<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
SECURITIES ACT FILE NO. 2-89834
INVESTMENT COMPANY ACT FILE NO. 811-4351
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 18 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 19 /X/
(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 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:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
</TABLE>
------------------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / This post-effective amendment designates a new effective
date for a
previously filed post-effective amendment.
------------------------
Title of Securities Being Registered: Common Stock, par value $.10 per
share.
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Prospectus
[LOGO]Merrill Lynch
Subject to Completion
Preliminary Prospectus Dated January 29, 1999
Merrill Lynch Global Holdings, Inc.
March , 1999
This Prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep
it for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
PAGE
<S> <C>
[GRAPHIC] KEY FACTS
Merrill Lynch Global Holdings at a Glance......................... 2
Risk/Return Bar Chart............................................. 3
Fees and Expenses................................................. 4
[GRAPHIC] DETAILS ABOUT THE FUND
How the Fund Invests.............................................. 6
Investment Risks.................................................. 7
[GRAPHIC] YOUR ACCOUNT
Merrill Lynch Select Pricing(Service Mark) System................. 14
How to Buy, Sell, Transfer and Exchange Shares.................... 19
Participation in Merrill Lynch Fee-Based Programs................. 23
[GRAPHIC] MANAGEMENT OF THE FUND
Merrill Lynch Asset Management.................................... 26
Financial Highlights.............................................. 28
[GRAPHIC] FOR MORE INFORMATION
Shareholder Reports............................................... Back Cover
Statement of Additional Information............................... Back Cover
</TABLE>
MERRILL LYNCH GLOBAL HOLDINGS, INC. 1
<PAGE>
[GRAPHIC] Key Facts
In an effort to help you better understand the many concepts involved in
making an investment decision, we have defined highlighted terms in this
prospectus in the sidebar.
Total Investment Return -- the combination of capital appreciation and
investment income.
Convertible Security -- a fixed income security, such as a bond or preferred
stock that is exchangeable for shares of common stock of the issuer or of
another company.
MERRILL LYNCH GLOBAL HOLDINGS AT A GLANCE
- --------------------------------------------------------------------------------
What are the Fund's objective and goals?
The investment objective of the Fund is to seek high total investment return
through worldwide investment in an internationally diversified portfolio of
securities.
What are the Fund's main investment strategies?
The Fund invests in a diversified international portfolio of securities of
companies located throughout the world. Under normal market conditions, the
Fund expects to invest its net assets in different types of equity, debt and
convertible securities. Investments may be shifted among the various capital
markets of the world and among different types of equity, debt and convertible
securities depending upon management's outlook with respect to prevailing trends
and developments. The Fund may also invest in high yield or "junk" bonds and in
certain types of "derivative" securities. We can not guarantee that the Fund
will achieve its goal.
What are the main risks of investing in the Fund?
As with any fund, the value of the Fund's investments--and therefore
the value of Fund shares--may go up or down. These changes may occur because
particular stock or bond markets are rising or falling, or in response to
interest rate changes. At other times, there are specific factors that may
affect the value of a particular investment. If the value of the Fund's
investments goes down, you may lose money.
The Fund may invest most of its assets in non-U.S. securities. Foreign
investing involves special risks--including foreign currency risk and the
possibility of substantial volatility due to adverse political, economic or
other developments. Foreign securities may also be less liquid and harder to
value than U.S. securities. Derivatives and high yield or "junk" bonds may be
volatile and subject to liquidity, leverage, credit and other types of risks.
Who should invest?
The Fund may be an appropriate investment for you if you:
o Are looking for capital appreciation for long term goals such as
retirement or funding a child's education.
o Want a professionally managed and diversified portfolio.
o Are looking for exposure to the United States and a variety of
foreign markets.
o Are willing to accept the risks of foreign investing in order to
seek potentially higher long term returns.
o Are not looking for a significant amount of current income.
o Are prepared to receive taxable distributions of income and capital
gains.
2 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
RISK/RETURN BAR CHART
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The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance for
Class B shares for each of the past ten years. Sales charges are not reflected
in the bar chart. If these amounts were reflected, returns would be less than
those shown. The table compares the average annual total returns for each class
of the Fund's shares for the periods shown with those of the Morgan Stanley
Capital International (MSCI) World Index. How the Fund performed in the past is
not necessarily an indication of how the Fund will perform in the future.
Merrill Lynch
Global Holdings Fund - Class B
Annual Total Returns
[Representation of Bar Chart below]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
22.33% -10.18% 16.02% 3.15% 22.87% -4.20% 14.37% 11.33% 5.63% 17.34%
During the ten year period shown in the bar chart, the highest return for a
quarter was 20.30% (quarter ended December 31, 1998) and the lowest return for
a quarter was -13.73% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
Average Annual Total Past
Returns (for the Ten Years/
calendar year ended Past Past Since
December 31, 1998) One Year Five Years Inception
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch Global Holdings Fund* - Class A 12.40% 8.58% 9.88%
MSCI World Index** 24.34% 15.67% 10.65%
Merrill Lynch Global Holdings Fund* - Class B 13.35% 8.62% 9.34%#
MSCI World Index** 24.34% 15.67% 10.65%
Merrill Lynch Global Holdings Fund* - Class C 16.35% N/A 10.07%+
MSCI World Index** 24.34% 16.70%++
Merrill Lynch Global Holdings Fund* - Class A 12.02% N/A 9.53%+
MSCI World Index** 24.34% 16.70%++
</TABLE>
* Includes sales charge.
** This unmanaged market capitalization-weighted Index is comprised of a
representative sampling of stocks of large-, medium-, and
small-capitalization companies in 22 countries, including the United States.
Past performance is not predictive of future performance.
+ Inception date is October 21, 1994.
++ Since October 31, 1994.
# This performance does not reflect the effect of the conversion of Class B
shares to Class D shares after approximately eight years.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 3
<PAGE>
Key Facts
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid directly by the shareholder:
Shareholder Fees -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating
the Fund.
Management Fee -- a fee paid to the Manager for managing the Fund.
Distribution Fees -- fees used to support the Fund's marketing and
distribution efforts, such as compensating Financial Consultants, advertising
and promotion.
Service (Account Maintenance) Fees -- fees used to compensate securities
dealers for account maintenance activities.
FEES AND EXPENSES
- --------------------------------------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which classes you
are eligible to buy, decide which class best suits your needs. Your Merrill
Lynch Financial Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if you buy
and hold the different classes of shares of the Fund. Future expenses may be
greater or less than those indicated below.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B(a) Class C Class D
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) 5.25%(b) None None 5.25%(b)
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) None(c) 4.0%(b) 1.0%(b) None(c)
Maximum Sales Charge (Load) imposed on
Dividend Reinvestments None None None None
Redemption Fee None None None None
Exchange Fee None None None None
Maximum Account Fee None None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fee 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees(d) None 1.00% 1.00% 0.25%
Other Expenses (including transfer
agency fees)(e) 0.39% 0.44% 0.46% 0.39%
Total Annual Fund Operating Expenses (f) 1.39% 2.44% 2.46% 1.64%
</TABLE>
(a) Class B shares automatically convert to Class D shares about eight years
after you buy them and will no longer be subject to distribution fees.
(b) Some investors may qualify for reductions in the sales charge (load).
(c) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(d) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long time,
it may cost you more in distribution (12b-1) fees than the maximum sales
charge that you would have paid if you had bought one of the other classes.
(e) The Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent's out-of-pocket expenses. The
Fund pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly closed
account charge, which is assessed upon all accounts that close during the
year.This fee begins the month following the month the account is closed and
ends at the end of the calendar year. For the fiscal year ended November 30,
1998, the Fund paid the Transfer Agent fees totaling $886,985. The
Investment Adviser provides accounting services to the Fund at its cost.
For the fiscal year ended November 30, 1998, the Fund reimbursed the
Investment Adviser $69,928 for these services.
(f) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares.
4 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
FEES AND EXPENSES
- --------------------------------------------------------------------------------
Examples:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay the
sales charges, if any, that apply to the particular class and that the Fund's
operating expenses remain the same. This assumption is not meant to indicate
you will receive a 5% annual rate of return. Your annual return may be more or
less than the 5% used in this example. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $659 $942 $1,246 $2,106
Class B $647 $961 $1,301 $2,591*
Class C $349 $767 $1,311 $2,796
Class D $683 $1,015 $1,370 $2,367
</TABLE>
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $659 $942 $1,246 $2,106
Class B $247 $761 $1,301 $2,591*
Class C $249 $767 $1,311 $2,796
Class D $683 $1,015 $1,370 $2,367
</TABLE>
* Assumes conversion to Class D shares approximately eight years after
purchase. See note (a) to the Fees and Expenses table above.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 5
<PAGE>
[GRAPHIC] Details About the Fund
ABOUT THE PORTFOLIO MANAGER
Lawrence R. Fuller is the Senior Vice President and portfolio manager of the
Fund. Mr. Fuller has been First Vice President of the Investment Adviser since
1997 and was Vice President of the Investment Adviser from 1992 to 1997.
ABOUT THE INVESTMENT ADVISER
The Fund is managed by
Merrill Lynch Asset Management.
HOW THE FUND INVESTS
- --------------------------------------------------------------------------------
The Fund will invest in a variety of securities of companies located throughout
the world. There are no limits on where the Fund can invest. The Fund will
consider economic and market trends when deciding where to invest. The Fund will
invest in different types of equity, debt and convertible securities depending
on global trends and developments.
In making its decision as to which country to invest in, the Fund will
consider:
o The condition and growth potential of the economies and securities
markets of the various countries.
o The condition and growth potential of companies located in those
countries.
o Currency and taxation factors.
o Other financial, social and political factors that may have an
effect on the investment climate.
Currently, the Fund emphasizes investment in equity securities or convertible
securities. The Fund can however switch its emphasis to debt or convertible
securities or non-convertible preferred stocks. The Fund will consider
economic or market conditions when deciding in what type of securities to
invest.
The Fund can invest in "junk bonds." Junk bonds are bonds that are rated below
investment grade by independent rating agencies or are bonds that are not
rated but which Fund management considers to be of comparable quality. As a
temporary defensive measure the Fund can hold cash or cash equivalents (in
U.S. dollars or foreign currencies) and short term securities, including money
market securities, without limitation. This may limit the Fund's potential to
achieve its goal of high total return.
The Fund may use derivatives including futures, forwards, options and indexed
securities. Derivatives are financial instruments whose value is derived from
another security or an index such as the MSCI World Index.
6 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
INVESTMENT RISKS
- --------------------------------------------------------------------------------
This section contains a summary discussion of the general risks of investing
in the Fund. As with any mutual fund, there can be no guarantee that the Fund
will meet its goals or that the Fund's performance will be positive for any
period of time.
Market and Selection Risk -- Market risk is the risk that the stock or bond
markets will go down in value, including the possibility that the markets will
go down sharply and unpredictably. Selection risk is the risk that the
investments that Fund management selects will underperform the stock or bond
markets or other funds with similar investment objectives and investment
strategies.
Foreign Market Risk -- Since the Fund invests in foreign securities, it offers
the potential for more diversification than an investment only in the United
States. This is because stocks traded on foreign markets have often (although
not always) performed differently than stocks in the United States. However,
such investments involve special risks not present in U.S. investments that
can increase the chances that the Fund will lose money. In particular, the
Fund is subject to the risk that because there are generally fewer investors
on foreign exchanges and a smaller number of shares traded each day, it may
make it difficult for the Fund to buy and sell securities on those exchanges.
In addition, prices of foreign securities may go up and down more than prices
of securities traded in the United States.
Foreign Economy Risk -- The economies of certain foreign markets often do not
compare favorably with that of the United States with respect to such issues
as growth of gross national product, reinvestment of capital, resources and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular
country or countries, changes in international trading patterns, trade
barriers and other protectionist or retaliatory measures. Investments in
foreign markets may also be adversely affected by governmental actions such as
the imposition of capital controls, nationalization of companies or
industries, expropriation of assets or the imposition of punitive taxes. In
addition, the governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital markets or in
certain industries. Any of these actions could severely affect security
prices, impair the Fund's ability to purchase or sell foreign securities or
transfer the Fund's
MERRILL LYNCH GLOBAL HOLDINGS, INC. 7
<PAGE>
[GRAPHIC] Details About the Fund
assets or income back into the United States, or otherwise adversely affect the
Fund's operations. Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign courts, and
political and social instability. Legal remedies available to investors in
certain foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
Currency Risk -- Securities in which the Fund invests are usually denominated
or quoted in currencies other than the U.S. dollar. Changes in foreign
currency exchange rates affect the value of the Fund's portfolio. Generally,
when the U.S. dollar rises in value against a foreign currency, a security
denominated in that currency loses value because the currency is worth fewer
U.S. dollars. Conversely, when the U.S. dollar decreases in value against a
foreign currency, a security denominated in that currency gains value because
the currency is worth more U.S. dollars. This risk, generally known as
"currency risk", means that a stronger U.S. dollar will reduce returns for
U.S. investors while a weak U.S. dollar will increase those returns.
Settlement Risk -- Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign settlement
and clearance procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically involved
with the settlement of U.S. investments. Communications between the United
States and emerging market countries may be unreliable, increasing the risk of
delayed settlements or losses of security certificates. Settlements in certain
foreign countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Fund to carry out
transactions. If the Fund cannot settle or is delayed in settling a purchase of
securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If the
Fund cannot settle or is delayed in settling a sale of securities, it may lose
money if the value of the security then declines or, if it has contracted to
sell the security to another party, the Fund could be liable to that party for
any losses incurred.
Foreign Governmental Supervision and Regulation/Accounting Standards -- Many
foreign governments supervise and regulate stock exchanges, brokers and the sale
of securities less than the United States does. Some countries may not have laws
to protect investors the way that the United
8 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
States securities laws do. For example, some countries may have no laws or rules
against insider trading. Insider trading occurs when a person buys or sells a
company's securities based on non-public information about that company.
Accounting standards in other countries are not necessarily the same as in the
United States. If the accounting standards in another country do not require as
much detail as U.S. accounting standards, it may be harder for the Fund's
management to completely and accurately determine a company's financial
condition. Also, brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in the United
States. This reduces the amount the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States -- The Fund
generally holds its foreign securities in which it invests outside the United
States in foreign banks and securities depositories. Some foreign banks and
securities depositories may be recently organized or new to the foreign custody
business. In addition, there may be limited or no regulatory oversight over
their operations. Also, the laws of certain countries may put limits on the
Fund's ability to recover its assets if a foreign bank, depository or issuer of
a security, or any of their agents, goes bankrupt. In addition, it is often more
expensive for the Fund to buy, sell and hold securities in certain foreign
markets than in the U.S. The increased expense of investing in foreign markets
reduces the amount the Fund can earn on its investments and typically results in
a higher operating expense ratio for the Fund than investment companies invested
only in the U.S.
Dividends or interest on, or proceeds from the sale of, foreign securities may
be subject to foreign withholding and other taxes. Shareholders may be able to
take a credit or a deduction for foreign taxes paid by the Fund, if certain
requirements are met.
European Economic and Monetary Union ("EMU") -- Certain European countries
have joined EMU in an effort to, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies
in certain industries, and reduce or eliminate currency fluctuations among
these countries. EMU established a single common European currency (the
"euro") that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. Certain
securities (beginning with government and corporate bonds) were redenominated
in the euro, and are listed, trade and make dividend and other payments only
in euros. Although
MERRILL LYNCH GLOBAL HOLDINGS, INC. 9
<PAGE>
EMU is generally expected to have a beneficial effect, it could negatively
affect the Fund in a number of situations, including as
follows:
[GRAPHIC]Details About the Fund
o If the transition to euro, or EMU as a whole, does not proceed as planned,
the Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility and other disruptions of the
markets could occur.
o Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example, if securities redenominated in
euros are transferred back into that country's national currency.
o Computer, accounting, and trading systems must be capable of recognizing the
euro as a distinct currency. If not properly addressed, this may negatively
affect the operations of the companies the Fund invests in.
Emerging Markets Risk -- The risks of foreign investments are usually much
greater for emerging markets. Investments in emerging markets may be
considered speculative. Emerging markets include those in countries defined as
emerging or developing by the World Bank, the International Finance
Corporation or the United Nations. Emerging markets are riskier because they
develop unevenly and may never fully develop. They are more likely to
experience hyperinflation and currency devaluations, which adversely affects
returns to U.S. investors. In addition, the securities markets in many of
these countries have far lower trading volumes and less liquidity than
developed markets. Since these markets are so small, investments in them may
be more likely to suffer sharp and frequent price changes or long term price
depression because of adverse publicity, investor perceptions or the actions
of a few large investors. In addition, traditional measures of investment
value used in the United States, such as price to earnings ratios, may not
apply to certain small markets.
Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging markets
may also face other significant internal or external risks, including the risk
of war, and ethnic, religious, and racial conflicts. In addition, governments
in many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.
10 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
Illiquid Investments -- The Fund may invest up to 15% of its assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Fund
buys illiquid securities it may be unable to quickly resell them or may be
able to sell them only at a price below current value.
Restricted Securities -- Restricted securities have contractual or legal
restrictions on their resale. They include private placement securities that
the Fund buys directly from the issuer. Private placement and other restricted
securities may not be listed on an exchange and may have no active trading
market.
Restricted securities may be very illiquid. The Fund may be unable to sell
them on short notice or may be able to sell them only at a price below current
value. The Fund may get only limited information about the issuer, so it may
be less able to predict a loss. In addition, if Fund management receives
material adverse nonpublic information about the issuer, the Fund will not be
able to sell the security.
Rule 144A: Description and Risk Mitigation -- Rule 144A securities are
restricted securities that can be resold to qualified institutional buyers but
not to the general public. Rule 144A securities may have an active trading
market, but carry the risk that the active trading market may not continue.
Convertibles -- Convertibles are generally debt securities or preferred stocks
that may be converted into common stock. Convertibles typically pay current
income as either interest (debt security convertibles) or dividends (preferred
stocks). A convertible's value usually reflects both the stream of current
income payments and the value of the underlying common stock. The market value
of a convertible performs like regular debt securities; that is, if market
interest rates rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the same types of
market and issuer risk as the value of the underlying common stock.
Derivatives -- The Fund may use derivative instruments including futures,
forwards, options and indexed securities. Derivatives are financial
instruments whose value is derived from another security, a commodity (such as
gold or oil), or an index such as the MSCI World Index. Derivatives allow the
Fund to increase or decrease its risk exposure more quickly and efficiently than
other types of instruments. Derivatives are volatile and involve significant
risks, including:
MERRILL LYNCH GLOBAL HOLDINGS, INC. 11
<PAGE>
Leverage risk -- the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed
the amount originally invested.
