AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1997
Securities Act File No. 333-
Investment Company Act File No. 811-4311
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRE-EFFECTIVE AMENDMENT NO. POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH CONVERTIBLE FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
ARTHUR ZEIKEL
MERRILL LYNCH CONVERTIBLE FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copies to:
JOHN A. MACKINNON, ESQ. PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the Registration Statement becomes effective under the Securities Act
of 1933.
------------------------
Title of Securities Being Registered: Common Stock, Par Value $.10 per
share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended. Pursuant to Rule 429, this
Registration Statement relates to shares previously registered on Form N-1A
(File No. 333-28619).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
MERRILL LYNCH CONVERTIBLE FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
------------------
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
--------
PART A
------
Item 1. Beginning of
Registration Registration
Statement and Outside Statement Cover Page;
Front Cover Page of Proxy Statement and
Prospectus . . . . . Prospectus Cover Page
Item 2. Beginning and Outside
Back Cover Page of Table of Contents
Prospectus . . . . .
Item 3. Fee Table, Synopsis
Information and Risk Summary; Risk Factors
Factors . . . . . . . a n d S p e c i a l
Considerations
Item 4. Information about the Summary; The
Transaction . . . . . Reorganization--
Agreement and Plan of
Reorganization
Item 5. Information about the Proxy Statement and
Registrant . . . . . Prospectus Cover
Page; Summary;
Comparison of the
Funds; Additional
Information
Item 6. Information about the
Company Being Proxy Statement and
Acquired . . . . . . Prospectus Cover
Page; Summary;
Comparison of the
Funds; Additional
Information
Item 7. Voting Information . Notice of Special
M e e t i n g o f
Stockholders;
Introduction;
Summary; Comparison
of the Funds;
I n f o r m a t i o n
Concerning the
Special Meeting;
A d d i t i o n a l
Information
Item 8. Interest of Certain Not Applicable
Persons and Experts .
Item 9. A d d i t i o n a l
Information Required
for Reoffering by Not Applicable
Persons Deemed to be
Underwriters . . . .
PART B
------
Item 10. Cover Page . . . . . Cover Page
Item 11. Table of Contents . . Table of Contents
Item 12. A d d i t i o n a l
Information about the General Information
Registrant . . . . .
Item 13. A d d i t i o n a l
Information about the General Information
Company Being
Acquired . . . . . .
Item 14. Financial Statements
Financial Statements
PART C
- ------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
(Proxy Card Front)
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and
Lawrence A. Rogers as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the shares of common stock of Merrill Lynch Global
Convertible Fund, Inc. (the "Fund") held of record by the undersigned on
December 19, 1997 at a Special Meeting of Stockholders of the Fund to be held
on February 11, 1998, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
(Continued and to be signed on the reverse side)
(Proxy Card Reverse)
1. To approve the Agreement and Plan of Reorganization between Merrill
Lynch Global Convertible Fund, Inc. and Merrill Lynch Convertible Fund,
Inc.
FOR AGAINST ABSTAIN
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney or as
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized persons.
Dated: ___________________, 199_
X __________________________________________________
Signature
X __________________________________________________
Signature, if held jointly
PLEASE MARK BOXES /X/ OR (X) IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 11, 1998
TO THE STOCKHOLDERS OF
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Global Convertible Fund, Inc. ("Global
Convertible") will be held at the offices of Merrill Lynch Asset Management,
L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, February
11, 1998 at 9:00 a.m., New York time, for the following purposes:
(1) To approve an Agreement and Plan of Reorganization (the "Agreement
and Plan of Reorganization") providing for the acquisition of substantially
all of the assets of Global Convertible by Merrill Lynch Convertible Fund,
Inc. ("Convertible Fund"), and the assumption of substantially all of the
liabilities of Global Convertible by Convertible Fund, in exchange solely for
an equal aggregate value of newly-issued shares of Convertible Fund. The
Agreement and Plan of Reorganization also provides for distribution of such
shares of Convertible Fund to stockholders of Global Convertible in
liquidation of Global Convertible. A vote in favor of this proposal will
constitute a vote in favor of the liquidation and dissolution of Global
Convertible and the termination of its registration under the Investment
Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of Global Convertible has fixed the close of
business on December 19, 1997 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the stockholders of Global Convertible entitled to
vote at the Meeting will be available and open to the examination of any
stockholders of Global Convertible for any purpose germane to the Meeting
during ordinary business hours from and after January 28, 1998 at the
offices of Global Convertible, 800 Scudders Mill Road, Plainsboro, New
Jersey.
You are cordially invited to attend the Meeting. Stockholders who do
not expect to attend the Meeting in person are requested to complete, date
and sign the enclosed form of proxy and return it promptly in the envelope
provided for that purpose. The enclosed proxy is being solicited on behalf
of the Board of Directors of Global Convertible.
By Order of the Board of Directors,
LAWRENCE A. ROGERS
Secretary
Plainsboro, New Jersey
Dated: _________, 199_
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED DECEMBER 5, 1997
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH CONVERTIBLE FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
FEBRUARY 11, 1998
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Global Convertible Fund, Inc., a Maryland corporation ("Global Convertible"),
for use at the Special Meeting of Stockholders of Global Convertible (the
"Meeting") called to approve or disapprove the proposed reorganization
whereby Merrill Lynch Convertible Fund, Inc., a Maryland corporation
("Convertible Fund"), will acquire substantially all of the assets, and will
assume substantially all of the liabilities, of Global Convertible, in
exchange solely for an equal aggregate value of newly-issued shares of
Convertible Fund (the "Reorganization"). Immediately upon the receipt by
Convertible Fund of Global Convertible's assets and the assumption by
Convertible Fund of Global Convertible's liabilities, as described in the
preceding sentence, Corresponding Shares (defined below) of Convertible Fund
will be distributed to Global Convertible stockholders. Thereafter, Global
Convertible will terminate its registration under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), and will dissolve in
accordance with the laws of the State of Maryland.
Holders of shares in Global Convertible will receive shares of that
class of shares of Convertible Fund having the same letter designation (i.e.,
Class A, Class B, Class C or Class D) and the same distribution fees, account
maintenance fees, and sales charges (including contingent deferred sales
charges ("CDSCs")), if any (the "Corresponding Shares"), as the shares of
Global Convertible held by them immediately prior to the Reorganization. The
aggregate net asset value of the Corresponding Shares of Convertible Fund to
be issued to the stockholders of Global Convertible will equal the aggregate
net asset value of the outstanding shares of Global Convertible as set forth
in the Agreement and Plan of Reorganization. Global Convertible and
Convertible Fund sometimes are referred to herein collectively as the "Funds"
and individually as a "Fund," as the context requires. The fund resulting
from the reorganization is sometimes referred to herein as the "Combined
Fund."
This Proxy Statement and Prospectus serves as a prospectus of
Convertible Fund under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the issuance of shares of Convertible
Fund to Global Convertible pursuant to the terms of the Reorganization.
Both Global Convertible and Convertible Fund are open-end management
investment companies with similar, though not identical, investment
objectives. Convertible Fund seeks to provide stockholders with high total
return by investing primarily in a portfolio of convertible debt securities,
convertible preferred stocks and synthetic convertible securities. Global
Convertible seeks to provide stockholders with high total return by investing
primarily in an internationally diversified portfolio of convertible debt
securities, convertible preferred stocks and synthetic convertible securities
consisting of a combination of debt securities or preferred stock and
warrants or options. There can be no assurance that, after the
Reorganization, Convertible Fund will achieve its investment objective.
The current prospectus relating to Convertible Fund, dated August 4,
1997 (the "Convertible Fund Prospectus"), and the Annual Report to
Stockholders of Convertible Fund for the year ended August 31, 1997,
accompany this Proxy Statement and Prospectus and are incorporated herein by
reference. A statement of additional information relating to Convertible
Fund, dated August 4, 1997 (the "Convertible Fund Statement"), a prospectus
of Global Convertible dated February 24, 1997 (the "Global Convertible
Prospectus") and a statement of additional information relating to Global
Convertible, dated February 24, 1997 (the "Global Convertible Statement"),
have been filed with the Securities and Exchange Commission (the
"Commission"). Such documents may be obtained, without charge, by writing
either Global Convertible or Convertible Fund at the address above, or by
calling 1-800-456-4587, ext. 123.
-------------------
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 PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
This Proxy Statement and Prospectus sets forth concisely the information
about Convertible Fund that stockholders of Global Convertible should know
before considering the Reorganization and should be retained for future
reference. Global Convertible has authorized the solicitation of proxies in
connection with the Reorganization solely on the basis of this Proxy
Statement and Prospectus and the accompanying documents.
A statement of additional information relating to the Reorganization
(the "Statement of Additional Information"), including pro forma financial
statements of Global Convertible and Convertible Fund, is on file with the
Commission. It is available from Convertible Fund without charge, upon oral
request by calling the toll free telephone number set forth above or upon
written request by writing Convertible Fund at its principal executive
offices. The Statement of Additional Information, dated December 5, 1997
is incorporated by reference into this Proxy Statement and Prospectus.
The Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, the Convertible Fund Prospectus, the
Global Convertible Prospectus, the Convertible Fund Statement, the Global
Convertible Statement, other material incorporated by reference and other
information regarding the Funds.
The address of the principal executive offices of both Global
Convertible and Convertible Fund is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, and the telephone number is (609) 282-2800.
-------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS DECEMBER 5, 1997.
TABLE OF CONTENTS
PAGE
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . 3
Pro Forma Fee Table . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS AND SPECIAL CONSIDERATIONS . . . . . . . . . . . . . . . . . 14
COMPARISON OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . 17
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 17
Investment Objectives and Policies . . . . . . . . . . . . . . . . . 22
Other Investment Policies . . . . . . . . . . . . . . . . . . . . . 25
Information Regarding Options, Futures and Foreign Exchange
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 26
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 28
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . 28
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . 30
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . 30
Additional Information . . . . . . . . . . . . . . . . . . . . . . . 31
THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Terms of the Agreement and Plan of Reorganization . . . . . . . . . 33
Potential Benefits to Stockholders as a Result of the
Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 34
Tax Consequences of the Reorganization . . . . . . . . . . . . . . . 36
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
INFORMATION CONCERNING THE SPECIAL MEETING . . . . . . . . . . . . . . . 38
Date, Time and Place of Meeting . . . . . . . . . . . . . . . . . . 38
Solicitation, Revocation and Use of Proxies . . . . . . . . . . . . 39
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . 39
Security Ownership of Certain Beneficial Owners and Management
of Global Convertible and Convertible Fund . . . . . . . . . . 39
Voting Rights and Required Vote . . . . . . . . . . . . . . . . . . 40
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 40
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EXHIBIT I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Global
Convertible for use at the Meeting to be held at the offices of Merrill Lynch
Asset Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New
Jersey on February 11, 1998, at 9:00 a.m., New York time. The mailing
address for Global Convertible is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and
Prospectus is January 11, 1998.
Any person giving a proxy may revoke it at any time prior to its
exercise by executing a superseding proxy, by giving written notice of the
revocation to the Secretary of Global Convertible at the address indicated
above or by voting in person at the Meeting. All properly executed proxies
received prior to the Meeting will be voted at the Meeting in accordance with
the instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, properly executed proxies will be
voted "FOR" the proposal to approve the Agreement and Plan of Reorganization
between Global Convertible and Convertible Fund (the "Agreement and Plan of
Reorganization").
Approval of the Agreement and Plan of Reorganization will require the
affirmative vote of Global Convertible stockholders representing a majority
of the total number of votes entitled to be cast thereon. Stockholders will
vote as a single class on the proposal to approve the Agreement and Plan of
Reorganization. See "Information Concerning the Special Meeting."
The Board of Directors of Global Convertible knows of no business other
than that discussed above which will be presented for consideration at the
Meeting. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their best
judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan of Reorganization, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and
the assumption of substantially all of the liabilities of Global Convertible
by Convertible Fund in exchange for the Corresponding Shares and the
subsequent distribution of Corresponding Shares of Convertible Fund to the
stockholders of Global Convertible; and (ii) the subsequent deregistration
and dissolution of Global Convertible.
THE REORGANIZATION
At a special meeting of the Board of Directors of Global Convertible
held on November 6, 1997, the Board of Directors of Global Convertible
approved a proposal that Convertible Fund acquire substantially all of the
assets, and assume substantially all of the liabilities, of Global
Convertible in exchange solely for shares of Convertible Fund to be
distributed to the stockholders of Global Convertible.
Based upon their evaluation of all relevant information, the Directors
of Global Convertible have determined that the Reorganization will
potentially benefit the stockholders of Global Convertible. Specifically,
after the Reorganization, Global Convertible stockholders will remain
invested in an open-end fund that has an investment objective similar though
not identical to that of Global Convertible. In addition, after the
Reorganization, on a pro forma combined basis, Convertible Fund will pay an
advisory fee to MLAM at a lower annual rate than that currently paid by
Global Convertible and MLAM anticipates that Global Convertible stockholders
will further benefit from a reduced overall operating expense ratio as a
result of certain economies of scale expected after the Reorganization. See
"The Reorganization--Potential Benefits to Stockholders as a Result of the
Reorganization."
The Board of Directors of Global Convertible, including a majority of
the Directors who are not "interested persons," as defined in the Investment
Company Act, has determined that the Reorganization is in the best interests
of Global Convertible and that the interests of existing Global Convertible
stockholders will not be diluted as a result of effecting the Reorganization.
If all of the requisite approvals are obtained, it is anticipated that
the Reorganization will occur as soon as practicable after such approval,
provided that Global Convertible and Convertible Fund have obtained prior to
that time a favorable private letter ruling from the Internal Revenue Service
(the "IRS") concerning the tax consequences of the Reorganization as set
forth in the Agreement and Plan of Reorganization. Under the Agreement and
Plan of Reorganization, however, the Board of Directors of Global Convertible
or the Board of Directors of Convertible Fund may cause the Reorganization to
be postponed or abandoned should either Board determine that it is in the
best interests of the stockholders of either Global Convertible or
Convertible Fund, respectively, to do so. The Agreement and Plan of
Reorganization may be terminated, and the Reorganization abandoned, whether
before or after approval by the stockholders of Global Convertible, at any
time prior to the Exchange Date (as defined below), (i) by mutual consent of
the Board of Directors of Global Convertible and the Board of Directors of
Convertible Fund; (ii) by the Board of Directors of Global Convertible if any
condition to Global Convertible's obligations has not been fulfilled or
waived by such Board; or (iii) by the Board of Directors of Convertible Fund
if any condition to Convertible Fund's obligations has not been fulfilled or
waived by such Board.
PROFORMAFEETABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF
GLOBALCONVERTIBLE,CONVERTIBLE FUND AND THE
COMBINED FUND AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CLASS A SHARES (A)
---------------------------------------------------
ACTUAL
-------------------------------
GLOBAL CONVERTIBLE PRO FORMA
CONVERTIBLE FUND COMBINED
--------------- ------------ --------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.25%(c) 5.25%(c) 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) None(d) None(d)
Exchange Fee . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(f) . . . . . . . . . . . 0.65% 0.60% 0.60%
12b-1-Fees(g):
Account Maintenance Fees . . . . . . . . . . None None None
Distribution Fees . . . . . . . . . . . . . . None None None
Other Expenses:
Custodial Fees . . . . . . . . . . . . . . . 0.05% 0.02% 0.01%
Stockholder Servicing Costs(h) . . . . . . . 0.70% 0.08% 0.05%
Other . . . . . . . . . . . . . . . . . . . . 1.22% 0.26% 0.28%
Total Other Expenses . . . 1.97% 0.36% 0.34%
Total Fund Operating Expenses . . . . . . . . . . 2.62% 0.96% 0.94%
(table continued)
CLASS B SHARES (B)
------------------------------------------------------------------
ACTUAL
--------------------------------------------
GLOBAL CONVERTIBLE CONVERTIBLE FUND PRO FORMA COMBINED
------------------ ---------------- ------------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) None None None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . . . . . None None None
4.0% during the first 4.0% during the first 4.0% during the first
year, decreasing 1.0% year, decreasing 1.0% year, decreasing 1.0%
Deferred Sales Charge (as a percentage of original annually thereafter to annually thereafter annually thereafter to
purchase price or redemption proceeds, 0.0% after the fourth to 0.0% after the 0.0% after the fourth
whichever is lower) . . . . . . . . . . . . . year(e) fourth year(e) year(e)
Exchange Fee . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(f) . . . . . . . . . . . 0.60% 0.60%
0.65%
12b-1-Fees(g):
Account Maintenance Fees . . . . . . . . . . 0.25% 0.25% 0.25%
Distribution Fees . . . . . . . . . . . . . . 0.75% 0.75% 0.75%
Other Expenses:
Custodial Fees . . . . . . . . . . . . . . . 0.05% 0.02% 0.01%
Stockholder Servicing Costs(h) . . . . . . . 0.70% 0.08% 0.05%
Other . . . . . . . . . . . . . . . . . . . . 1.22% 0.26% 0.28%
Total Other Expenses . . . 1.97% 0.36% 0.34%
Total Fund Operating Expenses . . . . . . . . . . 3.62% 1.96% 1.94%
</TABLE>
_______________
(a) Class A shares are sold to a limited group of investors including
existing Class A stockholders, certain retirement plans and participants
in certain fee-based programs. See "Comparison of the Funds--Purchase
of Shares."
(b) Class B shares convert to Class D shares automatically approximately
eight years after initial purchase. See "Comparison of the Funds--
Purchase of Shares."
(c) Reduced for Class A purchases of $25,000 and over, and waived for
purchases by certain retirement plans and in connection with certain
fee-based programs. Purchases of $1,000,000 or more may not be subject
to an initial sales charge. See "Comparison of the Funds--Purchase of
Shares."
(d) Class A shares are not subject to 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 of purchase. Such CDSC may be waived in connection with
certain fee-based programs.
(e) The CDSC may be modified in connection with certain fee-based programs.
(f) See "Comparison of the Funds--Management."
(g) See "Comparison of the Funds--Purchase of Shares."
(h) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Registrar."
CUMULATIVE EXPENSES PAID ON CLASS A AND CLASS B SHARES FOR THE PERIOD OF:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------------------------------------------- ---------------
Example: 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR
--------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class A
shares only) and assuming (1) the Total Fund
Operating Expenses set forth on page 5 for
the relevant fund, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period (including any applicable
CDSC for Class B shares):
Global Convertible . . . . . . . . . . . . . . $ 78 $ 130 $ 184 $ 332 $ 76
Convertible Fund . . . . . . . . . . . . . . . 62 81 103 164 60
Combined Fund+ . . . . . . . . . . . . . . . . 62 81 102 162 60
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end
of the period:
Global Convertible . . . . . . . . . . . . . . $ 78 $ 130 $ 184 $ 332 $ 36
Convertible Fund . . . . . . . . . . . . . . . 62 81 103 164 20
Combined Fund+ . . . . . . . . . . . . . . . . 62 81 102 162 20
(table continued)
Class B Shares
----------------------------------------------------
Example: 3 YEARS 5 YEARS 10 YEARS
------------- -------- ---------
<S> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, including the
maximum sales load of $52.50 (Class A
shares only) and assuming (1) the Total Fund
Operating Expenses set forth on page 5 for
the relevant fund, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period (including any applicable
CDSC for Class B shares):
Global Convertible . . . . . . . . . . . . . . . . . . . . . $ 131 $ 187 $ 372*
Convertible Fund . . . . . . . . . . . . . . . . . . . . . . 82 106 209*
Combined Fund+ . . . . . . . . . . . . . . . . . . . . . . . 81 105 207*
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end
of the period:
Global Convertible . . . . . . . . . . . . . . . . . . . . . $ 111 $ 187 $ 372*
Convertible Fund . . . . . . . . . . . . . . . . . . . . . . 62 106 209*
Combined Fund+ . . . . . . . . . . . . . . . . . . . . . . . 61 105 207*
</TABLE>
_______________
* Assumes conversion of Class B shares to Class D shares approximately
eight years after initial purchase.
+ Assuming the Reorganization had taken place on October 1, 1996 (the
first day of the year ended September 30, 1997).
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF GLOBAL
CONVERTIBLE, CONVERTIBLE FUND AND THE COMBINED
FUND AS OF SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS C SHARES
----------------------------------------------------
ACTUAL
----------------------------------
GLOBAL CONVERTIBLE PRO FORMA
CONVERTIBLE FUND COMBINED
--------------- ------------- ------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) . . . . . None None None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . . . . . . . . . . None None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, 1.0% for one 1.0% for one 1.0% for one
whichever is lower) . . . . . . . . . . . . . . . . . . year(b) year(b) year(b)
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . . . . . . . . . . . . . 0.65% 0.60% 0.60%
12b-1-Fees(e):
Account Maintenance Fees . . . . . . . . . . . . . . . 0.25% 0.25% 0.25%
Distribution Fees . . . . . . . . . . . . . . . . . . . 0.75% 0.75% 0.75%
Other Expenses:
Custodial Fees . . . . . . . . . . . . . . . . . . . . . 0.05% 0.02% 0.01%
Stockholder Servicing Costs(f) . . . . . . . . . . . . . 0.70% 0.08% 0.05%
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1.22% 0.26% 0.28%
Total Other Expenses . . . . . . . . 1.97% 0.36% 0.34%
Total Fund Operating Expenses . . . . . . . . . . . . . . . 3.62% 1.96% 1.94%
(table continued)
CLASS D SHARES
---------------------------------------------------------------
ACTUAL
----------------------------------------
GLOBAL CONVERTIBLE CONVERTIBLE FUND PRO FORMA COMBINED
--------------------- ---------------- ------------------
<S> <C> <C> <C>
STOCKHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.25%(a) 5.25%(a) 5.25%(a)
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(c) None(c) None(c)
Exchange Fee . . . . . . . . . . . . . . . . . . None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . . . . . . . . 0.65% 0.60% 0.60%
12b-1-Fees(e):
Account Maintenance Fees . . . . . . . . . . 0.25% 0.25% 0.25%
Distribution Fees . . . . . . . . . . . . . . None None None
Other Expenses:
Custodial Fees . . . . . . . . . . . . . . . . 0.05% 0.02% 0.01%
Stockholder Servicing Costs(f) . . . . . . . . 0.70% 0.08% 0.05%
Other . . . . . . . . . . . . . . . . . . . . 1.22% 0.26% 0.28%
Total Other Expenses . . . 1.97% 0.36% 0.34%
Total Fund Operating Expenses . . . . . . . . . . 2.87% 1.21% 1.19%
</TABLE>
______________
(a) Reduced for Class D purchases of $25,000 and over. Like Class A
purchases, certain Class D purchases of $1,000,000 or more may not be
subject to an initial sales charge. See "Comparison of the Funds
-- Purchase of Shares."
(b) The CDSC may be waived in connection with certain fee-based programs.
(c) Like Class A shares, Class D shares are not subject to a CDSC, except
that 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.
(d) See "Comparison of the Funds--Management."
(e) See "Comparison of the Funds--Purchase of Shares."
(f) See "Comparison of the Funds--Additional Information--Transfer Agent,
Dividend Disbursing Agent and Registrar."
