<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1997
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. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 16
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 17
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH 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:
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE COMPANY:
MERRILL LYNCH ASSET MANAGEMENT
P.O. BOX 9011 BROWN & WOOD LLP
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.
----------------
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 24, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH GLOBAL HOLDINGS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <S> <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 Investment Objective and Policies;
Registrant................. Additional Information
Item 5. Management of the Fund...... Fee Table; Investment Objective and
Policies; Portfolio Transactions;
Management of the Company; Inside Back
Cover Page
Item 5A. Management's Discussion of
Fund Performance........... Not Applicable
Item 6. Capital Stock and Other
Securities................. Cover Page; Additional Information
Item 7. Purchase of Securities Being Cover Page; Fee Table; Merrill Lynch
Offered.................... 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 Management of the Company; Purchase of
Other Services............. Shares; General Information
Item 17. Brokerage Allocation and
Other Practices............ Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other
Securities................. General Information
Item 19. Purchase, Redemption and
Pricing of Securities Being Purchase of Shares; Redemption of
Offered.................... 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
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
MARCH 25, 1997
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified, open-
end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may
be shifted among the various capital markets of the world and among different
types of equity, debt and convertible securities depending upon management's
outlook with respect to prevailing trends and developments. It is presently
contemplated that the Company's assets will be primarily invested in equity
securities of companies located in the United States, Japan and Western Europe.
For more information on the Company's investment objectives and policies,
please see "Investment Objective and Policies" on page 12.
Pursuant to the Merrill Lynch Select Pricing (SM) System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing (SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
See "Merrill Lynch Select Pricing (SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from securities dealers that have entered into 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, but
as of May 1, 1997, $5.35) for confirming purchases and repurchases. Purchases
and redemptions made directly through the Company's transfer agent are not
subject to the processing fee. See "Purchase of Shares" and "Redemption of
Shares."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 25, 1997 (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>
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 None(d) 4.0% during the first year, decreasing 1.0% for one year(f) None(d)
proceeds, whichever is 1.0% annually thereafter to 0.0% after
lower)................ the fourth year(e)
Exchange Fee........... None None None None
ANNUAL COMPANY OPERATING
EXPENSES (AS A
PERCENTAGE OF AVERAGE
NET ASSETS):
Investment Advisory
Fees(g)............... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance
Fees.................. None 0.25% 0.25% 0.25%
Distribution Fees...... None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after approximately
eight years and cease being subject to
distribution fees)
Other Expenses:
Custodial Fees......... 0.07% 0.07% 0.07% 0.07%
Shareholder Servicing
Costs(i).............. 0.19% 0.22% 0.23% 0.20%
Other.................. 0.11% 0.11% 0.11% 0.11%
----- ----- ----- -----
Total Other Expenses... 0.37% 0.40% 0.41% 0.38%
----- ----- ----- -----
TOTAL COMPANY OPERATING 1.37% 2.40% 2.41% 1.63%
EXPENSES.............. ===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including
existing Class A shareholders, certain retirement plans and certain
participants in fee-based programs. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares"--page 27 and
"Shareholder Services--Fee-Based Programs"--page 39.
(b) Class B shares convert to Class D shares automatically approximately
eight years after initial purchase. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares"--page 29.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
fee-based programs. Class A or Class D purchases of $1,000,000 or more
are not subject to an initial sales charge. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares"--page 27.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more that
are not subject to an initial sales charge may instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
Such CDSC may be waived in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"--page 39.
(e) The CDSC may be modified in connection with certain fee-based programs.
See "Shareholder Services--Fee-Based Programs"--page 39.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 39.
(g) See "Management of the Company--Advisory and Management Arrangements"--
page 22.
(h) See "Purchase of Shares--Distribution Plans"--page 32.
(i) See "Management of the Company--Transfer Agency Services"--page 24.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
<S> <C> <C> <C> <C>
EXAMPLE:
An investor would pay the
following expenses on a $1,000
investment including the
maximum $52.50 initial sales
charge (Class A and Class D
shares only) and assuming (1)
the Total Company Operating
Expenses for each class set
forth on page 2, (2) a 5%
annual return throughout the
periods and (3) redemption at
the end of the period
(including any applicable CDSC
for Class B and Class C
shares):
Class A...................... $66 $ 94 $124 $208
Class B...................... $64 $ 95 $128 $255*
Class C...................... $34 $ 75 $129 $275
Class D...................... $68 $101 $137 $236
An investor would pay the
following expenses on the same
$1,000 investment assuming no
redemption at the end of the
period:
Class A...................... $66 $ 94 $124 $208
Class B...................... $24 $ 75 $128 $255*
Class C...................... $24 $ 75 $129 $275
Class D...................... $68 $101 $137 $236
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Company will bear directly or
indirectly. THE EXAMPLE SET FORTH ABOVE ASSUMES REINVESTMENT OF ALL DIVIDENDS
AND DISTRIBUTIONS AND UTILIZES A 5% ANNUAL RATE OF RETURN AS MANDATED BY
COMMISSION REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR
ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF
THE EXAMPLE. Class B and Class C shareholders who hold their shares for an
extended period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front-end sales charges permitted under the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$4.85, but as of May 1, 1997, $5.35) for confirming purchases and repurchases.
Purchases and redemptions made directly through the Company's transfer agent
are not subject to the processing fee. See "Purchase of Shares" and "Redemption
of Shares."
MERRILL LYNCH SELECT PRICING (SM) SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
PricingSM 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 PricingSM System is used by more than 50
registered investment companies advised by Merrill Lynch Asset Management, L.P.
("MLAM" or
3
<PAGE>
the "Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM that utilize the Merrill Lynch Select
PricingSM System are referred to herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Company represents an
identical interest in the investment portfolio of the Company and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Company and, accordingly, such charges will not affect the
net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Company for each class of
shares are calculated in the same manner at the same time and will differ only
to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges and distribution fees with respect to the
Class B and Class C shares in that the sales charges and distribution fees
applicable to each class provide for the financing of the distribution of the
shares of the Company. The distribution-related revenues paid with respect to
a class will not be used to finance the distribution expenditures of another
class. Sales personnel may receive different compensation for selling
different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing SM System that the investor
believes is the most beneficial under his or her particular circumstances.
More detailed information as to each class of shares is set forth under
"Purchase of Shares."
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(/2/)(/3/)
- ----------------------------------------------------------------------------------------------
B CDSC for a period of four years 0.25% 0.75% B shares convert to
at a rate of 4.0% during the first year D shares automatically
decreasing 1.0% annually to 0.0%(/4/) after approximately
eight years(/5/)
- ----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(/6/) 0.25% 0.75% No
- ----------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales charge(/3/) 0.25% No No
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(Footnotes continue on next page)
4
<PAGE>
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply. See "Class A"
and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A:
Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Company are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding Class
A shares. Investors that currently own Class A shares of the Company in
a shareholder account are entitled to purchase additional Class A
shares of the Company in that account. Other eligible investors include
certain retirement plans and participants in certain fee-based
programs. In addition, Class A shares will be offered at net asset
value to Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries
(the term "subsidiaries" when used herein with respect to ML & Co.
includes MLAM, FAM and certain other entities directly or indirectly
wholly owned and controlled by ML & Co.) and to their directors and
employees and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge of 5.25%, is reduced for purchases of
$25,000 and over, and waived for purchases of Class A shares by certain
retirement plans and participants in connection with certain fee-based
programs. Purchases of $1,000,000 or more may not be subject to an
initial sales charge, but if the initial sales charge is waived, such
purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. Sales charges are also reduced under a
right of accumulation that takes into account the investor's holdings
of all classes of all MLAM-advised mutual funds. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares."
Class B:
Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
certain fee-based programs. Approximately eight years after issuance,
Class B shares will convert automatically into Class D shares of the
Company, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a
5
<PAGE>
month on the basis of the relative net asset values of the shares of
the two classes on the conversion date, without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to Class
D shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to Class D
shares. The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans are
modified as described under "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares
to Class D Shares."
Class C:
Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC of 1.0% if they are redeemed within one year of purchase. Such
CDSC may be waived in connection with certain fee-based programs.
Although Class C shares are subject to a CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor who purchases Class C shares will
be subject to distribution fees that will be imposed on Class C shares
for an indefinite period subject to annual approval by the Company's
Board of Directors and regulatory limitations.
Class D:
Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge of 5.25% is reduced
for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales
charge is waived, such purchase may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for the Class D shares is the same
as the schedule for Class A shares, except that there is no waiver for
purchases in connection with certain fee-based programs. Class D shares
also will be issued upon conversion of Class B shares as described
above under "Class B." See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing SM System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class
A shares rather than Class D shares because there is an account maintenance
fee imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection
with purchases of Class B or Class C shares. Investors not qualifying for
reduced initial sales charges who expect to maintain their investment for an
extended period of time also may elect to purchase Class A or Class D shares,
because over time the accumulated ongoing account maintenance and distribution
6
<PAGE>
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>
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, 1996, and the independent auditors' report thereon are
included in the Statement of Additional Information. Further information about
the performance of the Company is contained in the Company's most recent annual
report to shareholders which may be obtained, without charge, by calling or by
writing the Company at the telephone number or address on the front cover of
this Prospectus.
The following per share data and ratios have been derived from information
provided in the Company's audited financial statements.
<TABLE>
<CAPTION>
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE
SEVEN-MONTH
FOR THE YEAR ENDED NOVEMBER 30, PERIOD ENDED FOR THE YEAR ENDED APRIL 30,
---------------------------------------------------------- NOV. 30, ---------------------------------------
1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91 $ 11.79 $ 12.23 $ 16.90 $ 14.73
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment
income--net.... .13 .05 .03 .04 .10 .16 .17 .20 .29 .43 .25
Realized and
unrealized gain
(loss) on
investments and
foreign
currency
transactions--
net............ 1.87 1.52 .53 2.07 1.05 .53 (.30) .62 .88 (1.09) 3.49
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations...... 2.00 1.57 .56 2.11 1.15 .69 (.13) .82 1.17 (.66) 3.74
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
Investment
income--net.... -- (.01) (.01) -- (.10) (.21) (.13) (.21) (.34) (.37) (.30)
Realized gain on
investments--
net............ (.75) (.51) (.80) (.82) (.22) (.01) (17) (1.49) (1.27) (3.64) (1.27)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and
distributions... (.75) (.52) (.81) (.82) (.32) (.22) (.30) (1.70) (1.61) (4.01) (1.57)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period... $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95 $ 10.48 $ 10.91 $ 11.79 $ 12.23 $ 16.90
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share........... 15.20% 12.92% 4.39% 19.16% 10.67% 6.77% (1.45)%# 6.93% 10.99% (4.43)% 28.50%
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.37% 1.51% 1.44% 1.43% 1.49% 1.48% 1.59%* 1.49% 1.47% 1.31% 1.41%
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income
(loss)--net..... .92% .41% .23% .32% (.19)% 1.31% 2.63%* 1.65% 2.04% 2.90% 1.78%
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)...... $398,310 $327,270 $330,132 $256,203 $166,947 $165,687 $176,898 $187,843 $195,932 $249,736 $356,964
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio
turnover........ 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44% 84.21% 102.77% 109.68% 88.54%
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Average
commission rate
paid##.......... $ .0063 -- -- -- -- -- -- -- -- -- --
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(Footnotes on page 10)
8
<PAGE>
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,
1996++ 1995++ 1994++ 1993++ 1992++ 1991 1990 1990 1989
------- ------- ------- ------- ------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82 $ 10.36 $ 10.82 $ 11.74 $ 11.29
------- ------- ------- ------- ------- ------- -------- -------- -------
Investment income
(loss)--net........... (.02) (.08) (.10) (.08) (.03) .04 .10 .16 .06
Realized and unrealized
gain (loss) on
investments and
foreign currency
transactions--net..... 1.79 1.47 .52 2.02 1.05 .54 (.30) .55 .93
------- ------- ------- ------- ------- ------- -------- -------- -------
Total from investment
operations............. 1.77 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...... (.75) (.51) (.66) (.82) (.22) (.01) (.17) (1.49) (.39)
------- ------- ------- ------- ------- ------- -------- -------- -------
Total dividends and
distributions.......... (.75) (.51) (.66) (.82) (.22) (.12) (.26) (1.63) (.54)
------- ------- ------- ------- ------- ------- -------- -------- -------
Net asset value, end of
period................. $ 14.40 $ 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.............. 13.97% 11.78% 3.32% 17.87% 9.58% 5.67% (2.08)%# 5.91% 9.10%#
======= ======= ======= ======= ======= ======= ======== ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 2.40 % 2.55% 2.48% 2.46% 2.52% 2.51% 2.63%* 2.53% 2.50%*
======= ======= ======= ======= ======= ======= ======== ======== =======
Investment income
(loss)--net............ (.11)% (.63)% (.80)% (.72)% (1.19)% .25% 1.54%* .65% .10%*
======= ======= ======= ======= ======= ======= ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands).. $44,311 $44,387 $49,647 $34,241 $22,925 $24,960 $ 22,623 $ 16,342 $ 1,476
======= ======= ======= ======= ======= ======= ======== ======== =======
Portfolio turnover...... 41.14% 44.64% 40.18% 56.98% 65.93% 63.94% 34.44% 84.21% 102.77%
======= ======= ======= ======= ======= ======= ======== ======== =======
Average commission rate
paid##................. $ .0063 -- -- -- -- -- -- -- --
======= ======= ======= ======= ======= ======= ======== ======== =======
</TABLE>
(Footnotes on Page 10)
9
<PAGE>
FINANCIAL HIGHLIGHTS -- (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
------------------------------- ---------------------------------
FOR THE FOR THE
YEAR ENDED FOR THE PERIOD YEAR ENDED FOR THE PERIOD
NOVEMBER 30, OCT. 21, 1994+ NOVEMBER 30, OCT. 21, 1994+
--------------- TO NOV. 30, -------------- TO NOV. 30,
1996 1995 1994 1996 1995 1994
------ ------ -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $13.38 $12.51 $13.08 $13.84 $12.81 $13.39
------ ------ ------ ------ ------ ------
Investment income
(loss)--net........... (.01) (.08) (.02) .09 .02 (.01)
Realized and unrealized
gain (loss) on
investments and
foreign currency
transactions--net..... 1.79 1.46 (.55) 1.86 1.52 (.57)
------ ------ ------ ------ ------ ------
Total from investment
operations............. 1.78 1.38 (.57) 1.95 1.54 (.58)
------ ------ ------ ------ ------ ------
Less dividends and
distributions:
Investment income--net. -- -- -- -- (.00)+++ --
Realized gain on
investments--net...... (.75) (.51) -- (.75) (.51) --
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... (.75) (.51) -- (.75) (.51) --
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $14.41 $13.38 $12.51 $15.04 $13.84 $12.81
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN:**
Based on net asset value
per share.............. 14.05% 11.69% (4.36)%# 14.86% 12.73% (4.33)%#
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 2.41 % 2.55% 3.00%* 1.63% 1.76% 2.23%*
====== ====== ====== ====== ====== ======
Investment income
(loss)--net............ (.09)% (.63)% (1.31)%* .60% .18% (.67)%*
====== ====== ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of
period
(in thousands)......... $ 910 $ 376 $ 177 $4,688 $3,459 $1,591
====== ====== ====== ====== ====== ======
Portfolio turnover...... 41.14% 44.64% 40.18% 41.14% 44.64% 40.18%
====== ====== ====== ====== ====== ======
Average commission rate
paid##................. $.0063 -- -- $.0063 -- --
====== ====== ====== ====== ====== ======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding during the period.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Company is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average commission rate paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
10
<PAGE>
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 that could affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
of U.S. companies. In addition, certain foreign investments may be subject to
foreign withholding taxes. See "Additional Information--Taxes." Foreign
financial markets, while generally growing in volume, typically have
substantially less volume than U.S. markets, and securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions.
Delays or other problems in settlement could result in temporary periods when
assets of the Company are uninvested and no return is earned thereon. The
11
<PAGE>
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% of its
total assets in illiquid or otherwise not readily marketable securities and
that certain foreign investments may be subject to foreign withholding taxes.
In addition, the Company's investment restrictions do not permit it to borrow
money other than for extraordinary or emergency purposes.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Total investment return
is the aggregate of income and capital value changes. In pursuing this
objective, management of the Company will utilize a fully managed investment
policy which permits the Company to take a flexible investment approach and
vary its policies as to geographic diversification and types of securities
based upon its evaluation of economic and market trends throughout the world.
Accordingly, investments may be shifted among the various capital markets of
the world and among different types of equity, debt and
12
<PAGE>
convertible securities depending upon management's outlook with respect to
prevailing trends and developments. The investment objective of the Company
described in this paragraph is a fundamental policy of the Company and may not
be changed without the approval of the holders of a majority of the Company's
outstanding voting securities.
The Company will invest in a diversified international portfolio of
securities of companies located throughout the world. While there are no
prescribed limits on geographic asset distribution and the Company has the
authority to invest in any country in the world, it is expected that the
Company's assets will be invested in several countries, primarily the U.S.,
Japan and Western European nations. The allocation of the Company's assets
among the various securities markets of the world will be determined by the
Investment Adviser as described under "Management of the Company." In making
the allocation of assets among the securities markets, the Investment Adviser
will consider such factors as the condition and growth potential of the various
economies and securities markets, currency and taxation considerations and
other pertinent financial, social, national and political factors. 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.
13
<PAGE>
The Company may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under that Act. However, the Company will not invest more than 15% of
its total assets in illiquid investments, which includes securities for which
there is no readily available market, securities subject to contractual
restrictions on resale, certain investments in asset-backed and receivable-
backed securities and restricted securities, unless the Company's Board of
Directors continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Directors may
adopt guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Directors will carefully monitor the Company's 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.