Credit risk -- the risk that the counterparty (the party on the other side
of the transaction) on a derivative transaction will be unable to honor
its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Liquidity risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price
that the seller believes the security is currently worth.
The Fund may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which the Fund uses a derivative to offset
the risk that other Fund holdings may decrease in value. While hedging can
reduce losses, it can also reduce or eliminate gains if the market moves in a
different manner than anticipated by the Fund or if the cost of the derivative
outweighs the benefit of the hedge. Hedging also involves the risk that
changes in the value of the derivative will not match those of the holdings
being hedged as expected by the Fund, in which case any losses on the holdings
being hedged may not be reduced. There can be no assurance that the Fund's
hedging strategy will reduce risk or that hedging transactions will be either
available or cost effective. The Fund is not required to use hedging and may
choose not to do so.
The Fund may also use indexed securities to gain exposure to certain markets
when it deems these derivatives to be potentially more advantageous than the
purchase of equity securities in those markets.
Securities Lending -- The Fund may lend securities to financial institutions
which provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely
manner or at all. As a result, the Fund may lose money and there may be a
delay in recovering the loaned securities. The Fund could also lose money if
it does not recover the securities and the value of the collateral falls.
These events could trigger adverse tax consequences to the Fund.
12 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
Borrowing Risk -- The Fund may borrow for temporary emergency purposes including
to meet redemptions. Borrowing may exaggerate changes in the net asset value of
Fund shares and in the yield on the Fund's portfolio. Borrowing will cost the
Fund interest expense and other fees. The cost of borrowing may reduce the
Fund's return.
Depositary Receipts -- The Fund may invest in securities of foreign issuers in
the form of Depositary Receipts or other securities that are convertible into
securities of foreign issuers. American Depositary Receipts are receipts
typically issued by an American bank or trust company that show evidence of
underlying securities issued by a foreign corporation. European Depositary
Receipts and Global Depositary Receipts each evidence a similar ownership
arrangement. The Fund may also invest in unsponsored Depositary receipts. The
issuers of such unsponsored Depositary Receipts are not obligated to disclose
material information in the United States and therefore, there may be less
information available regarding such issuers.
When Issued Securities, Delayed Delivery and Forward Commitments -- When
issued and delayed delivery securities and forward commitments involve the
risk that the security the Fund buys will lose value prior to its delivery.
There also is the risk that the security will not be issued or that the other
party will not meet its obligation. If this occurs, the Fund both loses the
investment opportunity for the assets it has set aside to pay for the security
and any gain in the security's price.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
If you would like further information about the Fund, including how it
invests, please see the Statement of Additional Information.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 13
<PAGE>
[GRAPHIC]Your Account
Your Account
MERRILL LYNCH SELECT PRICING(Service Mark) SYSTEM
- --------------------------------------------------------------------------------
The Fund offers four share classes, each with its own sales charge and expense
structure, allowing you to invest in the way that best suits your needs. Each
share class represents an ownership interest in the same investment portfolio.
When you choose your class of shares you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill Lynch
Financial Consultant can help you determine which share class is best suited
to your personal financial goals.
For example, if you select Class A or Class D shares, you generally pay a
sales charge at the time of purchase. If you buy Class D shares, you also pay
an ongoing account maintenance fee of 0.25%. You may be eligible for a sales
charge waiver.
If you select Class B or C shares, you will invest the full amount of your
purchase price, but you will be subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees increase the cost of
your investment and may cost you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales charge when you sell Class B
or C shares.
The Fund's shares are distributed by Merrill Lynch Funds Distributor, a
division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.
14 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
The table below summarizes key features of the Merrill Lynch Select
Pricing(Service Mark) System.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Availability Limited to certain Generally available Generally available Generally available
investors including: through Merrill through Merrill through Merrill
o Current Class A Lynch. Limited Lynch. Limited Lynch. Limited
shareholders availability through availability through availability through
o Certain Retirement other securities other securities other securities
Plans dealers. dealers. dealers.
o Participants in
certain Merrill
Lynch sponsored
programs
o Certain affiliates
of Merrill Lynch.
Initial Sales Charge? Yes. Payable at time No. Entire purchase No. Entire purchase Yes. Payable at time
of purchase. Lower price is invested in price is invested in of purchase. Lower
sales charges shares of the Fund. shares of the Fund. sales charges
available for larger available for larger
investments. investments.
Deferred Sales No. (May be charged Yes. Payable if you Yes. Payable if you No. (May be charged
Charge? for purchases over redeem within four redeem within one for purchases over
$1 million that are years of purchase. year of purchase. $1 million that are
redeemed within redeemed within
one year.) one year.)
Account No. 0.25% Account 0.25% Account 0.25% Account
Maintenance and Maintenance Fee Maintenance Fee Maintenance Fee
Distribution Fees? 0.75% Distribution 0.75% Distribution No Distribution
Fee. Fee. Fee.
Conversion to No. Yes, automatically No. No.
Class D shares? after approximately
eight years.
</TABLE>
MERRILL LYNCH GLOBAL HOLDINGS, INC. 15
<PAGE>
[GRAPHIC]Your Account
Right of Accumulation --
permits you to pay the sales charge that would apply to the cost or value
(whichever is higher) of all shares you own in the Merrill Lynch mutual funds
that offer Select Pricing options.
Letter of Intent -- permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select Pricing System
funds that you agree to buy within a 13 month period. Certain restrictions
apply.
Class A and Class D Shares -- Initial Sales Charge Options
If you select Class A or Class D shares, you will pay a sales charge at the
time of purchase.
<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* Offering Price
<S> <C> <C> <C>
Less than $25,000 5.25% 5.54% 5.00%
$25,000 but less than
$50,000 4.75% 4.99% 4.50%
$50,000 but less than
$100,000 4.00% 4.17% 3.75%
$100,000 but less
than $250,000 3.00% 3.09% 2.75%
$250,000 but less than
$1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over** 0.00% 0.00% 0.00%
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This charge
is 1% of the lesser of the original cost of the shares being redeemed or your
redemption proceeds. A sales charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class A or Class D shares by certain employer sponsored
retirement or savings plans.
No initial sales charge applies to Class A or Class D shares that you buy
through reinvestment of dividends or distributions.
A reduced or waived sales charge on a purchase of Class A or Class D shares
may apply for:
o Purchases under a Right of Accumulation or Letter of Intent.
o Merrill Lynch Blueprint(Service Mark) Program participants.
o TMA(Service Mark) Managed Trusts.
o Certain Merrill Lynch investment or central asset accounts.
o Certain employer-sponsored retirement or savings plans.
o Purchases using proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances.
16 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
o Certain investors, including directors of Merrill Lynch mutual funds
and Merrill Lynch employees.
o Certain Merrill Lynch fee-based programs.
Only certain investors are eligible to buy Class A shares. Your Financial
Consultant can help you determine whether you are eligible to buy Class A
shares or to participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you
are eligible to buy both Class A and Class D shares, you should buy Class A
since Class D shares are subject to an account maintenance fee, while Class A
shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of
the same class, you will not pay a sales charge on the new purchase amount.
The amount eligible for this "Reinstatement Privilege" may not exceed the
amount of your redemption proceeds. To exercise the privilege, contact your
Merrill Lynch Financial Consultant or the Fund's Transfer Agent at
1-800-MER-FUND.
Class B and Class C Shares -- Deferred Sales Charge Options
If you select Class B or Class C shares, you do not pay an initial sales
charge at the time of purchase. However, if you redeem your Class B shares
within four years after purchase, or your Class C shares within one year after
purchase, you may be required to pay a deferred sales charge. You will also
pay distribution fees of 0.75% and account maintenance fees of 0.25% each year
under distribution plans that the Fund has adopted under Rule 12b-1. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees increase the cost of your investment and may cost you more than
paying an initial sales charge. The Distributor uses the money that it
receives from the deferred sales charges and the distribution fees to cover
the costs of marketing, advertising and compensating the Merrill Lynch
Financial Consultant or other securities dealer who assists you in purchasing
Fund shares.
Class B Shares
If you redeem Class B shares within four years after purchase, you may be
charged a deferred sales charge. The amount of the charge gradually decreases
as you hold your shares over time, according to the following schedule:
MERRILL LYNCH GLOBAL HOLDINGS, INC. 17
<PAGE>
[GRAPHIC]Your Account
Years Since Purchase Sales Charge*
-------------------- -------------
0 - 1 4.00%
1 - 2 3.00%
2 - 3 2.00%
3 - 4 1.00%
4 and thereafter 0.00%
* The percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares acquired
through reinvestment of dividends or distributions are not subject to a
deferred sales charge. Not all Merrill Lynch funds have identical deferred
sales charge schedules. If you exchange your shares for shares of another
fund, the higher charge will apply.
The deferred sales charge relating to Class B shares may be reduced or waived
in certain circumstances, such as:
o Certain post-retirement withdrawals from an IRA or other retirement
plan if you are over 591/2 years old.
o Redemption by certain eligible 401(a) and 401(k) plans, certain related
accounts, group plans participating in the Merrill Lynch Blueprint
Program and certain retirement plan rollovers.
o Redemption in connection with participation in certain Merrill Lynch
fee-based programs.
o Withdrawals resulting from shareholder death or disability as long as
the waiver request is made within one year of death or disability or,
if later, reasonably promptly following completion of probate, or in
connection with involuntary termination of an account in which Fund
shares are held.
o Withdrawal through the Merrill Lynch Systematic Withdrawal Plan of up
to 10% per year of your Class B account value at the time the plan is
established.
Your Class B shares convert automatically into Class D shares approximately
eight years after purchase. Any Class B shares received through reinvestment
of dividends or distributions paid on converting shares will also convert at
that time. Class D shares are subject to lower annual expenses than Class B
shares. The conversion of Class B to Class D shares is not a taxable event for
federal income tax purposes.
Different conversion schedules apply to Class B shares of different Merrill
Lynch mutual funds. For example, Class B shares of a fixed-income fund convert
18 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
approximately ten years after purchase compared to approximately eight years
for equity funds. If you acquire your Class B shares in an exchange from
another fund with a shorter conversion schedule, the Fund's eight year
conversion schedule will apply. If you exchange your Class B shares in the
Fund for Class B shares of a fund with a longer conversion schedule, the other
fund's conversion schedule will apply. The length of time that you hold both
the original and exchanged Class B shares in both funds will count toward the
conversion schedule. The conversion schedule may be modified in certain other
cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be
charged a deferred sales charge of 1.00%. The charge will apply to the lesser
of the original cost of the shares being redeemed or the proceeds of your
redemption. You will not be charged a deferred sales charge when you redeem
shares that you acquire through reinvestment of Fund dividends or
distributions. The deferred sales charge relating to Class C shares may be
reduced or waived in connection with participation in certain Merrill Lynch
fee-based programs, involuntary termination of an account in which Fund shares
are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
The chart below summarizes how to buy, sell, transfer and exchange shares
through Merrill Lynch or other securities dealers. You may also buy shares
through the Transfer Agent. To learn more about buying shares through the
Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial Consultant may help
you with this decision.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 19
<PAGE>
[GRAPHIC]Your Account
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy Shares First, select the share class Refer to the Merrill Lynch Select Pricing table on page 15. Be
appropriate for you sure to read this prospectus carefully.
Next, determine the amount The minimum initial investment for the Fund is $1,000 for all
of your investment accounts except:
o $250 for certain Merrill Lynch fee-based programs
o $100 for retirement plans
(The minimums for initial investments may be waived or reduced
under certain circumstances.)
Have your Merrill Lynch The price of your shares is based on the next calculation of net asset
Financial Consultant or value after your order is placed. Any purchase orders placed within
securities dealer submit fifteen minutes after the close of business on the New York Stock
your purchase order Exchange will be priced at the net asset value determined that day.
Purchase orders placed after that time will be priced at the net asset
value determined on the next business day. The Fund may reject any
order to buy shares and may suspend the sale of shares at any time.
Merrill Lynch may charge a processing fee to confirm a purchase.
This fee is currently $5.35.
Or contact the Transfer Agent To purchase shares directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed purchase
application to the Transfer Agent at the address on the inside back
cover of this Prospectus.
Add to Your Purchase additional shares The minimum investment for additional purchases is $50 for all
Investment accounts except $1 for retiement plans.
(The minimums for additional purchases may be waived under certain
circumstances.)
Acquire additional shares All dividends and capital gains distributions are automatically
through the automatic reinvested without a sales charge.
dividend reinvestment plan
Participate in the automatic You may invest a specific amount on a periodic basis through certain
investment plan Merrill Lynch investment or central asset accounts.
Transfer Shares to Transfer to a participating You may transfer your Fund shares only to another securities dealer
Another Securities securities dealer that has entered into an agreement with Merrill Lynch. All
Dealer shareholder services will be available for the transferred shares. You
may only purchase additional shares of funds previously owned
before the transfer. All future trading of these assets must
be coordinated by the receiving firm.
</TABLE>
20 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transfer Shares Transfer to a You must either:
to Another non-participating securities o Transfer your shares to an account with the Transfer Agent; or
Securities Dealer dealer o Sell your shares.
(continued)
Sell Your Shares Have your Merrill Lynch The price of your shares is based on the next calculation of net asset
Financial Consultant or value after your order is placed. For your redemption request to be
securities dealer submit your priced at the net asset value on the day of your request, you must
sales order submit your request to your dealer within fifteen minutes after that
day's close of business on the New York Stock Exchange (generally
closes at 4:00 p.m. Eastern time). Any redemption request placed after
that time will be priced at the net asset value at the close of
business on the next business day. Dealers must submit redemption
requests to the Fund not more than thirty minutes after the close of
business on the New York Stock Exchange on the day the request was
received.
Securities dealers, including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently charges a fee
of $5.35. No processing fee is charged if you redeem shares directly
through the Transfer Agent.
The Fund may reject an order to sell shares under certain
circumstances.
Sell through the Transfer You may sell shares held at the Transfer Agent by writing to the
Agent Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the
letter and signatures must be guaranteed. If you hold stock
certficiates, return the certificates with the letter. The Transfer
Agent will normally mail redemption proceeds within seven days
following receipt of a properly completed request. If you make a
redemption request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may delay mailing
your proceeds. This delay will usually not exceed ten days.
If you hold share certificates, they must be delivered to the Transfer
Agent before they can be converted. Check with the Transfer Agent or
your Merrill Lynch Financial Consultant for details.
</TABLE>
MERRILL LYNCH GLOBAL HOLDINGS, INC. 21
<PAGE>
[GRAPHIC]Your Account
<TABLE>
<CAPTION>
If You Want to Your Choices Information Important for You to Know
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sell Shares Participate in the Fund's You can choose to receive systematic payments from your Fund
Systematically Systematic Withdrawal Plan account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you have a Merrill Lynch
CMA(Registered), CBA(Registered) or Retirement Account you can
arrange for systematic redemptions of a fixed dollar amount on a
monthly, bi-monthly, quarterly, semi-annual or annual basis, subject to
certain conditions. Under either method you must have dividends and
other distributions automatically reinvested. For Class B and C shares
your total annual withdrawals cannot be more than 10% per year of the
value of your shares at the time your plan is established. The deferred
sales charge is waived for systematic redemptions. Ask your Merrill
Lynch Financial Consultant for details.
Exchange Your Select the fund into which You can exchange your shares of the Fund for shares of many other
Shares you want to exchange. Be Merrill Lynch mutual funds. You must have held the shares used in
sure to read that fund's the exchange for at least 15 calendar days before you can exchange
prospectus to another fund.
Each class of Fund shares is generally exchangeable for shares of the
same class of another fund. If you own Class A shares and wish to
exchange into a fund in which you have no Class A shares, you will
exchange into Class D shares.
Some of the Merrill Lynch mutual funds impose a different initial or
deferred sales charge schedule. If you exchange Class A or D shares for
shares of a fund with a higher initial sales charge than you originally
paid, you will be charged the difference at the time of exchange. If you
exchange Class B shares for shares of a fund with a different deferred
sales charge schedule, the higher schedule will apply. The time you hold
Class B or C shares in both funds will count when determining your
holding period for calculating a deferred sales charge at redemption. If
you exchange Class A or D shares for money market fund shares, you will
receive Class A shares of Summit Cash Reserves Fund. Class B or C shares
of the Fund will be exchanged for Class B shares of Summit.
Although there is currently no limit on the number of exchanges that you
can make, the exchange privilege may be modified or terminated at any
time in the future.
</TABLE>
22 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
Net Asset Value -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
- --------------------------------------------------------------------------------
When you buy shares, you pay the net asset value, plus any applicable sales
charge. This is the offering price. Shares are also redeemed at their net
asset value, minus any applicable deferred sales charge. The Fund calculates
its net asset value (generally by using market quotations) each day the New
York Stock Exchange is open, fifteen minutes after the close of business on
the Exchange (the Exchange generally closes at 4:00 p.m. Eastern time). The
net asset value used in determining your price is the next one calculated
after your purchase or redemption order is placed. Foreign securities owned by
the Fund may trade on weekends or other days when the Fund does not price its
shares. As a result, the Fund's net asset value may change on days when you
will not be able to purchase or redeem the Fund's shares. The value of Fund
securities may be affected by market or economic conditions during times that
some markets are closed. Those securities may be valued at "fair value" as
determined by the Directors.
Generally, Class A shares will have the highest net asset value because that
class has the lowest expenses, and Class D shares will have a higher net asset
value than Class B or Class C shares. Also dividends paid on Class A and Class
D shares will generally be higher than dividends paid on Class B and Class C
shares because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
- --------------------------------------------------------------------------------
If you participate in certain fee-based programs offered by Merrill Lynch, you
may be able to buy Class A shares at net asset value, including by exchanges
from other share classes. Sales charges on the shares being exchanged may be
reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the
program and purchase shares of another class, which may be subject to
distribution and account maintenance fees. This may be a taxable event and you
will pay any applicable sales charges.
If you leave one of these programs, your shares may be redeemed or
automatically exchanged into another class of Fund shares or into a money
market fund. The class you receive may be the class you originally owned when
MERRILL LYNCH GLOBAL HOLDINGS, INC. 23
<PAGE>
[GRAPHIC]Your Account
Dividends -- income paid to shareholders. Dividends may be reinvested in
additional Fund shares as they are paid.
Distributions -- capital gains paid to shareholders. Distributions may be
reinvested in additional Fund shares as they are paid.
"BUYING A DIVIDEND"
Unless your investment is in a tax deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend or distribution. The
reason? If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution.
Before investing you may want to consult your tax adviser.
you entered the program, or in certain cases, a different class. If the
exchange is into Class B shares, the period before conversion to Class D
shares may be modified. Any redemption or exchange will be at net asset value.
However, if you participate in the program for less than a specified period,
you may be charged a fee in accordance with the terms of the program.