CUMULATIVE EXPENSES PAID ON CLASS C AND CLASS D SHARES FOR THE PERIOD OF:
<TABLE>
<CAPTION>
CLASS C SHARES
---------------------------------------------------------
Example: 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 sales load of $52.50 (Class D
shares only) and assuming (1) the Total Fund
Operating Expenses set forth on page 7 for
the relevant fund, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period (including any applicable CDSC
for Class C shares):
Global Convertible . . . . . . . . . . . . . . . . . . $ 46 $ 111 $ 187 $ 388
Convertible Fund . . . . . . . . . . . . . . . . . . . 30 62 106 229
Combined Fund+ . . . . . . . . . . . . . . . . . . . . 30 61 105 226
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end
of the period:
Global Convertible . . . . . . . . . . . . . . . . . . $ 46 $ 111 $ 187 $ 388
Convertible Fund . . . . . . . . . . . . . . . . . . . 20 62 106 229
Combined Fund+ . . . . . . . . . . . . . . . . . . . . 20 61 105 226
(table continued)
CLASS D SHARES
---------------------------------------------------------
Example: 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 sales load of $52.50 (Class D
shares only) and assuming (1) the Total Fund
Operating Expenses set forth on page 7 for
the relevant fund, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period (including any applicable CDSC
for Class C shares):
Global Convertible . . . . . . . . . . . . . . . $ 80 $ 137 $ 196 $ 355
Convertible Fund . . . . . . . . . . . . . . . . 64 89 116 191
Combined Fund+ . . . . . . . . . . . . . . . . . 64 88 115 189
An investor would pay the following
expenses on the same $1,000 investment
assuming no redemption at the end
of the period:
Global Convertible . . . . . . . . . . . . . . . $ 80 $ 137 $ 196 $ 355
Convertible Fund . . . . . . . . . . . . . . . . 64 89 116 191
Combined Fund+ . . . . . . . . . . . . . . . . . 64 88 115 189
</TABLE>
- -----------------------------
+ Assuming the Reorganization had taken place on October 1, 1996 (the
first day of the year ended September 30, 1997).
The foregoing Fee Tables are intended to assist investors in
understanding the costs and expenses that a Global Convertible or Convertible
Fund stockholder bears directly or indirectly as compared to the costs and
expenses that would be borne by such investors taking into account the
Reorganization. The Examples set forth above assume reinvestment of all
dividends and distributions and utilize a 5% annual rate of return as
mandated by Commission regulations. THE EXAMPLES 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 EXAMPLES. See "Summary," "The Reorganization--
Potential Benefits to Stockholders as a Result of the Reorganization,"
"Comparison of the Funds--Management," "--Purchase of Shares" and "--
Redemption of Shares."
BUSINESS OF GLOBAL CONVERTIBLE Global Convertible was incorporated under
the laws of the State of Maryland on
October 22, 1987 and commenced operations
on February 26, 1988. Global Convertible
is a diversified, open-end management
investment company.
As of October 31, 1997, Global Convertible
had net assets of approximately
$28,922,000.
BUSINESS OF CONVERTIBLE FUND Convertible Fund was incorporated under
the laws of the State of Maryland on May
24, 1985 and commenced operations on
August 2, 1985 as a dual-purpose closed-
end management investment company.
Effective August 4, 1997, Convertible Fund
converted to open-end status and since
that date has operated as a
non-diversified, open-end management
investment company.
As of October 31, 1997, Convertible Fund
had net assets of approximately $
86,826,000.
COMPARISON OF THE FUNDS Investment Objectives. Convertible Fund
seeks to provide stockholders with high
total return by investing primarily in a
portfolio of convertible debt securities,
convertible preferred stocks and synthetic
convertible securities. Global
Convertible seeks to provide stockholders
with high total return by investing
primarily in an internationally
diversified portfolio of convertible debt
securities, convertible preferred stocks
and synthetic convertible securities
consisting of a combination of debt
securities or preferred stock and warrants
or options.
Investment Policies. Global Convertible
invests, under normal circumstances, at
least 65% of its total assets in
convertible securities and 80% of its
assets in convertible securities and
synthetic convertible securities of at
least three different countries including
the United States. It may invest up to
20% of its assets in other types of
securities including equity securities and
nonconvertible debt securities of United
States and non-United States issuers.
Convertible Fund invests, under normal
circumstances, at least 65% of its total
assets in convertible securities and
synthetic convertible securities of United
States and non-United States issuers. It
may invest up to 35% of its assets in
other types of securities, including
common stock, preferred stock, options,
warrants, Long-term Equity Appreciation
Participation Securities ("LEAPS") and
nonconvertible debt securities of United
States and non-United States issuers.
Each Fund may invest in securities
denominated in any currency that are
convertible into common stocks of
companies located throughout the world,
but it is expected that a majority of each
Fund's assets will be invested in
securities denominated in United States
dollars, currencies of Pacific Basin
countries and currencies of Western
European countries. When investing in
convertible securities, each Fund
considers both the yield on the
convertible security and the potential
capital appreciation that is offered by
the underlying common stock. Neither Fund
has established rating criteria for the
debt securities in which it may invest and
such securities may not be rated at all
for creditworthiness. In addition, each
Fund may engage in various portfolio
strategies to seek to increase its return
through the use of options on portfolio
securities and to hedge its portfolio
against movements in the equity markets,
interest rates and exchange rates between
currencies.
Convertible Fund and Global Convertible
each may borrow amounts not in excess of
331/3% of its total assets taken at market
value, from banks as a temporary measure
for extraordinary or emergency purposes.
Global Convertible may borrow an
additional 5% of its total assets for
temporary purposes. As a non-fundamental
restriction, however, Global Convertible
is further limited and may not borrow
amounts in excess of 20% of its total
assets taken at market value, and then
only from banks as a temporary measure for
extraordinary or emergency purposes.
Advisory Fees. The investment adviser for
both Global Convertible and Convertible
Fund is MLAM. MLAM is responsible for the
management of each Fund's investment
portfolio and for providing administrative
services to each Fund.
Daniel A. Luchansky serves as portfolio
manager for both Funds.
Pursuant to a separate management
agreement between each Fund and MLAM,
Convertible Fund pays MLAM a monthly fee
at the annual rate of 0.60% of the average
daily net assets of the Fund; Global
Convertible pays MLAM a monthly fee at the
annual rate of 0.65% of the average daily
net assets of the Fund. Convertible Fund
pays advisory fees at a lower rate than
does Global Convertible and after the
Reorganization the advisory fee paid by
the combined fund (the "Combined Fund")
would be at Convertible Fund's lower rate
of 0.60%. See "Summary--Pro Forma Fee
Tables" and "Comparison of the Funds--
Management."
MLAM has retained Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K.") as
sub-adviser to each of the Funds.
Pursuant to a separate sub-advisory
agreement between MLAM and MLAM U.K. with
respect to each Fund, MLAM pays MLAM U.K.
a fee for providing investment advisory
services to MLAM with respect to each
Fund, in an amount to be determined from
time to time by MLAM and MLAM U.K. but in
no event in excess of the amount MLAM
actually receives for providing services
to each Fund pursuant to each management
agreement.
Class Structure. Each Fund offers four
classes of shares under the Merrill Lynch
Select Pricing(Service Mark) System. The
Class A, Class B, Class C and Class D
shares issued by Convertible Fund are
identical in all respects to the Class A,
Class B, Class C and Class D shares issued
by Global Convertible, except that they
represent ownership interests in a
different investment portfolio. See
"Comparison of the Funds--Purchase of
Shares."
Overall Expense Ratio. The overall
operating expense ratio for Class A shares
for the year ended September 30, 1997 was
2.62% for Global Convertible and 0.96% for
Convertible Fund. If the Reorganization
had taken place on October 1, 1996 (the
first day of the year ended September 30,
1997), the overall operating expense ratio
for Class A shares of the Combined Fund on
a pro forma basis would have been 0.94%.
The foregoing expense ratios are for Class
A shares. Such ratios would differ for
Class B, Class C and Class D shares as a
result of class specific distribution and
account maintenance expenditures. See
"Summary--Pro Forma Fee Tables."
Purchase of Shares. Shares of Convertible
Fund are offered continuously for sale to
the public in substantially the same
manner as shares of Global Convertible.
See "Comparison of the Funds--Purchase of
Shares."
Redemption of Shares. The redemption
procedures for shares of Convertible Fund
are the same as the redemption procedures
for shares of Global Convertible. For
purposes of computing any CDSC that may be
payable upon disposition of Corresponding
Shares of Convertible Fund acquired by
Global Convertible stockholders in the
Reorganization, the holding period of
Global Convertible shares outstanding on
the date the Reorganization takes place
will be "tacked" onto the holding period
of the Corresponding Shares of Convertible
Fund acquired in the Reorganization. See
"Comparison of the Funds--Redemption of
Shares."
Dividends and Distributions. Global
Convertible's policies with respect to
dividends and distributions are
substantially the same as those of
Convertible Fund, except that Global
Convertible is required to pay dividends
from net investment income quarterly,
while Convertible Fund is required to pay
dividends from net investment income at
least annually. See "Comparison of the
Funds--Dividends and Distributions."
Net Asset Value. Both Global Convertible
and Convertible Fund determine net asset
value of each class of shares once daily
15 minutes after the close of business on
the New York Stock Exchange (the "NYSE")
(generally, 4:00 p.m. New York time), on
each day during which the NYSE is open for
trading. Both Funds compute net asset
value per share in the same manner. See
"Comparison of the Funds--Additional
Information--Net Asset Value."
Voting Rights. The corresponding voting
rights of the holders of shares of common
stock of each Fund are substantially the
same. See "The Reorganization--
Comparison of the Funds--Capital Stock."
Other Significant Considerations.
Stockholder services, including exchange
privileges, available to Global
Convertible and Convertible Fund
stockholders are substantially the same.
See "Comparison of the Funds--Additional
Information--Stockholder Services." An
automatic dividend reinvestment plan is
available to stockholders of both Funds.
The plans are identical.
See "Comparison of the Funds--Automatic
Dividend Reinvestment Plan." Other
stockholder services, including the
provision of annual and semi-annual
reports, are the same for both Funds. See
"Comparison of the Funds-- Stockholder
Services."
TAX CONSIDERATIONS Global Convertible and Convertible Fund
jointly have requested a private letter
ruling from the Internal Revenue Service
("IRS") with respect to the
Reorganization to the effect that, among
other things, neither Global Convertible
nor Convertible Fund will recognize gain
or loss on the transaction, and Global
Convertible stockholders will not
recognize gain or loss on the exchange of
their shares of Global Convertible stock
for Corresponding Shares of Convertible
Fund. The consummation of the Reorganization
is subject to the receipt of such ruling.
The Reorganization will not affect the
status of Convertible Fund as a
regulated investment company. See "The
Reorganization--Tax Consequences of the
Reorganization."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in
Convertible Fund are substantially the same as those of Global Convertible.
Such risks include investing in derivative instruments, illiquid securities
and unrated debt securities as well as investing on an international basis.
The principal difference in risks results from Convertible Fund's non-
diversified status.
Non-Diversified Status. Global Convertible is organized as a
diversified investment company. Convertible Fund is organized as a non-
diversified investment company. To the extent Convertible Fund may therefore
diversify its investments among fewer issuers, its exposure to credit and
market risks associated with such issuers may be greater than that to which a
more diversified fund such as Global Convertible would be subject. However,
Convertible Fund's investments are limited so as to qualify for the tax
treatment afforded "regulated investment companies" under the Internal
Revenue Code of 1986, as amended (the "Code"). In order to so qualify,
Convertible Fund generally must remain diversified as to 50% of its total
assets and, with respect to the remaining 50% of its assets, may not invest
more than 25% of its assets in the securities of a single issuer.
Derivative Investments. Each Fund may engage in transactions in
certain instruments that may be characterized as derivatives. These
instruments include various types of options, futures and options thereon,
currency forwards and options thereon and indexed securities, including
inverse securities. The Funds may engage in these transactions for hedging
purposes or, in certain cases, to enhance total return.
Investments in indexed securities, including inverse securities,
subject the Funds to the risks associated with changes in the particular
indices, which risks may include the loss of amounts invested. Transactions
involving options, futures, options on futures or currency may involve the
loss of an opportunity to profit from a price movement in the underlying
asset beyond certain levels or a price increase on other portfolio assets (in
the case of transactions for hedging purposes) or expose the Funds to
potential losses that exceed the amount originally invested by each
respective Fund in such instruments.
Illiquid Securities. Each Fund may invest up to 15% of its net
assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Investment of the Fund's assets in illiquid
securities may restrict the ability of the Fund to dispose of its investments
in a timely fashion and for a fair price as well as its ability to take
advantage of market opportunities. The risks associated with illiquidity
will be particularly acute in situations in which the Fund's operations
require cash, such as when the Fund redeems shares or pays dividends, and
could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of illiquid investments. Further,
issuers whose securities are not publicly traded are not subject to the
disclosure and other investor protection requirements that would be
applicable if their securities were publicly traded.
No Rating Criteria for Debt Securities. Neither Fund has
established any rating criteria for the debt securities in which it may
invest and such securities may not be rated at all for creditworthiness.
Securities rated in the medium to low rating categories of nationally
recognized statistical rating organizations and unrated securities of
comparable quality ("high yield securities") are speculative with respect to
the capacity to pay interest and repay principal in accordance with the terms
of the security and generally involve a greater volatility of price than
securities in higher rating categories. Neither Fund intends to purchase
debt securities that are in default.
Issuers of high yield securities may be highly leveraged and may
not have available to them more traditional methods of financing. Therefore,
the risks associated with acquiring the securities of such issuers generally
are greater than is the case with higher rated securities. For example,
during an economic downturn or a sustained period of rising interest rates,
issuers of high yield securities may be more likely to experience financial
stress, especially if such issuers are highly leveraged. During such
periods, such issuers may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations
also may be adversely affected by specific issuer developments, or the
issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by
the issuer is significantly greater for the holders of high yield securities
because such securities may be unsecured and may be subordinated to other
creditors of the issuer. Moreover, the Fund may have difficulty disposing of
certain high yield securities because there may be a thin trading market for
such securities.
Investing on an International Basis. Because a substantial portion
of each Fund's assets may be invested in securities of non-U.S. issuers,
investors should be aware of certain risk factors and special considerations
relating to international investing, which may involve risks that are not
typically associated with investments in securities of U.S. issuers.
Investing on an international basis involves certain risks not
involved in domestic investments, including fluctuations in foreign exchange
rates, future political and economic developments, different legal systems
and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Securities prices in different countries
are subject to different economic, financial, political and social factors.
Since both Funds invest heavily in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities in each Fund and the unrealized
appreciation or depreciation of investments. Currencies of certain countries
may be volatile and, therefore, may affect the value of securities
denominated in such currencies. In addition, with respect to certain foreign
countries, there is the possibility of expropriation of assets, confiscatory
taxation, difficulty in obtaining or enforcing a court judgment, economic,
political or social instability or diplomatic developments that could affect
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Certain
foreign investments also may be subject to foreign withholding taxes. These
risks often are heightened for investments in smaller, emerging capital
markets.
Many of the foreign securities held by the Funds will not be
registered with the Commission, nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about a foreign issuer than about a U.S.
issuer and such foreign issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those of
U.S. issuers. As a result, traditional investment measurements, such as
price/earnings ratios, as used in the United States, may not be applicable to
certain smaller, emerging foreign capital markets. Foreign issuers, and
issuers in smaller, emerging capital markets in particular, may not be
subject to uniform accounting, auditing and financial reporting standards or
to practices and requirements comparable to those applicable to domestic
issuers.
Foreign financial markets, while often growing in trading volume,
have, for the most part, substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid and their prices may be
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 failed to keep
pace with the volume of securities transactions, making it difficult to
conduct such transactions. Further, satisfactory custodial services for
investment securities may not be available in some countries that have
smaller, emerging capital markets, which may result in the Funds incurring
additional costs and delays in transporting and custodying such securities
outside such countries. Delays in settlement could result in periods when
assets of the Funds are uninvested and no return is earned thereon. The
inability of the Funds to make intended security purchases due to settlement
problems or the risk of intermediary counterparty failures could cause the
Funds to miss attractive investment opportunities. The inability to dispose
of a portfolio security due to settlement problems could result either in
losses to the Funds due to subsequent declines in the value of such portfolio
security or, if a contract to sell the security has been entered, could
result in possible liability to the purchaser.
There generally is less governmental supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the
United States. For example, there may be no comparable provisions under
certain foreign laws to insider trading and similar investor protection
securities laws that apply with respect to securities transactions
consummated in the United States. Further, brokerage commissions and other
transaction costs on foreign securities exchanges generally are higher than
in the United States.
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
ConvertibleFund. Thefinancial information in the tables below has been
audited in conjunction with the annual audit of the financial statements of
Convertible Fund by Deloitte & Touche LLP, independent auditors. Financial
information is not presented for Class B, Class C and Class D shares prior to
August 4, 1997 since no shares of those classes were publicly issued prior to
that date. Prior to August 4, 1997, the Class A shares were designated Capital
Shares and the Fund operated as a closed-end "dual purpose" management
investment company.
The following per share data and ratios have been derived from
information provided in the financial statements.
<TABLE>
<CAPTION>
Class A Shares(1)
--------------------------------------------------------------------
For the
Period For the Year Ended December 31,
Jan. 1, 1997
to
Aug. 31,
1997# 1996# 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:+++
Net asset value, beginning of period . . . . . . . . . $ 15.57 $ 13.43 $ 11.13 $13.21 $12.87 $ 10.91
Investment income-net . . . . . . . . . . . . . . . . .06 -- -- -- -- --
Realized and unrealized gain (loss) on investments
and foreign currency transactions-net . . . . . . . 1.75 2.78 2.66 (2.12) 1.43 2.03
Distributions of realized gain on investment-net . . -- (.36) (1.17) (.12)
Effect of repurchase of Treasury Stock . . . . . . . -- (.64) --+ (.01) .08 .05
Capital charge resulting from issuance of new classes
of shares . . . . . . . . . . . . . . . . . . . . . (.02) -- -- .05 -- --
Net asset value, end of year . . . . . . . . . . . . . $ 17.36 $ 15.57 $ 13.43 $11.13 $13.21 $ 12.87
TOTAL INVESTMENT RETURN:**
Based on net asset value per share . . . . . . . . . . 11.50%## 20.60% 24.44% (15.68)% 13.94% 19.48%
RATIOS TO AVERAGE NET ASSETS:
Expenses***. . . . . . . . . . . . . . . . . . . . . . .90%* .78% .79% .87% .80% .80%
Investment income-net . . . . . . . . . . . . . . . . . 4.76%* 4.98% 5.40% 5.43% 5.10% 6.34%
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . . . $110,178 $ 289,993 $265,127 $238,466 $274,999 $289,366
Portfolio turnover . . . . . . . . . . . . . . . . . . 92.86% 129.06% 87.69% 69.37% 116.03% 76.54%
Average commission rate paid++ . . . . . . . . . . . . $ .0522 $ .0447 -- -- -- ----
(table continued)
Class A Shares(1)
---------------------------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------------
1991 1990 1989 1988 1987###
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:+++
Net asset value, beginning of period . . . . . . . . . . . . $ 7.67 $ 10.12 $ 8.69 $ 8.49 $ 11.88
Investment income-net . . . . . . . . . . . . . . . . . . . -- -- -- -- --
Realized and unrealized gain (loss) on investments
and foreign currency transactions-net . . . . . . . . . . 3.24 (2.45) 1.43 .20 (3.39)
Distributions of realized gain on investment-net . . . . . -- -- -- -- --
Effect of repurchase of Treasury Stock . . . . . . . . . . -- -- -- -- --
Capital charge resulting from issuance of new classes
of shares . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
Net asset value, end of year . . . . . . . . . . . . . . . . $ 10.91 $ 7.67 $ 10.12 $ 8.69 $ 8.49
Based on net asset value per share . . . . . . . . . . . . . 42.24% (24.21)% 16.46% 2.36% (28.54%)##
TOTAL INVESTMENT RETURN:**
RATIOS TO AVERAGE NET ASSETS:
Expenses*** . . . . . . . . . . . . . . . . . . . . . . . . . .83% .86% .80% .79% .83%*
Investment income-net . . . . . . . . . . . . . . . . . . . . 7.24% 7.39% 7.15% 7.55% 6.37%*
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . . . . . . $ 275,045 $ 230,851 $ 264,339 $ 245,033 $ 243,073
Portfolio turnover . . . . . . . . . . . . . . . . . . . . . 54.90% 40.28% 50.47% 48.72% 23.09%
Average commission rate paid++ . . . . . . . . . . . . . . . -- -- -- -- --
</TABLE>
- --------------------
(1) The above financial information reflects the Fund's performance as a
closed-end investment company and, therefore, may not be indicative of
its performance as an open-end investment company. Capital Shares of
the Fund existing on August 4, 1997, the time of its conversion to an
open-end investment company, have been classified as Class A shares.
* Annualized.
** Total investment returns exclude the effects of sales loads.
Performance results prior to August 31, 1997 are for when the Fund was a
dual-structure closed-end management investment company and include only
the returns for the Capital Shares but exclude results from the Income
Shares.
*** Excluding taxes on undistributed net realized long-term capital gains
for years prior to the period January 1, 1997 to August 31, 1997.
+ Amount is less than $.01 per share.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities.
+++ Excludes the effect of per share operating performance of the Fund's
Income Shares, which were redeemed on July 31, 1997. Per share
operating performance prior to the period January 1, 1997 to August 31,
1997 reflects when the Fund was a dual-structure closed-end management
investment company. For the period January 1, 1997 to July 31, 1997,
investment income -- net per Income Share was $0.73 and dividends of
investment income -- net per Income Share were $0.70.
# Based on average shares outstanding during the period.
## Aggregate total investment return.
### For the six months ended December 31, 1987.
CONVERTIBLE FUND - FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
For the Period August 4, 1997+ to August 31, 1997
-----------------------------------------------------------
Class B# Class C# Class D#
------------- ------------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
$ 16.91 $ 16.91 $ 16.91
Net asset value, beginning of period . . . . .
Investment income--net . . . . . . . . . . .05 .05 .07
Realized and unrealized gain on
investments and foreign currency
.39 .40 .38
transactions--net . . . . . . . . . . .
.44 .45 .45
Total from investment operations . . . . . . .
Net Asset value, end of period . . . . . . . . $ 17.35 $ 17.36 $ 17.36
TOTAL INVESTMENT RETURN:** 2.60%++ 2.66%++ 2.66%++
Based on net asset value per share . . . . . .
RATIOS TO AVERAGE NET ASSETS:
Expenses . . . . . . . . . . . . . . . . . . . 2.66%* 2.74%* 1.92%*
3.77%* 3.58%* 4.81%*
Investment income--net . . . . . . . . . . . .
SUPPLEMENTAL DATA:
$ 5,759 $ 1,014 $ 1,365
Net assets, end of period (in thousands) . . .
92.86% 92.86% 92.86%
Portfolio turnover . . . . . . . . . . . . . .
$ .0522 $ .0522 $ .0522
Average commission rate paid . . . . . . . . .
</TABLE>
- ---------------------
+ Commencement of operations
++ Aggregate total investment return.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Based on average outstanding shares during the period.
Global Convertible. The financial information in the table below
has been audited in conjunction with the annual audit of the financial
statements of Global Convertible by Deloitte & Touche LLP, independent
auditors.
The following per share data and ratios have been derived from
information provided in Global Convertible's audited Financial Statements:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
For the year Ended October 31,
---------------------------------------------------------------------------
1997+ 1996+ 1995 1994 1993
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
$ 10.54 $ 10.71 $ 10.75 $ 11.08 $ 9.79
Net asset value, beginning of period . . . . . . .
Investment income--net . . . . . . . . . . . . . .33 .32 .42 .33 .23
Realized and unrealized gain (loss) on investments
1.47 .62 .11 (.27) 1.45
and foreign currency transactions--net . . . . .
1.80 .94 .53 .06 1.68
Total from investment operations . . . . . . . . .
Less dividends and distributions:
Investment income--net . . . . . . . . . . . . . (.24) (.48) (.46) (.30) (.23)
In excess of investment income-net . . . . . . . (.01) -- -- -- --
(.22) (.63) (.11) (.09) (.16)
Realized gain on investments--net . . . . . . . .
(.47) (1.11) (.57) (.39) (.39)
Total dividends and distributions . . . . . . . . .
