<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997
SECURITIES ACT FILE NO. 2-97095
INVESTMENT COMPANY ACT FILE NO. 811-4282
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 15 [X]
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH GLOBAL RESOURCES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL RESOURCES TRUST
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE TRUST: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
</TABLE>
------------------------
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
------------------------
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest, par value
$.10 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH GLOBAL RESOURCES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------- -------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page............................... Cover Page
Item 2. Synopsis................................. Fee Table; Merrill Lynch Select Pricing(SM)
System
Item 3. Condensed Financial Information.......... Financial Highlights; Performance Data
Item 4. General Description of Registrant........ Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................... Fee Table; Management of the Trust;
Portfolio Transactions and Brokerage;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Capital Stock and Other Securities....... Cover Page; Purchase of Shares; Redemption
of Shares; Shareholder Services; Additional
Information
Item 7. Purchase of Securities Being Offered..... Cover Page; Fee Table; Merrill Lynch Select
Pricing(SM) System; Purchase of Shares;
Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase................. Fee Table; Merrill Lynch Select Pricing(SM)
System; Purchase of Shares; Redemption of
Shares
Item 9. Pending Legal Proceedings................ Not Applicable
PART B
Item 10. Cover Page............................... Cover Page
Item 11. Table of Contents........................ Back Cover Page
Item 12. General Information and History.......... General Information
Item 13. Investment Objective and Policies........ Investment Objective and Policies
Item 14. Management of the Fund................... Management of the Trust
Item 15. Control Persons and Principal Holders of
Securities............................. Management of the Trust; General
Information-- Additional Information
Item 16. Investment Advisory and Other
Services................................. Management of the Trust; Purchase of
Shares; General Information
Item 17. Brokerage Allocation and Other
Practices.............................. Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities....... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............... Purchase of Shares; Redemption of Shares;
Determination of Net Asset Value;
Shareholder Services
Item 20. Tax Status............................... Dividends, Distributions and Taxes
Item 21. Underwriters............................. Purchase of Shares
Item 22. Calculation of Performance Data.......... Performance Data
Item 23. Financial Statements..................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
PROSPECTUS
NOVEMBER 14, 1997
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
The investment objective of Merrill Lynch Global Resources Trust (the
"Trust") is 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 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"). 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. There can be no assurance that the
Trust's investment objective will be achieved. For more information on the
Trust's investment objectives and policies, please see "Investment Objective and
Policies" on page 12.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) 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 Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 (609)
282-2800, or from other securities dealers that have entered into dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000 and the
minimum subsequent purchase is $50, except that for retirement plans the minimum
initial purchase is $100 and the minimum subsequent purchase is $1 and for
participants in certain fee-based programs the minimum initial purchase is $500
and the minimum subsequent purchase is $50. Merrill Lynch may charge its
customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "Transfer Agent") are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Trust that
is relevant to making an investment in the Trust. This Prospectus should be
retained for future reference. A statement containing additional information
about the Trust, dated November 14, 1997 (the "Statement of Additional
Information"), 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. The Commission maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Trust.
The Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Trust follows:
<TABLE>
<CAPTION>
CLASS A(a) Class B(b) Class C Class D
---------- ------------------------ ------------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments............................ None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............ None(d) 4.0% during the first 1.0% for one None(d)
year, decreasing 1.0% year(f)
annually to 0.0% after
the fourth year(e)
Exchange Fee............................... None None None None
ANNUAL TRUST OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g)................ 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(h):
Account Maintenance Fees................. None 0.25% 0.25% 0.25%
Distribution Fees........................ None 0.75% 0.75% None
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Other Expenses:
Custodial Fees........................ 0.06% 0.06% 0.06% 0.06%
Shareholder Servicing Costs(i)........ 0.19% 0.22% 0.24% 0.19%
Other................................. 0.16% 0.16% 0.16% 0.16%
---------- ---------------------- ------------- -------
Total Other Expenses.............. 0.41% 0.44% 0.46% 0.41%
---------- ---------------------- ------------- -------
1.01% 2.04% 2.06% 1.26%
TOTAL TRUST OPERATING EXPENSES............. ========== ====================== ============ =======
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and participants in certain
fee-based programs. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"--page 22 and "Shareholder
Services--Fee-Based Programs"--page 34.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares"--page 24.
(c) Reduced for purchases of $25,000 and over and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A or Class D purchases of $1,000,000 or
more may not be subject to an initial sales charge. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--page
22.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge (a "CDSC"), except that certain purchases of $1,000,000 or more that
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 34.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 34.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 34.
(g) See "Management of the Trust--Management and Advisory Arrangements"--page
17.
(h) See "Purchase of Shares--Distribution Plans"--page 27.
(i) See "Management of the Trust--Transfer Agency Services"--page 19.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment including the maximum $52.50
initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Trust Operating
Expenses for each class set forth on page 2, (2) a 5%
annual return throughout the periods and (3)
redemption at the end of the period (including any
applicable CDSC for Class B and Class C shares):
Class A........................................... $62 $83 $105 $170
Class B .......................................... $61 $84 $110 $217*
Class C........................................... $31 $65 $111 $239
Class D........................................... $65 $90 $118 $197
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of the period:
Class A........................................... $62 $83 $105 $170
Class B........................................... $21 $64 $110 $217*
Class C........................................... $21 $65 $111 $239
Class D........................................... $65 $90 $118 $197
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Trust will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual fee rate of return as mandated by
Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE
EXAMPLE. Class B and Class C shareholders who hold their shares for an extended
period of time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the Conduct
Rules of the National Association of Securities Dealers, Inc. (the "NASD").
Merrill Lynch may charge its customers a processing fee (presently $5.35) for
confirming purchases and repurchases. Purchases and redemptions made directly
through the Trust's Transfer Agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares."
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Trust offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 registered investment companies advised by Merrill Lynch Asset Management,
L.P. ("MLAM" or the "Investment Adviser") or its affiliate, Fund Asset
Management, L.P. ("FAM"). Funds advised by MLAM or FAM that use the Merrill
Lynch Select Pricing(SM) System are referred to herein as "MLAM-advised mutual
funds."
3
<PAGE> 6
Each Class A, Class B, Class C or Class D share of the Trust represents an
identical interest 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 Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution and account maintenance fees that are imposed on Class B and
Class C shares, as well as the account maintenance fees that are imposed on the
Class D shares, are imposed directly against those classes and not against all
assets of the Trust and, accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Trust for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of the Trust. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is the most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
B CDSC for a period of four years, at a 0.25% 0.75% B shares convert to D shares
rate of 4.0% during the first year, automatically after
decreasing 1.0% annually to 0.0%(4) approximately eight years(5)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales charge(3) 0.25% No No
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares-- Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class A
shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an
(Footnotes continued on next page)
4
<PAGE> 7
(Footnotes continued from previous page)
initial sales charge but instead may be subject to a 1.0% CDSC if redeemed
within one year. Such CDSC may be waived in connection with certain
fee-based programs. A 0.75% sales charge for 401(k) purchases over
$1,000,000 will apply. See "Class A" and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans and fee-based programs was modified. Also, Class B shares
of certain other MLAM-advised mutual funds into which exchanges may be made
have a ten-year conversion period. If Class B shares of the Trust are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
on to the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Trust are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding Class
A shares of the Trust. Investors who currently own Class A shares of
the Trust in a shareholder account are entitled to purchase additional
Class A shares of the Trust in that account. Other eligible investors
include certain retirement plans and participants in certain fee-based
programs. In addition, Class A shares will be offered at net asset
value to Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries
(the term "subsidiaries" when used herein with respect to ML & Co.
includes the Investment Adviser, FAM and certain other entities
directly or indirectly wholly owned and controlled by ML & Co.) and
their directors and employees and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge of 5.25% is
reduced for purchases of $25,000 and over and waived for purchases by
certain retirement plans and participants in connection with certain
fee-based programs. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. Sales charges also are reduced under a
right of accumulation that takes into account the investor's holdings
of all classes of all MLAM-advised mutual funds. See "Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75%, of the Trust's average net assets
attributable to Class B shares, and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
certain fee-based programs. Approximately eight years after issuance,
Class B shares will convert automatically into Class D shares of the
Trust, which are subject to an account maintenance fee but no
distribution fee. Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Trust are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired
in the exchange will apply, and the holding period for the shares
exchanged will be tacked on to the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a month on the basis of the relative net asset
values of the shares of the two classes on the conversion date, without
the imposition of any sales load, fee or other charge. Conversion of
Class B shares to Class D shares will not be deemed a purchase or sale
of the shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares, and the conversion and holding
5
<PAGE> 8
periods for certain retirement plans are modified as described under
"Purchase of Shares--Deferred Sales Charge Alternatives--Class B and
Class C Shares--Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Trust's average net assets
attributable to the Class C shares. Class C shares are also subject to
a 1.0% CDSC if they are redeemed within one year of purchase. Such CDSC
may be waived in connection with certain fee-based programs. Although
Class C shares are subject to a CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor who purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Trust's Board of
Trustees and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Trust's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge of 5.25% is reduced
for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales
charge is waived, such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for Class D shares is the same as
the schedule for Class A shares, except that there is no waiver for
purchases by certain retirement plans and participants in connection
with certain fee-based programs. Class D shares also will be issued
upon conversion of Class B shares as described above under "Class B."
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors who previously
purchased Class A shares may no longer be eligible to purchase Class A shares of
other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation that may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause
6
<PAGE> 9
Class B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to have a higher
expense ratio, pay lower dividends and have a lower total return than Class A
shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Trust after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all of their assets invested initially and they are
uncertain as to the length of time they intend to hold their assets in
MLAM-advised mutual funds. Although Class C shareholders are subject to a
shorter CDSC period at a lower rate, they forego the Class B conversion feature,
making their investment subject to ongoing account maintenance and distribution
fees for an indefinite period of time. In addition, while both Class B and Class
C distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited under a
voluntary waiver of asset-based sales charges. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in connection
with the annual audits of the financial statements of the Trust by Deloitte &
Touche LLP, independent auditors. Financial statements for the fiscal year ended
July 31, 1997 and the independent auditors' report thereon are included in the
Statement of Additional Information. Further information about the performance
of the Trust is contained in the Trust's most recent annual report to
shareholders, which may be obtained, without charge, by calling or by writing
the Trust at the telephone number or address on the front cover of this
Prospectus.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------------------
1997++ 1996++ 1995 1994 1993 1992 1991 1990 1989+
------- ------- ------- ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $17.27 $16.70 $15.84 $14.07 $14.33 $15.38 $15.93 $13.63 $12.50
------- ------- ------- ------- ------- ------ ------ ------ ------
Investment income
(loss)--net.......... .14 .22 .22 .22 .24 .34 .37 .39 .29
Realized and unrealized
gain (loss) on
investments and
foreign currency
transactions--net.... 2.91 .50 .88 1.69 (.26) (.13) (.47) 2.29 1.03
------- ------- ------- ------- ------- ------ ------ ------ ------
Total from investment
operations............. 3.05 .72 1.10 1.91 (.02) .21 (.10) 2.68 1.32
------- ------- ------- ------- ------- ------ ------ ------ ------
LESS DIVIDENDS AND
DISTRIBUTIONS:
Investment
income--net.......... (.23) (.15) (.24) (.14) (.24) (.47) (.41) (.38) (.14)
Realized gain on
investments--net..... (.19) -- -- -- -- (.79) (.04) -- (.05)
------- ------- ------- ------- ------- ------ ------ ------ ------
Total dividends and
distributions.......... (.42) (.15) (.24) (.14) (.24) (1.26) (.45) (.38) (.19)
------- ------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end of
period................. $19.90 $17.27 $16.70 $15.84 $14.07 $14.33 $15.38 $15.93 $13.63
======= ======= ======= ======= ======= ====== ====== ====== ======
TOTAL INVESTMENT
RETURN:**
Based on net asset value
per share.............. 17.95% 4.34% 7.05% 13.69% (.05)% 1.66% (.57)% 19.99% 10.77%#
======= ======= ======= ======= ======= ====== ====== ====== ======
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.01% 1.03% 1.06% .92% .95% .97% .95% .93% .86%*
======= ======= ======= ======= ======= ====== ====== ====== ======
Investment income
(loss)--net............ .76% 1.26% 1.34% 1.39% 1.62% 1.82% 2.89% 3.18% 2.66%*
======= ======= ======= ======= ======= ====== ====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of
period in thousands)... $18,504 $22,726 $28,729 $20,054 $12,087 $11,265 $6,699 $5,440 $1,864
======= ======= ======= ======= ======= ====== ====== ====== ======
Portfolio turnover...... 24.23% 26.48% 31.64% 54.87% 66.78% 31.43% 71.42% 57.21% 58.60%
======= ======= ======= ======= ======= ====== ====== ====== ======
Average commission rate
paid##................. $.0217 $.0223 -- -- -- -- -- -- --
======= ======= ======= ======= ======= ====== ====== ====== ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on October 24, 1988.
++ Based on average shares outstanding during the year.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Trust is
required to disclose its average commission rate paid per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
---------------------------------------------------------------------------------------------------------------------------
1997++ 1996++ 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.16 $16.62 $15.72 $14.02 $14.26 $15.30 $15.84 $13.55 $13.89 $19.86
------- ------- -------- -------- -------- -------- -------- -------- -------- ------
(.05) .03 .10 .05 .09 .13 .31 .33 .27 .16
2.90 .51 .84 1.70 (.24) (.08) (.56) 2.19 (.06) (4.00)
------- ------- -------- -------- -------- -------- -------- -------- -------- ------
2.85 .54 .94 1.75 (.15) .05 (.25) 2.52 .21 (3.84)
------- ------- -------- -------- -------- -------- -------- -------- -------- ------
(.02) --+++ (.04) (.05) (.09) (.30) (.25) (.23) (.21) (.15)
(.19) -- -- -- -- (.79) (.04) -- (.34) (1.98)
------- ------- -------- -------- -------- -------- -------- -------- -------- ------
(.21) -- (.04) (.05) (.09) (1.09) (.29) (.23) (.55) (2.13)
------- ------- -------- -------- -------- -------- -------- -------- -------- ------
$19.80 $17.16 $16.62 $15.72 $14.02 $14.26 $15.30 $15.84 $13.55 $13.89
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
16.72% 3.26% 5.95% 12.52% (1.02)% .53% (1.61)% 18.79% 1.94% (20.74)%
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
2.04% 2.07% 2.08% 1.95% 1.99% 2.00% 1.99% 1.96% 1.90% 1.82%
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
(.29)% .20% .31% .35% .60% .94% 1.85% 1.96% 1.83% 1.04%
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
$77,386 $94,199 $141,800 $236,581 $208,113 $254,866 $322,502 $420,951 $481,108 $741,984
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
24.23% 26.48% 31.64% 54.87% 66.78% 31.43% 71.42% 57.21% 58.60% 68.69%
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
$.0217 $.0223 -- -- -- -- -- -- -- --
======= ======= ======== ======== ======== ======== ======== ======== ======== ======
</TABLE>
9
<PAGE> 12
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C CLASS D
------------------------------------------------------ ------------------------------------------------------
FOR THE YEAR FOR THE PERIOD FOR THE YEAR FOR THE PERIOD
ENDED JULY 31, OCTOBER 21, 1994+ ENDED JULY 31, OCTOBER 21, 1994+
-------------------------------- TO JULY 31, -------------------------------- TO JULY 31,
1997++ 1996++ 1995 1997++ 1996++ 1995
-------------- -------------- ------------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Increase
(Decrease) in
Net Asset
Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period....... $17.08 $16.55 $15.93 $ 17.21 $ 16.67 $ 15.96
------ ------ ------- -------- -------- --------
Investment
income
(loss)--net... (.06) .04 .05 .09 .17 .12
Realized and
unrealized
gain on
investments
and foreign
currency
transactions--net. 2.90 .49 .62 2.91 .50 .66
------ ------ ------- -------- -------- -------
Total from
investment
operations... 2.84 .53 .67 3.00 .67 .78
------ ------ ------- -------- -------- -------
Less dividends
and
distributions:
Investment
income -- net... (.09) -- (.05) (.19) (.13) (.07)
Realized gain
on
investments -- net. (.19) -- -- (.19) -- --
------ ------ ------- -------- -------- -------
Total
dividends and
distributions... (.28) -- (.05) (.38) (.13) (.07)
------ ------ ------- -------- -------- ------
Net asset
value, end of
period....... $19.64 $17.08 $16.55 $ 19.83 $ 17.21 $ 16.67
====== ====== ======= ======== ======== ========
TOTAL
INVESTMENT
RETURN:**
Based on net
asset value
per share.... 16.77% 3.20% 4.26%# 17.66% 4.06% 4.93%#
====== ====== ======= ======== ======== ======
RATIOS TO
AVERAGE NET
ASSETS:
Expenses...... 2.06% 2.07% 2.20%* 1.26% 1.27% 1.39%*
====== ====== ======= ======== ======== =======
Investment
income
(loss)--net... (.33)% .27% .28%* .51% 1.00% 1.02%*
====== ====== ======= ======== ======== =======
SUPPLEMENTAL
DATA:
Net assets,
end of period
(in
thousands)... $2,680 $3,388 $2,800 $107,403 $108,924 $107,467
====== ====== ======= ======== ======== ========
Portfolio
turnover..... 24.23% 26.48% 31.64% 24.23% 26.48% 31.64%
====== ====== ======= ======== ======== ========
Average
commission
rate
paid##....... $.0217 $.0223 -- $ .0217 $ .0223 --
====== ====== ======= ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the year.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Trust is
required to disclose its average commission rate paid per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
10
<PAGE> 13
RISK FACTORS AND SPECIAL CONSIDERATIONS
Because of its emphasis on securities of companies with substantial natural
resource assets, the Trust should be considered a vehicle for diversification
and not as a balanced investment program.
