AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
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. 14 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16 [X]
(CHECK APPROPRIATE BOX OR BOXES)
---------------
MERRILL LYNCH GLOBAL RESOURCES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
---------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(609) 282-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
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:
COUNSEL FOR THE TRUST: MICHAEL J. HENNEWINKEL
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.
---------------
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>
PROSPECTUS
OCTOBER 30, 1998
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 4.
Shares may be purchased directly from Merrill Lynch Funds Distributor (the
"Distributor") a division of Princeton Funds Distributor, Inc. ("PFD"), 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 $250
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 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 October 30, 1998 (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 -- Distributor
<PAGE>
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)
---------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ....................... 5.25%(c)
Sales Charge Imposed on Dividend Reinvestments ....... None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower) ........................................... None(d)
Exchange Fee ......................................... None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Investment Advisory Fees(g) .......................... 0.60%
12b-1 Fees(h):
Account Maintenance Fees ............................ None
Distribution Fees ................................... None
Other Expenses:
Shareholder Servicing Costs(i) ...................... 0.19%
Other ............................................... 0.28%
----------
Total Other Expenses ............................... 0.47%
----------
TOTAL TRUST OPERATING EXPENSES ....................... 1.07%
==========
<CAPTION>
CLASS B(B) CLASS C CLASS D
-------------------------------------- ---------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ....................... None None 5.25%(c)
Sales Charge Imposed on Dividend Reinvestments ....... 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
year, decreasing 1.0% year(f)
annually to 0.0% after
the fourth year(e)
Exchange Fee ......................................... None None None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Investment Advisory Fees(g) .......................... 0.60% 0.60% 0.60%
12b-1 Fees(h):
Account Maintenance Fees ............................ 0.25% 0.25% 0.25%
Distribution Fees ................................... 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:
Shareholder Servicing Costs(i) ...................... 0.23% 0.24% 0.19%
Other ............................................... 0.28% 0.28% 0.28%
---- ---- --------
Total Other Expenses ............................... 0.51% 0.52% 0.47%
---- ---- --------
TOTAL TRUST OPERATING EXPENSES ....................... 2.11% 2.12% 1.32%
==== ==== ========
</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 21 and "Shareholder
Services -- Fee-Based Programs" -- page 33.
(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 23.
(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 21.
(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. A
0.75% sales charge for 401(k) purchases over $1,000,000 will apply. See
"Shareholder Services -- Fee-Based Programs" -- page 33.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" -- page 33.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" -- page 33.
(g) See "Management of the Trust -- Management and Advisory Arrangements" --
page 17.
(h) See "Purchase of Shares -- Distribution Plans" -- page 26.
(i) See "Management of the Trust -- Transfer Agency Services" -- page 19.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 ........................................................ $63 $85 $108 $ 176
Class B ........................................................ $61 $86 $113 $ 225*
Class C ........................................................ $32 $66 $114 $ 245
Class D ........................................................ $65 $92 $121 $ 203
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ........................................................ $63 $85 $108 $ 176
Class B ........................................................ $21 $66 $113 $ 225*
Class C ........................................................ $22 $66 $114 $ 245
Class D ........................................................ $65 $92 $121 $ 203
</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 Transfer Agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares."
3
<PAGE>
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."
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."
4
<PAGE>
<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 0.25% 0.75% B shares convert to
years, at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales 0.25% No No
charge(3)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs 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 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. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply. 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."
5
<PAGE>
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 as well as 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 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 after 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 shares), 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. A 0.75% sales charge for
401(k) purchases over $1,000,000 will apply. 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.
6
<PAGE>
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 CDSCs 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 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>
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, 1998 and the independent auditors' report thereon
appear in the annual report of the Fund for the fiscal year ended July 31,
1998, which is incoporated by reference 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,
-------------------------------------------------
1998++ 1997++ 1996++ 1995
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 19.90 $ 17.27 $ 16.70 $ 15.84
--------- ------- ------- -------
Investment income -- net .................... .13 .14 .22 .22
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ ( 5.00) 2.91 .50 .88
--------- ------- ------- -------
Total from investment operations ............. ( 4.87) 3.05 .72 1.10
--------- ------- ------- -------
Less dividends and distributions:
Investment income -- net ................... ( .10) ( .23) ( .15) ( .24)
Realized gain on investments -- net ........ ( 1.35) ( .19) -- --
In excess of realized gain on
investments -- net ........................ ( .65) -- -- --
--------- ------- ------- -------
Total dividends and distributions ............ ( 2.10) ( .42) ( .15) ( .24)
--------- ------- ------- -------
Net asset value, end of period ............... $ 12.93 $ 19.90 $ 17.27 $ 16.70
========= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........... (27.00%) 17.95% 4.34% 7.05%
========= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... 1.07% 1.01% 1.03% 1.06%
========= ======= ======= =======
Investment income -- net ..................... .79% .76% 1.26% 1.34%
========= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $ 9,082 $18,504 $22,726 $28,729
========= ======= ======= =======
Portfolio turnover ........................... 21.04% 24.23% 26.48% 31.64%
========= ======= ======= =======
<CAPTION>
CLASS A
-------------------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989+
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 14.07 $ 14.33 $ 15.38 $ 15.93 $ 13.63 $ 12.50
------- ------- ------- -------- ------- --------
Investment income -- net .................... .22 .24 .34 .37 .39 .29
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ 1.69 ( .26) ( .13) ( .47) 2.29 1.03
------- ------- ------- -------- ------- --------
Total from investment operations ............. 1.91 ( .02) .21 ( .10) 2.68 1.32
------- ------- ------- -------- ------- --------
Less dividends and distributions:
Investment income -- net ................... ( .14) ( .24) ( .47) ( .41) ( .38) ( .14)
Realized gain on investments -- net ........ -- -- ( .79) ( .04) -- ( .05)
In excess of realized gain on
investments -- net ........................ -- -- -- -- -- --
------- ------- ------- -------- -------- ---------
Total dividends and distributions ............ ( .14) ( .24) ( 1.26) ( .45) ( .38) ( .19)
------- ------- ------- -------- -------- ---------
Net asset value, end of period ............... $ 15.84 $ 14.07 $ 14.33 $ 15.38 $ 15.93 $ 13.63
======= ======= ======= ======== ======== =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........... 13.69% ( .05%) 1.66% ( .57%) 19.99% 10.77 %#
======= ======= ======= ======== ======== =========
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... .92% .95% .97% .95% .93% .86%*
======= ======= ======= ======== ======== =========
Investment income -- net ..................... 1.39% 1.62% 1.82% 2.89% 3.18% 2.66%*
======= ======= ======= ======== ======== =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $20,054 $12,087 $11,265 $ 6,699 $ 5,440 $ 1,864
======= ======= ======= ======== ======== =========
Portfolio turnover ........................... 54.87% 66.78% 31.43% 71.42% 57.21% 58.60 %
======= ======= ======= ======== ======== =========
</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.