Details about these features and the relevant charges are included in the
client agreement for each fee-based program and are available from your
Merrill Lynch Financial Consultant.
DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------
The Fund will distribute any net investment income and any net realized long
or short term capital gains annually. The Fund may also pay a special
distribution at the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would like to
receive dividends and distributions in cash, contact your Merrill Lynch
Financial Consultant. If your account is with the Transfer Agent and you would
like to receive dividends and distributions in cash, contact the Transfer
Agent.
You will pay tax on dividends and distributions from the Fund whether you
receive them in cash or additional shares. If you redeem Fund shares or
exchange them for shares of another fund, any gain on the transaction may be
subject to tax. The Fund intends to make distributions that will either be
taxed as ordinary income or capital gains. Capital gains are generally taxed at
different rates than ordinary income.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Fund's ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
24 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
24
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. You may be
able to claim a credit or take a deduction for foreign taxes paid by the Fund
if certain requirements are met.
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current Federal tax law
of an investment in the Fund. It is not a substitute for personal tax advice.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 25
<PAGE>
[GRAPHIC] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
- --------------------------------------------------------------------------------
Merrill Lynch Asset Management, the Fund's Manager, manages the Fund's
investments and its business operations under the overall supervision of the
Fund's Board of Trustees. The Manager has the responsibility for making all
investment decisions for the Fund. The Manager has a sub-advisory agreement
with Merrill Lynch Asset Management U.K. Limited, an affiliate, under which
the Manager may pay a fee for services it receives. The Fund pays the Manager
a fee at the annual rate of 1.00% of the average daily net assets of the Fund.
Merrill Lynch Asset Management is part of Merrill Lynch Asset Management
Group, which had approximately $501 billion in investment company and other
portfolio assets under management as of December 1998. This amount includes
assets managed for Merrill Lynch affiliates.
A Note About Year 2000
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund management that they
also expect to resolve the Year 2000 Problem, and the Fund management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected.
The Year 2000 Problem could also have a negative impact on the companies in
which the Fund invests, and this could hurt the Fund's investment returns.
26 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
[This page intentionally left blank]
27 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
[GRAPHIC]Management of the Fund
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
the financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report to
shareholders, which is available upon request.
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------- ---------------------------------------------
For the Year Ended November 30, For the Year Ended November 30,
Increase (Decrease) In -------------------------------------------------- ---------------------------------------------
Net Asset Value: 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of year $15.05 $15.12 $13.87 $12.82 $13.07 $14.31 $14.40 $13.38 $12.50 $12.74
Investment income (loss)--net (.02) (.02) .13 .05 .03 (.15) (.17) (.02) (.08) (.10)
Realized and unrealized gain
on investments and foreign
currency transactions--net 1.46 .86 1.87 1.52 .53 1.39 .84 1.79 1.47 .52
Total from investment
operations 1.44 .84 2.00 1.57 .56 1.24 .67 1.77 1.39 .42
Less dividends and
distributions:
Investment income--net -- (.02) -- (.01) (.01) -- -- -- --
In excess of investment
income--net -- (.10) -- -- -- -- -- -- --
Realized gain on
investments--net (1.76) (.79) (.75) (.51) (.80) (1.60) (.76) (.75) (.51) (.66)
Total dividends and
distributions (1.76) (.91) (.75) (.52) (.81) (1.60) (.76) (.75) (.51) (.66)
Net asset value, end of year $14.73 $15.05 $15.12 $13.87 $12.82 $13.95 $14.31 $14.40 $ 13.38 $ 12.50
Total Investment Return:*
Based on net asset value
per share 11.41% 6.04% 15.20% 12.92% 4.39% 10.32% 4.98% 13.97% 11.78% 3.32%
Ratios to Average Net Assets:
Expenses 1.39% 1.39% 1.37% 1.51% 1.44% 2.44% 2.42% 2.40% 2.55% 2.48%
Investment income
(loss)--net (.11)% (.12)% .92% .41% .23% (1.10)% (1.11)% (.11)% (.63)% (.80)%
Supplemental Data:
Net assets, end of year
(in thousands) $254,472 $344,940 $398,310 $327,270 $330,132 $24,148 $66,791 $44,311 $44,387 $49,647
Portfolio turnover 35.59% 54.50% 41.14% 44.64% 40.18% 35.59% 54.50% 41.14% 44.64% 40.18%
</TABLE>
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
28 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
<TABLE>
<CAPTION>
Class C+
-------------------------------------------------------
For the
Period
October 21,
For the Year Ended November 30, 1994++ to
Increase (Decrease) In ----------------------------------------- November 30,
Net Asset Value: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period $14.28 $14.41 $13.38 $12.51 $13.08
Investment income (loss)--net (.16) (.17) (.01) (.08) (.02)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net 1.39 .83 1.79 1.46 (.55)
Total from investment
operations 1.23 .66 1.78 1.38 (.57)
Less dividends and
distributions:
Investment income--net -- --+++ -- -- --
In excess of investment
income--net -- --+++ -- -- --
Realized gain on
investments--net (1.63) (.79) (.75) (.51) --
Total dividends and
distributions (1.63) (.79) (.75) (.51) --
Net asset value, end of period $13.88 $14.28 $14.41 $13.38 $12.51
Total Investment Return:**
Based on net asset value
per share 10.21% 4.96% 14.05% 11.69% (4.36)%#
Ratios to Average Net Assets:
Expenses 2.46% 2.43% 2.41% 2.55% 3.00%*
Investment income
(loss)--net (1.08)% (1.09)% (.09)% (.63)% (1.31)%*
Supplemental Data:
Net assets, end of period
(in thousands) $1,061 $5,964 $910 $376 $177
Portfolio turnover 35.59% 54.50% 41.14% 44.64% 40.18%
</TABLE>
<TABLE>
<CAPTION>
Class D+
-------------------------------------------------------
For the
Period
October 21,
For the Year Ended November 30, 1994++ to
Increase (Decrease) In ----------------------------------------- November 30,
Net Asset Value: 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period $14.97 $15.04 $13.84 $12.81 $13.39
Investment income (loss)--net (.05) (.06) .09 .02 (.01)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions--net 1.46 .87 1.86 1.52 (.57)
Total from investment
operations 1.41 .81 1.95 1.54 (.58)
Less dividends and
distributions:
Investment income--net -- (.01) -- --+++ --
In excess of investment
income--net -- (.08) -- -- --
Realized gain on
investments--net (1.73) (.79) (.75) (.51) --
Total dividends and
distributions (1.73) (.88) (.75) (.51) --
Net asset value, end of period $14.65 $14.97 $15.04 $13.84 $12.81
Total Investment Return:**
Based on net asset value 11.19% 5.80% 14.86% 12.73% (4.33)%#
per share
Ratios to Average Net Assets:
Expenses 1.64% 1.64% 1.63% 1.76% 2.23%*
Investment income
(loss)--net (.38%) (.39)% .60% .18% (.67)%*
Supplemental Data:
Net assets, end of period
(in thousands) $7,882 $8,486 $4,688 $3,459 $1,591
Portfolio turnover 35.59% 54.50% 41.14% 44.64% 40.18%
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ Commencement of Operations.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
MERRILL LYNCH GLOBAL HOLDINGS, INC. 29
<PAGE>
[This page intentionally left blank]
30 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
<TABLE>
<S> <C>
________________________________
| |
| POTENTIAL |
________________________| INVESTORS |________________________
| | | |
| | Open an account (two options). | |
__|__ |________________________________| __|__
\ 1 / \ 2 /
_________\ /__________ ______\ /_______
| | | |
____________| MERRILL LYNCH |____________ _______________| TRANSFER AGENT |______________
| | FINANCIAL CONSULTANT | | | |________________| |
| | OR SECURITIES DEALER | | | |
| |______________________| | | Financial Data Services, Inc. |
| | | P.O. Box 45289 |
| Advises shareholders on their Fund investments.| | Jacksonville, Florida 32232-5289 |
|________________________________________________| | |
/|\ | Performs recordkeeping and reporting services.|
| |_______________________________________________|
| _________________________________________________ /|\
| | | |
| | DISTRIBUTOR | |
| | | |
| | Merrill Lynch Funds Distributor, | |
|_______________| a division of Princeton Funds Distributor, Inc.|_____________________|
| P.O. Box 9081 |
| Princeton, New Jersey 08543-9081 |
| |
| Arranges for the sale of Fund shares. |
|_________________________________________________|
|
|
___________ \|/ _____________
| | ________________________ | |
__________| COUNSEL |____________ | | _____________| CUSTODIAN |_____________
| |___________| | | THE FUND | | |_____________| |
| | | | | |
| Brown & Wood LLP |__________ | The Board of Directors | ________| The Chase Manhattan Bank |
| One World Trade Center | | oversees the Fund. | | Global Securities Services |
| New York, New York 10048-0557 | |________________________| | 4 Chase Metro Tech Center, 18th Floor |
| | | Brooklyn, New York 11245 |
| Provides legal advice to the Fund.| / \ | Holds the Fund's assets for safekeeping.|
|___________________________________| / \ |_________________________________________|
/ \
________________/_____ ______\_____________
| | | |
______| INDEPENDENT AUDITORS |_______ _________| INVESTMENT ADVISER |____________
| |______________________| | | |____________________| |
| | | |
| Deloitte & Touche LLP | | Merrill Lynch Asset |
| 117 Campus Drive | | Management, L.P. |
| Princeton, New Jersey 08540-6400 | | |
| | | ADMINISTRATIVE OFFICES |
| Audits the financial | | 800 Scudders Mill Road |
| statements of the Fund on behalf of | | Plainsboro, New Jersey 08536 |
| the shareholders. | | |
|_____________________________________| | MAILING ADDRESS |
| P.O. Box 9011 |
| Princeton, New Jersey 08543-0911 |
| |
| TELEPHONE NUMBER |
| 1-800-MER-FUND |
| |
| Manages the Fund's day-to-day activities. |
|___________________________________________|
</TABLE>
31 MERRILL LYNCH GLOBAL HOLDINGS, INC.
<PAGE>
For More Information[GRAPHIC]
Shareholder Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal
year. You may obtain these reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch
Financial Consultant or write to the Transfer Agent at its mailing address.
Include your name, address, tax identification number and Merrill Lynch
brokerage or mutual fund account number. If you have any questions, please
call your Merrill Lynch Financial Consultant or the Transfer Agent at
1-800-MER-FUND.
Statement of Additional Information
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund at the telephone
number or address indicated on the inside back cover of this prospectus if you
have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800 SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site
at http://www.sec.gov and copies may be obtained upon payment of a duplicating
fee by writing the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information contained in this Prospectus. No one
is authorized to provide you with information that is different from
information contained in this Prospectus.
Investment Company Act file #811-4351
Code #10245-03-99
(Copyright)Merrill Lynch Asset Management, L.P.
Prospectus
[LOGO]Merrill Lynch
Global Holdings, Inc.
March , 1999
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 29, 1999
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL HOLDINGS, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 o Phone No. (609) 282-2800
------------------------
Merrill Lynch Global Holdings, Inc. (the "Fund") is a diversified, open-end
investment company that seeks high total investment return through worldwide
investment in an internationally diversified portfolio of securities. The Fund
will utilize a fully managed investment policy which permits a flexible
investment approach and the ability to 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. For more information on the
Fund's investment objectives and policies, see "Investment Objective and
Policies."
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select 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. See
"Purchase of Shares."
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the Prospectus of the Fund, dated March
[ ], 1999 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "Commission") and can be obtained, without charge, by
calling (800) 637-3863 or by writing the Fund at the above address. The
Prospectus is incorporated by reference into this Statement of Additional
Information, and this Statement of Additional Information is incorporated by
reference into the Prospectus. The Fund's audited financial statements are
incorporated in this Statement of Additional Information by reference to its
1998 annual report to shareholders. You may request a copy of the annual report
at no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m.
on any business day.
------------------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is March [ ], 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................................................... 2
Foreign Investment Risks................................................................................. 3
Hedging Techniques....................................................................................... 5
Junk Bonds............................................................................................... 11
Other Investment Practices............................................................................... 11
Investment Restrictions.................................................................................. 12
Portfolio Turnover....................................................................................... 14
Management of the Fund..................................................................................... 15
Directors and Officers................................................................................... 15
Compensation of Directors................................................................................ 16
Management and Advisory Arrangements..................................................................... 17
Code of Ethics........................................................................................... 18
Purchase of Shares......................................................................................... 19
Initial Sales Charge Alternatives--Class A and Class D Shares............................................ 19
Deferred Sales Charge Alternatives--Class B and Class C Shares........................................... 24
Distribution Plans....................................................................................... 27
Limitations on the Payment of Deferred Sales Charges..................................................... 28
Redemption of Shares....................................................................................... 30
Redemption............................................................................................... 30
Repurchase............................................................................................... 30
Reinstatement Privilege--Class A and Class D Shares...................................................... 31
Pricing of Shares.......................................................................................... 31
Determination of Net Asset Value......................................................................... 31
Computation of Offering Price Per Share.................................................................. 32
Portfolio Transactions and Brokerage....................................................................... 32
Transactions in Portfolio Securities..................................................................... 32
Shareholder Services....................................................................................... 34
Investment Account....................................................................................... 34
Exchange Privilege....................................................................................... 34
Fee-Based Programs....................................................................................... 36
Retirement Plans......................................................................................... 37
Automatic Investment Plans............................................................................... 37
Automatic Dividend Program............................................................................... 37
Systematic Withdrawal Plan............................................................................... 37
Distributions and Taxes.................................................................................... 39
Dividends and Distributions.............................................................................. 39
Taxes.................................................................................................... 39
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions.............................. 41
Special Rules for Certain Foreign Currency Transactions.................................................. 41
Performance Data........................................................................................... 42
General Information........................................................................................ 45
Description of Shares.................................................................................... 45
Independent Auditors..................................................................................... 45
Custodian................................................................................................ 45
Transfer Agent........................................................................................... 45
Legal Counsel............................................................................................ 46
Reports to Shareholders.................................................................................. 46
Shareholder Inquiries.................................................................................... 46
Additional Information................................................................................... 46
Financial Statements....................................................................................... 47
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek high total investment
return 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 Fund will utilize a
fully managed investment policy which permits the Fund to take a flexible
investment approach and vary its policies as to geographic diversification and
types of securities based upon its evaluation of economic and market trends
throughout the world. Accordingly, investments may be shifted among the various
capital markets of the world and among different types of equity, debt and
convertible securities depending upon management's outlook with respect to
prevailing trends and developments. The investment objective of the Fund
described in this paragraph is a fundamental policy of the Fund and may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities.
Merrill Lynch Asset Management, L.P. (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 Fund's portfolio as a
whole. This negative correlation also may offset unrealized gains the Fund has
derived from movements in a particular market. To the extent the various markets
move independently, total portfolio volatility is reduced when the various
markets are combined into a single portfolio. Of course, movements in the
various securities markets may be offset by changes in foreign currency exchange
rates. Exchange rates frequently move independently of securities markets in a
particular country. As a result, gains in a particular securities market may be
affected by changes in exchange rates.
The Fund will invest in a diversified international portfolio of securities
of companies located throughout the world. There are no prescribed limits on
geographic asset distribution and the Fund has the authority to invest in any
country in the world. The allocation of the Fund's assets among the various
securities markets of the world will be determined by the Investment Adviser. 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. Under certain adverse investment conditions,
the Fund 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.
Currently, 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 Fund 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 Fund's investment objective. Accordingly, while
investment emphasis is currently on equity securities, substantial portions of
the Fund's assets may be invested in debt or convertible securities.
The Fund 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 Fund'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 Fund's investment objective. The Fund
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.
2
<PAGE>
The Fund 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.
FOREIGN INVESTMENT RISKS
Foreign Market Risk. Because the Fund may invest in foreign securities,
the Fund offers you more diversification than an investment only in the United
States since prices of securities traded on foreign markets have often, though
not always, moved counter to prices in the United States. Foreign security
investment, however, involves special risks not present in U.S. investments that
can increase the chances that the Fund will lose money. In particular, the Fund
is subject to the risk that because there are generally fewer investors on
foreign exchanges and a smaller number of shares traded each day, it may be
difficult for the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may fluctuate more than prices of
securities traded in the United States.
Foreign Economy Risk. The economies of certain foreign markets often do
not compare favorably with that of the United States with respect to such issues
as growth of gross national product, reinvestment of capital, resources, and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by governmental actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer the Fund's assets or income back
into the United States, or otherwise adversely affect the Fund's operations.
Other foreign market risks include foreign exchange controls, difficulties in
pricing securities, defaults on foreign government securities, difficulties in
enforcing favorable legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain foreign countries
may be less extensive than those available to investors in the United States or
other foreign countries.
Currency Risk and Exchange Risk. Securities in which the Fund invests may
be denominated or quoted in currencies other than the U.S. dollar. Changes in
foreign currency exchange rates will affect the value of the securities of the
Fund. Generally, when the U.S. dollar rises in value against a foreign currency,
your investment in a security denominated in that currency loses value because
the currency is worth fewer U.S. dollars. Similarly when the U.S. dollar
decreases in value against a foreign currency, your investment in a security
denominated in that currency gains value because the currency is worth more U.S.
dollars. This risk is generally known as "currency risk" which is the
possibility that a stronger U.S. dollar will reduce returns for U.S. investors
investing overseas and a weak U.S. dollar will increase returns for U.S.
investors investing overseas.
European Economic and Monetary Union ("EMU"). For a number of years,
certain European countries have been seeking economic unification that would,
among other things, reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") seeks to set out a framework for the
European Economic and Monetary Union ("EMU") among the countries that comprise
the European Union ("EU"). EMU established a single common European currency
(the "euro") that was introduced on January 1, 1999 and is expected to replace
the existing national currencies of all EMU participants by July 1, 2002. EMU
took effect for the initial EMU participants on January 1, 1999, and was
implemented over the weekend January 1, 1999 through January 3, 1999
("conversion
3
<PAGE>
weekend"). Certain securities issued in participating EU countries (beginning
with government and corporate bonds) were redenominated in the euro, and are
listed, traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take full effect, that all the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will be implemented but not completed, or will
be completed but then partially or completely unwound. Because any participating
country may opt out of EMU within the first three years, it is also possible
that a significant participant could choose to abandon EMU, which would diminish
its credibility and influence. Any of these occurrences could have adverse
effects on the markets of both participating and non-participating countries,
including sharp appreciation or depreciation of the participants' national
currencies and a significant increase in exchange rate volatility, a resurgence
in economic protectionism, an undermining of confidence in the European markets,
an undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU at any time after the conversion weekend by an initial
participant could cause disruption of the financial markets as securities
redenominated in euros are transferred back into that country's national
currency, particularly if the withdrawing country is a major economic power.