There are no prescribed geographic limits on companies in which the Trust
may invest. Under certain economic, financial and political conditions, the
Trust may be invested primarily in foreign securities. Investments in securities
issued by foreign entities and/or denominated in foreign currencies involve
risks not typically involved in investment in domestic securities, including
fluctuations in foreign exchange rates, future political and economic
development and the possible imposition of exchange controls or other foreign or
U.S. governmental laws or restrictions applicable to such investments. Since the
Trust may invest in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates may affect the value
of investments in the portfolio and the unrealized appreciation or depreciation
of investments insofar as U.S. investors are concerned. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Trust's assets denominated in that currency and the Trust's yield
on such assets. Foreign currency exchange rates are determined by forces of
supply and demand on the foreign exchange markets. These forces are, in turn,
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation, and other factors.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments that could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a U.S. instrument, and foreign entities may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those of U.S. entities. In addition, certain foreign investments
may be subject to foreign withholding taxes. Investors should be able to deduct
such taxes in computing their taxable income or to use such amounts as credits
against their U.S. income taxes if more than 50% of the Trust's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations. See "Additional Information--Taxes." Foreign financial markets,
while growing in volume, have, for the most part, substantially less volume than
United States markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic companies.
Foreign markets also have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of the Trust are uninvested and no return is earned thereon. The
inability of the Trust to make intended security purchases due to settlement
problems could cause the Trust to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Trust due to subsequent declines in value of the
portfolio security or, if the Trust has entered into a contract to sell the
security, could result in possible liability to the purchaser. Costs associated
with transactions in foreign securities are generally higher than with
transactions in U.S. securities. There is generally less government supervision
and regulation of exchanges, financial institutions and issuers in foreign
countries than there is in the United States.
11
<PAGE> 14
As indicated above, under certain circumstances, the Trust may invest a
majority of its assets in gold-related companies or securities. Based on
historic experience, during periods of economic or financial instability the
securities of such companies may be subject to extreme price fluctuations,
reflecting the high volatility of gold prices during such periods. In addition,
the instability of gold prices may result in volatile earnings of gold-related
companies which, in turn, may affect adversely the financial condition of such
companies. Gold mining companies also are subject to the risks generally
associated with mining operations.
The major producers of gold include the Republic of South Africa, the
Commonwealth of Independent States, Canada, the United States, Brazil and
Australia. Sales of gold by the Commonwealth of Independent States are largely
unpredictable and often relate to political and economic considerations rather
than to market forces. Economic, social and political developments within South
Africa may affect significantly South African gold production.
INVESTMENT OBJECTIVE AND POLICIES
The Trust is a non-diversified, open-end management investment company. The
investment objective of the Trust is to achieve long-term growth of capital and
to protect the purchasing power of shareholders' capital by investing in a
portfolio of equity securities (e.g., common stocks and securities convertible
into common stocks) 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"). See "Asset-Based Securities" below.
Management of the Trust will seek to identify securities it believes are
attractively priced relative to the intrinsic value of the underlying natural
resource assets or are especially well-positioned to benefit during particular
portions of inflationary cycles. It is expected that when management of the
Trust anticipates significant economic, political or financial instability, such
as high inflationary pressures or upheaval in foreign currency exchange markets,
the Trust, in seeking to protect the purchasing power of shareholders' capital,
may invest a majority of its assets in companies that explore for, extract,
process or deal in gold or in asset-based securities indexed to the value of
gold bullion. Such a switch in investment strategies could require the Trust to
liquidate portfolio securities and incur transaction costs. There can be no
assurance that the objective of the Trust will be realized.
The Trust expects that, under normal circumstances, at least 65% of its
total assets will be invested in the securities of issuers from at least three
different countries (including the United States). For purposes of this policy,
an issuer ordinarily will be considered to be located in the country under the
laws of which it is organized or where the primary trading market of its
securities is located. The Trust, however, may consider a company to be located
in a country, without reference to its domicile or to the primary trading market
of its securities, when at least 50% of its non-current assets, capitalization,
gross revenues or profits in any one of the two most recent fiscal years
represents (directly or indirectly through subsidiaries) assets or activities
located in such country. The Trust also may consider closed-end investment
companies to be located in the country or countries in which they primarily make
their portfolio investments. For the risks attendant to investing in foreign
securities, see "Risk Factors and Special Considerations" above.
Management attempts to achieve the investment objectives of the Trust by
seeking to identify securities of companies that, in its opinion, are
undervalued relative to the value of the natural resource holdings of such
companies in light of current and anticipated economic or financial conditions.
Natural resource assets are
12
<PAGE> 15
materials derived from natural sources that have economic value. The Trust will
consider a company to have substantial natural resource assets when, in
management's opinion, the company's holdings of the assets are of such
magnitude, when compared to the capitalization, revenues or operating profits of
the company, that changes in the economic value of the assets will affect the
market price of the equity securities of such company. Generally, a company has
substantial natural resource assets when at least 50% of the non-current assets,
capitalization, gross revenues or operating profits of the company in the most
recent or current fiscal year are involved in or result from (directly or
indirectly through subsidiaries), exploring, mining, refining, processing,
fabricating, dealing in or owning natural resource assets. Examples of natural
resource assets include precious metals (e.g., gold, silver and platinum),
ferrous and nonferrous metals (e.g., iron, aluminum and copper), strategic
metals (e.g., uranium and titanium), hydrocarbons (e.g., coal, oil and natural
gas), timber land, undeveloped real property and agricultural commodities. The
Trust presently does not intend to invest directly in natural resource assets or
contracts related thereto.
Management of the Trust believes that, based upon past performance, the
securities of specific companies that hold different types of substantial
natural resource assets may move relatively independently of one another during
different stages of inflationary cycles due to different degrees of demand for,
or market values of, their respective natural resource holdings during
particular portions of such inflationary cycles. The Trust's fully-managed
investment approach enables it to switch its emphasis among various industry
groups depending upon management's outlook with respect to prevailing trends and
developments. The Trust may seek to hedge its portfolio partially by writing
covered call options or purchasing put options on its portfolio holdings.
The Trust at all times, except during defensive periods, will maintain at
least 65% of its total assets invested in companies with substantial natural
resource assets or in asset-based securities. Current income from dividends and
interest will not be a primary consideration in selecting securities. The Trust
reserves the right as a temporary defensive measure to hold short-term U.S.
Government securities, money market securities, including repurchase agreements,
or cash, in such proportions as, in the opinion of management, prevailing market
or economic conditions warrant. The Trust reserves the right to hold short-term
U.S. Government securities, money market securities, including repurchase
agreements, or cash for redemptions. Except during extraordinary periods, the
Trust would not expect that such securities or cash held for redemptions would
exceed 20% of its total assets.
The Trust may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "Securities
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. However, the Trust will not invest more than
15% of its net assets in illiquid investments, which include securities for
which there is no readily available market, securities subject to contractual
restrictions on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities, unless the Trust's Board
of Trustees continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Trustees may adopt
guidelines and delegate to the Investment Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
The Board of Trustees carefully monitors the Trust's investments in these
securities purchased pursuant to Rule 144A, focusing on such factors, among
others, as valuation, liquidity and availability of information. These
investments in securities purchased pursuant to Rule 144A could have the effect
of increasing the level
13
<PAGE> 16
of illiquidity in the Trust to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities.
The investment policies of the Trust described in the first and fifth
paragraphs of this section are fundamental policies of the Trust and may not be
changed without the approval of the holders of a majority of the Trust's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act").
ASSET-BASED SECURITIES
The Trust may invest in debt, preferred 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 purchase only asset-based securities
that 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
Services ("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 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 account 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 asset. 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. As an example, assume gold is selling at a market price of $300
per ounce and an issuer sells a $1,000 face amount gold-related note with a
seven-year maturity, payable at maturity at the greater of either $1,000 in cash
or the then market price of three ounces of gold. If at maturity, the market
price of gold is $400 per ounce, the amount payable on the note would be $1,200.
Certain asset-based securities may be payable at maturity in cash at the stated
principal amount or, at the option of the holder, directly in a stated amount of
the asset to which it is related. In such instance, because the Trust presently
does not intend to invest directly in natural resource assets, the Trust would
sell the asset-based security in the secondary market, to the extent one exists,
prior to maturity if the value of the stated amount of the asset exceeds the
stated principal amount and thereby realize the appreciation in the underlying
asset.
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. 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
14
<PAGE> 17
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.
Purchasing Put Options. The Trust may purchase put options to hedge
against a decline in the market value of its equity securities. By buying a put
option, 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 partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in a closing sale
transaction and profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out the 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 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.
Portfolio Transactions. In executing portfolio transactions, the Trust
seeks to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Trust generally
seeks reasonably competitive commission rates, the Trust does not necessarily
pay the lowest commission or spread available. The Trust contemplates that,
consistent with its policy of obtaining the best net results, it will place
orders for transactions with a number of brokers and dealers, including Merrill
Lynch, an affiliate of the Investment Adviser. Subject to obtaining the best
price and execution, brokers who provide supplemental investment research to the
Trust may receive orders for transactions by the Trust. Information so received
will be in addition to, and not in lieu of, the services required to be
performed by the Investment Adviser and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. See "Management of the Trust--Management and Advisory
Arrangements." In addition, consistent with the Conduct Rules of the NASD,
management of the Trust 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. It is expected that the majority of the shares of the Trust will be sold
by Merrill Lynch.
The Trust anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States, although the Trust
will endeavor to achieve the best net results in effecting such transactions.
Forward Foreign Exchange Transactions. The Trust is authorized to deal in
forward foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rate between these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) and price set at the time of the contract. The Trust's dealings
in forward foreign exchange will be limited to hedging involving either specific
15
<PAGE> 18
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 will not attempt to hedge all of its foreign
portfolio positions. The Trust may not commit more than 15% of its total assets
to position hedging contracts.
Repurchase Agreements. The Trust may invest in securities pursuant to
repurchase agreements of not more than seven days' duration. 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. In all instances, the Trust takes
possession of the underlying securities when investing in repurchase agreements.
Lending of Portfolio Securities. The Trust is authorized to lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions if it receives
collateral in cash or securities issued or guaranteed by the U.S. Government,
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of this loan,
the Trust receives income on both the loaned securities and the collateral and
may thereby increase its yield.
INVESTMENT RESTRICTIONS
The Trust's investment activities are subject to further restrictions that
are described in the Statement of Additional Information. Investment
restrictions and policies that are fundamental policies may not be changed
without the approval of the holders of a majority of the Trust's outstanding
voting securities (which for this purpose and under the Investment Company Act
means the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). Among its fundamental policies, the Trust may not invest
more than 25% of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry (excluding
the U.S. Government and its agencies and instrumentalities). In addition, the
Trust may not borrow money or pledge its assets, except that the Trust (a) may
borrow from a bank as a temporary measure for extraordinary or emergency
purposes or to meet redemptions in amounts not exceeding 33 1/3% (taken at
market value) of its total assets and pledge its assets to secure such
borrowings, (b) may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (c) may purchase
securities on margin to the extent permitted by applicable law. (However, at the
present time, applicable law prohibits the Trust from purchasing securities on
margin.) (The deposit or payment by the Trust of initial or variation margin in
connection with financial futures contracts or options transactions is not
considered to be the purchase of a security on margin.) The purchase of
securities while borrowings are outstanding will have the effect of leveraging
the Trust. Such leveraging or borrowing increases the Trust's exposure to
capital risk, and borrowed funds are subject to interest costs that will reduce
net income.
16
<PAGE> 19
Investment restrictions and policies that are non-fundamental policies may
be changed by the Board of Trustees without shareholder approval. As a
non-fundamental policy, the Trust will not invest in securities that cannot
readily be resold because of legal or contractual restrictions or that are not
otherwise readily marketable, including repurchase agreements and purchase and
sale contracts maturing in more than seven days, if, regarding all such
securities, more than 15% of its total assets taken at market value would be
invested in such securities. Notwithstanding the foregoing, the Trust may
purchase without regard to this limitation securities that are not registered
under the Securities Act, but that can be offered and sold to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act, provided
that the Trust's Board of Trustees determines, based on the trading markets for
the specific Rule 144A security, that such securities are liquid. The Board of
Trustees may adopt guidelines and delegate to the Investment Adviser the daily
function of determining and monitoring liquidity of restricted securities. The
Board has determined that securities that are freely tradeable in their primary
market offshore should be deemed liquid. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
MANAGEMENT OF THE TRUST
TRUSTEES
The Board of Trustees of the Trust consists of six individuals, five of
whom are not "interested persons" of the Trust as defined in the Investment
Company Act. The Trustees of the Trust are responsible for the overall
supervision of the operations of the Trust and perform the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Trustees of the Trust are:
ARTHUR ZEIKEL*--President of the Investment Adviser and its affiliate, FAM;
President and Director of Princeton Services, Inc. ("Princeton Services");
Executive Vice President of ML & Co.
DONALD CECIL--Special Limited Partner of Cumberland Partners (an investment
partnership).
M. COLYER CRUM--James R. Williston Professor of Investment Management
Emeritus, Harvard Business School.
EDWARD H. MEYER--Chairman of the Board of Directors, President and Chief
Executive Officer of Grey Advertising Inc.
JACK B. SUNDERLAND--President and Director of American Independent Oil
Company, Inc. (an energy company).
J. THOMAS TOUCHTON--Managing Partner of The Witt-Touchton Company (a
private investment partnership).
- ---------------
* Interested person, as defined in the Investment Company Act, of the Trust.
17
<PAGE> 20
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company, acts as the investment adviser to the Trust
and provides the Trust with management and investment advisory services. The
Investment Adviser or its affiliate, FAM, acts as the investment adviser for
more than 140 registered investment companies. The Investment Adviser or FAM
also provides investment advisory services to individual and institutional
accounts. As of October 31, 1997, the Investment Adviser and FAM had a total of
$271.9 billion in investment company and other portfolio assets under
management, including accounts of certain affiliates of the Investment Adviser.
The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
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 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 Board of Trustees.
The Investment Adviser supplies the portfolio manager for the Trust, who
considers analyses from various sources, makes the necessary investment
decisions, and places transactions accordingly. The Investment Adviser also is
obligated to perform certain administrative and management services for the
Trust and is required to provide all the office space, facilities, equipment and
personnel necessary to perform its duties under the Investment Advisory
Agreement.
The Trust pays the Investment Adviser a monthly fee at the annual rate of
0.60% of the average daily net assets of the Trust. For the fiscal year ended
July 31, 1997, the Investment Adviser earned a fee of $1,350,592 (based on
average daily net assets of approximately $225.1 million).
