager for its costs in providing accounting services to the
Fund. The Distributor will pay certain of the expenses of the Fund incurred in
connection with the continuous offering of Fund shares.
ARTICLE III
Compensation of the Manager
Management Fee. For the services rendered, the facilities furnished and
expenses assumed by the Manager, the Fund shall pay to the Manager at the end of
each calendar month a fee based upon the average daily value of the net assets
of the Fund, as determined and computed in accordance with the description of
the determination of net asset value contained in the Prospectus and Statement
of Additional Information, at the annual rate of 0.75% of the average daily net
assets of the Fund not exceeding $1.5 billion and 0.725% of the average daily
net assets of the Fund in excess of $1.5 billion, commencing on the date of the
amendment hereof. If this Agreement becomes effective subsequent to the first
day of a month or shall terminate before the last day of a month, compensation
for that part of the month this Agreement
5
<PAGE> 6
is in effect shall be prorated in a manner consistent with the calculation of
the fee as set forth above. During any period when the determination of net
asset value is suspended by the Directors, the net asset value of a share as of
the last business day prior to such suspension shall for this purpose be deemed
to be the net asset value at the close of each succeeding business day until it
is again determined.
ARTICLE IV
Sub-Advisory Agreement
The Manager may enter into a separate sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") in which the Manager
may contract for sub-advisory services and pay MLAM U.K. compensation for its
services out of the compensation received hereunder pursuant to Article III.
Such sub-advisory agreement will be coterminous with this Management Agreement.
ARTICLE V
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article V, the term
"Manager" shall include any affiliates of the Manager performing services for
the Fund contemplated hereby and directors, officers and employees of the
Manager and such affiliates.
6
<PAGE> 7
ARTICLE VI
Activities of the Manager
The services of the Manager to the Fund are not to be deemed to be
exclusive, and the Manager and any person controlled by or under common control
with the Manager (for purposes of Article VI referred to as "affiliates") is
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Fund are or may become interested in the
Manager and its affiliates, as directors, officers, employees and shareholders
or otherwise and that directors, officers, employees and shareholders of the
Manager and its affiliates are or may become similarly interested in the Fund,
and that the Manager and directors, officers, employees, partners and
shareholders of its affiliates may become interested in the Fund as shareholder
or otherwise.
ARTICLE VII
Duration and Termination of this Contract
This Agreement shall become effective as of the date of the
commencement of operations of the Fund as an open-end investment fund and shall
remain in force until August 31, 1999, and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Directors, or
by the vote of a majority of the outstanding voting securities of the Fund, and
(ii) a majority of those Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Manager, on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment.
7
<PAGE> 8
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under the
Investment Company Act.
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
MERRILL LYNCH GLOBAL GROWTH FUND, INC.
By /s/ Arthur Zeikel
-------------------------------------
Name: Arthur Zeikel
Title: President
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By /s/ Terry K. Glenn
-------------------------------------
Name: Terry K. Glenn
Title: Executive Vice President
9
<PAGE> 1
Exhibit 11
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
September 22, 1998
Merrill Lynch Global Growth Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for Merrill Lynch Global Growth Fund, Inc.
(the "Fund") in connection with the proposed acquisition by the Fund of
substantially all of the assets and the assumption of substantially all of the
liabilities of Merrill Lynch Global Holdings, Inc. ("Global Holdings"), in
exchange for newly-issued shares of common stock of the Fund (the
"Reorganization"). This opinion is furnished in connection with the Fund's
Registration Statement on Form N-14 under the Securities Act of 1933, as amended
(the "Registration Statement"), relating to shares of common stock, par value
$0.10 per share, of the Fund (the "Shares"), to be issued in the Reorganization.
As counsel for the Fund, we are familiar with the proceedings taken by
it and to be taken by it in connection with the authorization, issuance and sale
of the Shares. In addition, we have examined and are familiar with the Articles
of Incorporation of the Fund, as amended, the By-Laws of the Fund and such other
documents as we have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that subsequent to the
approval of the Agreement and Plan of Reorganization between the Fund and Global
Holdings set forth in the proxy statement and prospectus constituting a part of
the Registration Statement (the "Proxy Statement and Prospectus"), the Shares,
upon issuance in the manner referred to in the Registration Statement, for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of common stock of the Fund.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Proxy Statement and
Prospectus constituting parts thereof.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Additional
Information-Independent Auditors" and "Experts" in Pre-Effective Amendment No. 1
to the Registration Statement on Form N-14 under the Securities Act of 1933
(File No. 333-61277) and under the Investment Company Act of 1940 (File No.
811-8327) of Merrill Lynch Global Growth Fund, Inc. and to the incorporation by
reference therein of our report dated September 8, 1997, with respect to the
statement of assets and liabilities of Merrill Lynch Global Growth Fund, Inc. as
of September 5, 1997.
/s/ Ernst & Young LLP
Princeton, New Jersey
September 18, 1998
<PAGE> 1
Exhibit 14(b)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Growth Fund, Inc.:
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of our report dated January 14, 1998 appearing in the Statement of
Additional Information dated March 5, 1998 of Merrill Lynch Global Holdings,
Inc., and to the references to us under the captions "Comparison of the Funds -
Financial Highlights" and "Experts" appearing in the Proxy Statement and
Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
-----------------------------
Deloitte & Touche LLP
Princeton, New Jersey
September 21, 1998
<PAGE> 1
EXHIBIT (17)(c)
PROSPECTUS
March 5, 1998
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 ~ PHONE NO. (609) 282-2800
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may be
shifted among the various capital markets of the world and among different types
of equity, debt and convertible securities depending upon management's outlook
with respect to prevailing trends and developments. It is presently contemplated
that the Company's assets will be primarily invested in equity securities of
companies located in the United States, Japan and Western Europe. For more
information on the Company's investment objectives and policies, please see
"Investment Objective and Policies" on page 12.
Pursuant to the Merrill Lynch Select Pricing (SM) System, the Company
offers four classes of shares, each with a different combination of sales
charges, ongoing fees and other features. The Merrill Lynch Select Pricing (SM)
System permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing (SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor,
Inc. (the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers that have entered into selected dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000, and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100, and the minimum subsequent purchase is $1, and for
participants in certain fee-based programs the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent") are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Company
that is relevant to making an investment in the Company. This Prospectus should
be retained for future reference. A statement containing additional information
about the Company, dated March 5, 1998 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is available, without charge, by calling or by writing the
Company at the above telephone number or address. The Commission maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
MERRILL LYNCH ASSET MANAGEMENT - INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
<PAGE> 2
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring
and recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)....................... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments......................... None None None None
Deferred Sales Charge (as a percentage
of original purchase price or
redemption proceeds, whichever is
lower)................................ None(d) 4.0% during the first year, decreasing 1.0% for one year(f) None(d)
1.0% annually thereafter to 0.0% after
the fourth year(e)
Exchange Fee............................ None None None None
ANNUAL COMPANY OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g)............. 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance Fees.............. None 0.25% 0.25% 0.25%
Distribution Fees..................... None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after approximately
eight years and cease being subject to
distribution fees)
Other Expenses:
Shareholder Servicing Costs(i)........ 0.22% 0.25% 0.27% 0.22%
Other................................. 0.17% 0.17% 0.16% 0.17%
Total Other Expenses................ 0.39% 0.42% 0.43% 0.39%
TOTAL COMPANY OPERATING EXPENSES...... 1.39% 2.42% 2.43% 1.64%
</TABLE>
(a) Class A shares are sold to a limited group of investors including
existing Class A shareholders, certain retirement plans and
participants in certain fee-based programs. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares"-page 27 and "Shareholder Services--Fee-Based Programs"-page 39.
(b) Class B shares convert to Class D shares automatically approximately
eight years after initial purchase. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares"-page 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A or Class D
purchases of $1,000,000 or more are not subject to an initial sales
charge. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"-page 27.
(d) Class A and Class D shares are not subject to a contingent deferred
sales charge ("CDSC"), except that certain purchases of $1,000,000 or
more that are not subject to an initial sales charge may instead be
subject to a CDSC of 1.0% of amounts redeemed within the first year
after purchase. Such CDSC may be waived in connection with certain
fee-based programs. See "Shareholder Services--Fee-Based Programs"-page
39.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"-page 39.
(f) The CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"-page 39.
(g) See "Management of the Company--Advisory and Management
Arrangements"-page 22.
(h) See "Purchase of Shares-Distribution Plans"-page 32.
(i) See "Management of the Company--Transfer Agency Services"-page 23.
2
<PAGE> 3
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
EXAMPLE:
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Company Operating Expenses for each class set forth on page
2, (2) a 5% annual return throughout the periods and (3)
redemption at the end of the period (including any applicable
CDSC for Class B and Class C shares):
Class A...................................................... $66 $ 94 $125 $211
Class B...................................................... $65 $ 95 $129 $257*
Class C...................................................... $35 $ 76 $130 $277
Class D...................................................... $68 $102 $137 $237
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of the
period:
Class A...................................................... $66 $ 94 $125 $211
Class B...................................................... $25 $ 75 $129 $257*
Class C...................................................... $25 $ 76 $130 $277
Class D...................................................... $68 $102 $137 $237
</TABLE>
- ------------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in
understanding the costs and expenses that a shareholder in the Company will bear
directly or indirectly. THE EXAMPLE SET FORTH ABOVE ASSUMES REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AND UTILIZES A 5% ANNUAL RATE OF RETURN AS MANDATED
BY COMMISSION REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR
ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF
THE EXAMPLE. Class B and Class C shareholders who hold their shares for an
extended period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front-end sales charges permitted under the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$5.35) for confirming purchases and repurchases. Purchases and redemptions made
directly through the Company's Transfer Agent are not subject to the processing
fee. See "Purchase of Shares" and "Redemption of Shares."
MERRILL LYNCH SELECT PRICING (SM) SYSTEM
The Company offers four classes of shares under the Merrill Lynch
Select Pricing (SM) System. The shares of each class may be purchased at a price
equal to the next determined net asset value per share subject to the sales
charges and ongoing fee arrangements described below. Shares of Class A and
Class D are sold to investors choosing the initial sales charge alternatives,
and shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing (SM) System is used
by more than 50 registered investment companies advised by Merrill Lynch Asset
Management, L.P. ("MLAM" or
3
<PAGE> 4
the "Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Company
represents an identical interest in the investment portfolio of the Company and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution 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 Company and, accordingly, such charges will
not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Company
for each class of shares are calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange privileges.
See "Shareholder Services-Exchange Privilege."
Investors should understand that the purpose and function of the
initial sales charges with respect to the Class A and Class D shares are the
same as those of the 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
Company. The distribution-related revenues paid with respect to a class will not
be used to finance the distribution expenditures of another class. Sales
personnel may receive different compensation for selling different classes of
shares.
The following table sets forth a summary of the distribution
arrangements for each class of shares under the Merrill Lynch Select Pricing(SM)
System, followed by a more detailed description of each class and a discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(SM) System that the
investor believes is the most beneficial under his or her particular
circumstances. More detailed information as to each class of shares is set forth
under "Purchase of Shares."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum 5.25% initial
A sales charge(2)(3) No No No
- -------------------------------------------------------------------------------------------------
B shares convert to
CDSC for a period of four years D shares automatically
at a rate of 4.0% during the first year after approximately
B decreasing 1.0% annually to 0.0%(4) 0.25% 0.75% eight years(5)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales charge(3) 0.25% No No
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a
percentage of the offering price. CDSCs are imposed if the redemption
occurs within the applicable CDSC time period. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed.
(Footnotes continue on next page)
4
<PAGE> 5
(2) Offered only to eligible investors. See "Purchase of Shares-Initial
Sales Charge Alternatives-Class A and Class D Shares-Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of
Class A shares by certain retirement plans and participants in
connection with certain fee-based programs. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead may be subject to a 1.0% CDSC if redeemed within one
year. Such CDSC may be waived in connection with certain fee-based
programs. A 0.75% sales charge for 401(k) purchases over $1,000,000
will apply. See "Class A" and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a
ten-year conversion period. If Class B shares of the Company are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged
will be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Company are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding Class
A shares. Investors that currently own Class A shares of the Company in
a shareholder account are entitled to purchase additional Class A
shares of the Company in that account. Other eligible investors include
certain retirement plans and participants in certain fee-based
programs. In addition, Class A shares will be offered at net asset
value to Merrill Lynch & Co., Inc. ("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 to their directors and
employees and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge of 5.25%, is reduced for purchases of
$25,000 and over, and waived for purchases of Class A shares by certain
retirement plans and participants in connection with certain fee-based
programs. Purchases of $1,000,000 or more may not be subject to an
initial sales charge, but if the initial sales charge is waived, such
purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. Sales charges are also reduced under a
right of accumulation that takes into account the investor's holdings
of all classes of all MLAM-advised mutual funds. See "Purchase of
Shares-Initial Sales Charge Alternatives-Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
certain fee-based programs. Approximately eight years after issuance,
Class B shares will convert automatically into Class D shares of the
Company, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a
5
<PAGE> 6
month on the basis of the relative net asset values of the shares of
the two classes on the conversion date, without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to Class
D shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to Class D
shares. The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans are
modified as described under "Purchase of Shares-Deferred Sales Charge
Alternatives-Class B and Class C Shares-Conversion of Class B Shares to
Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC of 1.0% if they are redeemed within one year of purchase. Such
CDSC may be waived in connection with certain fee-based programs.
Although Class C shares are subject to a CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor who purchases Class C shares will
be subject to distribution fees that will be imposed on Class C shares
for an indefinite period subject to annual approval by the Company's
Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge of 5.25% is reduced
for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales
charge is waived, such purchase may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for the Class D shares is the same
as the schedule for Class A shares, except that there is no waiver for
purchases by retirement plans and participants in connection with
certain fee-based programs. Class D shares also will be issued upon
conversion of Class B shares as described above under "Class B." See
"Purchase of Shares-Initial Sales Charge Alternatives-Class A and Class
D Shares."
The following is a discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill Lynch
Select Pricing(SM) System that the investor believes is most beneficial under
his or her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial
sales charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares 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
6
<PAGE> 7
fees on Class B or Class C shares may exceed the initial sales charge and, in
the case of Class D shares, the account maintenance fee. Although some investors
that previously purchased Class A shares may no longer be eligible to purchase
Class A shares of other MLAM-advised mutual funds, those previously purchased
Class A shares, together with Class B, Class C and Class D share holdings, will
count toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will cause
Class B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to have a higher
expense ratio, pay lower dividends and have a lower total return than Class A
shares.
Deferred Sales Charge Alternatives. Because no initial sales charges
are deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance 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
Company after a conversion period of approximately eight years, and thereafter
investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they
determine it to be most advantageous to have all their funds invested initially
and intend to hold their shares for an extended period of time. Investors in
Class B shares should take into account whether they intend to redeem their
shares within the CDSC period and, if not, whether they intend to remain
invested until the end of the conversion period and thereby take advantage of
the reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they determine
that it is advantageous to have all their assets invested initially and they are
uncertain as to the length of time they intend to hold their assets in
MLAM-advised mutual funds. Although Class C shareholders are subject to a
shorter CDSC period at a lower rate, they forgo the Class B conversion feature,
making their investment subject to account maintenance and distribution fees for
an indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited under a
voluntary waiver of asset-based sales charges. See "Purchase of
Shares-Limitations on the Payment of Deferred Sales Charges."
7
<PAGE> 8
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Company by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal
year ended November 30, 1997, and the independent auditors' report thereon are
included in the Statement of Additional Information. Further information about
the performance of the Company is contained in the Company's most recent annual
report to shareholders which may be obtained, without charge, by calling or by
writing the Company at the telephone number or address on the front cover of
this Prospectus.
The following per share data and ratios have been derived from
information provided in the Company's audited financial statements.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
FOR THE
SEVEN-
FOR THE YEAR ENDED NOVEMBER 30, MONTH
PERIOD
ENDED
---------------------------------------------------------------------------- NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning of
period............................ $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91
--------- -------- -------- ------- ------- ------- -------- --------
Investment income (loss)-net....... (.02) .13 .05 .03 .04 .10 .16 .17
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net.................. .86 1.87 1.52 .53 2.07 1.05 .53 (.30)
--------- -------- -------- ------- ------- ------- -------- --------
Total from investment
operations........................ .84 2.00 1.57 .56 2.11 1.15 .69 (.13)
--------- -------- -------- ------- ------- ------- -------- --------
Less dividends and distributions:
Investment income-net............. (.02) - (.01) (.01) - (.10) (.21) (.13)
In excess of investment
income-net........................ (.10) - - - - - - -
Realized gain on investments-net... (.79) (.75) (.51) (.80) (.82) (.22) (.01) (.17)
--------- -------- -------- ------- ------- ------- -------- --------
Total dividends and
distributions..................... (.91) (.75) (.52) (.81) (.82) (.32) (.22) (.30)
--------- -------- -------- ------- ------- ------- -------- --------
Net asset value, end of
period............................ $ 15.05 $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48
========= ======== ======== ======= ======= ======= ======== ========
Total Investment Return:**
Based on net asset value per
share............................. 6.04% 15.20% 12.92% 4.39% 19.16% 10.67% 6.77% (1.45)%#
========= ======== ======== ======= ======= ======= ======== ========
Ratios to Average Net Assets:
Expenses.......................... 1.39% 1.37% 1.51% 1.44% 1.43% 1.49% 1.48% 1.59%*
========= ======== ======== ======= ======= ======= ======== ========
Investment income (loss)-net....... (.12)% .92% .41% .23% .32% (.19)% 1.31% 2.63%*
========= ======== ======== ======= ======= ======= ======== ========
Supplemental Data:
Net assets, end of period (in
thousands)........................ $344,940 $398,310 $327,270 $330,132 $256,203 $166,947 $165,687 $176,898
========= ======== ======== ======= ======= ======= ======== ========
Portfolio turnover................. 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44%
========= ======== ======== ======= ======= ======= ======== ========
Average commission rate
paid##............................ $ .0103 $ .0063 - - - - - -
========= ======== ======== ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning of
period............................ $ 11.79 $ 12.23 $ 16.90
-------- -------- --------
Investment income (loss)-net....... .20 .29 .43
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net.................. .62 .88 (1.09)
-------- -------- --------
Total from investment
operations........................ .82 1.17 (.66)
-------- -------- --------
Less dividends and distributions:
Investment income-net............. (.21) (.34) (.37)
In excess of investment
income-net........................ - - -
Realized gain on investments-net... (1.49) (1.27) (3.64)
-------- -------- --------
Total dividends and
distributions..................... (1.70) (1.61) (4.01)
-------- -------- --------
Net asset value, end of
period............................ $ 10.91 $ 11.79 $ 12.23
======== ======== ========
Total Investment Return:**
Based on net asset value per
share............................. 6.93% 10.99% (4.43)%
======== ======== ========
Ratios to Average Net Assets:
Expenses.......................... 1.49% 1.47% 1.31%
======== ======== ========
Investment income (loss)-net....... 1.65% 2.04% 2.90%
======== ======== ========
Supplemental Data:
Net assets, end of period (in
thousands)........................ $187,843 $195,932 $249,736
======== ======== ========
Portfolio turnover................. 84.21% 102.77% 109.68%
======== ======== ========
Average commission rate
paid##............................ - - -
======== ======== ========
</TABLE>
(Footnotes on page 10)
8
<PAGE> 9
FINANCIAL HIGHLIGHTS - (Continued)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------
FOR THE
SEVEN-
MONTH
PERIOD
FOR THE YEAR ENDED NOVEMBER 30, ENDED
------------------------------------------------------------------------- NOV. 30,
1997++ 1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................... $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82
------- ------- ------- ------- ------- ------- ------- -------
Investment income
(loss)-net.................. (.17) (.02) (.08) (.10) (.08) (.03) .04 .10
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net............ .84 1.79 1.47 .52 2.02 1.05 .54 (.30)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................. .67 1.77 1.39 .42 1.94 1.02 .58 (.20)
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Investment income-
net......................... - - - - - - (.11) (.09)
Realized gain on
investments-net............. (.76) (.75) (.51) (.66) (.82) (.22) (.01) (.17)
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions............... (.76) (.75) (.51) (.66) (.82) (.22) (.12) (.26)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 14.31 $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share....................... 4.98% 13.97% 11.78% 3.32% 17.87% 9.58% 5.67% (2.08)%#
======= ======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 2.42% 2.40% 2.55% 2.48% 2.46% 2.52% 2.51% 2.63%*
======= ======= ======= ======= ======= ======= ======= =======
Investment income
(loss)-net.................. (1.11)% (.11)% (.63)% (.80)% (.72)% (1.19)% .25% 1.54%*
======= ======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).............. $66,791 $44,311 $44,387 $49,647 $34,241 $22,925 $24,960 $ 22,623
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover........... 54.50% 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44%
======= ======= ======= ======= ======= ======= ======= =======
Average commission rate
paid##...................... $ .0103 $ .0063 - - - - - -
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------
FOR THE
FOR THE PERIOD
YEAR OCT. 21,
ENDED 1988+ TO
APRIL 30, APRIL 30,
1990 1989
------- --------
<S> <C> <C>
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................... $ 11.74 $ 11.29
------- -------
Investment income
(loss)-net.................. .16 .06
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net............ .55 .93
------- -------
Total from investment
operations.................. .71 .99
------- -------
Less dividends and
distributions:
Investment income-
net......................... (.14) (.15)
Realized gain on
investments-net............. (1.49) (.39)
------- -------
Total dividends and
distributions............... (1.63) (.54)
------- -------
Net asset value, end of
period...................... $ 10.82 $ 11.74
======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share....................... 5.91% 9.10%#
======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses..................... 2.53% 2.50%*
======= =======
Investment income
(loss)-net.................. .65% .10%*
======= =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).............. $ 16,342 $ 1,476
======= =======
Portfolio turnover........... 84.21% 102.77%
======= =======
Average commission rate
paid##...................... - -
======= =======
</TABLE>
(Footnotes on Page 10)
9
<PAGE> 10
FINANCIAL HIGHLIGHTS - (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
------------------------------------------- -----------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD YEAR ENDED PERIOD
NOVEMBER 30, OCT. 21, 1994+ NOVEMBER 30, OCT. 21, 1994+
-------------------------- TO NOV. 30, ------------------------ TO NOV. 30,
1997 1996 1995 1997 1996 1995 1994 1994
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $14.41 $13.38 $12.51 $13.08 $15.04 $13.84 $12.81 $13.39
------ ------ ------ ------ ------ ------ ------ ------
Investment income (loss)-net..... (.17) (.01) (.08) (.02) (.06) .09 .02 (.01)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions-net................. .83 1.79 1.46 (.55) .87 1.86 1.52 (.57)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations....................... .66 1.78 1.38 (.57) .81 1.95 1.54 (.58)
------ ------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
Investment income-net............ -+++ - - - (.01) - -+++ -
In excess of investment
income-net....................... -+++ - - - (.08) - - -
Realized gain on
investments-net.................. (.79) (.75) (.51) - (.79) (.75) (.51) -
------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions.................... (.79) (.75) (.51) - (.88) (.75) (.51) -
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period... $14.28 $14.41 $13.38 $12.51 $14.97 $15.04 $13.84 $12.81
====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................ 4.96% 14.05% 11.69% (4.36)%# 5.80% 14.86% 12.73% (4.33)%#
====== ====== ====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 2.43% 2.41% 2.55% 3.00%* 1.64% 1.63% 1.76% 2.23%*
====== ====== ====== ====== ====== ====== ====== ======
Investment income (loss)-net..... (1.09)% (.09)% (.63)% (1.31)%* (.39)% .60% .18% (.67)%*
====== ====== ====== ====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $5,964 $ 910 $ 376 $ 177 $8,486 $4,688 $3,459 $1,591
====== ====== ====== ====== ====== ====== ====== ======
Portfolio turnover............... 54.50% 41.14% 44.64% 40.18% 54.50% 41.14% 44.64% 40.18%
====== ====== ====== ====== ====== ====== ====== ======
Average commission rate
paid##........................... $.0103 $.0063 - - $.0103 $.0063 - -
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Company
is required to disclose its average commission rate per share for
purchases and sales of equity securities. The "Average Commission Rate
Paid" includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
10
<PAGE> 11
INTERNATIONAL DIVERSIFICATION
The Company, utilizing the combined purchasing power of its
shareholders' funds, provides the investor with the opportunity to participate
with a minimum investment of $1,000 ($100 for retirement plans and $500 for
certain fee-based programs) in a diversified portfolio of securities in foreign
markets which typically would require substantially larger commitments. The
Investment Adviser believes that, based upon past performance, an
internationally diversified portfolio offers the possibility of a higher
expected return than a portfolio comprised of securities from one securities
market. The reason for this is that historically the securities markets of many
countries 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 Company's portfolio as a whole. Other
advantages include professional management and administrative convenience.