# Aggregate total investment return.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
---------------------------------------------------------------
1998+ 1997+ 1996+ 1995 1994
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ........ $ 19.80 $ 17.16 $ 16.62 $ 15.72 $ 14.02
--------- ------- ------- ------- -------
Investment income (loss) -- net .......... ( .05) ( .05) .03 .10 .05
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ............ ( 4.96) 2.90 .51 .84 1.70
--------- ------- ------- ------- -------
Total from investment operations .......... ( 5.01) 2.85 .54 .94 1.75
--------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net ................ -- ( .02) --++ ( .04) ( .05)
Realized gain on
investments -- net ..................... ( 1.35) ( .19) -- -- --
In excess of realized gain on
investments -- net ..................... ( .65) -- -- -- --
--------- ------- ------- -------- --------
Total dividends and distributions ......... ( 2.00) ( .21) -- ( .04) ( .05)
--------- ------- ------- -------- --------
Net asset value, end of year .............. $ 12.79 $ 19.80 $ 17.16 $ 16.62 $ 15.72
========= ======= ======= ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share ........ (27.76%) 16.72% 3.26% 5.95% 12.52%
========= ======= ======= ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 2.11% 2.04% 2.07% 2.08% 1.95%
========= ======= ======= ======== ========
Investment income (loss) -- net ........... ( .29%) ( .29%) .20% .31% .35%
========= ======= ======= ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $ 29,794 $77,386 $94,199 $141,800 $236,581
========= ======= ======= ======== ========
Portfolio turnover ........................ 21.04% 24.23% 26.48% 31.64% 54.87%
========= ======= ======= ======== ========
<CAPTION>
CLASS B
-----------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
-----------------------------------------------------------------
1993 1992 1991 1990 1989
------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET
VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ........ $ 14.26 $ 15.30 $ 15.84 $ 13.55 $ 13.89
------- ------- ------- ------- --------
Investment income (loss) -- net .......... .09 .13 .31 .33 .27
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ............ ( .24) ( .08) ( .56) 2.19 ( .06)
------- -------- ------- ------- --------
Total from investment operations .......... ( .15) .05 ( .25) 2.52 .21
------- -------- ------- ------- --------
Less dividends and distributions:
Investment income -- net ................ ( .09) ( .30) ( .25) ( .23) ( .21)
Realized gain on
investments -- net ..................... -- ( .79) ( .04) -- ( .34)
In excess of realized gain on
investments -- net ..................... -- -- -- -- --
------- -------- ------- -------- --------
Total dividends and distributions ......... ( .09) ( 1.09) ( .29) ( .23) ( .55)
------- -------- ------- -------- --------
Net asset value, end of year .............. $ 14.02 $ 14.26 $ 15.30 $ 15.84 $ 13.55
======= ======== ======= ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share ........ ( 1.02%) .53% ( 1.61%) 18.79% 1.94%
======= ======== ======= ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.99% 2.00% 1.99% 1.96% 1.90%
======= ======== ======= ======== ========
Investment income (loss) -- net ........... .60% .94% 1.85% 1.96% 1.83%
======= ======== ======= ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $208,113 $254,866 $322,502 $420,951 $481,108
======== ======== ======== ======== ========
Portfolio turnover ........................ 66.78% 31.43% 71.42% 57.21% 58.60%
======== ======== ======== ======== ========
</TABLE>
- -------
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------
FOR THE YEAR
ENDED JULY 31, FOR THE PERIOD
------------------------------------- OCTOBER 21, 1994+
TO JULY 31,
1998++ 1997++ 1996++ 1995
------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 19.64 $ 17.08 $ 16.55 $ 15.93
--------- -------- ------- --------
Investment income (loss) -- net ............. ( .04) ( .06) .04 .05
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ ( 4.93) 2.90 .49 .62
--------- -------- ------- --------
Total from investment operations ............. ( 4.97) 2.84 .53 .67
--------- -------- ------- --------
Less dividends and distributions:
Investment income -- net ................... -- ( .09) -- ( .05)
Realized gain on investments -- net ........ ( 1.35) ( .19) -- --
In excess of realized gain on
investments -- net ........................ ( .65) -- -- --
--------- -------- -------- ---------
Total dividends and distributions ............ ( 2.00) ( .28) -- ( .05)
--------- -------- -------- ---------
Net asset value, end of period ............... $ 12.67 $ 19.64 $ 17.08 $ 16.55
========= ======== ======== =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........... (27.78%) 16.77% 3.20% 4.26%#
========= ======== ======== =========
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... 2.12% 2.06% 2.07% 2.20%*
========= ======== ======== =========
Investment income (loss) -- net .............. ( .29%) ( .33%) .27% .28%*
========= ======== ======== =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $ 1,461 $ 2,680 $ 3,388 $ 2,800
========= ======== ======== =========
Portfolio turnover ........................... 21.04% 24.23% 26.48% 31.64%
========= ======== ======== =========
<CAPTION>
CLASS D
----------------------------------------------------------
FOR THE YEAR FOR THE PERIOD
ENDED JULY 31, OCTOBER 21, 1994+
--------------------------------------- TO JULY 31,
1998++ 1997++ 1996++ 1995
------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......... $ 19.83 $ 17.21 $ 16.67 $ 15.96
--------- ------- ------- -------
Investment income (loss) -- net ............. .09 .09 .17 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net ........................ ( 4.99) 2.91 .50 .66
--------- ------- ------- -------
Total from investment operations ............. ( 4.90) 3.00 .67 .78
--------- ------- ------- -------
Less dividends and distributions:
Investment income -- net ................... ( .04) ( .19) ( .13) ( .07)
Realized gain on investments -- net ........ ( 1.35) ( .19) -- --
In excess of realized gain on
investments -- net ........................ ( .65) -- -- --
--------- -------- -------- --------
Total dividends and distributions ............ ( 2.04) ( .38) ( .13) ( .07)
--------- -------- -------- --------
Net asset value, end of period ............... $ 12.89 $ 19.83 $ 17.21 $ 16.67
========= ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share ........... (27.15%) 17.66% 4.06% 4.93 %#
========= ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses ..................................... 1.32% 1.26% 1.27% 1.39%*
========= ======== ======== ========
Investment income (loss) -- net .............. .55% .51% 1.00% 1.02%*
========= ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ..... $ 60,220 $107,403 $108,924 $ 107,467
========= ======== ======== =========
Portfolio turnover ........................... 21.04% 24.23% 26.48% 31.64 %
========= ======== ======== =========
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
# Aggregate total investment return.
10
<PAGE>
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 and certain holding requirements are met.
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.
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.
11
<PAGE>
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 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
12
<PAGE>
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 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 ("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
13
<PAGE>
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.
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")
Certain European countries have agreed to enter into EMU in an effort to,
among other things, reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these countries. Among other things,
EMU establishes a single common European currency (the "euro") that will be
introduced on January 1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. Upon introduction of the
euro, certain securities (beginning with government and corporate bonds) will
be redenominated in the euro, and, thereafter, will be listed, trade and make
dividend and other payments only in euros. Although EMU is generally expected
to have a beneficial effect, it could negatively affect the Fund in a number of
situations, including as follows:
o If the euro, or EMU as a whole, does not take effect as planned, the
Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility, and other disruptions of
the markets could occur.
o Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example if securities redenominated
in euros are transferred back into that country's national currency.
o Computer, accounting, and trading systems must be capable of recognizing
the euro as a distinct currency. Like other investment companies and
business organizations, the Fund could be adversely affected if the
systems used by the Investment Adviser, the Fund's other service
providers, or entities with which the Fund or its service providers do
business do not properly address this issue prior to euro conversion over
the first weekend of 1999 (January 1 through January 3). These issues may
negatively affect the operations of the companies the Fund invests in as
well.
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 the underlying security will be limited while the
option is in effect unless the Trust effects a closing purchase transaction. A
14
<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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 seven individuals, six 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* -- Chairman of the Investment Adviser and its affiliate,
FAM; Chairman 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).
FRED G. WEISS -- Managing Director of FGW Associates.
- --------
* Interested person, as defined in the Investment Company Act, of the Trust.
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
Asset Management Group of ML & Co. (which includes the Investment Adviser and
FAM), acts as the investment adviser to more than 100 registered investment
companies and provides investment advisory services to individual and
institutional accounts. As of September 1998, the Asset Management Group had a
total of $467 billion in investment company and other portfolio assets under
management. This amount includes assets managed for certain affiliates of the
Investment Adviser.
The Trust has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). The Investment
Advisory Agreement provides that, subject to the supervision 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
17
<PAGE>
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, 1998, the Investment Adviser earned a fee of $903,333 (based on
average daily net assets of approximately $150.6 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,
, 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, 1998, the Trust paid the
Investment Adviser $59,039 for accounting services. For the fiscal year ended
July 31, 1998, the ratio of total expenses to average net assets was 1.07% for
Class A shares, 2.11% for Class B shares, 2.12% for Class C shares and 1.32%
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. For the
fiscal year ended July 31, 1998, the Investment Adviser paid no fees to MLAM
U.K. pursuant to such arrangement. MLAM U.K. has offices at Milton Gate, 1 Moor
Lane, London EC2Y 9HA, England.
Robert M. Shearer is primarily responsible for the day-to-day management
of the Trust's portfolio. Mr. Shearer has been an Assistant Portfolio Manager
of the Fund since 1997. From 1996 to 1997 Mr. Shearer was a Vice President and
Assistant Portfolio Manager with David L. Babson and Company, Incorporated.
From 1993 to 1996 he was a Vice President/Sector Manager at Concert Capital
Management.
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
18
<PAGE>
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 which close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the end of the
calendar year, no further fee 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, 1998, the total fee
paid by the Trust to the Transfer Agent pursuant to the Transfer Agency
Agreement was approximately $311,089.
PURCHASE OF SHARES
The Distributor, an affiliate of each 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 (i) for retirement plans the minimum
initial purchase is $100 and the minimum subsequent purchase is $1 and (ii) for
shareholders who are participants in certain fee-based programs, the minimum
initial purchase is $250 and the minimum subsequent purchase is $50.
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., Eastern 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
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<PAGE>
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 4.
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. The proceeds from the account maintenance fees are used to
compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement for
providing continuing account maintenance activities). 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
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.
