<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
SECURITIES ACT FILE NO. 33-6091
INVESTMENT COMPANY ACT FILE NO. 811-4684
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
<TABLE>
<C> <S>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 18 /X/
(Check appropriate box or boxes)
</TABLE>
------------------------
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
(Exact Name of Registrant as Specified in Charter)
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code: (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Counsel for the Trust:
BROWN & WOOD LLP Michael J. Hennewinkel, Esq.
One World Trade Center MERRILL LYNCH ASSET MANAGEMENT
New York, New York 10048-0557 P.O. Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, New Jersey 08543-9011
John A. MacKinnon, Esq.
</TABLE>
------------------------
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
------------------------
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest, par value
$.10 per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION [LOGO]
PRELIMINARY PROSPECTUS DATED FEBRUARY 26, 1999
Merrill Lynch Global Bond Fund for
Investment and Retirement
_April __, 1999
This Prospectus contains information you should know
before investing, including information about risks.
Please read it before you invest and keep it for
future reference.
The Securities and Exchange Commission has not
approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
PAGE
[ICON] KEY FACTS
------------------------------------------------------
The Merrill Lynch Global Bond Fund at a Glance ..... 3
Risk/Return Bar Chart .............................. 4
Fees and Expenses .................................. 5
[ICON] DETAILS ABOUT THE FUND
------------------------------------------------------
How the Fund Invests ............................... 7
Investment Risks ................................... 9
[ICON] YOUR ACCOUNT
------------------------------------------------------
Merrill Lynch Select Pricing-SM- System ........... 16
How to Buy, Sell, Transfer and Exchange Shares .... 21
Participation in Merrill Lynch Fee-Based
Programs .......................................... 25
[ICON] MANAGEMENT OF THE FUND
------------------------------------------------------
Merrill Lynch Asset Management .................... 27
Financial Highlights .............................. 28
[ICON] FOR MORE INFORMATION
------------------------------------------------------
Shareholder Reports ....................... Back Cover
Statement of Additional Information ....... Back Cover
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
<PAGE>
[ICON]
In an effort to help you better understand the many concepts involved in making
an investment decision, we have defined highlighted terms in this prospectus in
the sidebar.
TOTAL INVESTMENT RETURN -- the combination of capital appreciation and
investment income.
INVESTMENT GRADE -- any of the four highest debt obligation ratings by
recognized rating agencies, including Moody's Investors Service, Inc., Standard
& Poor's or Fitch IBCA, Inc.
THE MERRILL LYNCH GLOBAL BOND FUND AT A GLANCE
--------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek a high
TOTAL INVESTMENT RETURN by investing in a global
portfolio of debt instruments denominated in
various currencies and multinational currency
units.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a global portfolio of
INVESTMENT GRADE debt instruments denominated in
various currencies, including multinational
currency units. Normally, the Fund's investments
will be denominated in at least three currencies.
The Fund expects to invest mainly in obligations
denominated in the currencies of the U.S., Japan,
Canada, Western European nations (including the
euro), New Zealand and Australia.
The Fund ordinarily will invest without regard to
the tax impact of distributions to shareholders.
The Fund may buy securities of all maturities
issued by governments, corporations and certain
international organizations. The Fund may seek to
hedge against movements in interest rates and
currency valuations through the use of options,
futures and foreign currency transactions.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
As with any fund, the value of the Fund's
investments -- and therefore the value of the
Fund's shares -- may go up or down. These changes
may occur because particular bond markets are
rising or falling. At other times, there are
specific factors that may affect the value of a
particular investment. If the value of the Fund's
investments goes down, you may lose money.
The Fund may invest most of its assets in non-U.S.
securities. Foreign investing involves special
risks, including foreign currency risk and the
possibility of substantial volatility due to
adverse political, economic or other developments.
Foreign securities may be less liquid and harder
to value than U.S. securities.
The Fund is a non-diversified fund, which means
that it may invest more of its assets in fewer
securities than if it were a diversified fund. By
concentrating in a smaller number of investments,
the Fund's risk is increased because each
investment has a greater effect on the Fund's
performance.
WHO SHOULD INVEST?
The Fund may be an appropriate investment for you
if you:
- are investing for long term goals, such
as retirement or funding a child's
education
- want a professionally managed portfolio
- are looking for exposure to a variety of
fixed income markets around the world
- are willing to receive taxable
distributions of income and capital
gains
- are willing to accept the risks of
foreign investing in order to seek
potentially higher long term returns
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 3
<PAGE>
[ICON]
RISK/RETURN BAR CHART
--------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund's performance of
Class B shares for the past ten calendar years. Sales charges are not reflected
in the bar chart. If these amounts were reflected, returns would be less than
those shown. The table compares the average annual total returns for each class
of the Fund's shares for the periods shown with those of the JP Morgan Global
Government Bond Index. How the Fund performed in the past is not necessarily an
indication of how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
6.45% 14.76% 15.23% 6.91% 12.36% -6.01% 12.52% 5.60% 0.41% 11.13%
</TABLE>
During the ten year period shown in the bar chart, the highest return for a
quarter was 9.57% (quarter ended September 30, 1991) and the lowest return for a
quarter was -4.82% (quarter ended March 31, 1997).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE CALENDAR YEAR ENDED PAST PAST PAST TEN YEARS/
DECEMBER 31, 1998) ONE YEAR FIVE YEARS SINCE INCEPTION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Merrill Lynch Global Bond Fund* --
Class A 7.51% 4.45% 8.13%
JP Morgan Global Government Bond
Index** 15.31% 8.08% 9.08%
- ----------------------------------------------------------------------------
Merrill Lynch Global Bond Fund* --
Class B 7.13% 4.50% 7.74%
JP Morgan Global Government Bond
Index** 15.31% 8.08% 9.08%
- ----------------------------------------------------------------------------
Merrill Lynch Global Bond Fund* --
Class C 10.07% N/A 6.44%+
JP Morgan Global Government Bond
Index** 15.31% N/A 9.06%
- ----------------------------------------------------------------------------
Merrill Lynch Global Bond Fund* --
Class D 7.36% N/A 6.04%+
JP Morgan Global Government Bond
Index** 15.31% N/A 9.06%
- ----------------------------------------------------------------------------
</TABLE>
* Includes sales charge.
** This unmanaged Index is comprised of government bonds in the 13 largest
bond markets, including the United States. Past performance is not
predictive of future performance.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
4 RETIREMENT
<PAGE>
<TABLE>
<C> <S>
+ Inception date is October 21, 1994.
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 5
<PAGE>
[ICON]
UNDERSTANDING
EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds may
charge:
EXPENSES PAID DIRECTLY BY THE SHAREHOLDER:
SHAREHOLDER FEES -- these include sales charges which you may pay when you buy
or sell shares of the Fund.
EXPENSES PAID INDIRECTLY BY THE SHAREHOLDER:
ANNUAL FUND OPERATING EXPENSES -- expenses that cover the costs of operating the
Fund.
MANAGEMENT FEE -- a fee paid to the Investment Adviser for managing the Fund.
DISTRIBUTION FEES -- fees used to support the Fund's marketing and distribution
efforts, such as compensating Financial Consultants, advertising and promotion.
SERVICE (ACCOUNT MAINTENANCE) FEES -- fees used to compensate securities dealers
for account maintenance activities.
FEES AND EXPENSES
--------------------------------------------------
The Fund offers four different classes of shares. Although your money will be
invested the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not everyone
is eligible to buy every class. After determining which classes you are eligible
to buy, decide which class best suits your needs. Your Merrill Lynch Financial
Consultant can help you with this decision.
This table shows the different fees and expenses that you may pay if you buy and
hold the different classes of shares of the Fund. Future expenses may be greater
or less than those indicated below.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID CLASS
DIRECTLY FROM YOUR INVESTMENT) CLASS A B(a) CLASS C CLASS D
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed on purchases (as a
percentage of offering price) 4.00%(b) None None 4.00%(b)
- ----------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, whichever
is lower) None(c) 4.00%(b) 1.00%(b) None(c)
- ----------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed on Dividend
Reinvestments None None None None
- ----------------------------------------------------------------------------------------------------
Redemption Fee None None None None
- ----------------------------------------------------------------------------------------------------
Exchange Fee None None None None
- ----------------------------------------------------------------------------------------------------
Maximum Account Fee None None None None
- ----------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
- ----------------------------------------------------------------------------------------------------
Management Fee 0.60% 0.60% 0.60% 0.60%
- ----------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees(d) None 0.75% 0.80% 0.25%
- ----------------------------------------------------------------------------------------------------
Other Expenses (including transfer agency fees)(e) 0.32% 0.36% 0.35% 0.32%
- ----------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(f) 0.92% 1.71% 1.75% 1.17%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Class B shares automatically convert to Class D shares about ten years
after you buy them and will no longer be subject to distribution fees.
(b) Some investors may qualify for reductions in the sales charge (load).
(c) You may pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
(d) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long
time, it may cost you more in distribution (12b-1) fees than the maximum
sales charge that you would have paid if you had bought one of the other
classes.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
6 RETIREMENT
<PAGE>
<TABLE>
<C> <S>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(e) The Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent's out-of-pocket expenses. The
Fund pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the account
is closed and ends at the end of the calendar year. For the fiscal year
ended December 31, 1998, the Fund paid the Transfer Agent fees totaling
$294,434. The Investment Adviser provides accounting services to the Fund
at its cost. For the fiscal year ended December 31, 1998, the Fund
reimbursed the Investment Adviser $117,106 for these services.
(f) In addition, Merrill Lynch may charge clients a processing fee (currently
$5.35) when a client buys or redeems shares.
</TABLE>
EXAMPLES:
These examples are intended to help you compare
the cost of investing in the Fund with the cost of
investing in other mutual funds.
These examples assume that you invest $10,000 in
the Fund for the time periods indicated, that your
investment has a 5% return each year, that you pay
the sales charges, if any, that apply to the
particular class and that the Fund's operating
expenses remain the same. This assumption is not
meant to indicate you will receive a 5% annual
rate of return. Your annual return may be more or
less than the 5% used in this example. Although
your actual costs may be higher or lower, based on
these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
---
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Class A $490 $682 $ 889 $1,486
- ----------------------------------------------------------
Class B $574 $739 $ 928 $2,019
- ----------------------------------------------------------
Class C $278 $551 $ 949 $2,062
- ----------------------------------------------------------
Class D $514 $757 $1,018 $1,764
- ----------------------------------------------------------
</TABLE>
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
--- ---
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
Class A $490 $682 $ 889 $1,486
- ----------------------------------------------------------
Class B $174 $539 $ 928 $2,019
- ----------------------------------------------------------
Class C $178 $551 $ 949 $2,062
- ----------------------------------------------------------
Class D $514 $757 $1,018 $1,764
- ----------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 7
<PAGE>
DETAILS ABOUT THE FUND [ICON]
ABOUT THE
PORTFOLIO MANAGER
Harry J. Escobar is the Fund's Portfolio Manager. Mr. Escobar has been a
Director (Global Fixed Income) of MLAM since August 1998. Previously, he was a
Senior Vice President in the Fixed Income group at Lehman Brothers, Inc. from
1991 to 1998.
ABOUT THE
INVESTMENT ADVISER
The Fund is managed by Merrill Lynch Asset Management.
HOW THE FUND INVESTS
--------------------------------------------------
The Fund will invest in U.S. and foreign debt
instruments denominated in various currencies and
multinational currency units. The Fund presently
expects that it will mainly invest in securities
denominated in the currencies of the United
States, Japan, Canada, Western European nations
(including the euro), New Zealand and Australia.
Normally the Fund's investments will be
denominated in at least three currencies.
The Fund may invest in debt obligations issued or
guaranteed by U.S. or foreign corporations and
financial institutions, or by U.S. or foreign
governments or their agencies. The Fund also may
invest in debt obligations issued or guaranteed by
international organizations designated or
supported by more than one government to promote
economic reconstruction or development. Examples
of these international organizations include the
International Bank for Reconstruction and
Development (the World Bank), the European Coal
and Steel Community, the Asian Development Bank
and the Inter-American Development Bank.
In terms of creditworthiness, under normal
conditions all of the Fund's investments will fall
into one of the following categories:
- obligations issued or guaranteed by the
U.S. Government, its agencies or
instrumentalities;
- obligations with a credit rating of A
or better by Standard and Poor's
("S&P") or by Moody's Investors
Service, Inc. ("Moody's");
- commercial paper rated A-1 by S&P or
Prime-1 by Moody's; or
- unrated obligations that the Fund's
Investment Adviser believes are similar
in quality to those meeting the
standards described above.
The average maturity of the Fund's portfolio
securities will vary based upon the Investment
Adviser's opinion of economic and market
conditions. However, the Fund does not expect the
average maturity of its portfolio to be more than
ten years. As with all debt securities, changes in
market yields will affect the value of the Fund's
shares. This is because the prices of the Fund's
portfolio securities generally will go up when
interest rates go down and go down when interest
rates go up. In most cases, when interest rates go
up the value of fixed income securities with
longer maturities goes down
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 7
<PAGE>
[ICON] DETAILS ABOUT THE FUND
more than the value of fixed income securities
with shorter maturities. Because the Fund may
invest a large part of its assets in fixed income
securities with long maturities, rising interest
rates may cause the value of the Fund's
investments to decline significantly.
Fund management will seek investments for the Fund
with the potential for high total return. When
selecting investments, Fund management will
consider the current yield of a security; the
likelihood that the currency in which the security
is denominated will appreciate or depreciate
versus the U.S. dollar; and the likelihood that
interest rates in that currency will change. The
Fund may invest in securities with relatively high
current yields but little potential for capital
appreciation and also may invest in securities
with relatively low current yields but higher
potential for capital appreciation as a result of
interest or currency movements. The Fund may also
invest in a security with a relatively high
current yield but the potential for loss of
capital through currency depreciation if, in the
opinion of Fund management, the security offers
high potential total return.
Under certain adverse conditions and for temporary
defensive purposes, the Fund may limit the
financial markets or currencies in which it will
invest. This may limit the potential for the
Fund's shares to increase in value or for the Fund
to achieve its investment objective. In addition,
the Fund will normally invest a portion of the
portfolio in U.S. dollars or short term interest
bearing securities denominated in U.S. dollars to
provide for possible redemptions. Investments in
short term debt securities can be sold easily and
have limited risk of loss but earn only limited
returns.
The Fund may invest in derivatives. The Fund also
may use a variety of portfolio strategies to hedge
its portfolio against interest rate and currency
risk. These strategies include the use of options
on portfolio positions or currencies, financial
and currency futures and options on these futures,
and forward foreign currency transactions. The
Fund may enter into these transactions only in
connection with its hedging strategies. The Fund
may only engage in hedging activities from time to
time and may not necessarily be hedging when
movements in interest rates or currency exchange
rates occur.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
8
<PAGE>
INVESTMENT RISKS
- ----------------------------------------------------------------------------
This section contains a summary discussion of the
general risks of investing in the Fund. As with
any mutual fund, there can be no guarantee that
the Fund will meet its goals or that the Fund's
performance will be positive for any period of
time.
MARKET AND SELECTION RISK -- Market risk is the
risk that the bond markets in one or more
countries in which the Fund invests will go down
in value, including the possibility that the
markets will go down sharply and unpredictably.
Selection risk is the risk that the investments
that Fund management selects will underperform the
market or other funds with similar investment
objectives and investment strategies.
CREDIT RISK -- Credit risk is the risk that the
issuer will be unable to pay the interest or
principal when due. The degree of credit risk
depends on both the financial condition of the
issuer and the terms of the obligation.
INTEREST RATE RISK -- Interest rate risk is the
risk that prices of bonds generally increase when
interest rates decline and decrease when interest
rates increase. Prices of longer term securities
generally change more in response to interest rate
changes than prices of shorter term securities.
FOREIGN MARKET RISK -- Since the Fund invests in
foreign securities, it offers the potential for
more diversification than an investment only in
the United States. This is because securities
traded on foreign markets have often (although not
always) performed differently than securities in
the United States. However, such investments
involve special risks not present in U.S.
investments that can increase the chances that the
Fund will lose money. In particular, the Fund is
subject to the risk that because there are
generally fewer investors in certain foreign
markets and a smaller trading volume each day, it
may make it difficult for the Fund to buy and sell
securities in those markets. In addition, prices
of foreign securities may go up and down more than
prices of securities traded in the United States.
FOREIGN ECONOMY RISK -- The economies of certain
foreign markets often do not compare favorably
with that of the United States with respect to
such issues as growth of gross national product,
reinvestment of capital, resources and balance of
payments position. Certain such economies may rely
heavily on particular industries or foreign
capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions
against a
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 9
<PAGE>
[ICON] DETAILS ABOUT THE FUND
particular country or countries, changes in
international trading patterns, trade barriers and
other protectionist or retaliatory measures.
Investments in foreign markets may also be
adversely affected by governmental actions such as
the imposition of capital controls,
nationalization of companies or industries,
expropriation of assets or the imposition of
punitive taxes. In addition, the governments of
certain countries may prohibit or impose
substantial restrictions on foreign investing in
their capital markets or in certain industries.
Any of these actions could severely affect
security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer
the Fund's assets or income back into the United
States, or otherwise adversely affect the Fund's
operations. Other foreign market risks include
foreign exchange controls, difficulties in pricing
securities, defaults on foreign government
securities, difficulties in enforcing favorable
legal judgments in foreign courts, and political
and social instability. Legal remedies available
to investors in certain foreign countries may be
less extensive than those available to investors
in the United States or other foreign countries.
CURRENCY RISK -- Securities in which the Fund
invests are usually denominated or quoted in
currencies other than the U.S. dollar. Changes in
foreign currency exchange rates affect the value
of the Fund's portfolio. Generally, when the U.S.
dollar rises in value against a foreign currency,
a security denominated in that currency loses
value because the currency is worth fewer U.S.
dollars. Conversely, when the U.S. dollar
decreases in value against a foreign currency, a
security denominated in that currency gains value
because the currency is worth more U.S. dollars.
This risk, generally known as "currency risk,"
means that a stronger U.S. dollar will reduce
returns for U.S. investors while a weak U.S.
dollar will increase those returns.
EUROPEAN ECONOMIC AND MONETARY UNION
("EMU") -- Certain European countries have agreed
to enter into EMU in an effort to, among other
things, reduce barriers between countries,
increase competition among companies, reduce
government subsidies in certain industries, and
reduce or eliminate currency fluctuations among
these countries. EMU established a single common
European currency (the "euro") that was introduced
on January 1, 1999 and is expected to replace the
existing national currencies of all EMU
participants by July 1, 2002. Certain securities
(beginning with government and corporate bonds)
were redenominated in the euro, and are listed,
trade
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
10
<PAGE>
and make dividend and other payments only in
euros. Although EMU is generally expected to have
a beneficial effect, it could negatively affect
the Fund in a number of situations, including as
follows:
- If the transition to the euro, or EMU
as a whole, does not proceed as
planned, the Fund's investments could
be adversely affected. For example,
sharp currency fluctuations, exchange
rate volatility, and other disruptions
of the markets could occur.
- Withdrawal from EMU by a participating
country could also have a negative
effect on the Fund's investments, for
example if securities redenominated in
euros are transferred back into that
country's national currency.
- Computer, accounting, and trading
systems must be capable of recognizing
the euro as a distinct currency. If not
properly addressed, this may negatively
affect the operations of the companies
in which the Fund invests.
GOVERNMENTAL SUPERVISION AND REGULATION/ACCOUNTING
STANDARDS -- Many foreign governments supervise
and regulate stock exchanges, brokers and the sale
of securities less than the United States does.
Other countries may not have laws to protect
investors the way that the U.S. securities laws
do. For example, some countries may have no laws
or rules against insider trading. Insider trading
occurs when a person buys or sells a company's
securities based on non-public information about
that company. Accounting standards in other
countries are not necessarily the same as in the
United States. If the accounting standards in
another country do not require as much detail as
U.S. accounting standards, it may be harder for
Fund management to completely and accurately
determine a company's financial condition. Also,
brokerage commissions and other costs of buying or
selling securities often are higher in foreign
countries than they are in the United States. This
reduces the amount the Fund can earn on its
investments.
CERTAIN RISKS OF HOLDING FUND ASSETS OUTSIDE THE
UNITED STATES -- The Fund generally holds its
foreign securities and cash in foreign banks and
securities depositories. Some foreign banks and
securities depositories may be recently organized
or new to the foreign custody business. In
addition, there may be limited or no regulatory
oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's
ability to recover its assets if a
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 11
<PAGE>
[ICON] DETAILS ABOUT THE FUND
foreign bank, depository or issuer of a security,
or any of their agents, goes bankrupt. In
addition, it is often more expensive for the Fund
to buy, sell and hold securities in certain
foreign markets than in the U.S. The increased
expense of investing in foreign markets reduces
the amount the Fund can earn on its investments
and typically results in a higher operating
expense ratio for the Fund than investment
companies invested only in the U.S.
SETTLEMENT RISK -- Settlement and clearance
procedures in certain foreign markets differ
significantly from those in the United States.
Foreign settlement procedures and trade
regulations also may involve certain risks (such
as delays in payment for or delivery of
securities) not typically generated by the
settlement of U.S. investments. Communications
between the United States and emerging market
countries may be unreliable, increasing the risk
of delayed settlements or losses of security
certificates. Settlements in certain foreign
countries at times have not kept pace with the
number of securities transactions; these problems
may make it difficult for the Fund to carry out
transactions. If the Fund cannot settle or is
delayed in settling a purchase of securities, it
may miss attractive investment opportunities and
certain of its assets may be uninvested with no
return earned thereon for some period. If the Fund
cannot settle or is delayed in settling a sale of
securities, it may lose money if the value of the
security then declines or, if it has contracted to
sell the security to another party, the Fund could
be liable to that party for any losses incurred.