Investments on an international basis involve certain risks not
typically involved in domestic investments, including, but not limited to,
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions applicable to such investments. Securities
prices in different countries are subject to different economic, financial,
political and social factors. Since the Company will invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Company's assets denominated in that currency and the Company's yield on such
assets. The rate of exchange between the dollar and other currencies is
determined by forces of supply and demand in the foreign exchange markets. These
forces are, in turn, affected by the international balance of payments, the
level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. Also, many of the securities held by the Company will not be
registered with the Commission nor will the issuers thereof be subject to the
reporting requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments that could affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
of U.S. companies. In addition, certain foreign investments may be subject to
foreign withholding taxes. See "Additional Information-Taxes." Foreign financial
markets, while generally growing in volume, typically have substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable domestic
companies. The foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays or other problems in settlement
could result in temporary periods when assets of the Company are uninvested and
no return is earned thereon. The
11
<PAGE> 12
inability of the Company to make intended security purchases due to settlement
problems could cause the Company to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems either
could result in losses to the Company due to subsequent declines in value of the
portfolio security or, if the Company has entered into a contract to sell the
security, could result in possible liability to a purchaser. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the United States. There is generally less governmental
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States.
The Company has made and may continue to make substantial investments
in the securities of issuers in lesser developed capital markets. The risks of
investment in foreign securities described above tend to be particularly
significant when investing in lesser developed capital markets.
The operating expense ratio of the Company can be expected to be higher
than that of an investment company investing exclusively in U.S. securities
since the expenses of the Company, such as custodial costs and the advisory fee,
are higher.
Other special considerations are that the Company may invest up to 15%
of its total assets in illiquid or otherwise not readily marketable securities
and that certain foreign investments may be subject to foreign withholding
taxes. In addition, the Company's investment restrictions do not permit it to
borrow money other than for extraordinary or emergency purposes.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Total investment return
is the aggregate of income and capital value changes. In pursuing this
objective, management of the Company will utilize a fully managed investment
policy which permits the Company to take a flexible investment approach and vary
its policies as to geographic diversification and types of securities based upon
its evaluation of economic and market trends throughout the world. Accordingly,
investments may be shifted among the various capital markets of the world and
among different types of equity, debt and convertible securities depending upon
management's outlook with respect to prevailing trends and developments. The
investment objective of the Company described in this paragraph is a fundamental
policy of the Company and may not be changed without the approval of the holders
of a majority of the Company's outstanding voting securities.
The Company will invest in a diversified international portfolio of
securities of companies located throughout the world. While there are no
prescribed limits on geographic asset distribution and the Company has the
authority to invest in any country in the world, it is expected that the
Company's assets will be invested in several countries, primarily the U.S.,
Japan and Western European nations. The allocation of the Company's assets among
the various securities markets of the world will be determined by the Investment
Adviser as described under "Management of the Company." In making the allocation
of assets among the securities markets, the Investment Adviser will consider
such factors as the condition and growth potential of the various economies and
securities markets, currency and taxation considerations and other pertinent
12
<PAGE> 13
financial, social, national and political factors. Investments on an
international basis involve certain risks not typically involved in domestic
investments. See "International Diversification." Under certain adverse
investment conditions, the Company may restrict the securities markets in which
its assets will be invested and may increase the proportion of assets invested
in the U.S. securities markets.
As of the date of this Prospectus, investment emphasis is placed on
equity securities (i.e., common stocks) or securities convertible into equities.
However, the flexible fully managed investment approach enables the Company to
switch its emphasis to debt and convertible securities or non-convertible
preferred stocks if, in the opinion of the Investment Adviser, prevailing market
or economic conditions warrant. The Investment Adviser will determine the
emphasis among equity and debt securities, including convertible securities,
based upon its evaluation as to the types of securities presently providing the
opportunity for the highest total investment return consistent with the
Company's investment objective. Accordingly, while investment emphasis is
currently on equity securities, substantial portions of the Company's assets may
be invested in debt or convertible securities.
The Company has no established rating criteria for the debt securities
in which it may invest. Fixed income investments involve credit risk, which is
the risk that an issuer of such securities will not make timely payments of
interest or principal. Credit risk is greater in lower-rated securities. Fixed
income investments also involve interest rate risk, which is the risk that the
value of such an investment may fall when interest rates rise and rise when
interest rates fall. In general, fixed income securities with longer maturities
will be subject to greater volatility resulting from interest rate fluctuations
than will fixed income securities with shorter maturities.
As described above, the Investment Adviser will allocate the Company's
assets among the various securities markets of the world. In making these
allocations, the Investment Adviser will consider the factors described in the
preceding paragraphs in seeking to realize the Company's investment objective.
The Company reserves the right, as a temporary defensive measure and to provide
for redemptions, to hold cash or cash equivalents (in U.S. dollars or foreign
currencies) and short-term securities including money market securities. The
Company may invest in the securities of foreign issuers in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
foreign issuers.
The Company may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933, as amended (the
"Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under that Act. However, the Company will not invest
more than 15% of its total assets in illiquid investments, which includes
securities for which there is no readily available market, securities subject to
contractual restrictions on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities, unless the Company's
Board of Directors continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Directors may
adopt guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how this
market for restricted securities sold and offered under Rule 144A will develop,
the Board of Directors will carefully monitor the Company's
13
<PAGE> 14
investments in these securities, focusing on such factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Company to
the extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities.
HEDGING TECHNIQUES
The Company may engage in various portfolio strategies to hedge its
portfolio against investment, interest rate and currency risks. These strategies
include the use of options on portfolio securities, stock index options, stock
index futures, financial futures, currency options, currency futures, options on
such futures and forward foreign exchange transactions. The Company may enter
into such transactions only in connection with its hedging strategies. While the
Company's net asset value will continue to fluctuate and no assurance can be
given that the Company's hedging transactions will be effective, the Investment
Adviser believes that the ability of the Company to engage in these hedging
transactions would enhance the Company's ability to reduce the volatility of the
net asset value of Company shares. Furthermore, the Company will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. When the Company engages in transactions
denominated in foreign currencies, it will be subject to the risks of adverse
changes in the exchange rates between such foreign currencies and the U.S.
dollar, the currency used to value the Company's assets. Reference is made to
the Statement of Additional Information for further information concerning these
strategies.
Although certain risks are involved in options and futures transactions
(as discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Company will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Company will not subject the Company to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Company's ability to engage in the
hedging transactions and strategies discussed below.
Set forth below is a description of the hedging instruments the Company
may utilize with respect to investment, interest rate and currency risks.
Writing Covered Call Options. The Company is authorized to write (i.e.,
sell) covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options. A
covered call option is an option where the Company, in return for a premium,
gives another party a right to buy specified securities owned by the Company on
or before a specified future date and at a specified price set at the time of
the contract. By writing covered call options, the Company gives up the
opportunity, while the option is in effect, to profit from any price increase in
the underlying security above the option exercise price. In addition, the
Company's ability to sell the underlying security will be limited while the
option is in effect unless the Company effects a closing purchase transaction. A
closing purchase transaction cancels out the Company's position as the writer of
an option by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. Covered call options serve as a partial
hedge against the price of the underlying security declining.
14
<PAGE> 15
Purchasing Put Options. The Company is authorized to purchase put
options to hedge against a decline in the market value of its securities. By
buying a put option the Company has a right to sell the underlying security at
the stated exercise price, thus limiting the Company's risk of loss through a
decline in the market value of the security until the put option expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Company's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Company will not purchase put options on securities
(including stock index options discussed below) if, as a result of such
purchase, the aggregate cost (premiums paid) of all outstanding options on
securities held by the Company would exceed 5% of the market value of the
Company's total assets.
Stock or Other Financial Index Futures and Options. The Company is
authorized to engage in transactions in stock or other financial index options
and futures (including futures on government bonds) and related options on such
futures. The Company may purchase or write put and call options on stock or
other financial indices to hedge against the risks of market-wide stock price
movements in the securities in which the Company invests. Options on indices are
similar to options on securities except that, on settlement, the parties to the
contract pay or receive an amount of cash equal to the difference between the
closing value of the index on the relevant valuation date and the exercise price
of the option times a specified multiple. The Company may invest in stock or
other financial index options based on a broad market index, e.g., the S&P 500
Index, or on a narrow index representing an industry or market segment, e.g.,
the AMEX Oil & Gas Index.
The Company may also purchase and sell stock index futures contracts
and financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties that obligates the
purchaser of the futures contract to buy and the seller of a futures contract to
sell a particular commodity for a set price on a future date. Unlike most other
futures contracts, a stock index futures contract does not require actual
delivery of a commodity, in this case securities, but results in cash settlement
based upon the difference in value of the stock index between the time the
contract was entered into and the time of its settlement. The Company may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests and in financial futures contracts in connection
with the debt securities in which it invests. Transactions by the Company in
stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions."
The Company may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of fixed-income securities which may be held by the
Company as a temporary defensive measure will fall, thus reducing the net asset
value of the Company. However, as interest rates rise, the value of the
Company's short position in the futures contract will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of the
Company's investments that are being hedged. While the Company will incur
commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction expenses that the Company
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would have incurred had the Company sold portfolio securities in order to reduce
its exposure to increases in interest rates. The Company also may purchase
financial futures contracts in anticipation of a decline in interest rates when
it is not fully invested in a particular market in which it intends to make
investments to gain market exposure that may in part or entirely offset an
increase in the cost of securities it intends to purchase. It is anticipated
that, in a substantial majority of these transactions, the Company will purchase
securities upon termination of the futures contract.
The Company is authorized to sell futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value of
the Company's securities portfolio that might otherwise result. When the Company
is not fully invested in the securities markets and anticipates a significant
market advance, it would be able to purchase futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that the Company intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be terminated by offsetting sales.
The Company does not consider purchases of futures contracts to be a speculative
practice under these circumstances. It is anticipated that, in a substantial
majority of these transactions, the Company will purchase such securities upon
termination of the long futures position, whether the long position is the
purchase of a futures contract or the purchase of a call option or the writing
of a put option on a future, but under unusual circumstances (e.g., the Company
experiences a significant amount of redemptions), a long futures position may be
terminated without the corresponding purchase of securities.
The Company also is authorized to purchase and write call and put
options on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) in which the Company enters into futures transactions. The Company
may purchase put options or write call options on futures contracts and stock
indices rather than selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the Company can
purchase call options, or write put options on futures contracts and stock
indices, as a substitute for the purchase of such futures to hedge against the
increased cost resulting from an increase in the market value of securities
which the Company intends to purchase.
The Company is also authorized to engage in options and futures
transactions on U.S. and foreign exchanges and in options in the
over-the-counter markets ("OTC options"). In general, exchange traded contracts
are third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC options transactions are two-party contracts
with prices and terms negotiated by the buyer and seller. See "Restrictions on
OTC Options" below for information as to restrictions on the use of OTC options.
To trade futures contracts, the Company is not required to deposit
funds equal to the value of the futures contract. The Company need only make a
deposit, called an "initial margin deposit", equal to a small percentage
(typically between 2% and 15%) of the value of the futures contract. As a
result, a relatively small adverse move in the price of a futures contract may
result in immediate and substantial losses to the Company. For example, if at
the time of purchase 10% of the price of a futures contract is deposited as
margin, a 10% decrease in the price of that contract would, if the contract were
then closed out, result in a total loss of the initial margin deposit before any
deduction for brokerage commissions and other transaction costs. A decrease of
more than 10% would result in a loss of more than the total initial margin
deposit.
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To some extent, options on futures contracts are even more highly
leveraged than futures contracts. For example, if an in-the-money call (put)
option is sold for its intrinsic value plus a premium representing the time
value of that option, a 10% rise (drop) in the value of the underlying futures
contract does not create a loss equal to just 10% of the value of the option.
Such a rise (drop) creates a loss approximately equal to 10% of the value of the
underlying interest, less the time value, which loss may be many times greater
than the price for which the Company sold the option. In addition, investors who
sell options are required only to deposit a percentage of the value of the
option at the time of sale as margin, thereby leveraging the investment even
further.
The Company is authorized to purchase or sell listed or
over-the-counter ("OTC") foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions could be
effected with respect to hedges on non-U.S. dollar denominated securities owned
by the Company, sold by the Company but not yet delivered, or committed or
anticipated to be purchased by the Company. As an illustration, the Company may
use such techniques to hedge the stated value in U.S. dollars of an investment
in a yen denominated security. In such circumstances, for example, the Company
can purchase a foreign currency put option enabling it to sell a specified
amount of yen for dollars at a specified price by a future date. To the extent
the hedge is successful, a loss in the value of the yen relative to the dollar
will tend to be offset by an increase in the value of the put option. To offset,
in whole or in part, the cost of acquiring such a put option, the Company may
also sell a call option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date (a technique
called a "spread"). By selling such a call option in this illustration, the
Company gives up the opportunity to profit without limit from increases in the
relative value of the yen to the dollar. The Investment Adviser believes that
"spreads" of the type which may be utilized by the Company constitute hedging
transactions and are consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Company will not speculate in foreign currency options,
futures or related options. Accordingly, the Company will not hedge a currency
substantially in excess of the market value of the securities denominated in
such currency which it owns, the expected acquisition price of securities which
it has committed or anticipates to purchase which are denominated in such
currency and, in the case of securities which have been sold by the Company but
not yet delivered, the proceeds thereof in its denominated currency. Further,
the Company will segregate at its custodian U.S. Government or other liquid
securities having a market value substantially representing any subsequent net
decrease in the market value of such hedged positions, including net positions
with respect to cross-currency hedges. The Company will not incur potential net
liabilities of more than 20% of its total assets from foreign currency options,
futures or related options.
Forward Foreign Exchange Transactions. The Company has authority to
deal in forward foreign exchange between currencies of the different countries
in which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) and price set at
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the time of the contract. The Company's dealings in forward foreign exchange
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Company
accruing in connection with the purchase and sale of its portfolio securities,
the sale and redemption of shares of the Company or the payment of dividends and
distributions by the Company. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Company will not speculate in forward foreign
exchange. The Company will not attempt to hedge all of its foreign portfolio
positions.
In connection with its trading in forward foreign currency contracts,
the Company will contract with a foreign or domestic bank, or foreign or
domestic securities dealer, to make or take future delivery of a specified
amount of a particular currency. There are no limitations on daily price moves
in such forward contracts, and banks and dealers are not required to continue to
make markets in such contracts. There have been periods during which certain
banks or dealers have refused to quote prices for such forward contracts or have
quoted prices with an unusually wide spread between the price at which the bank
or dealer is prepared to buy and that at which it is prepared to sell.
Governmental imposition of credit controls might limit any such forward contract
trading. With respect to its trading of forward contracts, if any, the Company
will be subject to the risk of bank or dealer failure and the inability of, or
refusal by, a bank or dealer to perform with respect to such contracts. Any such
default would deprive the Company of any profit potential or force the Company
to cover its commitments for resale, if any, at the then-market price and could
result in a loss to the Company.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Company provide
that the futures trading activities described herein will not result in the
Company being deemed a "commodity pool," as defined under such regulations if
the Company adheres to certain restrictions. In particular, the Company may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Company's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options.
When the Company purchases a futures contract, or writes a put option
or purchases a call option thereon, an amount of cash and cash equivalents will
be deposited in a segregated account with the Company's custodian so that the
amount so segregated, plus the amount of initial and variation margin held in
the account of its broker, equals the market value of the futures contract,
thereby ensuring that the use of such futures contract or option strategy is
unleveraged.