Such developments could have an adverse impact on the Fund's investments in
Europe generally or in specific countries participating in EMU. Gains or losses
resulting from the euro conversion may be taxable to Fund shareholders under
foreign or, in certain limited circumstances, U.S. tax laws. In addition,
computer, accounting, and trading systems must be capable of recognizing the
euro as a distinct currency. If not properly addressed, this may negatively
affect the operations of the companies in which the Fund invests.
Governmental Supervision and Regulation/Accounting Standards. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Some countries may not have laws to
protect investors the way that the United States securities laws do. Accounting
standards in other countries are not necessarily the same as in the United
States. If the accounting standards in another country do not require as much
detail as U.S. accounting standards, it may be harder for the Fund's portfolio
manager to completely and accurately determine a company's financial condition.
Certain Risks of Holding Fund Assets Outside the United States. The Fund
generally holds the foreign securities in which it invests outside the United
States in foreign banks and securities depositories. These foreign banks and
securities depositories may be recently organized or new to the foreign custody
business. They may also have operations subject to limited or no regulatory
oversight. Also, the laws of certain countries may put limits on the Fund's
ability to recover its assets if a foreign bank or depository or issuer of a
security or any of their agents goes bankrupt. In addition, it can be expected
that it will be more expensive for the Fund to buy, sell and hold securities in
certain foreign markets than it is in the U.S. market due to higher brokerage,
transaction, custody and/or other costs. The increased expense of investing in
foreign markets reduces the amount the Fund can earn on its investments.
Settlement Risk. Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign settlement
and clearance procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically involved
with the settlement of U.S. investments. Communications between the United
States and emerging market countries may be unreliable, increasing the risk of
delayed settlements or losses of security certificates. Settlements in certain
foreign countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Fund to carry out
transactions. If the Fund cannot settle or is delayed in settling a purchase of
securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If the
Fund cannot settle or is delayed in settling a sale of securities, it may lose
money if the value of the security then declines or, if it has contracted to
sell the security to another party, the Fund could be liable to that party for
any losses incurred.
Dividends or interest on, or proceeds from the sale of, foreign securities
may be subject to foreign and other withholding taxes. Shareholders may be able
to take a credit or a deduction for foreign taxes paid by the Fund if certain
requirements are met.
4
<PAGE>
Emerging Markets Risk. The risks of foreign investments are usually much
greater for emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation, or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affect returns to U.S. investors. In
addition, the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, they may be more likely to suffer sharp and frequent price changes
or long-term price depression because of adverse publicity, investor
perceptions, or the actions of a few large investors. In addition, traditional
measures of investment value used in the United States, such as price to
earnings ratios, may not apply to certain small markets.
Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging markets may
also face other significant internal or external risks, including the risk of
war, and ethnic, religious, and racial conflicts. In addition, governments in
many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.
HEDGING TECHNIQUES
The Fund may use instruments referred to as "Derivatives" for hedging
purposes. Derivatives are financial instruments the value of which is derived
from another security, a commodity (such as gold or oil) or an index (a measure
of value or rates, such as the S&P 500 or the prime lending rate). Derivatives
allow the Fund to increase or decrease the level of risk to which the fund is
exposed more quickly and efficiently than transactions in other types of
instruments.
The Fund may from time to time 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 Fund also may engage in transactions in stock
index options. The Fund is authorized to enter into such options and futures
transactions either on exchanges or in the over-the-counter ("OTC") markets. The
Investment Adviser believes that, because the Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of options and futures transactions. While the Fund'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 Fund's shares will fluctuate.
Furthermore, the Fund 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. There can be no
assurance that the Fund's hedging transactions will be effective. The following
is further information relating to portfolio strategies involving options and
futures that the Fund may utilize.
Purchasing Options. The Fund may purchase put options on securities held
in its portfolio or securities or interest rate indices which are correlated
with securities held in its portfolio. When the Fund purchases a put option, in
consideration for an up front payment (the "option premium") the Fund acquires a
right to sell to another party specified securities owned by the Fund at a
specified price (the "exercise price") on or before a specified date (the
"expiration date"), in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put option prior to the option's expiration
date. If the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the option
premium and will consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put. Purchasing a put
option may involve correlation risk, and may also involve liquidity and credit
risk. The Fund 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 Fund
would exceed 5% of the market value of the Fund's total assets.
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Writing Options. The Fund may write (i.e., sell) call options on
securities held in its portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When the Fund writes a call
option, in return for an option premium the Fund gives another party the right
to buy specified securities owned by the Fund at the exercise price on or before
the expiration date, in the case of an option on securities, or agrees to pay to
another party an amount based on any gain in a specified securities index beyond
a specified level on or before the expiration date, in the case of an option on
a securities index. The Fund may write call options to earn income through the
receipt of option premiums. In the event the party to which the Fund has written
an option fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities, and gives up the opportunity to
profit from any increase in the value of the underlying securities beyond the
exercise price, while the option remains outstanding. Writing a call option may
involve correlation risk.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the OTC markets. In
general, exchange-traded options have standardized exercise prices and
expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater credit risk. OTC options also involve greater liquidity risk.
Futures. The Fund may engage in transactions in futures and options
thereon. Futures are standardized, exchange-traded contracts which obligate a
purchaser to take delivery, and a seller to make delivery, of a specific amount
of an asset at a specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing or selling a
futures contract the Fund is required to deposit collateral ("margin") equal to
a percentage (generally less than 10%) of the contract value. Each day
thereafter until the futures position is closed, the Fund will pay additional
margin representing any loss experienced as a result of the futures position the
prior day or be entitled to a payment representing any profit experienced as a
result of the futures position the prior day. Futures involve substantial
leverage risk.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying asset is a
currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
The Fund 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 Fund 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 Fund 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 Fund 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.
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The Fund 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 Fund
as a temporary defensive measure will fall, thus reducing the net asset value of
the Fund. However, as interest rates rise, the value of the Fund'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 Fund's investments
that are being hedged. While the Fund will incur commission expenses in selling
and closing out futures positions, these commissions are generally less than the
transaction expenses that the Fund would have incurred had the Fund sold
portfolio securities in order to reduce its exposure to increases in interest
rates. The Fund 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
Fund will purchase securities upon termination of the futures contract.
The Fund 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
Fund's securities portfolio that might otherwise result. When the Fund 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 Fund intends to purchase. As such purchases are made, an equivalent
amount of futures contracts will be terminated by offsetting sales. The Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
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 Fund will enter into an option or futures transaction on an exchange
only if there appears to be a liquid secondary market for such options or
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular call or put option or futures contract at any specific
time. Thus, it may not be possible to close an option or futures position. The
Fund will acquire only OTC options for which management believes the Fund 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 Fund, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin. In such situations, if the Fund 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 Fund 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 Fund's
ability to hedge its portfolio effectively. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open positon in a futures contract or related option. The risk of
loss from investing in futures transactions is theoretically unlimited. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to hedge effectively its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
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 Fund 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 exchanges on which the Fund 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
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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 Fund's portfolio.
The Fund 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 Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any such contracts and options.
Hedging Foreign Currency Risks. The Fund may engage in spot and forward
foreign exchange transactions and currency swaps, purchase and sell options on
currencies and purchase and sell currency futures and related options thereon
(collectively, "Currency Instruments") for purposes of hedging against the
decline in the value of currencies in which its portfolio holdings are
denominated against the U.S. dollar.
Forward foreign exchange transactions are OTC contracts to purchase or sell
a specified amount of a specified currency or multinational currency unit at a
price and future date set at the time of the contract. Spot foreign exchange
transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of
hedging either a specific transaction or a portfolio position. The Fund may
enter into a foreign exchange transaction for purposes of hedging a specific
transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by
purchasing a currency in which the Fund anticipates acquiring a portfolio
position in the near future. The Fund may also hedge portfolio positions through
currency swaps, which are transactions in which one currency is simultaneously
bought for a second currency on a spot basis and sold for the second currency on
a forward basis. Forward foreign exchange transactions involve substantial
currency risk, and also involve credit and liquidity risk.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through use of currency futures or options thereon.
Currency futures are similar to forward foreign exchange transactions except
that futures are standardized, exchange-traded contracts. See "Futures" above.
Currency futures involve substantial currency risk, and also involve leverage
risk.
The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options
are similar to options on securities, but in consideration for an option premium
the writer of a currency option is obligated to sell (in the case of a call
option) or purchase (in the case of a put option) a specified amount of a
specified currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on currencies
either on exchanges or OTC markets. See "Types of Options" above and "Additional
Risk Factors of OTC Transaction; Limitations on the Use of OTC Derivatives"
below. Currency options involve substantial currency risk, and may also involve
credit, leverage or liquidity risk.
The Fund will not speculate in Currency Instruments. Accordingly, the Fund
will not hedge a currency in excess of the aggregate market value of the
securities which it owns (including receivables for unsettled securities sales),
or has committed to or anticipates purchasing, which are denominated in such
currency. The Fund may, however, hedge a currency by entering into a transaction
in a Currency Instrument denominated in a currency other than the currency being
hedged (a "cross-hedge"). The Fund will only enter into a cross-hedge if the
Investment Adviser believes that (i) there is a demonstrable high correlation
between the currency in which the cross-hedge is denominated and the currency
being hedged, and (ii) executing a cross-hedge through the currency in which the
cross-hedge is denominated will be significantly more cost-effective or provide
substantially greater liquidity than executing a similar hedging transaction by
means of the currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including correlation
risk. While the Fund's use of Currency Instruments to effect
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hedging strategies is intended to reduce the volatility of the net asset value
of the Fund's shares, the net asset value of the Fund's shares will fluctuate.
Moreover, although Currency Instruments will be used with the intention of
hedging against adverse currency movements, transactions in Currency Instruments
involve the risk that anticipated currency movements will not be accurately
predicted and that the Fund's hedging strategies will be ineffective. To the
extent that the Fund hedges against anticipated currency movements which do not
occur, the Fund may realize losses, and decrease its total return, as the result
of its hedging transactions. Furthermore, the Fund will only engage in hedging
activities from time to time and may not be engaging in hedging activities when
movements in currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to
enter into a hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which Currency
Instruments are not available [(such as certain developing markets)] and it is
not possible to engage in effective foreign currency hedging.
The Fund is authorized to 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. Such transactions could be effected with respect to hedges on non-U.S.
dollar denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund. As an
illustration, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund 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 Fund but not
yet delivered, the proceeds thereof in its denominated currency. Further, the
Fund will segregate at its custodian U.S. Government or other liquid securities
having a market value substantially representing any subsequent net decrease in
the market value of such hedged positions, including net positions with respect
to cross-currency hedges. The Fund 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 Fund 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 Fund'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 Fund accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Fund or the payment of
dividends and distributions by the Fund. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. The Fund will not speculate in forward foreign
exchange. The Fund will not attempt to hedge all of its foreign portfolio
positions.
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In connection with its trading in forward foreign currency contracts, the
Fund 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 Fund 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 Fund of any profit potential or force the Fund to cover its
commitments for resale, if any, at the then-market price and could result in a
loss to the Fund.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ("CFTC") applicable to the Fund provide
that the futures trading activities described herein will not result in the Fund
being deemed a "commodity pool," as defined under such regulations if the Fund
adheres to certain restrictions. In particular, the Fund 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 Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
When the Fund 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 Fund'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.
The Fund 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 Fund 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 Fund 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.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives. Certain Derivatives traded in OTC markets, including indexed
securities, swaps and OTC options, involve substantial liquidity risk. The
absence of liquidity may make it difficult or impossible for the Fund to sell
such instruments promptly at an acceptable price. The absence of liquidity may
also make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price
at which the instrument may be terminated or sold, or (ii) for which the
Investment Adviser anticipates the Fund can receive on each business day at
least two independent bids or offers, unless a quotation from only one dealer is
available, in which case that dealer's quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed by an exchange
or clearing corporation and generally do not require payment of margin, to the
extent that the Fund has unrealized gains in such instruments or has deposited
collateral with its counterparty the Fund is at risk that its counterparty will
become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in transactions in Strategic
Instruments traded in OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a third-party guaranty
or other credit enhancement.
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
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price of the options or futures moves more or less than the price of hedged
securities or currencies, the Fund 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 Fund 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 Fund may
purchase or sell fewer stock index options or futures contracts if the
volatility of the price of the hedged securities is historically less than that
of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
Because the Fund 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 Fund's portfolio turnover.
JUNK BONDS
Junk bonds are debt securities that are rated below investment grade by the
major rating agencies or are unrated securities that Fund management believes
are of comparable quality. Although junk bonds generally pay higher rates of
interest than investment grade bonds, they are high risk investments that may
cause income and principal losses for the Fund. The major risks in junk bond
investments include:
Junk bonds may be issued by less creditworthy companies. These securities
are vulnerable to adverse changes in the issuer's industry and to general
economic conditions. Issuers of junk bonds may be unable to meet their interest
or principal payment obligations because of an economic downturn, specific
issuer developments or the unavailability of additional financing.
The issuers of junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations. The
issuer's ability to pay its debt obligations also may be lessened by specific
issuer developments, or the unavailability of additional financing.
Junk bonds are frequently ranked junior to claims of other creditors. If
the issuer cannot meet its obligations, the senior obligations are generally
paid off before the junior obligations.
Junk bonds frequently have redemption features that permit an issuer to
repurchase the security from the Fund before it matures. If the issuer redeemed
the junk bonds the Fund may have to invest the proceeds in bonds with lower
yields and may lose income.
Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds than
on other higher rated fixed-income securities.
Junk bonds may be less liquid than higher rated fixed-income securities
even under normal economic conditions. There are fewer dealers in the junk bond
market, and there may be significant differences in the prices quoted for junk
bonds by the dealers. Because they are less liquid judgment may play a greater
role in valuing certain of the Fund's portfolio securities than in the case with
securities trading in a more liquid market.
The Fund may incur expenses to the extent necessary to seek recovery upon
default or to negotiate new terms with a defaulting issuer.
OTHER INVESTMENT PRACTICES
Illiquid or Restricted Securities. The Fund may invest up to 15% of its
net assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the
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Fund borrowing to meet short-term cash requirements or incurring capital losses
on the sale of illiquid investments.
The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an
exchange nor traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded securities.
To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity,
could be less than those originally paid by the Fund or less than their fair
market value. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less-seasoned issuers, which may involve greater
risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. In making
investments in such securities, the Fund may obtain access to material nonpublic
information which may restrict the Fund's ability to conduct portfolio
transactions in such securities.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Directors has determined to treat as liquid Rule
144A securities that are either (i) freely tradable in their primary markets
offshore or (ii) non-investment grade debt securities which the Fund's
management determines are as liquid as publicly registered non-investment grade
debt securities. The Board of Directors has adopted guidelines and delegated to
the Fund's management the daily function of determining and monitoring liquidity
of restricted securities. The Board of Directors, however, will retain
sufficient oversight and be ultimately responsible for the determinations. Since
it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will continue to develop,
the Board of Directors will carefully monitor the Fund's investments in these
securities. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these securities.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
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 Fund 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
Fund could experience delays and costs in gaining access to the collateral and
could suffer a loss to the extent the value of the collateral falls below the
market value of the borrowed securities.
Suitability. The economic benefit of an investment in the Fund depends
upon many factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on foreign securities, the Fund should be
considered a vehicle for diversification and not as a balanced investment
program. The suitability for any particular investor of a purchase of shares in
the Fund will depend upon, among other things, such investor's investment
objectives and such investor's ability to accept the risks associated with
investing in foreign securities, including the risk of loss of principal.
INVESTMENT RESTRICTIONS
The Fund 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 Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the Fund's shares present at a meeting at
12
<PAGE>
which more than 50% of the outstanding shares of the Fund are represented or
(ii) more than 50% of the Fund's outstanding shares). The Fund may not:
1. Make any investment inconsistent with the Fund'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 Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in the Prospectus and this Statement of Additional Information,
as they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Prospectus and this 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 Fund has adopted non-fundamental investment restrictions
that may be changed by the Board of Trustees without a vote of the Fund's
shareholders. Under the non-fundamental investment restrictions, the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment company
or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the
Investment Company Act at any time the Fund's shares are owned by another
investment company that is part of the same group of investment companies
as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed
or put to the issuer or 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 that mature within seven days or
securities, that the Board of Directors of the Fund has otherwise
determined to be liquid pursuant to applicable law. Securities purchased in
accordance with Rule 144A
13
<PAGE>
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 extraordinary or
emergency purposes. In addition, the Fund will not purchase securities
while borrowings are outstanding except to exercise prior commitments and
to exercise subscription rights.
Portfolio securities of the Fund 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 underlying written OTC options are illiquid securities.
The Fund has therefore 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 Fund, the market value of the
securities underlying OTC call options currently outstanding which have been
sold by the Fund and margin deposits on the Fund's outstanding OTC options
exceeds 15% of the total assets of the Fund, taken at market value, together
with all other assets of the Fund which are deemed to be illiquid or are
otherwise not readily marketable. However, if an OTC option is sold by the Fund
to a dealer in U.S. government securities recognized as a "primary dealer" by
the Federal Reserve Bank of New York and the Fund has the unconditional
contractual right to repurchase such OTC option at a predetermined price, then
the Fund will treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the option is "in-
the-money" (i.e., current market value of the underlying security minus the
option's exercise price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the premium
received for the option, plus the amount by which the option is "in-the-money."
This policy as to OTC options is not a fundamental policy of the Fund and may
be amended by the Board of Directors of the Fund without the approval of the
Fund's shareholders. However, the Fund will not change or modify this
policy prior to the change or modification by the Commission staff of its
position.
The investment restrictions contain an exception that permits the Fund to
purchase securities pursuant to the exercise of subscription rights, subject to
the condition that such purchase will not result in the Fund ceasing to be a
diversified investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in the Fund's interest in the
issuing company being diluted. The market for such rights is not well developed,
and accordingly, the Fund 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 Fund's portfolio securities with the result that the Fund would otherwise be
forced either to sell securities at a time when it might not otherwise have done
so or to forego exercising the rights.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund 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.
PORTFOLIO TURNOVER
While it is the policy of the Fund generally not to engage in trading for
short-term gains, 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 allocations under certain market conditions, the
Fund'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 Fund's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of acquisition
were one year or less) by the monthly average value of the
14
<PAGE>
securities in the portfolio during the year. A high portfolio turnover rate
involves correspondingly greater transaction costs in the form of dealer spreads
and brokerage commissions that are borne directly by the Fund and may result in
negative tax consequences.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Board of Directors of the Fund consists of seven individuals, six of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act (the "non-interested Directors"). The Directors are responsible for
the overall supervision of the operations of the Fund and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act.