14
<PAGE>
Writing Covered Call Options. The Company is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A
covered call option is an option where the Company, in return for a premium,
gives another party a right to buy specified securities owned by the Company on
or before a specified future date and at a specified price set at the time of
the contract. By writing covered call options, the Company gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, the
Company's ability to sell the underlying security will be limited while the
option is in effect unless the Company effects a closing purchase transaction.
A closing purchase transaction cancels out the Company's position as the writer
of an option by means of an offsetting purchase of an identical option prior to
the expiration of the option it has written. Covered call options serve as a
partial hedge against the price of the underlying security declining.
Purchasing Put Options. The Company is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Company has a right to sell the underlying security at the stated
exercise price, thus limiting the Company's risk of loss through a decline in
the market value of the security until the put option expires. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Company's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Company will not purchase put options on securities
(including stock index options discussed below) if, as a result of such
purchase, the aggregate cost (premiums paid) of all outstanding options on
securities held by the Company would exceed 5% of the market value of the
Company's total assets.
Stock or Other Financial Index Futures and Options. The Company is authorized
to engage in transactions in stock or other financial index options and futures
(including futures on government bonds) and related options on such futures.
The Company may purchase or write put and call options on stock or other
financial indices to hedge against the risks of market-wide stock price
movements in the securities in which the Company invests. Options on indices
are similar to options on securities except that, on settlement, the parties to
the contract pay or receive an amount of cash equal to the difference between
the closing value of the index on the relevant valuation date and the exercise
price of the option times a specified multiple. The Company may invest in stock
or other financial index options based on a broad market index, e.g., the S&P
500 Index, or on a narrow index representing an industry or market segment,
e.g., the AMEX Oil & Gas Index.
The Company may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties that obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a particular commodity for a set price on a future date. Unlike most
other futures contracts, a stock index futures contract does not require actual
delivery of a commodity, in this case securities, but results in cash
settlement based upon the difference in value of the stock index between the
time the contract was entered into and the time of its settlement. The
15
<PAGE>
Company may effect transactions in stock index futures contracts in connection
with equity securities in which it invests and in financial futures contracts
in connection with the debt securities in which it invests. Transactions by the
Company in stock index futures and financial futures are subject to limitations
as described below under "Restrictions on the Use of Futures Transactions."
The Company may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of fixed-income securities which may be held by the
Company as a temporary defensive measure will fall, thus reducing the net asset
value of the Company. However, as interest rates rise, the value of the
Company's short position in the futures contract will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of the
Company's investments that are being hedged. While the Company will incur
commission expenses in selling and closing out futures positions, these
commissions are generally less than the transaction expenses that the Company
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
16
<PAGE>
contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with prices and terms negotiated by the buyer and seller.
See "Restrictions on OTC Options" below for information as to restrictions on
the use of OTC options.
To trade futures contracts, the Company is not required to deposit funds
equal to the value of the futures contract. The Company need only make a
deposit, called an "initial margin deposit", equal to a small percentage
(typically between 2% and 15%) of the value of the futures contract. As a
result, a relatively small adverse move in the price of a futures contract may
result in immediate and substantial losses to the Company. For example, if at
the time of purchase 10% of the price of a futures contract is deposited as
margin, a 10% decrease in the price of that contract would, if the contract
were then closed out, result in a total loss of the initial margin deposit
before any deduction for brokerage commissions and other transaction costs. A
decrease of more than 10% would result in a loss of more than the total initial
margin deposit.
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
17
<PAGE>
related options. Accordingly, the Company will not hedge a currency
substantially in excess of the market value of the securities denominated in
such currency which it owns, the expected acquisition price of securities which
it has committed or anticipates to purchase which are denominated in such
currency and, in the case of securities which have been sold by the Company but
not yet delivered, the proceeds thereof in its denominated currency. Further,
the Company will segregate at its custodian U.S. Government or other high
quality securities having a market value substantially representing any
subsequent net decrease in the market value of such hedged positions, including
net positions with respect to cross-currency hedges. The Company will not incur
potential net liabilities of more than 20% of its total assets from foreign
currency options, futures or related options.
Forward Foreign Exchange Transactions. The Company has authority to deal in
forward foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) and price set at the time of the contract. The Company's
dealings in forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Company accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of shares of the
Company or the payment of dividends and distributions by the Company. Position
hedging is the sale of forward foreign currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Company
will not speculate in forward foreign exchange. The Company will not attempt to
hedge all of its foreign portfolio positions.
In connection with its trading in forward foreign currency contracts, the
Company will contract with a foreign or domestic bank, or foreign or domestic
securities dealer, to make or take future delivery of a specified amount of a
particular currency. There are no limitations on daily price moves in such
forward contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain banks
or dealers have refused to quote prices for such forward contracts or have
quoted prices with an unusually wide spread between the price at which the bank
or dealer is prepared to buy and that at which it is prepared to sell.
Governmental imposition of credit controls might limit any such forward
contract trading. With respect to its trading of forward contracts, if any, the
Company will be subject to the risk of bank or dealer failure and the inability
of, or refusal by, a bank or dealer to perform with respect to such contracts.
Any such default would deprive the Company of any profit potential or force the
Company to cover its commitments for resale, if any, at the then-market price
and could result in a loss to the Company.
Restrictions on the Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission ("CFTC") applicable to the Company provide that the
futures trading activities described herein will not result in the Company
being deemed a "commodity pool," as defined under such regulations if the
Company adheres to certain restrictions. In particular, the Company may
purchase and sell futures contracts and options thereon (i) for bona fide
hedging purposes, and (ii) for non-hedging purposes, if the aggregate initial
margin and premiums required to establish positions in such contracts and
options does not exceed 5% of the liquidation value of the Company's portfolio,
after taking into account unrealized profits and unrealized losses on any such
contracts and options.
18
<PAGE>
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
contracts) if, as a result of such transactions, the sum of the market value of
OTC options currently outstanding which are held by the Company, the market
value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Company and margin deposits on the Company's
existing OTC options on futures contracts exceeds 15% of the total assets of
the Company, taken at market value, together with all other assets of the
Company which are illiquid or are not otherwise readily marketable. However, if
an OTC option is sold by the Company to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Company
has the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Company will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money" (i.e., the current market
value of the underlying security minus the option's strike price). The
repurchase price with primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money". This policy as to OTC options is
not a fundamental policy of the Company and may be amended by the Board of
Directors of the Company without the approval of the Company's shareholders.
However, the Company will not change or modify this policy prior to change or
modification by the Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. If the price of the options or futures moves more or less than the
price of hedged securities or currencies, the Company will experience a gain or
loss that will not be completely offset by movements in the price of the
subject of the hedge. The successful use of options and futures also depends on
the Investment Adviser's ability to correctly predict price movements in the
market involved in a particular options or futures transaction. To compensate
for imperfect correlations, the Company may purchase or sell stock index
options or futures contracts in a greater dollar amount than the hedged
securities if the volatility of the hedged securities is historically greater
than the volatility of the stock index options or futures contracts.
Conversely, the Company may purchase or sell fewer stock index options or
futures contracts if the volatility of the price of the hedged securities is
historically less than that of the stock index options or futures contracts.
The risk
19
<PAGE>
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 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 ("OTC") transactions conducted on an agency
basis and may receive brokerage commissions from the Company. In addition,
consistent with the Conduct Rules of the NASD, the Company may consider sales
of shares of the Company as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Company. It is expected that the
majority of the shares of the Company will be sold by Merrill Lynch. Brokerage
commissions and other transaction costs on foreign stock exchange transactions
are generally higher than in the U.S., although the Company will endeavor to
achieve the best net results in effecting its portfolio transactions.
20
<PAGE>
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the period of such a
loan, the Company receives the income on both the loaned securities and the
collateral and thereby increases its yield. In the event that the borrower
defaults on its obligation to return borrowed securities because of insolvency
or otherwise, the Company could experience delays and costs in gaining access
to the collateral and could suffer a loss to the extent the value of the
collateral falls below the market value of the borrowed securities.
INVESTMENT RESTRICTIONS
The Company's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Company's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which
more than 50% of the outstanding shares are represented or (b) more than 50% of
the outstanding shares). Among its fundamental policies, the Company may not
invest more than 25% of its total assets, taken at market value at the time of
each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities).
Investment restrictions and policies that are non-fundamental policies may be
changed by the Board of Directors without shareholder approval. As a non-
fundamental policy, the Company may not borrow amounts in excess of 20% of its
total assets (taken at market value) and then only from banks as a temporary
measure for extraordinary or emergency purposes such as the redemption of
Company shares. The Company will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise subscription
rights.
As a non-fundamental policy, the Company will not invest in securities that
cannot readily be resold because of legal or contractual restrictions or that
are not otherwise readily marketable, if, regarding all such securities, more
than 15% of its total assets taken at market value would be invested in such
securities. Notwithstanding the foregoing, the Company may purchase without
regard to this limitation securities that are not registered under the
Securities Act, but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Company's
Board of Directors determines, based on the trading markets for the specific
Rule 144A security, that it is liquid. The Board of Directors may adopt
guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board has
determined that securities which are freely tradeable in their primary market
offshore should be deemed liquid. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of six individuals, five of
whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company
21
<PAGE>
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 its affiliate, FAM;
President and Director of Princeton Services, Inc.; Executive Vice President of
ML & Co.; Director of the Distributor.
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--Dean Emeritus, New York University Leonard N. Stern School
of Business Administration.
Edward D. Zinbarg--Former Executive Vice President of The Prudential
Insurance Company of America.
- --------
* Interested person, as defined in the Investment Company Act, of the Company.
ADVISORY AND MANAGEMENT ARRANGEMENTS
MLAM acts as the investment adviser of the Company and provides the Company
with management and investment advisory services. The investment advisory
agreement with the Investment Adviser (the "Investment Advisory Agreement")
provides that, subject to the direction of the Board of Directors of the
Company, the Investment Adviser is responsible for the actual management of the
Company's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to review
by the Board of Directors.
The Investment Adviser is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Investment
Adviser, or its affiliate, FAM, acts as the investment adviser to more than 130
registered investment companies and provides investment advisory services to
individual and institutional accounts. As of February 28, 1997, the Investment
Adviser and FAM had a total of approximately $248.2 billion in investment
company and other portfolio assets under management, including accounts of
certain affiliates of the Investment Adviser.
The Investment Adviser provides the portfolio managers for the Company who
consider analyses from various sources, make the necessary decisions, and place
transactions accordingly. The Investment Adviser is also obligated to perform
or arrange for affiliates to perform certain administrative and management
services for the Company and is obligated to provide all of the office space,
facilities, equipment and personnel necessary to perform its duties under the
Investment Advisory Agreement.
As compensation for its services to the Company, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company. This fee is higher
22
<PAGE>
than that charged most mutual funds, but the Company believes it is justified
by the special international nature of the Company. For the fiscal year ended
November 30, 1996, the fee paid by the Company to the Investment Adviser was
$4,169,360 (based on average net assets of approximately $418.1 million).
Also, the Investment Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an
affiliate of the Investment Adviser, pursuant to which the Investment Adviser
pays MLAM U.K. a fee for providing investment advisory services to the
Investment Adviser with respect to the Company in an amount to be determined
from time to time by the Investment Adviser and MLAM U.K. but in no event in
excess of the amount the Investment Adviser actually receives for providing
services to the Company pursuant to the Investment Advisory Agreement. No fee
was paid to MLAM U.K. for the fiscal year ended November 30, 1996.
Edward F. Korff is responsible for the day-to-day management of the Company's
investment 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
for its costs in connection with such services on a semi-annual basis. For the
fiscal year ended November 30, 1996, the amount of such reimbursement was
$104,828. For the fiscal year ended November 30, 1996, the ratio of total
expenses to average net assets was 1.37%, 2.40%, 2.41% and 1.63% for Class A,
Class B, Class C and Class D shares, respectively.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict
the personal investing activities of all employees of the Investment Adviser
and, as described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser include a ban on acquiring any securities
in a "hot" initial public offering and a prohibition from profiting on short-
term trading in securities. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any fund advised by the Investment Adviser. Furthermore, the Codes provide for
23
<PAGE>
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 subsidiary of ML & Co., acts as the Company's transfer agent pursuant to a
Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of
up to $11.00 per Class A or Class D account and up to $14.00 per Class B or
Class C account and is entitled to reimbursement for out-of-pocket expenses
incurred by the Transfer Agent under the Transfer Agency Agreement. The term
"account" includes a shareholder account maintained directly by the Transfer
Agent and any other account representing a beneficial interest of a person in
the relevant share class or a recordkeeping system, provided the recordkeeping
system is maintained by a subsidiary of ML & Co. For the fiscal year ended
November 30, 1996, the Company paid $793,749 to the Transfer Agent pursuant to
the Transfer Agency Agreement.
PURCHASE OF SHARES
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 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, for which 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
PricingSM System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Company next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business
on the New York Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York
time), which includes orders received after the close of business on the
previous day, the applicable offering price will be based on the net asset
value determined as of 15 minutes after the close of business on the NYSE on
that day, provided the Distributor in turn receives the orders from the
securities dealer prior to 30 minutes after the close of business on the NYSE
on that day. If the purchase orders are not received by the Distributor prior
to 30 minutes after the close of business on the NYSE on that day, such orders
shall be deemed received on the next business day. The Company or the
Distributor may suspend the continuous offering of the Company's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Company. Neither the Distributor nor
the dealers
24
<PAGE>
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, but as of May 1, 1997, $5.35) to confirm a sale of shares to such
customers. Purchases directly through the Transfer Agent are not subject to
the processing fee.
The Company issues 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 PricingSM 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 CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Company and, accordingly, such charges will not affect the
net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Company for each class of
shares are calculated in the same manner at the same time and will differ only
to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class D Distribution
Plan). See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges and distribution fees with respect to Class B
and Class C shares in that the sales charges and distribution fees, applicable
to each class provide for the financing of the distribution of the shares of
the Company. The distribution-related revenues paid with respect to a class
will not be used to finance the distribution expenditures of another class.
Sales personnel may receive different compensation for selling different
classes of shares. Investors are advised that only Class A and Class D shares
may be available for purchase through securities dealers, other than Merrill
Lynch, which are eligible to sell shares.
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<PAGE>
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
- ----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(/2/)(/3/)
- ----------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% D shares
during the first year, automatically after
decreasing 1.0% annually approximately eight
to 0.0%(/4/) years(/5/)
- ----------------------------------------------------------------------------------
C 1.0% CDSC for one 0.25% 0.75% No
year(/6/)
- ----------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class
A shares by certain retirement plans in connection with certain fee-based
programs. Class A and Class D share purchases of $1,000,000 or more may
not be subject to an initial sales charge but instead may be subject to a
1.0% CDSC if redeemed within one year. Such CDSC may be waived in
connection with certain fee-based programs. A 0.75% sales charge for
401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Company are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
26
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
<TABLE>
<CAPTION>
SALES LOAD AS
PERCENTAGE* DISCOUNT TO
SALES LOAD AS OF THE NET SELECTED DEALERS
PERCENTAGE OF AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ -------------- ------------- ------------------
<S> <C> <C> <C>
Less than $25,000.............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000.. 4.75 4.99 4.50
$50,000 but less than $100,000. 4.00 4.17 3.75
$100,000 but less than
$250,000...................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000.................... 2.00 2.04 1.80
$1,000,000 and over**.......... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 and on Class A
purchases in connection with certain fee-based programs. If the sales
charge is waived in connection with a purchase of $1,000,000 or more, such
purchases may be subject to a 1.0% CDSC if the shares are redeemed within
one year after purchase. Such CDSC may be waived in connection with certain
fee-based programs. The charge will be assessed on an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being
redeemed. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class A or Class D shares by certain employer
sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Company will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
During the fiscal year ended November 30, 1996, the Company sold 11,176,887
Class A shares for aggregate net proceeds of $157,434,230. The gross sales
charges for the sale of Class A shares of the Company for that year were
$20,339, of which $1,252 and $19,087 were received by the Distributor and
Merrill Lynch, respectively. For the fiscal year ended November 30, 1996, the
Distributor received no CDSCs with respect to redemption within one year after
purchase of Class A shares purchased subject to a front-end sales charge
waiver. During the fiscal year ended November 30, 1996, the Company sold
1,072,031 Class D shares for aggregate net proceeds of $14,751,733. The gross
sales charges for the sale of Class D shares of the Company for that year were
$14,881, of which $1,100 and $13,781 were received by the Distributor and
Merrill Lynch, respectively. For the fiscal year ended November 30, 1996, the
Distributor received no CDSCs with respect to redemption within one year after
purchase of Class D shares purchased subject to a front-end sales charge
waiver.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A shares of the
Company in a shareholder account, including participants in the Merrill Lynch
Blueprint SM
27
<PAGE>
Program, are entitled to purchase additional Class A shares of the Company in
that account. Certain employer sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares at net asset
value provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by MLAM or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs 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, collective investment
trusts for which Merrill Lynch Trust Company serves as trustee and purchases
made in connection with certain fee-based programs. In addition, Class A
shares will be offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of 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. and, if certain conditions
set forth in the Statement of Additional Information are met, to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to a tender offer conducted
by such funds in shares of the Company and certain other MLAM-advised mutual
funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and D sales charges also may
be reduced under a Right of Accumulation and a Letter of Intention. Class A
shares are offered at net asset value to certain eligible Class A investors as
set forth above under "Eligible Class A Investors." See "Shareholder
Services--Fee-based Programs."
Class A and Class D shares are offered at net asset value to Employee Access
Accounts SM available through qualified employers that provide employer-
sponsored retirement and savings plans that are eligible to purchase such
shares at net asset value. Subject to certain conditions Class A and Class D
shares are offered at net asset value to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc., and Class A shares are offered at net asset value to shareholders
of Merrill Lynch Senior Floating Rate Fund, Inc., who wish to reinvest in
shares of the Company the net proceeds from a sale of certain of their shares
of common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value to an investor who has a
business relationship with a Merrill Lynch Financial Consultant if certain
conditions set forth in the Statement of Additional Information are met. Class
D shares may be offered at net asset value in connection with the acquisition
of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint SM Program.
