<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1994
SECURITIES ACT FILE NO. 2-89834
INVESTMENT COMPANY ACT FILE NO. 811-4351
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [X]
[_]
POST-EFFECTIVE AMENDMENT NO. 12
AND/OR [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
[X]
AMENDMENT NO. 13
(CHECK APPROPRIATE BOX OR BOXES) [X]
----------------
MERRILL LYNCH INTERNATIONAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800)
ARTHUR ZEIKEL
MERRILL LYNCH INTERNATIONAL HOLDINGS, INC.
D/B/A MERRILL LYNCH GLOBAL HOLDINGS
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE COMPANY:
MERRILL LYNCH ASSET BROWN & WOOD
MANAGEMENT ONE WORLD TRADE CENTER
P.O. BOX 9011 NEW YORK, NEW YORK 10048-0557
PRINCETON, NEW JERSEY 08543-9011 ATTENTION: THOMAS R. SMITH, JR., ESQ.
FRANK P. BRUNO, ESQ.
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[_] immediately upon filing pursuant to paragraph (b), or
[_] on (date) pursuant to paragraph (b), or
[X] 60 days after filing pursuant to paragraph (a), or**
[_] on (date) pursuant to paragraph (a) of Rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON JANUARY 21, 1994.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT OF MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock
(par value $.10 per
share)............... 5,309,389 $14.36 $289,985.84 $100
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during
Registrant's previous fiscal year was 5,289,195 shares of Common Stock.
(3) None of the shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company
Act of 1940 in previous filings during Registrant's current fiscal year.
(4) 5,289,195 of the shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this
amendment to the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
** As previously discussed with the Securities and Exchange Commission's staff
reviewer, the Registrant intends to ask that the effectiveness of this
Amendment be accelerated to before the end of March 1994.
<PAGE>
MERRILL LYNCH INTERNATIONAL HOLDINGS, INC.
DOING BUSINESS AS MERRILL LYNCH GLOBAL HOLDINGS
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
PART A
<C> <S> <C>
Item 1. Cover Page............... Cover Page
Item 2. Synopsis................. Fee Table; Alternative Sales Arrangements
Item 3. Condensed Financial Financial Highlights; Performance Data
Information.............
Item 4. General Description of Investment Objective and Policies;
Registrant.............. Additional Information
Item 5. Management of the Fund... Fee Table; Investment Objective and
Policies; Portfolio Transactions;
Management of the Company; Inside Back
Cover Page
Item 5A. Management's Discussion Not Applicable
of Fund Performance.....
Item 6. Capital Stock and Other Cover Page; Additional Information
Securities..............
Item 7. Purchase of Securities Cover Page; Fee Table; Alternative Sales
Being Offered........... Arrangements; Purchase of Shares;
Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase. Fee Table; Alternative Sales Arrangements;
Shareholder Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Not Applicable
Proceedings.............
PART B
Item 10. Cover Page............... Cover Page
Item 11. Table of Contents........ Back Cover Page
Item 12. General Information and General Information
History.................
Item 13. Investment Objectives and Investment Objective and Policies
Policies................
Item 14. Management of the Fund... Management of the Company
Item 15. Control Persons and Management of the Company
Principal Holders of
Securities..............
Item 16. Investment Advisory and Management of the Company; Purchase of
Other Services.......... Shares; General Information
Item 17. Brokerage Allocation and
Other Practices......... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other General Information
Securities..............
Item 19. Purchase, Redemption and Purchase of Shares; Redemption of Shares;
Pricing of Securities Determination of Net Asset Value;
Being Offered........... Shareholder Services; General Information
Item 20. Tax Status............... Dividends and Distributions; Taxes
Item 21. Underwriters............. Purchase of Shares
Item 22. Calculation of Performance Data
Performance Data........
Item 23. Financial Statements..... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
- ----------
MARCH 30, 1994
MERRILL LYNCH GLOBAL HOLDINGS
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
---------------
Merrill Lynch Global Holdings (the "Company"), is a diversified, open-end
management investment company seeking 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. Until November 1, 1993, the Company was known as "Merrill Lynch
International Holdings, Inc." On that date, the Company commenced doing
business under the name "Merrill Lynch Global Holdings" so that its name would
better comport with present mutual fund naming practices and better portray
the Company's worldwide investment capabilities, which include the ability to
invest both within the United States and abroad.
---------------
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). The original charges to which the Class B shares are subject shall
consist of a contingent deferred sales charge which may be imposed on
redemptions made within four years of purchase and an ongoing account
maintenance fee and distribution fee. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances. Investors should understand that the purpose
and function of the deferred sales charges with respect to the Class B shares
are the same as those of the initial sales charge with respect to the Class A
shares. Investors should also understand that over time the deferred sales
charges related to Class B shares may exceed the initial sales charge with
respect to Class A shares. See "Alternative Sales Arrangements" on page 3.
Each Class A and Class B share represents identical interests in the
investment portfolio of the Company and has the same rights, except that Class
B shares bear the expenses of the account maintenance fee and distribution fee
and certain other costs resulting from the deferred sales charge arrangement,
which will cause Class B shares to have a higher expense ratio and to pay
lower dividends than Class A shares and that Class B shares have exclusive
voting rights with respect to the account maintenance fee and distribution
fee. The two classes also have different exchange privileges.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), Box 9011, Princeton, New Jersey 08543-9011 [(609) 282-
2800], or from securities dealers which have entered into 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 $250, and the minimum subsequent purchase is $1.
Merrill Lynch may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions directly
through the Company's 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------
This Prospectus is a concise statement of information about the 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 30, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Company at the
above telephone number or address. 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>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
INITIAL SALES DEFERRED SALES
CHARGE ALTERNATIVE CHARGE ALTERNATIVE
------------------ ------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EX-
PENSES:
Maximum Sales Charge Im-
posed on Purchases (as a
percentage of offering
price).................... 6.50%(a) None
Sales Charge Imposed on
Dividend Reinvestments.... None None
Deferred Sales Charge (as a
percentage of original
purchase price or redemp-
tion proceeds, whichever
is lower)................. None(f) 4.0% during the
first year, de-
creasing 1.0%
annually to
0.0% after the
fourth year(b)
Exchange Fee............... None None
ANNUAL FUND OPERATING EX-
PENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) FOR THE
FISCAL YEAR ENDED NOVEMBER
30, 1993:
Investment Advisory
Fees(c)................. 1.00% 1.00%
Rule 12b-1 Fees.......... None 1.00%(d)
Other Expenses
Shareholder Servicing
Costs(e).............. 0.16% 0.19%
Custodian Fees......... 0.07% 0.07%
Other.................. 0.20% 0.20%
---- ----
Total Other Expenses. 0.43% 0.46%
---- -----
TOTAL COMPANY OPERATING
EXPENSES................ 1.43% 2.46%
</TABLE> ==== =====
- --------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 and over. Certain investors making purchases of
$1,000,000 and over may, however, pay a contingent deferred sales charge
ranging from a high of 1.00% to a low of 0.25% of amounts redeemed within
the first year after purchase in lieu of the 0.75% initial sales charge.
See "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares"--page 18.
(b) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 20.
(c) See "Management of the Company--Advisory and Management Arrangements"--
page 15.
(d) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares--Distribution Plan"--page 21. This amount represents the 0.25%
account maintenance fee and the 0.75% distribution fee applicable to Class
B shares of the Company.
(e) See "Management of the Company--Transfer Agency Services"--page 16.
(f) Certain investors making purchases of $1,000,000 and over may, however,
pay a contingent deferred sales charge ranging from a high of 1.00% to a
low of 0.25% of amounts redeemed within the first year after purchase in
lieu of the 0.75% initial sales charge. See "Purchase of Shares--Initial
Sales Charge Alternative--Class A Shares"--page 18.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR
THE PERIOD OF:
------------------------------
10
1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment including, for Class A
shares, the maximum $65 front-end sales charge
and assuming (1) an operating expense ratio of
1.43% for Class A shares and 2.46% for Class B
shares, (2) a 5% annual return throughout the
periods and (3) redemption at the end of the
period:
Class A...................................... $78.61 $107.30 $138.08 $225.17
Class B...................................... $64.91 $ 96.65 $131.05 $279.62
An investor would pay the following expenses on
the same $1,000 investment assuming no redemp-
tion at the end of the period:
Class A...................................... $78.61 $107.30 $138.08 $225.17
Class B...................................... $24.91 $ 76.65 $131.05 $279.62
</TABLE>
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
Securities and Exchange 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 shareholders who hold their
shares for an extended period of time may pay more in Rule 12b-1 distribution
fees than the economic equivalent of the maximum front-end sales charges
permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. Merrill Lynch may charge its customers a processing
fee (presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Company's transfer agent are not subject to
the processing fee. See "Purchase of Shares" and "Redemption of Shares".
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Company may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "initial sales charge alternative") or (ii) on a deferred basis
(the "deferred sales charge alternative").
Class A Shares. An investor who elects the initial sales charge alternative
acquires Class A shares. Although Class A shares incur a sales charge when they
are purchased, they enjoy the benefit of not being subject to any ongoing
account maintenance fee or distribution fee or any sales charge when they are
redeemed. Certain purchases of Class A shares qualify for reduced initial sales
charges. See "Purchase of Shares".
Class B Shares. An investor who elects the deferred sales charge alternative
acquires Class B shares. Class B shares do not incur a sales charge when they
are purchased, but they are subject to ongoing account maintenance and
distribution fees and a sales charge if they are redeemed within four years of
purchase. Class B shares provide the benefit of permitting all of the
investor's dollars to work from the time the investment is made. The ongoing
account maintenance and distribution fees paid by Class B shares will cause
such shares to have a higher expense ratio and to pay lower dividends than
Class A shares. Payment of the distribution fee is subject to certain limits as
set forth under "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares".
3
<PAGE>
As an illustration, investors who qualify for significantly reduced sales
charges might elect the initial sales charge alternative because similar sales
charge reductions are not available for purchases under the deferred sales
charge alternative. Moreover, shares acquired under the initial sales charge
alternative would not be subject to ongoing account maintenance and
distribution fees. However, because initial sales charges are deducted at the
time of purchase, such investors would not have all their funds invested
initially. Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time might also
elect the initial sales charge alternative because over time the accumulated
continuing account maintenance and distribution fees may exceed the initial
sales charge. Again, however, such investors must weigh this consideration
against the fact that not all their funds will be invested initially.
Furthermore, the ongoing account maintenance and distribution fees will be
offset to the extent any return is realized on the additional funds initially
invested under the deferred sales charge alternative. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
continued account maintenance and distribution fees and, for a four-year period
of time, a contingent deferred sales charge.
The distribution expenses incurred by the Distributor and dealers (primarily
Merrill Lynch) in connection with the sale of the shares will be paid, in the
case of the Class A shares, from the proceeds of the initial sales charge and,
in the case of the Class B shares, from the proceeds of the ongoing account
maintenance and distribution fees and the contingent deferred sales charge
incurred on redemption within four years of purchase. Sales personnel may
receive different compensation for selling Class A or Class B shares. Investors
should understand that the purpose and function of the deferred sales charges
with respect to the Class B shares are the same as those of the initial sales
charge with respect to the Class A shares.
Dividends paid by the Company with respect to Class A and Class B shares, to
the extent any dividends are paid, will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that account
maintenance and distribution fees and any incremental transfer agency costs
relating to Class B shares will be borne exclusively by that class. See
"Additional Information--Determination of Net Asset Value". Class A and Class B
shareholders of the Company each have an exchange privilege for Class A and
Class B shares, respectively, of certain other mutual funds sponsored by
Merrill Lynch. Class A and Class B shareholders of the Company may also
exchange their shares for shares of certain money market funds sponsored by
Merrill Lynch. See "Shareholder Services--Exchange Privilege".
The Directors of the Company have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis,
the Directors of the Company, pursuant to their fiduciary duties under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
state laws, will seek to assure that no such conflict arises.
THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE
PURCHASE, THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND
OTHER CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR
PARTICULAR CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES
CHARGE AND NOT BE SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION
FEES OR TO HAVE THE ENTIRE INITIAL PURCHASE PRICE INVESTED IN THE COMPANY
WITH THE INVESTMENT THEREAFTER BEING SUBJECT TO ONGOING ACCOUNT MAINTENANCE
AND DISTRIBUTION FEES. TO ASSIST INVESTORS IN MAKING THIS DETERMINATION, THE
FEE TABLE ON PAGE 2 SETS FORTH THE CHARGES APPLICABLE TO EACH CLASS OF
SHARES, AND A DISCUSSION OF RELEVANT FACTORS IN MAKING SUCH DETERMINATION IS
SET FORTH UNDER "PURCHASE OF SHARES--ALTERNATIVE SALES ARRANGEMENTS" ON PAGE
17.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Company by Deloitte
& Touche, independent auditors. Financial statements for the fiscal year ended
November 30, 1993, 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 financial statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------
FOR THE
SEVEN- FOR THE
FOR THE YEAR ENDED MONTH YEAR ENDED
NOVEMBER 30, PERIOD APRIL 30,
---------------------------- ENDED ------------------
NOV. 30, 1990 1985
1993++ 1992++ 1991 1990 ### 1989 1988 1987 1986 +++
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of
period........... $ 11.78 $ 10.95 $ 10.48 $ 10.91 $ 11.79 $ 12.23 $ 16.90 $ 14.73 $ 9.77 $ 9.15
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment in-
come (loss)--
net(1).......... .04 .10 .16 .17 .20 .26 .43 .25 .32 .34
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net(1).......... 2.07 1.05 .53 (.30) .62 .91 (1.09) 3.49 4.98 .45
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from in-
vestment opera-
tions............ 2.11 1.15 .69 (.13) .82 1.17 (.66) 3.74 5.30 .79
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and distribu-
tions:
Investment in-
come--net....... -- (.10) (.21) (.13) (.21) (.34) (.37) (.30) (.34) (.17)
Realized gain on
investments--
net............. (.82) (.22) (.01) (.17) (1.49) (1.27) (3.64) (1.27) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and distribu-
tions............ (.82) (.32) (.22) (.30) (1.70) (1.61) (4.01) (1.57) (.34) (.17)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period.... $13.07 $11.78 $10.95 $10.48 $10.91 $11.79 $12.23 $16.90 $14.73 $9.77
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN**
Based on net as-
set value per
share............ 19.16% 10.67% 6.77% (1.45%)# 6.93% 10.99% (4.43)% 28.50% 55.67% 8.69%#
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, exclud-
ing account main-
tenance and dis-
tribution fees... 1.43% 1.49% 1.48% 1.59%* 1.49% 1.47% 1.31% 1.41% 1.45% 1.40%*
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses......... 1.43% 1.49% 1.48% 1.59%* 1.49% 1.47% 1.31% 1.41% 1.45% 1.40%*
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income
(loss)--net...... .32% (.19%) 1.31% 2.63%* 1.65% 2.04% 2.90% 1.78% 2.71% 4.27%*
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end
of period
(in thousands)... $256,203 $166,947 $165,687 $176,898 $187,843 $195,932 $249,736 $356,964 $282,733 $199,760
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turn-
over............. 56.98% 65.93% 63.94% 34.44% 84.21% 102.77% 109.68% 88.54% 72.75% 94.34%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------
FOR THE
SEVEN-
MONTH FOR THE
FOR THE YEAR ENDED PERIOD PERIOD
NOVEMBER 30, ENDED FOR THE OCT. 21,
-------------------------- NOV. YEAR ENDED 1988+ TO
1993 1992 30, APRIL 30, APRIL
++ ++ 1991 1990 1990### 30, 1989
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSET VALUE:
PER SHARE OPERAT-
ING PERFORMANCE:
Net asset value,
beginning of
period........... $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74 $11.29
------- ------- ------- ------- -------- -------
Investment in-
come (loss)--
net(1).......... (.08) (.03) .04 .10 .16 .06
Realized and
unrealized gain
(loss) on in-
vestments and
foreign currency
transactions--
net(1).......... 2.02 1.05 .54 (.30) .55 .93
------- ------- ------- ------- -------- -------
Total from in-
vestment opera-
tions............ 1.94 1.02 .58 (.20) .71 .99
------- ------- ------- ------- -------- -------
Less dividends
and distribu-
tions:
Investment in-
come--net....... -- --## (.11) (.09) (.14) (.15)
Realized gain on
investments--
net............. (.82) (.22) (.01) (.17) (1.49) (.39)
------- ------- ------- ------- -------- -------
Total dividends
and distribu-
tions............ (.82) (.22) (.12) (.26) (1.63) (.54)
------- ------- ------- ------- -------- -------
Net asset value,
end of period.... $12.74 $11.62 $10.82 $10.36 $10.82 $11.74
======= ======= ======= ======= ======== =======
TOTAL INVESTMENT
RETURN**
Based on net as-
set value per
share............ 17.87% 9.58% 5.67% (2.08%)# 5.91% 9.10%#
======= ======= ======= ======= ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, exclud-
ing account main-
tenance and dis-
tribution fees... 1.46% 1.52% 1.51% 1.63%* 1.53% 1.50%*
======= ======= ======= ======= ======== =======
Expenses......... 2.46% 2.52% 2.51% 2.63%* 2.53% 2.50%*
======= ======= ======= ======= ======== =======
Investment income
(loss)--net...... (.72%) (1.19%) .25% 1.54%* .65% .10%*
======= ======= ======= ======= ======== =======
SUPPLEMENTAL DATA:
Net assets, end
of period
(in thousands)... $34,241 $22,925 $24,960 $22,623 $16,342 $1,476
======= ======= ======= ======= ======== =======
Portfolio turn-
over............. 56.98% 65.93% 63.94% 34.44% 84.21% 102.77%
======= ======= ======= ======= ======== =======
</TABLE>
- -----
* Annualized.
** Total investment returns excludes the effects of sales loads.
(1) Foreign currency transaction amounts have been reclassified to conform to
1993 presentation.
+ Class B shares commenced operations on October 21, 1988.
++ Based on average shares outstanding during the period.
+++ Class A shares commenced operations on July 2, 1984.
# Aggregate total investment return.
## Amount less than $.01 per share.
### On February 1, 1990, the Company terminated investment advisory agreements
with Nomura Capital Management, Inc. and Lombard Odier International
Portfolio Management Limited; such agreements were in addition to an
investment advisory agreement with the Investment Adviser.
5
<PAGE>
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 ($250 for retirement plans) 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
markets which are moving in different directions are combined into a single
portfolio, there is an offsetting effect which reduces total portfolio
volatility (i.e., risk) without reducing the total portfolio's expected rate of
return. Other advantages include professional management and administrative
convenience.
Investments on an international basis involve certain risks not typically
involved in domestic investments, including fluctuations in foreign exchange
rates, future political and economic developments, and the possible imposition
of exchange controls or other foreign 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 Securities and
Exchange Commission nor will the issuers thereof be subject to the reporting
requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which 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 in settlement could result in temporary periods when assets of the
Company are uninvested and no return is earned thereon. The 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
6
<PAGE>
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 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 5% of its
assets in illiquid or otherwise not readily marketable securities, that certain
foreign investments may be subject to foreign withholding taxes and that the
Company may invest more than 5% of its assets in securities issued or
guaranteed by certain foreign governments.
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 financial, social, national and political factors. 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
7
<PAGE>
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. In addition, 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 paragraph 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, but can be offered
and sold to "qualified institutional buyers" under Rule 144A under that Act.
However, the Company will not invest more than 5% of its 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 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 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. 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.
8
<PAGE>
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 at
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. Covered call options serve as a partial hedge against
the price of the underlying security declining.
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 of all outstanding options on securities held by
the Company would exceed 5% of the market value of the Company's total assets.
Stock Index Options and Futures and Financial Futures. The Company is
authorized to engage in transactions in stock index options and futures and
financial futures and related options on such futures. The Company may purchase
or write put and call options on stock 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
exercise or assignment, the parties to the contract pay or receive an amount of
cash equal to the difference between the closing value of the index and the
exercise price of the option times a specified multiple. The Company may invest
in stock 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 which obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract does not require actual delivery of
securities but results in cash settlement based upon the difference in value of
the index between the time the contract was entered into and the time of its
settlement. The Company may effect transactions in stock index futures
contracts in connection with equity securities in which it invests and in
financial futures contracts in
9
<PAGE>
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 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.
The Company is authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations
in foreign exchange rates. Such transactions 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
10
<PAGE>
future date (a technique called a "straddle"). 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 "straddles" 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 high quality 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 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. The Company may not commit more
than 15% of its assets to position hedging contracts.
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 is unleveraged.
11
<PAGE>
Restrictions on OTC Options. The Company will engage in OTC options,
including over-the-counter stock index options, over-the-counter 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 Securities and Exchange 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 (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 10%
of the net 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 Securities and Exchange 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 which 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 over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of over-
the-counter 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
12
<PAGE>
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 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 Securities and Exchange 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 over-the-counter transactions conducted on an agency basis and
may receive brokerage commissions from the Company. In addition, consistent
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., 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 has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders
13
<PAGE>
of a majority of the Company's outstanding voting securities, as defined in the
Investment Company Act. Among the more significant restrictions, the Company
may not:
--Invest in the securities of any one issuer if, immediately after and as a
result of such investment the value of the holdings of the Company in the
securities of such issuer exceeds 5% of the Company's total assets, taken
at market value, except that such restriction shall not apply to securities
issued or guaranteed by the United States Government or any of its agencies
or instrumentalities or, with respect to 25% of the Company's total assets,
to securities issued or guaranteed by the government of any country which
is a member of the Organisation for Economic Co-operation and Development
(OECD).
--Invest in the securities of any single issuer if, immediately after and
as a result of such investment, the Company owns more than 10% of the
outstanding voting securities of such issuer.
--Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Company from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Company by the issuer,
except that no such purchase may be made if as a result the Company will no
longer be a diversified investment company as defined in the Investment Company
Act or fail to meet the diversification requirements of the Internal Revenue
Code of 1986, as amended.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of seven individuals, four 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*--President and Chief Investment Officer of the Investment
Adviser; President and Director of Princeton Services, Inc.; Executive Vice
President of Merrill Lynch & Co., Inc.; Executive Vice President of Merrill
Lynch; Director of the Distributor.
Donald Cecil--Special Limited Partner of Cumberland Partners (an investment
partnership).