$ 11.87 $ 10.54 $ 10.71 $ 10.75 $11.08
Net asset value, end of period . . . . . . . . . .
TOTAL INVESTMENT RETURN:**
17.79% 9.34% 5.10% 0.61% 17.64%
Based on net asset value per share . . . . . . . .
RATIOS TO AVERAGE NET ASSETS:
1.81% 1.57% 1.38% 1.66% 2.22%
Expenses, net of reimbursement . . . . . . . . . .
1.81% 1.57% 1.38% 1.66% 2.22%
Expenses . . . . . . . . . . . . . . . . . . . . .
3.01% 3.05% 4.03% 2.97% 2.36%
Investment income--net . . . . . . . . . . . . . .
SUPPLEMENTAL DATA:
$ 3,466 $ 17,741 $ 23,634 $ 7,850 $ 4,557
Net assets, end of period (in thousands) . . . . .
33,428 14.72% 101.12% 38.04% 26.02%
Portfolio turnover . . . . . . . . . . . . . . . .
$ .0607 $ .0679 -- -- --
Average Commission Rate Paid## . . . . . . . . . .
(table continued)
Class A
---------------------------------------------------------------
For the year Ended October 31,
---------------------------------------------------------------
1992 1991 1990 1989+
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE: $ 9.39 $ 8.37 $ 9.95 $ 9.97
Net asset value, beginning of period . . . . . . . . .
Investment income--net . . . . . . . . . . . . . . . .21 .25 .38 .39
Realized and unrealized gain (loss) on investments .68 1.22 .21
and foreign currency transactions--net . . . . . . . (1.11)
.89 1.47 (.73) .60
Total from investment operations . . . . . . . . . . .
Less dividends and distributions:
Investment income--net . . . . . . . . . . . . . . . (.25) (.37) (.42) (.45)
In excess of investment income-net . . . . . . . . . -- -- -- --
(.24) (.08) (.43) (.17)
Realized gain on investments--net . . . . . . . . . .
(.49) (.45) (.85) (.62)
Total dividends and distributions . . . . . . . . . . .
$ 9.79 $ 9.39 $ 8.37 $ 9.95
Net asset value, end of period . . . . . . . . . . . .
TOTAL INVESTMENT RETURN:**
10.00% 18.09% (7.86)% 6.29%#
Based on net asset value per share . . . . . . . . . .
RATIOS TO AVERAGE NET ASSETS:
2.47% 2.47% 2.39 % 1.77%*
Expenses, net of reimbursement . . . . . . . . . . . .
2.86% 2.87% 2.39 % 1.77%*
Expenses . . . . . . . . . . . . . . . . . . . . . . .
2.61% 3.16% 4.55 % 5.62%*
Investment income--net . . . . . . . . . . . . . . . .
SUPPLEMENTAL DATA: $ 2,283 $ 448 $ 162 $ 194
Net assets, end of period (in thousands) . . . . . . .
4.91% 18.02% 22.76 % 15.91%
Portfolio turnover . . . . . . . . . . . . . . . . . .
-- -- -- --
Average Commission Rate Paid## . . . . . . . . . . . .
</TABLE>
- ---------------------
+ Class A shares commenced operations on November 4, 1988.
++ Based on average shares outstanding during the period.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The Average Commission Rate Paid
includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
GLOBAL CONVERTIBLE - FINANCIAL HIGHLIGHTS (CONTINUED)
The following per share data and ratios have been derived from
information provided in the financial statements.
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------------------------
For the year Ended October 31,
------------------------------------------------------------------------------------
1997+ 1996+ 1995 1994 1993
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
$ 10.61 $ 10.77 $ 10.80 $ 11.13 $ 9.84
Net asset value, beginning of period . . . . . .
Investment income--net . . . . . . . . . . . .21 .21 .37 .21 .13
Realized and unrealized gain (loss)
on investments and foreign
1.49 .62 .05 (.25) 1.46
currency transactions--net . . . . . . . .
1.70 .83 .42 (.04) 1.59
Total from investment operations . . . . . . . .
Less dividends and distributions:
Investment income--net . . . . . . . . . . . (.18) (.36) (.34) (.20) (.14)
In excess of investment income-net . . . . . (.01) -- -- -- --
(.22) (.63) (.11) (.09) (.16)
Realized gain on investments--net . . . . .
(.41) (.99) (.45) (.29) (.30)
Total dividends and distributions . . . . . . . .
$ 11.90 $ 10.61 $ 10.77 $10.80 $ 11.13
Net asset value, end of period . . . . . . . . .
TOTAL INVESTMENT RETURN:**
16.56% 8.13% 4.01% (0.37)% 16.45%
Based on net asset value per share . . . . . . .
RATIOS TO AVERAGE NET ASSETS:
2.87% 2.64% 2.37% 2.69% 3.26%
Expenses, net of reimbursement . . . . . . . . .
2.87% 2.64% 2.37% 2.69% 3.26%
Expenses . . . . . . . . . . . . . . . . . . . .
1.92% 1.98% 2.95% 1.95% 1.32%
Investment income--net . . . . . . . . . . . . .
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . $17,730 $ 38,830 $ 58,660 $ 53,121 $ 29,831
Portfolio turnover . . . . . . . . . . . . . . . 33.42% 14.72% 101.12% 38.04% 26.02%
Average Commission Rate Paid## . . . . . . . . . $ .0607 $ 0.679 -- -- --
(table continued)
Class B
--------------------------------------------------------------------
For the year Ended October 31,
--------------------------------------------------------------------
1992 1991 1990 1989 1988++
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . $ 9.44 $ 8.39 $ 9.95 $ 9.94 $ 10.00
Investment income--net . . . . . . . . . . . .12 .18 .29 .37 .27
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net . . . . . . . . .67 1.20 (1.10) .17 (.10)
Total from investment operations . . . . . . . . .79 1.38 (.81) .54 .17
Less dividends and distributions:
Investment income--net . . . . . . . . . . . (.15) (.25) (.32) (.36) (.23)
In excess of investment income-net . . . . . -- -- -- -- --
Realized gain on investments--net . . . . . (.24) (.08) (.43) (.17) --
Total dividends and distributions . . . . . . . . (.39) (.33) (.75) (.53) (.23)
Net asset value, end of period . . . . . . . . . $ 9.84 $ 9.44 $ 8.39 $ 9.95 $ 9.94
TOTAL INVESTMENT RETURN:**
Based on net asset value per share . . . . . . . 8.77% 16.79% (8.68)% 5.58% 1.70%#
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement . . . . . . . . . 3.49% 3.50% 3.41% 2.63% 2.48%*
Expenses . . . . . . . . . . . . . . . . . . . . 3.96% 3.88% 3.41% 2.97% 2.60%*
Investment income--net . . . . . . . . . . . . . 1.53% 2.25% 3.51% 3.62% 3.74%*
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . $ 13,975 $ 14,973 $ 18,296 $ 30,813 $ 41,232
Portfolio turnover . . . . . . . . . . . . . . . 4.91% 18.02% 22.76% 15.91% 20.24%
Average Commission Rate Paid## . . . . . . . . . -- -- -- -- --
</TABLE>
__________________
+ Based on average shares outstanding during the period.
++ Class B shares commenced operations on February 26, 1988.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The Average Commission Rate Paid
includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
GLOBAL CONVERTIBLE - FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from
information provided in the financial statements.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------
For the
Period
Oct. 21,
For the year 1994+
Ended to
October 31, Oct. 31,
1997++ 1996++ 1995 1994++
------ ------ ---- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . $ 10.59 $ 10.75 $ 10.81 $ 10.74
Investment income--net . . . . . . . . . . . . . .21 .21 .36 --
Realized and unrealized gain
on investments and foreign
currency transactions--net . . . . . . . . . . 1.47 .62 .05 .07
Total from investment operations . . . . . . . . . . 1.68 .83 .41 .07
Less dividends and distributions:
Investment income--net . . . . . . . . . . . . . (.17) (.36) (.36) --
In excess of investment income-net . . . . . . . . . (.01) -- -- --
Realized gain on investments--net . . . . . . . (.22) (.63) (.11) --
Total dividends and distributions . . . . . . . . . . (.40) (.99) (.47) --
Net asset value, end of period . . . . . . . . . . . $ 11.87 $ 10.59 $ 10.75 $ 10.81
TOTAL INVESTMENT RETURN:**
Based on net asset value per share . . . . . . . . . 16.40% 8.14% 3.89% 0.65%#
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement . . . . . . . . . . . 2.89% 2.65% 2.41% 5.64%*
Expenses . . . . . . . . . . . . . . . . . . . . . . 2.89% 2.65% 2.41% 5.64%*
Investment income--net . . . . . . . . . . . . . . . 1.91% 1.97% 2.99% (1.74)%*
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . . . $ 1,112 $ 4,123 $ 4,598 $ 203
Portfolio turnover . . . . . . . . . . . . . . . . . 33.42% 14.72% 101.12% 38.04%
Average Commission Rate Paid## . . . . . . . . . . . $ .0607 $ .0679 -- --
(table continued)
Class D
---------------------------------------------------------------------
For the
For the Year Period
Ended Oct. 21,
October 31, 1994+
to
Oct. 31,
1997++ 1996++ 1995 1994++
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . . . . . . . . $ 10.55 $ 10.72 $ 10.76 $ 10.69
Investment income--net . . . . . . . . . . . . . .30 __ __ __
Realized and unrealized gain
on investments and foreign
currency transactions--net . . . . . . . . . . 1.47 .61 .09 .07
Total from investment operations . . . . . . . . . . 1.77 .92 .51 .07
Less dividends and distributions:
Investment income--net . . . . . . . . . . . . . (.23) (.46) (.44) --
In excess of investment income-net . . . . . . . . . (.01) -- -- --
Realized gain on investments--net . . . . . . . (.22) (.63) (.11) --
Total dividends and distributions . . . . . . . . . . (.46) (1.09) (.55) --
Net asset value, end of period . . . . . . . . . . . $11.86 $10.55 $10.72 $10.76
TOTAL INVESTMENT RETURN:**
Based on net asset value per share . . . . . . . . . 17.41% 9.07% 4.87% 0.65%#
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement . . . . . . . . . . . 2.09% 1.77% 1.62% 5.13%*
Expenses . . . . . . . . . . . . . . . . . . . . . . 2.09% 1.77% 1.62% 5.13%*
Investment income--net . . . . . . . . . . . . . . . 2.69% 2.85% 3.79% (1.24)%*
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . . . $ 6,614 $ 8,585 $ 3,499 $ 179
Portfolio turnover . . . . . . . . . . . . . . . . . 33.42% 14.72% 101.12% 38.04%
Average Commission Rate Paid## . . . . . . . . . . . $ .0607 $ .0679 -- --
</TABLE>
__________________
+ Commencement of operations.
++ Based on average shares outstanding during the period.
* Annualized.
** Total investment returns exclude the effects of sales loads.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The Average Commission Rate Paid
includes commissions paid in foreign currencies, which have been
converted into U.S. dollars using the prevailing exchange rate on the
date of the transaction. Such conversions may significantly affect the
rate shown.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives. The investment objectives of Global Convertible
and Convertible Fund are similar, though not identical. While each Fund
seeks high total return from a combination of capital appreciation and
investment income, Convertible Fund seeks to provide stockholders with high
total return by investing primarily in a portfolio of convertible debt
securities, convertible preferred stocks and synthetic convertible
securities; Global Convertible seeks to provide stockholders with high total
return by investing primarily in an internationally diversified portfolio of
convertible debt securities, convertible preferred stocks and synthetic
convertible securities.
There can be no assurance that, after the Reorganization, Convertible
Fund will achieve its investment objective.
Investment Policies Generally. Global Convertible invests, under normal
circumstances, at least 65% of its total assets in convertible securities and
80% of its assets in convertible securities and synthetic convertible
securities of at least three different countries including the United States.
It may invest up to 20% of its assets in other types of securities including
equity securities and nonconvertible debt securities of United States and
non-United States issuers. Convertible Fund invests, under normal
circumstances, at least 65% of its total assets in convertible securities and
synthetic convertible securities of United States and non-United States
issuers. It may invest up to 35% of its assets in other types of securities,
including common stock, preferred stock, options, warrants, Long-term Equity
Appreciation Participation Securities ("LEAPS") and nonconvertible debt
securities of United States and non-United States issuers.
Each Fund may invest in securities denominated in any currency that are
convertible into common stock of companies located throughout the world, but
it is expected that a majority of each Fund's assets will be invested in
securities denominated in United States dollars, currencies of Pacific Basin
countries and currencies of Western European countries. When investing in
convertible securities, each Fund considers both the yield on the convertible
security and the potential capital appreciation that is offered by the
underlying common stock. Neither Fund has established rating criteria for
the debt securities in which it may invest and such securities may not be
rated at all for creditworthiness. In addition, each Fund may engage in
various portfolio strategies to seek to increase its return through the use
of options on portfolio securities and to hedge its portfolio against
movements in the equity markets, interest rates and exchange rates between
currencies.
To reduce overall exposure to risk, each Fund may spread its investments
over many different companies in a variety of industries. However, neither
Fund may invest more than 25% of its assets, taken at market value, in the
securities of any particular industry (excluding securities issued by the
U.S. Government and its agencies and instrumentalities).
MLAM believes that the securities currently held in the Global
Convertible portfolio are consistent with the investment objectives and
policies of Convertible Fund and are not prohibited by the investment
restrictions of Convertible Fund. Convertible Fund has no plan or intention
to sell or otherwise dispose of any of the assets of Global Convertible
acquired in the Reorganization, except for dispositions made in the ordinary
course of business.
A more specific comparison of the investment policies of Global
Convertible and Convertible Fund follows.
Convertible Securities. Convertible Fund invests at least 65% of its
total assets in convertible and synthetic convertible securities. Global
Convertible invests at least 65% of its total assets in convertible
securities and 80% of its total assets in convertible securities including
synthetic convertible securities of at least three different countries
including the United States. Convertible securities are issued and traded in
a number of securities markets. For the past several years, the principal
markets have been the United States, the Euromarket and Japan. Issuers
during this period have included major corporations domiciled in the United
States, Japan, France, Switzerland, Canada and the United Kingdom. Since the
Funds will invest a substantial portion of their assets in the United States
market and the Euromarket, where convertible bonds have been primarily
denominated in the United States dollar, it is expected that ordinarily a
substantial portion of the convertible securities held by the Funds will be
denominated in United States dollars. However, the underlying equity
securities typically will be quoted in the currency of the country where the
issuer is domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the
conversion price may be based on a fixed exchange rate established at the
time the security is issued. As a result, fluctuations in the exchange rate
between the currency in which the debt security is denominated and the
currency in which the share price is quoted will affect the value of the
convertible security. As described below, the Funds are authorized to enter
into foreign currency hedging transactions in which such Fund may seek to
reduce the effect of such fluctuations.
Apart from currency considerations, the value of convertible securities
is influenced by both the yield of nonconvertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature (i.e.,
strictly on the basis of its yield) is sometimes referred to as its
"investment value." To the extent interest rates change, the investment
value of the convertible security typically will fluctuate. However, at the
same time, the value of the convertible security will be influenced by its
"conversion value," which is the market value of the underlying common stock
that would be obtained if the convertible security were converted.
Conversion value fluctuates directly with the price of the underlying common
stock. If, because of the low price of the common stock the conversion value
is substantially below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.
To the extent the conversion value of a convertible security increases
to a point that approximates or exceeds its investment value, the price of
the convertible security will be influenced principally by its conversion
value. A convertible security will sell at a premium over the conversion
value to the extent investors place value on the right to acquire the
underlying common stock while holding a fixed-income security. The yield and
conversion premium of convertible securities issued in Japan and the
Euromarket are frequently determined at levels that cause the conversion
value to affect their market value more than the securities' investment
value.
Holders of convertible securities generally have a claim on the assets
of the issuer prior to the common stockholders but may be subordinated to
other debt securities of the same issuer. A convertible security may be
subject to redemption at the option of the issuer at a price established in
the charter provision, indenture or other governing instrument pursuant to
which the convertible security was issued. If a convertible security held by
a Fund is called for redemption, the Fund will be required to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Certain convertible debt securities may provide a put option to the
holder which entitles the holder to cause the security to be redeemed by the
issuer at a premium over the stated principal amount of the debt security
under certain circumstances.
Money Market Securities. Each of the Funds reserves the right as a
temporary defensive measure to hold money market securities, including
repurchase agreements and purchase and sale contracts, of United States and
non-United States issuers, or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of MLAM, prevailing market,
economic or political conditions warrant. The Fund has established no rating
criteria for money market securities that it may hold as a defensive measure.
Warrants. Each Fund may invest in warrants. Warrants involve the risk
that the price of the security underlying the warrant may not exceed the
exercise price of the warrant and the warrant may expire without any value.
Indexed and Inverse Securities. Both Funds may invest in indexed and
inverse securities. Indexed securities are securities whose potential
investment return is based on the change in particular measurements of value
and/or rate (an "index"). As an illustration, the Funds may invest in debt
securities that pay interest and return principal based on the change in the
value of a securities index or a basket of securities, or based on the
relative changes of two indices. In addition, the Funds may invest in
securities the potential return of which is based inversely on the change in
an index. For example, the Funds may invest in securities that pay a higher
rate of interest when a particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the value of the index
increases. If the Fund invests in such securities, it may be subject to
reduced or eliminated interest payments or loss of principal in the event of
an adverse movement in the relevant index or indices.
Certain indexed and inverse securities may have the effect of providing
investment leverage because the rate of interest or amount of principal
payable increases or decreases at a rate that is a multiple of the changes in
the relevant index. As a consequence, the market value of such securities
may be substantially more volatile than the market values of other debt
securities. The Funds believe that indexed and inverse securities may
provide portfolio management flexibility that permit the Fund to seek
enhanced returns, hedge other portfolio positions or vary the degree of
portfolio leverage with greater efficiency than would otherwise be possible
under certain market conditions.
Illiquid Securities. Each Fund may invest up to 15% of its net assets
in securities that lack an established secondary trading market or otherwise
are considered illiquid. Liquidity of a security relates to the ability to
dispose easily of the security and the price to be obtained upon disposition
of the security, which may be less than would be obtained for a comparable
more liquid security. Investment of a Fund's assets in illiquid securities
may restrict the ability of that Fund to dispose of its investments in a
timely fashion and for a fair price as well as its ability to take advantage
of market opportunities.
No Rating Criteria for Debt Securities. Neither Fund has established
any rating criteria for the debt securities in which it may invest and such
securities may not be rated at all for creditworthiness. Securities rated in
the medium to low rating categories of nationally recognized statistical
rating organizations and unrated securities of comparable quality are
speculative with respect to the capacity to pay interest and repay principal
in accordance with the terms of the security and generally involve a greater
volatility of price than securities in higher rating categories. Neither
Fund intends to purchase debt securities that are in default.
OTHER INVESTMENT POLICIES
Both Global Convertible and Convertible Fund have adopted certain other
investment policies as set forth below:
Borrowings. Convertible Fund and Global Convertible each may borrow
amounts not in excess of 331/3% of its total assets taken at market value,
from banks as a temporary measure for extraordinary or emergency purposes.
Global Convertible may borrow an additional 5% of its total assets for
temporary purposes. As a non-fundamental restriction, however, Global
Convertible is further limited and may not borrow amounts in excess of 20% of
its total assets taken at market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes. See "Comparison
of the Funds--Investment Policies."
Non-Diversified Status. Convertible Fund is classified as
"non-diversified" within the meaning of the Investment Company Act, which
means that the Fund is not limited by such Act in (i) the percentage of its
total assets that it may invest in securities of a single issuer (excluding
U.S. Government securities) or (ii) the amount of voting securities of a
single issuer (excluding U.S. Government securities) that it may purchase.
However, each of the Fund's investments is limited so as to qualify for the
special treatment afforded regulated investment companies under the Code. To
qualify, among other requirements, Convertible Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i)
not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50%
of the market value of its total assets, (a) not more than 5% of the market
value of its total assets will be invested in the securities of a single
issuer, and (b) the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. As in the case of the Investment Company Act
requirements discussed above, investment in the securities of the U.S.
Government, its agencies and instrumentalities are excluded from the
investment limitations for purposes of the diversification requirements of
the Code. Global Convertible, which elects to be classified as "diversified"
under the Investment Company Act, must satisfy the foregoing 5% and 10%
requirements with respect to 75% of its total assets. To the extent that
Convertible Fund assumes large positions in the securities of a small number
of issuers, the Fund's yield may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in
the market's assessment of the issuers.
Standby Commitment Agreements. Convertible Fund may from time to time
enter into standby commitment agreements. For a description of standby
commitment agreements and the risks associated with investment therein, see
"Investment Objective and Policies--Other Investment Policies and Practices"
in the Convertible Fund Prospectus.
Repurchase Agreements. Each Fund may enter into repurchase agreements.
For a description of repurchase agreements and the risks associated with
investment therein, see "Investment Objective and Policies--Other Investment
Policies and Practices" in the Convertible Fund Prospectus.
When-Issued Securities and Delayed Delivery Transactions. Convertible
Fund may purchase or sell securities on a delayed delivery basis or on a
when-issued basis at fixed purchase or sale terms. For a description of
when-issued securities and delayed delivery transactions, including the risks
associated with investment therein, see "Investment Objective and Policies--
Other Investment Policies and Practices" in the Convertible Fund Prospectus.
Lending of Portfolio Securities. Each Fund may from time to time lend
securities from its portfolio with a value not exceeding 331/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government.
Short Sales. Convertible Fund may make short sales of securities.
Global Convertible generally does not engage in short sales except in short
sales "against the box." Convertible Fund will not make a short sale if,
after giving effect to such sale, the market value of all securities sold
short exceeds 25% of the value of its total assets or the Fund's aggregate
short sales of a particular class of securities exceeds 25% of the
outstanding securities of that class. Convertible Fund, however, may make
short sales "against the box" without respect to such limitations.
INFORMATION REGARDING OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
Each Fund may engage in various portfolio strategies to seek to increase
its return through the use of options on portfolio securities and to hedge
its portfolio against movements in the equity, debt and currency markets.
Each Fund has authority to write (i.e., sell) covered call options on its
portfolio securities, purchase put options on securities and engage in
transactions in stock index options, stock index futures and financial
futures, and related options on such futures. Each Fund may also deal in
forward foreign exchange transactions and foreign currency options and
futures, and related options on such futures.
Global Convertible may not (i) commit more than 15% of its total assets
to position hedging contracts, (ii) incur potential net liabilities of more
than 20% of its total assets from foreign currency options, futures or
related options, or (iii) speculate in foreign currency options, futures or
related options. Convertible Fund, however, may speculate in currency
instruments in order to seek to enhance total return, although it is expected
that the Convertible Fund will engage in such transactions predominantly for
hedging purposes. Neither Global Convertible nor Convertible Fund will hedge
a currency substantially in excess of the market value of securities that it
owns (including receivables for unsettled securities sales), or has committed
to or anticipates purchasing, which are denominated in such currency.
The investment policies of each Fund with respect to futures and options
transactions are not fundamental policies and may be modified by the Board of
Directors of each Fund without the approval of the Fund's stockholders. Each
Fund is subject to the restrictions of the Commodity Futures Trading
Commission with respect to its investments in futures and options thereon.
For a detailed discussion of the Funds' investment policies regarding
futures and options, including the risks associated therewith, see
"Investment Practices and Restrictions--Portfolio Strategies Involving
Options and Futures" in the Global Convertible Prospectus and "Investment
Objective and Policies--Other Investment Policies and Practices--Portfolio
Strategies Involving Options and Futures" in the Convertible Fund Prospectus.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds--Investment
Objectives and Policies," Global Convertible and Convertible Fund have
identical investment restrictions. See, "Investment Objective and Policies--
Investment Restrictions" in the Convertible Fund Statement and "Investment
Objective and Policies--Investment Restrictions" in the Global Convertible
Statement.