The Investment Advisory Agreement obligates the Trust to pay certain
expenses incurred in its operations including, among other things, the
investment advisory fee, legal and audit fees, unaffiliated Trustees' fees and
expenses, custodian and transfer agency fees, accounting costs, the costs of
issuing and redeeming shares and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information.
Accounting services are provided for the Trust by the Investment Adviser and the
Trust reimburses the Investment Adviser for its costs in connection with such
services. For the fiscal year ended July 31, 1997, the Trust paid the Investment
Adviser $76,212 for accounting services. For the fiscal year ended July 31,
1997, the ratio of total expenses to average net assets was 1.01% for Class A
shares, 2.04% for Class B shares, 2.06% for Class C shares and 1.26% for Class D
shares.
Also, the Investment Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an affiliate
of the Investment Adviser, pursuant to which the Investment Adviser pays MLAM
U.K. a fee for providing investment advisory services to the Investment Adviser
with respect to the Trust in an amount to be determined from time to time by the
Investment Adviser and MLAM U.K., but in no event in excess of the amount that
the Investment Adviser actually receives for providing services to the Trust
pursuant to the Investment Advisory Agreement. MLAM U.K. has offices at Milton
Gate, 1 Moor Lane, London EC2Y 9HA, England.
Peter A. Lehman is primarily responsible for the day-to-day management of
the Trust's portfolio. Mr. Lehman has been a First Vice President of the
Investment Adviser since 1997 and Portfolio Manager of the Trust since 1994. He
was a Vice President of the Investment Adviser from 1994 to 1997 and an employee
of the Investment Adviser since 1992.
18
<PAGE> 21
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to
Rule 17j-1 under the Investment Company Act that incorporates the Code of Ethics
of the Investment Adviser (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Investment
Adviser and, as described below, impose additional, more onerous, restrictions
on Trust investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Trust within
periods of trading by the Trust in the same (or equivalent) security (15 or 30
days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Trust's
transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives an annual fee of up to $11.00 per Class A or Class D account and
up to $14.00 per Class B or Class C account and is entitled to reimbursement
from the Trust for certain transaction charges and out-of-pocket expenses
incurred by the Transfer Agent under the Transfer Agency Agreement.
Additionally, a $0.20 monthly closed account charge will be assessed on all
accounts that close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the end of the
calendar year, no further fees will be due. For purposes of the Transfer Agency
Agreement, the term "account" includes a shareholder account maintained directly
by the Transfer Agent and any other account representing the beneficial interest
of a person in the relevant share class or a recordkeeping system, provided the
recordkeeping system is maintained by a wholly owned subsidiary at ML & Co. For
the fiscal year ended July 31, 1997, the total fee paid by the Trust to the
Transfer Agent pursuant to the Transfer Agency Agreement was approximately
$456,405.
PURCHASE OF SHARES
The Distributor, an affiliate of the Investment Adviser, FAM and Merrill
Lynch, acts as the Distributor of the shares of the Trust. Shares of the Trust
are offered continuously for sale by the Distributor and other eligible
securities dealers (including Merrill Lynch). Shares of the Trust may be
purchased from securities dealers or by mailing a purchase order directly to the
Transfer Agent. The minimum initial purchase is $1,000 and the minimum
subsequent purchase is $50, except that for retirement plans the minimum initial
purchase is $100 and the minimum subsequent purchase is $1 and for participants
in certain fee-based programs, the minimum initial purchase is $500 and the
minimum subsequent purchase is $50.
19
<PAGE> 22
The Trust offers its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Trust next determined
after receipt of the purchase order by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (the "NYSE") (generally, 4:00 p.m., New York time), which include
orders received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the NYSE on the day the orders are placed with
the Distributor, provided the orders are received by the Distributor from the
securities dealer prior to 30 minutes after the close of business on the NYSE on
that day. If the purchase orders are not received by the Distributor prior to 30
minutes after the close of business on the NYSE on that day, such orders shall
be deemed received on the next business day. The Trust or the Distributor may
suspend the continuous offering of the Trust's shares of any class at any time
in response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected by
the Distributor or the Trust. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made directly through the
Transfer Agent are not subject to the processing fee.
The Trust issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Trust with the investment
thereafter being subject to a CDSC and ongoing distribution fees. A discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing(SM) System is set forth
under "Merrill Lynch Select Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Trust represents an
identical interest 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 Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
CDSCs, distribution and account maintenance fees that are imposed on Class B and
Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, are imposed directly against those classes and not against all
assets of the Trust and, accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Trust for each class of shares are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid (except that Class B shareholders may vote on any material changes to
expenses charged under the Class D
20
<PAGE> 23
Distribution Plan). See "Distribution Plans" below. Each class has different
exchange privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSCs and distribution fees with respect to Class B and Class C shares in
that the sales charges and distribution fees applicable to each class provide
for the financing of the distribution of the shares of the Trust. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, that are eligible
to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
----- --------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
B CDSC for a period of four years, at a 0.25% 0.75% B shares convert to D shares
rate of 4.0% during the first year, automatically after
decreasing 1.0% annually to 0.0%(4) approximately eight years(5)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales charge(3) 0.25% No No
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchasers of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but instead
may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC may be
waived in connection with certain fee-based programs. A 0.75% sales charge
for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans was modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Trust
are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be "tacked"
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
21
<PAGE> 24
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A rather than Class D shares
because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
DISCOUNT TO
SALES LOAD SALES LOAD AS SELECTED DEALERS
AS PERCENTAGE OF PERCENTAGE* OF THE AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET AMOUNT INVESTED THE OFFERING PRICE
- ------------------------------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C>
Less than $25,000.......................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000.............. 4.75 4.99 4.50
$50,000 but less than $100,000............. 4.00 4.17 3.75
$100,000 but less than $250,000............ 3.00 3.09 2.75
$250,000 but less than $1,000,000.......... 2.00 2.04 1.80
$1,000,000 and over**...................... 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D share purchases
of $1,000,000 or more, and on Class A share purchases by certain retirement
plan investors and participants in connection with certain fee-based
programs. If the sales charge is waived in connection with a purchase of
$1,000,000 or more, such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be waived
in connection with certain fee-based programs. The charge is assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. A sales charge of 0.75% will be charged on purchases
of $1,000,000 or more of Class A or Class D shares by certain
employer-sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Trust will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act. The
proceeds from the account maintenance fees are used to compensate Merrill Lynch
for providing continuing account maintenance activities.
For the fiscal year ended July 31, 1997, the Trust sold 448,154 Class A
shares for aggregate net proceeds of $8,330,555. The gross sales charges for the
sale of Class A shares of the Trust for that year were $2,729, of which $184 and
$2,545 were received by the Distributor and Merrill Lynch, respectively. For the
fiscal year ended July 31, 1997, the Distributor received no CDSCs with respect
to redemption within one year after purchase of Class A shares purchased subject
to a front-end sales charge waiver. For the fiscal year ended July 31, 1997, the
Trust sold 515,787 Class D shares for aggregate net proceeds of $9,511,946. The
gross sales charges for the sale of Class D shares of the Trust for that year
were $23,480 of which $1,557 and $21,923 were received by the Distributor and
Merrill Lynch, respectively. For the fiscal year ended July 31, 1997, the
Distributor received no CDSCs with respect to redemption within one year after
purchase of Class D shares purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A shares of the
Trust in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program,
22
<PAGE> 25
are entitled to purchase additional Class A shares of the Trust in that account.
Certain employer-sponsored retirement or savings plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by the Investment Adviser or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs and U.S. branches of foreign banking institutions provided that
the program or branch has $3 million or more initially invested in MLAM-advised
mutual funds. Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMA(SM) Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services,
collective investment trusts for which Merrill Lynch Trust Company serves as
trustee and purchases made in connection with certain fee-based programs. In
addition, Class A shares will be offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Trust. Certain persons who
acquired shares of certain MLAM-advised closed-end funds in their initial
offerings who wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in shares of the Trust also may purchase Class A
shares of the Trust if certain conditions set forth in the Statement of
Additional Information are met (for closed-end funds that commenced operations
prior to October 21, 1994). In addition, Class A shares of the Trust and certain
other MLAM-advised mutual funds are offered at net asset value to shareholders
of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain conditions set
forth in the Statement of Additional Information are met, to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income
Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to a tender offer conducted by
such funds in shares of the Trust and certain other MLAM-advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention. Class A
shares are offered at net asset value to certain eligible Class A investors as
set forth above under "Eligible Class A Investors." See "Shareholder
Services--Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and,
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest in
shares of the Trust the net proceeds from a sale of certain of their shares of
common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value without a sales charge to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies. Class D
shares are offered with reduced sales charges and, in certain circumstances, at
net asset value, to participants in the Merrill Lynch Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
23
<PAGE> 26
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC,
which declines each year, while Class C shares are subject only to a one-year
1.0% CDSC. On the other hand, approximately eight years after Class B shares are
issued, such Class B shares, together with shares issued upon dividend
reinvestment with respect to those shares, are automatically converted into
Class D shares of the Trust and thereafter will be subject to lower continuing
fees. See "Conversion of Class B Shares to Class D Shares" below. Both Class B
and Class C shares are subject to an account maintenance fee of 0.25% of net
assets and a distribution fee of 0.75% of net assets as discussed below under
"Distribution Plans." The proceeds from the ongoing account maintenance fees are
used to compensate Merrill Lynch for providing continuing account maintenance
activities.
Class B and Class C shares are sold without an initial sales charge so that
the Trust will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Trust in connection with the sale of the Class B and Class C
shares, such as the payment from the dealers' own funds of compensation to
financial consultants for selling Class B and Class C shares. The combination of
the CDSC and the ongoing distribution fee facilitates the ability of the Trust
to sell the Class B and Class C shares without a sales charge being deducted at
the time of purchase. Approximately eight years after issuance, Class B shares
will convert automatically into Class D shares of the Trust, which are subject
to an account maintenance fee but no distribution fee; Class B shares of certain
other MLAM-advised mutual funds into which exchanges may be made convert into
Class D shares automatically after approximately ten years. If Class B shares of
the Trust are exchanged for Class B shares of another MLAM-advised mutual fund,
the conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. Class B shareholders of the Trust
exercising the exchange privilege described under "Shareholder
Services--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 Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares that are
redeemed within four years after purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in
24
<PAGE> 27
net asset value above the initial purchase price. In addition, no CDSC will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------- -----------------
<S> <C>
0-1......................................................... 4.00%
1-2......................................................... 3.00
2-3......................................................... 2.00
3-4......................................................... 1.00
4 and thereafter............................................ 0.00
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another account will be assumed to be
made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase for shares purchased on or
after October 21, 1994).
For the fiscal year ended July 31, 1997, the Distributor received CDSCs of
$222,547 with respect to redemptions of Class B shares, all of which were paid
to Merrill Lynch. Additional CDSCs payable to the Distributor may have been
waived or converted to a contingent obligation in connection with a
shareholder's participation in certain fee-based programs.
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans. The CDSC also is waived for any Class
B shares that are purchased by eligible 401(k) or eligible 401(a) plans that are
rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA
and held in such account at the time of redemption and for any Class B shares
that were acquired and held at the time of the redemption in the Employee Access
Account(SM) available through employers providing eligible 401(k) plans. The
Class B CDSC also is waived for any Class B shares that are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM
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Private Portfolio Group and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares that are purchased within
qualifying Employee Access(SM) Accounts. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information. The terms of the CDSC may be modified in connection with certain
fee-based programs. See "Shareholder Services--Fee-Based Programs."
Contingent Deferred Sales Charges--Class C Shares. Class C shares that are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions. The Class C CDSC may be waived in connection
with certain fee-based programs. See "Shareholder Services--Fee-Based Programs."
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
For the fiscal year ended July 31, 1997, the Distributor received CDSCs of
$3,004 with respect to redemptions of Class C shares, all of which were paid to
Merrill Lynch.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Trust. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Trust in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Trust
held in the account on the Conversion Date will be converted to Class D shares
of the Trust.
Share certificates for Class B shares of the Trust to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
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In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value per
share.
The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services--Fee-Based Programs."
DISTRIBUTION PLANS
The Trust has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Trust to the Distributor in connection with such classes. The
Class B and Class C Distribution Plans provide for the payment of account
maintenance fees and distribution fees, and the Class D Distribution Plan
provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Trust pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Trust attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Trust also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Trust attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Trust,
including payments to financial consultants for selling Class B and Class C
shares of the Trust. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSCs are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Trust in that the CDSCs and distribution fees provide for the
financing of the distribution of the Trust's Class B and Class C shares.
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For the fiscal year ended July 31, 1997, the Trust paid the Distributor
$889,611 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $89.0
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended July 31, 1997, the Trust paid the
Distributor $33,693 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately $3.4
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended July 31, 1997, the Trust paid the
Distributor $276,330 pursuant to the Class D Distribution Plan (based on average
daily net assets subject to such Class D Distribution Plan of approximately
$110.5 million), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Trustees for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, CDSCs and certain other related
revenues, and expenses consist of financial consultant compensation, branch
office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation.
As of December 31, 1996, the fully allocated accrual revenues earned by the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded fully allocated accrual expenses for such
period by approximately $6,954,000 (7.43% of Class B net assets at that date).
As of July 31, 1997, direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash expenses by $41,666,201
(53.84% of Class B net assets at that date). As of December 31, 1996, the fully
allocated accrued expenses for the period since the commencement of operations
of Class C shares exceeded revenues for such period by $81,000 (2.05% of Class C
net assets at that date). As of July 31, 1997, direct cash revenues for the
period since the commencement of operations of Class C shares exceeded direct
cash expenses by $51,484 (1.92% of Class C net assets at that date).
The Trust has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Trustees of the Trust will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Trustees will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of
Class B Shares to Class D Shares."
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LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the 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.
REDEMPTION OF SHARES
The Trust is required to redeem all shares of the Trust for cash on receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive on redemption all dividends
reinvested through the date of redemption. The value of shares at the time of
redemption may be more or less than the shareholder's cost, depending on the
market value of the securities held by the Trust at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited
with the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by the certificates for the shares to be redeemed. The
redemption request in either event requires the signatures of all persons in
whose names the shares are registered, signed exactly as their names appear on
the Transfer Agent's register or on the certificate, as the case may be.
Redemption requests should not be sent to the Trust. The signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution"
(including, for example, Merrill Lynch branch offices and certain other
financial institutions) as such term is defined in Rule 17Ad-15 under
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the Securities Exchange Act of 1934, as amended, and the existence and validity
of it may be verified by the Transfer Agent through the use of industry
publications. Notarized signatures are not sufficient. In certain instances, the
Transfer Agent may require additional documents, such as, but not limited to,
trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payment will be mailed within seven
days of receipt of a proper notice of redemption.
At various times, the Trust may be requested to redeem shares for which it
has not yet received good payment. The Trust may delay or cause to be delayed
the mailing of a redemption check until such time as good payment (e.g., cash,
Federal Funds or a certified check drawn on a United States bank) has been
collected for the purchase of such shares. Normally, this delay will not exceed
10 days.
REPURCHASE
The Trust will also repurchase shares through a shareholder's listed
securities dealer. The Trust normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to the close of business on the NYSE
(generally, 4:00 p.m., New York time) on the day received, and such request is
received by the Trust from such dealer not later than 30 minutes after the close
of business on the NYSE on the same day. Dealers have the responsibility to
submit such repurchase requests to the Trust not later than 30 minutes after the
close of business on the NYSE in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Trust (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Trust. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares.
Redemptions made directly through the Transfer Agent are not subject to the
processing fee. The Trust reserves the right to reject any order for repurchase,
which right of rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. However, a shareholder whose order for
repurchase is rejected by the Trust, may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and the stock power or letter requesting redemption,
in each instance with signatures guaranteed as noted above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Trust at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. The reinstatement will be
made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds.