Ken E. Mathysen-Gerst*--Managing Partner, Lombard, Odier & Cie and Vice
Chairman of Lombard Odier International Portfolio Management Limited.
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.; Adjunct Professor, Columbia University
Graduate School of Business.
John F. Wallace*--Senior Vice President, Treasurer, Secretary and Director of
Nomura Capital Management, Inc.; Senior Vice President of Nomura Securities
International, Inc.
Richard R. West--Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
- --------
*Interested person, as defined in the Investment Company Act, of the
Company.
14
<PAGE>
ADVISORY AND MANAGEMENT ARRANGEMENTS
The Company's investment adviser is Merrill Lynch Asset Management, L.P.,
which does business as Merrill Lynch Asset Management (the "Investment
Adviser"). 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. As permitted by the
Investment Advisory Agreement, the Investment Adviser has entered into separate
investment research agreements with Nomura Capital Management, Inc. ("NCM") and
Lombard Odier International Portfolio Management Limited ("LOIPM") (the
"Investment Research Agreements") pursuant to which NCM and LOIPM has furnished
the Investment Adviser with economic research, securities analyses and
investment recommendations and has reviewed and rendered investment research
with respect to the Company. The Investment Research Agreement between the
Investment Adviser and NCM recognizes that NCM may enter into a separate
investment research agreement (the "Sub-Research Agreement") with Nomura
Investment Management Co., Ltd. ("NIMCO"). The Investment Research Agreements
and related Sub-Research Agreement terminate on April 1, 1994. The Investment
Adviser will continue to provide services to the Company pursuant to the
Investment Advisory Agreement after such date.
The Investment Adviser, located at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, is owned and controlled by Merrill Lynch & Co., Inc., a financial
services holding company and the parent of Merrill Lynch. The Investment
Adviser, or an affiliate, Fund Asset Management, L.P. ("FAM"), acts as the
investment adviser to more than 90 other registered investment companies and
provides investment advisory services to individual and institutional accounts.
As of January 31, 1994, the Investment Adviser and FAM had a total of
approximately $167.1 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser.
NCM, a New York corporation with its principal office located at 180 Maiden
Lane, New York, New York 10038, is a wholly-owned subsidiary of NIMCO. NCM
provides global investment advisory services primarily with respect to Japanese
and other Pacific Basin securities for U.S. institutional clients.
NIMCO, located at 1-12-11, Nihonbashi, Chuo-ku, Tokyo 103, Japan, provides
investment advisory services for Japanese and international clients. NIMCO,
together with its affiliates, had approximately $31 billion in assets under
management as of January 31, 1994. NIMCO is a subsidiary of Nomura Research
Institute ("NRI") and an indirect subsidiary of The Nomura Securities Co., Ltd.
of Tokyo, Japan, the largest securities firm in Japan. NRI is a diversified
research organization which undertakes business consulting, economic and social
research, investment research and other projects for a variety of Japanese and
international clients.
LOIPM, located at Norfolk House, 13 Southampton Place, London WCIA 2AJ,
England, specializes in managing investment portfolios for institutional
clients on a worldwide basis. LOIPM was incorporated in England and Wales in
1978 and has its head office in London. It is a wholly-owned subsidiary of
Lombard Odier & Cie ("Lombard") of Geneva, Switzerland, one of the oldest
(founded in 1798) and largest private banks in Switzerland. LOIPM receives
general research and economic information from Lombard. However, LOIPM does not
receive specific purchase and sale recommendations or advice from Lombard, and
actual investment advice is rendered by LOIPM.
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
15
<PAGE>
nature of the Company. Until April 1, 1994, the Investment Adviser will
compensate NCM and LOIPM for investment research pursuant to the Investment
Research Agreements at the annual rates of 0.20% and 0.15%, respectively, of
the Company's average daily net assets. Under the Sub-Research Agreement, NCM
may compensate NIMCO for investment research in an amount determined by NCM and
NIMCO, but not in excess of the amount of compensation NCM receives from the
Investment Adviser. For the fiscal year ended November 30, 1993, the Investment
Adviser earned fees of $2,329,402, of which $349,410 was paid to LOIPM and
$465,895 was paid to NCM under the terms of their respective Investment
Research Agreements. NCM paid NIMCO $232,948 from the amount earned by NCM. At
February 28, 1994, the Company's net assets were approximately $383.8 million.
At such level, the annual advisory fee would aggregate approximately
$3,838,105.
Frederick P. Ives, Vice President of the Company, is the Company's Portfolio
Manager. Mr. Ives has been a Portfolio Manager of the Investment Adviser since
1984 and a Vice President of the Investment Adviser since 1984. Mr. Ives has
been primarily responsible for the management of the Company's portfolio since
it commenced operations.
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, 1993, the amount of such reimbursement was
$111,045. For the fiscal year ended November 30, 1993, the ratio of total
expenses to average net assets for Class A shares was 1.43%, and the ratio of
total expenses to average net assets for Class B shares was 2.46%.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc., 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 an annual fee of $7.00 per Class A shareholder account and $9.00
per Class B shareholder account, nominal miscellaneous fees (e.g., account
closing fees) and is entitled to reimbursement for out-of-pocket expenses
incurred by it under the Transfer Agency Agreement. For the fiscal year ended
November 30, 1993, the Company paid $383,431 to the Transfer Agent pursuant to
the Transfer Agency Agreement. At January 31, 1994, the Fund had 38,947 Class A
shareholder accounts and 4,358 Class B shareholder accounts (including certain
subaccounts on which the standard annual transfer agency fees are assessed). At
this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $311,851, plus miscellaneous and out-of-pocket
expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), a subsidiary of
the Investment Adviser and an affiliate of 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).
16
<PAGE>
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 $250, and the minimum subsequent
purchase is $1.
The Company is offering its shares at a public offering price equal to the
next determined net asset value per share plus sales charges which, at the
option of the purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a deferred basis (the "deferred sales
charge alternative"), as described below. As to purchase orders received by
securities dealers prior to 4:15 p.m., New York time, which includes orders
received after the determination of the net asset value on the previous day,
the applicable offering price will be based on the net asset value determined
as of 4:15 p.m., New York time, on the day the orders are placed with the
Distributor, provided the orders are received by the Distributor prior to 4:30
p.m., New York time, on that day. 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. If the purchase orders are
not received by the Distributor prior to 4:30 p.m., New York time, such orders
shall be deemed received on the next business day. Any order may be rejected by
the Distributor or the Company. The Company or the Distributor may suspend the
continuous offering of the Company's shares at any time in response to
conditions in the securities markets or otherwise and may thereafter resume
such offering from time to time. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Transfer Agent are not subject to the processing fee.
The Company issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements and the expenses paid by the account maintenance fee and
have exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege". The net income attributable to Class B shares
and the dividends payable on Class B shares will be reduced by the amount of
the account maintenance and distribution fees and incremental transfer agency
costs relating to Class B shares; accordingly, the net asset value of the Class
B shares will be reduced by such amount to the extent the Company has
undistributed net income. Sales personnel may receive different compensation
for selling Class A or Class B shares. Investors are advised that only Class A
shares may be available for purchase through securities dealers, other than
Merrill Lynch, which are eligible to sell shares.
Shares of the Company may be purchased by residents of Arizona only if such
investors have (i) a net worth (exclusive of home, home furnishings and
automobiles) of not less than $100,000 or (ii) a net worth (as computed above)
of not less than $30,000 and an annual gross income of not less than $30,000.
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements of the Company permit investors to choose
the method of purchasing shares that is most beneficial given the amount of
their purchase, the length of time the investor expects to hold his shares and
other relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing charges,
17
<PAGE>
as discussed below, or to have the entire initial purchase price invested in
the Company with the investment thereafter being subject to ongoing charges.
As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases under
the deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to an ongoing account
maintenance fee and distribution fee as described below. However, because
initial sales charges are deducted at the time of purchase, such investors
would not have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees may exceed the initial sales charge.
Again, however, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
account maintenance and distribution fees will be offset to the extent any
return is realized on the additional funds initially invested under the
deferred alternative. Another factor that may be applicable under certain
circumstances is that the payment of the Class B distribution fee and
contingent deferred sales charge is subject to certain limits as set forth
below under "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares".
Certain other investors might determine it to be more advantageous to have
all their funds invested initially, although remaining subject to continued
account maintenance and distribution fees and, for a four-year period of time,
a contingent deferred sales charge as described below. For example, an investor
subject to the 6.50% initial sales charge will have to hold his investment at
least 6 1/2 years for the ongoing 0.25% account maintenance fee and 0.75%
distribution fee to exceed the initial sales charge. This example does not take
into account the time value of money which further reduces the impact of the
ongoing account maintenance and distribution fees on the investment,
fluctuations in net asset value, the effect of the return on the investment
over this period of time or the effect of any limits that may be imposed upon
the payment of the distribution fee and the contingent deferred sales charge.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the next determined net asset value plus
varying sales charges (i.e., sales loads) as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ --------------- -------------- ------------------
<S> <C> <C> <C>
Less than $10,000............ 6.50% 6.95% 6.25%
$10,000 but less than
$25,000..................... 6.00 6.38 5.75
$25,000 but less than
$50,000..................... 5.00 5.26 4.75
$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.......... .75 .76 .65
</TABLE>
- --------
*Rounded to the nearest one-hundredth percent.
18
<PAGE>
Initial sales charges may be waived for shareholders purchasing $1 million
or more in a single transaction (other than an employer sponsored retirement
or savings plan, such as a tax qualified retirement plan under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code"), a deferred
compensation plan under Section 403(b) and Section 457 of the Code, other
deferred compensation arrangements, VEBA plans and non-qualified After Tax
Savings and Investment programs maintained on the Merrill Lynch Group Employee
Services system, herein referred to as "Employer Sponsored Retirement or
Savings Plans"), or a purchase by a TMA SM Managed Trust, of Class A shares of
the Company. In addition, purchases of Class A shares of the Company made in
connection with a single investment of $1 million or more under the Merrill
Lynch Mutual Fund Adviser Program will not be subject to an initial sales
charge. Purchases described in this paragraph will be subject to a contingent
deferred sales charge if the shares are redeemed within one year after
purchase at the following rates:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
AMOUNT OF PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------ -------------------------------
<S> <C>
$1 million up to $2.5 million................... 1.00%
Over $2.5 million up to $3.5 million............ 0.60%
Over $3.5 million up to $5 million.............. 0.40%
Over $5 million................................. 0.25%
</TABLE>
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 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 of 1933, as
amended. During the fiscal year ended November 30, 1993, the Fund sold
9,166,536 Class A shares for aggregate net proceeds of $112,504,555. The gross
sales charges for the sale of Class A shares for the fiscal year ended
November 30, 1993, were $126,144, of which $118,953 was received by Merrill
Lynch, and $7,191 was received by the Distributor.
Reduced Initial Sales Charges. Sales charges are reduced under a Right of
Accumulation and a Letter of Intention. Class A shares of the Company are
offered at net asset value to Directors of the Company, to directors of
Merrill Lynch & Co., Inc., to directors and trustees of certain other Merrill
Lynch sponsored investment companies, to participants in certain benefit
plans, 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 if certain conditions set forth in the
Statement of Additional Information are met and to employees of Merrill Lynch
& Co., Inc. and its subsidiaries. Class A shares may be offered at net asset
value in connection with the acquisition of assets of other investment
companies. No initial sales charges are imposed upon Class A shares issued as
a result of the automatic reinvestment of dividends or capital gains
distributions. Class A 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 if the following
conditions are satisfied: first, the investor must purchase Class A shares of
the Company with proceeds from a redemption of shares of such other mutual
fund and such fund imposed a sales charge either at the time of purchase or on
a deferred basis; second, such purchase of Class A shares must be made within
90 days after such notice of termination. Class A shares are offered with
reduced sales charges and, in certain circumstances, at net asset value, to
participants in the Merrill Lynch BlueprintSM Program. Class A shares are
offered at net asset value to (i) certain retirement plans, including eligible
401(k) plans, provided such
19
<PAGE>
plans meet the required minimum number of eligible employees or required amount
of assets advised by the Investment Adviser or any of its affiliates and (ii)
certain Employer Sponsored Retirement or Savings Plans, provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by the Investment Adviser or any of its affiliates. Class A
shares of the Company are also offered at net asset value to shareholders of
certain closed-end funds advised by the Investment Adviser or FAM who wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in shares of the Company, provided certain conditions are met. For
example, Class A shares of the Company and certain other mutual funds advised
by the Investment Adviser or FAM are offered at net asset value to shareholders
of Senior Floating Rate Fund (formerly known as Merrill Lynch Prime Fund, Inc.)
who wish to reinvest the net proceeds from a sale of certain of their shares of
common stock of Senior Floating Rate Fund in shares of such funds.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. The Class B shares are being 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 shares at the time of purchase from its own funds. The proceeds
of the contingent deferred sales charge and the ongoing distribution fee
discussed below are used to defray Merrill Lynch's expenses, including
compensating its financial consultants. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities.
Proceeds from the contingent deferred sales charge 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 the
Class B shares, such as the payment of compensation to financial consultants
for selling Class B shares. Payments by the Company to the Distributor of the
distribution fee under the distribution plan described below also may be used
in whole or in part by the Distributor for this purpose. The combination of the
contingent deferred sales charge and the ongoing distribution fee facilitates
the ability of the Company to sell the Class B shares without a sales charge
being deducted at the time of purchase. 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 contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge schedule relating to the Class B shares acquired as a result of
the exchange.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
four years of purchase may be subject to a contingent deferred sales charge at
the rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. For the fiscal year
ended November 30, 1993, the Distributor received contingent deferred sales
charges of $33,249 with respect to the redemption of Class B shares, all of
which was paid to Merrill Lynch.
20
<PAGE>
The following table sets forth the rates of the contingent deferred sales
charge:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
-------------------- -------------------
<S> <C>
0-1................................................... 4.0%
1-2................................................... 3.0%
2-3................................................... 2.0%
3-4................................................... 1.0%
4 and thereafter...................................... None
</TABLE>
In determining whether a contingent deferred sales charge 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 first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The contingent deferred sales charge is waived on redemptions of shares in
connection with certain post-retirement withdrawals from Individual Retirement
Accounts ("IRAs") or other retirement plans or following the death or
disability (as defined in the Code) of a shareholder. The contingent deferred
sales charge 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 BlueprintSM Program. The contingent deferred
sales charge is also waived for any Class B shares which are purchased by an
eligible 401(k) or eligible 401(a) plan which are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. Additional information concerning the waiver of the
contingent deferred sales charge is set forth in the Statement of Additional
Information.
Distribution Plan. Pursuant to a distribution plan (the "Distribution Plan")
adopted by the Company as of July 7, 1993, pursuant to Rule 12b-1 under the
Investment Company Act, the Company pays the Distributor an ongoing account
maintenance fee and a distribution fee, which are accrued daily and paid
monthly, at the annual rates of 0.25% and 0.75%, respectively, of the average
daily net assets of the Class B shares of the Company. Pursuant to a sub-
agreement with the Distributor, Merrill Lynch also provides account maintenance
and distribution services to the Company. The ongoing account maintenance fee
compensates the Distributor and Merrill Lynch for providing account maintenance
services to Class B shareholders. The ongoing distribution fee compensates the
Distributor and Merrill Lynch for providing shareholder and distribution
services and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B shares of the
Company.
21
<PAGE>
Prior to July 7, 1993, the Company paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.00%
of average daily net assets of the Class B shares of the Company under a
distribution plan previously adopted by the Company (the "Prior Plan") to
compensate the Distributor and Merrill Lynch for providing account maintenance
and distribution-related activities and services to Class B shareholders. The
fee rate payable and the services provided under the Prior Plan are identical
to the aggregate fee rate payable and the services provided under the
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled. For the fiscal year ended November
30, 1993, the Company paid the Distributor $256,934 pursuant to the Prior Plan
and the Distribution Plan (based on average net assets subject to the Prior
Plan and the Distribution Plan of $25.7 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. At February 28,
1994, the net assets of the Company subject to the Distribution Plan aggregated
approximately $45.1 million. At this asset level, the annual fee payable
pursuant to the Distribution Plan would aggregate approximately $450,952. Both
the Distribution Plan and the Prior Plan were designed to permit an investor to
purchase Class B shares through dealers without the assessment of a front-end
sales load and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B shares. In this regard,
the purpose and function of the distribution fee under either the Distribution
Plan or the Prior Plan and the contingent deferred sales charge are the same as
those of the initial sales charge with respect to the Class A shares of the
Company in that the deferred sales charges provide for the financing of the
distribution of the Company's Class B shares.
The payments under the Distribution Plan, as was the case with the Prior
Plan, are based upon a percentage of average daily net assets regardless of the
amount of expenses incurred, and accordingly, distribution-related revenues may
be more or less than distribution-related expenses. Information with respect to
the distribution-related revenues and expenses is presented to the Directors
for their consideration in connection with their deliberations as to the
continuance of the Distribution Plan. This information is presented annually as
of December 31 of each year on a "fully allocated accrual" basis and quarterly
on a "direct expense and revenue/cash" basis. On the fully allocated accrual
basis, revenues consist of the account maintenance fees, the distribution fees,
the contingent deferred sales charges 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, the distribution fees and contingent
deferred sales charges, and the expenses consist of financial consultant
compensation. At December 31, 1992, the fully allocated accrual expenses
incurred by the Distributor and Merrill Lynch for the period since the
commencement of the offering of Class B shares exceeded fully allocated accrual
revenues for such period by approximately $348,000 (1.50% of net assets at that
date). As of December 31, 1992, direct cash revenues for the period since
commencement of the offering of Class B shares exceeded direct cash expenses by
$484,835 (2.09% of Class B net assets at that date).
The Company has no obligation with respect to distribution-related expenses
incurred by the Distributor and Merrill Lynch in connection with the Class B
shares, and there is no assurance that the Board of Directors of the Company
will approve the continuance of the Distribution Plan from year to year.
However, the Distributor intends to seek annual continuation of the
Distribution Plan. In their review of the Distribution Plan, the Directors will
not be asked to take into consideration expenses incurred in connection with
the distribution of Class A shares or of shares of other funds for which the
Distributor acts as distributor. The account maintenance fee, the distribution
fee and the contingent deferred sales charge in the case of Class B shares will
not be used to subsidize the sale of Class A shares.
22
<PAGE>
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based
sales charges such as the Company's distribution fee and the contingent
deferred sales charge but not the account maintenance fee. As applicable to
the Company, the maximum sales charge rule limits the aggregate of
distribution fee payments and contingent deferred sales charges payable by the
Company to (1) 6 1/4% of eligible gross sales of Class B shares (defined to
exclude shares issued pursuant to dividend reinvestments and exchanges) plus
(2) interest on the unpaid balance at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the contingent deferred sales charge). 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") 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 and any contingent deferred sales charges 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.
The following table sets forth comparative information as of November 30,
1993, with respect to the Class B shares of the Company indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the fiscal period October 21, 1988
(Class B shares commencement of public offering) to November 30, 1993.
DATA CALCULATED AS OF NOVEMBER 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- --------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule As
Adopted................ $40,693 $2,543 $452(/2/) $2,995 $955 $2,040 $257
Under Distributor's Vol-
untary Waiver.......... $40,693 $2,543 $203 $2,746 $955 $1,792 $257
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988,
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 contingent deferred sales charge payments, distribution fee
payments and accruals. Of the distribution fee payments made prior to July
7, 1993, under the Prior Plan 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.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any contingent deferred sales
charge payments) is amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach either the
voluntary maximum or the NASD maximum.
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<PAGE>
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 contingent deferred
sales charge which may be applicable to Class B shares, 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, Financial Data Services, Inc.,
Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual Fund
Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper
notice of redemption in the case of shares deposited with the Transfer Agent
may be accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by certificates for
the shares to be redeemed. The notice in either event requires the signatures
of all persons in whose names the shares are registered, signed exactly as
their names appear on the Transfer Agent's register or on the certificate, as
the case may be. The signature(s) on the redemption request must be guaranteed
by an "eligible guarantor institution" (including, for example, Merrill Lynch
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 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 New York Stock Exchange on the day received and that such request is
received by the Company from such dealer not later than 4:30 p.m., New York
time, on the same day. Dealers have the responsibility of submitting such
repurchase requests to the Company not later than 4:30 p.m., New York time, in
order to obtain that day's closing price.
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<PAGE>
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Company (other than any applicable
contingent deferred sales charge in the case of Class B shares). Securities
firms which 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 $4.85) to confirm a repurchase of shares to such
customers. Redemptions directly through the Transfer Agent are not subject to
the processing fee. The Company reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A shareholder whose order
for repurchase is rejected by the Company may redeem shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A SHARES
Shareholders who have redeemed their Class A shares have a one-time privilege
to reinstate their accounts by purchasing Class A shares 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. The reinstatement will be made at the net asset value
per share next determined after the notice of reinstatement is received and
cannot exceed the amount of the redemption proceeds. The reinstatement
privilege is a one-time privilege and may be exercised by the Class A
shareholder only the first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment plans
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place purchase orders for the Fund's shares
through the Merrill Lynch BlueprintSM 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 quarterly statements
from the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
quarterly 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. Shareholders may also 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 shares from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the Class A
shares are to be transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the Class A shares so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must continue
to maintain an Investment Account at the Transfer Agent
25
<PAGE>
for those Class A shares. Shareholders interested in transferring their Class B
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that he be issued certificates for his shares and then must turn
the certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take
delivery of shares of the Company, a shareholder must either redeem the shares
(paying any applicable contingent deferred sales charge) 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 Withdrawals and Automatic Investment Plans. A Class A shareholder
may elect to receive systematic withdrawal payments from his Investment Account
in the form of payments by check or through automatic payment by direct deposit
to his bank account on either a monthly or quarterly basis. A Class A
shareholder whose shares are held within a CMA, CBA(R) or Retirement Account
may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the Systematic Redemption Program, subject
to certain conditions. Regular additions of Class A 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) accounts may arrange to
have periodic investments made in the Company in their CMA(R) accounts or in
certain related accounts in amounts of $250 or more through the CMA Automatic
Investment Program. The Automatic Investment Program is not available to
shareholders whose shares are held in a brokerage account with Merrill Lynch
(other than a CMA(R) account).
