<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
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 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 15 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 16 /X/
(Check appropriate box or boxes)
---------------------
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL HOLDINGS, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE COMPANY:
MERRILL LYNCH ASSET MANAGEMENT BROWN & WOOD
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
ATTENTION: THOMAS R. SMITH, JR., ESQ.
FRANK P. BRUNO, ESQ.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX):
/X/ Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
---------------------
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 23, 1996.
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------
Shares of Common Stock (par value
$.10 per share).................. 6,512,087 $14.17 $289,989 $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 11,656,846 shares of Common Stock.
(3) 5,165,224 of the shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(e) under the Investment Company Act
of 1940 in previous filings during Registrant's current fiscal year.
(4) 6,491,622 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH GLOBAL HOLDINGS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<S> <C> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fee Table
Item 3. Condensed Financial Information....... Financial Highlights; Performance Data
Item 4. General Description of Registrant..... Investment Objective and Policies;
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 of Fund
Performance......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Cover Page; Additional Information
Item 7. Purchase of Securities Being
Offered............................. Cover Page; Fee Table; Merrill Lynch
Select PricingSM System; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase.............. Fee Table; Merrill Lynch Select
PricingSM System; Shareholder
Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... General Information
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Company
Item 15. Control Persons and Principal Holders
of Securities....................... Management of the Company
Item 16. Investment Advisory and Other
Services............................ Management of the Company; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; 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
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
MARCH 29, 1996
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company 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. For more
information on the Company's investment objectives and policies, please see
"Investment Objective and Policies" on page 13.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 4.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers 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 $100, and the minimum subsequent purchase is $1. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through 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 29, 1996 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is available, without charge, by calling or by writing the
Company at the above telephone number or address. The 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> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ------------------------------------- ------------------ -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................ 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments.................. None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............ None(d) 4.0% during the first year, 1.0% for one year None(d)
decreasing 1.0% annually thereafter
to 0.0% after the fourth year
Exchange Fee..................... None None None None
ANNUAL COMPANY OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS):
Investment Advisory Fees(e)...... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(f):
Account Maintenance Fees....... None 0.25% 0.25% 0.25%
Distribution Fees.............. None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after
approximately eight years and cease
being subject to distribution fees)
Other Expenses:
Custodial Fees................. 0.10% 0.10% 0.10% 0.10%
Shareholder Servicing
Costs(g)..................... 0.24% 0.28% 0.28% 0.24%
Other.......................... 0.17% 0.17% 0.17% 0.17%
----- ----- ----- -----
Total Other Expenses......... 0.51% 0.55% 0.55% 0.51%
----- ----- ----- -----
TOTAL COMPANY OPERATING EXPENSES... 1.51% 2.55% 2.55% 1.76%
===== ===== ===== =====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 26.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 28.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A or Class D purchases of $1,000,000 or more are not subject
to an initial sales charge. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 26.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year of purchase.
(e) See "Management of the Company -- Advisory and Management
Arrangements" -- page 23.
(f) See "Purchase of Shares -- Distribution Plans" -- page 32.
(g) See "Management of the Company -- Transfer Agency Services" -- page 24.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
EXAMPLE:
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Company Operating Expenses for each class set forth above,
(2) a 5% annual return throughout the periods and (3)
redemption at the end of the period:
Class A................................................... $67 $ 98 $131 $223
Class B................................................... $66 $ 99 $136 $270*
Class C................................................... $36 $ 79 $136 $289
Class D................................................... $69 $105 $143 $249
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A................................................... $67 $ 98 $131 $223
Class B................................................... $26 $ 79 $136 $270*
Class C................................................... $26 $ 79 $136 $289
Class D................................................... $69 $105 $143 $249
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Company will bear directly or
indirectly. THE EXAMPLE SET FORTH ABOVE ASSUMES REINVESTMENT OF ALL DIVIDENDS
AND DISTRIBUTIONS AND UTILIZES A 5% ANNUAL RATE OF RETURN AS MANDATED BY THE
COMMISSION REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE
EXAMPLE. Class B and Class C shareholders who hold their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$4.85) for confirming purchases and repurchases. Purchases and redemptions
directly through the Company's transfer agent are not subject to the processing
fee. See "Purchase of Shares" and "Redemption of Shares".
3
<PAGE> 6
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM which utilize the Merrill Lynch Select
Pricing(SM) System are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C or Class D share of the Company represents
an identical interest in the investment portfolio of the Company and has the
same rights, except that Class B, Class C and Class D shares bear the expenses
of the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges, distribution and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, are imposed directly against those classes
and not against all assets of the Company and, accordingly, such charges do not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Company for each
class of shares are calculated in the same manner at the same time and will
differ only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Company. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
4
<PAGE> 7
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is the most beneficial under his particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares".
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- --------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(4)
- --------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- --------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Company are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the
Company in a shareholder account are entitled to purchase additional
Class A shares of the Company in that account. Other eligible
investors include certain retirement plans and participants in certain
investment programs. In addition, Class A shares will be offered to
Merrill Lynch & Co., Inc. ("ML & Co.")and its subsidiaries (the term
"subsidiaries" when used herein with respect to ML & Co. includes
MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.) and to their directors and employees
and to members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 5.25%, which is reduced for purchases of
$25,000 and over, and waived for purchases of Class A shares by
certain retirement plans in connection with certain investment
programs. Purchases of $1,000,000 or more may not be subject
5
<PAGE> 8
to an initial sales charge, but if the initial sales charge is waived,
such purchases will be subject to a 1% CDSC if the shares are redeemed
within one year after purchase. Sales charges are also reduced under a
right of accumulation which takes into account the investor's holdings
of all classes of all MLAM-advised mutual funds. See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Company's average net
assets attributable to the Class B shares, and a CDSC if they are
redeemed within four years of purchase. Approximately eight years
after issuance, Class B shares will convert automatically into Class D
shares of the Company, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Company are exchanged for Class B shares of another
MLAM-advised mutual fund, the conversion period applicable to the
Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period
for the shares acquired. Automatic conversion of Class B shares into
Class D shares will occur at least once a month on the basis of the
relative net asset values of the shares of the two classes on the
conversion date, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class D shares will not
be deemed a purchase or sale of the shares for Federal income tax
purposes. Shares purchased through reinvestment of dividends on Class
B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are modified as
described under "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B
Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Company's average net
assets attributable to the Class C shares. Class C shares are also
subject to a CDSC if they are redeemed within one year of purchase.
Although Class C shares are subject to a 1.0% CDSC for only one year
(as compared to four years for Class B), Class C shares have no
conversion feature and, accordingly, an investor that purchases Class
C shares will be subject to distribution fees that will be imposed on
Class C shares for an indefinite period subject to annual approval by
the Company's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived,
such purchase will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for the Class D shares is the same as the
schedule for Class A shares, except that there is no waiver for
purchases by retirement plans in connection with certain investment
programs. Class D shares also will be issued upon conversion of Class
B shares as described above under "Class B". See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares".
6
<PAGE> 9
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have lower
total returns than the initial sales charge shares. The ongoing Class D account
maintenance fees will cause Class D shares to have a higher expense ratio, pay
lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Company after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forgo the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Company by
Deloitte & Touche LLP, independent auditors. Financial statements for the fiscal
year ended November 30, 1995, 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-MONTH
PERIOD
FOR THE YEAR ENDED NOVEMBER 30, ENDED
-------------------------------------------------------- NOV. 30,
1995++ 1994++ 1993++ 1992++ 1991 1990
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91
-------- -------- -------- -------- -------- --------
Investment income -- net............ .05 .03 .04 .10 .16 .17
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net...... 1.52 .53 2.07 1.05 .53 (.30)
-------- -------- -------- -------- -------- --------
Total from investment operations.... 1.57 .56 2.11 1.15 .69 (.13)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net.......... (.01) (.01) -- (.10) (.21) (.13)
Realized gain on
investments -- net.............. (.51) (.80) (.82) (.22) (.01) (.17)
-------- -------- -------- -------- -------- --------
Total dividends and distributions... (.52) (.81) (.82) (.32) (.22) (.30)
-------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................. 12.92% 4.39% 19.16% 10.67% 6.77% (1.45)%#
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses............................ 1.51% 1.44% 1.43% 1.49% 1.48% 1.59%*
======== ======== ======== ======== ======== ========
Investment income (loss) -- net..... .41% .23% .32% (.19)% 1.31% 2.63%*
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)........................ $327,270 $330,132 $256,203 $166,947 $165,687 $176,898
======== ======== ======== ======== ======== ========
Portfolio turnover.................. 44.64% 40.18% 56.98% 65.93% 63.94% 34.44%
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
FOR THE YEAR ENDED APRIL 30,
-----------------------------------------------
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 11.79 $ 12.23 $ 16.90 $ 14.73
-------- -------- -------- --------
Investment income -- net.................................. .20 .29 .43 .25
Realized and unrealized gain (loss) on investments
and foreign currency transactions -- net................ .62 .88 (1.09) 3.49
-------- -------- -------- --------
Total from investment operations.......................... .82 1.17 (.66) 3.74
-------- -------- -------- --------
Less dividends and distributions:
Investment income -- net................................ (.21) (.34) (.37) (.30)
Realized gain on investments -- net..................... (1.49) (1.27) (3.64) (1.27)
-------- -------- -------- --------
Total dividends and distributions......................... (1.70) (1.61) (4.01) (1.57)
-------- -------- -------- --------
Net asset value, end of period............................ $ 10.91 $ 11.79 $ 12.23 $ 16.90
======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........................ 6.93% 10.99% (4.43)% 28.50%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................. 1.49% 1.47% 1.31% 1.41%
======== ======== ======== ========
Investment income (loss) -- net........................... 1.65% 2.04% 2.90% 1.78%
======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).................. $187,843 $195,932 $249,736 $356,964
======== ======== ======== ========
Portfolio turnover........................................ 84.21% 102.77% 109.68% 88.54%
======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
9
<PAGE> 12
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------
FOR THE
FOR THE PERIOD
SEVEN-MONTH FOR THE OCT. 21,
FOR THE YEAR ENDED NOVEMBER 30, PERIOD ENDED YEAR ENDED 1988+ TO
-------------------------------------------------- NOV. 30, APRIL 30, APRIL 30,
1995++ 1994++ 1993++ 1992++ 1991 1990 1990 1989
------- -------- ------- ------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74 $ 11.29
------- ------- ------- ------- ------- -------- -------- -------
Investment income (loss) -- net..... (.08) (.10) (.08) (.03) .04 .10 .16 .06
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net...... 1.47 .52 2.02 1.05 .54 (.30) .55 .93
------- ------- ------- ------- ------- -------- -------- -------
Total from investment operations.... 1.39 .42 1.94 1.02 .58 (.20) .71 .99
------- ------- ------- ------- ------- -------- -------- -------
Less dividends and distributions:
Investment income -- net.......... -- -- -- -- (.11) (.09) (.14) (.15)
Realized gain on
investments -- net.............. (.51) (.66) (.82) (.22) (.01) (.17) (1.49) (.39)
------- ------- ------- ------- ------- -------- -------- -------
Total dividends and distributions... (.51) (.66) (.82) (.22) (.12) (.26) (1.63) (.54)
------- ------- ------- ------- ------- -------- -------- -------
Net asset value, end of period...... $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74
======= ======= ======= ======= ======= ======== ======== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share............................. 11.78% 3.32% 17.87% 9.58% 5.67% (2.08)%# 5.91% 9.10%#
======= ======= ======= ======= ======= ======== ======== =======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account
maintenance and distribution
fees.............................. 1.55% 1.48% 1.46% 1.52% 1.51% 1.63%* 1.53% 1.50%*
======= ======= ======= ======= ======= ======== ======== =======
Expenses............................ 2.55% 2.48% 2.46% 2.52% 2.51% 2.63%* 2.53% 2.50%*
======= ======= ======= ======= ======= ======== ======== =======
Investment income (loss) -- net..... (.63)% (.80)% (.72)% (1.19)% .25% 1.54%* .65% .10%*
======= ======= ======= ======= ======= ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).................... $44,387 $49,647 $34,241 $22,925 $24,960 $22,623 $16,342 $1,476
======= ======= ======= ======= ======= ======= ======= ======
Portfolio turnover.................. 44.64% 40.18% 56.98% 65.93% 63.94% 34.44% 84.21% 102.77%
======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
10
<PAGE> 13
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C CLASS D
-------------------------------- ----------------------------------
FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD
YEAR ENDED OCT. 21, 1994+ TO YEAR ENDED OCT. 21, 1994+ TO
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1995++ 1994++ 1995++ 1994++
---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $12.51 $13.08 $12.81 $13.39
------ ------ ------ ------
Investment (loss) -- net................. (.08) (.02) .02 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net.................... 1.46 (.55) 1.52 (.57)
------ ------ ------ ------
Total from investment operations......... 1.38 (.57) 1.54 (.58)
------ ------ ------ ------
Less dividends and distributions:
Investment income -- net............... -- -- (.00)+++ --
Realized gain on investments -- net.... (.51) -- (.51) --
------ ------ ------ ------
Total dividends and distributions........ (.51) -- (.51) --
------ ------ ------ ------
Net asset value, end of period........... $13.38 $12.51 $13.84 $12.81
====== ====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share....... 11.69% (4.36)%# 12.73% (4.33)%#
====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance
and/or distribution fees............... 1.55% 2.00%* 1.51% 1.98%*
====== ====== ====== ======
Expenses................................. 2.55% 3.00%* 1.76% 2.23%*
====== ====== ====== ======
Investment income (loss) -- net.......... (.63)% (1.31)%* .18% (.67)%*
====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................. $ 376 $ 177 $3,459 $1,591
====== ====== ====== ======
Portfolio turnover....................... 44.64% 40.18% 44.64% 40.18%
====== ====== ====== ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
11
<PAGE> 14
INTERNATIONAL DIVERSIFICATION
The Company, utilizing the combined purchasing power of its shareholders'
funds, provides the investor with the opportunity to participate with a minimum
investment of $1,000 ($100 for retirement plans) in a diversified portfolio of
securities in foreign markets which typically would require substantially larger
commitments. The Investment Adviser believes that, based upon past performance,
an internationally diversified portfolio offers the possibility of a higher
expected return than a portfolio comprised of securities from one securities
market. The reason for this is that historically the securities markets of many
countries have moved relatively independently of one another due to different
economic, financial, political and social factors. When such lack of
correlation, or negative correlation, in movements of these securities markets
occurs, it may reduce risk for the Company's portfolio as a whole. Other
advantages include professional management and administrative convenience.
Investments on an international basis involve certain risks not typically
involved in domestic investments, including, but not limited to, fluctuations in
foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions applicable to such investments. Securities prices in different
countries are subject to different economic, financial, political and social
factors. Since the Company will invest heavily in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of securities in the portfolio and the
unrealized appreciation or depreciation of investments so far as U.S. investors
are concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Company's assets denominated in
that currency and the Company's yield on such assets. The rate of exchange
between the dollar and other currencies is determined by forces of supply and
demand in the foreign exchange markets. These forces are, in turn, affected by
the international balance of payments, the level of interest and inflation rates
and other economic and financial conditions, government intervention,
speculation and other factors. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. Also, many of the securities
held by the Company will not be registered with the Commission nor will the
issuers thereof be subject to the reporting requirements of such agency.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments 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 or other
problems in settlement could result in temporary periods when assets of the
Company are uninvested and no return is
12
<PAGE> 15
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
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.
In addition, investing in Russian securities involves certain particular
risks including, among other things, risk of loss arising out of Russia's system
of share registration and custody. There is currently no central registration
system for securities in Russia and share registration is carried out by the
issuers themselves or by registrars located throughout Russia. These registrars
are not necessarily subject to an effective system of state regulation and it is
possible that through fraud, negligence or even mere oversight, the Company's
ownership of shares may be lost. The Company will attempt to ensure that its
share ownership is appropriately recorded either itself or through a custodian
or other agent; however, there can be no assurance that such oversight or the
procedures implemented will adequately protect the Company's ownership rights.
The Company has made and may continue to make substantial investments in
the securities of issuers in lesser developed capital markets. The risks of
investment in foreign securities described above tend to be particularly
significant when investing in lesser developed capital markets.
The operating expense ratio of the Company can be expected to be higher
than that of an investment company investing exclusively in U.S. securities
since the expenses of the Company, such as custodial costs and the advisory fee,
are higher.
Other special considerations are that the Company may invest up to 15% (10%
to the extent required by certain state laws) of its total assets in illiquid or
otherwise not readily marketable securities and that certain foreign investments
may be subject to foreign withholding taxes. In addition, the Company's
investment restrictions permit it to borrow money other than for extraordinary
or emergency purposes.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Total investment return
is the aggregate of income and capital value changes. In pursuing this
objective, management of the Company will utilize a fully managed investment
policy which permits the Company to take a flexible investment approach and vary
its policies as to geographic diversification and types of securities based upon
its evaluation of economic and market trends throughout the world. Accordingly,
investments may be shifted among the various capital markets of the world and
among different types of equity, debt and convertible securities depending upon
management's outlook with respect to prevailing trends and developments. The
investment objective of the Company described in this paragraph is a fundamental
policy of the Company and may not be changed without the approval of the holders
of a majority of the Company's outstanding voting securities.
13
<PAGE> 16
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. Investments on an
international basis involve certain risks not typically involved in domestic
investments. See "International Diversification". Under certain adverse
investment conditions, the Company may restrict the securities markets in which
its assets will be invested and may increase the proportion of assets invested
in the U.S. securities markets.
As of the date of this Prospectus, investment emphasis is placed on equity
securities (i.e., common stocks) or securities convertible into equities.
However, the flexible fully managed investment approach enables the Company to
switch its emphasis to debt and convertible securities or non-convertible
preferred stocks if, in the opinion of the Investment Adviser, prevailing market
or economic conditions warrant. The Investment Adviser will determine the
emphasis among equity and debt securities, including convertible securities,
based upon its evaluation as to the types of securities presently providing the
opportunity for the highest total investment return consistent with the
Company's investment objective. Accordingly, while investment emphasis is
currently on equity securities, substantial portions of the Company's assets may
be invested in debt or convertible securities.
The Company has no established rating criteria for the debt securities in
which it may invest. Fixed income investments involve credit risk, which is the
risk that an issuer of such securities will not make timely payments of interest
or principal. Credit risk is greater in lower-rated securities. Fixed income
investments also involve interest rate risk, which is the risk that the value of
such an investment may fall when interest rates rise and rise when interest
rates fall. In general, fixed income securities with longer maturities will be
subject to greater volatility resulting from interest rate fluctuations than
will fixed income securities with shorter maturities.
As described above, the Investment Adviser will allocate the Company's
assets among the various securities markets of the world. In making these
allocations, the Investment Adviser will consider the factors described in the
preceding paragraphs in seeking to realize the Company's investment objective.
The Company reserves the right, as a temporary defensive measure and to provide
for redemptions, to hold cash or cash equivalents (in U.S. dollars or foreign
currencies) and short-term securities including money market securities. The
Company may invest in the securities of foreign issuers in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global
Depositary Receipts (GDRs) or other securities convertible into securities of
foreign issuers.
The Company may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under that Act. However, the Company will not invest more than 15%
(10% to the extent required by certain state laws) of its total assets in
illiquid investments, which includes securities for which there is no readily
available market, securities subject to contractual restrictions on resale,
certain investments in asset-backed and receivable-backed securities and
restricted securities, unless the
14
<PAGE> 17
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 options, currency futures, options on
such futures and forward foreign exchange transactions. The Company may enter
into such transactions only in connection with its hedging strategies. While the
Company's net asset value will continue to fluctuate and no assurance can be
given that the Company's hedging transactions will be effective, the Investment
Adviser believes that the ability of the Company to engage in these hedging
transactions would enhance the Company's ability to reduce the volatility of the
net asset value of Company shares. Furthermore, the Company will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. When the Company engages in transactions
denominated in foreign currencies, it will be subject to the risks of adverse
changes in the exchange rates between such foreign currencies and the U.S.
dollar, the currency used to value the Company's assets. Reference is made to
the Statement of Additional Information for further information concerning these
strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Company will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Company will not subject the Company to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Company's ability to engage in the
hedging transactions and strategies discussed below.