28
<PAGE>
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC
which declines each year, while Class C shares are subject only to a one-year
1.0% CDSC. On the other hand, approximately eight years after Class B shares
are issued, such Class B shares, together with shares issued upon dividend
reinvestment with respect to those shares, are automatically converted into
Class D shares of the Company and thereafter will be subject to lower
continuing fees. See "Conversion of Class B Shares to Class D Shares" below.
Both Class B and Class C shares are subject to an account maintenance fee of
0.25% of net assets and a distribution fee of 0.75% of net assets as discussed
below under "Distribution Plans."
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.
29
<PAGE>
Contingent Deferred Sales Charges--Class B Shares. Class B shares that are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -----------------
<S> <C>
0-1................................................................ 4.00%
1-2................................................................ 3.00
2-3................................................................ 2.00
3-4................................................................ 1.00
4 and thereafter................................................... 0.00
</TABLE>
For the fiscal year ended November 30, 1996, the Distributor received CDSCs
of $60,215 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).
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 BlueprintSM Program. The CDSC also is waived
for any Class B shares that are purchased by eligible 401(k) or eligible 401(a)
plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such
30
<PAGE>
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 Class
B CDSC also is waived for any Class B shares which are purchased within
qualifying Employee Access AccountsSM. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information. The terms of the CDSC may be modified in connection with certain
fee-based programs. See "Shareholder Services--Fee-Based Programs."
Contingent Deferred Sales Charges--Class C Shares. Class C shares that are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The Class C CDSC may be waived in
connection with certain fee-based programs. See "Shareholder Services--Fee-
Based Programs." For the fiscal year ended November 30, 1996, the Distributor
received CDSCs of $1,249 with respect to redemptions of Class C shares all of
which were paid to Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Company. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Company in a single account will result in less than $50 worth
of Class B shares being left in the account, all of the Class B shares of the
Company held in the account on the Conversion Date will be converted to Class D
shares of the Company.
Share certificates for Class B shares of the Company to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B
31
<PAGE>
shares will convert to Class D shares on the next scheduled Conversion Date
after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value.
The Conversion Period also may be modified for retirement plan investors who
participate in certain fee-based programs. See "Shareholder Services--Fee-Based
Programs."
DISTRIBUTION PLANS
The Company has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Company to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Company pays the Distributor an account maintenance fee relating to
the shares of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Company attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities.
The Distribution Plans for Class B and Class C shares each provide that the
Company also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Company attributable to the shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Company,
including payments to financial consultants for selling Class B and Class C
shares of the Company. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same
32
<PAGE>
time permit the dealer to compensate its financial consultants in connection
with the sale of the Class B and Class C shares. In this regard, the purpose
and function of the ongoing distribution fees and the CDSC are the same as
those of the initial sales charge with respect to the Class A and Class D
shares of the Company in that the deferred sales charges provide for the
financing of the distribution of the Company's Class B and Class C shares.
For the fiscal year ended November 30, 1996, the Company paid the Distributor
$452,751 pursuant to the Class B Distribution Plan (based on average net assets
subject to such Class B Distribution Plan of approximately $45.4 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, 1996, the Company paid the Distributor
$7,325 pursuant to the Class C Distribution Plan (based on average net assets
subject to such Class C Distribution Plan of approximately $735,000), 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, 1996, the Company paid the Distributor
$11,226 pursuant to the Class D Distribution Plan (based on average net assets
subject to such Class D Distribution Plan of approximately $4.5 million), all
of which was paid to Merrill Lynch for providing account maintenance activities
in connection with Class D shares.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation.
As of December 31, 1996, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded fully allocated revenues by $387,000
(.91% of Class B net assets at that date). As of November 30, 1996, direct cash
revenues for the period since the commencement of operations of Class B shares
exceeded direct cash expenses by $1,648,803 (3.72% of Class B net assets at
that date). As of December 31, 1996, the fully allocated revenues incurred by
the Distributor and Merrill Lynch for the period since the commencement of
operations of Class C shares exceeded fully allocated expenses by $6,000, (.66%
of Class C net assets at that date). As of November 30, 1996, direct cash
revenues for the period since the commencement of operations of Class C shares
exceeded direct cash expenses by $6,052 (.66% of Class C net assets at that
date).
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D
33
<PAGE>
shares, and there is no assurance that the Directors of the Company will
approve the continuance of the Distribution Plans from year to year. However,
the Distributor intends to seek annual continuation of the Distribution Plans.
In their review of the Distribution Plans, the Directors will be asked to take
into consideration expenses incurred in connection with the account maintenance
and/or distribution of each class of shares separately. The initial sales
charges, the account maintenance fee, the distribution fee and/or the CDSCs
received with respect to one class will not be used to subsidize the sale of
shares of another class. Payments of the distribution fee on Class B shares
will terminate upon conversion of those Class B shares into Class D shares as
set forth under "Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee
and the CDSC borne by the Class B and Class C shares but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Company, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Company to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving interest charges at any time. To
the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSC will be paid to the Company rather than to the Distributor;
however, the Company will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
REDEMPTION OF SHARES
The Company is required to redeem for cash all full and fractional shares of
the Company on receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the initial
receipt of proper notice of redemption. Except for any CDSC 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.
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.
34
<PAGE>
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. Redemption
requests should not be sent to the Company. The redemption request in either
event requires the signatures of all persons in whose names the shares are
registered, signed exactly as their names appear on the Transfer Agent's
register or on the 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 NYSE on the day received and that such request is received by the
Company from such dealer not later than 30 minutes after the close of business
on the NYSE (generally, 4:00 p.m., New York time) on the same day. Dealers have
the responsibility of submitting such repurchase requests to the Company not
later than 30 minutes after the close of business on the NYSE in order to
obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Company (other than any applicable CDSC).
Securities firms 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, but as of May 1, 1997 $5.35)
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. However, a shareholder whose order for repurchase is rejected by the
Company may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and stock power or letter requesting redemption, in
each instance with signatures guaranteed as noted above.
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REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Company at net asset value without a sales charge
up to the dollar amount redeemed. The reinstatement privilege may be exercised
by sending a notice of exercise along with a check for the amount to be
reinstated to the Transfer Agent within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date
the request for redemption was accepted by the Transfer Agent or the
Distributor. The reinstatement will be made at the net asset value per share
next determined after the notice of reinstatement is received and cannot
exceed the amount of the redemption proceeds.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment plans
designed to facilitate investment in shares of the Company. Certain of such
services are not available to investors who place purchase orders for the
Company's shares through the Merrill Lynch Blueprint SM Program. Full details
as to each of such services, copies of the various plans described below and
instructions as to how to participate in the various services or plans, or to
change options with respect thereto, can be obtained from the Company by
calling the telephone number on the cover page hereof or from the Distributor
or Merrill Lynch. Certain of these services are available only to U.S.
investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened automatically,
without charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder. If the new brokerage firm is
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willing to accommodate the shareholder in this manner, the shareholder must
request that he or she be issued certificates for such shares and then must
turn the certificates over to the new firm for re-registration as described in
the preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an IRA from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Company, a shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder may elect to receive systematic withdrawal
payments from his or her Investment Account in the form of payments by check or
through automatic payment by direct deposit to his or her bank account on
either a monthly or quarterly basis. 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 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 business on the NYSE
on the ex-dividend date of such dividend or distribution. A shareholder may at
any time, by written notification to Merrill Lynch if the shareholder's account
is maintained with Merrill Lynch or by written notification or by telephone (1-
800-MER-FUND) to the Transfer Agent if the shareholder's account is maintained
with the Transfer Agent, elect to have subsequent dividends, or both dividends
and capital gains distributions, paid in cash rather than reinvested, in which
event payment will be mailed on or about the payment date. Cash payments can
also be directly deposited to the shareholder's bank account. No CDSC will be
imposed on redemptions of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
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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 or her account in which the exchange is made at the time of the
exchange or is otherwise eligible to purchase Class A shares of the second
fund. If the Class A shareholder wants to exchange Class A shares for shares of
a second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his or her account at the time of the exchange and
is not otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of the
second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares 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 of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
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FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another class at net
asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from Merrill Lynch Investor
Services at (800) MER-FUND or (800) 637-3863.
PERFORMANCE DATA
From time to time the Company may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
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
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of return calculated will not be average annual rates, but rather, actual
annual, annualized or aggregate rates of return, and (2) the maximum applicable
sales charges will not be included with respect to annual or annualized rates
of return calculations. Aside from the impact on the performance data
calculations of including or excluding the maximum applicable sales charges,
actual annual or annualized total return data generally will be lower than
average annual total return data since the average annual rates of return
reflect compounding; aggregate total return data generally will be higher than
average annual total return data since the aggregate rates of return reflect
compounding over longer periods of time. In advertisements directed to
investors whose purchases are subject to reduced sales charges in the case of
Class A or Class D shares or waiver of the CDSC in the case of Class B or Class
C shares (such as investors in certain retirement plans), performance data may
take into account the reduced, and not the maximum, sales charge or may not
take into account the CDSC and therefore may reflect greater total return
since, due to the reduced sales charges or waiver of the CDSC, a lower amount
of expenses may be deducted. See "Purchase of Shares." The Company's total
return may be expressed either as a percentage or as a dollar amount in order
to illustrate the effect of such total return on a hypothetical $1,000
investment in the Company at the beginning of each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return
will vary depending on market conditions, the securities comprising the
Company's portfolio, the Company's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The
value of an investment in the Company will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
On occasion, the Company may compare its performance to the Standard & Poor's
500 Index, the Dow Jones Industrial Average, or to performance data published
by Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine, Fortune Magazine or other industry publications. In
addition, from time to time the Company may include its risk-adjusted
performance ratings assigned by Morningstar Publications, Inc. in advertising
or supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Company's relative
performance for any future period.
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 will be reinvested automatically in shares of the
Company at net asset value without a sales charge. However, a shareholder whose
account is maintained at the Transfer Agent or whose account is maintained
through Merrill Lynch may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as discussed below whether they are
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reinvested in shares of the Company or received in cash. From time to time, the
Company may declare a special distribution at or about the end of the calendar
year in order to comply with Federal tax requirements that certain percentages
of its ordinary income and capital gains be distributed during the calendar
year.
Gains or losses attributable to certain foreign currency transactions may
increase or decrease the amount of the Company's income available for
distribution to shareholders. If such losses exceed other income during a
taxable year, (a) the Company would not be able to make any ordinary income
dividend distributions, and (b) all or a portion of the distributions made
before the losses were realized would be recharacterized as a return of capital
to shareholders, rather than as an ordinary income dividend, thereby reducing
each shareholder's tax basis in the Company shares for Federal income tax
purposes and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Company shares
(assuming that the shares were held as a capital asset). For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Additional Information--Taxes."
TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As long as it so qualifies, the Company
(but not its shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders (together,
the "shareholders"). The Company intends to distribute substantially all of
such income.
Dividends paid by the Company from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net long-
term capital gains over net short-term capital losses (including gains or losses
from certain transactions in futures and options) ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length of
time the shareholder has owned Company shares. Any loss upon the sale or
exchange of Company shares held for six months or less, 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
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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.
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.
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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 NYSE (generally, 4:00
p.m., New York time), on each day during which the NYSE is open for trading or
on such other day that there is sufficient trading in portfolio securities that
the net asset value of the Company's shares may be materially affected. Any
assets or liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the day of valuation. The net asset
value is computed by dividing the sum of the value of the securities held by
the Company plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time to the nearest
cent. Expenses, including the fee payable to the Investment Adviser and any
account maintenance and/or distribution fees payable to the Distributor, are
accrued daily. The per share net asset value of Class A shares will generally
be higher than the per share net asset value of shares of the other classes,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares and the daily expense accruals of the account maintenance fees
applicable with respect to Class D shares; in addition, the per share net asset
value of Class D shares generally will be higher than the per share net asset
value of Class B and Class C shares, reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees
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applicable with respect to Class B and Class C shares. It is expected, however,
that the per share net asset value of the classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation.
Securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the
Company writes an option, the amount of the premium received is recorded on the
books of the Company as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased by the Company are valued at their last sale price in
the case of exchange-traded options or, in the case of options traded in the
OTC market, the last bid price. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars at the prevailing market
rates as obtained from one or more dealers. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not readily available are valued at
fair market value as determined in good faith by or under the direction of the
Board of Directors of the Company.
ORGANIZATION OF THE COMPANY
The Company was incorporated under Maryland law on March 7, 1984. As of the
date of this Prospectus it has an authorized capital of 400,000,000 shares of
Common Stock, par value $0.10 per share, divided into four classes, designated
Class A, Class B, Class C and Class D Common Stock, each of which consists of
100,000,000 shares. Shares of Class A, Class B, Class C and Class D Common
Stock represent an interest in the same assets of the Company and are identical
in all respects except that Class B, Class C and Class D shares bear certain
expenses 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.
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
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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.
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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)
Occupation........................... Name and Address of Employer ........
.....................................
.....................................
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
SELECT [_] Reinvest SELECT [_] Reinvest
ONE: [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Global Holdings, Inc. Authorization
Form.
Specify type of account (check one): [_] checking [_] savings
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
47
<PAGE>
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 1) --
(CONTINUED)
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
[ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Additional Information--Taxes") either because I have not been notified
that I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am
no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH-SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Holdings, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Holdings,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Holdings, Inc. held as security.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number.......................
Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
- - - We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases or sales made under a
Letter of Intention, automatic
investment plan or Systematic
Withdrawal Plan. We guarantee the
shareholder's signature.
- - - .....................................
This form when completed should be Dealer Name and Address
mailed to:
By ..................................
Merrill Lynch Global Holdings, Inc. Authorized Signature of Dealer
c/o Merrill Lynch Financial Data [ ][ ][ ] [ ][ ][ ][ ]
Services, Inc. ...............
P.O. Box 45289 Branch-Code F/C No. F/C Last Name
Jacksonville, FL 32232-5289
[ ][ ][ ] [ ][ ][ ][ ][ ]
Dealer's Customer Account No.
48
<PAGE>
MERRILL LYNCH GLOBAL HOLDINGS, INC. -- AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print) [ ]
Name of Owner...................... Social Security No. or
First Name Initial Last Name Taxpayer Identification No.
Address............................ Account Number ....................
(if existing account)
...................................
(Zip Code)
Name of Co-Owner (if any)..........
First Name Initial Last Name
Address............................
...................................
(Zip Code)
- -------------------------------------------------------------------------------
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 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.
49
<PAGE>
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.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA DRAWN BY MERRILL LYNCH FINANCIAL
SERVICES, INC. DATA SERVICES, INC.
You are hereby authorized to draw an To...............................Bank
ACH debit each month on my bank (Investor's Bank)
account for investment in Merrill
Lynch Global Holdings, Inc., as Bank Address.........................
indicated below:
Amount of each check or ACH debit City...... State...... Zip Code......
$.................................
As a convenience to me, I hereby
request and authorize you to pay and
Account Number.................... charge to my account ACH debits
drawn on my account by and payable
to Merrill Lynch Financial Data
Please date and invest ACH debits on Services, Inc. I agree that your
the 20th of each month rights in respect to each such debit
beginning or as soon as possible shall be the same as if it were a
(month) check drawn on you and signed
thereafter. personally by me. This authority is
to remain in effect until revoked by
I agree that you are drawing these me in writing. Until you receive
ACH debits voluntarily at my request such notice, you shall be fully
and that you shall not be liable for protected in honoring any such
any loss arising from any delay in debit. I further agree that if any
preparing or failure to prepare any such debit be dishonored, whether
such debit. If I change banks or with or without cause and whether
desire to terminate or suspend this intentionally or inadvertently, you
program, I agree to notify you shall be under no liability.
promptly in writing. I hereby
authorize you to take any action to ............ .....................
correct erroneous ACH debits of my Date Signature of
bank account or purchases of Company Depositor
shares including liquidating shares
of the Company and crediting my bank ............ .....................
account. I further agree that if a Bank Signature of Depositor
check or debit is not honored upon Account (If joint account,
presentation, Merrill Lynch Financial Number both must sign)
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)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
50
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMA-
TION 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...................................... 3
Financial Highlights....................................................... 8
International Diversification.............................................. 11
Investment Objective and Policies.......................................... 12
Hedging Techniques........................................................ 14
Other Investment Practices................................................ 20
Investment Restrictions.................................................... 21
Management of the Company.................................................. 21
Board of Directors........................................................ 21
Advisory and Management Arrangements...................................... 22
Code of Ethics............................................................ 23
Transfer Agency Services.................................................. 24
Purchase of Shares......................................................... 24
Initial Sales Charge Alternatives--Class A and Class D Shares............. 27
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 29
Distribution Plans........................................................ 32
Limitations on the Payment of Deferred Sales Charges...................... 34
Redemption of Shares....................................................... 34
Redemption................................................................ 34
Repurchase................................................................ 35
Reinstatement Privilege--Class A and Class D Shares....................... 36
Shareholder Services....................................................... 36
Investment Account........................................................ 36
Systematic Withdrawal Plans............................................... 37
Automatic Investment Plans................................................ 37
Automatic Reinvestment of Dividends and Distributions..................... 37
Exchange Privilege........................................................ 37
Fee-Based Programs........................................................ 39
Performance Data........................................................... 39
Additional Information..................................................... 40
Dividends and Distributions............................................... 40
Taxes..................................................................... 41
Determination of Net Asset Value.......................................... 43
Organization of the Company............................................... 44
Shareholder Reports....................................................... 45
Shareholder Inquiries..................................................... 45
Authorization Form......................................................... 47
</TABLE>
Code #10244-0397
[LOGO] MERRILL LYNCH
Merrill Lynch
Global Holdings, Inc.