Information about the Directors, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each Director, executive officer and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66)--President and Director(1)(2)--Chairman of the
Investment Adviser and Fund Asset Management, L.P. ("FAM") (which terms as used
herein include their corporate predecessors) since 1997; President of the
Investment Adviser and FAM from 1977 to 1997; Chairman of Princeton Services,
Inc. ("Princeton Services") since 1997 and Director thereof since 1993;
President of Princeton Services from 1993 to 1997; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
DONALD CECIL (72)--Director(2)(3)--1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Associates (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
ROLAND M. MACHOLD (62)--Director(2)(3)--1091 Princeton-Kingston Road,
Princeton, New Jersey 08540. Director of the State of New Jersey Division of
Investment from 1977 to 1988; Trustee of Bryn Mawr College since 1990 and of
Teacher's College, Columbia University since 1985; Co-Chair Emeritus and
Founding Director of the Council of Institutional Investors; Member of the
Capital Formation and Regulatory Processes Advisory Committee of the Securities
and Exchange Commission from 1995 to 1996; Member of the Institutional Investor
Advisory Committee of the New York Stock Exchange from 1992 to 1995.
EDWARD H. MEYER (72)--Director(2)(3)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan
Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (67)--Director(2)(3)--9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television from 1986 to 1997.
RICHARD R. WEST (60)--Director(2)(3)--Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company) and Alexander's, Inc. (real
estate company).
EDWARD D. ZINBARG (64)--Director(2)(3)--5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; Former Director of Prudential Reinsurance Company
and former Trustee of The Prudential Foundation.
TERRY K. GLENN (58)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President
of Princeton Administrators, L.P. since 1988.
15
<PAGE>
NORMAN R. HARVEY (65)--Senior Vice President(1)(2)--Senior Vice President
of the Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
LAWRENCE R. FULLER (57)--Senior Vice President and Portfolio
Manager(1)--First Vice President of the Investment Adviser since 1997 and Vice
President of the Investment Adviser from 1992 to 1997.
DONALD C. BURKE (38)--Vice President and Treasurer(1)(2)--First Vice
President of the Investment Adviser since 1997; Vice President of the Investment
Adviser from 1990 to 1997; Director of Taxation of the Investment Adviser since
1990.
PHILIP M. MANDEL (51)--Secretary(1)(2)--First Vice President of the
Investment Adviser since 1997; Assistant General Counsel of Merrill Lynch from
1989 to 1997.
- ------------------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or FAM acts as the
investment adviser.
(3) Member of the Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.
As of March , 1999, the Directors and officers of the Fund as a group (14
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Director and officer of the Fund, and the
other officers of the Fund owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
COMPENSATION OF DIRECTORS
The Fund pays each non-interested Director a fee of $3,500 per year plus
$500 per Board meeting attended. The Fund also compensates members of its Audit
and Nominating Committee (the "Committee"), which consists of all the
non-interested Directors, a fee of $500 per meeting attended. The Fund pays the
Chairman of the Committee an additional fee of $250 per meeting attended. The
Fund reimburses each non-interested Director for his out-of-pocket expenses
relating to attendance at Board and Committee meetings.
The following table shows the compensation earned by the non-interested
Directors for the fiscal year ended November 30, 1998 and the aggregate
compensation paid to them from all registered investment companies advised by
the Investment Adviser and its affiliate, FAM ("MLAM/FAM-advised funds"), for
the calendar year ended December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR ESTIMATED COMPENSATION FROM
RETIREMENT BENEFITS ANNUAL FUND AND OTHER
POSITION WITH COMPENSATION ACCRUED AS PART OF BENEFITS UPON MLAM/FAM-
NAME FUND FROM FUND FUND EXPENSE RETIREMENT ADVISED FUNDS(1)
- ------------------------------------- ------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Donald Cecil......................... Director $8,500 None None $ 277,808
Roland M. Machold.................... Director $ 292 None None $ 39,208(2)
Edward H. Meyer...................... Director $5,500 None None $ 214,558
Charles C. Reilly.................... Director $7,500 None None $ 362,858
Richard R. West...................... Director $7,500 None None $ 334,125
Edward D. Zinbarg.................... Director $7,500 None None $ 133,959
</TABLE>
- ------------------
(1) The Directors serve on the boards of MLAM/FAM-advised funds as follows:
Mr. Cecil (34 registered investment companies of 34 portfolios);
Mr. Machold (19 registered investment companies consisting of 19
portfolios); Mr. Meyer (34 registered investment companies consisting of 34
portfolios); Mr. Reilly (54 registered investment companies consisting of 67
portfolios); Mr. West (56 registered investment companies consisting of 81
portfolios); and Mr. Zinbarg (19 registered investment companies consisting
of 19 portfolios).
(2) Mr. Machold was elected a Director of the Fund and certain other
MLAM/FAM-advised funds on October 20, 1998.
Directors of the Fund, members of the Boards of other MLAM-advised
investment companies, ML & Co. and its subsidiaries (the term "subsidiaries,"
when used herein with respect to ML & Co., includes the Investment Adviser, FAM
and certain other entities directly or indirectly wholly owned and controlled by
ML & Co.) and their directors and employees, and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class A
shares of the Fund at net asset value.
16
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services. The Investment Adviser provides the Fund with
investment advisory and management services. Subject to the supervision of the
Board of Directors, the Investment Adviser is responsible for the actual
management of the Fund's portfolio and constantly reviews the Fund's holdings in
light of its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser. The Investment Adviser performs certain of
the other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Fund.
Investment Advisory Fee. The Fund has entered into an investment advisory
agreement with the Investment Adviser (the "Investment Advisory Agreement"),
pursuant to which the Investment Adviser receives for its services to the Fund
monthly compensation at the annual rate of 1.00% of the average daily net assets
of the Fund. The table below sets forth information about the total investment
advisory fees paid by the Fund to the Investment Adviser for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, INVESTMENT ADVISORY FEE
- --------------------------------------------------------- -----------------------
<S> <C>
1998..................................................... $ 3,732,027
1997..................................................... $ 4,776,233
1996..................................................... $ 4,169,360
</TABLE>
The Investment Adviser has entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") pursuant to which MLAM
U.K. provides investment advisory services to the Manager with respect to the
Fund. The Investment Adviser paid no fees to MLAM U.K. for the fiscal years
ended November 30, 1996, 1997 or 1998.
Payment of Fund Expenses. 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 Fund
connected with investment and economic research, trading and investment
management of the Fund, as well as the fees of all Directors of the Fund who are
affiliated persons of ML & Co. or any of its affiliates. The Fund pays all other
expenses incurred in the operation of the Fund, including among other things:
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports, prospectuses and statements of
additional information, except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the "Distributor"); charges of the custodian and
the transfer agent; expenses of redemption of shares; Commission fees; expenses
of registering the shares under Federal and state securities laws; fees and
expenses of unaffiliated Directors; accounting and pricing costs (including the
daily calculations of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other expenses
properly payable by the Fund. Accounting services are provided for the Fund by
the Investment Adviser and the Fund reimburses the Investment Adviser for its
costs in connection with such services. See "Purchase of Shares--Distribution
Plans."
Organization of the Investment Adviser. The Investment Adviser is a
limited partnership, the partners of which are ML & Co., a financial services
holding company and the parent of Merrill Lynch, and Princeton Services. ML &
Co. and Princeton Services are "controlling persons" of the 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.
The following entities may be considered "controlling persons" of MLAM
U.K.: Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill
Lynch International Holdings, Inc., a subsidiary of Merrill Lynch International,
Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contracts are not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party or by vote of the shareholders of the Fund.
17
<PAGE>
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of
$11.00 per Class A or Class D account and $14.00 per Class B or Class C account
and is entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency
Agreement. Additionally, a $.20 monthly closed account charge will be assessed
on all accounts which close during the calendar year. Application of this fee
will commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the beneficial
interest of a person in the relevant share class on a recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.
Distribution Expenses. The Fund has entered into four separate
distribution agreements with the Distributor in connection with the continuous
offering of each class of shares of the Fund (the "Distribution Agreements").
The Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays for
the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Management Agreement described above.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser pre-clear
any personal securities investment (with limited exceptions, such as government
securities). The pre-clearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to the
proposed investment. The substantive restrictions applicable to all employees of
the 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 that
at the time is being purchased or sold (as the case may be), or to the knowledge
of the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or
30 days depending upon the transaction).
18
<PAGE>
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives and shares of Class B and Class C are sold
to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C or Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees (also known as service fees) and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The contingent deferred sales charges ("CDSCs"), distribution fees
and account maintenance fees that are imposed on Class B and Class C shares, as
well as the account maintenance fees that are imposed on Class D shares, are
imposed directly against those classes and not against all assets of the Fund
and, accordingly, such charges do not affect the net asset value of any other
class or have any impact on investors choosing another sales charge option.
Dividends paid by the Fund for each class of shares are calculated in the same
manner at the same time and differ only to the extent that account maintenance
and distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and
Class C shares in that the sales charges and distribution fees applicable to
each class provide for the financing of the distribution of the shares of the
Fund. The distribution-related revenues paid with respect to a class will not be
used to finance the distribution expenditures of another class. Sales personnel
may receive different compensation for selling different classes of shares.
The Merrill Lynch Select PricingSM System is used by more than 50
registered investment companies advised by MLAM or FAM. Funds advised by MLAM or
FAM that utilize the Merrill Lynch Select PricingSM System are referred to
herein as "Select Pricing Funds."
The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Neither the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Merrill Lynch may charge
its customers a processing fee (presently $5.35) to confirm a sale of shares to
such customers. Purchases made directly through the Transfer Agent are not
subject to the processing fee.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors who prefer an initial sales charge alternative may elect to
purchase Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to purchase
Class A shares should purchase Class A shares rather than Class D shares because
there is an account maintenance fee imposed on Class D shares. Investors
qualifying for significantly reduced initial sales charges may find the initial
sales charge alternative particularly attractive because similar sales charge
reductions are not available with respect to the deferred sales charges imposed
in connection with purchases of Class B or Class C shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account maintenance
and distribution fees on Class B or Class C shares may exceed the initial sales
charge and, in the case of Class D shares, the account maintenance fee. Although
some investors who previously purchased Class A shares may no longer be eligible
to purchase Class A shares of other Select Pricing Funds, those previously
purchased Class A shares, together with Class B, Class C and Class D share
holdings, will count toward a right of accumulation which may qualify the
investor for reduced initial sales charge on new initial sales charge purchases.
In addition, the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have higher expense
ratios, pay lower dividends and have lower total returns than the initial sales
charge shares. The ongoing Class D account maintenance fees will cause Class D
shares to have a higher expense ratio, pay lower dividends and have a lower
total return than Class A shares.
19
<PAGE>
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
Eligible Class A Investors
Class A shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares. Investors
who currently own Class A shares, including participants in the Merrill Lynch
BlueprintSM Program, are entitled to purchase additional Class A shares of the
Fund 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 Select Pricing Funds. Also eligible to purchase Class A shares at
net asset value are participants in certain investment programs including
TMASMManaged Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services, collective investment trusts for which Merrill Lynch Trust
Company serves as trustee and certain purchases made in connection with certain
fee-based programs. In addition, Class A shares are offered at net asset value
to ML & Co. and its subsidiaries and their directors and employees and to
members of the Boards of MLAM-advised investment companies. Certain persons who
acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Fund also may purchase Class A
shares of the Fund if certain conditions are met. In addition, Class A shares of
the Fund and certain other Select Pricing Funds are offered at net asset value
to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain
conditions are met, to shareholders of Merrill Lynch Municipal Strategy Fund,
Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
pursuant to a tender offer conducted by such funds in shares of the Fund and
certain other Select Pricing Funds.
Class A and Class D Sales Charge Information
<TABLE>
<CAPTION>
CLASS A SHARES
- ------------------------------------------------------------------------------------------------------------------------
GROSS SALES SALES CHARGES SALES CHARGES CDSCS RECEIVED ON
FOR THE FISCAL YEAR CHARGES RETAINED BY PAID TO REDEMPTION OF
ENDED NOVEMBER 30, COLLECTED DISTRIBUTOR MERRILL LYNCH LOAD-WAIVED SHARES
- -------------------------------------------- ----------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1998 $ 7,069 $ 471 $ 6,598 0
1997 $13,409 $ 841 $12,568 0
1996 $20,339 $ 1,252 $19,087 0
<CAPTION>
CLASS D SHARES
- ------------------------------------------------------------------------------------------------------------------------
GROSS SALES SALES CHARGES SALES CHARGES CDSCS RECEIVED ON
FOR THE FISCAL YEAR CHARGES RETAINED BY PAID TO REDEMPTION OF
ENDED NOVEMBER 30, COLLECTED DISTRIBUTOR MERRILL LYNCH LOAD-WAIVED SHARES
- -------------------------------------------- ----------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1998 $ 1,295 $ 126 $ 1,169 0
1997 $ 3,722 $ 223 $ 3,499 0
1996 $ 14,881 $ 1,100 $ 13,781 0
</TABLE>
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A
20
<PAGE>
and Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
Reduced Initial Sales Charges
Reinvested Dividends and Capital Gains. No initial sales charges are
imposed upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of any other Select Pricing Funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or any
Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available only
to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which Merrill Lynch provides plan participant recordkeeping services. The
Letter of Intent is not a binding obligation to purchase any amount of Class A
or Class D shares; however, its execution will result in the purchaser paying a
lower sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intent may be included under a
subsequent Letter of Intent executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. The
value of Class A and Class D shares of the Fund and of other Select Pricing
Funds presently held, at cost or maximum offering price (whichever is higher),
on the date of the first purchase under the Letter of Intent, may be included as
a credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated in the
Letter of Intent (minimum of $25,000), the investor will be notified and must
pay, within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
Class A or Class D shares equal to at least 5.0% of the intended amount will be
held in escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the Letter of
Intent must be at least 5.0% of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the further reduced percentage
sales charge that would be applicable to a single purchase equal to the total
dollar value of the Class A or Class D shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales charge on any
previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intent will be deducted from
the total purchases made under such Letter. An exchange from the Summit Cash
Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.
Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered
to participants in the Merrill Lynch BlueprintSM 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. The Blueprint
program is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or 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%, from $300.01 to $5,000 at 3.25% plus $3.00,
and
21
<PAGE>
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund are being
offered at net asset value plus a sales charge of 0.50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
Blueprint. Services, including the exchange privilege, available to Class A and
Class D investors through Blueprint, however, may differ from those available to
other investors in Class A or 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 (the "IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
(as defined below) whose trustee and/or plan sponsor has entered into the IRA
Rollover Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are offered at net asset value to
TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services.
Employee AccessSM Accounts. Provided applicable threshold requirements are
met, either Class A or Class D shares are offered at net asset value to Employee
AccessSM Accounts available through authorized employers. The initial minimum
investment for such accounts is $500, except that the initial minimum investment
for shares purchased for such accounts pursuant to the Automatic Investment
Program is $50.
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.
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.
Purchase Privilege of Certain Persons. Trustees of the Fund, members of
the Boards of other MLAM-advised funds, ML & Co. and its subsidiaries (the term
"subsidiaries," when used herein with respect to ML & Co., includes MLAM, FAM
and certain other entities directly or indirectly wholly owned and controlled by
ML & Co.) and their directors and employees, and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class A
shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of
shares of a mutual fund that was sponsored by the Financial Consultant's
previous firm and was subject to a sales charge either at the time of purchase
or on a deferred basis; and, second, the investor must establish that such
redemption had been made within 60 days prior to the investment in the Fund and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice") if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales
22
<PAGE>
charge either at the time of purchase or on a deferred basis; and, second, such
purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill Lynch
Financial Consultant and that has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of shares of such
other mutual fund and that such shares have been outstanding for a period of no
less than six months; and, second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
Closed-End Fund Investment Option. Class A shares of the Fund and certain
other Select Pricing Funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by FAM or MLAM who
purchased such closed-end fund shares prior to October 21, 1994 (the date the
Merrill Lynch Select PricingSM System commenced operations) and wish to reinvest
the net proceeds from a sale of their closed-end fund shares of common stock in
Eligible Class A Shares, if the conditions set forth below are satisfied.
Alternatively, closed-end fund shareholders who purchased such shares on or
after October 21, 1994 and wish to reinvest the net proceeds from a sale of
their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other Select Pricing Funds
("Eligible Class D Shares"), if the following conditions are met. First, the
sale of closed-end fund shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible Class A or
Eligible Class D Shares. Second, the closed-end fund shares must either have
been acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional
Class A shares pursuant to this option, if such additional Class A shares will
be held in the same account as the existing Class A shares and the other
requirements pertaining to the reinvestment privilege are met. In order to
exercise this investment option, a shareholder of one of the above-referenced
continuously offered closed-end funds (an "eligible fund") must sell his or her
shares of common stock of the eligible fund (the "eligible shares") back to the
eligible fund in connection with a tender offer conducted by the eligible fund
and reinvest the proceeds immediately in the designated class of shares of the
Fund. This investment option is available only with respect to eligible shares
as to which no Early Withdrawal Charge or CDSC (each as defined in the eligible
fund's prospectus) is applicable. Purchase orders from eligible fund
shareholders wishing to exercise this investment option will be accepted only on
the day that the related tender offer terminates and will be effected at the net
asset value of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or
23
<PAGE>
illiquid securities to the extent the Fund does not exceed the applicable limits
on acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Select Pricing Funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. See "Pricing of Shares--Determination of Net Asset Value" below.
Because no initial sales charges are deducted at the time of the purchase,
Class B and Class C shares provide the benefit of putting all of the investor's
dollars to work from the time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do not qualify for
the reduction in initial sales charges. Both Class B and Class C shares are
subject to ongoing account maintenance fees and distribution fees; however, the
ongoing account maintenance and distribution fees potentially may be offset to
the extent any return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be converted into
Class D shares of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing fees.