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 the New York Stock Exchange 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 telephone call (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. No deferred sales
charge will be imposed on redemptions of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions. The
Automatic Investment Program is not available to shareholders whose shares are
held in a brokerage account with Merrill Lynch other than a CMA(R) account.
Exchange Privilege. U.S. Class A and Class B shareholders of the Company each
have an exchange privilege with certain other mutual funds sponsored by Merrill
Lynch. 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 Securities and Exchange
Commission. Class A shareholders of the Company may exchange their shares
("outstanding Class A shares") for Class A shares of another fund ("new Class A
shares") on the basis of relative net asset value per Class A share, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A shares and the sales charge payable at the time
of the exchange on the new Class A shares. The Company's exchange privilege is
modified with respect to purchases of Class A shares under the Merrill Lynch
Mutual
26
<PAGE>
Fund Adviser program. First, the initial allocation of assets is made under the
program. Then, any subsequent exchange under the program of Class A shares of a
fund for Class A shares of the Company will be made solely on the basis of the
relative net asset values of the shares being exchanged. Therefore, there will
not be a charge for any difference between the sales charge previously paid on
the shares of the other fund and the sales charge payable on the shares of the
Company being acquired in the exchange under this program.
Class B shareholders of the Company may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share without the payment of any
contingent deferred sales charge that might otherwise be due upon redemption of
the outstanding Class B shares. Class B shareholders of the Company exercising
the exchange privilege will continue to be subject to the Company's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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 contingent deferred sales charge schedule if such
schedule is higher than the deferred sales charge schedule relating to the
Class B shares of the fund from which the exchange has been made. For purposes
of computing the contingent deferred sales charge that may be payable upon a
disposition of the new Class B shares, the holding period for the outstanding
Class B shares is "tacked" to the holding period of the new Class B shares.
Class A and Class B shareholders of the Company may also exchange their shares
for shares of certain money market funds, but in the case of an exchange from
Class B shares, the period of time that shares are held in a money market fund
will not count toward satisfaction of the holding period requirement for
purposes of reducing the contingent deferred sales charge. Exercise of the
exchange privilege is treated as a sale for Federal income tax purposes. For
further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
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 and Class B shares in accordance with a formula
specified by the Securities and Exchange 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 the maximum sales charge in the case of Class A shares and the
contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B shares. Dividends paid by the Company with respect to Class A and Class
B shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance and distribution fees and any incremental transfer
agency costs relating to Class B shares will be borne exclusively by that
class. The Company will include performance data for both Class A and Class B
shares of the Company in any advertisement or information including performance
data of the Company.
27
<PAGE>
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 shares or waiver of the
contingent deferred sales charge in the case of Class B 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
contingent deferred sales charge and therefore may reflect greater total return
since, due to the reduced sales charges or waiver of the contingent deferred
sales charge, 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 Composite Stock Price Index, the Dow Jones Industrial Average, or to
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine, Fortune Magazine or other
industry publications. In addition, from time to time the Fund may include the
Fund's risk-adjusted performance ratings assigned by Morningstar Publications,
Inc. in advertising or supplemental sales literature. As with other performance
data, performance comparisons should not be considered representative of the
Company's relative performance for any future period.
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 long- or short-term capital gains, if any, will be distributed
to the Company's shareholders at least annually. The per share dividends and
distributions on Class B shares will be lower than the per share dividends and
distributions on Class A shares as a result of the account maintenance,
distribution and higher transfer agency fees applicable to the Class B shares.
See "Additional Information--Determination of Net Asset Value". Dividends and
distributions may be reinvested automatically in shares of the Company at net
asset value without a sales charge. Shareholders may elect in writing to
receive any such dividends or distributions, or both, in cash. Dividends and
28
<PAGE>
distributions are taxable to shareholders as discussed below whether they are
reinvested in shares of the Company or received in cash.
Certain gains or losses attributable to foreign currency gains or losses from
certain forward contracts 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 dividend distributions, and (b) distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's tax basis in
his Company shares for Federal income tax purposes. See "Additional
Information--Taxes".
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"). If 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 and Class B shareholders (together, the "shareholders"). The Company
intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income and distributions of
the Company's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from the Company's net realized long-term
capital gains (including long-term gains 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. 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).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. 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. 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 by the Company 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
29
<PAGE>
foreign tax credits on investments in foreign securities held in the Company.
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.
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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and capital gain
dividends and on redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom a certified
taxpayer identification number is not on file with the 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 dividend distributions, and any distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Company shares.
If a Class A shareholder exercises the 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 the sales charge
paid to the Company reduces any sales charge the shareholder would have owed
upon purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income dividends and capital gain dividends may also be subject to
state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
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<PAGE>
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 is determined once daily at 4:15 p.m., New York
time, on each day during which the New York Stock Exchange is open for trading
and, under certain circumstances, on other days. 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 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 the account maintenance and distribution fees payable to the
Distributor, are accrued daily. The per share net asset value of the Class B
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 the
Class B shares. It is expected, however, that the per share net asset value of
the two classes will tend to converge immediately after the payment of
dividends or distributions which will differ by approximately the amount of the
expense accrual differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. 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. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into two classes, designated Class A and Class B Common Stock,
each of which consists of 100,000,000 shares. Both Class A and Class B Common
Stock represent an interest in the same assets of the Company and are identical
in all respects except that the Class B shares bear certain expenses related to
the account maintenance and distribution of such shares and have exclusive
voting rights with respect to matters relating to such account maintenance and
distribution expenditures. See "Purchase of Shares". The Company has received
an order from the Securities and Exchange Commission (the "Commission")
permitting the issuance and sale of two classes of Common Stock. The Directors
of the Company may classify and reclassify the shares of the Company into
additional classes of Common Stock at a future date. The creation of additional
classes would require an additional order from the Commission. There is no
assurance that such an additional order would be granted.
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
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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 or conversion rights. Each share of Class A and Class B
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 shares bear certain expenses related to the
distribution of such shares. 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.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each indentified 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:
Financial Data Services, Inc.
Attn: Document Evaluation Unit
P.O. Box 45290
Jacksonville, FL 32232-5290
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 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.
32
<PAGE>
MERRILL LYNCH GLOBAL HOLDINGS--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-2434.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase . . . . Class A shares or . . . .
Class B shares (choose one) of Merrill Lynch Global Holdings and establish an
Investment Account as described in the Prospectus.
Basis for establishing an Investment Account:
A. I enclose a check for $ . . . . payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000) (subsequent investments $50
or more). 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:
1. ........................... 4. ..............................
2. ........................... 5. ..............................
3. ........................... 6. ..............................
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with respect
to dividends and distributions are elected:
Distribution
Elect [_] reinvest dividends Elect [_] reinvest capital gains
Options
One [_] pay dividends in cash One [_] pay capital gains in cash
If no election is made, dividends and capital gains will be reinvested
automatically at net asset value without a sales charge.
----------------
(Please Print)
Name.............................................. [_][_][_][_][_][_][_][_][_]
First Name Initial Last Name Social Security No.
Name of Co-Owner (if any)......................... or Taxpayer
First Name Initial Last Name Identification No.
Address...........................................
.................................................. ..................., 19..
(Zip Code) Date
Occupation................... Name and Address of Employer ...................
.........................
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security No. or Taxpayer Identification No. and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that
I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am
no longer subject thereto. INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN
(2) ABOVE IF YOU HAVE BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING
DUE TO UNDERREPORTING AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT
BACKUP WITHHOLDING HAS BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE
FURNISHING OF THIS CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL
FUNDS.
Signature of Owner............... Signature of Co-Owner (if any)...............
In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
Investors in Arizona must meet the suitability requirements described under
"Purchase of Shares" in the Prospectus.
- -------------------------------------------------------------------------------
2.LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
Gentlemen: ......, 19......
Date of Initial
Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Holdings 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:
[_] $10,000 [_] $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
prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Holdings 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........................
- -------------------------------------------------------------------------------
33
<PAGE>
MERRILL LYNCH GLOBAL HOLDINGS--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (See terms and conditions
in the Statement of Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of shares in Merrill Lynch Global Holdings, at cost or current offering price.
Begin systematic withdrawal on . . . ., 19. . Withdrawals to be made either
(check one) [_] Monthly [_] Quarterly*
[Date]
*Quarterly withdrawals are made on the 24th day of March, June, September and
December.
Specify withdrawal amount (check one): [_] $. . . . . . . . . or [_] . . . . .
% of the current value of Class A shares in the account.
Specify withdrawal method: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
- -------------------------------------------------------------------------------
(A)I HEREBY AUTHORIZE PAYMENT BY CHECK
(b) I HEREBY AUTHORIZE PAYMENT BY
Draw checks payable DIRECT DEPOSIT TO BANK ACCOUNT AND
(IF NECESSARY) DEBIT ENTRIES AND
(check one) ADJUSTMENTS FOR ANY CREDIT ENTRIES
MADE IN ERROR TO MY ACCOUNT.
[_] as indicated in Item 1.
Specify type of account (check one):
[_] checking [_] savings
I agree that this authorization will
[_] to the order of............ remain in effect until I provide
written notification to Financial
Mail to (check one) Data Services, Inc. amending or
terminating this service.
[_] the address indicated in Item 1.
Name on your Account.............
Bank.............................
[_] Name (Please Print)........
Bank #... Account #..........
Bank Address.....................
Address..........................
Signature of Depositor.... Date...
Signature of Depositor (if joint
Signature of Owner............... account).........................
NOTE: If Automatic Direct Deposit is
Signature of Co-Owner (if any)... elected, your blank, unsigned check
marked "VOID" or a deposit slip from
your savings account should accompany
this Application.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4.APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase ........ Class A shares or ........ Class B
shares (choose one) of Merrill Lynch Global Holdings, subject to the terms set
forth below.
- -------------------------------------------------------------------------------
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR
ACH
You are hereby authorized to draw a DEBITS DRAWN BY FINANCIAL DATA
check or an ACH debit each month on SERVICES, INC.
my bank account for investment in To...............................Bank
Merrill Lynch Global Holdings as (Investor's Bank)
indicated below:
Amount of each check or ACH debit Bank Address.........................
$..................................... City...... State...... Zip Code......
Account No.......................... As a convenience to me, I hereby
Please date and invest checks or request and authorize you to pay and
draw ACH debits on the 20th of each charge to my account checks or ACH
month beginning....................... debits drawn on my account by and
(Month) payable to Financial Data Services,
or as soon thereafter as possible. Inc., Transfer Agency Mutual Fund
Operations, Jacksonville, Florida
I agree that you are preparing 32232-5289. I agree that your rights
these checks or drawing these debits in respect to each such check or
voluntarily at my request and that debit shall be the same as if it
you shall not be liable for any loss were a check drawn on you and signed
arising from any delay in preparing personally by me. This authority is
or failure to prepare any such check to remain in effect until revoked
or debit. If I change banks or desire personally by me in writing. Until
to terminate or suspend this program, you receive such notice, you shall
I agree to notify you promptly in be fully protected in honoring any
writing. such check or debit. I further agree
I further agree that if a check or that if any such check or debit be
debit is not honored upon dishonored, whether with or without
presentation, Financial Data cause and whether intentionally or
Services, Inc. is authorized to inadvertently, you shall be under no
discontinue immediately the Automatic liability.
Investment Plan and to liquidate ......... .....................
sufficient shares held in my account Date Signature of
to offset the purchase made with the ......... Depositor
returned check or dishonored debit. .....................
Bank Signature of Depositor
............ ..................... Account (If joint account,
Date Signature of Number both must sign)
Depositor
.....................
Signature of Depositor
(If joint account, NOTE: IF AUTOMATIC INVESTMENT PLAN
both must sign) IS ELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" SHOULD ACCOMPANY
THIS APPLICATION.
- -------------------------------------------------------------------------------
5.FOR DEALER ONLY
Branch Office, Address, Stamp. We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the shareholder's
signature.
.....................................
Dealer Name and Address
This form when completed should be
mailed to: By ..................................
Authorized Signature of Dealer
Merrill Lynch Global Holdings
c/o Financial Data Services, Inc. [_][_][_] [_][_][_][_]
Transfer Agency Mutual Fund
Operations Branch-Code F/C No.
P.O. Box 45289
Jacksonville, Florida 32232-5289 ................
[_][_][_] [_][_][_][_][_]
Dealer's Customer A/C No.
F/C Last Name
34
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
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:
Box 9011
Princeton, New Jersey 08543-9011
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
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
Chase MetroTech Center
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER IN-
FORMATION 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Alternative Sales Arrangements............................................. 3
Financial Highlights....................................................... 5
International Diversification.............................................. 6
Investment Objective and Policies.......................................... 7
Management of the Company.................................................. 14
Board of Directors........................................................ 14
Advisory and Management Arrangements...................................... 15
Transfer Agency Services.................................................. 16
Purchase of Shares......................................................... 16
Alternative Sales Arrangements............................................ 17
Initial Sales Charge Alternative--
Class A Shares........................................................... 18
Deferred Sales Charge Alternative--
Class B Shares........................................................... 20
Redemption of Shares....................................................... 24
Shareholder Services....................................................... 25
Performance Data........................................................... 27
Additional Information..................................................... 28
Dividends and Distributions............................................... 28
Taxes..................................................................... 29
Determination of Net Asset Value.......................................... 31
Organization of the Company............................................... 31
Shareholder Reports....................................................... 32
Shareholder Inquiries..................................................... 32
Authorization Form......................................................... 33
</TABLE>
Code #10244
Prospectus
[ART]
- -------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL HOLDINGS
March 30, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Global Holdings (the name by which Merrill Lynch International
Holdings, Inc. conducts business) (the "Company"), is a diversified, open-end
management investment company seeking 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.
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares") or (ii) on a deferred basis (the "Class B
shares"). These alternatives permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other circumstances.
Investors should understand that the purpose and function of the deferred sales
charges with respect to the Class B shares are the same as those of the initial
sales charge with respect to the Class A shares. Each Class A and Class B share
represents identical interests in the investment portfolio of the Company and
has the same rights, except that Class B shares bear the expenses of the
account maintenance fee and distribution fee and certain other costs resulting
from the deferred sales charge arrangement and have exclusive voting rights
with respect to the account maintenance and distribution fees. The two classes
also have different exchange privileges.
----------------
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 30, 1994 (the "Prospectus"), which has been filed with the Securities and
Exchange 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 30, 1994.
<PAGE>
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., doing business as
Merrill Lynch Asset Management (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. Accordingly, while the Company
anticipates that its annual portfolio turnover rate should not exceed 100%
under normal conditions, it is impossible to predict portfolio turnover rates.
The portfolio turnover rate is calculated by dividing the lesser of the
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, 1993, and
November 30, 1992, the rate of portfolio turnover was 56.98% and 65.93%,
respectively. The Company is subject to the Federal income tax requirement that
less than 30% of the Company's gross income must be derived from gains from the
sale or other disposition of securities held for less than three months.
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.
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
2
<PAGE>
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 at 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 equity 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 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 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
3
<PAGE>
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 generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contracts fluctuates making the long and
short positions in the futures contracts more or less valuable, a process known
as "mark to the market". At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
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 Securities and Exchange Commission
exempting it from the provisions of Section 17(f) and Section 18(f) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the 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 Securities and Exchange 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
which will not be completely offset by movements in the prices of the
securities and currencies which 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 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 over-the-counter 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
4
<PAGE>
an adverse impact on the Company's ability to effectively hedge its portfolio.
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. 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 position
hedging commitment if, as a result thereof, the Company would have more than
15% of the value of its assets committed to such contracts. 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
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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. It is possible that, under certain
circumstances, the Company may have to limit its currency transactions to
qualify as a regulated investment company under the Internal Revenue Code; in
this regard, the Company presently intends to limit its gross income from
currency hedging transactions to less than 10% of its gross income in any
taxable year until such time as the Company determines that income from the
transaction is not subject to this restriction. 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 bonds 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
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.
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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 the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
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). The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Company's total assets, taken at market
value, would be invested in such securities.
3. Purchase or sell real estate; provided that the Company may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or
sell stock index and currency options, stock index futures, financial
futures and currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, or make short sales of securities or
maintain a short position. The payment by the Company of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the purchase of a
security on margin. Also, engaging in futures transactions and related
options will not be deemed a short sale or maintenance of a short position
in securities.
6. Make loans to other persons (except as provided in (7) below);
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporate debt securities and investment in Government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements shall not be deemed to be the making
of a loan.
7. Lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value; provided that such loans shall be made in
accordance with the guidelines set forth below.
8. 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. Utilization of
borrowings may exaggerate increases or decreases in an investment company's
net asset value. However, the Company will not purchase securities while
borrowings are outstanding except to exercise prior commitments and to
exercise subscription rights. (See restriction (9)
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below regarding the exclusion from this restriction of arrangements with
respect to options, futures contracts and options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned
or held by the Company except as may be necessary in connection with
borrowings mentioned in (8) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Company's total assets, taken at
market value. [In order to comply with certain state statutes, the Company
will not, as a matter of operating policy, mortgage, pledge or hypothecate
its portfolio securities to the extent that at any time the percentage of
the value of pledged securities plus the maximum sales charge will exceed
10% of the value of the Company's shares at the maximum offering price.]
(For the purpose of this restriction and restriction (8) above, collateral
arrangements with respect to the writing of options, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets, and
neither such arrangements nor the purchase and sale of options, futures or
related options are deemed to be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily marketable
if, regarding all such securities, more than 5% of its total assets, taken
at market value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Company
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
12. Purchase or sell interests in oil, gas or other mineral exploration
or development programs.
13. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than
5% of its total assets, taken at market value, would be invested in such
securities.
Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Company. Such loans will not be
for more than 30 days and will be terminable at any time. The Company will have
the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. The Company may pay reasonable fees
to persons unaffiliated with the Company for services in arranging such loans.
With respect to the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in such transactions.
The Board of Directors has established the policy that the Company will not
purchase or retain the securities of any issuer if those individual officers
and directors of the Company, the officers and general partner of the
Investment Adviser, the directors of such general partner or the officers and
directors of the Distributor each owning beneficially more than one-half of 1%
of the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer. 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. In addition, until April 1, 1994, portfolio securities of the
Company may not be purchased from, sold or loaned to Nomura Capital Management,
Inc. ("NCM") and Lombard Odier International Portfolio Management Limited
("LOIPM") or their affiliates or any of their directors, officers or employees,
acting as principal.
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The Company has adopted a policy pursuant to which it will not invest in
warrants if, at the time of acquisition, its investment in warrants, valued at
the lower of cost or market value, would exceed 5% of the Company's net assets;
included within such limitation, but not to exceed 2% of the Company's net
assets, are warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this policy, warrants acquired by the Company in
units or attached to securities may be deemed to be without value. The Company
also has adopted a policy pursuant to which it will not invest in real estate
limited partnerships or in oil, gas or mineral leases. The policies set forth
in this paragraph may be amended without the approval of the Company's
shareholders.
The staff of the Securities and Exchange 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 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 10% of the net 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 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 Securities and Exchange 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
firms or their affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage". Without such an exemptive order,
the Company would be prohibited from engaging in portfolio transactions with
the Investment Adviser or its affiliates acting as principal and from
purchasing securities in public offerings which are not registered under the
Securities Act of 1933, as amended, in which such firm or any of its affiliates
participate as an underwriter or dealer. Similar restrictions apply to
transactions involving NCM and LOIPM until April 1, 1994.
The investment restrictions set forth in the Prospectus 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. 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
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in the Prospectus would otherwise be exceeded by exercising rights or have
already been exceeded as a result of fluctuations in the market value of the
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.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and executive officers of the Company and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is Box
9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Director (1)(2)--President of the Investment
Adviser and its predecessor since 1977 and Chief Investment Officer since 1976;
President of Fund Asset Management, L.P. ("FAM") and its predecessor since 1977
and Chief Investment Officer since 1976; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch") since 1990 and a
Senior Vice President thereof from 1985 to 1990; Executive Vice President of
Merrill Lynch & Co., Inc. since 1990; Director of the Distributor.
Donald Cecil--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.
Ken E. Mathysen-Gerst--Director (1)(2)--Lombard Odier International Portfolio
Management Limited, Norfolk House, 13 Southampton Place, London WC1A 2AJ,
England. Vice Chairman of LOIPM since 1982; Managing Partner, Lombard, Odier &
Cie since 1985; Director, Worldwide Value Fund, Inc.; Mediterranean Fund; The
European Warrant Fund; Europe 1992; Cofide S.p.A.; Kempen, N.V.; International
Bond Index Fund; Obliflex; Equiflex, Ltd.; Holland Pacific Fund.
Edward H. Meyer--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--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 since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
John F. Wallace--Director (1)(2)--180 Maiden Lane, New York, New York 10038.
Senior Vice President, Treasurer, Secretary and Director of NCM; Senior Vice
President of Nomura Securities International, Inc. ("NSI") since 1978; Director
of Nomura Pacific Basin Fund, Inc., Japan OTC Equity Fund, Inc., Jakarta Growth
Fund, Inc. and Korea Equity Fund, Inc.
Richard R. West--Director (2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance since 1984, and Dean from 1984 to 1993, of New York
University Leonard N. Stern School of Business
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Administration; Director of Bowne & Co., Inc. (financial printers), Vornado,
Inc. (real estate holding company), Smith-Corona Corporation (manufacturer of
typewriters and word processors) and Alexander's, Inc.
Terry K. Glenn--Executive Vice President (1)(2)--Executive Vice President of
the Investment Adviser and FAM and their predecessors since 1983; Executive
Vice President and Director of Princeton Services since 1993; President and
Director of the Distributor since 1986.
Norman R. Harvey--Senior Vice President (1)(2)--Senior Vice President of the
Investment Adviser and FAM and their predecessors since 1982; Senior Vice
President of Princeton Services since 1993.
Philip L. Kirstein--Senior Vice President (1)(2)--Senior Vice President and
General Counsel of the Investment Adviser and FAM and their predecessors since
1984; Senior Vice President, General Counsel, Director and Secretary of
Princeton Services; Secretary of the Investment Adviser and its predecessor
since 1984; Secretary of FAM and its predecessor since 1982; Director of the
Distributor.
Frederick P. Ives--Vice President (1)(2)--Vice President of the Investment
Adviser and its predecessor since 1984; Vice President and Senior Portfolio
Manager of the Prudential Insurance Company of America from 1973 to 1984.