Set forth below is a description of the hedging instruments the Company may
utilize with respect to investment, interest rate and currency risks.
Writing Covered Call Options. The Company is authorized to write (i.e.,
sell) covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options. A
covered call option is an option where the Company, in return for a premium,
gives another party a right to buy specified securities owned by the Company 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
15
<PAGE> 18
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
settlement, the parties to the contract pay or receive an amount of cash equal
to the difference between the closing value of the index on the relevant
valuation date and the exercise price of the option times a specified multiple.
The Company may invest in stock 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 particular commodity for a set price on a future date. Unlike most other
futures contracts, a stock index futures contract does not require actual
delivery of a commodity, in this case securities, but results in cash settlement
based upon the difference in value of the stock index between the time the
contract was entered into and the time of its settlement. The Company may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests and in financial futures contracts in connection
with the debt securities in which it invests. Transactions by the Company in
stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions".
The Company may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of fixed-income securities which may be held by the
Company as a temporary defensive measure will fall, thus reducing the net asset
value of the Company. However, as interest rates rise, the value of the
Company's short position in the futures contract will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of the
Company's
16
<PAGE> 19
investments which are being hedged. While the Company will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which the Company would have
incurred had the Company sold portfolio securities in order to reduce its
exposure to increases in interest rates. The Company also may purchase financial
futures contracts in anticipation of a decline in interest rates when it is not
fully invested in a particular market in which it intends to make investments to
gain market exposure that may in part or entirely offset an increase in the cost
of securities it intends to purchase. It is anticipated that, in a substantial
majority of these transactions, the Company will purchase securities upon
termination of the futures contract.
The Company is authorized to sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Company's securities portfolio that might otherwise result. When the Company is
not fully invested in the securities markets and anticipates a significant
market advance, it would be able to purchase futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that the Company intends to purchase. As such purchases are made, an
equivalent amount of futures contracts will be terminated by offsetting sales.
The Company does not consider purchases of futures contracts to be a speculative
practice under these circumstances. It is anticipated that, in a substantial
majority of these transactions, the Company will purchase such securities upon
termination of the long futures position, whether the long position is the
purchase of a futures contract or the purchase of a call option or the writing
of a put option on a future, but under unusual circumstances (e.g., the Company
experiences a significant amount of redemptions), a long futures position may be
terminated without the corresponding purchase of securities.
The Company also is authorized to purchase and write call and put options
on futures contracts and stock indices in connection with its hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) in which the Company enters into futures transactions. The Company
may purchase put options or write call options on futures contracts and stock
indices rather than selling the underlying futures contract in anticipation of a
decrease in the market value of its securities. Similarly, the Company can
purchase call options, or write put options on futures contracts and stock
indices, as a substitute for the purchase of such futures to hedge against the
increased cost resulting from an increase in the market value of securities
which the Company intends to purchase.
The Company is also authorized to engage in options and futures
transactions on U.S. and foreign exchanges and in options in the
over-the-counter markets ("OTC options"). In general, exchange traded contracts
are third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC options transactions are two-party contracts
with prices and terms negotiated by the buyer and seller. See "Restrictions on
OTC Options" below for information as to restrictions on the use of OTC options.
To trade futures contracts, the Company is not required to deposit funds
equal to the value of the futures contract. The Company need only make a
deposit, called an "initial margin deposit", equal to a small percentage
(typically between 2% and 15%) of the value of the futures contract. As a
result, a relatively small adverse move in the price of a futures contract may
result in immediate and substantial losses to the Company. For example, if at
the time of purchase 10% of the price of a futures contract is deposited as
margin, a 10% decrease in the price of that contract would, if the contract were
then closed out, result in a total loss of the
17
<PAGE> 20
initial margin deposit before any deduction for brokerage commissions and other
transaction costs. A decrease of more than 10% would result in a loss of more
than the total initial margin deposit.
To some extent, options on futures contracts are even more highly leveraged
than futures contracts. For example, if an in-the-money call (put) option is
sold for its intrinsic value plus a premium representing the time value of that
option, a 10% rise (drop) in the value of the underlying futures contract does
not create a loss equal to just 10% of the value of the option. Such a rise
(drop) creates a loss approximately equal to 10% of the value of the underlying
interest, less the time value, which loss may be many times greater than the
price for which the Company sold the option. In addition, investors who sell
options are required only to deposit a percentage of the value of the option at
the time of sale as margin, thereby leveraging the investment even further.
The Company is authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations in
foreign exchange rates. Such transactions could be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Company, sold by
the Company but not yet delivered, or committed or anticipated to be purchased
by the Company. As an illustration, the Company may use such techniques to hedge
the stated value in U.S. dollars of an investment in a yen denominated security.
In such circumstances, for example, the Company can purchase a foreign currency
put option enabling it to sell a specified amount of yen for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the yen relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset, in whole or in part, the
cost of acquiring such a put option, the Company may also sell a call option
which, if exercised, requires it to sell a specified amount of yen for dollars
at a specified price by a future date (a technique called a "spread"). By
selling such a call option in this illustration, the Company gives up the
opportunity to profit without limit from increases in the relative value of the
yen to the dollar. The Investment Adviser believes that "spreads" of the type
which may be utilized by the Company constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right to
buy or sell a currency at a fixed price on a future date. A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Company will not speculate in foreign currency options,
futures or related options. Accordingly, the Company will not hedge a currency
substantially in excess of the market value of the securities denominated in
such currency which it owns, the expected acquisition price of securities which
it has committed or anticipates to purchase which are denominated in such
currency and, in the case of securities which have been sold by the Company but
not yet delivered, the proceeds thereof in its denominated currency. Further,
the Company will segregate at its custodian U.S. Government or other 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
18
<PAGE> 21
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.
In connection with its trading in forward foreign currency contracts, the
Company will contract with a foreign or domestic bank, or foreign or domestic
securities dealer, to make or take future delivery of a specified amount of a
particular currency. There are no limitations on daily price moves in such
forward contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain banks or
dealers have refused to quote prices for such forward contracts or have quoted
prices with an unusually wide spread between the price at which the bank or
dealer is prepared to buy and that at which it is prepared to sell. Governmental
imposition of credit controls might limit any such forward contract trading.
With respect to its trading of forward contracts, if any, the Company will be
subject to the risk of bank or dealer failure and the inability of, or refusal
by, a bank or dealer to perform with respect to such contacts. Any such default
would deprive the Company of any profit potential or force the Company to cover
its commitments for resale, if any, at the then-market price and could result in
a loss to the Company.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Company provide
that the futures trading activities described herein will not result in the
Company being deemed a "commodity pool", as defined under such regulations if
the Company adheres to certain restrictions. In particular, the Company may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Company's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options.
When the Company purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Company's custodian so that the
amount so segregated, plus the amount of initial and variation margin held in
the account of its broker, equals the market value of the futures contract,
thereby ensuring that the use of such futures contract or option strategy is
unleveraged.
Restrictions on OTC Options. The Company will engage in OTC options,
including 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 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
19
<PAGE> 22
contracts) if, as a result of such transactions, the sum of the market value of
OTC options currently outstanding which are held by the Company, the market
value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Company and margin deposits on the Company's
existing OTC options on futures contracts exceeds 15% (10% to the extent
required by certain state laws) of the total assets of the Company, taken at
market value, together with all other assets of the Company which are illiquid
or are not otherwise readily marketable. However, if an OTC option is sold by
the Company to a primary U.S. Government securities dealer recognized by the
Federal Reserve Bank of New York and if the Company has the unconditional
contractual right to repurchase such OTC option from the dealer at a
predetermined price, then the Company will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the amount by
which the option is "in-the-money" (i.e., the current market value of the
underlying security minus the option's strike price). The repurchase price with
primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money". This policy as to OTC options is not a fundamental
policy of the Company and may be amended by the Board of Directors of the
Company without the approval of the Company's shareholders. However, the Company
will not change or modify this policy prior to change or modification by the
Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of hedged securities or currencies, the Company will experience a gain or
loss 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 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
20
<PAGE> 23
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's investment activities are subject to further restrictions
that are described in the Statement of Additional Information. Investment
restrictions and policies which are fundamental policies may not be changed
without the approval of the holders of a majority of the Company's outstanding
voting
21
<PAGE> 24
securities (which for this purpose and under the Investment Company Act means
the lesser of (a) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Company may not invest
more than 25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and instrumentalities). Investment
restrictions and policies that are non-fundamental policies may be changed by
the Board of Directors without shareholder approval. As a non-fundamental
policy, the Company may not borrow money or pledge its assets, except that the
Company (a) may borrow from a bank in amounts not exceeding 33 1/3% (taken at
market value) of its total assets and pledge its assets to secure such
borrowings, (b) may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (c) may purchase
securities on margin to the extent permitted by applicable law. (However, at the
present time, applicable law prohibits the Company from purchasing securities on
margin.) (The deposit or payment by the Company of initial or variation margin
in connection with financial futures contracts or options transactions is not
considered to be the purchase of a security on margin.) The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Company. Such leveraging or borrowing increases the Company's exposure to
capital risk, and borrowed funds are subject to interest costs which will reduce
net income.
As a non-fundamental policy, the Company will not invest in securities
which cannot readily be resold because of legal or contractual restrictions or
which are not otherwise readily marketable, if, regarding all such securities,
more than 15% of its total assets (or 10% of its total assets as presently
required by certain state laws) taken at market value would be invested in such
securities. Notwithstanding the foregoing, the Company may purchase without
regard to this limitation securities that are not registered under the
Securities Act, but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Company's
Board of Directors determines, based on the trading markets for the specific
Rule 144A security, that it is liquid. The Board of Directors may adopt
guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
offshore should be deemed liquid. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six individuals, five of
whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company is responsible for the
overall supervision of the operations of the Company and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Company are:
ARTHUR ZEIKEL* -- President of the Investment Adviser and FAM; President
and Director of Princeton Services, Inc.; Executive Vice President of ML & Co.;
Director of the Distributor.
- ---------------
* Interested person, as defined in the Investment Company Act, of the Company.
22
<PAGE> 25
DONALD CECIL -- Special Limited Partner of Cumberland Partners (an
investment partnership).
EDWARD H. MEYER -- Chairman of the Board, President and Chief Executive
Officer of Grey Advertising Inc.
CHARLES C. REILLY -- Self-employed financial consultant; former President
and Chief Investment Officer of Verus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
RICHARD R. WEST -- Professor of Finance, and Dean from 1984 to 1993, New
York University Leonard N. Stern School of Business Administration.
EDWARD D. ZINBARG -- Former Executive Vice President of The Prudential
Insurance Company of America.
ADVISORY AND MANAGEMENT ARRANGEMENTS
MLAM acts as the investment adviser of the Company and provides the Company
with management and investment advisory services. The investment advisory
agreement with the Investment Adviser (the "Investment Advisory Agreement")
provides that, subject to the direction of the Board of Directors of the
Company, the Investment Adviser is responsible for the actual management of the
Company's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to review
by the Board of Directors.
The Investment Adviser, located at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, is owned and controlled by ML & Co., a financial services holding
company and the parent of Merrill Lynch. The Investment Adviser, or its
affiliate, FAM, acts as the investment adviser to more than 130 other registered
investment companies and provides investment advisory services to individual and
institutional accounts. As of February 29, 1996, the Investment Adviser and FAM
had a total of approximately $208.7 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
the Investment Adviser.
As compensation for its services to the Company, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company. This fee is higher than that charged most mutual
funds, but the Company believes it is justified by the special international
nature of the Company. At February 29, 1996, the Company's net assets were
approximately $405.5 million. At this asset level, the annual advisory fee would
aggregate approximately $4.1 million.
Edward F. Korff is responsible for the day-to-day management of the
Company's portfolio. Mr. Korff has been a Vice President of the Company and the
Investment Adviser since 1995. Prior thereto, Mr. Korff was employed by American
Express Financial Corp. (formerly IDS Financial Corporation), where he served as
portfolio manager of IDS Global Growth Fund from 1990 to 1995, and was Group
Director, International Research from 1987 to 1990.
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
23
<PAGE> 26
for its costs in connection with such services on a semi-annual basis. For the
fiscal year ended November 30, 1995, the amount of such reimbursement was
$171,044. For the fiscal year ended November 30, 1995, the ratio of total
expenses to average net assets was 1.51%, 2.55%, 2.55% and 1.76% for Class A,
Class B, Class C and Class D shares, respectively.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act which incorporates the Code of Ethics
of the Investment Adviser (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Investment
Adviser and, as described below, impose additional, more onerous, restrictions
on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Company within
periods of trading by the Company in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which
is a wholly-owned subsidiary of ML & Co., acts as the Company's transfer agent
pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
an annual fee of $11.00 per Class A or Class D shareholder account and $14.00
per Class B or Class C 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, 1995, the Company paid $919,576 to the Transfer Agent
pursuant to the Transfer Agency Agreement. At February 29, 1996, the Company had
31,666 Class A shareholder accounts, 4,615 Class B shareholder accounts
(including certain subaccounts on which the standard annual transfer agency fees
are assessed), 102 Class C shareholder accounts and 402 Class D shareholder
accounts. At this level of accounts, the annual fee payable to the Transfer
Agent would aggregate approximately $418,786, plus miscellaneous and
out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of the
shares of the Company. Shares of the Company are offered continuously for sale
by the Distributor and other eligible securities dealers (including Merrill
Lynch). Shares
24
<PAGE> 27
of the Company may be purchased from securities dealers or by mailing a purchase
order directly to the Transfer Agent. The minimum initial purchase is $1,000,
and the minimum subsequent purchase is $50, except that for retirement plans,
the minimum initial purchase is $100, and the minimum subsequent purchase is $1.
The Company is offering its shares in four classes at a public offering
price equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. As to purchase orders received by
securities dealers prior to the close of business on the New York Stock Exchange
(generally, 4:00 p.m., New York time), which includes orders received after the
close of business on the previous day, the applicable offering price will be
based on the net asset value determined as of 15 minutes after the close of
business on the New York Stock Exchange on that day, provided the Distributor in
turn receives the orders from the securities dealer prior to 30 minutes after
the close of business on the New York Stock Exchange on that day. If the
purchase orders are not received by the Distributor prior to 30 minutes after
the close of business on the New York Stock Exchange, such orders shall be
deemed received on the next business day. The Company or the Distributor may
suspend the continuous offering of the Company's shares of any class at any time
in response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected by
the Distributor or the Company. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Transfer Agent are not subject to the processing fee.
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.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Company with the
investment thereafter being subject to a CDSC and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing(SM) System is
set forth under "Merrill Lynch Select Pricing(SM) System" on page 4.
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges, ongoing distribution and account maintenance fees that
are imposed on Class B and Class C shares, as well as the account maintenance
fees that are imposed on Class D shares, are imposed directly against those
classes and not against all assets of the Company and, accordingly, such charges
do not affect the net asset value of any other class or have any impact on
investors
25
<PAGE> 28
choosing another sales charge option. Dividends paid by the Company for each
class of shares are calculated in the same manner at the same time and will
differ only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted
with respect to such class pursuant to which account maintenance and/or
distribution fees are paid. See "Distribution Plans" below. Each class has
different exchange privileges. See "Shareholder Services -- Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Company. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- --------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(4)
- --------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- --------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- --------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more will not
be subject to an initial sales charge but instead will be subject to a 1.0%
CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
26
<PAGE> 29
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS
SALES LOAD AS PERCENTAGE* DISCOUNT TO
PERCENTAGE OF OF THE NET SELECTED DEALERS
OFFERING AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ------------------ ------------- ------------- ------------------
<S> <C> <C> <C>
Less than $25,000................................. 5.25% 5.54% 5.00%
$25,000 but less than $50,000..................... 4.75 4.99 4.50
$50,000 but less than $100,000.................... 4.00 4.17 3.75
$100,000 but less than $250,000................... 3.00 3.09 2.75
$250,000 but less than $1,000,000................. 2.00 2.04 1.80
$1,000,000 and over**............................. 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 and on Class A purchases
by certain retirement plan investors in connection with certain investment
programs. If the sales charge is waived, in connection with a purchase of
$1,000,000 or more, such purchases will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. Class A purchases made
prior to October 21, 1994, might have been subject to a CDSC if the shares
were redeemed within one year of purchase at the following rates: 1.00% on
purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to
$3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on
purchases of more than $5,000,000 in lieu of paying an initial sales charge.
The charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1,000,000 or more of Class A or Class
D shares by certain employer sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Company will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. During
the fiscal year ended November 30, 1995, the Company sold 6,594,967 Class A
shares for aggregate net proceeds of $84,361,655. The gross sales charges for
the sale of Class A shares of the Company for that year were $19,143, of which
$1,842 and $17,301 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended November 30, 1995, the Distributor
received no CDSCs with respect to redemption within one year after purchase of
Class A shares purchased subject to front-end sales charge waivers. During the
fiscal year ended November 30, 1995, the Company sold 705,152 Class D shares for
aggregate net proceeds of $8,594,947. The gross sales charges for the sale of
Class D shares of the Company for the fiscal year ended November 30, 1995 were
$14,803, of which $881 and $13,922 were received by the Distributor and Merrill
Lynch, respectively. For the fiscal year ended November 30, 1995, the
Distributor received no CDSCs with respect to redemption within one year after
purchase of Class D shares purchased subject to front-end sales charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A shares of the
Company in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Company in that account. Certain employer sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate
27
<PAGE> 30
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also eligible
to purchase Class A shares at net asset value are participants in certain
investment programs including TMA(SM) Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services and certain purchases made
in connection with the Merrill Lynch Mutual Fund Adviser ("MFA") program. In
addition, Class A shares will be offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Company. Certain persons who
acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Company also may purchase Class A
shares of the Company if certain conditions set forth in the Statement of
Additional Information are met. In addition, Class A shares of the Company and
certain other MLAM-advised mutual funds are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
pursuant to a tender offer conducted by Merrill Lynch Senior Floating Rate Fund,
Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and D sales charges also may
be reduced under a Right of Accumulation and a Letter of Intention.
Class A and Class D shares are offered at net asset value to certain
employer-sponsored retirement or savings plans and to Employee Access AccountsSM
available through employers which provide such plans.
Class D shares are offered at net asset value 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.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Class D shares of the Company are offered at net asset value to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from
a sale of certain of their shares of common stock pursuant to tender offers
conducted by those funds in shares of the Company.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the
28
<PAGE> 31
time of purchase. As discussed below, Class B shares are subject to a four-year
CDSC, while Class C shares are subject only to a one year 1.0% CDSC. On the
other hand, approximately eight years after Class B shares are issued, such
Class B shares, together with shares issued upon dividend reinvestment with
respect to those shares, are automatically converted into Class D shares of the
Company and thereafter will be subject to lower continuing fees. See "Conversion
of Class B Shares to Class D Shares" below. Both Class B and Class C shares are
subject to an account maintenance fee of 0.25% of net assets and a distribution
fee of 0.75% of net assets as discussed below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so that
the Company will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Company in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Company to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will convert
automatically into Class D shares of the Company, which are subject to an
account maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Company
exercising the exchange privilege described under "Shareholder
Services -- Exchange Privilege" will continue to be subject to the Company's
CDSC schedule if such schedule is higher than the CDSC schedule relating to the
Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
29
<PAGE> 32
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------------------------------------------------------- -----------------
<S> <C>
0-1................................................................ 4.00%
1-2................................................................ 3.00
2-3................................................................ 2.00
3-4................................................................ 1.00
4 and thereafter................................................... 0.00
</TABLE>
For the fiscal year ended November 30, 1995, the Distributor received CDSCs
of $89,423 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased on or
after October 21, 1994).
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the MFA program, the time
period that such Class A shares are held in the MFA program will be included in
determining the holding period of Class B shares reacquired upon termination of
participation in the MFA program (see "Shareholder Services -- Exchange
Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch Blueprint(SM) Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such account at the time of redemption. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA, that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group, and held in such account at the
time of redemption.
30
<PAGE> 33
Additional information concerning the waiver of the Class B CDSC is set forth in
the Statement of Additional Information.
