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STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
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The investment objectives of Merrill Lynch Global Resources Trust (the
"Trust") are to achieve long-term growth of capital and to protect the
purchasing power of shareholders' capital by investing in a portfolio of equity
securities of domestic and foreign companies with substantial natural resource
assets. The Trust also may invest in debt, preferred or convertible securities,
the value of which is related to the market value of some natural resource asset
("asset-based securities"). Management of the Trust will seek to identify
securities it believes are attractively priced relative to the intrinsic value
of related natural resource assets or are especially well-positioned to benefit
during particular portions of inflationary cycles. The Trust's fully managed
investment approach enables it to switch its emphasis among various natural
resource industry groups depending upon management's outlook with respect to
prevailing trends and developments. It is expected that when management of the
Trust anticipates significant economic, political or financial instability, such
as high inflationary pressures or upheaval in the foreign currency exchange
markets, the Trust may invest a majority of its assets in gold-related
securities. Current income from dividends and interest will not be a primary
consideration in selecting securities.
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Pursuant to the Merrill Lynch Select PricingSM System, the Trust 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.
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This Statement of Additional Information of the Trust is not a prospectus
and should be read in conjunction with the prospectus of the Trust, dated
November 27, 1995 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without charge,
by calling or by writing the Trust at the above telephone number or address.
This Statement of Additional Information has been incorporated by reference into
the Prospectus.
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MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
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The date of this Statement of Additional Information is November 27, 1995.
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Trust are to achieve long-term growth of
capital and to preserve the purchasing power of shareholders' capital by
investing in a portfolio of equity securities of domestic and foreign companies
with substantial natural resource assets. The Trust may also invest in debt,
preferred or convertible securities, the value of which is related to the market
value of some natural resource asset ("asset-based securities"). See
"Asset-Based Securities" below. Reference is made to "Investment Objectives and
Policies" in the Prospectus for a discussion of the investment objectives and
policies of the Trust.
While the Trust generally does not expect to engage in trading for
short-term gains, it will effect portfolio transactions without regard to
holding period if, in its management's 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 Trust's investment policies, under certain market conditions the
Trust's portfolio turnover may be higher than that of other investment
companies. Accordingly, while the Trust anticipates that its annual turnover
rate should not exceed 100% under normal conditions, it is impossible to predict
portfolio turnover rates. The portfolio turnover rate is calculated by dividing
the lesser of the Trust's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities with maturities at the time
of acquisition of one year or less) by the monthly average value of the
securities in the portfolio during the year. For the years ended July 31, 1993,
1994 and 1995 the Trust's rates of portfolio turnover were 66.78%, 54.87% and
31.64%, respectively.
ASSET-BASED SECURITIES
The Trust may invest in debt securities, preferred stocks or convertible
securities, the principal amount, redemption terms or conversion terms of which
are related to the market price of some natural resource asset such as gold
bullion. For the purposes of the Trust's investment policies, these securities
are referred to as "asset-based securities". The Trust will only purchase
asset-based securities which are rated, or are issued by issuers that have
outstanding debt obligations rated, investment grade (that is, AAA, AA, A or BBB
by Standard & Poor's Ratings Group ("S&P") or Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or commercial paper rated A-1 by S&P or
Prime-1 by Moody's) or of issuers that Merrill Lynch Asset Management, L.P. (the
"Investment Adviser") has determined to be of similar creditworthiness.
Obligations ranked in the fourth highest rating category, while considered
"investment grade", may have certain speculative characteristics and may be more
likely to be downgraded than securities rated in the three highest rating
categories. If the asset-based security is backed by a bank letter of credit or
other similar facility, the Investment Adviser may take such backing into
consideration in determining the creditworthiness of the issuer. While the
market prices for an asset-based security and the related natural resource asset
generally are expected to move in the same direction, there may not be perfect
correlation in the two price movements. Asset-based securities may not be
secured by a security interest in or claim on the underlying natural resource
assets.
The Trust will not acquire asset-based securities for which no established
secondary trading market exists if at the time of acquisition more than 15% of
its total assets are invested in securities which are not readily marketable.
The Trust may invest in asset-based securities without limit when it has the
option to put such securities to the issuer or a stand-by bank or broker and
receive the principal amount or redemption price thereof less transaction costs
on no more than seven days' notice or when the Trust has the right to convert
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such securities into a readily marketable security in which it could otherwise
invest upon not less than seven days' notice.
The asset-based securities in which the Trust may invest may bear interest
or pay preferred dividends at below market (or even relatively nominal) rates.
The Trust's holdings of such securities therefore might not generate appreciable
current income, and the return from such securities primarily will be from any
profit on the sale, maturity or conversion thereof at a time when the price of
the related asset is higher than it was when the Trust purchased such
securities.
OTHER INVESTMENT POLICIES AND PRACTICES
Writing Covered Call Options. The Trust is authorized to write, i.e.,
sell, covered call options on the equity securities in which it may invest and
to enter into closing purchase transactions with respect to certain of such
options. A call option is an option where the Trust, in return for a premium,
gives another party a right to buy specified securities owned by the Trust at a
specified future date and price set at the time of the contract. A call option
is considered covered where the writer of the option owns the underlying
securities. The principal reason for writing call options is to attempt to
realize, through the receipt of premiums, a greater return than would be
realized on the securities alone. By writing covered call options, the Trust
gives up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option exercise price. In
addition, the Trust's ability to sell the underlying security will be limited
while the option is in effect unless the Trust effects a closing purchase
transaction. A closing purchase transaction cancels out the Trust's position as
the writer of an option by means of an offsetting purchase of an identical
option prior to the expiration of the option it has written. Covered call
options serve as a partial hedge against the price of the underlying security
declining. The Trust may not write covered call options in underlying securities
in an amount exceeding 15% of the market value of its total assets.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer realizes a gain or loss from the sale of the underlying security.
All options referred to herein and in the Trust's Prospectus are options
issued by The Options Clearing Corporation (the "Clearing Corporation") which
are currently traded on the Chicago Board Options Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange or New York Stock
Exchange. An option position may be closed out only on an Exchange which
provides a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing transactions
in particular options, with the result, in the case of a covered call option,
that the Trust will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market on an Exchange include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an Exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspension or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or the Clearing Corporation may not
at all times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to
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discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that Exchange
that had been issued by the Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
Purchasing Put Options. The Trust may purchase put options to hedge
against a decline in the market value of its equity holdings. By buying a put
the Trust has a right to sell the underlying security at the exercise price,
thus limiting the Trust's risk of loss through a decline in the market value of
the security until the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction and profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the put option plus the related transaction cost. A
closing sale transaction cancels out the Trust's position as the purchaser of an
option by means of an offsetting sale of an identical option prior to the
expiration of the option it has purchased. The Trust will purchase only put
options traded on an Exchange. The Trust will not purchase put options on
securities if, as a result of such purchase, the aggregate cost of all
outstanding options on securities held by the Trust would exceed 5% of the
market value of the Trust's total assets.
Forward Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Trust will be conducted on a spot, i.e., cash, basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 0.15 of one percent due to the
costs of converting from one currency to another. However, the Trust 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 and price set at the time of the contract.
The Trust'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 Trust accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of shares
of the Trust or the payment of dividends and distributions by the Trust.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency. The
Trust will not speculate in forward foreign exchange. The Trust may not position
hedge with respect to the currency of a particular country to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that particular
foreign currency. If the Trust enters into a position hedging transaction, its
custodian bank will place cash or liquid equity or debt securities in a separate
account of the Trust in an amount equal to the value of the Trust's total assets
committed to the consummation of such forward contract. If the value of the
securities placed in the separate account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Trust's commitment with respect to such contracts. The
Trust will not attempt to hedge all of its foreign portfolio positions and will
enter into such transactions only to the extent, if any, deemed appropriate by
the management of the Trust. The Trust will not enter into a forward contract
with a term of more than one year.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
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opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Trust to hedge against a devaluation that is so
generally anticipated that the Trust is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, the Trust may have to limit its currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code; in this regard, the Trust presently intends to limit its gross
income from currency hedging transactions to less than 10% of its gross income
in any taxable year until such time as the Trust determines that income from the
transactions is not subject to this restriction. The cost to the Trust of
engaging in foreign currency transactions varies with such factors as the
currencies involved, the length of the contract period and the market conditions
then prevailing. Since transactions in foreign currency exchange usually are
conducted on a principal basis, no fees or commissions are involved.
Repurchase Agreements. The Trust may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or the
primary dealer or an affiliate thereof agrees, upon entering into the contract,
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period. Repurchase
agreements usually cover short periods, such as under one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. The Trust will
require the seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the term of the
repurchase agreement. In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities are
not owned by the Trust but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Trust may suffer time
delays and incur costs or possible losses in connection with the disposition of
the collateral. In the event of a default under such a repurchase agreement,
instead of the contractual fixed rate of return, the rate of return to the Trust
shall be dependent upon intervening fluctuations of the market value of such
security and the accrued interest on the security. In such event, the Trust
would have rights against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of the seller to
perform.
Lending of Portfolio Securities. Subject to current investment restriction
(4) below, the Trust may lend securities from its portfolio to approved
borrowers and receive therefor collateral in cash or securities issued or
guaranteed by the United States Government which are maintained at all times in
an amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Trust, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Trust. Alternatively, if securities are delivered to the Trust
as collateral, the Trust and the borrower negotiate a rate for the loan premium
to be received by the Trust for lending its portfolio securities. In either
event, the total yield on the Trust's portfolio is increased by loans of its
portfolio securities. The Trust will have the right to regain record ownership
of loaned securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or other distributions.
Such loans are terminable at any time. The Trust may pay reasonable finder's,
administrative and custodial fees in connection with such loans.
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INVESTMENT RESTRICTIONS
In addition to the investment policies and restrictions set forth in the
Prospectus, the Trust has adopted a number of fundamental and non-fundamental
investment policies and restrictions. The fundamental policies and restrictions
set forth below may not be changed without the approval of the holders of a
majority of the Trust's outstanding voting shares, which for this purpose means
the lesser of (a) 67% of the shares represented at a meeting where more than 50%
of the outstanding shares of the Trust are represented or (b) more than 50% of
the outstanding shares of the Trust. Unless otherwise provided, all references
to the assets of the Trust below are in terms of current market value. The Trust
may not:
1. 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).
2. Make investments for the purpose of exercising control or
management.
3. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Trust may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. 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 Trust 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 Trust's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Trust 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 Trust may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Trust may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Trust
may purchase securities on margin to the extent permitted by applicable
law. The Trust may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Trust's investment policies
as set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
7. Underwrite securities of other issuers except insofar as the Trust
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Trust may do so in accordance with applicable law and
the Trust's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
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Under the non-fundamental investment restrictions, the Trust may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Trust currently does not
intend to engage in short sales, except short sales "against the box".