Donald C. Burke--Vice President (1)(2)--Vice President and Director of
Taxation of the Investment Adviser and its predecessor since 1990; employee of
Deloitte & Touche from 1982 to 1990.
Gerald M. Richard--Treasurer (1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM and their predecessors since 1984; Senior Vice
President and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer since 1984.
Robert Harris--Secretary (1)(2)--Vice President of the Investment Adviser and
its predecessor since 1984 and attorney associated with the Investment Adviser
and its predecessor since 1980; Secretary of the Distributor since 1982.
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(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 its
subsidiary FAM, acts as investment adviser or manager.
At March 18, 1994, the officers and Directors of the Company as a group (14
persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director of the Company, and the other
officers of the Company, owned less than 1% of the outstanding shares of common
stock of Merrill Lynch & Co., Inc.
The Company pays each Director not affiliated with the Investment Adviser 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 committee, which consists of
all of the non-affiliated Directors. Fees and expenses paid to the unaffiliated
Directors aggregated $31,432 for the fiscal year ended November 30, 1993.
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.
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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. Until April 1, 1994, the Investment Adviser will compensate NCM and
LOIPM for investment research, pursuant to separate investment research
agreements between the Investment Adviser and NCM and LOIPM (the "Investment
Research Agreements"), at the annual rates of 0.20% and 0.15%, respectively, of
the Company's average daily net assets. The Investment Research Agreement
between the Investment Adviser and NCM recognizes that NCM may enter into a
separate investment research agreement with Nomura Investment Management Co.,
Ltd. ("NIMCO") under which NCM may compensate NIMCO for investment research in
an amount determined by NCM and NIMCO but not in excess of the amount of
compensation NCM receives from the Investment Adviser. The Investment Research
Agreements and related Sub-Research Agreement terminate on April 1, 1994. The
Investment Adviser will continue to provide services to the Company pursuant to
the Investment Advisory Agreement after such date.
For the fiscal year ended November 30, 1991, the Investment Adviser, NCM and
LOIPM earned fees of $2,040,619, $408,124 and $306,093, respectively. NCM paid
NIMCO $204,062 from the amount earned by NCM. For the fiscal year ended
November 30, 1992, the Investment Adviser, NCM and LOIPM earned fees of
$1,957,647, $391,529 and $293,647, respectively. NCM paid NIMCO $195,765 from
the amount earned by NCM. For the fiscal year ended November 30, 1993, the
Investment Adviser, NCM and LOIPM earned fees of $1,514,112, $465,895 and
$349,410, respectively. NCM paid NIMCO $232,948 from the amount earned by NCM.
California imposes limitations on the expenses of the Company. These expense
limitations require that the Investment Adviser reimburse the Company in an
amount necessary to prevent the ordinary operating expenses of the Company
(excluding interest, taxes, distribution fees, brokerage fees and commissions
and extraordinary charges such as litigation costs) from exceeding 2.5% of the
Company's first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the remaining average daily net
assets. The Investment Adviser's obligation to reimburse the Company is limited
to the amount of the investment advisory fee. No fee payment will be made to
the Investment Adviser during any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation applicable at the time of such
payment. For the fiscal years ended November 30, 1991, 1992 and 1993, no such
reimbursement was required.
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
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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 Company's Distributor); charges of the custodian, any
sub-custodian and transfer agent; expenses of redemption of shares; Securities
and Exchange Commission fees; expenses of registering the shares under Federal,
state or foreign laws; fees and expenses of unaffiliated 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 semi-annual basis. For the fiscal year ended November 30,
1993, the amount of such reimbursement was $111,045. 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
shares will be financed by the Company pursuant to a distribution plan in
compliance with Rule 12b-1 under the Investment Company Act. See "Purchase of
Shares--Alternative Sales Arrangements".
Merrill Lynch & Co., Inc., Merrill Lynch Investment Management, Inc. and
Princeton Services, Inc. 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.
Duration and Termination. Unless earlier terminated as described below, 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. As noted above, the Investment Research Agreements and related Sub-
Research Agreement terminate on April 1, 1994. The Investment Adviser will
continue to provide services to the Company pursuant to the Investment Advisory
Agreement after such date.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
ALTERNATIVE SALES ARRANGEMENTS
The Company issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements and the expenses of the account maintenance fee and have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege".
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The Company has entered into separate distribution agreements with Merrill
Lynch Funds Distributor, Inc. (the "Distributor") in connection with the
continuous offering of Class A and Class B shares of the Company (the
"Distribution Agreements"). The Distribution Agreements obligate the
Distributor to pay certain expenses in connection with the offering of the
Class A and Class B 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 ALTERNATIVE--CLASS A SHARES
For the fiscal years ended November 30, 1991, 1992 and 1993, the Company sold
its Class A shares through the Distributor and Merrill Lynch, as dealers.
During the fiscal year ended November 30, 1991, the Company sold 1,538,040
Class A shares for aggregate net proceeds to the Company of $16,925,856. The
gross sales charges for the sale of Class A shares of the Company for that year
were $89,523, of which $85,750 was received by Merrill Lynch, and $3,773 was
received by the Distributor. During the fiscal year ended November 30, 1992,
the Company sold 2,220,109 Class A shares for aggregate net proceeds to the
Company of $27,778,220. The gross sales charges for the sale of Class A shares
of the Company for that year were $108,884, of which $106,091 was received by
Merrill Lynch, and $2,793 was received by the Distributor. During the fiscal
year ended November 30, 1993, the Company sold 9,166,536 Class A shares for
aggregate net proceeds to the Company of $112,504,555. The gross sales charges
for the sale of Class A shares of the Company for that year were $126,144, of
which $118,953 was received by Merrill Lynch, and $7,191 was received by the
Distributor.
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 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
which has not been in existence for at least six months or which 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 by employees or by employers on behalf of employees,
by means of a payroll deduction plan or otherwise, of shares of the Company.
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.
REDUCED INITIAL SALES CHARGES--CLASS A SHARES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
Class A shares of the Company at the offering price
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applicable to the total of (a) the dollar amount 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 the Class A and Class B shares
of the Company and of any other investment company with a sales charge for
which the Distributor acts as the distributor. 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.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $10,000 or more of Class A shares of the Company or any other
investment company with an initial sales charge or a deferred sales charge for
which the Distributor acts as the distributor made within a thirteen-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 shares;
however, its execution will result in the purchaser paying a lower sales charge
at the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter of
Intention executed within 90 days of such purchase if the Distributor is
informed in writing of this intent within such 90-day period. The value of
Class A shares of the Company and of other investment companies with a sales
charge for which the Distributor acts as the distributor 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 $10,000), 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 shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
shares equal to five percent of the intended amount will be held in escrow
during the thirteen-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 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 Merrill Lynch
U.S. Treasury Money Fund, Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Reserves Money Fund or Merrill Lynch U.S.A. Government Reserves into
the Company that creates a sales charge will count toward completing a new or
existing Letter of Intention from the Company.
Merrill Lynch BlueprintSM Program. Class A shares of the Company are offered
to participants in the Merrill Lynch BlueprintSM Program ("Blueprint").
Blueprint is directed to small investors, group IRAs and participants in
certain affinity groups such as credit unions, trade associations and benefit
plans. Investors placing orders to purchase Class A shares of the Company
through Blueprint will acquire the Class A shares at net asset value plus a
sales charge calculated in accordance with the Blueprint sales charge schedule
(i.e., up to $300 at 5.50%, $300.01 to $5,000 at 4.50% plus $3.00 and $5,000.01
or more at the standard sales charge rates disclosed in the Prospectus). Class
A shares of the Company are offered at net asset value plus a
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sales charge of 1/2 of 1% for corporate or group IRA programs placing orders to
purchase their Class A shares through Blueprint. Services, including the
exchange privilege, available to Class A shareholders through Blueprint,
however, may differ from those available to other Class A share investors.
Class A shares are offered at net asset value, with a waiver of the front-end
sales charge, 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 Eligible Retirement Plans (as
defined below) whose Trustee and/or Plan Sponsor offers the Merrill Lynch
Directed IRA Rollover Program. Eligible Retirement Plans include: (a) plans
qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code") with a salary reduction feature offering a menu of investments to
plan participants, provided such plan initially has 1,000 or more employees
eligible to participate in the plan (employees eligible to participate in
retirement plans of the same sponsoring employer or its affiliates may be
aggregated); or (b) tax qualified retirement plans within the meaning of
Section 401(a) of the Code or deferred compensation plans within the meaning of
Section 403(b) of the Code, provided the plan (i) initially invested $5 million
or more in existing plan assets in portfolios, mutual funds or trusts advised
by the Investment Adviser or its subsidiaries or (ii) has accumulated $5
million or more in existing plan assets invested in mutual funds advised by the
Investment Adviser or its subsidiaries, which charge a front-end sales charge
or contingent deferred sales charge (assets of retirement plans with the same
sponsor or an affiliated sponsor may be aggregated).
Orders for purchases and redemptions of Class A 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 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 BlueprintSM Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0041.
Employer Sponsored Retirement and Savings Plans. Class A shares are offered
at net asset value to employer sponsored retirement or savings plans, such as
tax qualified retirement plans within the meaning of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), deferred compensation
plans within the meaning of Sections 403(b) and 457 of the Code, other deferred
compensation arrangements, VEBA plans, and non-qualified After Tax Savings and
Investment programs, maintained on the Merrill Lynch Group Employee Services
system, herein referred to as "Employer Sponsored Retirement or Savings Plans",
provided the plan has $5 million or more in existing plan assets initially
invested in portfolios, mutual funds or trusts advised by the Investment
Adviser either directly or through an affiliate. Class A shares may also be
offered at net asset value to Employer Sponsored Retirement or Savings Plans,
provided the plan has accumulated $5 million or more in existing plan assets
invested in mutual funds advised by the Investment Adviser charging a front-end
sales charge or contingent deferred sales charge. Assets of Employer Sponsored
Retirement or Savings Plans sponsored by the same sponsor or an affiliated
sponsor may be aggregated. The Class A share reduced load breakpoints also
apply to these aggregated assets. Class A shares may be offered at net asset
value to multiple plans sponsored by the same sponsor or an affiliated sponsor
provided that the addition of one or more of the multiple plans results in
aggregate assets of $5 million or more invested in portfolios, mutual funds or
trusts advised by the Investment Adviser either directly or through an
affiliate. Employer Sponsored Retirement or Savings Plans are also offered
Class A shares at net asset value, provided such plan initially has 1,000 or
more employees eligible to participate in the plan. Employees eligible to
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participate in Employer Sponsored Retirement or Savings Plan of the same
sponsoring employer or its affiliates may be aggregated. Tax qualified
retirement plans within the meaning of Section 401(a) of the Code meeting any
of the foregoing requirements and which are provided specialized services
(e.g., plans whose participants may direct on a daily basis their plan
allocations among a wide range of investments including individual corporate
equities and other securities in addition to mutual fund shares) by the Merrill
Lynch Blueprint(TM) Program, are offered Class A shares at a price equal to net
asset value per share plus a reduced sales charge of 0.50%. Any Employer
Sponsored Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has the option of
purchasing Class A shares at the sales charge schedule disclosed in the
Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a
qualified retirement plan and meets the specified requirements, then it may
purchase Class B shares with a waiver of the contingent deferred sales charge
upon redemption. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored
Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Company, directors
and trustees of certain other Merrill Lynch sponsored investment companies,
directors of Merrill Lynch & Co., Inc., employees of Merrill Lynch & Co., Inc.
and its subsidiaries 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 A shares of the Company are offered at net asset value to shareholders
of Senior Floating Rate Fund (formerly known as Merrill Lynch Prime Fund, Inc.)
who wish to reinvest the net proceeds from a sale of certain of their shares of
common stock of Senior Floating Rate Fund in shares of the Company. In order to
exercise this investment option, Senior Floating Rate Fund shareholders must
sell their Senior Floating Rate Fund shares to Senior Floating Rate Fund in
connection with a tender offer conducted by Senior Floating Rate Fund and
reinvest the proceeds immediately in the Company. This investment option is
available only with respect to the proceeds of Senior Floating Rate Fund shares
as to which no Early Withdrawal Charge (as defined in the Senior Floating Rate
Fund prospectus) is applicable. Purchase orders from Senior Floating Rate Fund
shareholders wishing to exercise this investment option will be accepted only
on the day that the related Senior Floating Rate Fund tender offer terminates
and will be effected at the net asset value of the Company at such day.
Class A shares of the Company are offered at net asset value to shareholders
of certain closed-end funds advised by the Investment Adviser or FAM who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Company. In order to exercise this investment
option, closed-end fund shareholders must (i) sell their closed-end fund shares
through Merrill Lynch and reinvest the proceeds immediately in the Company,
(ii) have acquired the shares in the closed-end fund's initial public offering
or through reinvestment of dividends earned on shares purchased in such
offering, (iii) have maintained their closed-end fund shares continuously in a
Merrill Lynch account, and (iv) purchase a minimum of $250 worth of Company
shares.
Class A 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, if the following conditions are satisfied:
first, the investor must purchase Class A shares of the Company with proceeds
from a redemption of shares of such other mutual fund and such fund imposed a
sales charge either at the time of purchase or on a deferred basis; second,
such purchase of Class A shares must be made within 90 days after such notice
of termination.
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Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A 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 which might result from
an acquisition of assets having net unrealized appreciation which is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Company.
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.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Distribution Plan. Reference is made to "Purchase of Shares--Deferred Sales
Charge Alternative-- Class B Shares--Distribution Plan" in the Prospectus for
certain information with respect to the distribution plan of the Company (the
"Distribution Plan").
The payment of the account maintenance and distribution fees is subject to
the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, the Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the account
maintenance and distribution fees paid to the Distributor. In their
consideration of the 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 to its Class B shareholders. The
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 the Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that the Distribution Plan will benefit the Company and
its Class B shareholders. The 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 Class B voting
securities of the Company. The Distribution Plan cannot be amended to increase
materially the amount to be spent by the Company without Class B shareholder
approval, and all material amendments are required to be approved by the vote
of Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in the Distribution Plan, cast in person
at a meeting called for that purpose. Rule 12b-1 further requires that the
Company preserve copies of the Distribution Plan and any report made pursuant
to such plan for a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an easily accessible
place.
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 is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed (other than
customary
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weekend and holiday closings), for any period during which an emergency exists,
as defined by the Securities and Exchange Commission, as a result of which
disposal of portfolio securities or determination of the net asset value of the
Company is not reasonably practicable, and for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
shareholders of the 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.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares", while Class B shares redeemed within four
years of purchase are subject to a contingent deferred sales charge under most
circumstances, the charge is waived on redemptions of Class B shares 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
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 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, 1991, 1992 and 1993, the
Distributor received contingent deferred sales charges of $77,059, $80,948 and
$33,249, respectively, all of which was paid to Merrill Lynch.
Merrill Lynch BlueprintSM 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 contingent deferred sales charge 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 BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A shares at net asset value has the option of purchasing
Class A shares at the sales charge schedule disclosed in the Prospectus, or if
the Retirement Plan meets the following requirements, then it may purchase
Class B shares with a waiver of the contingent deferred sales charge upon
redemption. The contingent deferred sales charge is waived for any Eligible
401(k) Plan redeeming Class B shares. The contingent deferred sales charge is
also waived for redemptions from a 401(a) plan qualified under the Code,
provided, however, that each such plan has the same or an affiliated sponsoring
employer as an Eligible 401(k) Plan purchasing Class B shares of a mutual fund
advised by the Investment Adviser or FAM ("Eligible 401(a) Plan"). The
contingent deferred sales charge is waived for any Class B shares which are
purchased by an Eligible 401(k) Plan or
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Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and held in such account at the time of redemption.
The minimum initial and subsequent purchase requirements are waived in
connection with all the above referenced Retirement Plans.
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 Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies. In addition,
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. 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 American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into foreign equity
securities. ADRs, EDRs and GDRs may be listed on stock exchanges or traded in
over-the-counter markets in the 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 Securities and Exchange Commission. Since
transactions in the over-the-
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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 (and, until April 1, 1994, The
Nomura Securities Co., Ltd. ("Nomura"), LOIPM and their 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 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, 1991, the Company paid brokerage
commissions of $727,716. Merrill Lynch and its affiliates received $39,227, or
5.39%, of such amount for effecting transactions involving 5.10% of the
aggregate dollar amount of transactions in which the Company paid brokerage
commissions; Nomura and its affiliates effected no transactions generating
brokerage commissions; and LOIPM and its affiliates effected no transactions
generating brokerage commissions.
For the fiscal year ended November 30, 1992, the Company paid brokerage
commissions of $688,167. Merrill Lynch and its affiliates received $32,076, or
4.7%, of such amount for effecting transactions involving 4.0% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions;
Nomura and its affiliates effected no transactions generating brokerage
commissions; and LOIPM and its affiliates effected no transactions generating
brokerage commissions.
For the fiscal year ended November 30, 1993, the Company paid brokerage
commissions of $138,617. Merrill Lynch and its affiliates received $4,128, or
3.0%, of such amount for effecting transactions involving 3.4% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions;
Nomura and its affiliates effected no transactions generating brokerage
commissions; and LOIPM and its affiliates effected no transactions generating
brokerage commissions.
The Board of Directors has considered the possibilities 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 which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Securities and
Exchange 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.
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DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined once daily
Monday through Friday at 4:15 p.m., New York time, on each day during which the
New York Stock Exchange is open for trading. The New York Stock Exchange is not
open on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The Company also will determine
its net asset value on any day in which there is sufficient trading in its
portfolio securities that the net asset value might be affected materially, but
only if on any such day the Company is required to sell or redeem shares. Net
asset value 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 the account maintenance and distribution
fees payable to the Distributor, are accrued daily. The per share net asset
value of the Class B 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 the Class B shares. It is expected, however, that the per share
net asset value of the two classes will tend to converge immediately after the
payment of dividends or distributions, which will differ by approximately the
amount of the expense accrued differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. When the Company writes a call 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
asked price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the average of the last asked price as
obtained from one or more dealers. Options purchased by the Company are valued
at their last bid price in the case of exchange-traded options or, in the case
of options traded in the over-the-counter market, the average of the last bid
price as obtained from two or more dealers unless there is only one dealer, in
which case that dealer's price is used.
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. Such valuations and procedures will
be reviewed periodically by the Board of Directors.
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 the New York Stock Exchange.
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 the New York Stock
Exchange. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange which will not be reflected in the
computation of the 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.
22
<PAGE>
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 BlueprintntSM 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 quarterly statements from the transfer
agent. These quarterly statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The quarterly 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.
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 from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the Class A shares are to be transferred will not take delivery
of shares of the Company, a shareholder either must redeem the Class A shares
so that the cash proceeds can be transferred to the account at the new firm or
such shareholder must continue to maintain an Investment Account at the
transfer agent for those Class A shares. Shareholders interested in
transferring their Class B shares from Merrill Lynch and who do not wish to
have an Investment Account maintained for such shares at the transfer agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he be issued
certificates for his shares and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence.
AUTOMATIC INVESTMENT PLAN
A U.S. shareholder may make additions to an Investment Account at any time by
purchasing shares at the applicable public offering price either through the
shareholder's securities dealer or by mail directly to the transfer agent,
acting as agent for such securities dealer. Voluntary accumulation also can be
made through a service known as the 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. An investor whose shares of the Company are held within a
CMA(R) account may arrange to have periodic investments made in the Company in
amounts of $250 or more through the CMA Automatic Investment Program. The
Automatic Investment Program is not available to shareholders whose shares are
held in a brokerage account with Merrill Lynch other than a CMA(R) account.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Company. Such reinvestment will be at the net asset value of shares of the
Company, without sales
23
<PAGE>
charge, 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 on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the 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--CLASS A SHARES
A Class A shareholder may elect to make systematic withdrawals from an
Investment Account on either a monthly or quarterly basis as provided below.
Quarterly withdrawals are available for shareholders who have acquired Class A
shares of the Company having a value, based upon cost or the current offering
price, of $5,000 or more, and monthly withdrawals for shareholders with Class A
shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A shares are
redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A shares.
Redemptions will be made at net asset value as determined at the close of
business of the New York Stock Exchange on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If the
Exchange is not open for business on such date, the Class A shares will be
redeemed at the close of business on the preceding 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 Class A shares in the Investment Account are automatically reinvested in
Company Class A shares. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the
Company, the transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchases of additional Class A 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 Class A 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.
A Class 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 Systematic Redemption
Program. The minimum fixed dollar amount redeemable is $25. The proceeds of
systematic redemptions will be posted to the shareholder's account five
business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month;
bimonthly systematic redemptions will be made at net asset value on the first
Monday of every other month; and quarterly, semiannual or annual redemptions
are made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption
24
<PAGE>
will be processed at net asset value on the next business day. The 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 Systematic Redemption Program, eligible shareholders should
contact their Financial Consultant.
EXCHANGE PRIVILEGE
U.S. Class A or Class B shareholders of the Company may exchange their Class
A or Class B shares of the Company for shares of the same class of Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill
Lynch Arizona Municipal Bond Fund, Merrill Lynch Balanced Fund for Investment
and Retirement, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Insured Municipal Bond Fund, Merrill Lynch California Limited Maturity
Municipal Bond Fund, Merrill Lynch California Municipal Bond Fund, Merrill
Lynch Capital Fund, Inc., Merrill Lynch Colorado Municipal Bond Fund, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund,
Inc. (shares of which are deemed Class A shares for purposes of the exchange
privilege), Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Federal Securities Trust, Merrill Lynch Florida Limited Maturity
Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch
Fund For Tomorrow, Inc., Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Resources Trust, Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin must meet investor suitability standards), Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Maryland Municipal Bond Fund, Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund, Merrill Lynch Massachusetts Municipal Bond Fund,
Merrill Lynch Michigan Limited Maturity Municipal Bond Fund, Merrill Lynch
Michigan Municipal Bond Fund, Merrill Lynch Minnesota Municipal Bond Fund,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Municipal Intermediate
Term Fund, Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund,
Merrill Lynch New Jersey Municipal Bond Fund, Merrill Lynch New York Limited
Maturity Municipal Bond Fund, Merrill Lynch New York Municipal Bond Fund,
Merrill Lynch North Carolina Municipal Bond Fund, Merrill Lynch Ohio Municipal
Bond Fund, Merrill Lynch Oregon Municipal Bond Fund, Merrill Lynch Pacific
Fund, Inc., Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund,
Merrill Lynch Pennsylvania Municipal Bond Fund, Merrill Lynch Phoenix Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special
Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Texas Municipal Bond Fund, Merrill Lynch
Utility Income Fund, Inc. and Merrill Lynch World Income Fund, Inc. on the
basis described below. In addition, Class A shareholders of the Company may
exchange their Class A shares for shares of Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch U.S. Treasury Money Fund and Merrill Lynch Ready Assets
Trust (or Merrill Lynch Retirement Reserves Money Fund if the exchange occurs
within certain retirement plans) (together, the "Class A money market funds"),
and Class B shareholders of the Company may exchange their Class B shares for
shares of Merrill Lynch Government Fund, Merrill Lynch Institutional Fund,
Merrill Lynch Institutional Tax-Exempt Fund and Merrill Lynch Treasury Fund
(together, the "Class B money market funds") on the basis described below.