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SHAREHOLDER SERVICES
The Trust offers a number of shareholder services and investment plans
described below, which are designed to facilitate investment in shares of the
Trust. Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or how to change options with respect thereto, can be
obtained from the Trust by calling the telephone number on the cover page
hereof, or from the Distributor or Merrill Lynch. Certain of these services are
only available to U.S. investors. Included in the Trust's shareholder services
are the following:
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements also will show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and capital gain distributions. Shareholders may make additions
to their Investment Account at any time by mailing a check directly to the
Transfer Agent. Shareholders also may maintain their accounts through Merrill
Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage account, an
Investment Account in the transferring shareholder's name may be opened
automatically, without charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the 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 or she be issued certificates for such
shares and then must turn the certificates over to the new firm for
re-registration as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an 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.
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EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Trust have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select 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
the account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive Class
D shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Trust that are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Trust. 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 for the newly acquired shares of the
other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the 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. 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 MLAM-advised mutual fund from
which the exchange has been made.
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Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services-- Exchange Privilege" in the
Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Trust, without a sales charge, at the net
asset value per share next determined after the close of the NYSE on the
ex-dividend date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or telephone call
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed monthly. The Trust is not responsible for any
failure of delivery to the shareholder's address of record and no interest will
accrue on amounts represented by uncashed distribution or redemption checks.
Cash payments can also be directly deposited to the shareholder's bank account.
No CDSC will be imposed on redemption of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. A 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) or CBA(R) Systematic
Redemption Program, subject to certain conditions. With respect to redemptions
of Class B and Class C shares pursuant to a systematic withdrawal plan, the
maximum number of Class B or Class C shares that can be redeemed from an account
annually shall not exceed 10% of the value of shares of such class in that
account at the time the election to join the systematic withdrawal plan was
made. Any CDSC that otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class C shares
are otherwise redeemed. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Contingent Deferred Sales
Charges--Class B Shares" and "--Contingent Deferred Sales Charges--Class C
Shares." Where the systematic withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
shares. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and
Class C Shares -- Conversion of Class B Shares to Class D Shares."
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his or her regular bank account. 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 plans) through the CMA(R) or CBA(R) Automated Investment
Program.
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FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
Investment Adviser is responsible for the Trust's portfolio decisions and the
placing of the Trust's brokerage business, evaluating the reasonableness of
brokerage commissions and negotiating the amount of any commissions paid. 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.
The Trust does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Investment Adviser 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 benefited 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
34
<PAGE> 37
supplemental information, and the Investment Adviser may use such information in
servicing its other accounts.
PERFORMANCE DATA
From time to time, the Trust may include its average annual total return
for various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Trust with respect to all shares, to the extent
any dividends are paid, will be calculated in the same manner on the same day
and will be in the same amount, except that account maintenance fees,
distribution charges and any incremental transfer agency costs relating to each
class of shares will be borne exclusively by that class. The Trust will include
performance data for all classes of shares of the Trust in any advertisement or
information including performance data of the Trust.
The Trust also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual or
annualized total return data generally will be lower than average annual total
return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time. In advertisements distributed to investors whose
purchases are subject to waiver of the CDSC in the case of Class B and Class C
shares (such as investors in certain retirement plans) or reduced sales charges
in the case of Class A and Class D shares, performance data may take into
account the reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or waiver of the CDSC, a lower amount of expenses may
be deducted. See "Purchase of Shares." The Trust's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate the effect
of such total return on a hypothetical $1,000 investment in the Trust at the
beginning of each specified period.
Total return figures are based on the Trust's historical performance and
are not intended to indicate future performance. The Trust's total return will
vary depending on market conditions, the securities comprising the Trust's
portfolio, the Trust's operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an
investment in the Trust will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
35
<PAGE> 38
On occasion, the Trust may compare its performance to that of the Standard
& Poor's 500 Index, the Dow Jones Industrial Average or performance data
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine and
Fortune Magazine or other industry publications. As with other performance data,
performance comparisons should not be considered indicative of the Trust's
relative performance for any future period. In addition, from time to time the
Trust may include its risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Trust's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid semi-annually. All
net realized capital gains, if any, are distributed to the Trust's shareholders
at least annually. The per share dividends and distributions on each class of
shares will be reduced as a result of any account maintenance, distribution and
transfer agency fees applicable to that class. See "Determination of Net Asset
Value" below. Dividends and distributions will be reinvested automatically in
shares of the Trust at net asset value without a sales charge. However, a
shareholder whose account is maintained at the Transfer Agent or whose account
is maintained through Merrill Lynch may elect in writing to receive any such
dividends or distributions, or both, in cash. See "Shareholder
Services--Automatic Reinvestment of Dividends and Distributions" for information
as to how to elect either dividend reinvestment or cash payments. Dividends and
distributions are taxable to shareholders as discussed below whether they are
reinvested in shares of the Trust or received in cash. From time to time, the
Trust may declare a special distribution at or about the end of the calendar
year in order to comply with Federal tax requirements that certain percentages
of its ordinary income and capital gains be distributed during the calendar
year.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Trust is determined
once daily, 15 minutes after the close of business on the NYSE (generally, 4:00
p.m., New York time) on each day during which the NYSE is open for trading. Any
assets or liabilities initially expressed in terms of non-U.S. dollar currencies
are translated into U.S. dollars at the prevailing market rates as quoted by one
or more banks or dealers on the day of valuation. The net asset value per share
is computed by dividing the sum of the value of the securities held by the Trust
plus any cash or other assets (including interest and dividends accrued but not
yet received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the investment advisory fees payable to the Investment
Adviser and any account maintenance and/or distribution fees payable to the
Distributor, are accrued daily. The Trust employs Merrill Lynch Securities
Pricing(SM) Service ("MLSPS"), an affiliate of the Investment Adviser, to
provide certain securities prices for the Trust. During the fiscal year ended
July 31, 1997, the Trust did not pay MLSPS a fee for such service.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; in addition, the per share
36
<PAGE> 39
net asset value of Class D shares generally will be higher than the per share
net asset value of Class B and Class C shares, reflecting the daily expense
accruals of the distribution fees and the higher transfer agency fees applicable
with respect to Class B and Class C shares. It is expected, however, that the
per share net asset value of the classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Trustees as
the primary market. Securities traded in the over-the-counter ("OTC") market are
valued at the last available bid price in the OTC market prior to the time of
valuation. When the Trust writes an 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 in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last bid price. Securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Board of Trustees of the
Trust.
TAXES
The Trust intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as 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
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. Recent legislation
creates additional categories of capital gains taxable at different rates.
Although the legislation does not explain how gain in these categories will be
taxed to shareholders of RICs, it authorizes the issuance of regulations
applying the new categories of gain and the new rates to sales of securities by
RICs. In the absence of guidance, there is some uncertainty as to the manner in
which the categories of gain and related rates will be passed through to
shareholders in capital gain dividends. Any loss upon the sale or exchange of
Trust shares held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received by the shareholder.
Distributions in excess of the 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).
37
<PAGE> 40
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 or capital gain dividends. It is
anticipated that IRS guidance permitting categories of gain and related rates to
be passed through to shareholders would also require this written notice to
designate the amounts of various categories of capital gain income included in
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. 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 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.
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. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. 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. In the case of foreign taxes passed through by a
RIC, the holding period requirements referred to above must be met by both the
shareholder and the RIC. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding 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 and other
information needed to claim the foreign tax credit.
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.
38
<PAGE> 41
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the 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 all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Trust shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's tax basis in Trust
shares (assuming the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the 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 foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Trust.
ORGANIZATION OF THE TRUST
The Trust was organized on April 12, 1985 under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." The Trust is authorized to issue an unlimited
number of shares of beneficial interest of $0.10 par value of different classes.
At the date of this Prospectus, the shares of the Trust are divided into Class
A, Class B, Class C and Class D shares. Shares of beneficial interest of Class
A, Class B, Class C and Class D represent interests in the same assets of the
Trust
39
<PAGE> 42
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 of such shares and Class B
and Class C shares bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to account maintenance and distribution expenditures as applicable (except that
Class B shareholders have certain voting rights with respect to the Class D
Distribution Plan). See "Purchase of Shares." The Trustees of the Trust may
classify and reclassify the shares of the Trust into additional classes of
shares of beneficial interest at a future date. Shares issued are fully paid,
non-assessable and have no preemptive rights. Shares have the conversion rights
described in this Prospectus.
The Declaration of Trust does not require that the Trust hold an annual
meeting of shareholders. However, the Trust will be required to call special
meetings of shareholders in accordance with the requirements of the Investment
Company Act to seek approval of new management and advisory arrangements, of a
material increase in distribution fees or of a change in the fundamental
policies, objectives or restrictions of the Trust. The Trust also would be
required to hold a special shareholders' meeting to elect new Trustees at such
time as less than a majority of the Trustees holding office have been elected by
shareholders. The Declaration of Trust provides that a shareholders' meeting may
be called for any reason at the request of 10% of the outstanding shares of the
Trust or by a majority of the Trustees.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch Financial Consultant or Merrill Lynch Financial
Data Services, Inc. at (800) 637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust at the address or
telephone number set forth on the cover page of this Prospectus.
------------------------------------
The Declaration of Trust establishing the Trust, dated April 12, 1985, a
copy of which, together with all amendments thereto (the "Declaration"), is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Merrill Lynch Global Resources Trust" refers to the
trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of said Trust,
but the "Trust Property" (as defined in the Declaration) only shall be liable.
40
<PAGE> 43
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL RESOURCES TRUST--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT(SM) PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT(SM)
PROGRAM APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Global Resources Trust and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. ..................................... 4. ...................................
2. ..................................... 5. ...................................
3. ..................................... 6. ...................................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.................................
........................................ Name and Address of Employer .........
(Zip Code)
Occupation.............................. ......................................
........................................ ......................................
Signature of Owner Signature of Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C> <C> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT [ ] Reinvest SELECT [ ] Reinvest
ONE: [ ] Cash ONE: [ ] Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:
[ ] Check or [ ] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Resources Trust Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): [ ] checking [ ] savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number ....................... Account Number..............................
Bank Address....................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor..........................................................
Signature of Depositor .......................... Date..........................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
A-1
<PAGE> 44
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL RESOURCES TRUST--AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that I
am subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ("IRS") has notified me that I am no longer
subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
.................................., 19 . . . .
Date of initial purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Resources Trust or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13-month period which will equal or
exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ]
$1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Resources
Trust Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Resources Trust held as security.
<TABLE>
<S> <C>
By:.......................................................... ............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name .................................................. (2) Name.....................................................
Account Number ............................................ Account Number...............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Global Resources Trust
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
shareholder's signature.
...............................................................
Dealer Name and Address
By: ............................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer Account No.
</TABLE>
A-2
<PAGE> 45
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL RESOURCES TRUST--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL PLAN OR THE
AUTOMATIC INVESTMENT PLAN ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
------------------------------------------------------
Name of Owner..................................................
------------------------------------------------------
Social Security No.
or Taxpayer Identification Number
Name of Co-Owner (if any)......................................
Address........................................................ Account Number ............................................
(if existing account)
...............................................................
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN (See terms and conditions in the Statement of
Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in
Merrill Lynch Global Resources Trust at cost or current offering price.
Withdrawals to be made either (check one) [ ] Monthly on the 24th day of each
month, or [ ] Quarterly on the 24th day of March, June, September and December.
If the 24th falls on a weekend or holiday, the next succeeding business day will
be utilized. Begin systematic withdrawal on ...................., or as soon as
possible thereafter.
(month)
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU (CHECK ONE):
[ ] $............. of the current value of
[ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: [ ] check or [ ] direct deposit to my bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
[ ] as indicated in Item 1.
[ ] to the order of..........................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (please print)......................................................
Address ........................................................................
...........................................................................
Signature of Owner
..............................................................................
Date ...........................................................................
Signature of Co-Owner (if any) ............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of Account (check one): [ ] checking [ ] savings
Name on your account............................................................
Bank Name.......................................................................
Bank Number .............................................................
Account Number..................................................................
Bank Address....................................................................
................................................................................
Signature of Depositor
..............................................................................
Date............................................................................
Signature of Depositor..........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
- ---------------
* Annual withdrawal cannot exceed 10% of the value of the shares of such class
held in the account at the time the election to join the systematic withdrawal
plan is made.
A-3
<PAGE> 46
- --------------------------------------------------------------------------------
MERRILL LYNCH GLOBAL RESOURCES TRUST--AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C
shares [ ] Class D shares
of Merrill Lynch Global Resources Trust, subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Resources Trust as indicated below:
Amount of each check or ACH debit $..........................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month beginning
.............................. or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
credit my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City ........................ State ........ Zip Code...........................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc., I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
.................... .......................................
Date Signature of Depositor
.................... .......................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-4
<PAGE> 47
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<PAGE> 48
[This page intentionally left blank]
<PAGE> 49
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fee Table.................................. 2
Merrill Lynch Select Pricing(SM) System.... 3
Financial Highlights....................... 8
Risk Factors and Special Considerations.... 11
Investment Objective and Policies.......... 12
Asset-Based Securities................... 14
Other Investment Policies and
Practices.............................. 14
Investment Restrictions.................. 16
Management of the Trust.................... 17
Trustees................................. 17
Management and Advisory Arrangements..... 18
Code of Ethics........................... 19
Transfer Agency Services................. 19
Purchase of Shares......................... 19
Initial Sales Charge Alternatives--Class
A and Class D Shares................... 22
Deferred Sales Charge Alternatives--Class
B and Class C Shares................... 24
Distribution Plans....................... 27
Limitations on the Payment of Deferred
Sales Charges.......................... 29
Redemption of Shares....................... 29
Redemption............................... 29
Repurchase............................... 30
Reinstatement Privilege--Class A and
Class D Shares......................... 30
Shareholder Services....................... 31
Investment Account....................... 31
Exchange Privilege....................... 32
Automatic Reinvestment of Dividends and
Capital Gains Distributions............ 33
Systematic Withdrawal Plans.............. 33
Automatic Investment Plans............... 33
Fee-Based Programs....................... 34
Portfolio Transactions and Brokerage....... 34
Performance Data........................... 35
Additional Information..................... 36
Dividends and Distributions.............. 36
Determination of Net Asset Value......... 36
Taxes.................................... 37
Organization of the Trust................ 39
Shareholder Reports...................... 40
Shareholder Inquiries.................... 40
Authorization Form......................... A-1
Code #10301-1197
</TABLE>
[LOGO]
MERRILL LYNCH
GLOBAL RESOURCES TRUST
PROSPECTUS
November 14, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
(MLYNCH COMPASS LOGO)
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL RESOURCES TRUST
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
The investment objective of Merrill Lynch Global Resources Trust (the
"Trust") is 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.
Pursuant to the Merrill Lynch Select Pricing(SM) 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 Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
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 14, 1997 (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.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
------------------------
The date of this Statement of Additional Information is November 14, 1997.
<PAGE> 52
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Trust is 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 Objective and
Policies" in the Prospectus for a discussion of the investment objective 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 light of 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 fiscal years ended July 31,
1996 and 1997 the Trust's rates of portfolio turnover were 26.48% and 24.23%,
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 Services ("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 in unrated securities of issuers that Merrill Lynch Asset
Management, L.P. ("MLAM" or 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 an 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 that 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
2
<PAGE> 53
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 on or
before a specified future date and at a specified 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 Prospectus are options issued by
The Options Clearing Corporation (the "Clearing Corporation"), which are
currently traded on the Chicago Board Options Exchange, the American Stock
Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange or the New
York Stock Exchange (the "NYSE"). 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
3
<PAGE> 54
reasons, decide or be compelled at some future date to 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.
4
<PAGE> 55
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
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.
5
<PAGE> 56
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 at which more than
50% of the outstanding shares are represented or (b) more than 50% of the
outstanding shares). 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 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 of 1940, as amended (the "Investment
Company Act") in amounts up to 33 1/3% of its total assets (including the
amount borrowed), (ii) the Trust may, to the extent permitted by applicable
law, 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 the 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 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.
6
<PAGE> 57
In addition, the Trust has adopted non-fundamental restrictions which may
be changed by the Board of Trustees. Under the non-fundamental investment
restrictions, the Trust may not:
a. Purchase securities of other investment companies, except to the
extent permitted by applicable law. As a matter of policy, however, the
Trust will not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the "fund of funds" provision) of the Investment
Company Act, at any time its shares are owned by another investment company
that is part of the same group of investment companies as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Trust currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities that cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Trustees of the Trust have otherwise
determined to be liquid pursuant to applicable law. Securities purchased in
accordance with Rule 144A under the Securities Act and determined to be
liquid by the Trust's Board of Trustees are not subject to the limitations
set forth in this investment restriction.
d. 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.