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Trustees of the Trust have
otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Trust's shares are registered or qualified for sale
require a lower limitation, the Trust will observe such limitation. As of
the date hereof, therefore, the Trust will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act (each a "Rule 144A security") and determined to be liquid by the
Trust's Board of Trustees are not subject to the limitations set forth in
this investment restriction (c). Notwithstanding the fact that the Board
may determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Trust
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities, or
in securities of issuers described in (e) below.
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Trust's net assets; included within such limitation, but not to
exceed 2% of the Trust's net assets, are warrants which are not listed on
the New York Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the Trust
in units or attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Trust's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and Trustees of the Trust, the officers and general
partner of the Investment Adviser, the directors of such general partner or
the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Trust may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
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h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Trust's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above,
borrow money or pledge its assets except that the Trust may borrow from a
bank as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 10% (taken at the market value)
of its total assets and pledge its assets to secure such borrowings. (For
the purpose of this restriction, collateral arrangements with respect to
the writing of options, and, if applicable, interest rate futures
contracts, options on interest rate futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance of a
senior security.) The Trust will not purchase securities while borrowings
exceed 5% (taken at market value) of its total assets.
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Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Trust, the Trust 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 of 1940 (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
Merrill Lynch acts as principal and purchases of securities from underwriting
syndicates of which Merrill Lynch is a member.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each Trustee and executive officer is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (63)--President and Trustee (1)(2)--President of the
Investment Adviser (which term as used herein includes the Investment Adviser's
corporate predecessors) since 1977; President of Fund Asset Management, L.P.
("FAM") (which term as used herein includes FAM's corporate predecessors) since
1977; President and Director of Princeton Services, Inc. ("Princeton Services")
since 1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.")
since 1990; Executive Vice President of Merrill Lynch since 1990 and a Senior
Vice President thereof from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc. (the "Distributor").
DONALD CECIL (68)--Trustee (2)--1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
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M. COLYER CRUM (62)--Trustee (2)--Soldiers Field Road, Boston,
Massachusetts 02163. James R. Williston Professor of Investment Management,
Harvard Business School, since 1971; Director of Cambridge Bancorp, Copley
Properties, Inc. and Sun Life Assurance Company of Canada.
EDWARD H. MEYER (68)--Trustee (2)--777 Third Avenue, New York, New York
10017. President of Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since 1972; Director of The
May Department Stores Company, Bowne & Co., Inc. (financial printers), Harman
International Industries, Inc. and Ethan Allen Interiors, Inc.
JACK B. SUNDERLAND (67)--Trustee (2)--P.O. Box 1177, Scarsdale, New York
10583. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Chairman of Murexco Petroleum, Inc. (an energy
company) from 1981 to 1988; Member of Council on Foreign Relations since 1971;
President, Director and Chief Executive Officer of Coroil, Inc. (an energy
company) from 1979 to 1985.
J. THOMAS TOUCHTON (56)--Trustee (2)--Suite 3405, One Tampa City Center,
Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its
predecessor The Witt Co. (a private investment partnership) since 1972; Trustee
Emeritus of Washington and Lee University; Director of TECO Energy, Inc. (an
electric utility holding company).
TERRY K. GLENN (54)--Executive Vice President (1)(2)--Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of the Distributor
since 1986 and Director thereof since 1991; President of Princeton
Administrators L.P. since 1988.
NORMAN R. HARVEY (61)--Senior Vice President (1)(2)--Senior Vice President
of the Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
DONALD C. BURKE (35)--Vice President (1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990; Employee of Deloitte & Touche LLP
from 1981 to 1990.
EDWARD P. IX, JR. (62)--Vice President (1)--Vice President of the
Investment Adviser since 1987 and employee of the Investment Adviser since 1985.
PETER A. LEHMAN (37)--Vice President (1)--Vice President of the Investment
Adviser since 1994 and employee of the Investment Adviser since 1992.
GERALD M. RICHARD (45)--Treasurer (1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer of the Distributor since 1984.
MARK B. GOLDFUS (48)--Secretary (1)(2)--Vice President of the Investment
Adviser and FAM since 1985.
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(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director or officer of certain other investment
companies for which the Investment Adviser or FAM acts as investment
adviser.
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At October 31, 1995, the Trustees and officers of the Trust as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of the
Trust. At that date, Mr. Zeikel, a Trustee and officer of the Trust, and the
other officers of the Trust owned less than 1/4 of 1% of the outstanding common
stock of ML & Co.
The Trust pays each Trustee not affiliated with the Investment Adviser a
fee of $3,500 per year plus $500 per meeting attended. The Trust also pays each
member of its Audit and Nominating Committee, which consists of all unaffiliated
Trustees, a fee of $2,500 per year and the chairman of the Committee an
additional annual fee of $1,000. The Trust reimburses each unaffiliated Trustee
for his out-of-pocket expenses relating to attendance at Board and Committee
meetings. For the fiscal year ended July 31, 1995, fees and out-of-pocket
expenses paid to the unaffiliated Trustees aggregated $40,866.
COMPENSATION OF TRUSTEES
The following table sets forth, for the fiscal year ended July 31, 1995,
compensation paid by the Trust to the non-interested Trustees and, for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies advised by MLAM and its affiliate, FAM ("MLAM/FAM Advised
Funds"), to the non-interested Trustees.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM
PENSION OR RETIREMENT FUND AND MLAM/FAM
COMPENSATION BENEFITS ACCRUED AS PART ADVISED FUNDS PAID TO
NAME OF DIRECTOR FROM THE TRUST OF FUND EXPENSES TRUSTEES(1)
- --------------------------------- -------------- ------------------------ --------------------------------
<S> <C> <C> <C>
Donald Cecil..................... $9,000 None $276,350
M. Colyer Crum................... $8,000 None $126,600
Edward H. Meyer.................. $7,500 None $251,600
Jack B. Sunderland............... $8,000 None $134,600
J. Thomas Touchton............... $8,000 None $134,600
</TABLE>
- ------------------
(1) In addition to the Trust, the Trustees serve on the boards of other MLAM/FAM
Advised Funds as follows: Mr. Cecil (48 funds), Mr. Crum (17 funds), Mr.
Meyer (34 funds), Mr. Sunderland (18 funds) and Mr. Touchton (18 funds).
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Trust--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Trust.
The Investment Advisory Agreement provides that, subject to the direction
of the Board of Trustees of the Trust, the Investment Adviser is responsible for
the actual management of the Trust's portfolio and for the review of the Trust's
holdings in light of its own research analysis and analyses from other relevant
sources.
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Investment Adviser, subject to review by the Trustees.
The Investment Adviser supplies the portfolio managers for the Trust who
consider analyses from various sources, make the necessary investment decisions
and place transactions accordingly. The Investment Adviser also is obligated to
perform certain administrative and management services for the Trust and is
required to provide all of the office space, facilities, equipment and personnel
necessary to perform its duties under the Investment Advisory Agreement.
Securities held by the Trust also may be held by or be appropriate
investments for other funds for which the Investment Adviser or FAM acts as an
adviser or by investment advisory clients of the Investment Adviser. Because of
different investment objectives or other factors, a particular security may be
bought for
10
<PAGE> 11
one or more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Trust or other funds for which the
Investment Adviser or FAM acts as investment adviser or for their advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or FAM 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.
As compensation for its services to the Trust the Investment Adviser
receives from the Trust at the end of each month a fee based on the average
daily value of the Trust's net assets at the annual rates of 0.60% of the daily
net assets of the Trust. The State of California imposes limitations on the
expenses of the Trust. At the date of this Statement of Additional Information,
these annual expense limitations require the Investment Adviser to reimburse the
Trust in an amount necessary to prevent the ordinary operating expenses of the
Trust from exceeding 2.5% of the Trust's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. The Investment Adviser's obligation to
reimburse the Trust is limited to the amount of the investment advisory fee. No
fee payment will be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed the most restrictive expense limitation
applicable at the time of such payment. For the fiscal years ended July 31,
1993, 1994 and 1995, the total advisory fees paid by the Trust to the Investment
Adviser aggregated $1,391,524, $1,351,581 and $1,832,048, respectively. For such
periods, the Investment Adviser made no reimbursement of expenses to the Trust
in respect of the expense limitation provisions discussed above.
The Investment Adviser provides the investment advisory services and pays
all compensation of and furnishes office space for officers and employees of the
Trust connected with investment and economic research, trading and investment
management of the Trust, as well as the fees for Trustees of the Trust who are
affiliated persons of ML & Co. or any of its affiliates. The Trust pays all
other expenses incurred, except for some incurred by the Distributor, in the
operation of the Trust including, among others, taxes, expenses for legal and
auditing services, charges of the custodian and the transfer agent, expenses of
issuing and redeeming shares, brokerage costs, Commission and other registration
fees, all expenses of shareholders' and Trustee's meetings, and certain of the
expenses of printing prospectuses, statements of additional information,
proxies, reports to shareholders, and share certificates. Accounting services
are provided to the Trust by the Investment Adviser, who is reimbursed by the
Trust for the costs in connection with such services. The Distributor will pay
the promotional expenses incurred in connection with the offering of shares of
the Trust. See "Purchase of Shares--Distribution Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser (as defined under the Investment
Company Act) because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Trustees or, if submitted to a meeting of
shareholders, by a majority of the voting securities and (b) by a majority of
Trustees who are neither parties to such contract nor interested persons, as
defined in the Investment Company Act, of any such party. Such contract is not
assignable and may be terminated without penalty upon 60 days' written notice at
the option of either party or by the vote of the shareholders of the Trust.
11
<PAGE> 12
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Trust shares.
The Trust issues four classes of shares under the Merrill Lynch Select
PricingSM System: Class A and Class D shares are sold to investors choosing the
initial sales charge alternatives, and Class B and Class C shares are sold to
investors choosing the deferred sales charge alternatives. Each Class A, Class
B, Class C and Class D share of the Trust represents identical interests in the
investment portfolio of the Trust, and has the same rights except that Class B,
Class C and Class D shares bear the expenses of the ongoing account maintenance
fees and Class B and C shares bear the expenses of the ongoing distribution fees
and the additional incremental transfer agency costs resulting from the deferred
sales charge arrangements. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted
with respect to such class pursuant to which the account maintenance and/or
distribution fees are paid. Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege".
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM which use the Merrill Lynch Select PricingSM
System are referred to herein as "MLAM-advised mutual funds".
The Trust has entered into four separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Trust (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 Trust. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreement
described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
During the fiscal years ended July 31, 1993, 1994, and 1995, gross sales
charges on the sale of Class A shares totaled $83,929, $177,162 and $104,144,
respectively, of which approximately $4,861, $12,408 and $6,956, respectively,
was received by the Distributor and approximately $79,068, $164,754 and $97,188,
respectively, was paid to Merrill Lynch as a selected dealer. For the fiscal
years referenced above, the Distributor received no contingent deferred sales
charges ("CDSCs") with respect to redemptions within one year of purchase of
Class A shares purchased subject to front-end sales charge waivers. The gross
sales charges for the sale of the Trust's Class D shares for the period October
21, 1994 (commencement of operations) to July 31, 1995, totaled $53,122, of
which the Distributor received $3,459 and Merrill Lynch received $49,663. During
such period, the Distributor received no CDSCs with respect to redemptions
within one year of purchase of Class D shares purchased subject to front-end
sales charge waivers. For information as to brokerage commissions received by
Merrill Lynch, see "Portfolio Transactions and Brokerage".