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<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
B CDSC for a period of four 0.25% 0.75% B shares convert to D shares
years, at a rate of 4.0% during automatically after
the first year, decreasing 1.0% approximately eight years(5)
annually to 0.0%(4)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales 0.25% No No
charge(3)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs 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. Certain 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, certain retirement
plans and certain fee-based programs may be 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.
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>
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<PAGE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on certain 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 the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities.
For the fiscal year ended July 31, 1998, the Trust sold 251,435 Class A
shares for aggregate net proceeds of $3,890,541. The gross sales charges for
the sale of Class A shares of the Trust for that year were $1,045, of which $93
and $952 were received by the Distributor and Merrill Lynch, respectively. For
the fiscal year ended July 31, 1998, 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, 1998, the Trust sold 688,374 Class D shares for aggregate net proceeds
of $12,306,366. The gross sales charges for the sale of Class D shares of the
Trust for that year were $15,442 of which $1,081 and $14,361 were received by
the Distributor and Merrill Lynch, respectively. For the fiscal year ended July
31, 1998, 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, 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
22
<PAGE>
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.
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 the Distributor and Merrill Lynch (pursuant to a
sub-agreement) 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
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services to the Trust in connection with the sale of 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 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:
CLASS B CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------- ------------------
0-1 ............................... 4.00%
1-2 ............................... 3.00
2-3 ............................... 2.00
3-4 ............................... 1.00
4 and thereafter .................. 0.00
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
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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, 1998, the Distributor received CDSCs of
$119,757 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 certain
circumstances 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(SM) Account 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 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." For the fiscal year ended July 31, 1998, the Distributor
received CDSCs of $809 with respect to redemptions of Class C shares, all of
which were paid to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
CONVERSION OF CLASS B SHARES TO CLASS D SHARES. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the 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.
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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.
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
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<PAGE>
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.
For the fiscal year ended July 31, 1998, the Trust paid the Distributor
$515,493 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $51.5
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, 1998, the Trust paid the
Distributor $20,118 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately
$2.0 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, 1998, the Trust paid the
Distributor $209,031 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $83.6 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, 1997, 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 $7,655,000 (15.29% of Class B net assets at that date).
As of July 31, 1998, direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash expenses by $42,264,474
(141.85% of Class B net assets at that date). As of December 31, 1997, the
fully allocated accrual expenses for the period since the commencement of
operations of Class C shares exceeded fully allocated accrual revenues for such
period by $76,000 (3.92% of Class C net assets at that date). As of July 31,
1998 direct cash revenues for the period since the commencement of operations
of Class C shares exceeded direct cash expenses by $65,628 (4.49% 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
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<PAGE>
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."
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, Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper
notice of redemption in the case of shares deposited with the Transfer Agent
may be accomplished by a written letter requesting redemption. Proper notice of
redemption in the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by the certificates
for the shares to be redeemed. The redemption request in either event requires
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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 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 it has assured itself that
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., Eastern 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
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be made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds.
SHAREHOLDER SERVICES
The 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.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Trust have an exchange
privilege with certain other MLAM-advised mutual funds and Summit Cash Reserves
Fund ("Summit"), a Merrill Lynch-sponsored money market fund specifically
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designated as available for exchange by holders of Class A, Class B, Class C and
Class D shares of 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 the 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 and Class D shares also will be exchangeable for Class A shares
of, and Class B and Class C shares also will be exchangeable for Class B shares
of Summit. Class A shares of Summit have an exchange privilege back into Class
A or Class D shares of MLAM-advised mutual funds; Class B shares of Summit have
an exchange privilege back into Class B or Class C shares of MLAM-advised
mutual funds and, in the event of such an exchange, the period of time that
Class B shares of Summit are held will count toward satisfaction of the holding
period requirement for purposes of reducing any CDSC and, with respect to Class
B shares, toward satisfaction of any Conversion Period. Class B shares of
Summit will be subject to a distribution fee at an annual rate of 0.75% of
average daily net assets of such Class B shares. This exchange privilege does
not apply with respect to certain Merrill Lynch fee-based programs, for which
alternative exchange arrangements may exist. Please see your Merrill Lynch
Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other MLAM-advised
mutual funds into a money market fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit. Shareholders who have
exchanged shares of a MLAM-advised mutual fund for shares of such other money
market funds and subsequently wish to exchange those money market fund shares
for shares of the Fund will be subject to the CDSC schedule applicable to such
Fund shares, if any. The holding period for those money market fund shares will
not count toward satisfaction of the holding period requirement for reduction
of the CDSC imposed on such shares, if any, and, with respect to Class B
shares, toward satisfaction of the Conversion Period. However, the holding
period for Class B or Class C shares received in exchange for such money market
fund shares will be
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aggregated with the holding period for the original shares for purposes of
reducing the CDSC or satisfying 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.
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.
The exchange privilege is modified with respect to certain retirement
plans which participate in the MFA program. Such retirement plans may exchange
Class B, Class C or Class D shares that have been held for at least one year
for Class A shares of the same fund on the basis of relative net asset values
in connection with the commencement of participation in the MFA program, I.E.,
no CDSC will apply. The one year holding period does not apply to shares
acquired through reinvestment of dividends. Upon termination of participation
in the MFA program, Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable upon
redemption of Class B or Class C shares so reacquired, or the Conversion Period
for Class B shares so reacquired, the holding period for the Class A shares
will be "tacked" to the holding period for the Class B or Class C shares
originally held. The Fund's exchange privilege is also modified with respect to
purchases of Class A and Class D shares by non-retirement plan investors under
the MFA program. First, the initial allocation of assets is made under the MFA
program. Then, any subsequent exchange under the MFA program of Class A or
Class D shares of a MLAM-advised mutual fund for Class A or Class D shares of
the Fund will be made solely on the basis of the relative net asset values of
the shares being exchanged. Therefore, there will not be a charge for any
difference between the sales charge previously paid on the shares of the other
MLAM-advised mutual fund and the sales charge payable on the shares of the Fund
being acquired in the exchange under the MFA program.
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 by telephone
(1-800-MER-FUND) to the Transfer Agent if the shareholder's account is
maintained with the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed monthly (provided that, in the event that a
payment on an account maintained at the Transfer Agent would amount to $10 or
less, a shareholder will not receive such payment in cash and such payment will
be automatically reinvested in additional shares). 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.
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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 be applied thereafter to Class D shares if the
shareholder so elects. 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.
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.
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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 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
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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.
On occasion, the Trust may compare its performance to that of the Standard
& Poor's 500 Index, the Dow Jones Industrial Average, other market indices or
performance data published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc., MONEY MAGAZINE, U.S. NEWS & WORLD REPORT, BUSINESS WEEK, CDA
Investment Technology, Inc., FORBES MAGAZINE, FORTUNE MAGAZINE or other industry
publications. When comparing its performance to a market index, the Trust may
refer to various statistical measures derived from the historic performance of
the Trust and the index, such as standard deviation and beta. 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. As with other performance data, performance comparisons should not
be considered indicative of the Trust's relative performance for any future
period.
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 (provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less, a shareholder
will not receive such payment in cash and such payment will automatically be
reinvested in additional shares). 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
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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., Eastern 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 market values
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, 1998, 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 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 for long positions and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the primary
market. Long positions in securities traded in the over-the-counter ("OTC")
market are valued at the last available bid price in the OTC market prior to
the time of valuation. Short positions in securities traded in the OTC market
are valued at the last available ask price in the OTC market prior to the time
of valuation. When the 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
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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. Certain categories
of capital gains are taxable at different rates. 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). Generally 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 as well as any amounts of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Trust. 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 paid by the Trust only if the shareholder meets
certain holding period requirements. The Trust also must meet these holding
period requirements, and if the Trust fails to do so, it will not be able to
"pass through" to shareholders the ability to claim a credit or a deduction for
the related foreign taxes paid by the Trust. If the Trust satisfies the holding
period requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the Trust
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Trust will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them, and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, moreover, may be claimed
by noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien
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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.
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.
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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 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 relating to the account maintenance of
such shares and Class B and Class C shares bear certain expenses relating 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:
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 Financial
Data Services, Inc. at (800) 637-3863.
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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.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem prior to January 1, 2000.
The Investment Adviser has established a dedicated group to analyze these issues
and to implement any systems modifications necessary to prepare for the Year
2000. Currently, the Investment Adviser does not anticipate that the transition
to the Year 2000 will have any material impact on its ability to continue to
service the Fund at current levels. In addition, the Investment Adviser has
sought assurances from the Fund's other service providers that they are taking
all necessary steps to ensure that their computer systems will accurately
reflect the Year 2000, and the Investment Adviser will continue to monitor the
situation. At this time, however, no assurance can be given that the Fund's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Fund attributable to the Year 2000 Problem. The Year 2000
Problem could also have a negative impact on the companies in which the Fund
invests, and this could hurt the Fund's investment returns.