Contingent Deferred Sales Charges -- Class C Shares. Class C shares which
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. For the fiscal year ended November 30,
1995, the Distributor received CDSCs of $97 with respect to redemptions of Class
C shares all of which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Company. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Company in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the
Company held in the account on the Conversion Date will be converted to Class D
shares of the Company.
Share certificates for Class B shares of the Company to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event such certificates are not received
by the Transfer Agent at least one week prior to the Conversion Date, the
related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year
31
<PAGE> 34
Conversion Period, or vice versa, the Conversion Period applicable to the Class
B shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
The Conversion Period also is modified for retirement plan investors which
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services -- Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period of Class B shares acquired upon termination of
participation in the MFA program.
DISTRIBUTION PLANS
The Company has adopted separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each
a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Company to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Company pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Company attributable to shares
of the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Company also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Company attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B and Class C
shares of the Company. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Company in that
32
<PAGE> 35
the deferred sales charges provide for the financing of the distribution of the
Company's Class B and Class C shares.
For the fiscal year ended November 30, 1995, the Company paid the
Distributor $453,009 pursuant to the Class B Distribution Plan (based on average
net assets subject to the Class B Distribution Plan of approximately $45.3
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended November 30, 1995, the Company paid
the Distributor $2,816 pursuant to the Class C Distribution Plan (based on
average net assets subject to the Class C Distribution Plan of $281,566), all of
which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class C shares.
For the fiscal year ended November 30, 1995, the Company paid the Distributor
$7,980 pursuant to the Class D Distribution Plan (based on average net assets
subject to the Class D Distribution Plan of approximately $3.2 million), all of
which was paid to Merrill Lynch for providing account maintenance services in
connection with Class D shares. At February 29, 1996, the net assets of the
Company subject to the Class B Distribution Plan aggregated approximately $45.9
million. At this asset level, the annual fee payable pursuant to the Class B
Distribution Plan would aggregate approximately $458,783. At February 29, 1996,
the net assets of the Company subject to the Class C Distribution Plan
aggregated $690,248. At this asset level, the annual fee payable pursuant to the
Class C Distribution Plan would aggregate $6,902. At February 29, 1996, the net
assets of the Company subject to the Class D Distribution Plan aggregated
approximately $4.0 million. At this asset level, the annual fee payable pursuant
to the Class D Distribution Plan would aggregate $10,037.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation.
At December 31, 1995, 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 $550,000 (1.24% of Class B net assets at that date). As
of November 30, 1995, for Class B shares, direct cash revenues for the period
since commencement of the offering of Class B shares exceeded direct cash
expenses by $1,244,405 (2.80% of Class B net assets at that date). Similar fully
allocated accrual data for Class C shares is not presented because such revenues
and expenses for the period from October 21, 1994 (commencement of operations)
to December 31, 1995 are de minimis. As of November 30, 1995, for Class C
shares, direct cash expenses for the period since commencement of the offering
of Class C shares exceeded direct cash revenues by $369 (.10% of Class C net
assets at that date).
33
<PAGE> 36
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Company will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives -- Class B and Class C Shares -- Conversion
of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Company, the maximum sales charge rule
limits the aggregate of distribution fee payments and CDSCs payable by the
Company to (1) 6 1/4% of eligible gross sales of Class B shares and Class C
shares, computed separately (defined to exclude shares issued pursuant to
dividend reinvestments and exchanges), plus (2) interest on the unpaid balance
for the respective class, computed separately, at the prime rate plus 1% (the
unpaid balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving interest charges at any
time. To the extent payments would exceed the voluntary maximum, the Company
will not make further payments of the distribution fee with respect to Class B
shares, and any CDSC will be paid to the Company rather than to the Distributor;
however, the Company will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
REDEMPTION OF SHARES
The Company is required to redeem for cash all full and fractional shares
of the Company on receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the initial receipt
of proper notice of redemption. Except for any CDSC which may be applicable,
there will be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the date of redemption.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Company at such time.
34
<PAGE> 37
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered
other than by mail should be delivered to Merrill Lynch Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice
of redemption in the case of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by certificates for
the shares to be redeemed. The notice in either event requires the signatures of
all persons in whose names the shares are registered, signed exactly as their
names appear on the Transfer Agent's register or on the certificate, as the case
may be. The signature(s) on the redemption request must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch 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 30 minutes after the
close of business on the New York Stock Exchange (generally, 4:00 p.m., New York
time) on the same day. Dealers have the responsibility of submitting such
repurchase requests to the Company not later than 30 minutes after the close of
business on the New York Stock Exchange in order to obtain that day's closing
price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Company (other than any
applicable CDSC). 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. Repurchases 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.
35
<PAGE> 38
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the 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 or Class D shareholder only the first time such
shareholder makes a redemption. Alternatively, the reinstatement privilege may
be exercised through the investor's Merrill Lynch Financial Consultant within 30
days after the date the request for redemption was accepted by the Transfer
Agent or the Distributor.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Company. Certain of such
services are not available to investors who place purchase orders for the Fund's
shares through the Merrill Lynch Blueprint(SM) Program. Full details as to each
of such services, copies of the various plans described below and instructions
as to how to participate in the various services or plans, or to change options
with respect thereto, can be obtained from the Company by calling the telephone
number on the cover page hereof or from the Distributor or Merrill Lynch.
Certain of these services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for each
purchase or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at any
time by mailing a check directly to the Transfer Agent. Shareholders also may
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened automatically, without charge, at the Transfer
Agent. Shareholders considering transferring their Class A or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder.
If the new brokerage firm is 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-
36
<PAGE> 39
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 CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.
Systematic Withdrawals and Automatic Investment Plans. A Class A or Class
D 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 or Class D shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA(R)/CBA(R) Systematic
Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
and Class D shares may be made to an investor's Investment Account by
pre-arranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) or CBA(R) accounts may arrange to have periodic investments made
in the Company in their CMA(R) or CBA(R) accounts or in certain related accounts
in amounts of $100 or more through the CMA(R)/CBA(R) Automated Investment
Program.
Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and fractional
shares of the Company, without sales charge, at the net asset value per share
next determined after the close of 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 by telephone
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends, or both
dividends and capital gains distributions, paid in cash rather than reinvested,
in which event payment will be mailed on or about the payment date. Cash
payments can also be directly deposited to the shareholder's bank account. No
CDSC will be imposed on redemptions of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select PricingSM System, Class A shareholders may
exchange Class A shares of the Company for Class A shares of a second
MLAM-advised mutual fund if the shareholder holds any Class A shares of the
second fund in his account in which the exchange is made at the time of the
exchange or is otherwise eligible to purchase Class A shares of the second fund.
If the Class A shareholder wants to exchange Class A shares for shares of a
second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second MLAM-
37
<PAGE> 40
advised mutual fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second fund in the account in which the
exchange is made or is otherwise eligible to purchase Class A shares of the
second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Company which are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Company. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Company is "tacked" to the holding period for the newly acquired
shares of the other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Company acquired through use of the exchange privilege will be
subject to the Company's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be reexchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the Conversion Period for Class B
shares so reacquired, the holding period for the Class A shares will be "tacked"
to the holding period for the Class B or Class C shares originally held. The
Company's exchange privilege is also modified with respect to purchases of Class
A and Class D shares by non-retirement plan investors under the MFA program.
First, the initial allocation of assets is made under the MFA program. Then, any
subsequent exchange under the MFA program of Class A or Class D shares of a
MLAM-advised mutual fund for Class A or Class D shares of the Company will be
made solely on the basis of the relative net
38
<PAGE> 41
asset values of the shares being exchanged. Therefore, there will not be a
charge for any difference between the sales charge previously paid on the shares
of the other MLAM-advised mutual fund and the sales charge payable on the shares
of the Company being acquired in the exchange under the MFA program.
PERFORMANCE DATA
From time to time the Company may include its average annual total return
for various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the 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 any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Company with respect to all shares, to the extent
any dividends are paid, will be calculated in the same manner at the same time
on the same day and will be in the same amount, except that account maintenance
fees and distribution fees and any incremental transfer agency costs relating to
each class of shares will be borne exclusively by that class. The Company will
include performance data for all classes of shares of the Company in any
advertisement or information including performance data of the Company.
The Company may also quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual total
return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements directed to investors whose purchases are
subject to reduced sales charges in the case of Class A or Class D shares or
waiver of the CDSC in the case of Class B or Class C shares (such as investors
in certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or waiver of the CDSC, a lower amount of expenses may be deducted. See
"Purchase of Shares". The Company's total return may be expressed either as a
percentage or as a dollar amount in order to illustrate the effect of such total
return on a hypothetical $1,000 investment in the Company at the beginning of
each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return will
vary depending on market conditions, the securities
39
<PAGE> 42
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 Company may include its
risk-adjusted performance ratings assigned by Morningstar Publications, Inc. in
advertising or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Company's
relative performance for any future period.
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 each class of shares will be reduced as a result
of the account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information -- Determination of Net Asset Value".
Dividends and distributions 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 distributions are taxable to shareholders as discussed below
whether they are reinvested in shares of the Company or received in cash.
Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Company's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Company would not be able to make any ordinary income
dividend distributions, and (b) all or a portion of the distributions made
before the losses were realized would be recharacterized as a return of capital
to shareholders, rather than as an ordinary income dividend, reducing each
shareholder's tax basis in the 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,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Company intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains
40
<PAGE> 43
over net short-term capital losses (including gains or losses from certain
transactions in futures and options) ("capital gain dividends") are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Company shares. Any loss upon the sale or exchange of
Company shares held for six months or less, however, will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholder. Distributions in excess of the 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 to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% U.S. withholding tax under existing
provisions of the Code applicable to foreign individuals and entities unless a
reduced rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to consult their own
tax advisers concerning the applicability of the U.S. withholding tax.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. 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 ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
41
<PAGE> 44
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Company's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Company would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Company shares, and resulting in a capital gain for any
shareholder who received a distribution greater than such shareholder's basis in
Company shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as the shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law varies
as to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Company.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of all classes of the Company is determined once
daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 p.m., New York time), on each day
42
<PAGE> 45
during which the New York Stock Exchange is open for trading. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The net asset value is computed
by dividing the value of the securities held by the Company plus any cash or
other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the fee payable to the Investment
Adviser and any account maintenance and/or distribution fees payable to the
Distributor, are accrued daily. The per share net asset value of Class A shares
will generally be higher than the per share net asset value of shares of the
other classes, reflecting the daily expense accruals of the account maintenance
and transfer agency fees applicable with respect to the Class B, Class C and
Class D shares; in addition, the per share net asset value of the Class D shares
generally will be higher than the per share net asset value of the Class B and
Class C shares, reflecting the daily expense accruals of the distribution fees
applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual 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 sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Company
are valued at their last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the last bid
price. Securities and assets for which market quotations are not readily
available are valued at fair market value as determined in good faith by or
under the direction of the Board of Directors of the Company.
ORGANIZATION OF THE COMPANY
The Company was incorporated under Maryland law on March 7, 1984. As of the
date of this Prospectus it has an authorized capital of 400,000,000 shares of
Common Stock, par value $0.10 per share, divided into four classes, designated
Class A, Class B, Class C and Class D Common Stock, each of which consists of
100,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock
represent an interest in the same assets of the Company and are identical in all
respects except that Class B, Class C and Class D shares bear certain expenses
related to the account maintenance associated with such shares, and Class B and
Class C shares bear certain expenses related to the distribution of such shares.
Each class has exclusive voting rights with respect to matters relating to
account maintenance and distribution expenditures, as applicable. See "Purchase
of Shares". The Directors of the Company may classify and reclassify the shares
of the Company into additional classes of Common Stock at a future date.
43
<PAGE> 46
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in this Prospectus. Each share of Common
Stock is entitled to participate equally in dividends and distributions declared
by the Company and in the net assets of the Company upon liquidation or
dissolution after satisfaction of outstanding liabilities, and except as noted
above, the Class B, Class C and Class D shares bear certain additional expenses.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch and/or mutual fund account numbers.
If you have any questions regarding this, please call your Merrill Lynch
financial consultant or Merrill Lynch Financial Data Services, Inc. at
1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company at the address or
telephone number set forth on the cover page of this Prospectus.
44
<PAGE> 47
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
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 TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D
shares
of Merrill Lynch Global Holdings, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
............................................ Date...............................
(Zip Code)
<TABLE>
<S> <C>
Occupation ......................................... Name and Address of Employer................................
............................................................
............................................................
................................................... ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C>
Ordinary Income Dividends Long-term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Holdings, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (check one): / / checking / / savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ............................ Account Number ........................
Bank Address....................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor..........................................................
Signature of Depositor ................................ Date ...................
(if joint account, both must sign)
NOTE: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany
this application.
45
<PAGE> 48
MERRILL LYNCH GLOBAL HOLDINGS, INC. --
AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Distributions and Taxes -- 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.
<TABLE>
<S> <C>
..................................................... ....................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
......................, 19 . . . .
Dear Sir/Madam: Date of initial purchase
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Holdings, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which the Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
/ / $25,000 / / $50,000 / / $100,000 / / $250,000 / / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Holdings,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Holdings, Inc. held as security.
<TABLE>
<S> <C>
By:...................................................... .......................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................ (2) Name...............................................
Account Number .......................................... Account Number.........................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
- --- Branch Office, Address, Stamp
- ---
- -
- -
- -
- -
- ---
- ---
This form when completed should be mailed to:
Merrill Lynch Global Holdings, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to
notify the Distributor of any purchases made under a Letter of Intention or
Systematic Withdrawal Plan. We guarantee the Shareholder's signature.
................................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer Account No.
</TABLE>
46
<PAGE> 49
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
(PLEASE PRINT) ------------------------------------
Name of Owner.......................................................................
First Name Initial Last Name ------------------------------------
Social Security No.
or Taxpayer Identification No.
Address.............................................................................
.................................................................................... Account Number......................
(Zip Code) (if existing account)
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
....................................................................................
(Zip Code)
(PLEASE PRINT)
Name of Owner.......................................................................
First Name Initial Last Name
Address.............................................................................
....................................................................................
(Zip Code)
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
....................................................................................
(Zip Code)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Global
Holdings, Inc. at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on ............. or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE):
/ / $ or / / % of the current value of / / Class A or / / Class D
shares in the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of..........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print)......................................................
Address.........................................................................
.........................................................................
Signature of Owner ............................. Date ..........................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I
PROVIDE WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
AMENDING OR TERMINATING THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number ........................... Account Number..........................
Bank Address....................................................................
....................................................................
Signature of Depositor.......................... Date ..........................
Signature of Depositor..........................................................
(if joint account, both must sign)
NOTE: If direct deposit is elected, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
47
<PAGE> 50
MERRILL LYNCH GLOBAL HOLDINGS, INC. --
AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C Shares
/ / Class D shares
of Merrill Lynch Global Holdings, Inc., subject to the terms set forth below. In
the event that I am not eligible to purchase Class A shares, I understand that
Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Holdings, Inc. as indicated below:
Amount of each check or ACH debit $..........................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon as thereafter as possible.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of Fund shares including liquidating shares of the Fund and
crediting my bank account. I further agree that if a check or debit is not
honored upon presentation, Merrill Lynch Financial Data Services, Inc. is
authorized to discontinue immediately the Automatic Investment Plan and to
liquidate sufficient shares held in my account to offset the purchase made with
the dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .................................. State .......... Zip Code...............
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
48
<PAGE> 51
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 52
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 53
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 54
- ------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................... 2
Merrill Lynch Select PricingSM System... 4
Financial Highlights.................... 8
International Diversification........... 12
Investment Objective and Policies....... 13
Hedging Techniques.................... 15
Other Investment Practices............ 21
Investment Restrictions............... 21
Management of the Company............... 22
Board of Directors.................... 22
Advisory and Management
Arrangements........................ 23
Code of Ethics........................ 24
Transfer Agency Services.............. 24
Purchase of Shares...................... 24
Initial Sales Charge Alternatives --
Class A and Class D Shares.......... 26
Deferred Sales Charge Alternatives --
Class B and Class C Shares.......... 28
Distribution Plans.................... 32
Limitations on the Payment of Deferred
Sales Charges....................... 34
Redemption of Shares.................... 34
Redemption............................ 35
Repurchase............................ 35
Reinstatement Privilege -- Class A and
Class D Shares...................... 36
Shareholder Services.................... 36
Exchange Privilege.................... 37
Performance Data........................ 39
Additional Information.................. 40
Dividends and Distributions........... 40
Taxes................................. 40
Determination of Net Asset Value...... 42
Organization of the Company........... 43
Shareholder Reports................... 44
Shareholder Inquiries................. 44
Authorization Form...................... 45
Code # 10244-0396
</TABLE>
PROSPECTUS
March 29, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
YZa(LOGO)
MERRILL LYNCH
GLOBAL HOLDINGS, INC.
<PAGE> 55
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified,
open-end management investment company 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.
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select PricingSM System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
-------------------------
This Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the prospectus of the Company, dated
March 29, 1996 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling or writing the Company at the above telephone number or address. This
Statement of Additional Information has been incorporated by reference into the
Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
-------------------------
The date of this Statement of Additional Information is March 29, 1996.
<PAGE> 56
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Company.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce risk
for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
While it is the policy of the Company generally not to engage in trading
for short-term gains, Merrill Lynch Asset Management, L.P. (the "Investment
Adviser"), will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. As a result of the investment
policies described in the Prospectus, including changes in asset allocation
under certain market conditions, the Company's portfolio turnover rate may be
higher than that of other investment companies. 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, 1995 and 1994, the rate of
portfolio turnover was 44.64% and 40.18%, respectively. The Company is subject
to the Federal income tax requirement that less than 30% of the Company's gross
income 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.
2
<PAGE> 57
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies -- Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The
Company may seek to hedge its portfolio against movements in the equity markets,
interest rates and exchange rates between currencies through the use of options
and futures transactions and forward foreign exchange transactions. The Company
has authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put options on securities and engage in transactions in
stock index options, stock index futures and financial futures, and related
options on such futures. The Company may also deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures. The Company is authorized to enter into such options and futures
transactions either on exchanges or in the over-the-counter ("OTC") markets.
Each of such portfolio strategies is described in the Prospectus. Although
certain risks are involved in options and futures transactions (as discussed in
the Prospectus and below), the Investment Adviser believes that, because the
Company will only engage in these transactions for hedging purposes, the options
and futures portfolio strategies of the Company will not subject the Company to
the risks frequently associated with the speculative use of options and futures
transactions. While the Company's use of hedging strategies is intended to
reduce the volatility of the net asset value of its shares, the net asset value
of the Company's shares will fluctuate. There can be no assurance that the
Company's hedging transactions will be effective. The following is further
information relating to portfolio strategies involving options and futures that
the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company 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 securities holdings. By buying a put the Company has a right
to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of the
underlying security will be offset partially by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction, and profit or loss from
the sale will depend on whether the amount received is more or less than the
premium paid for the put option plus the related
3
<PAGE> 58
transaction cost. A closing sale transaction cancels out the Company's position
as the purchaser of an option by means of an offsetting sale of an identical
option prior to the expiration of the option it has purchased.
The Company also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a particular
commodity, such as a security, or, in the case of an index-based futures
contract, to make and accept a cash settlement for a set price on a future date.
A majority of transactions in futures contracts, however, do not result in the
actual delivery of the underlying instrument or cash settlement but are settled
through liquidation, i.e., by entering into an offsetting transaction. Futures
contracts have been designed by boards of trade which have been designated
"contracts markets" by the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is typically between 2% to 15% of the contract amount,
must be deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called "variation margin", are required to be made on a daily basis as
the price of the futures contracts fluctuates making the long and short
positions in the futures contracts more or less valuable, a process known as
"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 Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "Investment Company Act"), in connection with its strategy
of investing in futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and may be deemed to
prohibit certain arrangements between the Company and commodities brokers with
respect to initial and variation margin. Section 18(f) of the Investment Company
Act prohibits an open-end investment company such as the Company from issuing a
"senior security" other than a borrowing from a bank. The staff of the
Commission has in the past indicated that a futures contract may be a "senior
security" under the Investment Company Act.