Restrictions on OTC Options. The Company will engage in OTC options,
including OTC stock index options, OTC foreign currency options and options on
foreign currency futures, only with member banks of the Federal Reserve System
and primary dealers in U.S. Government securities or with affiliates of such
banks or dealers which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Company has adopted an investment
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policy pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Company, the market value of the underlying securities covered by OTC call
options currently outstanding which were sold by the Company and margin deposits
on the Company's existing OTC options on futures contracts exceeds 15% of the
total assets of the Company, taken at market value, together with all other
assets of the Company which are illiquid or are not otherwise readily
marketable. However, if an OTC option is sold by the Company to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Company has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Company 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.,
the current market value of the underlying security minus the option's strike
price). The repurchase price with primary dealers is typically a formula price
which is generally based on a multiple of the premium received for the option,
plus the amount by which the option is "in-the-money." This policy as to OTC
options is not a fundamental policy of the Company and may be amended by the
Board of Directors of the Company without the approval of the Company's
shareholders. However, the Company will not change or modify this policy prior
to change or modification by the Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization
of options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of hedged securities or currencies, the Company will experience a gain or
loss that will not be completely offset by movements in the price of the subject
of the hedge. The successful use of options and futures also depends on the
Investment Adviser's ability to correctly predict price movements in the market
involved in a particular options or futures transaction. To compensate for
imperfect correlations, the Company may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Company may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
The Company intends to enter into options and futures transactions, on
an exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, the
Investment Adviser believes the Company can receive on each business day at
least two independent bids or offers. However, there can be no assurance that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures position. The inability to close options
and futures positions also could have an adverse impact on the Company's ability
to hedge effectively its portfolio. There is also the risk of loss by the
Company of margin deposits or collateral in the event of bankruptcy of a broker
with whom the Company has an open position in an option, a futures contract or
related option.
The exchanges on which options on portfolio securities and currency
options are traded have generally established limitations governing the maximum
number of call or put options on the same underlying security
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or currency (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written in
one or more accounts or through one or more brokers). "Trading limits" are
imposed on the maximum number of contracts which any person may trade on a
particular trading day. The Investment Adviser does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Company's portfolio.
Because the Company will engage in the options and futures transactions
described above solely in connection with its hedging activities, the Investment
Adviser does not believe that such options and futures transactions necessarily
will have any significant effect on the Company's portfolio turnover.
OTHER INVESTMENT PRACTICES
Portfolio Transactions. In executing portfolio transactions, the
Investment Adviser seeks to obtain the best net results for the Company, taking
into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Company does not necessarily pay the lowest
commission or spread available. The Company has no obligation to deal with any
broker or group of brokers in the execution of transactions in portfolio
securities. Under the Investment Company Act, persons affiliated with the
Company and persons who are affiliated with such affiliated persons, including
Merrill Lynch, are prohibited from dealing with the Company as a principal in
the purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the Company,
and affiliated persons of such affiliated persons, may serve as the Company's
broker in transactions conducted on an exchange and in OTC transactions
conducted on an agency basis and may receive brokerage commissions from the
Company. In addition, consistent with the Conduct Rules of the NASD, the Company
may consider sales of shares of the Company as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Company. It is
expected that the majority of the shares of the Company will be sold by Merrill
Lynch. Brokerage commissions and other transaction costs on foreign stock
exchange transactions are generally higher than in the U.S., although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions.
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of such a loan,
the Company receives the income on both the loaned securities and the collateral
and thereby increases its yield. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or otherwise, the
Company 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 Company's investment activities are subject to further restrictions
that are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may
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not be changed without the approval of the holders of a majority of the
Company's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (a) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(b) more than 50% of the outstanding shares). Among its fundamental policies,
the Company may not invest more than 25% of its total assets, taken at market
value at the time of each investment, in the securities of issuers in any
particular industry (excluding the U.S. Government and its agencies and
instrumentalities). Investment restrictions and policies that are
non-fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Company may not borrow
amounts in excess of 20% of its total assets (taken at market value) and then
only from banks as a temporary measure for extraordinary or emergency purposes
such as the redemption of Company shares. The Company will not purchase
securities while borrowings are outstanding except to exercise prior commitments
and to exercise subscription rights.
As a non-fundamental policy, the Company will not invest in securities
that cannot readily be resold because of legal or contractual restrictions or
that are not otherwise readily marketable, if, regarding all such securities,
more than 15% of its total assets taken at market value would be invested in
such securities. Notwithstanding the foregoing, the Company may purchase without
regard to this limitation securities that are not registered under the
Securities Act, but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Company's
Board of Directors determines, based on the trading markets for the specific
Rule 144A security, that it is liquid. The Board of Directors may adopt
guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
offshore should be deemed liquid. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six individuals, five
of whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company is responsible for the
overall supervision of the operations of the Company and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Company are:
ARTHUR ZEIKEL*-Chairman of the Investment Adviser and its affiliate,
FAM; Chairman and Director of Princeton Services, Inc.; and Executive Vice
President of ML & Co.
DONALD CECIL-Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER-Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY-Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
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RICHARD R. WEST-Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
EDWARD D. ZINBARG-Former Executive Vice President of The Prudential
Insurance Company of America.
* Interested person, as defined in the Investment Company Act, of the Company.
ADVISORY AND MANAGEMENT ARRANGEMENTS
MLAM acts as the investment adviser of the Company and provides the
Company with management and investment advisory services. The investment
advisory agreement with the Investment Adviser (the "Investment Advisory
Agreement") provides that, subject to the direction of the Board of Directors of
the Company, the Investment Adviser is responsible for the actual management of
the Company's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to review
by the Board of Directors.
The Investment Adviser is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Investment
Adviser, or its affiliate, FAM, acts as the investment adviser to more than 100
registered investment companies and provides investment advisory services to
individual and institutional accounts. As of January 31, 1998, the Investment
Adviser and FAM had a total of approximately $287.0 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Investment Adviser.
The Investment Adviser provides the portfolio managers for the Company
who consider analyses from various sources, make the necessary decisions, and
place transactions accordingly. The Investment Adviser is also obligated to
perform or arrange for affiliates to perform certain administrative and
management services for the Company and is obligated to provide all of the
office space, facilities, equipment and personnel necessary to perform its
duties under the Investment Advisory Agreement.
As compensation for its services to the Company, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company. This fee is higher than that charged most mutual
funds, but the Company believes it is justified by the special international
nature of the Company. For the fiscal year ended November 30, 1997, the fee paid
by the Company to the Investment Adviser was $4,776,233 (based on average daily
net assets of approximately $478.9 million).
Also, the Investment Adviser has entered into a sub-advisory agreement
(the "Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Investment Adviser, pursuant to which the Investment Adviser pays MLAM
U.K. a fee for providing investment advisory services to the Investment Adviser
with respect to the Company in an amount to be determined from time to time by
the Investment Adviser and MLAM U.K. but in no event in excess of the amount the
Investment Adviser actually receives for providing services to the Company
pursuant to the Investment Advisory Agreement. No fee was paid to MLAM U.K. for
the fiscal year ended November 30, 1997. MLAM U.K. has offices at Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.
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Lawrence R. Fuller is primarily responsible for the day-to-day
management of the Company's investment portfolio. Mr. Fuller has been a First
Vice President of the Investment Adviser since 1997. Mr. Fuller was a Vice
President of the Investment Adviser from 1992 to 1997.
The Company pays certain expenses incurred in its operations,
including, among other things, the investment advisory fees, legal and audit
fees, unaffiliated directors' fees and expenses, registration fees, custodian
and transfer agency fees, accounting and pricing costs, and certain of the costs
of printing proxies, shareholder reports, prospectuses and statements of
additional information. Also, accounting services are provided to the Company by
the Investment Adviser, and the Company reimburses the Investment Adviser for
its costs in connection with such services on a semi-annual basis. For the
fiscal year ended November 30, 1997, the amount of such reimbursement was
$115,158. For the fiscal year ended November 30, 1997, the ratio of total
expenses to average net assets was 1.39%, 2.42%, 2.43% and 1.64% for Class A,
Class B, Class C and Class D shares, respectively.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act that incorporates the Code of
Ethics of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of the
Investment Adviser and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Company within
periods of trading by the Company in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, a subsidiary of ML & Co., acts as the Company'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 up to $11.00 per Class A or Class D account and up to
$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
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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 a
beneficial interest of a person in the relevant share class or a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary of ML &
Co. For the fiscal year ended November 30, 1997, the Company paid $1,077,383 to
the Transfer Agent pursuant to the Transfer Agency Agreement.
PURCHASE OF SHARES
The Distributor, an affiliate of each of the Investment Adviser and
Merrill Lynch, acts as the distributor of the shares of the Company. Shares of
the Company are offered continuously for sale by the Distributor and other
eligible securities dealers (including Merrill Lynch). Shares of the Company may
be purchased from securities dealers or by mailing a purchase order directly to
the Transfer Agent. The minimum initial purchase is $1,000, and the minimum
subsequent purchase is $50, except that for retirement plans, the minimum
initial purchase is $100, and the minimum subsequent purchase is $1 and for
participants in certain fee-based programs, the minimum initial purchase is $500
and the minimum subsequent purchase is $50.
The Company offers its shares in four classes at a public offering
price equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Company next determined
after receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York time), which
includes orders received after the close of business on the previous day, the
applicable offering price will be based on the net asset value determined as of
15 minutes after the close of business on the NYSE on that day, provided the
Distributor in turn receives the orders from the securities dealer prior to 30
minutes after the close of business on the NYSE on that day. If the purchase
orders are not received by the Distributor prior to 30 minutes after the close
of business on the NYSE on that day, such orders shall be deemed received on the
next business day. The Company or the Distributor may suspend the continuous
offering of the Company's shares of any class at any time in response to
conditions in the securities markets or otherwise and may thereafter resume such
offering from time to time. Any order may be rejected by the Distributor or the
Company. 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.
The Company issues four classes of shares under the Merrill Lynch
Select Pricing (SM) System, which permits each investor to choose the method of
purchasing shares that 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. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous
24
<PAGE> 25
to incur an initial sales charge or to have the entire initial purchase price
invested in the Company with the investment thereafter being subject to a CDSC
and ongoing distribution fees. A discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill Lynch
Select Pricing (SM) System is set forth under "Merrill Lynch Select Pricing (SM)
System" on page 3.
Each Class A, Class B, Class C and Class D share of the Company
represents identical interests in the investment portfolio of the Company and
has the same rights, except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The CDSCs, distribution 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 Company and, accordingly, such charges will
not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. The proceeds from the account
maintenance fees are used to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing continuing account maintenance
activities. Dividends paid by the Company for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such 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). See "Distribution Plans"
below. Each class has different exchange privileges. See "Shareholder
Services-Exchange Privilege."
Investors should understand that the purpose and function of the
initial sales charges with respect to Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to 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 Company. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, that are eligible
to sell shares.
25
<PAGE> 26
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing (SM) System,
followed by a more detailed description of each class.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
Class SALES CHARGE(1) FEE FEE FEATURE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum 5.25% initial sales
A charge(2)(3) No No No
- -----------------------------------------------------------------------------------------------
CDSC for a period of four B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
B annually to 0.0%(4) 0.25% 0.75% eight years(5)
- -----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- -----------------------------------------------------------------------------------------------
Maximum 5.25% initial sales
D charge(3) 0.25% No No
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of
Class A shares by certain retirement plans in connection with certain
fee-based programs. Class A and Class D share purchases of $1,000,000 or
more may not be subject to an initial sales charge but instead may be
subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales
charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares, certain
retirement plans and certain fee-based programs was modified. Also, Class
B shares of certain other MLAM-advised mutual funds into which exchanges
may be made have a ten-year conversion period. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired in
the exchange will apply, and the holding period for the shares exchanged
will be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
26
<PAGE> 27
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are
eligible to purchase Class A shares should purchase Class A shares rather
than Class D shares because there is an account maintenance fee imposed
on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
<TABLE>
<CAPTION>
SALES LOAD AS
PERCENTAGE* DISCOUNT TO
SALES LOAD AS OF THE NET SELECTED DEALERS
PERCENTAGE OF AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE 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.
** The initial sales charge may be waived on Class A and Class D
purchases of $1,000,000 or more made on or after October 21, 1994 and
on Class A purchases by certain retirement plan investors and
participants in connection with certain fee-based programs. If the
sales charge is waived in connection with a purchase of $1,000,000 or
more, such purchases may be subject to a 1.0% CDSC if the shares are
redeemed within one year after purchase. Such CDSC may be waived in
connection with certain fee-based programs. The charge will be
assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1,000,000 or more of Class A or
Class D shares by certain employer-sponsored retirement or savings
plans.
The Distributor may reallow discounts to selected dealers and retain
the balance over such discounts. At times the Distributor may reallow the
entire sales charge to such dealers. Since securities dealers selling
Class A and Class D shares of the Company will receive a concession equal
to most of the sales charge, they may be deemed to be underwriters under
the Securities Act. The proceeds from the account maintenance fees are
used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
During the fiscal year ended November 30, 1997, the Company sold
10,593,236 Class A shares for aggregate net proceeds of $157,598,934. The
gross sales charges for the sale of Class A shares of the Company for
that year were $13,409, of which $841 and $12,568 were received by the
Distributor and Merrill Lynch, respectively. For the fiscal year ended
November 30, 1997, the Distributor received no CDSCs with respect to
redemption within one year after purchase of Class A shares purchased
subject to a front-end sales charge waiver. During the fiscal year ended
November 30, 1997, the Company sold 898,998 Class D shares for aggregate
net proceeds of $13,541,614. The gross sales charges for the sale of
Class D shares of the Company for that year were $3,722, of which $223
and $3,499 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended November 30, 1997, the
Distributor received no CDSCs with respect to redemption within one year
after purchase of Class D shares purchased subject to a front-end sales
charge waiver.
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
27
<PAGE> 28
shares of the Company in a shareholder account, including participants in
the Merrill Lynch Blueprint(SM) Program, are entitled to purchase
additional Class A shares of the Company in that account. Certain
employer sponsored retirement or savings plans, including eligible 401(k)
plans, may purchase Class A shares at net asset value provided 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 owned banking institutions provided
that the program or branch has $3 million or more initially invested in
MLAM-advised mutual funds. Also eligible to purchase Class A shares at
net asset value are participants in certain investment programs including
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services, collective investment trusts for which
Merrill Lynch Trust Company serves as trustee and purchases made in
connection with certain fee-based programs. In addition, Class A shares
will be offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of investment
companies advised by MLAM or its affiliates, including the Company.
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 Company also may purchase Class A shares of the Company if certain
conditions set forth in the Statement of Additional Information are met.
In addition, Class A shares of the Company and certain other MLAM-advised
mutual funds are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. and, if certain conditions set
forth in the Statement of Additional Information 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 Company and certain
other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed
upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A and D
sales charges also may be reduced under a Right of Accumulation and a
Letter of Intention. Class A shares are offered at net asset value to
certain eligible Class A investors as set forth above under "Eligible
Class A Investors." See "Shareholder Services--Fee-based Programs."
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. Class A shares are
offered at net asset value to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc., and subject to certain conditions, Class A and
Class D shares are offered at net asset value to shareholders of Merrill
Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc., who wish to reinvest in shares of the Company
the net proceeds from a sale of certain of their shares of common stock,
pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value to an investor who has a
business relationship with a Merrill Lynch Financial Consultant if
certain conditions set forth in the Statement of Additional Information
are met. Class D shares may be offered at net asset value in connection
with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
28
<PAGE> 29
Additional information concerning these reduced initial sales charges
is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should
consider Class B shares if they intend to hold their shares for an
extended period of time and Class C shares if they are uncertain as to
the length of time they intend to hold their assets in MLAM-advised
mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined
net asset value per share without the imposition of a sales charge at the
time of purchase. As discussed below, Class B shares are subject to a
four-year CDSC which declines each year, while Class C shares are subject
only to a one-year 1.0% CDSC. On the other hand, approximately eight
years after Class B shares are issued, such Class B shares, together with
shares issued upon dividend reinvestment with respect to those shares,
are automatically converted into Class D shares of the Company and
thereafter will be subject to lower continuing fees. See "Conversion of
Class B Shares to Class D Shares" below. Both Class B and Class C shares
are subject to an account maintenance fee of 0.25% of net assets and a
distribution fee of 0.75% of net assets as discussed below under
"Distribution Plans." The proceeds from the account maintenance fees are
used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so
that the Company will receive the full amount of the investor's purchase
payment. Merrill Lynch compensates its financial consultants for selling
Class B and Class C shares at the time of purchase from its own funds.
See "Distribution Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the
Distributor and are used in whole or in part by the Distributor to defray
the expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Company in connection with the sale
of 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
dealers' own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Company to sell the Class
B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will
convert automatically into Class D shares of the Company, which are
subject to an account maintenance fee but no distribution fee; Class B
shares of certain other MLAM-advised mutual funds into which exchanges
may be made convert into Class D shares automatically after approximately
ten years. If Class B shares of the Company are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
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. Class B
shareholders of the Company exercising the exchange privilege described
under "Shareholder Services--Exchange Privilege" will continue to be
subject to the Company'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.
29
<PAGE> 30
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. 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.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO 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>
For the fiscal year ended November 30, 1997, the Distributor received
CDSCs of $134,859 with respect to redemptions of Class B shares, all of
which were paid to Merrill Lynch. Additional 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.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares
held longest during the four-year period. The charge will not be applied
to dollar amounts representing an increase in the net asset value since
the time of purchase. A transfer of shares from a shareholder's account
to another account will be assumed to be made in the same order as a
redemption.
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 through 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 CDSC
is applied only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the applicable
rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by
certain eligible 401(a) and eligible 401(k) plans and in connection with
certain group plans placing orders through the Merrill Lynch
Blueprint(SM) Program. The CDSC also is 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
30
<PAGE> 31
account at the time of redemption. The Class B CDSC also is 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 also is waived for any Class B shares which
are purchased within qualifying Employee Access(SM) Accounts. Additional
information concerning the waiver of the Class B CDSC is set forth in the
Statement of Additional Information. The terms of the CDSC may be
modified in connection with certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
Contingent Deferred Sales Charges--Class C Shares. Class C shares that
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no
Class C CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no Class C CDSC will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The Class C CDSC may be waived in connection with certain
fee-based programs. See "Shareholder Services--Fee-Based Programs." For
the fiscal year ended November 30, 1997, the Distributor received CDSCs
of $2,200 with respect to redemptions of Class C shares all of which were
paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption,
the calculation will be determined in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that
the redemption is first of shares held for over one year or shares
acquired pursuant to reinvestment of dividends or distributions and then
of shares held longest during the one-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value
since the time of purchase. A transfer of shares from a shareholder's
account to another account will be assumed to be made in the same order
as a redemption.
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 Company. 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 values of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares. The
Conversion Date for dividend reinvestment shares will be calculated
taking into account the length of time the shares underlying such
dividend reinvestment shares were outstanding. If at a Conversion Date
the conversion of Class B shares to Class D shares of the Company 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 Company held in the
account on the Conversion Date will be converted to Class D shares of the
Company.
Share certificates for Class B shares of the Company 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
31
<PAGE> 32
shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will
convert approximately eight years after initial purchase, and Class B
shares of taxable and tax-exempt fixed income MLAM-advised mutual funds
will convert approximately ten years after initial purchase. If, during
the Conversion Period, a shareholder exchanges Class B shares with an
eight-year Conversion Period for Class B shares with a ten-year
Conversion Period, or vice versa, the Conversion Period applicable to the
Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class
B shares through certain retirement plans which qualified for a waiver of
the CDSC normally imposed on purchases of Class B shares ("Class B
Retirement Plans"). When the first share of any MLAM-advised mutual fund
purchased by a Class B Retirement Plan has been held for ten years (i.e.,
ten years from the date the relationship between MLAM-advised mutual
funds and the Class B Retirement Plan was established), all Class B
shares of all MLAM-advised mutual funds held in that Class B Retirement
Plan will be converted into Class D shares of the appropriate funds.
Subsequent to such conversion, that Class B Retirement Plan will be sold
Class D shares of the appropriate funds at net asset value.
The Conversion Period also may be modified for retirement plan
investors who participate in certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
DISTRIBUTION PLANS
The Company has adopted separate distribution plans for Class B, Class
C and Class D shares pursuant to Rule 12b-1 under the Investment Company
Act (each a "Distribution Plan") with respect to the account maintenance
and/or distribution fees paid by the Company to the Distributor with
respect to such classes. The Class B and Class C Distribution Plans
provide for the payment of account maintenance fees and distribution
fees, and the Class D Distribution Plan provides for the payment of
account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each
provide that the Company 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 Company attributable to shares of the relevant class in order to
compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that
the Company 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 Company
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 Company, including payments to
financial consultants for selling Class B and Class C shares of the
Company. 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
32
<PAGE> 33
time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this
regard, the purpose and function of the ongoing distribution fees and the
CDSC are the same as those of the initial sales charge with respect to
the Class A and Class D shares of the Company in that the deferred sales
charges provide for the financing of the distribution of the Company's
Class B and Class C shares.