----------------
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.
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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,
a division of Princeton 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
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>
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
PAGE
--------
Fee Table ............................................... 2
Merrill Lynch Select Pricing(SM) System ................... 4
Financial Highlights .................................... 8
Risk Factors and Special Considerations ................. 11
Investment Objective and Policies ....................... 12
Asset-Based Securities ................................ 13
European Economic and Monetary Union ("EMU") .......... 14
Other Investment Policies and Practices ............... 14
Investment Restrictions ............................... 16
Management of the Trust ................................. 17
Trustees .............................................. 17
Management and Advisory Arrangements .................. 17
Code of Ethics ........................................ 18
Transfer Agency Services .............................. 19
Purchase of Shares ...................................... 19
Initial Sales Charge Alternatives -- Class A and
Class D Shares ..................................... 21
Deferred Sales Charge Alternatives -- Class B and
Class C Shares ..................................... 23
Distribution Plans .................................... 26
Limitations on the Payment of Deferred Sales
Charges ............................................ 28
Redemption of Shares .................................... 28
Redemption ............................................ 28
Repurchase ............................................ 29
Reinstatement Privilege -- Class A and
Class D Shares ..................................... 30
Shareholder Services .................................... 30
Investment Account .................................... 30
Exchange Privilege .................................... 30
Automatic Reinvestment of Dividends and Capital
Gains Distributions ................................ 32
Systematic Withdrawal Plans ........................... 33
Automatic Investment Plans ............................ 33
Fee-Based Programs .................................... 33
Portfolio Transactions and Brokerage .................... 34
Performance Data ........................................ 34
Additional Information .................................. 35
Dividends and Distributions ........................... 35
Determination of Net Asset Value ...................... 36
Taxes ................................................. 36
Organization of the Trust ............................. 39
Shareholder Reports ................................... 39
Shareholder Inquiries ................................. 40
Year 2000 Issues ...................................... 40
Authorization Form ...................................... A-1
Code #10301-1098
[MERRILL LYNCH LOGO APPEARS HERE]
MERRILL LYNCH
GLOBAL RESOURCES TRUST
[COMPASS GRAPHIC APPEARS HERE]
PROSPECTUS
OCTOBER 30, 1998
DISTRIBUTOR:
MERRILL LYNCH
FUNDS DISTRIBUTOR
THIS PROSPECTUS SHOULD BE
RETAINED FOR FUTURE REFERENCE.
<PAGE>
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
October 30, 1998 (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 -- Distributor
---------------
The date of this Statement of Additional Information is October 30, 1998.
<PAGE>
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, 1997 and 1998 the Trust's rates of
portfolio turnover were 24.23% and 21.04%, 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 ("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
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.
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")
For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty")
seeks to set out a framework for the European Economic and Monetary Union
("EMU") among the countries that comprise the European Union ("EU"). Among
other things, EMU establishes a single common European currency (the "euro")
that will be introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. EMU is
scheduled to take effect for the initial EMU participants as of January 1,
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<PAGE>
1999, and will be implemented over the weekend January 1, 1999 through January
3, 1999 ("conversion weekend"). Upon implementation of EMU, certain securities
issued in participating EU countries (beginning with government and corporate
bonds) will be redenominated in the euro, and thereafter, will be listed,
traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these changes will
result in the economic and monetary unity and stability intended. There is a
possibility that EMU will not be implemented, will be implemented but not
completed, or will be completed but then partially or completely unwound.
Because any participating country may opt out of EMU within the first three
years, it is also possible that a significant participant could choose to
abandon EMU, which would diminish its credibility and influence. Any of these
occurrences could have adverse effects on the markets of both participating and
non-participating countries, including sharp appreciation or depreciation of
the participants' national currencies and a significant increase in exchange
rate volatility, a resurgence in economic protectionism, an undermining of
confidence in the European markets, an undermining of European economic
stability, the collapse or slowdown of the drive toward European economic
unity, and/or reversion of the attempts to lower government debt and inflation
rates that were introduced in anticipation of EMU. Also, withdrawal from EMU at
any time after the conversion weekend by an initial participant could cause
disruption of the financial markets as securities redenominated in euros are
transferred back into that country's national currency, particularly if the
withdrawing country is a major economic power. Such developments could have an
adverse impact on the Fund's investments in Europe generally or in specific
countries participating in EMU. Gains or losses resulting from the euro
conversion may be taxable to Fund shareholders under foreign or, in certain
limited circumstances, U.S. tax laws.
In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency immediately after the conversion
weekend. Like other investment companies and business organizations, the Fund
could be adversely affected if the computer, accounting, and trading systems
used by the Investment Adviser, the Fund's service providers, or other entities
with which the Fund or its service providers do not properly address this issue
prior to January 4, 1999.
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
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<PAGE>
to particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or the Clearing Corporation may not
at all times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Clearing Corporation as a
result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
PURCHASING PUT OPTIONS. The Trust may purchase put options to hedge
against a decline in the market value of its equity holdings. By buying a put
the Trust has a right to sell the underlying security at the exercise price,
thus limiting the Trust's risk of loss through a decline in the market value of
the security until the put option expires. The amount of any appreciation in
the value of the underlying security will be offset partially by the amount of
the premium paid for the put option and any related transaction costs. Prior to
its expiration, a put option may be sold in a closing sale transaction and
profit or loss from the sale will depend on whether the amount received is more
or less than the premium paid for the put option plus the related transaction
cost. A closing sale transaction cancels out the Trust's position as the
purchaser of an option by means of an offsetting sale of an identical option
prior to the expiration of the option it has purchased. The Trust will purchase
only put options traded on an Exchange. The Trust will not purchase put options
on securities if, as a result of such purchase, the aggregate cost of all
outstanding options on securities held by the Trust would exceed 5% of the
market value of the Trust's total assets.
FORWARD FOREIGN EXCHANGE TRANSACTIONS. Generally, the foreign exchange
transactions of the Trust will be conducted on a spot, I.E., cash, basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 0.15 of one percent due to the
costs of converting from one currency to another. However, the Trust has
authority to deal in forward foreign exchange between currencies of the
different countries in which it will invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Trust's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Trust accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of
shares of the Trust or the payment of dividends and distributions by the Trust.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency.
The Trust will not speculate in forward foreign exchange. The Trust may not
position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. If the Trust enters into a position hedging
transaction, its custodian bank will place cash or liquid equity or debt
securities in a separate account of the Trust in an amount equal to the value
of the Trust's total assets committed to the consummation of such forward
contract. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Trust's commitment with
respect to such contracts. The Trust will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the management of the Trust. The Trust
will not enter into a forward contract with a term of more than one year.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
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 need not be 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
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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.
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
5
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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.
In addition, the Trust has adopted non-fundamental restrictions which may
be changed by the Board of Trustees without shareholder approval. 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 Investment Adviser, 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.
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.
ARTHUR ZEIKEL (66) -- PRESIDENT AND TRUSTEE(1)(2) -- Chairman of the
Investment Adviser and Fund Asset Management, L.P. ("FAM") (which terms as used
herein include their corporate predecessors) since 1997; President of the
Investment Adviser and FAM from 1977 to 1997; Chairman of Princeton Services,
Inc. ("Princeton Services") since 1997 and Director thereof since 1993;
President of Princeton Services from 1993 to 1997; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
DONALD CECIL (71) -- TRUSTEE(2) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
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M. COLYER CRUM (66) -- TRUSTEE(2) -- 104 Westcliff Road, Weston,
Massachusetts 02193. 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 (71) -- 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 (70) -- 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 (59) -- 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).
FRED G. WEISS (57) -- TRUSTEE(2) -- 5141 Via de Amalfi Drive, Boca Raton,
Florida 33496. Managing Director of FGW Associates since 1997; Vice President,
Planning, Investment, and Development of Warner Lambert Co. from 1979 to 1997.
TERRY K. GLENN (58) -- EXECUTIVE VICE PRESIDENT(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of Princeton
Funds Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
NORMAN R. HARVEY (65) -- SENIOR VICE PRESIDENT(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1982; Senior Vice President
of Princeton Services since 1993.
DONALD C. BURKE (38) -- 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.
ROBERT M. SHEARER (43) -- SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER OF
THE TRUST(1) -- Associate Portfolio Manager of the Investment Adviser since
1997; Vice President and Assistant Portfolio Manager with David L. Babson and
Company Incorporated from 1996 to 1997; and Vice President/Sector Manager with
Concert Capital Management from 1993 to 1996.
GERALD M. RICHARD (49) -- 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; Treasurer of PFD since 1984 and
Vice President thereof since 1981.