CONCENTRATION RISK -- The Fund is a
non-diversified fund, which means that it may
invest more of its assets in fewer companies than
if it were a diversified fund. By concentrating in
a smaller number of investments, the Fund's risk
is increased because each investment has a greater
effect on the Fund's performance.
Risks associated with certain types of securities
in which the Fund may invest include:
SOVEREIGN DEBT -- The Fund may invest in sovereign
debt securities. These securities are issued or
guaranteed by foreign government entities.
Investments in sovereign debt are subject to the
risk that a government entity may delay or refuse
to pay interest or repay principal on its
sovereign debt. Some of these reasons may include
cash flow problems, insufficient foreign currency
reserves, political considerations, the relative
size of its debt position to its economy or its
failure to put in place economic reforms required
by the International Monetary Fund or other
multilateral agencies.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
12
<PAGE>
If a government entity defaults, it may ask for
more time in which to pay or for further loans.
There is no legal process for collecting sovereign
debts that a government does not pay or bankruptcy
proceeding by which all or part of sovereign debt
that a government entity has not repaid may be
collected.
DERIVATIVES -- The Fund may use derivative
instruments including futures, forwards, options,
and indexed securities. Derivatives are financial
instruments whose value is derived from another
security, a commodity (such as oil or gold), or an
index such as the J.P. Morgan Global Government
Bond Index. Derivatives allow the Fund to increase
or decrease its risk exposure more quickly and
efficiently than other types of instruments.
Derivatives are volatile and involve significant
risks, including:
CREDIT RISK -- the risk that the counterparty
(the party on the other side of the
transaction) on a derivative transaction will
be unable to honor its financial obligation to
the Fund.
CURRENCY RISK -- the risk that changes in the
exchange rate between currencies will adversely
affect the value (in U.S. dollar terms) of an
investment.
LEVERAGE RISK -- the risk associated with
certain types of investments or trading
strategies (such as borrowing money to
increase the amount of investments) that
relatively small market movements may result
in large changes in the value of an
investment. Certain investments or trading
strategies that involve leverage can result in
losses that greatly exceed the amount
originally invested.
LIQUIDITY RISK -- the risk that certain
securities may be difficult or impossible to
sell at the time that the seller would like or
at the price that the seller believes the
security is currently worth.
The Fund may use derivatives for hedging purposes,
including anticipatory hedges. Hedging is a
strategy in which the Fund uses a derivative to
offset the risk that other Fund holdings may
decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains if
the market moves in a different manner than
anticipated by the Fund or if the cost of the
derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the
value of the derivative will not match those of
the holdings being hedged as expected by the Fund,
in which case any losses on the holdings being
hedged may not be reduced. There can be no
assurance that
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 13
<PAGE>
[ICON] DETAILS ABOUT THE FUND
the Fund's hedging strategy will reduce risk or
that hedging transactions will be either available
or cost effective. The Fund is not required to use
hedging and may choose not to do so.
ILLIQUID INVESTMENTS -- The Fund may invest up to
15% of its assets in illiquid securities that it
cannot easily resell within seven days at current
value or that have contractual or legal
restrictions on resale. If the Fund buys illiquid
securities it may be unable to quickly resell them
or may be able to sell them only at a price below
current value.
RESTRICTED SECURITIES -- Restricted securities
have contractual or legal restrictions on their
resale. They include private placement securities
that the Fund buys directly from the issuer.
Private placement and other restricted securities
may not be listed on an exchange and may have no
active trading market.
Restricted securities may be illiquid. The Fund
may be unable to resell them on short notice or
may be able to sell them only at a price below
current value. The Fund may get only limited
information about the issuer, so it may be less
able to predict a loss. In addition, if Fund
management receives material adverse nonpublic
information about the issuer, the Fund will not be
able to sell the security.
WHEN ISSUED SECURITIES, DELAYED DELIVERY
SECURITIES AND FORWARD COMMITMENTS -- When issued
and delayed delivery securities and forward
commitments involve the risk that the security the
Fund buys will lose value prior to its delivery.
There also is the risk that the security will not
be issued or that the other party will not meet
its obligation. If this occurs, the Fund both
loses the investment opportunity for the assets it
has set aside to pay for the security and any gain
in the security's price.
SECURITIES LENDING -- The Fund may lend securities
with a value not exceeding 33 1/3% of its total
assets to financial institutions which provide
government securities as collateral. Securities
lending involves the risk that the borrower may
fail to return the securities in a timely manner
or at all. As a result, the Fund may lose money
and there may be a delay in recovering the loaned
securities. The Fund could also lose money if it
does not recover the securities and the value of
the collateral falls. These events could trigger
adverse tax consequences to the Fund.
REPURCHASE AGREEMENTS; PURCHASE AND SALE
CONTRACTS -- The Fund may enter into certain types
of repurchase agreements or purchase and sale
contracts.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
14
<PAGE>
Under a repurchase agreement, the seller agrees to
repurchase a security (typically a security issued
or guaranteed by the U.S. Government) at a
mutually agreed upon time and price. This
insulates the Fund from changes in the market
value of the security during the period, except
for currency fluctuations. A purchase and sale
contract is similar to a repurchase agreement, but
purchase and sale contracts provide that the
purchaser receives any interest on the security
paid during the period. If the seller fails to
repurchase the security in either situation and
the market value declines, the Fund may lose
money.
PORTFOLIO TURNOVER RISK -- The Fund's investment
policies may lead to a high portfolio turnover
rate. A high rate of portfolio turnover may result
in higher taxable distributions and higher
brokerage commission expenses.
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------------------
If you would like further information about the
Fund, including how it invests, please see the
Statement of Additional Information.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 15
<PAGE>
[ICON]
YOUR ACCOUNT [ICON]
MERRILL LYNCH SELECT PRICING-SM- SYSTEM
--------------------------------------------------
The Fund offers four share classes, each with its
own sales charge and expense structure, allowing
you to invest in the way that best suits your
needs. Each share class represents an ownership
interest in the same investment portfolio. When
you choose your class of shares you should
consider the size of your investment and how long
you plan to hold your shares. Your Merrill Lynch
Financial Consultant can help you determine which
share class is best suited to your personal
financial goals.
For example, if you select Class A or Class D
shares, you generally pay a sales charge at the
time of purchase. If you buy Class D shares, you
also pay an ongoing account maintenance fee of
0.25%. You may be eligible for a sales charge
waiver.
If you select Class B or C shares, you will invest
the full amount of your purchase price, but you
will be subject to a distribution fee of 0.50% for
Class B shares and 0.55% for Class C shares and an
account maintenance fee of 0.25% on both classes.
Because these fees are paid out of the Fund's
assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost
you more than paying an initial sales charge. In
addition, you may be subject to a deferred sales
charge when you sell Class B or C shares.
The Fund's shares are distributed by Merrill Lynch
Funds Distributor, a division of Princeton Funds
Distributor, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
16
<PAGE>
The table below summarizes key features of the Merrill Lynch Select Pricing-SM-
System.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
Availability Limited to certain Generally available Generally available Generally available
investors including: through Merrill Lynch. through Merrill Lynch. through Merrill Lynch.
- Current Class A Limited availability Limited availability Limited availability
shareholders through other securities through other securities through other securities
- Certain Retirement dealers. dealers. dealers.
Plans
- Participants in certain
Merrill Lynch sponsored
programs
- Certain affiliates of
Merrill Lynch.
---------------------------------------------------------------------------------------------------------------------------------
Initial Sales Charge? Yes. Payable at time of No. Entire purchase price No. Entire purchase price Yes. Payable at time of
purchase. Lower sales is invested in shares of is invested in shares of purchase. Lower sales
charges available for the Fund. the Fund. charges available for
larger investments. larger investments.
---------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Charge? No. (May be charged for Yes. Payable if you Yes. Payable if you No. (May be charged for
purchases over $1 million redeem within four years redeem within one year of purchases over $1 million
that are redeemed within of purchase. purchase. that are redeemed within
one year.) one year.)
---------------------------------------------------------------------------------------------------------------------------------
Account Maintenance and No. 0.25% Account Maintenance 0.25% Account Maintenance 0.25% Account Maintenance
Distribution Fees? Fee 0.50% Distribution Fee 0.55% Distribution Fee No Distribution Fee.
Fee. Fee.
---------------------------------------------------------------------------------------------------------------------------------
Conversion to Class D No. Yes, automatically after No. No.
shares? approximately ten years.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 17
<PAGE>
[ICON] YOUR ACCOUNT
RIGHT OF ACCUMULATION -- permits you to pay the sales charge that would apply to
the cost or value (whichever is higher) of all shares you own in the Merrill
Lynch mutual funds that offer Select Pricing-SM- options.
LETTER OF INTENT -- permits you to pay the sales charge that would be applicable
if you add up all shares of Merrill Lynch Select Pricing System-SM- funds that
you agree to buy within a 13 month period. Certain restrictions apply.
CLASS A AND CLASS D SHARES -- INITIAL SALES CHARGE OPTIONS
If you select Class A or Class D shares, you will
pay a sales charge at the time of purchase.
<TABLE>
<CAPTION>
DEALER
COMPENSATION
AS A % OF
AS A % OF AS A % OF YOUR OFFERING
YOUR INVESTMENT OFFERING PRICE INVESTMENT* PRICE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
Less than $25,000 4.00% 4.17% 3.75%
- -------------------------------------------------------------------------------------
$25,000 but less than $50,000 3.75% 3.90% 3.50%
- -------------------------------------------------------------------------------------
$50,000 but less than $100,000 3.25% 3.36% 3.00%
- -------------------------------------------------------------------------------------
$100,000 but less than $250,000 2.50% 2.56% 2.25%
- -------------------------------------------------------------------------------------
$250,000 but less than $1,000,000 1.50% 1.52% 1.25%
- -------------------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------------
</TABLE>
* Rounded to the nearest one-hundredth percent.
** If you invest $1,000,000 or more in Class A or Class D shares, you may not
pay an initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This
charge is 1% of the lesser of the original cost of the shares being
redeemed or your redemption proceeds. A sales charge of 0.75% will be
charged on purchases of $1,000,000 or more of Class A or Class D shares by
certain employer sponsored retirement or savings plans.
No initial sales charge applies to Class A or
Class D shares that you buy through reinvestment
of dividends or distributions.
A reduced or waived sales charge on a purchase of
Class A or Class D shares may apply for:
- Purchases under a RIGHT OF ACCUMULATION
or LETTER OF INTENT.
- Merrill Lynch Blueprint-SM- Program
participants.
- TMA-SM- Managed Trusts.
- Certain Merrill Lynch investment or
central asset accounts.
- Certain employer-sponsored retirement
or savings plans.
- Purchases using proceeds from the sale
of certain Merrill Lynch closed-end
funds under certain circumstances.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
18
<PAGE>
- Certain investors, including directors
of Merrill Lynch mutual funds and
Merrill Lynch employees.
- Certain Merrill Lynch fee-based
programs.
Only certain investors are eligible to buy Class A
shares. Your Financial Consultant can help you
determine whether you are eligible to buy Class A
shares or to participate in any of these programs.
If you decide to buy shares under the initial
sales charge alternative and you are eligible to
buy both Class A and Class D shares, you should
buy Class A since Class D shares are subject to an
account maintenance fee, while Class A shares are
not.
If you redeem Class A or Class D shares and within
30 days buy new shares of the same class, you will
not pay a sales charge on the new purchase amount.
The amount eligible for this "Reinstatement
Privilege" may not exceed the amount of your
redemption proceeds. To exercise the privilege,
contact your Merrill Lynch Financial Consultant or
the Fund's Transfer Agent at 1-800-MER-FUND.
CLASS B AND CLASS C SHARES -- DEFERRED SALES CHARGE OPTIONS
If you select Class B or Class C shares, you do
not pay an initial sales charge at the time of
purchase. However, if you redeem your Class B
shares within four years after purchase, or your
Class C shares within one year after purchase, you
may be required to pay a deferred sales charge.
You will also pay distribution fees of 0.50% for
Class B shares and 0.55% for Class C shares and
account maintenance fees of 0.25% for Class B and
Class C shares each year under distribution plans
that the Fund has adopted under Rule 12b-1.
Because these fees are paid out of the Fund's
assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost
you more than paying an initial sales charge. The
Distributor uses the money that it receives from
the deferred sales charges and the distribution
fees to cover the costs of marketing, advertising
and compensating the Merrill Lynch Financial
Consultant or other securities dealer who assists
you in purchasing Fund shares.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 19
<PAGE>
[ICON] YOUR ACCOUNT
CLASS B SHARES
If you redeem Class B shares within four years
after purchase, you may be charged a deferred
sales charge. The amount of the charge gradually
decreases as you hold your shares over time,
according to the following schedule:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE SALES CHARGE*
<S> <C>
- -----------------------------------------------------------------
0 - 1 4.00%
- -----------------------------------------------------------------
1 - 2 3.00%
- -----------------------------------------------------------------
2 - 3 2.00%
- -----------------------------------------------------------------
3 - 4 1.00%
- -----------------------------------------------------------------
4 and thereafter 0.00%
- -----------------------------------------------------------------
</TABLE>
* The percentage charge will apply to the lesser of
the original cost of the shares being redeemed or
the proceeds of your redemption. Shares acquired
through reinvestment of dividends or
distributions are not subject to a deferred sales
charge. Not all Merrill Lynch funds have
identical deferred sales charge schedules. If you
exchange your shares for shares of another fund,
the higher charge will apply.
The deferred sales charge relating to Class B
shares may be reduced or waived in certain
circumstances, such as:
- Certain post-retirement withdrawals
from an IRA or other retirement plan if
you are over 59 1/2 years old.
- Redemption by certain eligible 401(a)
and 401(k) plans, certain related
accounts, group plans participating in
the Merrill Lynch Blueprint-SM- Program
and certain retirement plan rollovers.
- Redemption in connection with
participation in certain Merrill Lynch
fee-based programs.
- Withdrawals resulting from shareholder
death or disability as long as the
waiver request is made within one year
of death or disability or, if later,
reasonably promptly following
completion of probate, or in connection
with involuntary termination of an
account in which Fund shares are held.
- Withdrawal through the Merrill Lynch
Systematic Withdrawal Plan of up to 10%
per year of your Class B account value
at the time the plan is established.
Your Class B shares convert automatically into
Class D shares approximately ten years after
purchase. Any Class B shares received through
reinvestment of
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
20
<PAGE>
dividends or distributions paid on converting
shares will also convert at that time. Class D
shares are subject to lower annual expenses than
Class B shares. The conversion of Class B to Class
D shares is not a taxable event for Federal income
tax purposes.
Different conversion schedules apply to Class B
shares of different Merrill Lynch mutual funds.
For example, Class B shares of a fixed-income fund
convert approximately ten years after purchase
compared to approximately eight years for equity
funds. If you acquire your Class B shares in an
exchange from another fund with a shorter
conversion schedule, the Fund's ten year
conversion schedule will apply. If you exchange
your Class B shares in the Fund for Class B shares
of a fund with a shorter conversion schedule, the
other fund's conversion schedule will apply. The
length of time that you hold both the original and
exchanged Class B shares in both funds will count
toward the conversion schedule. The conversion
schedule may be modified in certain other cases as
well.
CLASS C SHARES
If you redeem Class C shares within one year after
purchase, you may be charged a deferred sales
charge of 1.00%. The charge will apply to the
lesser of the original cost of the shares being
redeemed or the proceeds of your redemption. You
will not be charged a deferred sales charge when
you redeem shares that you acquire through
reinvestment of Fund dividends or distributions.
The deferred sales charge relating to Class C
shares may be reduced or waived in connection with
participation in certain Merrill Lynch fee-based
programs, involuntary termination of an account in
which Fund shares are held and withdrawals through
the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
- ----------------------------------------------------------------------------
The chart below summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch
or other securities dealers. You may also buy
shares through the Transfer Agent. To learn more
about buying shares through the Transfer Agent,
call 1-800-MER-FUND. Because the selection of a
mutual fund involves many considerations, your
Merrill Lynch Financial Consultant may help you
with this decision.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 21
<PAGE>
[ICON] YOUR ACCOUNT
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Buy Shares First, select the Refer to the Merrill Lynch Select
share class Pricing table on page 17. Be sure to
appropriate for you read this prospectus carefully.
----------------------------------------------------------------
Next, determine the The minimum initial investment for the
amount of your Fund is $1,000 for all accounts except:
investment - $250 for certain Merrill Lynch
fee-based programs
- $100 for retirement plans (The
minimums for initial investments may be
waived under certain circumstances.)
----------------------------------------------------------------
Have your Merrill The price of your shares is based on the
Lynch Financial next calculation of net asset value
Consultant or after your order is placed. Any purchase
securities dealer orders placed within fifteen minutes
submit your after the close of business on the New
purchase order York Stock Exchange will be priced at
the net asset value determined that day.
Purchase orders placed after that time
will be priced at the net asset value
determined on the next business day. The
Fund may reject any order to buy shares
and may suspend the sale of shares at
any time. Merrill Lynch may charge a
processing fee to confirm a purchase.
This fee is currently $5.35.
----------------------------------------------------------------
Or contact the To purchase shares directly, call the
Transfer Agent Transfer Agent at 1-800-MER-FUND and
request a purchase application. Mail the
completed purchase application to the
Transfer Agent at the address on the
inside back cover of this Prospectus.
- ----------------------------------------------------------------------------------------
Add to Your Purchase additional The minimum investment for additional
Investment shares purchases is $50 for all accounts except
$1 for retirement plans.
(The minimums for additional purchases
may be waived under certain
circumstances.)
----------------------------------------------------------------
Acquire additional All dividends and capital gains
shares through the distributions are automatically
automatic dividend reinvested without a sales charge.
reinvestment plan
----------------------------------------------------------------
Participate in the You may invest a specific amount on a
automatic periodic basis through certain Merrill
investment plan Lynch investment or central asset
accounts.
- ----------------------------------------------------------------------------------------
Transfer Shares to Transfer to a You may transfer your Fund shares only
Another Securities participating to another securities dealer that has
Dealer securities dealer entered into an agreement with Merrill
Lynch. All shareholder services will be
available for the transferred shares.
You may only purchase additional shares
of funds previously owned before the
transfer. All future trading of these
assets must be coordinated by the
receiving firm.
- ----------------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
22
<PAGE>
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- --------------------------------------------------------------------------------
Transfer Shares to Transfer to a You must either:
Another Securities non-participating - Transfer your shares to an account
Dealer securities dealer with the Transfer Agent; or
- Sell your shares.
- --------------------------------------------------------------------------------
Sell Your Shares Have your Merrill The price of your shares is based on the
Lynch Financial next calculation of net asset value
Consultant or after your order is placed. For your
securities dealer redemption request to be priced at the
submit your sales net asset value on the day of your
order request, you must submit your request to
your dealer within fifteen minutes after
that day's close of business on the New
York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request
placed after that time will be priced at
the net asset value at the close of
business on the next business day.
Dealers must submit redemption requests
to the Fund not more than thirty minutes
after the close of business on the New
York Stock Exchange on the day the
request was received.
Securities dealers, including Merrill
Lynch, may charge a fee to process a
redemption of shares. Merrill Lynch
currently charges a fee of $5.35. No
processing fee is charged if you redeem
shares directly through the Transfer
Agent.
The Fund may reject an order to sell
shares under certain circumstances.
------------------------------------------------------------
Sell through the You may sell shares held at the Transfer
Transfer Agent Agent by writing to the Transfer Agent
at the address on the inside back cover
of this prospectus. All shareholders on
the account must sign the letter and
signatures must be guaranteed. If you
hold stock certificates, return the
certificates with the letter. The
Transfer Agent will normally mail
redemption proceeds within seven days
following receipt of a properly
completed request. If you make a
redemption request before the Fund has
collected payment for the purchase of
shares, the Fund or the Transfer Agent
may delay mailing your proceeds. This
delay will usually not exceed ten days.
If you hold share certificates, they
must be delivered to the Transfer Agent
before they can be converted. Check with
the Transfer Agent or your Merrill Lynch
Financial Consultant for details.
- --------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 23
<PAGE>
[ICON] YOUR ACCOUNT
<TABLE>
<CAPTION>
IF YOU WANT TO YOUR CHOICES INFORMATION IMPORTANT FOR YOU TO KNOW
<S> <C> <C>
- --------------------------------------------------------------------------------
Sell Shares Participate in the You can choose to receive systematic
Systematically Fund's Systematic payments from your Fund account either
Withdrawal Plan by check or through direct deposit to
your bank account on a monthly or
quarterly basis. If you have a Merrill
Lynch CMA-Registered Trademark-,
CBA-Registered Trademark- or Retirement
Account you can arrange for systematic
redemptions of a fixed dollar amount on
a monthly, bi-monthly, quarterly,
semi-annual or annual basis, subject to
certain conditions. Under either method
you must have dividends and other
distributions automatically reinvested.
For Class B and C shares your total
annual withdrawals cannot be more than
10% per year of the value of your shares
at the time your plan is established.
The deferred sales charge is waived for
systematic redemptions. Ask your Merrill
Lynch Financial Consultant for details.
- --------------------------------------------------------------------------------
Exchange Your Shares Select the fund You can exchange your shares of the Fund
into which you want for shares of many other Merrill Lynch
to exchange. Be mutual funds. You must have held the
sure to read that shares used in the exchange for at least
fund's prospectus 15 calendar days before you can exchange
to another fund.
Each class of Fund shares is generally
exchangeable for shares of the same
class of another fund. If you own Class
A shares and wish to exchange into a
fund in which you have no Class A
shares, you will exchange into Class D
shares.