MANAGEMENT
Directors. The Board of Directors of each of Global Convertible and
Convertible Fund consists of the same six individuals, five of whom are not
"interested persons" as defined in the Investment Company Act. The Directors
are responsible for the overall supervision of the operation of each Fund and
perform the various duties imposed on the directors of investment companies
by the Investment Company Act.
The Directors of each Fund are:
ARTHUR ZEIKEL* -- President of the Manager and its affiliate, FAM;
President and Director of Princeton Services, Inc. ("Princeton Services");
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.").
JAMES H. BODURTHA -- Director and Executive Vice President, The China
Business Group, Inc.
HERBERT I. LONDON -- John M. Olin Professor of Humanities, New York
University.
ROBERT R. MARTIN -- Former Chairman, Kinnard Investments, Inc.
JOSEPH L. MAY -- Attorney in private practice.
ANDR F. PEROLD -- Professor, Harvard Business School
___________________
* Interested person, as defined by the Investment Company Act, of each of the
Funds.
Management and Advisory Arrangements. MLAM serves as the manager for
both Global Convertible and Convertible Fund pursuant to separate management
agreements (each, a "Management Agreement") that, except for their fee
structures and certain minor differences, are identical.
Pursuant to the Management Agreement between Convertible Fund and MLAM,
Convertible Fund pays MLAM a monthly fee at the annual rate of 0.60% of the
average daily net assets of the Fund. Pursuant to the Management Agreement
between Global Convertible and MLAM, Global Convertible pays MLAM a monthly
fee at the annual rate of 0.65% of the average daily net assets of the Fund.
The advisory fee paid by Convertible Fund is at a lower rate than the
advisory fee rate paid by Global Convertible and after the Reorganization the
advisory fee paid by the Combined Fund would be at the lower rate (0.60%).
MLAM has retained Merrill Lynch Asset Management U.K. Limited ("MLAM
U.K.") as sub-adviser to each of Global Convertible and Convertible Fund.
Pursuant to a separate sub-advisory agreement between MLAM and MLAM U.K. with
respect to each Fund, MLAM pays MLAM U.K. a fee for providing investment
advisory services to MLAM with respect to each Fund, in an amount to be
determined from time to time by MLAM and MLAM U.K. but in no event in excess
of the amount MLAM actually receives for providing services to each Fund
pursuant to each Management Agreement. The address of MLAM U.K. is Milton
Gate, 1 Moor Lane, London EC2Y 9HA, England.
After the Reorganization, on a pro forma combined basis, Convertible
Fund will pay an advisory fee to MLAM at a lower annual rate than that
currently paid by Global Convertible and the total operating expenses of
Convertible Fund after the Reorganization, as a percent of net assets, would
be less than the current operating expenses for Global Convertible. In
addition, certain fixed costs, such as costs of printing stockholder reports
and proxy statements, legal expenses, audit fees, registration fees, mailing
costs and other expenses would be spread across a larger asset base, thereby
lowering the expense ratio borne by Global Convertible stockholders. The
Board of Directors of each of Global Convertible and Convertible Fund have
determined that the Reorganization would be potentially beneficial to both
Funds and their stockholders. See "The Reorganization--Potential Benefits to
Stockholders as a Result of the Reorganization" and "Summary--Pro Forma Fee
Tables."
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares
of Global Convertible are identical to those of Convertible Fund. For a
complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto, see "Merrill Lynch Select
Pricing(Service Mark) System" and "Purchase of Shares" in either the
Convertible Fund Prospectus or the Global Convertible Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Convertible Fund is identical to
the procedure for redeeming shares of Global Convertible. For purposes of
computing any CDSC that may be payable upon disposition of Corresponding
Shares of Convertible Fund acquired by Global Convertible stockholders in the
Reorganization, the holding period of Global Convertible shares outstanding
on the date the Reorganization takes place will be tacked onto the holding
period of the Corresponding Shares of Convertible Fund acquired in the
Reorganization.
PERFORMANCE
General. The following tables provide performance information for each
class of shares of Global Convertible and Convertible Fund, including and
excluding maximum applicable sales charges, for the periods indicated. Past
performance is not indicative of future performance.
Convertible Fund
Average Annual Total Return (%)
<TABLE>
<CAPTION>
Class A Shares Class B Shares*** Class C Shares*** Class D Shares***
Without Without With Without With Without With
Sales With Sales Sales Sales Sales Sales Sales Sales
Period Charge Charge* Charge Charge* Charge Charge* Charge Charge*
9 months ended
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/97+ 13.54 7.58 4.39 1.29 4.39 3.61 4.52 (0.97)
Year Ended 12/31/96 20.60 14.27 -- -- -- -- -- --
Five Years Ended
12/31/96 11.49 10.30 -- -- -- -- -- --
Inception**
through 12/31/96 7.19 6.68 -- -- -- -- -- --
</TABLE>
* Assumes the maximum applicable sales charge. The maximum initial
sales charge on Class A and Class D shares is 5.25%. The maximum
contingent deferred sales charge ("CDSC") on Class B shares is 4.0%
and is reduced to 0% after four years. Class C shares are subject
to a 1.0% CDSC for one year.
** Class A shares commenced operations on August 2, 1985. Prior to August
4, 1997, the Class A shares were designated Capital Shares and the Fund
operated as a closed-end "dual-purpose" management investment company.
Class B, Class C and Class D shares commenced operations on August 4,
1997.
*** Figures are since inception (August 4, 1997).
+ Aggregate total returns.
Global Convertible
Average Annual Total Return (%)
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares*** Class D Shares***
Without Without
Without Sales With Sales Without Sales With Sales Sales With Sales Sales With Sales
Period Charge Charge* Charge Charge* Charge Charge* Charge Charge*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11 months ended
9/30/97+ 19.77 13.48 18.62 14.62 18.56 17.56 19.49 13.22
Year Ended 10/31/96 9.34 3.60 8.13 4.17 8.14 7.15 9.07 3.35
Five Years Ended
10/31/96 8.39 7.23 7.25 7.25 -- -- -- --
Inception**
through 10/31/96 7.10 6.38 5.75 5.75 6.24 6.24 7.19 4.38
</TABLE>
* Assumes the maximum applicable sales charge. The maximum initial
sales charge on Class A and Class D shares is 5.25%. The maximum
CDSC on Class B shares is 4.0% and is reduced to 0% after four
years. Class C shares are subject to a 1.0% CDSC for one year.
** Class A shares commenced operations on November 4, 1988. Class B shares
commenced operations on February 26, 1988. Class C and Class D shares
commenced operations on October 21, 1994.
*** Figures are since inception (October 21, 1994).
+ Aggregate total returns.
VOTING RIGHTS
Stockholders of Convertible Fund are entitled to one vote for each share
held and fractional votes for fractional shares held and will vote on the
election of Directors and any other matter submitted to a stockholder vote.
Convertible Fund does not intend to hold meetings of stockholders in any year
in which the Investment Company Act does not require stockholders to act upon
any of the following matters: (i) election of Directors; (ii) approval of an
investment advisory agreement; (iii) approval of distribution arrangements;
and (iv) ratification of selection of independent accountants. Voting rights
for Directors are not cumulative. Shares of Convertible Fund to be issued to
Global Convertible stockholders in the Reorganization will be fully paid and
non-assessable, will have no preemptive rights, and will have the conversion
rights described in this Prospectus and Proxy Statement and in the
Convertible Fund Prospectus. Each share of Convertible Fund common stock is
entitled to participate equally in dividends and distributions declared by
the Fund and in the net assets of the Fund on liquidation or dissolution
after satisfaction of outstanding liabilities, except that Class B, Class C
and Class D shares bear certain additional expenses. Rights attributable to
shares of Global Convertible are identical to those described above.
DIVIDENDS AND DISTRIBUTIONS
Global Convertible's current policy with respect to dividends and
distributions is identical to Convertible Fund's policy, except that Global
Convertible is required to pay dividends from net investment income quarterly
and Convertible Fund is required to pay dividends from net investment income
at least annually. It is each Fund's intention to distribute all of its net
investment income, if any. In addition, each Fund distributes all net
realized capital gains, if any, to stockholders at least annually.
TAX INFORMATION
The tax consequences associated with investment in shares of Global
Convertible are substantially identical to the tax consequences associated
with investment in shares of Convertible Fund.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the
same for both Global Convertible and Convertible Fund. For a discussion of
these procedures, see "Investment Objective and Policies--Other Investment
Policies and Practices" in the Convertible Fund Prospectus and "Portfolio
Transactions and Brokerage" in the Convertible Fund Statement.
Each Fund may effect portfolio transactions on foreign securities
exchanges and may incur settlement delays on certain of such exchanges. In
addition, costs associated with transactions in foreign securities are
generally higher than such costs associated with transactions in U.S.
securities.
PORTFOLIO TURNOVER
Generally, neither Global Convertible nor Convertible Fund purchases
securities for short-term trading profits. However, either Fund may dispose
of securities without regard to the time that they have been held when such
action, for defensive or other reasons, appears advisable to MLAM. Neither
Fund has any limit on its rate of portfolio turnover. The portfolio turnover
rates for Global Convertible for its fiscal years ended October 31, 1996 and
1997 were 14.72% and 33.42%, respectively. The portfolio turnover rate for
Convertible Fund for its fiscal year ended December 31, 1996, during which
period it operated as a closed-end investment company, was 129.06%. The
portfolio turnover rate for Convertible Fund for the period January 1, 1997
to August 31, 1997 was 92.86%. On August 4, 1997 Convertible Fund converted
to open-end status. The higher portfolio turnover in 1996 was the result of
sales of securities to enhance Convertible Fund's liquidity in anticipation
of the redemption of Income Shares and the conversion to open-end status, as
well as strategies undertaken by Convertible Fund to reduce its tax liability
for long-term capital gains. Higher portfolio turnover may contribute to
higher transactional costs and negative tax consequences, such as an increase
in capital gain dividends or in ordinary income dividends of accrued market
discount.
ADDITIONAL INFORMATION
Net Asset Value. Both Global Convertible and Convertible Fund determine
net asset value of each class of its shares once daily 15 minutes after the
close of business on the NYSE (generally, 4:00 p.m. New York time), on each
day during which the NYSE is open for trading. Net asset value is computed
by dividing the market value of the securities held by the Fund 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.
Stockholder Services. Convertible Fund offers a number of stockholder
services and investment plans designed to facilitate investment in shares of
the Fund. In addition, U.S. stockholders of each class of shares of
Convertible Fund have an exchange privilege with certain other MLAM-advised
mutual funds. Stockholder services, including exchange privileges, available
to stockholders of Global Convertible and Convertible Fund are identical.
For a description of these services, see "Stockholder Services" in the
Convertible Fund Prospectus.
Custodian. The Chase Manhattan Bank ("Chase") acts as custodian of the
cash and securities of Convertible Fund. The principal business address of
Chase is Chase MetroTech Center, Brooklyn, New York 11245. State Street Bank
and Trust Company ("State Street") acts as custodian for Global Convertible.
State Street's principal business address is P.O. Box 351, Boston,
Massachusetts 02101.
Transfer Agent, Dividend Disbursing Agent and Registrar. Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, serves as the transfer agent, dividend disbursing agent
and registrar with respect to each Fund (the "Transfer Agent"), at the same
rate, pursuant to separate registrar, transfer agency and service agreements
with each of the Funds.
Capital Stock. Global Convertible has an authorized capital of
400,000,000 shares of common stock, par value $.10 per share, divided into
four classes, designated Class A, Class B, Class C and Class D common stock,
each of which consists of 100,000,000 shares. Convertible Fund has an
authorized capital of 400,000,000 shares of common stock, par value $0.10 per
share, divided into four classes, also designated Class A, Class B, Class C
and Class D common stock, each of which consists of 100,000,000 shares. The
rights, preferences and expenses attributable to the Class A, Class B, Class
C and Class D shares of Global Convertible are identical in all respects to
those of the Class A, Class B, Class C and Class D shares of Convertible
Fund.
Stockholder Inquiries. Stockholder inquiries with respect to Global
Convertible and Convertible Fund may be addressed to either Fund by telephone
at (609) 282-2800 or at the address set forth on the cover page of this Proxy
Statement and Prospectus.
THE REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as
Exhibit I), Convertible Fund will acquire substantially all of the assets,
and will assume substantially all of the liabilities, of Global Convertible,
in exchange solely for an equal aggregate value of shares to be issued by
Convertible Fund. Upon receipt by Global Convertible of such shares, Global
Convertible will distribute the shares to the holders of shares of Global
Convertible, as described below.
Generally, the assets transferred by Global Convertible to Convertible
Fund will equal all investments of Global Convertible held in its portfolio
as of the Valuation Time (as defined in the Agreement and Plan of
Reorganization) and all other assets of Global Convertible as of such time,
except for any cash or cash equivalents reserved by Global Convertible to
discharge its unpaid or contingent liabilities existing at the Valuation
Time. Any unexpended portion of the foregoing funds retained by Global
Convertible will be disbursed by Global Convertible pro rata to the
stockholders of Global Convertible of record as of the date of the
Reorganization upon dissolution of Global Convertible as a final liquidating
dividend.
Global Convertible will distribute the shares of Convertible Fund
received by it pro rata to its stockholders in exchange for such
stockholders' proportional interests in Global Convertible. The shares of
Convertible Fund received by Global Convertible stockholders will be of the
same class and have the same aggregate net asset value as each such
stockholder's interest in Global Convertible as of the Valuation Time
(previously defined as the "Corresponding Shares"). (See, "The Agreement and
Plan of Reorganization--Valuation of Assets and Liabilities" for information
concerning the calculation of net asset value.) The distribution will be
accomplished by opening new accounts on the books of Convertible Fund in the
names of all stockholders of Global Convertible, including stockholders
holding Global Convertible shares in certificate form, and transferring to
each stockholder's account the Corresponding Shares of Convertible Fund
representing such stockholder's interest previously credited to the account
of Global Convertible. Stockholders holding Global Convertible shares in
certificate form may receive certificates representing the Corresponding
Shares of Convertible Fund credited to their account in respect of such
Global Convertible shares by sending the certificates to the Transfer Agent
accompanied by a written request for such exchange.
Since the Corresponding Shares of Convertible Fund would be issued at
net asset value in exchange for the net assets of Global Convertible having a
value equal to the aggregate net asset value of those shares of Global
Convertible, the net asset value per share of Convertible Fund should remain
virtually unchanged solely as a result of the Reorganization. Thus, the
Reorganization should result in virtually no dilution of net asset value of
Convertible Fund immediately following consummation of the Reorganization.
However, as a result of the Reorganization, a stockholder of Global
Convertible likely would hold a reduced percentage of ownership in
Convertible Fund than he or she did in Global Convertible prior to the
Reorganization.
PROCEDURE
On November 6, 1997, the Board of Directors of Global Convertible,
including a majority of the Directors who are not "interested
persons," as defined by the Investment Company Act, approved the Agreement
and Plan of Reorganization and the submission of such Agreement and Plan to
Global Convertible stockholders for approval. The Board of Directors of
Convertible Fund, including a majority of the Directors who are not
interested persons, also approved the Agreement and Plan of Reorganization on
November 6, 1997.
If the stockholders of Global Convertible approve the Reorganization and
all required regulatory approvals are obtained, the Reorganization will take
place as early as possible in calendar year 1998.
THE BOARD OF DIRECTORS OF GLOBAL CONVERTIBLE RECOMMENDS THAT GLOBAL
CONVERTIBLE STOCKHOLDERS APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by
reference to the Agreement and Plan of Reorganization, attached hereto as
Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Global
Convertible and Convertible Fund will be valued as of the Valuation Time.
The assets in each Fund will be valued according to the procedures set forth
under "Additional Information--Determination of Net Asset Value" in the
Convertible Fund Prospectus. Purchase orders for Global Convertible shares
which have not been confirmed as of the Valuation Time will be treated as
assets of Global Convertible for purposes of the Reorganization; redemption
requests which have not settled as of the Valuation Time will be treated as
liabilities for purposes of the Reorganization.
Distribution of Convertible Fund Shares. On the next full business day
following the Valuation Time (the "Exchange Date"), Convertible Fund will
issue to Global Convertible a number of shares the aggregate net asset value
of which will equal the aggregate net asset value of shares of Global
Convertible as of the Valuation Time. Each holder of Global Convertible
shares will receive, in exchange for his or her proportionate interest in
Global Convertible, Corresponding Shares of Convertible Fund of the same
class and having the same aggregate net asset value as the Global Convertible
shares held by such stockholder as of the Valuation Time.
Expenses. The expenses of the Reorganization that are directly
attributable to each Fund and the conduct of its business will be deducted
from the assets of that Fund as of the Valuation Time. These expenses are
expected to include the expenses incurred in preparing materials to be
distributed to each Fund's board, legal fees incurred in preparing each
Fund's board materials, attending each Fund's board meetings and preparing
the minutes, and accounting fees associated with each Fund's financial
statements. The expenses of the Reorganization that are attributable to the
transaction itself, including expenses in connection with obtaining the IRS
private letter ruling, will be borne pro rata by each Fund according to its
net assets as of the Valuation Time. These expenses are expected to include
expenses incurred in connection with the preparation of the Agreement and
Plan of Reorganization and the Registration Statement on Form N-14 (including
the Prospectus and Proxy Statement), Commission and other filing fees and
legal and audit fees in connection with the Reorganization. Expenses
associated with the dissolution of Global Convertible under Maryland law and
termination of its registration under the Investment Company Act will be
borne by Global Convertible.
Required Approvals. Under Global Convertible's Articles of
Incorporation (as amended to date) and relevant Maryland law, stockholder
approval of the Agreement and Plan of Reorganization requires the affirmative
vote of Global Convertible stockholders representing a majority of the total
number of votes entitled to be cast thereon.
Deregistration and Dissolution. Following the transfer of the assets
and liabilities of Global Convertible to Convertible Fund and the
distribution of Corresponding Shares of Convertible Fund to Global
Convertible stockholders, Global Convertible will terminate its registration
under the Investment Company Act and its incorporation under Maryland law and
will withdraw its authority to do business in any state where it is required
to do so.
Amendments and Conditions. The Agreement and Plan of Reorganization may
be amended at any time prior to the Exchange Date with respect to any of the
terms therein. The obligations of Global Convertible and Convertible Fund
pursuant to the Agreement and Plan of Reorganization are subject to various
conditions, including a registration statement on Form N-14 being declared
effective by the Commission, approval of the Reorganization by Global
Convertible stockholders, a favorable IRS ruling being received as to tax
matters, an opinion of counsel being received as to securities matters and
the continuing accuracy of various representations and warranties of Global
Convertible and Convertible Fund being confirmed by the respective parties.
Postponement, Termination. Under the Agreement and Plan of
Reorganization, the Board of Directors of either Global Convertible or
Convertible Fund may cause the Reorganization to be postponed or abandoned
should either Board determine that it is in the best interests of the
stockholders of either Global Convertible or Convertible Fund, respectively,
to do so. The Agreement and Plan of Reorganization may be terminated, and
the Reorganization abandoned at any time, whether before or after adoption
thereof by the Global Convertible stockholders, prior to the Exchange Date or
the Exchange Date may be postponed: (i) by mutual consent of the Boards of
Directors of Global Convertible and Convertible Fund; (ii) by the Board of
Directors of Global Convertible if any condition to Global Convertible's
obligations has not been fulfilled or waived by such Board; or (iii) by the
Board of Directors of Convertible Fund if any condition to Convertible Fund's
obligations has not been fulfilled or waived by such Board.
POTENTIAL BENEFITS TO STOCKHOLDERS AS A RESULT OF THE REORGANIZATION
MLAM and the Board of Directors of each of Global Convertible and
Convertible Fund have identified certain potential benefits to stockholders
that are likely to result from the Reorganization. First, following the
Reorganization, Global Convertible stockholders will remain invested in an
open-end fund that has an investment objective similar, although not
identical, to that of Global Convertible. In addition, Global Convertible
stockholders are likely to experience certain additional benefits, including
lower expenses per share, economies of scale and greater flexibility in
portfolio management.
Specifically, as described above under "Comparison of the Funds--
Management--Management and Advisory Fees," after the Reorganization, on a pro
forma basis, Convertible Fund will pay an advisory fee to MLAM at a lower
annual rate than that currently paid by Global Convertible and the total
operating expenses of Convertible Fund after the Reorganization, as a percent
of net assets, would be less than the current operating expenses for Global
Convertible. See "Summary--Pro Forma Fee Tables." In addition, certain
fixed costs, such as costs of printing stockholder reports and proxy
statements, legal expenses, audit fees, registration fees, mailing costs and
other expenses would be spread across a larger asset base, thereby lowering
the expense ratio borne by Global Convertible stockholders. To illustrate
the potential economies of scale, on August 31, 1997, the total operating
expense ratio for Global Convertible Class A shares was 2.62% (based on net
assets of $29.2 million) and the total operating expense ratio for
Convertible Fund Class A shares was 0.96% (based on net assets of $119.0
million). If the Reorganization had taken place on that date, the total
operating expense ratio for Convertible Fund Class A shares on a pro forma
basis would have been 0.94% (based on net assets of $148.0 million).
The following table sets forth the net assets of Global Convertible and
Convertible Fund for each Fund's last three fiscal years and as of October
31, 1997.
<TABLE>
<CAPTION>
Convertible Fund GLOBAL CONVERTIBLE
Period Net Assets Period Net Assets
<S> <C> <C> <C>
12/31/94 $238,465,727 10/31/94 $61,353,181
12/31/95 $265,126,998 10/31/95 $90,391,378
12/31/96 $289,992,873 10/31/96 $69,278,923
As of 10/31/97 $86,825,865* As of 10/31/97 $28,922,287
</TABLE>
_______________
* Prior to its conversion to open-end status on August 4, 1997,
Convertible Fund was named Convertible Holdings, Inc. and operated as a
diversified closed-end, "dual-purpose" management investment company.
Its Income Shares were redeemed on July 31, 1997 and its Capital Shares
were designated Class A shares upon open-ending.
The above table illustrates that although Global Convertible's net
assets increased in 1995 over 1994, since then the Fund's assets have been
steadily decreasing primarily as a result of redemptions. As a closed-end
fund, the assets of Convertible Fund did not fluctuate as a result of
purchases and redemptions of its shares. The increase in Convertible Fund's
assets was due to the performance of its portfolio securities. Recently,
Convertible Fund's assets have decreased significantly as a result of (i) the
Fund's redemption on July 31, 1997 of $109.3 million of Income Shares and
(ii) stockholder redemptions aggregating $82.5 million in August 1997
following the Fund's conversion to open-end status. Were these trends to
continue, MLAM anticipates that both Funds could experience higher operating
expense ratios due to a continuing reduction in assets. Although there can
be no assurance that the foregoing would in fact occur, MLAM believes that
the economies of scale that may be realized as a result of the Reorganization
would be beneficial to both Convertible Fund and Global Convertible
stockholders.
In addition, the Board of Directors of Global Convertible considered
that the Reorganization may potentially provide increased flexibility to MLAM
in managing Global Convertible's assets as part of Convertible Fund since
Convertible Fund is organized as a non-diversified fund. As a
non-diversified fund, Convertible Fund is not limited by the Investment
Company Act in (i) the proportion of its assets that it may invest in the
securities of a single issuer (excluding U.S. Government securities) or (ii)
the amount of voting securities of a single issuer (excluding U.S. Government
securities) that it may purchase. In this regard, the Board of Directors of
Global Convertible considered it potentially advantageous that, unlike Global
Convertible, Convertible Fund might not have to forego attractive investment
opportunities, or alternatively liquidate existing positions prematurely to
take advantage of such opportunities, in order to stay within the
diversification limits of the Investment Company Act. Convertible Fund
would, however, continue to comply with the diversification requirements
under the Code. See "Comparison of the Funds--Other Investment Policies--
Non-Diversified Status."