THOMAS D. JONES, III (33) -- SECRETARY(1)(2) -- Vice President of the
Investment Adviser since 1998; 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 September 30, 1998, the Trustees and officers of the Trust as a group
(13 persons) owned an aggregate of less than 1% of the outstanding shares of
the Trust. At that date, Mr. Zeikel, 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, 1998, fees and expenses paid to non-affiliated Trustees aggregated $45,651.
7
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The following table sets forth, for the fiscal year ended July 31, 1998,
compensation paid by the Trust to the non-affiliated Trustees and, for the
calendar year ended December 31, 1997, 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 TRUST AND OTHER
PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF TRUSTEE FROM THE TRUST PART OF TRUST EXPENSES TRUSTEES(1)
- ------------------------------ ---------------- ------------------------ ---------------------
<S> <C> <C> <C>
Donald Cecil ................. $9,000 None $275,850
M. Colyer Crum ............... $8,000 None $115,600
Edward H. Meyer .............. $8,000 None $222,100
Jack B. Sunderland ........... $8,000 None $132,600
J. Thomas Touchton ........... $8,000 None $132,100
Fred G. Weiss (1)(2) ......... $4,000 None $ 0
</TABLE>
- -------
(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Cecil (34 registered investment companies consisting of 34 portfolios);
Mr. Crum (15 registered investment companies consisting of 15 portfolios);
Mr. Meyer (34 registered investment companies consisting of 34
portfolios); Mr. Sunderland (18 registered investment companies consisting
of 30 portfolios); Mr. Touchton (18 registered investment companies
consisting of 30 portfolios) and Mr. Weiss (15 registered investment
companies consisting of 15 portfolios).
(2) Mr. Weiss was elected a Director of the Fund and certain other MLAM/FAM
Advised Funds on February 3, 1998.
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 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 Trust's average daily net assets. For the fiscal years
ended July 31, 1996, 1997 and 1998, the total advisory fees paid by the Trust
to the Investment Adviser aggregated $1,487,239, $1,350,592 and $903,333,
respectively.
The Investment Advisory Agreement provides that, subject to the
supervision 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
8
<PAGE>
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. For the fiscal year ended
July 31, 1998, the Investment Adviser paid no fees to MLAM U.K. pursuant to
such arrangement.
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 PLC (MLAM U.K.'s parent), a
subsidiary of Merrill Lynch International Holdings, Inc., a subsidiary of
Merrill Lynch International, Inc., a subsidiary of ML & Co.
DURATION AND TERMINATION. Unless earlier terminated as described herein,
the Investment Advisory Agreement and the sub-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 "Select
Pricing 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, 1996, 1997 and 1998, gross sales
charges on the sale of Class A shares totaled $3,515, $2,729 and $1,045,
respectively, of which approximately $268, $184 and $93, respectively, were
received by the Distributor and approximately $3,247, $2,545 and $952,
respectively, were 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 years ended July 31, 1996, 1997 and 1998, gross sales charges on the
sale of Class D shares totaled $31,319,
9
<PAGE>
$23,480 and $15,442, respectively, of which approximately $2,122, $1,557 and
$1,081, respectively, were received by the Distributor and approximately
$29,197, $21,923 and $14,361, respectively, were 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 Select Pricing Funds. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
LETTER OF 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 Select Pricing Funds
presently held, at cost or maximum offering price (whichever is higher), on the
date of the first purchase under the Letter of Intention, may be included as a
credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated in
the Letter of Intention (minimum of $25,000), the investor will be notified and
must pay, within 20 days of the expiration of such Letter, the difference
between the sales charge on the Class A or Class D shares purchased at the
reduced rate and the sales charge applicable to the shares actually purchased
through the Letter. Class A or Class D shares equal to at least 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 the Summit
Cash Reserve 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
10
<PAGE>
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.
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
Select Pricing 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 Select Pricing
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
11
<PAGE>
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 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 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.
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<PAGE>
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 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, 1998
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.
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<PAGE>
DATA CALCULATED AS OF JULY 31, 1998
<TABLE>
<CAPTION>
ALLOWABLE ALLOWABLE
ELIGIBLE AGGREGATE INTEREST
GROSS SALES ON UNPAID
SALES(1) CHARGES BALANCE(2)
------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD AUGUST 2, 1985
(COMMENCEMENT OF OPERATIONS) TO JULY 31, 1998:
Under NASD Rule as Adopted ................... $1,336,959 $83,560 $75,777
Under Distributor's Voluntary Waiver ......... $1,336,959 $83,560 $ 6,685
CLASS C SHARES, FOR THE PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF OPERATIONS) TO JULY 31, 1998:
Under NASD Rule as Adopted ................... $ 8,663 $ 541 $ 151
<CAPTION>
ANNUAL
DISTRIBUTION
AMOUNTS FEE AT
MAXIMUM PREVIOUSLY AGGREGATE CURRENT
AMOUNT PAID TO UNPAID NET ASSET
PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
----------- ---------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CLASS B SHARES, FOR THE PERIOD AUGUST 2, 1985
(COMMENCEMENT OF OPERATIONS) TO JULY 31, 1998:
Under NASD Rule as Adopted ................... $159,337 $52,831 $106,506 $223
Under Distributor's Voluntary Waiver ......... $ 90,245 $52,831 $ 37,414 $223
CLASS C SHARES, FOR THE PERIOD OCTOBER 21, 1994
(COMMENCEMENT OF OPERATIONS) TO JULY 31, 1998:
Under NASD Rule as Adopted ................... $ 692 $ 87 $ 605 $ 11
</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. 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 Funds 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.
See "Purchase of Shares -- Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the voluntary maximum (with respect to
Class B shares) or the NASD maximum (with respect to Class B and Class C
shares).
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, 1996, 1997 and 1998, the Distributor received CDSCs of $316,546,
$222,547 and $119,757, 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 years ended July 31, 1997 and 1998
may have been waived or converted to a contingent obligation in connection with
a shareholder's participation in certain fee-based programs. For the fiscal
years
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<PAGE>
ended July 31, 1996, 1997 and 1998, the Distributor received CDSCs of $1,567,
$3,004 and $809, 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 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 Select Pricing 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 $250, 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.
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
15
<PAGE>
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. For the fiscal year ended July 31, 1998, the Trust paid total
brokerage commissions of $317,783, of which $17,450 or 5.49% was paid to
Merrill Lynch for effecting 6.31% 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. ADRs are receipts typically issued
by an American bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in Europe
which evidence a similar ownership arrangement. 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
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., Eastern 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
16
<PAGE>
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 for long positions and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the primary
market. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation.
Short positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation.
Securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the 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.
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 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
17
<PAGE>
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 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 (provided that, in the event that
a payment on an account maintained at the Transfer Agent would amount to $10.00
or less, a shareholder will not receive such payment in cash and such payment
will automatically be reinvested in additional shares). The Fund is not
responsible for any failure of delivery to the shareholder's address of record
and no interest will accrue on amounts represented by uncashed distribution or
redemption checks.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained with Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND) if the shareholder's account
is maintained with the Transfer Agent that they no longer wish to have their
dividends and/or 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, the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of
each month or the 24th day of the last month of each quarter, whichever is
applicable. If the NYSE is not open for business on such date, the shares will
be redeemed at the net asset value determined 15 minutes after the close of
business on the NYSE 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.
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<PAGE>
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 be applied
thereafter to Class D shares if the shareholder so elects. 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.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund
("Summit"), a series of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated for exchange by
holders of Class A, Class B, Class C and Class D shares of Select Pricing
Funds. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. Before effecting an
exchange, shareholders should obtain a currently effective prospectus of the
fund into which the exchange is to be made. Exercise of the exchange privilege
is treated as a sale of the exchanged shares and a purchase of the acquired
shares for Federal income tax purposes.
EXCHANGE OF CLASS A AND CLASS D SHARES. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund
if the shareholder holds any Class A shares of the second fund in his or her
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares of a second Select
Pricing Fund, but does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second Select Pricing Fund at any time as
long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund. Class D shares are
exchangeable with shares of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of other Select Pricing Funds
or Class A shares of Summit ("new Class A or Class D shares"), are transacted
on the
19
<PAGE>
basis of relative net asset value per Class A or Class D share, respectively,
plus an amount equal to the difference, if any, between the sales charge
previously paid on the outstanding Class A or Class D shares and the sales
charge payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A or Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares generally
may be exchanged into the Class A or Class D shares, respectively, of the other
funds with a reduced sales charge or without a sales charge.