Some of the Merrill Lynch mutual funds
impose a different initial or deferred
sales charge schedule. If you exchange
Class A or D shares for shares of a fund
with a higher initial sales charge than
you originally paid, you will be charged
the difference at the time of exchange.
If you exchange Class B shares for
shares of a fund with a different
deferred sales charge schedule, the
higher schedule will apply. The time you
hold Class B or C shares in both funds
will count when determining your holding
period for calculating a deferred sales
charge at redemption. If you exchange
Class A or D shares for money market
fund shares, you will receive Class A
shares of Summit Cash Reserves Fund.
Class B or C shares of the Fund will be
exchanged for Class B shares of Summit.
Although there is currently no limit on
the number of exchanges that you can
make, the exchange privilege may be
modified or terminated at any time in
the future.
- --------------------------------------------------------------------------------
</TABLE>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
24
<PAGE>
NET ASSET VALUE -- the market value of the Fund's total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
--------------------------------------------------
When you buy shares, you pay the NET ASSET VALUE,
plus any applicable sales charge. This is the
offering price. Shares are also redeemed at their
net asset value, minus any applicable deferred
sales charge. The Fund calculates its net asset
value (generally by using market quotations) each
day the New York Stock Exchange is open, fifteen
minutes after the close of business on the
Exchange (the Exchange generally closes at 4:00
p.m. Eastern time). The net asset value used in
determining your price is the next one calculated
after your purchase or redemption order is placed.
Foreign securities owned by the Fund may trade on
weekends or other days when the Fund does not
price its shares. As a result, the Fund's net
asset value may change on days when you will not
be able to purchase or redeem the Fund's shares.
Generally, Class A shares will have the highest
net asset value because that class has the lowest
expenses, and Class D shares will have a higher
net asset value than Class B or Class C shares.
Also dividends paid on Class A and Class D shares
will generally be higher than dividends paid on
Class B and Class C shares because Class A and
Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
- ----------------------------------------------------------------------------
If you participate in certain fee-based programs
offered by Merrill Lynch, you may be able to buy
Class A shares at net asset value, including by
exchanges from other share classes. Sales charges
on the shares being exchanged may be reduced or
waived under certain circumstances.
You generally cannot transfer shares held through
a fee-based program into another account. Instead,
you will have to redeem your shares held through
the program and purchase shares of another class,
which may be subject to distribution and account
maintenance fees. This may be a taxable event and
you will pay any applicable sales charges.
If you leave one of these programs, your shares
may be redeemed or automatically exchanged into
another class of Fund shares or into a money
market fund. The class you receive may be the
class you originally owned when you entered the
program, or in certain cases, a different class.
If the exchange is into Class B shares, the period
before conversion to Class D shares may be
modified. Any redemption or exchange will be at
net asset value.
However, if you participate in the program for
less than a specified period, you may be charged a
fee in accordance with the terms of the program.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 25
<PAGE>
[ICON] YOUR ACCOUNT
DIVIDENDS -- ordinary income and capital gains paid to shareholders.
Dividends may be reinvested in additional Fund shares as they are paid.
"BUYING A DIVIDEND"
Unless your investment is in a tax deferred account, you may want to avoid
buying shares shortly before the Fund pays a dividend. The reason? If you
buy shares when a fund has realized but not yet distributed income or
capital gains, you will pay the full price for the shares and then receive a
portion of the price back in the form of a taxable dividend. Before
investing you may want to consult your tax adviser.
Details about these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your Merrill Lynch
Financial Consultant.
DIVIDENDS AND TAXES
--------------------------------------------------
This section summarizes some of the consequences
under current Federal tax law of an investment in
the Fund. It is not a substitute for personal tax
advice. Consult your personal tax adviser about
the potential tax consequences of an investment in
the Fund under all applicable tax laws.
The Fund will distribute any net investment income
monthly and any net realized long or short term
capital gains at least annually. The Fund may also
pay a special distribution at the end of the
calendar year to comply with Federal tax
requirements. If your account is with Merrill
Lynch and you would like to receive DIVIDENDS in
cash, contact your Merrill Lynch Financial
Consultant. If your account is with the Transfer
Agent and you would like to receive dividends and
distributions in cash, contact the Transfer Agent.
You will pay tax on dividends from the Fund
whether you receive them in cash or additional
shares. If you redeem Fund shares or exchange them
for shares of another fund, any gain on the
transaction may be subject to tax. The Fund
intends to make distributions that will either be
taxed as ordinary income or capital gains. Capital
gain dividends are generally taxed at different
rates than ordinary income dividends.
If you are neither a lawful permanent resident nor
a citizen of the U.S. or if you are a foreign
entity, the Fund's ordinary income dividends
(which include distributions of net short-term
capital gains) will generally be subject to a 30%
U.S. withholding tax, unless a lower treaty rate
applies.
Dividends and interest received by the Fund may
give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between
certain countries and the United States may reduce
or eliminate such taxes. You may be able to claim
a credit or take a deduction for foreign taxes
paid by the Fund if certain requirements are met.
By law, the Fund must withhold 31% of your
dividends and proceeds if you have not provided a
taxpayer identification number or social security
number.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
26
<PAGE>
MANAGEMENT OF THE FUND [ICON]
MERRILL LYNCH ASSET MANAGEMENT
--------------------------------------------------
Merrill Lynch Asset Management, the Fund's
Investment Adviser, manages the Fund's investments
and its business operations under the overall
supervision of the Fund's Board of Trustees. The
Investment Adviser has the responsibility for
making all investment decisions for the Fund. The
Investment Adviser has a sub-advisory agreement
with Merrill Lynch Asset Management U.K. Limited,
an affiliate. The Fund pays the Investment Adviser
a fee at the annual rate of 0.60% of the average
daily net assets of the Fund.
Merrill Lynch Asset Management is part of Merrill
Lynch Asset Management Group, which had
approximately $507 billion in investment company
and other portfolio assets under management as of
January, 1999. This amount includes assets managed
for Merrill Lynch affiliates.
A NOTE ABOUT YEAR 2000
Many computer systems were designed using only two
digits to designate years. These systems may not
be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem").
The Fund could be adversely affected if the
computer systems used by the Fund's management or
other Fund service providers do not properly
address this problem before January 1, 2000. The
Fund's management expects to have addressed this
problem before then, and does not anticipate that
the services it provides will be adversely
affected. The Fund's other service providers have
told the Fund management that they also expect to
resolve the Year 2000 Problem, and the Fund
management will continue to monitor the situation
as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund
could be negatively affected. The Year 2000
Problem could also have a negative impact on the
companies in which the Fund invests, and this
could hurt the Fund's investment returns.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 27
<PAGE>
[ICON]
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects the
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Deloitte & Touche LLP, whose report, along with the Fund's
financial statements, are included in the Fund's annual report to shareholders,
which is available upon request.
<TABLE>
<CAPTION>
CLASS A+
----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN ----------------------------------------------------------
NET ASSET VALUE: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 9.56 $ 9.54 $ 8.96 $ 10.03
- -----------------------------------------------------------------------------------------------
Investment income -- net .54 .56 .59 .55
- -----------------------------------------------------------------------------------------------
Realized and unrealized gain
(loss) on investments and foreign
currency transactions -- net (.44) .02 .58 (1.07)
- -----------------------------------------------------------------------------------------------
Total from investment operations .10 .58 1.17 (.52)
- -----------------------------------------------------------------------------------------------
Less dividends and distributions:
- -----------------------------------------------------------------------------------------------
Investment income -- net (.14) (.56) (.39) (.24)
- -----------------------------------------------------------------------------------------------
Realized gain on investments --
net -- -- -- --
- -----------------------------------------------------------------------------------------------
Return of capital -- net (.40) -- (.20) (.28)
- -----------------------------------------------------------------------------------------------
In excess of realized gain on
investments -- net -- -- -- (.03)
- -----------------------------------------------------------------------------------------------
Total dividends and distributions (.54) (.56) (.59) (.55)
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.12 $ 9.56 $ 9.54 $ 8.96
- -----------------------------------------------------------------------------------------------
Total Investment Return:*
- -----------------------------------------------------------------------------------------------
Based on net asset value per share 1.19% 6.42% 13.39% (5.29)%
- -----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- -----------------------------------------------------------------------------------------------
Expenses .96% .87% .86% .84%
- -----------------------------------------------------------------------------------------------
Investment income -- net 5.83% 6.02% 6.31% 5.84%
- -----------------------------------------------------------------------------------------------
Supplemental Data:
- -----------------------------------------------------------------------------------------------
Net assets, end of year (in
thousands) $ 27,522 $ 72,876 $ 85,610 $ 90,823
- -----------------------------------------------------------------------------------------------
Portfolio turnover 699.63% 1234.05% 512.75% 405.00%
- -----------------------------------------------------------------------------------------------
<CAPTION>
CLASS B+
----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN ----------------------------------------------------------
NET ASSET VALUE: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------
Per Share Operating Performance:
- -----------------------------------
Net asset value, beginning of year $ 9.56 $ 9.54 $ 8.96 $ 10.03
- -----------------------------------
Investment income -- net .47 .49 .51 .47
- -----------------------------------
Realized and unrealized gain
(loss) on investments and foreign
currency transactions -- net (.44) .02 .58 (1.07)
- -----------------------------------
Total from investment operations .03 .51 1.09 (.60)
- -----------------------------------
Less dividends and distributions:
- -----------------------------------
Investment income -- net (.13) (.49) (.34) (.20)
- -----------------------------------
Realized gain on investments --
net -- -- -- --
- -----------------------------------
Return of capital -- net (.34) -- (.17) (.24)
- -----------------------------------
In excess of realized gain on
investments -- net -- -- -- (.03)
- -----------------------------------
Total dividends and distributions (.47) (.49) (.51) (.47)
- -----------------------------------
Net asset value, end of year $ 9.12 $ 9.56 $ 9.54 $ 8.96
- -----------------------------------
Total Investment Return:*
- -----------------------------------
Based on net asset value per share .41% 5.60% 12.52% (6.01)%
- -----------------------------------
Ratios to Average Net Assets:
- -----------------------------------
Expenses 1.73% 1.65% 1.64% 1.61%
- -----------------------------------
Investment income -- net 5.07% 5.25% 5.56% 5.06%
- -----------------------------------
Supplemental Data:
- -----------------------------------
Net assets, end of year (in
thousands) $ 160,571 $ 347,529 $ 540,887 $ 700,995
- -----------------------------------
Portfolio turnover 699.63% 1234.05% 512.75% 405.00%
- -----------------------------------
</TABLE>
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT
28
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C++
---------------------------------------------------------
FOR THE
PERIOD
OCTOBER
21,
1994+ TO
FOR THE YEAR ENDED DECEMBER 31, DECEMBER
INCREASE (DECREASE) IN --------------------------------------------- 31,
NET ASSET VALUE: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.56 $ 9.54 $ 8.96 $ 9.21
- ----------------------------------------------------------------------------------------------
Investment income -- net .46 .48 .51 .09
- ----------------------------------------------------------------------------------------------
Realized and unrealized gain
(loss) on investments and foreign
currency transactions -- net (.44) .02 .58 (.25)
- ----------------------------------------------------------------------------------------------
Total from investment operations .02 .50 1.09 (.16)
- ----------------------------------------------------------------------------------------------
Less dividends and distributions:
- ----------------------------------------------------------------------------------------------
Investment income -- net (.12) (.48) (.34) (.03)
- ----------------------------------------------------------------------------------------------
Return of capital -- net (.34) -- (.17) (.05)
- ----------------------------------------------------------------------------------------------
In excess of realized gain on
investments -- net -- -- -- (.01)
- ----------------------------------------------------------------------------------------------
Total dividends and distributions (.46) (.48) (.51) (.09)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.12 $ 9.56 $ 9.54 $ 8.96
- ----------------------------------------------------------------------------------------------
Total Investment Return:**
- ----------------------------------------------------------------------------------------------
Based on net asset value per share .33% 5.51% 12.44% (1.73)%#
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
- ----------------------------------------------------------------------------------------------
Expenses 1.82% 1.73% 1.71% 1.69%*
- ----------------------------------------------------------------------------------------------
Investment income -- net 4.94% 5.16% 5.44% 5.20%*
- ----------------------------------------------------------------------------------------------
Supplemental Data:
- ----------------------------------------------------------------------------------------------
Net assets, end of period (in
thousands) $ 2,284 $ 9,351 $ 8,468 $ 3,614
- ----------------------------------------------------------------------------------------------
Portfolio turnover 699.63% 1234.05% 512.75% 405.00%
- ----------------------------------------------------------------------------------------------
<CAPTION>
CLASS D++
-------------------------------------------------------------
FOR THE
PERIOD
OCTOBER 21,
1994+ TO
FOR THE YEAR ENDED DECEMBER 31, DECEMBER
INCREASE (DECREASE) IN ----------------------------------------------- 31,
NET ASSET VALUE: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------
Per Share Operating Performance:
- -----------------------------------
Net asset value, beginning of
period $ 9.55 $ 9.54 $ 8.96 $ 9.21
- -----------------------------------
Investment income -- net .51 .54 .56 .10
- -----------------------------------
Realized and unrealized gain
(loss) on investments and foreign
currency transactions -- net (.44) .01 .58 (.25)
- -----------------------------------
Total from investment operations .07 .55 1.14 (.15)
- -----------------------------------
Less dividends and distributions:
- -----------------------------------
Investment income -- net (.13) (.54) (.37) (.04)
- -----------------------------------
Return of capital -- net (.38) -- (.19) (.05)
- -----------------------------------
In excess of realized gain on
investments -- net -- -- -- (.01)
- -----------------------------------
Total dividends and distributions (.51) (.54) (.56) (.10)
- -----------------------------------
Net asset value, end of period $ 9.11 $ 9.55 $ 9.54 $ 8.96
- -----------------------------------
Total Investment Return:**
- -----------------------------------
Based on net asset value per share .94% 6.05% 13.11% (1.62)%#
- -----------------------------------
Ratios to Average Net Assets:
- -----------------------------------
Expenses 1.19% 1.08% 1.11% 1.12%*
- -----------------------------------
Investment income -- net 5.66% 5.74% 6.07% 5.81%*
- -----------------------------------
Supplemental Data:
- -----------------------------------
Net assets, end of period (in
thousands) $ 49,813 $ 45,685 $ 5,665 $ 1,755
- -----------------------------------
Portfolio turnover 699.63% 1234.05% 512.75% 405.00%
- -----------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
# Aggregate total investment return.
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND
RETIREMENT 29
<PAGE>
<TABLE>
<S> <C> <C>
POTENTIAL
------------------------- INVESTORS ----------------------------
| |
| OPEN AN ACCOUNT (TWO OPTIONS) |
| |
-1- -2-
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
or SECURITIES DEALER FINANCIAL DATA SERVICES, INC.
P.O. Box 45289
ADVISES SHAREHOLDERS ON THEIR FUND Jacksonville, Florida 32232-5289
INVESTMENTS.
PERFORMS RECORDKEEPING
| AND REPORTING SERVICES.
|
| DISTRIBUTOR |
| |
| MERRILL LYNCH FUNDS DISTRIBUTOR, |
| a division of Princeton Funds Distributor, Inc. |
----------------- P.O. Box 9081 --------------------
Princeton, New Jersey 08543-9081
ARRANGES FOR THE SALE OF FUND SHARES.
|
|
|
|
THE FUND
----------------------- ------------------------
| THE BOARD OF TRUSTEES |
| OVERSEES THE FUND |
| |
COUNSEL | | CUSTODIAN
| |
BROWN & WOOD LLP | | STATE STREET BANK AND TRUST COMPANY
One World Trade Center | | P.O. Box 351
New York, New York 10048-0557 | | 225 Franklin Street
| | Boston, Massachusetts 02101
| |
PROVIDES LEGAL ADVICE TO THE FUND. | | HOLDS THE FUND'S ASSETS FOR SAFEKEEPING.
| |
| |
| |
| |
| |
INDEPENDENT AUDITORS ------------------ ----------------- INVESTMENT ADVISER
DELOITTE & TOUCHE LLP MERRILL LYNCH ASSET MANAGEMENT
117 Campus Drive
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
AUDITS THE FINANCIAL Plainsboro, New Jersey 08536
STATEMENTS OF THE FUND ON BEHALF OF
THE SHAREHOLDERS. MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
MANAGES THE FUND'S DAY-TO-DAY ACTIVITIES.
</TABLE>
MERRILL LYNCH GLOBAL FUND FOR INVESTMENT AND RETIREMENT
<PAGE>
SHAREHOLDER REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. You
may obtain these reports at no cost by calling 1-800-
MER-FUND.
The Fund will send you one copy of each shareholder report and certain other
mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill Lynch brokerage or mutual
fund account number. If you have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at 1-800-MER-FUND.
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289
or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund at the telephone
number or address indicated on the inside back cover of this prospectus if you
have any questions.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Call 1-800 SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC's Internet site at
http://www.sec.gov and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS
AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM INFORMATION
CONTAINED IN THIS PROSPECTUS.
Investment Company Act file #811-4684
Code #10417-04-99
- -C-Merrill Lynch Asset Management, L.P.
[LOGO]
Merrill Lynch
Global Bond Fund
for Investment
and Retirement
_April __, 1999_
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY , 1999
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT AND RETIREMENT
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
-------------------
Merrill Lynch Global Bond Fund for Investment and Retirement (the "Fund") is
a non-diversified, open-end investment company that seeks to provide
shareholders with a high total investment return by investing in a global
portfolio of debt instruments denominated in various currencies and
multinational currency units. Total investment return is the aggregate of
capital value changes and income. The Fund presently contemplates that it will
invest primarily in obligations denominated in the currencies of the United
States, Japan, Canada, Western European nations (including the euro), New
Zealand and Australia. For more information on the Fund's investment objectives
and policies, see "Investment Objective and Policies."
Pursuant to the Merrill Lynch Select Pricing-SM- System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing-SM- System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Purchase of Shares."
-------------------
This Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the Prospectus of the Fund, dated April ,
1999 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
(800) MER-FUND or by writing the Fund at the above address. The Prospectus is
incorporated by reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by reference into the
Prospectus. The Fund's audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
-------------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR -- DISTRIBUTOR
--------------
The date of this Statement of Additional Information is April , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Investment Objective and Policies......................................................................... 2
Other Investment Policies, Practices, and Risk Factors.................................................. 4
Derivatives............................................................................................. 6
Investment Restrictions................................................................................. 11
Portfolio Turnover...................................................................................... 13
Management of the Fund.................................................................................... 13
Trustees and Officers................................................................................... 13
Compensation of Trustees................................................................................ 15
Management and Advisory Arrangements.................................................................... 16
Code of Ethics.......................................................................................... 17
Purchase of Shares........................................................................................ 18
Initial Sales Charge Alternatives -- Class A and Class D Shares......................................... 18
Deferred Sales Charge Alternatives -- Class B and Class C Shares........................................ 23
Distribution Plans...................................................................................... 27
Limitations on the Payment of Deferred Sales Charges.................................................... 28
Redemption of Shares...................................................................................... 29
Redemption.............................................................................................. 30
Repurchase.............................................................................................. 30
Reinstatement Privilege -- Class A and Class D Shares................................................... 31
Pricing of Shares......................................................................................... 31
Determination of Net Asset Value........................................................................ 31
Computation of Offering Price Per Share................................................................. 32
Portfolio Transactions and Brokerage...................................................................... 32
Transactions in Portfolio Securities.................................................................... 32
Shareholder Services...................................................................................... 34
Investment Account...................................................................................... 34
Exchange Privilege...................................................................................... 35
Fee-Based Programs...................................................................................... 37
Retirement Plans........................................................................................ 37
Automatic Investment Plans.............................................................................. 37
Automatic Dividend Program.............................................................................. 38
Systematic Withdrawal Plan.............................................................................. 38
Dividends and Taxes....................................................................................... 39
Dividends............................................................................................... 39
Taxes................................................................................................... 40
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions............................. 41
Special Rules for Certain Foreign Currency Transactions................................................. 42
Performance Data.......................................................................................... 43
General Information....................................................................................... 46
Description of Shares................................................................................... 46
Independent Auditors.................................................................................... 47
Custodian............................................................................................... 47
Transfer Agent.......................................................................................... 47
Legal Counsel........................................................................................... 47
Reports to Shareholders................................................................................. 47
Shareholder Inquiries................................................................................... 47
Additional Information.................................................................................. 47
Financial Statements...................................................................................... 48
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's objective is to seek a high total investment return by investing
in a global portfolio of debt instruments denominated in various currencies and
multinational currency units. Total investment return is the aggregate of
capital value changes and income. This investment objective is a fundamental
policy of the Fund which may not be changed without a vote of a majority of its
outstanding shares as defined below. There can be no assurance that this
investment objective will be realized. The Fund will seek to achieve its
objective through a fully managed investment approach described below. The Fund
is a non-diversified open-end management investment company. The Fund may seek
to hedge against interest rate and currency risks through the use of options,
futures and foreign currency transactions.
As an investment company making investments in debt instruments on a global
basis, the Fund may purchase debt obligations issued or guaranteed by U.S. or
foreign governments (including foreign states, provinces and municipalities) or
their agencies and instrumentalities ("governmental entities"), or issued or
guaranteed by international organizations designated or supported by multiple
governmental entities to promote economic reconstruction or development
("supranational entities") such as the International Bank for Reconstruction and
Development (the "World Bank") and the European Coal and Steel Community, or
issued by either U.S. or foreign corporations or financial institutions.