Risk Factors in Options and Futures Transactions. Utilization of options
and futures transactions involves the risk of imperfect correlation in movements
in the prices of options and futures contracts and movements in the prices of
the securities and currencies which are the subject of the hedge. If the price
of the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Company will experience a gain or loss
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
4
<PAGE> 59
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 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. If
the Company enters into a position hedging transaction, its custodian bank will
place cash or liquid securities in a separate account of the Company in an
amount equal to the value of the Company's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the separate account declines,
5
<PAGE> 60
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Company's commitment with respect to
such contracts. The Company will not attempt to hedge all of its portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by the Investment Adviser of the Company. The Company will
not enter into a forward contract with a term of more than one year.
As discussed in the Prospectus, the Company may also purchase or sell
listed or OTC foreign currency options, foreign currency futures and related
options on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Company to hedge against a devaluation that is so
generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, the Company may have to limit its currency
transactions to qualify for the special tax treatment afforded regulated
investment companies 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 need not be
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 debt securities which, in the Investment Adviser's
judgment, possess similar credit characteristics ("high yield bonds"). Issuers
of high yield bonds may be highly leveraged and may not have available to them
more traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the case
with higher rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, issuers of high yield bonds may be
more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely
6
<PAGE> 61
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.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of high yield
bonds, particularly in a thinly traded market. Factors adversely affecting the
market value of high yield bonds are likely to affect adversely the Company's
net asset value. In addition the Company may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Company has adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities. The
fundamental policies set forth below may not be changed without the approval of
the holders of a majority of the Company's outstanding voting securities (which
for this purpose and under the Investment Company Act means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares).
Under the fundamental investment restrictions, the Company may not:
1. Make any investment inconsistent with the Company's classification
as a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Company may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not
7
<PAGE> 62
be deemed to be the making of a loan, and except further that the Company
may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Company's Prospectus and Statement of
Additional Information, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Company may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) to the extent permitted
by applicable law the Company may borrow up to an additional 5% of its
total assets for temporary purposes (currently Ohio law does not permit
borrowing beyond one-third of the Company's total assets), (iii) the
Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Company's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the
Company technically may be deemed an underwriter under the Securities Act
of 1933, as amended (the "Securities Act"), in selling portfolio
securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law and
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
In addition, the Company has adopted non-fundamental restrictions which may
be changed by the Board of Directors. Under the non-fundamental investment
restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Company
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Company's shares are registered or qualified for sale
require a lower limitation, the Company will observe such limitation. As of
the date hereof, therefore, the Company will not invest more than 10% of
its total assets in securities which are subject to this investment
restriction (c).
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Company's net assets; included within such limitation, but
8
<PAGE> 63
not to exceed 2% of the Company's net assets, are warrants which are not
listed on the New York Stock Exchange or American Stock Exchange or a major
foreign exchange. For purposes of this restriction, warrants acquired by
the Company in units or attached to securities may be deemed to be without
value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Company's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Company, the officers and general
partner of the Investment Adviser, the director of such general partner or
the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Company may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Company's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restrictions (7) above,
borrow amounts in excess of 20% of its total assets, taken at market value,
and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. The Company
will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights.
Portfolio securities of the Company may not be purchased from, sold or
loaned to the Investment Adviser or its affiliates or any of its directors,
general partners, officers or employees, acting as principal.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Company has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Company, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Company
and margin deposits on the Company's existing OTC options on futures contracts
exceeds 15% of the total assets of the Company (10% to the extent required by
certain state laws), 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
9
<PAGE> 64
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 firm
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage".
The investment restrictions contain an exception that permits the Company
to purchase securities pursuant to the exercise of subscription rights, subject
to the condition that such purchase will not result in the Company ceasing to be
a diversified investment company. Japanese and European corporations frequently
issue additional capital stock by means of subscription rights offerings to
existing shareholders at a price substantially below the market price of the
shares. The failure to exercise such rights would result in the Company's
interest in the issuing company being diluted. The market for such rights is not
well developed, and accordingly, the Company may not always realize full value
on the sale of rights. Therefore, the exception applies in cases where the
limits set forth in the investment restrictions would otherwise be exceeded by
exercising rights or have already been exceeded as a result of fluctuations in
the market value of the Company's portfolio securities with the result that the
Company would otherwise be forced either to sell securities at a time when it
might not otherwise have done so or to forego exercising the rights.
------------------------
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with
the Company, the Company is prohibited from engaging in certain transactions
involving Merrill Lynch except pursuant to a permissive order or otherwise in
compliance with the provisions of the Investment Company Act and the rules and
regulations thereunder. Included among such restricted transactions are
purchases from or sales to Merrill Lynch of securities in transactions in which
it acts as principal and purchases of securities from underwriting syndicates of
which Merrill Lynch is a member.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and executive officers of the Company, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (63) -- President and Director(1)(2) -- President of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1977; President of Fund Asset Management, L.P. ("FAM")
(which term as used herein includes its corporate predecessors) since 1977;
President and Director of Princeton Services, Inc. ("Princeton Services") since
1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990; Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
10
<PAGE> 65
DONALD CECIL (69) -- Director(2) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Partners (investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
EDWARD H. MEYER (69) -- 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 (64) -- 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; Partner, Small
Cities Cablevision, Inc.
RICHARD R. WEST (58) -- Director(2) -- Box 604, Genoa, Nevada 89491.
Professor of Finance since 1984, and Dean from 1984 to 1993, New York University
Leonard N. Stern School of Business 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. (real estate company).
EDWARD D. ZINBARG (61) -- Director(2) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
TERRY K. GLENN (55) -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of the Distributor
since 1986, and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
NORMAN R. HARVEY (62) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1982; Senior Vice President of
Princeton Services since 1993.
PHILIP L. KIRSTEIN (50) -- Senior Vice President(1)(2) -- Senior Vice
President and General Counsel of the Investment Adviser and FAM since 1984;
Senior Vice President, General Counsel, Director and Secretary of Princeton
Services; Secretary of the Investment Adviser since 1984; Secretary of FAM since
1982; Director of the Distributor.
EDWARD F. KORFF (51) -- Vice President(1)(2) -- Vice President of the
Investment Adviser since 1995; employee of American Express Financial Corp.
(formerly IDS Financial Corporation) from 1972 to 1995.
DONALD C. BURKE (35) -- Vice President(1)(2) -- Vice President and Director
of Taxation of the Investment Adviser since 1990.
GERALD M. RICHARD (46) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer since 1984.
11
<PAGE> 66
ROBERT HARRIS (44) -- Secretary(1)(2) -- Vice President of the Investment
Adviser since 1984 and attorney associated with the Investment Adviser since
1980; Secretary of the Distributor since 1982.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Company.
(2) Such Director or officer is a director, trustee or officer of one or more
additional investment companies for which the Investment Adviser or an
affiliate, FAM, acts as investment adviser or manager.
At February 29, 1996, the officers and Directors of the Company as a group
(13 persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director and officer of the Company, and
the other officers of the Company, owned less than 1% of the outstanding shares
of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Company pays each Director not affiliated with the Investment Adviser a
fee of $3,500 per year plus $500 per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings. The
Company also compensates members of its Audit and Nominating Committee (the
"Committee"), which consists of all of the non-interested Directors at a rate of
$500 per meeting attended. The Chairman of the Committee receives an additional
fee of $250 per meeting attended. Fees and expenses paid to the non-interested
Directors aggregated $39,132 for the fiscal year ended November 30, 1995.
The following table sets forth for the fiscal year ended November 30, 1995,
compensation paid by the Company to the non-interested Directors and for the
calendar year ended December 31, 1995, the aggregate compensation paid by all
registered investment companies advised by the Investment Adviser and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-interested Directors.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM COMPANY
AND
PENSION OR OTHER MLAM/FAM
RETIREMENT BENEFITS ADVISED FUNDS
COMPENSATION ACCRUED AS PART OF PAID TO
NAME OF DIRECTOR FROM COMPANY COMPANY EXPENSES DIRECTORS(1)
- ---------------- ------------ ------------------- --------------
<S> <C> <C> <C>
Donald Cecil................................ $8,500 None $271,850
Edward H. Meyer............................. $7,500 None $239,225
Charles C. Reilly........................... $7,500 None $269,600
Richard R. West............................. $7,500 None $294,600
Edward D. Zinbarg........................... $7,792 None $155,063
</TABLE>
- ---------------
(1)In addition to the Company, the Directors serve on the boards of other
MLAM/FAM Advised Funds as follows: Mr. Cecil (35 funds and portfolios); Mr.
Meyer (35 funds and portfolios); Mr. Reilly (54 funds and portfolios); Mr.
West (54 funds and portfolios); and Mr. Zinbarg (17 funds and portfolios).
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company -- Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
12
<PAGE> 67
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 compensated Nomura Capital
Management, Inc. ("NCM") and Lombard Odier International Portfolio Management
Limited ("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 recognized that NCM could enter
into a separate investment research agreement with Nomura Investment Management
Co., Ltd. ("NIMCO") under which NCM could compensate NIMCO for investment
research in an amount determined by NCM and NIMCO but not in excess of the
amount of compensation NCM received from the Investment Adviser. The Investment
Research Agreements and related Sub-Research Agreement terminated on April 1,
1994. The Investment Adviser continues to provide services to the Company
pursuant to the Investment Advisory Agreement.
For the fiscal year ended November 30, 1993, the Investment Adviser, NCM
and LOIPM earned fees of $1,514,112, $465,880 and $349,410, respectively. For
the fiscal year ended November 30, 1994, the Investment Adviser, NCM and LOIPM
earned fees of $3,780,445, $233,542, and $175,156, respectively. For the fiscal
year ended November 30, 1995, the Investment Adviser earned fees of $3,740,624.
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, 1993, 1994 and 1995, 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
13
<PAGE> 68
well as the fees of all Directors of the Company who are affiliated persons of
the Investment Adviser. The Company pays all other expenses incurred in its
operation, including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the custodian, any sub-custodian and transfer
agent; expenses of redemption of shares; 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
semiannual basis. For the fiscal years ended November 30, 1993, 1994 and 1995,
the amount of such reimbursement was $111,045, $138,310 and $171,044,
respectively. As required by the Company's distribution agreements, the
Distributor will pay certain of the promotional expenses of the Company incurred
in connection with the offering of its shares. Certain expenses in connection
with the distribution of Class B, Class C and Class D shares will be financed by
the Company pursuant to distribution plans in compliance with Rule 12b-1 under
the Investment Company Act. See "Purchase of Shares -- Distribution Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company and (b) by a majority of the Directors
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of a majority of the shareholders of the
Company.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Company represents identical interests
in the investment portfolio of the Company and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance
14
<PAGE> 69
and/or distribution fees are paid. Each class has different exchange privileges.
See "Shareholder Services -- Exchange Privilege".
The Merrill Lynch Select Pricing(SM) System is used by more than 50 mutual
funds advised by the Investment Adviser, or its affiliate FAM. Funds advised by
FAM or the Investment Adviser which utilize the Merrill Lynch Select Pricing(SM)
System are referred to herein as "MLAM-advised mutual funds".
The Company has entered into separate distribution agreements with Merrill
Lynch Funds Distributor, Inc. (the "Distributor") in connection with the
continuous offering of each class of shares of the Company (the "Distribution
Agreements"). The Distribution Agreements obligate the Distributor to pay
certain expenses in connection with the offering of each class of shares of the
Company. After the prospectuses, statements of additional information and
periodic reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof used in
connection with the offering to dealers and investors. The Distributor also pays
for other supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreement described under "Management of
the Company -- Advisory and Management Arrangements".
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
For the fiscal years ended November 30, 1993, 1994 and 1995, the Company
sold its Class A shares through the Distributor and Merrill Lynch, as dealers.
For the period October 21, 1994 (commencement of operations) to November 30,
1994 and the fiscal year ended November 30, 1995, the Company sold its Class D
shares through the Distributor and Merrill Lynch as dealers. For 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 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. For the fiscal year ended November 30, 1994,
the Company sold 11,383,578 Class A shares for aggregate net proceeds to the
Company of $152,341,777. The gross sales charges for the sale of Class A shares
for the fiscal year ended November 30, 1994, were $142,376, of which $133,688
was received by Merrill Lynch, and $8,688 was received by the Distributor. For
the fiscal year ended November 30, 1995, the Company sold 6,594, 967 Class A
shares for aggregate net proceeds to the Company of $84,361,655. The gross sales
charges for the sale of Class A shares of the Company for the fiscal year ended
November 30, 1995 were $19,143, of which $17,301 was received by Merrill Lynch,
and $1,842 was received by the Distributor. For the period October 21, 1994
(commencement of operations) to November 30, 1994, the Company sold 24,298 Class
D shares for aggregate net proceeds to the Company of $323,555. The gross sales
charges for the sale of its Class D shares for the period October 21, 1994
(commencement of operations) to November 30, 1994, were $2,724, of which $2,570
was received by Merrill Lynch, and $154 was received by the Distributor. For the
fiscal year ended November 30, 1995, the Company sold 705,152 Class D shares for
aggregate net proceeds to the Company of $8,594,947. The gross sales charges for
the sale of Class D shares of the Company for the fiscal year ended November 30,
1995 were $14,803, of which $13,922 was received by Merrill Lynch and $881 was
received by the Distributor. During such periods, the Distributor received no
contingent deferred sales charges with respect to redemptions within one year
after purchase of Class A or Class D shares purchased subject to front-end sales
charge waivers.
15
<PAGE> 70
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.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or its affiliate, FAM, who purchased such closed-end fund shares prior
to October 21, 1994 (the date the Merrill Lynch Select Pricing(SM) System
commenced operations) and wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994, and wish to
reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to purchase Class A shares) or Class D
shares of the Company and other MLAM-advised mutual funds ("Eligible Class D
Shares"), if the following conditions are met. First, the sale of closed-end
fund shares must be made through Merrill Lynch, and the net proceeds therefrom
must be immediately reinvested in Eligible Class A or Class D Shares. Second,
the closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds may
reinvest at net asset value the net proceeds from a sale of certain shares of
common stock of such funds in shares of the Company. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Company and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Company. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the
16
<PAGE> 71
designated class of shares of the Company. This investment option is available
only with respect to eligible shares as to which no Early Withdrawal Charge or
CDSC (each as defined in the eligible fund's prospectus) is applicable. Purchase
orders from eligible fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related tender offer terminates
and will be effected at the net asset value of the designated class of the
Company's shares on such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Company subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan-participant record-keeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Company and of other MLAM-advised mutual funds presently held,
at cost or maximum offering price (whichever is higher), on the date of the
first purchase under the Letter of Intention, may be included as a credit toward
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while registered in the name of the purchaser) for
this purpose. The first purchase under the Letter of Intention must be at least
five percent of the dollar amount of such Letter. If a purchase during the term
of such Letter would otherwise be subject to a further reduced sales charge
based on the right of accumulation, the purchaser will be entitled on that
purchase and subsequent purchases to the reduced percentage sales charge which
would be applicable to a single purchase equal to the total dollar value of the
Class A or Class D shares then being purchased under such Letter, but there will
be no retroactive reduction of the sales charges on any previous purchase.
17
<PAGE> 72
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-advised
money market fund into the Company that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Company.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Company are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
Blueprint is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class D shares of the Company through
Blueprint will acquire the Class D shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). Class D shares of
the Company are offered at net asset value plus a sales charge of 1/2 of 1% for
corporate or group IRA programs placing orders to purchase their Class D shares
through Blueprint. Services, including the exchange privilege, available to
Class A and Class D shareholders through Blueprint, however, may differ from
those available to other investors in Class D shares.
Class A and Class D shares are offered at net asset value, to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
whose trustee and/or plan sponsor offers the Merrill Lynch Directed IRA Rollover
Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0041.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employee Access Accounts(SM). Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that provide
employer sponsored retirement or savings plans that are eligible to purchase
such shares at net asset value. The initial minimum for such accounts is $500,
except that the initial minimum for shares purchased for such accounts pursuant
to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Company, members
of the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries", when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.), and their directors and employees and
any trust, pension, profit-sharing or other benefit plan for such persons may
purchase Class A shares of the Company at net asset value.
18
<PAGE> 73
Class D shares of the Company are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor also must establish that such redemption had
been made within 60 days prior to the investment in the Company, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Company with
proceeds from a redemption of shares of such other mutual fund, and the shares
of such other fund were subject to a sales charge either at the time of purchase
or on a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Company are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of such
shares of other mutual funds and that such shares have been outstanding for a
period of no less than six months; and second, such purchase of Class D shares
must be made within 60 days after the redemption, and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may be adjusted in appropriate cases to
reduce possible adverse tax consequences to the Company 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. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Company, (ii) are acquired for
investment and not for resale (subject to the understanding that the disposition
of the Company's portfolio securities shall at all times remain within its
control); and (iii) are liquid securities, the value of which is readily
ascertainable, which are not restricted as to transfer either by law or
liquidity of market (except that the Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
19
<PAGE> 74
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS.
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based on
the number of employees or number of employees eligible to participate in the
plan, the aggregate amount invested by the plan in specified investments and/or
the services provided by Merrill Lynch to the plan. Certain other plans may
purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Company and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Company, as defined in the Investment Company Act
(the "Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is a
reasonable likelihood that such Distribution Plan will benefit the Company and
its related class of shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of the Independent
Directors or by the vote of the holders of a majority of the outstanding related
class of voting securities of the Company. A Distribution Plan cannot be amended
to increase materially the amount to be spent by the Company without the
approval of the related class of shareholder, and all material amendments are
required to be approved by the vote of the Directors, including a majority of
the Independent Directors who have no direct or indirect financial interest in
such Distribution Plan, cast in person at a meeting for that purpose. Rule 12b-1
further requires that the Company preserve copies of each Distribution Plan and
any report made pursuant to such plan for a period of not less than six years
from the date of such Distribution Plan or such report, the first two years in
an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the 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 distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Company, the maximum sales charge
20
<PAGE> 75
rule limits the aggregate of distribution fee payments and CDSCs payable by the
Company to (1) 6.25% of eligible gross sales of Class B shares and Class C
shares, computed separately (defined to exclude shares issued pursuant to
dividend reinvestments and exchanges), plus (2) interest on the unpaid balance
for the respective class, computed separately, at the prime rate plus 1% (the
unpaid balance being the maximum amount payable minus amounts received from the
payment of the distribution fee and the CDSC). In connection with the Class B
shares, the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the
maximum amount payable to the Distributor (referred to as the "voluntary
maximum") in connection with the Class B shares is 6.75% of eligible gross
sales. The Distributor retains the right to stop waivering the interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Company will not make further payments of the distribution fee with respect to
Class B shares, and any CDSCs will be paid to the Company rather than to the
Distributor; however, the Company will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
voluntary maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
The following table sets forth comparative information as of November 30,
1995, with respect to the Class B and Class C shares of the Company indicating
the maximum allowable payments that can be made under the NASD maximum sales
charge rule and, with respect to Class B shares, the Distributor's voluntary
maximum.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF NOVEMBER 30, 1995
--------------------------------------------------------------------------------------
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
------- --------- ---------- ------- -------------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD
OCTOBER 21, 1988 (COMMENCEMENT OF
OPERATIONS) TO NOVEMBER 30, 1995:
Under NASD Rule As Adopted......... $67,389 $ 4,212 $990 $5,202 $1,815 $ 3,387 $333
Under Distributor's Voluntary
Waiver........................... $67,389 $ 4,212 $337 $4,549 $1,815 $ 2,734 $333
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994 (COMMENCEMENT OF
OPERATIONS) TO NOVEMBER 30, 1995:
Under NASD Rule As Adopted......... $ 476 $ 30 $ 2 $ 32 $ 2 $ 30 $ 3
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B or Class C shares sold during period
indicated other than shares acquired through dividend reinvestment and the
exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 1.0%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule. See
"Purchase of Shares -- Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.
21
<PAGE> 76
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 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.