Shares with a net asset value of at least $250 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. Certain funds into which exchanges may
be made may impose a redemption fee (not in excess of 2.00% of the amount
redeemed) on shares purchased through the exchange privilege when such shares
are subsequently redeemed,
25
<PAGE>
including redemption through subsequent exchanges. Such redemption fee would be
in addition to any contingent deferred sales charge otherwise applicable to a
redemption of Class B shares. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be distributed by
the Distributor. The exchange privilege available to participants in the
Merrill Lynch BlueprintSM Program may be different from that available to other
investors.
Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("new Class A shares") for
Class A shares ("outstanding Class A shares") of any of the other funds, on the
basis of relative net asset value per Class A share, plus an amount equal to
the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. With respect to outstanding Class A shares
as to which previous exchanges have taken place, the "sales charge previously
paid" shall include the aggregate of the sales charges paid with respect to
such Class A shares in the initial purchase and any subsequent exchange. Class
A shares issued pursuant to dividend reinvestment are sold on a no-load basis
in each of the funds offering Class A shares. For purposes of the exchange
privilege, Class A 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 shares on which the dividend was paid. Based on
this formula, Class A shares of the Company generally may be exchanged into the
Class A shares of the other funds or into shares of the Class A money market
funds with a reduced or without a sales charge.
In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("new Class B shares") for Class B shares
("outstanding Class B shares") of any of the other funds on the basis of
relative net asset value per Class B share, without the payment of any
contingent deferred sales charge 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 contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge schedule relating to the new Class B shares acquired through use
of the exchange privilege. In addition, Class B shares of the Company acquired
through use of the exchange privilege will be subject to the Company's
contingent deferred sales charge schedule if such schedule is higher than the
deferred sales charge 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 shares, the holding
period for the outstanding Class B shares is "tacked" to the holding period of
the new Class B shares. For example, an investor may exchange Class B shares of
the Company for those of Merrill Lynch Global Resources Trust (formerly Merrill
Lynch Natural Resources Trust) after having held the Company's Class B shares
for two and a half years. The 2% sales charge 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 Merrill Lynch Global Resources Trust and
receive cash. There will be no contingent deferred sales charge due on this
redemption, since by "tacking" the two and a half year holding period of the
Company's Class B shares to the three year holding period for the Merrill Lynch
Global Resources Trust Class B shares, the investor will be deemed to have held
the new Class B shares for more than five years.
Shareholders also may exchange Class A shares and Class B shares from any of
the funds into shares of the Class A money market funds and Class B money
market funds, respectively, but the period of time that Class B shares are held
in a Class B money market fund will not count towards satisfaction of the
holding period requirement for purposes of reducing the contingent deferred
sales charge. However, shares of a Class B money market fund which were
acquired as a result of an exchange for Class B shares of a fund may, in turn,
be exchanged back into Class B shares of any fund offering such shares, in
which event the holding period for Class B shares of the fund will be
aggregated with previous holding periods for purposes of reducing
26
<PAGE>
the contingent deferred sales charge. Thus, for example, an investor may
exchange Class B shares of the Company for shares of Merrill Lynch
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 Merrill Lynch
Institutional Fund for cash. At the time of this redemption, the 2% contingent
deferred sales charge that would have been due had the Class B shares of the
Company been redeemed for cash rather than exchanged for shares of Merrill
Lynch Institutional Fund will be payable. If, instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continues to hold for an additional two and a half years, any
subsequent redemption will not incur a contingent deferred sales charge.
Below is a description of the investment objectives of the other funds into
which exchanges can be made:
Merrill Lynch Adjustable Rate
Securities Fund, Inc..........
High current income consistent with a policy
of limiting the degree of fluctuation in net
asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed
and asset-backed securities.
Merrill Lynch Americas Income
Fund, Inc. ..............
A high level of current income, consistent
with prudent investment risk, by investing
primarily in debt securities denominated in
a currency of a country located in the West-
ern Hemisphere (i.e., North and South Amer-
ica and the surrounding waters).
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is to provide as
high a level of income exempt from Federal
and Arizona income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of in-
termediate-term investment grade Arizona Mu-
nicipal Bonds.
Merrill Lynch Arizona
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is to provide investors with as
high a level of income exempt from Federal
and Arizona income taxes as is consistent
with prudent investment management.
Merrill Lynch Balanced Fund
for Investment and
Retirement....................
As high a level of total investment return as
is consistent with reasonable risk by in-
vesting in common stocks and other types of
securities, including fixed income securi-
ties and convertible securities.
Merrill Lynch Basic Value
Fund, Inc.....................
Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
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<PAGE>
Merrill Lynch California
Insured Municipal Bond Fund...
A portfolio of Merrill Lynch California Mu-
nicipal Series Trust, a series fund, whose
objective is to provide shareholders with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management through
investment in a portfolio consisting primar-
ily of insured California Municipal Bonds.
Merrill Lynch California
Limited Maturity Municipal
Bond Fund................ A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is to provide
shareholders with as high a level of income
exempt from Federal and California income
taxes as is consistent with prudent invest-
ment management through investment in a
portfolio primarily of intermediate-term in-
vestment grade California Municipal Bonds.
Merrill Lynch California
Municipal Bond Fund...........
A portfolio of Merrill Lynch California Mu-
nicipal Series Trust, a series fund, whose
objective is to provide investors with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management.
Merrill Lynch Capital Fund, The highest total investment return consis-
Inc........................... tent with prudent risk through a fully man-
aged investment policy utilizing equity,
debt and convertible securities.
Merrill Lynch Colorado
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Colorado income taxes
as is consistent with prudent investment
management.
Merrill Lynch Corporate Bond
Fund, Inc.....................
Current income from three separate diversi-
fied portfolios of fixed income securities.
Merrill Lynch Developing
Capital Markets Fund, Inc.....
Long-term appreciation through investment in
securities, principally equities, of issuers
in countries having smaller capital markets.
Merrill Lynch Dragon Fund, Capital appreciation primarily through in-
Inc........................... vestment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.
Merrill Lynch EuroFund.........
Capital appreciation primarily through in-
vestment in equity securities of corpora-
tions domiciled in Europe.
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<PAGE>
Merrill Lynch Federal
Securities Trust..............
High current return through investments in
U.S. Government and Government agency secu-
rities, including GNMA mortgage-backed cer-
tificates and other mortgage-backed Govern-
ment securities.
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is as high a
level of income exempt from Federal income
taxes as is consistent with prudent invest-
ment management while serving to offer
shareholders the opportunity to own securi-
ties exempt from Florida intangible personal
property taxes through investment in a port-
folio primarily of intermediate-term invest-
ment grade Florida Municipal Bonds.
Merrill Lynch Florida
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal income taxes as is consis-
tent with prudent investment management
while seeking to offer shareholders the op-
portunity to own securities exempt from
Florida intangible personal property taxes.
Merrill Lynch Fund For
Tomorrow, Inc.................
Long-term growth through investment in a
portfolio of good quality securities, pri-
marily common stock, potentially positioned
to benefit from demographic and cultural
changes as they affect consumer markets.
Merrill Lynch Fundamental
Growth Fund, Inc..............
Long-term growth through investment in a di-
versified portfolio of equity securities
placing particular emphasis on companies
that have exhibited above-average growth
rate in earnings.
Merrill Lynch Global
Allocation Fund, Inc..........
High total return consistent with prudent
risk, through a fully managed investment
policy utilizing U.S. and foreign equity,
debt and money market securities, the combi-
nation of which will be varied from time to
time both with respect to the types of secu-
rities and markets in response to changing
market and economic trends.
Merrill Lynch Global Bond Fund
for Investment and
Retirement....................
High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and multi-
national currency units.
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<PAGE>
Merrill Lynch Global
Convertible Fund, Inc.........
High total return from investment primarily
in an internationally diversified portfolio
of convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and war-
rants or options.
Merrill Lynch Global Resources
Trust....................
Long-term growth and protection of capital
from investment in securities of domestic
and foreign companies that possess substan-
tial natural resource assets.
Merrill Lynch Global Utility
Fund, Inc.....................
Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
which are primarily engaged in the ownership
or operation of facilities used to generate,
transmit or distribute electricity, telecom-
munications, gas or water.
Merrill Lynch Government Fund.. A portfolio of Merrill Lynch Funds for Insti-
tutions Series, a series fund, whose objec-
tive is to provide current income consistent
with liquidity and security of principal
from investment in securities issued or
guaranteed by the U.S. Government, its agen-
cies and instrumentalities and in repurchase
agreements secured by such obligations.
Merrill Lynch Growth Fund for
Investment and Retirement.....
Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal em-
phasis on those securities which management
of the fund believes to be undervalued.
Merrill Lynch Healthcare Fund,
Inc. (Residents of Wisconsin
must meet investor
suitability standards)........
Capital appreciation through worldwide in-
vestment in equity securities of companies
that derive or are expected to derive a sub-
stantial portion of their sales from prod-
ucts and services in healthcare.
Merrill Lynch Institutional A portfolio of Merrill Lynch Funds for Insti-
Fund.......................... tutions Series, a series fund, whose objec-
tive is to provide maximum current income
consistent with liquidity and the mainte-
nance of a high quality portfolio of money
market securities.
Merrill Lynch Institutional
Tax-Exempt Fund...............
A portfolio of Merrill Lynch Funds for Insti-
tutions Series, a series fund, whose objec-
tive is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from invest-
ing in a diversified portfolio of short-
term, high quality municipal bonds.
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<PAGE>
Merrill Lynch International
Equity Fund..............
Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
Merrill Lynch Latin America
Fund, Inc. ..............
Capital appreciation by investing primarily
in Latin American equity and debt securi-
ties.
Merrill Lynch Maryland
Municipal Bond Fund......
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Maryland income taxes
as is consistent with prudent investment
management.
Merrill Lynch Massachusetts
Limited Maturity Municipal
Bond Fund................
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is as high a
level of income exempt from Federal and Mas-
sachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of in-
termediate-term investment grade Massachu-
setts Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Massachusetts income
taxes as is consistent with prudent invest-
ment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is as high a
level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management through in-
vestment in a portfolio primarily of inter-
mediate-term investment grade Michigan Mu-
nicipal Bonds.
Merrill Lynch Michigan
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Michigan income taxes
as is consistent with prudent investment
management.
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<PAGE>
Merrill Lynch Minnesota
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Minnesota income taxes
as is consistent with prudent investment
management.
Merrill Lynch Municipal Bond
Fund, Inc................ Tax-exempt income from three separate diver-
sified portfolios of municipal bonds.
Merrill Lynch Municipal
Intermediate Term Fund...
Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal in-
come taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
Merrill Lynch New Jersey
Limited Maturity Municipal
Bond Fund................ A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is as high a
level of income exempt from Federal and New
Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term in-
vestment grade New Jersey Municipal Bonds.
Merrill Lynch New Jersey
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and New Jersey income
taxes as is consistent with prudent invest-
ment management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is as high a
level of income exempt from Federal, New
York State and New York City income taxes as
is consistent with prudent investment man-
agement through investment in a portfolio
primarily of intermediate-term investment
grade New York Municipal Bonds.
Merrill Lynch New York
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal, New York State and New
York City income taxes as is consistent with
prudent investment management.
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<PAGE>
Merrill Lynch North Carolina
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and North Carolina income
taxes as is consistent with prudent invest-
ment management.
Merrill Lynch Ohio Municipal
Bond Fund.....................
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Ohio income taxes as
is consistent with prudent investment man-
agement.
Merrill Lynch Oregon Municipal
Bond Fund................
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Oregon income taxes as
is consistent with prudent investment man-
agement.
Merrill Lynch Pacific Fund, Capital appreciation by investing in equity
Inc........................... securities of corporations domiciled in Far
Eastern and Western Pacific countries, in-
cluding Japan, Australia, Hong Kong, Singa-
pore and the Philippines.
Merrill Lynch Pennsylvania
Limited Maturity Municipal
Bond Fund................
A portfolio of Merrill Lynch Multi-State Lim-
ited Maturity Municipal Series Trust, a se-
ries fund, whose objective is to provide as
high a level of income exempt from Federal
and Pennsylvania income taxes as is consis-
tent with prudent investment management
through investment in a portfolio of inter-
mediate-term investment grade Pennsylvania
Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund...........
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal and Pennsylvania income
taxes as is consistent with prudent invest-
ment management.
Merrill Lynch Phoenix Fund, Long-term growth of capital by investing in
Inc........................... equity and fixed income securities, includ-
ing tax-exempt securities, of issuers in
weak financial condition or experiencing
poor operating results believed to be under-
valued relative to the current or prospec-
tive condition of such issuer.
Merrill Lynch Ready Assets Preservation of capital, liquidity and the
Trust......................... highest possible current income consistent
with the foregoing objectives from the
short-term money market securities in which
the Trust invests.
33
<PAGE>
Merrill Lynch Retirement
Reserves Money Fund
(available only if the
exchange occurs within
certain retirement plans).....
Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund,
whose objectives are current income, preser-
vation of capital and liquidity available
from investing in a diversified portfolio of
short-term money market securities.
Merrill Lynch Short-Term
Global Income Fund, Inc.......
As high a level of current income as is con-
sistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three
years.
Merrill Lynch Special Value
Fund, Inc.....................
Long-term growth of capital from investments
in securities, primarily common stocks, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.
Merrill Lynch Strategic
Dividend Fund.................
Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
Merrill Lynch Technology Fund,
Inc...........................
Capital appreciation through worldwide in-
vestment in equity securities of companies
that derive or are expected to derive a sub-
stantial portion of their sales from prod-
ucts and services in technology.
Merrill Lynch Texas Municipal
Bond Fund.....................
A portfolio of Merrill Lynch Multi-State Mu-
nicipal Series Trust, a series fund, whose
objective is as high a level of income ex-
empt from Federal income taxes as is consis-
tent with prudent investment management by
investing primarily in a portfolio of long-
term, investment grade obligations issued by
the State of Texas, its political subdivi-
sions, agencies and instrumentalities.
Merrill Lynch Treasury Fund.... A portfolio of Merrill Lynch Funds for Insti-
tutions Series, a series fund, whose objec-
tive is to provide current income consistent
with liquidity and security of principal
from investment in direct obligations of the
U.S. Treasury and up to 10% of its total as-
sets in repurchase agreements secured by
such obligations.
34
<PAGE>
Merrill Lynch U.S.A.
Government Reserves...........
Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and re-
purchase agreements relating to such securi-
ties.
Merrill Lynch U.S. Treasury
Money Fund....................
Preservation of capital, liquidity and cur-
rent income through investment exclusively
in a diversified portfolio of short-term
marketable securities which are direct obli-
gations of the U.S. Treasury.
Merrill Lynch Utility Income
Fund, Inc................
High current income through investment in eq-
uity and debt securities issued by companies
which are primarily engaged in the ownership
or operation of facilities used to generate,
transmit or distribute electricity, telecom-
munications, gas or water.
Merrill Lynch World Income
Fund, Inc.....................
High current income by investing in a global
portfolio of fixed income securities denomi-
nated in various currencies, including mul-
tinational currencies.
Before effecting an exchange, shareholders of the Company should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes and, depending on the circumstances, a short- or long-term
capital gain or loss may be realized. In addition, a shareholder exchanging
shares of any of the funds may be subject to a backup withholding tax unless
such shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct and that such
shareholder is not otherwise subject to backup withholding. See "Taxes" below.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Company of the exchange, or if
the exchange does not involve a money market fund, shareholders may write to
the transfer agent requesting that the exchange be effected. Such letter must
be signed exactly as the account is registered with signatures 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. Shareholders of the Company, and shareholders of the
other funds described above with shares for which certificates have not been
issued, may exercise the exchange privilege by wire through their securities
dealers. The 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
Company reserves the right to limit the number of times an investor may
exercise the exchange privilege. Certain funds may suspend the continuous
offering of their shares to the general public at any time and may thereafter
resume such offering from time to time. The exchange privilege is available
only to U.S. shareholders in states where the exchange legally may be made.
35
<PAGE>
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"). If 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 and Class B shareholders (together, the "shareholders"). The Company
intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income and distributions of
the Company's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from the Company's net realized long-term
capital gains (including long-term gains 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. 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). 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.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. 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. 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 between the Class A and
Class B shareholders according to a method (which it believes is consistent
with the Securities and Exchange Commission's exemptive order permitting the
issuance and sale of two classes of stock) that is based on the gross income
allocable to Class A and Class B 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 by the Company 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 and capital gain dividends and
on redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer
identification number is not on file with the 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
36
<PAGE>
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. 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.
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. For this purpose, the Company will allocate foreign taxes
and foreign source income between the Class A and Class B shareholders
according to a method similar to that described above for the allocation of
dividends eligible for the dividends received deduction.
If a Class A shareholder exercises the 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 the sales charge
paid to the Company reduces any sales charge the shareholder would have owed
upon purchase of the new Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A shares.
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 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 avoid 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.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company may write, purchase or sell options, futures or forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such options 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 non-equity option or a regulated futures contract for
a non-U.S. currency and the Company elects to have gain or loss in connection
with the contract 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. 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.
37
<PAGE>
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 transactions in options and futures contracts. Under
Section 1092, the Company may be required to postpone recognition for tax
purposes of losses incurred in certain closing transactions in options and
futures contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Company's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Company may be restricted in effecting closing transactions within three months
after entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the 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. The Company may
request a private letter ruling from the Internal Revenue Service on some or
all of these issues.
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 dividend distributions, and any
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's Company shares. 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 or administrative action
either prospectively or retroactively.
38
<PAGE>
Ordinary income dividends and capital gain dividends may also be subject to
state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the 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 annual total return is determined separately for Class A shares and
Class B shares in accordance with a formula specified by the Securities and
Exchange Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends 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 shares and the contingent deferred sales charge that would be
applicable to a complete redemption of the investment at the end of the
specified period in the case of Class B 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.
39
<PAGE>
Set forth below is annual total return information for the Class A and Class
B shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES*
------------------------------------- --------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE
PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
- ------------------------ ----------------- ------------------ ------------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended November
30, 1993............... 11.41% $1,114.10 13.87% $1,138.70
Five Years Ended Novem-
ber 30, 1993........... 8.36% $1,494.20 8.72% $1,518.70
Inception (July 2, 1984)
to November 30, 1993... 13.14% $3,199.40
October 21, 1988 to
November 30, 1993...... 8.87% $1,544.20
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30:
1993.................. 19.16 % $1,191.60 17.87 % $1,178.70
1992.................. 10.67 % $1,106.70 9.58 % $1,095.80
1991.................. 6.77 % $1,067.70 5.67 % $1,056.70
1990.................. (4.90)% $ 951.00 (5.88)% $ 941.20
1989.................. 19.36 % $1,193.60 18.22 % $1,182.20
1988.................. 17.59 % $1,175.90
1987.................. 0.67 % $1,006.70
1986.................. 33.34 % $1,333.40
1985.................. 31.69 % $1,316.90
July 2, 1984 to November
30, 1984............... 3.01 % $1,030.10
October 21, 1988 to No-
vember 30, 1988........ 1.68 % $1,016.80
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (July 2, 1984)
to
November 30, 1993...... 219.94% $3,199.40
October 21, 1988 to
November 30, 1993...... 54.42% $1,544.20
</TABLE>
- --------
*Information as to Class B shares is presented only for the period October 21,
1988 to November 30, 1993. Prior to October 21, 1988, no Class B shares were
publicly issued.
40
<PAGE>
In order to reflect the reduced sales charges, in the case of Class A shares,
or the waiver of the contingent deferred sales charge, in the case of Class B
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 reduced, and not the maximum, sales charge or may not take into account
the contingent deferred sales charge and therefore may reflect greater total
return since, due to the reduced sales charges or the waiver of sales charges,
a lower amount of expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated under Maryland law on March 7, 1984. It has an
authorized capital of 200,000,000 shares of Common Stock, par value of $0.10
per share, divided into two classes, designated Class A and Class B Common
Stock, each of which consists of 100,000,000 shares. Both Class A and Class B
Common Stock represent an interest in the same assets of the Company and are
identical in all respects except that the Class B shares bear certain expenses
related to the account maintenance and distribution of such shares and that
they have exclusive voting rights with respect to matters relating to such
account maintenance and distribution expenditures. The Company has received an
order from the Securities and Exchange Commission permitting the issuance and
sale of two classes of Common Stock. 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. The creation of additional classes would require
an additional order from the Securities and Exchange Commission. There is no
assurance that such an additional order would be issued.
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 or conversion rights. Redemption rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally in
dividends and distributions declared by the 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". 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
41
<PAGE>
which may invest within the United States as well as in other markets.
Management of the Company believes that the name "Merrill Lynch Global
Holdings" 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 and
Class B shares of the Company based on the value of the Company's net assets on
November 30, 1993 and its shares outstanding on that date is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------ -----------
<S> <C> <C>
Net Assets............................................ $256,202,562 $34,240,933
============ ===========
Number of Shares Outstanding.......................... 19,599,150 2,686,727
============ ===========
Net Asset Value Per Share (net assets divided by num-
ber of shares outstanding)........................... $ 13.07 $ 12.74
Sales Charge (for Class A shares: 6.50% of offering
price (6.95% of net amount invested*))............... $ 0.91 $ **
------------ -----------
Offering Price........................................ $ 13.98 $ 12.74
============ ===========
</TABLE>
- --------
*Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
**Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within four
years of purchase. See "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares" in the Prospectus and "Redemption of Shares--
Contingent Deferred Sales Charge--Class B Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche, 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 ratification by the shareholders 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, Chase MetroTech
Center, 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
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 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 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.