Based on the foregoing, the Board of Directors of Global Convertible
concluded that the Reorganization presents no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh
the benefits discussed above.
In approving the Reorganization, the Board of Directors of both Funds
determined that the interests of existing stockholders of both Funds would
not be diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that
it qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Global Convertible and Convertible Fund
have elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Convertible Fund intends to
continue to so qualify after the Reorganization. Global Convertible and
Convertible Fund have jointly requested a private letter ruling from the IRS
to the effect that for Federal income tax purposes: (i) the Reorganization,
as described, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code and Global Convertible and Convertible Fund will
each be deemed a "party" to the Reorganization within the meaning of Section
368(b); (ii) in accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized by the stockholders of Global Convertible upon the
receipt of Corresponding Shares of Convertible Fund in the Reorganization
solely in exchange for their shares of Global Convertible; (iii) in
accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the Corresponding Shares of Convertible Fund
received by the stockholders of Global Convertible in the Reorganization will
be equal, in the aggregate, to the tax basis of the shares of Global
Convertible surrendered in exchange; (iv) in accordance with Section 1223 of
the Code, the holding period of the Corresponding Shares of Convertible Fund
received by stockholders of Global Convertible in the Reorganization will
include the holding period of the shares of Global Convertible immediately
prior to the liquidation of Global Convertible (provided that at the time of
the Reorganization the shares of Global Convertible were held as capital
assets); (v) in accordance with Section 361(a) of the Code, no gain or loss
will be recognized by Global Convertible on the asset transfer solely in
exchange for Convertible Fund shares or on the distribution of Convertible
Fund shares to Global Convertible stockholders under Section 361(c)(1); (vi)
under Section 1032 of the Code, no gain or loss will be recognized by
Convertible Fund on the exchange of its shares for Global Convertible assets;
(vii) in accordance with Section 362(b) of the Code, the tax basis of the
assets of Global Convertible in the hands of Convertible Fund will be the
same as the tax basis of such assets in the hands of Global Convertible
immediately prior to the Reorganization; (viii) in accordance with Section
1223 of the Code, the holding period of the transferred assets in the hands
of Convertible Fund will include the holding period of such assets in the
hands of Global Convertible; and (ix) the taxable year of Global Convertible
will end on the effective date of the Reorganization and pursuant to Section
381(a) of the Code and regulations thereunder, Convertible Fund will succeed
to and take into account certain tax attributes of Global Convertible, such
as earnings and profits, capital loss carryovers and method of accounting.
To the extent Convertible Fund has unrealized capital gains at the time
of the Reorganization, Global Convertible stockholders may incur taxable
gains in the year that Convertible Fund realizes and distributes those gains.
This will be true notwithstanding that the unrealized gains were reflected in
the price of Convertible Fund shares at the time they were exchanged for
assets of Global Convertible in the Reorganization. Conversely, stockholders
of Convertible Fund will share in unrealized capital gains of Global
Convertible after the Reorganization and bear a tax consequence on the
subsequent realization of such gains. Stockholders should consult their tax
advisers regarding the effect of the Reorganization in light of their
individual circumstances. As the foregoing relates only to Federal income
tax consequences, stockholders also should consult their tax advisers as to
the foreign, state and local tax consequences of the Reorganization.
Status as a Regulated Investment Company. Both Global Convertible and
Convertible Fund have elected and qualified to be taxed as regulated
investment companies under Sections 851-855 of the Code, and after the
Reorganization, Convertible Fund intends to continue to operate so as to
qualify as a regulated investment company. Following the liquidation
and dissolution of Global Convertible and distribution of shares of
Convertible Fund to Global Convertible stockholders, Global Convertible
will terminate its registration under the Investment Company Act and its
incorporation under Maryland law.
CAPITALIZATION
The following table sets forth as of September 30, 1997: (i) the
capitalization of Global Convertible, (ii) the capitalization of Convertible
Fund and (iii) the pro forma capitalization of the Combined Fund as adjusted
to give effect to the Reorganization.
CAPITALIZATION OF GLOBAL CONVERTIBLE, CONVERTIBLE FUND AND COMBINED FUND
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CONVERTIBLE FUND
---------------------
Class A Class B Class C Class D
---------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Total Net Assets: . . . . . . . . . . . . . . . $ 87,178,363 $ 5,759,668 $ 1,189,444 $ 1,429,983
Shares Outstanding: . . . . . . . . . . . . . . 6,675,384 441,357 91,123 109,519
Net Asset Value Per Share: . . . . . . . . . $ 13.06 $ 13.05 $ 13.05 $ 13.06
GLOBAL CONVERTIBLE
Class A Class B Class C Class D
Total Net Assets: . . . . . . . . . . . . . . . $ 3,526,541 $ 18,230,23 $ 1,182,870 $ 6,739,882
5
Shares Outstanding: . . . . . . . . . . . . . . 292,110 1,505,099 97,871 558,599
Net Asset Value Per Share: . . . . . . . . . $ 12.07 $ 12.11 $ 12.09 $ 12.07
COMBINED FUND
ADJUSTED* Class A Class B Class C Class D
Total Net Assets . . . . . . . . . . . . . . . $ 90,704,50 $ 23,989,90 $ 2,372,264 $ 8,169,865
4 3
Shares Outstanding: . . . . . . . . . . . . . . 6,945,417 1,838,320 181,739 625,711
Net Asset Value Per Share: . . . . . . . . . $ 13.06 $ 13.05 $ 13.05 $ 13.06
</TABLE>
____________________
* Total Net Assets and Net Asset Value Per Share include the aggregate
value of Global Convertible's net assets which would have been
transferred to Convertible Fund had the Reorganization been consummated
on September 30, 1997. The data does not take into account expenses
incurred in connection with the Reorganization or the actual number of
shares that would have been issued. No assurance can be given as to how
many shares of Convertible Fund the Global Convertible stockholders will
receive on the date the Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of shares of Convertible
Fund that actually will be received on or after such date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on February 11, 1998, at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey
at 9:00 a.m., New York time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it
at any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of Global Convertible.
Although mere attendance at the Meeting will not revoke a proxy, a
stockholder present at the Meeting may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan of Reorganization.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies
will be voted in accordance with the judgment of the persons designated on
such proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Global Convertible at the close of
business on December 19, 1997 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record
Date, there were ______ shares of Global Convertible common stock issued and
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GLOBAL
CONVERTIBLE AND
CONVERTIBLE FUND
To the knowledge of Global Convertible, as of the Record Date, no person
or entity owned beneficially or of record 5% or more of any class of shares
of Global Convertible or of all classes of Global Convertible shares in the
aggregate.
At the Record Date, the Directors and officers of Global Convertible as
a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of Global Convertible. At such date, Mr. Zeikel, a Director and
officer of Global Convertible, and the other Directors and officers of Global
Convertible, owned an aggregate of less than 1% of the outstanding shares of
common stock of ML & Co.
To the knowledge of Convertible Fund, as of December 19, 1997, no person
or entity owned beneficially or of record 5% or more of any class of shares
of Convertible Fund or of all classes of Convertible Fund shares in the
aggregate.
As of December 19, 1997, the Directors and officers of Convertible Fund
as a group (14 persons) owned an aggregate of less than 1% of the outstanding
shares of Convertible Fund. At such date, Mr. Zeikel, a Director and officer
of Convertible Fund, and the other Directors and officers of Convertible
Fund, owned less than 1% of the outstanding shares of common stock of ML &
Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of Global Convertible is entitled to one vote. Approval of the
Agreement and Plan of Reorganization requires the affirmative vote of Global
Convertible stockholders representing a majority of the total votes entitled
to be cast thereon, with all shares voting as a single class.
Under Maryland law, stockholders of a registered open-end investment
company such as Global Convertible are not entitled to demand the fair value
of their shares upon a transfer of assets and will be bound by the terms of
the Reorganization if approved at the Meeting. However, any stockholder of
Global Convertible may redeem his Global Convertible shares prior to the
Reorganization.
A quorum for purposes of the Meeting consists of a majority of the
shares entitled to vote at the Meeting, present in person or by proxy. If,
by the time scheduled for the Meeting, a quorum of Global Convertible's
stockholders is not present or if a quorum is present but sufficient votes in
favor of the Agreement and Plan of Reorganization are not received from the
stockholders of Global Convertible, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies from stockholders. Any such adjournment will require the affirmative
vote of a majority of the shares of Global Convertible present in person or
by proxy and entitled to vote at the session of the Meeting to be adjourned.
The persons named as proxies will vote in favor of any such adjournment if
they determine that adjournment and additional solicitation are reasonable
and in the interests of the Fund's stockholders.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form
of proxy, the accompanying Notice and this Proxy Statement and Prospectus
will be borne by Convertible Fund and Global Convertible pro rata according
to the aggregate net assets of each Fund's portfolio on the date of
Reorganization. Such expenses are currently estimated to be $_______.
Global Convertible will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the
beneficial owners of shares of Global Convertible and certain persons that
Global Convertible may employ for their reasonable expenses in assisting in
the solicitation of proxies from such beneficial owners of shares of Global
Convertible.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview
by officers of Global Convertible. Global Convertible and Convertible Fund
also may hire proxy solicitors at their expense. It is expected that the
cost of such supplementary solicitation, if any, will be nominal.
Broker-dealer firms, including Merrill Lynch, holding shares of Global
Convertible in "street name" for the benefit of their customers and clients
will request the instructions of such customers and clients on how to vote
their shares before the Meeting. Broker-dealer firms, including Merrill
Lynch, will not be permitted to vote without instructions with respect to the
approval of the Agreement and Plan of Reorganization. Properly executed
proxies that are returned but that are marked "abstain" or with respect to
which a broker-dealer has received no instructions and therefore has declined
to vote on the proposal ("broker non-votes") will be counted as present for
the purposes of determining a quorum. However, abstentions and broker
non-votes will have the same effect as a vote against approval of the
Agreement and Plan of Reorganization.
This Proxy Statement and Prospectus does not contain all of the
information set forth in the registration statements and the exhibits
relating thereto which Global Convertible and Convertible Fund, respectively,
have filed with the Commission, under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Global Convertible and Convertible Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by Global Convertible and Convertible
Fund can be inspected and copied at the public reference facilities of the
Commission in Washington, D.C. and at the New York Regional Office of the
Commission at Seven World Trade Center, New York, New York 10048. Copies of
such materials also can be obtained by mail from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site (http://www.sec.gov) that contains the Statement of
Additional Information, the Convertible Fund Prospectus, the Global
Convertible Prospectus, the Convertible Fund Statement, the Global
Convertible Statement, other material incorporated by reference and other
information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Global Convertible or
Convertible Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be
passed upon for Global Convertible and Convertible Fund by Brown & Wood LLP,
One World Trade Center, New York, New York.
EXPERTS
The financial highlights of Global Convertible and Convertible Fund
included in this Proxy Statement and Prospectus have been so included in
reliance on the reports of Deloitte & Touche LLP, independent auditors, given
on their authority as experts in auditing and accounting. The principal
business address of Deloitte & Touche LLP is 117 Campus Drive, Princeton, New
Jersey 08540.
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent
meeting of stockholders of Global Convertible must be received by Global
Convertible in a reasonable time before the Board of Directors solicitation
relating to such meeting is to be made in order to be considered in Global
Convertible's proxy statement and form of proxy relating to the meeting.
By Order of the Board of Directors,
Lawrence A. Rogers
Secretary, Merrill Lynch Global Convertible Fund, Inc.
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of the ___ day of __________, 199_, by and between Merrill Lynch Global
Convertible Fund, Inc., a Maryland corporation ("Global Convertible"), and
Merrill Lynch Convertible Fund, Inc., a Maryland corporation ("Convertible
Fund").
PLAN OF REORGANIZATION
----------------------
The reorganization will comprise the acquisition by Convertible Fund of
substantially all of the assets, and the assumption of substantially all of
the liabilities, of Global Convertible in exchange solely for an equal
aggregate value of newly issued shares of Convertible Fund's common stock,
with a par value of $.10 per share, and the subsequent distribution of
Corresponding Shares (defined below) of Convertible Fund to Global
Convertible stockholders in exchange for their shares of common stock of
Global Convertible, with a par value of $.10 per share, in liquidation of
Global Convertible, all upon and subject to the terms hereinafter set forth
(the "Reorganization").
In the course of the Reorganization, shares of Convertible Fund will be
distributed to Global Convertible stockholders as follows: each holder of
Global Convertible shares will be entitled to receive the number of shares of
that class of shares of Convertible Fund having the same letter designation
(e.g., Class A, Class B, Class C or Class D), and the same distribution fees,
account maintenance fees and sales charges (including contingent deferred
sales charges), if any ("Corresponding Shares"), as the shares of Global
Convertible owned by such stockholder on the Exchange Date (as defined in
Section 7 of this Agreement). The aggregate net asset value of the
Corresponding Shares of Convertible Fund to be received by each stockholder
of Global Convertible will equal the aggregate net asset value of the Global
Convertible shares owned by such stockholder on the Exchange Date. In
consideration therefor, on the Exchange Date, Convertible Fund shall acquire
substantially all of the assets of Global Convertible and assume
substantially all of Global Convertible's obligations and liabilities then
existing, whether absolute, accrued, contingent or otherwise. It is intended
that the Reorganization described in this Plan shall be a reorganization
within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (the "Code"), and any successor provision.
As promptly as practicable after the liquidation of Global Convertible
pursuant to the Reorganization, Global Convertible shall be dissolved in
accordance with the laws of the State of Maryland and will terminate its
registration under the Investment Company Act of 1940, as amended (the "1940
Act").
AGREEMENT
---------
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and
intending to be legally bound, Global Convertible and Convertible Fund hereby
agree as follows:
1. Representations and Warranties of Global Convertible.
----------------------------------------------------
Global Convertible represents and warrants to, and agrees with,
Convertible Fund that:
a. Global Convertible is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland, and has the power to own all of its assets and to carry out this
Agreement. Global Convertible has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
carry out this Agreement.
b. Global Convertible is duly registered under the 1940 Act as a
diversified, open-end management investment company (File No. 811-5395), and
such registration has not been revoked or rescinded and is in full force and
effect. Global Convertible has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception and intends to continue
to so qualify for its taxable year ending upon liquidation.
c. As used in this Agreement, the term "Investments" shall mean
(i) the investments of Global Convertible shown on the schedule of its
investments as of the Valuation Time (as defined in Section 3(c) of this
Agreement) furnished to Convertible Fund, with such additions thereto and
deletions therefrom as may have arisen in the course of Global Convertible's
business up to the Valuation Time; and (ii) all other assets owned by Global
Convertible or liabilities incurred as of the Valuation Time, except that
Global Convertible shall retain cash, bank deposits or cash equivalent
securities in an estimated amount necessary to (1) discharge its unpaid
liabilities on its books at the Valuation Time (including, but not limited
to, its income dividend and capital gains distributions, if any, payable for
the period prior to the Valuation Time), and (2) pay such contingent and
other liabilities as the Directors of Global Convertible reasonably shall
deem to exist against the Fund, if any, at Valuation Time, for which
contingent and other appropriate liability reserves shall be established on
Global Convertible's books. Global Convertible also shall retain any and all
rights which it may have over and against any other person which may have
accrued up to the Valuation Time. Any unexpended portion of the foregoing
funds retained by Global Convertible shall be disbursed by Global Convertible
pro rata to its stockholders upon dissolution of Global Convertible as a
final liquidating dividend.
d. Global Convertible has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
e. Convertible Fund has been furnished with a statement of assets
and liabilities and a schedule of investments of Global Convertible, each as
of October 31, 1997, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Global Convertible and an unaudited
schedule of investments of Global Convertible, each as of the Valuation Time,
will be furnished to Convertible Fund at or prior to the Exchange Date for
the purpose of determining the number of shares of Convertible Fund to be
issued pursuant to Section 4 of this Agreement; and each will fairly present
the financial position of Global Convertible as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
f. Convertible Fund has been furnished with the prospectus and
statement of additional information of Global Convertible, each dated
February 24, 1997, said prospectus and statement of additional information do
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
g. There are no material legal, administrative or other
proceedings pending or, to the knowledge of Global Convertible, threatened
against Global Convertible which assert liability on the part of Global
Convertible or which materially affect its financial condition or its ability
to consummate the Reorganization. Global Convertible is not charged with or,
to the best of its knowledge, threatened with any violation or investigation
of any possible violation of any provisions of any Federal, state or local
law or regulation or administrative ruling relating to any aspect of its
business.
h. There are no material contracts outstanding to which Global
Convertible is a party that have not been disclosed in the N-14 Registration
Statement (as defined in subsection (n) below) or will not otherwise be
disclosed to Convertible Fund prior to the Valuation Time.
i. Global Convertible is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, or its by-laws, as
amended, or any contract or other commitment or obligation, and is not
subject to any order or decree which would be violated by its execution of or
performance under this Agreement.
j. Global Convertible has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements of
assets and liabilities referred to above, those incurred in the ordinary
course of its business as an investment company since October 31, 1997, and
those incurred in connection with the Reorganization. As of the Valuation
Time, Global Convertible will advise Convertible Fund in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued as of such time.
k. Global Convertible has filed, or has obtained extensions to
file, all Federal, state and local tax returns which are required to be filed
by it, and has paid or has obtained extensions to pay, all Federal, state and
local taxes shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which the Exchange
Date occurs. All tax liabilities of Global Convertible have been adequately
provided for on its books, and no tax deficiency or liability of Global
Convertible has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable
year in which the Exchange Date occurs.
l. At both the Valuation Time and the Exchange Date, Global
Convertible will have full right, power and authority to sell, assign,
transfer and deliver the Investments. At the Exchange Date, subject only to
the delivery of the Investments as contemplated by this Agreement, Global
Convertible will have good and marketable title to all of the Investments,
and Convertible Fund will acquire all of the Investments free and clear of
any encumbrances, liens or security interests and without any restrictions
upon the transfer thereof (except those imposed by the Federal or state
securities laws and those imperfections of title or encumbrances as do not
materially detract from the value or use of the Investments or materially
affect title thereto).
m. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Global Convertible
of the Reorganization, except such as may be required under the Securities
Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the 1940 Act or state securities
laws (which term as used herein shall include the laws of the District of
Columbia and Puerto Rico).
n. The registration statement filed by Convertible Fund on Form
N-14 relating to the shares of Convertible Fund to be issued pursuant to this
Agreement which includes the proxy statement of Global Convertible and the
prospectus of Convertible Fund with respect to the transaction contemplated
herein, and any supplement or amendment thereto or to the documents therein
(as amended, the "N-14 Registration Statement"), on the effective date of the
N-14 Registration Statement, at the time of the stockholders' meeting
referred to in Section 6(a) of this Agreement and on the Exchange Date,
insofar as it relates to Global Convertible (i) complied or will comply in
all material respects with the provisions of the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder, and (ii) did not or
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the prospectus included therein did
not or will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this subsection
shall apply only to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with information furnished
by Global Convertible for use in the N-14 Registration Statement as provided
in Section 9 of this Agreement.
o. Global Convertible is authorized to issue 400,000,000 shares
of common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock, each of which
consists of 100,000,000 shares, each outstanding share of which is fully paid
and nonassessable and has full voting rights.
p. The books and records of Global Convertible made available to
Convertible Fund and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the operations
of Global Convertible.
q. Global Convertible will not sell or otherwise dispose of any
of the shares of Convertible Fund to be received in the Reorganization,
except in distribution to the stockholders of Global Convertible.
2. Representations and Warranties of Convertible Fund.
--------------------------------------------------
Convertible Fund represents and warrants to, and agrees with, Global
Convertible that:
a. Convertible Fund is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland, and has the power to own all of its assets and to carry out this
Agreement. Convertible Fund has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
carry out this Agreement.
b. Convertible Fund is duly registered under the 1940 Act as a
non-diversified, open-end management investment company (File No. 811-4311),
and such registration has not been revoked or rescinded and is in full force
and effect. Convertible Fund has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception, and intends to continue to so qualify both until consummation
of the Reorganization and thereafter.
c. Global Convertible has been furnished with a statement of
assets and liabilities and a schedule of investments of Convertible Fund,
each as of August 31, 1997, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Convertible Fund and an unaudited
schedule of investments of Convertible Fund, each as of the Valuation Time,
will be furnished to Global Convertible at or prior to the Exchange Date for
the purpose of determining the number of shares of Convertible Fund to be
issued pursuant to Section 4 of this Agreement; and each will fairly present
the financial position of Convertible Fund as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
d. Global Convertible has been furnished with the prospectus and
statement of additional information of Convertible Fund, dated August 4, 1997
and said prospectus and statement of additional information do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e. Global Convertible has been furnished with Convertible Fund's
Quarterly Report to Stockholders for the three months ended November 30,
1997, and the unaudited financial statements appearing therein fairly present
the financial position of Convertible Fund as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.)
f. Convertible Fund has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
g. There are no material legal, administrative or other
proceedings pending or, to the knowledge of Convertible Fund, threatened
against Convertible Fund which assert liability on the part of Convertible
Fund or which materially affect its financial condition or its ability to
consummate the Reorganization. Convertible Fund is not charged with or, to
the best of its knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any Federal, state or local law
or regulation or administrative ruling relating to any aspect of its
business.
h. Convertible Fund is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, or its by-laws, as
amended, or any contract or other commitment or obligation, and is not
subject to any order or decree which would be violated by its execution of or
performance under this Agreement.
i. There are no material contracts outstanding to which
Convertible Fund is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to Global
Convertible prior to the Valuation Time.
j. Convertible Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on Convertible Fund's
statements of assets and liabilities referred to above, those incurred in the
ordinary course of its business as an investment company since August 31,
1997 and those incurred in connection with the Reorganization. As of the
Valuation Time, Convertible Fund will advise Global Convertible in writing of
all known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued as of such time.
k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Convertible Fund
of the Reorganization, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act or state securities laws.
l. The N-14 Registration Statement, on its effective date, at the
time of the stockholders' meeting referred to in Section 6(a) of this
Agreement and at the Exchange Date, insofar as it relates to Convertible Fund
(i) complied or will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
prospectus included therein did not or will not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection only shall apply to statements in or omissions
from the N-14 Registration Statement made in reliance upon and in conformity
with information furnished by Convertible Fund for use in the N-14
Registration Statement as provided in Section 9 of this Agreement.
m. Convertible Fund is authorized to issue 400,000,000 shares of
common stock, par value $.10 per share, divided into four classes, designated
Class A, Class B, Class C and Class D Common Stock, each of which consists of
100,000,000 shares, each outstanding share of which is fully paid and
nonassessable and has full voting rights.
n. The Convertible Fund shares to be issued to Global Convertible
pursuant to this Agreement will have been duly authorized and, when issued
and delivered pursuant to this Agreement, will be legally and validly issued
and will be fully paid and nonassessable and will have full voting rights,
and no stockholder of Convertible Fund will have any preemptive right of
subscription or purchase in respect thereof.
o. At or prior to the Exchange Date, the Convertible Fund shares
to be transferred to Global Convertible on the Exchange Date will be duly
qualified for offering to the public in all states of the United States in
which the sale of shares of Convertible Fund presently are qualified, and
there are a sufficient number of such shares registered under the 1933 Act
and, as may be necessary, with each pertinent state securities commission to
permit the transfers contemplated by this Agreement to be consummated.
p. At or prior to the Exchange Date, Convertible Fund will have
obtained any and all regulatory, Director and stockholder approvals,
necessary to issue the shares of Convertible Fund to Global Convertible.