[ART]
PROSPECTUS
March 25, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Global Holdings, Inc. (the "Company"), is a diversified, open-
end management investment company that seeks the highest total investment
return consistent with prudent risk through worldwide investment in an
internationally diversified portfolio of securities. Total investment return is
the aggregate of income and capital value changes. The Company will utilize a
fully managed investment policy which permits management of the Company to take
a flexible investment approach and vary its policies as to geographic
diversification and types of securities based upon its evaluation of changes in
economic and market trends throughout the world. Accordingly, investments may
be shifted among the various capital markets of the world and among different
types of equity, debt and convertible securities depending upon management's
outlook with respect to prevailing trends and developments. It is presently
contemplated that the Company's assets will be primarily invested in equity
securities of companies located in the United States, Japan and Western Europe.
Pursuant to the Merrill Lynch Select 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 25, 1997 (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 25, 1997.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek the highest total
investment return consistent with prudent risk through worldwide investment in
an internationally diversified portfolio of securities. Reference is made to
"Investment Objective and Policies" in the Prospectus for a discussion of the
investment objective and policies of the Company.
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
While it is the policy of the Company generally not to engage in trading for
short-term gains, Merrill Lynch Asset Management, L.P. (the "Investment
Adviser") will effect portfolio transactions without regard to holding period
if, in its judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or in
general market, economic or financial conditions. As a result of the investment
policies described in the Prospectus, including changes in asset allocation
under certain market conditions, the Company's portfolio turnover rate may be
higher than that of other investment companies. The portfolio turnover rate is
calculated by dividing the lesser of the Company's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year. For the
fiscal years ended November 30, 1996 and 1995, the rate of portfolio turnover
was 41.14% and 44.64%, 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>
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies--Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The
Company may seek to hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between currencies through the use
of options and futures transactions and forward foreign exchange transactions.
The Company has authority to write (i.e., sell) covered call options on its
portfolio securities, purchase put options on securities and engage in
transactions in stock index options, stock index futures and financial futures,
and related options on such futures. The Company may also deal in forward
foreign exchange transactions and foreign currency options and futures, and
related options on such futures. The Company is authorized to enter into such
options and futures transactions either on exchanges or in the over-the-counter
("OTC") markets. Each of such portfolio strategies is described in the
Prospectus. Although certain risks are involved in options and futures
transactions (as discussed in the Prospectus and below), the Investment Adviser
believes that, because the Company will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Company
will not subject the Company to the risks frequently associated with the
speculative use of options and futures transactions. While the Company's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Company's shares will fluctuate.
There can be no assurance that the Company's hedging transactions will be
effective. The following is further information relating to portfolio
strategies involving options and futures that the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company on or before a specified future date and price
set at the time of the contract. By writing covered call options, the Company
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Company's ability to sell the underlying security will be limited
while the option is in effect unless the Company effects a closing purchase
transaction. A closing purchase transaction cancels out the Company's position
as the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. The writer of a
covered call option has no control over when he may be required to sell his
securities since he may be assigned an exercise notice at any time prior to the
termination of his obligation as a writer. If an option expires unexercised,
the writer realizes a gain in the amount of the premium. Such a gain, of
course, may be offset by a decline in the market value of the underlying
security during the option period. If a call option is exercised, the writer
realizes a gain or loss from the sale of the underlying security.
The Company may also purchase put options to hedge against a decline in the
market value of its securities holdings. By buying a put the Company has a
right to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of
the underlying security will be offset partially by the amount of the premium
paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction, and profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related
3
<PAGE>
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
that will not be completely offset by movements in the prices of the securities
and currencies that are the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can only
be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Company will enter into an option or futures transaction on an
exchange only
4
<PAGE>
if there appears to be a liquid secondary market for such options or futures.
However, there can be no assurance that a liquid secondary market will exist
for any particular call or put option or futures contract at any specific time.
Thus, it may not be possible to close an option or futures position. The
Company will acquire only OTC options for which management believes the Company
can receive on each business day at least two independent bids or offers (one
of which will be from an entity other than a party to the option). In the case
of a futures position or an option on a futures position written by the
Company, in the event of adverse price movements, the Company would continue to
be required to make daily cash payments of variation margin. In such
situations, if the Company has insufficient cash, it may have to sell portfolio
securities to meet daily variation margin requirements at a time when it may be
disadvantageous to do so. In addition, the Company may be required to take or
make delivery of the security or currency underlying the futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the Company's ability to hedge its portfolio effectively.
There is also the risk of loss by the Company of margin deposits in the event
of bankruptcy of a broker with whom the Company has an open position in a
futures contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Company intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Company's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange transactions
of the Company will be conducted on a spot, i.e., cash, basis at the spot rate
then prevailing for purchasing or selling currency in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 1/10 of 1% due to the costs of
converting from one currency to another. However, the Company has authority to
deal in forward foreign exchange between currencies of Far Eastern and Western
Pacific countries and the dollar as a hedge against possible variations in the
foreign exchange rates between these currencies. This is accomplished through
contractual agreements to purchase or to sell a specified currency at a
specified future date and price set at the time of the contract. The Company's
dealings in forward foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Company accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of shares of the
Company or the payment of dividends and distributions by the Company. Position
hedging is the sale of forward currency with respect to portfolio security
positions denominated or quoted in such foreign currency. The Company will not
speculate in forward foreign exchange. All dealings in forward exchange will be
limited to contracts involving currencies of Far Eastern and Western Pacific
countries and the dollar. The Company may not position hedge with respect to
the currency of a particular country to an extent greater than the aggregate
market value (at the time of making such sale) of the securities held in its
portfolio denominated or quoted in that particular foreign currency. If
5
<PAGE>
the Company enters into a position hedging transaction, its custodian bank will
place cash or liquid securities in a separate account of the Company in an
amount equal to the value of the Company's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the separate account declines, additional cash or securities will be placed in
the account so that the value of the account will equal the amount of the
Company's commitment with respect to such contracts. The Company will not
attempt to hedge all of its portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Investment
Adviser of the Company. The Company will not enter into a forward contract with
a term of more than one year.
As discussed in the Prospectus, the Company may also purchase or sell listed
or OTC foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Company to hedge against a devaluation that is
so generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. 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
6
<PAGE>
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
bonds may be more likely to experience financial stress, especially if such
issuers are highly leveraged. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments or the issuer's inability to meet specific
projected business forecasts or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holder of high yield bonds because such securities may be unsecured and may be
subordinated to other creditors of the issuer.
High yield bonds frequently have call or redemption features which would
permit issuers to repurchase such securities from the Company. If a call were
exercised by an issuer during a period of declining interest rates, the Company
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Company and
dividends to shareholders.
The Company may have difficulty disposing of certain high yield bonds because
there may be a thin trading market for such securities. The secondary trading
market for high yield bonds is generally not as liquid as the secondary market
for higher rated securities. Reduced secondary market liquidity may have an
adverse impact on market price and the Company's ability to dispose of
particular issues when necessary to meet the Company's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer.
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.
7
<PAGE>
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Company may lend its portfolio securities, provided that
the lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Company's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Company may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Company's investment
policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Company
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law and
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
In addition, the Company has adopted non-fundamental restrictions which may
be changed by the Board of Directors. Under the non-fundamental investment
restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Company has otherwise
determined to be liquid pursuant to applicable law. Securities purchased in
accordance with Rule 144A under the Securities Act and determined to be
liquid by the Fund's Board of Directors are not subject to the limitations
set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (7) above, borrow
amounts in excess of 20% of its total assets, taken at market value, and
then only from banks as a temporary measure for
8
<PAGE>
extraordinary or emergency purposes such as the redemption of Company
shares. The Company will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise
subscription rights.
Portfolio securities of the Company may not be purchased from, sold or loaned
to the Investment Adviser or its affiliates or any of its directors, general
partners, officers or employees, acting as principal.
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Company has adopted an investment policy pursuant to which it
will not purchase or sell OTC options if, as a result of such transaction, the
sum of the market value of OTC options currently outstanding that are held by
the Company, the market value of the underlying securities covered by OTC call
options currently outstanding that were sold by the Company and margin deposits
on the Company's existing OTC options on futures contracts exceeds 15% of the
total assets of the Company, taken at market value, together with all other
assets of the Company that are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Company to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and if the Company has the unconditional contractual right to repurchase such
OTC option from the dealer at a predetermined price, then the Company will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is "in-the-money" (i.e.,
current market value of the underlying securities minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money." This policy as
to OTC options is not a fundamental policy of the Company and may be amended by
the Board of Directors of the Company without the approval of the Company's
shareholders. However, the Company will not change or modify this policy prior
to the change or modification by the Commission staff of its position.
Because of the affiliation of the Investment Adviser with the Company, the
Company is prohibited from engaging in certain transactions involving such firm
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage."
The investment restrictions contain an exception that permits the Company to
purchase securities pursuant to the exercise of subscription rights, subject to
the condition that such purchase will not result in the Company ceasing to be a
diversified investment company. 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.
9
<PAGE>
----------------
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Company, the Company is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to a
permissive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions are purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
Information about the Directors and executive officers of the Company,
including their ages and their principal occupations for at least the last five
years, is set forth below. Unless otherwise noted, the address of each
executive officer and Director is P.O. Box 9011, Princeton, New Jersey 08543-
9011.
Arthur Zeikel (64)--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") since 1977.
Donald Cecil (70)--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 (70)--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 (65)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
N.Y. 11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
Richard R. West (59)--Director(2)--Box 604, Genoa, Nevada 89491. Professor of
Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus of New
York University Leonard N. Stern School of Business Administration; Director of
Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate holding
company), Smith-Corona Corporation (manufacturer of typewriters and word
processors) and Alexander's, Inc. (real estate company).
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<PAGE>
Edward D. Zinbarg (62)--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 (56)--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 (63)--Senior Vice President(1)(2)--Senior Vice President of
the Investment Adviser and FAM since 1982.
Philip L. Kirstein (51)--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 (52)--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 (36)--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990.
Gerald M. Richard (47)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Investment Adviser and FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer thereof since 1984.
Robert Harris (45)--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 28, 1997, 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
(each a "non-affiliated Director") a fee of $3,500 per year plus $500 per
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Company also compensates members of its
Audit and Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors at a rate of $500 per meeting attended. The Chairman
of the Committee receives an additional fee of $250 per meeting
11
<PAGE>
attended. Fees and expenses paid to the non-affiliated Directors aggregated
$37,811 for the fiscal year ended November 30, 1996.
The following table sets forth for the fiscal year ended November 30, 1996,
compensation paid by the Company to the non-affiliated Directors and for the
calendar year ended December 31, 1996, the aggregate compensation paid by all
registered investment companies advised by the Investment Adviser and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
PENSION OR FROM COMPANY AND
RETIREMENT BENEFITS OTHER MLAM/FAM
COMPENSATION ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FROM COMPANY COMPANY EXPENSES TO DIRECTORS(1)
- ---------------- ------------ ------------------- -------------------
<S> <C> <C> <C>
Donald Cecil............... $8,500 None $268,933
Edward H. Meyer............ $6,500 None $227,933
Charles C. Reilly.......... $7,500 None $293,833
Richard R. West............ $7,500 None $269,833
Edward D. Zinbarg.......... $7,500 None $127,333
</TABLE>
- --------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Cecil (32 registered investment companies consisting of 32 portfolios); Mr.
Meyer (32 registered investment companies consisting of 32 portfolios); Mr.
Reilly (41 registered investment companies consisting of 54 portfolios);
Mr. West (41 registered investment companies consisting of 54 portfolios);
and Mr. Zinbarg (18 registered investment companies consisting of 18
portfolios).
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company--Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
Securities held by the Company may also be held by, or be appropriate
investments for, other funds or other investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for one or
more clients when one or more clients are selling the same security. If
purchases or sales of securities by the Investment Adviser for the Company or
other funds for which it acts as investment adviser or for its other advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or its affiliates
during the same period may increase the demand for securities being purchased
or the supply of securities being sold, there may be an adverse effect on
price.
The Company has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). As discussed in the
Prospectus, the Investment Advisory Agreement provides that the Investment
Adviser is entitled to receive for its services to the Company monthly
compensation at the annual rate of 1.0% of the Company's average daily net
assets. Until April 1, 1994, the Investment Adviser compensated Nomura Capital
Management, Inc. ("NCM") and Lombard Odier
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<PAGE>
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, 1994, the Investment Adviser, NCM and
LOIPM earned fees of $3,780,445, $233,542, and $175,156, respectively. For the
fiscal years ended November 30, 1995 and 1996, the Investment Adviser earned
fees of $3,740,624 and $4,169,360, respectively.
The Investment Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Company connected with investment and
economic research, trading and investment management of the Company, as well as
the fees of all Directors of the Company who are affiliated persons of the
Investment Adviser. The Company pays all other expenses incurred in its
operation, including, among other things, taxes; expenses for legal and
auditing services; costs of printing proxies, stock certificates, shareholder
reports and prospectuses and statements of additional information (except to
the extent paid by the Distributor); charges of the custodian, any sub-
custodian and transfer agent; expenses of redemption of shares; Commission
fees; expenses of registering the shares under Federal, state or foreign laws;
fees and expenses of unaffiliated Directors; accounting and pricing costs
(including the daily calculation of net asset value); insurance; interest;
brokerage costs; litigation and other extraordinary or non-recurring expenses;
and other expenses properly payable by the Company. Accounting services are
provided to the Company by the Investment Adviser, and the Company reimburses
the Investment Adviser for its costs in connection with such services on a
semiannual basis. For the fiscal years ended November 30, 1994, 1995 and 1996,
the amount of such reimbursement was $138,310, $171,044 and $104,828,
respectively. As required by the Company's distribution agreements, the
Distributor will pay certain of the promotional expenses of the Company
incurred in connection with the offering of its shares. Certain expenses in
connection with the distribution of Class B, Class C and Class D shares will be
financed by the Company pursuant to distribution plans in compliance with Rule
12b-1 under the Investment Company Act. See "Purchase of Shares--Distribution
Plans."
As described in the Prospectus, the Investment Adviser has also entered into
a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K.") pursuant to which MLAM U.K. provides investment advisory services
to the Investment Adviser with respect to the Company. MLAM U.K. received no
fees under the sub-advisory agreement during the fiscal year ended November 30,
1996.
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.
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<PAGE>
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 and/or distribution fees are paid
(except that Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). Each class has
different exchange privileges. See "Shareholder Services--Exchange Privilege."
The Merrill Lynch Select Pricing SM System is used by more than 50
registered investment companies advised by the Investment Adviser, or its
affiliate, FAM. Funds advised by FAM or the Investment Adviser that utilize
the Merrill Lynch Select Pricing SM System are referred to herein as "MLAM-
advised mutual funds."
The Company has entered into separate distribution agreements with 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, 1994, 1995 and 1996, the Company
sold its Class A shares through the Distributor and Merrill Lynch, as a
dealer. For the period October 21, 1994 (commencement of
14
<PAGE>
operations) to November 30, 1994 and the fiscal years ended November 30, 1995
and 1996, the Company sold its Class D shares through the Distributor and
Merrill Lynch as a dealer. The gross sales charges for the sale of Class A
shares of the Company 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. The gross sales charges for the sale of Class A
shares for the fiscal year ended November 30, 1995, were $19,143, of which
$17,301 was received by Merrill Lynch, and $1,842 was received by the
Distributor. The gross sales charges for the sale of Class A shares of the
Company for the fiscal year ended November 30, 1996, were $20,339, of which
$19,087 was received by Merrill Lynch, and $1,252 was received by the
Distributor. The gross sales charges for the sale of Class 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. 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. The gross sales charges for the sale of Class D shares for
the fiscal year ended November 30, 1996, were $14,881, of which $13,781 was
received by Merrill Lynch and $1,100 was received by the Distributor. 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 a front-end sales charge waiver.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his or their own account and
single purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account (including a pension, profit-
sharing or other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) although more than one beneficiary is involved.
The term "purchase" also includes purchases by any "company," as that term is
defined in the Investment Company Act, but does not include purchases by any
such company that has not been in existence for at least six months or that
has no purpose other than the purchase of shares of the Company or shares of
other registered investment companies at a discount; provided, however, that
it shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders
of a company, policyholders of an insurance company, customers of either a
bank or broker-dealer or clients of an investment adviser. The term "purchase"
also includes purchases by employee benefit plans not qualified under Section
401 of the Code, including purchases of shares of the Company by employees or
by employers on behalf of employees, by means of a payroll deduction plan or
otherwise. Purchases by such a company or non-qualified employee benefit plan
will qualify for the quantity discounts discussed above only if the Company
and the Distributor are able to realize economies of scale in sales effort and
sales related expense by means of the company, employer or plan making the
Company's Prospectus available to individual investors or employees and
forwarding investments by such persons to the Company and by any such employer
or plan bearing the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or its affiliate, FAM, who purchased such closed-end fund shares prior
to October 21, 1994 (the date the Merrill Lynch Select Pricing SM System
commenced operations) and
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<PAGE>
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, except that
shareholders already owning Class A shares of the Company will be eligible to
purchase additional Class A shares pursuant to this option if such additional
Class A shares will be held in the same account as the existing Class A shares
and the other requirements pertaining to the reinvestment privilege are met. In
order to exercise this investment option, a shareholder of one of the above-
referenced continuously offered closed-end funds (an "eligible fund") must sell
his or her shares of common stock of the eligible fund (the "eligible shares")
back to the eligible fund in connection with a tender offer conducted by the
eligible fund and reinvest the proceeds immediately in the designated class of
shares of the Company. This investment option is available only with respect to
eligible shares as to which no Early Withdrawal Charge or CDSC (each as defined
in the eligible fund's prospectus) is applicable. Purchase orders from eligible
fund shareholders wishing to exercise this investment option will be accepted
only on the day that the related tender offer terminates and will be effected
at the net asset value of the designated class of the Company's shares on such
day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Company subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a
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<PAGE>
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.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a MLAM-
advised money market fund into the Company that creates a sales charge will
count toward completing a new or existing Letter of Intention from the
Company.