EXCHANGES OF CLASS B AND CLASS C SHARES. Each Select Pricing Fund with
Class B or Class C shares outstanding ("oustanding Class B or Class C Shares")
offers to exchange its Class B or Class C shares for Class B or Class C shares,
respectively, of another Select Pricing Fund or for Class B shares of Summit
("new Class B or Class C shares") on the basis of relative net asset value per
Class B or Class C share, without the payment of any CDSC that might otherwise
be due on redemption of the outstanding shares. Class B shareholders of the
Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B or Class C shares of the
fund from which the exchange has been made. For purposes of computing the CDSC
that may be payable on a disposition of the new Class B or Class C shares, the
holding period of the outstanding Class B or Class C shares is "tacked" to the
holding period of the new Class B shares. For example, an investor may exchange
Class B or Class C shares of the Fund for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Fund's Class B shares
for two and a half years. The 2% CDSC that generally would apply to a
redemption would not apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption, since by "tacking" the two and a
half year holding period of Fund Class B shares to the three-year holding
period for the Special Value Fund Class B shares, the investor will be deemed
to have held the Special Value Fund Class B shares for more than five years.
EXCHANGES FOR SHARES OF A MONEY MARKET FUND. Class A and Class D shares
are exchangeable for Class A shares of Summit and Class B and Class C shares
are exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B or Class
C shares of Select Pricing Funds and, in the event of such an exchange, the
period of time that Class B shares of Summit are held will count toward
satisfaction of the holding period requirement for purposes of reducing any
CDSC and toward satisfaction of any conversion period with respect to Class B
shares. Class B shares of Summit will be subject to a distribution fee at an
annual rate of 0.75% of average daily net assets of such Class B shares. This
exchange privilege does not apply with respect to certain Merrill Lynch
fee-based programs for which alternative exchange arrangements may exist.
Please see your Merrill Lynch Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other Select
Pricing Funds into a money market fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit. Shareholders who have
exchanged Select Pricing Fund shares for shares of such other money market
funds and subsequently wish to exchange those money market fund shares for
shares of the Fund will be subject to the CDSC schedule applicable to such Fund
shares, if any. The holding period for the money market fund shares will not
count toward satisfaction of the holding period requirement for reduction of
the CDSC imposed on such shares, if any, and, with respect to Class B shares,
toward satisfaction of the Conversion Period. However, the holding period for
Class B or Class C shares received in exchange for such money market fund
shares will be aggregated with the holding period for the original shares for
purposes of reducing the CDSC or satisfying the Conversion Period.
EXCHANGES BY PARTICIPANTS IN THE MFA PROGRAM. The exchange privilege is
modified with respect to certain retirement plans which participate in the MFA
program. Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same fund
on the basis of relative net asset values in connection with the commencement
of participation in the MFA program, I.E., no CDSC will apply. The one year
holding period does not apply to shares acquired through reinvestment of
dividends. Upon termination of participation in the MFA program, Class A shares
will be re-exchanged for the class of shares originally held. For purposes of
computing any CDSC that may be payable upon redemption of Class B or Class C
shares so reacquired, or the Conversion Period for Class B shares so
reacquired, the holding period for the Class A shares will be "tacked" to the
holding period for the Class B or Class C shares
20
<PAGE>
originally held. The Fund's exchange privilege is also modified with respect to
purchases of Class A and Class D shares by non-retirement plan investors under
the MFA program. First, the initial allocation of assets is made under the MFA
program. Then, any subsequent exchange under the MFA program of Class A or
Class D shares of a Select Pricing Fund for Class A or Class D shares of the
Fund will be made solely on the basis of the relative net asset values of the
shares being exchanged. Therefore, there will not be a charge for any
difference between the sales charge previously paid on the shares of the other
Select Pricing Fund and the sales charge payable on the shares of the Fund
being acquired in the exchange under the MFA program.
EXERCISE OF THE EXCHANGE PRIVILEGE. To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial Consultant, who
will advise the Fund of the exchange. Shareholders of the Fund, and
shareholders of the other Select Pricing Funds with shares for which
certificates have not been issued, may exercise the exchange privilege by wire
through their securities dealers. The Fund reserves the right to require a
properly completed Exchange application. This exchange privilege may be
modified or terminated in accordance with the rules of the Commission. The Fund
reserves the right to limit the number of times an investor may exercise the
exchange privilege. Certain funds may suspend the continuous offering of their
shares to the general public at any time and may thereafter resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
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. Certain
categories of capital gains are taxable at different rates. 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). Generally 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 as well as any amounts of capital
gain dividends in the different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Trust. 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
21
<PAGE>
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. The Trust also must meet these holding period
requirements, and if the Trust fails to do so, it will not be able to "pass
through" to shareholders the ability to claim a credit or a deduction for the
related foreign taxes paid by the Trust. If the Trust satisfies the holding
period requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the Trust
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Trust will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, 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. 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
22
<PAGE>
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.
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.
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.
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.
23
<PAGE>
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.
24
<PAGE>
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
-------------------------------------------
EXPRESSED REDEEMABLE
AS A PERCENTAGE VALUE OF A
BASED ON A HYPOTHETICAL
HYPOTHETICAL $1,000 INVESTMENT
$1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD
- --------------------------------------------------- ------------------- -----------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C>
One Year Ended July 31, 1998 ...................... (30.83%) $ 691.71
Five Years Ended July 31, 1998 .................... 0.71% $ 1,036.10
Ten Years Ended July 31, 1998 .....................
Inception (October 24, 1988) to July 31, 1998 ..... 3.44% $ 1,391.30
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended July 31,
- ----------------------------------------------------
1998 .............................................. (27.00%) $ 730.00
1997 .............................................. 17.95% $ 1,179.50
1996 .............................................. 4.34% $ 1,043.40
1995 .............................................. 7.05% $ 1,070.50
1994 .............................................. 13.69% $ 1,136.90
1993 .............................................. ( 0.05%) $ 999.50
1992 .............................................. 1.66% $ 1,016.60
1991 .............................................. ( 0.57%) $ 994.30
1990 .............................................. 19.99% $ 1,199.90
1989 ..............................................
1988 ..............................................
1987 ..............................................
Inception (October 24, 1988) to July 31, 1989 ..... 10.77% $ 1,107.70
Inception (August 2, 1985) to July 31, 1986 .......
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (August 2, 1985) to July 31, 1998 .......
Inception (October 24, 1988) to July 31, 1998 ..... 39.13% $ 1,391.30
CLASS C SHARES
-------------------------------------------
EXPRESSED REDEEMABLE
AS A PERCENTAGE VALUE OF A
BASED ON A HYPOTHETICAL $1,000
HYPOTHETICAL INVESTMENT
$ 1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD
- --------------------------------------------------- ---------------- -----------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended July 31, 1998 ...................... (28.40%) $ 716.00
Inception (October 21, 1994) to July 31, 1998 ..... ( 2.54%) $ 907.30
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended July 31,
- ----------------------------------------------------
1998 .............................................. (27.78%) $ 722.20
1997 .............................................. 16.77% $ 1,167.70
1996 .............................................. 3.20% $ 1,032.00
Inception (October 21, 1994) to July 31, 1995 ..... 4.26% $ 1,042.60
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21, 1994) to July 31, 1998 ..... ( 9.27%) $ 907.30
<CAPTION>
CLASS B SHARES
-----------------------------------------
EXPRESSED REDEEMABLE
AS A PERCENTAGE VALUE OF A
BASED ON A HYPOTHETICAL
HYPOTHETICAL $1,000 INVESTMENT
$1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD
- ---------------------------------------------- ------------------- ---------------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES
CHARGES)
<S> <C> <C>
One Year Ended July 31, 1998 ...................... (30.24%) $ 697.60
Five Years Ended July 31, 1998 .................... 0.75% $ 1,038.00
Ten Years Ended July 31, 1998 ..................... 2.10% $ 1,230.60
Inception (October 24, 1988) to July 31, 1998 .....
Year Ended July 31,
- ----------------------------------------------------
1998 .............................................. (27.76%) $ 722.40
1997 .............................................. 16.72% $ 1,167.20
1996 .............................................. 3.26% $ 1,032.60
1995 .............................................. 5.95% $ 1,059.50
1994 .............................................. 12.52% $ 1,125.20
1993 .............................................. ( 1.02%) $ 989.80
1992 .............................................. 0.53% $ 1,005.30
1991 .............................................. ( 1.61%) $ 983.90
1990 .............................................. 18.79% $ 1,187.90
1989 .............................................. 1.94% $ 1,019.40
1988 .............................................. (20.74%) $ 792.60
1987 .............................................. 100.16% $ 2,001.60
Inception (October 24, 1988) to July 31, 1989 .....