3. The Reorganization.
------------------
a. Subject to receiving the requisite approval of the
stockholders of Global Convertible, and to the other terms and conditions
contained herein, Global Convertible agrees to convey, transfer and deliver
to Convertible Fund for the benefit of Convertible Fund, and Convertible Fund
agrees to acquire from Global Convertible for the benefit of Convertible
Fund, on the Exchange Date all of the Investments (including interest accrued
as of the Valuation Time on debt instruments) of Global Convertible, and
assume substantially all of the liabilities of Global Convertible, in
exchange solely for that number of shares of Convertible Fund provided in
Section 4 of this Agreement. Pursuant to this Agreement, as soon as
practicable Global Convertible will distribute all Convertible Fund shares
received by it to its stockholders in exchange for their corresponding Global
Convertible shares. Such distribution shall be accomplished by the opening
of stockholder accounts on the stock ledger records of Convertible Fund in
the amounts due the stockholders of Global Convertible based on their
respective holdings in Global Convertible as of the Valuation Time.
b. Global Convertible will pay or cause to be paid to Convertible
Fund any interest it receives on or after the Exchange Date with respect to
the Investments transferred to Convertible Fund hereunder.
c. The Valuation Time shall be 4:00 p.m., New York time, on
____________, 1998, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
d. Convertible Fund will acquire substantially all of the assets
of, and assume substantially all of the known liabilities of, Global
Convertible, except that recourse for such liabilities will be limited to the
net assets of Global Convertible acquired by Convertible Fund. The known
liabilities of Global Convertible as of the Valuation Time shall be confirmed
in writing to Convertible Fund by Global Convertible pursuant to Section l(k)
of this Agreement.
e. Convertible Fund and Global Convertible will jointly file
Articles of Transfer with the State Department of Assessments and Taxation of
Maryland and any such other instrument as may be required by the State of
Maryland to effect the transfer of Investments of Global Convertible to
Convertible Fund.
f. Global Convertible will be dissolved following the Exchange
Date by filing Articles of Dissolution with the State Department of
Assessments and Taxation of Maryland.
4. Issuance and Valuation of Convertible Fund Shares in the
--------------------------------------------------------
Reorganization.
- --------------
Full Convertible Fund shares, and to the extent necessary, a fractional
Convertible Fund share, of an aggregate net asset value equal to the net
asset value of the assets of Global Convertible acquired, determined as
hereinafter provided, reduced by the amount of liabilities of Global
Convertible assumed by Convertible Fund, shall be issued by Convertible Fund
in exchange for such assets of Global Convertible. The net asset value of
each of Global Convertible and Convertible Fund shall be determined in
accordance with the procedures described in the Convertible Fund Prospectus
as of the Valuation Time. Such valuation and determination shall be made by
Convertible Fund in cooperation with Global Convertible. Convertible Fund
shall issue its Class A, Class B, Class C and Class D shares to Global
Convertible in four certificates or share deposit receipts (one in respect of
each class) registered in the name of Global Convertible. Global Convertible
shall distribute Corresponding Shares of Convertible Fund to its stockholders
by redelivering such certificates to Merrill Lynch Financial Data Services,
Inc.
5. Payment of Expenses.
-------------------
a. With respect to expenses incurred in connection with the
Reorganization, (i) Convertible Fund shall pay all expenses incurred which
are attributable solely to Convertible Fund and the conduct of its business,
(ii) Global Convertible shall pay all expenses incurred which are
attributable solely to Global Convertible and the conduct of its business,
and (iii) Global Convertible and Convertible Fund shall pay, subsequent to
the Exchange Date and pro rata according to each Fund's net assets on the
Exchange Date, all expenses incurred in connection with the Reorganization,
including, but not limited to, all costs related to the preparation and
distribution of the N-14 Registration Statement. Such fees and expenses
shall include the cost of preparing and filing a ruling request with the
Internal Revenue Service, legal and accounting fees, printing costs, filing
fees, portfolio transfer taxes (if any), and any similar expenses incurred in
connection with the Reorganization. Global Convertible shall pay all
expenses associated with its dissolution under Maryland law and the
termination of its registration as an investment company under the 1940 Act.
b. If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
6. Covenants of Global Convertible and Convertible Fund.
----------------------------------------------------
a. Global Convertible agrees to call a special meeting of its
stockholders as soon as is practicable after the effective date of the N-14
Registration Statement for the purpose of considering the Reorganization as
described in this Agreement, and it shall be a condition to the obligations
of each of the parties hereto that the holders of a majority of the shares of
Global Convertible issued and outstanding and entitled to vote thereon, shall
have approved this Agreement at such a meeting at or prior to the Valuation
Time.
b. Global Convertible and Convertible Fund each covenants to
operate its respective business as presently conducted between the date
hereof and the Exchange Date.
c. Global Convertible agrees that following the consummation of
the Reorganization, it will dissolve in accordance with the laws of the State
of Maryland and any other applicable law, it will not make any distributions
of any Convertible Fund shares other than to the stockholders of Global
Convertible and without first paying or adequately providing for the payment
of all of Global Convertible's liabilities not assumed by Convertible Fund,
if any, and on and after the Exchange Date it shall not conduct any business
except in connection with its dissolution.
d. Global Convertible undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that Global Convertible has ceased to be a
registered investment company.
e. Convertible Fund will file the N-14 Registration Statement
with the Securities and Exchange Commission (the "Commission") and will use
its best efforts to provide that the N-14 Registration Statement becomes
effective as promptly as practicable. Global Convertible and Convertible
Fund agree to cooperate fully with each other, and each will furnish to the
other the information relating to itself to be set forth in the N-14
Registration Statement as required by the 1933 Act, the 1934 Act, the 1940
Act, and the rules and regulations thereunder and the state securities laws.
f. Convertible Fund has no plan or intention to sell or otherwise
dispose of the assets of Global Convertible to be acquired in the
Reorganization, except for dispositions made in the ordinary course of
business.
g. Global Convertible and Convertible Fund each agrees that by
the Exchange Date all of its Federal and other tax returns and reports
required to be filed on or before such date shall have been filed and all
taxes shown as due on said returns either have been paid or adequate
liability reserves have been provided for the payment of such taxes. In
connection with this covenant, Convertible Fund and Global Convertible agree
to cooperate with each other in filing any tax return, amended return or
claim for refund, determining a liability for taxes or a right to a refund of
taxes or participating in or conducting any audit or other proceeding in
respect of taxes. Convertible Fund agrees to retain for a period of ten (10)
years following the Exchange Date all returns, schedules and work papers and
all material records or other documents relating to tax matters of Global
Convertible for its taxable period first ending after the Exchange Date and
for all prior taxable periods. Any information obtained under this
subsection shall be kept confidential except as otherwise may be necessary in
connection with the filing of returns or claims for refund or in conducting
an audit or other proceeding. After the Exchange Date, Global Convertible
shall prepare, or cause its agents to prepare, any Federal, state or local
tax returns, including any Forms 1099, required to be filed by Global
Convertible with respect to Global Convertible's final taxable year ending
with its complete liquidation and for any prior periods or taxable years and
further shall cause such tax returns and Forms 1099 to be duly filed with the
appropriate taxing authorities. Notwithstanding the aforementioned
provisions of this subsection, any expenses incurred by Global Convertible
(other than for payment of taxes) in connection with the preparation and
filing of said tax returns and Forms 1099 after the Exchange Date shall be
borne by Global Convertible to the extent such expenses have been accrued by
Global Convertible in the ordinary course without regard to the
Reorganization; any excess expenses shall be borne by Merrill Lynch Asset
Management, L.P. ("MLAM") at the time such tax returns and Forms 1099 are
prepared.
h. Global Convertible agrees to mail to its stockholders of
record entitled to vote at the special meeting of stockholders at which
action is to be considered regarding this Agreement, in sufficient time to
comply with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940
Act, and the rules and regulations, respectively, thereunder.
i. Following the consummation of the Reorganization, Convertible
Fund expects to stay in existence and continue its business as an open-end
management investment company registered under the 1940 Act.
7. Exchange Date.
-------------
a. Delivery of the assets of Global Convertible to be
transferred, together with any other Investments, and the Convertible Fund
shares to be issued, shall be made at the offices of Brown & Wood LLP, One
World Trade Center, New York, New York 10048, at 10:00 a.m. on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by Global Convertible and Convertible Fund, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date." To the extent that any Investments, for any reason, are not
transferable on the Exchange Date, Global Convertible shall cause such
Investments to be transferred to Convertible Fund's account with [Name of
Custodian] at the earliest practicable date thereafter.
b. Global Convertible will deliver to Convertible Fund on the
Exchange Date confirmations or other adequate evidence as to the tax basis of
each of the Investments delivered to Convertible Fund hereunder, certified by
Deloitte & Touche LLP.
c. As soon as practicable after the close of business on the
Exchange Date, Global Convertible shall deliver to Convertible Fund a list of
the names and addresses of all of the stockholders of record of Global
Convertible on the Exchange Date and the number of shares of Global
Convertible owned by each such stockholder, certified to the best of their
knowledge and belief by the transfer agent for Global Convertible or by its
President.
8. Global Convertible Conditions.
-----------------------------
The obligations of Global Convertible hereunder shall be subject to the
following conditions:
a. That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the
holders of a majority of the shares of Global Convertible, issued and
outstanding and entitled to vote thereon, voting together as a single class,
and by the Board of Directors of Convertible Fund; and that Convertible Fund
shall have delivered to Global Convertible a copy of the resolution approving
this Agreement adopted by Convertible Fund's Board of Directors, certified by
the Secretary of Convertible Fund.
b. That Convertible Fund shall have furnished to Global
Convertible a statement of Convertible Fund's assets and liabilities, with
values determined as provided in Section 4 of this Agreement, together with a
schedule of its investments, all as of the Valuation Time, certified on
Convertible Fund's behalf by its President (or any Vice President) and its
Treasurer, and a certificate signed by Convertible Fund's President (or any
Vice President) and its Treasurer, dated as of the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of Convertible Fund since
August 31, 1997, other than changes in its portfolio securities since that
date or changes in the market value of its portfolio securities.
c. That Convertible Fund shall have furnished to Global
Convertible a certificate signed by Convertible Fund's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying that,
as of the Valuation Time and as of the Exchange Date all representations and
warranties of Convertible Fund made in this Agreement are true and correct in
all material respects with the same effect as if made at and as of such
dates, and that Convertible Fund has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at
or prior to each of such dates.
d. That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
e. That Global Convertible shall have received an opinion of
Brown & Wood LLP, as counsel to both Convertible Fund and Global Convertible,
in form and substance satisfactory to Global Convertible and dated the
Exchange Date, to the effect that (i) each of Convertible Fund and Global
Convertible is a corporation duly organized, validly existing and in good
standing in conformity with the laws of the State of Maryland; (ii) the
Corresponding Shares of Convertible Fund to be issued pursuant to this
Agreement are duly authorized and, upon delivery, will be validly issued and
outstanding and fully paid and nonassessable by Convertible Fund, and no
stockholder of Convertible Fund has any preemptive right to subscription or
purchase in respect thereof (pursuant to the Articles of Incorporation, as
amended, or the by-laws of Convertible Fund or, to the best of such counsel's
knowledge, otherwise); (iii) this Agreement has been duly authorized,
executed and delivered by each of Convertible Fund and Global Convertible,
and represents a valid and binding contract, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of
creditors' rights generally and court decisions with respect thereto;
provided, such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity; (iv) the execution and delivery of this Agreement does not, and the
consummation of the Reorganization will not, violate any material provisions
of the Articles of Incorporation, as amended, the by-laws, as amended, or any
agreement (known to such counsel) to which either Convertible Fund or Global
Convertible is a party or by which either Convertible Fund or Global
Convertible is bound, except insofar as the parties have agreed to amend such
provision as a condition precedent to the Reorganization or Maryland law; (v)
Global Convertible has the power to sell, assign, transfer and deliver the
assets transferred by it hereunder and, upon consummation of the
Reorganization in accordance with the terms of this Agreement, Global
Convertible will have duly transferred such assets and liabilities in
accordance with this Agreement; (vi) to the best of such counsel's knowledge,
no consent, approval, authorization or order of any United States federal
court, Maryland state court or governmental authority is required for the
consummation by Convertible Fund and Global Convertible of the
Reorganization, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and the published rules and regulations of the
Commission thereunder and under Maryland law and such as may be required
under state securities laws; (vii) the N-14 Registration Statement has become
effective under the 1933 Act, no stop order suspending the effectiveness of
the N-14 Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the 1933
Act, and the N-14 Registration Statement, and each amendment or supplement
thereto, as of their respective effective dates, appear on their face to be
appropriately responsive in all material respects to the requirements of the
1933 Act, the 1934 Act and the 1940 Act and the published rules and
regulations of the Commission thereunder; (viii) the descriptions in the N-14
Registration Statement of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the information
required to be shown; (ix) such counsel does not know of any statutes, legal
or governmental proceedings or contracts or other documents related to the
Reorganization of a character required to be described in the N-14
Registration Statement which are not described therein or, if required to be
filed, filed as required; (x) neither Convertible Fund nor Global
Convertible, to the knowledge of such counsel, is required to qualify to do
business as a foreign corporation in any jurisdiction except as may be
required by state securities laws, and except where each has so qualified or
the failure so to qualify would not have a material adverse effect on
Convertible Fund, Global Convertible or their respective stockholders; (xi)
such counsel does not have actual knowledge of any material suit, action or
legal or administrative proceeding pending or threatened against Convertible
Fund or Global Convertible, the unfavorable outcome of which would materially
and adversely affect Convertible Fund or Global Convertible; (xii) all
corporate actions required to be taken by Convertible Fund and Global
Convertible to authorize this Agreement and to effect the Reorganization have
been duly authorized by all necessary corporate actions on the part of
Convertible Fund and Global Convertible; and (xiii) such opinion is solely
for the benefit of Convertible Fund and Global Convertible and their
Directors and officers. Such opinion also shall state that (x) while such
counsel cannot make any representation as to the accuracy or completeness of
statements of fact in the N-14 Registration Statement or any amendment or
supplement thereto, nothing has come to their attention that would lead them
to believe that, on the respective effective dates of the N-14 Registration
Statement and any amendment or supplement thereto, (1) the N-14 Registration
Statement or any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (2) the prospectus included in the N-14 Registration
Statement contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
(y) such counsel does not express any opinion or belief as to the financial
statements or other financial or statistical data relating to Convertible
Fund or Global Convertible contained or incorporated by reference in the N-14
Registration Statement. In giving the opinion set forth above, Brown & Wood
LLP may state that it is relying on certificates of officers of Convertible
Fund and Global Convertible with regard to matters of fact and certain
certificates and written statements of governmental officials with respect to
the good standing of Convertible Fund and Global Convertible.
f. That Global Convertible shall have received a private letter
ruling from the Internal Revenue Service to the effect that for Federal
income tax purposes (i) the transfer of substantially all of the Investments
of Global Convertible to Convertible Fund in exchange solely for shares of
Convertible Fund as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code, and
Global Convertible and Convertible Fund will each be deemed to be a "party"
to the Reorganization within the meaning of Section 368(b); (ii) in
accordance with Section 361(a) of the Code, no gain or loss will be
recognized to Global Convertible as a result of the asset transfer solely in
exchange for Convertible Fund shares or on the distribution of the
Convertible Fund stock to Global Convertible stockholders under Section
361(c)(1); (iii) under Section 1032 of the Code, no gain or loss will be
recognized to Convertible Fund on the receipt of assets of Global Convertible
in exchange for Convertible Fund shares; (iv) in accordance with Section
354(a)(1) of the Code, no gain or loss will be recognized to the stockholders
of Global Convertible on the receipt of Corresponding Shares of Convertible
Fund in exchange for their shares of Global Convertible; (v) in accordance
with Section 362(b) of the Code, the tax basis of the Global Convertible
assets in the hands of Convertible Fund will be the same as the tax basis of
such assets in the hands of Global Convertible immediately prior to the
consummation of the Reorganization; (vi) in accordance with Section 358 of
the Code, immediately after the Reorganization, the tax basis of the
Corresponding Shares of Convertible Fund received by the stockholders of
Global Convertible in the Reorganization will be equal, in the aggregate, to
the tax basis of the shares of Global Convertible surrendered in exchange;
(vii) in accordance with Section 1223 of the Code, a stockholder's holding
period for the Corresponding Shares of Convertible Fund will be determined by
including the period for which such stockholder held the shares of Global
Convertible exchanged therefor, provided, that such Global Convertible shares
were held as a capital asset; (viii) in accordance with Section 1223 of the
Code, Convertible Fund's holding period with respect to the Global
Convertible assets transferred will include the period for which such assets
were held by Global Convertible; and (ix) the taxable year of Global
Convertible will end on the effective date of the Reorganization and pursuant
to Section 381(a) of the Code and regulations thereunder, Convertible Fund
will succeed to and take into account certain tax attributes of Global
Convertible, such as earnings and profits, capital loss carryovers and method
of accounting.
g. That all proceedings taken by Convertible Fund and its counsel
in connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to Global Convertible.
h. That the N-14 Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending such effectiveness
shall have been instituted or, to the knowledge of Convertible Fund,
contemplated by the Commission.
i. That Global Convertible shall have received from Deloitte &
Touche LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to Global Convertible, to the effect
that (i) they are independent public accountants with respect to Convertible
Fund within the meaning of the 1933 Act and the applicable published rules
and regulations thereunder; (ii) in their opinion, the financial statements
and supplementary information of Convertible Fund included or incorporated by
reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; and (iii) on the basis of limited procedures agreed upon by
Global Convertible and Convertible Fund and described in such letter (but not
an examination in accordance with generally accepted auditing standards)
consisting of a reading of any unaudited interim financial statements and
unaudited supplementary information of Convertible Fund included in the N-14
Registration Statement, and inquiries of certain officials of Convertible
Fund responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder, (b) such
unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles, applied on a basis substantially
consistent with that of the audited financial statements, or (c) such
unaudited supplementary information is not fairly stated in all material
respects in relation to the unaudited financial statements taken as a whole;
and (iv) on the basis of limited procedures agreed upon by Global Convertible
and Convertible Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the information
relating to Convertible Fund appearing in the N-14 Registration Statement,
which information is expressed in dollars (or percentages derived from such
dollars) (with the exception of performance comparisons, if any), if any, has
been obtained from the accounting records of Convertible Fund or from
schedules prepared by officials of Convertible Fund having responsibility for
financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
j. That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Convertible Fund or would
prohibit the Reorganization.
k. That Global Convertible shall have received from the
Commission such orders or interpretations as Brown & Wood LLP, as counsel to
Global Convertible, deems reasonably necessary or desirable under the 1933
Act and the 1940 Act in connection with the Reorganization, provided, that
such counsel shall have requested such orders as promptly as practicable, and
all such orders shall be in full force and effect.
9. Convertible Fund Conditions.
---------------------------
The obligations of Convertible Fund hereunder shall be subject to the
following
conditions:
a. That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of Directors of Global
Convertible and by the affirmative vote of the holders of a majority of the
shares of common stock of Global Convertible issued and outstanding and
entitled to vote thereon, voting together as a single class; and that Global
Convertible shall have delivered to Convertible Fund a copy of the resolution
approving this Agreement adopted by Global Convertible's Board of Directors,
and a certificate setting forth the vote Global Convertible stockholders
obtained, each certified by the Secretary of Global Convertible.
b. That Global Convertible shall have furnished to Convertible
Fund a statement of Global Convertible's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a
schedule of investments with their respective dates of acquisition and tax
costs, all as of the Valuation Time, certified on Global Convertible's behalf
by its President (or any Vice President) and its Treasurer, and a certificate
signed by Global Convertible's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date there has been no material adverse change in
the financial position of Global Convertible since October 31, 1997, other
than changes in the Investments since that date or changes in the market
value of the Investments.
c. That Global Convertible shall have furnished to Convertible
Fund a certificate signed by Global Convertible's President (or any Vice
President) and its Treasurer, dated the Exchange Date, certifying that as of
the Valuation Time and as of the Exchange Date all representations and
warranties of Global Convertible made in this Agreement are true and correct
in all material respects with the same effect as if made at and as of such
dates and Global Convertible has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at
or prior to such dates.
d. That Global Convertible shall have delivered to Convertible
Fund a letter from Deloitte & Touche LLP, dated the Exchange Date, stating
that such firm has performed a limited review of the Federal, state and local
income tax returns of Global Convertible for the period ended October 31,
1997 (which returns originally were prepared and filed by Global
Convertible), and that based on such limited review, nothing came to their
attention which caused them to believe that such returns did not properly
reflect, in all material respects, the Federal, state and local income taxes
of Global Convertible for the period covered thereby; and that for the period
from November l, 1997, to and including the Exchange Date and for any taxable
year of Global Convertible ending upon the liquidation of Global Convertible,
such firm has performed a limited review to ascertain the amount of
applicable Federal, state and local taxes, and has determined that either
such amount has been paid or reserves established for payment of such taxes,
this review to be based on unaudited financial data; and that based on such
limited review, nothing has come to their attention which caused them to
believe that the taxes paid or reserves set aside for payment of such taxes
were not adequate in all material respects for the satisfaction of Federal,
state and local taxes for the period from November 1, 1997, to and including
the Exchange Date and for any taxable year of Global Convertible ending upon
the liquidation of Global Convertible or that Global Convertible would not
continue to qualify as a regulated investment company for Federal income tax
purposes.
e. That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
f. That Convertible Fund shall have received an opinion of Brown
& Wood LLP, as counsel to both Convertible Fund and Global Convertible, in
form and substance satisfactory to Convertible Fund and dated the Exchange
Date, with respect to the matters specified in Section 8(e) of this Agreement
and such other matters as Convertible Fund reasonably may deem necessary or
desirable.
g. That Convertible Fund shall have received a private letter
ruling from the Internal Revenue Service with respect to the matters
specified in Section 8(f) of this Agreement.
h. That Convertible Fund shall have received from Deloitte &
Touche LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to Convertible Fund, to the effect
that (i) they are independent public accountants with respect to Global
Convertible within the meaning of the 1933 Act and the applicable published
rules and regulations thereunder; (ii) in their opinion, the financial
statements and supplementary information of Global Convertible included or
incorporated by reference in the N-14 Registration Statement and reported on
by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon
by Global Convertible and Convertible Fund and described in such letter (but
not an examination in accordance with generally accepted auditing standards)
consisting of a reading of any unaudited interim financial statements and
unaudited supplementary information of Global Convertible included in the
N-14 Registration Statement, and inquiries of certain officials of Global
Convertible responsible for financial and accounting matters, nothing came to
their attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder, (b) such
unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles, applied on a basis substantially
consistent with that of the audited financial statements, or (c) such
unaudited supplementary information is not fairly stated in all material
respects in relation to the unaudited financial statements taken as a whole;
and (iv) on the basis of limited procedures agreed upon by Convertible Fund
and Global Convertible and described in such letter (but not an examination
in accordance with generally accepted auditing standards), the information
relating to Global Convertible appearing in the N-14 Registration Statement,
which information is expressed in dollars (or percentages derived from such
dollars) (with the exception of performance comparisons, if any), if any, has
been obtained from the accounting records of Global Convertible or from
schedules prepared by officials of Global Convertible having responsibility
for financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
i. That the Investments to be transferred to Convertible Fund
shall not include any assets or liabilities which Convertible Fund, by reason
of charter limitations or otherwise, may not properly acquire or assume.
j. That the N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order suspending such effectiveness
shall have been instituted or, to the knowledge of Global Convertible,
contemplated by the Commission.
k. That the Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the 1940 Act, nor instituted or
threatened to institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Global Convertible or
would prohibit the Reorganization.
l. That Convertible Fund shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as counsel to Convertible
Fund, deems reasonably necessary or desirable under the 1933 Act and the 1940
Act in connection with the Reorganization, provided, that such counsel shall
have requested such orders as promptly as practicable, and all such orders
shall be in full force and effect.
m. That all proceedings taken by Global Convertible and its
counsel in connection with the Reorganization and all documents incidental
thereto shall be satisfactory in form and substance to Convertible Fund.
n. That prior to the Exchange Date, Global Convertible shall have
declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders all of
its investment company taxable income for the period from ________________,
199_ to and including the Exchange Date, if any (computed without regard to
any deduction for dividends paid), and all of its net capital gain, if any,
realized for the period from _______________, 199_ to and including the
Exchange Date.