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 Trust, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own
12
<PAGE> 13
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 which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Trust 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.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Trust 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 Trust and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification. Acceptance
of the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Trust or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Trust's transfer agent. The Letter of Intention
is not available to employee benefit plans for which Merrill Lynch provides
plan-participant recordkeeping services. The Letter of Intention is not a
binding obligation to purchase any amount of Class A or Class D shares; however,
its execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A or Class
D shares of the Trust and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward 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 Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period while remaining registered in the name of the
purchaser for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent
13
<PAGE> 14
purchases to that further reduced percentage sales charge, but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from the
total purchases made under such Letter. An exchange from a MLAM-advised money
market fund into the Trust that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Trust.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Trust are
offered to participants in the Merrill Lynch BlueprintSM Program ("Blueprint").
In addition, participants in Blueprint who own Class A shares of the Trust may
purchase additional Class A shares of the Trust through Blueprint. The
Blueprint program is directed to small investors, group IRAs and participants
in certain affinity groups such as credit unions and trade associations.
Investors placing orders to purchase Class A or Class D shares of the Trust
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 $5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A and Class D shares of the Trust are being
offered at net asset value plus a sales charge of 1/2 of 1% for corporate or
group IRA programs placing orders to purchase their Class D shares through
Blueprint. Services, including the exchange privilege, available to Class A and
Class D 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 a Merrill
Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Trust 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.
TMA(SM) Managed Trusts. Class A shares are offered at net asset value to
TMA(SM) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Internal Revenue Code of 1986 as amended (the "Code"),
deferred compensation plans within the meaning of Section 403(b) and 457 of the
Code, other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system, herein
referred to as "Employer Sponsored Retirement or Savings Plans", provided the
plan has accumulated $20 million or more in MLAM-advised mutual funds (in the
case of Class A shares) or $5 million or more in
14
<PAGE> 15
MLAM-advised mutual funds (in the case of Class D shares). Class D shares may be
offered at net asset value to new Employer Sponsored Retirement or Savings
Plans, provided the plan has $3 million or more initially invested in
MLAM-advised mutual funds. Assets of Employer Sponsored Retirement or Savings
Plans sponsored by the same sponsor or an affiliated sponsor may be aggregated.
Class A shares and Class D shares also are offered at net asset value to
Employer Sponsored Retirement or Savings Plans that have at least 1,000
employees eligible to participate in the plan (in the case of Class A shares) or
between 500 and 999 employees eligible to participate in the plan (in the case
of Class D shares). Employees eligible to participate in Employer Sponsored
Retirement or Savings Plans of the same sponsoring employer or its affiliates
may be aggregated. Tax qualified retirement plans within the meaning of Section
401(a) of the Code meeting any of the foregoing requirements and which are
provided specialized services (e.g., plans whose participants may direct on a
daily basis their plan allocations among a wide range of investments including
individual corporate equities and other securities in addition to mutual fund
shares) by Blueprint, are offered Class A or Class D shares at a price equal to
net asset value per share plus a reduced sales charge of 0.50%. Any Employer
Sponsored Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A or Class D shares at net asset value has the
option of (i) purchasing Class A shares at the initial sales charge schedule and
possible CDSC schedule disclosed in the Prospectus if it is otherwise eligible
to purchase Class A shares, (ii) purchasing Class D shares at the initial sales
charge and possible CDSC schedule disclosed in the Prospectus, (iii) if the
Employer Sponsored Retirement or Savings Plan meets the specified requirements,
purchasing Class B shares with a waiver of the CDSC upon redemption; or if the
Employer Sponsored Retirement or Savings Plan does not qualify to purchase Class
B shares with a waiver of the CDSC upon redemption, purchasing Class C shares at
the CDSC schedule disclosed in the Prospectus. The minimum initial and
subsequent purchase requirements are waived in connection with all the above
referenced Employer Sponsored Retirement or Savings Plans.
Employee Access Accounts(SM). Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that provide
employer sponsored retirement or savings plans that are eligible to purchase
such shares at net asset value. The initial minimum for such accounts is $500,
except that the initial minimum for shares purchased for such accounts pursuant
to the Automatic Investment Program is $50.
Closed-End Fund Investment Option. Class A shares of the Trust and other
MLAM-advised mutual funds ("Eligible Class A shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or FAM 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) Class D shares of the Fund and other MLAM-
advised mutual funds ("Eligible Class D shares"), if the following conditions
are met. First, the sale of the closed-end fund shares must be made through
Merrill Lynch and the net proceeds therefrom must be immediately reinvested in
Eligible Class A or Class D Shares. Second, the closed-end fund shares must
either have been acquired in the initial public offering or be shares
representing dividends from shares of common stock acquired in such offering.
Third, the closed-end fund shares must have been continuously maintained in a
Merrill Lynch securities account. Fourth, there must be a minimum purchase of
$250 to be eligible for the investment option. Class A shares of the Trust are
offered at net asset value to shareholders of Merrill Lynch
15
<PAGE> 16
Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Trust. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Trust. This investment option is available only with
respect to the proceeds of Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing
to exercise this investment option will be accepted only on the day that the
related Senior Floating Rate Fund tender offer terminates and will be effected
at the net asset value of the Trust at such day. Similarly, Class D shares of
the Trust are offered at net asset value to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") who wish to purchase
shares of the Trust with the net proceeds from a sale of certain of their shares
of common stock of Municipal Strategy Fund pursuant to a tender offer by
Municipal Strategy Fund. This investment option is available only with respect
to the proceeds of Municipal Strategy Fund shares as to which no CDSC (as
defined in the Municipal Strategy Fund prospectus) is applicable.
Purchase Privilege of Certain Persons. Trustees of the Trust, members of
the Boards of other MLAM-advised investment companies, directors and employees
of 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 any trust, pension, profit-sharing
or other benefit plan for such persons, may purchase Class A shares of the Trust
at net asset value.
Class D shares of the Trust are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that he
or she will purchase Class D shares of the Fund with proceeds from a redemption
of a mutual fund that was sponsored by the financial consultant's previous firm
and was subject to a sales charge either at the time of purchase or on a
deferred basis. Second, the investor also must establish that such redemption
had been made within 60 days prior to the investment in the Trust, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Trust are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Trust with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Trust will be offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of such
shares of other mutual funds and that such shares of other mutual funds have
been
16
<PAGE> 17
outstanding for a period of no less than six months; and second, such purchase
of Class D shares must be made within 60 days after the redemption and the
proceeds from the redemption must be maintained in the interim in cash or a
money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a 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 Trust which
might result from an acquisition of assets having net unrealized appreciation
which is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Trust. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities which (i) meet the
investment objectives and policies of the Trust; (ii) are acquired for
investment and not for resale (subject to the understanding that the disposition
of the Trust'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 Trust may acquire through such transactions
restricted or illiquid securities to the extent the Trust does not exceed the
applicable limits on acquisition of such securities set forth under "Investment
Objectives 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.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Trust to the Distributor with
respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Trustees shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Trustees must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Trust and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Trustees who are not
"interested persons" of the Trust, as defined in the Investment Company Act (the
"Independent Trustees"), shall be committed to the discretion of the Independent
Trustees then in office. In approving each Distribution Plan in accordance with
Rule 12b-1, the Independent Trustees concluded that there is reasonable
likelihood that such Distribution Plan will benefit the Trust 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 Trustees or by the
vote of the holders of a majority of the outstanding related class of voting
securities of the Trust. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Trust without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of Trustees, including a majority of the Independent
Trustees who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
17
<PAGE> 18
requires that the Trust preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (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 Trust, the maximum sales charge rule limits the aggregate of distribution
fee payments and CDSCs payable by the Trust 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 Trust will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Trust rather than to the Distributor; however, the Trust 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 July 31, 1995
with respect to the Class B and Class C shares of the Trust, indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and the Distributor's voluntary maximum for the period August 2, 1985
(commencement of operations) to July 31, 1995 with respect to Class B shares,
and under the NASD maximum sales charge rule for the period October 21, 1994
(commencement of operations) to July 31, 1995, with respect to Class C shares.
18
<PAGE> 19
DATA CALCULATED AS OF JULY 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNT DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE FEES AT CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
CLASS B SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
- ------- ---------- --------- ---------- -------- -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as Adopted........... $1,318,955 $82,435 $ 49,423 $131,858 $ 50,203 $81,655 $ 1,064
Under Distributor's Voluntary
Waiver............................. $1,318,955 $82,435 $ 6,595 $89,030 $ 50,203 $38,827 $ 1,064
CLASS C
- ------
Under NASD Rule as Adopted........... $ 5,127 $ 320 $ 16 $ 336 $ 21 $ 315 $ 21
Under Distributor's Voluntary
Waiver............................. N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ------------------
(1) Purchase price of all eligible Class B or Class C shares sold during the
period indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% 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
6, 1993 under the distribution plan in effect at that time, at the 1.0%
rate, 0.75% of average daily net assets has been treated as a distribution
fee and 0.25% of average daily net assets has been deemed to have been a
service fee and not subject to the NASD maximum sales charge rule. See
"Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the NASD maximum or, with respect to Class B shares, the
voluntary maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Trust shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted as determined by the
Commission or such Exchange is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists, as defined by the
Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Trust is not reasonably practicable,
and for such other periods as the Commission may by order permit for the
protection of shareholders of the Trust.
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived (i) on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or (ii) on redemptions of Class B shares
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete redemption in
connection with a tax-free distribution following retirement under a
tax-deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or disability
(as defined in the Code) of a Class B shareholder (including one who owns the
Class B shares as joint tenant with
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<PAGE> 20
his or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability. For the fiscal years ended July
31, 1993, 1994 and 1995, the Distributor received CDSCs of $246,318, $188,148
and $469,990, respectively, all of which were paid to Merrill Lynch. For the
fiscal period October 21, 1994 (commencement of operations) to July 31, 1995,
the Distributor received CDSCs of $1,502 with respect to redemptions of Class C
shares, all of which were paid to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Trust are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint by members of such affinity groups.
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 Trust
will be grouped for execution purposes which, in some circumstances, may involve
the execution of such orders two business days following the day such orders are
placed. The minimum initial purchase 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.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from a
401(a) plan qualified under the Code, provided, however, that such plan has the
same or an affiliated sponsoring employer as an Eligible 401(k) Plan purchasing
Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax
qualified retirement plans within the meaning of Section 401(a) or 401(b) of the
Code which are provided specialized services (e.g., plans whose participants may
direct on a daily basis their plan allocations among a menu of investments) by
independent administration firms contracted through Merrill Lynch also may
purchase Class B shares with a waiver of the CDSC. The CDSC also is waived for
any Class B shares which are purchased by an Eligible 401(k) Plan or Eligible
401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) Plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all the above-referenced Retirement
Plans. The CDSC is also waived for any Class B shares that were acquired and
held at the time of redemption by Employee Access Accounts available through
employers that provide Eligible 401(k) Plans. The initial minimum for such
accounts is $500, except that the initial minimum for shares purchased for such
accounts pursuant to the Automatic Investment Program is $50.