42
<PAGE>
LEGAL COUNSEL
Brown & Wood, 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 Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933, as amended, and
the Investment Company Act, to which reference is hereby made.
Categories in the Schedule of Investments contained in the Financial
Statements herein have been adopted by the Investment Adviser and are deemed
appropriate with respect to a specialized fund such as the Company.
To the knowledge of the Company, no person or entity owned beneficially 5% or
more of the Company's shares on March 18, 1994.
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Global Holdings
(formerly Merrill Lynch International Holdings, Inc.):
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Holdings as of November
30, 1993, 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, 1993 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 as of November 30, 1993, 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
Princeton, New Jersey
December 31, 1993
44
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
LATIN AMERICA
Argentina
Beverages & Tobacco 27,000 Buenos Aires Embotelladora S.A. (BAESA) (ADR)* $ 737,640 $ 945,000 0.3%
Electronics 30,000 Central Puerto (ADR)* 795,000 840,000 0.3
Energy 50,000 Yacimientos Petroliferos Fiscales S.A.--Sponsored
(ADR)* 950,000 1,237,500 0.4
Telecommunications 40,000 ++++Telecom Argentina Stet--France Telecom S.A.
(ADR)* (1) 1,400,296 1,870,000 0.7
Total Investments in Argentina 3,882,936 4,892,500 1.7
Brazil
Telecommunications 20,000,000 Telecommunicacoes Brasileiras S.A.--Telebras PN
(Preferred) 621,462 700,089 0.2
Total Investments in Brazil 621,462 700,089 0.2
Chile
Chemicals 45,000 Sociedad Quimica y Minera de Chile S.A. (B Shares)
(ADR)* 1,158,750 1,068,750 0.4
Metals 35,000 Madeco S.A. (ADR)* 525,000 748,125 0.2
Utilities 40,000 Enersis S.A. (ADR)* 779,762 785,000 0.3
Total Investments in Chile 2,463,512 2,601,875 0.9
Mexico
Banking
40,000 ++++Grupo Financiero Bancomer, S.A. de C.V. (ADR)* 1,100,000 1,410,000 0.5
Beverages & Tobacco 20,000 Coca-Cola Femsa S.A. (ADR)* 454,319 570,000 0.2
20,000 PanAmerican Beverages Inc. (Shares A) (ADR)* 525,114 727,500 0.2
------------ ------------ -----
979,433 1,297,500 0.4
Broadcasting &
Publishing 25,000 ++++Grupo Televisa, S.A. de C.V. (ADR)* 625,000 1,481,250 0.5
Industrial Components 40,000 Consorcio Grupo Dina, S.A. de C.V. (ADR)* 627,987 880,000 0.3
Merchandising 500,000 Cifra, S.A. de C.V. (Class 'C') 462,703 1,386,873 0.5
Multi-Industry 120,000 Grupo Carso, S.A. de C.V. 776,634 1,060,474 0.4
Steel 70,000 Grupo Simec, S.A. de C.V. (ADR)* 983,276 1,513,750 0.5
Telecommunications 20,000 Telefonos de Mexico, S.A. de C.V. (ADR)* 545,000 1,115,000 0.4
Total Investments in Mexico 6,100,033 10,144,847 3.5
Venezuela
Steel 100,000 ++++Siderurgica Venezolana SIVENSA, S.A.I.C.A.--
S.A.C.A. (Warrants) (ADR)* (a) 220,000 3,000 0.0
52,000 ++++Venezolana de Prerreducidos Caroni 'Venprecar'
C.A. (GDS)** 379,600 286,000 0.1
------------ ------------ -----
599,600 289,000 0.1
Total Investments in Venezuela 599,600 289,000 0.1
Total Investments in Latin America 13,667,543 18,628,311 6.4
</TABLE>
45
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
NORTH AMERICA
Canada
Appliances 160,000 International Semi-Tech Microelectronics, Inc.
(Installment Receipts) $ 984,765 $ 957,797 0.4%
Beverages & Tobacco 25,000 Cott Corp. 890,625 725,000 0.2
Electrical Equipment 150,000 CMAC Investment Corp. 996,330 954,056 0.3
Energy 40,000 Anderson Exploration, Ltd. 780,233 871,745 0.3
85,000 Enerflex Systems, Ltd. 809,153 898,402 0.3
700,000 Luscar Oil & Gas Ltd. 1,027,500 733,313 0.3
------------ ------------ -----
2,616,886 2,503,460 0.9
Food & Household
Products 160,000 CCL Industries 1,099,257 1,212,212 0.4
Forest Products 40,000 Slocan Forest Products, Ltd. 724,081 826,848 0.3
Oil-Field Equipment 60,000 Canadian Fracmaster, Ltd. 673,200 645,391 0.2
Total Investments in Canada 7,985,144 7,824,764 2.7
United States
Automobiles 30,000 Ford Motor Co. (8.40% Conv. Pfd.) 1,500,000 3,075,000 1.1
39,400 General Motors Corp. 1,477,263 2,083,275 0.7
------------ ------------ -----
2,977,263 5,158,275 1.8
Banking 35,000 Baybanks, Inc. 1,301,250 1,566,250 0.5
30,000 Chemical New York 817,500 1,155,000 0.4
25,000 Mercantile Bancorporation, Inc. 949,375 1,100,000 0.4
60,000 Midlantic National Bank 1,335,312 1,425,000 0.5
80,000 UJB Financial Corp. 1,602,623 1,930,000 0.7
------------ ------------ -----
6,006,060 7,176,250 2.5
Broadcasting & Publishing 50,000 Broadcasting Partners Inc. (Class A) 725,000 775,000 0.3
30,000 Clear Channel Communications Inc. 1,061,250 1,181,250 0.4
78,750 Infinity Broadcasting Co. (Class A) 671,250 1,988,437 0.7
100,000 Time Warner Inc. 2,832,157 4,412,500 1.5
------------ ------------ -----
5,289,657 8,357,187 2.9
Business Services 100,000 ++Beverly Enterprises 1,206,000 1,225,000 0.4
18,000 Microsoft Corp. 1,503,000 1,440,000 0.4
70,000 Molten Metal Technology, Inc. 1,208,113 1,697,500 0.6
60,000 Oracle Systems Corp. 956,438 1,890,000 0.7
60,000 ++PacifiCare Health Systems (Class 'B') 1,862,500 2,265,000 0.8
11,500 Purus Inc. 161,000 161,000 0.1
80,000 ++Sierra Health Services Inc. 1,341,201 1,280,000 0.4
22,400 United HealthCare Corp. 737,136 1,621,200 0.6
------------ ------------ -----
8,975,388 11,579,700 4.0
Computer Technology 40,000 Novell Inc. 1,253,000 930,000 0.4
Electrical Equipment 50,000 First Pacific Co. Ltd. 871,250 450,000 0.2
70,000 Ultratech Stepper Inc. 1,191,425 1,120,000 0.3
------------ ------------ -----
2,062,675 1,570,000 0.5
Electronics 25,000 Intel Corp. 590,937 1,531,250 0.5
85,000 LSI Logic Corp. 1,350,177 1,264,375 0.4
118,300 Logic Devices Inc. 660,046 561,925 0.2
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
20,000 Micron Technologies Inc. 1,010,926 925,000 0.3
10,000 Motorola, Inc. 866,290 937,500 0.3
20,000 Texas Instruments, Inc. 1,297,950 1,285,000 0.5
------------ ------------ -----
5,776,326 6,505,050 2.2
Energy 20,000 Anadarko Petroleum, Inc. 724,326 797,500 0.3
15,000 Chevron Corp. 1,323,615 1,303,125 0.4
30,000 Enron Oil & Gas Co. 924,528 1,158,750 0.4
------------ ------------ -----
2,972,469 3,259,375 1.1
Food & Household
Products 65,000 Performance Food Group Co. 1,010,421 1,283,750 0.4
Health & Personal Care 35,000 Marsam Pharmaceuticals Inc. 773,749 665,000 0.3
50,000 Maybelline Inc. 1,206,802 1,250,000 0.4
58,300 Nutramax Products, Inc. 786,433 655,875 0.2
31,800 Watson Pharmaceutical Inc. 922,200 914,250 0.3
------------ ------------ -----
3,689,184 3,485,125 1.2
Industrial--Other 50,000 Johnson Controls, Inc. 1,950,091 2,662,500 0.9
50,000 Varity Corp. 1,408,040 1,981,250 0.7
------------ ------------ -----
3,358,131 4,643,750 1.6
Insurance 100,000 AFLAC, Inc. 2,261,425 2,700,000 0.9
Leisure 40,000 McDonald's Corp. 1,807,400 2,345,000 0.8
175,000 Mirage Resorts, Inc. 2,647,000 3,850,000 1.3
25,000 Savoy Pictures Entertainment, Inc. 471,375 493,750 0.2
40,000 Walt Disney Co. 1,223,800 1,590,000 0.6
------------ ------------ -----
6,149,575 8,278,750 2.9
Merchandising 30,000 The Home Depot, Inc. 456,275 1,241,250 0.4
30,000 ++Toys 'R' Us, Inc. 750,858 1,222,500 0.4
40,000 Wal-Mart Stores, Inc. 658,900 1,145,000 0.4
------------ ------------ -----
1,866,033 3,608,750 1.2
Multi-Industry 67,900 Addington Resources, Inc. 1,003,379 1,171,275 0.4
30,000 Paramount Communications, Inc. 1,753,342 2,362,500 0.8
------------ ------------ -----
2,756,721 3,533,775 1.2
Oil Field Equipment 30,000 Schlumberger Ltd. 1,752,332 1,725,000 0.6
Railroads 30,000 CSX Corp. 1,993,665 2,490,000 0.9
20,000 Consolidated Rail Corp. 931,200 1,247,500 0.4
------------ ------------ -----
2,924,865 3,737,500 1.3
Recreation 129,000 Autotote Corp. (Class A) 1,161,000 2,580,000 0.9
25,000 Eastman Kodak Co. 1,346,412 1,521,875 0.5
35,000 Lodgenet Entertainment Corp. 555,143 507,500 0.2
50,000 Mikohn Gaming Corp. 738,125 737,500 0.3
$1,500,000 United Gaming Inc., 7.50% due 9/15/2003 1,500,000 1,545,000 0.5
37,000 WMS Industries, Inc. 1,033,358 1,193,250 0.4
------------ ------------ -----
6,334,038 8,085,125 2.8
Telecommunications 55,000 Newbridge Networks Corp. 855,730 2,695,000 0.9
20,200 Pacific Telesis Group 1,057,876 1,146,350 0.4
------------ ------------ -----
1,913,606 3,841,350 1.3
Textiles 25,000 Fruit of the Loom, Inc. 1,014,975 825,000 0.3
Total Investments in the United States 70,344,144 90,283,712 31.1
Total Investments in North America 78,329,288 98,108,476 33.8
</TABLE>
47
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
PACIFIC BASIN
Australia
Banking 120,000 Advance Bank Australia Ltd. $ 792,422 $ 772,406 0.3%
102,637 National Australia Bank, Ltd. 626,209 812,269 0.3
200,000 St. George Bank, Ltd. 873,812 965,508 0.3
------------ ------------ -----
2,292,443 2,550,183 0.9
Broadcasting &
Publishing 150,000 News Corp. Ltd. (Ord) 1,090,627 974,411 0.3
Industrial--Other 300,000 Orbital Engine Corp., Ltd. 628,403 441,206 0.2
Total Investments in Australia 4,011,473 3,965,800 1.4
Hong Kong
Broadcasting &
Publishing 1,500,000 Oriental Press Group 719,704 1,135,996 0.4
Construction
& Housing 2,000,000 Paul Y--ITC Construction Hldg. 734,890 653,764 0.2
Multi-Industry 500,000 Swire Pacific 'A' Ltd. 2,287,425 3,463,007 1.2
Real Estate 550,000 Sun Hung Kai Properties, Ltd. 2,426,166 3,417,697 1.2
Telecommunications 500,000 Hong Kong Telecommunications Ltd. 1,046,047 951,518 0.3
Utilities 960,000 China Light & Power Co., Ltd. 3,896,550 5,654,735 1.9
Total Investments in Hong Kong 11,110,782 15,276,717 5.2
Indonesia
Cement 200,000 P.T. Indocement Tunggal Prakar 1,423,188 1,569,112 0.5
Textiles 300,000 Indorama Synthetics (Foreign) 841,750 1,027,055 0.4
Total Investments in Indonesia 2,264,938 2,596,167 0.9
Japan
Appliances 80,000 Matsushita Electric Industrial Co. 1,006,889 999,632 0.4
80,000 Rinnai Corp. 1,452,936 2,102,168 0.7
------------ ------------ -----
2,459,825 3,101,800 1.1
Automobiles 30,000 Mabuchi Motor Co. 1,695,519 1,697,905 0.5
300,000 Toyota Motor Corp. 4,148,625 4,520,397 1.6
------------ ------------ -----
5,844,144 6,218,302 2.1
Banking 170,000 The Asahi Bank, Ltd. 1,779,958 1,686,880 0.6
100,000 The Bank of Tokyo, Ltd. 1,301,028 1,304,667 0.5
150,000 The Mitsubishi Bank, Ltd. 3,821,028 3,583,241 1.2
------------ ------------ -----
6,902,014 6,574,788 2.3
Broadcasting &
Publishing 300,000 Tokyo Broadcasting System 3,736,661 3,169,791 1.2
Business Services 140,000 Kamigumi Co., Ltd. 1,684,693 1,363,469 0.5
Construction &
Housing 80,000 Kandenko Co., Ltd. 2,143,145 1,661,154 0.5
120,000 National House Industries 1,925,973 2,205,072 0.8
160,000 Sekisui House Ltd. 1,954,055 1,837,560 0.6
104,000 Taisei Prefab Construction Co. 1,677,874 1,375,965 0.5
------------ ------------ -----
7,701,047 7,079,751 2.4
Electronics 20,000 Keyence Corp. 1,309,685 1,690,555 0.6
40,000 Murata Manufacturing Co., Ltd. 1,057,943 1,286,292 0.4
------------ ------------ -----
2,367,628 2,976,847 1.0
Financial Services 300,000 Daiwa Securities Co., Ltd. 3,725,815 3,142,227 1.1
100,000 Mitsubishi Trust & Banking Corp. 1,132,517 1,010,658 0.3
------------ ------------ -----
4,858,332 4,152,885 1.4
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Industrial--Other 100,000 Futaba Industrial 1,670,788 1,497,611 0.5
Machinery 150,000 Makino Milling Machine 1,086,861 689,085 0.2
Machinery & Equipment 55,000 Aichi Corp. 671,369 439,636 0.2
Merchandising 80,000 Besi Denki Co., Ltd. 844,756 999,632 0.3
60,000 Ito--Yokado Co., Ltd. 2,604,246 2,905,182 1.0
60,000 Keiyo Co., Ltd. 1,087,771 1,091,510 0.4
------------ ------------ -----
4,536,773 4,996,324 1.7
Real Estate 14,000 Cesar Co. 186,822 135,060 0.0
Recreation 50,000 Sony Music Entertainment (Japan) Inc. 2,277,144 2,081,036 0.7
Transportation--Freight 35,000 Aoyama Trading Co. 2,287,334 2,382,856 0.8
200,000 Mitsui & Co. 1,346,038 1,221,977 0.4
------------ ------------ -----
3,633,372 3,604,833 1.2
Utilities 150,000 Sumitomo Electric Industries, Ltd. 1,388,464 1,571,114 0.5
60,000 Tohoku Electric Power 1,442,569 1,631,753 0.6
50,000 Tokyo Electric Power Company, Inc. 1,346,483 1,346,013 0.5
------------ ------------ -----
4,177,516 4,548,880 1.6
Total Investments in Japan 53,794,989 52,630,098 18.1
Malaysia
Automobiles 146,000 Edaran Otomobil Nasional BHD 510,210 816,408 0.3
Banking 400,000 Commerce Asset-Holding BHD 755,787 1,266,961 0.4
Construction
& Housing 150,000 Ekran BHD 573,279 791,851 0.3
Electrical Equipment 250,000 Technology Resources Industries BHD 763,507 1,026,473 0.4
Miscellaneous 133,333 Commerce Asset Holdings (Rights) (b) -- -- --
Telecommunications 350,000 Telekom Malaysia BHD 1,489,928 2,627,771 0.9
Utilities 150,000 Tenaga Nasional BHD 571,393 961,952 0.3
Total Investments in Malaysia 4,664,104 7,491,416 2.6
Singapore
Air Transport 100,000 Singapore Airlines, Ltd. 383,769 693,837 0.2
Banking 149,500 The Development Bank of Singapore Ltd. 822,928 1,373,703 0.5
Machinery & Equipment 70,000 Jurong Shipyard, Ltd. 212,543 603,825 0.2
Shipping 200,000 Straits Steamship Land 449,139 437,555 0.2
Telecommunications 400,000 Singapore Telecommunications Ltd. 907,320 975,122 0.3
Total Investments in Singapore 2,775,699 4,084,042 1.4
South Korea
Aerospace 20,000 Samsung Aerospace Industries 821,485 841,688 0.3
Banking 75,640 Hanil Bank 1,123,122 954,980 0.3
Construction
& Housing 25,750 Hyundai Engineering and Construction Co. 539,284 742,635 0.3
Utilities 40,000 Korea Electric Power Co. 1,097,115 965,466 0.3
Total Investments in South Korea 3,581,006 3,504,769 1.2
Thailand
Banking 100,000 The Siam Commercial Bank Ltd. 297,564 727,201 0.3
Building Materials 30,000 Siam Cement Group 815,552 952,830 0.3
Total Investments in Thailand 1,113,116 1,680,031 0.6
Total Investments in the Pacific Basin 83,316,107 91,229,040 31.4
</TABLE>
49
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
WESTERN EUROPE
Belgium
Utilities 5,250 Electrabel NPV $ 912,538 $ 911,157 0.3%
Total Investments in Belgium 912,538 911,157 0.3
Denmark
Telecommunications 4,000 GN Store Nord Holding (GREAT NORDIC) 335,774 344,040 0.1
Total Investments in Denmark 335,774 344,040 0.1
Finland
Food & Household
Products 40,000 Huhtamaki Corp. 904,752 1,247,922 0.4
Total Investments in Finland 904,752 1,247,922 0.4
France
Broadcasting &
Publishing 5,000 Canal Plus 1,040,635 1,060,925 0.4
Business & Public
Services 4,000 Compagnie Generale des Eaux 1,466,359 1,756,805 0.6
4,000 Compagnie Generale des Eaux (Rights) (c) -- 139,412 0.0
------------ ------------ -----
1,466,359 1,896,217 0.6
Chemicals 37,000 Rhone-Poulenc S.A. 1,044,573 926,013 0.3
Total Investments in France 3,551,567 3,883,155 1.3
Germany
Banking 5,000 Commerzbank AG 781,228 1,045,068 0.4
2,000 Deutsche Bank AG 651,283 987,640 0.3
------------ ------------ -----
1,432,511 2,032,708 0.7
Health &
Personal Care 3,000 Wella AG (Preferred) 1,257,500 1,484,958 0.5
Merchandising 3,500 Hornbach AG (Preferred) 1,880,506 3,346,549 1.2
1,311 Hornbach Baumarkt AG 691,841 802,559 0.3
------------ ------------ -----
2,572,347 4,149,108 1.5
Steel 4,000 Friedrich Grohe (Preferred) 874,709 851,213 0.3
Total Investments in Germany 6,137,067 8,517,987 3.0
Italy
Merchandising 125,000 La Rinascente RISP 285,348 320,550 0.1
Telecommunications 300,000 SIP Italia (Ordinary) 280,800 540,984 0.2
300,000 SIP Italia (Savings) 490,473 461,944 0.2
------------ ------------ -----
771,273 1,002,928 0.4
Textiles 30,000 Fila Holdings S.p.A. (ADR)* 540,000 450,000 0.1
Total Investments in Italy 1,596,621 1,773,478 0.6
Netherlands
Banking 26,000 ABN Amro Bank N.V. 770,721 944,028 0.3
Beverages & Tobacco 15,000 Heineken N.V. 1,523,893 1,558,989 0.5
Broadcasting &
Publishing 20,000 Wolters Kluwer CVA 739,262 1,098,627 0.4
Construction
& Housing 30,000 IHC Calland N.V. 626,864 617,978 0.2
Food & Household
Products 35,000 Kon Bols Wessanen 798,182 737,360 0.3
Total Investments in the Netherlands 4,458,922 4,956,982 1.7
Norway
Miscellaneous 20,000 Orkla A S-Frie A-Aksjer 571,454 708,050 0.2
Total Investments in Norway 571,454 708,050 0.2
Spain
Banking 9,700 Argentaria Corp. Bancaria de Espana 312,293 413,835 0.1
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C>
Business Services 88,000 Acesa Auto Pistas Cesa 1,013,923 858,948 0.3
84,000 Aumar-Autopistas Del Mare Nostrum S.A. 1,031,558 945,127 0.3
------------ ------------ -----
2,045,481 1,804,075 0.6
Utilities 57,000 Empresa Nacional de Electricidad S.A. 1,997,214 2,589,622 0.9
300,000 Iberdola I S.A. 1,977,383 1,944,346 0.7
------------ ------------ -----
3,974,597 4,533,968 1.6
Total Investments in Spain 6,332,371 6,751,878 2.3
Sweden
Health &
Personal Care 170,000 Astra 'B' Fria 2,861,783 3,295,002 1.1
Merchandising 15,000 Hennes & Mauritz 409,324 429,012 0.2
Total Investments in Sweden 3,271,107 3,724,014 1.3
Switzerland
Banking 4,000 Swiss Bank Corp. (Bearer) 849,733 1,280,000 0.4
Food & Household
Products 1,100 Nestle AG 439,670 849,933 0.3
Health &
Personal Care 361 Roche Holding AG 262,397 1,447,610 0.5
Insurance 2,000 Swiss Reinsurance Co. (PC) 725,688 972,000 0.3
750 Zurich Insurance Co. 707,642 714,000 0.3
------------ ------------ -----
1,433,330 1,686,000 0.6
Recreation 1,500 Societe de Microelectronique et Horlogerie (S.M.H.)
AG (Bearer) 247,411 1,040,000 0.4
7,500 Societe de Microelectronique et Horlogerie (S.M.H.)