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan or following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
are: (a) any partial or complete redemption in connection with a tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) or any redemption resulting from the tax-free
return of an excess contribution to an IRA; or (b) any partial or complete
redemption following the death or disability (as defined in the Code) of a Class
B shareholder (including one who owns the Class B shares as joint tenant with
his or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability. For the fiscal years ended
November 30, 1993, 1994 and 1995, the Distributor received CDSCs of $33,249,
$54,858 and $89,423, respectively, with regard to redemptions of Class B shares,
all of which was paid to Merrill Lynch. For the period October 21, 1994
(commencement of operations) to November 30, 1994, the Distributor received no
CDSCs with regard to redemptions of Class C shares. For the fiscal year ended
November 30, 1995, the Distributor received CDSCs of $97 with regard to
redemptions of Class C shares, all of which was paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the Company will be grouped for execution
purposes which, in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The minimum initial
purchase order is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no
22
<PAGE> 77
minimum initial or subsequent purchase requirement for investors who are part of
the Blueprint automatic investment plan. Additional information concerning these
Blueprint programs, including any annual fees or transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D 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 CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC 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 MLAM-advised mutual funds ("Eligible 401(a) Plan").
Other tax qualified retirement plans within the meaning of Section 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC is
also waived for any Class B shares which are purchased by an Eligible 401(k)
Plan or 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 Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. 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 Company may be the primary beneficiary of the
research or services received as a result of portfolio transactions effected for
such other accounts or investment companies. In addition, consistent with the
Rules of Fair Practice of the
23
<PAGE> 78
NASD and policies established by the Board of Directors of the Company, the
Investment Adviser may consider sales of shares of the Company as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Company.
The Company anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States will
be conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of
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-
counter market usually involve transactions with dealers acting as principal for
their own account, the Company will not deal with affiliated persons, including
Merrill Lynch and its affiliates, in connection with such transactions. However,
affiliated persons of the Company may serve as its broker in over-the-counter
transactions conducted on an 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, 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.
For the fiscal year ended November 30, 1994, the Company paid brokerage
commissions of $994,994. Merrill Lynch and its affiliates received $20,959, or
2.1%, of such amount for effecting transactions involving 2.1% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions.
For the fiscal year ended November 30, 1995, the Company paid brokerage
commissions of $1,122,486. Merrill Lynch and its affiliates received $38,165, or
3.4%, of such amount for effecting transactions involving 3.2% of the aggregate
dollar amount of transactions in which the Company paid brokerage commissions.
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,
24
<PAGE> 79
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 a statement disclosing 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined once daily
Monday through Friday as of 15 minutes after the close of business on the New
York Stock Exchange (generally, 4:00 p.m., New York time), on each day during
which the New York Stock Exchange is open for trading. The New York Stock
Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The 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 any account maintenance and/or
distribution fees, are accrued daily. The per share net asset value of the Class
B, Class C and Class D shares generally will be lower than the per share net
asset value of the Class A shares reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares and the daily expense accruals of
the account maintenance fees applicable with respect to Class D shares; moreover
the per share net asset value of Class B and Class C shares generally will be
lower than the per share net asset value of its Class D shares reflecting the
daily expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to Class B and Class C shares of the Company. It is
expected, however, that the per share net asset value of the four classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrued differentials among 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
25
<PAGE> 80
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 sale price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased by the Company
are valued at their last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the last bid
price. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Company.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of 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.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares through
the Merrill Lynch Blueprint(SM) Program. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Company, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements at least quarterly from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions. A shareholder may
make additions to his Investment Account at any time by mailing a check directly
to the Fund's transfer agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
26
<PAGE> 81
Shareholders considering transferring their Class A shares or Class D
shares from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the Class A or Class D shares are to
be transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the transfer
agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the transfer agent. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he 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 CDSC) so that the cash
proceeds can be transferred to the account at the new firm, or such shareholder
must continue to maintain a retirement account at Merrill Lynch for those
shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Company's Automatic Investment Plan whereby the Company is
authorized through pre-authorized checks or automated clearing house debits of
$50 or more to charge the regular bank account of the shareholder on a regular
basis to provide systematic additions to the Investment Account of such
shareholder. An investor whose shares of the Company are held within a CMA(R) or
CBA(R) account may arrange to have periodic investments made in the Company in
amounts of $100 or more ($1 for retirement accounts) through the CMA(R) or
CBA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Company. Such reinvestment will be at the net asset value of shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
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.
27
<PAGE> 82
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Company having a value, based upon cost or the
current offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined as of
15 minutes after the close of business of the New York Stock Exchange
(generally, 4:00 p.m., New York time) on the 24th day of each month or the 24th
day of the last month of each quarter, whichever is applicable. If the Exchange
is not open for business on such date, the Class A or Class D shares will be
redeemed at the close of business on the following business day. The check for
the withdrawal payment will be mailed, or the direct deposit of the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on all
Class A or Class D shares in the Investment Account are automatically reinvested
in Class A or Class D shares of the Company, respectively. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without charge or
penalty, by the shareholder, the Company, the Company's 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 or Class D 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 or Class D shares of the Company from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held with
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are redeemed.
Monthly systematic redemptions will be made at net asset value on the first
Monday of each month; bimonthly systematic redemptions will be made at net asset
value on the first Monday of every other month; and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday of months
selected at the shareholder's option. If the first Monday of the month is a
holiday, the redemption will be processed at net asset value on the next
business day. The CMA(R)/CBA(R) Systematic Redemption Program is not available
if Company shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA(R)/CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch financial consultant.
28
<PAGE> 83
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select Pricing(SM) System, Class A shareholders may exchange Class
A shares of the Company for Class A shares of a second MLAM-advised mutual fund
if the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his account at the time of
the exchange and is not otherwise eligible to acquire Class A shares of the
second fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares are exchangeable
with shares of the same class of other MLAM-advised mutual funds. For purposes
of computing the CDSC that may be payable upon disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Company is "tacked" to the holding period for the newly acquired shares of
the other fund as more fully described below. Class A, Class B, Class C and
Class D shares also are exchangeable for shares of certain MLAM-advised money
market funds specifically designated below as available for exchange by holders
of Class A, Class B, Class C, or Class D shares. Shares with a net asset value
of at least $100 are required to qualify for the exchange privilege, and any
shares utilized in an exchange must have been held by the shareholder for at
least 15 days. It is contemplated that the exchange privilege may be applicable
to other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the Company generally may
be exchanged into the Class A or Class D shares of the other funds or into
shares of the Class A and Class D money market funds with a reduced or without a
sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, ("new Class B or
Class C shares") of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Company exercising the exchange privilege will continue to
be subject to the Company's CDSC schedule if such schedule is higher than the
CDSC
29
<PAGE> 84
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 CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares of the
fund from which the exchange has been made. For purposes of computing the sales
charge that may be payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or Class C shares is
"tacked" to the holding period for the new Class B or Class C shares. For
example, an investor may exchange Class B shares of the Company for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Company Class B shares for two and a half years. The 2% CDSC that generally
would apply to a redemption would not apply to the exchange. Three years later
the investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two and a half year holding period of Company Class B shares to the three
year holding period for the Special Value Fund Class B shares, the investor will
be deemed to have held the new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for Class
A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one year holding period does not apply to shares acquired
through reinvestment of dividends. Upon termination of participation in the MFA
program, Class A shares will be reexchanged for the class of shares originally
held. For purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the conversion period for Class B
shares so reacquired, the holding period for the Class A shares will be "tacked"
to the holding period for the Class B or Class C shares originally held.
Shareholders also may exchange shares of the Company into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Company may, in
turn, be exchanged back into Class B or Class C shares, respectively, of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of that fund will be aggregated with previous holding periods for
purposes of reducing the CDSC. Thus, for example, an investor may exchange Class
B shares of the Company for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Company Class B shares for two and
a half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption the 2% CDSC that would have been
due had the Class B shares of the Company been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
which the shareholder continued to hold for an additional two and a half years,
any subsequent redemption would not incur a CDSC.
30
<PAGE> 85
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ........ High current income consistent with a policy
of limiting the degree of fluctuation in
net asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed
and asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC. ................... A high level of current income, consistent
with prudent investment risk, by investing
primarily in debt securities denominated in
a currency of a country located in the
Western Hemisphere (i.e., North and South
America and the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arizona income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ASSET GROWTH
FUND, INC. ................... High total investment return, consistent with
prudent risk, from investment in United
States and foreign equity, debt and money
market securities the combination of which
will be varied both with respect to types
of securities and markets in response to
changing market and economic trends.
31
<PAGE> 86
MERRILL LYNCH ASSET INCOME
FUND, INC. ................... A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BASIC VALUE
FUND, INC. ................... Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and
therefore represent basic investment value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND .......... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide 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 primarily of insured
California Municipal Bonds.
MERRILL LYNCH CALIFORNIA
LIMITED MATURITY MUNICIPAL
BOND FUND .................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and California income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade California Municipal
Bonds.
MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND .......... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CAPITAL
FUND, INC. ................... The highest total investment return
consistent with prudent risk through a
fully managed investment policy utilizing
equity, debt and convertible securities.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND .......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Colorado income taxes as is consistent with
prudent investment management.
32
<PAGE> 87
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND .......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Connecticut income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. ................... Current income from three separate
diversified portfolios of fixed income
securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. ........... Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON
FUND, INC. ................... Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin,
other than Japan, Australia and New
Zealand.
MERRILL LYNCH EUROFUND ......... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST ............. High current return through investments in
U.S. Government and Government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
Government securities.
MERRILL LYNCH FLORIDA
LIMITED MATURITY MUNICIPAL
BOND FUND .................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal income taxes as is consistent with
prudent investment management while serving
to offer shareholders the opportunity to
own securities exempt from Florida
intangible personal property taxes through
investment in a portfolio primarily of
intermediate-term investment grade Florida
Municipal Bonds.
33
<PAGE> 88
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND .................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management while seeking to
offer shareholders the opportunity 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,
primarily 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 of capital through
investment in a diversified portfolio of
equity securities placing particular
emphasis on companies that have exhibited
an above-average growth rate in earnings.
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide capital
appreciation and income by investing in
securities, with at least 65% of the
portfolio's assets being invested in
equities.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC..................... High total return consistent with prudent
risk, through a fully managed investment
policy utilizing U.S. and foreign equity,
debt and money market securities, the
combination of which will be varied from
time to time both with respect to the types
of securities and markets in response to
changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND
RETIREMENT.................... High total investment return from investment
in a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
34
<PAGE> 89
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC..................... High total return from investment primarily
in an internationally diversified portfolio
of convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts)................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high total
investment return through an investment
policy utilizing United States and foreign
equity, debt and money market securities,
the combination of which will vary
depending upon changing market and economic
trends.
MERRILL LYNCH GLOBAL RESOURCES
TRUST......................... Long-term growth and protection of capital
from investment in securities of domestic
and foreign companies that possess
substantial natural resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC..................... Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market
capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC..................... Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
which are primarily engaged in the
ownership or operation of facilities used
to generate, transmit or distribute
electricity, telecommunications, gas or
water.
MERRILL LYNCH GROWTH FUND
FOR INVESTMENT AND
RETIREMENT.................... Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal
emphasis on those securities which
management of the fund believes to be
undervalued.
35
<PAGE> 90
MERRILL LYNCH GROWTH OPPORTUNITY
PORTFOLIO (available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts.................. A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to seek long-term growth of
capital by investing in a portfolio of
equity securities placing particular
emphasis on companies that have exhibited
above-average growth rates in earnings.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin
must meet investor suitability
standards).................... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected to
derive a substantial portion of their sales
from products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND................... Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC..................... Capital appreciation by investing primarily
in Latin American equity and debt
securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt 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
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Massachusetts income taxes as
is consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade Massachusetts Municipal
Bonds.
36
<PAGE> 91
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-term
investment grade Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Minnesota income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC..................... Tax-exempt income from three separate
diversified portfolios of municipal bonds.
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 income taxes by investing in
investment grade obligations with a dollar
weighted average maturity of five to twelve
years.
37
<PAGE> 92
MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and New Jersey income taxes as is
consistent with prudent investment
management through a portfolio primarily of
intermediate-term investment grade New
Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and New
Jersey income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and New
Mexico income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND.......................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal, New York State and New York City
income taxes as is consistent with prudent
investment management through investment in
a portfolio primarily of intermediate-term
investment grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income taxes
as is consistent with prudent investment
management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND........... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is
consistent with prudent investment
management.
38
<PAGE> 93
MERRILL LYNCH OHIO MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Ohio income taxes as is consistent with
prudent investment management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND..................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent with
prudent investment management.
MERRILL LYNCH PACIFIC FUND,
INC............................. Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND .................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a
portfolio of intermediate-term investment
grade Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND .......... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Pennsylvania income taxes as is consistent
with prudent investment management.
MERRILL LYNCH PHOENIX
FUND, INC. ................... Long-term growth of capital by investing in
equity and fixed income securities,
including tax-exempt securities, of issuers
in weak financial condition or experiencing
poor operating results believed to be
undervalued relative to the current or
prospective condition of such issuer.
39
<PAGE> 94
MERRILL LYNCH QUALITY BOND
PORTFOLIO (Available only for
exchanges by certain
individual retirement accounts
for which Merrill Lynch acts
as custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts) ................ A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high level of
current income through investment in a
diversified portfolio of debt obligations,
such as corporate bonds and notes,
convertible securities, preferred stocks
and governmental obligations.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC. ............ As high a level of current income as is
consistent with prudent investment
management from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining
maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE
FUND, INC. ................... Long-term growth of capital from investments
in securities, primarily common stocks, of
relatively small companies believed to have
special investment value and emerging
growth companies regardless of size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND ................ Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
MERRILL LYNCH TECHNOLOGY
FUND, INC. ................... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected to
derive a substantial portion of their sales
from products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND .................... A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management by investing
primarily in a portfolio of long-term,
investment grade obligations issued by the
State of Texas, its political subdivisions,
agencies and instrumentalities.
40
<PAGE> 95
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for exchanges
by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian and by certain
CBA(R) Accounts and CMA(R)
Sub-Accounts) ................ A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose
objective is to provide a high current
return through investments in U.S.
Government and government agency
securities, including GNMA mortgage-backed
certificates and other mortgage-backed
government securities.
MERRILL LYNCH UTILITY INCOME
FUND, INC. ................... High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in
the ownership or operation of facilities
used to generate, transmit or distribute
electricity, telecommunications, gas or
water.
MERRILL LYNCH WORLD INCOME FUND,
INC. ......................... High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies,
including multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY
ASSETS TRUST ................. Preservation of capital, liquidity and the
highest possible current income consistent
with the foregoing objectives from the
short-term money market securities in which
the Trust invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND (available
only for exchanges within
certain retirement plans) .... Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund,
whose objectives are current income,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term money market
securities.
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 repurchase agreements relating to such
securities.
41
<PAGE> 96
MERRILL LYNCH U.S. TREASURY
MONEY FUND ................... Preservation of capital, liquidity and
current income through investment
exclusively in a diversified portfolio of
short-term marketable securities which are
direct obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND ......................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective 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 agencies and
instrumentalities and in repurchase
agreements secured by such obligations.
MERRILL LYNCH INSTITUTIONAL
FUND ......................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND .............. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
exempt from Federal income taxes,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short term, high quality
municipal bonds.
MERRILL LYNCH TREASURY FUND .... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective 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 assets in repurchase
agreements secured by such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant who will advise the Company of the exchange.
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 Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of
42
<PAGE> 97
their shares at any time and thereafter may resume such offering from time to
time. The exchange privilege is available only to U.S. shareholders in states
where the exchange legally may be made.
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,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Company intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Company shares. Any loss upon
the sale or exchange of Company shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Company's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital gains
to such holder (assuming the shares are held as a capital asset).
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 among the Class A, Class
B, Class C and Class D shareholders according to a method (which it believes is
consistent with the Commission rule permitting the issuance and sale of multiple
classes of stock) that is based on the gross income allocable to Class A, Class
B, Class C and Class D shareholders during the taxable year or such other method
as the Internal Revenue Service may prescribe. If the Company pays a dividend in
January that was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Company and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer
43
<PAGE> 98
identification number is on file with the Company or who, to the Company's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. 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 among the Class A, Class
B, Class C and Class D shareholders according to a method similar to that
described above for the allocation of dividends eligible for the dividends
received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires the RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Company intends to
distribute its income and capital gains in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Company's taxable income and capital gains will be distributed to
avoid entirely the imposition of the tax. In
44
<PAGE> 99
such event, the Company will be liable for the tax only on the amount by which
it does not meet the foregoing distribution requirements.
The Company may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield bonds"), as previously described. Some of these high
yield bonds may be purchased at a discount and may therefore cause the Company
to accrue income before amounts due under the obligations are paid. In addition,
a portion of the interest payments on such high yield securities may be treated
as dividends for Federal income tax purposes; in such case, if the issuer of
such high yield bonds is a domestic corporation, dividend payments by the
Company will be eligible for the dividends received deduction to the extent of
the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company may write, purchase or sell options, futures and forward
foreign exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such 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 forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency for which the
Company elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Company may alter the timing and
character of distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered into by the
Company solely to reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Company may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Company's sales of securities and transactions in options,
futures and forward foreign exchange contracts. Under Section 1092, the Company
may be required to postpone recognition for tax purposes of losses incurred in
certain sales of securities and certain closing transactions in options, futures
and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Company's gross income 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 option or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Company qualifies as a
RIC. It is currently
45
<PAGE> 100
unclear, however, who will be treated as the issuer of a foreign currency
instrument or how foreign currency options, foreign currency futures and forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Company.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Company may elect capital
gain or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless application of
Section 988 is elected by the Company. In general, however, Code Section 988
gains or losses will increase or decrease the amount of the Company's investment
company taxable income available to be distributed to shareholders as ordinary
income. Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Company would not be able to make any
ordinary income dividend distributions, and all or a portion of distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Company shares, and resulting in a capital gain for
any shareholder who received a distribution greater than such shareholder's
basis in Company shares (assuming the shares were held as a capital asset).
These rules and the mark-to-market rules described above, however, will not
apply to certain transactions entered into by the Company solely to reduce the
risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
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,
Class B, Class C and Class D shares in accordance with a formula specified by
the Securities and Exchange Commission.
46
<PAGE> 101
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Company also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
47
<PAGE> 102
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
--------------------------------- ---------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
HYPOTHETICAL HYPOTHETICAL
EXPRESSED AS A $1,000 EXPRESSED AS A $1,000
PERCENTAGE BASED INVESTMENT PERCENTAGE BASED INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ------------- ----------------- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended November 30, 1995.......... 6.99% $1,069.90 7.78% $1,077.80
Five Years Ended November 30, 1995........ 9.48% $1,572.50 9.53% $1,576.40
Ten Years Ended November 30, 1995......... 10.91% $2,817.40
Inception (July 2, 1984) to
November 30, 1995....................... 12.46% $3,821.90
Inception (October 21, 1988) to
November 30, 1995....................... 8.47% $1,783.50
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended November 30, 1995.............. 12.92% $1,129.20 11.78% $1,117.80
Year Ended November 30, 1994.............. 4.39% $1,043.90 3.32% $1,033.20
Year Ended November 30, 1993.............. 19.16% $1,191.60 17.87% $1,178.70
Year Ended November 30, 1992.............. 10.67% $1,106.70 9.58% $1,095.80
Year Ended November 30, 1991.............. 6.77% $1,067.70 5.67% $1,056.70
Year Ended November 30, 1990.............. (4.90)% $ 951.00 (5.88)% $ 941.20
Year Ended November 30, 1989.............. 19.36% $1,193.60 18.22% $1,182.20
Year Ended November 30, 1988.............. 17.59% $1,175.90
Year Ended November 30, 1987.............. 0.67% $1,006.70
Year Ended November 30, 1986.............. 33.34% $1,333.40
Year Ended November 30, 1985.............. 31.69% $1,316.90
Inception (July 2, 1984) to
November 30, 1984....................... 3.01% $1,030.10
Inception (October 21, 1988) to
November 30, 1988....................... 1.68% $1,016.80
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (July 2, 1984) to
November 30, 1995....................... 282.19% $3,821.90
Inception (October 21, 1988) to
November 30, 1995....................... 78.35% $1,783.50
</TABLE>
48
<PAGE> 103
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
----------------------------------- -----------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
HYPOTHETICAL HYPOTHETICAL
EXPRESSED AS A $1,000 EXPRESSED AS A $1,000
PERCENTAGE BASED INVESTMENT PERCENTAGE BASED INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ----------------- ------------- ----------------- -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended November 30,
1995......................... 10.69% $1,106.90 6.81% $1,068.10
Inception (October 21, 1994) to
November 30, 1995............ 6.13% $1,068.30 1.97% $1,021.90
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Year Ended November 30, 1995... 11.69% $1,116.90 12.73% $1,127.30
Inception (October 21, 1994) to
November 30, 1994............ (4.36)% $ 956.40 4.33% $ 956.70
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to
November 30, 1995............ 6.83% $1,068.30 2.19% $1,021.90
</TABLE>
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC, in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Company in advertisements directed to such investors may take into account a
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of CDSC, a lower amount of expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated under Maryland law on March 7, 1984. At the
date of this Statement of Additional Information, the Company has an authorized
capital of 400,000,000 shares of Common Stock, par value of $0.10 per share,
divided into four classes, designated Class A, Class B, Class C and Class D
Common Stock, each of which consists of 100,000,000 shares. Each share of Class
A, Class B, Class C and Class D Common Stock represents an interest in the same
assets of the Company and is identical in all respects except that the Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and that they have exclusive
voting rights with respect to matters relating to such account maintenance
and/or distribution expenditures. The Board of Directors of the Company may
classify and reclassify the shares of the Company into additional classes of
Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company
49
<PAGE> 104
does not intend to hold meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to act upon any of the
following matters: (i) election of Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent auditors. Generally, under Maryland
law, a meeting of shareholders may be called for any purpose on the written
request of the holders of at least 25% of the outstanding shares of the Company.