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<PAGE> 21
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Portfolio Transactions and Brokerage in the
Prospectus."
The Investment Adviser is responsible for making the Trust's portfolio
decisions, placing the Trust's brokerage business, evaluating the reasonableness
of brokerage commissions and negotiating the amount of any commissions paid,
subject to policies established by the Trust's Trustees and officers. The Trust
has no obligation to deal with any broker or group of brokers in the execution
of transactions in portfolio securities. Orders for transactions in portfolio
securities are placed for the Trust with a number of brokers and dealers,
including Merrill Lynch. In placing orders, it is the policy of the Trust to
obtain the most favorable net results, taking into account various factors,
including price, commissions, if any, size of the transaction and difficulty of
execution. Where practicable, the Investment Adviser surveys a number of brokers
and dealers in connection with proposed portfolio transactions and selects the
broker or dealer which offers the Trust best price and execution or other
services which are of benefit to the Trust. Securities firms also may receive
brokerage commissions on transactions including covered call options written by
the Trust and the sale of underlying securities upon the exercise of such
options. In addition, consistent with the Rules of Fair Practice of the NASD and
policies established by the Trust's Trustees, the Investment Adviser may
consider sales of shares of the Trust as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Trust.
For the fiscal year ended July 31, 1993, the Trust paid total brokerage
commissions of $520,434, of which $31,459 or 6.04% was paid to Merrill Lynch for
effecting 3.58% of the aggregate dollar amount of transactions in which the
Trust paid brokerage commissions. For the fiscal year ended July 31, 1994, the
Trust paid total brokerage commissions of $632,276, of which $4,800 or .76% was
paid to Merrill Lynch for effecting 2.15% of the aggregate dollar amount of
transactions in which the Trust paid brokerage commissions. For the fiscal year
ended July 31, 1995, the Trust paid total brokerage commissions of $588,382 of
which $20,069 or 3.41% was paid to Merrill Lynch for effecting 3.58% of the
aggregate dollar amount of transactions in which the Trust paid brokerage
commissions.
The Trust does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Investment Adviser (including
Merrill Lynch) may receive orders for transactions by the Trust. Such
supplemental research services ordinarily consist of assessments and analyses of
the business or prospects of a company, industry or economic sector. Information
so received will be in addition to and not in lieu of the services required to
be performed by the Investment Adviser under the Investment Advisory Agreement.
If in the judgment of the Investment Adviser the Trust will be benefitted by
supplemental research services, the Investment Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Investment Adviser will not necessarily be
reduced as a result of the receipt of such supplemental information, and the
Investment Adviser may use such information in servicing its other accounts.
The Trust invests in securities traded in the over-the-counter market and,
where possible, deals directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Trust are prohibited from dealing with the Trust as
principal in the purchase and sale of securities. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for
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<PAGE> 22
their own accounts, affiliated persons of the Trust, including Merrill Lynch,
will not serve as the Trust's dealer in such transactions. However, affiliated
persons of the Trust may serve as its broker in over-the-counter transactions
conducted on an agency basis.
The Trust may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) 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. ADR's 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. Generally, ADRs, which are
issued in registered form, are designed for use in the United States securities
markets and EDRs, which are issued in bearer form, are designed for use in
European securities markets.
The Trustees of the Trust have considered the possibilities of recapturing
for the benefit of the Trust brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting such portfolio transactions through affiliated entities, including
Merrill Lynch. For example, brokerage commissions received by Merrill Lynch
could be offset against the investment advisory fee paid by the Trust to the
Investment Adviser. After considering all factors deemed relevant, the Trustees
made a determination not to seek such recapture. The Trustees will reconsider
this matter from time to time. The Investment Adviser has arranged for the
Trust's custodian to receive any tender offer solicitation fees on behalf of the
Trust payable with respect to portfolio securities of the Trust.
Section 11(a) of the Securities Exchange Act of 1934 generally prohibits
members of the U.S. national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts which they manage
unless the member (i) has obtained prior express authorization from the account
to effect such transactions, (ii) at least annually furnishes the account with a
statement 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 for the
Trust 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 Trust, and annual statements as to aggregate compensation will be provided
to the Trust.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Trust is determined
once daily Monday through Friday as of 15 minutes after the close of business on
the New York Stock Exchange (generally, 4:00 P.M., New York time) on each day
during which the New York Stock Exchange is open for trading. The New York Stock
Exchange is not open on New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets
or liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The Trust also will determine its
net asset value on any day in which there is sufficient trading in its portfolio
securities that the net asset value might be affected materially, but only if on
such day the Trust is required to sell or redeem shares. Net asset value is
determined by adding the total market value of all securities held by the Trust
plus cash or other assets (including interest and dividends accrued but not yet
received) less all liabilities of the Trust (including accrued expenses). The
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<PAGE> 23
amount remaining is divided by the total number of shares outstanding and
rounded to the nearest cent to arrive at the net asset value of each share.
Expenses, including investment advisory fees and any account maintenance and/or
distribution fees, are accrued daily. The per share net asset value of the Class
B, Class C and Class D shares generally will be lower than the per share net
asset value of the Class A shares reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares and the daily expense accruals of
the account maintenance fees applicable with respect to the Class D shares;
moreover the per share net asset value of Class B and Class C shares generally
will be lesser 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 Trust. 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 differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Trustees as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. When the Trust writes a call option, the amount of the premium
received is recorded on the books of the Trust 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 Trust are valued at
their last sale price. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under the
direction of the Board of Trustees of the Trust.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services summarized below which
are designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Trust, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at Merrill Lynch Financial
Data Services, Inc. (formerly called Financial Data Services, Inc.) (the
"Transfer Agent") has an Investment Account and will receive statements, at
least quarterly, from the Transfer Agent. The statements will serve as
transaction confirmations for automatic investment purchases and the
reinvestment of ordinary income dividends and capital gains distributions. The
statements also will show any other activity in the account since the previous
statement. Shareholders also will 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 may make additions to his or her Investment Account at any time by
mailing a check directly to the Transfer Agent.
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<PAGE> 24
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A 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 Trust, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the transfer agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the transfer agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the transfer agent. If
the new brokerage firm is willing to accommodate the shareholder in this manner,
the shareholder must request that he be issued certificates for his shares, and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the retirement account is to be transferred will not
take delivery of shares of the Trust, a shareholder must either redeem the
shares (paying any applicable CDSC) so that the cash proceeds can be transferred
to the account at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Trust is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Trust through Blueprint, no minimum charge to
the investor's bank account is required. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Trust in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R) or CBA(R) Automated
Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Trust. Such reinvestment
will be at the net asset value of shares of the Trust as of the close of
business on the ex-dividend date of the dividend or distribution. Shareholders
may elect in writing to receive either their ordinary income dividends or
capital gains distributions, or both, in cash, in which event payment will be
mailed or direct deposited on or about the payment date.
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<PAGE> 25
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Trust or vice
versa and, commencing ten days after receipt by the Transfer Agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Trust having a value, based on cost or the
current offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his or her Class
A or Class D shares. Redemptions will be made at net asset value as determined
as of 15 minutes after the close of business on the New York Stock Exchange
(generally 4:00 P.M., New York time) on the 24th day of each month or the 24th
day of the last month of each quarter, whichever is applicable. If the New York
Stock Exchange is not open for business on such date, the Class A or Class D
shares will be redeemed at the close of business on the following business day.
The check for the withdrawal payment will be mailed, or the direct deposit of
the withdrawal payment will be made, on the next business day following
redemption. When a shareholder is making systematic withdrawals, dividends and
distributions on all Class A or Class D shares in the Investment Account are
reinvested automatically in Class A or Class D shares of the Trust,
respectively. A shareholder's Systematic Withdrawal Plan may be terminated at
any time, without charge or penalty, by the shareholder, the Trust, the Trust's
transfer agent or the Distributor. Withdrawal payments should not be considered
as dividends, yield or income. Each withdrawal is a taxable event. If periodic
withdrawals continuously exceed reinvested dividends, the shareholder's original
investment may be reduced correspondingly. Purchases of additional Class A or
Class D shares concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Trust will not
knowingly accept purchase orders for Class A or Class D shares of the Trust from
investors who maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a Class A or Class D shareholder whose shares are held
within a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed
on a monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to a
shareholder's account five business days after the date the shares are redeemed.
Monthly systematic redemptions will be made at net asset value on the first
Monday of each month, bimonthly systematic redemptions will be made at net asset
value on the first Monday of every other month, and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday of months
selected at the shareholder's option. If the first Monday of the month is a
holiday, the redemption will be processed at net asset value on the next
business day. The CMA(R)/CBA(R) Systematic Redemption Program is not available
if Trust shares are being purchased within
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<PAGE> 26
the account pursuant to the Automatic Investment Program. For more information
on the CMA(R)/CBA(R) Systematic Redemption Program, eligible shareholders should
contact their Merrill Lynch financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Trust and in 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 such account. Information with respect to these
plans is available upon request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100 and the minimum subsequent purchase is $1.
Capital gains and ordinary income received in each of the plans referred to
above are exempt from Federal taxation until distributed from the plans.
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.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Trust have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select Pricing(SM) System, Class A shareholders may exchange
Class A shares of the Trust for Class A shares of a second MLAM-advised mutual
fund if the shareholder holds any Class A shares of the second fund in his or
her account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, but does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any
time as long as, at the time of the exchange, the shareholder holds Class A
shares of the second fund in the account in which the exchange is made or is
otherwise eligible to purchase Class A shares of the second fund. Class B,
Class C and Class D shares are exchangeable with shares of the same class of
other MLAM-advised mutual funds. For purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of the Trust is "tacked" to the holding
period of the newly acquired shares of the other fund as more fully described
below. Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated below
as available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D
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<PAGE> 27
shares and the sales charge payable at the time of the exchange on the new Class
A or Class D shares. With respect to outstanding Class A or Class D shares as to
which previous exchanges have taken place, the "sales charge previously paid"
shall include the aggregate of the sales charge paid with respect to such Class
A or Class D shares in the initial purchase and any subsequent exchange. Class A
or Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A and Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares of the
Trust generally may be exchanged into the Class A or Class D shares of the other
funds or into shares of the Class A and Class D money market funds with a
reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("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 Trust exercising the exchange privilege will
continue to be subject to the Trust'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 Trust acquired
through use of the exchange privilege will be subject to the Trust's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares of the fund from which the exchange has been made. For purposes of
computing the sales charge that may be payable on a disposition of the new Class
B or Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Trust for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
the Trust 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 Trust Class B shares to the three-year
holding period for the Special Value Fund Class B shares, the investor will be
deemed to have held the new Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("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, the holding
period for the Class A shares will be "tacked" to the holding period for the
Class B or Class C shares originally held.