With respect to the creditworthiness of the Fund's portfolio securities,
under normal conditions all of the securities owned by the Fund will be (i)
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or (ii) obligations which have a credit rating of A or better
by Standard & Poor's ("S&P") or by Moody's Investors Service, Inc. ("Moody's")
or commercial paper rated A-1 by S&P or Prime-1 by Moody's or obligations that
Merrill Lynch Asset Management, L.P., the Fund's investment adviser ("MLAM' or
the "Investment Adviser"), has determined to be of similar creditworthiness. The
Fund's Investment Adviser may determine that a non-dollar denominated obligation
of a foreign government is of similar creditworthiness notwithstanding S&P's or
Moody's less favorable rating of a dollar denominated obligation of the same
issuer, provided that the Investment Adviser believes that such dollar
denominated obligation is assigned a lower rating because it is denominated in a
currency other than the foreign government's own currency.
In evaluating obligations, the Investment Adviser will utilize its internal
credit analysis resources as well as financial and economic information obtained
from other sources. With respect to foreign corporate issuers, the Investment
Adviser will consider the financial condition of the issuer and market and
economic conditions relevant to its operations. In terms of foreign governmental
obligations, the Investment Adviser will review the financial position of the
issuer and political and economic conditions in the country. Investment in
securities of supranational entities is subject to the additional risk to be
considered by the Investment Adviser that member governments will fail to make
required capital contributions and that a supranational entity will thus be
unable to meet its obligations.
The Fund's fully managed approach enables it to seek high total investment
return by investing in debt instruments denominated in various currencies and
currency units on the basis of the potential capital appreciation of such
instruments in U.S. dollars and the rates of income paid on such instruments. As
a general matter, in evaluating investments, the Fund will consider, among other
factors, the relative levels of interest rates prevailing in various countries,
the potential appreciation of such investments in their denominated currencies
and, for debt instruments not denominated in U.S. dollars, the potential
movement in the value of such currencies compared to the U.S. dollar. In seeking
capital appreciation, the Fund may invest in relatively low-yielding instruments
in expectation of favorable currency fluctuations or interest rate movements,
thereby potentially reducing the Fund's current yield. In seeking income, the
Fund may invest in short-term instruments with relatively high yields (as
compared to other debt securities) meeting the Fund's investment criteria,
notwithstanding that the Fund may not anticipate that such instruments will
experience substantial capital appreciation.
The average maturity of the Fund's portfolio securities will vary based upon
the Investment Adviser's assessment of economic and market conditions. As with
all debt securities, changes in market yields will
2
<PAGE>
affect the Fund's asset value as the prices of portfolio securities generally
increase when interest rates decline and decrease when interest rates rise.
Prices of longer term securities generally fluctuate more in response to
interest rate changes than do shorter term securities. The Fund does not expect
the average maturity of its portfolio to exceed ten years.
The Fund may invest in debt instruments denominated in any currency. The
Fund may invest in debt instruments denominated in the currency of one nation
although issued by a governmental entity, corporation or financial institution
of another nation. For example, the Fund may invest in a Japanese yen-
denominated obligation issued by a U.S. corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated. It is anticipated that the Fund
will invest primarily in marketable instruments denominated in the currencies of
the United States, Japan, Canada, Western European nations (including the euro),
New Zealand and Australia. Further, it is anticipated that such instruments will
be issued primarily by entities located in such countries and by supranational
entities. Under certain adverse conditions, the Fund may restrict the financial
markets or currencies in which its assets will be invested and may invest its
assets solely in the U.S. financial markets or U.S. dollar-denominated
obligations.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment polices to determine whether changes are appropriate. Any changes in
the investment objective or fundamental policies set forth under "Investment
Restrictions" below would require the approval of the holders of a majority, as
defined under the Investment Company Act of 1940, of the Fund's outstanding
voting securities.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets because the shares of the Fund are redeemable on a daily
basis on each day the Fund determines its net asset value in U.S. dollars. The
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. See "Redemption of Shares." Under present conditions, the Fund does
not believe that these considerations will have any significant effect on its
portfolio strategy, although there can be no assurance in this regard.
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU"). For a number of years,
certain European countries have been seeking economic unification that would,
among other things, reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") set out a framework for the European
Economic and Monetary Union ("EMU") among the countries that comprise the
European Union ("EU"). EMU established a single common European currency (the
"euro") that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. EMU took
effect for the initial EMU participants on January 1, 1999. Certain securities
issued in participating EU countries (beginning with government and corporate
bonds) were redenominated in the euro, and are listed, traded, and make dividend
and other payments only in euros.
No assurance can be given that EMU will be fully implemented, that all the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will be implemented but not completed, or will
be completed but then partially or completely unwound. Because any participating
country may opt out of EMU within the first three years, it is also possible
that a significant participant could choose to abandon EMU, which would diminish
its credibility and influence. Any of these occurrences could have adverse
effects on the markets of both participating and non-participating countries,
including sharp appreciation
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or depreciation of the participants' national currencies and a significant
increase in exchange rate volatility, a resurgence in economic protectionism, an
undermining of confidence in the European markets, an undermining of European
economic stability, the collapse or slowdown of the drive toward European
economic unity, and/or reversion of the attempts to lower government debt and
inflation rates that were introduced in anticipation of EMU. Also, withdrawal
from EMU by an initial participant could cause disruption of the financial
markets as securities denominated in euros are transferred back into that
country's national currency, particularly if the withdrawing country is a major
economic power. Such developments could have an adverse impact on the Fund's
investments in Europe generally or in specific countries participating in EMU.
Gains or losses resulting from the euro conversion may be taxable to Fund
shareholders under foreign or, in certain limited circumstances, U.S. tax laws.
In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. If not properly addressed, this may
negatively affect the operations of the companies in which the Fund invests.
OTHER INVESTMENT POLICIES, PRACTICES, AND RISK FACTORS
SECURITIES LENDING. The Fund may lend securities with a value not exceeding
33 1/3% of its total assets (subject to investment restriction (4) below). In
return, the Fund receives collateral in an amount equal to at least 100% of the
current market value of the loaned securities in cash or securities issued or
guaranteed by the United States Government. The Fund receives securities as
collateral for the loaned securities and the Fund and the borrower negotiate a
rate for the loan premium to be received by the Fund for the loaned securities,
which increases the Fund's yield. The Fund may receive a flat fee for its loans.
The loans are terminable at any time and the borrower, after notice, is required
to return borrowed securities within five business days. The Fund may pay
reasonable finder's, administrative and custodial fees in connection with its
loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Fund
could experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
ILLIQUID OR RESTRICTED SECURITIES. The Fund may invest up to 15% of its net
assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
The Fund may invest in securities that are "restricted securities."
Restricted securities have contractual or legal restrictions on their resale and
include "private placement" securities that the Fund may buy directly from the
issuer. Restricted securities may be neither listed on an exchange nor traded in
other established markets. Privately placed securities may or may not be freely
transferable under the laws of the applicable jurisdiction or due to contractual
restrictions on resale. As a result of the absence of a public trading market,
privately placed securities may be more difficult to value than publicly traded
securities and may be less liquid, or illiquid, and therefore may be subject to
the risks associated with illiquid securities, as described in the preceding
paragraph. Some restricted securities, however, may be liquid. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. If any privately placed securities held
by the Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Fund may be required to bear the
expenses of registration. Certain of the Fund's investments in private
placements may consist of direct investments and may include investments in
smaller, less-seasoned issuers, which may involve greater risks. These issuers
may have
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limited product lines, markets or financial resources, or they may be dependent
on a limited management group. In making investments in such securities, the
Fund may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities.
144A SECURITIES. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Trustees has determined to treat as liquid Rule
144A securities that are either (i) freely tradable in their primary markets
offshore or (ii) debt securities which the Fund's management determines are as
liquid as publicly registered debt securities. The Board of Trustees has adopted
guidelines and delegated to the Fund's management the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these securities.
REPURCHASE AGREEMENTS AND PURCHASE AND SALE CONTRACTS. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements may be entered into only with financial institutions which
(i) have, in the opinion of the Investment Adviser, substantial capital relative
to the Fund's exposure, or (ii) have provided the Fund with a third party
guaranty or other credit enhancement. Under such agreements, the other party
agrees, upon entering into the contract with the Fund, to repurchase the
security at a mutually agreed upon time and price in a specified currency,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period
although it may be affected by currency fluctuations. In the case of repurchase
agreements, the prices at which the trades are conducted do not reflect the
accrued interest on the underlying obligations; whereas, in the case of purchase
and sale contracts, the prices take into account accrued interest. Such
agreements usually cover short periods, often less than one week. Repurchase
agreements may be construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser. In the case of a
repurchase agreement, as a purchaser, the Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement;
the Fund does not have the right to seek additional collateral in the case of
purchase and sale contracts. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but constitute only collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. A purchase and sale contract differs from a
repurchase agreement in that the contract arrangements stipulate that the
securities are owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract, instead of the
contractual fixed rate of return, the rate of return to the Fund shall be
dependent upon intervening fluctuations of the market values of such securities
and the accrued interest on the securities. In such event, the Fund would have
rights against the seller for breach of contract with respect to any losses
resulting from market fluctuations following the failure of the seller to
perform. While the substance of purchase and sale contracts is similar to
repurchase agreements, because of the different treatment with respect to
accrued interest and additional collateral, management believes that purchase
and sale contracts are not repurchase agreements as such term is understood in
the banking and brokerage community.
WHEN ISSUED SECURITIES, DELAYED DELIVERY SECURITIES AND FORWARD
COMMITMENTS. The Fund may purchase or sell securities that it is entitled to
receive on a when issued basis. The Fund may also purchase or sell securities on
a delayed delivery basis. The Fund may also purchase or sell securities through
a forward commitment. These transactions involve the purchase or sale of
securities by the Fund at an established price with payment and delivery taking
place in the future. The Fund enters into these transactions to obtain what is
considered an advantageous price to the Fund at the time of entering into the
transaction. The Fund has not established any limit on the percentage of its
assets that may be committed in connection with these transactions. When the
Fund purchases securities in these transactions, the Fund segregates liquid
securities in an amount equal to the amount of its purchase commitments.
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There can be no assurance that a security purchased on a when issued basis
will be issued or that a security purchased or sold through a forward commitment
will be delivered. The value of securities in these transactions on the delivery
date may be more or less than the Fund's purchase price. The Fund may bear the
risk of a decline in the value of the security in these transactions and may not
benefit from an appreciation in the value of the security during the commitment
period.
DERIVATIVES
The Fund may use instruments referred to as "Derivatives." Derivatives are
financial instruments the value of which is derived from another security, a
commodity (such as gold or oil) or an index (a measure of value or rates, such
as the S&P 500 or the prime lending rate). Derivatives allow the Fund to
increase or decrease the level of risk to which the Fund is exposed more quickly
and efficiently than transactions in other types of instruments.
HEDGING. The Fund may use Derivatives for hedging purposes. Hedging is a
strategy in which a Derivative is used to offset the risk that other Fund
holdings may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an opposite manner
to market movements. While hedging can reduce losses, it can also reduce or
eliminate gains if the market moves in a different manner than anticipated by
the Fund or if the cost of the Derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the value of the Derivative will
not match those of the holdings being hedged as expected by the Fund, in which
case any losses on the holdings being hedged may not be reduced.
The Fund may use the following types of Derivative instruments and trading
strategies:
INDEXED SECURITIES
The Fund may invest in securities the potential return of which is based on
an index. As an illustration, the Fund may invest in a debt security that pays
interest based on the current value of an interest rate index, such as the prime
rate. The Fund may also invest in a debt security which returns principal at
maturity based on the level of a securities index or a basket of securities, or
based on the relative changes of two indices. Indexed securities involve credit
risk, and certain indexed securities may involve leverage risk, liquidity risk,
and currency risk. The Fund may invest in indexed securities for hedging
purposes only. When used for hedging purposes, indexed securities involve
correlation risk.
OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT OPTIONS. The Fund may purchase put options on securities
held in its portfolio or securities or interest rate indices which are
correlated with securities held in its portfolio. When the Fund purchases a put
option, in consideration for an upfront payment (the "option premium") the Fund
acquires a right to sell to another party specified securities owned by the Fund
at a specified price (the "exercise price") on or before a specified date (the
"expiration date"), in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put option prior to the option's expiration
date. If the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the option
premium and will consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put. Purchasing a put
option may involve correlation risk, and may also involve liquidity and credit
risk.
PURCHASING CALL OPTIONS. The Fund may also purchase call options on
securities it intends to purchase or securities or interest rate indices, which
are correlated with the types of securities it intends to purchase. When the
Fund purchases a call option, in consideration for the option premium the Fund
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acquires a right to purchase from another party specified securities at the
exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect the Fund from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire option
premium. Purchasing a call option involves correlation risk, and may also
involve liquidity and credit risk.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold. However, the Fund
will not purchase options on securities if, as result of such purchase, the
aggregate cost (option premiums paid) of all outstanding options on securities
held by the Fund would exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any such contracts and options.
WRITING CALL OPTIONS. The Fund may write (I.E., sell) call options on
securities held in its portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When the Fund writes a call
option, in return for an option premium the Fund gives another party the right
to buy specified securities owned by the Fund at the exercise price on or before
the expiration date, in the case of an option on securities, or agrees to pay to
another party an amount based on any gain in a specified securities index beyond
a specified level on or before the expiration date, in the case of an option on
a securities index. The Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which the Fund has written
an option fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities, and gives up the opportunity to
profit from any increase in the value of the underlying securities beyond the
exercise price, while the option remains outstanding. Writing a call option may
involve correlation risk.
WRITING PUT OPTIONS. The Fund may also write put options on securities or
securities indices. When the Fund writes a put option, in return for an option
premium the Fund gives another party the right to sell to the Fund a specified
security at the exercise price on or before the expiration date, in the case of
an option on a security, or agrees to pay to another party an amount based on
any decline in a specified securities index below a specified level on or before
the expiration date, in the case of an option on a securities index. The Fund
may write put options to earn income, through the receipt of option premiums. In
the event the party to which the Fund has written an option fails to exercise
its rights under the option because the value of the underlying securities is
greater than the exercise price, the Fund will profit by the amount of the
option premium. By writing a put option, however, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the market
value of the security at the time of exercise as long as the put option is
outstanding, in the case of an option on a security, or make a cash payment
reflecting any decline in the index, in the case of an option on an index.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund would be willing
to purchase the security at the exercise price for investment purposes (in the
case of an option on a security) or is writing the put in connection with
trading strategies involving combinations of options--for example, the sale and
purchase of options with identical expiration dates on the same security or
index but different exercise prices (a technique called a "spread"). Writing a
put option may involve substantial leverage risks.
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The Fund is also authorized to sell call or put options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will only write
call or put options that are "covered." A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in Derivatives" below. A call option will also
be considered covered if the Fund owns the securities it would be required to
deliver upon exercise of the option (or, in the case of option on a securities
index, securities which substantially correlate with the performance of such
index) or owns a call option, warrant or convertible instrument which is
immediately exercisable for, or convertible into, such security.
The Fund may not write covered call options on underlying securities in an
amount exceeding 15% of the market value of its assets.
TYPES OF OPTIONS. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater credit risk. OTC options also involve greater liquidity risk. See
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below.
FUTURES
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid upon entering into
a futures contract. Rather, upon purchasing or selling a futures contract the
Fund is required to deposit collateral ("margin") equal to a percentage
(generally less than 10%) of the contract value. Each day thereafter until the
futures position is closed, the Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of the
futures position the prior day. Futures involve substantial leverage risk.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (I.E., contracts for which the underlying asset is a
currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
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FOREIGN EXCHANGE TRANSACTIONS
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
FORWARD FOREIGN EXCHANGE TRANSACTIONS. Forward foreign exchange
transactions are OTC contracts to purchase or sell a specified amount of a
specified currency or multinational currency unit at a price and future date set
at the time of the contract. Spot foreign exchange transactions are similar but
require current, rather than future, settlement. The Fund will enter into
foreign exchange transactions only for purposes of hedging either a specific
transaction or a portfolio position. The Fund may enter into a foreign exchange
transaction for purposes of hedging a specific transaction by, for example,
purchasing a currency needed to settle a security transaction or selling a
currency in which the Fund has received or anticipates receiving a dividend or
distribution. The Fund may enter into a foreign exchange transaction for
purposes of hedging a portfolio position by selling forward a currency in which
a portfolio position of the Fund is denominated or by purchasing a currency in
which the Fund anticipates acquiring a portfolio position in the near future.
The Fund may also hedge portfolio positions through currency swaps, which are
transactions in which one currency is simultaneously bought for a second
currency on a spot basis and sold for the second currency on a forward basis.
Forward foreign exchange transactions involve substantial currency risk, and
also involve credit and liquidity risk.
CURRENCY FUTURES. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above. Currency futures involve substantial currency risk, and also involve
leverage risk.
CURRENCY OPTIONS. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration for
an option premium the writer of a currency option is obligated to sell (in the
case of a call option) or purchase (in the case of a put option) a specified
amount of a specified currency on or before the expiration date for a specified
amount of another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. See "Types of Options" above and
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below. Currency options involve substantial currency risk, and may
also involve credit, leverage or liquidity risk.
LIMITATIONS ON CURRENCY HEDGING. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates purchasing,
which are denominated in such currency. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a "cross-hedge"). The Fund will
only enter into a cross-hedge if the Investment Adviser believes that (i) there
is a demonstrable high correlation between the currency in which the cross-hedge
is denominated and the currency being hedged, and (ii) executing a cross-hedge
through the currency in which the cross-hedge is denominated will be
significantly more cost-effective or provide substantially greater liquidity
than executing a similar hedging transaction by means of the currency being
hedged.
RISK FACTORS IN HEDGING FOREIGN CURRENCY RISKS. Hedging transactions
involving Currency Instruments involve substantial risks, including correlation
risk. While the Fund's use of Currency Instruments to effect hedging strategies
is intended to reduce the volatility of the net asset value of the Fund's
shares, the net asset value of the Fund's shares will fluctuate. Moreover,
although Currency Instruments will be used with the intention of hedging against
adverse currency movements, transactions in Currency Instruments involve the
risk that anticipated currency movements will not be accurately predicted and
that the Fund's hedging strategies will be ineffective. To the extent that the
Fund hedges against anticipated currency
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movements which do not occur, the Fund may realize losses, and decrease its
total return, as the result of its hedging transactions. Furthermore, the Fund
will only engage in hedging activities from time to time and may not be engaging
in hedging activities when movements in currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to
enter into a hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which Currency
Instruments are not available [(such as certain developing markets)] and it is
not possible to engage in effective foreign currency hedging.
RISK FACTORS IN DERIVATIVES
Derivatives are volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty on a Derivative transaction
will be unable to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between two
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Leverage risk -- the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large changes
in the value of an investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the amount originally
invested.
Liquidity risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the
value of the Derivative moves more or less than the value of the hedged
instruments the Fund will experience a gain or loss which will not be completely
offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Derivatives only if
there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives." However, there can be
no assurance that, at any specific time, either a liquid secondary market will
exist for a Derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales
of put options) involve a substantial leverage risk and may expose the Fund to
potential losses, which exceed the amount originally invested by the Fund. When
the Fund engages in such a transaction, the Fund will deposit in a segregated
account at its custodian liquid securities with a value at least equal to the
Fund's exposure, on a mark-to-market basis, to the transaction (as calculated
pursuant to requirements of the Securities and Exchange Commission). Such
segregation will ensure that the Fund has assets available to satisfy its
obligations with respect to the transaction, but will not limit the Fund's
exposure to loss.
ADDITIONAL RISK FACTORS OF OTC TRANSACTIONS; LIMITATIONS ON THE USE OF OTC
DERIVATIVES
Certain Derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also
make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price
at which the instrument may be terminated or sold, or (ii) for which the
Investment Adviser
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anticipates the Fund can receive on each business day at least two independent
bids or offers, unless a quotation from only one dealer is available, in which
case that dealer's quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed by an exchange
or clearing corporation and generally do not require payment of margin, to the
extent that the Fund has unrealized gains in such instruments or has deposited
collateral with its counterparty the Fund is at risk that its counterparty will
become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in transactions in Strategic
Instruments traded in OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a third-party guaranty
or other credit enhancement.
SUITABILITY. The economic benefit of an investment in the Fund depends upon
many factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on foreign securities, the Fund should be
considered a vehicle for diversification and not as a balanced investment
program. The suitability for any particular investor of a purchase of shares in
the Fund will depend upon, among other things, such investor's investment
objectives and such investor's ability to accept the risks associated with
investing in foreign securities, including the risk of loss of principal.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the Fund's shares present at a meeting at which more
than 50% of the outstanding shares of the Fund are represented or (ii) more than
50% of the Fund's outstanding shares). The Fund may not:
(1) Invest more than 25% of its assets, taken at market value, in the
securities of corporate issuers in any particular industry.
(2) Make investments for the purpose of exercising control or
management.
(3) Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein.
(4) Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time to
time.
(5) Issue senior securities to the extent such issuance would violate
applicable law.
(6) Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its total
assets (including the amount borrowed), (ii) the Fund may, to the extent
permitted by applicable law, borrow up to an additional 5% of its total
assets for temporary purposes, (iii) the Fund may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the
Fund's investment policies as set forth in the Prospectus and this Statement
of Additional Information, as they may be
11
<PAGE>
amended from time to time, in connection with hedging transactions, short
sales, when-issued and forward commitment transactions and similar
investment strategies.
(7) Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in selling
portfolio securities.
(8) Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and the
Prospectus and this Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental investment restrictions
that may be changed by the Board of Trustees without a vote of the Fund's
shareholders. Under the non-fundamental investment restrictions, the Fund may
not:
(a) Purchase securities of other investment companies, except to the
extent permitted by applicable law. As a matter of policy, however, the Fund
will not purchase shares of any registered open-end investment company or
registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G)
(the "fund of funds" provisions) of the Investment Company Act at any time
the Fund's shares are owned by another investment company that is part of
the same group of investment companies as the Fund.