Contingent Deferred Sales Charges--Class B Shares
Class B shares that are redeemed within four years of purchase may be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in the manner that results in the
lowest applicable rate being charged. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be assessed on
shares derived from reinvestment of dividends or capital gains distributions. It
will be assumed that the redemption is first of shares held for over four years
or shares acquired pursuant to reinvestment of dividends or distributions and
then of shares held longest during the four-year period. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
The following table sets forth the Class B CDSC:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A PERCENTAGE
PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------------------------------------------ --------------------
<S> <C>
0-1..................................................................... 4.0%
1-2..................................................................... 3.0%
2-3..................................................................... 2.0%
3-4..................................................................... 1.0%
4 and thereafter........................................................ None
</TABLE>
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to a CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC may be waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or
24
<PAGE>
disability (as defined in the Internal Revenue Code of 1986, as amended) of a
shareholder (including one who owns the Class B shares as joint tenant with his
or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability, or if later, reasonably promptly
following completion of probate. The Class B CDSC may also be waived on
redemptions of shares by certain eligible 401(a) and 401(k) plans and in
connection with certain group plans placing orders through the Merrill Lynch
BlueprintSM Program. The CDSC also may be waived for any Class B
shares that are purchased by eligible 401(k) or eligible 401(a) plans that are
rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA
and held in such account at the time of redemption. The Class B CDSC may be
waived for any Class B shares that were acquired and held at the time of the
redemption in an Employee AccessSM Account available through employers providing
eligible 401(k) plans. The Class B CDSC may also be waived for any Class B
shares that are purchased by a Merrill Lynch rollover IRA that was funded by a
rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The Class B CDSC may
be waived or its terms may be modified in connection with certain fee-based
programs. The Class B CDSC may also be waived in connection with involuntary
termination of an account in which Fund shares are held or for withdrawals
through the Merrill Lynch Systematic Withdrawal Plan. See "Shareholder
Services--Fee-Based Programs" and "--Systematic Withdrawal Plan."
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares with a waiver of the CDSC
upon redemption, based on the number of employees or number of employees
eligible to participate in the plan, the aggregate amount invested by the plan
in specified investments and/or the services provided by Merrill Lynch to the
plan. Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing Fund.
Minimum purchase requirements may be waived or varied for such plans. Additional
information regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements is available toll-free from Merrill Lynch
Business Financial Services at (800) 237-7777.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations, credit
unions and benefit plans. Class B shares of the Fund 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 Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund 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 is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment plan.
Additional information concerning these Blueprint programs, including any annual
fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of
Class B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset value of the shares of
the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B shares to
Class D shares of the Fund in a single account will result in less than $50
worth of Class B shares being left in the account, all of the Class B shares of
the Fund held in the account on the Conversion Date will be converted to
Class D shares of the Fund.
25
<PAGE>
In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing Funds will convert approximately ten
years after initial purchase. If, during the Conversion Period, a shareholder
exchanges Class B shares with an eight-year Conversion Period for Class B shares
with a ten-year Conversion Period, or vice versa, the Conversion Period
applicable to the Class B shares acquired in the exchange will apply and the
holding period for the shares exchanged will be tacked on to the holding period
for the shares acquired. The conversion period also may be modified for
investors that participate in certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
Class B shareholders of the Fund exercising the exchange privilege
described under "Shareholder Services --Exchange Privilege" will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
Contingent Deferred Sales Charges--Class C Shares
Class C shares that are redeemed within one year of purchase may be subject
to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. In
determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. The charge will be assessed on an amount equal to the lesser
of the proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases in net asset value
above the initial purchase price. In addition, no Class C CDSC will be assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It will be assumed that the redemption is first of shares held for over one year
or shares acquired pursuant to reinvestment of dividends or distributions and
then of shares held longest during the one-year period. 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.
The Class C CDSC may be waived in connection with certain fee-based programs,
involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See
"Shareholder Services--Fee-Based Programs" and "--Systematic Withdrawal Plan."
Class B and Class C Sales Charge Information
<TABLE>
<CAPTION>
CLASS B SHARES*
- -------------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEAR CDSCS RECEIVED CDSCS PAID TO
ENDED NOVEMBER 30, BY DISTRIBUTOR MERRILL LYNCH
- --------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
1998 $ 52,003 $ 52,003
1997 $134,859 $ 134,859
1996 $ 60,215 $ 60,215
</TABLE>
* Additional Class B CDSCs payable to the Distributor with respect to the fiscal
years ended November 30, 1997 and 1998 may have been waived or converted to a
contingent obligation in connection with a shareholder's participation in
certain fee-based programs.
<TABLE>
<CAPTION>
CLASS C SHARES
- -------------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEAR CDSCS RECEIVED CDSCS PAID TO
ENDED NOVEMBER 30, BY DISTRIBUTOR MERRILL LYNCH
- --------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
1998 $ 522 $ 522
1997 $ 2,200 $ 2,200
1996 $ 1,249 $ 1,249
</TABLE>
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. Proceeds from the
CDSC and the distribution fee are paid to the Distributor and are used in whole
or in part by the Distributor to defray the expenses of dealers (including
Merrill Lynch) related to
26
<PAGE>
providing distribution-related services to the Fund in connection with the sale
of the Class B and Class C shares, such as the payment of compensation to
financial consultants for selling Class B and Class C shares from the dealer's
own funds. The combination of the CDSC and the ongoing distribution fee
facilitates the ability of the Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase. See "Distribution
Plans" below. Imposition of the CDSC and the distribution fee on Class B and
Class C shares is limited by the NASD asset-based sales charge rule. See
"Limitations on the Payment of Deferred Sales Charges" below.
DISTRIBUTION PLANS
Reference is made to "Fees and Expenses" in the Prospectus for certain
information with respect to the separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each
a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes.
The Distribution Plans for Class B, Class C and Class D shares each
provides that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at the
annual rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities with respect to Class B, Class C and Class D shares. Each of those
classes has exclusive voting rights with respect to the Distribution Plan
adopted with respect to such class pursuant to which account maintenance and/or
distribution fees are paid (except that Class B shareholders may vote upon any
material changes to expenses charged under the Class D Distribution Plan).
The Distribution Plans for Class B and Class C shares each provides that
the Fund also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares.
The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each Distribution
Plan, the Directors must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to the Fund and each
related class of shareholders. Each Distribution Plan further provides that, so
long as the Distribution Plan remains in effect, the selection and nomination of
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 reasonable
likelihood that each Distribution Plan will benefit the Fund and its related
class of shareholders. Each Distribution Plan can be terminated at any time,
without penalty, by the vote of a majority of the Independent Directors or by
the vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in the Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of the Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of the Distribution Plan or such report, the first two years in an easily
accessible place.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance and/or distribution fees paid to the
Distributor. Payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with
27
<PAGE>
respect to the distribution-related revenues and expenses is presented to the
Directors for their consideration in connection with their deliberations as to
the continuance of the Class B and Class C Distribution Plans annually, as of
December 31 of each year, on a "fully allocated accrual" basis and quarterly on
a "direct expense and revenue/cash" basis. On the fully allocated accrual basis,
revenues consist of the account maintenance fees, distribution fees, the CDSCs
and certain other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees,
distribution fees and CDSCs and the expenses consist of financial consultant
compensation.
As of December 31, 1997, the fully allocated accrual revenues of the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated accrual expenses by
approximately $363,000 (.57% of Class B net assets at that date). As of November
30, 1998, direct cash revenues for the period since the commencement of
operations of Class B shares exceeded direct cash expenses by $3,083,696 (12.77%
of Class B net assets at that date). As of December 31, 1997, the fully
allocated accrual revenues of the Distributor and Merrill Lynch for the period
since the commencement of operations of Class C shares exceeded the fully
allocated accrual expenses by approximately $11,000 (.18% of Class C net assets
at that date). As of November 30, 1998, direct cash revenues for the period
since the commencement of operations of Class C shares exceeded direct cash
expenses by $76,704 (7.23% of Class C net assets at that date).
For the fiscal year ended November 30, 1998, the Fund paid the Distributor
$489,274 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $48.7
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended November 30, 1998, the Fund paid the
Distributor $41,806 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately
$4.2 million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended November 30, 1998, the Fund paid the
Distributor $21,653 pursuant to the Class D Distribution Plan (based on average
daily net assets subject to such Class D Distribution Plan of approximately
$8.6 million), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as of November 30,
1998 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to the Class B shares, the Distributor's voluntary
maximum.
28
<PAGE>
<TABLE>
<CAPTION>
DATA CALCULATED AS OF NOVEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------------------------------
(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, 1998
Under NASD Rule as Adopted........... $ 79,927 $ 4,995 $1,970 $6,963 $3,538 $ 3,431 $181
Under Distributor's Voluntary
Waiver............................. $ 79,927 $ 4,995 $ 400 $5,395 $3,538 $ 1,857 $181
CLASS C SHARES, FOR THE PERIOD OCTOBER
21, 1994 (COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1998
Under NASD Rule as Adopted........... $ 2,063 $ 129 $ 20 $ 149 $ 84 $ 65 $ 8
</TABLE>
- ------------------
(1) Purchase price of all eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
(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 a 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 "What
are the Fund's fees and expenses?" in the Prospectus. This figure may
include CDSCs that were deferred when a shareholder redeemed shares prior to
the expiration of the applicable CDSC period and invested the proceeds,
without the imposition of a sales charge, in Class A shares in conjunction
with the shareholder's participation in the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFASM) Program (the "MFA Program"). The CDSC is
booked as a contingent obligation that may be payable if the shareholder
terminates participation in the MFA Program.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum (with respect to Class B shares) or
the NASD maximum (with respect to Class B and Class C shares).
29
<PAGE>
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period during
which trading on the NYSE is restricted as determined by the Commission or the
NYSE is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the Commission as a result
of which disposal of portfolio securities or determination of the net asset
value of the Fund is not reasonably practicable, and for such other periods as
the Commission may by order permit for the protection of shareholders of the
Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the market value of the securities held
by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with the
Transfer Agent may be accomplished by a written letter requesting redemption.
Proper notice of redemption in the case of shares for which certificates have
been issued may be accomplished by a written letter as noted above accompanied
by certificates for the shares to be redeemed. Redemption requests should not be
sent to the Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as such name(s) appear(s) on the Transfer Agent's register. The
signature(s) on the redemption requests must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the existence and
validity of which may be verified by the Transfer Agent through the use of
industry publications. Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional documents such as, but not
limited to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed within seven
days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (e.g., cash, Federal funds or certified check drawn on a United States
bank) has been collected for the purchase of such Fund shares, which will not
exceed 10 days.
REPURCHASE
The Fund also will repurchase Fund shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase Fund
shares by wire or telephone from dealers for their customers at the net asset
value next computed after the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received, provided that the
request for repurchase is submitted to the dealer prior to fifteen minutes after
the regular close of business on the NYSE (generally, the NYSE closes at
4:00 p.m., Eastern time), and such request is received by the Fund from such
dealer not later than 30 minutes after the close of business on the NYSE on the
same day. Dealers have the responsibility of submitting such repurchase requests
to the Fund not later than 30 minutes after the close of business on the NYSE,
in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with
30
<PAGE>
the Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares
to such customers. Repurchases made directly through the Transfer Agent on
accounts held at the Transfer Agent are not subject to the processing fee. The
Fund reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares of the Fund
have a privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date the
request for redemption was accepted by the Transfer Agent or the Distributor.
The reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined
once daily Monday through Friday as of 15 minutes after the close of business on
the NYSE on each day the NYSE is open for trading. The NYSE generally closes at
4:00 p.m., Eastern time. Any assets or liabilities initially expressed in terms
of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of the securities held by
the Portfolio plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the fees payable to the Investment Adviser and
Distributor, are accrued daily.
The per share net asset value of Class B, Class C and Class D shares
generally will be lower than the per share net asset value of Class A shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover, the per share net asset
value of the Class B and Class C shares generally will be lower than the per
share net asset value of Class D shares reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Directors as the primary market.
Long positions in securities traded in the over-the-counter ("OTC") market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Portfolio securities that are traded both in the OTC market and on a
stock exchange are
31
<PAGE>
valued according to the broadest and most representative market. Short positions
in securities traded in the OTC market are valued at the last available ask
price in the OTC market prior to the time of valuation. When the Fund writes an
option, the amount of the premium received is recorded on the books of the Fund
as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Other investments, including financial futures contracts and
related options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Directors of the Fund.
Such valuations and procedures will be reviewed periodically by the Directors.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that will not be reflected in the computation of the Fund'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 Trustees.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A,
Class B, Class C and Class D shares of the Fund based on the value of the Fund's
net assets and number of shares outstanding on November 30, 1998 is set forth
below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Assets....................................... $254,471,772 $ 24,148,053 $ 1,060,843 $ 7,882,500
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Number of Shares Outstanding..................... 17,273,971 1,731,390 76,423 538,192
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net Asset Value Per Share (net assets divided by
number of shares outstanding).................. $ 14.73 $ 13.95 $ 13.88 $ 14.65
Sales Charge (for Class A and Class D shares:
5.25% of offering price; 5.54% of net asset
value per share)*.............................. .82 ** ** .81
------------ ------------ ----------- ------------
Offering Price................................... $ 15.55 $ 13.95 $ 13.88 $ 15.46
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</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--Contingent Deferred Sales Charges--Class B Shares" and "--Contingent
Deferred Sales Charges--Class C Shares" herein.
PORTFOLIO TRANSACTIONS AND BROKERAGE
TRANSACTIONS IN PORTFOLIO SECURITIES
Subject to policies established by the Board of Directors the Investment
Adviser is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any dealer or group of dealers in the execution of transactions in
portfolio securities of the Fund. Where possible, the Fund deals directly with
the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. It is
the policy of the Fund to obtain the best results in conducting portfolio
transactions for the Fund, taking into account such factors as price (including
the applicable dealer spread or commission), the size, type and difficulty of
the transaction involved, the firm's
32
<PAGE>
general execution and operations facilities and the firm's risk in positioning
the securities involved. The portfolio securities of the Fund generally are
traded on a principal basis and normally do not involve either brokerage
commissions or transfer taxes. The cost of portfolio securities transactions of
the Fund primarily consists of dealer or underwriter spreads. While reasonable
competitive spreads or commissions are sought, the Fund will not necessarily be
paying the lowest spread or commission available. Transactions with respect to
the securities of small and emerging growth companies in which the Fund may
invest may involve specialized services on the part of the broker or dealer and
thereby entail higher commissions or spreads than would be the case with
transactions involving more widely traded securities.
Subject to obtaining the best net results, dealers who provide supplemental
investment research (such as information concerning tax-exempt securities,
economic data and market forecasts) to the Investment Adviser may receive orders
for transactions by the Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under its Investment Advisory Agreement and the expense of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information. Supplemental investment research obtained from such
dealers might be used by the Investment Adviser in servicing all of its accounts
and all such research might not be used by the Investment Adviser in connection
with the Fund. Consistent with the Conduct Rules of the NASD and policies
established by the Directors of the Fund, the Investment Adviser may consider
sales of shares of the Fund as a factor in the selection of brokers or dealers
to execute portfolio transactions for the Fund.
Information about the brokerage commissions paid by the Fund, including
commissions paid to Merrill Lynch, is set forth in the following table:
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE COMMISSIONS PAID
FISCAL YEAR ENDED NOVEMBER 30, COMMISSIONS PAID TO MERRIL LYNCH
- ------------------------------------------------------ ------------------- ----------------
<S> <C> <C>
1998.................................................. $ 907,971 $ 60,626
1997.................................................. $ 1,321,578 $130,458
1996.................................................. $ 761,962 $ 31,344
</TABLE>
For the fiscal year ended November 30, 1998, the brokerage commissions paid to
Merrill Lynch represented 6.68% of the aggregate brokerage commissions paid and
involved 5.19% of the Fund's dollar amount of transactions involving payment of
commissions during the year.
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such persons are prohibited from dealing with
the Fund as principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Commission. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own accounts, affiliated persons of the
Fund, including Merrill Lynch and any of its affiliates, will not serve as the
Fund's dealer in such transactions. However, affiliated persons of the Fund may
serve as its broker in listed or over-the-counter transactions conducted on an
agency basis provided that, among other things, the fee or commission received
by such affiliated broker is reasonable and fair compared to the fee or
commission received by non-affiliated brokers in connection with comparable
transactions. In addition, the Fund may not purchase securities during the
existence of any underwriting syndicate for such securities of which Merrill
Lynch is a member or in a private placement in which Merrill Lynch serves as
placement agent except pursuant to procedures adopted by the Board of Directors
of the Fund that either comply with rules adopted by the Commission or with
interpretations of the Commission staff.
Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the Investment Company Act in
order to seek to recapture underwriting and dealer spreads from affiliated
entities. The Directors have considered all factors deemed relevant and have
made a determination not to seek such recapture at this time. The Directors will
reconsider this matter from time to time.
Section 11(a) of the Exchange Act 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
setting forth the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker
33
<PAGE>
for the Fund in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Fund and annual statements as to aggregate compensation will
be provided to the Fund. Securities may be held by, or be appropriate
investments for, the Fund as well as other funds or investment advisory clients
of the Investment Adviser or FAM.
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Investment Adviser or an affiliate when
one or more clients of the Investment Adviser or an affiliate are selling the
same security. If purchases or sales of securities arise for consideration at or
about the same time that would involve the Fund or other clients or funds for
which the Investment Adviser or an affiliate act as manager, transactions in
such securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or an affiliate during
the same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans and
instructions as to how to participate in the various services or plans, or how
to change options with respect thereto, can be obtained from the Fund, by
calling the telephone number on the cover page hereof, or from the Distributor
or Merrill Lynch.
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 capital gain distributions. The statements will also show any other activity
in the account since the preceding statement. Shareholders will also receive
separate confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gains distributions. A shareholder with an account held at the
Transfer Agent may make additions to his or her Investment Account at any time
by mailing a check directly to the Transfer Agent. A shareholder may also
maintain an account through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or continue to
maintain an Investment Account at the Transfer Agent for those Class A or
Class D shares. Shareholders interested in transferring their Class B or
Class C shares from Merrill Lynch who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new brokerage
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the Transfer Agent. If the
new brokerage firm is willing to accommodate the shareholder in this manner, the
shareholder must request that he or she be issued certificates for his or her
shares and then must turn the certificates over to the new firm for
re-registration in the new brokerage firm's name.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund
("Summit"), a series of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated for exchange by
holders of Class A, Class B, Class C and Class D shares of Select Pricing Funds.
Shares with a net asset value of at least
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$100 are required to qualify for the exchange privilege and any shares utilized
in an exchange must have been held by the shareholder for at least 15 days.
Before effecting an exchange, shareholders should obtain a currently effective
prospectus of the fund into which the exchange is to be made. Exercise of the
exchange privilege is treated as a sale of the exchanged shares and a purchase
of the acquired shares for Federal income tax purposes.
Exchanges of Class A and Class D Shares. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund if
the shareholder holds any Class A shares of the second fund in 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 Select
Pricing Fund, but does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second Select Pricing Fund at any time as long
as, at the time of the exchange, the shareholder holds Class A shares of the
second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund. Class D shares are
exchangeable with shares of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of other Select Pricing Funds or
Class A shares of Summit ("new Class A or Class D shares"), are transacted on
the basis of relative net asset value per Class A or Class D share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A or Class D shares and the
sales charge payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A or Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares generally
may be exchanged into the Class A or Class D shares, respectively, of the other
funds with a reduced sales charge or without a sales charge.