Shareholders also may exchange shares of the Trust into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or, with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a
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money market fund which were acquired as a result of an exchange for Class B or
Class C shares of the Trust may, in turn, be exchanged back into Class B or
Class C shares, respectively, of any fund offering such shares, in which event
the holding period for Class B or Class C shares of the fund will be aggregated
with previous holding periods for purposes of reducing the CDSC. Thus, for
example, an investor may exchange Class B shares of the Trust for shares of
Merrill Lynch Institutional Fund ("Institutional Fund") after having held the
Trust Class B shares for two and a half years and three years later decide to
redeem the shares of Institutional Fund for cash. At the time of this
redemption, the 2% CDSC that would have been due had the Class B shares of the
Trust been redeemed for cash rather than exchanged for shares of Institutional
Fund will be payable. If, instead of such redemption, the shareholder exchanged
such shares for Class B shares of a fund which the shareholder continued to hold
for an additional two and a half years, any subsequent redemption will not incur
a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. ...... High current income consistent with a policy of
limiting the degree of fluctuation in net
asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC. ................. A high level of current income, consistent with
prudent investment risk, by investing
primarily in debt securities denominated in a
currency of a country located in the Western
Hemisphere (i.e., North and South America and
the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND
FUND ....................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
and Arizona income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arizona income
taxes as is consistent with prudent
investment management.
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MERRILL LYNCH ARKANSAS
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Arkansas
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH ASSET GROWTH
FUND, INC. ................. High total investment return, consistent with
prudent risk, from investment in United
States and foreign equity, debt and money
market securities the combination of which
will be varied both with respect to types of
securities and markets in response to
changing market and economic trends.
MERRILL LYNCH ASSET INCOME
FUND, INC. ................. A high level of current income through
investment primarily in United States fixed
income securities.
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND
RETIREMENT, INC. ........... As high a level of total investment return as
is consistent with reasonable risk by
investing in common stock and other types of
securities, including fixed income securities
and convertible securities.
MERRILL LYNCH BASIC VALUE
FUND, INC. ................. Capital appreciation and, secondarily, income
through investment in securities, primarily
equities, that are undervalued and therefore
represent basic investment value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND
FUND ....................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide shareholders with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
insured California Municipal Bonds.
MERRILL LYNCH CALIFORNIA
LIMITED MATURITY MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Maturity Municipal Series Trust, a series
fund, whose objective is to provide as high a
level of income exempt from Federal and
California income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade California
Municipal Bonds.
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MERRILL LYNCH CALIFORNIA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CAPITAL
FUND, INC. ................. The highest total investment return consistent
with prudent risk through a fully managed
investment policy utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Colorado
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Connecticut
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. ................. Current income from three separate diversified
portfolios of fixed income securities.
MERRILL LYNCH DEVELOPING
CAPITAL MARKETS FUND,
INC. ....................... Long-term capital appreciation through
investment in securities, principally
equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON
FUND, INC. ................. Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin.
MERRILL LYNCH EUROFUND ....... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
MERRILL LYNCH FEDERAL
SECURITIES TRUST ........... High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates
and other mortgage-backed Government
securities.
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MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND
FUND ....................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
income taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes through investment in
a portfolio primarily of intermediate-term
investment grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
while seeking to offer shareholders the
opportunity to own securities exempt from
Florida intangible personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. ............. Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.
MERRILL LYNCH FUNDAMENTAL
GROWTH FUND, INC. .......... Long-term growth of capital through investment
in a diversified portfolio of equity
securities placing particular emphasis on
companies that have exhibited an
above-average growth rate in earnings.
MERRILL LYNCH FUNDAMENTAL
VALUE PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian) ... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide capital appreciation and income
by investing in securities, with at least 65%
of the portfolio's assets being invested in
equities.
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MERRILL LYNCH GLOBAL
ALLOCATION FUND, INC. ...... High total investment return, consistent with
prudent risk, through a fully managed
investment policy utilizing United States and
foreign equity, debt and money market
securities, the combination of which will be
varied from time to time both with respect to
the types of securities and markets in
response to changing market and economic
trends.
MERRILL LYNCH GLOBAL BOND FUND
FOR INVESTMENT AND
RETIREMENT ................. High total investment return from investment in
a global portfolio of debt instruments
denominated in various currencies and
multinational currency units.
MERRILL LYNCH GLOBAL
CONVERTIBLE FUND, INC. ..... High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL
HOLDINGS, INC.
(residents of Arizona must
meet investor suitability
standards) ................. The highest total investment return consistent
with prudent risk through worldwide
investment in an internationally diversified
portfolio of securities.
MERRILL LYNCH GLOBAL
OPPORTUNITY PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian) ... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high total investment return
through an investment policy utilizing United
States and foreign equity, debt and money
market securities, the combination of which
will vary depending upon changing market and
economic trends.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. ................. Long-term growth of capital by investing
primarily in equity securities of companies
with relatively small market capitalizations
located in various foreign countries and in
the United States.
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MERRILL LYNCH GLOBAL UTILITY
FUND, INC. ................. Capital appreciation and current income through
investment of at least 65% of its total
assets in equity and debt securities issued
by domestic and foreign companies primarily
engaged in the ownership or operation of
facilities used to generate, transmit or
distribute electricity, telecommunications,
gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND
RETIREMENT ................. Growth of capital and, secondarily, income from
investment in a diversified portfolio of
equity securities placing principal emphasis
on those securities which management of the
fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND,
INC.
(residents of Wisconsin must
meet investor suitability
standards) ................. Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND ................ Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. ................. Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Maryland
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
and Massachusetts income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily
of intermediate-term investment grade
Massachusetts Municipal Bonds.
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MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Massachusetts
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND ....................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
and Michigan income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade Michigan
Municipal Bonds.
MERRILL LYNCH MICHIGAN
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Michigan
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH MINNESOTA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Minnesota
personal income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. ................. Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND ..... Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH MUNICIPAL
STRATEGY FUND, INC. ....... As high a level of current income exempt from
Federal income taxes as is consistent with
prudent investment management by investing
primarily in a portfolio of long-term,
investment grade municipal obligations the
interest on which, in the opinion of bond
counsel to the issuer, is exempt from Federal
income taxes.
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MERRILL LYNCH NEW JERSEY
LIMITED MATURITY MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
and New Jersey income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade New Jersey
Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Jersey
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and New Mexico
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND ....................... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal,
New York State and New York City income taxes
as is consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal, New York State
and New York City income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and North Carolina
income taxes as is consistent with prudent
investment management.
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MERRILL LYNCH OHIO MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Ohio income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Oregon income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH PACIFIC
FUND, INC. ................. Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong, and
Singapore.
MERRILL LYNCH PENNSYLVANIA
LIMITED MATURITY MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide as
high a level of income exempt from Federal
and Pennsylvania income taxes as is
consistent with prudent investment management
through investment in a portfolio primarily
of intermediate-term investment grade
Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND ........ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and Pennsylvania
income taxes as is consistent with prudent
investment management.
MERRILL LYNCH PHOENIX
FUND, INC. ................. Long-term growth of capital by investing in
equity and fixed income securities, including
tax-exempt securities, of issuers in weak
financial condition or experiencing poor
operating results believed to be undervalued
relative to the current or prospective
condition of such issuer.
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MERRILL LYNCH QUALITY BOND
PORTFOLIO (available only
for exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian) ... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high level of current income
through investment in a diversified portfolio
of debt obligations, such as corporate bonds
and notes, convertible securities, preferred
stocks and governmental obligations.
MERRILL LYNCH SHORT-TERM
GLOBAL INCOME FUND, INC. ... As high a level of current income as is
consistent with prudent investment management
from a global portfolio of high quality debt
securities denominated in various currencies
and multinational currency units and having
remaining maturities not exceeding three
years.
MERRILL LYNCH SPECIAL VALUE
FUND, INC. ................. Long-term growth of capital from investments in
securities, primarily common stock, of
relatively small companies believed to have
special investment value and emerging growth
companies regardless of size.
MERRILL LYNCH STRATEGIC
DIVIDEND FUND .............. Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND,
INC. ....................... Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND .................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal income taxes as is
consistent with prudent investment management
by investing primarily in a portfolio of
long-term, investment grade obligations
issued by the State of Texas, its political
subdivisions, agencies and instrumentalities.
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MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO
(available only for
exchanges by certain
individual retirement
accounts for which Merrill
Lynch acts as custodian) ... A portfolio of Merrill Lynch Asset Builder
Program, Inc., a series fund, whose objective
is to provide a high current return through
investments in U.S. Government and government
agency securities, including GNMA
mortgage-backed certificates and other
mortgage-backed government securities.
MERRILL LYNCH UTILITY INCOME
FUND, INC. ................. High current income through investment in
equity and debt securities issued by
companies which are primarily engaged in the
ownership or operation of facilities used to
generate, transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME
FUND, INC. ................. High current income by investing in a global
portfolio of fixed income securities
denominated in various currencies, including
multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST ...................... Preservation of capital, liquidity and the
highest possible current income consistent
with the foregoing objectives from the short-
term money market securities in which the
Trust invests.
MERRILL LYNCH RETIREMENT
RESERVES MONEY FUND
(available only if the
exchange occurs within
certain retirement
plans) ..................... Currently the only portfolio of Merrill Lynch
Retirement Series Trust, a series fund, whose
objectives are to provide current income,
preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term money market
securities.
MERRILL LYNCH U.S.A.
GOVERNMENT RESERVES ........ Preservation of capital, current income and
liquidity available from investing in direct
obligations of the U.S. Government and
repurchase agreements relating to such
securities.
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MERRILL LYNCH U.S. TREASURY
MONEY FUND ................. Preservation of capital, liquidity and current
income through investment exclusively in a
diversified portfolio of short-term
marketable securities which are direct
obligations of the U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
MERRILL LYNCH GOVERNMENT
FUND ....................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in securities
issued or guaranteed by the U.S. Government,
its agencies and instrumentalities and in
repurchase agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL
FUND ....................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND ............ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income exempt
from Federal income taxes, preservation of
capital and liquidity available from
investing in a diversified portfolio of
short-term, high quality municipal bonds.
MERRILL LYNCH TREASURY
FUND ......................... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct
obligations of the U.S. Treasury and up to
10% of its total assets in repurchase
agreements secured by such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Trust of the exchange.
Shareholders of the Trust, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Trust 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 Trust reserves the right to limit the number of times an
investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares at any time and thereafter may
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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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Trust intends to distribute all of its net investment income, if any.
Dividends from such net investment income will be paid semi-annually. All net
realized long- or short-term capital gains, if any, will be distributed to the
Trust's shareholders at least annually. See "Shareholder Services--Automatic
Reinvestment of Dividends and Capital Gains Distributions" for information
concerning the manner in which dividends and distributions may be reinvested
automatically in shares of the Trust. Shareholders may elect in writing to
receive any such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders, as discussed below, whether they are
reinvested in shares of the Trust 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
"Determination of Net Asset Value".