Voting rights for Directors are not cumulative. Shares issued are fully paid and
non-assessable and have no preemptive rights. Redemption and conversion rights
are discussed elsewhere herein and in the Prospectus. Each share is entitled to
participate equally in dividends and distributions declared by the Company and
in the net assets of the Company upon liquidation or dissolution after
satisfaction of outstanding liabilities. Stock certificates are issued by the
transfer agent only on specific request. Certificates for fractional shares are
not issued in any case. Shareholders may, in accordance with Maryland law, cause
a meeting of shareholders to be held for the purpose of voting on the removal of
Directors at the request of 25% of the outstanding shares of the Company. A
Director may be removed at a special meeting of shareholders by a vote of a
majority of the votes entitled to be cast for the election of Directors.
The Company was incorporated under the name "Merrill Lynch International
Holdings, Inc." On November 1, 1993, the Company commenced doing business under
the name "Merrill Lynch Global Holdings" and on October 21, 1994, changed its
name to Merrill Lynch Global Holdings, Inc. As investing in overseas markets has
become more common, the term "international fund" has widely come to mean one
which invests exclusively outside the United States, whereas a "global fund" is
one which may invest within the United States as well as in other markets.
Management of the Company believes that the name "Merrill Lynch Global Holdings,
Inc." better portrays the Company's worldwide investment capabilities, which
include the ability to invest both within the United States and abroad.
50
<PAGE> 105
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Company based on the value of the Company's
net assets on November 30, 1995, and its shares outstanding on that date is as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Net Assets............................ $ 327,270,122 $ 44,387,530 $ 375,660 $ 3,459,095
============ =========== ======== ==========
Number of Shares Outstanding.......... 23,592,389 3,316,793 28,069 249,936
============ =========== ======== ==========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................ $ 13.87 $ 13.38 $ 13.38 $ 13.84
Sales Charge (for Class A and Class D
shares: 5.25% of offering price
(5.54% of net asset value per
share))*............................ .77 ** ** .77
------------ ----------- -------- ----------
Offering Price........................ $ 14.64 $ 13.38 $ 13.38 $ 14.61
============ =========== ======== ==========
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption of shares. See "Purchase of
Shares -- Deferred Sales Charge Alternatives -- Class B and Class C Shares"
in the Prospectus and "Redemption of Shares -- Deferred Sales
Charges -- Class B and Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase
MetroTech Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), acts
as the custodian of the Company's assets. Under its contract with the Company,
the Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories. The
Custodian is responsible for safeguarding and controlling the Company's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Company's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Company's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible
51
<PAGE> 106
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.
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 Commission, Washington,
D.C., under the Securities Act of 1933 and the Investment Company Act, to which
reference is hereby made.
Certain Record Holders. On February 29, 1996, Merrill Lynch Trust entities
owned of record an aggregate of 35.3% of the outstanding shares of the Company
on behalf of certain employee retirement plan accounts for which such entities
act as trustee. The address of Merrill Lynch Trust entities is P.O. Box 30538,
New Brunswick, NJ 08989.
52
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH GLOBAL HOLDINGS, INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch Global Holdings, Inc. as
of November 30, 1995, 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, 1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Holdings, Inc. as of November 30, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
January 12, 1996
53
<PAGE> 108
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
SCHEDULE OF INVESTMENTS
(In US Dollars)
<TABLE>
<CAPTION>
LATIN Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Argentina Beverages 70,000 Buenos Aires Embotelladora S.A.
& Tobacco (BAESA) (ADR)* $ 1,948,894 $ 1,776,250 0.5%
Energy 120,000 Yacimientos Petroliferos Fiscales
S.A.--Sponsored (ADR)* 2,350,450 2,340,000 0.6
Multi-Industry 300,000 +Compania Naviera Perez Companc
S.A.C.F.I.M.F.A. 1,396,267 1,455,728 0.4
Total Investments in Argentina 5,695,611 5,571,978 1.5
Brazil Forest Products 400,000 Aracruz Celulose S.A. (ADR)* 3,647,250 3,600,000 1.0
& Paper
Telecommuni- 40,000,000 Telecommunicacoes Brasileiras S.A.
cations --Telebras PN (Preferred) 1,420,105 1,971,014 0.5
Total Investments in Brazil 5,067,355 5,571,014 1.5
Chile Multi-Industry 26,667 GT Chilean Growth Fund (ADR)* 910,012 1,020,013 0.3
Total Investments in Chile 910,012 1,020,013 0.3
Mexico Beverages & 45,000 Coca-Cola Femsa S.A. (ADR)* 995,494 922,500 0.2
Tobacco 55,000 +Empresa La Moderna, S.A. de C.V.
(ADR)* 1,390,798 811,250 0.2
35,000 Panamerican Beverages, Inc.
(Class A) (ADR)* 991,514 1,128,750 0.3
------------ ------------ ------
3,377,806 2,862,500 0.7
Multi-Industry 350,000 +Grupo Carso, S.A. de C.V. 2,446,931 1,948,069 0.5
Total Investments in Mexico 5,824,737 4,810,569 1.2
Total Investments in Latin America 17,497,715 16,973,574 4.5
NORTH
AMERICA
Canada Telecommunications 50,000 Northern Telecom Ltd. 1,474,875 2,018,750 0.5
Total Investments in Canada 1,474,875 2,018,750 0.5
United Banking 60,000 UJB Financial Corp. 1,246,915 2,010,000 0.5
States
Broadcasting & 150,000 Time Warner Inc. 4,851,407 6,000,000 1.6
Publishing 80,000 +Viacom Inc. (Class A) 2,832,749 3,850,000 1.0
------------ ------------ ------
7,684,156 9,850,000 2.6
Business & 36,000 +Microsoft Corp. 1,503,000 3,132,000 0.8
Public Services 75,000 +Molten Metal Technology, Inc. 1,557,457 2,756,250 0.7
90,000 +Oracle Systems Corp. 956,438 4,072,500 1.1
------------ ------------ ------
4,016,895 9,960,750 2.6
Chemicals 80,000 PPG Industries, Inc. 3,106,850 3,630,000 1.0
30,000 Rohm & Haas Co. 1,621,175 1,807,500 0.5
------------ ------------ ------
4,728,025 5,437,500 1.5
Electrical 70,000 +Ultratech Stepper Inc. 734,425 2,607,500 0.7
Equipment
Electronics Components 160,000 +General Instrument Corp. 4,134,277 4,100,000 1.1
</TABLE>
54
<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
50,000 Intel Corp. 751,250 3,037,500 0.8
25,000 Motorola, Inc. 1,305,925 1,531,250 0.4
30,000 Texas Instruments Inc. 987,728 1,736,250 0.5
------------ ------------ ------
7,179,180 10,405,000 2.8
Energy Sources 100,000 Enron Oil & Gas Co. 1,736,928 2,100,000 0.6
Food & Household 85,000 +Performance Food Group Co. 1,323,721 2,018,750 0.5
Products
Forest Products/ 25,000 Georgia-Pacific Corp. 1,820,250 1,943,750 0.5
Paper & Packaging
Health & 36,900 Merck & Co. 1,331,389 2,283,187 0.6
Personal Care 66,700 Pfizer, Inc. 3,253,890 3,868,600 1.0
20,000 Procter & Gamble Co. 1,341,200 1,727,500 0.5
------------ ------------ ------
5,926,479 7,879,287 2.1
Health Care 30,000 +PacifiCare Health Systems (Class B) 1,012,500 2,587,500 0.7
Services 44,800 United HealthCare Corp. 737,136 2,816,800 0.8
80,000 +Value Health Inc. 2,374,800 2,010,000 0.5
------------ ------------ ------
4,124,436 7,414,300 2.0
Industrial--Other 80,000 +Varity Corp. 2,572,027 3,100,000 0.8
Insurance 100,000 AFLAC, Inc. 2,812,130 4,075,000 1.1
80,000 Mercury General Corp. 2,462,000 3,780,000 1.0
------------ ------------ ------
5,274,130 7,855,000 2.1
Leisure & Tourism 80,000 McDonald's Corp. 1,931,150 3,570,000 1.0
125,000 +Mirage Resorts, Inc. 1,927,525 4,234,375 1.1
50,000 Walt Disney Co. 1,653,250 3,006,250 0.8
------------ ------------ ------
5,511,925 10,810,625 2.9
Merchandising 90,000 The Home Depot, Inc. 2,903,325 3,993,750 1.1
Railroads 30,000 CSX Corp. 1,993,665 2,628,750 0.7
20,000 Consolidated Rail Corp. 931,200 1,397,500 0.4
------------ ------------ ------
2,924,865 4,026,250 1.1
Telecommunications 70,000 AT&T Corp. 4,276,451 4,620,000 1.2
105,000 +Airtouch Communications, Inc. 2,420,203 3,058,125 0.8
------------ ------------ ------
6,696,654 7,678,125 2.0
Total Investments in the
United States 66,404,336 99,090,587 26.4
Total Investments in North America 67,879,211 101,109,337 26.9
PACIFIC
BASIN
Australia Banking 193,102 National Australia Bank, Ltd. 1,370,290 1,681,674 0.5
Broadcasting & 300,256 News Corp., Ltd. (Ordinary) 1,600,183 1,572,473 0.4
Publishing
Insurance 104,674 Lend Lease Corp. 1,327,152 1,447,343 0.4
Metals 300,000 Western Mining Corp. 1,727,089 2,009,536 0.5
Total Investments in Australia 6,024,714 6,711,026 1.8
</TABLE>
55
<PAGE> 110
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
SCHEDULE OF INVESTMENTS (continued)
(In US Dollars)
<TABLE>
<CAPTION>
PACIFIC
BASIN Value Percent of
(continued) Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Hong Kong Multi-Industry 1,512,573 First Pacific Co., Ltd. $ 1,248,973 $ 1,642,741 0.4%
400,000 Hutchison Whampoa Ltd. 1,949,838 2,260,033 0.6
500,000 Swire Pacific 'A' Ltd. 2,453,484 3,781,806 1.0
------------ ------------ ------
5,652,295 7,684,580 2.0
Real Estate 400,000 Sun Hung Kai Properties, Ltd. 2,242,489 3,219,384 0.9
Utilities--Gas 1,200,000 Hong Kong and China Gas Company Ltd. 1,873,089 1,962,660 0.5
Total Investments in Hong Kong 9,767,873 12,866,624 3.4
Indonesia Construction & 940,000 Jaya Real Property 2,924,702 2,305,738 0.6
Housing
Telecommunications 40,000 P.T. Indonesian Satellite Corp.
(ADR)* 1,256,238 1,370,000 0.4
50,800 +P.T. Telekomunikasi (ADR)* 939,403 1,066,800 0.3
------------ ------------ ------
2,195,641 2,436,800 0.7
Textiles 577,500 P.T. Indorama Synthetics (Foreign) 1,160,954 1,770,696 0.5
Total Investments in Indonesia 6,281,297 6,513,234 1.8
Japan Automobiles 120,000 Toyota Motor Corp. 2,128,963 2,374,016 0.6
Banking 100,000 The Mitsubishi Bank, Ltd. 2,554,993 2,185,039 0.6
US$ 1,000,000 The Mitsubishi Bank, Ltd.,
3% due 11/30/2002 1,000,000 1,098,800 0.3
70,000 Sanwa Bank, Ltd. 1,267,793 1,357,283 0.4
------------ ------------ ------
4,822,786 4,641,122 1.3
Broadcasting & 300,000 Tokyo Broadcasting System 3,736,661 5,019,685 1.3
Publishing
Chemicals 300,000 Asahi Chemical Industry Co. 2,135,530 2,244,094 0.6
250,000 Sumitomo Chemical Co. 1,310,984 1,245,079 0.3
200,000 Toray Industries, Inc. 1,520,350 1,303,150 0.4
------------ ------------ ------
4,966,864 4,792,323 1.3
Construction & 30,500 Sho-Bond Construction 998,930 996,654 0.3
Housing
Data Processing & 100,000 Canon Inc. 1,715,881 1,761,811 0.5
Reproduction
Electrical & 300,000 Hitachi Ltd. 3,154,652 3,041,339 0.8
Electronics 29,000 Keyence Corp. 2,038,471 3,567,913 1.0
200,000 Matsushita Electric Industrial Co. 2,837,637 2,972,441 0.8
85,000 Murata Manufacturing Co., Ltd. 2,448,383 3,053,642 0.8
150,000 NEC Corporation 1,997,076 1,919,291 0.5
120,000 Omron Corp. 2,151,001 2,681,102 0.7
180,000 Sharp Corp. 2,744,465 2,551,181 0.7
65,000 Sony Music Entertainment (Japan) Inc. 2,980,367 2,910,925 0.8
270,000 Sumitomo Electric Industry, Ltd. 2,968,251 3,162,402 0.8
------------ ------------ ------
23,320,303 25,860,236 6.9
Financial Services 200,000 Daiwa Securities Co., Ltd. 2,519,694 2,775,591 0.7
200,000 Mitsubishi Trust & Banking Corp. 2,659,557 3,070,866 0.8
</TABLE>
56
<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
50,000 Yamaichi Securities Company Ltd. 474,411 316,929 0.1
------------ ------------ ------
5,653,662 6,163,386 1.6
Insurance 250,000 Tokio Marine & Fire Insurance
Co., Ltd. 3,142,441 2,854,331 0.8
Machinery & 200,000 +Makino Milling Machine Co., Ltd. 1,422,848 1,692,913 0.5
Engineering 350,000 Mitsubishi Heavy Industries Ltd. 2,575,289 2,793,799 0.7
------------ ------------ ------
3,998,137 4,486,712 1.2
Merchandising 40,000 Aoyama Trading Co. 2,416,854 1,153,543 0.3
60,000 Ito-Yokado Co., Ltd. 2,604,246 3,318,898 0.9
140,000 Marui Co., Ltd. 2,534,838 2,618,110 0.7
------------ ------------ ------
7,555,938 7,090,551 1.9
Metals 1,000,000 +NKK Corp. 2,741,551 2,755,905 0.7
800,000 +Sumitomo Metal Industries Co., Ltd. 2,594,374 2,433,071 0.6
------------ ------------ ------
5,335,925 5,188,976 1.3
Real Estate 250,000 Mitsui Fudosan Co., Ltd. 3,097,952 3,100,394 0.8
Telecommunications 150 DDI Corp. 1,100,771 1,207,677 0.3
Utilities-- 357 Nippon Telephone & Telegragh Corp.
Telecommunications (Ordinary) 2,988,070 2,919,951 0.8
Wholesale & 250,000 Mitsui & Co. 1,780,475 2,121,063 0.6
International
Trade
Total Investments in Japan 76,343,759 80,578,888 21.5
Malaysia Banking 583,333 Commerce Asset--Holding BHD 1,276,855 2,828,699 0.8
Building Materials 300,000 Sungei Way Holdings BHD 1,143,066 887,049 0.2
Telecommunications 600,000 +Technology Resources Industries BHD 1,818,763 1,679,480 0.4
300,000 Telekom Malaysia BHD 1,491,009 2,235,364 0.6
------------ ------------ ------
3,309,772 3,914,844 1.0
Total Investments in Malaysia 5,729,693 7,630,592 2.0
New Zealand Telecommunications 400,000 Telecom Corp. of New Zealand Ltd.
(Class C) (ADR)* 1,278,315 1,672,241 0.4
Total Investments in New Zealand 1,278,315 1,672,241 0.4
Singapore Banking 150,000 Overseas Chinese Banking Corp. 1,513,249 1,797,872 0.5
Broadcasting 100,000 Singapore Press Holdings Limited 1,476,852 1,581,560 0.4
& Publishing
Construction & 200,000 City Development Ltd. 1,181,730 1,375,886 0.4
Housing
Multi-Industry 150,000 Keppel Corp. Ltd. 1,089,994 1,234,043 0.3
Total Investments in Singapore 5,261,825 5,989,361 1.6
South Korea Banking 91,875 Hanil Bank 1,273,823 1,178,184 0.3
Construction & 26,790 +Hyundai Engineering and
Housing Construction Co. 539,284 1,354,275 0.4
1,834 +Hyundai Engineering and Construction
Co. (New Shares) 62,264 92,212 0.0
------------ ------------ ------
601,548 1,446,487 0.4
Electronics 30,000 LG Electronics Co. 1,254,940 1,093,953 0.3
1,283 LG Electronics Co. (New Shares) 36,720 46,119 0.0
------------ ------------ ------
1,291,660 1,140,072 0.3
</TABLE>
57
<PAGE> 112
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
SCHEDULE OF INVESTMENTS (continued)
(In US Dollars)
<TABLE>
<CAPTION>
PACIFIC
BASIN Value Percent of
(concluded) Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
South Steel 38,000 Pohang Iron & Steel Co., Ltd.
Korea (ADR)* $ 910,700 $ 931,000 0.2%
(concluded)
Utilities 40,000 Korea Electric Power Co. 1,097,115 1,747,210 0.5
Total Investments in South Korea 5,174,846 6,442,953 1.7
Thailand Banking 50,000 Bangkok Bank Public Company Ltd. 532,863 532,803 0.1
Building 20,000 Siam Cement Group 638,270 962,227 0.3
Materials
Telecommunications 98,000 Advanced Information Services Inc. 1,098,643 1,558,648 0.4
600,000 +Total Access Communication
(ADR)*++ 3,787,500 3,720,000 1.0
------------ ------------ ------
4,886,143 5,278,648 1.4
Total Investments in Thailand 6,057,276 6,773,678 1.8
Total Investments in the
Pacific Basin 121,919,598 135,178,597 36.0
WESTERN
EUROPE
Austria Energy 21,000 OMV Aktiengesellschaft 2,089,439 1,727,469 0.5
Total Investments in Austria 2,089,439 1,727,469 0.5
Finland Forest Products 40,000 Kymmene OY 1,152,579 1,089,183 0.3
Telecommunications 76,400 Nokia OY AS (Preferred) 2,163,900 4,196,239 1.1
Total Investments in Finland 3,316,479 5,285,422 1.4
France Automobile 65,000 Michelin S.A. 2,756,581 2,645,076 0.7
Banking 35,000 Credit Local de France S.A. 2,781,428 2,642,066 0.7
Cosmetics 33,000 Christian Dior S.A. 2,920,305 3,185,047 0.9
Energy 42,785 Total S.A. 'B' 2,673,402 2,635,644 0.7
Total Investments in France 11,131,716 11,107,833 3.0
Germany Building 11,500 Friedrich Grohe AG (Preferred) 2,939,739 2,464,059 0.7
Materials 90,000 +Tarkett AG 2,264,876 2,003,041 0.5
------------ ------------ ------
5,204,615 4,467,100 1.2
Machinery & 13,000 Jungheinrich AG (Preferred) 2,949,306 2,201,410 0.6
Equipment
Multi-Industry 10,000 Mannesmann AG 3,229,897 3,218,828 0.8
60,000 Vereinigte Elektrizitaets &
Bergwerks AG (Veba) 2,093,057 2,446,779 0.7
------------ ------------ ------
5,322,954 5,665,607 1.5
Recreation 25,000 +Adidas AG 1,198,703 1,332,250 0.3
Total Investments in Germany 14,675,578 13,666,367 3.6
Italy Telecommunications 2,600,000 Telecom Italia Mobile S.p.A.