Exchanges of Class B and Class C Shares. Each Select Pricing Fund with
Class B or Class C shares outstanding ("outstanding Class B or Class C shares")
offers to exchange its Class B or Class C shares for Class B or Class C shares,
respectively, of another Select Pricing Fund or for Class B shares of Summit
("new Class B or Class C shares") on the basis of relative net asset value per
Class B or Class C share, without the payment of any CDSC that might otherwise
be due on redemption of the outstanding shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the new
Class B shares acquired through use of the exchange privilege. In addition,
Class B shares of the Fund acquired through use of the exchange privilege will
be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B or Class C shares of the fund from which the
exchange has been made. For purposes of computing the CDSC that may be payable
on a disposition of the new Class B or Class C shares, the holding period for
the outstanding Class B or Class C shares is "tacked" to the holding period of
the new Class B shares. For example, an investor may exchange Class B or
Class C shares of the Fund for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Fund's Class B shares for two and a
half years. The 2% CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may decide to redeem the
Class B shares of Special Value Fund and receive cash. There will be no CDSC due
on this redemption, since by "tacking" the two and a half year holding period of
Fund Class B shares to the three-year holding period for the Special Value Fund
Class B shares, the investor will be deemed to have held the Special Value Fund
Class B shares for more than five years.
Exchanges for Shares of a Money Market Fund. Class A and Class D shares
are exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B or
Class C shares of Select Pricing Funds and, in
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the event of such an exchange, the period of time that Class B shares of Summit
are held will count toward satisfaction of the holding period requirement for
purposes of reducing any CDSC and toward satisfaction of any Conversion Period
with respect to Class B shares. Class B shares of Summit will be subject to a
distribution fee at an annual rate of 0.75% of average daily net assets of such
Class B shares. This exchange privilege does not apply with respect to certain
Merrill Lynch fee-based programs for which alternative exchange arrangements may
exist. Please see your Merrill Lynch Financial Consultant for further
information.
Prior to October 12, 1998, exchanges from the Fund and other Select Pricing
Funds into a money market fund were directed to certain Merrill Lynch-sponsored
money market funds other than Summit. Shareholders who have exchanged Select
Pricing Fund shares for shares of such other money market funds and subsequently
wish to exchange those money market fund shares for shares of the Fund will be
subject to the CDSC schedule applicable to such Fund shares, if any. The holding
period for the money market fund shares will not count toward satisfaction of
the holding period requirement for reduction of the CDSC imposed on such shares,
if any, and, with respect to Class B shares, toward satisfaction of the
Conversion Period. However, the holding period for Class B or Class C shares
received in exchange for such money market fund shares will be aggregated with
the holding period for the original shares for purposes of reducing the CDSC or
satisfying the Conversion Period.
Exchanges by Participants in the MFA Program. The exchange privilege is
modified with respect to certain retirement plans which participate in the MFA
program. Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same fund on
the basis of relative net asset values in connection with the commencement of
participation in the MFA program, i.e., no CDSC will apply. The one year holding
period does not apply to shares acquired through reinvestment of dividends. Upon
termination of participation in the MFA program, Class A shares will be
re-exchanged for the class of shares originally held. For purposes of computing
any CDSC that may be payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so reacquired, the
holding period for the Class A shares will be "tacked" to the holding period for
the Class B or Class C shares originally held. The Fund's exchange privilege is
also modified with respect to purchases of Class A and Class D shares by
non-retirement plan investors under the MFA program. First, the initial
allocation of assets is made under the MFA program. Then, any subsequent
exchange under the MFA program of Class A or Class D shares of a Select Pricing
Fund for Class A or Class D shares of the Fund will be made solely on the basis
of the relative net asset values of the shares being exchanged. Therefore, there
will not be a charge for any difference between the sales charge previously paid
on the shares of the other Select Pricing Fund and the sales charge payable on
the shares of the Fund being acquired in the exchange under the MFA program.
Exercise of the Exchange Privilege. To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial Consultant, who
will advise the Fund of the exchange. Shareholders of the Fund, and shareholders
of the other 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 Fund reserves the right to require a properly completed
Exchange Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares to the general
public at any time and may thereafter resume such offering from time to time.
The exchange privilege is available only to U.S. shareholders in states where
the exchange legally may be made. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be distributed by
the Distributor.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be
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subject to a fee based upon the current value of such shares. These Programs
also generally prohibit such shares from being transferred to another account at
Merrill Lynch, to another broker-dealer or to the Transfer Agent. Except in
limited circumstances (which may also involve an exchange as described above),
such shares must be redeemed and another class of shares purchased (which may
involve the imposition of initial or deferred sales charges and distribution and
account maintenance fees) in order for the investment not to be subject to
Program fees. Additional information regarding a specific Program (including
charges and limitations on transferability applicable to shares that may be held
in such Program) is available in such Program's client agreement and from the
Transfer Agent at (1-800-MER-FUND) or 1-(800)-637-3863.
RETIREMENT PLANS
Individual retirement accounts and other retirement plans are available
from Merrill Lynch. Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as well as in other
securities. Merrill Lynch charges an initial establishment fee and an annual
custodial fee for each account. Information with respect to these plans is
available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor) or
Class B, Class C or Class D shares at the applicable public offering price.
These purchases may be made either through the shareholder's securities dealer,
or by mail directly to the Transfer Agent, acting as agent for such securities
dealer. Voluntary accumulation also can be made through a service known as the
Fund's Automatic Investment Plan. The Fund would be authorized, on a regular
basis, to provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank account of the
shareholder by either pre-authorized checks or automated clearing house debits.
For investors who buy shares of the Fund through Blueprint, no minimum charge to
the investor's bank account is required. Alternatively, an investor that
maintains a CMA(Registered) or CBA(Registered) account may arrange to have
periodic investments made in the Fund of amounts of $100 or more ($1 or more for
retirement accounts) or more through the CMA(Registered) or
CBA(Registered) Automated Investment Program.
AUTOMATIC DIVIDEND PROGRAM
Unless specific instructions are given as to the method of payment,
dividends and capital gains distributions will be automatically reinvested,
without sales charge, in additional full and fractional shares of the Fund. Such
reinvestment will be at the net asset value of shares of the Fund as of the
close of business on the NYSE on the monthly payment date for such dividends and
distributions. No CDSC will be imposed upon redemption of shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions.
Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, if their account is maintained
with the Transfer Agent elect to have subsequent dividends or both dividends and
capital gains distributions, paid in cash, rather than reinvested in shares of
the Fund or vice versa (provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less, a shareholder
will not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be effected. The Fund is
not responsible for any failure of delivery to the shareholder's address of
record and no interest will accrue on amounts represented by uncashed
distribution checks. Cash payments can also be directly deposited to the
shareholder's bank account.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have acquired
shares of the Fund having a value, based on cost or the current offering price,
of $5,000 or more, and monthly withdrawals are available for shareholders with
shares having a value of $10,000 or more.
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At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
the class of shares to be redeemed. With respect to shareholders who hold
accounts directly at the Transfer Agent, redemptions will be made at net asset
value as determined 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. With respect to
shareholders who hold accounts with their broker-dealer, redemptions will be
made at net asset value as determined 15 minutes after the close of business on
the NYSE (generally, 4:00 p.m., New York time) on the first, second, third, or
fourth Monday of each month or the first, second, third, or fourth Monday of the
last month of each quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the close of business on
the following business day. The check for the withdrawal payment will be made,
on the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in Fund shares. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without charge or
penalty, by the shareholder, the Fund, the Transfer Agent or the Distributor.
With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares." Where
the systematic withdrawal plan is applied to Class B shares, upon conversion of
the last Class B shares in an account to Class D shares, the systematic
withdrawal plan will be applied thereafter to Class D shares if the shareholder
so elects. If an investor wishes to change the amount being withdrawn in a
systematic withdrawal plan the investor should contact his or her Financial
Consultant.
Withdrawal payments should not be considered as dividends. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced correspondingly.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
The Fund will not knowingly accept purchase orders for shares of the Fund from
investors that maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Automatic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a
CMA(Registered), CBA(Registered) Account or Retirement Account may elect to have
shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis
through the CMA(Registered) or CBA(Registered)Systematic Redemption Program. The
minimum fixed dollar amount redeemable is $50. The proceeds of systematic
redemptions will be posted to the shareholder's account three business days
after the date the shares are redeemed. All redemptions are made at net asset
value. A shareholder may elect to have his or her shares redeemed on the first,
second, third or fourth Monday of each month, in the case of monthly
redemptions, or of every other month, in the case of bimonthly redemptions. For
quarterly, semiannual or annual redemptions, the shareholder may select the
month in which the shares are to be redeemed and may designate whether the
redemption is to be made on the first, second, third or fourth Monday of the
month. If the Monday selected is not a business day, the redemption will be
processed at net asset value on the next business day. The CMA(Registered) or
CBA(Registered) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automated Investment
Program. For more information on the CMA(Registered) or
CBA(Registered) Systematic Redemption Program, eligible shareholders should
contact their Merrill Lynch Financial Consultant.
Capital gains and ordinary income received in each of the retirement plans
referred to above are exempt from Federal taxation until distributed from the
plan. Investors considering participation in any such plan should review
specific tax laws relating thereto and should consult their attorneys or tax
advisers with respect to the establishment and maintenance of any such plan.
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DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such investment income are paid annually. All net
realized capital gains, if any, are distributed to the Fund's shareholders at
least annually. Premiums from expired call options written by the Fund and net
gains from closing purchase transactions are treated as short-term capital gains
for Federal income tax purposes. Shareholders may elect in writing to receive
any such dividends or distributions, or both, in cash. See "Shareholder
Services--Automatic Reinvestment of Dividends and Capital Gains Distributions"
for information concerning the manner in which dividends may be reinvested
automatically in shares of the Fund. Dividends and distributions are taxable to
shareholders, as described below, whether they are invested in shares of the
Fund or received in cash. The per share dividends and distributions on Class B
and Class C shares will be lower than the per share dividends and distributions
on Class A and Class D shares as a result of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares; similarly, the per share dividends and distributions
on Class D shares will be lower than the per share dividends and distributions
on Class A shares as a result of the account maintenance fees applicable with
respect to the Class D shares. See "Pricing of Shares--Determination of Net
Asset Value."
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Fund so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the part
of its net ordinary income and net realized capital gains that it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general on a October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term gains, regardless of the
length of time the shareholder has owned Fund shares. Any loss upon the sale or
exchange of Fund shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Certain categories of
capital gains are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its shareholders with
a written notice designating the amounts of any ordinary income dividends or
capital gains dividends, as well as any amount of capital gains dividends in the
different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code, if certain requirements are met. For this purpose, the Fund will
allocate dividends eligible for the dividends received deduction among the
Class A, Class B, Class C and Class D shareholders according to a method (which
it believes is consistent with the Securities and Exchange Commission rule
permitting the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to Class A, Class B, Class C and Class D shareholders
during the taxable year, or such other method as the Internal Revenue Service
may prescribe. If the Fund pays a dividend in January that was declared in the
previous October,
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November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid
by the Fund and received by its shareholders on December 31 of the year in which
such dividend was declared.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
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 applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend paid by the Fund only if the shareholder meets
certain holding period requirements. The Fund also must meet these holding
period requirements, and if the Fund fails to do so, it will not be able to
"pass through" to shareholders the ability to claim a credit or deduction for
the related foreign taxes paid by the Fund. If the Fund satisfies the holding
period requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them, and deduct such proportionate shares computing in their taxable
incomes or, alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, moreover, may be claimed
by noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject to
United States withholding taxes on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been paid
by such shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes and other information needed to claim
the foreign tax credit. For this purpose, the Fund will allocate foreign 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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
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The Fund 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 Fund 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 Fund 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 Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. Application of these
rules to Section 1256 contracts held by the Fund may alter the timing and
character of distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest or currency exchange
rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a 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 future contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless application of
Section 988 is elected by the Fund. In general, however, Code Section 988 gains
or losses will increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in Fund shares
(assuming the shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of currency
fluctuations with respect to its investments.
41
<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
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
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 investment in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B,
Class C and Class D shares in accordance with formulas specified by the
Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and
Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data for various periods other than those
noted below. Such data will be computed as described above, except that (1) as
required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted and (2) the
maximum applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time. In order to reflect the
reduced sales charges in the case of Class A or Class D shares or the waiver of
the CDSC in the case of Class B or Class C shares applicable to certain
investors, as described under "Purchase of Shares" the total return data quoted
by the Fund in advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charge or may take into account the
waiver of the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses is deducted. The Fund's total return may be expressed either as a
percentage or as a dollar amount in order to illustrate such total return on a
hypothetical $1,000 investment in the Fund at the beginning of each specified
period.
42
<PAGE>
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------------- -------------------------------------------
REDEEMABLE VALUE OF REDEEMABLE VALUE OF
EXPRESSED AS A A HYPOTHETICAL EXPRESSED AS A A HYPOTHETICAL
PERCENTAGE BASED ON A $1,000 INVESTMENT PERCENTAGE BASED ON A $1,000 INVESTMENT
HYPOTHETICAL $1,000 AT THE END OF HYPOTHETICAL $1,000 AT THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- ------------------------------ --------------------- ------------------- --------------------- -------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended November 30,
1998........................ 5.56% $1,055.60 6.35% $1,063.50
Five Years Ended November 30,
1998........................ 8.74% $1,520.00 8.80% $1,524.50
Ten Years Ended November 30,
1998........................ 9.28% $2,429.10 8.76% $2,315.20
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30,
- ------------------------------
1998.......................... 11.41% $1,114.10 10.32% $1,103.20
1997.......................... 6.04% $1,060.40 4.98% $1,049.80
1996.......................... 15.20% $1,152.00 13.97% $1,139.70
1995.......................... 12.92% $1,129.20 11.78% $1,117.80
1994.......................... 4.39% $1,043.90 3.32% $1,033.20
1993.......................... 19.16% $1,191.60 17.87% $1,178.70
1992.......................... 10.67% $1,106.70 9.58% $1,095.80
1991.......................... 6.77% $1,067.70 5.67% $1,056.70
1990.......................... (4.90)% $ 951.00 (5.88)% $ 941.20
1989.......................... 19.36% $1,193.60 18.22% $1,182.20
1988.......................... 17.59% $1,175.90
Inception (October 21, 1988)
to November 30, 1988 -- -- 1.68% $1,016.80
1987.......................... 0.67% $1,006.70 -- --
1986.......................... 33.34% $1,333.40 -- --
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>
Inception (July 2, 1984)
to November 30, 1998........ 420.13% $5,201.30 -- --
Inception (October 21, 1988)
to November 30, 1998........ -- -- 135.41% $2,354.10
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------------------- -------------------------------------------
REDEEMABLE VALUE OF REDEEMABLE VALUE OF
EXPRESSED AS A A HYPOTHETICAL EXPRESSED AS A A HYPOTHETICAL
PERCENTAGE BASED ON A $1,000 INVESTMENT PERCENTAGE BASED ON A $1,000 INVESTMENT
HYPOTHETICAL $1,000 AT THE END OF HYPOTHETICAL $1,000 AT THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- ------------------------------ --------------------- ------------------- --------------------- -------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended November 30,
1998........................ 9.22% $1,092.20 5.36% $1,053.60
Inception (October 21, 1994)
to November 30, 1998........ 8.71% $1,409.30 8.17% $1,380.70
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30,
- ------------------------------
1998.......................... 10.21% $1,102.10 11.19% $1,111.90
1997.......................... 4.96% $1,049.60 5.80% $1,058.00
1996.......................... 14.05% $1,140.50 14.86% $1,148.60
1995.......................... 11.69% $1,116.90 12.73% $1,127.30
Inception (October 21, 1994)
to November 30, 1994........ (4.36)% $ 956.40 (4.33)% $ 956.70
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994)
to November 30, 1998........ 40.93% $1,409.30 38.07% $1,380.70
</TABLE>
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
the total return data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the maximum, sales charge
or may not take into account the CDSC, and, therefore, may reflect greater total
return since, due to the reduced sales charges or the waiver of CDSCs, a lower
amount of expenses may be deducted. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's
500 Index, the Morgan Stanley Capital International World Index, the Dow Jones
Industrial Average, or to performance data published by Lipper Analytical
Services, Inc., Morningstar Publications, Inc. ("Morningstar"), CDA Investment
Technology, Inc., Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine, Fortune Magazine or other industry publications. In addition,
from time to time the Fund may include the Fund's Morningstar risk-adjusted
performance ratings in advertisements or supplemental sales literature. As with
other performance data, performance comparisons should not be considered
indicative of the Fund's relative performance for any future period.
44
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on March 7, 1984. At the date
of this Statement of Additional Information, the Fund 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 Fund 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 Fund may classify and
reclassify the shares of the Fund into additional classes of Common Stock at a
future date.
Shareholders are entitled to one vote for each 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 Fund 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 Fund. 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 Fund and in the net
assets of the Fund 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 Fund. 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 Fund was incorporated under the name "Merrill Lynch International
Holdings, Inc." On November 1, 1993, the Fund commenced doing business under the
name "Merrill Lynch Global Holdings" and on October 21, 1994, changed its name
to Merrill Lynch Global Holdings, Inc.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Trustees of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
The Chase Manhattan Bank, Global Securities Services, 4 Chase MetroTech
Center, 18th Floor, Brooklyn, New York 11245 (the "Custodian"), acts as
custodian of the Fund's assets. Under its contract with the Fund, the Custodian
is authorized to establish separate accounts in foreign currencies and to cause
foreign securities owned by the Fund 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 Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "How to Buy, Sell,
Transfer and Exchange Shares--Through the Transfer Agent" in the Prospectus.
45
<PAGE>
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on November 30 of each year. The Fund
sends to its shareholders, at least semi-annually, reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Under a separate agreement, ML & Co. has granted the Fund the right to use
the "Merrill Lynch" name and has reserved the right to withdraw its consent to
the use of such name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted ML & Co., under certain conditions,
the use of any other name it might assume in the future, with respect to any
corporation organized by ML & Co.
To the knowledge of the Fund, the following persons owned beneficially 5%
or more of any class of the Fund's shares as of January 4, 1999.