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 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
Information about the Trustees, executive officers and the portfolio
manager of the Trust, including their ages and their principal occupations for
at least the last five years is set forth below. Unless otherwise noted, the
address of the portfolio manager and of each Trustee and executive officer is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
7
<PAGE> 58
ARTHUR ZEIKEL (65)--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 its corporate predecessors) since
1977; President and Director of Princeton Services, Inc. ("Princeton Services")
since 1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.")
since 1990.
DONALD CECIL (70)--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.
M. COLYER CRUM (65) --Trustee(2) --Soldiers Field Road, Boston,
Massachusetts 02163. Currently James R. Williston Professor of Investment
Management Emeritus, Harvard Business School, James R. Williston Professor of
Investment Management, Harvard Business School, from 1971 to 1996; Director of
Cambridge Bancorp, Copley Properties, Inc. and Sun Life Assurance Company of
Canada.
EDWARD H. MEYER (70)--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 (69)--Trustee(2)--P.O. Box 7, West Cornwall, Connecticut
06796. President and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign Relations since 1971.
J. THOMAS TOUCHTON(58)--Trustee(2)--Suite 3405, One Tampa City Center, 201
North Franklin Street, 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 (57)--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 Merrill Lynch Funds
Distributor, Inc. (the "Distributor") since 1986 and Director thereof since
1991; President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (64)--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 (37)--Vice President(1)(2)--First Vice President of the
Investment Adviser since 1997; Director of Taxation of the Investment Adviser
since 1990; Vice President of the Investment Adviser from 1990 to 1997.
PETER A. LEHMAN (38)--Vice President and Portfolio Manager of the
Trust(1)--First Vice President of the Investment Adviser since 1997; Vice
President of the Investment Adviser from 1994 to 1997; Employee of the
Investment Adviser since 1992.
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<PAGE> 59
GERALD M. RICHARD (48)--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.
THOMAS D. JONES, III (32)--Secretary(1)(2)--Attorney with the Investment
Adviser since 1992.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Trust.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or FAM acts as
investment adviser.
At October 31, 1997, the Trustees and officers of the Trust as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Trust. At that date, Mr. Zeikel, an officer and Trustee of the Trust, and the
other officers of the Trust, owned less than 1% of the outstanding Common Stock
of ML & Co.
COMPENSATION OF TRUSTEES
The Trust pays each Trustee not affiliated with the Investment Adviser
(each a "non-affiliated Trustee") a fee of $3,500 per year plus $500 per meeting
attended, together with such Trustees' actual out-of-pocket expenses relating to
attendance at meetings. The Trust also compensates each member of its Audit and
Nominating Committee (the "Committee"), which consists of all the non-affiliated
Trustees, a fee of $2,500 per year and the chairman of the Committee an
additional annual fee of $1,000. For the fiscal year ended July 31, 1997, fees
and expenses paid to non-affiliated Trustees aggregated $41,233.
The following table sets forth, for the fiscal year ended July 31, 1997,
compensation paid by the Trust to the non-affiliated Trustees and, for the
calendar year ended December 31, 1996, the aggregate compensation paid by all
registered investment companies (including the Trust) advised by MLAM and its
affiliate, FAM ("MLAM/FAM Advised Funds"), to the non-affiliated Trustees:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM
PENSION OR RETIREMENT TRUST AND OTHER MLAM/FAM
COMPENSATION BENEFITS ACCRUED AS PART ADVISED FUNDS PAID TO
NAME OF TRUSTEE FROM THE TRUST OF TRUST EXPENSES TRUSTEES(1)
- ---------------------------- -------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Donald Cecil................ $9,000 None $268,933
M. Colyer Crum.............. $8,000 None $117,600
Edward H. Meyer............. $8,000 None $227,933
Jack B. Sunderland.......... $8,000 None $128,100
J. Thomas Touchton.......... $8,000 None $128,100
</TABLE>
- ---------------
(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Cecil (32 registered investment companies consisting of 32 portfolios); Mr.
Crum (14 registered investment companies consisting of 14 portfolios); Mr.
Meyer (32 registered investment companies consisting of 32 portfolios); Mr.
Sunderland (17 registered investment companies consisting of 29 portfolios);
and Mr. Touchton (17 registered investment companies consisting of 29
portfolios).
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.
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
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<PAGE> 60
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.
The Trust has entered into an investment advisory agreement (the
"Investment Advisory Agreement") with the Investment Adviser. As discussed in
the Prospectus, the Trust will pay the Investment Adviser an annual fee for its
services of 0.60% of the average daily net assets of the Trust. For the fiscal
years ended July 31, 1995, 1996 and 1997, the total advisory fees paid by the
Trust to the Investment Adviser aggregated $1,832,048, $1,487,239 and
$1,350,592, respectively.
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
Board of 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.
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 of all Trustees of the Trust who
are affiliated persons of ML & Co. or any of its affiliates. The Trust pays all
other expenses incurred, 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, insurance,
interest, 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 certain of the expenses
of the Trust incurred in connection with the offering of its shares including
the expenses of printing the prospectuses and statements of additional
information used in connection with the continuous offering of shares of the
Trust. See "Purchase of Shares--Distribution Plans."
As described in the Prospectus, the Investment Adviser has also entered
into a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K.") pursuant to which MLAM U.K. provides investment advisory services
to the Investment Adviser with respect to the Trust.
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. Similarly,
the following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe Limited (MLAM U.K.'s parent), a
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<PAGE> 61
subsidiary of ML International Holdings, a subsidiary of Merrill Lynch
International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Trustees of the Trust or by a majority of
the outstanding shares of the Trust and (b) by a majority of the Trustees who
are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty upon 60 days' written notice at the option of
either party or by the vote of the shareholders of the Trust.
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
Pricing(SM) System: Class A and Class D 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 (except that Class B shareholders may vote
upon any material changes to expenses charged under the Class D Distribution
Plan). Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Investment Adviser or its
affiliate, FAM. Funds advised by the Investment Adviser or FAM that use the
Merrill Lynch Select Pricing(SM) 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, 1995, 1996 and 1997, gross sales
charges on the sale of Class A shares totaled $104,144, $3,515 and $2,729,
respectively, of which approximately $6,956, $268 and $184, respectively, was
received by the Distributor and approximately $97,188, $3,247 and $2,545,
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 after purchase of
Class A shares purchased subject to a front-end sales charge waiver. During the
fiscal period October 21, 1994
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<PAGE> 62
(commencement of operations) to July 31, 1995, and for the fiscal years ended
July 31, 1996 and 1997, gross sales charges on the sale of Class D shares
totaled $53,122, $31,319 and $23,480, respectively, of which approximately
$3,459, $2,122 and $1,557, respectively, was received by the Distributor and
approximately $49,663, $29,197 and $21,923, respectively, was paid to Merrill
Lynch as a selected dealer. For the fiscal period and years referenced above,
the Distributor received no CDSCs with respect to redemptions within one year
after purchase of Class D shares purchased subject to a front-end sales charge
waiver.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information 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 or her spouse and their children under
the age of 21 years purchasing shares for his or her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or that
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 and 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,
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<PAGE> 63
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
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 Blueprint(SM) 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, trade
associations and benefit plans. 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 .50 of 1%
for corporate or group IRA programs placing orders to purchase their Class A or
Class D shares through Blueprint. Services, including the exchange privilege,
available to Class A and Class D investors through Blueprint, however, may
differ from those available to other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program (the "IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer sponsored retirement and savings plans
(as defined below) whose trustee and/or plan sponsor has entered into the IRA
Rollover Program 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 Blueprint(SM)Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
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<PAGE> 64
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 or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class A or Class D shares at net asset
value, based on the number of employees or number of employees eligible to
participate in the plan, the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch to the plan. Certain
other plans may purchase Class B shares with a waiver of the CDSC upon
redemption, based on similar criteria. Such Class B shares will convert into
Class D shares approximately ten years after the plan purchases the first share
of any MLAM-advised mutual fund. Minimum purchase requirements may be waived or
varied for such plans. Additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other arrangements is
available toll-free from Merrill Lynch Business Financial Services at (800)
237-7777.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access(SM) Accounts available through authorized 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 Pricing(SM) System commenced operations)
and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares, if the conditions set forth
below are satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994 and wish to reinvest the net proceeds
from a sale of their closed-end fund shares are offered Class A shares (if
eligible to buy Class A shares) or Class D shares of the Trust 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; and fourth, there must be a
minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Trust. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Trust and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Trust, except that shareholders already
owning Class A shares of the Trust will be eligible to purchase additional Class
A shares
pursuant to this option, if such additional Class A shares will be held in the
same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible
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<PAGE> 65
shares") back to the fund in connection with a tender offer conducted by the
eligible fund and reinvest the proceeds immediately in the designated class of
shares of the Trust. This investment option is available only with respect to
eligible shares as to which no Early Withdrawal Charge or CDSC (each as defined
in the eligible fund's prospectus) is applicable. Purchase orders from eligible
fund shareholders wishing to exercise this investment option will be accepted
only on the day that the related tender offer terminates and will be effected at
the net asset value of the designated class of the Trust on such day.
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
their directors and employees 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 a 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; and 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 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 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 Trust with proceeds from the redemption of such
shares of other mutual funds and that such shares of other mutual funds have
been outstanding for a period of no less than six months; and second, such
purchase of Class D shares must be made within 60 days after the redemption and
the proceeds from the redemption must be maintained in the interim in cash or a
money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a 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 that
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
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<PAGE> 66
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 that (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, that 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 Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
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 a 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
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 Conduct Rules 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
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<PAGE> 67
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, 1997
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, with respect to Class B shares, the Distributor's voluntary maximum.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1997
------------------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
----------- --------- ---------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD
AUGUST 2, 1985 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1997:
Under NASD Rule as Adopted...... $1,335,113 $83,444 $ 66,144 $149,588 $ 52,290 $97,298 $580
Under Distributor's Voluntary
Waiver........................ $1,335,113 $83,444 $ 6,676 $90,120 $ 52,290 $37,830 $580
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994 (COMMENCEMENT OF
OPERATIONS) TO JULY 31, 1997:
Under NASD Rule as Adopted...... $8,129 $ 508 $ 97 $ 605 $ 71 $ 534 $ 20
</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
maximum sales charge 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. This figure may
include CDSCs that were deferred when a shareholder redeemed shares prior to
the expiration of the applicable CDSC period and invested the proceeds,
without the imposition of a sales charge, in Class A shares in conjunction
with the shareholder's participation in the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(SM)) Program (the "MFA Program"). The CDSC is
booked as a contingent obligation that may be payable if the shareholder
terminates participation in the MFA Program.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum (with respect to Class B shares) or
the NASD maximum (with respect to Class B and Class C shares).
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<PAGE> 68
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 only for any period during which trading on the NYSE
is restricted as determined by the Commission or the NYSE is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the Commission as a result of which disposal of
portfolio securities or determination of the net asset value of the 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 on redemptions of Class B shares in certain instances,
including in connection with certain post-retirement withdrawals from an
Individual Retirement Account ("IRA") or other retirement plan or on redemptions
of Class B shares following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies in the case of such withdrawals are:
(a) any partial or complete redemption in connection with a tax-free
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) or any redemption resulting from the tax-free
return of an excess contribution to an IRA; or (b) any partial or complete
redemption following the death or disability (as defined in the Code) of a Class
B shareholder (including one who owns the Class B shares as joint tenant with
his or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability. For the fiscal years ended July
31, 1995, 1996 and 1997, the Distributor received CDSCs of $469,660, $316,546
and $222,547, respectively, with respect to redemptions of Class B shares, all
of which were paid to Merrill Lynch. Additional Class B CDSCs payable to the
Distributor during the fiscal year ended July 31, 1997 may have been waived or
converted to a contingent obligation in connection with a shareholder's
participation in certain fee-based programs. For the fiscal period October 21,
1994 (commencement of operations) to July 31, 1995, and for the fiscal years
ended July 31, 1996 and 1997, the Distributor received CDSCs of $1,502, $1,567
and $3,004, respectively, with respect to redemptions of Class C shares, all of
which were paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the 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
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<PAGE> 69
any annual fees or transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan that 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 that 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 that 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 that are purchased by a
Merrill Lynch Rollover IRA that was funded by a rollover from a terminated
401(k) Plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all of 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Portfolio Transactions and Brokerage" in the
Prospectus.
Subject to policies established by the Board of Trustees of the Trust, 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 that offers the Trust best price and execution or other
services that 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 Conduct Rules 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.
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<PAGE> 70
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. For the fiscal year ended July 31, 1996, the
Trust paid total brokerage commissions of $578,500 of which $22,095 or 3.8% was
paid to Merrill Lynch for effecting 4.0% of the aggregate dollar amount of
transactions in which the Trust paid brokerage commissions. For the fiscal year
ended July 31, 1997, the Trust paid total brokerage commissions of $472,315 of
which $22,790 or 4.83% was paid to Merrill Lynch for effecting 5.33% 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 benefited 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 ("OTC")
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 OTC
market usually involve transactions with dealers acting as principal for 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 OTC 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 Board of Trustees of the Trust has considered the possibility of
seeking to recapture for the benefit of the Trust brokerage commissions, dealer
spreads and other expenses of possible portfolio transactions, such as
underwriting commissions and tender offer solicitation fees, 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 payable 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
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<PAGE> 71
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, as amended generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which they
manage unless the member (i) has obtained prior express authorization from the
account to effect such transactions, (ii) at least annually furnishes the
account with a statement 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 NYSE (generally, 4:00 p.m., New York time) each day on which the NYSE is
open for trading. The NYSE is not open on New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. 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 any such day
the Trust is required to sell or redeem shares. The 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
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 Class B,
Class C and Class D shares generally will be lower than the per share net asset
value of Class A shares reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; moreover the
per share net asset value of Class B and Class C shares generally will be lower
than the per share net asset value of Class D shares reflecting the daily
expense accruals of the distribution fees and higher transfer agency fees
applicable with respect to Class B and Class C shares of the 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 that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Trustees as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. Securities
that are traded both in the OTC market and on a
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<PAGE> 72
stock exchange are valued according to the broadest and most representative
market. 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 in the case of exchange traded options or, in the case of options traded
in the OTC market, the last bid price. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith under the direction of the Board of Trustees of the Trust.
SHAREHOLDER SERVICES
The Trust offers a number of shareholder services summarized below, that
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. (the "Transfer Agent") has an Investment Account and will
receive statements, at least quarterly, from the Transfer Agent. These
statements will serve as transaction confirmations for automatic investment
purchases and the reinvestment of ordinary income dividends and capital 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.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the 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 or she be issued certificates for his or
her shares, and then must turn the certificates over to the new firm for re-
registration as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an 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
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<PAGE> 73
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 NYSE on the ex-dividend date of such dividend or distribution.
Shareholders may elect in writing to receive either their dividends or capital
gains distributions, or both, in cash, in which event payment will be mailed or
direct deposited on or about the payment date.
Shareholders may, at any time, notify Merrill Lynch in writing if their
account is maintained with Merrill Lynch or notify the Transfer Agent in writing
or by telephone (1-800-MER-FUND) if their account is maintained with the
Transfer Agent 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
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares in the form of payments
by check or through automatic payment by direct deposit to such shareholder's
bank account on either a monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired 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 shares having a
value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net asset value as
determined as of 15 minutes after the close of business on the NYSE (generally,
4:00 p.m., New York time) on the 24th day of each month or the 24th day of the
last month of each quarter, whichever is applicable. If
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<PAGE> 74
the NYSE is not open for business on such date, the shares will be redeemed at
the close of business on the following business day. The check for the
withdrawal payment will be 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
shares in the Investment Account are reinvested automatically in shares of the
Trust. A shareholder's Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Trust, the Transfer Agent or
the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional 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 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.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Contingent Deferred Sales Charges--Class B Shares" and "--Contingent
Deferred Sales Charges--Class C Shares" in the Prospectus. Where the systematic
withdrawal plan is applied to Class B shares, upon conversion of the last Class
B shares in an account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares" in the Prospectus; if an
investor wishes to change the amount being withdrawn in a systematic withdrawal
plan the investor should contact his or her financial consultant.