Inception (August 2, 1985) to July 31, 1986 ....... 3.12% $ 1,031.20
Inception (August 2, 1985) to July 31, 1998 ....... 101.34% $ 2,013.40
Inception (October 24, 1988) to July 31, 1998 .....
CLASS D SHARES
------------------------------------------
EXPRESSED REDEEMABLE
AS A PERCENTAGE VALUE OF A
BASED ON A HYPOTHETICAL
HYPOTHETICAL $1,000 INVESTMENT
$ 1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD
- ------------------------------------------------------------------------------------------
One Year Ended July 31, 1998 ...................... (30.97%) $ 690.30
Inception (October 21, 1994) to July 31, 1998 ..... ( 3.13%) $ 886.80
Year Ended July 31,
- ----------------------------------------------------
1998 .............................................. (27.15%) $ 728.50
1997 .............................................. 17.66% $ 1,176.60
1996 .............................................. 4.06% $ 1,040.60
Inception (October 21, 1994) to July 31, 1995 ..... 4.93% $ 1,049.30
Inception (October 21, 1994) to July 31, 1998 ..... (11.32%) $ 886.80
</TABLE>
25
<PAGE>
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. 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.
26
<PAGE>
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, 1998, is
calculated as set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Assets .................................................. $ 9,081,814 $ 29,794,242 $ 1,461,207 $ 60,219,419
=========== ============ =========== ============
Number of Shares Outstanding ................................ 702,475 2,329,374 115,302 4,672,981
=========== ============ =========== ============
Net Asset Value Per Share (net assets divided by number of
shares outstanding) ........................................ $ 12.93 $ 12.79 $ 12.67 $ 12.89
Sales Charge (for Class A and Class D shares: 5.25% of
offering price (5.54% of net asset value per share))* ...... 0.72 ** ** 0.71
----------- ------------ ----------- ------------
Offering Price .............................................. $ 13.65 $ 12.79 $ 12.67 $ 13.60
=========== ============ =========== ============
</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
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484 (the "Transfer Agent"), acts as the Trust's transfer agent.
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts.
LEGAL COUNSEL
Brown & Wood 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.
27
<PAGE>
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 September 30, 1998.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated by reference in
this Statement of Additional Information to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling 1-800-456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
28
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
TABLE OF CONTENTS
PAGE
-----
Investment Objective and Policies ................... 2
Asset-Based Securities ........................... 2
European Economic and Monetary Union ("EMU")...... 2
Other Investment Policies and Practices .......... 3
Investment Restrictions .......................... 5
Management of the Trust ............................. 6
Trustees and Officers ............................ 6
Compensation of Trustees ......................... 7
Management and Advisory Arrangements ............. 8
Purchase of Shares .................................. 9
Initial Sales Charge Alternatives -- Class A and
Class D Shares ................................ 9
Reduced Initial Sales Charges .................... 10
Distribution Plans ............................... 13
Limitations on the Payment of Deferred Sales
Charges ....................................... 13
Redemption of Shares ................................ 14
Deferred Sales Charges -- Class B and Class C
Shares ........................................ 14
Portfolio Transactions and Brokerage ................ 15
Determination of Net Asset Value .................... 16
Shareholder Services ................................ 17
Investment Account ............................... 17
Automatic Investment Plans ....................... 18
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................... 18
Systematic Withdrawal Plans ...................... 18
Exchange Privilege ............................... 19
Dividends, Distributions and Taxes .................. 21
Dividends and Distributions ...................... 21
Taxes ............................................ 21
Tax Treatment of Options and Forward Foreign
Exchange Transactions ......................... 23
Special Rules for Certain Foreign Currency
Transactions .................................. 23
Performance Data .................................... 24
General Information ................................. 26
Description of Shares ............................ 26
Computation of Offering Price per Share .......... 27
Independent Auditors ............................. 27
Custodian ........................................ 27
Transfer Agent ................................... 27
Legal Counsel .................................... 27
Reports to Shareholders .......................... 27
Additional Information ........................... 27
Security Ownership of Certain Beneficial
Owners ........................................ 28
Financial Statements ................................ 28
Code #10302-1098
[MERRILL LYNCH LOGO APPEARS HERE]
MERRILL LYNCH
GLOBAL RESOURCES TRUST
[COMPASS GRAPHIC APPEARS HERE]
STATEMENT OF
ADDITIONAL
INFORMATION
OCTOBER 30, 1998
DISTRIBUTOR:
MERRILL LYNCH
FUNDS DISTRIBUTOR
<PAGE>
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, 1998.
Incorporated by reference in Part B:
Schedule of Investments, as of July 31, 1998*.
Statement of Assets and Liabilities, as of July 31, 1998*.
Statement of Operations for the year ended July 31, 1998*.
Statements of Changes in Net Assets for each of the years in the
two-year period ended July 31, 1998*.
Financial Highlights for each of the years in the five-year period ended
July 31, 1998*.
- ---------
* Included in the Registrant's 1998 Annual Report to shareholders filed with
the Securities and Exchange Commission for the year ended July 31, 1998
pursuant to Rule 30b2-1 under the Investment Company Act of 1940, as
amended ("1940 Act").
(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-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 (now
known as Princeton Funds Distributor, Inc.)(a)
(c) -- Letter Agreement between Registrant and Merrill Lynch Funds Distributor (now known as
Princeton 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
(now known as Princeton Funds Distributor, Inc.) (including Form of Selected Dealers
Agreement).(d)
(e) -- Form of Class D Distribution Agreement between Registrant and Merrill Lynch Funds Distributor
(now known as Princeton 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 Services Inc.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
12 -- None.
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.(a)
(b) -- Schedule for computation of each performance quotation for Class B shares provided in the
Registration Statement in response to Item 22.(a)
(c) -- Schedule for computation of each performance quotation for Class C shares provided in the
Registration Statement in response to Item 22.(a)
(d) -- Schedule for computation of each performance quotation for Class D shares provided in the
Registration Statement in response to Item 22.(a)
17(a) -- Financial Data Schedule 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.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS AUGUST 31, 1998*
- ------------------------------------------------------------------ -----------------
<S> <C>
Class A shares of beneficial interest, par value $0.10 per share.. 1,202
Class B shares of beneficial interest, par value $0.10 per share.. 5,357
Class C shares of beneficial interest, par value $0.10 per share.. 322
Class D shares of beneficial interest, par value $0.10 per share.. 11,199
</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 ("Merrill Lynch").
C-2
<PAGE>
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"), 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.
(a) Merrill Lynch Asset Management L.P. ("MLAM" or the "Investment
Adviser") acts as the investment adviser for the following open-end registered
investment companies: Merrill Lynch Adjustable Rate Securities Fund, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch
C-3
<PAGE>
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 Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S.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 Advisors 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
Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions
Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc.,
Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund
III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured
Fund II, Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings
Florida Insured Fund III, MuniHoldings Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality
Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio,
Inc., and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government
Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665. The address of 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 ("MLFD") a division of Princeton Funds Distributor, Inc. ("PFD") 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 North Tower, World Financial Center, 250 Vesey Street, New
York, New York 10281-1201. The address of Financial Data Services, Inc. ("FDS")
is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
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,
Director or Trustee, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice
President of substantially all of
C-4
<PAGE>
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>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH INVESTMENT 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 .................. Chairman Chairman of FAM; President of FAM and
MLAM from 1977 to 1997; Chairman and
Director of Princeton Services; President of
Princeton Services from 1993 to 1997;
Executive Vice President of ML & Co.
Jeffrey M. Peek ................ President President of FAM; President and Director of
Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch (in 1997); Senior
Vice President and Director of the Global
Securities and Economics division of
Merrill Lynch (from 1995 to 1997).
Terry K. Glenn ................. Executive Vice President Executive Vice President of FAM; Executive
Vice President and Director of Princeton
Services; President and Director of PFD;
Director of FDS; President of Princeton
Administrators, L.P.
Linda Federici ................. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano ............ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Elizabeth Griffin .............. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey ............... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel ......... Senior Vice President, Secretary Senior Vice President, Secretary and General
and General Counsel Counsel of FAM; Senior Vice President of
Princeton Services
Philip L. Kirstein ............. Senior Vice President Senior Vice President of FAM; Senior Vice
President, Director and Secretary of
Princeton Services
Ronald M. Kloss ................ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Debra Landsman-Yaros ........... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Vice
President of PFD
Stephen M. M. Miller ........... Senior Vice President Executive Vice President of Princeton
Administrators, 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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- --------------------------- ------------------------------------- ---------------------------------------------
<S> <C> <C>
Richard L. Reller ......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Director of
PFD
Gerald M. Richard ......... Senior Vice President and Senior Vice President and Treasurer of FAM;
Treasurer Vice President and Treasurer of PFD;
Senior Vice President and Treasurer of
Princeton Services
Gregory Upah .............. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Ronald L. Welburn ......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as a
sub-advisor for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital
Markets, Inc., Merrill Lynch Corporate High Yield Fund, 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 Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program Inc., and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-90011. 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 August 1,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- --------------------------- ----------------------------- ------------------------------------------
<S> <C> <C>
Arthur Zeikel ............. Director and Chairman Chairman of the Investment Adviser and
FAM; President of the Investment Adviser
and FAM from 1977 to 1997; Chairman
and Director of Princeton Services;
President of Princeton Services from 1993
to 1997; Executive Vice President of
ML & Co.