TAXES
The Trust intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, the Trust (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Trust intends to distribute substantially all of such income.
Dividends paid by the Trust from its ordinary income or from an excess of
its net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in futures and options) ("capital gain
dividends") are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder has owned Trust shares. Any loss upon the
sale or exchange of Trust shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the Trust's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Trust. Not later than 60 days after the close of its
taxable year, the Trust will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Trust'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 Trust will allocate
dividends eligible for
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the dividends received deduction among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Commission exemptive order 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 Trust pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Trust and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Trust to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Trust or who, to the Trust's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
Dividends and interest received by the Trust 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 Trust. If more than 50% in value
of the Trust's total assets at the close of its taxable year consists of
securities of foreign corporations, the Trust will be eligible, and intends, to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Trust 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 in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their United States income taxes. No
deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to United States
withholding tax on the income resulting from the Trust'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 Trust will report annually to its shareholders the amount per
share of such withholding taxes. For this purpose, the Trust will allocate
foreign taxes and foreign source income among the Class A, Class B, Class C and
Class D shareholders according to a method similar to that described above for
the allocation of dividends eligible for the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
41
<PAGE> 42
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 Trust on the exchanged shares 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 Trust will be
disallowed if other Trust shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires 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 an October 31 year end, plus certain undistributed
amounts from previous years. While the Trust intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Trust's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Trust will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
TAX TREATMENT OF OPTIONS AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Trust may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and forward foreign exchange 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 non-equity option or a regulated
futures contract for a non-U.S. currency for which the Trust 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. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the Trust 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
Trust 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 Trust's transactions in options and forward foreign exchange
contracts. Under Section 1092, the Trust may be required to postpone recognition
for tax purposes of losses incurred in certain closing transactions in options
and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Trust's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Trust may be restricted in effecting closing transactions within three months
after entering into an option or futures contract.
42
<PAGE> 43
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 Trust 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 and forward foreign
exchange contracts will be valued for purposes of the RIC diversification
requirements applicable to the Trust.
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 United States dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Trust 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 Trust. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Trust'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 Trust would not be
able to make any ordinary income dividend distributions, and any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Trust shares, and resulting in a capital gain for
any shareholder who received a distribution greater than such shareholder's
basis in Trust 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 Trust solely to reduce the risk of
currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on 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 own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Trust.
43
<PAGE> 44
PERFORMANCE DATA
From time to time, the Trust 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
Trust's historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for Class A,
Class B, Class C and Class D shares in accordance with a formula specified by
the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Trust also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charge, 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.
Set forth below is total return information for the Class A, Class B, Class
C and Class D shares of the Trust for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ---------------------------------- ------------------ ----------------- ------------------ -----------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended July 31, 1995...... 1.43 % $1,014.30 1.95 % $1,019.50
Five Years Ended July 31, 1995.... 3.10 % $1,165.00 3.14 % $1,167.20
Inception (August 2, 1985) to July
31, 1995........................ 8.74 % $2,312.50
Inception (October 24, 1988) to
July 31, 1995................... 6.67 % $1,548.50
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
Year Ended July 31,
1995............................ 7.05 % $1,070.50 5.95 % $1,059.50
1994............................ 13.69 % $1,136.90 12.52 % $1,125.20
1993............................ (0.05)% $ 999.50 (1.02)% $ 989.80
1992............................ 1.66 % $1,016.60 .53 % $1,005.30
1991............................ (0.57)% $ 994.30 (1.61)% $ 983.90
1990............................ 19.99 % $1,199.90 18.79 % $1,187.90
1989............................ 1.94 % $1,019.40
1988............................ (20.74)% $ 792.60
1987............................ 100.16 % $2,001.60
Inception (August 2, 1985) to
July 31, 1986................... 3.12 % $1,031.20
Inception (October 24, 1988) to
July 31, 1989................... 10.77 % $1,107.70
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception (August 2, 1985) to July
31, 1995........................ 131.25 % $2,312.50
Inception (October 24, 1988) to
July 31, 1995................... 54.85 % $1,548.50
</TABLE>
- ---------------
* Information as to Class A shares is presented only for the period October 24,
1988 to July 31, 1995. Prior to October 21, 1988, no Class A shares were
publicly issued.
In order to reflect the reduced sales charges in the case of Class A and
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Trust 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 sales charges, a lower amount of expenses may be
deducted.
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ------------------ ----------------- ------------------ -----------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to
July 31, 1995................... 4.22% $1,032.60 (0.75)% $ 994.20
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
-------------------------------------- --------------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END ON A HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
------ ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
Inception (October 21, 1994) to
July 31, 1995................... 4.26% $1,042.60 4.93 % $1,049.30
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception (October 21, 1994) to
July 31, 1995................... 3.26% $1,032.60 (0.58)% $ 994.20
</TABLE>
- ---------------
* Information as to Class C and Class D shares is presented for the period
October 21, 1994 to July 31, 1995. Prior to October 21, 1994, no Class C or
Class D shares were publicly issued.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par value
$0.10 per share, of different classes and to divide or combine the shares of
each class into a greater or lesser number of shares without thereby changing
the proportionate beneficial interest in the Trust. At the date of this
Statement of Additional Information, the shares of the Trust are divided into
Class A, Class B, Class C and Class D shares. Under the Declaration of Trust,
the Trustees have the authority to issue separate classes of shares which would
represent interests in the assets of the Trust and have identical voting,
dividend, liquidation and other rights and the same terms and conditions except
that Class B, Class C and Class D shares bear certain expenses related to the
account maintenance and/or distribution of such shares and have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. The Trust has received an order from the Commission
permitting the issuance and sale of multiple classes of shares. The Board of
Trustees of the Trust may classify and reclassify the shares of the Trust into
additional shares of beneficial interest at a future date. Upon liquidation of
the Trust, shareholders of each class are entitled to share pro rata in the net
assets of the Trust available for distribution to shareholders, except for any
expenses which may be attributable only to one class. Shares have no preemptive
rights. The rights of redemption, conversion and exchange are described
elsewhere herein and in the Prospectus. Shares are fully paid and non-assessable
by the Trust.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to vote of
shareholders, except that shareholders of the class bearing account maintenance
and/or distribution expenses as provided above shall have exclusive voting
rights with respect to matters relating to such account maintenance and/or
distribution expenditures. Voting rights are not cumulative, so that holders of
more than 50% of the shares voting in the election of Trustees can, if they
choose to do so, elect all the Trustees of the Trust, in which event the holders
of the remaining shares are unable to elect any person as a Trustee. No
46
<PAGE> 47
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the outstanding shares of the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust establishing the Trust, dated
April 12, 1985, a copy of which together with all amendments thereto (the
"Declaration of Trust") is on file in the office of the Secretary of the
Commonwealth of Massachusetts, contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of the Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to act,
but nothing in the Declaration of Trust protects a Trustee against any liability
to which he or she 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 Investment Adviser provided the initial capital for the Trust by
purchasing 10,000 shares for $100,000. Such shares were acquired for investment
and can only be disposed of by redemption. The organizational expenses of the
Trust were paid by the Trust and were amortized over a period not exceeding five
years. The proceeds realized by the Investment Adviser upon the redemption of
any of the shares initially purchased by it will be reduced by the proportional
amount of the unamortized organizational expenses which the number of such
initial shares being redeemed bears to the number of shares initially purchased.
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 as of July 31, 1995, is calculated as
set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net Assets............................... $28,728,903 $141,799,990 $2,800,094 $107,467,227
========== =========== ========= ===========
Number of Shares Outstanding............. 1,720,619 8,533,888 169,196 6,446,960
========== =========== ========= ===========
Net Asset Value Per Share (net assets
divided by number of shares
outstanding)........................... $16.70 $16.62 $16.55 $16.67
Sales Charge (for Class A and Class D
shares: 5.25% of offering price (5.54%
of net asset value per share))*........ .93 ** ** .92
----------- ------------ ---------- ------------
Offering Price........................... $17.63 $16.62 $16.55 $17.59
========== =========== ========= ===========
</TABLE>
(Footnotes on following page)
47
<PAGE> 48
(Footnotes for preceding page)
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption of shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares" in
the Prospectus and "Redemption of Shares--Deferred Sales Charge--Class B
Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Trust. The selection of
independent auditors is subject to ratification by the shareholders of the
Trust. The independent auditors are responsible for auditing the annual
financial statements of the Trust.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th Floor, New York, New York
10286, acts as custodian of the Trust's assets. The Custodian is responsible for
safeguarding and controlling the Trust's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Trust's investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484 (the "Transfer Agent"), acts as the Trust'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.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of the Trust ends July 31 of each year. The Trust sends to
its shareholders at least semi-annually reports showing the Trust'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 and, if applicable, foreign
withholding and other taxes.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statement and the exhibits
relating thereto which the Trust has filed with the Commission, Washington, D.C.
under the Securities Act and the Investment Company Act, to which reference is
hereby made.
To the knowledge of the Trust, no person or entity owned beneficially 5% or
more of the Trust's shares on November 1, 1995.