Alternatively, a 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) or CBA(R) Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $50. The
proceeds of systematic redemptions will be posted to a shareholder's account
three business days after the date the shares are redeemed. All redemptions are
made at net asset value. A shareholder may elect to have his or her shares
redeemed on the first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the shareholder
may select the month in which the shares are to be redeemed and may designate
whether the redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA(R) or CBA(R) Systematic Redemption Program is not available if Trust shares
are being purchased within the account pursuant to the Automatic Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
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EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Trust have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing(SM) System, Class A shareholders may exchange Class A shares of
the 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 the account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, but
does not hold Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire Class A shares of
the second fund, the shareholder will receive Class D shares of the second fund
as a result of the exchange. Class D shares also may be exchanged for Class A
shares of a second MLAM-advised mutual fund at any time as long as, at the time
of the exchange, the shareholder holds Class A shares of the second fund in the
account in which the exchange is made or is otherwise eligible to purchase Class
A shares of the second fund. Class B, Class C and Class D shares are
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon 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 as follows: Class A shares may be exchanged for shares of
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Reserves Money Fund
(available only for exchanges within certain retirement plans), Merrill Lynch
U.S.A. Government Reserves and Merrill Lynch U.S. Treasury Money Fund; Class B,
Class C and Class D shares may be exchanged for shares of Merrill Lynch
Government Fund, Merrill Lynch Institutional Fund, Merrill Lynch Institutional
Tax-Exempt Fund and Merrill Lynch Treasury Fund. Shares with a net asset value
of at least $100 are required to qualify for the exchange privilege, and any
shares utilized in an exchange must have been held by the shareholder for at
least 15 days. It is contemplated that the exchange privilege may be applicable
to other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are made on the basis of relative net
asset value per Class A or Class D share, respectively, plus an amount equal to
the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares of the 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,
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<PAGE> 76
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 Special Value Fund Class B shares for more than five
years.
Shareholders also may exchange shares of the Trust into shares of certain
money market funds advised by the Investment Adviser or its affiliates, but the
period of time that Class B or Class C shares are held in a money market fund
will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or, with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
that were acquired as a result of an exchange for Class B or Class C shares of
the 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 newly acquired fund will be
aggregated with previous holding periods for purposes of reducing the CDSC.
Thus, for example, an investor may exchange Class B shares of the 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 that the shareholder continued to hold
for an additional two and a half years, any subsequent redemption would not
incur a CDSC.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, 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 MLAM-advised funds 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
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<PAGE> 77
thereafter may resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Trust's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid semiannually. All net
realized capital gains, if any, are 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 described 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"). As long as 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
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. Recent legislation
creates additional categories of capital gains taxable at different rates.
Although the legislation does not explain how gain in these categories will be
taxed to shareholders of RICs, it authorizes the issuance of regulations
applying the new categories of gain and the new rates to sales of securities by
RICs. In the absence of guidance, there is some uncertainty as to the manner in
which the categories of gain and related rates will be passed through to
shareholders in capital gain dividends. Any loss upon the sale or exchange of
Trust shares held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received by the shareholder.
Distributions in excess of the 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).
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<PAGE> 78
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. It is anticipated that IRS guidance permitting categories of gain and
related rates to be passed through to shareholders would also require this
written notice to designate the amounts of various categories of capital gain
income included in 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 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's rule permitting
the issuance and sale of multiple classes of stock) that is based on the gross
income allocable to Class A, Class B, Class C and Class D shareholders during
the taxable year, or such other method as the Internal Revenue Service may
prescribe. If the Trust pays a dividend in January that was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Trust and received by its shareholders on December 31 of
the year in which such dividend was declared.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the 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. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. 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. In the case of foreign taxes passed through by a
RIC, the holding period requirements referred to above must be met by both the
shareholder and the RIC. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding tax on the
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<PAGE> 79
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 and other information needed to claim the foreign tax credit.
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.
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 minimize 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 futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the 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. Application of these rules to
Section 1256 contracts held by the Trust may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Trust solely to
reduce the risk of changes in price or interest or currency exchange rates with
respect to its investments.
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<PAGE> 80
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 sales of securities and 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
sales of securities and 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. Under recently enacted
legislation, this requirement will no longer apply to the Trust after its fiscal
year ending July 31, 1998.
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 all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder's 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.
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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.
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.
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<PAGE> 82
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
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ----------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended July 31, 1997....... 11.76% $1,117.60 12.72% $1,127,20
Five Years Ended July 31, 1997..... 7.24% $1,418.50 7.30% $1,422.30
Ten Years Ended July 31, 1997...... 3.05% $1,350.30
Inception (October 24, 1988) to
July 31, 1997.................... 7.63% $1,905.70
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended July 31,
1997............................... 17.95% $ 1,179.50 16.72% $ 1,167.20
1996............................... 4.34% $1,043.40 3.26% $1,032.60
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
Inception (October 24, 1988) to
July 31, 1989.................... 10.77% $1,107.70
1988............................... (20.74)% $ 792.60
1987............................... 100.16% $2,001.60
Inception (August 2, 1985) to July
31, 1986......................... 3.12% $1,031.20
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (August 2, 1985) to July
31, 1997......................... 178.70% $2,787.00
Inception (October 24, 1988) to
July 31, 1997.................... 90.57% $1,905.70
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------------- -------------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ----------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended July 31, 1997....... 15.77% $1,157.70 11.48% $1,114.80
Inception (October 21, 1994) to
July 31, 1997.................... 8.57% $1,256.40 7.34% $1,217.20
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended July 31, 1997....... 16.77% $1,167.70 17.66% $1,176.60
One Year Ended July 31, 1996....... 3.20% $1,032.00 4.06% $1,040.60
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, 1997.................... 25.64% $1,256.40 21.72% $1,217.20
</TABLE>
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 CDSCs, a lower amount of expenses may be deducted.
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 (except that Class B shareholders have certain voting
rights with respect to the Class D Distribution Plan). The Board of Trustees of
the Trust may classify and reclassify the shares of the Trust into additional or
other classes of shares of beneficial interest at a future date.
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<PAGE> 84
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
amendment may be made to the Declaration of Trust, other than amendments
necessary to conform the Declaration to certain laws or regulations, to change
the name of the Trust, or to make certain non-material changes, without the
affirmative vote of a majority of the outstanding shares of the Trust or of the
affected class.
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 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.
34
<PAGE> 85
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, 1997, is calculated as
set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net Assets........................ $18,503,979 $77,385,748 $2,680,489 $107,402,510
========== ========== ========= ===========
Number of Shares Outstanding...... 930,025 3,908,673 136,507 5,415,347
========== ========== ========= ===========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............. $ 19.90 $ 19.80 $ 19.64 $ 19.83
Sales Charge (for Class A and
Class D shares: 5.25% of
offering price (5.54% of net
asset value per share))*........ 1.10 ** ** 1.10
----------- ----------- ---------- ------------
Offering Price.................... $ 21.00 $ 19.80 $ 19.64 $ 20.93
========== ========== ========= ===========
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption of shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares" in
the Prospectus and "Redemption of Shares--Deferred Sales 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 approval by the independent Trustees 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 (the "Custodian"), 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.
35
<PAGE> 86
LEGAL COUNSEL
Brown & Wood LLP, 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. It is anticipated that IRS guidance permitting
categories of gain and related rates to be passed through to shareholders would
also require this Federal income tax information to indicate the amounts of
various categories of capital gain income included in capital gain dividends.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Trust, no person or entity owned beneficially 5% or
more of the Trust's shares on November 1, 1997.
36
<PAGE> 87
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, 1997, 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,
1997 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, 1997, 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
September 5, 1997
37
<PAGE> 88
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aluminum 56,000 Alcan Aluminium, Ltd. $ 1,456,254 $ 2,194,500 1.1%
57,000 ++Alumax, Inc. 1,964,466 2,415,375 1.2
17,000 Aluminum Company of America 891,028 1,504,500 0.7
------------ ------------ ------
4,311,748 6,114,375 3.0
Chemicals 16,000 Air Products and Chemicals, Inc. 720,944 1,411,000 0.7
26,400 BASF AG 633,146 1,015,938 0.5
12,000 Dow Chemical Co. (The) 826,912 1,140,000 0.6
40,200 duPont (E.I.) de Nemours & Co. 1,345,525 2,690,888 1.3
------------ ------------ ------
3,526,527 6,257,826 3.1
Diamonds 80,000 ++Aber Resources Ltd. 1,310,472 1,172,299 0.6
130,000 ++SouthernEra Resources Ltd. 806,522 940,734 0.4
------------ ------------ ------
2,116,994 2,113,033 1.0
Diversified Companies 102,000 Asahi Glass Co., Ltd. 1,223,974 921,013 0.4
27,000 Ashland Oil Inc. 1,144,672 1,434,375 0.7
26,500 Coastal Corp. 674,667 1,440,938 0.7
75,000 Cyprus Amax Minerals Co. 1,838,375 1,903,125 0.9
34,000 Freeport-McMoRan Copper & Gold,
Inc. (Class B) 1,171,540 994,500 0.5
46,300 Norcen Energy Resources Ltd. 596,432 1,105,652 0.5
378,000 North Ltd. 1,419,525 1,378,963 0.7
273,000 RGC Ltd. 1,101,113 843,481 0.4
------------ ------------ ------
9,170,298 10,022,047 4.8
Gold 824,000 ++Acacia Resources Ltd. 1,552,817 889,529 0.4
188,600 ++Amax Gold, Inc. 1,114,318 1,249,475 0.6
94,500 Ashanti Goldfields Co. Ltd. (GDR)** 2,346,106 1,067,850 0.5
122,500 Cambior Inc. 1,625,848 1,400,608 0.7
122,000 ++Casmyn Corp. 1,122,818 823,500 0.4
903,900 Delta Gold N.L. 1,698,537 1,204,587 0.6
163,200 Driefontein Consolidated Ltd. 2,534,252 1,173,808 0.6
84,600 ++Getchell Gold Corp. 3,502,988 2,823,525 1.4
825,000 Great Central Mines N.L. 2,473,842 1,689,084 0.8
373,800 ++Miramar Mining Corp. 1,900,432 1,447,160 0.7
115,622 Newmont Mining Corp. 4,426,537 4,769,407 2.3
750,000 ++Normandy Mining Ltd. 848,403 865,481 0.4
215,000 Placer Dome Inc. 4,687,040 3,655,000 1.8
131,500 Prime Resources Group, Inc. 1,286,428 1,084,811 0.5
1,097,000 Resolute Ltd. 2,284,526 1,510,926 0.7
122,000 ++Sutton Resources Ltd. 1,097,905 971,127 0.5
158,000 ++TVX Gold Inc. 1,272,815 720,875 0.4
233,331 ++William Resources Inc. 703,747 273,534 0.1
------------ ------------ ------
36,479,359 27,620,287 13.4
Integrated Oil 39,000 Amerada Hess Corp. 2,102,507 2,293,687 1.1
Companies--Domestic 20,000 Amoco Corp. 1,118,700 1,880,000 0.9
------------ ------------ ------
3,221,207 4,173,687 2.0
Integrated Oil 384,000 British Petroleum Co., PLC 1,554,500 5,239,388 2.5
Companies-- 61,300 Ente Nazionale Idrocarburi S.p.A
International (ENI) (ADR)* 2,865,775 3,605,206 1.7
8,800 OMV AG 933,582 1,219,101 0.6
149,800 Petro-Canada 1,635,043 2,668,312 1.3
</TABLE>
38
<PAGE> 89
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Integrated Oil 46,100 Societe Nationale Elf Aquitaine (ADR)* $ 1,691,817 $ 2,639,225 1.3%
Companies-- 40,000 Total, S.A. (Class B) 2,462,120 4,017,958 2.0
International 52,000 Yacimientos Petroliferos Fiscales S.A.
(concluded) (YPF) (ADR)* 1,274,780 1,683,500 0.8
------------ ------------ ------
12,417,617 21,072,690 10.2
Metals & Mining 31,100 ASARCO Inc. 923,026 1,057,400 0.5
1,558,000 ++Centaur Mining & Exploration Ltd. 2,347,920 1,937,085 0.9
96,100 ++Falconbridge Ltd. 2,129,792 2,058,441 1.0
38,800 Inco Ltd. 1,284,094 1,200,375 0.6
316,800 Industrias Penoles, S.A. de C.V. 1,391,890 1,416,997 0.7
2,470,000 M.I.M. Holdings Ltd. 5,396,407 3,420,382 1.7
184,159 Minsur S.A. 597,621 609,931 0.3
391,000 Mitsubishi Materials Corp. 1,955,466 1,352,827 0.7
99,400 Noranda Inc. 1,869,535 2,136,320 1.0
108,000 Outokumpu OY 1,976,734 2,052,932 1.0
53,100 P.T. Tambang Timah (GDR)** (b) 661,263 672,246 0.3
679,500 Pasminco Ltd. 918,917 1,305,190 0.6
32,000 Pechiney (A Shares) 1,255,340 1,389,619 0.7
18,300 Phelps Dodge Corp. 1,067,369 1,556,644 0.8
615,000 QNI Ltd. 1,235,188 1,144,669 0.6
32,000 Rio Algom Ltd. 619,108 798,900 0.4
201,100 Rio Tinto PLC (The) 2,631,660 3,266,966 1.6
1,717,000 Savage Resources Ltd. 1,306,929 1,521,185 0.7
222,000 Savage Resources Ltd. (Warrants) (a) 29,591 39,667 0.0
220,000 Sumitomo Metal Mining Co. Ltd. 1,830,947 1,268,017 0.6
91,000 Trelleborg 'B' Fria 1,234,283 1,485,752 0.7
643,400 WMC Ltd. 3,807,237 3,729,582 1.8
233,000 Westmin Resources, Inc. 1,221,705 1,129,677 0.6
------------ ------------ ------
37,692,022 36,550,804 17.8
Oil & Gas Producers 92,000 Apache Corp. 2,453,418 3,243,000 1.6
76,000 ++Benton Oil & Gas Co. 1,159,000 1,154,250 0.6
260,000 ++Chauvco Resources, Ltd. 3,011,394 4,063,970 2.0
53,500 ++Chieftain International Inc. 1,193,792 1,153,594 0.5
183,200 ++Enserch Exploration Inc. 1,779,675 1,832,000 0.9
205,400 Enterprise Oil PLC 1,384,374 2,323,678 1.1
388,400 ++Gulf Canada Resources Ltd. 2,908,508 3,010,100 1.5
30,300 Louisiana Land and Exploration Co.
(The) 1,250,249 2,139,937 1.0
111,600 Mitchell Energy & Development Corp.
(Class B) 2,267,579 2,636,550 1.3
124,500 ++Northrock Resources Ltd. 1,001,587 1,779,344 0.9
95,000 ++Oryx Energy Co. 1,588,361 2,345,312 1.1
41,000 Pancanadian Petroleum Ltd. 777,815 804,038 0.4
301,000 Ranger Oil Ltd. 1,992,730 2,953,562 1.4
50,100 Sonat Inc. 1,803,548 2,498,737 1.2
------------ ------------ ------
24,572,030 31,938,072 15.5
Oil Services 57,200 Coflexip Stena Offshore, Inc. (ADR)* 1,212,458 1,944,800 0.9
39,600 ++Petroleum Geo-Services ASA (ADR)* 1,157,072 2,155,725 1.1
25,000 Schlumberger Ltd. Inc. 715,668 1,909,375 0.9
44,400 Smedvig ASA (ADR)* 943,500 1,265,400 0.6
29,500 Transocean Offshore Drilling Inc. 1,821,013 2,409,781 1.2
------------ ------------ ------
5,849,711 9,685,081 4.7
</TABLE>
39
<PAGE> 90
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Industries Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Paper & Pulp 61,066 Aracruz Celulose S.A. (ADR)* $ 489,264 $ 1,267,119 0.6%
181,200 Avenor Inc. 3,464,699 3,782,922 1.8
29,000 Champion International Corp. 1,491,695 1,798,000 0.9
85,000 Empresa Nacional de Celulosas S.A.