(Savings) 2,174,877 2,535,475 0.7
Textile & Apparel 95,000 +Gucci Group N.V. 2,090,000 3,277,500 0.9
</TABLE>
58
<PAGE> 113
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Investments in Italy 4,264,877 5,812,975 1.6
Netherlands Business & Public 51,100 +Baan Company N.V. 1,370,775 2,338,507 0.6
Services
Electrical & 67,000 Philips N.V. 2,147,674 2,635,808 0.7
Electronics
Energy Equipment 90,000 IHC Caland N.V. 1,977,215 2,712,451 0.7
& Services
Total Investments in the
Netherlands 5,495,664 7,686,766 2.0
Norway Automobiles 210,000 +Sensonor A/S 1,572,531 1,566,180 0.4
Telecommunications 50,000 Nera A/S 1,402,769 1,601,507 0.4
Total Investments in Norway 2,975,300 3,167,687 0.8
Spain Banking 20,000 Banco Popular Espanol S.A. 2,911,652 3,361,754 0.9
Energy 50,000 Repsol S.A. 1,662,606 1,577,345 0.4
Forest Products 106,500 Empresa Nacional de Celulosas S.A. 2,586,070 1,820,402 0.5
& Paper
Total Investments in Spain 7,160,328 6,759,501 1.8
Sweden Automobiles 40,000 Autoliv AB 2,142,137 2,366,323 0.6
Forest Products/ 60,000 Mo Och Domsjo AB 'B' Free 2,957,303 3,000,595 0.8
Paper Packaging
Health & 60,000 Astra AB 'B' Free 1,096,951 2,204,705 0.6
Personal Care
Multi-Industry 79,000 Kinnevik AB 'B' Free 2,666,338 2,240,383 0.6
Total Investments in Sweden 8,862,729 9,812,006 2.6
Switzerland Health & 871 Roche Holdings AG 4,203,474 6,582,536 1.8
Personal Care
Total Investments in
Switzerland 4,203,474 6,582,536 1.8
United Banking 240,574 National Westminster Bank PLC 1,894,259 2,461,246 0.6
Kingdom 400,000 The Royal Bank of Scotland
Group PLC 2,996,323 3,409,731 0.9
------------ ------------ ------
4,890,582 5,870,977 1.5
Broadcasting & 125,000 Carlton Communications PLC
Publishing (Ordinary) 1,292,970 1,870,914 0.5
Business & Public 320,000 Chubb Security PLC 1,625,989 1,576,924 0.4
Services
Electronics 1,000,000 Astec (BSR) PLC 1,503,800 1,859,436 0.5
Energy 462,452 British Petroleum Co. PLC 2,325,181 3,644,843 1.0
Merchandising 700,000 House of Fraser PLC 1,899,679 1,767,612 0.5
500,000 Next PLC 1,731,357 3,412,792 0.9
------------ ------------ ------
3,631,036 5,180,404 1.4
Multi-Industry 461,811 BTR PLC 2,584,919 2,360,564 0.6
287,980 Siebe PLC 2,503,289 3,327,471 0.9
------------ ------------ ------
5,088,208 5,688,035 1.5
Total Investments in the
United Kingdom 20,357,766 25,691,533 6.8
Total Investments in Western
Europe 84,533,350 97,300,095 25.9
</TABLE>
59
<PAGE> 114
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
SCHEDULE OF INVESTMENTS (concluded)
(In US Dollars)
<TABLE>
<CAPTION>
SHORT-TERM Value Percent of
SECURITIES Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
United Commercial $10,232,000 Associates Corp. of North America,
States Paper** 5.88% due 12/01/1995 $ 10,232,000 $ 10,232,000 2.7%
US Government & 10,000,000 Federal Home Loan Bank, 5.60% due
Agency 12/04/1995 9,995,333 9,995,333 2.7
Obligations**
Total Investments in Short-Term
Securities 20,227,333 20,227,333 5.4
Total Investments $312,057,207 370,788,936 98.7
------------
Other Assets Less Liabilities 4,703,471 1.3
------------ ------
Net Assets $375,492,407 100.0%
------------ ------
</TABLE>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Company.
+Non-income producing security.
++Restricted securities as to resale. The value of the Company's
investment was approximately $3,720,000, representing 1.0% of net
assets.
<TABLE>
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Total Access Communication
(ADR) 4/04/1995 $3,787,500 $3,720,000
Total $3,787,500 $3,720,000
---------- ----------
</TABLE>
See Notes to Financial Statements.
FOR THE QUARTER ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C> <C>
AT&T Corp. GT Chilean Growth Fund(ADR)(Rights) *Pediatrix Medical Group
Adidas AG General Instrument Corp. The Royal Bank of Scotland Group PLC
Aracrum Celulose S.A. (ADR) Gucci Group N.V. Singapore Press Holdings Limited
*Canadian National Railway Jaya Real Property *Smith Micro Software Inc.
Canon Inc. NEC Corporation Total Access Communication
DDI Corp. P.T. Telekomunikasi (ADR) *Union Pacific Resources
ASM Lithography Holdings N.V. Hagemeyer N.V. Sinclair Broadcast Group, Inc.
Anadarko Petroleum, Inc. Heineken N.V. *Smith Micro Software Inc.
The Asahi Bank, Ltd. Heineken N.V. (New Shares) Suzuki Motor Corp.
BASF AG (Ordinary) Koninkiljke Nederlandsche Hoogovens Television Broadcast, Ltd.
The Bank of Tokyo, Ltd. en Staalfabrieken N.V. *Union Pacific Resources
Benefon OY Mercantile Bancorp, Inc. Volvo AB'A'
*Canadian National Railway Newbridge Networks Corp. Wal-Mart Stores, Inc.
Catena AB'A' *Pediatrix Medical Group Zurich Insurance AG
Corning Inc. Rottneros Drugs AB Free
General Motors Corp. Sanyo Electric Co., Ltd.
</TABLE>
*Added and deleted in the same quarter.
60
<PAGE> 115
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of November 30, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$312,057,207) (Note 1a) . . $370,788,936
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457,008
Receivables:
Securities sold . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,866,643
Capital shares sold . . . . . . . . . . . . . . . . . . . . . . . 1,041,659
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,491
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 5,504,875
------------
Prepaid registration fees and other assets (Note 1f) . . . . . . . 34,686
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 376,785,505
------------
Liabilities: Payables:
Capital shares redeemed . . . . . . . . . . . . . . . . . . . . . 602,407
Investment adviser (Note 2) . . . . . . . . . . . . . . . . . . . 302,683
Distributor (Note 2) . . . . . . . . . . . . . . . . . . . . . . 36,657 941,747
------------
Accrued expenses and other liabilities . . . . . . . . . . . . . . 351,351
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,293,098
------------
Net Assets: Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,492,407
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized . . . . . . . . . . . . . . . . . . . . . . . . $ 2,359,239
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized . . . . . . . . . . . . . . . . . . . . . . . . 331,679
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized . . . . . . . . . . . . . . . . . . . . . . . . 2,807
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized . . . . . . . . . . . . . . . . . . . . . . . . 24,994
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . 295,224,617
Accumulated investment loss--net . . . . . . . . . . . . . . . . . (1,935,539)
Undistributed realized capital gains on investments and
foreign currency transactions--net . . . . . . . . . . . . . . . 20,757,888
Unrealized appreciation on investments and foreign
currency transactions--net . . . . . . . . . . . . . . . . . . . 58,726,722
------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $375,492,407
============
Net Asset Class A--Based on net assets of $327,270,122 and
Value: 23,592,389 shares outstanding . . . . . . . . . . . . . . $ 13.87
============
Class B--Based on net assets of $44,387,530 and
3,316,793 shares outstanding . . . . . . . . . . . . . . . $ 13.38
============
Class C--Based on net assets of $375,660 and 28,069
shares outstanding . . . . . . . . . . . . . . . . . . . . $ 13.38
============
Class D--Based on net assets of $3,459,095 and 249,936
shares outstanding . . . . . . . . . . . . . . . . . . . . $ 13.84
============
</TABLE>
See Notes to Financial Statements.
61
<PAGE> 116
Merrill Lynch Global Holdings, Inc., November 30, 1995
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended November 30, 1995
<S> <C> <C> <C>
Investment Income Dividends (net of $462,990 foreign withholding tax) . . . . . . . $ 5,389,750
(Notes 1d & 1e): Interest and discount earned . . . . . . . . . . . . . . . . . . 1,812,889
------------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . 7,202,639
------------
Expenses: Investment advisory fees (Note 2) . . . . . . . . . . . . . . . . $ 3,740,624
Transfer agent fees--Class A (Note 2) . . . . . . . . . . . . . . 785,911
Account maintenance and distribution fees--Class B (Note 2) . . . 453,009
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 361,796
Printing and shareholder reports . . . . . . . . . . . . . . . . 289,917
Accounting services (Note 2) . . . . . . . . . . . . . . . . . . 171,044
Transfer agent fees--Class B (Note 2) . . . . . . . . . . . . . . 125,154
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . 102,505
Directors' fees and expenses . . . . . . . . . . . . . . . . . . 39,132
Registration fees (Note 1f) . . . . . . . . . . . . . . . . . . . 23,285
Pricing fees . . . . . . . . . . . . . . . . . . . . . . . . . . 9,309
Account maintenance fees--Class D (Note 2) . . . . . . . . . . . 7,980
Transfer agent fees--Class D (Note 2) . . . . . . . . . . . . . . 7,712
Account maintenance and distribution fees--Class C (Note 2) . . . 2,816
Transfer agent fees--Class C (Note 2) . . . . . . . . . . . . . . 799
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,557
------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 6,135,550
------------
Investment income--net . . . . . . . . . . . . . . . . . . . . . 1,067,089
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net . . . . . . . . . . . . . . . . . . . . . . . 20,848,259
(Loss) on Foreign currency transactions--net . . . . . . . . . . . . . . (1,454,944) 19,393,315
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net . . . . . . . . . . . . . . . . . . . . . . . 23,299,708
(Notes 1b, 1c, Foreign currency transactions--net . . . . . . . . . . . . . . 1,248,009 24,547,717
1e & 3): ------------ ------------
Net realized and unrealized gain on investments
and foreign currency transactions . . . . . . . . . . . . . . . 43,941,032
------------
Net Increase in Net Assets Resulting from Operations . . . . . . $ 45,008,121
============
</TABLE>
See Notes to Financial Statements.
62
<PAGE> 117
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
November 30,
------------------------------
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net .......................................... $ 1,067,089 $ 347,222
Realized gain on investments and foreign currency
transactions--net ............................................... 19,393,315 15,268,249
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net .......................... 24,547,717 (7,131,023)
------------ ------------
Net increase in net assets resulting from operations ............ 45,008,121 8,484,448
------------ ------------
Dividends & Investment income--net:
Distributions to Class A ....................................................... (177,010) (292,787)
Shareholders Class D ....................................................... (352) --
(Note 1g): Realized gain on investments--net:
Class A ....................................................... (13,259,833) (15,976,086)
Class B ....................................................... (2,030,586) (1,819,251)
Class C ....................................................... (7,459) --
Class D ....................................................... (65,148) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................... (15,540,388) (18,088,124)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions .............................................. (35,521,768) 100,706,623
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (6,054,035) 91,102,947
Beginning of year................................................ 381,546,442 290,443,495
------------ ------------
End of year* .................................................... $375,492,407 $381,546,442
============ ============
*Undistributed (accumulated) investment income (loss)--net
(Note 1h) ...................................................... $ (2,025,871) $ 530,009
============ ============
</TABLE>
See Notes to Financial Statements.
63
<PAGE> 118
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have Class A
been derived from information provided --------------------------------------------------
in the financial statements. For the Year
Ended November 30,
--------------------------------------------------
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993++ 1992++ 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .......... $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ...................... .05 .03 .04 .10 .16
Realized and unrealized gain on investments
and foreign currency transactions--net ...... 1.52 .53 2.07 1.05 .53
-------- -------- -------- -------- --------
Total from investment operations ............ 1.57 .56 2.11 1.15 .69
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................... (.01) (.01) -- (.10) (.21)
Realized gain on investments--net ......... (.51) (.80) (.82) (.22) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions ........... (.52) (.81) (.82) (.32) (.22)
-------- -------- -------- -------- --------
Net asset value, end of year ................ $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95
======== ======== ======== ======== ========
Total Investment Based on net asset value per share .......... 12.92% 4.39% 19.16% 10.67% 6.77%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses .................................... 1.51% 1.44% 1.43% 1.49% 1.48%
Average ======== ======== ======== ======== ========
Net Assets: Investment income (loss)--net ............... .41% .23% .32% (.19%) 1.31%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) ...... $327,270 $330,132 $256,203 $166,947 $165,687
Data: ======== ======== ======== ======== ========
Portfolio turnover .......................... 44.64% 40.18% 56.98% 65.93% 63.94%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
The following per share data and ratios have Class B
been derived from information provided -------------------------------------------------
in the financial statements. For the Year
Ended November 30,
--------------------------------------------------
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993++ 1992++ 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .......... $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net ............... (.08) (.10) (.08) (.03) .04
Realized and unrealized gain on investments
and foreign currency transactions--net ...... 1.47 .52 2.02 1.05 .54
-------- -------- -------- -------- --------
Total from investment operations ............ 1.39 .42 1.94 1.02 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................... -- -- -- -- (.11)
Realized gain on investments--net ......... (.51) (.66) (.82) (.22) (.01)
-------- -------- -------- -------- --------
Total dividends and distributions ........... (.51) (.66) (.82) (.22) (.12)
-------- -------- -------- -------- --------
Net asset value, end of year ................ $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82
======== ======== ======== ======== ========
</TABLE>
64
<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Investment Based on net asset value per share . . . . . . 11.78% 3.32% 17.87% 9.58% 5.67%
Return:** ======== ======== ======== ======== ========
Ratios to Expenses, excluding account maintenance
Average and distribution fees . . . . . . . . . . . 1.55% 1.48% 1.46% 1.52% 1.51%
Net Assets: ======== ======== ======== ======== ========
Expenses . . . . . . . . . . . . . . . . . . . 2.55% 2.48% 2.46% 2.52% 2.51%
======== ======== ======== ======== ========
Investment income (loss)--net . . . . . . . . (.63%) (.80%) (.72%) (1.19%) .25%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) . . . . $ 44,387 $ 49,647 $ 34,241 $ 22,925 $ 24,960
Data: ======== ======== ======== ======== ========
Portfolio turnover . . . . . . . . . . . . . . 44.64% 40.18% 56.98% 65.93% 63.94%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Class C Class D
--------------------- ----------------------
For the For the
The following per share data and ratios have Period Period
been derived from information provided in For the Oct. 21, For the Oct. 21,
the financial statements. Year Ended 1994+ to Year Ended 1994+ to
Nov. 30, Nov. 30, Nov. 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1995++ 1994++
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period . . . . . . . $ 12.51 $ 13.08 $ 12.81 $ 13.39
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net . . . . . . . . . . (.08) (.02) .02 (.01)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net . . . . . 1.46 (.55) 1.52 (.57)
-------- -------- -------- --------
Total from investment operations . . . . . . . . . 1.38 (.57) 1.54 (.58)
-------- -------- -------- --------
Less dividends and distributions:
Investment income--net . . . . . . . . . . . . . -- -- (.00)++++ --
Realized gain on investments--net . . . . . . . (.51) -- (.51) --
-------- -------- -------- --------
Total dividends and distributions . . . . . . . . (.51) -- (.51) --
-------- -------- -------- --------
Net asset value, end of period . . . . . . . . . . $ 13.38 $ 12.51 $ 13.84 $ 12.81
======== ======== ======== ========
Total Investment Based on net asset value per share . . . . . . . . 11.69% (4.36%)++ 12.73% (4.33%)++
Return:** ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees . . . . . . . . . . . . . 1.55% 2.00%* 1.51% 1.98%*
======== ======== ======== ========
Expenses . . . . . . . . . . . . . . . . . . . . . 2.55% 3.00%* 1.76% 2.23%*
======== ======== ======== ========
Investment income (loss)--net . . . . . . . . . . (.63%) (1.31%)* .18% (.67%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) . . . . . $ 376 $ 177 $ 3,459 $ 1,591
Data: ======== ======== ======== ========
Portfolio turnover . . . . . . . . . . . . . . . . 44.64% 40.18% 44.64% 40.18%
======== ======== ======== ========
</TABLE>
*Annualized.
**Total investment returns exclude the effect of sales loads.
+Commencement of Operations.
++Based on average shares outstanding during the period.
+++Aggregate total investment return.
++++Amount is less than $.01 per share.
See Notes to Financial Statements.
65
<PAGE> 120
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Global Holdings, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Company.
(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities
are valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Company's
Board of Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(c) Derivative financial instruments--The Company may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the
contract.
o Options--The Company is authorized to write covered call options
and purchase put options. When the Company writes an option, an
amount equal to the premium received by the Company is reflected as
an asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Company enters into a closing transaction), the
Company realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--The Company is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Company's records. However, the effect on
operations is recorded from the date the Company enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
o Foreign currency options and futures--The Company may also
purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be
effected with respect to hedges on non-US dollar denominated
securities owned by the Company, sold by the Company but not yet
delivered, or committed or anticipated to be purchased by the
Company.
o Financial futures contracts--The Company may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securi-
66
<PAGE> 121
ties or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Company deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction
is effected.
Pursuant to the contract, the Company agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
variation margin and are recorded by the Company as unrealized gains
or losses. When the contract is closed, the Company records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
(d) Income taxes--It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend 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) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Company are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $3,355,275 have been reclassified from undistributed net realized
capital gains to accumulated net investment loss. These
reclassifications have no effect on net assets or net asset values
per share.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS
WITH AFFILIATES:
The Company has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Company has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
As compensation for its services to the Company, MLAM receives
monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company.
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 MLAM 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. MLAM's obligation to reimburse the Company is limited to
the amount of the investment advisory fee. No fee payment will be
made to MLAM during any fiscal year which will cause such expenses
to exceed the most restrictive expense limitation at the time of
such payment.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Company in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Company pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<TABLE>
<CAPTION>
Account Distribution
Maintenance Fee Fee
<S> <C> <C>
Class B . . . . . . . . . . . . . . . 0.25% 0.75%
Class C . . . . . . . . . . . . . . . 0.25% 0.75%
Class D . . . . . . . . . . . . . . . 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Company. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended November 30, 1995, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Company's Class A and Class D Shares as
follows:
<TABLE>
<CAPTION>
MLFD MLPF&S
<S> <C> <C>
Class A . . . . . . . . . . . . . . $ 1,842 $ 17,301
Class D . . . . . . . . . . . . . . $ 881 $ 13,922
</TABLE>
67
<PAGE> 122
MERRILL LYNCH GLOBAL HOLDINGS, INC., NOVEMBER 30, 1995
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended November 30, 1995, MLPF&S received contingent
deferred sales charges of $89,423 and $97 relating to transactions
in Class B and Class C Shares, respectively.
In addition, MLPF&S received $38,165 in commissions on the execution
of portfolio security transactions for the Company for the year
ended November 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly
owned subsidiary of ML & Co., acts as the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended November 30, 1995 were $155,988,638 and
$200,855,465, respectively.