48
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
MERRILL LYNCH GLOBAL RESOURCES TRUST:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Resources Trust as of July
31, 1995, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1995 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Resources Trust as of July 31, 1995, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
August 31, 1995
49
<PAGE> 50
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Value Percent of
Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aluminum 90,000 Alcan Aluminium Ltd. $ 2,356,436 $ 3,048,750 1.1%
424,000 Comalco Ltd. 1,557,844 2,068,018 0.7
------------ ------------ ------
3,914,280 5,116,768 1.8
Chemicals 78,000 Air Products and Chemicals, Inc. 3,451,070 4,368,000 1.5
640,000 Asahi Chemical Industry Co., Ltd. 4,707,315 4,572,467 1.6
37,000 Dow Chemical Co. 2,596,842 2,742,625 1.0
41,300 DuPont (E.I.) de Nemours & Co. 2,313,453 2,767,100 1.0
97,500 Hanna (M.A.) Co. 1,937,650 2,693,438 1.0
------------ ------------ ------
15,006,330 17,143,630 6.1
Diversified Companies 154,500 Canadian Pacific, Ltd. 2,417,458 2,761,688 1.0
90,000 Coastal Corp. 2,302,519 2,801,250 1.0
179,000 Cyprus Amax Minerals Co. 4,500,651 4,989,625 1.8
90,000 Norcen Energy Resources Ltd. 1,158,729 1,353,939 0.5
225,000 Occidental Petroleum Corp. 4,361,550 5,062,500 1.8
407,500 Renison Goldfields Consolidated Ltd. 1,613,171 1,541,850 0.5
------------ ------------ ------
16,354,078 18,510,852 6.6
Gold 1,387,000 ++Delta Gold N.L. 2,730,517 2,716,231 1.0
1,679,100 ++Newcrest Mining Ltd. 7,470,444 7,817,386 2.8
140,622 Newmont Mining Corp. 5,614,727 6,011,591 2.1
250,000 Placer Dome Inc. 5,677,853 6,281,250 2.2
260,000 Sante Fe Pacific Gold Corp. 3,770,398 3,250,000 1.2
------------ ------------ ------
25,263,939 26,076,458 9.3
Integrated Oil 41,000 Amoco Corp. 2,293,335 2,757,250 1.0
Companies-- 16,000 Mobil Corp. 1,557,790 1,564,000 0.6
Domestic 200,000 Unocal Corp. 5,792,080 5,625,000 2.0
------------ ------------ ------
9,643,205 9,946,250 3.6
Integrated Oil 890,000 British Petroleum Co. PLC 4,237,936 6,743,483 2.4
Companies-- 14,600 OMV AG 1,554,378 1,559,639 0.5
International 321,000 Petro-Canada 2,682,966 3,190,098 1.1
78,800 Repsol, S.A. 2,272,896 2,667,363 0.9
71,600 Societe Nationale Elf Aquitaine (ADR)* 2,544,624 2,801,350 1.0
101,600 Total S.A. (Class B) 6,049,223 6,170,213 2.2
122,000 Yacimientos Petroliferos Fiscales
S.A. (Sponsored) (ADR)* 2,997,273 2,119,750 0.7
------------ ------------ ------
22,339,296 25,251,896 8.8
Metals & Mining 67,000 ASARCO Inc. 1,927,403 2,127,250 0.8
162,200 CRA Ltd. 2,011,572 2,517,182 0.9
277,000 Falconbridge Ltd. 3,843,568 5,505,653 2.0
140,000 Freeport-McMoRan Copper & Gold, Inc. 3,000,786 3,727,500 1.3
2,470,000 M.I.M. Holdings Ltd. 5,396,407 3,541,140 1.3
77,500 Magma Copper Co. 1,332,076 1,433,750 0.5
245,000 Mitsubishi Materials Corp. 1,292,688 1,224,443 0.4
278,500 Noranda Inc. 5,240,418 5,865,563 2.1
77,000 Outokumpu OY 1,385,926 1,508,001 0.5
68,000 Phelps Dodge Corp. 3,672,444 4,369,000 1.6
430,000 (The) RTZ Corp. PLC 5,546,995 6,206,536 2.2
157,000 Sumitomo Metal Mining Co. 1,314,920 1,283,962 0.5
215,000 Trelleborg 'B' Fria 2,921,179 2,775,177 1.0
1,050,000 Western Mining Corp. Holdings Ltd. 6,137,031 6,812,841 2.4
------------ ------------ ------
45,023,413 48,897,998 17.5
</TABLE>
50
<PAGE> 51
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Value Percent of
Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Oil & Gas Producers 470,000 ++Abacan Resource Corp. $ 1,763,996 $ 1,354,121 0.5%
1,099,500 Ampolex Ltd. 3,384,940 2,486,343 0.9
89,000 Anadarko Petroleum Corp. 4,350,002 3,782,500 1.3
115,000 Apache Corp. 3,073,528 3,148,125 1.1
99,000 Burlington Resources, Inc. 3,873,710 3,848,625 1.4
403,000 ++Chauvco Resources Ltd. 4,669,606 4,115,244 1.5
125,900 Enron Oil & Gas Co. 2,695,396 2,722,587 1.0
730,000 Enterprise Oil PLC 4,693,559 4,430,194 1.6
68,600 (The) Louisiana Land and Exploration Co. 2,718,183 2,726,850 1.0
85,600 Mitchell Energy & Development Corp.
(Class A) 1,765,094 1,455,200 0.5
175,000 Mitchell Energy & Development Corp.
(Class B) 3,666,183 2,975,000 1.1
140,000 ++Oryx Energy Co. 2,332,787 2,012,500 0.7
81,000 Parker & Parsley Petroleum Co. 1,593,235 1,569,375 0.6
7,500,000 ++Premier Oil Co. PLC 3,091,256 2,730,341 1.0
675,000 Ranger Oil Ltd. 4,526,339 3,796,875 1.3
103,000 Sonat, Inc. 3,276,567 3,090,000 1.1
44,100 Triton Energy Corp. 1,440,582 2,199,487 0.8
78,200 Vastar Resources, Inc. 2,135,113 2,199,375 0.8
------------ ------------ ------
55,050,076 50,642,742 18.2
Oil Services 130,000 Baker Hughes Inc. 2,501,121 2,876,250 1.0
57,800 Coflexip Stena Offshore, Inc. (ADR)* 1,242,700 1,416,100 0.5
141,000 IHC Caland N.V. 3,098,872 4,355,564 1.5
80,000 Schlumberger Ltd. 4,627,531 5,360,000 1.9
------------ ------------ ------
11,470,224 14,007,914 4.9
Paper & Pulp 242,133 Aracruz Celulose S.A. (ADR)* 970,032 2,966,129 1.1
172,700 Avenor Inc. 3,423,014 4,172,639 1.5
62,000 Georgia-Pacific Corp. 3,962,100 5,347,500 1.9
10,700 International Paper 772,379 904,150 0.3
91,000 Metsa-Serla OY 3,935,508 4,238,118 1.5
60,400 Mo Och Domsjo AB Co. 2,613,099 4,009,532 1.4
120,000 Pope & Talbot, Inc. 2,789,668 1,920,000 0.7
406,496 Slocan Forest Products Ltd. 3,555,171 3,595,014 1.3
117,000 Weyerhaeuser Co. 4,993,809 5,469,750 1.9
48,000 Willamette Industries, Inc. 1,806,620 2,928,000 1.0
------------ ------------ ------
28,821,400 35,550,832 12.6
Petroleum Refining 250,000 Total Petroleum (North America) Ltd. 3,028,198 2,906,250 1.0
Plantations 717,000 Golden Hope Plantations BHD 1,325,785 1,284,266 0.5
480,000 Kuala Lumpur Kepong BHD 983,702 1,563,200 0.6
------------ ------------ ------
2,309,487 2,847,466 1.1
Steel 71,000 Koninklijke Nederlandsche Hoogovens en
Staalfabrienken N.V. 3,078,006 3,262,311 1.2
1,397,000 ++Sumitomo Metal Industries, Ltd. 4,640,554 4,046,286 1.4
------------ ------------ ------
7,718,560 7,308,597 2.6
Wood Products 200,000 Louisiana-Pacific Corp. 6,751,778 4,925,000 1.7
325,000 Pacific Forest Products Ltd. 3,496,173 3,674,325 1.3
146,100 Riverside Forest Products Ltd. 2,401,223 1,678,392 0.6
------------ ------------ ------
12,649,174 10,277,717 3.6
Total Common Stocks 258,591,660 274,485,370 97.7
</TABLE>
51
<PAGE> 52
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Value Percent of
Face Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Repurchase $ 5,570,000 PaineWebber Inc., purchased on
Agreement** 7/31/1995 to yield 5.78% to 8/01/1995 $ 5,570,000 $ 5,570,000 2.0%
Total Short-Term Securities 5,570,000 5,570,000 2.0
Total Investments $264,161,660 280,055,370 99.7
============
Other Assets Less Liabilities 740,844 0.3
------------ ------
Net Assets $280,796,214 100.0%
============ ======
</TABLE>
*American Depositary Receipts (ADR).
**Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
++Non-income producing security.
See Notes to Financial Statements.
52
<PAGE> 53
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$264,161,660) (Note 1a) $280,055,370
Cash 15,848
Receivables:
Securities sold $ 1,664,207
Dividends 433,598
Beneficial interest sold 311,085 2,408,890
------------
Prepaid registration fees and other assets (Note 1f) 39,040
------------
Total assets 282,519,148
------------
Liabilities: Payables:
Beneficial interest redeemed 701,553
Securities purchased 431,354
Distributor (Note 2) 160,488
Investment adviser (Note 2) 153,443 1,446,838
------------
Accrued expenses and other liabilities 276,096
------------
Total liabilities 1,722,934
------------
Net Assets: Net assets $280,796,214
============
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 172,062
Class B Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 853,389
Class C Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 16,920
Class D Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 644,696
Paid-in capital in excess of par 279,621,426
Undistributed investment income--net 1,099,608
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 5) (17,507,553)
Unrealized appreciation on investments and foreign
currency transactions--net 15,895,666
------------
Net assets $280,796,214
============
Net Asset Value: Class A--Based on net assets of $28,728,903 and 1,720,619 shares
of beneficial interest outstanding $ 16.70
============
Class B--Based on net assets of $141,799,990 and 8,533,888 shares
of beneficial interest outstanding $ 16.62
============
Class C--Based on net assets of $2,800,094 and 169,196 shares
of beneficial interest outstanding $ 16.55
============
Class D--Based on net assets of $107,467,227 and 6,446,960 shares
of beneficial interest outstanding $ 16.67
============
See Notes to Financial Statements.
</TABLE>
53
<PAGE> 54
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended July 31, 1995
<S> <S> <C> <C>
Investment Dividends (net of $423,302 foreign withholding tax) $ 5,877,622
Income Interest and discount earned 1,437,806
(Notes 1d & 1e): ------------
Total income 7,315,428
------------
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 2,185,267
Investment advisory fees (Note 2) 1,832,048
Transfer agent fees--Class B (Note 2) 593,121
Printing and shareholder reports 168,074
Transfer agent fees--Class D (Note 2) 150,924
Custodian fees 143,110
Account maintenance fees--Class D (Note 2) 134,156
Registration fees (Note 1f) 133,389
Professional fees 91,587
Transfer agent fees--Class A (Note 2) 73,266
Accounting services (Note 2) 68,488
Trustees' fees and expenses 40,866
Account maintenance and distribution fees--Class C (Note 2) 25,551
Transfer agent fees--Class C (Note 2) 8,928
Pricing fees 5,465
Other 9,113
------------
Total expenses 5,663,353
------------
Investment income--net 1,652,075
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 9,186,780
(Loss) on Foreign currency transactions--net (53,988) 9,132,792
Investments & ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net 6,769,039
Transactions--Net Foreign currency transactions--net (2,317) 6,766,722
(Notes 1b, 1c, ------------ ------------
1e & 3): Net realized and unrealized gain on investments and
foreign currency transactions 15,899,514
------------
Net Increase in Net Assets Resulting from Operations $ 17,551,589
============
See Notes to Financial Statements.
</TABLE>
54
<PAGE> 55
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,652,075 $ 939,369
Realized gain on investments and foreign currency
transactions--net 9,132,792 1,733,103
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 6,766,722 22,563,268
------------ ------------
Net increase in net assets resulting from operations 17,551,589 25,235,740
------------ ------------
Dividends to Investment income--net:
Shareholders Class A (426,768) (114,152)
(Note 1g): Class B (570,653) (703,582)
Class C (7,419) --
Class D (245,460) --
------------ ------------
Net decrease in net assets resulting from dividends
to shareholders (1,250,300) (817,734)
------------ ------------
Beneficial Net increase in net assets derived from beneficial
Interest interest transactions 7,860,033 12,016,848
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 24,161,322 36,434,854
Beginning of year 256,634,892 220,200,038
------------ ------------
End of year* $280,796,214 $256,634,892
============ ============
*Undistributed investment income--net (Note 1h) $ 1,099,608 $ 859,496
============ ============
See Notes to Financial Statements.