(ENCE) 1,253,909 1,581,485 0.8
20,900 Georgia-Pacific Corp. 1,299,455 1,973,744 1.0
31,400 International Paper Co. 1,181,730 1,758,400 0.9
25,000 James River Corp. 760,598 1,029,687 0.5
270,000 Metsa Serla OY 'B' 2,295,824 2,368,767 1.1
53,500 Mo Och Domsjo AB Co. 1,287,297 1,881,366 0.9
261,496 Slocan Forest Products Ltd. 2,342,662 2,459,981 1.2
63,500 Stone Container Corp. 785,423 1,055,687 0.5
53,000 Weyerhaeuser Co. 2,242,950 3,299,250 1.6
29,000 Willamette Industries, Inc. 1,089,935 2,209,437 1.1
------------ ------------ ------
19,985,441 26,465,845 12.9
Petroleum Refining 83,000 Sun Company, Inc. 2,213,707 2,972,437 1.4
250,000 Total Petroleum (North America), Ltd. 3,028,198 2,625,000 1.3
------------ ------------ ------
5,241,905 5,597,437 2.7
Plantations 717,000 Golden Hope Plantations BHD 1,325,786 1,137,188 0.5
578,000 Kuala Lumpur Kepong BHD 790,865 1,370,708 0.7
------------ ------------ ------
2,116,651 2,507,896 1.2
Steel 472,000 British Steel PLC 1,240,738 1,277,978 0.6
37,000 Koninklijke Nederlandsche Hoogovens
en Staalfabrienken N.V. 1,622,450 2,246,275 1.1
671,000 Nippon Steel Corp. 2,290,933 1,879,932 0.9
1,042,000 Sumitomo Metal Industries, Ltd. 3,344,833 2,620,388 1.3
------------ ------------ ------
8,498,954 8,024,573 3.9
Wood Products 92,500 Louisiana-Pacific Corp. 2,943,595 2,121,719 1.0
146,100 Riverside Forest Products Ltd. 2,401,223 1,607,005 0.8
------------ ------------ ------
5,344,818 3,728,724 1.8
Total Common Stocks 180,545,282 201,872,377 98.0
Face Amount Short-Term Securities
Repurchase $1,767,000 UBS Securities, purchased on
Agreements*** 7/31/1997 to yield 5.75% to 8/01/1997 1,767,000 1,767,000 0.9
Total Short-Term Securities 1,767,000 1,767,000 0.9
Total Investments $182,312,282 203,639,377 98.9
============
Other Assets Less Liabilities 2,333,349 1.1
------------ ------
Net Assets $205,972,726 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***Repurchase Agreements are fully collateralized by US Government &
Agency Obligations.
(a)Warrants entitle the Trust to purchase a predetermined number of
shares of common stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
40
<PAGE> 91
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$182,312,282) (Note 1a) $ 203,639,377
Cash 220,599
Receivables:
Securities sold $ 3,453,226
Dividends 343,372
Beneficial interest sold 233,722 4,030,320
--------------
Prepaid registration fees and other assets (Note 1f) 32,836
--------------
Total assets 207,923,132
--------------
Liabilities: Payables:
Beneficial interest redeemed 918,382
Securities purchased 619,879
Investment adviser (Note 2) 103,879
Distributor (Note 2) 90,093 1,732,233
--------------
Accrued expenses and other liabilities 218,173
--------------
Total liabilities 1,950,406
--------------
Net Assets: Net assets $ 205,972,726
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist of: unlimited number of shares authorized $ 93,003
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 390,867
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 13,651
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized 541,535
Paid-in capital in excess of par 166,744,770
Undistributed investment income--net 319,397
Undistributed realized capital gains on investments and
foreign currency transactions--net 16,549,923
Unrealized appreciation on investments and foreign currency
transactions--net 21,319,580
--------------
Net assets $ 205,972,726
==============
Net Asset Value: Class A--Based on net assets of $18,503,979 and 930,025
shares of beneficial interest outstanding $ 19.90
==============
Class B--Based on net assets of $77,385,748 and 3,908,673
shares of beneficial interest outstanding $ 19.80
==============
Class C--Based on net assets of $2,680,489 and 136,507
shares of beneficial interest outstanding $ 19.64
==============
Class D--Based on net assets of $107,402,510 and 5,415,347
shares of beneficial interest outstanding $ 19.83
==============
See Notes to Financial Statements.
</TABLE>
41
<PAGE> 92
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended July 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $265,237 foreign withholding tax) $ 3,711,085
Income Interest and discount earned 237,920
(Notes 1d & 1e): Other income 19,039
--------------
Total income 3,968,044
--------------
Expenses: Investment advisory fees (Note 2) $ 1,350,592
Account maintenance and distribution fees--Class B (Note 2) 889,611
Account maintenance fees--Class D (Note 2) 276,330
Transfer agent fees--Class D (Note 2) 206,961
Transfer agent fees--Class B (Note 2) 199,253
Custodian fees 128,670
Printing and shareholder reports 88,685
Registration fees (Note 1f) 79,450
Accounting services (Note 2) 76,212
Professional fees 58,834
Transfer agent fees--Class A (Note 2) 42,021
Trustees' fees and expenses 41,233
Account maintenance and distribution fees--Class C (Note 2) 33,693
Pricing fees 13,919
Transfer agent fees--Class C (Note 2) 8,170
Other 8,692
--------------
Total expenses 3,502,326
--------------
Investment income--net 465,718
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 21,366,629
(Loss) on Foreign currency transactions--net (74,646) 21,291,983
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 13,768,880
(Notes 1b, 1c, Foreign currency transactions--net (10,050) 13,758,830
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 35,050,813
--------------
Net Increase in Net Assets Resulting from Operations $ 35,516,531
==============
See Notes to Financial Statements.
</TABLE>
42
<PAGE> 93
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 465,718 $ 1,649,490
Realized gain on investments and foreign currency transactions
--net 21,291,983 14,984,789
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 13,758,830 (8,334,916)
-------------- --------------
Net increase in net assets resulting from operations 35,516,531 8,299,363
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (303,399) (238,068)
Shareholders Class B (98,601) (15,913)
(Note 1g): Class C (17,412) --
Class D (1,171,993) (869,875)
Realized gain on investments--net:
Class A (245,005) --
Class B (956,214) --
Class C (40,585) --
Class D (1,157,650) --
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,990,859) (1,123,856)
-------------- --------------
Beneficial Interest Net decrease in net assets derived from beneficial
Transactions interest transactions (54,789,794) (58,734,873)
(Note 4): -------------- --------------
Net Assets: Total decrease in net assets (23,264,122) (51,559,366)
Beginning of year 229,236,848 280,796,214
-------------- --------------
End of year* $ 205,972,726 $ 229,236,848
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ 319,397 $ 1,625,242
============== ==============
See Notes to Financial Statements.
</TABLE>
43
<PAGE> 94
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 17.27 $ 16.70 $ 15.84 $ 14.07 $ 14.33
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .14 .22 .22 .22 .24
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net 2.91 .50 .88 1.69 (.26)
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.05 .72 1.10 1.91 (.02)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.23) (.15) (.24) (.14) (.24)
Realized gain on investments--net (.19) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.42) (.15) (.24) (.14) (.24)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 19.90 $ 17.27 $ 16.70 $ 15.84 $ 14.07
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 17.95% 4.34% 7.05% 13.69% (.05%)
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.01% 1.03% 1.06% .92% .95%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .76% 1.26% 1.34% 1.39% 1.62%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 18,504 $ 22,726 $ 28,729 $ 20,054 $ 12,087
========== ========== ========== ========== ==========
Portfolio turnover 24.23% 26.48% 31.64% 54.87% 66.78%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0217 $ .0223 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
++++For fiscal years beginning on or after September 1, 1995,
the Trust is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
44
<PAGE> 95
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997++++ 1996++++ 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 17.16 $ 16.62 $ 15.72 $ 14.02 $ 14.26
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net (.05) .03 .10 .05 .09
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net 2.90 .51 .84 1.70 (.24)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.85 .54 .94 1.75 (.15)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.02) --++ (.04) (.05) (.09)
Realized gain on investments--net (.19) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.21) -- (.04) (.05) (.09)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 19.80 $ 17.16 $ 16.62 $ 15.72 $ 14.02
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 16.72% 3.26% 5.95% 12.52% (1.02%)
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.04% 2.07% 2.08% 1.95% 1.99%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss)--net (.29%) .20% .31% .35% .60%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 77,386 $ 94,199 $ 141,800 $ 236,581 $ 208,113
========== ========== ========== ========== ==========
Portfolio turnover 24.23% 26.48% 31.64% 54.87% 66.78%
========== ========== ========== ========== ==========
Average commission rate paid++++++ $ .0217 $ .0223 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
++++Based on average shares outstanding during the year.
++++++For fiscal years beginning on or after September 1, 1995,
the Trust is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
See Notes to Financial Statements.
</TABLE>
45
<PAGE> 96
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
The following per share data and ratios have Period Period
been derived from information provided in the Oct. 21, Oct. 21,
financial statements. For the Year 1994++ to For the Year 1994++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997++++ 1996++++ 1995 1997++++ 1996++++ 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 17.08 $ 16.55 $ 15.93 $ 17.21 $ 16.67 $ 15.96
Performance: -------- -------- -------- -------- -------- --------
Investment income (loss)
--net (.06) .04 .05 .09 .17 .12
Realized and unrealized
gain on investments and
foreign currency
transactions--net 2.90 .49 .62 2.91 .50 .66
-------- -------- -------- -------- -------- --------
Total from investment
operations 2.84 .53 .67 3.00 .67 .78
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net (.09) -- (.05) (.19) (.13) (.07)
Realized gain on
investments--net (.19) -- -- (.19) -- --
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (.28) -- (.05) (.38) (.13) (.07)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 19.64 $ 17.08 $ 16.55 $ 19.83 $ 17.21 $ 16.67
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value
Return:** per share 16.77% 3.20% 4.26%+++ 17.66% 4.06% 4.93%+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.06% 2.07% 2.20%* 1.26% 1.27% 1.39%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)
--net (.33%) .27% .28%* .51% 1.00% 1.02%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 2,680 $ 3,388 $ 2,800 $107,403 $108,924 $107,467
======== ======== ======== ======== ======== ========
Portfolio turnover 24.23% 26.48% 31.64% 24.23% 26.48% 31.64%
======== ======== ======== ======== ======== ========
Average commission rate
paid++++++ $ .0217 $ .0223 -- $ .0217 $ .0223 --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the year.
++++++For fiscal years beginning on or after September 1, 1995,
the Trust is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
46
<PAGE> 97
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 other 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 loss or gain 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
47
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (continued)
distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be
imposed on interest, dividends, and capital gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Trust has determined 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 components of net assets be reclassified to
reflect permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$180,158 have been reclassified between undistributed net investment
income and undistributed net realized capital gains. 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.
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:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
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, 1997, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Trust's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $ 184 $ 2,545
Class D $1,557 $21,923
For the year ended July 31, 1997, MLPF&S received contingent
deferred sales charges of $279,228 and $3,004 relating to
transactions in Class B and C Shares, respectively.
In addition, MLPF&S received $22,790 in commissions on the execution
of portfolio security transactions for the Trust for the year ended
July 31, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Trust's transfer agent.
48
<PAGE> 99
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1997 were $53,308,657 and $114,643,907,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $21,366,629 $21,327,095
Foreign currency transactions (74,646) (7,515)
----------- -----------
Total $21,291,983 $21,319,580
=========== ===========
As of July 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $21,327,095, of which $38,953,626 related to
appreciated securities and $17,626,531 related to depreciated
securities. At July 31, 1997, the aggregate cost of investments for
Federal income tax purposes was $182,312,282.
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $54,789,794 and $58,734,873 for the years ended
July 31, 1997 and July 31, 1996, respectively.
Transactions in shares of beneficial interest for each class were as
follows:
Class A Shares for the
Year Ended Dollar
July 31, 1997 Shares Amount
Shares sold 448,154 $ 8,330,555
Shares issued to shareholders
in reinvestment of dividends
and distributions 27,690 494,192
------------ ------------
Total issued 475,844 8,824,747
Shares redeemed (862,003) (15,971,403)
------------ ------------
Net decrease (386,159) $ (7,146,656)
============ ============
Class A Shares for the
Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 470,673 $ 8,069,980
Shares issued to shareholders
in reinvestment of dividends 12,995 214,811
------------ ------------
Total issued 483,668 8,284,791
Shares redeemed (888,103) (14,845,546)
------------ ------------
Net decrease (404,435) $ (6,560,755)
============ ============
Class B Shares for the
Year Ended Dollar
July 31, 1997 Shares Amount
Shares sold 950,849 $ 17,425,847
Shares issued to shareholders
in reinvestment of dividends
and distributions 48,665 875,929
------------ ------------
Total issued 999,514 18,301,776
Automatic conversion of
shares (207,430) (3,820,920)
Shares redeemed (2,374,035) (43,883,586)
------------ ------------
Net decrease (1,581,951) $(29,402,730)
============ ============
Class B Shares for the
Year Ended Dollar
July 31, 1996 Shares Amount
Shares sold 1,882,421 $ 32,007,488
Shares issued to shareholders
in reinvestment of dividends 786 13,029
------------ ------------
Total issued 1,883,207 32,020,517
Automatic conversion of
shares (1,079,235) (18,075,199)
Shares redeemed (3,847,236) (64,409,340)
------------ ------------
Net decrease (3,043,264) $(50,464,022)
============ ============
Class C Share for the
Year Ended Dollar
July 31, 1997 Shares Amount
Shares sold 278,052 $ 5,116,267
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,963 52,754
------------ ------------
Total issued 281,015 5,169,021
Shares redeemed (342,861) (6,275,052)
------------ ------------
Net decrease (61,846) $ (1,106,031)
============ ============
49
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 395,590 $ 6,702,711
Shares redeemed (366,433) (6,164,383)
------------ ------------
Net increase 29,157 $ 538,328
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 515,787 $ 9,511,946
Automatic conversion
of shares 207,740 3,820,920
Shares issued to shareholders
in reinvestment of dividends
and distributions 95,865 1,709,679
------------ ------------
Total issued 819,392 15,042,545
Shares redeemed (1,731,884) (32,176,922)
------------ ------------
Net decrease (912,492) $(17,134,377)
============ ============
Class D Shares for the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 1,953,059 $ 33,593,797
Automatic conversion
of shares 1,078,984 18,075,199
Shares issued to shareholders
in reinvestment of dividends 39,258 648,556
------------ ------------
Total issued 3,071,301 52,317,552
Shares redeemed (3,190,422) (54,565,976)
------------ ------------
Net decrease (119,121) $ (2,248,424)
============ ============
5. Commitments:
On July 31, 1997, the Trust had entered into foreign exchange
contracts, under which it had agreed to purchase and sell foreign
currency with the approximate value of $618,000 and $2,834,000,
respectively.
6. Loaned Securities:
At July 31, 1997, the Trust held US Treasury Notes having an
aggregate value of approximately $1,557,000 as collateral for
portfolio securities having a market value of approximately
$1,230,000.
7. Subsequent Event:
On September 4, 1997, the Board of Trustees declared dividends per
share payable on September 11, 1997 to shareholders of record
September 3, 1997 as follows:
Ordinary Long-Term
Income Capital Gains
Class A $.096564 $ 1.623299
Class B -- $ 1.623299
Class C -- $ 1.623299
Class D $.044832 $ 1.623299
50
<PAGE> 101
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies......... 2
Asset-Based Securities.................. 2
Other Investment Policies and
Practices............................. 3
Investment Restrictions................. 6
Management of the Trust................... 7
Trustees and Officers................... 7
Compensation of Trustees................ 9
Management and Advisory Arrangements.... 9
Purchase of Shares........................ 11
Initial Sales Charge Alternatives--Class
A and Class D Shares.................. 11
Reduced Initial Sales Charges........... 12
Distribution Plans...................... 16
Limitations on the Payment of Deferred
Sales Charges......................... 16
Redemption of Shares...................... 18
Deferred Sales Charges--Class B and
Class C Shares........................ 18
Portfolio Transactions and Brokerage...... 19
Determination of Net Asset Value.......... 21
Shareholder Services...................... 22
Investment Account...................... 22
Automatic Investment Plans.............. 23
Automatic Reinvestment of Dividends and
Capital Gains Distributions........... 23
Systematic Withdrawal Plans............. 23
Exchange Privilege...................... 25
Dividends, Distributions and Taxes........ 27
Dividends and Distributions............. 27
Taxes................................... 27
Tax Treatment of Options and Forward
Foreign Exchange Transactions......... 29
Special Rules for Certain Foreign
Currency Transactions................. 30
Performance Data.......................... 31
General Information....................... 33
Description of Shares................... 33
Computation of Offering Price per
Share................................. 35
Independent Auditors.................... 35
Custodian............................... 35
Transfer Agent.......................... 35
Legal Counsel........................... 36
Reports to Shareholders................. 36
Additional Information.................. 36
Security Ownership of Certain Beneficial
Owners................................ 36
Independent Auditors' Report.............. 37
Financial Statements...................... 38
Code #10302-1197
</TABLE>
[LOGO]
MERRILL LYNCH
GLOBAL RESOURCES TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
November 14, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
(MLYNCH COMPASS LOGO)
<PAGE> 102
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.