AG (Registered) 255,866 1,150,000 0.4
------------ ------------ -----
503,277 2,190,000 0.8
Total Investments in Switzerland 3,488,407 7,453,543 2.6
United Kingdom
Banking 330,000 Bank of Scotland 953,045 948,136 0.3
300,000 National Westminster Bank PLC 1,836,513 2,474,751 0.9
------------ ------------ -----
2,789,558 3,422,887 1.2
Building Materials
& Components 500,000 Spring Ram Corp. PLC 1,450,088 362,845 0.1
Business & Public
Services 125,000 Carlton Communications PLC (Ordinary) 1,292,970 1,538,389 0.5
Energy Sources 450,000 British Petroleum Co. PLC 2,236,817 2,222,611 0.8
150,000 Lasmo PLC (Ordinary) 356,108 246,587 0.1
------------ ------------ -----
2,592,925 2,469,198 0.9
Food & Household
Products 200,000 Cadbury Schweppes PLC 1,741,253 1,378,811 0.5
Industrial--Other 350,000 Tomkins PLC 1,275,666 1,207,756 0.4
Merchandising 100,102 Boots Co. PLC 721,992 798,332 0.3
125,714 Kingfisher PLC 1,115,090 1,284,659 0.4
160,000 Lloyds Chemists PLC 679,285 748,794 0.2
275,000 Next PLC 783,755 806,404 0.3
125,000 Sainsbury (J.) PLC 1,027,202 749,756 0.3
------------ ------------ -----
4,327,324 4,387,945 1.5
Multi-Industry 150,000 Siebe PLC 1,033,849 1,271,809 0.4
Telecommunications 480,000 British Telecommunications PLC (Ordinary) 2,920,756 3,348,245 1.2
Total Investments in the United Kingdom 19,424,389 19,387,885 6.7
Total Investments in Western Europe 50,984,969 59,660,091 20.5
</TABLE>
51
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
NORTH AMERICA
United States
Commercial Paper*** $ 6,863,000 Associates Corp. of North America, 3.25%
due 12/01/1993 $ 6,863,000 $ 6,863,000 2.4%
10,000,000 Matterhorn Capital Corp., 3.07% due 12/09/1993 9,993,178 9,993,178 3.4
------------ ------------ -----
16,856,178 16,856,178 5.8
US Government &
Agency Obligations 6,000,000 Federal Home Loan Bank, 3.17% due 1/12/1994 5,977,810 5,977,810 2.1
Total Investments in Short-Term Securities 22,833,988 22,833,988 7.9
Total Investments $249,131,895 290,459,906 100.0
============
Liabilities in Excess of Other Assets (16,411) (0.0)
------------ -----
Net Assets $290,443,495 100.0%
============ =====
<FN>
(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 certain conditions until the expiration date.
(b)The rights may be exercised until October 7, 1993.
(c)The rights may be exercised until December 20, 1993.
*American Depositary Receipts (ADR).
**Global Depositary Shares (GDS).
***Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the fund.
++Non-income producing security.
++++Restricted securities as to resale. The value of the Company's investment
in restricted securities was approximately $5,050,000, representing 1.7% of net assets.
<CAPTION>
Value
Issue Acquisition Date Cost (Note 1a)
<S> <C> <C> <C>
Grupo Financiero Bancomer, S.A. de C.V. (ADR) 3/16/92 $1,100,000 $1,410,000
Grupo Televisa, S.A. de C.V. (ADR) 12/01/91 625,000 1,481,250
Siderurgica Venezolana SIVENSA, S.A.I.C.A.--S.A.C.A. (Warrants) (ADR) 2/13/92 220,000 3,000
Telecom Argentina Stet--France Telecom S.A. (ADR) 3/23/92-11/12/92 1,400,296 1,870,000
Venezolana de Prerreducidos Caroni 'Venprecar' C.A. (GDS) 2/13/92 379,600 286,000
Total $3,724,896 $5,050,250
========== ==========
See Notes to Financial Statements.
</TABLE>
52
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of November 30, 1993
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$249,131,895) (Note 1a) $290,459,906
Receivables:
Capital shares sold $1,136,657
Dividends 583,193
Securities sold 495,763
Interest 22,060 2,237,673
----------
Prepaid registration fees and other assets (Note 1f) 19,130
------------
Total assets 292,716,709
------------
Liabilities: Payables:
Securities purchased 1,068,125
Capital shares redeemed 642,520
Investment adviser (Note 2) 257,806
Distributor (Note 2) 30,290 1,998,741
----------
Accrued expenses and other liabilities 274,473
------------
Total liabilities 2,273,214
------------
Net Assets: Net assets $290,443,495
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 1,959,915
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 268,673
Paid-in capital in excess of par 230,529,893
Undistributed investment income--net 475,574
Undistributed realized capital gains on investments and foreign currency
transactions--net 15,899,412
Unrealized appreciation on investments and foreign currency transactions--net 41,310,028
------------
Net assets $290,443,495
============
Net Asset Class A Shares--Based on net assets of $256,202,562 and 19,599,150 shares outstanding $ 13.07
Value: ============
Class B Shares--Based on net assets of $34,240,933 and 2,686,727 shares outstanding $ 12.74
============
See Notes to Financial Statements.
</TABLE>
53
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended November 30, 1993
<S> <S> <C> <C>
Investment Dividends (net of $322,029 foreign withholding tax) $ 3,631,130
Income Interest and discount earned 446,714
(Notes 1d & 1e): ------------
Total income 4,077,844
------------
Expenses: Investment advisory fees (Note 2) 2,329,402
Transfer agent fees--Class A (Note 2) 335,413
Distribution fees--Class B (Note 2) 256,934
Custodian fees 170,652
Printing and shareholder reports 163,899
Accounting services 111,045
Professional fees 69,564
Registration fees (Note 1f) 56,001
Transfer agent fees--Class B (Note 2) 48,018
Directors' fees and expenses 31,432
Pricing fees 14,029
Amortization of organization expenses (Note 1f) 9,794
Other 6,087
------------
Total expenses 3,602,270
------------
Investment income--net 475,574
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 20,344,160
(Loss) on Foreign currency transactions (1,238,452) 19,105,708
Investments and ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 18,292,715
(Notes 1b, 1e & 3): Foreign currency transactions (4,823) 18,287,892
------------ ------------
Net realized and unrealized gain on investments and foreign currency
transactions 37,393,600
------------
Net Increase in Net Assets Resulting from Operations $ 37,869,174
============
See Notes to Financial Statements.
</TABLE>
54
<PAGE>
<TABLE>
STATEMENTS OF CHANGES OF NET ASSETS
<CAPTION>
For the Year Ended November 30,
Increase (Decrease) in Net Assets: 1993 1992
<S> <S> <C> <C>
Operations: Investment income--net $ 475,574 $ 1,329,944
Realized gain on investments and foreign currency transactions--net 19,105,708 8,677,477
Change in unrealized appreciation on investments and foreign currency
transactions--net 18,287,892 9,675,317
------------ ------------
Net increase in net assets resulting from operations 37,869,174 19,682,738
------------ ------------
Dividends & Investment income--net:
Distributions to Class A -- (1,459,188)
Shareholders Class B -- (2,875)
(Note 1g): Realized gain on investments--net:
Class A (11,512,553) (3,337,192)
Class B (1,598,607) (509,713)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (13,111,160) (5,308,968)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions transactions 75,813,575 (15,149,240)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 100,571,589 (775,470)
Beginning of year 189,871,906 190,647,376
------------ ------------
End of year* $290,443,495 $189,871,906
============ ============
<FN>
*Undistributed investment income--net (Note 1h) $ 475,574 $ (1,566,434)
============ ============
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
------------------------------------------------------------------
For the For the
The following per share data and ratios have been derived For the Year Ended Seven-Month Year Ended
from information provided in the financial statements. November 30, Period Ended April 30,
------------------------------ Nov. 30, -------------------
Increase (Decrease) in Net Asset Value: 1993++++ 1992++++ 1991 1990 1990 1989
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.78 $ 10.95 $ 10.48 $ 10.91 $ 11.79 $ 12.23
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net (1) .04 .10 .16 .17 .20 .29
Realized and unrealized gain (loss) on
investments and foreign currency trans-
actions--net (1) 2.07 1.05 .53 (.30) .62 .88
-------- -------- -------- -------- -------- --------
Total from investment operations 2.11 1.15 .69 (.13) .82 1.17
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.10) (.21) (.13) (.21) (.34)
Realized gain on investments--net (.82) (.22) (.01) (.17) (1.49) (1.27)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.82) (.32) (.22) (.30) (1.70) (1.61)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91 $ 11.79
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 19.16% 10.67% 6.77% (1.45%)+++ 6.93% 10.99%
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.43% 1.49% 1.48% 1.59%* 1.49% 1.47%
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net .32% (.19%) 1.31% 2.63%* 1.65% 2.04%
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $256,203 $166,947 $165,687 $176,898 $187,843 $195,932
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 56.98% 65.93% 63.94% 34.44% 84.21% 102.77%
======== ======== ======== ======== ======== ========
<CAPTION>
Class B
--------------------------------------------------------------------
For the For the For the
The following per share data and ratios have been derived For the Year Ended Seven-Month Year Period
from information provided in the financial statements. November 30, Period Ended Ended Oct.21,1988++
------------------------------ Nov. 30, April 30, to April 30,
Increase (Decrease) in Net Asset Value: 1993++++ 1992++++ 1991 1990 1990 1989
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74 $ 11.29
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (1) (.08) (.03) .04 .10 .16 .06
Realized and unrealized gain (loss) on
investments and foreign currency trans-
actions--net (1) 2.02 1.05 .54 (.30) .55 .93
-------- -------- -------- -------- -------- --------
Total from investment operations 1.94 1.02 .58 (.20) .71 .99
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- --+++++ (.11) (.09) (.14) (.15)
Realized gain on investments--net (.82) (.22) (.01) (.17) (1.49) (.39)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.82) (.22) (.12) (.26) (1.63) (.54)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 17.87% 9.58% 5.67% (2.08%)+++ 5.91% 9.10%+++
Return:** ======== ======== ======== ======== ======== ========
</TABLE>
56
<PAGE>
<TABLE>
<S> <S> <C> <C> <C> <C> <C> <C>
Ratios to Average Expenses, excluding distribution fees 1.46% 1.52% 1.51% 1.63%* 1.53% 1.50%*
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 2.46% 2.52% 2.51% 2.63%* 2.53% 2.50%*
======== ======== ======== ======== ======== ========
Investment income (loss)--net (.72%) (1.19%) .25% 1.54%* .65% .10%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 34,241 $ 22,925 $ 24,960 $ 22,623 $ 16,342 $ 1,476
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 56.98% 65.93% 63.94% 34.44% 84.21% 102.77%
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns excludes the effects of sales loads.
(1)Foreign currency transaction amounts have been reclassified to conform to 1993 presentation.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++Amount less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch International Holdings, Inc. is now doing business
under the name Merrill Lynch Global Holdings. Merrill Lynch
Global Holdings (the "Company") is registered under the
Investment Company Act of 1940 as a diversified, open-end
investment management company. The Company offers both Class A
and Class B Shares. Class A Shares are sold with a front-end sales
charge. Class B Shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B Shares bear certain expenses related to the
distribution of such shares and have exclusive voting rights with
respect to matters relating to such 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. In cases where securities
are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of
Directors as the primary market. Securities traded in the over-the-
counter market are valued at the last available bid price in the
over-the-counter market prior to the time of valuation. Options
written by the Company are valued at the last asked price in the case
of exchange-traded options or in the case of options traded in the
over-the-counter market, the average of the last asked price as
obtained from one or more dealers. Options purchased by the
Company are valued at the last bid price in the case of exchange-
traded options or, in the case of options traded in the over-the-
counter market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in
which case that dealer's price is used. Securities with sixty
days or less to maturity are valued at amortized cost, which
approximates market. 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.
(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) such transactions expressed in
foreign currencies into US dollars. Realized and unrealized gains
or losses from investments include the effects of foreign
exchange rates on investments. 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 opera-
tions is recorded from the date the Company enters into such contracts.
Premium or discount is amortized over the life of the contracts.
(c) Options--The Company can write covered call options and
purchase put options. When the Company writes an option, an
amount equal to the 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
value of the option written.
57
<PAGE>
When a security is sold through an exercise of an option,
the related premium received (or paid) is deducted from
(or added to) the basis 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 transactions exceeds the premium paid
or received). Written and purchased options are non-income
producing investments.
(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 date, except that if the ex-dividend date has
passed, certain dividends from foreign securities are recorded as
soon as the Company is informed of 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) Deferred organization expenses and prepaid registration
fees--Costs related to the organization of the second class of
shares are charged to expense over a five-year period. Prepaid
registration fees are charged to expense as the related shares
are issued.
(g) Dividends and distributions--Dividends and distributions paid
by the Company are recorded on the ex-dividend dates.
(h) Reclassifications--Certain 1992 amounts have been
reclassified to conform to the 1993 presentation. Accumulated
Investment loss-net, in the amount of $1,566,434, has been
reclassified to paid-in capital and undistributed realized gains,
as appropriate.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement
with Merrill Lynch Asset Management ("MLAM"). MLAM is the name
under which Merrill Lynch Investment Management, Inc.
As authorized by the Plan, the Distributor has entered into an
agreement with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
an affiliate of MLIM, which provides for the compensation of MLPF&S
for providing distribution-related services to the Company. For
the year ended November 30, 1993, MLFD earned $256,934 under the
Plan, all of which was paid to MLPF&S pursuant to the agreement.
For the year ended November 30, 1993, MLFD earned underwriting
discounts of $7,191, and MLPF&S earned dealer concessions of
$118,953 on the sale of the Company's Class A Shares. MLPF&S also
received contingent deferred sales charges of $33,249 relating to
transactions in Class B Shares and $32,094 in commissions on the
execution of portfolio security transactions for the Company
during the year.
Financial Data Services, Inc. ("FDS"), a wholly owned subsidiary
of Merrill Lynch & Co., Inc., 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 MLIM, NCM, LOIPM (including their affiliated companies),
MLPF&S, FDS, MLFD, and/or Merrill Lynch & Co., Inc.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended November 30, 1993 were
$187,497,303 and $127,140,501, respectively.
Net realized and unrealized gains (losses) as of November 30,
1993 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $20,344,160 $41,328,011
Put options purchased (935,607) --
Foreign currency transactions (302,845) (17,983)
----------- -----------
Total $19,105,708 $41,310,028
=========== ===========
As of November 30, 1993, net unrealized appreciation for Federal
income tax purposes aggregated $41,328,011, of which $51,388,872
related to appreciated securities and $10,060,861 related to
depreciated securities. The aggregate cost of investments at
November 30, 1993 for Federal income tax purposes was
$249,131,895.
58
<PAGE>
("MLIM") does business. MLIM is an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. Pursuant to the Agreement, MLAM will be
responsible for the Company's portfolio and will provide, or
arrange for affiliates to provide, the administrative services
necessary for the operation of the Company.
Effective January 1, 1994, the investment advisory business of
MLAM was reorganized from a corporation to a limited partnership.
The general partner of MLAM is Princeton Services, Inc., an
indirect wholly-owned subsidiary of Merrill Lynch & Co.
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. MLAM has entered
into Investment Research Agreements with Lombard Odier Global Port-
folio Management Limited ("LOIPM") and Nomura Capital Manage-
ment, Inc. ("NCM") pursuant to which LOIPM and NCM furnish MLAM
with economic research, securities analysis and investment
recommendations and review and render investment research with
respect to the portfolio of the Company. Pursuant to their
respective Investment Research Agreements, the Investment Adviser
pays LOIPM and NCM fees at the annual rates of 0.15% and 0.20%,
respectively, of the average daily net assets of the Company.
Certain states in which shares of the Company are qualified for
sale impose limitations on the expenses of the Company. The most
restrictive annual expense limitation requires that the
Investment Adviser reimburse the Company to the extent that
expenses (excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed 2.5% of the
Company's first $30 million of average daily net assets, 2.0% of
the Company's next $70 million of average daily net assets, and
1.5% of the daily net assets in excess thereof. In the event
reimbursement is required pursuant to such limitations, MLAM will
be responsible for the amounts required to be reimbursed, but the
fees paid to LOIPM and NCM will be reduced pro rata. No fee
payment will be made to the Investment Adviser during any fiscal
year which will cause such expenses to exceed the most
restrictive expense limitation at the time of such payment. For
the year ended November 30, 1993, investment advisory fees were
$2,329,402, of which $1,514,112 was paid to MLAM, $349,410 was
paid to LOIPM and $465,880 was paid to NCM under the terms of
their respective research agreements.
The Company has adopted a Plan of Distribution (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940
pursuant to which Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of MLIM, receives a fee from
the Company for the sale of Class B Shares at the end of each month
at the annual rate of 1.0% of the average daily net assets
attributable to Class B Shares of the Company to compensate the
Distributor for services provided and the expenses borne by it under
the Plan.
59
<PAGE>
Transactions in put options purchased for the year ended November
30, 1993 were as follows:
Premiums
Par Value Paid
Outstanding put options purchased at
beginning of year -- --
Options purchased $78,263,602 $ 2,074,513
Options expired (49,187,998) (1,302,352)
Options closed (29,075,604) (772,161)
----------- -----------
Outstanding put options purchased at end
of year -- --
=========== ===========
4. Capital Stock Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $75,813,575 and $15,149,240 for the year ended
November 30, 1993 and November 30, 1992, respectively.
Transactions in capital shares for Class A and Class B Shares
were as follows:
Class A Shares for the Year Ended Dollar
November 30, 1993 Shares Amount
Shares sold 9,166,536 112,504,555
Shares issued to shareholders in reinvest-
ment of distributions 900,399 9,949,408
----------- -----------
Total issued 10,066,935 122,453,963
Shares redeemed (4,639,892) (55,755,689)
----------- -----------
Net increase 5,427,043 $66,698,274
=========== ===========
Class A Shares for the Year Ended Dollar
November 30, 1992 Shares Amount
Shares sold 2,220,109 27,778,220
Shares issued to shareholders in reinvest-
ment of dividends and distributions 363,981 4,062,931
----------- -----------
Total issued 2,584,090 31,841,151
Shares redeemed (3,549,718) (43,173,181)
----------- -----------
Net decrease (965,628) $(11,332,030)
=========== ===========
Class B Shares for the Year Ended Dollar
November 30, 1993 Shares Amount
Shares sold 1,235,408 $15,456,464
Shares issued to shareholders in reinvest-
ment of distributions 126,908 1,380,757
----------- -----------
Total issued 1,362,316 16,837,221
Shares redeemed (649,303) (7,721,920)
----------- -----------
Net increase 713,013 $ 9,115,301
=========== ===========
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Ended Dollar
November 30, 1992 Shares Amount
Shares sold 526,670 $ 6,357,123
Shares issued to shareholders in reinvest-
ment of dividends and distributions 40,389 442,762
----------- -----------
Total issued 567,059 6,799,885
Shares redeemed (901,191) (10,617,095)
----------- -----------
Net decrease (334,132) $(3,817,210)
=========== ===========
5. Subsequent Event:
On December 15, 1993, the Board of Directors declared an ordinary
income dividend in the amount of $0.371217 per Class A Share and
$0.219221 per Class B Share, and a capital gains distribution of
$0.442875 per Class A Share and Class B Share, payable on
December 22, 1993 to shareholders of record as of December 14,
1993.
61
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Hedging Techniques........................................................ 2
Investment Restrictions................................................... 7
Management of the Company.................................................. 10
Directors and Officers.................................................... 10
Advisory and Management
Arrangements............................................................. 11
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 18
Portfolio Transactions and Brokerage....................................... 20
Determination of Net Asset Value........................................... 22
Shareholder Services....................................................... 23
Taxes...................................................................... 36
Performance Data........................................................... 39
General Information........................................................ 41
Description of Shares..................................................... 41
Computation of Offering Price Per Share................................... 42
Independent Auditors...................................................... 42
Custodian................................................................. 42
Transfer Agent............................................................ 42
Legal Counsel............................................................. 43
Reports to Shareholders................................................... 43
Additional Information.................................................... 43
Independent Auditors' Report............................................... 44
Financial Statements....................................................... 45
</TABLE>
Code #10245
Statement of Additional Information
[ART]
- -------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL HOLDINGS
March 30, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for the fiscal years ended November 30, 1993,
1992, and 1991, the seven month period ended November 30, 1990, each
of the fiscal years in the five year period ended April 30, 1990 and
the period July 2, 1984 (commencement of operations) to April 30,
1985.
Contained in Part B:
Schedule of Investments, November 30, 1993.
Statement of Assets and Liabilities, November 30, 1993.
Statement of Operations for the fiscal year ended November 30, 1993.
Statements of Changes in Net Assets for the fiscal years ended
November 30, 1993, and 1992.
Financial Highlights for the fiscal years ended November 30, 1993,
1992, and 1991, the seven month period ended November 30, 1990, and
each of the fiscal years in the two year period ended April 30,
1990, and 1989.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Articles of Incorporation of Registrant, as amended.(a)
(b) --Articles of Amendment to Articles of Incorporation of Registrant.(c)
2 --By-Laws of Registrant.(c)
3 --None.
4 --Copies of instruments defining the rights of shareholders, including
the relevant portions of the Articles of Incorporation, as amended,
and By-Laws of Registrant.(f)
5(a) --Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, Inc.(e)
(b) --Investment Research Agreement between Merrill Lynch Asset
Management, Inc. and Lombard Odier International Portfolio Management
Limited.(e)
(c) --Investment Research Agreement between Merrill Lynch Asset
Management, Inc. and Nomura Capital Management, Inc., including Sub-
Research Agreement between Nomura Capital Management, Inc. and Nomura
Investment Management Co., Ltd.(e)
6(a) --Class A Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a)
(b) --Class B Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(c)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Advisor Program.
7 --None.
8 --Custody Agreement between Registrant and The Chase Manhattan Bank,
N.A.(a)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill Lynch
Financial Data Service, Inc. (now known as Financial Data Services,
Inc.)(b)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15 --Amended and Restated Class B Distribution Plan of the Registrant and
Distribution Plan Sub-Agreement.