</TABLE>
55
<PAGE> 56
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.84 $ 14.07 $ 14.33 $ 15.38 $ 15.93
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .22 .22 .24 .34 .37
Realized and unrealized gain (loss) on invest-
ments and foreign currency transactions--net .88 1.69 (.26) (.13) (.47)
-------- -------- -------- -------- --------
Total from investment operations 1.10 1.91 (.02) .21 (.10)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.24) (.14) (.24) (.47) (.41)
Realized gain on investments--net -- -- -- (.79) (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (.14) (.24) (1.26) (.45)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.70 $ 15.84 $ 14.07 $ 14.33 $ 15.38
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.05% 13.69% (.05%) 1.66% (.57%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.06% .92% .95% .97% .95%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.34% 1.39% 1.62% 1.82% 2.89%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 28,729 $ 20,054 $ 12,087 $ 11,265 $ 6,699
Data: ======== ======== ======== ======== ========
Portfolio turnover 31.64% 54.87% 66.78% 31.43% 71.42%
======== ======== ======== ======== ========
</TABLE>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
56
<PAGE> 57
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.72 $ 14.02 $ 14.26 $ 15.30 $ 15.84
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .10 .05 .09 .13 .31
Realized and unrealized gain (loss) on invest-
ments and foreign currency transactions--net .84 1.70 (.24) (.08) (.56)
-------- -------- -------- -------- --------
Total from investment operations .94 1.75 (.15) .05 (.25)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.04) (.05) (.09) (.30) (.25)
Realized gain on investments--net -- -- -- (.79) (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.04) (.05) (.09) (1.09) (.29)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.62 $ 15.72 $ 14.02 $ 14.26 $ 15.30
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 5.95% 12.52% (1.02%) .53% (1.61%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance
Net Assets: and distribution fees 1.08% .95% .99% 1.00% .99%
======== ======== ======== ======== ========
Expenses 2.08% 1.95% 1.99% 2.00% 1.99%
======== ======== ======== ======== ========
Investment income--net .31% .35% .60% .94% 1.85%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $141,800 $236,581 $208,113 $254,866 $322,502
Data: ======== ======== ======== ======== ========
Portfolio turnover 31.64% 54.87% 66.78% 31.43% 71.42%
======== ======== ======== ======== ========
</TABLE>
*Total investment returns exclude the effect of sales loads.
See Notes to Financial Statements.
57
<PAGE> 58
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 15.93 $ 15.96
Operating ------------ ------------
Performance: Investment income--net .05 .12
Realized and unrealized gain on investments and foreign
currency transactions--net .62 .66
------------ ------------
Total from investment operations .67 .78
------------ ------------
Less dividends from investment income--net (.05) (.07)
------------ ------------
Net asset value, end of period $ 16.55 $ 16.67
============ ============
Total Investment Based on net asset value per share 4.26%+++ 4.93%+++
Return:** ============ ============
Ratios to Expenses, excluding account maintenance and distribution fees 1.20%* 1.14%*
Average Net ============ ============
Assets: Expenses 2.20%* 1.39%*
============ ============
Investment income--net .28%* 1.02%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 2,800 $ 107,467
Data: ============ ============
Portfolio turnover 31.64% 31.64%
============ ============
</TABLE>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
58
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Global Resources Trust ("the Trust") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company. The Trust offers four
classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to
a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Trust.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Trustees of the Trust as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their fair value as determined in good faith
by or under the direction of the Trustees of the Trust.
(b) Derivative financial instruments--The Trust may engage in
various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the value
of the contract or if the counterparty does not perform under the
contract.
* Forward foreign exchange contracts--The Trust is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Trust's records. However, the effect on net
investment income is recorded from the date the Trust enters into
such contracts. Premium or discount is amortized over the life of
the contracts.
* Options--The Trust can write covered call options and purchase put
options. When the Trust writes an option, an amount equal to the
premium received by the Trust is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of
an option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Trust enters into a closing transaction), the Trust
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction is less than or greater than the premiums paid
or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax
59
<PAGE> 60
law, a withholding tax may be imposed on interest, dividends, and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Trust is informed of the ex-dividend date. Interest income is
recognized on the accrual basis. Realized gains and losses on
security transactions are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Trust are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $161,663 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Trust has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Trust. For such
services, the Trust pays a monthly fee of 0.60%, on an annual basis,
of the average daily value of the Trust's net assets. The Investment
Advisory Agreement obligates MLAM to reimburse the Trust to the
extent the Trust's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Trust's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess thereof. No fee
payment will be made to the Investment Adviser during any fiscal
year which will cause such expenses to exceed the expense limitation
at the time of such payment.
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Trust in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Trust pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
<TABLE>
<CAPTION>
Account Distribution
Maintenance Fee Fee
<S> <C> <C>
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Trust. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Trust's Class A
and Class D Shares as follows:
<TABLE>
<CAPTION>
MLFD MLPF&S
<S> <C> <C>
Class A $6,956 $97,188
Class D $3,459 $49,663
</TABLE>
For the year ended July 31, 1995, MLPF&S received contingent
deferred sales charges of $469,990 relating to transactions in Class
B Shares of beneficial interest, $1,502 relating to transactions in
Class C Shares of beneficial interest, and $20,069 in commissions on
the execution of portfolio security transactions for the Trust for
the year ended July 31, 1995.
60
<PAGE> 61
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Trust's transfer agent.
Accounting services are provided to the Trust by MLAM at cost.
Certain officers and/or trustees of the Trust are officers and/or
directors of MLAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $127,098,758 and $87,286,344,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
<TABLE>
<CAPTION>
Realized
Gains Unrealized
(Losses) Gains
<S> <C> <C>
Long-term investments $ 9,181,328 $ 15,893,710
Short-term investments 5,452 --
Foreign currency
transactions (53,988) 1,956
------------ ------------
Total $ 9,132,792 $ 15,895,666
============ ============
</TABLE>
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $15,893,710, of which $29,297,603 related to
appreciated securities and $13,403,893 related to depreciated
securities. At July 31,1995, the aggregate cost of investments for
Federal income tax purposes was $264,161,660.
4. Shares of Beneficial Interest:
Net increase in net assets derived from beneficial interest
transactions for the years ended July 31, 1995 and July 31, 1994
were $ 7,860,033 and $12,016,848, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold 2,372,442 $ 37,625,025
Shares issued to share-
holders in reinvestment of
dividends. 24,490 385,380
------------ -------------
Total issued 2,396,932 38,010,405
Shares redeemed (1,942,431) (31,015,092)
------------ -------------
Net increase 454,501 $ 6,995,313
============ =============
<CAPTION>
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
<S> <C> <C>
Shares sold 1,169,348 $ 17,964,584
Shares issued to shareholders
in reinvestment of dividends 6,902 96,377
------------ -------------
Total issued 1,176,250 18,060,961
Shares redeemed (769,151) (11,522,490)
------------ -------------
Net increase 407,099 $ 6,538,471
============ =============
<CAPTION>
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold 6,694,914 $ 105,112,417
Shares issued to shareholders
in reinvestment of dividends. 28,028 454,893
------------ -------------
Total issued 6,722,942 105,567,310
Automatic conversion of
shares (6,950,286) (107,241,311)
Shares redeemed (6,287,107) (99,273,886)
------------ -------------
Net decrease (6,514,451) $(100,947,887)
============ =============
<CAPTION>
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
<S> <C> <C>
Shares sold 4,569,263 $ 70,407,201
Shares issued to shareholders
in reinvestment of dividends 38,724 541,357
------------ -------------
Total issued 4,607,987 70,948,558
Shares redeemed (4,402,209) (65,470,181)
------------ -------------
Net increase 205,778 $ 5,478,377
============ =============
<CAPTION>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold 406,317 $ 6,241,943
Shares issued to shareholders
in reinvestment of dividends. 456 6,782
------------ -------------
Total issued 406,773 6,248,725
Shares redeemed (237,577) (3,852,799)
------------ -------------
Net increase 169,196 $ 2,395,926
============ =============
++Commencement of Operations.
<CAPTION>
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold 325,837 $ 5,011,879
Automatic conversion of
shares 6,938,622 107,241,311
Shares issued to share-
holders in reinvestment of
dividends. 12,214 181,873
------------ -------------
Total issued 7,276,673 112,435,063
Shares redeemed (829,713) (13,018,382)
------------ -------------
Net increase 6,446,960 $ 99,416,681
============ =============
</TABLE>
++Commencement of Operations.
61
<PAGE> 62
5. Capital Loss Carryforward:
At July 31, 1995, the Trust had a net capital loss carryforward of
approximately $17,508,000, all of which expires in 2002. This amount
will be available to offset like amounts of any future taxable
gains.
6. Commitments:
At July 31, 1995, the Trust had entered into foreign exchange
contracts under which it had agreed to sell a foreign currency
with a value of approximately $1,671,000.
62
<PAGE> 63
[This page intentionally left blank]
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies...... 2
Asset-Based Securities................ 2
Other Investment Policies and
Practices........................... 3
Investment Restrictions............... 6
Management of the Trust................. 8
Trustees and Officers................. 8
Compensation of Trustees.............. 10
Management and Advisory
Arrangements........................ 10
Purchase of Shares...................... 12
Initial Sales Charge
Alternatives--Class A and Class D
Shares.............................. 12
Reduced Initial Sales Charges......... 13
Distribution Plans.................... 17
Limitations on the Payment of Deferred
Sales Charges....................... 18
Redemption of Shares.................... 19
Deferred Sales Charges--Class B and
Class C Shares...................... 19
Portfolio Transactions and Brokerage.... 21
Determination of Net Asset Value........ 22
Shareholder Services.................... 23
Investment Account.................... 23
Automatic Investment Plans............ 24
Automatic Reinvestment of Dividends
and Capital Gains Distributions..... 24
Systematic Withdrawal Plans--Class A
and Class D Shares.................. 25
Retirement Plans...................... 26
Exchange Privilege.................... 26
Dividends, Distributions and Taxes...... 40
Dividends and Distributions........... 40
Taxes................................. 40
Tax Treatment of Options and Forward
Foreign Exchange Transactions....... 42
Special Rules for Certain Foreign
Currency Transactions............... 43
Performance Data........................ 44
General Information..................... 46
Description of Shares................. 46
Computation of Offering Price per
Share............................... 47
Independent Auditors.................. 48
Custodian............................. 48
Transfer Agent........................ 48
Legal Counsel......................... 48
Reports to Shareholders............... 48
Additional Information................ 48
Independent Auditors' Report............ 49
Financial Statements.................... 50
Code #10302-1195
</TABLE>
(Logo)
Merrill Lynch
Global Resources Trust
STATEMENT OF
ADDITIONAL
INFORMATION
November 27, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 65
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMDATE OR IMAGE IN TEST
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