(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
(c) Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities, that the Board of Directors of the Fund has otherwise determined
to be liquid pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act and determined to be liquid by the
Fund's Board of Trustees are not subject to the limitations set forth in
this investment restriction.
(d) Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 10% of its total assets taken at market value, and then
only from banks as a temporary measure for extraordinary or emergency
purposes. In addition, the Fund will not purchase securities while
borrowings are outstanding except to exercise prior commitments and to
exercise subscription rights.
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
which it will not purchase or sell OTC options if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Fund
and margin deposits on the Fund's existing OTC options on futures contracts
exceeds 15% of the net assets of the Fund, taken at market value, together with
all other assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York
and the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (I.E., current
market value of the underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money." This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Board of Trustees
of the Fund without the approval of the Fund's
12
<PAGE>
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
Because of the affiliation of Merrill Lynch with the Investment Adviser, the
Fund is prohibited from engaging in certain transactions involving Merrill Lynch
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order the
Fund would be prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
NON-DIVERSIFIED STATUS
The 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
the proportion of its assets that it may invest in securities of a single
issuer. The Fund's investments will be limited, however, in order to qualify for
the special tax treatment afforded regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). See "Distributions and
Taxes--Taxes." To qualify, the Fund will comply with certain requirements,
including limiting 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, not more than 5% of the
market value of its total assets will be invested in the securities of a single
issuer, and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. Foreign government securities (unlike U.S.
Government securities) are not exempt from the diversification requirements of
the Code and the securities of each foreign government issuer are considered to
be obligations of a single issuer. A fund 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 the
Fund assumes large positions in the securities of a small number of issuers, the
Fund's net asset value may fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the financial condition
or in the market's assessment of the issuers, and the Fund may be more
susceptible to any single economic, political or regulatory occurrence than a
diversified investment company.
PORTFOLIO TURNOVER
The rate of portfolio turnover is not a limiting factor and, given the
Fund's investment policies, it is anticipated that there may be periods when
high portfolio turnover will exist. High portfolio turnover may result in
negative tax consequences, such as an increase in capital gains dividends or in
ordinary income dividends of accrued market discount. See "Distributions and
Taxes -- Taxes." The portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities with maturities at the time
of acquisition of one year or less) by the monthly average value of the
securities in the portfolio during the year. The Fund's turnover rate may vary
greatly from year to year or during periods within a year. A high rate of
portfolio turnover results in correspondingly greater brokerage commission
expenses.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees of the Fund consists of seven individuals, six of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act (the "non-interested Trustees"). The Trustees are responsible for the
overall supervision of the operations of the Fund and perform the various duties
imposed on the directors or trustees of investment companies by the Investment
Company Act.
Information about the Trustees, executive officers and the portfolio manager
of the Fund, including their ages and their principal occupations for at least
the last five years, is set forth below. Unless otherwise
13
<PAGE>
noted, the address of each Trustee, executive officer and the portfolio manager
is P.O. Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66)-- PRESIDENT AND TRUSTEE(1)(2) -- Chairman of the
Investment Adviser and Fund Asset Management, L.P. ("FAM") (which terms as used
herein include their corporate predecessors) since 1997; President of the
Investment Adviser and FAM from 1977 to 1997; Chairman of Princeton Services,
Inc. ("Princeton Services") since 1997 and Director thereof since 1993;
President of Princeton Services from 1993 to 1997; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
DONALD CECIL (72) -- TRUSTEE(2)(3) -- 1114 Avenue of the Americas, New York,
New York 10036. Special Limited Partner of Cumberland Associates (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
ROLAND M. MACHOLD (62) -- TRUSTEE(2)(3) -- 1091 Princeton-Kingston Road,
Princeton, New Jersey 08540. Director of the State of New Jersey Division of
Investment from 1977 to 1988; Trustee of Bryn Mawr College since 1990 and of
Teacher's College, Columbia University since 1985; Co-Chair Emeritus and
Founding Director of the Council of Institutional Investors; Member of the
Capital Formation and Regulatory Processes Advisory Committee of the Securities
and Exchange Commission from 1995 to 1996; Member of the Institutional Investor
Advisory Committee of the New York Stock Exchange from 1992 to 1995.
EDWARD H. MEYER (72) -- TRUSTEE(2)(3) -- 777 Third Avenue, New York, New
York 10017. President of Grey Advertising Inc. since 1968, Chief Executive
Officer since 1970 and Chairman of the Board of Directors since 1972; Director
of The May Department Stores Company, Bowne & Co., Inc. (financial printers),
Ethan Allen Interiors Inc. and Harman International Industries, Inc.
CHARLES C. REILLY (67) -- TRUSTEE(2)(3) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television from 1986 to 1997.
RICHARD R. WEST (61) -- TRUSTEE(2)(3) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company) and Alexander's, Inc. (real
estate company).
EDWARD D. ZINBARG (64) -- TRUSTEE(2)(3) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; Former Director of Prudential Reinsurance Company
and former Trustee of The Prudential Foundation.
TERRY K. GLENN (58) -- EXECUTIVE VICE PRESIDENT(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President
of Princeton Administrators, L.P. since 1988.
JOSEPH T. MONAGLE, JR. (49) -- SENIOR VICE PRESIDENT(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1990; Vice President of the
Investment Adviser from 1978 to 1990; Senior Vice President of Princeton
Services since 1993.
HARRY J. ESCOBAR (53) -- SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER(1)(2)
- -- Director (Global Fixed Income) of MLAM since August 1998; Senior Vice
President in the Fixed Income Group at Lehman Brothers, Inc. from 1991 to 1998.
14
<PAGE>
DONALD C. BURKE (38) -- VICE PRESIDENT AND TREASURER(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and FAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; First Vice
President of the Investment Adviser from 1997 to 1999; Vice President of the
Investment Adviser from 1990 to 1997; Director of Taxation of the Investment
Adviser since 1990; Vice President of PFD since 1999.
ROBERT HARRIS (47) -- SECRETARY(1)(2) -- First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1984 to 1997 and attorney associated with the Investment Adviser since 1980;
Secretary of the PFD since 1982.
- ------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or FAM acts as the
investment adviser.
(3) Member of the Fund's Audit and Nominating Committee which is responsible for
the selection of the independent auditors and the selection and nomination
of non-interested Trustees.
As of April , 1999, the Trustees and officers of the Fund as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At such date, Mr. Zeikel, a Trustee and officer of the Fund, and the other
officers of the Fund owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
COMPENSATION OF TRUSTEES
The Fund pays each non-interested Trustee a fee of $3,500 per year plus $500
per Board meeting attended. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all the non-interested
Trustees, a fee of $500 per meeting attended. The Fund pays the Chairman of the
Committee an additional fee of $250 per meeting attended. The Fund reimburses
each non-interested Trustee for his out-of-pocket expenses relating to
attendance at Board and Committee meetings.
The following table shows the compensation earned by the non-interested
Trustees for the fiscal year ended December 31, 1998 and the aggregate
compensation paid to them from all registered investment companies advised by
the Investment Adviser and its affiliate, FAM ("MLAM/FAM-advised funds"), for
the calendar year ended December 31, 1998.
<TABLE>
<CAPTION>
PENSION OR AGGREGATE
RETIREMENT ESTIMATED COMPENSATION FROM
BENEFITS ACCRUED ANNUAL FUND AND OTHER
POSITION COMPENSATION AS PART OF FUND BENEFITS UPON MLAM/FAM-
NAME WITH FUND FROM FUND EXPENSE RETIREMENT ADVISED FUNDS(1)
- ----------------------------- ------------ --------------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Donald Cecil................. Trustee $ 8,500 None None $ 277,808
Roland M. Machold............ Trustee $ 1,083 None None $ 39,208(2)
Edward H. Meyer.............. Trustee $ 5,500 None None $ 214,558
Charles C. Reilly............ Trustee $ 7,500 None None $ 362,858
Richard R. West.............. Trustee $ 7,500 None None $ 334,125
Edward D. Zinbarg............ Trustee $ 7,500 None None $ 133,959
</TABLE>
- -------------
(1) The Trustees serve on the boards of MLAM/FAM-advised funds as follows: Mr.
Cecil (34 registered investment companies consisting of 34 portfolios); Mr.
Machold (19 registered investment companies consisting of 19 portfolios);
Mr. Meyer (34 registered investment companies consisting of 34 portfolios);
Mr. Reilly (56 registered investment companies consisting of 69 portfolios);
Mr. West (58 registered investment companies consisting of 83 portfolios);
and Mr. Zinbarg (19 registered investment companies consisting of 19
portfolios).
(2) Mr. Machold was elected a Trustee of the Fund and a director or trustee of
certain other MLAM/FAM-advised funds on October 20, 1998.
15
<PAGE>
Trustees of the Fund may purchase Class A shares of the Fund at net asset
value. See "Purchase of Shares -- Initial Sales Charge Alternatives -- Class A
and Class D Shares -- Reduced Initial Sales Charges -- Purchase Privilege of
Certain Persons."
MANAGEMENT AND ADVISORY ARRANGEMENTS
MANAGEMENT SERVICES. The Investment Adviser provides the Fund with
investment advisory and management services. Subject to the supervision of the
Board of Trustees, the Investment Adviser is responsible for the actual
management of the Fund's portfolio and constantly reviews the Fund's holdings in
light of its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser. The Investment Adviser performs certain of
the other administrative services and provides all the office space, facilities,
equipment and necessary personnel for management of the Fund.
INVESTMENT ADVISORY FEE. The Fund has entered into an investment advisory
agreement with the Investment Adviser (the "Investment Advisory Agreement"),
pursuant to which the Investment Adviser receives for its services to the Fund
monthly compensation at the annual rate of 0.60% of the average daily net assets
of the Fund. The table below sets forth information about the total investment
advisory fees paid by the Fund to the Investment Adviser for the periods
indicated.
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
FISCAL YEAR ENDED DECEMBER 31, FEE
- ------------------------------------------------------ ----------------------
<S> <C>
1998.................................................. $--
1997.................................................. $--
1996.................................................. $--
</TABLE>
The Investment Adviser has entered into a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") pursuant to which MLAM
U.K. provides investment advisory services to the Investment Adviser with
respect to the Fund. The table below sets forth information about the total
investment advisory fees paid by the Investment Adviser to MLAM U.K. for the
periods indicated.
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
FISCAL YEAR ENDED DECEMBER 31, FEE
- ------------------------------------------------------ ----------------------
<S> <C>
1998.................................................. $
1997.................................................. $
1996.................................................. $
</TABLE>
PAYMENT OF FUND EXPENSES. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Fund
connected with investment and economic research, trading and investment
management of the Fund, as well as the fees of all Trustees of the Fund who are
affiliated persons of ML & Co. or any of its affiliates. The Fund pays all other
expenses incurred in the operation of the Fund, including among other things:
taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports, prospectuses and statements of
additional information, except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the "Distributor"); charges of the custodian and
the transfer agent; expenses of redemption of shares; Commission fees; expenses
of registering the shares under Federal and state securities laws; fees and
expenses of unaffiliated Trustees; accounting and pricing costs (including the
daily calculations of net asset value); insurance; interest; brokerage costs;
litigation and other extraordinary or non-recurring expenses; and other expenses
properly payable by the Fund. Accounting services are provided for the Fund by
the Investment Adviser and the Fund reimburses the Investment Adviser for its
costs in connection with such services. See "Purchase of Shares -- Distribution
Plans."
ORGANIZATION OF THE INVESTMENT ADVISER. The Investment Adviser is a limited
partnership, the partners of which are ML & Co., a financial services holding
company and the parent of Merrill Lynch, and Princeton Services. ML & Co. and
Princeton Services are "controlling persons" of the Investment Adviser
16
<PAGE>
as defined under the Investment Company Act because of their ownership of its
voting securities or their power to exercise a controlling influence over its
management or policies.
The following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch
Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch International
Holdings, Inc., a subsidiary of Merrill Lynch International, Inc., a subsidiary
of ML & Co.
DURATION AND TERMINATION. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Trustees of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the Trustees who are
not parties to such contract or interested persons (as defined in the Investment
Company Act) of any such party. Such contracts are not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party or by vote of the shareholders of the Fund.
TRANSFER AGENCY SERVICES. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to
a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency
Agreement, the Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of
$11.00 per Class A or Class D account and $14.00 per Class B or Class C account
and is entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency
Agreement. Additionally, a $.20 monthly closed account charge will be assessed
on all accounts which close during the calendar year. Application of this fee
will commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the beneficial
interest of a person in the relevant share class on a recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.
DISTRIBUTION EXPENSES. The Fund has entered into four separate distribution
agreements with the Distributor in connection with the continuous offering of
each class of shares of the Fund (the "Distribution Agreements"). The
Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays for
the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreement described above.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
The Codes require that all employees of the Investment Adviser pre-clear any
personal securities investment (with limited exceptions, such as government
securities). The pre-clearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to the
proposed investment. The substantive restrictions applicable to all employees of
the Investment Adviser include a ban on acquiring any securities in a "hot"
initial public offering and a prohibition from profiting on short-term trading
in securities. In addition, no employee may purchase or sell any security that
at the time is being purchased or sold (as the case may be), or to the knowledge
of the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes
17
<PAGE>
provide for trading "blackout periods" which prohibit trading by investment
personnel of the Fund within periods of trading by the Fund in the same (or
equivalent) security (15 or 30 days depending upon the transaction).
PURCHASE OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing-SM- System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives and shares of Class B and Class C are sold
to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C or Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees (also known as service fees) and Class B and Class C shares
bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. The contingent deferred sales charges ("CDSCs"), distribution fees
and account maintenance fees that are imposed on Class B and Class C shares, as
well as the account maintenance fees that are imposed on Class D shares, are
imposed directly against those classes and not against all assets of the Fund
and, accordingly, such charges do not affect the net asset value of any other
class or have any impact on investors choosing another sales charge option.
Dividends paid by the Fund for each class of shares are calculated in the same
manner at the same time and differ only to the extent that account maintenance
and distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The Merrill Lynch Select Pricing-SM- System is used by more than 50
registered investment companies advised by MLAM or FAM. Funds advised by MLAM or
FAM that utilize the Merrill Lynch Select Pricing-SM- System are referred to
herein as "Select Pricing Funds."
The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Neither the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Merrill Lynch may charge
its customers a processing fee (presently $5.35) to confirm a sale of shares to
such customers. Purchases made directly through the Transfer Agent are not
subject to the processing fee.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors who prefer an initial sales charge alternative may elect to
purchase Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to purchase Class
A shares should purchase Class A shares rather than Class D shares because there
is an account maintenance fee imposed on Class D shares. Investors qualifying
for significantly reduced initial sales charges may find the initial sales
charge alternative particularly attractive because similar sales charge
reductions are not available with respect to the deferred sales charges imposed
in connection with purchases of Class B or Class C shares. Investors not
qualifying for reduced initial sales charges who expect to maintain their
investment for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account maintenance
and distribution fees on Class B or Class C shares may exceed the initial sales
charge and, in the case of Class D shares, the account
18
<PAGE>
maintenance fee. Although some investors who previously purchased Class A shares
may no longer be eligible to purchase Class A shares of other Select Pricing
Funds, those previously purchased Class A shares, together with Class B, Class C
and Class D share holdings, will count toward a right of accumulation which may
qualify the investor for reduced initial sales charge on new initial sales
charge purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C shares to have
higher expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees will
cause Class D shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class A shares.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his or her spouse and their children under
the age of 21 years purchasing shares for his, her or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or broker-
dealer or clients of an investment adviser.
ELIGIBLE CLASS A INVESTORS
Class A shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares. Investors
who currently own Class A shares, including participants in the Merrill Lynch
Blueprint-SM- Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain Employer Sponsored Retirement or Savings Plans,
including eligible 401(k) plans, may purchase Class A shares at net asset value
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by MLAM or any of its affiliates. Class A
shares are available at net asset value to corporate warranty insurance reserve
fund programs provided that the program has $3 million or more initially
invested in Select Pricing Funds. Also eligible to purchase Class A shares at
net asset value are participants in certain investment programs including
TMA-SM- Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services, collective investment trusts for which Merrill
Lynch Trust Company serves as trustee and certain purchases made in connection
with certain fee-based programs. In addition, Class A shares are offered at net
asset value to ML & Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies. Certain
persons who acquired shares of certain MLAM-advised closed-end funds in their
initial offerings who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in shares of the Fund also may purchase
Class A shares of the Fund if certain conditions are met. In addition, Class A
shares of the Fund and certain other Select Pricing Funds are offered at net
asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, if certain conditions are met, to shareholders of Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who
wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such funds in shares of the
Fund and certain other Select Pricing Funds.
19
<PAGE>
CLASS A AND CLASS D SALES CHARGE INFORMATION
<TABLE>
<CAPTION>
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------
For the Fiscal Year Sales Charges Sales Charges CDSCs Received on
Ended Gross Sales Retained by Paid to Redemption of
December 31, Charges Collected Distributor Merrill Lynch Load-Waived Shares
- --------------------- ----------------- ------------------- ----------------- -----------------------
<S> <C> <C> <C> <C>
1998 $ 87 $ 8 $ 79 $ 0
1997 $ 1,808 $ 158 $ 1,650 0
1996 $ 6,333 $ 656 $ 5,677 0
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES
- -------------------------------------------------------------------------------------------------------
For the Fiscal Year Gross Sales Sales Charges Sales Charges CDSCs Received on
Ended Charges Retained by Paid to Redemption of
December 31, Collected Distributor Merrill Lynch Load-Waived Shares
- --------------------- --------------- ----------------- ----------------- -------------------------
<S> <C> <C> <C> <C>
1998 $ 3,726 $ 304 $ 3,422 $ 0
1997 $ 10,085 $ 843 $ 9,242 0
1996 $ 33,228 $ 2,761 $ 30,467 $ 786
</TABLE>
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
REDUCED INITIAL SALES CHARGES
REINVESTED DIVIDENDS AND CAPITAL GAINS. No initial sales charges are
imposed upon Class A and Class D shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
RIGHT OF ACCUMULATION. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Fund subject to an initial sales charge at the offering price applicable
to the total of (a) the public offering price of the shares then being purchased
plus (b) an amount equal to the then current net asset value or cost, whichever
is higher, of the purchaser's combined holdings of all classes of shares of the
Fund and of any other Select Pricing Funds. For any such right of accumulation
to be made available, the Distributor must be provided at the time of purchase,
by the purchaser or the purchaser's securities dealer, with sufficient
information to permit confirmation of qualification. Acceptance of the purchase
order is subject to such confirmation. The right of accumulation may be amended
or terminated at any time. Shares held in the name of a nominee or custodian
under pension, profit-sharing or other employee benefit plans may not be
combined with other shares to qualify for the right of accumulation.
LETTER OF INTENT. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or any
Select Pricing Funds made within a 13-month period starting with the first
purchase pursuant to a Letter of Intent. The Letter of Intent is available only
to investors whose accounts are established and maintained at the Fund's
Transfer Agent. The Letter of Intent is not available to employee benefit plans
for which Merrill Lynch provides plan participant recordkeeping services. The
Letter of Intent is not a binding obligation to purchase any amount of Class A
or Class D shares; however, its execution will result in the purchaser paying a
lower sales charge at the appropriate quantity purchase level. A purchase not
originally made pursuant to a Letter of Intent may be included under a
subsequent Letter of Intent executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. The
value of Class A and Class D shares of the Fund and of other Select Pricing
Funds presently held, at cost or maximum offering price (whichever is higher),
on the date of the first purchase under the Letter of Intent, may be included as
a credit toward the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount stated in the
20
<PAGE>
Letter of Intent (minimum of $25,000), the investor will be notified and must
pay, within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
Class A or Class D shares equal to at least 5.0% of the intended amount will be
held in escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the Letter of
Intent must be at least 5.0% of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the further reduced percentage
sales charge that would be applicable to a single purchase equal to the total
dollar value of the Class A or Class D shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales charge on any
previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intent will be deducted from
the total purchases made under such Letter. An exchange from the Summit Cash
Reserves Fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.
MERRILL LYNCH BLUEPRINT-SM- PROGRAM. Class D shares of the Fund are offered
to participants in the Merrill Lynch Blueprint-SM- Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through Blueprint. The Blueprint
program is directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit plans.
Investors placing orders to purchase Class A or Class D shares of the Fund
through Blueprint will acquire the Class A or Class D shares at net asset value
plus a sales charge calculated in accordance with the Blueprint sales charge
schedule (I.E., up to $300 at 4.25%, from $300.01 to $5,000 at 3.25% plus $3.00,
and $5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund are being
offered at net asset value plus a sales charge of 0.50% for corporate or group
IRA programs placing orders to purchase their Class A or Class D shares through
Blueprint. Services, including the exchange privilege, available to Class A and
Class D investors through Blueprint, however, may differ from those available to
other investors in Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program (the "IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
(as defined below) whose trustee and/or plan sponsor has entered into the IRA
Rollover Program.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint-SM- Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA-SM- MANAGED TRUSTS. Class A shares are offered at net asset value to
TMA-SM- Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
EMPLOYEE ACCESS-SM- ACCOUNTS. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee Access-SM- Accounts available through authorized employers. The initial
minimum investment for such accounts is $500, except that the initial minimum
investment for shares purchased for such accounts pursuant to the Automatic
Investment Program is $50.
21
<PAGE>
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER
ARRANGEMENTS. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class A or Class D shares at net asset
value, based on the number of employees or number of employees eligible to
participate in the plan, the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch to the plan.
Additional information regarding purchases by employer-sponsored retirement or
savings plans and certain other arrangements is available toll-free from Merrill
Lynch Business Financial Services at (800) 237-7777.