Alan J. Albert ............ Senior Managing Director Vice President of FAM
Nicholas C.D. Hall ........ Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group
Gerald M. Richard ......... Senior Vice President Senior Vice President and Treasurer of
MLAM and FAM; Senior Vice President
and Treasurer of Princeton Services; Vice
President and Treasurer of PFD
Carol Ann Langham ......... Company Secretary None
Debra Anne Searle ......... Assistant Company Secretary None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and each of the open-end registered 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
registered investment companies: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Municipal Strategy Fund and Merrill Lynch Senior Floating
Rate Fund, Inc. A separate division of PFD acts as the principal underwriter of
a number of other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Breen,
Crook, Fatseas, and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND 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
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).
C-7
<PAGE>
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>
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 30TH DAY OF
OCTOBER, 1998.
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
- ------------------------------------------- -------------------------------- -----------------
<S> <C> <C>
ARTHUR ZEIKEL* President and Trustee
---------------------------------- (Principal Executive Officer)
(Arthur Zeikel)
GERALD M. RICHARD Treasurer (Principal Financial
---------------------------------- and Accounting Officer)
(Gerald M. Richard)
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)
FRED G. WEISS Trustee
----------------------------------
(Fred G. Weiss)
*By /S/ GERALD M. RICHARD October 30, 1998
------------------------------------
(Gerald M. Richard, Attorney-in-Fact)
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<S> <C> <C>
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
17(a) -- Financial Data Schedule for Class A Shares.
17(b) -- Financial Data Schedule for Class B Shares.
17(c) -- Financial Data Schedule for Class C Shares.
17(d) -- Financial Data Schedule for Class D Shares.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST--CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 122702903
<INVESTMENTS-AT-VALUE> 99998680
<RECEIVABLES> 1706149
<ASSETS-OTHER> 529100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102233929
<PAYABLE-FOR-SECURITIES> 426020
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1251227
<TOTAL-LIABILITIES> 1677247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129432305
<SHARES-COMMON-STOCK> 702475
<SHARES-COMMON-PRIOR> 930025
<ACCUMULATED-NII-CURRENT> 361954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6528128)
<ACCUM-APPREC-OR-DEPREC> (22709449)
<NET-ASSETS> 9081814
<DIVIDEND-INCOME> 2516545
<INTEREST-INCOME> 266307
<OTHER-INCOME> 3678
<EXPENSES-NET> (2375256)
<NET-INVESTMENT-INCOME> 411274
<REALIZED-GAINS-CURRENT> (2848041)
<APPREC-INCREASE-CURRENT> (44029029)
<NET-CHANGE-FROM-OPS> (46465796)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (89265)
<DISTRIBUTIONS-OF-GAINS> (1824936)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 251435
<NUMBER-OF-SHARES-REDEEMED> (577238)
<SHARES-REINVESTED> 98253
<NET-CHANGE-IN-ASSETS> (105416044)
<ACCUMULATED-NII-PRIOR> 319397
<ACCUMULATED-GAINS-PRIOR> 16549923
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 903333
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2375256
<AVERAGE-NET-ASSETS> 13382064
<PER-SHARE-NAV-BEGIN> 19.90
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (5.00)
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (2.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.93
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST--CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 122702903
<INVESTMENTS-AT-VALUE> 99998680
<RECEIVABLES> 1706149
<ASSETS-OTHER> 529100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102233929
<PAYABLE-FOR-SECURITIES> 426020
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1251227
<TOTAL-LIABILITIES> 1677247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129432305
<SHARES-COMMON-STOCK> 2329374
<SHARES-COMMON-PRIOR> 3908673
<ACCUMULATED-NII-CURRENT> 361954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6528128)
<ACCUM-APPREC-OR-DEPREC> (22709449)
<NET-ASSETS> 29794242
<DIVIDEND-INCOME> 2516545
<INTEREST-INCOME> 266307
<OTHER-INCOME> 3678
<EXPENSES-NET> (2375256)
<NET-INVESTMENT-INCOME> 411274
<REALIZED-GAINS-CURRENT> (2848041)
<APPREC-INCREASE-CURRENT> (44029029)
<NET-CHANGE-FROM-OPS> (46465796)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (7476478)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 372051
<NUMBER-OF-SHARES-REDEEMED> (2303684)
<SHARES-REINVESTED> 352334
<NET-CHANGE-IN-ASSETS> (105416044)
<ACCUMULATED-NII-PRIOR> 319397
<ACCUMULATED-GAINS-PRIOR> 16549923
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 903333
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2375256
<AVERAGE-NET-ASSETS> 51549285
<PER-SHARE-NAV-BEGIN> 19.80
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> (4.96)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (2.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.79
<EXPENSE-RATIO> 2.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST--CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 122702903
<INVESTMENTS-AT-VALUE> 99998680
<RECEIVABLES> 1706149
<ASSETS-OTHER> 529100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102233929
<PAYABLE-FOR-SECURITIES> 426020
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1251227
<TOTAL-LIABILITIES> 1677247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129432305
<SHARES-COMMON-STOCK> 115302
<SHARES-COMMON-PRIOR> 136507
<ACCUMULATED-NII-CURRENT> 361954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6528128)
<ACCUM-APPREC-OR-DEPREC> (22709449)
<NET-ASSETS> 1461207
<DIVIDEND-INCOME> 2516545
<INTEREST-INCOME> 266307
<OTHER-INCOME> 3678
<EXPENSES-NET> (2375256)
<NET-INVESTMENT-INCOME> 411274
<REALIZED-GAINS-CURRENT> (2848041)
<APPREC-INCREASE-CURRENT> (44029029)
<NET-CHANGE-FROM-OPS> (46465796)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (263429)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 292397
<NUMBER-OF-SHARES-REDEEMED> (327342)
<SHARES-REINVESTED> 13740
<NET-CHANGE-IN-ASSETS> (105416044)
<ACCUMULATED-NII-PRIOR> 319397
<ACCUMULATED-GAINS-PRIOR> 16549923
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 903333
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2375256
<AVERAGE-NET-ASSETS> 2011839
<PER-SHARE-NAV-BEGIN> 19.64
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> (4.93)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (2.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 2.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> MERRILL LYNCH GLOBAL RESOURCES TRUST--CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 122702903
<INVESTMENTS-AT-VALUE> 99998680
<RECEIVABLES> 1706149
<ASSETS-OTHER> 529100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102233929
<PAYABLE-FOR-SECURITIES> 426020
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1251227
<TOTAL-LIABILITIES> 1677247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129432305
<SHARES-COMMON-STOCK> 4672981
<SHARES-COMMON-PRIOR> 5415347
<ACCUMULATED-NII-CURRENT> 361954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6528128)
<ACCUM-APPREC-OR-DEPREC> (22709449)
<NET-ASSETS> 60219419
<DIVIDEND-INCOME> 2516545
<INTEREST-INCOME> 266307
<OTHER-INCOME> 3678
<EXPENSES-NET> (2375256)
<NET-INVESTMENT-INCOME> 411274
<REALIZED-GAINS-CURRENT> (2848041)
<APPREC-INCREASE-CURRENT> (44029029)
<NET-CHANGE-FROM-OPS> (46465796)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (239469)
<DISTRIBUTIONS-OF-GAINS> (10705150)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 862157
<NUMBER-OF-SHARES-REDEEMED> (2069885)
<SHARES-REINVESTED> 465362
<NET-CHANGE-IN-ASSETS> (105416044)
<ACCUMULATED-NII-PRIOR> 319397
<ACCUMULATED-GAINS-PRIOR> 16549923
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 903333
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2375256
<AVERAGE-NET-ASSETS> 83612376
<PER-SHARE-NAV-BEGIN> 19.83
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> (4.99)
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> (2.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.89
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Resources Trust:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 14 to Registration Statement No. 2-97095 of our report dated September 11,
1998 appearing in the annual report to shareholders of the Merrill Lynch Global
Resources Trust for the year ended July 31, 1998, and to the reference to us
under the caption "Financial Highlights" in the Prospectus, which is a part of
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
October 29, 1998