10. Termination, Postponement and Waivers.
-------------------------------------
a. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the Reorganization abandoned
at any time (whether before or after adoption thereof by the stockholders of
Global Convertible) prior to the Exchange Date, or the Exchange Date may be
postponed, (i) by mutual consent of the Boards of Directors of Global
Convertible and Convertible Fund; (ii) by the Board of Directors of Global
Convertible if any condition of Global Convertible's obligations set forth in
Section 8 of this Agreement has not been fulfilled or waived by such Board;
or (iii) by the Board of Directors of Convertible Fund if any condition of
Convertible Fund's obligations set forth in Section 9 of this Agreement has
not been fulfilled or waived by such Board.
b. If the transactions contemplated by this Agreement have not
been consummated by _____________, 1998, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the
Boards of Directors of Global Convertible and Convertible Fund.
c. In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Global Convertible or
Convertible Fund or persons who are their directors, trustees, officers,
agents or stockholders in respect of this Agreement.
d. At any time prior to the Exchange Date, any of the terms or
conditions of this Agreement may be waived by the Board of Directors of
either Global Convertible or Convertible Fund, respectively (whichever is
entitled to the benefit thereof), if, in the judgment of such Board after
consultation with its counsel, such action or waiver will not have a material
adverse effect on the benefits intended under this Agreement to the
stockholders of their respective fund, on behalf of which such action is
taken. In addition, the Boards of Directors of Global Convertible and
Convertible Fund have delegated to MLAM the ability to make non-material
changes to the transaction if it deems it to be in the best interests of
Global Convertible and Convertible Fund to do so.
e. The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be terminated by,
the consummation of the Reorganization, and neither Global Convertible nor
Convertible Fund nor any of their officers, directors or trustees, agents or
stockholders shall have any liability with respect to such representations or
warranties after the Exchange Date. This provision shall not protect any
officer, director or trustee, agent or stockholder of Global Convertible or
Convertible Fund against any liability to the entity for which that officer,
director or trustee, agent or stockholder so acts or to its stockholders, to
which that officer, director or trustee, agent or stockholder otherwise would
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties in the conduct of such office.
f. If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Exchange Date and shall impose any
terms or conditions which are determined by action of the Boards of Directors
of Global Convertible and Convertible Fund to be acceptable, such terms and
conditions shall be binding as if a part of this Agreement without further
vote or approval of the stockholders of Global Convertible unless such terms
and conditions shall result in a change in the method of computing the number
of shares of Convertible Fund to be issued to Global Convertible in which
event, unless such terms and conditions shall have been included in the proxy
solicitation materials furnished to the stockholders of Global Convertible
prior to the meeting at which the Reorganization shall have been approved,
this Agreement shall not be consummated and shall terminate unless Global
Convertible promptly shall call a special meeting of stockholders at which
such conditions so imposed shall be submitted for approval.
11. Indemnification.
---------------
a. Global Convertible hereby agrees to indemnify and hold
Convertible Fund harmless from all loss, liability and expense (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which Convertible Fund may incur or sustain by reason of the fact that
(i) Convertible Fund shall be required to pay any corporate obligation of
Global Convertible, whether consisting of tax deficiencies or otherwise,
based upon a claim or claims against Global Convertible which were omitted or
not fairly reflected in the financial statements to be delivered to
Convertible Fund in connection with the Reorganization; (ii) any
representations or warranties made by Global Convertible in this Agreement
should prove to be false or erroneous in any material respect; (iii) any
covenant of Global Convertible has been breached in any material respect; or
(iv) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or (b) the Proxy Statement and Prospectus
delivered to the stockholders of Global Convertible and forming a part of the
N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such claim is based on written information
furnished to Global Convertible by Convertible Fund.
b. Convertible Fund hereby agrees to indemnify and hold Global
Convertible harmless from all loss, liability and expenses (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which Global Convertible may incur or sustain by reason of the fact
that (i) any representations or warranties made by Convertible Fund in this
Agreement should prove false or erroneous in any material respect, (ii) any
covenant of Convertible Fund has been breached in any material respect, or
(iii) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading or (b) the Proxy Statement and Prospectus
delivered to stockholders of Global Convertible and forming a part of the
N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except insofar as such claim is based on written information
furnished to Convertible Fund by Global Convertible.
c. In the event that any claim is made against Convertible Fund
in respect of which indemnity may be sought by Convertible Fund from Global
Convertible under Section 11(a) of this Agreement, or in the event that any
claim is made against Global Convertible in respect of which indemnity may be
sought by Global Convertible from Convertible Fund under Section 11(b) of
this Agreement, then the party seeking indemnification (the "Indemnified
Party"), with reasonable promptness and before payment of such claim, shall
give written notice of such claim to the other party (the "Indemnifying
Party"). If no objection as to the validity of the claim is made in writing
to the Indemnified Party by the Indemnifying Party within thirty (30) days
after the giving of notice hereunder, then the Indemnified Party may pay such
claim and shall be entitled to reimbursement therefor, pursuant to this
Agreement. If, prior to the termination of such thirty-day period, objection
in writing as to the validity of such claim is made to the Indemnified Party,
the Indemnified Party shall withhold payment thereof until the validity of
such claim is established (i) to the satisfaction of the Indemnifying Party,
or (ii) by a final determination of a court of competent jurisdiction,
whereupon the Indemnified Party may pay such claim and shall be entitled to
reimbursement thereof, pursuant to this Agreement, or (iii) with respect to
any tax claims, within seven (7) calendar days following the earlier of (A)
an agreement between Global Convertible and Convertible Fund that an
indemnity amount is payable, (B) an assessment of a tax by a taxing
authority, or (c) a "determination" as defined in Section 1313(a) of the
Code. For purposes of this Section 11, the term "assessment" shall have the
same meaning as used in Chapter 63 of the Code and Treasury Regulations
thereunder, or any comparable provision under the laws of the appropriate
taxing authority. In the event of any objection by the Indemnifying Party,
the Indemnifying Party promptly shall investigate the claim, and if it is not
satisfied with the validity thereof, the Indemnifying Party shall conduct the
defense against such claim. All costs and expenses incurred by the
Indemnifying Party in connection with such investigation and defense of such
claim shall be borne by it. These indemnification provisions are in addition
to, and not in limitation of, any other rights the parties may have under
applicable law.
12. Other Matters.
-------------
a. Pursuant to Rule 145 under the 1933 Act, and in connection
with the issuance of any shares to any person who at the time of the
Reorganization is, to its knowledge, an affiliate of a party to the
Reorganization pursuant to Rule 145(c), Convertible Fund will cause to be
affixed upon the certificate(s) issued to such person (if any) a legend as
follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO MERRILL LYNCH CONVERTIBLE FUND, INC. (OR
ITS STATUTORY SUCCESSOR) OR ITS PRINCIPAL UNDERWRITER UNLESS
(I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION
IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Convertible
Fund's transfer agent with respect to such shares. Global Convertible will
provide Convertible Fund on the Exchange Date with the name of any Global
Convertible stockholder who is to the knowledge of Global Convertible an
affiliate of it on such date.
b. All covenants, agreements, representations and warranties made
under this Agreement and any certificates delivered pursuant to this
Agreement shall be deemed to have been material and relied upon by each of
the parties, notwithstanding any investigation made by them or on their
behalf.
c. Any notice, report or demand required or permitted by any
provision of this Agreement shall be in writing and shall be made by hand
delivery, prepaid certified mail or overnight service, addressed to Global
Convertible or Convertible Fund, in either case at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, Attn: Arthur Zeikel, President.
d. This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes
the only understanding with respect to the Reorganization, may not be changed
except by a letter of agreement signed by each party and shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said state.
e. Copies of the Articles of Incorporation, as amended, of Global
Convertible and Convertible Fund are on file with the Department of
Assessments and Taxation of the State of Maryland and notice is hereby given
that this instrument is executed on behalf of the Directors of each fund.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC.
By:_______________________________________
Attest:
______________________________
MERRILL LYNCH CONVERTIBLE FUND, INC.
By:_________________________________________
Attest:
______________________________
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
MERRILL LYNCH CONVERTIBLE FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Proxy Statement and Prospectus of Merrill
Lynch Global Convertible Fund, Inc. ("Global Convertible") and Merrill Lynch
Convertible Fund, Inc. ("Convertible Fund") dated December 5, 1997 (the
"Proxy Statement and Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling
Convertible Fund at 1-800-456-4587, ext. 123, or by writing to Convertible
Fund at the above address. This Statement of Additional Information has been
incorporated by reference into the Proxy Statement and Prospectus.
Further information about Convertible Fund is contained in and
incorporated by reference to its Prospectus, dated August 4, 1997, and its
Statement of Additional Information, dated August 4, 1997, which are
incorporated by reference into this Statement of Additional Information.
Convertible Fund's Statement of Additional Information accompanies this
Statement of Additional Information.
Further information about Global Convertible is contained in and
incorporated by reference to its Prospectus, dated February 24, 1997, and its
Statement of Additional Information, dated February 24, 1997, which are
incorporated by reference into this Statement of Additional Information.
Global Convertible's Statement of Additional Information accompanies this
Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains
the prospectus and statement of additional information of each of Global
Convertible and Convertible Fund, other material incorporated by reference
and other information regarding Global Convertible and Convertible Fund.
The date of this Statement of Additional Information is December 5,
1997
TABLE OF CONTENTS
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pro Forma Combined Schedule of Investments for Convertible Fund
and Global Convertible as of October 31, 1997 (unaudited) . . . . F-1
Pro Forma Combined Statement of Assets and Liabilities for Convertible
Fund and Global Convertible as of October 31, 1997 (unaudited) . .F-10
Pro Forma Combined Statement of Operations for Convertible Fund and
Global Convertible as of October 31, 1997 (unaudited) . . . . . .F-12
GENERAL INFORMATION
The stockholders of Merrill Lynch Global Convertible Fund, Inc. ("Global
Convertible") are being asked to approve the acquisition of substantially all
of the assets of Global Convertible, and the assumption of substantially all
of the liabilities of Global Convertible by Merrill Lynch Convertible Fund,
Inc. (the "Convertible Fund"), in exchange solely for an equal aggregate
value of shares of Convertible Fund (the "Reorganization"). Convertible Fund
is an open-end management investment company organized as a Maryland
corporation. A Special Meeting of Stockholders of Global Convertible to
consider the Reorganization will be held at 800 Scudders Mill Road,
Plainsboro, New Jersey, on Wednesday, February 11, 1998, at 9:00 a.m., New
York time.
For detailed information about the Reorganization, stockholders of
Global Convertible should refer to the Proxy Statement and Prospectus. For
further information about Convertible Fund, Global Convertible stockholders
should refer to Convertible Fund's Statement of Additional Information, dated
August 4, 1997, which accompanies this Statement of Additional Information
and is incorporated by reference herein. For further information about
Global Convertible, stockholders should refer to Global Convertible's
Statement of Additional Information, dated February 24, 1997 (the "Global
Convertible Statement"), which accompanies this Statement of Additional
Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
CONVERTIBLE FUND
Audited financial statements and accompanying notes for the fiscal
period January 1, 1997 through August 31, 1997, and the independent auditors'
report thereon, dated October 15, 1997, of Convertible Fund are incorporated
by reference from the Convertible Fund Annual Report to Shareholders for
the fiscal year ended August 31, 1997.
GLOBAL CONVERTIBLE
Audited financial statements and accompanying notes for the fiscal year
ended October 31, 1997, and the independent auditor's report thereon, dated
December , 1997, of Global Convertible are incorporated by reference from
the Global Convertible Annual Report to Shareholders for the fiscal year ended
October 31, 1997.
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS FOR
MERRILL LYNCH CONVERTIBLE FUND, INC. AND
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
OCTOBER 31, 1997
(UNAUDITED)
Bond Counsel
<TABLE>
<CAPTION>
SHARES CONVERTIBLE GLOBAL PRO FORMA FOR
NORTH AMERICA INDUSTRIES HELD COMMON STOCKS & WARRANTS FUND+ CONVERTIBLE+ COMBINED FUND+
<S> <C> <C> <C> <C> <C> <C>
United States Building & Construction 20,000 Toll Brothers Inc. $442,500 - $442,500
Drug Distribution 27,400 Bindley Western Industries 770,625 - 770,625
Inc.
Environmental 16,918 Allied Waste Industries, 342,589 - 342,589
Inc.
Financial Services 34,375 Nal Acceptance Corp.
(Warrants)(a)++ 9,797 - 9,797
Food & Beverage 25,000 RJR Nabisco, Inc. 792,188 - 792,188
Food/Beverage/Tobacco/ 20,000 ConAgra Inc. - 602,500 602,500
Household
Funeral Services 20,000 Service Corporation 608,750 - 608,750
International
Metal Fabricating 15,479 Trinity Industries Leasing 692,685 - 692,685
Co.
Paper 17,700 Boise Cascade Corporation 612,863 - 612,863
Pharmaceuticals 3,273 Crescendo Pharmaceuticals 24,547 12,274 36,821
Corp.(c)
Retail Stores 22,500 Home Depot, Inc. - 1,251,562 1,251,562
Semiconductors 75,800 Cypress Semiconductor 852,750 - 852,750
60,000 Corporation(c) 690,000 - 690,000
Integrated Device
Technology, Inc.(c)
1,542,750 - 1,542,750
Steel 44,829 AK Steel Holding Corp. 1,888,422 - 1,888,422
TOTAL COMMON STOCKS AND WARRANTS IN THE UNITED STATES 7,727,716 1,866,336 9,594,052
FACE CONVERTIBLE GLOBAL PRO FORMA FOR
North America INDUSTRIES AMOUNT CONVERTIBLE BONDS FUND+ CONVERTIBLE+ COMBINED FUND+
Canada Metals & Mining US$ 2,200,000 Inco, Limited, 5.75% due 1,526,250 712,250 2,238,500
7/01/2004
900,000 Magna International Inc.,
1,009,441 - 1,009,441
7.25% due 7/05/2005
Total Convertible Bonds in 2,535,691 712,250 3,247,941
Canada
North America FACE CONVERTIBLE GLOBAL PRO FORMA FOR
(continued) INDUSTRIES AMOUNT CONVERTIBLE BONDS FUND+ CONVERTIBLE+ COMBINED FUND+
United States Assisted Living 1,600,000 Assisted Living Concepts,
Inc. 6% due 11/01/2002 1,430,000 330,000 1,760,000
Automotive Parts 2,000,000 Mascotech, Inc. 4.50% due
12/15/2003 1,775,000 - 1,775,000
Pep Boys-Manny, Moe & Jack
(The):
4,000,000 4% due 9/15/1999 2,468,750 1,481,250 3,950,000
1,500,000 4.089% due 9/20/2011 789,375 789,375
Tower Automotive, 5% due
750,000 8/01/2004(b) 783,750 - 783,750
5,816,875 1,481,250 7,298,125
Conglomerates Polyphase Corporation+:
1,000,000 12% due 12/01/1997(b) 270,000 - 270,000
2,000,000 12% due 7/01/1999++ 540,000 - 540,000
1,500,000 Thermo Electron
Corporation, 4.25% due 1,689,375 - 1,689,375
1/01/2003
2,499,375 - 2,499,375
Dental Supplies 550,000 Phoenix Shannon PLC, 9.50%
due 11/01/2000(b) 165,000 - 165,000
Environmental 1,605,000 Thermo Ecotek Corp.,
4.875% due 4/15/2004(b) 1,631,081 - 1,631,081
750,000 Thermo Fibertek Inc.,
4.50% due 7/15/2004 781,875 - 781,875
500,000 USA Waste Services, Inc.,
526,250 - 526,250
4% due 2/01/2002
2,939,206 - 2,939,206
Finance 1,000,000 Kellstorm Industries Inc.,
5.75% due 10/15/2002 988,750 - 988,750
Healthcare Services 2,000,000 Integrated Health Services
Inc., 6% due 1/01/2003 2,177,500 - 2,177,500
6,000,000 PhyCor, Inc., 4.50% due
2/15/2003 4,162,500 1,387,500 5,550,000
3,122,000 Quantum Health Resources,
Inc., 4.75% due 10/01/2000 2,965,900 - 2,965,900
1,500,000 RoTech Medical
Corporation., 5.25% due
1,503,750 - 1,503,750
6/01/2003
10,809,650 1,387,500 12,197,150
North America FACE CONVERTIBLE GLOBAL PRO FORMA FOR
(continued) INDUSTRIES AMOUNT CONVERTIBLE BONDS FUND CONVERTIBLE COMBINED FUND
United States Home Builders 1,000,000 Continental Homes Holding
(continued) Corp., 6.875% due
11/01/2002 1,346,250 - 1,346,250
Medical Supplies 1,500,000 Thermo Trex Corp., 3.25%
due 11/01/2007 700,000 802,000 1,502,000
Miscellaneous 1,000,000 Loews Corp., 3.125% due
9/15/2007 1,131,250 - 1,131,250
Pharmaceuticals 4,500,000 Alza Corporation, 5% due
5/01/2006 2,925,000 1,462,500 4,387,500
Real Estate Investment 1,500,000 Capstone Capital Trust
Trusts Inc., 6.55% due 3/14/2002 1,456,875 - 1,456,875
Restaurants 500,000 Boston Market 7.75% due
5/01/2004 377,500 - 377,500
1,425,000 Hometown Buffet Inc., 7% 1,588,875 - 1,588,875
due 12/01/2002
1,966,375 - 1,966,375
Retail Stores 3,000,000 Home Depot, Inc. (The),
3.25% due 10/01/2001+ 3,137,500 627,500 3,765,000
Retail Office Products 5,000,000 Office Depot, Inc. 4.891%
due 11/01/2008(d) 3,125,000 - 3,125,000
US Office Products Co.:
1,000,000 5.50% due 5/15/2003++ 935,000 - 935,000
1,000,000 5.50% due 5/15/2003(b) 977,500 - 977,500
5,037,500 - 5,037,500
Scientific Equipment 2,000,000 Thermo Cardiosystems Inc.,
4.75% due 5/15/2004(b) 2,020,000 - 2,020,000
1,250,000 Thermo Instrument Systems,
Inc., 4.50% due
10/15/2003(b) 1,306,250 - 1,306,250
1,000,000 Thermo Optek Corp., 5% due 1,146,250 - 1,146,250
10/15/2000(b)
4,472,500 - 4,472,500
North America FACE CONVERTIBLE GLOBAL PRO FORMA FOR
(continued) INDUSTRIES AMOUNT CONVERTIBLE BONDS FUND CONVERTIBLE COMBINED FUND
United States Semiconductors 750,000 Cypress Semiconductor
(continued) Corp., 6% due
10/01/2002(b) 656,250 - 656,250
Technology 1,000,000 Apple Computer, Inc., 6%
due 6/01/2001 883,500 - 883,500
750,000 Data General Corporation,
6% due 5/15/2004(b) 772,500 - 772,500
650,000 Premiere Technologies, 775,125 - 775,125
Inc., 5.75% due 7/01/2004+
2,431,125 - 2,431,125
Textiles 1,100,00 Fieldcrest Cannon, Inc.,
0 6% due 3/15/2012 918,500 - 918,500
Transportation 600,000 Alaska Air Group, Inc.,
6.50% due 6/15/2005 951,000 951,000
Water Treatment Systems 1,750,000 US Filter Corporation, 2,051,875 - 2,051,875
4.50% due 12/15/2001
TOTAL CONVERTIBLE BONDS IN THE UNITED STATES 52,879,856 7,041,750 59,921,606
SHARES CONVERTIBLE PREFERRED CONVERTIBLE GLOBAL PRO FORMA FOR
North America INDUSTRIES HELD STOCKS FUND CONVERTIBLE COMBINED FUND
United States Banking & Financial 10,000 Jefferson Pilot Corp.
(ACES) (into NationsBank
Corp.(e) 1,060,000 - 1,060,000
Energy 20,000 CalEnergy Capital Trust
II, 6.25%(b) 1,017,500 - 1,017,500
Health Care 50,000 Medpartners Inc. 1,212,500 - 1,212,500
Insurance 10,000 American General Corp.,
Pfd. - 665,000 665,000
15,000 St. Paul Companies, Inc., - 1,050,000 1,050,000
Pfd.
- 1,715,000 1,715,000
Metals & Mining 30,000 USX Capital Trust I Pfd. 1,425,000 1,425,000
Minerals 43,150 Cyprus Amax Minerals Co.,
$4.00, Series A 2,297,738 2,297,738
North America FACE CONVERTIBLE GLOBAL PRO FORMA FOR
(concluded) Industries AMOUNT CONVERTIBLE PREFERRED STOCKS FUND+ CONVERTIBLE+ COMBINED FUND+
United States Oil & Gas Producers 27,000 Lomak Petroleum, Inc., 1,000,000 - 1,010,000
(concluded) $5.75 Pfd.
10,000 Occidental Petroleum - 940,000 940,000
Corp., Pfd., Series A
1,010,000 940,000 1,950,000
Paper 40,000 International Paper Co.,
$5.25 2,030,000 353,500 2,383,500
Precious Metals 44,200 Coeur d'Alene Mines
Corporation 693,388 - 693,388
Real Estate Investment 30,000 Public Storage Inc.,
$2.062 1,395,000 - 1,395,000
Trust 20,000 Merry Land & Investment
- 552,500 552,500
Company, Inc., Pfd.
1,395,000 552,500 1947,500
Restaurants 60,000 Wendy's International,
Inc., Series A 3,000,000 - 3,000,000
Retail 19,500 Kmart Financing I 1,110,281 - 1,110,281
Steel WHX Corporation:
40,000 Series A 1,970,000 - 1,970,000
20,000 Series B - 985,000 985,000
103,610 Worthington Industries,
1,631,858 - 1,631,858
Inc.