For the fiscal year ended November 30, 1997, the Company paid the
Distributor $705,358 pursuant to the Class B Distribution Plan (based on
average daily net assets subject to such Class B Distribution Plan of
approximately $70.7 million), 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
November 30, 1997, the Company paid the Distributor $54,363 pursuant to
the Class C Distribution Plan (based on average daily net assets subject
to such Class C Distribution Plan of approximately $5.5 million), 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 November 30, 1997, the Company paid the
Distributor $18,694 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $7.5 million), all of which was paid to Merrill Lynch for
providing account maintenance activities in connection with Class D
shares.
The payments under the Distribution Plans are based upon 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. This
information is presented annually as of December 31 of each year on a
"fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues
consist of the account maintenance fees, distribution fees, the CDSCs and
certain other related revenues, and expenses consist of financial
consultant compensation, branch office and regional operation center
selling and transaction processing expenses, advertising, sales 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, 1996, the last date for which fully allocated
accrual information is available, 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 fully allocated
accrual revenues by $387,000 (0.91% of Class B net assets at that date).
As of November 30, 1997, direct cash revenues for the period since the
commencement of operations of Class B shares exceeded direct cash
expenses by $2,577,423 (3.86% of Class B net assets at that date). As of
December 31, 1996, 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 fully allocated accrual revenues by
$6,000, (0.66% of Class C net assets at that date). As of November 30,
1997, direct cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $47,022
(.0.79% of Class C net assets at that date).
The Company has no obligation with respect to distribution and/or
account maintenance-related expenses incurred by the Distributor and
Merrill Lynch in connection with Class B, Class C and Class D
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shares, and there is no assurance that the Directors of the Company will
approve the continuance of the Distribution Plans from year to year.
However, the Distributor intends to seek annual continuation of the
Distribution Plans. In their review of the Distribution Plans, the
Directors will be asked to take into consideration expenses incurred in
connection with the account maintenance and/or distribution of each class
of shares separately. The initial sales charges, the account maintenance
fee, the distribution fee and/or the CDSCs received with respect to one
class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
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 Company, the maximum sales
charge rule limits the aggregate of distribution fee payments and CDSCs
payable by the Company 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
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Company will not make further payments of the
distribution fee with respect to Class B shares, and any CDSC will be
paid to the Company rather than to the Distributor; however, the Company
will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances
payment in excess of the amount payable under the NASD formula will not
be made.
REDEMPTION OF SHARES
The Company is required to redeem for cash all full and fractional
shares of the Company on receipt of a written request in proper form. The
redemption price is the net asset value per share next determined after
the initial receipt of proper notice of redemption. Except for any CDSC
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 value of shares at the
time of redemption may be more or less than the shareholder's cost,
depending on the market value of the securities held by the Company at
such time.
REDEMPTION
A shareholder wishing to redeem shares may do so, without charge, by
tendering the shares directly to the Transfer Agent, Merrill Lynch
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Merrill Lynch
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Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares
deposited with the Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a written
letter as noted above accompanied by certificates for the shares to be
redeemed. Redemption requests should not be sent to the Company. The
redemption request in either event requires the signatures of all persons
in whose names the shares are registered, signed exactly as their names
appear on the Transfer Agent's register or on the certificates, as the
case may be. The signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution" (including, for
example, Merrill Lynch branch offices and certain other financial
institutions) as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may
be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional documents, such as,
but not limited to, trust instruments, death certificates, appointments
as executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payment will be
mailed within seven days of receipt of a proper notice of redemption.
At various times the Company may be requested to redeem shares for
which it has not yet received good payment. The Company 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 or certified check
drawn on a U.S. bank) has been collected for the purchase of such shares,
which will not exceed 10 days.
REPURCHASE
The Company also will repurchase shares through a shareholder's listed
securities dealer. The Company normally will accept orders to repurchase
shares by wire or telephone from dealers for their customers at the net
asset value next computed after receipt of the order by the dealer,
provided that the request for repurchase is received by the dealer prior
to the close of business on the NYSE on the day received and that such
request is received by the Company from such dealer not later than 30
minutes after the close of business on the NYSE (generally, 4:00 p.m.,
New York time) on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Company 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 Company (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
Company. 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 are not subject to
the processing fee. The Company 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
Company may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender
of the certificates, if any, and stock power or letter requesting
redemption, in each instance with signatures guaranteed as noted above.
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REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Company 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.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment
plans designed to facilitate investment in shares of the Company. Certain
of such services are not available to investors who place purchase orders
for the Company's shares through the Merrill Lynch Blueprint(SM) Program.
Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or to change options with respect thereto, can be
obtained from the Company 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 receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. A shareholder may make
additions to his or her Investment Account at any time by mailing a check
directly to the Transfer Agent. Shareholders also may maintain their
accounts through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder's name will be opened automatically, without
charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the Class A or Class D shares
are to be transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the Class A or Class D shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D
shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request
their new brokerage firm to maintain such shares in an account registered
in the name of the brokerage firm for the benefit of the shareholder. If
the new brokerage firm is
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willing to accommodate the shareholder in this manner, the shareholder
must request that he or she be issued certificates for such shares and
then must turn the certificates over to the new firm for re-registration
as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an IRA from
Merrill Lynch to another brokerage firm or financial institution should
be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Company, a
shareholder must either redeem the shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm,
or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from
his or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either
a monthly or quarterly basis. A shareholder whose shares are held within
a CMA(R), CBA(R) or Retirement 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, subject to certain
conditions. 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--Contingent Deferred
Sales Charges--Class B Shares" and "--Contingent Deferred Sales
Charges--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
automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50
or more to his regular bank account. Investors who maintain CMA(R) or
CBA(R) accounts may arrange to have periodic investments made in the
Company in their CMA(R) or CBA(R) accounts or in certain related accounts
in amounts of $100 or more through the CMA(R) or CBA(R) Automated
Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
All dividends and capital gains distributions are automatically
reinvested in full and fractional shares of the Company, without sales
charge, at the net asset value per share next determined after the close
of business on the NYSE on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification to
Merrill Lynch if the shareholder's account is maintained with Merrill
Lynch or by written notification or by telephone (1-800-MER-FUND) to the
Transfer Agent if the shareholder's account is maintained with the
Transfer Agent, elect to have subsequent dividends, or both dividends and
capital gains distributions, paid in cash rather than reinvested, in
which event payment will be mailed on or about the payment date. The
Company is not responsible for any failure of delivery to the
shareholder's address of
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record and no interest will accrue on amounts represented by uncashed
distribution or redemption checks. Cash payments can also be directly
deposited to the shareholder's bank account. No CDSC will be imposed on
redemptions of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company have an
exchange privilege with certain other MLAM-advised mutual funds. There is
currently no limitation on the number of times a shareholder may exercise
the exchange privilege. The exchange privilege may be modified or
terminated in accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing (SM) System, Class A
shareholders may exchange Class A shares of the Company for Class A
shares of a second MLAM-advised mutual 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 MLAM-advised mutual fund,
and the shareholder does not hold Class A shares of the second fund in
his or her account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a
second MLAM-advised mutual fund at any time as long as, at the time of
the exchange, the shareholder holds Class A shares of the second fund in
the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively,
plus an amount equal to the difference, if any, between the sales charge
previously paid on the Class A or Class D shares being exchanged and the
sales charge payable at the time of the exchange on the shares being
acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Company that are subject to a CDSC are exchangeable on
the basis of relative net asset value per share without the payment of
any CDSC that might otherwise be due upon redemption of the shares of the
Company. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period
for the previously owned shares of the Company is "tacked" to the holding
period for the newly acquired shares of the other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated
as available for exchange by holders of Class A, Class B, Class C or
Class D shares. The period of time that Class A, Class B, Class C or
Class D shares are held in a money market fund, however, will not count
toward satisfaction of the holding period requirement for reduction of
any CDSC imposed on such shares, if any, and, with respect to Class B
shares, toward satisfaction of the Conversion Period.
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Class B shareholders of the Company exercising the exchange privilege
will continue to be subject to the Company's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the new Class B
shares. In addition, Class B shares of the Company acquired through use
of the exchange privilege will be subject to the Company's CDSC schedule
if such schedule is higher than the CDSC schedule relating to the Class B
shares of the MLAM-advised mutual fund from which the exchange has been
made.
Exercise of the exchange privilege is treated as a sale of the
exchanged shares and a purchase of the acquired shares for Federal income
tax purposes. For further information, see "Shareholder
Services--Exchange Privilege" in the Statement of Additional Information.
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 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 (800) MER-FUND or (800) 637-3863.
PERFORMANCE DATA
From time to time the Company may include its average annual total
return for various specified time periods in advertisements or
information furnished to present or prospective shareholders. Average
annual total return is computed separately for Class A, Class B, Class C
and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods will
be computed by finding the average annual compounded rates of return
(based on net investment income and any capital gains or losses on
portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of
each period. Average annual total return will be computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including any CDSC that
would be applicable to a complete redemption of the
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investment at the end of the specified period such as in the case of
Class B and Class C shares and the maximum sales charge in the case of
Class A and Class D shares. Dividends paid by the Company 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 fees and distribution fees and
any incremental transfer agency costs relating to each class of shares
will be borne exclusively by that class. The Company will include
performance data for all classes of shares of the Company in any
advertisement or information including performance data of the Company.
The Company may also quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return, and (2) the maximum
applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements directed to investors whose purchases
are subject to reduced sales charges in the case of Class A or Class D
shares or waiver of the CDSC in the case of Class B or Class C shares
(such as investors in certain retirement plans), performance data may
take into account the reduced, and not the maximum, sales charge or may
not take into account the CDSC and therefore may reflect greater total
return since, due to the reduced sales charges or waiver of the CDSC, a
lower amount of expenses may be deducted. See "Purchase of Shares." The
Company's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate the effect of such total return on a
hypothetical $1,000 investment in the Company at the beginning of each
specified period.
Total return figures are based on the Company's historical performance
and are not intended to indicate future performance. The Company's total
return will vary depending on market conditions, the securities
comprising the Company's portfolio, the Company'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 Company will fluctuate, and
an investor's shares, when redeemed, may be worth more or less than their
original cost.
On occasion, the Company may compare its performance to the Standard &
Poor's 500 Index, the Dow Jones Industrial Average, or to performance
data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business
Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine
or other industry publications. In addition, from time to time the
Company may include its risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales
literature. As with other performance data, performance comparisons
should not be considered indicative of the Company's relative performance
for any future period.
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ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute all its net investment
income, if any. Dividends from such net investment income will be paid at
least annually. All net realized capital gains, if any, will be
distributed to the Company's shareholders at least annually. The per
share dividends and distributions on each class of shares will be reduced
as a result of the account maintenance, distribution and transfer agency
fees applicable to that class. See "Additional Information--Determination
of Net Asset Value." Dividends and distributions will be reinvested
automatically in shares of the Company at net asset value without a sales
charge. However, 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. Capital gains distributions will be automatically reinvested in
shares unless the shareholder elects to receive such distributions in
cash. Dividends and distributions are taxable to shareholders as
discussed below whether they are reinvested in shares of the Company or
received in cash. From time to time, the Company 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.
Gains or losses attributable to certain foreign currency transactions
may increase or decrease the amount of the Company's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Company would not be able to make any ordinary
income dividend distributions, and (b) all or a portion of the
distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary income dividend, thereby reducing each shareholder's tax basis
in the Company shares for Federal income tax purposes and resulting in a
capital gain for any shareholder who received a distribution greater than
the shareholder's tax basis in Company shares (assuming that the shares
were held as a capital asset). For a detailed discussion of the Federal
tax considerations relevant to foreign currency transactions, see
"Additional Information--Taxes."
See "Shareholder Services--Automatic Reinvestment of Dividends and
Capital Gains Distributions" for information as to how to elect cash
payment.
TAXES
The Company 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 Company (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net
realized capital gains which it distributes to Class A, Class B, Class C
and Class D shareholders (together, the "shareholders"). The Company
intends to distribute substantially all of such income.
Dividends paid by the Company 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 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 Company shares. Any loss upon the sale or exchange of Company
shares
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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 Company'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). Recent
legislation creates additional categories of capital gains taxable at
different rates. Generally not later than 60 days after the close of its
taxable year, the Company will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or
capital gain dividends, as well as the 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 Company. A portion of the Company's ordinary
income dividends may be eligible for the dividends received deduction
allowed to corporations under the Code, if certain requirements are met.
If the Company pays a dividend in January which was declared in the
previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Company and received by its
shareholders on December 31 of the year in which such dividend was
declared.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% U.S. withholding tax
under existing provisions of the Code applicable to foreign individuals
and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the U.S. withholding tax.
Dividends and interest received by the Company may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such
taxes. Shareholders may be able to claim U.S. foreign tax credits with
respect to such taxes, subject to certain conditions and limitations
contained in the Code. For example, certain retirement accounts cannot
claim foreign tax credits on investments in foreign securities held in
the Company. 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. If more than 50%
in value of the Company's total assets at the close of its taxable year
consists of securities of foreign corporations, the Company will be
eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Company will be required to
include their proportionate shares of such withholding taxes in their
U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing
their taxable incomes or, alternatively, use them as foreign tax credits
against their U.S. income taxes. In the case of foreign taxes passed
through by a RIC, the holding period requirements referred to above must
be met by both the shareholder and the RIC. 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 U.S. withholding tax on the
income resulting from the Company's election described in this paragraph
but may not be able to claim a credit or deduction against such U.S. tax
for the foreign taxes treated as having been paid by such shareholder.
The Company will report annually to its shareholders the amount per share
of such withholding taxes and other information needed to claim the
foreign tax credit.
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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 Company or
who, to the Company'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.
Under Code Section 988, 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
generally be treated as ordinary income or loss. Such Code Section 988
gains or losses will generally increase or decrease the amount of the
Company'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 Company would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the
losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing
the basis of each shareholder's Company shares and resulting in a capital
gain for any shareholder who received a distribution greater than such
shareholder's basis in Company shares (assuming the shares were held as a
capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's
basis in the Class D shares acquired will be the same as the
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 Company on the exchanged shares reduces any sales
charge the shareholder would have owed upon purchase of the new shares in
the absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code
and the Treasury regulations are subject to change by legislative,
judicial or administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
43
<PAGE> 44
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an
investment in the Company.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of all classes of the Company is determined
once daily as of 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE
is open for trading. Any assets or liabilities initially expressed in
terms of non-U.S. dollar currencies are translated into U.S. dollars at
the prevailing market rates as quoted by one or more banks or dealers on
the day of valuation. The net asset value is computed by dividing the sum
of the value of the securities held by the Company 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 to the nearest cent. Expenses, including
the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares will generally be higher
than the per share net asset value of shares of the other classes,
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to Class D shares; in addition,
the per share net asset value of Class D shares generally will be higher
than the per share net asset value of Class B and Class C shares,
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C
shares. It is expected, however, that the per share net asset value of
the classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions which will
differ by approximately the amount of the expense accrual differentials
between the classes.
Portfolio securities 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 Board of 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. 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 Company writes an option, the amount of
the premium received is recorded on the books of the Company 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 Company 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. Any assets or liabilities
44
<PAGE> 45
expressed in terms of foreign currencies are translated into U.S. dollars
at the prevailing market rates as obtained from one or more dealers.
Other investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations
are not readily available are valued at fair market value as determined
in good faith by or under the direction of the Board of Directors of the
Company.
ORGANIZATION OF THE COMPANY
The Company was incorporated under Maryland law on March 7, 1984. As of
the date of this Prospectus it has an authorized capital of 400,000,000
shares of Common Stock, par value $0.10 per share, divided into four
classes, designated Class A, Class B, Class C and Class D Common Stock,
each of which consists of 100,000,000 shares. Shares of Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets
of the Company and are identical in all respects except that Class B,
Class C and Class D shares bear certain expenses relating to the account
maintenance associated with such shares, and Class B and Class C shares
bear certain expenses relating to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to
distribution and/or account maintenance and distribution expenditures, as
applicable. See "Purchase of Shares." The Directors of the Company may
classify and reclassify the shares of the Company into additional or
other classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and
fractional votes for fractional shares held and will vote on the election
of Directors and any other matter submitted to a shareholder vote. The
Company does not intend to hold meetings of shareholders in any year in
which the Investment Company Act does not require shareholders to act
upon any of the following matters: (i) election of Directors; (ii)
approval of an investment advisory agreement; (iii) approval of a
distribution agreement; and (iv) ratification of selection of independent
auditors. Voting rights for Directors are not cumulative. Shares issued
are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in this Prospectus. Each share of
Common Stock is entitled to participate equally in dividends and
distributions declared by the Company and in the net assets of the
Company upon liquidation or dissolution after satisfaction of outstanding
liabilities, and except as noted above, the Class B, Class C and Class D
shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless
of the number of accounts such shareholder has. If a shareholder wishes
to receive separate copies of each report and communication for each of
the shareholder's related accounts, the shareholder should notify in
writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name,
address, tax identification number and Merrill Lynch and/or mutual fund
account numbers. If you have any questions regarding this, please call
your Merrill Lynch Financial Consultant or Merrill Lynch Financial Data
Services, Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company at the address or
telephone number set forth on the cover page of this Prospectus.
45
<PAGE> 46
[This page is intentionally left blank]
46
<PAGE> 47
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM) PROGRAM
APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Global Holdings, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill
Lynch Financial Data Services, Inc. as an initial investment (minimum
$1,000). I understand that this purchase will be executed at the
applicable offering price next to be determined after this Application
is received by you.
B. I already own shares of the following Merrill Lynch mutual
funds that would qualify for the Right of Accumulation as outlined in
the Statement of Additional Information: (Please list all funds. Use a
separate sheet of paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name ..........................................................................
First Name Initial Last Name
Name of Co-Owner (if any) .....................................................
First Name Initial Last Name
Address .......................................................................
................................................................................
................................................. Date ......................
(Zip Code)
Occupation .......................... Name and Address of Employer ........
......................................
......................................
...................................... ......................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
------------------------- -----------------------
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Holdings, Inc. Authorization Form.
Specify type of account (check one): / / checking / / savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ........................ Account Number ........................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................ Date ...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
47
<PAGE> 48
MERRILL LYNCH GLOBAL HOLDINGS, INC.-- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
--------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above
is my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Additional Information--Taxes") either because I have not been notified
that I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE
BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING
AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION
TO OTHER MERRILL LYNCH-SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19....
Date of Initial Purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Global Holdings, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price
applicable to the amount checked above, as described in the Merrill Lynch Global
Holdings, Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I
hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc.,
my attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Holdings, Inc. held as security.
By: ................................ .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name ........................... (2) Name ...........................
Account Number ..................... Account Number .....................
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Global Holdings, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
automatic investment plan or Systematic Withdrawal Plan. We guarantee the
shareholder's signature.
................................................................................
Dealer Name and Address
By ............................................................................
Authorized Signature of Dealer
- ----------- --------------
// // // // // // // ....................
F/C Last Name
- ----------- --------------
Branch-Code F/C No.
// // // // // // // //
- ----------- --------------
Dealer's Customer Account No.
48
<PAGE> 49
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print)
Name of Owner .................................................................
First Name Initial Last Name
Address .......................................................................
................................................................................
(Zip Code)
Name of Co-Owner (if any) .....................................................
First Name Initial Last Name
Address .......................................................................
................................................................................
(Zip Code)
- ----------------------------------------------------------------------
Social Security No. or Taxpayer Identification No.
Account Number ................................................................
(if existing account)
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--(See terms and conditions in the Statement of
Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly,
of / / Class A, / / Class B*, / / Class C* or / / Class D shares in Merrill
Lynch Global Holdings, Inc., at cost or current offering price. Withdrawals to
be made either (check one) / / Monthly on the 24th day of each month, or / /
Quarterly on the 24th day of March, June, September and December. If the 24th
falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on . . . . . . . . . . . . or as soon as
possible thereafter. (month)
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU: $ . . . . . . .
of (check one) / / Class A, / / Class B*, / / Class C* or / / Class D shares in
the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of ..................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print) ..............................................
Address .......................................................................
.......................................................................
Signature of Owner .................................... Date ...............
Signature of Co-Owner (if any) ................................................
(b) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ........................... Account Number ......................
Bank Address ..................................................................
.......................................................................
Signature of Depositor ................................ Date ...............
Signature of Depositor ........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
* ANNUAL WITHDRAWAL CANNOT EXCEED 10% OF THE VALUE OF SHARES OF SUCH CLASS HELD
IN THE ACCOUNT AT THE TIME THE ELECTION TO JOIN THE SYSTEMATIC WITHDRAWAL PLAN
IS MADE.