<TABLE>
<CAPTION>
PERCENTAGE AND
NAME ADDRESS CLASS
- -------------------------------------------------------------- ------------------------------- --------------
<S> <C> <C>
ML Trust Co. of America
FBO Dupont Savings & Investment............................. P.O. Box 30532 20.6% Class A
New Brunswick, NJ 08989
ML Trust Co. of America
FBO Chrysler Salaried Employees
Savings Plan................................................ 265 Davidson Ave #4 13.8% Class A
Somerset, NJ 08873
ML Trust Co. of America
FBO Consol Investment Plan.................................. P.O. Box 30532 6.0% Class A
New Brunswick, NJ 08989
ML Trust Co. of America
FBO Chrysler Hourly Employees
Deferred Pay Plan........................................... 265 Davidson Ave #4 5.6% Class A
Somerset, NJ 08873
William R. Engelsmann......................................... 14304 Spyglass RDG 9.8% Class C
Chersterfield, MO 63017
William Hoffert............................................... 62 Oyster Shoals Ct 5.7% Class C
Supply, NC 28462
Incyte Pharmaceuticals........................................ 400 Atrium Drive 9.8% Class D
1st floor
Somerset, NJ 08873
</TABLE>
46
<PAGE>
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
47
<PAGE>
(This page intentionally left blank)
<PAGE>
CODE # 10244-03-99
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C>
1(a) -- Articles of Incorporation of the Registrant.(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 the Registrant.(a)
3 -- Portions of the Articles of Incorporation, as amended, and the By-Laws of the Registrant defining the
rights of shareholders.(b)
4(a) -- Investment Advisory Agreement between the Registrant and Merrill Lynch Asset Management, L.P.(a)
(b) -- Supplement to Investment Advisory Agreement between the Registrant and Merrill Lynch Asset
Management, L.P.(c)
(c) -- Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and Merrill Lynch Asset
Management U.K. Limited.(d)
5(a) -- Class A Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor.(a)
(b) -- Class B Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor.(a)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds Distributor with respect to the
Merrill Lynch Mutual Fund Advisor Program.(c)
(d) -- Class C Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor.(a)
(e) -- Class D Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor.(a)
6 -- None.
7 -- Custody Agreement between the Registrant and The Chase Manhattan Bank.(a)
8 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the
Registrant and Financial Data Services, Inc.(a)
9 -- Opinion of Brown & Wood LLP, counsel to the Registrant.(g)
10 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
11 -- None.
12 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
13(a) -- Amended and Restated Class B Distribution Plan and Class B Distribution Plan Sub-Agreement of the
Registrant.(c)
(b) -- Class C Distribution Plan and Class C Distribution Plan Sub-Agreement of the Registrant.(a)
(c) -- Class D Distribution Plan and Class D Distribution Plan Sub-Agreement of the Registrant.(a)
14(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
15 -- Merrill Lynch Select PricingSM System Plan pursuant to Rule 18f-3.(f)
</TABLE>
(Footnotes on next page)
C-1
<PAGE>
(Footnotes from previous page)
- ------------------
(a) Filed on March 28, 1995 as an Exhibit to Post-Effective Amendment No. 14 to
the 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 Registration Statement; amended and restated Article V contained in
the Articles of Amendment filed as Exhibit (1)(b) to the 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 Registration Statement.
(c) Filed on March 30, 1994 as an Exhibit to Post-Effective Amendment No. 12 to
the Registration Statement.
(d) Filed on March 28, 1997 as an Exhibit to Post-Effective Amendment No. 16 to
the Registration Statement.
(e) Filed on February 25, 1994 as an Exhibit to Post-Effective Amendment No. 9
to the Registration Statement.
(f) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of 1933,
as amended, filed on January 25, 1996, relating to shares of Merrill Lynch
New York Municipal Bond Fund series of Merrill Lynch Multi-State Municipal
Series Trust (File No. 2-99473).
(g) Previously filed as an Exhibit to the Registration Statement.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 25. INDEMNIFICATION
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B, Class C
and Class D Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith 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.
C-2
<PAGE>
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C, and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, 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 26. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Fund Asset Management, L.P. ("FAM") acts as the investment adviser for the
following open-end registered investment companies; CBA Money Fund, CMA
Governmental Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAsset Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund
II, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund,
Inc., MuniHoldings New York Insured Fund II, 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
C-3
<PAGE>
Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and
Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), an
affiliate of FAM, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisor Trust.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665, The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributer ("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 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
December 1, 1996 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President and Mr. Glenn
is Executive Vice President of substantially all of the investment companies
described in the first two paragraphs of this Item 26, and Messrs. Giordano,
Harvey, Kirstein and Monagle are officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------------- --------------------- ----------------------------------------------------------
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company; Limited Partner of FAM
Princeton Services General Partner General Partner of FAM
Arthur Zeikel Chairman Chairman of FAM; President of FAM and MLAM from 1977 to
1997; Chairman and Director of Princeton Services from
1993 to 1997; Executive Vice President of ML & Co.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------------- --------------------- ----------------------------------------------------------
<S> <C> <C>
Jeffrey M. Peek President President of FAM; President and Director of Princeton
Services; Executive Vice President of ML & Co.; Managing
Director and Co-Head of the Investment Banking Division of
Merrill Lynch in 1997; Senior Vice President and Director
of the Global Securities and Economics Division of Merrill
Lynch from 1995 to 1997
Terry K. Glenn Executive Vice Executive Vice President of FAM; Executive Vice President
President and Director of Princeton Services; President and Director
of PFD; Director of FDS; President of Princeton
Administrators
Mark A. DeSario Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Linda L. Federici Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Vincent R. Giordano Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Elizabeth A. Griffin Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Norman R. Harvey Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Michael J. Hennewinkel Senior Vice Senior Vice President, Secretary and General Counsel of
President, Secretary FAM; Senior Vice President of Princeton Services
and General Counsel
Philip L. Kirstein Senior Vice President Senior Vice President of FAM; Senior Vice President;
Director and Secretary of Princeton Services
Ronald M. Kloss Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services; Vice President of PFD
Stephen M. M. Miller Senior Vice President Executive Vice President of Princeton Administrators;
Senior Vice President of Princeton Services
Joseph T. Monagle, Jr Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Brian A. Murdock Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Gerald M. Richard Senior Vice President Senior Vice President and Treasurer of FAM; Senior Vice
and Treasurer President of Princeton Services; Vice President and
Treasurer of PFD
Gregory D. Upah Senior Vice President Senior Vice President of FAM; Senior Vice President and
Treasurer of Princeton Services
Ronald L. Welburn Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital
C-5
<PAGE>
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging
Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth
Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
Bond Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Fund,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc. and Worldwide DollarVest Fund, Inc., The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y
9HA, England.
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,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 26:
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ----------------------------- --------------------- ----------------------------------------------------------
<S> <C> <C>
Arthur Zeikel Director and Chairman Chairman of FAM and MLAM; President of FAM and MLAM
from 1977 to 1997; Chairman and Director of Princeton
Services; President of Princeton Services from 1993 to
1997; Executive Vice President of ML & Co.
Alan J. Albert Senior Managing Vice President of MLAM
Director
Nicholas C.D. Hall Director Director of Merrill Lynch Europe PLC; General Counsel of
Merrill Lynch International Private Banking Group
Gerald M. Richard Senior Vice President Senior Vice President and Treasurer of MLAM and FAM;
Senior Vice President and Treasurer of Princeton Services;
Vice President and Treasurer of PFD
Carol Ann Langham Company Secretary None
Debra Anne Searle Assistant Company None
Secretary
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; and MLFD also acts as
the principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
C-6
<PAGE>
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081, except
that the address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
- ---------------------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn...................................... President and Director Executive Vice President
Michael G. Clark.................................... Director None
Thomas J. Verage.................................... Director None
Robert W. Crook..................................... Senior Vice President None
Michael J. Brady.................................... Vice President None
William M. Breen.................................... Vice President None
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 None
Salvatore Venezia................................... Vice President None
William Wasel....................................... Vice President None
Robert Harris....................................... Secretary None
</TABLE>
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund--Merrill
Lynch Asset Management" in the Prospectus constituting Part A of the
Registration Statement and under "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 29th day of January, 1999.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(REGISTRANT)
By: /s/ ARTHUR ZEIKEL
----------------------------------
(Arthur Zeikel, President)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------ ------------------
<S> <C> <C>
/S/ ARTHUR ZEIKEL President and Director (Principal January 29, 1999
- --------------------------------------------- Executive Officer)
(Arthur Zeikel)
DONALD C. BURKE* Vice President and Treasurer (Principal
- --------------------------------------------- Financial and Accounting Officer)
(Donald C. Burke)
DONALD CECIL* Director
- ---------------------------------------------
(Donald Cecil)
ROLAND M. MACHOLD* Director
- ---------------------------------------------
(Roland M. Machold)
EDWARD H. MEYER* Director
- ---------------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director
- ---------------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director
- ---------------------------------------------
(Richard R. West)
EDWARD D. ZINBARG* Director
- ---------------------------------------------
(Edward D. Zinbarg)
*By: /s/ ARTHUR ZEIKEL January 29, 1999
----------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-8
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of each of the Maryland corporations listed
below and a trustee of each of the Massachusetts business trusts listed below,
hereby authorizes Arthur Zeikel, Terry K. Glenn, Donald C. Burke, Barbara G.
Fraser, Phillip S. Gillespie, Robert Harris, Philip M. Mandel, Ira P. Shapiro or
Michael J. Hennewinkel, or any of them, as attorney-in-fact, to sign on his
behalf any amendments to the Registration Statement for each of the following
registered investment companies and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission: Merrill Lynch Americas Income Fund,
Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.; Merrill Lynch Dragon
Fund, Inc.; Merrill Lynch Emerging Tigers Fund, Inc.; Merrill Lynch EuroFund;
Merrill Lynch Global Allocation Fund, Inc.; Merrill Lynch Global Bond Fund for
Investment and Retirement; Merrill Lynch Global Holdings, Inc.; Merrill Lynch
Global SmallCap Fund, Inc.; Merrill Lynch Global Technology Fund, Inc.; Merrill
Lynch Global Value Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.; Merrill
Lynch International Equity Fund; Merrill Lynch Latin America Fund, Inc.; Merrill
Lynch Middle East/Africa Fund, Inc.; Merrill Lynch Pacific Fund, Inc.; Merrill
Lynch Short-Term Global Income Fund, Inc.; Merrill Lynch Technology Fund, Inc.;
and Worldwide DollarVest Fund, Inc.
Dated: January 21, 1999
/s/ DONALD CECIL
--------------------------------------
(Donald Cecil)
/s/ ROLAND M. MACHOLD
--------------------------------------
(Roland M. Machold)
/s/ EDWARD H. MEYER
--------------------------------------
(Edward H. Meyer)
/s/ CHARLES C. REILLY
--------------------------------------
(Charles C. Reilly)
/s/ RICHARD B. WEST
--------------------------------------
(Richard B. West)
/s/ ARTHUR ZEIKEL
--------------------------------------
(Arthur Zeikel)
/s/ EDWARD D. ZINBARG
--------------------------------------
(Edward D. Zinbarg)
C-9
<PAGE>
POWER OF ATTORNEY
The undersigned, the Vice President and Treasurer of each of the registered
investment companies listed below, hereby authorizes Arthur Zeikel, Terry K.
Glenn, Barbara G. Fraser, Phillip S. Gillespie, Robert Harris, Philip M. Mandel,
Ira P. Shapiro or Michael J. Hennewinkel, or any of them, as attorney-in-fact,
to sign on his behalf any amendments to the Registration Statement for each of
the following registered investment companies and to file the same, with all
exhibits thereto, with the Securities and Exchange Commission: Merrill Lynch
Americas Income Fund, Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.;
Merrill Lynch Dragon Fund, Inc.; Merrill Lynch Emerging Tigers Fund, Inc.;
Merrill Lynch EuroFund; Merrill Lynch Global Allocation Fund, Inc.; Merrill
Lynch Global Bond Fund for Investment and Retirement; Merrill Lynch Global
Holdings, Inc.; Merrill Lynch Global SmallCap Fund, Inc.; Merrill Lynch Global
Technology Fund, Inc.; Merrill Lynch Global Value Fund, Inc.; Merrill Lynch
Healthcare Fund, Inc.; Merrill Lynch International Equity Fund; Merrill Lynch
Latin America Fund, Inc.; Merrill Lynch Middle East/Africa Fund, Inc.; Merrill
Lynch Pacific Fund, Inc.; Merrill Lynch Short-Term Global Income Fund, Inc.;
Merrill Lynch Technology Fund, Inc.; and Worldwide DollarVest Fund, Inc.
Dated: January 22, 1999
/s/ DONALD C. BURKE
--------------------------------------
(Donald C. Burke)
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C>
10 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
14(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
</TABLE>
<PAGE>
Exhibit 99.10
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Holdings, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 18 to Registration Statement No. 2-89834 of our report dated January 14,
1999 appearing in the annual report to shareholders of Merrill Lynch Global
Holdings, Inc. for the year ended November 30, 1998, and to the reference to us
under the caption "Financial Highlights" in the Prospectus, which is a part of
such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
January 28, 1999
[ARTICLE] 6
[CIK] 0000741886
[NAME] MERRILL LYNCH GLOBAL HOLDINGS, INC.
[SERIES]
[NUMBER] 001
[NAME] CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 210220275
[INVESTMENTS-AT-VALUE] 288081054
[RECEIVABLES] 655424
[ASSETS-OTHER] 24969
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 288761447
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1198279
[TOTAL-LIABILITIES] 1198279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 168767403
[SHARES-COMMON-STOCK] 17273971
[SHARES-COMMON-PRIOR] 22920493
[ACCUMULATED-NII-CURRENT] (595357)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 41514938
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 77876184
[NET-ASSETS] 254471772
[DIVIDEND-INCOME] 3436462
[INTEREST-INCOME] 1399571
[OTHER-INCOME] 0
[EXPENSES-NET] (5781816)
[NET-INVESTMENT-INCOME] (945783)
[REALIZED-GAINS-CURRENT] 41355924
[APPREC-INCREASE-CURRENT] 4119266
[NET-CHANGE-FROM-OPS] 44529407
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (39878951)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3466422
[NUMBER-OF-SHARES-REDEEMED] (11977403)
[SHARES-REINVESTED] 2864459
[NET-CHANGE-IN-ASSETS] (138617866)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 48840738
[OVERDISTRIB-NII-PRIOR] (1332387)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3732027
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5781816
[AVERAGE-NET-ASSETS] 309736125
[PER-SHARE-NAV-BEGIN] 15.05
[PER-SHARE-NII] (.02)
[PER-SHARE-GAIN-APPREC] 1.46
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (1.76)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 14.73
[EXPENSE-RATIO] 1.39
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000741886
[NAME] MERRILL LYNCH GLOBAL HOLDINGS, INC.
[SERIES]
[NUMBER] 002
[NAME] CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 210220275
[INVESTMENTS-AT-VALUE] 288081054
[RECEIVABLES] 655424
[ASSETS-OTHER] 24969
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 288761447
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1198279
[TOTAL-LIABILITIES] 1198279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 168767403
[SHARES-COMMON-STOCK] 1731390
[SHARES-COMMON-PRIOR] 4667281
[ACCUMULATED-NII-CURRENT] (595357)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 41514938
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 77876184
[NET-ASSETS] 24148053
[DIVIDEND-INCOME] 3436462
[INTEREST-INCOME] 1399571
[OTHER-INCOME] 0
[EXPENSES-NET] (5781816)
[NET-INVESTMENT-INCOME] (945783)
[REALIZED-GAINS-CURRENT] 41355924
[APPREC-INCREASE-CURRENT] 4119266
[NET-CHANGE-FROM-OPS] 44529407
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (7314996)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 552814
[NUMBER-OF-SHARES-REDEEMED] (4016963)
[SHARES-REINVESTED] 528258
[NET-CHANGE-IN-ASSETS] (138617866)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 48840738
[OVERDISTRIB-NII-PRIOR] (1332387)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3732027
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5781816
[AVERAGE-NET-ASSETS] 48660750
[PER-SHARE-NAV-BEGIN] 14.31
[PER-SHARE-NII] (.15)
[PER-SHARE-GAIN-APPREC] 1.39
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (1.60)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.95
[EXPENSE-RATIO] 2.44
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000741886
[NAME] MERRILL LYNCH GLOBAL HOLDINGS, INC.
[SERIES]
[NUMBER] 003
[NAME] CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 210220275
[INVESTMENTS-AT-VALUE] 288081054
[RECEIVABLES] 655424
[ASSETS-OTHER] 24969
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 288761447
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1198279
[TOTAL-LIABILITIES] 1198279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 168767403
[SHARES-COMMON-STOCK] 76423
[SHARES-COMMON-PRIOR] 417765
[ACCUMULATED-NII-CURRENT] (595357)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 41514938
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 77876184
[NET-ASSETS] 1060843
[DIVIDEND-INCOME] 3436462
[INTEREST-INCOME] 1399571
[OTHER-INCOME] 0
[EXPENSES-NET] (5781816)
[NET-INVESTMENT-INCOME] (945783)
[REALIZED-GAINS-CURRENT] 41355924
[APPREC-INCREASE-CURRENT] 4119266
[NET-CHANGE-FROM-OPS] 44529407
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (664387)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 227450
[NUMBER-OF-SHARES-REDEEMED] (618894)
[SHARES-REINVESTED] 50102
[NET-CHANGE-IN-ASSETS] (138617866)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 48840738
[OVERDISTRIB-NII-PRIOR] (1332387)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3732027
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5781816
[AVERAGE-NET-ASSETS] 4157849
[PER-SHARE-NAV-BEGIN] 14.28
[PER-SHARE-NII] (.16)
[PER-SHARE-GAIN-APPREC] 1.39
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (1.63)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.88
[EXPENSE-RATIO] 2.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000741886
[NAME] MERRILL LYNCH GLOBAL HOLDINGS, INC.
[SERIES]
[NUMBER] 004
[NAME] CLASS D
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 210220275
[INVESTMENTS-AT-VALUE] 288081054
[RECEIVABLES] 655424
[ASSETS-OTHER] 24969
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 288761447
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1198279
[TOTAL-LIABILITIES] 1198279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 168767403
[SHARES-COMMON-STOCK] 538192
[SHARES-COMMON-PRIOR] 566770
[ACCUMULATED-NII-CURRENT] (595357)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 41514938
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 77876184
[NET-ASSETS] 7882500
[DIVIDEND-INCOME] 3436462
[INTEREST-INCOME] 1399571
[OTHER-INCOME] 0
[EXPENSES-NET] (5781816)
[NET-INVESTMENT-INCOME] (945783)
[REALIZED-GAINS-CURRENT] 41355924
[APPREC-INCREASE-CURRENT] 4119266
[NET-CHANGE-FROM-OPS] 44529407
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (999340)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 576889
[NUMBER-OF-SHARES-REDEEMED] (677661)
[SHARES-REINVESTED] 72194
[NET-CHANGE-IN-ASSETS] (138617866)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 48840738
[OVERDISTRIB-NII-PRIOR] (1332387)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3732027
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5781816
[AVERAGE-NET-ASSETS] 8614172
[PER-SHARE-NAV-BEGIN] 14.97
[PER-SHARE-NII] (.05)
[PER-SHARE-GAIN-APPREC] 1.46
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (1.73)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 14.65
[EXPENSE-RATIO] 1.64
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