Merrill Lynch Blueprint SM Program. Class D shares of the Company are
offered to participants in the Merrill Lynch Blueprint SM Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares
of the Fund may purchase additional Class A shares of the Fund through
Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class D
shares of the Company through Blueprint will acquire the Class D shares at net
asset value plus a sales charge calculated in accordance with the Blueprint
sales charge schedule (i.e., up to $300 at 4.25%, $300.01 to $5,000 at 3.25%
plus $3.00 and $5,000.01 or more at the standard sales charge rates disclosed
in the Prospectus). Class D shares of the Company are offered at net asset
value plus a sales charge of .50% of 1% for corporate or group IRA programs
placing orders to purchase their Class D shares through Blueprint. Services,
including the exchange privilege, available to Class A and Class D
shareholders through Blueprint, however, may differ from those available to
other investors in Class D shares.
Class A and Class D shares are offered at net asset value, to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian
17
<PAGE>
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 SM available through qualified
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.
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.
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<PAGE>
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 that might result from
an acquisition of assets having net unrealized appreciation that is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Company. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations,
statutory mergers or other acquisitions of portfolio securities that (i) meet
the investment objectives and policies of the Company, (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Company's portfolio securities shall at all times remain
within its control); and (iii) are liquid securities, the value of which is
readily ascertainable, that are not restricted as to transfer either by law or
liquidity of market (except that the Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any MLAM-
advised mutual fund. Minimum purchase requirements may be waived or varied for
such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor
with respect to such classes.
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<PAGE>
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 Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Company, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Company to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Company rather than to the Distributor;
however, the Company will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD formula
will not be made.
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<PAGE>
The following table sets forth comparative information as of November 30,
1996, 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, 1996
---------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- ---------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE
PERIOD OCTOBER 21, 1988
(COMMENCEMENT OF
OPERATIONS) TO NOVEMBER
30, 1996:
Under NASD Rule As
Adopted................ $73,056 $4,566 $1,317 $5,883 $2,215 $3,668 $322
Under Distributor's
Voluntary Waiver....... $73,056 $4,566 $ 365 $4,931 $2,215 $2,716 $332
CLASS C SHARES, FOR THE
PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF
OPERATIONS) TO NOVEMBER
30, 1996:
Under NASD Rule As
Adopted................ $ 1,094 $ 68 $ 7 $ 75 $ 9 $ 66 $ 7
</TABLE>
- --------
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993, under the distribution plan in effect at that time, at the 1.0%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule. See
"Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the NASD maximum or, with respect to
Class B shares, the voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange (the "NYSE") is restricted as
determined by the Commission or the NYSE is closed (other than customary
weekend and holiday closings), for any period during which an emergency exists,
as defined by the
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Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Company at such time.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an
Individual Retirement Account ("IRA") or other retirement plan or following the
death or disability of a Class B shareholder. Redemptions for which the waiver
applies in the case of such withdrawals are: (a) any partial or complete
redemption in connection with a tax-free distribution following retirement
under a tax-deferred retirement plan or attaining age 59 1/2 in the case of an
IRA or other retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) or
any redemption resulting from the tax-free return of an excess contribution to
an IRA; or (b) any partial or complete redemption following the death or
disability (as defined in the Code) of a Class B shareholder (including one who
owns the Class B shares as joint tenant with his or her spouse), provided the
redemption is requested within one year of the death or initial determination
of disability. For the fiscal years ended November 30, 1994, 1995 and 1996, the
Distributor received CDSCs of $54,858, $89,423 and $60,215, respectively, with
regard to redemptions of Class B shares, all of which were 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 years ended November 30, 1995 and 1996, the
Distributor received CDSCs of $97 and $1,249, respectively, with regard to
redemptions of Class C shares, all of which were paid to Merrill Lynch.
Merrill Lynch Blueprint SM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may
differ from those available to other investors in Class B shares. Orders for
purchases and redemptions of Class B shares of the Company will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase order is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of the Blueprint automatic investment
plan. Additional information concerning these Blueprint programs, including any
annual fees or transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint SM Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Company, the
Investment Adviser is primarily responsible for the execution of the Company's
portfolio transactions and the allocation of brokerage. In executing such
transactions, the Investment Adviser seeks to obtain the best net results for
the Company, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Investment Adviser generally
seeks reasonably competitive commission rates, the Company does not necessarily
pay the lowest commission or spread available. The Company has no obligation to
deal with any broker or group of brokers in execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Investment Adviser
may receive orders for transactions by the Company. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Investment Adviser under the Investment Advisory Agreement, and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. It is possible that certain of
the supplementary investment research so received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Company may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies. In addition,
consistent with the Conduct Rules of the NASD and policies established by the
Board of Directors of the Company, the Investment Adviser may consider sales of
shares of the Company as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Company.
The Company anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its
portfolio transactions. There is generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of 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 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
23
<PAGE>
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, 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. For the fiscal year ended November 30, 1996, the Company paid
brokerage commissions of $761,962. Merrill Lynch and its affiliates received
$31,344, or 4.11%, of such amount for effecting transactions involving 4.14% of
the aggregate dollar amount of transactions in which the Company paid brokerage
commissions.
The Board of Directors has considered the possibility of seeking to recapture
for the benefit of the Company brokerage commissions and other expenses of
possible portfolio transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received by affiliated
brokers could be offset against the advisory fee paid by the Company. After
considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts that they
manage unless the member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually furnishes the
account with a statement disclosing the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
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 NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE is
open for trading. The NYSE is not open on New Year's Day, 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
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liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the fee payable to the
Investment Adviser and any account maintenance and/or distribution fees, are
accrued daily. The per share net asset value of Class B, Class C and Class D
shares generally will be lower than the per share net asset value of the Class
A shares reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to Class
B and Class C shares and the daily expense accruals of the account maintenance
fees applicable with respect to Class D shares; moreover the per share net
asset value of Class B and Class C shares generally will be lower than the per
share net asset value of Class D shares reflecting the daily expense accruals
of the distribution fees and higher transfer agency fees applicable with
respect to Class B and Class C shares of the Company. It is expected, however,
that the per share net asset value of the four classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends or
distributions, which will differ by approximately the amount of the expense
accrual differentials among the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. When the
Company writes an option, the amount of the premium received is recorded on
the books of the Company as an asset and an equivalent liability. The amount
of the liability is subsequently valued to reflect the current market value of
the option written, based upon the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased by the Company are valued at their last sale
price in the case of exchange-traded options or, in the case of options traded
in the OTC market, the last bid price. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Company.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the NYSE. The
values of such securities used in computing the net asset value of the
Company's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of business on the
NYSE. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of business on the NYSE that will not be reflected in the
computation of the Company's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by the
Directors.
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.
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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.
Shareholders considering transferring their Class A shares or Class D shares
from Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC)
so that the cash proceeds can be transferred to the account at the new firm or
such shareholder must continue to maintain an Investment Account at the
transfer agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the transfer agent. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he or she be issued certificates for his or her shares, and then must turn the
certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an IRA from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Company, a shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A U.S. shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail 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.
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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.
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 on the NYSE (generally, 4:00 p.m., New York
time) on the 24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the NYSE is not open for business on such
date, the 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.
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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)
or CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to
the shareholder's account five business days after the date the shares are
redeemed. Monthly systematic redemptions will be made at net asset value on
the first Monday of each month; bimonthly systematic redemptions will be made
at net asset value on the first Monday of every other month; and quarterly,
semiannual or annual redemptions are made at net asset value on the first
Monday of months selected at the shareholder's option. If the first Monday of
the month is a holiday, the redemption will be processed at net asset value on
the next business day. The Systematic Redemption Program is not available if
Company shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA(R) or CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
Merrill Lynch Financial Consultant.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill
Lynch Select Pricing SM System, Class A shareholders may exchange Class A
shares of the Company for Class A shares of a second MLAM-advised mutual fund
if the shareholder holds any Class A shares of the second fund in his or her
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares of a second MLAM-
advised mutual fund, but does not hold Class A shares of the second fund in
his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive
Class D shares of the second fund as a result of the exchange. Class D shares
also may be exchanged for Class A shares of a second MLAM-advised mutual fund
at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund. Class
B, Class C and Class D shares are exchangeable with shares of the same class
of other MLAM-advised mutual funds. For purposes of computing the CDSC that
may be payable upon disposition of the shares acquired in the exchange, the
holding period for the previously owned shares of the Company is "tacked" to
the holding period for the newly acquired shares of the other fund as more
fully described below. Class A, Class B, Class C and Class D shares also are
exchangeable for shares of certain MLAM-advised money market funds as follows:
Class A shares may be exchanged for shares of Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Reserves Money Fund (available only for
exchanges within certain retirement plans), Merrill Lynch U.S.A. Government
Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B, Class C and
Class D shares may be exchanged for shares of Merrill Lynch Government Fund,
Merrill Lynch Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund
and Merrill Lynch Treasury Fund. Shares with a net asset value of at least
$100 are required to qualify for the exchange privilege, and any shares
utilized in an exchange must have been held by the shareholder for at least 15
days. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new class A or Class D shares") are transacted
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on the basis of relative net asset value per Class A or Class D share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A or Class D shares and the
sales charge payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charge paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A and Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares of the
Company generally may be exchanged into the Class A or Class D shares of the
other funds or into shares of certain money market funds with a reduced or
without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, ("new Class B or
Class C shares") of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Company exercising the exchange privilege will continue to
be subject to the Company's CDSC schedule if such schedule is higher than the
CDSC schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Company acquired through
use of the exchange privilege will be subject to the Company's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period for the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Company for those
of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having
held the Company Class B shares for two and a half years. The 2% CDSC that
generally would apply to a redemption would not apply to the exchange. Three
years later the investor may decide to redeem the Class B shares of Special
Value Fund and receive cash. There will be no CDSC due on this redemption,
since by "tacking" the two and a half year holding period of Company Class B
shares to the three year holding period for the Special Value Fund Class B
shares, the investor will be deemed to have held the Special Value Fund Class B
shares for more than five years.
Shareholders also may exchange shares of the Company into shares of certain
money market funds advised by the Investment Adviser or its affiliates, but the
period of time that Class B or Class C shares are held in a money market fund
will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
that were acquired as a result of an exchange for Class B or Class C shares of
the Company may, in turn, be exchanged back into Class B or Class C shares,
respectively, of any fund offering such shares, in which event the holding
period for Class B or Class C shares of the newly-acquired fund will be
aggregated with previous holding periods for purposes of reducing the CDSC.
Thus, for example, an investor may exchange Class B shares of the Company for
shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having
held the Company Class B shares for two and a half years and three years later
decide to redeem the shares of Institutional Fund for cash. At the time of this
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redemption the 2% CDSC that would have been due had the Class B shares of the
Company been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund that the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption would not incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, a shareholder should contact his or her
Merrill Lynch Financial Consultant who will advise the Company of the exchange.
Shareholders of the Company, and shareholders of the other MLAM-advised mutual
funds, with shares for which certificates have not been issued, may exercise
the exchange privilege by wire through their securities dealers. The Company
reserves the right to require a properly completed Exchange Application. This
exchange privilege may be modified or terminated in accordance with the rules
of the Securities and Exchange Commission. The Fund reserves the right to limit
the number of times an investor may exercise the exchange privilege. Certain
funds may suspend the continuous offering of their shares at any time and
thereafter may resume such offering from time to time. The exchange privilege
is available only to U.S. shareholders in states where the exchange legally may
be made.
TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). As long as it so qualifies, the Company
(but not its shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders (together,
the "shareholders"). The Company intends to distribute substantially all of
such income.
Dividends paid by the Company from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net long-
term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Company shares. Any loss upon
the sale or exchange of Company shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Company's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital gains
to such holder (assuming the shares are held as a capital asset).
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
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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 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
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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 such event, the Company will be liable for the tax
only on the amount by which it does not meet the foregoing distribution
requirements.
The Company may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield bonds"), as previously described. Some of these high
yield bonds may be purchased at a discount and may therefore cause the Company
to accrue and distribute income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield bonds
may be treated as dividends for Federal income tax purposes; in such case, if
the issuer of such high yield bonds is a domestic corporation, dividend
payments by the Company will be eligible for the dividends received deduction
to the extent of the deemed dividend portion of such interest payments.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Company may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the
end of each taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the taxable year.
Unless such contract is a forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency for which the
Company elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Company may alter the timing and
character of distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered into by the
Company solely to reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
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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 certain 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 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.
33
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs that
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Company.
PERFORMANCE DATA
From time to time the Company may include its average annual total return and
other total return data in advertisements or information furnished to present
or prospective shareholders. Total return figures are based on the Company's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B,
Class C and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Company also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
34
<PAGE>
Set forth in the tables below is total return information for Class A, Class
B, Class C and Class D shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
------------------------- ------------------------- ------------------------- -------------------------
REDEEMABLE REDEEMABLE REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE $1,000 OF THE $1,000 OF THE
PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD INVESTMENT PERIOD
------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended
November 30,
1996........... 9.15 % $1,091.50 9.97 % $1,099.70 13.05 % $1,130.50 8.83% $1,088.30
Five Years Ended
November 30,
1996........... 11.15 % $1,696.70 11.20 % $1,700.20
Ten Years Ended
November 30,
1996........... 9.30 % $2,434.00
Inception
(October 21,
1988) to
November 30,
1996........... 9.14 % $2,032.70
Inception
(October 21,
1994) to
November 30,
1996........... 9.81 % $1,218.40 7.89% $1,173.70
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
November 30,
1996........... 15.20 % $1,152.00 13.97 % $1,139.70 14.05 % $1,140.50 14.86% $1,148.60
Year Ended
November 30,
1995........... 12.92 % $1,129.20 11.78 % $1,117.80 11.69 % $1,116.90 12.73% $1,127.30
Year Ended
November 30,
1994........... 4.39 % $1,043.90 3.32 % $1,033.20
Inception
(October 21,
1994) to
November 30,
1994........... (4.36)% $ 956.40 (4.33)% $ 956.70
Year Ended
November 30,
1993........... 19.16 % $1,191.60 17.87 % $1,178.70
Year Ended
November 30,
1992........... 10.67 % $1,106.70 9.58 % $1,095.80
Year Ended
November 30,
1991........... 6.77 % $1,067.70 5.67 % $1,056.70
Year Ended
November 30,
1990........... (4.90)% $ 951.00 (5.88)% $ 941.20
Year Ended
November 30,
1989........... 19.36 % $1,193.60 18.22 % $1,182.20
Year Ended
November 30,
1988........... 17.59 % $1,175.90
Inception
(October 21,
1988) to
November 30,
1988........... 1.68 % $1,016.80
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
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(October 21,
1994) to
November 30,
1996........... 21.84 % $1,218.40 17.37% $1,173.70
Inception
(October 21,
1988) to
November 30,
1996........... 103.27 % $2,032.70
Inception (July
2, 1984) to
November 30,
1996........... 340.27 % $4,402.70
</TABLE>
35
<PAGE>
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC, in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares," respectively, the total return data quoted
by the Company in advertisements directed to such investors may take into
account a reduced, and not the maximum, sales charge or may not take into
account the CDSC and, therefore, may reflect greater total return since, due to
the reduced sales charges or the waiver of the CDSC, a lower amount of expenses
may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated under Maryland law on March 7, 1984. At the date
of this Statement of Additional Information, the Company has an authorized
capital of 400,000,000 shares of Common Stock, par value of $0.10 per share,
divided into four classes, designated Class A, Class B, Class C and Class D
Common Stock, each of which consists of 100,000,000 shares. Each share of Class
A, Class B, Class C and Class D Common Stock represents an interest in the same
assets of the Company and is identical in all respects except that the Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and they have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Board of Directors of the Company may classify
and reclassify the shares of the Company into additional classes of Common
Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company does not intend
to hold meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
25% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally in
dividends and distributions declared by the Company and in the net assets of
the Company upon liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the transfer agent only on
specific request. Certificates for fractional shares are not issued in any
case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors
at the request of 25% of the outstanding shares of the Company. A Director may
be removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
The Company was incorporated under the name "Merrill Lynch International
Holdings, Inc." On November 1, 1993, the Company commenced doing business under
the name "Merrill Lynch Global Holdings" and on October 21, 1994, changed its
name to Merrill Lynch Global Holdings, Inc. As investing in overseas markets
has become more common, the term "international fund" has widely come to mean
one which invests exclusively outside the United States, whereas a "global
fund" is one which may invest within
36
<PAGE>
the United States as well as in other markets. Management of the Company
believes that the name "Merrill Lynch Global Holdings, Inc." better portrays
the Company's worldwide investment capabilities, which include the ability to
invest both within the United States and abroad.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Company based on the value of the
Company's net assets on November 30, 1996, 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....................... $398,309,697 $44,311,020 $910,585 $4,688,028
============ =========== ======== ==========
Number of Shares Outstanding..... 26,346,760 3,076,128 63,197 311,649
============ =========== ======== ==========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............. $ 15.12 $ 14.40 $ 14.41 $ 15.04
Sales Charge (for Class A and
Class D shares: 5.25% of
offering price (5.54% of net
asset value per share))*........ .84 ** ** .83
------------ ----------- -------- ----------
Offering Price................... $ 15.96 $ 14.40 $ 14.41 $ 15.87
============ =========== ======== ==========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
Prospectus and "Redemption of Shares--Deferred Sales Charges--Class B and
Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase MetroTech
Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), acts as the
custodian of the Company's assets. Under its contract with the Company, the
Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories.
The Custodian is responsible for safeguarding and controlling the Company's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Company's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Company's transfer agent (the
"Transfer Agent"). The Transfer Agent is responsible for the
37
<PAGE>
issuance, transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See "Management of the Company--Transfer
Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Company.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on November 30 of each year. The Company
sends to its shareholders at least semi-annually reports showing the Company's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Company has filed with the Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Under a separate agreement, ML&Co. has granted the Company the right to use
the "Merrill Lynch" name and has reserved the right to withdraw its consent to
the use of such name by the Company at any time or to grant the use of such
name to any other company, and the Company has granted ML&Co. under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On February 28, 1997, Merrill Lynch Trust entities owned of record an
aggregate of approximately 32% of the outstanding shares of the Company on
behalf of certain employee retirement or savings plan accounts for which such
entities act as trustee. The address of Merrill Lynch Trust entities is P.O.