49
<PAGE> 50
MERRILL LYNCH GLOBAL HOLDINGS, INC.-- AUTHORIZATION FORM (PART 2)--(CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw
an automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Global Holdings, Inc., subject to the terms set forth below. In
the event that I am not eligible to purchase Class A shares, I understand that
Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Holdings, Inc., as indicated below:
Amount of each check or ACH debit $ ..................................
Account Number .......................................................
Please date and invest ACH debits on the 20th of each month beginning . . . . .
or as soon as possible thereafter. (month)
I agree that you are drawing these ACH debits voluntarily at my request
and that you shall not be liable for any loss arising from any delay in
preparing or failure to prepare any such debit. If I change banks or desire to
terminate or suspend this program, I agree to notify you promptly in writing. I
hereby authorize you to take any action to correct erroneous ACH debits of my
bank account or purchases of Company shares including liquidating shares of the
Company and crediting my bank account. I further agree that if a check or debit
is not honored upon presentation, Merrill Lynch Financial Data Services, Inc. is
authorized to discontinue immediately the Automatic Investment Plan and to
liquidate sufficient shares held in my account to offset the purchase made with
the dishonored debit.
................................... ........................................
Date Signature of Depositor
........................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To ..................................................................... Bank
(Investor's Bank)
Bank Address ..................................................................
City ....................... State .................... Zip Code ........
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................................... ........................................
Date Signature of Depositor
................................... ........................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
50
<PAGE> 51
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE> 52
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offer contained in this Prospectus, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company, the Investment Adviser or the Distributor. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
------------
TABLE OF CONTENTS
Page
----
Fee Table...................................... 2
Merrill Lynch Select Pricing(SM) System........ 3
Financial Highlights........................... 8
International Diversification.................. 11
Investment Objective and Policies.............. 12
Hedging Techniques........................... 14
Other Investment Practices................... 20
Investment Restrictions........................ 20
Management of the Company...................... 21
Board of Directors........................... 21
Advisory and Management
Arrangements............................... 22
Code of Ethics............................... 23
Transfer Agency Services..................... 23
Purchase of Shares............................. 24
Initial Sales Charge Alternatives-Class A
and Class D Shares......................... 27
Deferred Sales Charge Alternatives-Class
B and Class C Shares....................... 29
Distribution Plans........................... 32
Limitations on the Payment of Deferred ......
Sales Charges.............................. 34
Redemption of Shares........................... 34
Redemption................................... 34
Repurchase................................... 35
Reinstatement Privilege-Class A and
Class D Shares............................. 36
Shareholder Services........................... 36
Investment Account........................... 36
Systematic Withdrawal Plans.................. 37
Automatic Investment Plans................... 37
Automatic Reinvestment of Dividends and
Distributions............................... 37
Exchange Privilege........................... 38
Fee-Based Programs........................... 39
Performance Data............................... 39
Additional Information......................... 41
Dividends and Distributions.................. 41
Taxes........................................ 41
Determination of Net Asset Value............. 44
Organization of the Company.................. 45
Shareholder Reports.......................... 45
Shareholder Inquiries........................ 45
Authorization Form............................. 47
[MERRILL LYNCH LOGO]
MERRILL LYNCH
GLOBAL HOLDINGS, INC.
PROSPECTUS
March 5, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE> 53
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may be
shifted among the various capital markets of the world and among different types
of equity, debt and convertible securities depending upon management's outlook
with respect to prevailing trends and developments. It is presently contemplated
that the Company's assets will be primarily invested in equity securities of
companies located in the United States, Japan and Western Europe.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Company 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.
------------
This Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the prospectus of the Company, dated
March 5, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or writing the Company at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
------------
MERRILL LYNCH ASSET MANAGEMENT - INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
------------
The date of this Statement of Additional Information is March 5, 1998.
<PAGE> 54
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Company.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce risk
for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
While it is the policy of the Company generally not to engage in trading
for short-term gains, Merrill Lynch Asset Management, L.P. (the "Investment
Adviser") will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. As a result of the investment
policies described in the Prospectus, including changes in asset allocation
under certain market conditions, the Company's portfolio turnover rate may be
higher than that of other investment companies. The portfolio turnover rate is
calculated by dividing the lesser of the Company'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. For the fiscal
years ended November 30, 1996 and 1997, the rates of portfolio turnover were
41.14% and 54.50%, respectively.
The Company may invest in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world which
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable both in
the U.S. and Europe and are designed for use throughout the world.
2
<PAGE> 55
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies-Hedging Techniques" in the Prospectus for information with respect
to various portfolio strategies involving options and futures. The Company may
seek to hedge its portfolio against movements in the equity markets, interest
rates and exchange rates between currencies through the use of options and
futures transactions and forward foreign exchange transactions. The Company has
authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put options on securities and engage in transactions in
stock index options, stock index futures and financial futures, and related
options on such futures. The Company may also deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures. The Company is authorized to enter into such options and futures
transactions either on exchanges or in the over-the-counter ("OTC") markets.
Each of such portfolio strategies is described in the Prospectus. Although
certain risks are involved in options and futures transactions (as discussed in
the Prospectus and below), the Investment Adviser believes that, because the
Company will only engage in these transactions for hedging purposes, the options
and futures portfolio strategies of the Company will not subject the Company to
the risks frequently associated with the speculative use of options and futures
transactions. While the Company's use of hedging strategies is intended to
reduce the volatility of the net asset value of its shares, the net asset value
of the Company's shares will fluctuate. There can be no assurance that the
Company's hedging transactions will be effective. The following is further
information relating to portfolio strategies involving options and futures that
the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company on or before a specified future date and price
set at the time of the contract. By writing covered call options, the Company
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Company's ability to sell the underlying security will be limited
while the option is in effect unless the Company effects a closing purchase
transaction. A closing purchase transaction cancels out the Company's position
as the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. The writer of a
covered call option has no control over when he may be required to sell his
securities since he may be assigned an exercise notice at any time prior to the
termination of his obligation as a writer. If an option expires unexercised, the
writer realizes a gain in the amount of the premium. Such a gain, of course, may
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer realizes a gain or loss
from the sale of the underlying security.
The Company may also purchase put options to hedge against a decline in the
market value of its securities holdings. By buying a put the Company has a right
to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of the
underlying security will be offset partially by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction, and profit or loss from
the sale will depend on whether the amount received is more or less than the
premium paid for the put option plus the related
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transaction cost. A closing sale transaction cancels out the Company's position
as the purchaser of an option by means of an offsetting sale of an identical
option prior to the expiration of the option it has purchased.
The Company also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a particular
commodity, such as a security, or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price on a future date.
A majority of transactions in futures contracts, however, do not result in the
actual delivery of the underlying instrument or cash settlement but are settled
through liquidation, i.e., by entering into an offsetting transaction. Futures
contracts have been designed by boards of trade which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is typically between 2% to 15% of the contract amount,
must be deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin," are required to be made on a daily basis as
the price of the futures contracts fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"marking to the market". At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Company has received an order from the Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), in connection with its strategy
of investing in futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and may be deemed to
prohibit certain arrangements between the Company and commodities brokers with
respect to initial and variation margin. Section 18(f) of the Investment Company
Act prohibits an open-end investment company such as the Company from issuing a
"senior security" other than a borrowing from a bank. The staff of the
Commission has in the past indicated that a futures contract may be a "senior
security" under the Investment Company Act.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions involves the risk of imperfect correlation in movements
in the prices of options and futures contracts and movements in the prices of
the securities and currencies which are the subject of the hedge. If the price
of the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Company will experience a gain or loss that
will not be completely offset by movements in the prices of the securities and
currencies that are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Company will enter into an option or futures transaction on an
exchange only
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if there appears to be a liquid secondary market for such options or futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular call or put option or futures contract at any specific time.
Thus, it may not be possible to close an option or futures position. The Company
will acquire only OTC options for which management believes the Company can
receive on each business day at least two independent bids or offers (one of
which will be from an entity other than a party to the option). In the case of a
futures position or an option on a futures position written by the Company, in
the event of adverse price movements, the Company would continue to be required
to make daily cash payments of variation margin. In such situations, if the
Company has insufficient cash, it may have to sell portfolio securities to meet
daily variation margin requirements at a time when it may be disadvantageous to
do so. In addition, the Company may be required to take or make delivery of the
security or currency underlying the futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
Company's ability to hedge its portfolio effectively. There is also the risk of
loss by the Company of margin deposits in the event of bankruptcy of a broker
with whom the Company has an open position in a futures contract or related
option. The risk of loss from investing in futures transactions is theoretically
unlimited.
The exchanges on which the Company intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Company's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange
transactions of the Company will be conducted on a spot, i.e., cash, basis at
the spot rate then prevailing for purchasing or selling currency in the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than 1/10 of 1% due to the
costs of converting from one currency to another. However, the Company has
authority to deal in forward foreign exchange between currencies of Far Eastern
and Western Pacific countries and the dollar as a hedge against possible
variations in the foreign exchange rates between these currencies. This is
accomplished through contractual agreements to purchase or to sell a specified
currency at a specified future date and price set at the time of the contract.
The Company's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Company accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of shares
of the Company or the payment of dividends and distributions by the Company.
Position hedging is the sale of forward currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Company
will not speculate in forward foreign exchange. All dealings in forward exchange
will be limited to contracts involving currencies of Far Eastern and Western
Pacific countries and the dollar. The Company may not position hedge with
respect to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that particular foreign currency. If
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the Company enters into a position hedging transaction, its custodian bank
will place cash or liquid securities in a separate account of the Company in an
amount equal to the value of the Company's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of the
Company's commitment with respect to such contracts. The Company will not
attempt to hedge all of its portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Investment
Adviser of the Company. The Company will not enter into a forward contract with
a term of more than one year.
As discussed in the Prospectus, the Company may also purchase or sell
listed or OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Company to hedge against a devaluation that is so
generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Company of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Company. If such restrictions should be reinstituted, it might become
necessary for the Company to invest all or substantially all of its assets in
U.S. securities. In such event, the Company would review its investment
objective and investment policies to determine whether changes are appropriate.
The Company'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 Company are redeemable on
a daily basis in U.S. dollars, the Company intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. Under present conditions, it
is not believed that these considerations will have any significant effect on
its portfolio strategy.
High Yield Bonds. The Company is authorized to invest in fixed income
securities rated below investment grade by a nationally recognized statistical
rating agency or in unrated debt securities which, in the Investment Adviser's
judgment, possess similar credit characteristics ("high yield bonds"). Issuers
of high yield bonds may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of high yield bonds may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments or the issuer's inability to meet specific projected business
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<PAGE> 59
forecasts or the unavailability of additional financing. The risk of loss due to
default by the issuer is significantly greater for the holder of high yield
bonds because such securities may be unsecured and may be subordinated to other
creditors of the issuer.
High yield bonds frequently have call or redemption features which would
permit issuers to repurchase such securities from the Company. If a call were
exercised by an issuer during a period of declining interest rates, the Company
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Company and dividends
to shareholders.
The Company may have difficulty disposing of certain high yield bonds
because there may be a thin trading market for such securities. The secondary
trading market for high yield bonds is generally not as liquid as the secondary
market for higher rated securities. Reduced secondary market liquidity may have
an adverse impact on market price and the Company's ability to dispose of
particular issues when necessary to meet the Company's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
bonds, particularly in a thinly traded market. Factors adversely affecting the
market value of high yield bonds are likely to affect adversely the Company's
net asset value. In addition the Company may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Company has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Company's outstanding voting securities (which
for this purpose and under the Investment Company Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares).
Under the fundamental investment restrictions, the Company may not:
1. Make any investment inconsistent with the Company's classification
as a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Company 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.
5. 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, repurchase agreements or
any similar instruments shall not be deemed to be the making of a loan,
and except further that the Company may lend its portfolio
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securities, provided that the lending of portfolio securities may be made
only in accordance with applicable law and the guidelines set forth in
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Company 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 Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Company's
investment policies as set forth in its Prospectus and 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.
8. Underwrite securities of other issuers except insofar as the Company
technically may be deemed an underwriter under the Securities Act of
1933, as amended (the "Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law
and the Company'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.
In addition, the Company has adopted non-fundamental restrictions which
may be changed by the Board of Directors. Under the non-fundamental
investment restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Company 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 its shares are owned by
another investment company that is part of the same group of investment
companies as the Company.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the
Company 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 Fund's Board of Directors are not
subject to the limitations set forth in this investment
restriction.
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d. Notwithstanding fundamental investment restriction (7) above, borrow
amounts in excess of 20% of its total assets, taken at market value, and
then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. The Company
will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights.
Portfolio securities of the Company may not be purchased from, sold or
loaned to the Investment Adviser or its affiliates or any of its directors,
general partners, officers or employees, acting as principal.
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 Company has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
that are held by the Company, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold by the Company
and margin deposits on the Company's existing OTC options on futures contracts
exceeds 15% of the total assets of the Company, taken at market value, together
with all other assets of the Company that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the Company to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Company has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Company 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 Company and may
be amended by the Board of Directors of the Company without the approval of the
Company's shareholders. However, the Company will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.
Because of the affiliation of the Investment Adviser with the Company, the
Company is prohibited from engaging in certain transactions involving such firm
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage."
The investment restrictions contain an exception that permits the Company
to purchase securities pursuant to the exercise of subscription rights, subject
to the condition that such purchase will not result in the Company ceasing to be
a diversified investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in the Company's interest in the
issuing company being diluted. The market for such rights is not well developed,
and accordingly, the Company may not always realize full value on the sale of
rights. Therefore, the exception applies in cases where the limits set forth in
the investment restrictions would otherwise be exceeded by exercising rights or
have already been exceeded as a result of fluctuations in the market value of
the Company's portfolio securities with the result that the Company would
otherwise be forced either to sell securities at a time when it might not
otherwise have done so or to forego exercising the rights.
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Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Company, the Company is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to a
permissive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions are purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio manager
of the Company, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of the portfolio manager and of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (65)-President and Director(1)(2)-Chairman of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1997; Chairman of Fund Asset Management, L.P. ("FAM," which term as used herein
includes its corporate predecessors) since 1997; President of the Investment
Adviser and FAM from 1977 to 1997; Chairman of Princeton Services, Inc.
("Princeton Services") since 1997, Director thereof since 1993 and President
thereof from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co.") since 1990.
DONALD CECIL (71)-Director(2)-1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (71)-Director(2)-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), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (66)-Director(2)-9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former 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.
RICHARD R. WEST (60)-Director(2)-Box 604, Genoa, Nevada 89491. 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).
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EDWARD D. ZINBARG (63)-Director(2)-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 (57)-Executive Vice President(1)(2)-Executive Vice President
of the Investment Adviser and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of Merrill Lynch Funds
Distributor, Inc. ("MLFD" or the "Distributor") since 1986, and Director thereof
since 1991; President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64)-Senior Vice President(1)(2)-Senior Vice President of
the Investment Adviser and FAM since 1982.
PHILIP L. KIRSTEIN (52)-Senior Vice President(1)(2)-Senior Vice President
and General Counsel of the Investment Adviser and FAM since 1984; Senior Vice
President, General Counsel, Director and Secretary of Princeton Services;
Secretary of the Investment Adviser since 1984; Secretary of FAM since 1982.
LAWRENCE R. FULLER (56)-Portfolio Manager(1)-First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1992 to 1997.
DONALD C. BURKE (37)-Vice President(1)(2)-First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1990 to 1997; Director of Taxation of the Investment Adviser since 1990.
GERALD M. RICHARD (48)-Treasurer(1)(2)-Senior Vice President and Treasurer
of the Investment Adviser and FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer thereof since 1984.
PHILIP M. MANDEL (50)-Secretary(1)(2)-First Vice President of the
Investment Adviser since 1997; Assistant General Counsel of Merrill Lynch from
1989 to 1997.
- ------
(1) Interested person, as defined in the Investment Company Act, of the
Company.
(2) Such Director or officer is a director, trustee or officer of one or
more additional investment companies for which the Investment Adviser
or an affiliate, FAM, acts as investment adviser or manager.
At February 2, 1998, the officers and Directors of the Company as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director and officer of the Company, and
the other officers of the Company, owned less than 1% of the outstanding shares
of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Company pays each Director not affiliated with the Investment Adviser
(each a "non-affiliated Director") a fee of $3,500 per year plus $500 per
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Company also compensates members of its
Audit and Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors at a rate of $500 per meeting attended. The Chairman of
the Committee receives an additional fee of $250 per meeting
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attended. Fees and expenses paid to the non-affiliated Directors aggregated
$37,937 for the fiscal year ended November 30, 1997.
The following table sets forth for the fiscal year ended November 30, 1997,
compensation paid by the Company to the non-affiliated Directors and for the
calendar year ended December 31, 1997, the aggregate compensation paid by all
registered investment companies advised by the Investment Adviser and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
PENSION OR FROM COMPANY AND
RETIREMENT BENEFITS OTHER MLAM/FAM
COMPENSATION ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FROM COMPANY COMPANY EXPENSES TO DIRECTORS(1)
- ------------------- ------------ ------------------- ------------------
<S> <C> <C> <C>
Donald Cecil....... $8,500 None $280,350
Edward H. Meyer.... $6,000 None $222,100
Charles C. Reilly.. $7,500 None $313,000
Richard R. West.... $7,500 None $290,000
Edward D. Zinbarg.. $7,500 None $133,500
</TABLE>
- ------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows:
Mr. Cecil (33 registered investment companies consisting of 33
portfolios); Mr. Meyer (33 registered investment companies consisting
of 33 portfolios); Mr. Reilly (46 registered investment companies
consisting of 59 portfolios); Mr. West (47 registered investment
companies consisting of 69 portfolios); and Mr. Zinbarg (18 registered
investment companies consisting of 18 portfolios).
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company-Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
Securities held by the Company may also be held by, or be appropriate
investments for, other funds or other investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for one or more
clients when one or more clients are selling the same security. If purchases or
sales of securities by the Investment Adviser for the Company or other funds for
which it acts as investment adviser or for its other advisory clients arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one client of the Investment Adviser or its affiliates during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
The Company has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). As discussed in the
Prospectus, the Investment Advisory Agreement provides that the Investment
Adviser is entitled to receive for its services to the Company monthly
compensation at the annual rate of 1.0% of the Company's average daily net
assets.
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<PAGE> 65
For the fiscal years ended November 30, 1995, 1996 and 1997, the Investment
Adviser earned fees of $3,740,624, $4,169,360 and $4,776,233, respectively.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Company connected with investment
and economic research, trading and investment management of the Company, as well
as the fees of all Directors of the Company who are affiliated persons of the
Investment Adviser. The Company pays all other expenses incurred in its
operation, including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the custodian, any sub-custodian and transfer
agent; expenses of redemption of shares; Commission fees; expenses of
registering the shares under Federal, state or foreign laws; fees and expenses
of unaffiliated Directors; accounting and pricing costs (including the daily
calculation of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other expenses
properly payable by the Company. Accounting services are provided to the Company
by the Investment Adviser, and the Company reimburses the Investment Adviser for
its costs in connection with such services on a semiannual basis. For the fiscal
years ended November 30, 1995, 1996 and 1997, the amount of such reimbursement
was $171,044, $104,828 and $115,158, respectively. As required by the Company's
distribution agreements, the Distributor will pay certain of the promotional
expenses of the Company incurred in connection with the offering of its shares.
Certain expenses in connection with the distribution of Class B, Class C and
Class D shares will be financed by the Company pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares-Distribution Plans."
As described in the Prospectus, the Investment Adviser entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K."), a wholly owned, indirect subsidiary of ML & Co. and an affiliate of the
Investment Adviser, pursuant to which MLAM U.K. provides investment advisory
services to the Investment Adviser with respect to the Company. MLAM U.K.
received no fees under the sub-advisory agreement during the fiscal years ended
November 30, 1996 and 1997.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser 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. Similarly,
the following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe Limited (MLAM U.K.'s parent), a subsidiary of ML
International Holdings, a subsidiary of Merrill Lynch International, Inc., a
subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company 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 contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of a majority of the shareholders of the
Company.
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<PAGE> 66
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing (SM) System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives, and shares of Class B and Class
C are sold to investors choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C and Class D share of the Company represents identical
interests in the investment portfolio of the Company and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the ongoing
account maintenance fees, and Class B and Class C shares bear the expenses of
the ongoing distribution fees and the additional incremental transfer agency
costs resulting from the deferred sales charge arrangements. Class B, Class C
and Class D shares each have exclusive voting rights with respect to the Rule
12b-1 distribution plan adopted with respect to such class pursuant to which
account maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan). Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege."