PURCHASE PRIVILEGE OF CERTAIN PERSONS. Trustees of the Fund, members of the
Boards of other MLAM-advised investment companies, ML & Co. and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly wholly owned and
controlled by ML & Co.) and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value. The Fund realizes economies of
scale and reduction of sales-related expenses by virtue of the familiarity of
these persons with the Fund. Employees and directors or trustees wishing to
purchase shares of the Fund must satisfy the Fund's suitability standards.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of
shares of a mutual fund that was sponsored by the Financial Consultant's
previous firm and was subject to a sales charge either at the time of purchase
or on a deferred basis; and, second, the investor must establish that such
redemption had been made within 60 days prior to the investment in the Fund and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice") if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and the shares of
such other fund were subject to a sales charge either at the time of purchase or
on a deferred basis; and, second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill Lynch
Financial Consultant and that has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from the redemption of shares of such
other mutual fund and that such shares have been outstanding for a period of no
less than six months; and, second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must be
maintained in the interim in cash or a money market fund.
CLOSED-END FUND INVESTMENT OPTION. Class A shares of the Fund and certain
other Select Pricing Funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by FAM or MLAM who
purchased such closed-end fund shares prior to October 21, 1994 (the date the
Merrill Lynch Select Pricing-SM- System commenced operations) and wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other Select Pricing Funds
("Eligible Class D Shares"), if the following conditions are met. First, the
sale
22
<PAGE>
of closed-end fund shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible Class A or
Eligible Class D Shares. Second, the closed-end fund shares must either have
been acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the eligible
fund in connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of shares of the Fund.
This investment option is available only with respect to eligible shares as to
which no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
ACQUISITION OF CERTAIN INVESTMENT COMPANIES. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Fund that
might result from an acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of acquisition than the realized
or unrealized appreciation of the Fund. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities that (i) meet the
investment objectives and policies of the Fund; (ii) are acquired for investment
and not for resale (subject to the understanding that the disposition of the
Fund's portfolio securities shall at all times remain within its control); and
(iii) are liquid securities, the value of which is readily ascertainable, which
are not restricted as to transfer either by law or liquidity of market (except
that the Fund may acquire through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the applicable limits on
acquisition of such securities set forth under "Investment Objective and
Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in Select Pricing Funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. See "Pricing of Shares -- Determination of Net Asset Value" below.
23
<PAGE>
Because no initial sales charges are deducted at the time of the purchase,
Class B and Class C shares provide the benefit of putting all of the investor's
dollars to work from the time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do not qualify for
the reduction in initial sales charges. Both Class B and Class C shares are
subject to ongoing account maintenance fees and distribution fees; however, the
ongoing account maintenance and distribution fees potentially may be offset to
the extent any return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be converted into
Class D shares of the Fund after a conversion period of approximately ten years,
and thereafter investors will be subject to lower ongoing fees.
CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES
Class B shares that are redeemed within four years of purchase may be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in the manner that results in the
lowest applicable rate being charged. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed. Accordingly, no CDSC will be imposed on increases in net asset
value above the initial purchase price. In addition, no CDSC will be assessed on
shares derived from reinvestment of dividends or capital gains distributions. It
will be assumed that the redemption is first of shares held for over four years
or shares acquired pursuant to reinvestment of dividends or distributions and
then of shares held longest during the four-year period. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
The following table sets forth the Class B CDSC:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------------------------------------------ ---------------------
<S> <C>
0-1..................................................................... 4.0%
1-2..................................................................... 3.0%
2-3..................................................................... 2.0%
3-4..................................................................... 1.0%
4 and thereafter........................................................ None
</TABLE>
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to a CDSC because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC may be waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder
(including one who owns the Class B shares as joint tenant with his or her
spouse), provided the redemption is requested within one year of the death or
initial determination of disability, or, if later, reasonably promptly following
completion of probate. The Class B CDSC may also be waived on redemptions of
shares by certain eligible 401(a) and eligible 401(k) plans. The CDSC also may
be waived for any Class B shares that are purchased by eligible 401(k) or
eligible 401(a) plans that are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and held in such account at the time of redemption.
The Class B CDSC may be waived for any Class B shares that were acquired and
held at the time of the redemption in an Employee Access-SM- Account available
through employers providing eligible
24
<PAGE>
401(k) plans. The Class B CDSC may also be waived for any Class B shares that
are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from
a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. The Class B CDSC may also be waived or
its terms may be modified in connection with certain fee-based programs. The
Class B CDSC may be waived in connection with involuntary termination of an
account in which Fund shares are held or for withdrawals through the Merrill
Lynch Systematic Withdrawal Plan. See "Shareholder Services -- Fee-Based
Programs" and "-- Systematic Withdrawal Plan."
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER
ARRANGEMENTS. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares with a waiver of the CDSC
upon redemption, based on the number of employees or number of employees
eligible to participate in the plan, the aggregate amount invested by the plan
in specified investments and/or the services provided by Merrill Lynch to the
plan. Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing Fund.
Minimum purchase requirements may be waived or varied for such plans. Additional
information regarding purchases by employer-sponsored retirement or savings
plans and certain other arrangements is available toll-free from Merrill Lynch
Business Financial Services at (800) 237-7777.
MERRILL LYNCH BLUEPRINT-SM- PROGRAM. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations, credit
unions and benefit plans. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund may be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment plan.
Additional information concerning these Blueprint programs, including any annual
fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner &
Smith Incorporated, The Blueprint-SM- Program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441.
CONVERSION OF CLASS B SHARES TO CLASS D SHARES. After approximately ten
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset value of the shares of
the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
In general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of taxable
and tax-exempt fixed income Select Pricing Funds will convert approximately ten
years after initial purchase. If, during the Conversion Period, a shareholder
exchanges Class B shares with an eight-year Conversion Period for Class B shares
with a ten-year Conversion Period, or vice versa, the Conversion Period
applicable to the Class B shares acquired in the
25
<PAGE>
exchange will apply and the holding period for the shares exchanged will be
tacked on to the holding period for the shares acquired. The Conversion Period
also may be modified for investors that participate in certain fee-based
programs. See "Shareholder Services -- Fee-Based Programs."
Class B shareholders of the Fund exercising the exchange privilege described
under "Shareholder Services -- Exchange Privilege" will continue to be subject
to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
CONTINGENT DEFERRED SALES CHARGES -- CLASS C SHARES
Class C shares that are redeemed within one year of purchase may be subject
to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. In
determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. The charge will be assessed on an amount equal to the lesser
of the proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases in net asset value
above the initial purchase price. In addition, no Class C CDSC will be assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It will be assumed that the redemption is first of shares held for over one year
or shares acquired pursuant to reinvestment of dividends or distributions and
then of shares held longest during the one-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value since
the time of purchase. A transfer of shares from a shareholder's account to
another account will be assumed to be made in the same order as a redemption.
The Class C CDSC may be waived in connection with certain fee-based programs,
involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See
"Shareholder Services -- Fee-Based Programs" and "Systematic Withdrawal Plan."
CLASS B AND CLASS C SALES CHARGE INFORMATION
<TABLE>
<CAPTION>
CLASS B SHARES*
- ----------------------------------------------------------------------------
For the Fiscal Year
Ended CDSCs Received CDSCs Paid to
December 31, by Distributor Merrill Lynch
- ------------------------ ------------------------ ------------------------
<S> <C> <C>
1998 $ 89,610 $ 89,610
1997 $ 387,151 $ 387,151
1996 $ 814,136 $ 814,136
</TABLE>
* Additional Class B CDSCs payable to the Distributor
with respect to the fiscal years ended December 31,
1997 and 1998 may have been waived or converted to a
contingent obligation in connection with a
shareholder's participation in certain fee-based
programs.
<TABLE>
<CAPTION>
CLASS C SHARES
- ------------------------------------------------------------------------------
For the Fiscal Year CDSCs Received CDSCs Paid to
Ended December 31, by Distributor Merrill Lynch
- ------------------------ ------------------------- -------------------------
<S> <C> <C>
1998 $ 283 $ 283
1997 $ 1,854 $ 1,854
1996 $ 5,199 $ 5,199
</TABLE>
26
<PAGE>
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. Proceeds from the
CDSC and the distribution fee are paid to the Distributor and are used in whole
or in part by the Distributor to defray the expenses of dealers (including
Merrill Lynch) related to providing distribution-related services to the Fund in
connection with the sale of the Class B and Class C shares, such as the payment
of compensation to financial consultants for selling Class B and Class C shares
from the dealer's own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and
Class C shares without a sales charge being deducted at the time of purchase.
See "Distribution Plans" below. Imposition of the CDSC and the distribution fee
on Class B and Class C shares is limited by the NASD asset-based sales charge
rule. See "Limitations on the Payment of Deferred Sales Charges" below.
DISTRIBUTION PLANS
Reference is made to "Fees and Expenses" in the Prospectus for certain
information with respect to the separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each
a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes.
The Distribution Plans for Class B, Class C and Class D shares each provides
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities
with respect to Class B, Class C and Class D shares. Each of those classes has
exclusive voting rights with respect to the Distribution Plan adopted with
respect to such class pursuant to which account maintenance and/or distribution
fees are paid (except that Class B shareholders may vote upon any material
changes to expenses charged under the Class D Distribution Plan).
The Distribution Plans for Class B and Class C shares each provides that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.50%,
with respect to Class B shares, and 0.55%, with respect to Class C shares of the
average daily net assets of the Fund attributable to the shares of the relevant
class in order to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing shareholder and distribution services and bearing
certain distribution-related expenses of the Fund, including payments to
financial consultants for selling Class B and Class C shares of the Fund. The
Distribution Plans relating to Class B and Class C shares are designed to permit
an investor to purchase Class B and Class C shares through dealers without the
assessment of an initial sales charge and at the same time permit the dealer to
compensate its financial consultants in connection with the sale of the Class B
and Class C shares.
The Fund's Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each Distribution
Plan, the Directors must consider all factors they deem relevant, including
information as to the benefits of the Distribution Plan to the Fund and each
related class of shareholders. Each Distribution Plan further provides that, so
long as the Distribution Plan remains in effect, the selection and nomination of
Independent Directors shall be committed to the discretion of the Independent
Directors then in office. In approving each Distribution Plan in accordance with
Rule 12b-1, the Independent Directors concluded that there is reasonable
likelihood that each Distribution Plan will benefit the Fund and its related
class of shareholders. Each Distribution Plan can be terminated at any time,
without penalty, by the vote of a majority of the Independent Directors or by
the vote of the holders of a majority of the outstanding related class of voting
securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders and all material amendments are required to be
approved by the vote of Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in the Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of the Distribution Plan and any report
made pursuant to
27
<PAGE>
such plan for a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an easily accessible
place.
Among other things, each Distribution Plan provides that the Distributor
shall provide and the Trustees shall review quarterly reports of the
disbursement of the account maintenance and/or distribution fees paid to the
Distributor. Payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Trustees for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans annually, as of December 31 of each year, on a "fully allocated accrual"
basis and quarterly on a "direct expense and revenue/cash" basis. On the fully
allocated accrual basis, revenues consist of the account maintenance fees,
distribution fees, the CDSCs and certain other related revenues, and expenses
consist of financial consultant compensation, branch office and regional
operation center selling and transaction processing expenses, advertising, sales
promotion and marketing expenses, corporate overhead and interest expense. On
the direct expense and revenue/cash basis, revenues consist of the account
maintenance fees, distribution fees and CDSCs and the expenses consist of
financial consultant compensation.
As of December 31, 1998, the fully allocated accrual expenses of the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated accrual revenues by
approximately $ ( % of Class B net assets at that date). As of December
31, 1998, direct cash revenues for the period since the commencement of
operations of Class B shares exceeded direct cash expenses by $31,160,822
(28.16% of Class B net assets at that date). As of December 31, 1998, the fully
allocated accrual expenses incurred by the Distributor and Merrill Lynch for the
period since the commencement of operations of Class C shares exceeded the fully
allocated accrual revenues by approximately $ ( % of Class C net assets
at that date). As of December 31, 1998, direct cash revenues for the period
since the commencement of operations of Class C shares exceeded direct cash
expenses by $116,632 (6.31% of Class C net assets at that date).
For the fiscal year ended December 31, 1998, the Fund paid the Distributor
$ pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $ ),
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class B shares.
For the fiscal year ended December 31, 1998, the Fund paid the Distributor
$ pursuant to the Class C Distribution Plan (based on average daily net
assets subject to such Class C Distribution Plan of approximately $ ),
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with Class C shares.
For the fiscal year ended December 31, 1998, the Fund paid the Distributor
$ pursuant to the Class D Distribution Plan (based on average daily net
assets subject to such Class D Distribution Plan of approximately $257.5
million), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of
28
<PAGE>
eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as of December 31,
1998 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to the Class B shares, the Distributor's voluntary
maximum.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF DECEMBER 31, 1998
--------------------------------------------------------------------------------
(IN THOUSANDS)
ALLOWABLE AMOUNTS
ELIGIBLE ALLOWABLE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE
GROSS AGGREGATE SALES UNPAID AMOUNT PAID TO UNPAID
SALES(1) CHARGE(2) BALANCE(3) PAYABLE DISTRIBUTOR(4) BALANCE
--------- --------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES FOR THE PERIOD
AUGUST 29, 1986 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
Under NASD Rule as Adopted........ $1,320,045 $ 82,342 $ 61,696 $ 144,038 $ 41,221 $ 102,817
Under Distributor's Voluntary
Waiver.......................... $1,320,045 $ 82,342 $ 6,761 $ 89,103 $ 41,221 $ 47,882
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31,
1998
Under NASD Rule as Adopted........ $ 17,498 $ 1,094 $ 370 $ 1,464 $ 150 $ 1,314
<CAPTION>
ANNUAL
DISTRIBUTION
FEE AT CURRENT
NET ASSET
LEVEL(5)
---------------
<S> <C>
CLASS B SHARES FOR THE PERIOD
AUGUST 29, 1986 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1998
Under NASD Rule as Adopted........ $ 553
Under Distributor's Voluntary
Waiver.......................... $ 553
CLASS C SHARES, FOR THE PERIOD
OCTOBER 21, 1994 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31,
1998
Under NASD Rule as Adopted........ $ 10
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Includes amounts attributable to exchanges from Summit Cash Reserves Fund
("Summit") which are not reflected in Eligible Gross Sales. Shares of Summit
can only be purchased by exchange from another fund (the "redeemed fund").
Upon such an exchange, the maximum allowable sales charge payment to the
redeemed fund is reduced in accordance with the amount of the redemption.
This amount is then added to the maximum allowable sales charge payment with
respect to Summit. Upon an exchange out of Summit, the remaining balance of
this amount is deducted from the maximum allowable sales charge payment to
Summit and added to the maximum allowable sales charge payment to the fund
into which the exchange is made.
(3) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
(4) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to July
7, 1993 under the distribution plan in effect at that time, at a 0.75% rate,
0.50% of average daily net assets has been treated as a distribution fee and
0.25% of average daily net assets has been deemed to have been a service fee
and not subject to the NASD maximum sales charge rule. See "What are the
Fund's fees and expenses?" in the Prospectus. This figure may include CDSCs
that were deferred when a shareholder redeemed shares prior to the
expiration of the applicable CDSC period and invested the proceeds, without
the imposition of a sales charge, in Class A shares in conjunction with the
shareholder's participation in the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFASM) Program (the "MFA Program"). The CDSC is booked as a
contingent obligation that may be payable if the shareholder terminates
participation in the MFA Program.
(5) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum (with respect to Class B shares) or
the NASD maximum (with respect to Class B and Class C shares).
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in the
Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there will be no charge
for
29
<PAGE>
redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period during
which trading on the NYSE is restricted as determined by the Commission or the
NYSE is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the Commission as a result
of which disposal of portfolio securities or determination of the net asset
value of the Fund is not reasonably practicable, and for such other periods as
the Commission may by order permit for the protection of shareholders of the
Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending in part on the market value of the securities held
by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares deposited with the
Transfer Agent may be accomplished by a written letter requesting redemption.
Proper notice of redemption in the case of shares for which certificates have
been issued may be accomplished by a written letter as noted above accompanied
by certificates for the shares to be redeemed. Redemption requests should not be
sent to the Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are registered, signed
exactly as such name(s) appear(s) on the Transfer Agent's register. The
signature(s) on the redemption requests must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the existence and
validity of which may be verified by the Transfer Agent through the use of
industry publications. Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional documents such as, but not
limited to, trust instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed within seven
days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment (E.G., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment (E.G., cash, Federal funds or certified check drawn on a United States
bank) has been collected for the purchase of such Fund shares, which will not
exceed 10 days.
REPURCHASE
The Fund also will repurchase Fund shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase Fund
shares by wire or telephone from dealers for their customers at the net asset
value next computed after the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received, provided that the
request for repurchase is submitted to the dealer prior to fifteen minutes after
the regular close of business on the NYSE (generally, the NYSE closes at 4:00
p.m., Eastern time), and such request is received by the Fund from such dealer
not later than 30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 30 minutes after the close of business on the NYSE, in
order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
30
<PAGE>
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $5.35) to confirm a repurchase of shares
to such customers. Repurchases made directly through the Transfer Agent on
accounts held at the Transfer Agent are not subject to the processing fee. The
Fund reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem Fund shares as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares of the Fund
have a privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
Alternatively, the reinstatement privilege may be exercised through the
investor's Merrill Lynch Financial Consultant within 30 days after the date the
request for redemption was accepted by the Transfer Agent or the Distributor.
The reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
Reference is made to "How Shares are Priced" in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined
once daily Monday through Friday as of 15 minutes after the close of business on
the NYSE on each day the NYSE is open for trading. The NYSE generally closes at
4:00 p.m., Eastern time. Any assets or liabilities initially expressed in terms
of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The NYSE is not open for trading on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of the securities held by
the Portfolio plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the fees payable to the Manager and Distributor, are
accrued daily.
The per share net asset value of Class B, Class C and Class D shares
generally will be lower than the per share net asset value of Class A shares,
reflecting the daily expense accruals of the account maintenance, distribution
and higher transfer agency fees applicable with respect to Class B and Class C
shares, and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover, the per share net asset
value of the Class B and Class C shares generally will be lower than the per
share net asset value of Class D shares reflecting the daily expense accruals of
the distribution fees and higher transfer agency fees applicable with respect to
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes will tend to converge (although not
necessarily meet) immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Trustees as the primary market.
31
<PAGE>
Long positions in securities traded in the over-the-counter ("OTC") market are
valued at the last available bid price in the OTC market prior to the time of
valuation. Portfolio securities that are traded both in the OTC market and on a
stock exchange are valued according to the broadest and most representative
market. Short positions in securities traded in the OTC market are valued at the
last available ask price in the OTC market prior to the time of valuation. When
the Fund writes an option, the amount of the premium received is recorded on the
books of the Fund as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased by the Fund are valued at their last sale price in the
case of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Other investments, including financial futures
contracts and related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Trustees of the
Fund. Such valuations and procedures will be reviewed periodically by the
Trustees.
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net asset value.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund's net
assets and number of shares outstanding on December 31, 1998 is set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Assets.................................. $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Number of Shares Outstanding................ -- -- -- --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Asset Value Per Share (net assets
divided by number of shares
outstanding).............................. $ -- $ -- $ -- $ --
Sales Charge (for Class A and Class D
shares: 4.00% of offering price; 4.17% of
net asset value per share)*............... -- ** ** --
---------- ---------- ---------- ----------
Offering Price.............................. $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares --
Deferred Sales Charge Alternatives -- Class B and Class C Shares --
Contingent Deferred Sales Charges -- Class B Shares" and "-- Contingent
Deferred Sales Charges -- Class C Shares" herein.
PORTFOLIO TRANSACTIONS AND BROKERAGE
TRANSACTIONS IN PORTFOLIO SECURITIES
Subject to policies established by the Board of Trustees the Investment
Adviser is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. The Fund has no obligation to deal
with any dealer or group of dealers in the execution of transactions in
portfolio securities
32
<PAGE>
of the Fund. Where possible, the Fund deals directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere. It is the policy of the Fund to
obtain the best results in conducting portfolio transactions for the Fund,
taking into account such factors as price (including the applicable dealer
spread or commission), the size, type and difficulty of the transaction
involved, the firm's general execution and operations facilities and the firm's
risk in positioning the securities involved. The portfolio securities of the
Fund generally are traded on a principal basis and normally do not involve
either brokerage commissions or transfer taxes. The cost of portfolio securities
transactions of the Fund primarily consists of dealer or underwriter spreads.
While reasonable competitive spreads or commissions are sought, the Fund will
not necessarily be paying the lowest spread or commission available.
Transactions with respect to the securities of small and emerging growth
companies in which the Fund may invest may involve specialized services on the
part of the broker or dealer and thereby entail higher commissions or spreads
than would be the case with transactions involving more widely traded
securities.
Subject to obtaining the best net results, dealers who provide supplemental
investment research (such as information concerning tax-exempt securities,
economic data and market forecasts) to the Investment Adviser may receive orders
for transactions by the Fund. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under its Investment Advisory Agreement and the expense of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information. Supplemental investment research obtained from such
dealers might be used by the Investment Adviser in servicing all of its accounts
and all such research might not be used by the Investment Adviser in connection
with the Fund. Consistent with the Conduct Rules of the NASD and policies
established by the Trustees of the Fund, the Investment Adviser may consider
sales of shares of the Fund as a factor in the selection of brokers or dealers
to execute portfolio transactions for the Fund.