Box 30538, New Brunswick, NJ 08989.
38
<PAGE>
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, 1996, 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, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Global Holdings, Inc. as of November 30, 1996, 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 8, 1997
39
<PAGE>
[This page is intentionally left blank.]
40
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (In US Dollars)
<CAPTION>
LATIN Shares Value Percent of
AMERICA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <C> <C> <C> <C>
Argentina Energy 120,000 Yacimientos Petroliferos Fiscales
S.A.-- (ADR)* $ 2,350,450 $ 2,790,000 0.6%
Multi-Industry 339,000 Compania Naviera Perez Companc
S.A.C.F.I.M.F.A. 1,396,267 2,306,192 0.5
Total Investments in Argentina 3,746,717 5,096,192 1.1
Brazil Banking 76,000,000 Uniao de Bancos Brasileiros S.A.
(Preferred) 2,056,000 2,091,122 0.5
Forest Products 397,500 Aracruz Celulose S.A. (ADR)* 3,624,750 3,080,625 0.7
& Paper
Telecommuni- 30,000,00 Telecommunicaoes Brasileiras S.A.
cations --Telebras PN (Preferred) 1,069,928 2,274,179 0.5
Total Investments in Brazil 6,750,678 7,445,926 1.7
Colombia Merchandising 25,000 ++Almacenes Exito S.A. 65,652 65,380 0.0
Total Investments in Colombia 65,652 65,380 0.0
Mexico Beverages & Tobacco 35,000 Panamerican Beverages, Inc. (Class A) 991,514 1,636,250 0.4
Holding Company 2,000,000 ++Grupo Financiero Banorte, S.A. de
C.V. (Class B) 2,113,918 2,168,736 0.5
Multi-Industry 600,000 Grupo Carso, S.A. de C.V. 3,448,736 3,066,886 0.7
Total Investments in Mexico 6,554,168 6,871,872 1.6
Total Investments in Latin America 17,117,215 19,479,370 4.4
NORTH
AMERICA
Canada Agriculture 290,000 Viridian, Inc. 3,690,612 3,680,148 0.8
Telecommunications 50,000 Northern Telecom Ltd. 1,474,875 3,287,500 0.8
Total Investments in Canada 5,165,487 6,967,648 1.6
United Banking 120,000 Bank of New York, Inc. (The) 3,130,284 4,305,000 0.9
States 90,000 Barnett Banks, Inc. 2,756,978 3,960,000 0.9
------------ ------------ ------
5,887,262 8,265,000 1.8
Broadcasting & 125,000 ++Mirage Resorts, Inc. 929,000 3,015,625 0.7
Publishing 26,697 TCI Pacific Communications
(Convertible Preferred) 2,393,250 2,322,639 0.5
115,000 Time Warner Inc. 3,948,176 4,686,250 1.0
2 ++Viacom Inc. (Class A) (e) 80 75 0.0
------------ ------------ ------
7,270,506 10,024,589 2.2
Business & Public 25,000 ++Microsoft Corp. 1,039,167 3,921,875 0.9
Services 150,000 ++Molten Metal Technology, Inc. 2,998,185 2,250,000 0.5
65,000 ++Oracle Corporation (c) 491,528 3,185,000 0.7
------------ ------------ ------
4,528,880 9,356,875 2.1
</TABLE>
41
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In US Dollars)
<CAPTION>
NORTH AMERICA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <C> <C> <C> <C>
United Chemicals 60,000 PPG Industries, Inc. $ 2,314,400 $ 3,675,000 0.8%
States
(concluded) Electrical Equipment 80,000 ++Ultratech Stepper Inc. 1,395,265 1,820,000 0.4
Electronics/ 150,000 ++General Instrument Corp. 3,670,446 3,318,750 0.7
Components 50,000 Intel Corp. 1,180,625 6,337,500 1.4
60,000 Texas Instruments Inc. 2,492,028 3,825,000 0.9
------------ ------------ ------
7,343,099 13,481,250 3.0
Energy Sources 150,000 Enron Oil & Gas Co. 3,098,803 3,993,750 0.9
Food & Household 150,000 Performance Food Group Co. 1,678,096 1,800,000 0.4
Products
Health & Personal 100,000 ++Forest Laboratories, Inc. 4,023,062 3,875,000 0.9
Care 35,000 Merck & Co., Inc. 1,262,400 2,905,000 0.6
50,000 Pfizer, Inc. 2,427,678 4,481,250 1.0
------------ ------------ ------
7,713,140 11,261,250 2.5
Insurance 75,000 Mercury General Corp. 2,626,000 4,275,000 1.0
Machinery & 100,000 Harnischfeger Industries, Inc. 3,640,438 4,437,500 1.0
Equipment
Merchandising 100,000 ++Federated Department Stores, Inc. 3,290,576 3,412,500 0.8
90,000 The Home Depot, Inc. 3,373,925 4,691,250 1.0
100,000 ++Office Depot, Inc. 1,745,375 1,950,000 0.4
------------ ------------ ------
8,409,876 10,053,750 2.2
Oil & Gas 50,000 Transocean Offshore Inc. (d) 2,720,750 3,012,500 0.7
Producers
Railroads 60,000 Illinois Central Corp. 1,688,600 2,032,500 0.5
Telecommunications 125,000 ++Airtouch Communications, Inc. 2,976,403 3,203,125 0.7
Total Investments in the United
States 63,291,518 90,692,089 20.2
Total Investments in North America 68,457,005 97,659,737 21.8
PACIFIC
BASIN/ASIA
Australia Banking 200,097 National Australia Bank, Ltd. 1,430,366 2,490,517 0.6
Broadcasting & 350,873 News Corp., Ltd. (Ordinary) 1,868,290 1,866,746 0.4
Publishing
Entertainment 1,000,000 ++Sydney Harbour Casino Holdings
Ltd. (Preferred) 1,446,117 1,504,975 0.3
Insurance 107,049 Lend Lease Corp. 1,365,040 1,985,523 0.5
Metals 300,000 WMC Ltd. (a) 1,727,089 1,903,590 0.4
Total Investments in Australia 7,836,902 9,751,351 2.2
Hong Kong Multi-Industry 1,524,228 First Pacific Co., Ltd. 1,266,625 2,119,311 0.5
400,000 Hutchison Whampoa Ltd. 1,949,838 3,091,250 0.7
500,000 Swire Pacific Ltd. 'A' 2,453,484 4,737,114 1.1
------------ ------------ ------
5,669,947 9,947,675 2.3
Real Estate 400,000 Sun Hung Kai Properties, Ltd. 2,242,489 4,966,695 1.1
</TABLE>
42
<PAGE>
<TABLE>
<S> <S> <C> <C> <C> <C> <C>
Utilities--Gas 1,440,000 ++Hong Kong and China Gas Company Ltd. 1,873,089 2,858,954 0.6
120,000 ++Hong Kong and China Gas Company Ltd.
(Warrants) (b) 0 75,665 0.0
------------ ------------ ------
1,873,089 2,934,619 0.6
Total Investments in Hong Kong 9,785,525 17,848,989 4.0
India Machinery & 196,000 ++++Larsen & Toubro Ltd. (GDR)** 3,008,600 2,842,000 0.6
Engineering
Total Investments in India 3,008,600 2,842,000 0.6
Indonesia Construction & 1,880,000 Jaya Real Property 2,924,702 2,406,143 0.5
Housing
Telecommunications 50,800 P.T. Telekomunikasi Indonesia (ADR)* 939,403 1,670,050 0.4
Textiles 1,080,000 P.T. Indorama Synthetics (Foreign) 1,217,976 1,935,154 0.4
Total Investments in Indonesia 5,082,081 6,011,347 1.3
Japan Automobiles 120,000 Toyota Motor Corp. 2,128,963 3,279,149 0.7
Banking 130,000 Bank of Tokyo--Mitsubishi 3,085,819 2,661,453 0.6
US$ 1,000,000 The Mitsubishi Bank, Ltd., 3% due
11/30/2002 (Convertible) 1,000,000 1,101,000 0.2
100,000 Sanwa Bank, Ltd. 1,844,583 1,651,876 0.4
------------ ------------ ------
5,930,402 5,414,329 1.2
Broadcasting & 300,000 Tokyo Broadcasting System, Inc. 3,736,661 4,876,549 1.1
Publishing
Building Materials 200,000 Sanwa Shutter Corporation 1,848,009 1,599,156 0.4
Cable & Wire 270,000 Sumitomo Electric Industry, Ltd. 2,968,251 3,795,800 0.8
Chemicals 250,000 Asahi Chemical Industry Co. 1,825,928 1,643,089 0.4
Construction & 50,000 Sho-Bond Corp. 1,671,335 1,550,830 0.3
Housing
Data Processing & 120,000 Canon Inc. 2,096,847 2,530,533 0.6
Reproduction
Electrical & 250,000 Hitachi Ltd. 2,636,635 2,328,442 0.5
Electronics 29,000 Keyence Corp. 2,038,471 3,516,387 0.8
200,000 Matsushita Electric Industrial Co. 2,837,637 3,461,910 0.8
85,000 Murata Manufacturing Co., Ltd. 2,448,383 2,905,281 0.6
250,000 NEC Corporation 3,180,362 3,031,368 0.7
150,000 Omron Corp. 2,717,395 2,860,030 0.6
180,000 Sharp Corp. 2,744,465 2,815,218 0.6
90,000 Tokyo Electron Ltd. 3,173,486 2,570,073 0.6
------------ ------------ ------
21,776,834 23,488,709 5.2
Entertainment 70,000 Sony Music Entertainment (Japan) Inc. 3,171,727 2,878,482 0.6
Financial Services 200,000 Daiwa Securities Co., Ltd. 2,519,694 2,161,497 0.5
Insurance 250,000 Tokio Marine & Fire Insurance Co.,
Ltd. 3,142,441 2,767,771 0.6
Machinery & 170,000 Minebea Co., Ltd. 1,436,151 1,451,894 0.3
Engineering 400,000 Mitsubishi Heavy Industries Ltd. 2,988,558 3,268,606 0.7
------------ ------------ ------
4,424,709 4,720,500 1.0
</TABLE>
43
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In US Dollars)
<CAPTION>
PACIFIC BASIN/
ASIA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <C> <C> <C> <C>
Japan Merchandising 50,000 Aoyama Trading Co. $ 2,716,597 $ 1,423,425 0.3%
(concluded) 60,000 Ito-Yokado Co., Ltd. 2,604,246 3,031,368 0.7
150,000 Marui Co., Ltd. 2,736,736 2,846,850 0.6
------------ ------------ ------
8,057,579 7,301,643 1.6
Metals 700,000 Nippon Steel Co. 2,407,627 2,115,807 0.5
Real Estate 250,000 Mitsui Fudosan Co., Ltd. 3,097,952 2,965,469 0.7
Telecommunications 350 DDI Corp. 2,617,101 2,506,370 0.6
307 Nippon Telephone & Telegraph Corp.
(Ordinary) 2,553,690 2,190,352 0.5
------------ ------------ ------
5,170,791 4,696,722 1.1
Wholesale & 250,000 Mitsui & Co. 1,780,475 2,126,351 0.5
International
Trade
Total Investments in Japan 77,756,225 79,912,386 17.8
Malaysia Banking 583,333 Commerce Asset--Holding BHD 1,276,855 4,456,096 1.0
Building Materials 400,000 Sungei Way Holdings BHD 1,589,194 2,343,162 0.5
Telecommunications 300,000 Telekom Malaysia BHD 1,491,009 2,731,051 0.6
Total Investments in Malaysia 4,357,058 9,530,309 2.1
New Zealand Telecommunications 400,000 Telecom Corp. of New Zealand
Ltd. (Class C) (ADR)* 1,278,315 2,107,108 0.5
Total Investments in New Zealand 1,278,315 2,107,108 0.5
Singapore Banking 218,000 Overseas Chinese Banking Corp. 2,202,387 2,641,483 0.6
Broadcasting & 100,000 Singapore Press Holdings Limited 1,476,852 1,888,810 0.4
Publishing
Construction & 250,000 City Development Ltd. 1,562,010 2,209,551 0.5
Housing
Multi-Industry 200,000 Keppel Corp. Ltd. 1,502,011 1,553,813 0.4
Total Investments in Singapore 6,743,260 8,293,657 1.9
South Korea Banking 50,000 Hanil Bank 664,668 330,598 0.1
Construction & 39,170 ++Hyundai Engineering and Construction
Housing Co. 873,042 1,100,995 0.2
1,698 ++Hyundai Engineering and Construction
Co. (GDR)** 52,005 44,314 0.0
------------ ------------ ------
925,047 1,145,309 0.2
Electronics 46,283 LG Electronics Co. 1,725,155 720,379 0.2
Steel 31,300 Pohang Iron & Steel Co., Ltd. (ADR)* 765,410 629,913 0.1
Utilities 40,000 Korea Electric Power Co. 1,097,115 1,278,958 0.3
Total Investments in South Korea 5,177,395 4,105,157 0.9
Thailand Banking 100,000 Bangkok Bank Public Company Ltd. 1,138,470 1,143,394 0.2
Building Materials 50,000 The Siam Cement Public Co. Ltd.
(Foreign Registered) 1,902,573 1,738,586 0.4
Telecommunications 157,300 Advanced Information Services Inc. 1,779,210 1,835,516 0.4
600,000 Total Access Communication Public
Co. Ltd. 3,787,500 3,870,000 0.9
------------ ------------ ------
</TABLE>
44
<PAGE>
<TABLE>
<S> <S> <C> <C> <C> <C> <C>
5,566,710 5,705,516 1.3
Total Investments in Thailand 8,607,753 8,587,496 1.9
Total Investments in Pacific Basin/
Asia 129,633,114 148,989,800 33.2
WESTERN
EUROPE
Denmark Business & Public 150,000 ISS International Service System
A/S (Class B) 3,289,437 4,149,483 0.9
Services Total Investments in Denmark 3,289,437 4,149,483 0.9
Finland Telecommunications 76,400 Nokia OY AS 'A' 2,163,900 4,248,770 0.9
Total Investments in Finland 2,163,900 4,248,770 0.9
France Banking 20,000 Cetelem S.A. 3,947,067 4,829,420 1.1
Business & Public 80,000 ++Dassault Systemes S.A. 1,834,389 3,828,330 0.8
Services
Cosmetics 33,000 Christian Dior S.A. 2,920,305 4,843,006 1.1
Energy 42,785 Total S.A. (Class B) 2,673,402 3,419,493 0.8
Manufacturing 20,000 Bic S.A. 2,499,848 2,992,557 0.7
Total Investments in France 13,875,011 19,912,806 4.5
Germany Merchandising 32,000 ++Metro AG 3,124,165 2,684,878 0.6
Multi-Industry 10,000 Mannesmann AG 3,229,897 4,172,358 1.0
100,000 SKW Trostberg AG 2,160,663 2,790,244 0.6
80,000 Veba AG 3,264,237 4,680,325 1.0
------------ ------------ ------
8,654,797 11,642,927 2.6
Recreation 30,000 Adidas AG 1,646,257 2,604,878 0.6
Total Investments in Germany 13,425,219 16,932,683 3.8
Italy Electronics 65,000 ++Saes Getters S.p.A. (Sponsored) 1,105,000 682,500 0.2
Multi-Industry 6,000,000 ++Montedison S.p.A. 3,729,942 4,251,697 0.9
Telecommunications 6,000,000 ++Olivetti Group--Ing. 3,946,434 2,110,014 0.5
Total Investments in Italy 8,781,376 7,044,211 1.6
Netherlands Business & Public 140,000 ++Baan Company N.V. 2,254,885 4,994,200 1.1
Services
Construction & 200,000 Koninklijke Boskalis Westminster N.V. 3,111,972 3,967,517 0.9
Housing
Electrical & 180,000 ++BE Semiconductor Industries N.V.