The Merrill Lynch Select Pricing (SM) System is used by more than 50
registered investment companies advised by the Investment Adviser, or its
affiliate, FAM. Funds advised by FAM or the Investment Adviser that utilize the
Merrill Lynch Select Pricing (SM) System are referred to herein as "MLAM-advised
mutual funds."
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (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 Company. 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 Investment Advisory Agreement
described under "Management of the Company -- Advisory and Management
Arrangements."
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended November 30, 1995, 1996 and 1997, the Company
sold its Class A and Class D shares through the Distributor and Merrill Lynch.
The gross sales charges for the sale of Class A shares of the Company for the
fiscal year ended November 30, 1995, were $19,143, of which $17,301 was received
by Merrill Lynch, and $1,842 was received by the Distributor. The gross sales
charges for the sale of Class A shares for the fiscal year ended November 30,
1996, were $20,339, of which $19,087 was received by Merrill Lynch, and $1,252
was received by the Distributor. The gross sales charges for the sale of Class A
shares of the Company for the fiscal year ended November 30, 1997, were $13,409,
of which $12,568 was received by Merrill Lynch, and $841 was received by the
Distributor. The gross sales charges for the sale of
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<PAGE> 67
Class D shares of the Company for the fiscal year ended November 30, 1995, were
$14,803, of which $13,922 was received by Merrill Lynch and $881 was received by
the Distributor. The gross sales charges for the sale of Class D shares for the
fiscal year ended November 30, 1996, were $14,881, of which $13,781 was received
by Merrill Lynch and $1,100 was received by the Distributor. The gross sales
charges for the sale of Class D shares for the fiscal year ended November 30,
1997, were $3,722, of which $3,499 was received by Merrill Lynch and $223 was
received by the Distributor. During such periods, the Distributor received no
contingent deferred sales charges ("CDSCs") with respect to redemptions within
one year after purchase of Class A or Class D shares purchased subject to a
front-end sales charge waiver.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his or their own account and single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Code) 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 that has no purpose other
than the purchase of shares of the Company 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. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
of shares of the Company by employees or by employers on behalf of employees, by
means of a payroll deduction plan or otherwise. Purchases by such a company or
non-qualified employee benefit plan will qualify for the quantity discounts
discussed above only if the Company and the Distributor are able to realize
economies of scale in sales effort and sales related expense by means of the
company, employer or plan making the Company's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Company and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or its affiliate, FAM, 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 purchase Class A shares) or Class D
shares of the Company and other MLAM-advised mutual 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 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
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<PAGE> 68
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 Company. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Company 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 Company, except that shareholders
already owning Class A shares of the Company 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
Company. 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 Company's shares on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Company 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 Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90
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<PAGE> 69
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
Company and of other MLAM-advised mutual funds presently held, at cost or
maximum offering price (whichever is higher), on the date of the first purchase
under the Letter of Intention, may be included as a credit toward completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
does not equal the amount stated in the Letter of Intention (minimum of
$25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while registered in the name of the purchaser) for
this purpose. The first purchase under the Letter of Intention must be at least
five percent of the dollar amount of such Letter. If a purchase during the term
of such Letter 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 reduced percentage sales charge which
would be applicable to a single purchase equal to the total dollar value of the
Class A or Class D shares then being purchased under such Letter, but there will
be no retroactive reduction of the sales charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Company that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Company.
Merrill Lynch Blueprint (SM) Program. Class D shares of the Company are
offered to participants in the Merrill Lynch Blueprint (SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class D shares of the Company through
Blueprint will acquire the Class D shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). Class D shares of
the Company are offered at net asset value plus a sales charge of .50% of 1% for
corporate or group IRA programs placing orders to purchase their Class D shares
through Blueprint. Services, including the exchange privilege, available to
Class A and Class D shareholders through Blueprint, however, may differ from
those available to other investors in Class D shares.
Class A and Class D shares are offered at net asset value, to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
whose trustee and/or plan sponsor offers the Merrill Lynch Directed IRA Rollover
Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
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<PAGE> 70
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint (SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0041.
TMA (SM) Managed Trusts. Class A shares are offered to TMA (SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
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 for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
Purchase Privilege of Certain Persons. Directors of the Company, 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 Company at net asset value.
Class D shares of the Company are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company with proceeds from a redemption 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 also must establish that such redemption had
been made within 60 days prior to the investment in the Company, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Company 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 Company are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of such
shares of other mutual funds and that such shares have been
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<PAGE> 71
outstanding for a period of no less than six months; and second, such purchase
of Class D shares must be made within 60 days after the redemption, and the
proceeds from the redemption must be maintained in the interim in cash or a
money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Company 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 Company. 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 Company, (ii) are acquired for
investment and not for resale (subject to the understanding that the disposition
of the Company's portfolio securities shall at all times remain within its
control); and (iii) are liquid securities, the value of which is readily
ascertainable, that are not restricted as to transfer either by law or liquidity
of market (except that the Company may acquire through such transactions
restricted or illiquid securities to the extent the Company 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.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares-Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each
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Distribution Plan, the Directors must consider all factors they deem relevant,
including information as to the benefits of the Distribution Plan to the Company
and its related class of shareholders. Each Distribution Plan further provides
that, so long as the Distribution Plan remains in effect, the selection and
nomination of Directors who are not "interested persons" of the Company, as
defined in the Investment Company Act (the "Independent Directors"), shall be
committed to the discretion of the Independent Directors then in office. In
approving each Distribution Plan in accordance with Rule 12b-1, the Independent
Directors concluded that there is a reasonable likelihood that such Distribution
Plan will benefit the Company 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 Independent Directors or by the vote of the holders of a
majority of the outstanding related class of voting securities of the Company. A
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Company without the approval of the related class of shareholder,
and all material amendments are required to be approved by the vote of the
Directors, including a majority of the Independent Directors who have no direct
or indirect financial interest in such Distribution Plan, cast in person at a
meeting for that purpose. Rule 12b-1 further requires that the Company preserve
copies of each Distribution Plan and any report made pursuant to such plan for a
period of not less than six years from the date of such Distribution Plan or
such report, the first two years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("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
Company, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Company 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 Company will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Company rather than to the Distributor; however, the Company 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.
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The following table sets forth comparative information as of November
30, 1997, with respect to the Class B and Class C shares of the Company
indicating the maximum allowable payments that can be made under the NASD
maximum sales charge rule and, with respect to Class B shares, the
Distributor's voluntary maximum.
DATA CALCULATED AS OF NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- ------- ---------- ------- -------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD ..
OCTOBER 21, 1988
(COMMENCEMENT OF OPERATIONS) ...
TO NOVEMBER 30, 1997:
Under NASD Rule As Adopted ...... $77,543 $4,846 $1,650 $6,496 $3,083 $3,413 $501
Under Distributor's Voluntary
Waiver .......................... $77,543 $4,846 $ 388 $5,234 $3,083 $2,151 $501
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1997:
Under NASD Rule As Adopted ...... $ 1,706 $ 107 $ 13 $ 120 $ 52 $ 68 $ 45
</TABLE>
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the
NASD Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of
the distribution fee payments made with respect to Class B shares prior
to July 7, 1993, under the distribution plan in effect at that time, at
the 1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed
to have been a service fee and not subject to the NASD maximum sales
charge rule. See "Purchase of Shares--Distribution Plans" 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.
(4) 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 NASD maximum or, with
respect to Class B shares, the voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (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
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Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Company at such time.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an
Individual Retirement Account ("IRA") or other retirement plan or following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies in the case of such withdrawals are: (a) any partial or complete
redemption in connection with a tax-free distribution following retirement under
a tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death or initial determination of
disability. For the fiscal years ended November 30, 1995 and 1996, the
Distributor received CDSCs of $89,423 and $60,215, respectively, with regard to
redemptions of Class B shares, all of which were paid to Merrill Lynch. For the
fiscal year ended November 30, 1997, the Distributor received CDSCs of $134,859,
with regard to redemptions of Class B shares, all of which were paid to Merrill
Lynch. Additional CDSCs payable to the Distributor during the fiscal year ended
November 30, 1997 may have been waived or converted to a contingent obligation
in connection with a shareholder's participation in certain fee-based programs.
For the fiscal years ended November 30, 1995 and 1996 and 1997, the Distributor
received CDSCs of $97, $1,249 and $2,200, respectively, with regard to
redemptions of Class C shares, all of which were paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Company will be grouped for execution
purposes which, in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The minimum initial
purchase order is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Company,
the Investment Adviser is primarily responsible for the execution of the
Company's portfolio transactions and the allocation of brokerage. In executing
such transactions, the Investment Adviser seeks to obtain the best net results
for the Company, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Company does not necessarily pay
the lowest commission or spread available. The Company has no obligation to deal
with any broker or group of brokers in execution of transactions in portfolio
securities. Subject to obtaining the best price and execution, brokers who
provide supplemental investment research to the Investment Adviser may receive
orders for transactions by the Company. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Investment Advisory Agreement, and the expenses of
the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information. It is possible that certain of the
supplementary investment research so received will primarily benefit one or more
other investment companies or other accounts for which investment discretion is
exercised. Conversely, the Company may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected for
such other accounts or investment companies. In addition, consistent with the
Conduct Rules of the NASD and policies established by the Board of Directors of
the Company, the Investment Adviser may consider sales of shares of the Company
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Company.
The Company anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company 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 U.S. or Europe, as the case may be. ADRs, like other securities
traded in the U.S., as well as GDRs traded in the U.S., will be subject to
negotiated commission rates.
The Company may invest in securities traded in the over-the-counter markets
and intends to deal directly with the dealers who make markets in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Under the Investment Company Act, persons affiliated with
the Company and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Company 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 over-the-counter market usually
involve transactions with dealers acting as principal for their own account, the
Company will not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, affiliated persons of
the Company may serve as its broker in over-the-counter transactions conducted
on an
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agency basis provided that, among other things, the fee or commission received
by such affiliated broker is reasonable and fair compared to the fee or
commission received by non-affiliated brokers in connection with comparable
transactions. See "Investment Objective and Policies-Investment Restrictions."
For the fiscal year ended November 30, 1995, the Company paid brokerage
commissions of $1,122,486. Merrill Lynch and its affiliates received $38,165, or
3.4%, of such amount for effecting transactions involving 3.2% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions.
For the fiscal year ended November 30, 1996, the Company paid brokerage
commissions of $761,962. Merrill Lynch and its affiliates received $31,344, or
4.11%, of such amount for effecting transactions involving 4.14% of the
aggregate dollar amount of transactions in which the Company paid brokerage
commissions. For the fiscal year ended November 30, 1997, the Company paid
brokerage commissions of $1,321,578. Merrill Lynch and its affiliates received
$130,458, or 9.87%, of such amount for effecting transactions involving 7.37% of
the aggregate dollar amount of transactions in which the Company paid brokerage
commissions.
The Board of Directors has considered the possibility of seeking to
recapture for the benefit of the Company 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 Company.
After considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. 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 a statement disclosing 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 Company 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 Company and annual statements as to aggregate compensation
will be provided to the Company.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined once daily
Monday through Friday as of 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE is open
for trading. The NYSE is not open 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. 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.
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Net asset value per share is computed by dividing the value of the
securities held by the Company plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares outstanding at such time.
Expenses, including the fee payable to the Investment Adviser and any account
maintenance and/or distribution fees, are accrued daily. The per share net asset
value of Class B, Class C and Class D shares generally will be lower than the
per share net asset value of the Class A shares reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B and Class C shares and the daily expense
accruals of the account maintenance fees applicable with respect to Class D
shares; moreover the per share net asset value of Class B and Class C shares
generally will be lower than the per share net asset value of Class D shares
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Company. 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 among the classes.
Portfolio securities, including ADRs, EDRs or GDRs, 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 Board of 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 on both the
OTC market and on a stock exchange are valued according to the broadest and most
representative market. When the Company writes an option, the amount of the
premium received is recorded on the books of the Company 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 Company 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. Securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Company.
Generally, trading in foreign securities, as well as corporate bonds, 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 Company'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 will not be reflected in the computation of the Company's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Directors.
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SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares through
the Merrill Lynch Blueprint (SM) Program. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Company, 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
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions. A shareholder may
make additions to his Investment Account at any time by mailing a check directly
to the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A shares 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 Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the transfer
agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. 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 as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such as
an IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Company, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A U.S. 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 as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail
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directly to the transfer agent, acting as agent for such securities dealer.
Voluntary accumulation also can be made through a service known as the Company's
Automatic Investment Plan whereby the Company is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. Investors
who maintain CMA (R) or CBA (R) accounts may arrange to have periodic
investments made in the Company in their CMA (R) or CBA (R) account or certain
related accounts in amounts of $100 or more ($1 for retirement accounts) through
the CMA (R) or CBA (R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be automatically reinvested in additional shares of the
Company. Such reinvestment will be at the net asset value of shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date. The
Company 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
distributions or redemption checks.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained by Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained by the Transfer Agent that they no longer wish to have their
dividends and/or distributions reinvested in shares of the Company or vice
versa, and commencing ten days after receipt by the transfer agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares in the form of payments
by check or through automatic payment by direct deposit to such shareholder's
bank account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired shares of the
Company having a value, based upon cost or the current offering price, of $5,000
or more, and monthly withdrawals are available for shareholders with shares
having such a value of $10,000 or more.
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
class of shares to be redeemed. Redemptions will be made at net asset value as
determined as of 15 minutes after the close of business on the NYSE (generally,
4:00 p.m., New York 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 mailed,
or the direct deposit of the withdrawal payment will be made, on the next
business day following redemption. When a shareholder is making systematic
withdrawals, dividends and distributions on all shares in the Investment Account
are automatically reinvested in shares of the Company. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without a charge or
penalty, by the shareholder, the Company, the Transfer Agent or the Distributor.
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Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. The Company will not knowingly accept purchase
orders for shares of the Company from investors who maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. Periodic investments may not be
made into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
Alternatively, a shareholder whose shares are held with a CMA(R), CBA(R) or
Retirement 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 $25. 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
must 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 Company
shares are being purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA(R) or CBA(R) Systematic
Redemption Program, eligible shareholders should contact their Merrill Lynch
Financial Consultant.
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-Contingent
Deferred Sales Charges-Class B Shares" and "-Contingent Deferred Sales
Charges-Class C Shares" in the Prospectus. 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 automatically be
applied thereafter to Class D shares. See "Purchase of Shares-Deferred Sales
Charge Alternatives-Class B and Class C Shares-Conversion of Class B Shares to
Class D Shares" in the Prospectus; if an investor wishes to change the amount
being withdrawn in a systematic withdrawal plan the investor should contact his
or her Financial Consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing (SM) System, Class A shareholders may exchange Class A shares of
the Company for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his or her account in
which the exchange is made
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at the time of the exchange or is otherwise eligible to purchase Class A shares
of the second fund. If the Class A shareholder wants to exchange Class A shares
for shares of a second MLAM-advised mutual fund, 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
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of the
second fund. Class B, Class C and Class D shares are exchangeable with shares of
the same class of other MLAM-advised mutual funds. For purposes of computing the
CDSC that may be payable upon disposition of the shares acquired in the
exchange, the holding period for the previously owned shares of the Company is
"tacked" to the holding period for the newly acquired shares of the other fund
as more fully described below. Class A, Class B, Class C and Class D shares also
are exchangeable for shares of certain MLAM-advised money market funds as
follows: Class A shares may be exchanged for shares of Merrill Lynch Ready
Assets Trust, Merrill Lynch Retirement Reserves Money Fund (available only for
exchanges within certain retirement plans), Merrill Lynch U.S.A. Government
Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B, Class C and Class
D shares may be exchanged for shares of Merrill Lynch Government Fund, Merrill
Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and
Merrill Lynch Treasury Fund. 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. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class
A or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Company generally may
be exchanged into the Class A or Class D shares of the other funds or into
shares of certain money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B and 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, ("new
Class B or Class C shares") of another MLAM-advised mutual fund 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 Company exercising the exchange privilege will continue to
be subject to the Company'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,
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Class B shares of the Company acquired through use of the exchange privilege
will be subject to the Company'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 sales charge that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is "tacked" to the holding
period for the new Class B or Class C shares. For example, an investor may
exchange Class B shares of the Company for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Company 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 Company 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.
Shareholders also may exchange shares of the Company into shares of
certain money market funds advised by the Investment Adviser or its affiliates,
but the period of time that Class B or Class C shares are held in a money market
fund will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
that were acquired as a result of an exchange for Class B or Class C shares of
the Company may, in turn, be exchanged back into Class B or Class C shares,
respectively, of any fund offering such shares, in which event the holding
period for Class B or Class C shares of the newly-acquired fund will be
aggregated with previous holding periods for purposes of reducing the CDSC.
Thus, for example, an investor may exchange Class B shares of the Company for
shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having
held the Company Class B shares for two and a half years and three years later
decide to redeem the shares of Institutional Fund for cash. At the time of this
redemption the 2% CDSC that would have been due had the Class B shares of the
Company been redeemed for cash rather than exchanged for shares of Institutional
Fund will be payable. If instead of such redemption the shareholder exchanged
such shares for Class B shares of a fund that the shareholder continued to hold
for an additional two and a half years, any subsequent redemption would not
incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, a shareholder should contact his or
her Merrill Lynch Financial Consultant who will advise the Company of the
exchange. Shareholders of the Company, and shareholders of the other
MLAM-advised mutual funds, with shares for which certificates have not been
issued, may exercise the exchange privilege by wire through their securities
dealers. The Company 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 Securities and Exchange Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares at
any time and thereafter may resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange
legally may be made.
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<PAGE> 83
TAXES
The Company 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
Company (but not its shareholders) will not be subject to Federal income tax on
the part of its net ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Company intends to distribute substantially all of such
income.
Dividends paid by the Company 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 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 Company shares. Any loss upon
the sale or exchange of Company 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 Company'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). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally not later than 60 days after the close of its taxable year, the
Company will provide its shareholders with a written notice designating the
amounts of any ordinary income dividends or capital gain dividends, as well as
the 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 Company. A portion of the Company'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 Company 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 Company 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 Company 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% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. 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
31
<PAGE> 84
identification number is on file with the Company or who, to the Company's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Company may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Shareholders may be able to claim U.S. foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Company. 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. If more than 50% in value of the Company's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Company will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Company will be required
to include their proportionate shares of such withholding taxes in their U.S.
income tax returns as gross income, treat such proportionate shares as taxes
paid by them and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their U.S.
income taxes. In the case of foreign taxes passed through by a RIC, the holding
period requirements referred to above must be met by both the shareholder and
the RIC. No deductions for foreign taxes, however, may be claimed by
noncorporate shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the Company's election described in
this paragraph but may not be able to claim a credit or deduction against such
U.S. tax for the foreign taxes treated as having been paid by such shareholder.
The Company 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 Company will allocate foreign taxes and foreign
source income among the Class A, Class B, Class C and Class D shareholders
according to a method similar to that described above for the allocation of
dividends eligible for the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period 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 Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company 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 the 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
32
<PAGE> 85
98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. While the Company
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 Company's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the
Company will be liable for the tax only on the amount by which it does not meet
the foregoing distribution requirements.
The Company may invest in securities rated in the medium to lower
rating categories of nationally recognized rating organizations, and in unrated
securities ("high yield bonds"), as previously described. Some of these high
yield bonds may be purchased at a discount and may therefore cause the Company
to accrue and distribute income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield bonds
may be treated as dividends for Federal income tax purposes; in such case, if
the issuer of such high yield bonds is a domestic corporation, dividend payments
by the Company will be eligible for the dividends received deduction to the
extent of the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company 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 Company
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 Company 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 Company 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
Company 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 Company's sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Company
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 exchange 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 stock, securities or foreign currencies will
33
<PAGE> 86
be qualifying income for purposes of determining whether the Company qualifies
as a RIC. It is currently unclear, however, who will be treated as the issuer of
a foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Company.
Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Company 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 Company. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the
Company'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 Company would
not be able to make any ordinary income dividend distributions, and all or a
portion of distributions made before the losses were realized but in the same
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Company shares and resulting in
a capital gain for any shareholder who received a distribution greater than such
shareholder's basis in Company 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 Company
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 Company.
PERFORMANCE DATA
From time to time the Company 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
Company's historical performance and are not intended to indicate future
performance. Average
34
<PAGE> 87
annual total return is determined separately for Class A, Class B, Class C and
Class D shares in accordance with a formula specified by the 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 in the case of Class B and Class C
shares.