Information about the brokerage commissions paid by the Fund, including
commissions paid to Merrill Lynch, is set forth in the following table:
<TABLE>
<CAPTION>
AGGREGATE BROKERAGE COMMISSIONS PAID
FISCAL YEAR ENDED DECEMBER 31, COMMISSIONS PAID TO MERRILL LYNCH
- ------------------------------------------------------ ------------------- -----------------
<S> <C> <C>
1998.................................................. $-- $--
1997.................................................. $-- $0
1996.................................................. $-- $0
</TABLE>
For the fiscal year ended December 31, 1998, the brokerage commissions paid
to Merrill Lynch represented ____% of the aggregate brokerage commissions paid
and involved ____% of the Fund's dollar amount of transactions involving payment
of commissions during the year.
Under the Investment Company Act, persons affiliated with the Fund and
persons who are affiliated with such persons are prohibited from dealing with
the Fund as principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Commission. Since
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own accounts, affiliated persons of the
Fund, including Merrill Lynch and any of its affiliates, will not serve as the
Fund's dealer in such transactions. However, affiliated persons of the Fund may
serve as its broker in listed or over-the-counter transactions conducted on an
agency basis provided that, among other things, the fee or commission received
by such affiliated broker is reasonable and fair compared to the fee or
commission received by non-affiliated brokers in connection with comparable
transactions. In addition, the Fund may not purchase securities during the
existence of any underwriting syndicate for such securities of which Merrill
Lynch is a member or in a private placement in which Merrill Lynch serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Fund that either comply with rules adopted by the Commission or with
interpretations of the Commission staff.
Certain court decisions have raised questions as to the extent to which
investment companies should seek exemptions under the Investment Company Act in
order to seek to recapture underwriting and dealer
33
<PAGE>
spreads from affiliated entities. The Trustees have considered all factors
deemed relevant and have made a determination not to seek such recapture at this
time. The Trustees will reconsider this matter from time to time.
Section 11(a) of the Exchange Act generally prohibits members of the U.S.
national securities exchanges from executing exchange transactions for their
affiliates and institutional accounts that they manage unless the member (i) has
obtained prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with a statement
setting forth the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the Commission has
prescribed with respect to the requirements of clauses (i) and (ii). To the
extent Section 11(a) would apply to Merrill Lynch acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate consents have been obtained from
the Fund and annual statements as to aggregate compensation will be provided to
the Fund. Securities may be held by, or be appropriate investments for, the Fund
as well as other funds or investment advisory clients of the Investment Adviser
or FAM.
Because of different objectives or other factors, a particular security may
be bought for one or more clients of the Investment Adviser or an affiliate when
one or more clients of the Investment Adviser or an affiliate are selling the
same security. If purchases or sales of securities arise for consideration at or
about the same time that would involve the Fund or other clients or funds for
which the Investment Adviser or an affiliate act as investment adviser,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser or
an affiliate during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans and
instructions as to how to participate in the various services or plans, or how
to change options with respect thereto, can be obtained from the Fund, by
calling the telephone number on the cover page hereof, or from the Distributor
or Merrill Lynch. Certain of these services are available only to U.S.
investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gain distributions. The statements will also show any other activity
in the account since the preceding statement. Shareholders will also receive
separate confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestment of ordinary income dividends
and capital gains distributions. A shareholder with an account held at the
Transfer Agent may make additions to his or her Investment Account at any time
by mailing a check directly to the Transfer Agent. A shareholder may also
maintain an account through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
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Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or continue to
maintain an Investment Account at the Transfer Agent for those Class A or Class
D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new brokerage
firm to maintain such shares in an account registered in the name of the
brokerage firm for the benefit of the shareholder at the Transfer Agent. If the
new brokerage firm is willing to accommodate the shareholder in this manner, the
shareholder must request that he or she be issued certificates for his or her
shares and then must turn the certificates over to the new firm for
re-registration in the new brokerage firm's name.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash Reserves Fund
("Summit"), a series of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated for exchange by
holders of Class A, Class B, Class C and Class D shares of Select Pricing Funds.
Shares with a net asset value of at least $100 are required to qualify for the
exchange privilege and any shares utilized in an exchange must have been held by
the shareholder for at least 15 days. Before effecting an exchange, shareholders
should obtain a currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege is treated as a sale
of the exchanged shares and a purchase of the acquired shares for Federal income
tax purposes.
EXCHANGES OF CLASS A AND CLASS D SHARES. Class A shareholders may exchange
Class A shares of the Fund for Class A shares of a second Select Pricing Fund if
the shareholder holds any Class A shares of the second fund in his or her
account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second Select
Pricing Fund, but does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares
of the second fund as a result of the exchange. Class D shares also may be
exchanged for Class A shares of a second Select Pricing Fund at any time as long
as, at the time of the exchange, the shareholder holds Class A shares of the
second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund. Class D shares are
exchangeable with shares of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of other Select Pricing Funds or
Class A shares of Summit ("new Class A or Class D shares"), are transacted on
the basis of relative net asset value per Class A or Class D share,
respectively, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A or Class D shares and the
sales charge payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the "sales charge previously paid" shall
include the aggregate of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold on a no-load
basis in each of the funds offering Class A or Class D shares. For purposes of
the exchange privilege, Class A or Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D shares on which the
dividend was paid. Based on this formula, Class A and Class D shares generally
may be exchanged into the Class A or Class D shares, respectively, of the other
funds with a reduced sales charge or without a sales charge.
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EXCHANGES OF CLASS B AND CLASS C SHARES. Each Select Pricing Fund with
Class B or Class C shares outstanding ("outstanding Class B or Class C shares")
offers to exchange its Class B or Class C shares for Class B or Class C shares,
respectively, of another Select Pricing Fund or for Class B shares of Summit
("new Class B or Class C shares") on the basis of relative net asset value per
Class B or Class C share, without the payment of any CDSC that might otherwise
be due on redemption of the outstanding shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the new
Class B shares acquired through use of the exchange privilege. In addition,
Class B shares of the Fund acquired through use of the exchange privilege will
be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B or Class C shares of the fund from which the
exchange has been made. For purposes of computing the CDSC that may be payable
on a disposition of the new Class B or Class C shares, the holding period for
the outstanding Class B or Class C shares is "tacked" to the holding period of
the new Class B shares. For example, an investor may exchange Class B or Class C
shares of the Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special
Value Fund") after having held the Fund's Class B shares for two and a half
years. The 2% CDSC that generally would apply to a redemption would not apply to
the exchange. Three years later the investor may decide to redeem the Class B
shares of Special Value Fund and receive cash. There will be no CDSC due on this
redemption, since by "tacking" the two and a half year holding period of Fund
Class B shares to the three-year holding period for the Special Value Fund Class
B shares, the investor will be deemed to have held the Special Value Fund Class
B shares for more than five years.
EXCHANGES FOR SHARES OF A MONEY MARKET FUND. Class A and Class D shares are
exchangeable for Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of Summit have an
exchange privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B or Class C
shares of Select Pricing Funds and, in the event of such an exchange, the period
of time that Class B shares of Summit are held will count toward satisfaction of
the holding period requirement for purposes of reducing any CDSC and toward
satisfaction of any Conversion Period with respect to Class B shares. Class B
shares of Summit will be subject to a distribution fee at an annual rate of
0.75% of average daily net assets of such Class B shares. This exchange
privilege does not apply with respect to certain Merrill Lynch fee-based
programs for which alternative exchange arrangements may exist. Please see your
Merrill Lynch Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other Select Pricing
Funds into a money market fund were directed to certain Merrill Lynch-sponsored
money market funds other than Summit. Shareholders who have exchanged Select
Pricing Fund shares for shares of such other money market funds and subsequently
wish to exchange those money market fund shares for shares of the Fund will be
subject to the CDSC schedule applicable to such Fund shares, if any. The holding
period for the money market fund shares will not count toward satisfaction of
the holding period requirement for reduction of the CDSC imposed on such shares,
if any, and, with respect to Class B shares, toward satisfaction of the
Conversion Period. However, the holding period for Class B or Class C shares
received in exchange for such money market fund shares will be aggregated with
the holding period for the original shares for purposes of reducing the CDSC or
satisfying the Conversion Period.
EXCHANGES BY PARTICIPANTS IN THE MFA PROGRAM. The exchange privilege is
modified with respect to certain retirement plans which participate in the MFA
program. Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same fund on
the basis of relative net asset values in connection with the commencement of
participation in the MFA program, I.E., no CDSC will apply. The one year holding
period does not apply to shares acquired through reinvestment of dividends. Upon
termination of participation in the MFA program, Class A shares will be
re-exchanged for the class of shares originally held. For purposes of computing
any CDSC that may be payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so reacquired, the
holding period for the Class A shares will be "tacked" to the holding
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period for the Class B or Class C shares originally held. The Fund's exchange
privilege is also modified with respect to purchases of Class A and Class D
shares by non-retirement plan investors under the MFA program. First, the
initial allocation of assets is made under the MFA program. Then, any subsequent
exchange under the MFA program of Class A or Class D shares of a Select Pricing
Fund for Class A or Class D shares of the Fund will be made solely on the basis
of the relative net asset values of the shares being exchanged. Therefore, there
will not be a charge for any difference between the sales charge previously paid
on the shares of the other Select Pricing Fund and the sales charge payable on
the shares of the Fund being acquired in the exchange under the MFA program.
EXERCISE OF THE EXCHANGE PRIVILEGE. To exercise the exchange privilege, a
shareholder should contact his or her Merrill Lynch Financial Consultant, who
will advise the Fund of the exchange. Shareholders of the Fund, and shareholders
of the other MLAM-advised mutual funds with shares for which certificates have
not been issued, may exercise the exchange privilege by wire through their
securities dealers. The Fund reserves the right to require a properly completed
Exchange Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares to the general
public at any time and may thereafter resume such offering from time to time.
The exchange privilege is available only to U.S. shareholders in states where
the exchange legally may be made. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be distributed by
the Distributor.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"), may
permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon termination
of participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon the
current value of such shares. These Programs also generally prohibit such shares
from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(1-800-MER-FUND) or 1-(800)-637-3863.
RETIREMENT PLANS
Individual retirement accounts and other retirement plans are available from
Merrill Lynch. Under these plans, investments may be made in the Fund and
certain of the other mutual funds sponsored by Merrill Lynch as well as in other
securities. Merrill Lynch charges an initial establishment fee and an annual
custodial fee for each account. Information with respect to these plans is
available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100, and the minimum subsequent purchase is $1.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor) or
Class B, Class C or Class D shares at the applicable
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public offering price. These purchases may be made either through the
shareholder's securities dealer, or by mail directly to the Transfer Agent,
acting as agent for such securities dealer. Voluntary accumulation also can be
made through a service known as the Fund's Automatic Investment Plan. The Fund
would be authorized, on a regular basis, to provide systematic additions to the
Investment Account of such shareholder through charges of $50 or more to the
regular bank account of the shareholder by either pre-authorized checks or
automated clearing house debits. For investors who buy shares of the Fund
through Blueprint, no minimum charge to the investor's bank account is required.
Alternatively, an investor that maintains a CMA-Registered Trademark- or
CBA-Registered Trademark- account may arrange to have periodic investments made
in the Fund of amounts of $100 or more ($1 or more for retirement accounts) or
more through the CMA-Registered Trademark- or CBA-Registered Trademark-Automated
Investment Program.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Unless specific instructions are given as to the method of payment,
dividends and capital gains distributions will be automatically reinvested,
without sales charge, in additional full and fractional shares of the Fund. Such
reinvestment will be at the net asset value of shares of the Fund as of the
close of business on the NYSE on the monthly payment date for such dividends and
distributions. No CDSC will be imposed upon redemption of shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions.
Shareholders may, at any time, by written notification to Merrill Lynch if
their account is maintained with Merrill Lynch, or by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, if their account is maintained
with the Transfer Agent elect to have subsequent dividends or both dividends and
capital gains distributions, paid in cash, rather than reinvested in shares of
the Fund or vice versa (provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less, a shareholder
will not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the receipt by the
Transfer Agent of such notice, those instructions will be effected. The Fund is
not responsible for any failure of delivery to the shareholder's address of
record and no interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the shareholder's bank
account.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct deposit to
his or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have acquired
shares of the Fund having a value, based on cost or the current offering price,
of $5,000 or more, and monthly withdrawals are available for shareholders with
shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal payment
specified by the shareholder. The shareholder may specify the dollar amount and
the class of shares to be redeemed. With respect to shareholders who hold
accounts directly at the Transfer Agent, redemptions will be made at net asset
value as determined 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time) on the 24th day of each month or the 24th
day of the last month of each quarter, whichever is applicable. With respect to
shareholders who hold accounts with their broker-dealer, redemptions will be
made at net asset value as determined 15 minutes after the close of business on
the NYSE (generally, 4:00 p.m., New York time) on the first, second, third, or
fourth Monday of each month or the first, second, third, or fourth Monday of the
last month of each quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the close of business on
the following business day. The check for the withdrawal payment will be made,
on the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the
Investment Account are reinvested automatically in Fund shares. A shareholder's
Systematic Withdrawal Plan may be terminated at any time, without charge or
penalty, by the shareholder, the Fund, the Transfer Agent or the Distributor.
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With respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares that
can be redeemed from an account annually shall not exceed 10% of the value of
shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares --
Deferred Sales Charge Alternatives -- Class B and Class C Shares." Where the
systematic withdrawal plan is applied to Class B shares, upon conversion of the
last Class B shares in an account to Class D shares, the systematic withdrawal
plan will be applied thereafter to Class D shares if the shareholder so elects.
If an investor wishes to change the amount being withdrawn in a systematic
withdrawal plan the investor should contact his or her Financial Consultant.
Withdrawal payments should not be considered as dividends. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced correspondingly.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
The Fund will not knowingly accept purchase orders for shares of the Fund from
investors that maintain a Systematic Withdrawal Plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Automatic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA-Registered
Trademark-, CBA-Registered Trademark- Account or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA-Registered Trademark- or CBA-Registered Trademark-
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the shareholder's
account three business days after the date the shares are redeemed. All
redemptions are made at net asset value. A shareholder may elect to have his or
her shares redeemed on the first, second, third or fourth Monday of each month,
in the case of monthly redemptions, or of every other month, in the case of
bimonthly redemptions. For quarterly, semiannual or annual redemptions, the
shareholder may select the month in which the shares are to be redeemed and may
designate whether the redemption is to be made on the first, second, third or
fourth Monday of the month. If the Monday selected is not a business day, the
redemption will be processed at net asset value on the next business day. The
CMA-Registered Trademark- or CBA-Registered Trademark- Systematic Redemption
Program is not available if Fund shares are being purchased within the account
pursuant to the Automated Investment Program. For more information on the
CMA-Registered Trademark- or CBA-Registered Trademark- Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
DIVIDENDS
It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such investment income are paid monthly. All net realized
capital gains, if any, are distributed to the Fund's shareholders at least
annually. Premiums from expired call options written by the Fund and net gains
from closing purchase transactions are treated as short-term capital gains for
Federal income tax purposes. Shareholders may elect in writing to receive any
such dividends in cash. See "Shareholder Services -- Automatic Dividend
Reinvestment Plan" for information concerning the manner in which dividends may
be reinvested automatically in shares of the Fund. Dividends are taxable to
shareholders, as described below, whether they are invested in shares of the
Fund or received in cash. The per share dividends and distributions on Class B
and Class C shares will be lower than the per share dividends on Class A and
Class D shares as a result of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares;
similarly, the per share dividends and distributions on Class D shares will be
lower than the per share dividends on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See "Pricing of
Shares -- Determination of Net Asset Value."
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TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Fund so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the part
of its net ordinary income and net realized capital gains that it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Fund intends to distribute substantially all of such
income.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general on a October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses (including gains or losses from certain
transactions in warrants, futures and options) ("capital gain dividends") are
taxable to shareholders as long-term gains, regardless of the length of time the
shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund
shares held for six months or less will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset). Certain categories of capital gains are
taxable at different rates. Generally not later than 60 days after the close of
its taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any capital gain dividends, as well as any amount of
capital gain dividends in the different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions by the Fund, whether from ordinary
income or capital gains, generally will not be eligible for the dividends
received deduction allowed to corporations under the Code. If the Fund pays a
dividend in January that was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its shareholders on December 31 of the year in which such
dividend was declared.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent any sales charge paid to the Fund
reduces any sales charge the shareholder would have owed upon the purchase of
the new shares in the absence of the exchange privilege. Instead, such sales
charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period
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beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain conditions and limitations contained in the Code. For
example, certain retirement accounts cannot claim foreign tax credits on
investments in foreign securities held in the Fund. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend paid by the Fund only if the shareholder meets
certain holding period requirements. The Fund also must meet these holding
period requirements, and if the Fund fails to do so, it will not be able to
"pass through" to shareholders the ability to claim a credit or deduction for
the related foreign taxes paid by the Fund. If the Fund satisfies the holding
period requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them, and deduct such proportionate shares computing in their taxable
incomes or, alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, moreover, may be claimed
by noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject to
United States withholding taxes on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been paid
by such shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes and other information needed to claim
the foreign tax credit. For this purpose, the Fund will allocate foreign taxes
and foreign source income among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is consistent with the
Commission rule permitting the issuance and sale of multiple classes of stock)
that is based on the gross income allocable to the Class A, Class B, Class C and
Class D shareholders during the taxable year or such other method as the
Internal Revenue Service may prescribe.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, I.E., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. Application of these rules to
Section 1256 contracts held by the Fund may alter the
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timing and character of distributions to shareholders. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered into by
the Fund solely to reduce the risk of changes in price or interest or currency
exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options, futures
and forward foreign exchange contracts. Under Section 1092, the Fund may be
required to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options, futures and
forward foreign exchange contracts.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (I.E., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from future contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. Regulated futures contracts as
described above, will be taxed under Code Section 1256 unless application of
Section 988 is elected by the Fund. In general, however, Code Section 988 gains
or losses will increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in Fund shares
(assuming the shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of currency
fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
42
<PAGE>
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of investment in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield figures
are based on the Fund's historical performance and are not intended to indicate
future performance. Average annual total return and yield is determined
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data for various periods other than those
noted below. Such data will be computed as described above, except that (1) as
required by the periods of the quotations, actual annual, annualized or
aggregate data, rather than average annual data, may be quoted and (2) the
maximum applicable sales charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time. In order to reflect the
reduced sales charges in the case of Class A or Class D shares or the waiver of
the CDSC in the case of Class B or Class C shares applicable to certain
investors, as described under "Purchase of Shares" the total return data quoted
by the Fund in advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charge or may take into account the
waiver of the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses is deducted. The Fund's total return may be expressed either as a
percentage or as a dollar amount in order to illustrate such total return on a
hypothetical $1,000 investment in the Fund at the beginning of each specified
period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield of each security earned during the period by
(b) the average daily number of shares outstanding during the period that were
entitled to receive dividends multiplied by (c) the maximum offering price per
share on the last day of the period. The yields for the 30-day period ended
December 31, 1998, were as follows: Class A shares, %; Class B shares,
%; Class C shares, %; and Class D shares, %.
Total return and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return and yield will vary depending on market conditions, the securities
comprising the Fund's portfolio, the Fund's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The value
of an investment in the Fund will fluctuate, and an investor's shares, when
redeemed, may be worth more or less than their original cost.
43
<PAGE>
Set forth in the tables below is total return and yield information for the
Class A, Class B, Class C and Class D shares of the Fund for the periods
indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ---------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1998........ --% $ -- --% $ --
Five Years Ended December 31, 1998...... --% $ -- --% $ --
Ten Years Ended December 31, 1998....... --% $ -- --% $ --
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended December 31,
1998.................................... --% $ -- --% $ --
1997.................................... 1.19% $1,011.90 0.41% $1,004.10
1996.................................... 6.42% $1,064.20 5.60% $1,056.00
1995.................................... 13.39% $1,133.90 12.52% $1,125.20
1994.................................... (5.29)% $ 947.10 (6.01)% $ 939.90
1993.................................... 13.21% $1,132.10 12.36% $1,123.60
1992.................................... 7.83% $1,078.30 6.91% $1,069.10
1991.................................... 16.00% $1,160.00 15.23% $1,152.30
1990.................................... 15.64% $1,156.40 14.76% $1,147.60
1989.................................... 7.27% $1,072.70 6.45% $1,064.50
1988.................................... -- -- 3.82% $1,038.20
Inception (October 25, 1988) to December
31, 1988.............................. 2.66% $1,026.60 -- --
Year Ended December 31, 1987............ -- -- 22.85% $1,228.50
Inception (August 29, 1986) to December
31, 1986.............................. -- -- 3.93% $1,039.30
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 25, 1988) to December
31, 1998.............................. --% $ -- -- --
Inception (August 29, 1986) to December
31, 1998.............................. -- -- --% $ --
YIELD
30 Days Ended December 31, 1998......... --% -- --% --
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
------------------------------------- -------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ---------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended December 31, 1998........ --% $ -- --% $ --
Inception (October 21, 1994) to December
31, 1998.............................. --% $ -- --% $ --
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended December 31,
1998.................................... --% $ -- --% $ --
1997.................................... 0.33% $1,003.30 0.94% $1,009.40
1996.................................... 5.51% $1,055.10 6.05% $1,060.50
1995.................................... 12.44% $1,124.40 13.11% $1,131.10
Inception (October 21, 1994) to December
31, 1994.............................. (1.73)% $ 982.70 (1.62)% $ 983.80
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21, 1994) to December
31, 1998.............................. --% $ -- --% $ --
YIELD
30 Days Ended December 31, 1998......... --% -- --% --
</TABLE>
In order to reflect the reduced sales charges in the case of Class A or
Class D shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
the total return data quoted by the Fund in advertisements directed to such
investors may take into account the reduced, and not the maximum, sales charge
or may not take into account the CDSC, and, therefore, may reflect greater total
return since, due to the reduced sales charges or the waiver of CDSCs, a lower
amount of expenses may be deducted. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the J.P. Morgan Global
Government Bond Index or to performance data published by Lipper Analytical
Services, Inc., Morningstar Publications, Inc. ("Morningstar"), CDA Investment
Technology, Inc., MONEY MAGAZINE, U.S. NEWS & WORLD REPORT, BUSINESS WEEK,
FORBES MAGAZINE, FORTUNE MAGAZINE or other industry publications. When comparing
its performance to a market index, the Fund may refer to various statistical
measures derived from the historic performance of the Fund and the index, such
as standard deviation and beta. In addition, from time to time the Fund may
include the Fund's Morningstar risk-adjusted performance ratings in
advertisements or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
45
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund is a business trust organized on May 30, 1986 under the laws of
Massachusetts under the name "Merrill Lynch Retirement Global Bond Fund."