<PAGE> 103
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the ten-year period
ended July 31, 1997.
Contained in Part B:
Schedule of Investments, as of July 31, 1997.
Statement of Assets and Liabilities, as of July 31, 1997.
Statement of Operations for the year ended July 31, 1997.
Statements of Changes in Net Assets for each of the years in the
two-year period ended July 31, 1997.
Financial Highlights for each of the years in the five-year period
ended July 31, 1997.
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<S> <C>
1 (a) -- Declaration of Trust of the Registrant, dated April 12, 1985.(a)
(b) -- Amendment to Declaration of Trust of the Registrant, dated May 28, 1985.(a)
(c) -- Amendment to Declaration of Trust of the Registrant, dated October 3, 1988.(a)
(d) -- Instrument establishing Class A shares and Class B shares of the Registrant.(a)
(e) -- Amendment to Declaration of Trust of the Registrant, dated October 17, 1994,
including Instrument establishing Class C and Class D shares of beneficial
interest.(a)
2 -- By-Laws of the Registrant.(a)
3 -- None.
4 (a) -- Portions of the Declaration of Trust and By-Laws of Registrant defining the rights
of holders of shares of beneficial interest of Registrant.(b)
5 (a) -- Investment Advisory Agreement between the Registrant and Merrill Lynch Asset
Management, L.P.(a)
(b) -- Supplement to Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, L.P.(d)
(c) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and
Merrill Lynch Asset Management U.K. Limited.(f)
6 (a) -- Form of Class A Distribution Agreement between the Registrant and Merrill Lynch
Funds Distributor, Inc. (including Form of Selected Dealers Agreement).(d)
(b) -- Class B Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
(c) -- Letter Agreement between Registrant and Merrill Lynch Funds Distributor, Inc.,
dated September 15, 1993, in connection with the Merrill Lynch Mutual Fund Adviser
Program.(c)
(d) -- Form of Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including Form of Selected Dealers Agreement).(d)
(e) -- Form of Class D Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including Form of Selected Dealers Agreement).(d)
7 -- None.
8 -- Custody Agreement between the Registrant and The Bank of New York.(a)
9 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Financial Data Service Inc. (now known as
Merrill Lynch Financial Data Services, Inc.).(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
</TABLE>
C-1
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<S> <C>
13 -- None.
14 -- None.
15 (a) -- Amended and Restated Class B Distribution Plan of the Registrant.(c)
(b) -- Form of Class C Distribution Plan and Class C Distribution Plan Sub-Agreement of
Registrant.(d)
(c) -- Form of Class D Distribution Plan and Class D Distribution Plan Sub-Agreement of
Registrant.(d)
16 (a) -- Schedule for computation of each performance quotation for Class A shares provided
in the Registration Statement in response to Item 22(f).(a)
(b) -- Schedule for computation of each performance quotation for Class B shares provided
in the Registration Statement in response to Item 22(j).(a)
(c) -- Schedule for computation of each performance quotation for Class C shares provided
in the Registration Statement in response to Item 22(j).
(d) -- Schedule for computation of each performance quotation for Class D shares provided
in the Registration Statement in response to Item 22(j).
17 (a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
(c) -- Financial Data Schedule for Class C Shares.
(d) -- Financial Data Schedule for Class D Shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan pursuant to Rule 18f-3.(e)
</TABLE>
- ---------------
(a) Filed on November 27, 1995 as an Exhibit to Post-Effective Amendment No. 11
to the Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (File No. 2-77095) (the "Registration Statement).
(b) Reference is made to Article III, Article V, Article VI (sections 2, 3, 4
and 5), Article VII, Article VIII, and Article X of the Registrant's
Declaration of Trust, filed as Exhibit (1) to Post-Effective Amendment No.
11 to the Registration Statement; and to Article II, Article III (sections
1, 3, 5, 6 and 17), Article VI, Article VII, Article XII, Article XIII,
Article XIV and Article XV of the Registrant's By-Laws, filed as Exhibit 2
to Post-Effective Amendment No. 11 to the Registration Statement.
(c) Previously filed on November 23, 1993 as an Exhibit to Post-Effective
Amendment No. 9 to the Registration Statement.
(d) Previously filed on October 11, 1994 as an Exhibit to Post-Effective
Amendment No. 10 to the Registration Statement.
(e) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of 1933,
as amended, filed on January 25, 1996, relating to the shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
(f) Previously filed on November 26, 1996 as an Exhibit to Post-Effective
Amendment No. 12 to the Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any
person.
C-2
<PAGE> 105
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1997*
------------------------------------------------------------------- -------------------
<S> <C>
Class A shares of beneficial interest, par value $0.10 per share... 1,557
Class B shares of beneficial interest, par value $0.10 per share... 8,022
Class C shares of beneficial interest, par value $0.10 per share... 390
Class D shares of beneficial interest, par value $0.10 per share... 13,232
</TABLE>
- ---------------
* The number of holders includes holders of record plus beneficial owners whose
shares are held of record by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief as
to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in connection
with indemnification under this Section 5.3, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to such
indemnification."
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940, as amended (the "1940 Act") may
be concerned, such payments will be made only on the following conditions: (i)
the advances must be limited to amounts used, or to be used, for the preparation
or presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount which it is ultimately determined that he is
entitled to receive from the Registrant by reason of indemnification; and
(iii)(a) such promise must be secured by a surety bond, other suitable insurance
or an equivalent form of security which assures that any repayments may be
obtained by the Registrant without delay or litigation, which bond, insurance or
other form of security must be provided by the recipient of the advance, or (b)
a majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon a
review of readily available facts, that the recipient of the advance ultimately
will be found entitled to indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"),
C-3
<PAGE> 106
against certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Merrill Lynch Asset Management L.P. ("MLAM" or the "Investment Adviser")
acts as investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
for Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised
by Hotchkis and Wiley, a division of MLAM); and for the following closed-end
registered investment companies: Merrill Lynch High Income Municipal Bond Fund,
Inc., and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as
sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisory Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end registered
investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money
Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions
Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
and The Municipal Fund Accumulation Program, Inc.; and for the following
closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate
High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Debt Strategies Fund,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc.,
C-4
<PAGE> 107
MuniHoldings Fund, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings New York Insured Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc.,
Taurus MuniNewYork Holdings, Inc., and Worldwide DollarVest Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser, FAM, Princeton
Services, Inc. ("Princeton Services") and Princeton Administrators, L.P. is also
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch
Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
Merrill Lynch Financial Data Services, Inc. ("MLFDS") is 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since November 1, 1995 for his her, or its own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President, Mr.
Richard is Treasurer and Mr. Glenn is Executive Vice President of substantially
all of the investment companies described in the first two paragraphs of this
Item 28 and Messrs. Giordano, Harvey, Kirstein, and Monagle are directors,
trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH
INVESTMENT OTHER SUBSTANTIAL BUSINESS,
NAME ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ------------------------- -------------------------------------
<S> <C> <C>
ML & Co....................... Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Princeton Services............ General Partner General Partner of FAM
Arthur Zeikel................. President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.
Terry K. Glenn................ Executive Vice President Executive Vice President of FAM;
Executive Vice President and Director
of Princeton Services; President
and Director of MLFD; Director of
MLFDS; President of Princeton
Administrators, L.P.
Linda Federici................ Senior Vice President Senior Vice President of FAM
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Elizabeth Griffin............. Senior Vice President Senior Vice President of FAM
Norman R. Harvey.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
C-5
<PAGE> 108
<TABLE>
<CAPTION>
POSITION(S) WITH
INVESTMENT OTHER SUBSTANTIAL BUSINESS,
NAME ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ------------------------- -------------------------------------
<S> <C> <C>
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of FAM; Senior
Secretary Vice President, General Counsel,
Director and Secretary of Princeton
Services
Ronald M. Kloss............... Senior Vice President and Senior Vice President and Controller
Controller of FAM; Senior Vice President and
Controller of Princeton Services
Debra Landsman-Yaros.......... Senior Vice President Senior Vice President of FAM
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P. Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr......... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Michael L. Quinn.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from
1989 to 1985
Richard L. Reller............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Director of MLFD
Gerald M. Richard............. Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Vice President and Treasurer
of MLFD; Senior Vice President and
Treasurer of Princeton Services
Gregory Upah.................. Senior Vice President Senior Vice President of FAM
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as a
sub-advisor for the following registered investment companies: Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset
Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/ Africa Fund, Inc., Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc. and Worldwide
DollarVest Fund, Inc. The address of each of these investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-90011. The address of MLAM U.K. is Milton
Gate, 1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since
C-6
<PAGE> 109
August 1, 1995, for his or her own account or in the capacity of director,
officer, partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION(S) WITH MLAM PROFESSION, VOCATION OR
NAME U.K. EMPLOYMENT
- --------------------------------- ----------------------- ---------------------------------
<S> <C> <C>
Arthur Zeikel.................... Director and Chairman President of the Investment
Adviser and FAM; President and
Director of Princeton Services;
Executive Vice President of
ML&Co.
Alan J. Albert................... Senior Managing Vice President of FAM
Director
Nicholas C.D. Hall............... Director Director of Merrill Lynch Europe
PLC; General Counsel of Merrill
Lynch International Private
Banking Group
Gerald M. Richard................ Senior Vice President Senior Vice President and
Treasurer of MLAM and FAM; Senior
Vice President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Carol Ann Langham................ Company Secretary None
Debra Anne Searle................ Assistant Company None
Secretary
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and each of
the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., MuniAssets Fund, Inc., and The
Municipal Fund Accumulation Program, Inc., and MLFD also acts as the principal
underwriter for the following closed-end investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund and
Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of
C-7
<PAGE> 110
Messrs. Aldrich, Brady, Breen, Crook, Fatseas, and Wasel is One Financial
Center, Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICES POSITION(S) AND OFFICES
NAME WITH MLFD WITH REGISTRANT
- ------------------------------ ------------------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn................ President and Director Executive Vice President
Richard L. Reller............. Director None
Thomas J. Verage.............. Director None
William E. Aldrich............ Senior Vice President None
Robert W. Crook............... Senior Vice President None
Michael J. Brady.............. Vice President None
William M. Breen.............. Vice President None
Michael G. Clark.............. Vice President None
James T. Fatseas.............. Vice President None
Debra W. Landsman-Yaros....... Vice President None
Michelle T. Lau............... Vice President None
Gerald M. Richard............. Vice President and Treasurer Treasurer
Salvatore Venezia............. Vice President None
William Wasel................. Vice President None
Robert Harris................. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act, and the rules thereunder are maintained at the
offices of the Registrant, (800 Scudders Mill Road, Plainsboro, New Jersey
08536) and the Transfer Agent, (4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484).
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Trust--Management and Advisory Arrangements" in the Prospectus constituting Part
A of the Registration Statement and under "Management of the Trust--Management
and Advisory Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not a party
to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-8
<PAGE> 111
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO ITS REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 13TH DAY OF NOVEMBER,
1997.
MERRILL LYNCH GLOBAL RESOURCES
TRUST
(Registrant)
By /s/ GERALD M. RICHARD
---------------------------------
(Gerald M. Richard, Treasurer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- ------------------
<C> <S> <C>
ARTHUR ZEIKEL* President and Trustee
- ------------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
/s/ GERALD M. RICHARD Treasurer (Principal November 13, 1997
- ------------------------------------------ Financial and Accounting
(Gerald M. Richard) Officer)
DONALD CECIL* Trustee
- ------------------------------------------
(Donald Cecil)
M. COLYER CRUM* Trustee
- ------------------------------------------
(M. Colyer Crum)
EDWARD H. MEYER* Trustee
- ------------------------------------------
(Edward H. Meyer)
JACK B. SUNDERLAND* Trustee
- ------------------------------------------
(Jack B. Sunderland)
J. THOMAS TOUCHTON* Trustee
- ------------------------------------------
(J. Thomas Touchton)
*By /s/ GERALD M. RICHARD November 13, 1997
- ------------------------------------------
(Gerald M. Richard, Attorney-in-Fact)
</TABLE>
C-9
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
11 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
17 (a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
(c) -- Financial Data Schedule for Class C Shares.
(d) -- Financial Data Schedule for Class D Shares.
</TABLE>
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Resources Trust:
We consent to the use in Post-Effective Amendment No. 13 to Registration
Statement No. 2-97095 of our report dated September 5, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000766555
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 182312282
<INVESTMENTS-AT-VALUE> 203639377
<RECEIVABLES> 4030320
<ASSETS-OTHER> 253435
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207923132
<PAYABLE-FOR-SECURITIES> 619879
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1330527
<TOTAL-LIABILITIES> 1950406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 167783826
<SHARES-COMMON-STOCK> 930025
<SHARES-COMMON-PRIOR> 1316184
<ACCUMULATED-NII-CURRENT> 319397
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16549923
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21319580
<NET-ASSETS> 18503979
<DIVIDEND-INCOME> 3711085
<INTEREST-INCOME> 237920
<OTHER-INCOME> 19039
<EXPENSES-NET> (3502326)
<NET-INVESTMENT-INCOME> 465718
<REALIZED-GAINS-CURRENT> 21291983
<APPREC-INCREASE-CURRENT> 13758830
<NET-CHANGE-FROM-OPS> 35516531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (303399)
<DISTRIBUTIONS-OF-GAINS> (245005)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 448154
<NUMBER-OF-SHARES-REDEEMED> (862003)
<SHARES-REINVESTED> 27690
<NET-CHANGE-IN-ASSETS> (23264122)
<ACCUMULATED-NII-PRIOR> 1625242
<ACCUMULATED-GAINS-PRIOR> (2522764)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1350592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3502326
<AVERAGE-NET-ASSETS> 22236467
<PER-SHARE-NAV-BEGIN> 17.27
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> (.23)
<PER-SHARE-DISTRIBUTIONS> (.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.90
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000766555
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 182312282
<INVESTMENTS-AT-VALUE> 203639377
<RECEIVABLES> 4030320
<ASSETS-OTHER> 253435
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207923132
<PAYABLE-FOR-SECURITIES> 619879
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1330527
<TOTAL-LIABILITIES> 1950406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 167783826
<SHARES-COMMON-STOCK> 3908673
<SHARES-COMMON-PRIOR> 5490624
<ACCUMULATED-NII-CURRENT> 319397
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16549923
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21319580
<NET-ASSETS> 77385748
<DIVIDEND-INCOME> 3711085
<INTEREST-INCOME> 237920
<OTHER-INCOME> 19039
<EXPENSES-NET> (3502326)
<NET-INVESTMENT-INCOME> 465718
<REALIZED-GAINS-CURRENT> 21291983
<APPREC-INCREASE-CURRENT> 13758830
<NET-CHANGE-FROM-OPS> 35516531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (98601)
<DISTRIBUTIONS-OF-GAINS> (956214)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 950849
<NUMBER-OF-SHARES-REDEEMED> (2581465)
<SHARES-REINVESTED> 48665
<NET-CHANGE-IN-ASSETS> (23264122)
<ACCUMULATED-NII-PRIOR> 1625242
<ACCUMULATED-GAINS-PRIOR> (2522764)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1350592
<INTEREST-EXPENSE> 0
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