Electronics (NY Shares) 2,573,753 2,137,500 0.5
115,000 Philips Electronics N.V. 3,839,587 4,649,362 1.0
------------ ------------ ------
6,413,340 6,786,862 1.5
Merchandising 70,700 Koninklijke Ahold N.V. 3,595,653 4,424,901 1.0
Total Investments in the
Netherlands 15,375,850 20,173,480 4.5
</TABLE>
45
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In US Dollars)
<CAPTION>
WESTERN
EUROPE Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <C> <C> <C> <C>
Norway Automobiles 330,000 ++Sensonor A/S $ 2,555,005 $ 3,160,772 0.7%
Manufacturing 200,000 Tomra Systems A/S 1,907,841 2,959,087 0.7
Total Investments in Norway 4,462,846 6,119,859 1.4
Poland Food & Beverage 75,718 ++Agros Holdings S.A. 1,272,288 1,832,530 0.4
Total Investments in Poland 1,272,288 1,832,530 0.4
Portugal Building Products 150,500 Cimpor--Cimentos de Portugal, S.A. 3,064,523 3,145,919 0.7
Total Investments in Portugal 3,064,523 3,145,919 0.7
Spain Banking 100,000 Banco Bilbao Vizcaya S.A. 3,858,654 5,057,134 1.1
Total Investments in Spain 3,858,654 5,057,134 1.1
Sweden Automobiles 80,000 Autoliv AB 2,142,137 3,516,353 0.8
Health & Personal 60,000 Astra AB 'B' 1,096,951 2,820,532 0.6
Care
Total Investments in Sweden 3,239,088 6,336,885 1.4
Switzerland Health & Personal 871 Roche Holdings AG 4,203,474 6,703,602 1.5
Care
Total Investments in Switzerland 4,203,474 6,703,602 1.5
United Automobile Parts 350,000 BBA Group PLC 1,888,551 2,047,214 0.5
Kingdom
Banking 250,097 National Westminster Bank PLC 1,993,581 2,894,200 0.6
Broadcasting & 312,500 Carlton Communications PLC
Publishing (Ordinary) 1,292,970 2,636,755 0.6
Electronics 1,250,000 Astec (BSR) PLC 1,943,769 3,361,600 0.8
Energy 479,449 British Petroleum Co. PLC 2,467,392 5,532,214 1.2
Energy Sources 575,000 Enterprise Oil PLC 3,483,980 5,750,437 1.3
Merchandising 700,000 ++Harvey Nichols PLC 3,267,451 4,165,022 0.9
500,000 Next PLC 1,731,357 4,949,956 1.1
------------ ------------ ------
4,998,808 9,114,978 2.0
Multi-Industry 342,950 Siebe PLC 3,253,851 5,473,206 1.2
Telecommunications 1,000,000 Orange PLC 3,025,616 2,975,016 0.7
Total Investments in the United
Kingdom 24,348,518 39,785,620 8.9
Total Investments in Western Europe 101,360,184 141,442,982 31.6
SHORT-TERM Face
SECURITIES Amount Issue
United Commercial US$ 19,008,000 General Electric Capital Corp.,
States Paper*** 5.70% due 12/02/1996 19,001,981 19,001,981 4.2
10,000,000 MetLife Funding, Inc., 5.24% due
12/12/1996 9,982,533 9,982,533 2.2
12,000,000 Warner-Lambert Company, 5.25% due
12/04/1996 11,993,000 11,993,000 2.7
</TABLE>
46
<PAGE>
<TABLE>
<S> <S> <C> <C> <C> <C> <C>
Total Investments in Short-Term
Securities 40,977,514 40,977,514 9.1
Total Investments $357,545,032 448,549,403 100.1
============
Liabilities in Excess of Other Assets (330,073) (0.1)
------------ ------
Net Assets $448,219,330 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the
Company.
(a)Formerly Western Mining Corp.
(b)Warrants entitle the Company to purchase a predetermined number
of shares of common stock. The purchase price and number of shares
are subject to adjustment under conditions until the expiration
date.
(c)Formerly Oracle Systems Corp.
(d)Formerly Sonat Offshore Drilling Inc.
(e)Shares of Viacom, Inc. (Class A) are exchangeable for convertible
preferred shares of TCI Pacific Communications.
++Non-income producing security.
++++Restricted security as to resale. The value of the Company's
investment in restricted securities was $2,842,000, representing
0.6% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Larsen & Toubro Ltd. (GDR) 3/1/1996 $3,008,600 $2,842,000
Total $3,008,600 $2,842,000
========== ==========
See Notes to Financial Statements.
</TABLE>
47
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of November 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$357,545,032) (Note 1a) $448,549,403
Cash 16,588
Foreign cash (Note 1b) 1,663
Receivables:
Securities sold $ 947,538
Capital shares sold 625,663
Dividends 491,003
Interest 15,000 2,079,204
------------
Prepaid registration fees and other assets (Note 1f) 36,206
------------
Total assets 450,683,064
------------
Liabilities: Payables:
Securities purchased 1,434,334
Investment adviser (Note 2) 349,835
Capital shares redeemed 245,395
Distributor (Note 2) 36,441 2,066,005
------------
Accrued expenses and other liabilities 397,729
------------
Total liabilities 2,463,734
------------
Net Assets: Net assets $448,219,330
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,634,676
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 307,613
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 6,320
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 31,165
Paid-in capital in excess of par 329,781,942
Undistributed net investment income--net 1,827,409
Undistributed realized capital gains on investments and foreign
currency transactions--net 22,630,191
Unrealized appreciation on investments and foreign currency
transactions--net 91,000,014
------------
Net assets $448,219,330
============
Net Asset Class A--Based on net assets of $398,309,697 and 26,346,760
Value: shares outstanding $ 15.12
============
Class B--Based on net assets of $44,311,020 and 3,076,128
shares outstanding $ 14.40
============
Class C--Based on net assets of $910,585 and 63,197
shares outstanding $ 14.41
============
Class D--Based on net assets of $4,688,028 and 311,649
shares outstanding $ 15.04
============
See Notes to Financial Statements.
</TABLE>
48
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended November 30, 1996
<S> <S> <C> <C>
Investment Income Dividends (net of $694,535 foreign withholding tax) $ 7,958,008
(Notes 1d & 1e): Interest and discount earned 1,635,814
------------
Total income 9,593,822
------------
Expenses: Investment advisory fees (Note 2) $ 4,169,360
Transfer agent fees--Class A (Note 2) 684,912
Account maintenance and distribution fees--Class B (Note 2) 452,751
Custodian fees 303,526
Printing and shareholder reports 134,117
Registration fees (Note 1f) 109,953
Accounting services (Note 2) 104,828
Transfer agent fees--Class B (Note 2) 98,765
Professional fees 80,279
Directors' fees and expenses 37,811
Pricing fees 12,942
Account maintenance fees--Class D (Note 2) 11,226
Transfer agent fees--Class D (Note 2) 8,419
Account maintenance and distribution fees--Class C (Note 2) 7,325
Transfer agent fees--Class C (Note 2) 1,653
Other 17,052
------------
Total expenses 6,234,919
------------
Investment income--net 3,358,903
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 22,797,724
(Loss) on Foreign currency transactions--net (231,495) 22,566,229
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 32,272,642
(Notes 1b, 1c, Foreign currency transactions--net 650 32,273,292
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 54,839,521
------------
Net Increase in Net Assets Resulting from Operations $ 58,198,424
============
See Notes to Financial Statements.
</TABLE>
49
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
November 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,358,903 $ 1,067,089
Realized gain on investments and foreign currency transactions--net 22,566,229 19,393,315
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 32,273,292 24,547,717
------------ ------------
Net increase in net assets resulting from operations 58,198,424 45,008,121
------------ ------------
Dividends & Investment income--net:
Distributions to Class A -- (177,010)
Shareholders Class D -- (352)
(Note 1g): Realized gain on investments--net:
Class A (17,594,423) (13,259,833)
Class B (2,476,721) (2,030,586)
Class C (26,025) (7,459)
Class D (192,712) (65,148)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (20,289,881) (15,540,388)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions 34,818,380 (35,521,768)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 72,726,923 (6,054,035)
Beginning of year 375,492,407 381,546,442
------------ ------------
End of year* $448,219,330 $375,492,407
============ ============
<FN>
*Undistributed (accumulated) investment income (loss)--
net (Note 1h) $ 1,827,409 $ (1,935,539)
============ ============
See Notes to Financial Statements.
</TABLE>
50
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the Class A++
financial statements.
For the Year Ended November 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.87 $ 12.82 $ 13.07 $ 11.78 $ 10.95
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .13 .05 .03 .04 .10
Realized and unrealized gain on investments
and foreign currency transactions--net 1.87 1.52 .53 2.07 1.05
-------- -------- -------- -------- --------
Total from investment operations 2.00 1.57 .56 2.11 1.15
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.01) (.01) -- (.10)
Realized gain on investments--net (.75) (.51) (.80) (.82) (.22)
-------- -------- -------- -------- --------
Total dividends and distributions (.75) (.52) (.81) (.82) (.32)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.12 $ 13.87 $ 12.82 $ 13.07 $ 11.78
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 15.20% 12.92% 4.39% 19.16% 10.67%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.37% 1.51% 1.44% 1.43% 1.49%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .92% .41% .23% .32% (.19%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $398,310 $327,270 $330,132 $256,203 $166,947
Data: ======== ======== ======== ======== ========
Portfolio turnover 41.14% 44.64% 40.18% 56.98% 65.93%
======== ======== ======== ======== ========
Average commission rate paid+++ $ .0063 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 1, 1995,
the Company is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
51
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have
been derived from information provided in the Class B++++
financial statements.
For the Year Ended November 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.38 $ 12.50 $ 12.74 $ 11.62 $ 10.82
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.02) (.08) (.10) (.08) (.03)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.79 1.47 .52 2.02 1.05
-------- -------- -------- -------- --------
Total from investment operations 1.77 1.39 .42 1.94 1.02
-------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.75) (.51) (.66) (.82) (.22)
-------- -------- -------- -------- --------
Net asset value, end of year $ 14.40 $ 13.38 $ 12.50 $ 12.74 $ 11.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 13.97% 11.78% 3.32% 17.87% 9.58%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.40% 2.55% 2.48% 2.46% 2.52%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.11%) (.63%) (.80%) (.72%) (1.19%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 44,311 $ 44,387 $ 49,647 $ 34,241 $ 22,925
Data: ======== ======== ======== ======== ========
Portfolio turnover 41.14% 44.64% 40.18% 56.98% 65.93%
======== ======== ======== ======== ========
Average commission rate paid++++++++ $ .0063 -- -- -- --
======== ======== ======== ======== ========
<CAPTION>
Class C++++ Class D++++
The following per share data and For the For the
ratios have been derived from Period Period
information provided in the financial Oct. 21, Oct. 21,
statements. For the Year Ended 1994++ to For the Year Ended 1994++ to
November 30, Nov. 30, November 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 13.38 $ 12.51 $ 13.08 $ 13.84 $ 12.81 $ 13.39
Performance: -------- -------- -------- -------- -------- --------
Investment income (loss)--net (.01) (.08) (.02) .09 .02 (.01)
Realized and unrealized gain
(loss) on investments and foreign
currency transactions--net 1.79 1.46 (.55) 1.86 1.52 (.57)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.78 1.38 (.57) 1.95 1.54 (.58)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.00)+++++ --
Realized gain on investments--net (.75) (.51) -- (.75) (.51) --
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.75) (.51) -- (.75) (.51) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.41 $ 13.38 $ 12.51 $ 15.04 $ 13.84 $ 12.81
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 14.05% 11.69% (4.36%)+++14.86% 12.73% (4.33%)+++
Return:** ======== ======== ======== ======== ======== ========
</TABLE>
52
<PAGE>
<TABLE>
<S> <S> <C> <C> <C> <C> <C> <C>
Ratios to Average Expenses 2.41% 2.55% 3.00%* 1.63% 1.76% 2.23%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.09%) (.63%) (1.31%)* .60% .18% (.67%)*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 910 $ 376 $ 177 $ 4,688 $ 3,459 $ 1,591
======== ======== ======== ======== ======== ========
Portfolio turnover 41.14% 44.64% 40.18% 41.14% 44.64% 40.18%
======== ======== ======== ======== ======== ========
Average commission rate paid++++++++ $ .0063 -- -- $ .0063 -- --
======== ======== ======== ======== ======== ========
<FN>
*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.
++++++++For fiscal years beginning on or after September 1, 1995,
the Company is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions
paid in foreign currencies, which have been converted into
US dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Holdings, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Company offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Company.
(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market value quotations are not available are valued at
their fair value as determined in good faith by or under the
direction of the Company's Board of Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
currencies are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or valuing
(unrealized) assets or liabilities expressed in foreign currencies into US
dollars. Realized and unrealized gains or losses from investments include the
effects of foreign exchange rates on investments.
(c) Derivative financial instruments--The Company may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the
contract.
* Options--The Company is authorized to write covered call options
and purchase put options. When the Company writes an option, an
amount equal to the premium received by the Company is reflected as
an asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Company enters into a closing transaction), the
Company realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Forward foreign exchange contracts--The Company is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Company's records. However, the effect on
operations is recorded from the date the Company enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
* Foreign currency options and futures--The Company may also
purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be
effected with respect to hedges on non-US dollar denominated
securities owned by the Company, sold by the Company but not yet
delivered, or committed or anticipated to be purchased by the
Company.
* Financial futures contracts--The Company may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Company deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction
is effected. Pursuant to the contract, the Company agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Company as
unrealized gains or losses. When the contract is closed, the Company
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
(d) Income taxes--It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend 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 and tax reporting.
Accordingly, current year's permanent book/tax differences of
$404,045 have been reclassified between undistributed net realized
capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
54
<PAGE>
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management L.P. ("MLAM"). The general partner of
MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Company has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
As compensation for its services to the Company, MLAM receives
monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Company in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Company pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Company. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended November 30, 1996, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Company's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $1,252 $19,087
Class D $1,100 $13,781
For the year ended November 30, 1996, MLPF&S received contingent
deferred sales charges of $60,215 and $1,249 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $31,344 in commissions on the execution
of portfolio security transactions for the Company for the year
ended November 30, 1996.
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, 1996 were $162,097,553 and
$160,137,249, respectively.
Net realized and unrealized gains (losses) as of November 30, 1996
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 22,797,724 $ 91,004,371
Short-term investments -- --
Foreign currency transactions (231,495) (4,357)
------------ ------------
Total $ 22,566,229 $ 91,000,014
============ ============
As of November 30, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $91,004,371, of which $104,224,950
related to appreciated securities and $13,220,579 related to
depreciated securities. The aggregate cost of investments at
November 30, 1996 for Federal income tax purposes was $357,545,032.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $34,818,380 and ($35,521,768) for the years ended
November 30, 1996 and November 30, 1995, respectively.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 11,176,887 $ 157,434,230
Shares issued to shareholders
in reinvestment of distributions 1,233,289 16,242,414
------------- -------------
Total issued 12,410,176 173,676,644
Shares redeemed (9,655,805) (136,577,975)
------------- -------------
Net increase 2,754,371 $ 37,098,669
============= =============
Class A Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
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)
============= =============
Class B Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 617,667 $ 8,295,124
Shares issued to shareholders in
reinvestment of distributions 174,046 2,205,170
------------- -------------
Total issued 791,713 10,500,294
Shares redeemed (1,011,647) (13,729,276)
Automatic conversion of shares (20,731) (275,360)
------------- -------------
Net decrease (240,665) $ (3,504,342)
============= =============
Class B Shares for the Year Ended Dollar
November 30, 1995 Shares Amount
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)
============= =============
Class C Shares for the Year Dollar
Ended November 30, 1996 Shares Amount
Shares sold 54,247 $ 725,543
Shares issued to shareholders in
reinvestment of distributions 1,898 24,054
------------- -------------
Total issued 56,145 749,597
Shares redeemed (21,017) (286,099)
------------- -------------
Net increase 35,128 $ 463,498
============= =============
Class C Shares for the Year Dollar
Ended November 30, 1995 Shares Amount
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
============= =============
Class D Shares for the Year Ended Dollar
November 30, 1996 Shares Amount
Shares sold 1,072,031 $ 14,751,733
Shares issued to shareholders in
reinvestment of distributions 13,662 179,386
Automatic conversion of shares 19,948 275,360
------------- -------------
Total issued 1,105,641 15,206,479
Shares redeemed (1,043,928) (14,445,924)
------------- -------------
Net increase 61,713 $ 760,555
============= =============
Class D Shares for the Year Ended Dollar
November 30, 1995 Shares Amount
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
============= =============
56
<PAGE>
5. Commitments:
On November 30, 1996, the Company had entered into foreign exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with approximate values of $271,000 and $947,000,
respectively.
6. Subsequent Event:
On December 1, 1996, the Fund's Board of Directors declared an
ordinary income dividend in the amount of $0.228687 per Class A
Share, $0.073642 per Class B Share, $0.108171 per Class C Share and
$0.192609 per Class D Share and a long-term capital gain
distribution in the amount of $0.684245 per share for all four
classes of shares, payable on December 30, 1996, to shareholders of
record as of December 19, 1996.
57
<PAGE>
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58
<PAGE>
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59
<PAGE>
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................................................ 11
Advisory and Management Arrangements..................................... 12
Purchase of Shares........................................................ 14
Initial Sales Charge Alternatives--Class A and Class D Shares............ 14
Reduced Initial Sales Charges............................................ 16
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements........................................................... 19
Distribution Plans....................................................... 19
Limitations on the Payment of Deferred Sales Charges..................... 20
Redemption of Shares...................................................... 21
Deferred Sales Charges--Class B and Class C Shares....................... 22
Portfolio Transactions and Brokerage...................................... 23
Determination of Net Asset Value.......................................... 24
Shareholder Services...................................................... 25
Investment Account....................................................... 26
Automatic Investment Plans............................................... 26
Automatic Reinvestment of Dividends and Capital Gains Distributions...... 27
Systematic Withdrawal Plans--Class A and Class D Shares.................. 27
Exchange Privilege....................................................... 28
Taxes..................................................................... 30
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions........................................................... 32
Special Rules for Certain Foreign Currency Transactions.................. 33
Performance Data.......................................................... 34
General Information....................................................... 36
Description of Shares.................................................... 36
Computation of Offering Price Per Share.................................. 37
Independent Auditors..................................................... 37
Custodian................................................................ 37
Transfer Agent........................................................... 37
Legal Counsel............................................................ 38
Reports to Shareholders.................................................. 38
Additional Information................................................... 38
Security Ownership of Certain Beneficial Owners.......................... 38
Independent Auditors' Report.............................................. 39
Financial Statements...................................................... 41
</TABLE>
Code # 10245-0397
[LOGO] MERRILL LYNCH
Merrill Lynch
Global Holdings, Inc.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
March 25, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the periods in the ten-year period
ended November 30, 1996.
Contained in Part B:
Schedule of Investments, as of November 30, 1996.
Statement of Assets and Liabilities, as of November 30, 1996.
Statement of Operations for the year ended November 30, 1996.
Statements of Changes in Net Assets for each of the years in the two-
year period ended November 30, 1996.
Financial Highlights for each of the years in the five-year period
ended November 30, 1996.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Articles of Incorporation of Registrant, as amended.(a)
(b) --Articles of Amendment to Articles of Incorporation of the
Registrant.(a)
(c) --Articles of Amendment to Articles of Incorporation of the
Registrant.(a)
(d) --Articles Supplementary to Articles of Incorporation of the
Registrant.(a)
2 --By-Laws of Registrant.(a)
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.(b)
5(a) --Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, Inc. ("Investment Adviser")(a)
(b) --Supplement to Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, L.P., dated January 3, 1994.(c)
(c) --Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P.
and Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.").