3,601,858 985,000 4,586,858
Transportation 10,000 CNF Transportation Inc.,
Series A 635,000 - 635,000
Utilities 50,500 Citizens Utilities Company 2,398,750 - 2,398,750
TOTAL CONVERTIBLE PREFERRED STOCKS IN THE UNITED STATES 21,462,015 5,971,000 27,433,015
TOTAL INVESTMENTS IN NORTH AMERICAN SECURITIES 84,605,278 15,591,336 100,196,614
FACE CONVERTIBLE GLOBAL PRO FORMA FOR
PACIFIC BASIN INDUSTRIES AMOUNT COMMON STOCKS FUND+ CONVERTIBLE+ COMBINED FUND+
Hong Kong Utilities-Electric 50,000 Shandong Huaneng Power - 371,875 371,875
Company Ltd. (ADR) (c)
TOTAL COMMON STOCKS IN HONG KONG - 371,875 371,875
FACE CONVERTIBLE GLOBAL PRO FORMA FOR
PACIFIC BASIN INDUSTRIES AMOUNT CONVERTIBLE BONDS FUND+ CONVERTIBLE+ COMBINED FUND+
Japan Auto & Truck Y 25,000,000 No. 2 Toyota Motor Corp.,
1.20% due 1/28/1998 - 359,371 359,371
Chemicals 50,000,000 No. 6 Sumitomo Bakelite
Co., Ltd.,1.20% due
9/29/2006 - 499,958 499,958
Electronics 50,000,000 No. 5 Matsushita Electric
Industrial Co., 1.30% due
3/29/2002 - 532,402 532,402
30,000,000 No. 2 Tokyo Electron Ltd., - 488,146 488,146
0.90% due 9/30/2003
- 1,020,548 1,020,548
Food & Beverage 14,000,000 No. 1 Sanyo Coca-Cola
Bottling, Inc., 0.90% due
6/30/2003 - 110,873 110,873
Industrial 0,000,000 No. 3 Sony Corp., 1.40%
- 454,704 454,704
due 9/30/2003
TOTAL CONVERTIBLE BONDS IN JAPAN - 2,445,454 2,445,454
TOTAL INVESTMENTS IN THE PACIFIC
BASIN - 2,817,329 2,817,329
FACE CONVERTIBLE GLOBAL PRO FORMA FOR
WESTERN EUROPE Industries AMOUNT CONVERTIBLE BONDS FUND+ CONVERTIBLE+ COMBINED FUND+
France Leisure Frf 4,200,000 Euro Disney SCA, 6.75% due
10/01/2001 - 780,572 780,572
Pharmaceuticals 7,000 Sanofi S.A. 4% due - 730,963 730,963
1/01/2000 (units)
TOTAL CONVERTIBLE BONDS IN
FRANCE - 1,511,535 1,511,535
Netherlands Insurance US$ 500,000 Aegon N.V., 4.75% due - 1,387,500 1,387,500
11/01/2004
TOTAL CONVERTIBLE BONDS IN THE
NETHERLANDS - 1,387,500 1,387,500
United Kingdom Food & Beverage L 500,000 Allied-Lyons PLC, 6.75%
due 7/07/2008 - 842,994 842,994
US$ 500,000 Grand Metropolitan PLC, - 647,500 647,500
6.50% due 1/31/2000
TOTAL CONVERTIBLE BONDS IN THE
UNITED KINGDOM - 1,490,494 1,490,494
TOTAL INVESTMENTS IN WESTERN
EUROPE - 4,389,529 4,389,529
SHORT-TERM FACE CONVERTIBLE GLOBAL PRO FORMA FOR
SECURITIES AMOUNT ISSUE FUND+ CONVERTIBLE+ COMBINED FUND+
Commercial US$ 2,117,000 General Motors Acceptance
Paper* Corp., 5.75% due
11/03/1997 1,251,400 864,724 2,116,124
3,500,000 Lexington Parker Inc., 3,497,853 - 3,497,853
5.52% due 11/04/1997
4,749,253 864,724 5,613,977
US Government US Treasury Bills:
Obligations*
750,000 4.62% due 11/06/1997 - 749,519 749,519
750,000 4.83% due 11/13/1197 - 748,793 748,793
1,400,000 4.85% due 11/13/1997 - 1,397,737 1,397,737
800,000 4.80% due 11/20/1997 - 797,973 797,973
2,500,000 4.85% due 12/04/1997 - 2,488,885 2,488,885
750,000 4.85% due 12/11/1997 - 745,958 745,958
- 6,928,865 6,928,865
TOTAL INVESTMENT IN SHORT-TERM
SECURITIES 4,749,253 7,793,589 12,542,842
Total Investments (Cost -
$113,771,565) 89,354,531 30,591,783 119,946,314
Liabilities in Excess of Other
Assets (2,528,666) (1,669,496) (4,198,162)
Net Assets $86,825,865 $28,922,287 $115,748,152
</TABLE>
+ Valued as discussed in Note 1a of Notes to Pro Forma Financial
Statements below.
(a) Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b) The security may be offered and sold to "qualified institutional
buyers" under rule 144A of the Securities Act of 1933.
(c) Non-income producing security.
(d) Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
(e) Adjustable Convertible Extendable Securities.
(f) American Depository Receipt (ADR).
* Commercial Paper and certain US Government Obligations are traded on
a discount basis; the interest rates shown are the discount rates
paid at the time of purchase by Fund.
+ Covered Short Sales entered into as of October 31, 1997
Value
Shares Issue (Notes 1a & 1h)
40,000 Home Depot, Inc. (The) (2,225,000)
5,500 Polyphase Corporation (8,250)
14,700 Premiere Technologies, Inc. (499,800)
Total (Proceeds $2,588,216) (2,733,060)
++ Restricted securities as to resale. The value of the Fund's investment in
restricted securities is approximately $1,485,000, representing 1.7% of
Convertible Fund's net assets and 1.3% of net assets of the Combined Fund.
Acquisition Value
Issue Date Cost (Note 1a)
Nal Acceptance Corp. (warrants) 9/12/1996 $ 9,797
Polyphase Corp., 12% due 7/01/1999 9/12/1996 $2,000,000 540,000
US Office Products Co., 5.50%
due 5/15/2003 842,500 935,000
Total 2,842,500 $1,484,797
PRO FORMA COMBINED STATEMENT OF ASSETS
AND LIABILITIES FOR
MERRILL LYNCH CONVERTIBLE FUND, INC. AND
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
(UNAUDITED)
The following unaudited Pro Forma Combined Statement of Assets and
Liabilities for Merrill Lynch Convertible Fund, Inc. ("Convertible Fund") and
Merrill Lynch Global Convertible Fund, Inc. ("Global Convertible") has been
derived from the Statements of Assets and Liabilities of Convertible Fund and
Global Convertible as of October 31, 1997 and such information has been
adjusted to give effect to the Reorganization as if the reorganization had
occurred on October 31, 1997. The Pro Forma Statement of Assets and
Liabilities is presented for informational purposes only and does not purport
to be indicative of the financial condition that would have resulted if the
Reorganization had been consummated on October 31, 1997. The Pro Forma
Combined Statement of Assets and Liabilities should be read in conjunction
with the financial statements and related notes from the Annual Report to
Stockholders of Convertible Fund for the period ended August 31, 1997
and from the Global Convertible audited financial statements and related
notes from the Annual Report to Shareholders of Global Convertible for the
fiscal year ended October 31, 1997.
<TABLE>
<CAPTION>
Convertible Global Pro Forma for
AS OF OCTOBER 31, 1997 Fund Cpnvertible Adjustments Combined Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS: Investments, at value* (Note 1a) . . . . . $89,354,531 $30,591,783 - $119,946,314
Cash . . . . . . . . . . . . . . . . . . . 200,346 840,687 - 1,041,033
Foreign cash (Note 1b) . . . . . . . . . . 241,801 - 241,801
Deposits on short sales (Note 1h) . . . . . 2,450,610 - - 2,450,610
Receivables:
Securities sold . . . . . . . . . . . . 1,612,200 760,125 - 2,372,325
Interest . . . . . . . . . . . . . . . . 797,251 144,790 - 942,041
Capital shares sold . . . . . . . . . . 107,003 16,375 - 123,378
Dividends . . . . . . . . . . . . . . . 37,526 1,489 - 39,015
Prepaid registration fees and other assets
(Note 1f) . . . . . . . . . . . . . . . . 59,660 40,417 - 100,077
Total assets . . . . . . . . . . . . . . . 94,619,127 32,637,467 - 127,256,594
LIABILITIES: Common stock sold short, at market value
(proceeds -- $2,588,216) (Notes 1a & 1h) . 2,733,050 - - 2,733,050
Payables:
Securities purchased . . . . . . . . . . 3,831,150 2,209,812 - 6,040,962
Capital shares redeemed . . . . . . . . 939,980 129,346 - 1,069,326
Investment adviser (Note 2) . . . . . . 46,441 16,446 - 62,887
Distributor (Note 2) . . . . . . . . . . 6,800 18,024 - 24,824
235,841 1,341,552 - 1,577,393
Accrued expenses and other liabilities . .
7,793,262 3,715,180 - 11,508,442
Total liabilities . . . . . . . . . . . . .
NET ASSETS: Net Assets . . . . . . . . . . . . . . . . $86,825,865 $28,922,287 - $115,748,152
NET ASSETS Class A Common Stock, $0.10 par value,
CONSIST OF: 100,000,000 shares authorized . . . . . . . $605,951 $29,199 - $635,150
Class B Common Stock, $0.10 par value,
100,000,000 shares authorized . . . . . . . 51,306 149,016 - 200,322
Class C Common Stock, $0.10 par value,
100,000,000 shares authorized . . . . . . . 9,801 9,367 - 19,168
Class D Common Stock, $0.10 par value,
100,000,000 shares authorized . . . . . . . 12,100 55,764 - 67,864
Paid-in capital in excess of par . . . . . 82,009,882 21,584,498 - 103,594,380
Undistributed investment income-net . . . . 694,690 -- - 694,690
Accumulated distributions in excess of
investment income - net . . . . . . . . . . -- (48,084) - (48,084)
Undistributed realized capital gains on
investments - net . . . . . . . . . . . . . 767,700 3,788,102 - 4,555,802
Unrealized appreciation on investments - net 2,674,435 3,354,425 - 6,028,860
Net assets . . . . . . . . . . . . . . . . $86,825,865 $28,922,287 - $115,748,152
NET ASSET Class A:
VALUE: Net assets . . . . . . . . . . . . . . . $77,478,436 $3,465,875 $80,944,311
Shares outstanding . . . . . . . . . . . 6,059,510 291,989 6,328,719
Net asset value . . . . . . . . . . . . $12.79 $11.87 12.79
Class B:
Net assets . . . . . . . . . . . . . . . $6,549,530 $17,730,531 $24,280,061
Shares outstanding . . . . . . . . . . . 513,064 1,490,162 1,901,336
Net asset value . . . . . . . . . . . . $12.77 $11.90 12.77
Class C:
Net assets . . . . . . . . . . . . . . . $1,251,405 $1,112,046 $2,363,451
Shares outstanding . . . . . . . . . . . 98,006 93,671 185,078
Net asset value . . . . . . . . . . . . $12.77 $11.87 12.77
Class D:
Net assets . . . . . . . . . . . . . . . $1,546,494 $6,613,835 $8,160,329
Shares outstanding . . . . . . . . . . . 121,004 557,641 638,523
Net asset value . . . . . . . . . . . . $12.78 $11.86 12.78
*Identified cost . . . . . . . . . . . . . $86,534,684 $27,236,881 $113,771,565
See Notes to Financial Statements.
</TABLE>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS FOR
MERRILL LYNCH CONVERTIBLE FUND, INC. AND
MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
(UNAUDITED)
The following unaudited Pro Forma Combined Statement of Operations for
Convertible Fund and Global Convertible has been derived from the Statements
of Operations of Convertible Fund and Global Convertible as of October 31,
1997 and such information has been adjusted to give effect to the
Reorganization as if the reorganization had occurred on November 1, 1996.
The Pro Forma Statement of Operations is presented for informational purposes
only and does not purport to be indicative of the financial condition that
would have resulted if the Reorganization had been consummated on November 1,
1996. The Pro Forma Combined Statement of Operations should be read in
conjunction with the financial statements and related notes from the Annual
Report to Stockholders of Convertible Fund for the fiscal year ended August
31, 1997 and from the Global Convertible audited financial statements and
related notes from the Annual Report to Shareholders of Global Convertible
for the year ended October 31, 1997.
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1997 Convertible Global Pro Forma for
Fund Convertible Adjustments Combined Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT Interest and discount earned* . . . . . . . . $10,360,703 $1,585,213 - $11,945,916
INCOME Dividends** . . . . . . . . . . . . . . . . . 3,882,778 637,281 - 4,520,059
(NOTES 1D & Total income . . . . . . . . . . . . . . . . 14,243,481 2,222,494 - 16,465,975
1E):
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES: Investment advisory fees (Note 2) . . . . . 1,503,127 301,179 - 1,804,306
Account maintenance and distribution fees-
Class B (Note 2) . . . . . . . . . . . . . 11,957 267,689 - 279,646
Dividends on securities sold short . . . . . 191,197 - - 191,197
Accounting services (Note 2) . . . . . . . . 86,408 69,859 - 156,267
Printing and shareholder reports . . . . . . 65,588 90,433 - 156,021
Transfer agent fees-Class A (Note 2) . . . . 104,458 36,491 - 140,949
Professional fees . . . . . . . . . . . . . . 68,112 65,021 - 133,133
Transfer agent fees-Class B (Note 2) . . . . 2,287 114,858 - 117,145
Directors' fees and expenses . . . . . . . . 49,450 45,388 - 94,838
Registration fees (Note 1f) . . . . . . . . . 11,099 67,344 - 78,443
Custodian fees . . . . . . . . . . . . . . . 25,897 15,132 - 41,029
Listing fees . . . . . . . . . . . . . . . . 35,610 - - 35,610
Interest on securities sold short . . . . . . 33,136 - - 33,136
Transfer agent fees-Class D (Note 2) . . . . 510 28,456 - 28,966
Amortization of organization expenses
(Note 1f) . . . . . . . . . . . . . . . . . 27,827 - - 27,827
Account maintenance and distribution fees-
Class C (Note 2) . . . . . . . . . . . . . . 2,211 24,342 - 26,553
Account maintenance fees-Class D (Note 2) . . 702 18,545 - 19,247
Pricing fees . . . . . . . . . . . . . . . . 2,769 9,942 - 12,711
Transfer agent fees-Class C (Note 2) . . . . 433 11,193 - 11,626
Other . . . . . . . . . . . . . . . . . . . . 17,805 4,519 - 22,324
Total expenses . . . . . . . . . . . . . . . 2,240,583 1,170,391 - 3,410,974
Investment income-net . . . . . . . . . . . . 12,002,898 1,052,103 - 13,055,001
REALIZED & Realized gain (loss) from:
UNREALIZED Investments-net . . . . . . . . . . . . . 58,362,184 4,313,181 - 62,675,365
GAIN Foreign currency transactions-net . . . . (101,691) (961,097) - (1,062,788)
(LOSS) ON Income taxes on realized gain on
INVESTMENTS investments . . . . . . . . . . . . . . (4,841,320) - - (4,841,320)
AND FOREIGN Total realized gain . . . . . . . . . . . . 53,419,173 3,352,084 - 56,771,257
CURRENCY Change in unrealized appreciation/
TRANSACTIONS- depreciation on:
NET Investments-net . . . . . . . . . . . . . (25,748,374) 3,226,474 - (22,521,900)
(NOTES 1B, 1C Foreign currency transactions-net . . . . (2,875) (63,442) - (66,317)
1E &3): Total change in unrealized
appreciation/depreciation . . . . . . . . . (25,751,249) 3,163,032 - (22,588,217)
Net realized and unrealized gain
on investments and foreign
currency transactions . . . . . . . . . . . 27,667,924 6,515,116 - 34,183,040
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . . $39,670,822 $7,567,219 - $47,238,041
* Net foreign withholding tax on interest . . - $6,762 - -
**Net foreign withholding tax on dividends . - $963 - -
See Notes to Financial Statements
</TABLE>
MERRILL LYNCH CONVERTIBLE FUND, INC.
AND MERRILL LYNCH GLOBAL CONVERTIBLE FUND, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
Merrill Lynch Convertible Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company. The Fund offers four classes of shares under the Merrill
Lynch Select Pricing /sm/ System. Shares of Class A and Class D are sold
with a front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed by the
Fund.
(a) Valuation of investments - Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market are valued at the last
available bid price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors
as the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the broadest
and most representative market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options
purchased are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price. Short-term securities are valued at amortized cost, which
approximates market value. Other investments, including futures contracts
and related options, are stated at market value. Securities and assets for
which market value quotations are not available are valued at their fair
value as determined in good faith by or under the direction of the Fund's
Board of Directors.
(b) Foreign currency transactions - Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized.
Assets and liabilities denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency transactions are
the result of settling (realized) or valuing (unrealized) assets or
liabilities expressed in foreign currencies into US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
(c) Derivative financial instruments - The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the equity, debt and currency markets. Losses
may arise due to changes in the value of the contract or if the counterparty
does not perform under the contract.
- - Forward foreign exchange contracts - The Fund is authorized to enter into
forward foreign exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are not entered on
the Fund's records. However, the effect on operations is recorded from
the date the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
- - Foreign currency options and futures - The Fund may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency
futures and related options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges on non-US dollar
denominated securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
- - Financial futures contracts - The Fund may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
- - Options - The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect
the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Income taxes - It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income - Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently
recorded when the Fund has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Prepaid registration fees - Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions - Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates. Distributions in excess of net
investment income are due primarily to differing tax treatments for foreign
currency transactions.
(h) Short Sales - When the Fund engages in a short sale, an amount equal to
the proceeds received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the market value of the short sale. The Fund maintains a segregated
account of securities as collateral for the short sales. The Fund is exposed
to market risk based on the amount, if any, that the marked value of the
stock exceeds the market value of the securities in the segregated account.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into a Management Agreement with Merrill Lynch Asset
Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch
& Co., Inc. ("ML&Co."), which is the limited partner. The Fund has also
entered into Distribution Agreements and Distribution Plans with Merrill
Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at the annual rate of 0.60% of the average daily value of the
Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the average daily
net assets of the shares as follows:
<TABLE>
<CAPTION>
Account Maintenance Fee Distribution Fee
<S> <C> <C>
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith, Incorporated ("MLPF&S"), a subsidiary of ML & Co., also
provides account maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the Distributor and MLPF&S for
providing account maintenance services to Class B, Class C and Class D
shareholders. The ongoing distribution fee compensates the Distributor and
MLPF&S for providing shareholder and distribution-related services to Class B
and Class C shareholders.
For the twelve months ended October 31, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the combined
Fund's Class A and Class D shares as follows:
<TABLE>
<CAPTION>
Merrill Lynch Convertible Fund, Inc. Merrill Lynch Global Convertible Fund, Inc.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
MLFD $5,628 $42
MLPF&S $5,893 $519
Class D:
MLFD $2,858 $395
MLPF&S $34,333 $5,780
</TABLE>
For the twelve months ended October 31, 1997, MLPF&S received contingent
deferred sales charges relating to transactions in Class B and Class C Shares
as follows:
<TABLE>
<CAPTION>
Merrill Lynch Convertible Fund, Inc. Merrill Lynch Global Convertible Fund, Inc.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class B: $22,602 $209,470
Class C: $2,269 $1,308
</TABLE>
During the twelve months ended October 31, 1997, the combined Funds paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, $663 and $59
for security price quotations to compute the net asset value of Merrill Lynch
Convertible Fund, Inc. and Merrill Lynch Global Convertible Fund, Inc.,
respectively.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officer and/or directors of
MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Reference is made to Article V of Registrant's Amended and Restated
Articles of Incorporation, Article VI of Registrant's By-Laws, Section 2-418
of the Maryland General Corporation Law and Section 9 of the Class A, Class
B, Class C and Class D Distribution Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent
permitted under the General Laws of the State of Maryland, except that such
indemnity shall not protect any such person against any liability to the
Registrant or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Registrant to
indemnify such person must be based upon the reasonable determination of
independent counsel or non-party independent directors, after review of the
facts, that such officer or director is not guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to
the Registrant a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Registrant for his undertaking; (b) the
Registrant is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Registrant at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his or her activities as an
officer or director of the Registrant. The Registrant, however, may not
purchase insurance on behalf of any officer or director of the Registrant
that protects or purports to protect such person from liability to the
Registrant or to its stockholders to which such officer or director would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
his or her office.
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or
agent who is not an officer or director of the Registrant.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933 (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 Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 Director,
officer, or controlling person of the Registrant and the principal
underwriter in connection with the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person or
the principal underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 16. EXHIBITS.
(1)(a) -- Form of Amended and Restated Articles of Incorporation of the
Registrant.(a)
(1)(b) -- Form of Articles Supplementary to Amended and Restated
Articles of Incorporation of the Registrant.(a)
(2) -- By-Laws of the Registrant, as amended.(a)
(3) -- Not applicable.
(4) -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Global Convertible Fund, Inc.(b)
(5) -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation, as amended and restated, and the By-Laws, as
amended, of the Registrant.(c)
(6)(a) -- Form of Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P. ("MLAM").(d)
(6)(b) -- Form of Sub-Advisory Agreement between MLAM and Merrill Lynch
Asset Management U.K. Limited.(d)
(7)(a) -- Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).(d)
(7)(b) -- Form of Class B Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc.(including
Form of Selected Dealers Agreement).(d)
(7)(c) -- Form of Class C Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).(d)
(7)(d) -- Form of Class D Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(including Form of Selected Dealers Agreement).(d)
(8) -- None.
(9) -- Custodian Agreement between the Registrant and
(10)(a) -- Form of Class B Shares Distribution Plan of the Registrant
(including Class B Shares Distribution Plan Sub-Agreement).(d)
(10)(b) -- Form of Class C Shares Distribution Plan of the Registrant
(including Class C Shares Distribution Plan Sub-Agreement).(d)
(10)(c) -- Form of Class D Shares Distribution Plan of the Registrant
(including Class D Shares Distribution Plan Sub-Agreement).(d)
(10)(d) - Merrill Lynch Select Pricing(Service Mark) System Plan
pursuant to Rule 18f-3.(e)
(11) -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.(f)
(12) -- Private Letter Ruling from the Internal Revenue Service.(f)
(13) -- Not applicable.
(14)(a) -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.(f)
(14)(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Global Convertible Fund, Inc.(f)
(15) -- Not applicable.
(16) -- Power of Attorney (Included on the signature page of this
Registration Statement).
(17)(a) -- Declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 of the Registrant (incorporated by
reference to Registrant's Registration Statement on Form N-1A,
filed June 6, 1997).
(17)(b) -- Prospectus dated December __, 1997, and Statement of
Additional Information dated December __, 1997, of the
Registrant.
(17)(c) -- Prospectus dated February 24, 1997, and Statement of
Additional Information dated February 24, 1997, of Merrill
Lynch Global Convertible Fund, Inc.(f)
_______________
(a) Filed on August 4, 1997, as an Exhibit to Pre-Effective Amendment No.
1 to the Registrant's Registration Statement on Form N-1A (File No.
333-28619) under the Securities Act of 1933 (the "Registration
Statement").
(b) Included in Exhibit I to the Proxy Statement Prospectus contained in
this Registration Statement.
(c) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII
and IX of the Registrant's Amended and Restated Articles of
Incorporation, as supplemented, filed as Exhibits 1(a) and 1(b) to
the Registration Statement; and to Articles II, III (Sections 1, 3, 5
and 6), VI, VII, XIII and XIV of the Registrant's By-Laws, as
amended, filed as Exhibit 2 to the Registration Statement.
(d) Filed on June 6, 1997, as an Exhibit 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 shares of Merrill Lynch New York Municipal Bond Fund
series of Merrill Lynch Multi-State Municipal Series Trust (File No.
2-99473).
(f) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering
of securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, a
copy of the Internal Revenue Service private letter ruling applied for,
within a reasonable time after receipt of such ruling.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and
State of New Jersey, on the 4th day of December, 1997.
MERRILL LYNCH CONVERTIBLE FUND, INC.
(Registrant)
/S/ ARTHUR ZEIKEL
---------------------------------------------
(Arthur Zeikel, President)
Each person whose signature appears below hereby authorizes Arthur Zeikel,
Terry K. Glenn and Gerald M. Richard, or any of them, as attorney-in-fact, to
sign on his or her behalf, individually and in each capacity stated below,
any amendments to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
------------ -------- -------
<S> <C> <C>
/S/ ARTHUR ZEIKEL President (Principal Executive December 4, 1997
--------------------------
(Arthur Zeikel) Officer) and Director
/S/ GERALD M. RICHARD Treasurer (Principal Financial December 4, 1997
--------------------------
(Gerald M. Richard) and Accounting Officer)
/S/ JAMES H. BODURTHA Director December 4, 1997
--------------------------
(James H. Bodurtha)
/S/ HERBERT I. LONDON Director December 4, 1997
--------------------------
(Herbert I. London)
/S/ ROBERT R. MARTIN Director December 4, 1997
--------------------------
(Robert R. Martin)
/S/ JOSEPH L. MAY Director December 4, 1997
--------------------------
(Joseph L. May)
/S/ ANDR F. PEROLD Director December 4, 1997
--------------------------
(Andr F. Perold)
</TABLE>