The Company 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 longer periods of time.
35
<PAGE> 88
Set forth in the tables below is total return information for Class A,
Class B, Class C and Class D shares of the Company for the periods
indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------------- ------------------------- -------------------------
REDEEMABLE REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A HYPOTHETICAL AS A HYPOTHETICAL AS A HYPOTHETICAL
PERCENTAGE $1,000 PERCENTAGE $1,000 PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
------ ------------ ------------ ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C>
One Year Ended November 30,
1997 ............................. 0.47 % $1,004.70 0.99 % $1,009.90 3.96 % $1,039.60
Five Years Ended November 30,
1997 ............................. 10.21 % $1,625.70 10.25 % $1,628.90
Ten Years Ended November 30,
1997 ............................. 9.87 % $2,563.70
Inception (October 21, 1988) to
November 30, 1997 ................ 8.68 % $2,134.00
Inception (October 21, 1994) to
November 30, 1997 ................ 8.23 % $1,278.80
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES
---------------------------
REDEEMABLE
EXPRESSED VALUE OF A
AS A HYPOTHETICAL
PERCENTAGE $1,000
BASED ON A INVESTMENT
HYPOTHETICAL AT THE END
$1,000 OF THE
PERIOD INVESTMENT PERIOD
------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C>
One Year Ended November 30,
1997 .............................. 0.24 % $1,002.40
Five Years Ended November 30,
1997 ..............................
Ten Years Ended November 30,
1997 ..............................
Inception (October 21, 1988) to
November 30, 1997 .................
Inception (October 21, 1994) to
November 30, 1997 ................. 7.21 % $1,241.70
</TABLE>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended November 30, 1997 ...... 6.04 % $1,060.40 4.98 % $1,049.80 4.96 % $1,049.60 5.80 % $1,058.00
Year Ended November 30, 1996 ...... 15.20 % $1,152.00 13.97 % $1,139.70 14.05 % $1,140.50 14.86 % $1,148.60
Year Ended November 30, 1995 ...... 12.92 % $1,129.20 11.78 % $1,117.80 11.69 % $1,116.90 12.73 % $1,127.30
Year Ended November 30, 1994 ...... 4.39 % $1,043.90 3.32 % $1,033.20
Inception (October 21, 1994) to
November 30, 1994 ................. (4.36)% $ 956.40 (4.33)% $ 956.70
Year Ended November 30, 1993 ...... 19.16 % $1,191.60 17.87 % $1,178.70
Year Ended November 30, 1992 ...... 10.67 % $1,106.70 9.58 % $1,095.80
Year Ended November 30, 1991 ...... 6.77 % $1,067.70 5.67 % $1,056.70
Year Ended November 30, 1990 ...... (4.90)% $ 951.00 (5.88)% $ 941.20
Year Ended November 30, 1989 ...... 19.36 % $1,193.60 18.22 % $1,182.20
Year Ended November 30, 1988 ...... 17.59 % $1,175.90
Inception (October 21, 1988) to
November 30, 1988 ................. 13.37 % $1,133.70
Year Ended November 30, 1987 ..... 0.67 % $1,006.70
Year Ended November 30, 1986 ...... 33.34 % $1,333.40
Year Ended November 30, 1985 ...... 31.69 % $1,316.90
Inception (July 2, 1984) to
November 30, 1984 ................. 3.01 % $1,030.10
</TABLE>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<S> <C>
Inception (July 2, 1984) to
November 30, 1997............ 366.85 % $4,668.50
Inception (October 21, 1988) to
November 30, 1997.............. 113.40 % $2,134.00
Inception (October 21, 1994) to
November 30, 1997.............. 27.88 % $1,278.80 24.17 % $1,241.70
</TABLE>
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<PAGE> 89
In order to reflect the reduced sales charges, in the case of Class A
or Class D shares, or the waiver of the CDSC, in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Company in advertisements directed to such investors may take into account a
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 the CDSC, a lower amount of expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated under Maryland law on March 7, 1984. At
the date of this Statement of Additional Information, the Company has an
authorized capital of 400,000,000 shares of Common Stock, par value of $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Each share of
Class A, Class B, Class C and Class D Common Stock represents an interest in the
same assets of the Company and is identical in all respects 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 they have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Board of Directors of the Company may classify
and reclassify the shares of the Company into additional classes of Common Stock
at a future date.
Shareholders are entitled to one vote for each share held and
fractional votes for fractional shares held and will vote on the election of
Directors and any other matter submitted to a shareholder vote. The Company does
not intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification of
selection of independent auditors. Generally, under Maryland law, a meeting of
shareholders may be called for any purpose on the written request of the holders
of at least 25% of the outstanding shares of the Company. Voting rights for
Directors are not cumulative. Shares issued are fully paid and non-assessable
and have no preemptive rights. Redemption and conversion rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled to participate
equally in dividends and distributions declared by the Company and in the net
assets of the Company upon liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates are issued by the transfer agent
only on specific request. Certificates for fractional shares are not issued in
any case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors at
the request of 25% of the outstanding shares of the Company. A Director may be
removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
The Company was incorporated under the name "Merrill Lynch
International Holdings, Inc." On November 1, 1993, the Company commenced doing
business under the name "Merrill Lynch Global Holdings" and on October 21, 1994,
changed its name to Merrill Lynch Global Holdings, Inc. As investing in overseas
markets has become more common, the term "international fund" has widely come to
mean one which invests exclusively outside the United States, whereas a "global
fund" is one which may invest within
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<PAGE> 90
the United States as well as in other markets. Management of the Company
believes that the name "Merrill Lynch Global Holdings, Inc." better portrays the
Company's worldwide investment capabilities, which include the ability to invest
both within the United States and abroad.
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 Company based on the value of the
Company's net assets on November 30, 1997, and its shares outstanding on that
date is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Assets .............................................. $ 344,940,056 $ 66,791,027 $ 5,964,338 $ 8,485,613
============= ============ ============ =============
Number of Shares Outstanding ............................ 22,920,493 4,667,281 417,765 566,770
============= ============ ============ =============
Net Asset Value Per Share (net assets divided by
number of shares outstanding) .......................... $ 15.05 $ 14.31 $ 14.28 $ 14.97
Sales Charge (for Class A and Class D shares:
5.25% of offering price (5.54% of net asset value
per share))* ........................................... .83 ** ** .83
------------- ------------ ------------ -------------
Offering Price .......................................... $ 15.88 $ 14.31 $ 14.28 $ 15.80
============= ============ ============ =============
</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"
in the Prospectus and "Redemption of Shares-Deferred Sales
Charges-Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540,
has been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase
MetroTech Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), acts
as the custodian of the Company's assets. Under its contract with the Company,
the Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories. The
Custodian is responsible for safeguarding and controlling the Company's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Company's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Company's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the
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<PAGE> 91
issuance, transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See "Management of the Company-Transfer
Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York
10048-0557, is counsel for the Company.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on November 30 of each year. The
Company sends to its shareholders at least semi-annually reports showing the
Company's portfolio and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not
contain all the information set forth in the Registration Statement and the
exhibits relating thereto, which the Company has filed with the 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 Company 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 Company at any time or to grant the use
of such name to any other company, and the Company 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On February 2, 1998, Merrill Lynch Trust entities owned of record an
aggregate of approximately 14.46% of the outstanding shares of the Company on
behalf of certain employee retirement or savings plan accounts for which such
entities act as trustee. The address of Merrill Lynch Trust entities is P.O. Box
30532, New Brunswick, NJ 08989.
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<PAGE> 92
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Global Holdings, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Holdings, Inc. as of
November 30, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Holdings, Inc. as of November 30, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
January 14, 1998
40
<PAGE> 93
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
(in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
LATIN SHARES VALUE PERCENT OF
AMERICA INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Argentina BANKING 125,000 Banco de Galicia y Buenos Aires
S.A. (ADR)* $3,084,280 $2,898,438 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 100,000 Yacimientos Petroliferos Fiscales
S.A. (YPF) (ADR)* 2,354,250 3,356,250 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 278,810 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A. 1,023,485 1,985,922 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ARGENTINA 6,462,015 8,240,610 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil FOREST PRODUCTS 100,000 Aracruz Celulose S.A. (ADR)* 1,835,000 1,437,500 0.3
& PAPER
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 30,000,000 Telecommunicacoes Brasileiras
S.A. -- Telebras PN (Preferred) 1,069,928 3,148,215 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN BRAZIL 2,904,928 4,585,715 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Mexico BANKING 2,000,000 +Grupo Financiero Banorte, S.A.
de C.V. (Class B) 2,113,918 2,778,793 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 125,000 DESC, Sociedad de Fomento
Industrial S.A. de C.V. (ADR)* 3,668,116 4,695,313 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MEXICO 5,782,034 7,474,106 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
Panama BANKING 75,000 Banco Latinoamericano de
Exportaciones, S.A. (E Shares) 3,704,425 3,046,875 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PANAMA 3,704,425 3,046,875 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN LATIN AMERICA 18,853,402 23,347,306 5.5
- ------------------------------------------------------------------------------------------------------------------------------------
MIDDLE
EAST
- ------------------------------------------------------------------------------------------------------------------------------------
Israel ELECTRICAL & 150,000 +NICE -- Systems Ltd. (ADR)* 3,331,379 6,562,500 1.5
ELECTRONICS
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE MIDDLE
EAST 3,331,379 6,562,500 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH
AMERICA
- ------------------------------------------------------------------------------------------------------------------------------------
Canada CHEMICALS 300,000 Agrium, Inc. 4,041,373 3,024,874 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 50,000 Northern Telecom Ltd. 1,474,875 4,490,625 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN CANADA 5,516,248 7,515,499 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
United States BANKING 120,000 Bank of New York, Inc. (The) 3,130,284 6,450,000 1.5
95,000 Northern Trust Corporation 3,777,776 5,907,813 1.4
65,000 Wachovia Corporation 4,173,125 5,005,000 1.2
------------- ------------- ------
11,081,185 17,362,813 4.1
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 25,000 +Microsoft Corp. 512,083 3,535,938 0.8
SERVICES 300,000 +Molten Metal Technology, Inc. 4,511,661 84,375 0.0
150,000 +Oracle Corporation 2,653,264 4,987,500 1.2
175,000 +US Filter Corp. 5,537,286 5,490,625 1.3
------------- ------------- ------
13,214,294 14,098,438 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 94
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
(in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
NORTH AMERICA SHARES VALUE PERCENT OF
(concluded) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States ELECTRONICS/ 65,000 +Cisco Systems, Inc. $ 3,206,875 $ 5,602,188 1.3%
(concluded) COMPONENTS 85,000 Intel Corp. 1,087,344 6,598,125 1.6
90,000 Texas Instruments Inc. 2,012,563 4,432,500 1.0
------------- ------------- ------
6,306,782 16,632,813 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES 400,000 +Global Industries Ltd. 3,636,351 6,400,000 1.5
125,000 Transocean Offshore Inc. 3,606,055 5,929,688 1.4
------------- ------------- ------
7,242,406 12,329,688 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL 100,000 Johnson & Johnson 5,281,813 6,293,750 1.5
CARE 55,000 Merck & Co., Inc. 3,287,350 5,200,938 1.2
90,000 Pfizer, Inc. 2,529,031 6,547,500 1.5
125,000 Pharmacia & Upjohn Inc. 4,720,980 4,218,750 1.0
------------- ------------- ------
15,819,174 22,260,938 5.2
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE 150,000 Mercury General Corp. 3,010,895 7,500,000 1.8
80,000 The PMI Group, Inc. 4,385,425 5,200,000 1.2
------------- ------------- ------
7,396,320 12,700,000 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY & 150,000 Harnischfeger Industries, Inc. 5,717,313 5,728,125 1.3
EQUIPMENT 125,000 Kennametal, Inc. 5,048,372 6,585,937 1.6
------------- ------------- ------
10,765,685 12,314,062 2.9
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 110,000 CVS Corporation 5,633,409 7,301,250 1.7
150,000 +Federated Department Stores, Inc. 4,921,701 6,834,375 1.6
125,000 Home Depot, Inc. 3,653,625 6,992,187 1.7
450,000 +PETsMART, Inc. 6,002,962 3,515,625 0.8
------------- ------------- ------
20,211,697 24,643,437 5.8
- ------------------------------------------------------------------------------------------------------------------------------------
PACKAGING 200,000 Stone Container Corporation 2,586,246 2,500,000 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
RAILROADS 125,000 Illinois Central Corp. 3,777,500 4,507,812 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 1 +CommScope Inc. 12 11 0.0
EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE UNITED
STATES 98,401,301 139,350,012 32.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORTH AMERICA 103,917,549 146,865,511 34.5
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC
BASIN/ASIA
- ------------------------------------------------------------------------------------------------------------------------------------
Australia BROADCASTING & 351,883 News Corp., Ltd. (Ordinary) 1,873,092 1,883,281 0.4
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN AUSTRALIA 1,873,092 1,883,281 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
Hong Kong MULTI-INDUSTRY 500,000 CITIC Pacific Ltd. 2,539,752 1,992,290 0.5
400,000 Hutchison Whampoa Ltd. 1,949,838 2,665,011 0.6
------------- ------------- ------
4,489,590 4,657,301 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE 200,000 Sun Hung Kai Properties, Ltd. 1,247,335 1,526,560 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 95
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
UTILITIES -- GAS 1,500,000 Hong Kong and China Gas Company
Ltd. $ 1,987,876 $ 2,697,353 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN HONG KONG 7,724,801 8,881,214 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Indonesia CONSTRUCTION & 3,256,000 P.T. Jaya Real Property 3,095,258 403,081 0.1
HOUSING
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 60,000 P.T. Telekomunikasi Indonesia
(ADR)* 1,190,805 877,500 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILES 1,374,500 P.T. Indorama Synthetics (Foreign) 988,303 708,992 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN INDONESIA 5,274,366 1,989,573 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Japan BROADCASTING & 300,000 Tokyo Broadcasting System, Inc. 3,736,661 4,561,129 1.1
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE & WIRE 250,000 Sumitomo Electric Industry, Ltd. 2,791,441 3,350,313 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & 100,000 Canon Inc. 1,758,792 2,413,793 0.6
REPRODUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & 30,000 Keyence Corp. 2,162,440 4,373,041 1.0
ELECTRONICS 200,000 Matsushita Electric Industrial Co. 2,837,637 3,119,122 0.7
90,000 Murata Manufacturing Co., Ltd. 2,616,519 2,701,411 0.6
300,000 NEC Corporation 3,767,865 3,173,981 0.7
30,000 Sony Corp. 2,723,743 2,562,696 0.6
70,000 Tokyo Electron Ltd. 2,215,190 2,682,602 0.6
------------- ------------- ------
16,323,394 18,612,853 4.2
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 15,000 Nichiei Co. Ltd. 1,398,379 1,645,768 0.4
CONSUMER
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE 270,000 Tokio Marine & Fire Insurance Co.,
Ltd. 3,338,891 2,560,345 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY & 350,000 Minebea Co., Ltd. 2,942,184 3,894,984 0.9
ENGINEERING 500,000 Mitsubishi Heavy Industries Ltd. 3,654,177 1,967,085 0.5
------------- ------------- ------
6,596,361 5,862,069 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 40,000 Ito-Yokado Co., Ltd. 1,760,352 1,805,643 0.4
150,000 Marui Co., Ltd. 2,736,736 2,351,097 0.6
------------- ------------- ------
4,497,088 4,156,740 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE 200,000 Mitsui Fudosan Co., Ltd. 2,474,245 2,115,987 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 400 Nippon Telephone & Telegragh Corp.
(Ordinary) 3,217,188 3,291,536 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN JAPAN 46,132,440 48,570,533 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
Malaysia BANKING 1,440,799 Commerce Asset-Holding BHD 2,027,950 777,023 0.2
150,083 Commerce Asset-Holding BHD
(Warrants)(a) 95,215 16,360 0.0
------------- ------------- ------
2,123,165 793,383 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 1,000,000 Sungei Way Holdings BHD 2,085,002 401,606 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS 1,500,000 Land & General BHD (Ordinary) 2,275,824 473,322 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 800,000 Sime Darby BHD 2,837,011 803,213 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN MALAYSIA 9,321,002 2,471,524 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Singapore BANKING 380,000 Overseas Chinese Banking Corp. 3,284,321 2,279,809 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING & 190,000 Singapore Press Holdings Limited 2,976,641 2,602,086 0.6
PUBLISHING
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & 330,000 City Development Ltd. 2,201,466 1,627,403 0.4
HOUSING
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SINGAPORE 8,462,428 6,509,298 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 96
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in US dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC BASIN/ SHARES VALUE PERCENT OF
ASIA (concluded) INDUSTRIES HELD INVESTMENTS COST (NOTE 1a) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thailand BANKING 200,000 Bangkok Bank Public Company Ltd. $ 2,049,723 $ 597,758 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS 60,000 The Siam Cement Public Co. Ltd.
(Foreign Registered) 2,167,775 472,229 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES 130,000 PTT Exploration and Prodution
Public Co. (PTTEP) 1,587,284 1,444,085 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS 600,000 Total Access Communication Public
Co. Ltd. 2,433,299 786,000 0.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THAILAND 8,238,081 3,300,072 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE PACIFIC
BASIN/ASIA 87,026,210 73,605,495 17.3
- ------------------------------------------------------------------------------------------------------------------------------------
WESTERN
EUROPE
- ------------------------------------------------------------------------------------------------------------------------------------
Finland TELECOMMUNICATIONS 95,600 Nokia OY AS 'A' 3,283,620 7,824,151 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FINLAND 3,283,620 7,824,151 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
France BANKING 46,000 Cetelem S.A. 4,689,077 5,907,327 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 180,000 Dassault Systemes S.A. 2,382,131 4,787,802 1.1
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 50,000 Societe Nationale Elf Aquitane S.A. 4,845,082 5,802,626 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN FRANCE 11,916,290 16,497,755 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
Germany BANKING 70,000 Deutsche Bank AG 4,697,032 4,488,604 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 210,000 SKW Trostberg AG 5,676,684 7,256,775 1.7
120,000 Veba AG 5,406,473 7,130,060 1.7
------------- ------------- ------
11,083,157 14,386,835 3.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN GERMANY 15,780,189 18,875,439 4.4
- ------------------------------------------------------------------------------------------------------------------------------------
Italy TEXTILES 125,000 Gucci Group N.V. 8,151,212 5,085,937 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN ITALY 8,151,212 5,085,937 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Netherlands BUSINESS & PUBLIC 140,000 +Baan Company N.V. 2,254,885 10,060,386 2.4
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS 41,000 Akzo Nobel N.V. 5,917,636 7,212,963 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & 70,000 Philips Electronics N.V. 2,440,144 4,625,101 1.1
ELECTRONICS
- ------------------------------------------------------------------------------------------------------------------------------------
MERCHANDISING 216,342 Koninklijke Ahold N.V. 3,698,668 5,769,991 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE
NETHERLANDS 14,311,333 27,668,441 6.5
- ------------------------------------------------------------------------------------------------------------------------------------
Norway AUTOMOBILES 389,300 +Sensonor A/S 2,900,899 1,678,344 0.4
- ------------------------------------------------------------------------------------------------------------------------------------
OIL -- INTEGRATED 90,000 +Fred Olsen Energy ASA 1,819,982 1,915,000 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN NORWAY 4,720,881 3,593,344 0.9
- ------------------------------------------------------------------------------------------------------------------------------------
Portugal BUILDING PRODUCTS 200,000 Cimpor -- Cimentos de Portugal
S.A. 4,062,517 5,065,483 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE 200,000 BPI -- SGPS S.A. (Registered
Shares) 3,773,829 4,445,061 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN PORTUGAL 7,836,346 9,510,544 2.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 97
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Spain BUSINESS & PUBLIC 400,000 Prosegur Compania de Seguridad
SERVICES S.A. $ 4,176,481 $ 3,998,658 1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SPAIN 4,176,481 3,998,658 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
Sweden ENVIRONMENTAL 325,000 +Munters AB 3,401,427 3,115,003 0.7
CONTROL
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWEDEN 3,401,427 3,115,003 0.7
- ------------------------------------------------------------------------------------------------------------------------------------
Switzerland HEALTH & PERSONAL 1,000 Roche Holdings Ltd. 5,320,796 8,953,129 2.1
CARE
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SWITZERLAND 5,320,796 8,953,129 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom BANKING 500,000 The Royal Bank of Scotland Group
PLC 5,132,385 5,734,701 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC 1,200,000 Capita Group PLC 5,471,985 6,629,011 1.6
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS 2,100,000 Astec (BSR) PLC 3,743,542 4,085,027 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY 404,575 British Petroleum Co. PLC 2,100,965 5,519,220 1.3
500,000 Enterprise Oil PLC 3,604,380 4,917,864 1.1
------------- ------------- ------
5,705,345 10,437,084 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
HOME BUILDING 611,111 The Berkeley Group PLC 6,564,040 6,875,277 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY 911,944 BBA Group PLC 5,114,591 5,774,969 1.4
399,999 Siebe PLC 4,107,799 7,255,515 1.7
------------- ------------- ------
9,222,390 13,030,484 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
STEEL 200,000 +Ispat International N.V. 5,087,777 4,478,663 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN THE UNITED
KINGDOM 40,927,464 51,270,247 12.0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN WESTERN
EUROPE 119,826,039 156,392,648 36.7
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SHORT-TERM FACE
SECURITIES AMOUNT ISSUE
<S> <C> <C> <C> <C> <C> <C>
United States COMMERCIAL $15,460,000 General Motors Acceptance Corp.,
PAPER** 5.75% due 12/01/1997 15,455,061 15,455,061 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SHORT-TERM
SECURITIES 15,455,061 15,455,061 3.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $348,409,640 422,228,521 99.1
=============
OTHER ASSETS LESS LIABILITIES 3,952,513 0.9
------------- ------
NET ASSETS $426,181,034 100.0%
============= ======
- ------------------------------------------------------------------------------------------------------------------------------------
* American Depositary Receipts (ADR).
** Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates paid at
the time of purchase by the Company.
(a) Warrants entitle the Company to purchase a predetermined number of shares of common stock. The purchase
price and number of shares are subject to adjustment under conditions until the expiration date.
+ Non-income producing security.
See Notes to Financial Statements.
</TABLE>
45
<PAGE> 98
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $348,409,640) (Note 1a) $422,228,521
Cash 58,051
Foreign cash (Note 1b) 273
Receivables:
Securities sold $5,254,025
Dividends 387,390
Capital shares sold 117,958 5,759,373
------------
Prepaid registration fees and other assets (Note 1f) 26,247
------------
Total assets 428,072,465
------------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Capital shares redeemed 775,371
Investment adviser (Note 2) 332,693
Securities purchased 281,585
Distributor (Note 2) 58,667 1,448,316
------------
Accrued expenses and other liabilities 443,115
------------
Total liabilities 1,891,431
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets $426,181,034
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $2,292,050
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 466,729
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 41,777
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 56,677
Paid-in capital in excess of par 302,058,532
Accumulated distributions in excess of investment income -- net (Note 1g) (1,332,387)
Undistributed realized capital gains on investments and foreign currency
transactions -- net 48,840,738
Unrealized appreciation on investments and foreign currency transactions
-- net 73,756,918
------------
Net assets $426,181,034
============
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Class A -- Based on net assets of $344,940,056 and 22,920,493 shares
Value: outstanding $15.05
============
Class B -- Based on net assets of $66,791,027 and 4,667,281 shares
outstanding $14.31
============
Class C -- Based on net assets of $5,964,338 and 417,765 shares
outstanding $14.28
============
Class D -- Based on net assets of $8,485,613 and 566,770 shares
outstanding $14.97
============
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
46
<PAGE> 99
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Dividends (net of $649,557 foreign withholding tax) $5,202,879
(Notes 1d & 1e): Interest and discount earned (net of $192 foreign withholding tax) 870,387
------------
Total income 6,073,266
------------
- --------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) $4,776,233
Transfer agent fees -- Class A (Note 2) 869,198
Account maintenance and distribution fees -- Class B (Note 2) 705,358
Custodian fees 296,296
Transfer agent fees -- Class B (Note 2) 176,881
Printing and shareholder reports 161,774
Accounting services (Note 2) 115,158
Professional fees 81,191
Registration fees (Note 1f) 61,141
Account maintenance and distribution fees -- Class C (Note 2) 54,363
Directors' fees and expenses 37,937
Pricing fees 19,365
Account maintenance fees -- Class D (Note 2) 18,694
Transfer agent fees -- Class D (Note 2) 16,820
Transfer agent fees -- Class C (Note 2) 14,484
Other 19,605
------------
Total expenses 7,424,498
------------
Investment loss -- net (1,351,232)
------------
- --------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments -- net 51,342,484
(Loss) on Foreign currency transactions -- net (400,508) 50,941,976
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments -- net (17,185,490)
(Notes 1b, 1c, Foreign currency transactions -- net (57,606) (17,243,096)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 33,698,880
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $32,347,648
============
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
47
<PAGE> 100
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30,
----------------------------
INCREASE (DECREASE) IN NET ASSETS: 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income (loss) -- net $(1,351,232) $3,358,903
Realized gain on investments and foreign currency transactions -- net 50,941,976 22,566,229
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions -- net (17,243,096) 32,273,292
------------ ------------
Net increase in net assets resulting from operations 32,347,648 58,198,424
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income -- net:
Distributions to Class A (472,191) --
Shareholders Class C (24) --
(Note 1g): Class D (3,962) --
In excess of investment income -- net:
Class A (2,756,330) --
Class C (141) --
Class D (23,124) --
Realized gain on investments -- net:
Class A (20,709,718) (17,594,423)
Class B (2,278,771) (2,476,721)
Class C (49,977) (26,025)
Class D (245,755) (192,712)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders (26,539,993) (20,289,881)
------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase (decrease) in net assets derived from capital share transactions (27,845,951) 34,818,380
Transactions ------------ ------------
(Note 4):
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets (22,038,296) 72,726,923
Beginning of year 448,219,330 375,492,407
============ ============
End of year* $426,181,034 $448,219,330
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
* Undistributed (accumulated distributions of) investment income -- net $(1,332,387) $1,827,409
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE FOLLOWING PER SHARE DATA AND RATIOS CLASS A+
HAVE BEEN DERIVED FROM INFORMATION ------------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $15.12 $13.87 $12.82 $13.07 $11.78
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net (.02) .13 .05 .03 .04
Realized and unrealized gain on
investments and foreign currency
transactions -- net .86 1.87 1.52 .53 2.07
---------- ---------- ---------- ---------- ----------
</TABLE>
48
<PAGE> 101
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total from investment operations .84 2.00 1.57 .56 2.11
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.02) -- (.01) (.01) --
In excess of investment income -- net (.10) -- -- -- --
Realized gain on investments -- net (.79) (.75) (.51) (.80) (.82)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.91) (.75) (.52) (.81) (.82)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $15.05 $15.12 $13.87 $12.82 $13.07
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 6.04% 15.20% 12.92% 4.39% 19.16%
Return:* ========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 1.39% 1.37% 1.51% 1.44% 1.43%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss) -- net (.12%) .92% .41% .23% .32%
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $344,940 $398,310 $327,270 $330,132 $256,203
Data: ========== ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18% 56.98%
========== ========== ========== ========== ==========
Average commission rate paid++++ $.0103 $.0063 -- -- --
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE FOLLOWING PER SHARE DATA AND RATIOS CLASS B+
HAVE BEEN DERIVED FROM INFORMATION ------------------------------------------------------------
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOVEMBER 30,
------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $14.40 $13.38 $12.50 $12.74 $11.62
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss -- net (.17) (.02) (.08) (.10) (.08)
Realized and unrealized gain on
investments and foreign currency
transactions -- net .84 1.79 1.47 .52 2.02
---------- ---------- ---------- ---------- ----------
Total from investment operations .67 1.77 1.39 .42 1.94
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments -- net (.76) (.75) (.51) (.66) (.82)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $14.31 $14.40 $13.38 $12.50 $12.74
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 4.98% 13.97% 11.78% 3.32% 17.87%
Return:* ========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 2.42% 2.40% 2.55% 2.48% 2.46%
Net Assets: ========== ========== ========== ========== ==========
Investment loss -- net (1.11%) (.11%) (.63%) (.80%) (.72%)
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) $66,791 $44,311 $44,387 $49,647 $34,241
Data: ========== ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18% 56.98%
========== ========== ========== ========== ==========
Average commission rate paid++++ $.0103 $.0063 -- -- --
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++++ For fiscal years beginning on or after September 1, 1995, the Company is required to disclose its
average commission rate per share for purchases and sales of equity securities. The "Average Commission
Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars
using the prevailing exchange rate on the date of the transaction. Such conversions may significantly
affect the rate shown.
See Notes to Financial Statements.
</TABLE>
49
<PAGE> 102
<TABLE>
<CAPTION>
CLASS C++
--------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS PERIOD
HAVE BEEN DERIVED FROM INFORMATION OCT. 21,
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOV. 30, 1994+ TO
----------------------------------------- NOV. 30,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $14.41 $13.38 $12.51 $13.08
Operating ---------- ---------- ---------- ----------
Performance: Investment loss -- net (.17) (.01) (.08) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net .83 1.79 1.46 (.55)
---------- ---------- ---------- ----------
Total from investment operations .66 1.78 1.38 (.57)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net -- +++++ -- -- --
In excess of investment income -- net -- +++++ -- -- --
Realized gain on investments -- net (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Total dividends and distributions (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Net asset value, end of period $14.28 $14.41 $13.38 $12.51
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 4.96% 14.05% 11.69% (4.36%)++++
Return:** ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 2.43% 2.41% 2.55% 3.00%*
Net Assets: ========== ========== ========== ==========
Investment loss -- net (1.09%) (.09%) (.63%) (1.31%)*
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $5,964 $910 $376 $177
Data: ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18%
========== ========== ========== ==========
Average commission rate paid++++++ $.0103 $.0063 -- --
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS D++
--------------------------------------------------------
FOR THE
THE FOLLOWING PER SHARE DATA AND RATIOS PERIOD
HAVE BEEN DERIVED FROM INFORMATION OCT. 21,
PROVIDED IN THE FINANCIAL STATEMENTS. FOR THE YEAR ENDED NOV. 30, 1994+ TO
----------------------------------------- NOV. 30,
INCREASE (DECREASE) IN NET ASSET VALUE: 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $15.04 $13.84 $12.81 $13.39
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss) -- net (.06) .09 .02 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net .87 1.86 1.52 (.57)
---------- ---------- ---------- ----------
Total from investment operations .81 1.95 1.54 (.58)
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income -- net (.01) -- --+++++ --
</TABLE>
50
<PAGE> 103
<TABLE>
<S> <C> <C> <C> <C> <C>
In excess of investment income -- net (.08) -- -- --
Realized gain on investments -- net (.79) (.75) (.51) --
---------- ---------- ---------- ----------
Total dividends and distributions (.88) (.75) (.51) --
---------- ---------- ---------- ----------
Net asset value, end of period $14.97 $15.04 $13.84 $12.81
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share 5.80% 14.86% 12.73% (4.33%)++++
Return:** ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses 1.64% 1.63% 1.76% 2.23%*
Net Assets: ========== ========== ========== ==========
Investment income (loss) -- net (.39%) .60% .18% (.67%)*
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) $8,486 $4,688 $3,459 $1,591
Data: ========== ========== ========== ==========
Portfolio turnover 54.50% 41.14% 44.64% 40.18%
========== ========== ========== ==========
Average commission rate paid++++++ $.0103 $.0063 -- --
========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++++ Aggregate total investment return.
+++++ Amount is less than $.01 per share.
++++++ For fiscal years beginning on or after September 1, 1995, the Company
is required to disclose its average commission rate per share for
purchases and sales of equity securities. The "Average Commission
Rate Paid" includes commissions paid in foreign currencies, which
have been converted into US dollars using the prevailing exchange
rate on the date of the transaction. Such conversions may significantly affect the rate shown.
See Notes to Financial Statements.
</TABLE>
51
<PAGE> 104
Merrill Lynch Global Holdings, Inc., November 30, 1997
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Global Holdings, Inc. (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Company offers four classes of shares under the Merrill Lynch
Select Pricing(SM) System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Company.
(a) Valuation of securities -- Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the over-
the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the direction of the
Company's Board of Directors.
(b) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(c) Derivative financial instruments -- The Company may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the equity, debt and currency markets. Losses may
arise due to changes in the value of the contract or if the counterparty does
not perform under the contract.
- - Options -- The Company is authorized to write covered call options and
purchase put options. When the Company writes an option, an amount equal to the
premium received by the Company is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Company enters into a closing
transaction), the Company realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
- - Forward foreign exchange contracts -- The Company is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on the
Company's records. However, the effect on operations is recorded from the date
the Company enters into such contracts. Premium or discount is amortized over
the life of the contracts.
- - Foreign currency options and futures -- The Company may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Company, sold by the Company but not yet delivered, or committed or anticipated
to be purchased by the Company.
- - Financial futures contracts -- The Company may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Company deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected. Pursuant to
the contract, the Company agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such receipts
or payments are known as variation margin and are recorded by the Company as
unrealized gains or losses. When the contract is closed, the Company records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
(d) Income taxes -- It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Company has determined the ex-dividend date. Interest income is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the
Company are recorded on the ex-dividend dates. Distributions in excess of net
investment income are due primarily to differing tax treatments for post-October
losses.
(h) Reclassification -- Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $1,447,208 have been reclassified between undistributed
net realized capital gains and accumulated distributions in excess of net
investment income. These reclassifications have no effect on net assets or net
asset values per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Company has also
entered into a Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
As compensation for its services to the Company, MLAM receives monthly
compensation at the annual rate of 1.0% of the average daily net assets of the
Company.
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Company pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily net
assets of the shares as follows:
- ------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- ------------------------------------------------------------------
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
- ------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Company. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution- related services to Class B and Class C
shareholders.
For the year ended November 30, 1997, MLFD earned underwriting discounts and
direct commissions and MLPF&S earned dealer concessions on sales of the
Company's Class A and Class D Shares as follows:
- ------------------------------------------------------------------
MLFD MLPF&S
- ------------------------------------------------------------------
Class A $841 $12,568
Class D $223 $3,499
- ------------------------------------------------------------------
For the year ended November 30, 1997, MLPF&S received contingent deferred sales
charges of $339,089 and $2,200 relating to transactions in Class B and Class C
Shares, respectively.
52
<PAGE> 105
In addition, MLPF&S received $130,458 in commissions on the execution of
portfolio security transactions for the Company for the year ended November 30,
1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., acts as the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or directors
of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. INVESTMENTS:
Purchases and sales of investments, excluding short-term securities, for the
year ended November 30, 1997 were $249,563,304 and $283,973,274, respectively.
Net realized and unrealized gains (losses) as of November 30, 1997 were as
follows:
- ------------------------------------------------------------------
REALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES)
- ------------------------------------------------------------------
Long-term investments $51,344,229 $73,818,881
Short-term investments (1,745) --
Foreign currency transactions (400,508) (61,963)
------------- -------------
Total $50,941,976 $73,756,918
============= =============
- ------------------------------------------------------------------
As of November 30, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $73,571,492, of which $112,057,022 related to appreciated
securities and $38,485,530 related to depreciated securities. The aggregate cost
of investments at November 30, 1997 for Federal income tax purposes was
$348,657,029.
4. CAPITAL SHARE TRANSACTIONS:
A net increase (decrease) in net assets derived from capital share transactions
was $(27,845,951) and $34,818,380 for the years ended November 30, 1997 and
November 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
- ------------------------------------------------------------------
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 10,593,236 $157,598,934
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,586,229 22,175,485
------------- -------------
Total issued 12,179,465 179,774,419
Shares redeemed (15,605,732) (236,649,109)
------------- -------------
Net decrease (3,426,267) $(56,874,690)
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS A SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 11,176,887 $157,434,230
Shares issued to shareholders
in reinvestment of distributions 1,233,289 16,242,414
------------- -------------
Total issued 12,410,176 173,676,644
Shares redeemed (9,655,805) (136,577,975)
------------- -------------
Net increase 2,754,371 $37,098,669
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 4,144,750 $57,686,337
Shares issued to shareholders
in reinvestment of distributions 148,413 1,993,180
------------- -------------
Total issued 4,293,163 59,679,517
Automatic conversion of shares (126,229) (1,871,700)
Shares redeemed (2,575,781) (37,239,859)
------------- -------------
Net increase 1,591,153 $20,567,958
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS B SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 617,667 $8,295,124
Shares issued to shareholders
in reinvestment of distributions 174,046 2,205,170
------------- -------------
Total issued 791,713 10,500,294
Shares redeemed (1,011,647) (13,729,276)
Automatic conversion of shares (20,731) (275,360)
------------- -------------
Net decrease (240,665) $(3,504,342)
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 590,713 $8,199,909
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,548 47,542
------------- -------------
Total issued 594,261 8,247,451
Shares redeemed (239,693) (3,447,217)
------------- -------------
Net increase 354,568 $4,800,234
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 54,247 $725,543
Shares issued to shareholders
in reinvestment of distributions 1,898 24,054
------------- -------------
Total issued 56,145 749,597
Shares redeemed (21,017) (286,099)
------------- -------------
Net increase 35,128 $463,498
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS D SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1997 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 898,998 $13,541,614
Shares issued to shareholders
in reinvestment of dividends
and distributions 18,140 252,873
Automatic conversion of shares 120,997 1,871,700
------------- -------------
Total issued 1,038,135 15,666,187
Shares redeemed (783,014) (12,005,640)
------------- -------------
Net increase 255,121 $3,660,547
============= =============
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS D SHARES FOR THE YEAR DOLLAR
ENDED NOVEMBER 30, 1996 SHARES AMOUNT
- ------------------------------------------------------------------
Shares sold 1,072,031 $14,751,733
Shares issued to shareholders
in reinvestment of distributions 13,662 179,386
Automatic conversion of shares 19,948 275,360
------------- -------------
Total issued 1,105,641 15,206,479
Shares redeemed (1,043,928) (14,445,924)
------------- -------------
Net increase 61,713 $760,555
============= =============
- ------------------------------------------------------------------
5. COMMITMENTS:
On November 30, 1997, the Company had entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign currencies with
approximate values of $171,000 and $5,278,000, respectively.
6. SUBSEQUENT EVENT:
On December 1, 1997, the Company's Board of Directors declared an ordinary
income dividend in the amount of $.274225 per Class A Share, $.115003 per Class
B Share, $.135529 per Class C Share and $.241836 per Class D Share and a
long-term capital gain distribution in the amount of $1.489670 per share for all
four classes of shares, payable on December 30, 1997 to shareholders of record
as of December 19, 1997.
53
<PAGE> 106
<TABLE>
<CAPTION>
TABLE OF CONTENTS MERRILL LYNCH
PAGE MERRILL LYNCH
---- GLOBAL HOLDINGS, INC.
<S> <C> <C>
Investment Objective and Policies........... 2
Hedging Techniques......................... 3
Investment Restrictions.................... 7
Management of the Company................... 10
Directors and Officers..................... 10
Compensation of Directors.................. 11
Advisory and Management Arrangements....... 12
Purchase of Shares.......................... 14
Initial Sales Charge Alternatives--Class A
and Class D Shares........................ 14
Reduced Initial Sales Charges.............. 16
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements...... 19
Distribution Plans......................... 19
Limitations on the Payment of Deferred
Sales Charges............................. 20
Redemption of Shares........................ 21
Deferred Sales Charges--Class B and
Class C Shares............................ 22
Portfolio Transactions and Brokerage........ 23
Determination of Net Asset Value............ 24
Shareholder Services........................ 26
Investment Account......................... 26
Automatic Investment Plans................. 26
Automatic Reinvestment of Dividends and
Capital Gains Distributions............... 27
Systematic Withdrawal Plans................ 27
Exchange Privilege......................... 28
Taxes....................................... 31
Tax Treatment of Options, Futures and
Forward Foreign Exchange Transactions..... 33
Special Rules for Certain Foreign Currency
Transactions.............................. 33
Performance Data............................ 34
General Information......................... 37
Description of Shares...................... 37
Computation of Offering Price Per Share.... 38
Independent Auditors....................... 38
Custodian.................................. 38
Transfer Agent............................. 38
Legal Counsel.............................. 39 STATEMENT OF
Reports to Shareholders.................... 39 ADDITIONAL
Additional Information..................... 39 INFORMATION
Security Ownership of Certain Beneficial
Owners.................................... 39 March 5, 1998
Independent Auditors' Report................ 40
Financial Statements........................ 41 Distributor:
Merrill Lynch
Code # 10245-0398 Funds Distributor, Inc.
</TABLE>