6(a) --Class A Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a)
(b) --Class B Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Adviser Program.(c)
(d) --Class C Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(a)
(e) --Class D Shares Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc.(a)
7 --None.
8 --Custody Agreement between Registrant and The Chase Manhattan Bank,
N.A.(a)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Merrill Lynch
Financial Data Service, Inc. (now known as Merrill Lynch Financial
Data Services, Inc.)(a)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc.(a)
14 --None.
15(a) --Amended and Restated Class B Distribution Plan and Class B shares
Distribution Plan Sub-Agreement of the Registrant.(c)
(b) --Class C Shares Distribution Plan and Class C Shares Distribution
Plan Sub-Agreement of the Registrant.(a)
(c) --Class D Shares Distribution Plan and Class D Shares Distribution
Plan Sub-Agreement of the Registrant.(a)
16(a) --Schedule for computation of each performance quotation for Class A
shares provided in the Registration Statement in response to Item
22.(a)
(b) --Schedule for computation of each performance quotation for Class B
shares provided in the Registration Statement in response to Item
22.(a)
(c) --Schedule for computation of each performance quotation for Class C
shares provided in the Registration Statement in response to Item
22.(a)
(d) --Schedule for computation of each performance quotation for Class D
shares provided in the Registration Statement in response to Item
22.(a)
17(a) --Financial Data Schedule relating to Class A Shares.
(b) --Financial Data Schedule relating to Class B Shares.
(c) --Financial Data Schedule relating to Class C Shares.
(d) --Financial Data Schedule relating to Class D Shares.
18 --Merrill Lynch Select Pricing (SM) System Plan Pursuant to Rule
18f-3.(e)
</TABLE>
- --------
(a) Filed on March 28, 1995, as an Exhibit to Post-Effective Amendment No. 14
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended. (File No. 2-89834) (the "Registration Statement").
(b) 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.
(c) Filed on March 30, 1994 as an Exhibit to Post-Effective Amendment No. 12 to
Registrant's Registration Statement.
(d) Filed on October 17, 1994, as an Exhibit to Post-Effective Amendment No. 13
to Registrant's Registration Statement.
(e) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS FEBRUARY 28, 1997*
-------------- ------------------
<S> <C>
Shares of Class A Common Stock, par value $0.10 per share.... 35,083
Shares of Class B Common Stock, par value $0.10 per share.... 9,296
Shares of Class C Common Stock, par value $0.10 per share.... 1,229
Shares of Class D Common Stock, par value $0.10 per share.... 674
</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.
C-3
<PAGE>
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C, and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, 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 Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series
Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch 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 Emerging Tigers Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
C-4
<PAGE>
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, 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 Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series 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, 1994, for his, her 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, 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
---- -------------------- ----------------------------------
<C> <S> <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 President Executive Vice President of FAM;
Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of MLFDS;
President of Princeton Administrators,
L.P.
Vincent R. Giordano...... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin........ Senior Vice President Senior Vice President of FAM
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- -------------------- ----------------------------------
<C> <S> <C>
Michael J. Hennewinkel... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein....... Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of FAM; Senior Vice
Secretary President, 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.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr.... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael L. Quinn......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989 to
1995
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
Ronald L. Welburn........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Anthony Wiseman.......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies: Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas Income Fund
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill
Lynch Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill
Lynch Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc. and
Worldwide DollarVest Fund, Inc. The address of each of these investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
C-6
<PAGE>
Set forth below is a list of each executive officer and director of MLAM U.K.
indicating each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since December 1, 1994, for
his or her own account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Zeikel, Albert, Bascand, Glenn, Holmes, Richard
and Yardley are officers of one or more of the registered investment companies
listed in the first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------- ----------------------------------
<S> <C> <C>
Arthur Zeikel........... Director and Chairman President of the Investment Adviser
and FAM; President and Director of
Princeton Services; Director of
MLFD; Executive Vice President of ML
& Co.
Alan J. Albert.......... Senior Managing Director Vice President of the Investment
Adviser
Terry K. Glenn.......... Director Executive Vice President of the
Investment Adviser and FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of MLFDS; President of
Princeton Administrators, L.P.
Adrian Holmes........... Managing Director Director of Merrill Lynch Global
Asset Management
Andrew John Bascand..... Director Director of Merrill Lynch Global
Asset Management
Edward Gobora........... Director Director of Merrill Lynch Global
Asset Management
Richard Kilbride........ Director Managing Director of Merrill Lynch
Global Asset Management
Robert M. Ryan.......... Director Vice President, Institutional
Marketing, Debt and Equity Group,
Merrill Lynch Capital Markets from
1989 to 1994
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer
of the Investment Adviser and FAM;
Senior Vice President and Treasurer
of Princeton Services; Vice
President and Treasurer of MLFD
Stephen J. Yardley...... Director Director of Merrill Lynch Global
Asset Management
Carol Ann Langham....... Company Secretary None
Debra Anne Searle....... Assistant Company None
Secretary
</TABLE>
C-7
<PAGE>
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
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Kevin P. Boman.......... Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Michael G. Clark........ Vice President None
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Debra W. Landsman-Yaros. Vice President None
Michelle T. Lau......... 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.
C-8
<PAGE>
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-9
<PAGE>
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 24th day of
March 1997.
Merrill Lynch Global Holdings, Inc.
(Registrant)
/s/ Gerald M. Richard
By: _________________________________
(GERALD M. RICHARD, TREASURER)
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.
SIGNATURES TITLE DATE
Arthur Zeikel* President and
- ------------------------------------- Director
(ARTHUR ZEIKEL) (Principal Executive Officer)
Gerald M. Richard* Treasurer (Principal Financial
- ------------------------------------- and Accounting
(GERALD M. RICHARD) Officer)
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)
/s/ Gerald M. Richard March 24, 1997
*By: ________________________________
(GERALD M. RICHARD, ATTORNEY-IN-
FACT)
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5(c) --Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P.
and Merrill Lynch Asset Management U.K. Limited.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
17(a) --Financial Data Schedule relating to Class A Shares.
(b) --Financial Data Schedule relating to Class B Shares.
(c) --Financial Data Schedule relating to Class C Shares.
(d) --Financial Data Schedule relating to Class D Shares.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
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> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC. - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 357545032
<INVESTMENTS-AT-VALUE> 448549403
<RECEIVABLES> 2079204
<ASSETS-OTHER> 54457
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 450683064
<PAYABLE-FOR-SECURITIES> 1434334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1029400
<TOTAL-LIABILITIES> 2463734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 332761716
<SHARES-COMMON-STOCK> 26346760
<SHARES-COMMON-PRIOR> 23592389
<ACCUMULATED-NII-CURRENT> 1827409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22630191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91000014
<NET-ASSETS> 398309697
<DIVIDEND-INCOME> 7958008
<INTEREST-INCOME> 1635814
<OTHER-INCOME> 0
<EXPENSES-NET> 6234919
<NET-INVESTMENT-INCOME> 3358903
<REALIZED-GAINS-CURRENT> 22566229
<APPREC-INCREASE-CURRENT> 32273292
<NET-CHANGE-FROM-OPS> 58198424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (17594423)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11176887
<NUMBER-OF-SHARES-REDEEMED> (9655805)
<SHARES-REINVESTED> 1233289
<NET-CHANGE-IN-ASSETS> 72726923
<ACCUMULATED-NII-PRIOR> (1935539)
<ACCUMULATED-GAINS-PRIOR> 20757888
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4169360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6234919
<AVERAGE-NET-ASSETS> 367442062
<PER-SHARE-NAV-BEGIN> 13.87
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.12
<EXPENSE-RATIO> 1.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC. - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 357545032
<INVESTMENTS-AT-VALUE> 448549403
<RECEIVABLES> 2079204
<ASSETS-OTHER> 54457
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 450683064
<PAYABLE-FOR-SECURITIES> 1434334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1029400
<TOTAL-LIABILITIES> 2463734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 332761716
<SHARES-COMMON-STOCK> 3076128
<SHARES-COMMON-PRIOR> 3316793
<ACCUMULATED-NII-CURRENT> 1827409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22630191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91000014
<NET-ASSETS> 44311020
<DIVIDEND-INCOME> 7958008
<INTEREST-INCOME> 1635814
<OTHER-INCOME> 0
<EXPENSES-NET> 6234919
<NET-INVESTMENT-INCOME> 3358903
<REALIZED-GAINS-CURRENT> 22566229
<APPREC-INCREASE-CURRENT> 32273292
<NET-CHANGE-FROM-OPS> 58198424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2476721)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 617667
<NUMBER-OF-SHARES-REDEEMED> (1032378)
<SHARES-REINVESTED> 174046
<NET-CHANGE-IN-ASSETS> 72726923
<ACCUMULATED-NII-PRIOR> (1935539)
<ACCUMULATED-GAINS-PRIOR> 20757888
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4169360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6234919
<AVERAGE-NET-ASSETS> 45399118
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.40
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC. - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 357545032
<INVESTMENTS-AT-VALUE> 448549403
<RECEIVABLES> 2079204
<ASSETS-OTHER> 54457
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 450683064
<PAYABLE-FOR-SECURITIES> 1434334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1029400
<TOTAL-LIABILITIES> 2463734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 332761716
<SHARES-COMMON-STOCK> 63197
<SHARES-COMMON-PRIOR> 28069
<ACCUMULATED-NII-CURRENT> 1827409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22630191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91000014
<NET-ASSETS> 910585
<DIVIDEND-INCOME> 7958008
<INTEREST-INCOME> 1635814
<OTHER-INCOME> 0
<EXPENSES-NET> 6234919
<NET-INVESTMENT-INCOME> 3358903
<REALIZED-GAINS-CURRENT> 22566229
<APPREC-INCREASE-CURRENT> 32273292
<NET-CHANGE-FROM-OPS> 58198424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (26025)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 54247
<NUMBER-OF-SHARES-REDEEMED> (21017)
<SHARES-REINVESTED> 1898
<NET-CHANGE-IN-ASSETS> 72726923
<ACCUMULATED-NII-PRIOR> (1935539)
<ACCUMULATED-GAINS-PRIOR> 20757888
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4169360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6234919
<AVERAGE-NET-ASSETS> 734490
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.41
<EXPENSE-RATIO> 2.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRILL LYNCH GLOBAL HOLDINGS, INC. - CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 357545032
<INVESTMENTS-AT-VALUE> 448549403
<RECEIVABLES> 2079204
<ASSETS-OTHER> 54457
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 450683064
<PAYABLE-FOR-SECURITIES> 1434334
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1029400
<TOTAL-LIABILITIES> 2463734
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 332761716
<SHARES-COMMON-STOCK> 311649
<SHARES-COMMON-PRIOR> 249936
<ACCUMULATED-NII-CURRENT> 1827409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22630191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91000014
<NET-ASSETS> 4688028
<DIVIDEND-INCOME> 7958008
<INTEREST-INCOME> 1635814
<OTHER-INCOME> 0
<EXPENSES-NET> 6234919
<NET-INVESTMENT-INCOME> 3358903
<REALIZED-GAINS-CURRENT> 22566229
<APPREC-INCREASE-CURRENT> 32273292
<NET-CHANGE-FROM-OPS> 58198424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (192712)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1091979
<NUMBER-OF-SHARES-REDEEMED> (1043928)
<SHARES-REINVESTED> 13662
<NET-CHANGE-IN-ASSETS> 72726923
<ACCUMULATED-NII-PRIOR> (1935539)
<ACCUMULATED-GAINS-PRIOR> 20757888
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4169360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6234919
<AVERAGE-NET-ASSETS> 4502657
<PER-SHARE-NAV-BEGIN> 13.84
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.86
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.75)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.04
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.5(c)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 4th day of November, 1996, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "MLAM"), and MERRILL LYNCH ASSET MANAGEMENT U.K.
LIMITED, a corporation organized under the laws of England and Wales
(hereinafter referred to as "MLAM U.K.").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MERRILL LYNCH GLOBAL HOLDINGS, INC. (the "Fund") is a Maryland
corporation engaged in business as a diversified, open-end investment company
registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering investment
advisory services and are registered as investment advisers under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, MLAM U.K. is a member of the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United Kingdom (hereinafter referred to as "IMRO"),
and the conduct of its investment business is regulated by IMRO; and
WHEREAS, MLAM has entered into an investment advisory agreement (the
"Investment Advisory Agreement") dated February 1, 1990, pursuant to which MLAM
provides management and investment and advisory services to the Fund; and
<PAGE>
WHEREAS, MLAM U.K. is willing to provide investment advisory services to
MLAM in connection with the Fund's operations on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:
ARTICLE I
---------
Duties of MLAM U.K.
-------------------
MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and to
furnish, or arrange for affiliates to furnish, the investment advisory services
described below, subject to the broad supervision of MLAM and the Fund, for the
period and on the terms and conditions set forth in this Agreement. MLAM U.K.
hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. MLAM
and its affiliates shall for all purposes herein be deemed a Professional
Investor as defined under the rules promulgated by IMRO (hereinafter referred to
as the "IMRO Rules"). MLAM U.K. and its affiliates shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
MLAM U.K. shall have the right to make unsolicited calls on MLAM and shall
provide MLAM with such investment research, advice
2
<PAGE>
and supervision as the latter may from time to time consider necessary for the
proper supervision of the assets of the Fund; shall furnish continuously an
investment program for the Fund and shall make recommendations from time to time
as to which securities shall be purchased, sold or exchanged and what portion of
the assets of the Fund shall be held in the various securities in which the Fund
invests, options, futures, options on futures or cash; all of the foregoing
subject always to the restrictions of the Articles of Incorporation and By-Laws
of the Fund, as they may be amended and/or restated from time to time, the
provisions of the Investment Company Act and the statements relating to the
Fund's investment objective, investment policies and investment restrictions as
the same are set forth in the currently effective prospectus and statement of
additional information relating to the shares of the Fund under the Securities
Act of 1933, as amended (the "Prospectus" and "Statement of Additional
Information", respectively). MLAM U.K. shall make recommendations and effect
transactions with respect to foreign currency matters, including foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures and forward foreign currency
transactions. MLAM U.K. shall also make recommendations or take action as to
the manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the portfolio securities of the Fund shall be
exercised.
3
<PAGE>
MLAM U.K. will not hold money on behalf of MLAM or the Fund, nor will MLAM
U.K. be the registered holder of the registered investments of MLAM or the Fund
or be the custodian of documents or other evidence of title.
ARTICLE II
----------
Allocation of Charges and Expenses
----------------------------------
MLAM U.K. assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall at its own
expense provide the office space, equipment and facilities which it is obligated
to provide under Article I hereof and shall pay all compensation of officers of
the Fund and all Directors of the Fund who are affiliated persons of MLAM U.K.
ARTICLE III
-----------
Compensation of MLAM U.K.
-------------------------
For the services rendered, the facilities furnished and expenses assumed by
MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be determined from
time to time by MLAM and MLAM U.K. but in no event in excess of the amount that
MLAM actually receives for providing services to the Fund pursuant to the
Investment Advisory Agreement.
ARTICLE IV
----------
Limitation of Liability of MLAM U.K.
------------------------------------
MLAM U.K. shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
performance of sub-advisory
4
<PAGE>
services rendered with respect to the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, MLAM U.K. shall include any affiliates of MLAM U.K. performing
services for MLAM contemplated hereby and directors, officers and employees of
MLAM U.K. and such affiliates.
ARTICLE V
---------
Activities of MLAM U.K.
-----------------------
The services of MLAM U.K. to the Fund are not to be deemed to be exclusive,
MLAM U.K. and any person controlled by or under common control with MLAM U.K.
(for purposes of this Article V referred to as "affiliates") being free to
render services to others. It is understood that Directors, officers, employees
and shareholders of the Fund are or may become interested in MLAM U.K. and its
affiliates, as directors, officers, employees and shareholders or otherwise and
that directors, officers, employees and shareholders of MLAM U.K. and its
affiliates are or may become similarly interested in the Fund, and that MLAM
U.K. and directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
----------
MLAM U.K. Statements Pursuant to IMRO Rules
-------------------------------------------
Any complaints concerning MLAM U.K. should be in writing addressed to the
attention of the Managing Director of MLAM U.K.
5
<PAGE>
MLAM has the right to obtain from MLAM U.K. a copy of the IMRO complaints
procedure and to approach IMRO directly.
MLAM U.K. may make recommendations, subject to the investment restrictions
referred to in Article I herein, regarding Investments Not Readily Realisable
(as that term is used in the IMRO Rules) or investments denominated in a
currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by MLAM U.K. may be subject to exchange rate fluctuations which may
have favorable or unfavorable effects on investments.
MLAM U.K. may make recommendations, subject to the investment restrictions
referred to in Article I herein, regarding options, futures or contracts for
differences. Markets can be highly volatile and such investments carry a high
degree of risk of loss exceeding the original investment and any margin on
deposit.
ARTICLE VII
-----------
Duration and Termination of this Agreement
------------------------------------------
This Agreement shall become effective as of the date first above written
and shall remain in force until the date of termination of the Investment
Advisory Agreement (but not later than two years after the date hereof) and
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) the Directors of the Fund or by the vote of a
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<PAGE>
majority of the outstanding voting securities of the Fund and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by MLAM or by vote of a majority of the outstanding voting securities
of the Fund, or by MLAM U.K., on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment or
in the event of the termination of the Investment Advisory Agreement. Any
termination shall be without prejudice to the completion of transactions already
initiated.
ARTICLE VIII
------------
Amendments of this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
----------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective
7
<PAGE>
meanings specified in the Investment Company Act and the rules and regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE X
---------
Governing Law
-------------
This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By /s/ Terry K. Glenn
----------------------------------------
Title: Executive Vice President
MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED
By /s/ Arthur Zeikel
----------------------------------------
Title: Director and Chairman
9
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Holdings, Inc.:
We consent to the use in Post-Effective Amendment No. 16 to Registration
Statement No. 2-89834 of our report dated January 8, 1997 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 24, 1997