Net realized and unrealized gains (losses) as of November 30, 1995
were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains (Losses) Gains (Losses)
<S> <C> <C>
Long-term investments . . . . . . $ 20,848,305 $ 58,731,729
Short-term investments . . . . . (46) --
Foreign currency transactions . . (1,454,944) (5,007)
------------ ------------
Total $ 19,393,315 $ 58,726,722
============ ============
</TABLE>
As of November 30, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $58,621,728, of which $68,770,392
related to appreciated securities and $10,148,664 related to
depreciated securities. The aggregate cost of investments at
November 30, 1995 for Federal income tax purposes was $312,167,208.
4. Capital Stock Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was ($35,521,768) and $100,706,623 for the years ended
November 30, 1995 and November 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
<S> <C>
Shares sold . . . . . . . . . . . 6,594,967 $ 84,361,655
Shares issued to shareholders in
reinvestment of dividends and
distributions . . . . . . . . . . 949,889 11,322,677
----------- -------------
Total issued 7,544,856 95,684,332
Shares redeemed (9,701,811) (124,736,786)
----------- -------------
Net decrease (2,156,955) $ (29,052,454)
=========== =============
</TABLE>
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended November 30, 1994 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 11,383,578 $ 152,341,771
Shares issued to shareholders in
reinvestment of dividends and
distributions . . . . . . . . . . 1,160,533 14,703,952
----------- -------------
Total issued 12,544,111 167,045,723
Shares redeemed (6,393,917) (84,948,853)
----------- -------------
Net increase 6,150,194 $ 82,096,870
=========== =============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
<S> <C>
Shares sold . . . . . . . . . . . 524,355 $ 6,805,305
Shares issued to shareholders in
reinvestment of distributions . . 154,488 1,793,609
----------- -------------
Total issued . . . . . . . . . . 678,843 8,598,914
Shares redeemed . . . . . . . . . (1,292,140) (15,830,273)
Automatic conversion of shares . (40,632) (883,950)
----------- -------------
Net decrease . . . . . . . . . . (653,929) $ (8,115,309)
=========== =============
</TABLE>
68
<PAGE> 123
<TABLE>
<CAPTION>
Class B Shares for the Year Dollar
Ended November 30, 1994 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 2,992,769 $ 39,141,551
Shares issued to shareholders in
reinvestment of distributions . . 131,099 1,636,117
----------- -------------
Total issued . . . . . . . . . . 3,123,868 40,777,668
Shares redeemed . . . . . . . . . (1,737,178) (22,670,466)
Automatic conversion of shares. . (102,695) (1,309,366)
----------- -------------
Net increase . . . . . . . . . . 1,283,995 $ 16,797,836
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 21,916 $ 274,811
Shares issued to shareholders in
reinvestment of distributions . . 445 5,171
----------- -------------
Total issued . . . . . . . . . . 22,361 279,982
Shares redeemed . . . . . . . . . (8,437) (106,151)
----------- -------------
Net increase . . . . . . . . . . 13,924 $ 173,831
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Nov. 30, 1994 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 16,968 $ 221,416
Shares redeemed . . . . . . . . . (2,823) (36,788)
----------- -------------
Net increase . . . . . . . . . . 14,145 $ 184,628
----------- -------------
</TABLE>
+Commencement of Operations.
<TABLE>
<CAPTION>
Class D Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 705,152 $ 8,594,947
Shares issued to shareholders in
reinvestment of dividends and
distributions . . . . . . . . . . 4,931 58,733
Automatic conversion of shares. . 70,176 883,950
----------- -------------
Total issued . . . . . . . . . . 780,259 9,537,630
Shares redeemed . . . . . . . . . (654,458) (8,065,466)
----------- -------------
Net increase . . . . . . . . . . 125,801 $ 1,472,164
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class D Shares for the Period Dollar
Oct. 21, 1994+ to Nov. 30, 1994 Shares Amount
<S> <C> <C>
Shares sold . . . . . . . . . . . 24,298 $ 323,555
Automatic conversion of shares. . 100,258 1,309,366
----------- -------------
Total issued . . . . . . . . . . 124,556 1,632,921
Shares redeemed . . . . . . . . . (421) (5,632)
----------- -------------
Net increase . . . . . . . . . . 124,135 $ 1,627,289
----------- -------------
</TABLE>
+Commencement of Operations.
5. COMMITMENTS:
On November 30, 1995, the Company had entered into foreign exchange
contracts under which it had agreed to sell various foreign
currencies with an approximate value of $2,097,283.
6. SUBSEQUENT EVENT:
On December 15, 1995, the Board of Directors declared an ordinary
income dividend in the amount of $0.163701 per share for each of the
four classes and a long-term capital gains distribution in the
amount of $0.583582 per share for each of the four classes, payable
on December 22, 1995 to shareholders of record as of December 14,
1995.
69
<PAGE> 124
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 125
- ------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and
Policies......................... 2
Hedging Techniques............... 3
Investment Restrictions.......... 7
Management of the Company.......... 10
Directors and Officers........... 10
Compensation of Directors........ 12
Advisory and Management
Arrangements.................. 12
Purchase of Shares................. 14
Initial Sales Charge
Alternatives -- Class A and
Class D Shares................ 15
Reduced Initial Sales Charges.... 17
Employer-Sponsored Retirement or
Savings Plans and Certain
Other Arrangements............ 20
Distribution Plans............... 20
Limitations on the Payment of
Deferred Sales Charges........ 20
Redemption of Shares............... 22
Deferred Sales Charges -- Class B
and Class C Shares............ 22
Portfolio Transactions and
Brokerage........................ 23
Determination of Net Asset Value... 25
Shareholder Services............... 26
Investment Account............... 26
Automatic Investment Plans....... 27
Automatic Reinvestment of
Dividends and Capital Gains
Distributions................. 27
Systematic Withdrawal Plans --
Class A and Class D Shares.... 28
Exchange Privilege............... 29
Taxes.............................. 43
Tax Treatment of Options, Futures
and Forward Foreign Exchange
Transactions.................. 45
Special Rules for Certain Foreign
Currency Transactions......... 45
Performance Data................... 46
General Information................ 49
Description of Shares............ 49
Computation of Offering Price Per
Share......................... 51
Independent Auditors............. 51
Custodian........................ 51
Transfer Agent................... 51
Legal Counsel.................... 52
Reports to Shareholders.......... 52
Additional Information........... 52
Independent Auditors' Report....... 53
Financial Statements............... 54
Code # 10245-0396
</TABLE>
STATEMENT OF
ADDITIONAL
INFORMATION
March 29, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
YZa(LOGO)
MERRILL LYNCH
GLOBAL HOLDINGS, INC.
<PAGE> 126
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.
<TABLE>
<CAPTION>
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
<S> <C>
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
</TABLE>
<PAGE> 127
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the periods in the ten-year period
ended November 30, 1995.
Contained in Part B:
Schedule of Investments, as of November 30, 1995.
Statement of Assets and Liabilities, as of November 30, 1995.
Statement of Operations for the year ended November 30, 1995.
Statements of Changes in Net Assets for the years ended November 30,
1995 and 1994.
Financial Highlights for each of the years in the five-year period ended
November 30, 1995.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Articles of Incorporation of Registrant, as amended.(e)
(b) -- Articles of Amendment to Articles of Incorporation of Registrant.(e)
(c) -- Articles of Amendment to Articles of Incorporation of the Registrant.(e)
(d) -- Articles Supplementary to Articles of Incorporation of the Registrant.(e)
2 -- By-Laws of Registrant.(e)
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.(a)
5(a) -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management, Inc.(e)
(b) -- Supplement to Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, L.P., dated January 3, 1994.(b)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc.
with respect to the Merrill Lynch Mutual Fund Adviser Program.(b)
(d) -- Class C Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
(e) -- Class D Shares Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(e)
7 -- None.
8 -- Custody Agreement between Registrant and The Chase Manhattan Bank, N.A.(e)
9 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Service, Inc. (now
known as Merrill Lynch Financial Data Services, Inc.)(e)
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(e)
14 -- None.
</TABLE>
C-1
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
15(a) -- Amended and Restated Class B Distribution Plan of the Registrant and Distribution
Plan Sub- Agreement.(b)
(b) -- Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.(e)
(c) -- Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.(e)
16(a) -- Schedule for computation of each performance quotation for Class A shares provided
in the Registration Statement in response to Item 22.(e)
(b) -- Schedule for computation of each performance quotation for Class B shares provided
in the Registration Statement in response to Item 22.(e)
(c) -- Schedule for computation of each performance quotation for Class C shares provided
in the Registration Statement in response to Item 22.(e)
(d) -- Schedule for computation of each performance quotation for Class D shares provided
in the Registration Statement in response to Item 22.(e)
17(a) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to Class A
Shares.
(b) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to Class B
Shares.
(c) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to Class C
Shares.
(d) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to Class D
Shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan Pursuant to Rule 18f-3.(f)
</TABLE>
[/R]
- ---------------
(a) 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; the Articles of Amendment filed as
Exhibit 1(c) to the Registration Statement; the Articles Supplementary filed
as Exhibit 1(d) to the 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
filed as Exhibit (2) to the Registrant's Registration Statement.
(b) Filed on March 30, 1994 as an Exhibit to Post-Effective Amendment No. 12 to
Registrant's Registration Statement under the Securities Act of 1933.
(c) Filed on October 17, 1994, as an Exhibit to Post-Effective Amendment No. 13
to Registrant's Registration Statement under the Securities Act of 1933.
(d) Refiled pursuant to the Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) phase-in requirements.
(e) Filed on March 28, 1995, as an Exhibit to Post-Effective Amendment No. 14 to
Registrant's Registration Statement under the Securities Act of 1933.
(f) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal Bond
Fund of Merrill Lynch Multi-State Municipal Series Trust, filed on January
25, 1996.
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.
C-2
<PAGE> 129
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS FEBRUARY 29, 1996*
-------------- ------------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share.................... 31,666
Shares of Class B Common Stock, par value $0.10 per share.................... 4,615
Shares of Class C Common Stock, par value $0.10 per share.................... 102
Shares of Class D Common Stock, par value $0.10 per share.................... 402
</TABLE>
- ---------------
* Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of 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 Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith 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.
C-3
<PAGE> 130
In Section 9 of the Class A, Class B, Class C, and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, as amended (the
"Act"), against certain types of civil liabilities arising in connection with
the Registration Statement or Prospectus and Statement of Additional
Information.
Insofar as indemnification for liabilities arising under the 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 Asset Management, L.P. ("MLAM" or the "Investment
Adviser"), acts as investment adviser for the following open-end investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch 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
U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill
Lynch Variable Series Funds, Inc. and for the following closed-end companies:
Convertible Holdings Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch 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., and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured
C-4
<PAGE> 131
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, 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, FAM and Princeton Services, Inc. ("Princeton Services")
is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill
Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, 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. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive
East, Jacksonville, Florida 32240-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since December 1, 1993, for his or its 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 first two paragraphs of this
Item 28, and Messrs. Giordano, Harvey, Hewitt, Kirstein and Monagle are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ---- ---------------------- ------------------------------------------
<S> <C> <C>
ML & Co. .................. Limited Partner Financial Services Holding Company;
Limited Partner of FAM
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.
Terry K. Glenn............. Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President and Director of
MLFD; Director of MLFDS; President of
Princeton Administrators, L.P.
Vincent R. Giordano........ Senior Vice President Senior Vice President of FAM
Elizabeth Griffin.......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey........... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
N. John Hewitt............. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
C-5
<PAGE> 132
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- --------------------------- ---------------------- ------------------------------------------
<S> <C> <C>
Philip L. Kirstein......... Senior Vice President, Senior Vice President, General Counsel and
General Counsel and Secretary of FAM; Senior Vice President,
Secretary General Counsel, Director 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, L.P.
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. Reller.......... Senior Vice President Senior Vice President of FAM; 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>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as principal underwriter for the
following closed-end investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., and Merrill Lynch
Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Breen, Crook, Fatseas and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND 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
</TABLE>
<TABLE>
<S> <C> <C>
William E. Aldrich............. Senior Vice President None
Kevin P. Boman................. Vice President None
Robert W. Crook................ Senior Vice President None
Michael J. Brady............... Vice President None
William M. Breen............... Vice President None
Sharon Creveling............... Vice President and Assistant Treasurer None
Mark A. DeSario................ Vice President None
James T. Fatseas............... Vice President None
</TABLE>
C-6
<PAGE> 133
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MLFD WITH REGISTRANT
---- ------------------------- -------------------------
<S> <C> <C>
Michelle T. Lau................ Vice President None
Debra W. Landsman-Yaros........ Vice President None
Gerald M. Richard.............. Vice President and Treasurer Treasurer
Salvatore Venezia.............. Vice President None
William Wasel.................. Vice President None
Robert Harris.................. Secretary Secretary
</TABLE>
(c) Not applicable.
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 its transfer agent, Merrill Lynch
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.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-7
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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
1996.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(Registrant)
By /s/ TERRY K. GLENN
------------------------------------
(TERRY K. GLENN, EXECUTIVE VICE
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
- ----------------------------------- --------------------------------------- ---------------
<C> <S> <C>
ARTHUR ZEIKEL* President and Director (Principal
- ----------------------------------- Executive Officer)
(ARTHUR ZEIKEL)
GERALD M. RICHARD* Treasurer (Principal Financial and
- ----------------------------------- Accounting Officer)
(GERALD M. RICHARD)
DONALD CECIL* Director
- -----------------------------------
(DONALD CECIL)
EDWARD H. MEYER* Director
- -----------------------------------
(EDWARD H. MEYER)
CHARLES C. REILLY* Director
- -----------------------------------
(CHARLES C. REILLY)
RICHARD R. WEST* Director
- -----------------------------------
(RICHARD R. WEST)
EDWARD D. ZINBARG* Director
- -----------------------------------
(EDWARD D. ZINBARG)
*By /s/ TERRY K. GLENN March 28, 1996
- -----------------------------------
(TERRY K. GLENN, ATTORNEY-IN-FACT)
</TABLE>
C-8
<PAGE> 135
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S> <C>
10 -- Opinion of Brown & Wood, counsel for the Registrant.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
17(a) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to
Class A Shares.
(b) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to
Class B Shares.
(c) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to
Class C Shares.
(d) -- Financial Data Schedule for the Year Ended November 30, 1995, relating to
Class D Shares.
</TABLE>
<PAGE> 1
March 29, 1996
Merrill Lynch Global Holdings, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
Ladies and Gentlemen:
This opinion is furnished in connection with the registration by
Merrill Lynch Global Holdings, Inc. a Maryland corporation (the "Company"), of
shares of common stock, par value $0.10 per share, of the Company (the
"Shares"), under the Securities Act of 1933, as amended, pursuant to the
Company's registration statement on Form N-1A (File No. 2-89834), as amended
(the "Registration Statement"), in the amount set forth under "Amount Being
Registered" on the facing page of 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.
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
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Holdings Inc.:
We consent to the use in Post-Effective Amendment No. 15 to Registration
Statement No. 2-89834 of our report dated January 12, 1996 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 LLP
Princeton, New Jersey
March 27, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000741886
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 312057207
<INVESTMENTS-AT-VALUE> 370788936
<RECEIVABLES> 5504875
<ASSETS-OTHER> 491694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376785505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1293098
<TOTAL-LIABILITIES> 1293098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 297943336
<SHARES-COMMON-STOCK> 23592389
<SHARES-COMMON-PRIOR> 25749344
<ACCUMULATED-NII-CURRENT> (1935539)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20757888
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58726722
<NET-ASSETS> 327270122
<DIVIDEND-INCOME> 5389750
<INTEREST-INCOME> 1812889
<OTHER-INCOME> 0
<EXPENSES-NET> 6135550
<NET-INVESTMENT-INCOME> 1067089
<REALIZED-GAINS-CURRENT> 19393315
<APPREC-INCREASE-CURRENT> 24547717
<NET-CHANGE-FROM-OPS> 45008121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177010
<DISTRIBUTIONS-OF-GAINS> 13259833
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6954967
<NUMBER-OF-SHARES-REDEEMED> 9701811
<SHARES-REINVESTED> 949889
<NET-CHANGE-IN-ASSETS> (6054035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13372324
<OVERDISTRIB-NII-PRIOR> 530009
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3740624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6135550
<AVERAGE-NET-ASSETS> 325287988
<PER-SHARE-NAV-BEGIN> 12.82
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.87
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000741886
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 312057207
<INVESTMENTS-AT-VALUE> 370788936
<RECEIVABLES> 5504875
<ASSETS-OTHER> 491694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376785505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1293098
<TOTAL-LIABILITIES> 1293098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 297943336
<SHARES-COMMON-STOCK> 3316793
<SHARES-COMMON-PRIOR> 3970722
<ACCUMULATED-NII-CURRENT> (1935539)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20757888
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58726722
<NET-ASSETS> 44387530
<DIVIDEND-INCOME> 5389750
<INTEREST-INCOME> 1812889
<OTHER-INCOME> 0
<EXPENSES-NET> 6135550
<NET-INVESTMENT-INCOME> 1067089
<REALIZED-GAINS-CURRENT> 19393315
<APPREC-INCREASE-CURRENT> 24547717
<NET-CHANGE-FROM-OPS> 45008121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2030586
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 524355
<NUMBER-OF-SHARES-REDEEMED> 1332772
<SHARES-REINVESTED> 154488
<NET-CHANGE-IN-ASSETS> (6054035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13372324
<OVERDISTRIB-NII-PRIOR> 530009
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3740624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6135550
<AVERAGE-NET-ASSETS> 45300875
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 1.47
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.38
<EXPENSE-RATIO> 2.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000741886
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 312057207
<INVESTMENTS-AT-VALUE> 370788936
<RECEIVABLES> 5504875
<ASSETS-OTHER> 491694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376785505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1293098
<TOTAL-LIABILITIES> 1293098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 297943336
<SHARES-COMMON-STOCK> 28069
<SHARES-COMMON-PRIOR> 14145
<ACCUMULATED-NII-CURRENT> (1935539)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20757888
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58726722
<NET-ASSETS> 375660
<DIVIDEND-INCOME> 5389750
<INTEREST-INCOME> 1812889
<OTHER-INCOME> 0
<EXPENSES-NET> 6135550
<NET-INVESTMENT-INCOME> 1067089
<REALIZED-GAINS-CURRENT> 19393315
<APPREC-INCREASE-CURRENT> 24547717
<NET-CHANGE-FROM-OPS> 45008121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7459
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21914
<NUMBER-OF-SHARES-REDEEMED> 8437
<SHARES-REINVESTED> 445
<NET-CHANGE-IN-ASSETS> (6054035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13372324
<OVERDISTRIB-NII-PRIOR> 530009
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3740624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6135550
<AVERAGE-NET-ASSETS> 281566
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 1.46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.38
<EXPENSE-RATIO> 2.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000741886
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 312057207
<INVESTMENTS-AT-VALUE> 370788936
<RECEIVABLES> 5504875
<ASSETS-OTHER> 491694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376785505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1293098
<TOTAL-LIABILITIES> 1293098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 297943336
<SHARES-COMMON-STOCK> 249936
<SHARES-COMMON-PRIOR> 124135
<ACCUMULATED-NII-CURRENT> (1935539)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20757888
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58726722
<NET-ASSETS> 3459095
<DIVIDEND-INCOME> 5389750
<INTEREST-INCOME> 1812889
<OTHER-INCOME> 0
<EXPENSES-NET> 6135550
<NET-INVESTMENT-INCOME> 1067089
<REALIZED-GAINS-CURRENT> 19393315
<APPREC-INCREASE-CURRENT> 24547717
<NET-CHANGE-FROM-OPS> 45008121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 352
<DISTRIBUTIONS-OF-GAINS> 65148
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 775326
<NUMBER-OF-SHARES-REDEEMED> 654458
<SHARES-REINVESTED> 4931
<NET-CHANGE-IN-ASSETS> (6054035)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13372324
<OVERDISTRIB-NII-PRIOR> 530009
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3740624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6135550
<AVERAGE-NET-ASSETS> 3191973
<PER-SHARE-NAV-BEGIN> 12.81
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.84
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