Following the commencement of operations, the Trustees of the Fund approved a
change in the Fund's fiscal year end from July 31 to December 31. On April 25,
1991, the Fund changed its name to "Merrill Lynch Global Bond Fund for
Investment and Retirement." The Trustees are authorized to issue an unlimited
number of full and fractional shares of beneficial interest, $.10 par value per
share, of different classes and to divide or combine the shares into a greater
or lesser number of shares without thereby changing the proportionate beneficial
interests in the Fund. At the date of this Statement of Additional Information,
the shares of the Fund are divided into Class A, Class B, Class C and Class D
shares. Class A, Class B, Class C and Class D shares represent interests in the
same assets of the Fund and are identical in all respects except that Class B,
Class C and Class D shares bear certain expenses relating to the account
maintenance associated with such shares and Class B and Class C shares bear
certain expenses relating to the distribution of such shares. All shares of the
Fund have equal voting rights. Each class has exclusive voting rights with
respect to matters relating to distribution and/or account maintenance
expenditures, as applicable (except that Class B shareholders may vote upon any
material changes to expenses charged under the Class D Distribution Plan). See
"Purchase of Shares." The Trustees may classify and reclassify the shares of the
Fund into additional or other classes at a future date.
There normally will be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Shareholders may, in accordance with the terms of the Declaration of
Trust, cause a meeting of shareholders to be held for the purpose of voting on
the removal of Trustees. Also, the Fund will be required to call a special
meeting of shareholders in accordance with the requirements of the Investment
Company Act to seek approval of new management and advisory arrangements, of a
material increase in distribution fees or a change in the fundamental policies,
objectives or restrictions of the Fund.
The shares of the Fund, when issued, will be fully paid and nonassessable,
have no preference, preemptive, conversion, exchange or similar rights and will
be freely transferable. Shareholders are entitled to redeem their shares as set
forth elsewhere herein and in the Prospectus. Shares do not have cumulative
voting rights and the holders of more than 50% of the shares of the Fund voting
for the election of Trustees can elect all of the Trustees if they choose to do
so and in such event the holders of the remaining shares would not be able to
elect any Trustees. No amendments may be made to the Declaration of Trust, other
than amendments necessary to conform the Declaration to certain laws or
regulations, to change the name of the Fund, or to make certain non-material
changes, without the affirmative vote of a majority of the outstanding shares of
the Fund, or of the affected class, as applicable.
The Declaration of Trust establishing the Fund dated May 30, 1986, a copy of
which, together with all amendments thereto (the "Declaration") is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name "Merrill Lynch Global Bond Fund for Investment and Retirement" refers
to the Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Fund shall be held to any personal liability; nor shall resort be
had to their private property for the satisfaction of any obligation or claim of
the Fund, but the "Trust Property" only shall be liable. Under Massachusetts
law, shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the trust's obligations. However, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
trust itself was unable to meet its obligations.
46
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540-6400,
has been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to approval by the non-interested Trustees of
the Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, 225 Franklin Street,
Boston, Massachusetts 02101 (the "Custodian"), acts as custodian of the Fund's
assets. Under its contract with the Fund, the Custodian is authorized to
establish separate accounts in foreign currencies and to cause foreign
securities owned by the Fund to be held in its offices outside the U.S. and with
certain foreign banks and securities depositories. The Custodian is responsible
for safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See "How to Buy, Sell,
Transfer and Exchange Shares -- Through the Transfer Agent" in the Prospectus.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 31 of each year. The Fund sends
to its shareholders, at least semi-annually, reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive Federal income tax
information regarding dividends and capital gains distributions.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Statement of Additional
Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of any class of the Fund's shares as of April , 1999.
Under a separate agreement, ML & Co. has granted the Fund the right to use
the "Merrill Lynch" name and has reserved the right to withdraw its consent to
the use of such name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted ML & Co., under certain
47
<PAGE>
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by ML & Co.
FINANCIAL STATEMENTS
The Fund's audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1998 annual report to
shareholders. You may request a copy of the annual report at no charge by
calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
48
<PAGE>
Code #10475-04-99
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1(a) -- Declaration of Trust of the Registrant, dated May 28, 1986.(a)
(b) -- Amendment to Declaration of Trust of the Registrant, dated July 7,
1987.(a)
(c) -- Amendment to Declaration of Trust of the Registrant, dated October 3,
1988.(a)
(d) -- Instrument establishing Class A shares and Class B shares of the
Registrant, dated October 3, 1988.(a)
(e) -- Amendment to Declaration of Trust of the Registrant, dated April 25,
1991.(a)
(f) -- Certification of Amendment to Declaration of Trust and Establishment
and Designation of Classes, dated October 17, 1994.(a)
2 -- By-Laws of the Registrant.(a)
3 -- Portions of the Declaration of Trust and the By-Laws of the Registrant
defining the rights of shareholders.(b)
4(a) -- Investment Advisory Agreement between the Registrant and Merrill Lynch
Asset Management, L.P.(a)
(b) -- Supplement to Investment Advisory Agreement between the Registrant and
Merrill Lynch Asset Management, L.P.(c)
(c) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset Management,
L.P. and Merrill Lynch Asset Management U.K. Limited.(e)
5(a) -- Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor.(a)
(b) -- Class B Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor.(a)
(c) -- Class C Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor.(a)
(d) -- Class D Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor.(a)
(e) -- Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund Advisor
Program.(c)
6 -- None.
7 -- Custody Agreement between the Registrant and State Street Bank and
Trust Company.(a)
8 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Financial Data Services,
Inc.(a)
9 -- Opinion of Brown & Wood LLP, counsel to the Registrant.(f)
10 -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
11 -- None.
12 -- Certificate of Merrill Lynch Asset Management, Inc.(a)
13(a) -- Amended and Restated Class B Distribution Plan and Class B Distribution
Plan Sub-Agreement of the Registrant.(c)
(b) -- Class C Distribution Plan and Class C Distribution Plan Sub-Agreement
of the Registrant.(a)
(c) -- Class D Distribution Plan and Class D Distribution Plan Sub-Agreement
of the Registrant.(a)
14(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
15 -- Merrill Lynch Select Pricing(SM) System Plan pursuant to Rule 18f-3.(d)
</TABLE>
- ------------------------
(a) Filed on April 28, 1995 as an Exhibit to Post-Effective Amendment No. 13 to
the Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (File No. 33-6091) (the "Registration Statement").
(b) Reference is made to Article I (Sections 1 and 2), Article II (Sections 1,
3, 4 and 7), Article III (Sections 1, 4, 9 and 10), Article IV, Article V
(Sections 1, 2, 3 and 5), Article VI (Sections 1, 2, 3, 4, 5, 7 and 8),
Article VII, Article VIII, Article IX, Article X, Article XI (Sections 2, 3,
4 and 5) and Article XII (Sections 3 and 6) of the Registrant's Declaration
of Trust, as amended, filed as Exhibits 1(a), 1(b), 1(c), 1(d), 1(e) and
1(f) to the Registration Statement; and Article I, Article V and Article VI
of the Registrant's By-Laws filed as Exhibit 2 to the Registration
Statement.
(c) Filed on April 29, 1994, as an Exhibit to Post-Effective Amendment No. 11 to
the Registration Statement.
(d) 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).
(e) Filed on April 28, 1997, as an Exhibit to Post-Effective Amendment No. 15 to
the Registration Statement.
(f) Previously filed as an Exhibit to the Registration Statement.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 25. INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief as
to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no Person may satisfy any right in indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in
C-2
<PAGE>
connection with indemnification under this Section 5.3, provided that the
indemnified person shall have given a written undertaking to reimburse the Trust
in the event it is subsequently determined that he is not entitled to such
indemnification."
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940, as amended, may be concerned,
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount which it is ultimately determined he is
entitled to receive from the Registrant by reason of indemnification; and (iii)
(a) such promise must be secured by a surety bond, other suitable insurance or
an equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party Trustees, or
an independent legal counsel in a written opinion, shall determine, based upon a
review of readily available facts that the recipient of the advance ultimately
will be found entitled to indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933
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 Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant and the prinicipal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses inccured or paid by a Trustee, officer, or
controlling person of the Registrant and the principal underwriter in connection
with the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. ("FAM") acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA
Governmental Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc.,
C-3
<PAGE>
MuniAsset Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Insured
Fund, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings
New Jersey Insured Fund III, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund II,
Inc., MuniHoldings New York Insured Fund III, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Investment Adviser"),
an affiliate of FAM, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill
Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund,
Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. and Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts
as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisor Trust.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-4
<PAGE>
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 1, 1997 for his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Burke is Vice President and Treasurer of
substantially all of the investment companies described in the first two
paragraphs of this Item 26, and Messrs. Giordano and Monagle are officers of one
or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------------ ---------------------------- ---------------------------------------------
<S> <C> <C>
ML & Co............................. Limited Partner Financial Services Holding Company; Limited
Partner of FAM
Princeton Services.................. General Partner General Partner of FAM
Arthur Zeikel....................... Chairman Chairman of FAM; President of FAM and MLAM
from 1977 to 1997; Chairman and Director of
Princeton Services; President of Princeton
Services from 1993 to 1997; Executive Vice
President of ML & Co.
Jeffrey M. Peek..................... President President of FAM; President and Director of
Princeton Services; Executive Vice President
of ML & Co.; Managing Director and Co-Head of
the Investment Banking Division of Merrill
Lynch in 1997; Senior Vice President and
Director of the Global Securities and
Economics Division of Merrill Lynch from 1995
to 1997
Terry K. Glenn...................... Executive Vice President Executive Vice President of FAM; Executive
Vice President and Director of Princeton
Services; President and Director of PFD;
Director of FDS; President of Princeton
Administrators
Donald C. Burke..................... Senior Vice President, Senior Vice President and Treasurer of FAM;
Treasurer and Director of Senior Vice President and Treasurer of
Taxation Princeton Services; First Vice President of
MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997
Michael G. Clark.................... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Director and
Treasurer of PFD; First Vice President of
MLAM from 1997 to 1999; Vice President of
MLAM from 1996 to 1997
Mark A. Desario..................... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Linda L. Federici................... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano................. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------------ ---------------------------- ---------------------------------------------
Michael J. Hennewinkel.............. Senior Vice President, Senior Vice President, Secretary and General
Secretary and General Counsel of FAM; Senior Vice President of
Counsel Princeton Services
<S> <C> <C>
Philip L. Kirstein.................. Senior Vice President Senior Vice President of FAM; Senior Vice
President; Director and Secretary of
Princeton Services
Ronald M. Kloss..................... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Debra W. Landsman-Yaros............. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Vice
President of PFD
Stephen M. M. Miller................ Senior Vice President Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr............... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Brian A. Murdock.................... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Gregory D. Upah..................... Senior Vice President Senior Vice President of FAM; Senior Vice
President and Treasurer of Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc.,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill
Lynch Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging
Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth
Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
Bond Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Fund,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y
9HA, England.
C-6
<PAGE>
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1997, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel and Albert are officers of one
or more of the registered investment companies listed in the first two
paragraphs of this Item 26:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITIONS WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------------ -------------------------------- -----------------------------------------
<S> <C> <C>
Arthur Zeikel....................... Director and Chairman Chairman of FAM and MLAM; President of
FAM and MLAM from 1977 to 1997; Chairman
and Director of Princeton Services;
President of Princeton Services from 1993
to 1997; Executive Vice President of ML &
Co.
Alan J. Albert...................... Senior Managing Director Vice President of MLAM
Nicholas C.D. Hall.................. Director Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group
Carol Ann Langham................... Company Secretary None
Debra Anne Searle................... Assistant Company Secretary None
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; and MLFD also acts as
the principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081, except
that the address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH PFD WITH REGISTRANT
- --------------------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
Terry K. Glenn............................... President and Director Executive Vice President
Michael G. Clark............................. Director and Treasurer None
Thomas J. Verage............................. Director None
Robert W. Crook.............................. Senior Vice President None
Michael J. Brady............................. Vice President None
William M. Breen............................. Vice President None
Donald C. Burke.............................. Vice President Vice President and Treasurer
James T. Fatseas............................. Vice President None
Debra W. Landsman-Yaros...................... Vice President None
Michelle T. Lau.............................. Vice President None
Salvatore Venezia............................ Vice President None
William Wasel................................ Vice President None
Robert Harris................................ Secretary Secretary
</TABLE>
C-7
<PAGE>
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the offices of
the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and its
transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484).
ITEM 29. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Fund -- Merrill
Lynch Asset Management" in the Prospectus constituting Part A of the
Registration Statement and under "Management of the Fund -- Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 26th day of February 1999.
<TABLE>
<S> <C> <C>
MERRILL LYNCH GLOBAL BOND FUND FOR INVESTMENT
AND RETIREMENT
(REGISTRANT)
By: /s/ DONALD C. BURKE
-----------------------------------------
(Donald C. Burke, Vice President and
Treasurer)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
ARTHUR ZEIKEL* President and Trustee
- ------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
Vice President and
DONALD C. BURKE* Treasurer (Principal
- ------------------------------ Financial and Accounting
(Donald C. Burke) Officer)
DONALD CECIL*
- ------------------------------ Trustee
(Donald Cecil)
RONALD M. MACHOLD*
- ------------------------------ Trustee
(Roland M. Machold)
EDWARD H. MEYER*
- ------------------------------ Trustee
(Edward H. Meyer)
CHARLES C. REILLY*
- ------------------------------ Trustee
(Charles C. Reilly)
RICHARD R. WEST*
- ------------------------------ Trustee
(Richard R. West)
EDWARD D. ZINBARG*
- ------------------------------ Trustee
(Edward D. Zinbarg)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DONALD C. BURKE
-------------------------
(Donald C. Burke, February 26, 1999
Attorney-in-Fact)
</TABLE>
C-9
<PAGE>
POWER OF ATTORNEY
The undersigned, a director of each of the Maryland corporations listed
below and a trustee of each of the Massachusetts business trusts listed below,
hereby authorizes Arthur Zeikel, Terry K. Glenn, Donald C. Burke, Barbara G.
Fraser, Phillip S. Gillespie, Robert Harris, Philip M. Mandel, Ira P. Shapiro or
Michael J. Hennewinkel, or any of them, as attorney-in-fact, to sign on his
behalf any amendments to the Registration Statement for each of the following
registered investment companies and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission: Merrill Lynch Americas Income Fund,
Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.; Merrill Lynch Dragon
Fund, Inc.; Merrill Lynch Emerging Tigers Fund, Inc.; Merrill Lynch EuroFund;
Merrill Lynch Global Allocation Fund, Inc.; Merrill Lynch Global Bond Fund for
Investment and Retirement; Merrill Lynch Global Holdings, Inc.; Merrill Lynch
Global SmallCap Fund, Inc.; Merrill Lynch Global Technology Fund, Inc.; Merrill
Lynch Global Value Fund, Inc.; Merrill Lynch Healthcare Fund, Inc.; Merrill
Lynch International Equity Fund; Merrill Lynch Latin America Fund, Inc.; Merrill
Lynch Middle East/Africa Fund, Inc.; Merrill Lynch Pacific Fund, Inc.; Merrill
Lynch Short-Term Global Income Fund, Inc.; Merrill Lynch Technology Fund, Inc.;
and Worldwide DollarVest Fund, Inc.
Dated: January 21, 1999
<TABLE>
<S> <C>
/s/ DONALD CECIL
------------------------------------------
(Donald Cecil)
/s/ ROLAND M. MACHOLD
------------------------------------------
(Roland M. Machold)
/s/ EDWARD H. MEYER
------------------------------------------
(Edward H. Meyer)
/s/ CHARLES C. REILLY
------------------------------------------
(Charles C. Reilly)
/s/ RICHARD B. WEST
------------------------------------------
(Richard B. West)
/s/ ARTHUR ZEIKEL
------------------------------------------
(Arthur Zeikel)
/s/ EDWARD D. ZINBARG
------------------------------------------
(Edward D. Zinbarg)
</TABLE>
C-10
<PAGE>
POWER OF ATTORNEY
The undersigned, the Vice President and Treasurer of each of the registered
investment companies listed below, hereby authorizes Arthur Zeikel, Terry K.
Glenn, Barbara G. Fraser, Phillip S. Gillespie, Robert Harris, Philip M. Mandel,
Ira P. Shapiro or Michael J. Hennewinkel, or any of them, as attorney-in-fact,
to sign on his behalf any amendments to the Registration Statement for each of
the following registered investment companies and to file the same, with all
exhibits thereto, with the Securities and Exchange Commission; Merrill Lynch
Americas Income Fund, Inc.; Merrill Lynch Developing Capital Markets Fund, Inc.;
Merrill Lynch Dragon Fund, Inc.; Merrill Lynch Emerging Tigers Fund, Inc.;
Merrill Lynch EuroFund; Merrill Lynch Global Allocation Fund, Inc.; Merrill
Lynch Global Bond Fund for Investment and Retirement; Merrill Lynch Global
Holdings, Inc.; Merrill Lynch Global SmallCap Fund, Inc.; Merrill Lynch Global
Technology Fund, Inc.; Merrill Lynch Global Value Fund, Inc.; Merrill Lynch
Healthcare Fund, Inc.; Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc.; Merrill Lynch Middle East/Africa Fund, Inc.; Merrill
Lynch Pacific Fund, Inc.; Merrill Lynch Short-Term Global Income Fund, Inc.;
Merrill Lynch Technology Fund, Inc.; and Worldwide DollarVest Fund, Inc.
Dated: January 22, 1999
<TABLE>
<S> <C>
/s/ DONALD C. BURKE
-------------------------
(Donald C. Burke)
</TABLE>
C-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10 Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
14(a) Financial Data Schedule for Class A shares.
14(b) Financial Data Schedule for Class B shares.
14(c) Financial Data Schedule for Class C shares.
14(d) Financial Data Schedule for Class D shares.
</TABLE>
C-12
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Global Bond Fund for Investment and Retirement:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 17 to Registration Statement No. 33-6091 of our report dated February 12,
1999 appearing in the annual report to shareholders of Merrill Lynch Global Bond
Fund for Investment and Retirement for the year ended December 31, 1998, and to
the reference to us under the caption "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
February 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000794220
<NAME> ML GLOBAL BOND FUND FOR INVESTMENT & RETIREMENT
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 175438327
<INVESTMENTS-AT-VALUE> 185392720
<RECEIVABLES> 4491637
<ASSETS-OTHER> 317567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190201924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2721040
<TOTAL-LIABILITIES> 2721040
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 215180594
<SHARES-COMMON-STOCK> 2721680
<SHARES-COMMON-PRIOR> 3019152
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36176794)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8477084
<NET-ASSETS> 26289236
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13423673
<OTHER-INCOME> 0
<EXPENSES-NET> (3055766)
<NET-INVESTMENT-INCOME> 10367907
<REALIZED-GAINS-CURRENT> 4640406
<APPREC-INCREASE-CURRENT> 7107890
<NET-CHANGE-FROM-OPS> 22116203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1440531)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 627002
<NUMBER-OF-SHARES-REDEEMED> (1006080)
<SHARES-REINVESTED> 81606
<NET-CHANGE-IN-ASSETS> (52709182)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (40817200)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1238792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3055766
<AVERAGE-NET-ASSETS> 25706809
<PER-SHARE-NAV-BEGIN> 9.12
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000794220
<NAME> ML GLOBAL BOND FUND FOR INVESTMENT & RETIREMENT
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 175438327
<INVESTMENTS-AT-VALUE> 185392720
<RECEIVABLES> 4491637
<ASSETS-OTHER> 317567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190201924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2721040
<TOTAL-LIABILITIES> 2721040
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 215180594
<SHARES-COMMON-STOCK> 11448978
<SHARES-COMMON-PRIOR> 17608631
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36176794)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8477084
<NET-ASSETS> 110619890
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13423673
<OTHER-INCOME> 0
<EXPENSES-NET> (3055766)
<NET-INVESTMENT-INCOME> 10367907
<REALIZED-GAINS-CURRENT> 4640406
<APPREC-INCREASE-CURRENT> 7107890
<NET-CHANGE-FROM-OPS> 22116203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6208193)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 712547
<NUMBER-OF-SHARES-REDEEMED> (7260424)
<SHARES-REINVESTED> 388224
<NET-CHANGE-IN-ASSETS> (52709182)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (40817200)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1238792
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3055766
<AVERAGE-NET-ASSETS> 128627553
<PER-SHARE-NAV-BEGIN> 9.12
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000794220
<NAME> ML GLOBAL BOND FUND FOR INVESTMENT & RETIREMENT
<SERIES>
<NUMBER> 003
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 175438327
<INVESTMENTS-AT-VALUE> 185392720
<RECEIVABLES> 4491637
<ASSETS-OTHER> 317567
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 190201924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2721040
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<NAME> ML GLOBAL BOND FUND FOR INVESTMENT & RETIREMENT
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