16(a) --Schedule for computation of each performance quotation for Class A
shares provided in the Registration Statement in response to Item
22.(c)
(b) --Schedule of computation of each performance quotation for Class B
shares provided in the Registration Statement in response to Item
22.(d)
</TABLE>
- --------
(a) Filed on April 20, 1984 as an Exhibit to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement under the Securities Act of 1933.
(b) Filed on August 29, 1988 as an Exhibit to Post-Effective Amendment No. 5 to
Registrant's Registration Statement under the Securities Act of 1933.
(c) Filed on October 21, 1988 as an Exhibit to Post-Effective Amendment No. 6
to Registrant's Registration Statement under the Securities Act of 1933.
(d) Filed on August 28, 1989 as an Exhibit to Post-Effective Amendment No. 7 to
Registrant's Registration Statement under the Securities Act of 1933.
(e) Filed on July 2, 1990 as an Exhibit to Post-Effective Amendment No. 8 to
Registrant's Registration Statement under the Securities Act of 1933.
(f) Reference is made to Article III (Sections 3 and 4), Article VI (Sections
2, 3 and 5), Article VII, Article VIII and Article X of the Registrant's
Articles of Incorporation, as amended, filed as Exhibit (1)(a) to the
Registrant's Registration Statement; amended and restated Article V
contained in the Articles of Amendment filed as Exhibit (1)(b) to the
Registrant's Registration Statement; and Article II, Article III (Sections
1, 2, 3, 5, 6 and 17), Article V (Section 7), Article VI, Article VII,
Article XII, Article XIII, and Article XIV of the Registrant's By-Laws
previously filed as Exhibit (2) to the Registrant's Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
FEBRUARY 28,
TITLE OF CLASS 1994
- -------------- ----------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share...... 1,658
Shares of Class B Common Stock, par value $0.10 per share...... 191
</TABLE>
C-2
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
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 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; or (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or
purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A and B Distribution Agreements relating to the
securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933, as amended (the "Act"), against certain
types of civil liabilities arising in connection with the Registration
Statement or Prospectus and Statement of Additional Information.
C-3
<PAGE>
Insofar as indemnification for liabilities arising under the 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer or controlling
person of the Registrant and the principal underwriter in 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 Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
(a) Merrill Lynch Investment Management, L.P., doing business as Merrill
Lynch Asset Management (the "Investment Adviser"), acts as investment adviser
for the following registered investment companies: Convertible Holdings, Inc.,
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Balanced Fund for Investment and Retirement,
Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets
Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and
Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income
Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Senior Floating Rate
Fund. Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following registered investment
companies: Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging
Tigers Fund, Inc., Financial Institutions Series Trust, Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal
Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund,
Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured
Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured
C-4
<PAGE>
Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II,
Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide
DollarVest Fund, Inc. The address of each of these investment companies is Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Institutional
Intermediate Fund is One Financial Center, 15th Floor, Boston, Massachusetts
02111-2646. The address of the Investment Adviser and FAM is also Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.")
is World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281.
Set forth below is a list of each executive officer and director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since
December 1, 1991 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is
Treasurer and Mr. Glenn is Executive Vice President of substantially all of the
investment companies described in the preceding paragraph, and Messrs. Durnin,
Giordano, Harvey, Kirstein and Monagle are directors, trustees or officers of
one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH THE PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
---- -------------------- ---------------------------
<S> <C> <C>
ML & Co. ............... Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc........ Limited Partner Investment Advisory Services; Limited
Partner of FAM
Princeton Services, Inc.
("Princeton Services"). General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President and Director
of Princeton Services; Director of
Merrill Lynch Funds Distributor, Inc.
("MLFD"); Executive Vice President of
ML & Co.; Executive Vice President of
Merrill Lynch
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of Financial
Data Services, Inc. ("FDS"); President
of Princeton Administrators
Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- -------------------- ----------------------------------
<S> <C> <C>
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel
President, and Secretary of FAM; Senior Vice
General Counsel and President, General Counsel, Director
Secretary and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President
of Princeton Services
Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Vice President of MLFD; Senior Vice
President of Princeton Services
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of Princeton
Services
</TABLE>
(b) Lombard Odier International Portfolio Management Limited ("LOIPM")
manages investment portfolios for institutional clients on a worldwide basis.
LOIPM acts as an investment adviser or sub-adviser to the following registered
investment companies: American Capital Global Equity Fund; American Capital
Global Government Securities Fund; Blanchard Short-Term Global Income Fund;
Merrill Lynch International Holdings, Inc.; World Wide Value Fund Inc. The
principal address of LOIPM is Norfolk House, 13 Southampton Place, London WC1A
2AJ, England.
C-6
<PAGE>
Set forth below is a list of the principal officers and directors of LOIPM
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since December 1, 1991, for
his own account or in the capacity of director, officer, employee, partner or
trustee.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH LOIPM PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------- ----------------------------------
<S> <C> <C>
Pierre Bernard Alfred
Keller................. President and Managing Partner, Lombard, Odier & Cie
Chairman ("Lombard")
Ken Mathysen-Gerst...... Vice Chairman Managing Partner, Lombard
Robert H.C. van
Maasdijk............... Managing Director and None
Senior Investment
Manager
Paul Andrew Abberley.... Director and Senior None
Investment Manager
Ronal Armist............ Director and Senior None
Investment Manager
Larry W. Harris III..... Director and Senior None
Investment Manager
Rhodri Mark Lloyd-Price. Director and Senior None
Investment Manager
Philippe A. Sarasin..... Director Managing Partner, Lombard
Lawrence Chui........... Director and Senior None
Investment Manager
Thomas J. Berger........ Director and Senior None
Investment Manager
William Bridges......... Director None
Sir David Henry Thoroton
Hildyard............... Director Self-employed; Director of Newfield Farm
(Screveton) Limited
Patrick Odier........... Director Managing Partner, Lombard
Willem A.H. Balje....... Director Director and Investment Manager of
Lombard Odier Asset Management
(Nederland) N.V.
John Alexander Bowes.... Director of Marketing None
Jean-Claude Ramel....... Secretary and None
Treasurer
</TABLE>
(c) Nomura Capital Management, Inc. ("NCM") provides investment advisory
services both to U.S. and foreign clients. NCM acts as an investment adviser or
sub-adviser to Merrill Lynch Global Holdings and Nomura Pacific Basin Fund,
Inc., registered open-end investment companies and Japan OTC Equity Fund, Inc.,
Jakarta Growth Fund, Inc. and Korea Equity Fund, Inc., registered closed-end
investment companies. The principal address of NCM is 180 Maiden Lane, New
York, New York 10038.
C-7
<PAGE>
Set forth below is a list of each executive officer and director of NCM
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since December 1, 1991 for
his own account or in the capacity of director, officer, employee, partner or
trustee.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH NCM PROFESSION, VOCATION OR EMPLOYMENT
---- ----------------- ----------------------------------
<S> <C> <C>
Takeo Nakamura.......... President and Managing Director of Nomura Investment
Director Management Co., Ltd. ("NIMCO") since
1992, Director from 1989 to 1992.
John F. Wallace......... Senior Vice Senior Vice President of Nomura
President, Securities International, Inc. ("NSI")
Treasurer, Secretary since 1978, Secretary from 1977 to 1991
and Director and Director from 1983 to 1991.
Brian X. Fitzgibbon..... Senior Vice President None.
and Director
Masahiko Nemoto......... Director Executive Managing Director of NIMCO
since 1990, Director of Nomura Capital
Management (U.K.) Limited ("NCM-U.K.")
since 1985, Director of Nomura Capital
Management (Singapore) Ltd. ("NCM-
Singapore") since 1988.
Harunobu Aono........... Director Managing Director of NIMCO since 1989,
Director of NCM-U.K. since 1990,
Director of NCM-Singapore since 1988.
Nobuyuki Kishi.......... Director Managing Director of NIMCO since 1992,
Director from 1989 to 1992, Director of
NCM-U.K. since 1992, Director of NCM-
Singapore since 1992.
Marti G. Subrahmanyam... Director Charles E. Merrill Professor of Finance
and Economics, Stern School of
Business, New York University since
1990.
Haruo Sawada............ Senior Vice President Deputy General Manager of NIMCO since
1990.
Mitsutoyo Kohno......... Senior Vice President Deputy General Manager of NIMCO since
1991.
Milton J. Ezrati........ Senior Vice President None.
</TABLE>
(d) NIMCO provides investment advisory services to Japanese and international
clients. NIMCO is a subadviser to Merrill Lynch Global Holdings and Nomura
Pacific Basin Fund, Inc., registered open-end investment companies and Japan
OTC Equity Fund, Inc., Jakarta Growth Fund, Inc., and Korea Equity Fund, Inc.,
registered closed-end investment companies. The principal address of NIMCO is
1-12-11, Nihonbashi, Chuo-ku, Tokyo 103, Japan.
C-8
<PAGE>
Set forth below is a list of the principal officers and directors of NIMCO
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since December 1, 1991 for
his own account or in the capacity of director, officer, employee, partner or
trustee.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH NIMCO PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------- ----------------------------------
<S> <C> <C>
Masaaki Kurokawa........ President None
Nobumitsu Kagami........ Executive Vice Chairman of the Board of NCM from 1989 to
President 1992; Chairman of the Board of Nomura
Capital Management (U.K.) Limited ("NCM-
U.K.") and Chairman of the Board of
Nomura Capital Management (Singapore)
Ltd. ("NCM-Singapore") from 1990 to
1992.
Masahiko Nemoto......... Executive Managing Director of NCM since 1984; Director of
Director NCM-U.K. since 1985; Director of NCM-
Singapore since 1988.
Sengo Mizutani.......... Executive Managing None
Director
Naoki Santo............. Managing Director None
Harunobu Aono........... Managing Director Director of NCM-Singapore since 1988;
Director of NCM since 1990; Director of
NCM-U.K. since 1990.
Yasuhiro Tsuji.......... Managing Director None
Yoichiro Noda........... Managing Director None
Iwao Komatsu............ Managing Director Managing Director of NCM-U.K. from 1989
to 1993; Director of NCM-Singapore since
1988.
Yutaka Inui............. Managing Director Director of The Nomura Securities Co.,
Ltd. from 1988 to 1991.
Tadaaki Fujiwara........ Managing Director None
Nobuyuki Kishi.......... Managing Director Director of NCM, NCM-U.K. and
NCM-Singapore since 1992.
Takeo Nakamura.......... Managing Director President and Director of NCM since 1984.
Sadaomi Morikawa........ Managing Director None
Shinzo Katada........... Managing Director Director of Nomura from 1988 to 1993.
Tadashi Akimoto ........ Director Department Manager of NIMCO from 1992 to
1993; Department Manager of Nomura from
1988 to 1992.
Yoshimitsu Matsuki...... Director Department Manager of NIMCO from 1989 to
1993.
Takoshi Kusano.......... Director Managing Director of NCM-U.K. since 1993.
Department Manager of NIMCO from 1989 to
1993.
Nobuo Katayama.......... Director Department Manager of NIMCO from 1990 to
1993.
</TABLE>
C-9
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the investment companies referred to in the first paragraph of Item 28 except
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation
Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona
Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured
Fund, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield
Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., Senior High Income Portfolio II, Inc., Taurus MuniCalifornia Holdings,
Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(3)
(2) POSITION(S) AND
(1) POSITION(S) AND OFFICE(S) OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- ---------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Arthur Zeikel........... Director President and Director
Philip L. Kirstein...... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Sharon Creveling........ Vice President and Assistant Treasurer None
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Stanley Graczyk......... Vice President None
Michelle T. Lau......... Vice President None
Debra W. Landsman-Yaros. Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Richard L. Rufener...... Vice President None
Salvatore Venezia....... Vice President None
William Wasel........... Assistant Vice President None
Robert Harris........... Secretary Secretary
</TABLE>
(c) Not applicable.
C-10
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and Financial Data Services, Inc., 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Company--
Advisory and Management Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Company--Advisory and
Management Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, Registrant is not a party to
any management related service contract.
ITEM 32. UNDERTAKINGS.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's annual report to shareholders, upon
request and without charge.
C-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS POST-EFFECTIVE
AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND THE
STATE OF NEW JERSEY, ON THE 28TH DAY OF MARCH 1994.
Merrill Lynch International Holdings,
Inc.
(Registrant)
/s/ Arthur Zeikel
By___________________________________
(Arthur Zeikel, President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur Zeikel President and Director March 28, 1994
- ------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
Gerald M. Richard* Treasurer (Principal March 28, 1994
- ------------------------------------ Financial and Accounting
(Gerald M. Richard) Officer)
Donald Cecil* Director March 28, 1994
- ------------------------------------
(Donald Cecil)
Ken E. Mathysen-Gerst* Director March 28, 1994
- ------------------------------------
(Ken E. Mathysen-Gerst)
Edward H. Meyer* Director March 28, 1994
- ------------------------------------
(Edward H. Meyer)
Charles C. Reilly* Director March 28, 1994
- ------------------------------------
(Charles C. Reilly)
John F. Wallace* Director March 28, 1994
- ------------------------------------
(John F. Wallace)
Richard R. West* Director March 28, 1994
- ------------------------------------
(Richard R. West)
</TABLE>
/s/ Arthur Zeikel March 28, 1994
*By____________________________
(Arthur Zeikel, Attorney-
in-Fact)
C-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1(a) --Articles of Incorporation of Registrant, as amended.(a)
(b) --Articles of Amendment to Articles of Incorporation of
Registrant.(c)
2 --By-Laws of Registrant.(c)
3 --None.
4 --Copies of instruments defining the rights of shareholders,
including the relevant portions of the Articles of
Incorporation, as amended, and By-Laws of Registrant.(f)
5(a) --Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, Inc.(e)
(b) --Investment Research Agreement between Merrill Lynch Asset
Management, Inc. and Lombard Odier International Portfolio
Management Limited.(e)
(c) --Investment Research Agreement between Merrill Lynch Asset
Management, Inc. and Nomura Capital Management, Inc.,
including Sub-Research Agreement between Nomura Capital
Management, Inc. and Nomura Investment Management Co.,
Ltd.(e)
6(a) --Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(a)
(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.(c)
(c) --Letter Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. with respect to the Merrill Lynch
Mutual Fund Advisor Program.
7 --None.
8 --Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill
Lynch Financial Data Service, Inc. (now known as Financial
Data Services, Inc.)(b)
10 --Opinion of Brown & Wood, counsel for Registrant.
11 --Consent of Deloitte & Touche, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15 --Amended and Restated Class B Distribution Plan of the
Registrant and Distribution Plan Sub-Agreement.
16(a) --Schedule for computation of each performance quotation for
Class A shares provided in the Registration Statement in
response to Item 22.(c)
(b) --Schedule of computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.(d)
</TABLE>
- --------
(a) Filed on April 20, 1984 as an Exhibit to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement under the Securities Act of 1933.
(b) Filed on August 29, 1988 as an Exhibit to Post-Effective Amendment No. 5 to
Registrant's Registration Statement under the Securities Act of 1933.
(c) Filed on October 21, 1988 as an Exhibit to Post-Effective Amendment No. 6
to Registrant's Registration Statement under the Securities Act of 1933.
<PAGE>
(d) Filed on August 28, 1989 as an Exhibit to Post-Effective Amendment No. 7 to
Registrant's Registration Statement under the Securities Act of 1933.
(e) Filed on July 2, 1990 as an Exhibit to Post-Effective Amendment No. 8 to
Registrant's Registration Statement under the Securities Act of 1933.
(f) Reference is made to Article III (Sections 3 and 4), Article VI (Sections
2, 3 and 5), Article VII, Article VIII and Article X of the Registrant's
Articles of Incorporation, as amended, filed as Exhibit (1)(a) to the
Registrant's Registration Statement; amended and restated Article V
contained in the Articles of Amendment filed as Exhibit (1)(b) to the
Registrant's Registration Statement; and Article II, Article III (Sections
1, 2, 3, 5, 6 and 17), Article V (Section 7), Article VI, Article VII,
Article XII, Article XIII, and Article XIV of the Registrant's By-Laws
previously filed as Exhibit (2) to the Registrant's Registration Statement.
<PAGE>
FOR INTERNATIONAL HOLDINGS
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T,the following table presents fair
and accurate narrative descriptions of graphic and image material omitted from
this EDGAR Submission File due to ASCII-incompatibility and cross-references
this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
---------------------- -------------------
Collage of drawings of several
well-known landmarks from around
the world.............................. Back cover of Prospectus and
back cover of Statement of
Additional Information
<PAGE>
EXHIBIT 99.6(C)
September 15, 1993
Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011
Each of the undersigned open-end investment companies (the "Funds") has
entered into a Distribution Agreement with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). Under the terms of such agreements, the Distributor is
authorized to offer shares of each Fund and to purchase, as principal, such
number of shares from each of the Funds as are needed to fill unconditional
orders for shares of such Fund placed with the Distributor by investors or by
securities dealers.
This letter confirms the agreement by each Fund with the Distributor that,
in connection with the Merrill Lynch Mutual Fund Adviser program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are also authorized
<PAGE>
to offer and sell shares of such Fund, as agent for the Fund, to participants in
such program. This letter further confirms that the terms of the Distribution
Agreement between each Fund and the Distributor shall apply to such sales,
including terms as to the offering price of shares, the proceeds to be paid to
each Fund, the duties of the Distributor, the payment of expenses and
indemnification obligations of each Fund and the Distributor.
If the foregoing is consistent with your understanding of our agreement,
please sign and return one copy of the enclosed agreement.
Very truly yours,
The Investment Companies listed
on Schedule A hereto
By: /s/ Terry K. Glenn
-------------------------
Authorized Signatory
Accepted as of the date
set forth above
Merrill Lynch Funds Distributor, Inc.
By: /s/ Gerald M. Richard
-------------------------------
Authorized Signatory
2
<PAGE>
The Declaration of Trust establishing each investment company listed on
Schedule A hereto which has been organized as a Massachusetts trust (each, a
"Fund"), a copy of which, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name of the Fund refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
the Fund estate only shall be liable.
3
<PAGE>
SCHEDULE A
----------
EQUITY FUNDS:
Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
Merrill Lynch Utility Income Fund, Inc.
FIXED INCOME FUNDS:
Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.
TAX-EXEMPT FIXED INCOME FUNDS:
Merrill Lynch Arizona Municipal Bond Fund
Merrill Lynch California Municipal Bond Fund
Merrill Lynch California Insured Municipal Bond Fund
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch Massachusetts Municipal Bond Fund
Merrill Lynch Michigan Municipal Bond Fund
Merrill Lynch Minnesota Municipal Bond Fund
Merrill Lynch Municipal Bond Fund, Inc.
A-1
<PAGE>
Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund
INSTITUTIONAL MONEY MARKET FUNDS:
Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
A-2
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
March 28, 1994
Merrill Lynch International Holdings, Inc.
Box 9011
Princeton, NJ 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by Merrill
Lynch International Holdings, Inc. (d/b/a Merrill Lynch Global Holdings), a
Maryland corporation (the "Company"), of 5,309,389 shares of common stock, par
value $0.10 per share (the "Shares"), under the Securities Act of 1933 pursuant
to a registration statement on Form N-1A (File No. 2-89834), as amended (the
"Registration Statement").
As counsel for the Company, we are familiar with the proceedings 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 Company, as amended, the By-Laws of the Company and such other documents
as we have deemed relevant to the matters referred to in this opinion.
<PAGE>
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale 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 Company.
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 prospectus and
statement of additional information constituting parts thereof.
Very truly yours,
/s/ Brown & Wood
2
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Holdings
(formerly Merrill Lynch International Holdings, Inc.):
We consent to the use in Post-Effective Amendment No. 12 to Registration
Statement No. 2-89834 of our report dated December 31, 1993 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche
Princeton, New Jersey
March 28, 1994
<PAGE>
EXHIBIT 99.15
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH INTERNATIONAL HOLDINGS, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 3rd day of October 1988, and amended and
restated as of July 7, 1993, by and between Merrill Lynch International
Holdings, Inc., a Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
--------------------
WHEREAS, the Fund engages in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers;
WHEREAS, the Fund has entered into a Class B Shares Distribution Agreement
with MLFD, pursuant to which MLFD acts as the exclusive distributor and
representative of the Fund in the offer and sale of Class B shares (the "Class B
shares") of the Fund to the public;
WHEREAS, the Fund has entered into a Class B Distribution Plan (the "Prior
Plan") pursuant to Rule 12b-1 under the Investment Company Act; and
WHEREAS, the Fund desires to adopt this Amended and Restated Class B
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee and
a distribution fee to MLFD with respect to the Fund's Class B shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
<PAGE>
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements pursuant to Paragraph 3 hereof ("Sub-
Agreements") for account maintenance activities with respect to Class B
shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end of
each month at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class B shares to compensate MLFD and securities firms with which
MLFD enters into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will relate to the sale,
promotion and marketing of the Class B shares of the Fund. Such expenditures
may consist of sales commissions to financial consultants for selling Class B
shares of the Fund, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Fund
and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the above-
mentioned activities and services. Such Sub-Agreement shall provide that the
Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
5. The Prior Plan has been approved by a vote of at least a majority, as
defined in the Investment Company Act, of the outstanding Class B voting
securities of the Fund. The Plan has
2
<PAGE>
not been submitted to the Class B shareholders because the amendments do not
materially increase the rate of payments by the Fund provided for in the Prior
Plan.
6. The Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of payments
provided for herein unless such amendment is approved by at least a majority, as
defined in the Investment Company Act, of the outstanding Class B voting
securities of the Fund, and by the Directors of the Fund in the manner provided
for in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 4 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.
MERRILL LYNCH INTERNATIONAL HOLDINGS, INC.
By /s/ Arthur Zeikel
----------------------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
----------------------------------------
Title: President
4
<PAGE>
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 7th day of July 1993, by and between Merrill Lynch
Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Securities
Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
International Holdings, Inc., a Maryland corporation (the "Fund"), pursuant to
which it acts as the exclusive distributor for the sale of Class B shares (the
"Class B shares"), of the Fund;
WHEREAS, MLFD and the Fund have entered into an Amended and Restated Class
B Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class B shares for account maintenance
activities related to Class B shares of the Fund and a distribution fee from the
Fund at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class B shares for providing sales and promotional activities and
services related to the distribution of Class B shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities with
respect to the Class B shares of the Fund of the types referred to in Paragraph
1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class B shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end
<PAGE>
of each calendar month in an amount agreed upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
-----------------------------------
Title: President
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Arthur Zeikel
-----------------------------------
Title: Executive Vice President
2
